[Federal Register Volume 65, Number 169 (Wednesday, August 30, 2000)]
[Rules and Regulations]
[Pages 52814-52855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21770]



[[Page 52813]]

-----------------------------------------------------------------------

Part II





Department of Health and Human Services





-----------------------------------------------------------------------



Administration for Children and Families



45 CFR Parts 265 and 270



-----------------------------------------------------------------------



Bonus To Reward States for High Performance Under the TANF Program; 
Final Rule

  Federal Register / Vol. 65, No. 169 / Wednesday, August 30, 2000 / 
Rules and Regulations  

[[Page 52814]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 265 and 270

RIN 0970-AB66


Bonus To Reward States for High Performance Under the TANF 
Program

AGENCY: Administration for Children and Families, HHS.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Administration for Children and Families is issuing final 
regulations to implement section 403(a)(4) of the Social Security Act. 
This provision authorizes bonuses to high performing States in meeting 
the purposes of the Temporary Assistance for Needy Families Block Grant 
(the TANF program). We will base the bonus awards in FY 2002 and beyond 
on work measures (substantially the same work measures currently in 
effect for the FY 1999-2001 awards); measures that support work and 
self-sufficiency related to: participation by low-income working 
families in the Food Stamp Program, participation of former TANF 
recipients in the Medicaid and State Children's Health Insurance 
Programs (SCHIP), and receipt of child care subsidies; and a measure 
related to family formation and stability (increase in the number of 
children in the State who reside in married couple families).
    Bonus funds of up to $200 million each year were authorized for 
awards in fiscal years 1999 through 2003. This rule specifies a formula 
for allocating these funds in FY 2002 and FY 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, FY 2000, and FY 2001. We published a Notice of Proposed 
Rulemaking to cover awards beginning in FY 2002 on December 6, 1999 (64 
FR 68202).
    In a related regulatory action, we are amending 45 CFR Part 265, 
the TANF Data Collection and Reporting Requirements, to reduce the 
burden of reporting data on Separate State Program-Maintenance of 
Effort (SSP-MOE) programs. This amendment will allow waivers of certain 
reporting requirements under limited circumstances.

EFFECTIVE DATES: These regulations are effective Ocotber 30, 2000 
except for Section 270.4(e)(2)(ii), which requires an information 
collection that is not yet approved by OMB. We will publish an 
announcement in the Federal Register regarding the effective date of 
the additional data collection.

FOR FURTHER INFORMATION CONTACT: Sean Hurley, Director, Division of 
Data Collection and Analysis, Office of Planning, Research and 
Evaluation, ACF, at 202-401-9297. Mr. Hurley's e-mail address is: 
[email protected].
    This rule is accessible electronically via the Internet from the 
ACF Welfare Reform Home Page at http://www.acf.dhhs.gov/news/welfare.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Legislative Background.
    A. The Temporary Assistance for Needy Families Program.
    B. Summary of the Statutory Provisions Related to the High 
Performance Bonus Awards.
II. High Performance Bonus Awards in FY 1999, FY 2000, and FY 2001.
III. Summary of the Notice of Proposed Rulemaking.
IV. Overview of the Public Comments.
    A. Overview of Comments on the Work Measures.
    B. Overview of Comments on the Food Stamp and Medicaid/SCHIP 
Measures.
    C. Overview of Comments on the Family Formation Measure.
    D. Recommendations for the Inclusion of New Measures.
    E. Other Recommendations and Suggestions.
V. Summary of the Final Rule.
VI. Section-by-Section Discussion of the Rule and the Public 
Comments.
VII. Amendment to 45 CFR Part 265.
VIII. 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.
    G. Executive Order 13132.

I. Legislative Background

A. The Temporary Assistance for Needy Families Program

    Title I of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, Pub. L. 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.
    Title I also ``de-linked'' the eligibility for cash assistance and 
Medicaid benefits. Under the Medicaid amendments, a family's 
eligibility for Medicaid is based on whether the family would have been 
eligible under the State's prior AFDC plan.
    TANF replaced the national welfare program known as Aid to Families 
with Dependent Children (AFDC) that 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 final regulations to implement the 
work, penalties, and data collection provisions of the TANF program in 
the Federal Register on April 12, 1999 (64 FR 17720). These rules 
became effective October 1, 1999. We also published a number of other 
related regulations, including rules covering annual reports of State 
child poverty rates in relation to the TANF program (Notice of Proposed 
Rulemaking published September 23, 1998 (63 FR 50837)) and bonuses to 
reward States for decreases in out-of-wedlock births (final rule 
published April 14, 1999 (64 FR 18484)).
    The 1996 welfare reform law reflected 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, health care, and 
other supports that they need to protect their children as they move 
from welfare to work.
     Child support enforcement 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

[[Page 52815]]

calculated to accomplish the purpose'' of the new program. They have 
broad flexibility to set eligibility rules and decide what benefits are 
most appropriate.
    In short, they have the opportunity to try new, far-reaching 
changes that enable them to respond more effectively to the needs of 
families within their own unique environments.

B. Summary of the Statutory Provisions Related 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) of the Act to mean a State that is most successful in 
achieving the purposes of the TANF program as specified in section 
401(a) of the Act. These 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) of the Act 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 family 
assistance grant.
    Section 403(a)(4)(C) of the Act requires the Department to develop 
a formula for measuring State performance in consultation with the 
National Governors' Association (NGA) and the American Public Welfare 
Association, now known as the American Public Human Services 
Association (APHSA).
    Section 403(a)(4)(D) of the Act 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) of 
the Act also specifies that $1 billion (or an average total of $200 
million each year) will be awarded over five years, beginning in FY 
1999.

II. High Performance Bonus Awards in FY 1999, FY 2000, and FY 2001

    As we have done with all regulations related to the TANF program, 
we implemented a broad consultation strategy prior to our rulemaking. 
In addition, as required by section 403(a)(4)(C) of the Act, we 
consulted intensively with representatives of the NGA and the APHSA. We 
met with staff of these two national organizations as well as staff of 
the National Conference of State Legislatures (NCSL) and approximately 
30 State representatives who participated by regularly scheduled 
conference calls over a period of approximately nine months.
    We also consulted with a number of other audiences: researchers, 
data experts, and academics; other Federal and non-Federal agencies 
that 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.
    We would have preferred to set the formula for all years through 
rulemaking. However, 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 (for both the 
performance year and the comparison year used to measure improvement) 
in FYs 1997-1998, FYs 1998-1999, and FYs 1999-2000, in order to make 
awards in FY 1999, FY 2000, and FY 2001. Therefore, we issued program 
guidance covering the first three award years without the benefit of a 
formal rulemaking process. (For the program guidance for the awards in 
FY 1999, see TANF-ACF-PI-98-1 and TANF-ACF-PI-98-5 (Form ACF 200, OMB 
#1970-0180); for the guidance for the FY 2000 awards, see TANF-ACF-PI-
99-1; and for the guidance for the FY 2001 awards, see TANF-ACF-PI-99-
5.)
    The FY 1999 program guidance based the first-year bonus awards on 
four work measures, i.e., the job entry rate, the success in the work 
force rate (this is a combination of the job retention rate and the 
earnings gain rate), and improvement in each of these measures. We have 
based the FY 2000 and FY 2001 bonus awards on similar work measures.
    On December 4, 1999, the President announced three actions relating 
to the high performance bonus:
     The award of $200 million for the first-year bonus awards 
to 27 States with the best records in moving parents on welfare into 
jobs and subsequent success in the work force;
     The program guidance for the FY 2001 awards; and
     The publication of a Notice of Proposed Rulemaking (NPRM) 
covering awards in FY 2002 and beyond.
    According to the reports filed by the 46 States competing for the 
first-year bonus, nationwide more than 1.3 million adults on welfare 
went to work in the one-year period between October 1, 1997, and 
September 30, 1998. Retention rates were also promising: 80 percent of 
those who had gotten jobs were still working three months later. The 
States also reported an average earnings increase of 23 percent for 
welfare recipients (some of whom were now former recipients) from 
$2,088 in the first quarter of employment to $2,571 in the third 
quarter.
    The States ranked the highest in each category were Indiana (job 
entry), Minnesota (success in the work force, i.e., job retention and 
earnings), Washington (biggest improvement in job entry), and Florida 
(biggest improvement in success in the work force).
    The other States that received bonuses were: Arizona, California, 
Connecticut, Delaware, Hawaii, Illinois, Iowa, Louisiana, 
Massachusetts, Michigan, Nevada, New York, North Dakota, Oklahoma, 
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, 
Texas, Utah, West Virginia, and Wyoming. Eleven States received bonuses 
in two categories, and one State, Minnesota, was successful in three.
    In announcing these awards for FY 1999, we recognized that the 
award criteria did not necessarily identify all States that have 
implemented successful welfare reform strategies. For example, some 
States may have implemented exceptionally strong programs whose success 
was not captured by this award because of timing or the specific 
measures we used. In addition, although we awarded bonuses to the ten 
States with the highest scores in each measure, the performance scores 
for many other States were also high.

III. Summary of the Notice of Proposed Rulemaking

    We faced a significant challenge in developing a performance 
measurement system for the new TANF program. Although there is 
considerable activity underway in both the public and private sectors, 
performance measurement is a field that is still evolving. Our aim in 
developing the bonus award system was to reflect outcomes based on the 
purposes of the Act, propose a system as simple as possible to 
understand and administer, and incorporate the best information 
available.
    To provide context, in the NPRM, we included a discussion of some 
of the difficult and inter-related questions and issues with which we, 
and the groups

[[Page 52816]]

with which we had consulted, had struggled, e.g., general approach 
questions, short-term versus long-term strategies, formula and 
distribution issues, and issues relating to the design of measures and 
the availability of data sources.
    We also included a discussion of more specific issues related to 
TANF performance measurement, including issues around absolute 
performance and performance improvement and concerns about achieving a 
level playing field among States, and we discussed measures that we had 
considered and rejected. We also spoke about the difficulty of 
identifying appropriate measures without incurring new data collection 
responsibilities while relying, to the extent possible, on uniform, 
objective, and reliable State data; rewarding positive performance; and 
producing no unintended consequences.
    Finally, as an additional encouragement to focus public comment on 
specific alternative approaches, we raised a series of questions on 
major sections of the proposed rule.
    The consultations with NGA, APHSA, and others were very useful in 
helping us identify key issues, evaluate policy options, and develop 
both the program guidance for FY 1999, FY 2000, and FY 2001 and the 
Notice of Proposed Rulemaking. As a part of our consultations, NGA and 
APHSA developed a set of principles they believed should apply to a 
high performance bonus system. We found that these principles offered a 
positive framework for developing such a system and avoiding some 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 
Pub.L. 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.
    We published a Notice of Proposed Rulemaking (NPRM) on December 6, 
1999 (64 FR 68202). Since our initial consultations, we have held 
several additional formal and less formal discussions about TANF 
performance measures with States, State groups, and others. For 
example, on July 21, 1999, we invited States, advocates, researchers, 
and others to a day-long consultation on issues related to outcome and 
performance measurement related to the preparation of a ``Study and 
Report to Congress on Alternative Outcome Measures'' (section 107 of 
the Personal Responsibility and Work Opportunities Reconciliation Act). 
In addition, the core provisions of the NPRM were very similar to the 
measures, issues, and principles discussed in earlier consultations. 
Finally, we knew that the NPRM would provide an additional opportunity 
for public comment and believed it was important to move the 
regulations process forward.
    In summary, the NPRM proposed 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 and specified for use in FY 2001);
     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 of former TANF 
recipients in the Medicaid program and the State Children's Health 
Insurance Program (SCHIP);
     Use one of two possible alternative sets of data for the 
four work measures, including the National Directory of New Hires;
     Use the Census Bureau's decennial and annual demographic 
programs as the data sources for two of the three work support 
measures, i.e., the measure on family formation and stability and the 
measure on participation in the Food Stamp Program;
     Measure performance on Medicaid/SCHIP participation, 
through State matches of TANF data with data on Medicaid/SCHIP 
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), under which we would award $140 million to 
the work measures and $60 million to the work support measures:
     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; and
     Create an annual review process, as needed, if future 
modifications and technical changes are necessary.
    We took this approach for several reasons. First, we believed that, 
given the primary focus of the TANF program on work, we should continue 
to focus the rewards to States for their efforts in this area. The 
funds allocation we proposed reflected the importance we placed on 
State performance directed towards work, i.e., $140 million for work 
and $60 million for work support measures.
    Second, potential new data sources appeared to be available with 
respect to both the proposed work measures and the work support 
measures: i.e., the National Directory of New Hires would serve as a 
research data source and provide more comparable and reliable national 
work data; and data from the Census Bureau's decennial and annual 
demographic programs (e.g., the Supplementary Census 2000 Survey and 
the American Community Survey) would provide data sources for two of 
the three proposed non-work measures.
    In developing both the program guidance and the NPRM, the 
Department has been interested in utilizing a broad set of measures 
(i.e., other than direct work measures) that more fully reflect other 
purposes of the TANF program. States, Congress, national organizations, 
and experts have also recommended the inclusion of other measures. 
During 1997 and 1998, we worked to develop other measures, but we were 
unable to identify measures for which we had reliable data sources.
    Given the potential availability of the two new data sources, we 
proposed both work and work support measures. We strongly believe that 
Medicaid/SCHIP and Food Stamps are critical supports for many working 
families as they move towards self-sufficiency through employment. 
State performance to ensure that eligible families receive Food Stamps 
and Medicaid/SCHIP addresses two of the statutory purposes of the TANF 
program: Providing assistance to needy families so that

[[Page 52817]]

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/SCHIP and Food Stamps supports purpose 
two by helping make it possible for families to move off of welfare 
into employment, sustain that employment, and progress on the job to 
eventual full economic independence.
    In addition, the non-work measures reflected our concern that the 
lives of children and families, particularly low-income children and 
families, should be a focus of attention within the TANF program. We 
also believe that strong families are one of the key factors in 
developing and sustaining high levels of individual competence and 
functioning in our complex society. Thus, we concluded that States 
should be rewarded for their efforts in addressing family formation and 
the other purposes of the Act noted above.

IV. Overview of the Public Comments

    We received 130 comment letters, some with multiple signatures, 
from a wide range of national, State, and local entities and 
organizations, including: City and county governments; State human 
service agencies, and national organizations representing States, State 
legislatures, and State human service organizations; national and State 
children, family, and domestic violence advocacy and service 
organizations; national and local faith-based organizations; national, 
State, and local employment, housing, and legal advocacy organizations; 
national labor unions and a State labor agency; food and nutrition 
service and advocacy organizations; Members of Congress; a national 
foundation; and others.
    Some of the 130 individual comment letters were similar or 
identical to the more than 300 identical notecards we received as a 
result of a letter-writing campaign organized by a broad-based national 
coalition monitoring the effects of welfare reform.
    The major themes of the comments included the following:
     Most commenters supported the work measures, but a number 
made recommendations for substantive and technical changes.
     There was a division of opinion on the inclusion of the 
Food Stamp and Medicaid/SCHIP measures. For a number of reasons, States 
objected to the inclusion of these measures. Advocacy, service, and 
faith-based organizations strongly supported these measures, as did all 
of the Members of Congress who commented on the NPRM.
     Almost all commenters objected to the family formation and 
stability measure, although a few suggested modifications.
     A large number of commenters, primarily national advocacy 
organizations and three Members of Congress, recommended the addition 
of a new measure on child care.
     To a lesser extent, a number of organizations also 
recommended other new measures, including domestic violence measures 
and worker protection measures.
     Some commenters made recommendations for changes in the 
allocation of funds, although these comments did not present a 
consistent view. Many who supported the Medicaid/SCHIP and Food Stamp 
measures suggested substantial increases in the dollars for these 
measures and decreases in the dollars for the work measures, while 
national organizations representing States and State human service 
agencies recommended that all dollars go to the work measures.

A. Overview of Comments on the Work Measures

    With a few exceptions, commenters considered the work measures of 
job entry, job retention, and earnings gain to be the appropriate 
measures for assessing State performance in moving TANF recipients from 
welfare to work and self-sufficiency. At the same time, we received a 
number of substantive and technical suggestions on how we should modify 
these measures, e.g., establish a minimum level of earnings that would 
constitute employment; measure job retention and earnings gain over a 
longer time period; establish a separate measure of earnings gain 
(proposed as a combined job retention/earnings gain measure); measure 
performance improvement by percentage point change rather than 
percentage change; adjust performance scores by economic and 
demographic factors; and establish other threshold requirements, such 
as job placements above the poverty level. We address these comments in 
the section-by-section discussion below.
    The States, their representative organizations, and other 
commenters expressed strong support for the proposed work measures 
(substantially the same work measures that are used for the high 
performance bonus awards for FYs 1999-2001). We considered a range of 
suggested changes, both substantive and technical, but, given the level 
of support for the proposed work measures, we made only a few technical 
changes in the final rule. We have changed the way we calculate 
performance improvement, i.e., we will use the percentage point change 
rather than the percentage change. We have also removed the distinction 
on what kinds of subsidized jobs count under the work measures. In 
addition, we have added clarifying definitions in para.270.2 and 
incorporated other technical changes in para.270.5. We will consider 
adding an earnings threshold in the future, after further analysis and 
consultation with States and other interested individuals.
    In the NPRM, we also proposed that States report one of two 
alternative sets of data--either a minimal set of identifying 
information on adult TANF recipients, which we would match against data 
from the National Directory of New Hires (NDNH) at the Federal level, 
or a more extensive set of work performance data. We proposed the use 
of the NDNH in response to concerns that States raised about access to 
out-of-State and Federal employment data during our initial 
consultations and implementation of the FY 1999 bonus awards. States 
and other commenters were strongly supportive of the use of the NDNH.
    We agree that the use of the NDNH, matched with State data, will 
result in reduced burden for States and greater accuracy in 
implementing bonus awards. Therefore, in the final rule, we require 
States to report identifying information on adult TANF recipients that 
we will match with the NDNH data. We address these changes later in the 
section-by-section discussion of the rule.

B. Overview of Comments on the Food Stamp and Medicaid/SCHIP Measures

    The proposed rules contained two measures that focused on State 
efforts to provide critical supports needed by low-income working 
families. One measure looked at improvements in the percentage of 
families leaving TANF who were enrolled in Medicaid or SCHIP six months 
later. The second measure looked at improvement in the rate of food 
stamp participation for certain low-income working families. These two 
proposals generated extensive comments, which were highly diverse in 
nature.
    Because many commenters addressed these proposals together, and the 
comments on the two provisions were somewhat similar, this overview 
will address both provisions. However, there were also a variety of 
comments that spoke more directly to the separate proposals. You will 
find the discussion of these detailed and distinct comments

[[Page 52818]]

in the section-by-section analysis for Secs. 270.4(d) and 270.4(e).
    Comments: A significant majority of all commenters supported 
inclusion of the Medicaid/SCHIP and food stamp measures. Among the 
reasons cited were the importance of these benefits as work supports, 
particularly for families with entry-level employment; the negative 
consequences of the recent declines in these program caseloads; the 
ability of States to operate TANF in ways that facilitate food stamp 
and Medicaid participation by low-income families; and the value of 
encouraging States to take steps necessary to improve access. At the 
same time, a number of these commenters had suggestions for 
modifications to the proposals.
    These two proposals also drew a significant negative response, 
primarily from State agencies and organizations representing States. 
While generally agreeing that these programs provide important supports 
for low-income families, commenters raised a variety of philosophical, 
programmatic, administrative, and equity objections to including these 
measures as part of the high performance bonus. Philosophically, and 
particularly for the food stamp measures, some commenters indicated 
that the measures were inconsistent with TANF purposes, promoting 
dependency rather than self-sufficiency. In addition, State agencies 
objected to being held accountable, under a TANF provision, for serving 
families that were beyond the reach of the TANF program and for 
complying with requirements in other Federal programs. In the case of 
food stamp participation, in particular, they also objected to being 
held accountable when they lacked control over many program rules, and 
they could not spend TANF funds to pay for activities that are 
reimbursable under the Food Stamp Act. They expressed concern about the 
adequacy of national data, the equity of looking at annual improvement 
only from FY 2000 forward, the equity of applying annual improvement 
measures when some States had made significant efforts to improve 
access prior to the measurement period, and a variety of other issues.
    Response: We have decided to retain measures of Medicaid/SCHIP and 
food stamp participation in the final rule because we are committed to 
a high performance bonus system that rewards States not just for 
employment successes, but also for their efforts to support low-income 
families during their transitions. We believe these measures are 
consistent with, and support the statutory purposes of, TANF. By 
participating in Food Stamps and Medicaid or SCHIP, needy families 
receive the assistance they need to care for children in their homes 
(purpose one) and improve their chances of ending dependence on 
government benefits through work (purpose two). In fact, the bipartisan 
comments we received from Members of Congress on these measures 
uniformly supported their inclusion.
    In response to the technical and substantive concerns raised by the 
States and others, we very carefully considered all the suggestions for 
how to improve the measures and looked for ways to address the States' 
concerns. As you will find in the section-by-section analysis, we have 
made a number of changes that respond to the concerns. For example, we 
have made it more explicit that States may choose whether to compete on 
the Food Stamp measure (consistent with our approach for all the 
measures), dropped the ``qualifying conditions'' for both the Food 
Stamp and Medicaid/SCHIP measures (i.e., the threshold conditions that 
States had to meet in order to compete on these measures), added awards 
for absolute performance (not just improvement), and modified the 
improvement measure so that it is less biased towards States starting 
with a low level of performance in the comparison year.
    Also, we recognize State concerns about being held accountable for 
activities that are outside of TANF. However:
     Unlike prior law, under TANF, all the key statutory 
provisions regarding goals and responsibilities refer to the ``State'' 
rather than the ``State agency''; the concept of ``single State 
agency'' is gone; and all notifications go to the chief executive 
officer of the State, not the State agency. Thus, the statutory 
language suggests that it is appropriate for the high performance bonus 
to look more broadly at State performance rather than TANF State agency 
performance.
     The legislative history suggests that Congress intended 
that Food Stamps and Medicaid remain as part of the safety net for 
needy families affected by the TANF changes and that Congress was 
referring to welfare benefits when it included statutory language about 
reducing dependency on government benefits. More specifically, Congress 
did not modify the entitlement nature of Food Stamps and Medicaid when 
it repealed the entitlement to cash assistance. Further, in enacting 
sections 1925 and 1931 of the Act, Congress clearly intended that needy 
families would maintain eligibility for Medicaid benefits on the same 
basis as prior law (or a less restrictive basis). Indeed, the fact that 
Congress did not budget any savings for either the Medicaid or Food 
Stamp programs as the result of TANF indicates that it did not 
anticipate the declines in program participation that occurred in both 
programs, and it suggests that Congress did not intend for the declines 
to happen.
    Congressional interest in maintaining Food Stamps and Medicaid as 
part of the safety net is also suggested by the managers' statement 
which: (1) Refers to changes in the Food Stamp program, but does not 
suggest any TANF-related effects; (2) Refers to PRWORA as a 
``fundamental reform of welfare'' that ``promotes work over welfare'' 
[emphasis added]; and (3) speaks to not abandoning ``those Americans 
who truly need a helping hand'' and guaranteeing that children ``will 
continue to receive the support they need.'' This interpretation of 
Congressional intent also corresponds with the consistent bipartisan 
support we received in comments from Members of Congress on this issue.
     The statutory purposes of the TANF program reflect a broad 
view of the program that goes beyond families that are needy and 
receiving cash assistance.
     In most cases, the same State and local agencies are 
administering the TANF, Medicaid, and Food Stamp programs (or the TANF 
agency is making Medicaid eligibility determinations on behalf of the 
Medicaid agency), and a single caseworker is often responsible for 
determining eligibility and benefits in the three programs. Thus, in 
the course of administering the TANF program, TANF program managers 
often have the opportunity to work on eliminating barriers that may be 
deterring clients from seeking or retaining Medicaid or food stamp 
benefits.
    For example, they can work on clearing up client misunderstandings 
about the applicability of TANF requirements to other program benefits 
(e.g., believing there are food stamp and Medicaid time limits); 
ensuring that families served by TANF diversion programs have the 
opportunity to apply immediately for other benefits to which they are 
entitled; and ensuring that applications and notices are clear about 
the expectations of each program, the reasons why particular benefits 
are denied or terminated, and an individual's rights to pursue other 
benefits. They can also work to provide office hours, office locations, 
and cultural and language accommodations that are responsive to client 
needs and to minimize administrative requirements, such as reporting 
and face-to-face interviews, that might

[[Page 52819]]

discourage participation by eligible families.

C. Overview of Comments on the Family Formation Measure

    The proposed rules contained one non-work measure directed at the 
second and fourth statutory purposes of TANF--i.e., to end the 
dependency of needy parents by promoting marriage and encouraging the 
formation and maintenance of two-parent families. More specifically, 
based on Census Bureau data, the NPRM proposed to allocate $20 million 
of the annual high performance bonus award to the 10 States with the 
largest increase in the percent of children below 200 percent of 
poverty who reside in two-parent families.
    Comments: This proposal generated a significant number of comments 
and a largely negative reaction. While a few commenters commended our 
efforts to encourage State initiatives in this area, almost all who 
commented on this section expressed serious methodological and 
substantive concerns. Commenters noted that:
     States could earn awards based on bad outcomes, and thus 
the measure could have unintended negative effects.
     The measure fails to reward increases in marriage rates 
among families with higher incomes.
     Success in increasing marriage among single parents could 
inadvertently diminish a State's chances of receiving a bonus.
     This measure might also disadvantage those 10 or more 
States with State or local EITC programs.
    Among the philosophical objections were:
     The measure's focus on marriage as the one acceptable form 
of ``two-parent'' families, noting that TANF purpose four refers to 
two-parent families, not marriage;
     The measure's failure to recognize noncustodial parents 
and a variety of less traditional family structures or to recognize the 
value of strengthening families through means other than marriage;
     The appropriateness of promoting marriage, e.g., when 
there are contraindications such as domestic violence and substance 
abuse; and
     The appropriateness of engaging the government in 
decisions that are essentially personal and private.
    In addition, some commenters questioned our preamble justification 
of the measure by referring to research findings that being raised in a 
single-parent family did not, in and of itself, negatively affect 
children.
    Commenters also raised concerns about: (1) States being measured on 
something that seemed beyond their jurisdiction and control; (2) double 
jeopardy, e.g., based on the proposed measure's similarity to the out-
of-wedlock birth bonus; (3) the adequacy of Census data; and (4) the 
lack of a State option on whether to compete or not.
    We received some suggestions for changes to this measure or for 
alternative measures related to family formation. Two organizations 
suggested we might establish a competition and award bonuses based on 
innovative policy initiatives and program demonstrations, and one State 
suggested we evaluate individual State descriptions of their own 
initiatives in this area. Commenters also suggested that we consider 
marriage rates for the entire State population and reward only 
``noncoercive public education campaigns''; reward States for 
increasing the percentage of families receiving TANF cash assistance 
that are two-parent families; and add domestic violence provisions 
(either as threshold qualifying conditions or adjustments). A few 
commenters suggested, alternatively, that we could encourage States to 
reduce teen pregnancy.
    Response: Since our earliest consultations with NGA, APHSA, NCSL, 
and the State representatives, we have actively explored the best means 
for incorporating non-work measures in order to encompass the broad 
statutory purposes of TANF. We also have had a number of conversations 
with Congressional staff, advocates, academics, and others to seek 
suggestions for such measures.
    The proposed family formation measure in the NPRM reflected our 
best attempt to synthesize what we had heard and develop a measure that 
was feasible in light of the data that were available to us. While we 
recognized some of the measure's flaws, we hoped that proposal might 
either generate some useful suggestions for modifications that would 
improve it or present us with some viable alternatives.
    We seriously considered the suggestion to establish a panel-based 
competitive process that would reward innovative initiatives or 
demonstrations. However, we did not include it in the final rule 
because the approach is inconsistent with the statutory language at 
section 403(a)(4)(C)-(E), which clearly expects us to employ 
quantitative measures. Also, this approach seemed to move us away from 
focusing on outcomes. We also thought that, without specific 
quantitative standards, it would be extremely difficult to implement a 
system that was sufficiently objective and fair to serve as the basis 
for awarding millions of dollars a year.
    We are committed to the marriage and family formation purposes of 
the Act and believe it is important that these purposes, in addition to 
the work and work-related purposes, be addressed in the high 
performance bonus system. We also believe that it is important for us 
to help States focus on the non-work related purposes of the TANF 
statute. This measure is intended to provide an additional incentive 
for State activity and creativity in this area.
    Thus, we have retained a family formation measure in the final rule 
similar, but not identical, to the measure proposed in the NPRM. We 
agree with commenters who recommended a broader population measure, 
i.e., that we measure the increase in the percent of all children in 
each State who reside in married couple families, not just low-income 
children, and we have made this change in the final rule. We believe 
that this will address commenters' concerns that including a ceiling 
could produce unintended consequences. However, because the measurement 
issues associated with family formation are more significant than those 
for the work and work support measures, we have reduced the funding 
allocation for this measure to $10 million. The final rule specifies 
that, in FY 2002 and beyond, we will award $10 million to the ten 
States with the greatest percentage point improvement in this measure. 
We have also made clear that States may choose to compete on this 
measure (we will rank only those States that indicate that they wish to 
compete), emphasizing our overall policy that participation in the high 
performance bonus system is voluntary.
    We address comments more specifically in Part VI of the preamble 
regarding new Sec. 270.4(f).

D. Recommendations for the Addition of New Measures

    In the NPRM, we proposed not only specific measures for FY 2002 and 
beyond, but we discussed a number of other measures and data sources 
that we had considered but elected not to include for various reasons. 
We actively encouraged comments on all aspects of these measures and 
data sources and solicited recommendations for other measures and data 
sources that we might not have considered.
    Over one-half of the letters we received and all of the notecards 
offered suggestions for the inclusion of a range of new bonus measures, 
either as a

[[Page 52820]]

substitute for the family formation measure or as additional measures. 
Commenters discussed some measures in detail; others were mentioned as 
suggestions for future development. Some of the recommendations for new 
measures, e.g., child care, domestic violence, and child poverty, were 
among the measures we had discussed in the preamble to the NPRM, but 
had not included in the proposed rule.
    We appreciate the number of thoughtful, well-reasoned comments we 
received regarding new measures, as well as the detailed analysis and 
other information provided in support of the commenters' 
recommendations. We also appreciate commenters' commitment to the 
success of welfare reform, the focus on work and self-sufficiency, and 
the importance of the well-being of families and children.
    We gave considerable thought and attention to all recommendations 
for new measures, particularly where commenters had provided 
suggestions for further exploration and analysis. In evaluating 
measures and data sources, we based our deliberations on the NPRM and 
the final rule on the principles for a high performance bonus system 
developed by NGA and APHSA. We were at all times aware of the 
availability and sufficiency of data sources and wanted to avoid new 
data collection requirements and costs. We have been particularly aware 
of the issue of diversity among States and how that diversity might 
impact the design and implementation of a fair bonus system. Finally, 
we wanted the bonus system to remain as simple as possible to 
understand and administer and focus on (1) positive, not negative 
goals; and (2) outcomes, not processes.
    In light of the comments we received, we have added a child care 
measure in the final rule. We strongly agree with commenters that child 
care subsidies or assistance are essential supports for low-income 
families and a critical part of a successful welfare reform program. A 
child care measure was the one measure that received the strongest and 
most consistent support from commenters. It was also the one for which 
commenters offered the most concrete suggestions about how we might 
specify the measure. Supporters included a broad array of national, 
State, and local advocacy and service organizations, Members of 
Congress, and a number of individual commenters.
    We discuss the specific child care measure and respond to comments 
in Part VI of the preamble, ``Section-by-Section Discussion of the Rule 
and the Public Comments,'' Sec. 270.4(e). Following the discussion of 
the child care measure, we also respond to commenters' recommendations 
for other new measures.

V. Summary of the Final Rule

    We continue to be committed to a high performance bonus system that 
meets statutory requirements; reflects the principles developed by NGA 
and APHSA; is based on measurable outcomes using the most uniform, 
objective, and reliable data available; and offers States an 
opportunity to be recognized for their achievements in several areas.
    In making changes to the final rule, we seriously considered all 
concerns and recommendations of the commenters. We appreciate the 
thoughtful and detailed letters we received, and we particularly 
appreciate the sense of common goals, expressed directly or indirectly 
in the letters, focusing on both effective implementation of the TANF 
program and the economic self-sufficiency and well-being of families 
and children.
    We also paid attention to the concerns of States and State 
representative organizations, given the statutory provision on 
consultation with NGA and APHSA and the diversity of views on certain 
issues between States and a number of other commenters. We believe that 
the final rule takes a balanced approach to this diversity. We believe 
we have been responsive to, and incorporated a number of, State 
recommendations regarding ways of making the measures less burdensome 
and more workable; at the same time, we incorporated other provisions 
that were not generally supported by States but were supported by a 
very broad range of other commenters, e.g., retaining the Food Stamp 
and the Medicaid/SCHIP measures and adding a measure on receipt of 
child care. We discuss these changes and respond to specific comments 
in the detailed section-by-section discussion below. Briefly, however, 
the final rule:
    1. Awards bonuses to the ten States with the highest scores in the 
four work measures proposed in the NPRM, with minor modifications;
    2. Awards bonuses to the three States with the highest scores on a 
new absolute measure and the seven States with the highest scores on 
the proposed improvement measure related to the participation by low-
income working families in the Food Stamp Program;
    3. Awards bonuses to the three States with the highest scores on a 
new absolute measure and to the seven States with the highest scores on 
the proposed improvement measure related to the participation of former 
TANF recipients in the Medicaid and SCHIP programs;
    4. Awards bonuses to the ten States with the highest scores on a 
new child care measure and the family formation and stability 
improvement measure;
    5. Bases competition on the family formation and stability measure 
on a universal population, i.e., the increase in the percent of 
children in each State who reside in married couple families;
    6. Makes more explicit that States may choose any of the measures 
on which they wish to compete in order to conform the language of the 
proposed Food Stamp and family formation measures to the overall policy 
that participation is voluntary;
    7. Eliminates the qualifying conditions and qualifying options 
proposed in the NPRM for the Food Stamp and the Medicaid/SCHIP 
measures;
    8. Allots $140 million to the work measures, $20 million each to 
the Food Stamp and Medicaid/SCHIP measures, and $10 million each to the 
child care and family formation measures;
    9. Reduces the reporting burden on States by allowing waivers of 
the reporting requirements for SSP-MOE data under certain limited 
circumstances;
    10. Reduces the reporting burden on those States competing on the 
work measures by requiring only minimal identifying information on 
adult TANF recipients that we will use to match with NDNH data at the 
Federal level;
    11. Bases competition on the Food Stamp measure and the family 
formation and stability measure initially on the Census Bureau's Census 
2000 Supplementary Survey and the Census Long-Form Transitional 
Database and, later, on data from the American Community Survey;
    12. Bases competition on the Medicaid/SCHIP measure on State 
Medicaid/SCHIP data, matched with TANF data at the State level;
    13. Bases competition in FY 2002 on the child care measure, which 
focuses on child care accessibility (the percent of CCDF-eligible 
children receiving services), affordability (assessed family co-
payments), and child care quality (based on State reimbursement rates) 
using data States currently report to us under the CCDF program;
    14. Specifies the dates by which States must report data and other 
information to us;
    15. Clarifies the use of the bonus funds; and
    16. Makes technical and clarifying changes in the work measures, 
e.g., changes the way we calculate the

[[Page 52821]]

improvement measures from percentage change to percentage point change 
and drops the requirement that States identify those persons whose jobs 
are fully subsidized.

VI. Section-by-Section Discussion of the Final Rule and the Public 
Comments

Section 270.1  What Does This Part Cover?

    We received no comments on this section and have made no changes to 
it.

Section 270.2  What Definitions Apply to This Part?

    This section of the NPRM proposed a number of definitions used in 
this part.
    We have made several changes in this section: (1) We have updated 
the acronym and name of the CHIP (Children's Health Insurance Program) 
to SCHIP (State Children's Health Insurance Program); (2) we have 
defined the acronym ``CCDF'' as the Child Care and Development Fund; 
(3) we have added the words ``or the calendar year'' in the definition 
of ``performance year'' to indicate that, for the Food Stamp measure 
and the family formation measure, we will be comparing State 
performance based on a calendar year rather than a fiscal year; (4) we 
have moved the definition of ``improvement rate'' as proposed in 
Sec. 270.5(c) of the NPRM to this section; and (5) we have added a 
definition of ``absolute rate.'' We have added these last two 
definitions in this section for clarity and because these terms now 
apply to both the work measures and the work support measures.
    We received no comments on the definition of ``improvement rate,'' 
but we want to call attention to one change we have made in this 
definition and explain how it affects our ranking of States and making 
bonus awards. In the final rule, ``Improvement rate'' means the 
positive percentage point change between the absolute rate of 
performance in the performance year and the comparison year, except for 
the calculation and ranking of States on the increase in success in the 
work force measure in Sec. 270.5(a)(4). The definition proposed in the 
NPRM did not include an exception and would have prohibited us from 
considering a State with a negative score in one sub-measure in the 
increase in the success in the work force measure in the ranking 
process. For example, a State may have a negative score on one sub-
measure (e.g., job retention) and a positive score on the other sub-
measure (e.g., earnings gain). We did not want to exclude that State 
from the competition for a bonus. We have made corresponding changes in 
Sec. 270.5.
    We received the following comments on this section:
    Comment: One State asked that we add definitions for the terms 
``TANF eligible,'' ``employed recipient,'' and ``leaving TANF 
assistance,'' as these terms have different meanings across States.
    Response: We have not added definitions of these terms for several 
reasons. First, the term ``TANF eligible'' was used in the NPRM to 
describe qualifying conditions for the Food Stamp measure. These 
conditions have been dropped in the final rule. Second, the term 
``leaving TANF assistance'' is used in the description of the Medicaid/
SCHIP measure, but it is clear in the language of Sec. 270.4(d) that 
this term refers to persons no longer receiving TANF assistance. 
Finally, the term ``employed recipient'' is used in describing 
components of several of the work measures. We believe it is clear that 
employment connotes earnings or wages. Since we have not established a 
minimum earnings threshold, we believe it is not necessary to define 
this term.
    Comment: In commenting specifically on the definition of the terms 
``comparison year,'' ``fiscal year,'' and ``performance year,'' one 
commenter was concerned that these definitions, combined with the 
proposed work measures, resulted in a bonus system that penalizes those 
States that may have focused on these activities well before the first 
comparison year. For example, these definitions and our other proposals 
would penalize States that have achieved significant increases in 
health care coverage between the beginning of their welfare program and 
the comparison year, while providing an advantage to States that have 
started more slowly. (This is an example of the ``level playing field'' 
issue on which we received a number of comments.)
    This commenter recommended that we should base the health coverage 
measure on the States' overall efforts beginning with the effective 
date of the TANF program.
    Response: The ``level playing field'' issue is one that we and 
others have struggled with since the beginning of our consultations on 
establishing a high performance bonus system. We agree that the system 
in place for the awards in FYs 1999 through 2001 and specified in this 
final rule would not completely address the concerns of, and may 
disadvantage, some strong performers who initiated their welfare reform 
programs prior to FY 1997.
    However, we have made no change in the definitions in response to 
this comment. The statute specifies the ``bonus years'' for purposes of 
these awards as FYs 1999 through 2003, and we based bonus awards in FY 
1999 on a State's performance in FYs 1997 and 1998. We did not believe 
that measuring performance in earlier years was responsive to the 
requirement that awards reflect a State's performance under, and 
following the establishment of, the TANF program.
    Nevertheless, we have made two changes in the final rule that may 
help address concerns regarding a ``level playing field,'' i.e., we 
have added an absolute outcome measure in both the Food Stamp and the 
Medicaid/SCHIP measures and we have changed the way we calculate the 
improvement measure from percentage to percentage point change. (See 
Sec. 270.4(c) and (d).)

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

    In accordance with section 403(a)(4)(B)(ii) of the Act, we proposed 
that the amount payable to a State in a given bonus year will not 
exceed five percent of the State's family assistance grant (SFAG). We 
also published, as an Appendix to the NPRM, a list of the total amount 
of each State's SFAG and the amount equal to five percent of each 
State's SFAG.
    Comment: One State asked that we clarify whether the SFAG is the 
``present grant amount'' or the grant amount when the bonuses are 
awarded.
    Response: The statute and the TANF regulations (45 CFR 260.30) 
define the State family assistance grant (SFAG) as the amount of the 
basic block grant allocated to each eligible State under the formula at 
section 403(a)(1) of the Act. Thus, other TANF funds that a State may 
receive under section 403, e.g., bonus funds, contingency funds, and 
supplemental funds, are not a part of the SFAG. Neither would we reduce 
a State's bonus award based on reductions to the ``SFAG payable'' due 
to a penalty against the State. The amount of the State's SFAG as 
published in the Appendix to the NPRM is accurate and remains in effect 
until the statute changes.

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

    In the NPRM, we proposed in paragraph (a) of this section to award 
bonuses based on four work measures and three ``non-work'' measures. We 
proposed the work measures in paragraph (b) of this section. As we said

[[Page 52822]]

in the overview of comments on the work measures above, there was 
strong support for these measures, although we received a number of 
suggestions for substantive modifications and technical changes. We 
address these suggestions in the discussion of Sec. 270.5 and 
Sec. 270.6 below.

Section 270.4(c)  Measure of Participation by Low-Income Working 
Households in the Food Stamp Program

    Under the proposed food stamp outcome measure, we would 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 the minimum wage) receiving food stamps as a 
percentage of the number of low-income working families in the State, 
using the same definition. For any given year, we would compare a 
State's performance on the measure with its performance in the previous 
year, beginning with a comparison of calendar year (CY) 2000 to CY 
2001. We would rank all States and would award bonuses to the 10 States 
with the greatest percentage improvement in this measure. We proposed 
to allocate $20 million annually for the food stamp measure.
    We also proposed that, in order to compete on the food stamp 
outcome measure, a State must be in compliance with four qualifying 
conditions. The qualifying conditions proposed in the rule were the 
following:
    (1) 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).
    (2) 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).
    (3) 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).
    (4) 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.
    We proposed that the Food and Nutrition Service (FNS) of the U.S. 
Department of Agriculture would determine each State's compliance with 
the qualifying conditions, as a part of its ongoing oversight of the 
Food Stamp Program.
    As noted earlier in this preamble, the majority of total comments 
received on the food stamp outcome measure supported the proposed 
measure. However, for a number of reasons, almost all of the State 
commenters opposed the inclusion of the food stamp outcome measure. We 
have seriously considered all comments, particularly the concerns of 
States. We believe that we have addressed many, though not all, of 
their concerns in the final rule. We have also accepted recommendations 
made by other commenters.
    Briefly, we have made the following changes in Sec. 270.4(c) of the 
final rule:
    (1) Added an absolute performance measure;
    (2) Changed the award structure to grant bonuses to the three 
States that rank the highest on the absolute performance measure and 
the seven States that rank the highest on the improvement measure;
    (3) Changed the measured unit from ``families'' to ``households 
with children'';
    (4) Revised the improvement component to measure the percentage 
point improvement, rather than the percentage improvement, in the 
participation of low-income working households with children;
    (5) Dropped the qualifying conditions;
    (6) Made more explicit that competition on the measure is optional 
for States, to conform to the overall bonus policy that participation 
is voluntary; and
    (7) Clarified how we will deal with tie scores.
    We address the specific comments below.
    Comments: Some commenters claimed that awarding TANF high 
performance bonus funds based on a measure of food stamp performance 
exceeds the statutory authority of TANF. Others argued that the food 
stamp measure encourages continued dependence on government benefits 
and, thus, runs contrary to the second goal of the TANF program, which 
is to end the dependence of needy parents on government benefits by 
promoting job preparation, work, and marriage.
    Response: We disagree with the commenters who believe that awarding 
TANF bonus funds based on State performance in the Food Stamp Program 
exceeds the statutory authority of TANF. Section 403(a)(4) of the Act 
requires the Secretary of the Department of Health and Human Services 
to award bonuses to those States that are most successful in achieving 
the goals and purposes of the TANF program. As noted earlier in the 
preamble, we believe that State performance to ensure that eligible 
working families receive food stamps addresses 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.
    We recognize that a number of commenters felt that, far from ending 
the dependence of needy parents on government benefits, the food stamp 
outcome measure encourages dependence by encouraging States to assist 
working families to participate in the Food Stamp Program. We strongly 
disagree with this viewpoint. Ending the dependence of needy parents on 
government assistance requires successfully transitioning parents from 
welfare to work. Key to that successful transition is the Food Stamp 
Program. Food stamps provide needed nutritional benefits during that 
period when families are working but are not earning at the level that 
will enable them to achieve full self-sufficiency. In some cases, 
working parents may only be able to keep their jobs and feed their 
families because food stamps help them make ends meet.
    Comments: Some commenters opposed the food stamp outcome measure on 
the grounds that it does not take into account many factors that have 
contributed to the decline in food stamp participation, including 
policy changes that have affected the eligibility of single adults and 
non-citizens.
    Response: We recognize that many factors combined to cause the 
significant decrease in program participation experienced since 1996, 
not the least of which were a strong economy and new food stamp 
requirements that barred many non-citizens from participating in the 
program and imposed work requirements on able-bodied, childless adults. 
However, other factors also appear to be at work. Between 1995 and 
1998, food stamp participation fell three times as much as the fall in 
the number

[[Page 52823]]

of poor people, suggesting that many poor families have left the 
program despite their continuing eligibility. In 1999, participation 
continued to decline, although the rate of decline has slowed.
    Traditionally, the program has had lower participation rates among 
eligible low-income families who are not receiving cash assistance. 
This means that as more families move from cash assistance to work, we 
have begun to see a dramatic decline in the food stamp rolls even 
though many of these low-income families remain eligible for food 
stamps. The food stamp outcome measure is designed to provide States 
with an incentive to implement policies and procedures necessary to 
improve access to the program among working families.
    Comments: Some commenters felt that the food stamp measure 
effectively holds States responsible for overcoming obstacles to 
program participation that are established in Federal law and 
regulation. The commenters noted that strict eligibility requirements 
in the Food Stamp Program and Federal policies in effect restrict the 
number of families who can receive food stamps. The commenters believe 
that if the Administration is committed to expanding food stamp 
participation, it should take the necessary steps to amend the law and 
relax Federal regulations. They recommended relaxing reporting and 
verification requirements for working families, improving conformity 
between food stamp and TANF rules, and simplifying rules related to 
self-employment.
    Response: We recognize that complex Federal laws and regulations, 
as well as State policies and procedures, can prove to be a barrier to 
Food Stamp Program participation among working families. For their 
part, the United States Department of Agriculture (USDA) and the Food 
and Nutrition Service (FNS) have taken steps to simplify program rules 
and reduce administrative burdens on working families. In July 1999, 
the President announced a series of actions to help ensure working 
families' access to food stamps. These actions included: (1) Expanding 
categorical eligibility rules to make it easier for working families to 
own a car and still be eligible for food stamps; (2) so long as the 
household's eligibility is redetermined at least every six months, 
providing States the option to allow working households to report 
changes in their circumstances on a quarterly basis, report only 
changes in income of $100 or more a month, and report only when there 
is a change in a job, hours of work, or wage rate; and (3) raising the 
quality control threshold that establishes when a case is considered to 
be in error from $5 to $25.
    In addition, in a recently published proposed rule, Noncitizen 
Eligibility and Certification Provisions of Pub. L. 104-193, as amended 
by Public Laws 104-208, 105-33, and 105-185, (65 FR 10855), FNS 
proposed a number of provisions for further simplifying program rules 
and expanding State flexibility. The rule proposed the following: (1) 
Simplifying current verification requirements by removing overly 
prescriptive requirements for use of specific documents for 
verification; (2) allowing for the use of a simplified method of 
calculating self-employment expenses for certain specified types of 
businesses; and (3) establishing the ground rules for implementing the 
Simplified Food Stamp Program, under which States may determine food 
stamp benefit levels for households receiving TANF by using food stamp 
requirements, TANF rules, or a combination of the two.
    In regard to achieving better conformity between TANF and food 
stamps, FNS has tried to provide States with as much flexibility as 
possible in conforming food stamp rules to TANF requirements without 
compromising the food security of the low-income population the program 
serves. State efforts to conform food stamp rules with TANF rules need 
to recognize that the Food Stamp Program serves a large and diverse 
range of people, two-thirds of whom do not receive TANF assistance, 
i.e., primarily cash assistance.
    Comments: Some commenters believed that food stamp participation is 
not the appropriate variable for measuring a State's performance, given 
the fact that TANF benefit amounts and income disregards vary by State. 
In States with liberal disregards, a family's earnings plus TANF 
benefits may cause ineligibility for food stamps or reduce the food 
stamp benefit level to such a low amount that the family may conclude 
that it is not worth the effort to comply with certification 
requirements. Other commenters felt that the measure would reward 
States that place clients in low paying jobs or otherwise keep families 
below 130 percent of the Federal poverty level so that they may 
continue to qualify for food stamps.
    Response: We do not believe that the food stamp outcome measure 
disadvantages States with more liberal TANF programs. First, most State 
TANF assistance programs do not have eligibility standards that exceed 
130 percent of poverty. Second, if a State has more liberal disregards, 
food stamp eligible working households with children are more likely to 
continue receiving TANF assistance, and thus are more likely than other 
working households to be participating on the Food Stamp Program.
    Also, States should be focused on improving the food stamp 
participation rate among all low-income, working households with 
children, not just those receiving TANF assistance. There are many more 
low-income working households with children who are eligible for food 
stamps than there are TANF participants. Those States that will do the 
best in the improvement measure are not those who improve the food 
stamp participation rate the most among current or former recipients of 
TANF assistance. Rather, it will be those States that increase the food 
stamp participation rate the most among all low-income working 
households with children. Similarly, the absolute measure will reward 
States that serve the greatest percentage of low-income working 
households with children overall, not the most current or former TANF 
recipients.
    Comments: Some commenters felt that the food stamp outcome measure 
failed to take into account the restrictive rules of the Food Stamp 
Program. They noted that the only measure being used is income below 
130 percent of poverty, but income is not the only factor that must be 
measured in actually determining eligibility for the Food Stamp 
Program. The asset rules alone will make many low-income families 
ineligible.
    Response: Limitations in the Census Bureau data that we will use to 
measure States' performances on the food stamp outcome measure make it 
difficult to screen households for food stamp eligibility factors other 
than income. However, we do not believe that using income below 130 
percent of poverty as a proxy for food stamp eligibility disadvantages 
any State in the bonus competition. While it is true that, because of 
the food stamp asset test and non-financial eligibility tests, a 
State's ratio of working families participating in the Food Stamp 
Program to working families that are income eligible for the program 
may appear lower than it, in fact, is, this will be true for every 
State because the Food Stamp Program employs national eligibility 
criteria. Thus, no State should be disadvantaged in comparison to other 
States or to itself over time.
    Also, States can close the gap between the number of households 
that are only income eligible for food stamps and those that are 
actually eligible for the program by taking advantage of the

[[Page 52824]]

expanded categorical eligibility rules announced as part of the 
President's July 14, 1999 food stamp initiative. The new policy allows 
States to use their more generous TANF assets tests, including their 
vehicle tests, rather than the Food Stamp Program asset limits, in 
determining food stamp eligibility for families receiving or authorized 
to receive TANF benefits.
    Comments: Several commenters noted that while the food stamp 
outcome measure gauges the TANF program's effectiveness in enrolling 
working poor families in the Food Stamp Program, States are prohibited 
by law from spending TANF and MOE money for food stamp outreach. These 
commenters felt that it is unreasonable to hold a TANF program 
accountable for increases or decreases in the food stamp caseload when 
States cannot use TANF funds for food stamp outreach.
    Response: Section 16(k)(5) of the Food Stamp Act of 1977, as 
amended, prohibits States from using TANF or MOE funds to pay for food 
stamp costs that are eligible for reimbursement under the Food Stamp 
Act. This includes the cost of activities to inform low-income 
households about the availability, eligibility requirements, 
application procedures and benefits of the Food Stamp Program. However, 
although States may not spend TANF, or MOE, money on these activities, 
they may use other State money to fund these activities, and FNS will 
match the expenditures at the 50:50 rate. In addition, there are 
certain activities related to increasing food stamp participation that 
are not reimbursable under the Food Stamp Act and for which States can 
use TANF or MOE funds. These activities include recruiting individuals 
to participate in the Food Stamp Program, providing transportation to 
certification and issuance offices, and acting as an authorized 
representative.
    Comments: Several commenters noted that while the food stamp 
measure refers to ``families,'' food stamp receipt is by household, 
which may or may not match the conventional (TANF) definition of 
family.
    Response: We recognize that looking at families in the food stamp 
measures makes the measures somewhat incongruous with the Food Stamp 
Program, in which receipt is based on ``household.'' A family, defined 
as parent and child, may not match the food stamp household, which 
would include anyone that lives with the family and purchases and 
prepares meals with them.
    In the proposed food stamp outcome measure, a family that is 
included in the count of working families in a State that are income 
eligible for food stamps may not, because of the presence of another 
person in the home who purchases and prepares meals with the family, be 
in fact eligible for food stamps. This incongruity could cause the 
ratio of working families participating in the Food Stamp Program to 
families that are income eligible for the program in a State to appear 
lower than it in fact is.
    Because this would be true in all States, we do not believe that 
this incongruity creates a bias in favor of any State in the 
competition or affects over time comparisons within States. However, in 
the final rule, we have changed the measured unit in the food stamp 
measures from families to households in order to better align the 
measure with the Food Stamp Program. We have revised the proposed 
regulations at Sec. 270.4(c) to indicate that we will measure the 
number of low-income working households with children participating in 
the Food Stamp Program as a percentage of the number of low-income 
working households with children in the State.
    Comments: One commenter objected that the food stamp outcome 
measure effectively restores repealed Food Stamp Program client service 
requirements. The commenter noted that to effectively compete for a 
high-performance bonus under the Food Stamp Program measure, States 
must restore many client service requirements that were repealed by 
PRWORA. The commenter believed that HHS was using financial incentives 
as a trade-off for the flexibility and independence to operate local 
food stamp offices that was granted States under PRWORA.
    Response: In replacing specific client service requirements with 
the broad requirement that States establish procedures that best serve 
households, PRWORA directed States to take into account households with 
special needs. Included in this special needs category are working 
families. Therefore, beyond any desire to compete for TANF bonus funds, 
States have a responsibility to make the Food Stamp Program accessible 
to working families by implementing practices such as holding evening 
office hours and increasing the availability of application sites. 
Awarding TANF bonus funds based on State performance in serving working 
families, while primarily a recognition of the importance of food 
stamps to the overall success of welfare reform, is a means of 
providing States with an additional incentive to implement practices 
that will improve enrollment among a needy, yet difficult-to-serve, 
population.
    Comments: Some commenters believed that the food stamp measure was 
improperly designed and suggested alternative measures. A number of 
commenters felt that the proposed measure did not address the real 
issue--that families leaving the TANF rolls are not properly referred 
to and assisted in accessing food stamps, even though they may still be 
eligible. These commenters suggested that we re-design the measure to 
track food stamp receipt among former TANF recipients for the month 
following the end of TANF receipt to ensure continual access to the 
Food Stamp Program. Other commenters criticized the measure for not 
giving States credit for cases in which a family leaving TANF earns too 
much to qualify for food stamps.
    Response: Our interest in improving participation in the Food Stamp 
Program extends to all low-income, working families, not just those 
served by the TANF program. The majority of low-income working families 
that are eligible for food stamps have never participated in TANF. 
Also, many States refer eligible TANF recipients into diversion 
programs that provide them needed services and keep them off of the 
TANF program. The ability of these households to support themselves is 
vital to the success of welfare reform. Without food stamps, many of 
these families are in danger of going hungry; this could impact their 
ability to hold a job and to remain off of government cash assistance. 
The food stamp outcome measure provides States with an incentive to 
ensure that eligible former TANF recipients are properly referred to 
and assisted in obtaining food stamps. At the same time, it provides 
States with an incentive to improve access to the program for low-
income, working families who have never been served by the TANF 
program, but whose ability to achieve and sustain self-sufficiency is 
nevertheless critical to the success of welfare reform.
    Comments: Several commenters suggested that we should expand the 
food stamp measure to evaluate the improvement in participation among 
all low-income families in a State, not just those who are working.
    Response: While we recognize the importance of food stamps as a 
support for all low-income households, we believe that we should 
continue to focus the food stamp outcome measure on working poor 
families, given the focus on work in the TANF statute, including the 
second purpose of the program. Participation in the Food Stamp Program 
remains especially low among the working poor; in 1997, only 59

[[Page 52825]]

percent of individuals in households with employed adults who were 
eligible for food stamp benefits participated in the Food Stamp 
Program, compared to a participation rate of 63 percent overall. If 
welfare reform is to be a lasting success, States must increase the 
participation rate of low-income working families significantly. By 
restricting the food stamp outcome measure to working households with 
children, we can help States focus on improving access to food stamps 
for this hard-to-serve population. Thus, we have not made a change to 
the proposed regulation as a result of these comments.
    Comments: One commenter felt that it was inappropriate to limit 
bonuses to the top 10 States. The commenter recommended that we expand 
the number of States who could benefit from the performance bonus.
    Response: The bonuses are intended to reward those States that are 
the most successful in achieving the goals and purposes of the TANF 
program. We chose to limit the bonuses to the top 10 States in each 
performance measure in order to emphasize that the awards recognize the 
highest performance among States. Increasing the number of States 
eligible for a bonus under each measure would dilute the significance 
of the awards. For this reason, we have not made changes to the 
proposed rule.
    Comments: A number of commenters noted that the proposed food stamp 
performance measure, because it is a measure of improvement only, 
disadvantages States that are already doing a good job of encouraging 
Food Stamp Program participation among low-income working families. 
Some commenters requested that we expand the measure to recognize the 
progress made by States prior to the first year of the bonus awards and 
the progress made in prior years as the bonus moves from year to year. 
Other commenters suggested that we include a measure of absolute 
performance as well as an improvement measure. These commenters further 
suggested that we rank States separately on both the absolute and 
improvement measures and award bonuses to the top five States in each 
category.
    Response: We recognize the importance of rewarding States for both 
absolute performance and improvement in each high performance bonus 
category. Awarding bonuses for both absolute performance and 
improvement provides a way to ensure a more objective and fair 
competition, by allowing States that start from different baselines a 
reasonable chance to compete successfully for bonus money. Each of the 
four work measures has an absolute and improvement component. However, 
in the case of the food stamp outcome measure, because only $20 million 
is being allocated for the measure, we felt that dividing the bonus 
among 20 winners, 10 for the best performance and 10 for the most 
improved, would too greatly diminish the incentive the bonus would 
provide. We opted in the proposed rule, therefore, to make the food 
stamp outcome measure only a measure of improvement. Given the low 
participation rate of poor working families on the Food Stamp Program, 
we felt that it was more important to reward States that improve 
program access to this group than to reward States who are already 
doing a good job of serving them.
    Based on the comments we have received on the provision, however, 
we have decided to modify the food stamp outcome measure by adding a 
measure of absolute performance. This measure is designed to reward 
those States that, in a given year, demonstrate the very best 
performance in serving low-income working families. Under the outcome 
measure in the final rule, we will award $6 million in bonus funds to 
the three States that serve the highest percentage of low-income 
working households with children in the current year (the absolute 
measure) and award $14 million to the seven States that show the most 
improvement in performance from the previous year to the current year. 
We chose to reward more States for improving performance than for 
maintaining high overall performance because we wish to keep the 
emphasis of the bonus on improving service to low-income working 
households with children. We believe that this provision offers an 
effective compromise between rewarding States that currently do the 
best job of serving low-income working families and providing an 
incentive for other States to improve their performance. We have 
revised the proposed regulations at Sec. 270.4(c) to reflect these 
changes.
    Comments: Several commenters suggested that we revise the food 
stamp measure to measure the percentage point improvement, rather than 
the percentage improvement, in the participation of low-income working 
families. They noted that under the proposed measure, we would rank a 
State that increases food stamp participation from 5 percent to 10 
percent (100 percent improvement) higher than a State that increases 
participation from 30 to 45 percent (50 percent improvement).
    Response: We agree with the commenters that a fairer measure of 
improvement would be to measure the percentage point improvement rather 
than the percentage improvement in the participation of low-income 
working families. Therefore, we are modifying the food stamp 
improvement measure at Sec. 270.4(c) to reflect this change. This 
change is consistent with the change we made in the work improvement 
measure in Sec. 270.6.
    Comments: A commenter noted that the food stamp performance measure 
needs to have a method for dealing with tie scores similar to the 
method for the work measures.
    Response: We agree with the commenters and are revising the food 
stamp outcome measures in paragraphs (c)(1) and (c)(2) of this section 
to include a method for dealing with tie scores. We will use the same 
method for resolving tie scores for the food stamp measures as we use 
for the work and the Medicaid/SCHIP measures. We will calculate the 
percentage rate for the absolute performance measure to two decimal 
points. If two or more States have the same percentage rate for this 
measure, we will calculate the rates for these States to as many 
decimal points as necessary to eliminate the tie. Likewise, we will 
calculate the percentage rate for the improvement measure to two 
decimal points. If two or more States have the same percentage rate for 
this measure, we will calculate the rates for these States to as many 
decimal points as necessary to eliminate the tie.
    Comments: We received a number of comments related to the proposed 
qualifying conditions. Several commenters suggested that we strengthen 
the conditions. One commenter recommended that we require States to 
affirmatively demonstrate that their computer systems have been 
programmed so that when any TANF case closes, the food stamp case 
remains open until the worker makes an independent determination as to 
whether the household is still eligible for food stamps. Another 
commenter requested that States be required to notify the public that 
they are competing for a bonus related to food stamp participation and 
solicit comments on the extent to which agency practices are 
inconsistent with the qualifying conditions. The same commenter also 
recommended that HHS publish the preliminary determinations as to 
States' compliance and the basis for such conclusions, and seek 
comments from the public as to whether the determinations are accurate.
    A number of other commenters, however, recommended that we

[[Page 52826]]

eliminate the qualifying conditions. One commenter noted that FNS will 
not have the resources to undertake the new determinations and, as a 
result, will likely certify that States are in compliance based on 
incomplete information. If the agency did discover noncompliance with 
these policies at a later date, the earlier certification could 
interfere with administrative or legal actions the agency might wish to 
take.
    Other commenters noted that the conditions proposed in the rule are 
already requirements in the Food Stamp Act of 1977, as amended, and 
therefore are among the many factors already monitored for compliance 
by both the States and FNS. These commenters recommended that FNS allow 
States to self-certify their compliance with the conditions. Otherwise, 
they argue, FNS would need to redirect its limited staff resources and 
focus on the qualifying conditions, to the exclusion of other important 
State assistance and monitoring activities.
    Response: After carefully considering all of the comments received 
on the qualifying conditions, we have decided to remove these 
conditions from the food stamp outcome measure. While HHS and FNS both 
firmly believe that it would be inappropriate for a State to win bonus 
money related to improving food stamp participation among working poor 
families if they are not in compliance with the most basic rules and 
regulations that are designed to provide program access, FNS' ongoing 
compliance activities will not necessarily be compatible with the 
timing of the high performance bonus awards. FNS already monitors State 
compliance with the four qualifying conditions, and the Food Stamp 
Program already contains appropriate remedies for addressing compliance 
issues. In addition, the qualifying conditions are so basic to 
maintaining good program access for working families that States that 
fail to meet them will likely not perform well in the bonus 
competition.
    Although we are removing the qualifying conditions from the food 
stamp outcome measure, State compliance with those requirements, and 
with other legal and regulatory provisions related to program access, 
remains a high priority with FNS. For example, FNS has released two 
program access guides, one for working families and another for elderly 
and disabled households, that are designed to assist State policy 
makers and others in understanding what the food stamp statute and 
regulations require of States in terms of food stamp eligibility 
application processing, recertification, notice and appeal rights, 
among other matters. In addition, FNS is conducting customer service 
access reviews in every State that are designed to identify barriers to 
program participation, including problems stemming from noncompliance 
with the program's legal and regulatory requirements. By the end of FY 
2000, FNS will have completed between one to three access reviews in 
every State. Beyond FY 2000, FNS intends to make customer service 
access reviews a permanent part of its oversight of the Food Stamp 
Program.
    Comments: We received a number of comments on our proposal to use 
Census Bureau decennial and annual demographic program data in ranking 
State performance on the food stamp measure. Many commenters expressed 
concern as to the reliability of Census Bureau data. They noted that, 
in the past, Census Bureau data have provided misleading information 
regarding food stamp participation when compared to actual State data. 
Also, they felt that, while using Census Bureau data simplifies setting 
the baseline, it could rapidly become outdated based on population 
growth in States, resulting in an inability to award State bonus funds 
accurately and appropriately. Many commenters wondered why we did not 
simply use State administrative data, which is more reliable and would 
match the method for tracking Medicaid and SCHIP enrollment.
    Response: The food stamp outcome measure examines changes in the 
ratio of the number of working households with children in a State that 
participate on the Food Stamp Program to the number of working 
households with children in the State that are income eligible for the 
program. State administrative data can only provide us with the number 
of working families in a State that are participating in the Food Stamp 
Program. They cannot tell us the total number of families in the State 
who are income eligible for the program. The only data source that can 
provide us that information is Census Bureau data.
    We recognize there are problems inherent in using existing Census 
Bureau data sources for awarding TANF bonus funds. However, we hope to 
avoid many of the pitfalls identified by commenters by using new Census 
Bureau surveys. We will use the annual State estimates produced by the 
Census Bureau from its annual household survey program, beginning with 
the Census 2000 Supplementary Survey and transitioning to the Census 
Bureau's American Community Survey by 2004.
    Comment: One commenter asked that we publicize baseline information 
from the Census data used to determine State performance on the food 
stamp measure on all States so States will know what current data show 
and how they stand in relation to other States.
    Response: We intend to release the baseline Census data, as well as 
other data relevant to the performance and rankings of competing 
States.
    Comments: Some commenters noted that Census data would identify 
noncitizens as part of the low-income population potentially eligible 
for food stamps. However, they may not in fact be eligible for the 
program. The commenters noted that this would disadvantage States with 
significant noncitizen populations and suggested that we factor such 
noncitizen groups out of the outcome measure calculation or add a 
provision to the measure to count State-funded food stamp recipients 
toward a State's overall percentage of low-income working families 
receiving food stamp benefits.
    Response: Based on our most recent available data, almost 85 
percent of households participating in the Food Stamp Program in 1995 
that contained a noncitizen also contained at least one citizen child. 
Thus, the majority of the noncitizen households identified as part of 
the low-income working population eligible for food stamps in a State 
would contain at least one member who is eligible for food stamps. We 
recognize that households containing eligible children, but ineligible 
parents, can be an extremely difficult population to serve. However, if 
we were to exclude these households from the food stamp outcome 
measure, we would be providing States no incentive for improving access 
to these needy children and families.
    Also, we have not included State-funded food stamp recipients in 
the count of a State's number of low-income working families receiving 
food stamps. Many of the individuals served in the State-funded program 
who have citizen children will already be included in the count of food 
stamp participating households. The majority of the remaining 
participants in the State-funded programs will be individuals without 
children who will not be included in the count of the number of low-
income working households eligible for food stamps in the State.
    Comments: Several commenters felt that, regardless of whether they 
intend to compete in the non-work measures, States should be required 
to provide data on their progress in the food stamp outcome measures as 
a prerequisite to competing in the work measures.
    Response: As noted above, the data source for the food stamp 
outcome

[[Page 52827]]

measure will be Census data, not administrative data submitted by 
States. ACF and FNS, therefore, will have data on every State's 
performance on the food stamp outcome measure, regardless of whether or 
not a State chooses to compete on the measure. However, this 
information will not be used to restrict a State's ability to compete 
on the work measures.
    Comments: One commenter felt that the food stamp measure should 
include both quantitative and qualitative components, especially 
worker-client relationship evaluations and customer satisfaction. The 
commenter believed that many of the barriers to participation in the 
food stamp and Medicaid programs are attributable to caseworker 
attitudes. More training and encouragement from the State agency could 
reverse this trend, thus increasing enrollment.
    Response: Including qualitative components in the food stamp 
outcome measure, such as worker evaluations and reports on client 
satisfaction, would diminish our ability to rank States quickly and 
objectively. In addition, we are concerned that increasing 
administrative burdens on States by requiring them to collect and 
report such data would likely deter them from competing on the 
measures. We also believe the recommended new components would be 
process, not outcome, measures.
    Finally, improving customer service is a vital component to 
increasing participation among low-income working families in the Food 
Stamp Program. States that wish to realistically compete for the food 
stamp related bonus will have to improve their customer service 
standards along the lines discussed in USDA's food stamp access guide, 
``The Nutrition Safety Net at Work for Families: A Primer for Enhancing 
the Nutrition Safety Net for Workers and Their Children,'' published in 
1999. Therefore, we are making no changes to the proposed rule.
    Comments: Two commenters noted that the Economic Research Service 
(ERS) of the USDA is conducting research into the reasons families may 
not participate in the Food Stamp Program. These commenters felt that 
participation by low-income families in the Food Stamp Program should 
not be part of the TANF high performance bonus system until ERS 
completed this research and specific barriers are identified and 
resolved at the national program level.
    Response: ERS is funding a study on Food Stamp Program access and 
declining participation. The study will examine the impact of local 
food stamp office policies and practices on food stamp participation. 
However, data collection for the study will not begin until Fall 2000, 
and a final report is not due until Winter 2001. While we expect the 
report to provide us with greater insight into the practices and 
policies of local offices that may deter individuals from applying for 
food stamps, we see no reason to wait two years to provide States with 
a fiscal incentive to begin removing barriers to participation. There 
are steps that States can take today to improve program access. We 
included a listing of best practices for serving working families in 
the proposed rule. They are also contained in USDA's publication ``The 
Nutrition Safety Net at Work for Families: A Primer for Enhancing the 
Nutrition Safety Net for Workers and Their Children.''

Section 270.4(d)  Measure of Participation By Low-Income Families in 
the Medicaid/SCHIP Programs

    In the proposed rule, we included a non-work measure related to 
Medicaid/SCHIP that would reward State efforts to support work, self-
sufficiency and the well-being of low-income families. This measure 
looked at improvement in the percentage of TANF families who were 
enrolled in Medicaid or SCHIP at the time they lost TANF and who are 
enrolled in Medicaid or SCHIP six months later. We chose this approach 
because nearly all of these families leaving TANF are likely to be 
eligible for a minimum of six months of transitional Medicaid under 
section 1925 of the Act or to qualify for Medicaid under other 
eligibility groups. In addition, there have been reports from consumer 
advocates and State and national studies indicating that many eligible 
families are losing Medicaid benefits when they leave TANF. While there 
may be a number of outside forces contributing to the decline in 
Medicaid enrollment, e.g., a strong economy, changes in public attitude 
toward welfare, we believe the challenges presented States by the 
delinking of cash assistance from Medicaid have also contributed to the 
decline. This proposed measure focused on how well States are providing 
Medicaid to eligible families who lose TANF. We believe that continued 
health insurance coverage is crucial to families making the transition 
from welfare to self-sufficiency, and we expect States to achieve a 
high rate of Medicaid and SCHIP participation among this population in 
order to be considered high performers.
    We considered an outcome measure that would capture State 
performance in enrolling and retaining all eligible families and 
children in Medicaid and SCHIP, regardless of their former or current 
welfare status. However, we limited the outcome measure to individuals 
leaving TANF assistance because:
    (1) States have a clear responsibility for serving these families 
under PRWORA; and
    (2) welfare ``leaver'' studies and other studies on program 
participation indicated that these families frequently were not being 
served.
    While a broader population measure would be consistent with a goal 
of expanding health coverage and have the positive effect of 
encouraging States to enroll eligible individuals who are diverted from 
TANF assistance or who do not apply for TANF assistance, the proposed 
measure was more directly related to the goals and purposes of TANF, as 
well as title I of PRWORA. Also, with no national data source on health 
coverage for low-income families, we believed that the focus on TANF 
``leavers'' would result in a smaller reporting burden and in the 
collection of more accurate and consistent information by States. It, 
thus, should produce fairer comparisons in assessing State performance.
    In the NPRM, we also proposed certain qualifying conditions, based 
on requirements in Medicaid law and regulations, that States must meet 
before competing for an award in the Medicaid/SCHIP measure. Those 
qualifying conditions were:
    (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

[[Page 52828]]

SCHIP data submissions, and having the MSIS on-line and operating 
properly.
    We proposed these qualifying conditions because we did not believe 
that a State that is out of compliance with basic program requirements 
should be eligible for a bonus related to Medicaid and SCHIP 
participation.
    In addition to complying with the qualifying conditions, we 
proposed that applicant States must meet at least two qualifying State 
options. We believe that States exercising these options are likely to 
increase enrollment of eligible families and, therefore, would perform 
better on the outcome measure. The proposed programmatic options were:
    (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(b) 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.
    We proposed that those States that met the qualifying conditions 
and options would be eligible to compete for the bonus award based on 
their performance under the outcome measure. Specifically, the outcome 
measure would assess Medicaid and SCHIP participation among persons 
whose TANF assistance cases were closed in the calendar year who also 
were enrolled in Medicaid or SCHIP at the time of case closure. The 
measure of State performance would be the percentage of such 
individuals who are enrolled in Medicaid or SCHIP six months after 
leaving TANF and who are not currently receiving TANF assistance in 
that month. We proposed to compare a State's performance to its 
performance in the previous year, beginning with a comparison of CY 
2000 to CY 2001, and to award bonuses to the 10 States with the 
greatest percentage improvement in this measure. We proposed to 
allocate $20 million annually for this measure.
    We received a significant number of comments from States objecting 
to the Medicaid measure. We received a larger number of comments from 
other individuals and organizations, including national advocacy 
organizations and Members of Congress, in support of the Medicaid 
measure. Some States objected based on philosophical grounds while 
others objected for programmatic, administrative and equity reasons. 
Those commenters supporting the inclusion of a Medicaid measure cited 
the importance of Medicaid to low-income working families and referred 
to several recent studies on the declines in Medicaid caseloads where 
individuals, particularly children, were eligible for Medicaid or SCHIP 
benefits. (See ``Overview of Comments in the Food Stamp and Medicaid/
SCHIP Measures'' in Part IV above.)
    Briefly, in response to the comments, we have made the following 
changes in the final rule:
     Added an absolute performance measure;
     Changed the award structure to grant bonuses to the three 
States that rank the highest on the absolute performance measure and 
the seven States that rank the highest on the improvement measure;
     Revised the improvement measure to measure the percentage 
point improvement, rather than the percentage improvement, in 
participation;
     Changed the six-month time frame to a four-month time 
frame;
     Dropped the qualifying conditions and qualifying options;
     Required that States competing on these measures submit 
data on a fiscal year, rather than a calendar year, basis; and
     Clarified how we would deal with tie scores.
    In addition, based on our own review and analysis, we have revised 
the regulatory text at Sec. 270.4(d) to clarify that the denominators 
of the Medicaid/SCHIP measures exclude individuals who are receiving 
TANF at the time of follow-up (i.e., the fourth month after leaving).
    Below, we summarize the comments we received and our responses.
    Comment: Most commenting States objected to the inclusion of 
Medicaid as a performance measure. They stated that including the 
Medicaid measure is at odds with the TANF goal to decrease dependence 
on Government benefits and is not specific to the TANF program. 
Specifically, they argued that:
     The measure is inappropriate because it unfairly rates the 
success of TANF on the State performance in other programs;
     The high performance bonus awards should not be used to 
enforce Medicaid law;
     Including Medicaid shifts the focus away from work and the 
TANF population; and
     It is not an outcome measure of the number of former TANF 
customers who are better off, but instead a process measure of the 
number of enrollees in another government program.
    Commenters supporting inclusion of the Medicaid measure viewed 
Medicaid as a critical support to low-income working families; in view 
of the declines in the Medicaid rolls after passage of welfare reform, 
they noted that the measure looks to reward State improvements in 
increasing Medicaid and SCHIP participation.
    Response: We believe that Medicaid is a vital support to low-income 
working families and the provisions in this regulation will measure 
overall State performance in achieving the TANF goal of promoting job 
preparation and work. In addressing this comment earlier in the section 
entitled ``Overview of Comments on the Food Stamp and Medicaid/SCHIP 
Measures,'' we gave many reasons why we believe the inclusion of the 
Food Stamp and Medicaid/SCHIP measures is appropriate. In this 
response, we expand on those thoughts, particularly as they relate to 
the Medicaid measure.
    The commenters are correct that one of the goals under section 
401(a) of the Act is to end welfare dependence by promoting job 
preparation, work, and marriage. However, States can best promote self-
sufficiency through job preparation and work by providing the support 
systems, such as health insurance coverage, that are essential to 
families during their transition from welfare to work.
    As noted by several commenters, there have been many studies that 
indicate the need for Medicaid coverage while families make this 
transition. A January 2000 Urban Institute study found that more than 
one-third of women and nearly one out of five children are uninsured 
within the first six months of leaving welfare. State studies of 
families that have left TANF are also finding that at least 20% of 
children and the majority of parents are no longer receiving Medicaid 
(see

[[Page 52829]]

``Participation in Welfare and Medicaid Enrollment,'' Kaiser Family 
Foundation, 1998). A May 1999 Families USA study found that over two-
thirds of a million low-income individuals lost Medicaid coverage and 
became uninsured as of 1997 due to welfare reform.
    In enacting section 114 of PRWORA, Congress clearly intended to 
preserve Medicaid coverage for low-income families whose parents left 
welfare and went to work if they needed health care coverage and 
otherwise qualified for Medicaid. Congress preserved the health care 
safety net because it considers Medicaid a critical support for working 
families who might otherwise have no health insurance.
    We do not believe that the fact that Medicaid may be administered 
by an agency other than the agency principally responsible for TANF is 
a reason for not including Medicaid enrollment as a measure in this 
high performance bonus regulation. As we stated earlier, it is more 
appropriate to view the high performance bonus as an award for State, 
not State agency, performance. TANF funds are used by many State and 
local agencies to accomplish the goals of the TANF legislation; indeed, 
the TANF block grant opens up new opportunities for additional agencies 
and nongovernmental organizations to get involved in the administration 
of the TANF program and the delivery of TANF benefits and services. It 
also provides new incentives for improved State and local interagency 
cooperation and cross-program efforts to encourage work and self-
sufficiency.
    TANF and Medicaid are closely related whether or not the programs 
are administered jointly by the State. Inclusion of a Medicaid outcome 
measure as part of the high performance bonus award is not an attempt 
to enforce Medicaid law, but rather to measure a State's overall 
success in serving low-income families leaving welfare. We believe that 
we should use the high performance bonus to encourage and recognize 
State efforts to effectively coordinate TANF and Medicaid program 
operations and reduce or eliminate barriers to ongoing Medicaid 
coverage for eligible families leaving TANF. Inclusion of a Medicaid 
performance measure provides focus on how well a State is achieving the 
goals of TANF and further meets congressional intent to provide support 
services while ending dependence on cash assistance.
    Comment: Several commenters objected to including the qualifying 
conditions and the qualifying options in the NPRM. The commenters 
argued that these conditions appeared too controlling and that the high 
performance bonus does not provide an appropriate vehicle for HCFA to 
evaluate whether a State is in compliance with the qualifying 
conditions. Other commenters also questioned whether the high 
performance bonus was an appropriate vehicle for evaluating or 
verifying State compliance with HCFA requirements. One commenter 
recommended that we offer programmatic options to States as suggestions 
for improving their performance.
    A number of other commenters supported inclusion of the qualifying 
conditions and options, but recommended modifications. The specific 
suggestions included one to strengthen the qualifying conditions by 
requiring States to ``affirmatively demonstrate compliance'' and others 
to strengthen the qualifying options by requiring that States adopt a 
higher number of the seven qualifying options.
    Response: We proposed the qualifying conditions based on the 
philosophy that States out of compliance with related Federal 
requirements should not be eligible for a bonus. We also believed that 
States meeting the qualifying options would perform better on the 
outcome measure. However, we recognize that the inclusion of the 
qualifying conditions and options conflicts with the NGA/APHSA 
principle that a high performance bonus system should focus on outcomes 
rather than process.
    In addition, we have concluded that the bonus award system is not 
the appropriate vehicle by which to evaluate or certify State 
compliance with Federal Medicaid requirements. For example, at the time 
we are making the high performance awards, we might not have completed 
a recent assessment of all State programs or there might be a potential 
compliance issue pending with one State that cannot be resolved in a 
short enough timeframe. Thus, we agree that it would be more 
appropriate to address such issues through ongoing Federal oversight of 
State Medicaid programs and a vigorous agenda of technical assistance 
and guidance. Therefore, we are dropping the qualifying conditions and 
qualifying options from the final rule.
    Among the significant activities in the Department's agenda to 
resolve Medicaid enrollment issues are the following:
     Reviews of all State Medicaid programs, primarily during 
the summer and fall of 1999, to assess compliance with Medicaid 
requirements and to advise States when corrective actions are 
necessary;
     Issuance of additional program guidance to State Medicaid 
Directors clarifying the expectations that apply (e.g., the April 7, 
2000, letter that addressed expectations with respect to 
reinstatements, redeterminations, and computer systems modifications);
     Development and distribution of thousands of copies of a 
guide entitled Supporting Families in Transition: A Guide to Expanding 
Health Coverage in the Post-Welfare Reform World, which explains the 
basic rules for Medicaid eligibility under the PRWORA amendments;
     Development and distribution of special guides for State 
and local partners in the child care and Head Start communities to 
promote their participation in enrollment efforts;
     Issuance of guidance encouraging States to use the $500 
million made available to help them provide outreach and address 
administrative changes related to delinking development and 
distribution;
     Issuance of a TANF guidance (in the form of a guide 
entitled ``Helping Families Achieve Self-Sufficiency: A Guide of 
Funding Services for Children and Families through the TANF Program'') 
making clear that States may use TANF funds to ``provide outreach 
activities that will improve access of needy families to medical 
benefits under the Medicaid and [S]CHIP programs'';
     In cooperation with the Robert Wood Johnson Foundation, 
interdepartmental support for the ``Supporting Families'' initiative to 
assist 22 sites in assessing and resolving barriers to initial and 
continuous participation in Medicaid and SCHIP. (Six of these sites 
will look at food stamp issues as well);
     Related contract support for development of a literature 
review and ``promising practices'' report to provide background 
information and technical assistance for all States; and
     Meetings with State agencies to discuss access issues of 
general concern.
    Comment: Several States disagreed with the six-month time frame in 
the outcome measure, primarily because tracking families who leave TANF 
for six months would impose a significant burden on States. Also, data 
collection is problematic because SCHIP is a stand-alone agency in many 
States; States cannot always match the Medicaid records to TANF records 
(e.g., because the case composition may be different under the two 
programs); and some States do not have social security numbers for all 
SCHIP participants to

[[Page 52830]]

match with TANF records. Commenters generally suggested limiting the 
time frame to the month following the month that families leave TANF. 
One other commenter suggested that States also demonstrate that 
families accessed health care services.
    Response: We had proposed the six-month time frame because most 
families who leave TANF are eligible for six months of transitional 
Medicaid or for ongoing Medicaid under other eligibility categories. We 
also believed that States could easily identify these cases. However, a 
time frame shorter than six months may reduce the tracking burden on 
States because families will presumably have undergone fewer changes in 
this shorter time period, and case management information may be more 
useful. For example, there should be fewer families that have moved out 
of State or that have experienced significant changes in family 
composition. At the same time, we believe that the recommended one-
month time frame is too short. Our concern is that some States may 
carry Medicaid coverage for one month after TANF benefits are 
terminated for systems reasons; thus, a one-month coverage period would 
not fairly assess whether policies and systems were in place to ensure 
ongoing Medicaid coverage for eligible families.
    We are revising the final regulation at Sec. 270.4(d) to reduce the 
measurement period in both the absolute measure and the improvement 
measure from six months to four months. We believe that a four-month 
time frame better accommodates States' concerns about tracking and the 
availability of case management information while still providing a 
reasonable time frame for assessing Medicaid or SCHIP participation by 
individuals in families who leave TANF. Also, the four-month time frame 
accommodates families that receive Medicaid extensions based on 
increased child support collections since this form of transitional 
benefit only lasts four months.
    Most families who leave TANF are eligible for Medicaid through 
transitional Medicaid, under section 1931 of the Act, or under the 
medically needy or poverty level groups. Because families eligible 
under Medicaid must enroll in Medicaid rather than SCHIP, the instances 
under which children will be eligible for coverage under a separate 
SCHIP program are greatly limited. States can use methods such as case 
identifiers to match SCHIP and TANF cases in those instances.
    We have also required that States competing on these measures 
submit their information on a fiscal year, rather than a calendar year 
basis as we proposed in the NPRM. We are changing to reporting semi-
annually on a fiscal year basis for ease of processing the information 
and to parallel the requirements for reporting information for the work 
measures.
    Comment: Several commenters responded to our invitation to comment 
on our decision to limit the outcome measure to individuals leaving 
TANF assistance, rather than all eligible families and children. Most 
of these commenters recommended using the larger population of 
Medicaid/SCHIP eligibles to assess overall State performance since 
these programs provide critical supports to all low-income families and 
children. They believed that the proposed measure merely rewards States 
for complying with section 1925 of the Act, by providing six months of 
transitional Medicaid to certain families who lose TANF assistance.
    Response: In view of the decline in the Medicaid rolls nationwide 
since 1995, continued Medicaid for families losing TANF is of 
particular concern. In the NPRM, we proposed to concentrate the 
performance measure on States' efforts to provide continued Medicaid 
for eligible families leaving TANF since this is an area of program 
administration that has been identified by consumer advocate groups and 
local and national studies as needing improvement. In the final rule, 
we have aligned the Medicaid provisions with the food stamp provisions 
to allow for consistency to the extent possible. However, unlike the 
Food Stamp Program, there are many variables, as discussed below, that 
affect Medicaid participation among populations other than TANF 
leavers. For this reason, and other reasons that we also discuss below, 
the Medicaid outcome measure differs from the food stamp outcome 
measure in that it does not assess State performance based on 
participation of all Medicaid populations.
    In response to widespread concerns that PRWORA's delinkage of 
Medicaid and cash assistance had negatively affected access of low-
income families to medical benefits, HCFA conducted on-site reviews in 
all the States and Territories from September to December 1999 to 
examine State TANF and Medicaid application and enrollment policies and 
procedures to ensure that eligible families learn about, receive, and 
maintain Medicaid coverage. A particular focus of these reviews was on 
how the TANF application, denial, diversion, and termination processes 
affect application for and receipt of Medicaid. Based on these reviews, 
HCFA is in the process of identifying areas where States need to 
improve their Medicaid application, enrollment, and re-enrollment 
processes either solely in their Medicaid programs or in conjunction 
with the administration of their TANF programs. HCFA released policy 
guidance in some of these areas by way of an April 7, 2000, State 
Medicaid Directors Letter. This guidance directs States to identify 
individuals who have been improperly terminated from Medicaid and to 
reinstate their coverage; clarifies the proper procedures for 
eligibility redeterminations, and reviews the obligations imposed by 
Federal law with regard to operation of computerized eligibility 
systems. In view of the need for continued improvement in these areas 
and the purpose of the high performance bonus, we believe that the high 
performance bonus system should include a Medicaid/SCHIP measure that 
focuses on how well States are meeting the TANF goals of work 
preparation, work and self-sufficiency.
    As stated earlier, we limited the outcome measure to individuals 
leaving TANF assistance because: (1) States have a clear responsibility 
for serving these families under title I of PRWORA, i.e., under the 
amendments to section 193l of the Social Security Act; and (2) welfare 
``leaver'' studies and other studies on program participation indicate 
that these families frequently are not receiving Medicaid/SCHIP. 
Furthermore, we believe this type of measure will result in a 
significantly smaller reporting burden for States, as well more 
accurate and consistent reporting.
    We do not agree with the comment that this measure merely rewards 
States for complying with the law. The transitional Medicaid provision 
under section 1925 of the Act covers only those families who were 
eligible and received Medicaid under section 1931 of the Act. (This is 
the PRWORA provision covering families who meet AFDC-related 
eligibility standards for three of the six months prior to losing 
Medicaid because of income or employment.) Some families leaving TANF 
because of work are not eligible for transitional Medicaid because they 
were not receiving Medicaid under section 1931 for three of the six 
months before losing Medicaid due to earnings or income. However, under 
section 1931, States may adopt less restrictive income methodologies to 
ensure that families seeking TANF benefits, but moving quickly to work, 
can qualify for transitional Medicaid benefits.

[[Page 52831]]

    In cases not covered by this transitional Medicaid provision, the 
dependent children generally continue to receive Medicaid under the 
State's poverty levels groups or may qualify for benefits under the 
SCHIP program, and we want to ensure that these children are receiving 
these benefits. A different provision in section 1931 of the Act 
provides transitional Medicaid for families losing benefits as the 
result of child support collections. Other families might be eligible 
under a State's medically needy group.
    In addition, many of the factors affecting enrollment in Medicaid 
are not compliance matters. Two States that fully comply with all 
Federal requirements could have vastly different participation rates 
because of differences in how they operate their programs. While there 
are potential compliance issues with respect to matters such as ex 
parte redeterminations and proper notice, States have discretion in 
numerous areas of policy and administrative practice. For example, in 
the policy area, States have flexibility to expand eligibility coverage 
through the use of more liberal income and resource standards and 
methodologies. In the area of administrative practice, States have 
broad flexibility with regard to variables such as the location of 
eligibility offices, office hours, length of application, amount of 
verification required, outstationing, and use of mail-in and phone-in 
applications to eliminate barriers to and simplify the application 
process and reduce procedural requirements. Limiting the outcome 
measure to families who leave TANF but remained enrolled in Medicaid 
focuses on the only group for which there are data easily accessible to 
all States on a uniform basis.
    In view of the reasons stated above addressing the responsibilities 
of States to provide Medicaid to eligible families, particularly those 
leaving TANF, and the flexibility afforded States to meet these 
responsibilities, we are retaining in the final rule at Sec. 270.4(d) 
the outcome measure limited to those families who leave TANF, but are 
enrolled in Medicaid after leaving TANF.
    Comment: One commenter observed that the September 30, 2001, sunset 
date of section 1925 of the Act complicates the measurement since 
eligibility for transitional benefits will change after that date and 
one would expect a number of families would not be entitled to be on 
the rolls by month six.
    Response: The commenter is correct. Unless Congress acts to change 
this provision, beginning in FY 2002, families who lose Medicaid 
eligibility because of hours of, or income from, employment or because 
of loss of earned income disregards will be eligible for a minimum 
four-month period of extended Medicaid eligibility. Since we are 
reducing the measurement time frame from six months to four months in 
this final rule, we do not expect States will be adversely affected in 
competing for an award.
    Comment: A number of States commented that there are other 
factors--such as moves out-of-State, death, changes in family 
formation, increased earnings, and enrollment in private health 
insurance--that affect participation in Medicaid and SCHIP. Of 
particular concern was that the proposed measure did not allow any 
adjustment for families who obtain private health insurance.
    Response: We agree that there are numerous factors that affect 
families' participation in the Medicaid and SCHIP programs. However, if 
we were to provide an adjustment for all circumstances that can affect 
States' caseloads, the outcome measure would conflict with the NGA/
APHSA principles that the bonus system should: (1) Be simple, credible 
and quantifiable; and (2) rely on existing data where available. Also, 
if all States could not identify or exclude cases based on deaths, 
moves out-of-State, or other circumstances, then allowing adjustments 
would disadvantage the States that could not do so, thus creating an 
uneven playing field.
    Similarly, we have decided not to make adjustments for families who 
obtain private health insurance after leaving TANF. While we applaud 
State efforts to get individuals into jobs that provide health coverage 
and related benefits, and we would like to be able to credit States 
somehow for success in this area, adequate data on private health 
insurance coverage do not exist. Further, the costs that would be 
associated with collecting comparable, adequate data for all States 
would be prohibitive. One underlying issue is that private insurance 
coverage varies substantially across employers and individual employee 
circumstances. This variability suggests that, in order to treat States 
fairly, we should somehow measure the quality and level of coverage 
under the private plans and include appropriate adjustments.
    In summary, since private plans seldom offer benefits comparable to 
Medicaid, we would not necessarily want to give States the same credit 
for private coverage. Furthermore, participation in employer-sponsored 
insurance does not affect an individual's entitlement to transitional 
medical assistance.
    Finally, although we recognize that some States have given a high 
priority to job placements that provide health coverage and have 
achieved some success, the national statistics suggest that it would be 
quite rare for those entering low-wage jobs to obtain private health 
insurance that is affordable and comparable to the benefits provided by 
Medicaid. The types of employment situations these families generally 
access, especially in the short run, mitigate against adequate health 
coverage. The types of industries and the types of occupations, union 
status, the size of establishments, length of time on the job, and the 
use of part-time or temporary employment all increase the chances that 
a family would not have adequate coverage.
    For example, according to a study in the June 1995 Monthly Labor 
Review, while six of ten workers had employer-based coverage, only one-
fourth of service workers in service-producing industries had such 
coverage. The study also noted that, in general, industries where 
coverage has traditionally been more prevalent have been in decline as 
a portion of the U.S. economy. It cited service jobs such as 
waitressing, cosmetology, and cleaning as occupations with less access 
to employer-based coverage. According to more recent data (1996-1997) 
from the Bureau of Labor Statistics (BLS), while 70 percent of those 
employed full-time in the private sector participate in employer-based 
plans, only 11 percent of part-time private-sector employees do.
    In the event that private insurance is available, it is apt to be 
under a plan with a limited benefits package. Data from the 1996 and 
1997 BLS Employee Benefits Surveys show that 78 percent of those 
participating in an employer-based plan had to contribute to the cost 
for family coverage (``Compensation and Working Conditions,'' Winter 
1999). Earlier BLS data showed a 200 percent increase in the average 
family premium between 1983 and 1993. Accordingly, ``premiums may be 
difficult for some workers to afford, causing them to decline 
coverage.'' Also, about three-fifths of all participants have coverage 
that is subject to a pre-existing condition clause, limiting the care 
they can receive. Thus, even where individuals have access to employee 
benefits, we are concerned that families receive the wrap-around 
services that Medicaid can provide and to which they are entitled.
    Comment: A number of States commented that the performance

[[Page 52832]]

measure disadvantages States that have achieved high levels of 
Medicaid/SCHIP participation since low-performing States can make 
greater improvements. A few of the commenters recommended that we use a 
percentage point improvement measurement rather than percentage 
improvement measurement to even the playing field.
    Response: We agree that high performing States may be disadvantaged 
by the performance measure as proposed. Therefore, in the final 
regulations at Sec. 270.4(d), we have substituted a measure of 
percentage point improvement for the proposed percentage improvement 
measure. We believe the measure in the final regulation puts States on 
a more even playing field, regardless of their baseline level of 
performance. At the same time, States whose performance was relatively 
low in the base year are still in an excellent position to be rewarded 
for their efforts toward increasing enrollment.
    Under the proposed measure, a State that increased Medicaid 
participation from 5 percent to 10 percent (a 100 percent improvement) 
would be ranked higher than a State that increases participation from 
30 percent to 45 percent (a 50 percent improvement). In the final rule, 
a State that increases participation from five percent to ten percent 
would achieve a five percentage point improvement while a State that 
increases participation from 30 percent to 45 percent would achieve a 
15 percentage point improvement and would be ranked higher than the 
first State.
    Comment: Some commenters recommended an absolute measure rather 
than a performance improvement measure. Other commenters recommended 
expanding the measure to have both an improvement measure and an 
absolute measure so that States could be ranked separately on both 
measures. They also suggested that we divide the bonus funds among the 
top five States achieving high performance in both measures.
    Response: We agree that adding an absolute measure provides for a 
fairer system of awards and have made this change in the final rule. 
Under the NPRM, States that engaged in early and successful efforts to 
increase enrollment could have found it extremely difficult to compete 
for these awards, and their efforts might never have been recognized. 
The final rule sets aside some of the bonus awards for those States 
that have the highest overall success in enrolling individuals in 
eligible families. For the absolute performance measure, we will rank 
the States in order of the highest percentage of Medicaid/SCHIP 
participation rates by individuals in families four months after 
leaving TANF and who are not receiving TANF in the fourth month.
    In awarding bonuses to the top performing States under both 
performance measures, we will divide the $20 million in bonus funds, as 
specified in Sec. 270.8, among the three States that have the highest 
percentage of Medicaid/SCHIP participation rates by individuals in 
families four months after leaving TANF and who are not receiving TANF 
in the fourth month (absolute performance measure) and the seven States 
that show the most improvement performance from the previous year to 
the current year (improvement performance measure). This allocation of 
bonus funds among the States is consistent with the Food Stamp 
allocation of bonus funds among States that compete on the Food Stamps 
measure.
    Comment: One commenter noted that the Medicaid measure should have 
a method for dealing with tied scores.
    Response: We agree with this comment. In the interest of 
consistency, we will use the same method that we used for the work and 
food stamp measures. We specify in paragraphs (d)(1) and (d)(2) that we 
will calculate the percentage rate for the two measures to two decimal 
points. If two of more States have the same percentage rates, we will 
calculate the rates for these States to as many decimal points as 
necessary to eliminate the tie.
    Also, since participation in the high performance bonus award 
system is voluntary, we will rank only those States that choose to 
compete, notify us by February 28 of the bonus year of their intent 
(Sec. 270.11), and provide the requisite data.

New Section 270.4(e)  Child Care Subsidy Measure

    A substantial number of commenters recommended a child care 
measure, either as an additional new measure or as a replacement for 
the family formation measure. We agree that child care is of critical 
importance to working families, and we share the commenters' view that 
access to affordable, high quality care is a necessary part of a 
welfare reform program. We believe that high quality care is of 
critical importance to children of TANF and other very low-income 
families. A growing body of research indicates that quality and 
stability of the child care setting influences outcomes for children as 
well as the ability of parents to retain employment.
    In support of their recommendations, commenters observed that 
currently there is no reward for good performance in providing child 
care. A child care bonus, they believed, would be an excellent 
incentive toward better State performance, given that only a small 
percentage of income-eligible children are now receiving subsidies, 
according to published estimates from this Department. Many commenters 
based their rationale simply on the fact that child care is a critical 
work support needed in order for poor families to work. The suggestions 
for how we should construct a specific child care measure centered 
primarily on the number or proportion of children receiving child care 
subsidies and/or the amount of expenditures on eligible children.
    In developing the NPRM, we had considered the possibility of 
including a child care measure, not only because of its importance to 
working families but also because the CCDF program and the TANF program 
are closely related. However, we did not propose a child care measure 
for various reasons. Our reasons included the lack of currently 
available data that would completely capture State performance on all 
of the crucial elements, including quality, affordability and 
accessibility of an effective child care subsidy delivery system. We 
also took into account the lack of data that would fully capture how 
well States are performing in serving the TANF/CCDF population given 
the considerable duplication in data sets and inconsistencies in 
statutory data collection between the two programs.
    Based on the extensive support among commenters for a child care 
measure and upon further evaluation of the availability of data, we 
have devised a child care measure that we believe will reward States 
based on an appropriate range of important child care program elements. 
This new measure is located at Sec. 270.4(e) of this final rule. The 
three components of the measure address child care accessibility, as 
indicated by the percent of CCDF-eligible children receiving services; 
affordability, as indicated by assessed family co-payments; and 
quality, as indicated by State reimbursement rates. We believe it is 
essential to include all three components in order to assess a State's 
performance in making high quality child care more accessible to low-
income families. We will use Census Bureau and existing CCDF data on 
two elements for the FY 2002 bonus year and add an additional element 
for subsequent years that will require additional information to be 
reported by

[[Page 52833]]

States choosing to compete for the measure. The top 10 performing 
States that choose to compete on this measure will each receive a 
portion of a total of $10 million in bonus funds awarded annually for 
this measure.
    We intend to engage States and others, particularly data experts, 
in discussions regarding the technicalities of implementing key 
elements of the measure. While there were many comments in support of a 
child care measure, and many of these comments supported the areas that 
we have selected for measurement--accessibility, affordability, and 
quality of child care--there was no opportunity for detailed 
consultation or comment on the technical aspects of measurement within 
these areas, because a child care measure was not included in the NPRM. 
After consultation with States and others. We intend to issue details 
regarding the components of the measure by the end of the calendar 
year.
    For the FY 2002 bonus year, the measure consists of two components: 
the percentage of eligible children served and the affordability of 
care for the families of the children served as indicated by the 
relationship between the State's reported family CCDF co-payments and 
reported family income. These components of the measure use existing 
data reported by the States on the ACF-801 and the ACF-800 as the 
source for the number of children served, family copayments, and family 
income. We will calculate the percentage of children served with 
``pooled'' funds, i.e., CCDF funds (including transfers from TANF) and 
any other funds that are reported to us on the ACF-696 (CCDF financial 
reporting form) for the applicable year.
    Each State's rank on the measure in the FY 2002 bonus year will be 
a composite weighted score of the two components, with the component on 
percent of population served having a weight of 6 and the component on 
affordability of family co-payment having a weight of 4.
    We will use Census Bureau data (the Census 2000 Supplementary 
Survey and the Long-Form Transitional Database) as the data source for 
family income at 85% of the State's median income, i.e., the Federal 
eligibility limit set in statute for the CCDF, to determine income-
eligibility in calculating the percentage of children served.
    To determine affordability, we will compare family income with 
assessed state family co-payment as reported on the ACF-801. Because 
States have tremendous flexibility in setting sliding fee scales under 
the regulations governing the CCDF, in order that they can balance 
different needs and make child care affordable for families at a range 
of incomes, we will refine the technical details of this measure 
through additional consultation with States and data experts.
    For FY the 2003 bonus year we will further strengthen the measure 
by adding a third component that compares actual rates paid by the 
State to the market rates applicable to the performance year. Each 
State's rank on the measure in the FY 2003 bonus year will be a 
composite weighted score of the three components, with the component on 
percent of population served having a weight of 5, the component on 
affordability of family co-payment having a weight of 3 and the third 
component on the comparison of rates paid to market rates having a 
weight of 2.
    This third component cannot be implemented in the FY 2002 bonus 
year because States do not currently report the data collected in the 
CCDF-required market rate surveys, nor is there any consistency among 
States in how the surveys are conducted. However, we believe this 
additional component of the measure will strengthen our ability to 
assess a State's performance with respect to both affordability and 
quality, since access to higher quality, more stable care for families 
receiving subsidies is often linked to the rates paid to providers by 
the State.
    This component will use existing data on actual rates paid for 
children receiving CCDF subsidies as reported on the ACF-801, and data 
on actual market rates that will be submitted by those States that 
choose to compete on the child care high performance measure. We will 
draw the necessary data from the market rate data collected by the 
State in the CCDF-required survey. Consistent with existing CCDF 
requirements, this survey must be completed no earlier than two years 
prior to the beginning of the performance year when the performance 
year is the first of the biennial State CCDF Plan cycle, or no earlier 
than three years prior to the beginning of the performance year when 
the performance year is the second year of the State CCDF Plan cycle. 
While States must complete their surveys within the specified time 
frame, CCDF regulations do not require submission of the survey data. A 
process for submission of this data by States choosing to compete on 
the child care measure and the precise methodology to be used in 
ranking States on the relationship between rates paid and market rates 
will be developed through additional consultation with States and data 
experts.
    For all bonus years, we will distribute bonuses to the top 10 
qualifying States that have both fully obligated their CCDF Matching 
Funds for the fiscal year corresponding to the performance year and 
fully expended their CCDF Matching Funds for the fiscal year preceding 
the performance year. The source of this financial information is the 
ACF-696 for the corresponding bonus performance period. This 
requirement contributes to the effective use of Federal funds and to a 
level playing field across States, by ensuring that no State can win 
the child care high performance bonus through substituting TANF or 
other 100% Federal funds for CCDF Matching Funds (although States may 
certainly add resources to the CCDF ``pool'' of funds). Thus, all 
States competing for the child care bonus must have committed all of 
their dedicated child care funds.
    We address commenters' specific recommendations for the child care 
measure below. The approaches suggested by many of the commenters were 
similar. The commenters proposed a variety of options, some more 
detailed than others, while none provided an in-depth analysis of 
potential data sources. To avoid repetition, we have organized the 
comments by type, rather than by content of individual letters.
    Comments: Commenters suggested that a child care measure might be 
based on various target populations, including:
    (1) TANF recipients and former TANF recipients;
    (2) Children eligible under the provisions of the Child Care and 
Development Fund (i.e., at or below 85 percent of State median income);
    (3) Children at or below 200 percent of poverty;
    (4) Children served under both the Child Care and Development Fund 
(CCDF) and, at State option, other subsidy programs funded by TANF or 
State sources; or
    (5) Children in two-parent households receiving child care services 
(as a suggested substitute for the family formation measure).
    Response: We concur that a child care measure should take into 
account the population served, i.e. a measure of accessibility to 
subsidies. Therefore, we have incorporated percentage of CCDF-eligible 
children served into the composite child care measure. We will include 
children served with ``pooled'' funds (all funds reported on the ACF-
696 for the period corresponding to the performance year) in the 
percentage. We believe that the most appropriate denominator is the 
target population eligible under the Child Care and

[[Page 52834]]

Development Block Grant Act, i.e., at or below 85% of the State Median 
Income.
    We do not have an existing data source that would accurately 
capture child care subsidy services to all TANF recipients. Nor could 
we determine a method of eliminating duplicate counting of children 
served with TANF and CCDF maintenance-of-effort funds.
    Since we are adopting a separate family formation measure, we did 
not see a rationale for focusing the child care measure solely on two-
parent families. Child care is a critical support for one-parent as 
well as two-parent families when parents are working. Our measure does 
recognize that this is a TANF high performance bonus by capturing those 
children connected to TANF, transitioning from TANF or at risk of 
becoming eligible for TANF who are served in the CCDF system, including 
families served with ``pooled'' funds reported on the ACF-696.
    Comments: A few commenters suggested that the bonus be based on a 
measure of State expenditures on child care subsidies divided by the 
estimated number of federally-eligible children under the age of 13. 
They suggested this simple measure in recognition that there are 
problems with consistency among programs in eligibility, payment 
levels, and other factors.
    Response: While this measure would involve a minimal reporting 
burden, we do not believe that this is a meaningful measure, since it 
would not capture a measure of the extent of services provided to 
families, as our measure does. This suggested measure would be more 
process-based than the measure we adopted and would ignore critical 
elements of a State's child care performance.
    Comments: A few commenters also suggested using both an absolute 
and an improvement measure for one or more of the suggested components 
of the child care bonus.
    Response: We believe that it is most important to focus upon an 
absolute measure. First, we could not include quality until the third 
year of child care bonus if we were to seek to include an improvement 
measure, because there are no baseline data available. We would be very 
concerned about this consequence because, as we have noted, we believe 
that a balanced measure of accessibility, affordability, and quality is 
crucial to ensure beneficial outcomes for children. Second, we believed 
it to be especially important to reward those States that have already 
made considerable progress in improving the access, affordability, and 
quality of care for low-income families.
    Comments: Some commenters suggested factors such as high payment 
rates and low family co-payments. One suggestion was to pay an 
increased bonus to States that adopted reimbursement rates at the 75th 
percentile of the local market rate.
    Response: We concur that the child care performance measure should 
contain an indicator of affordability. Therefore, we have incorporated 
an indicator of affordability into the composite bonus, beginning with 
the first child care bonus year, by measuring the relationship of 
family copayments to family income.
    In the second year of the child care bonus we will add a component 
that compares reimbursement rates to applicable market rates. These 
facets of the measure will also at least indirectly address quality of 
services, since families in top performing States would likely have 
access to a broader range of higher quality care, which often costs 
more than mediocre care. We cannot implement the payment component in 
the FY 2002 bonus year because States are not currently required to 
submit data on the relationship between their reimbursement rates and 
the market rates in the State. Nor do we have access to consistent 
information on what constitutes the 75th percentile in each State.
    We believe that this approach is stronger than an approach that 
would link extra bonus funds to a specific level of rates, such as the 
75th percentile. First, we believe that an approach that rewards States 
for rates that provide more access to the market for low-income 
families without setting a single standard is more consistent with the 
flexibility in the CCDF statute. The CCDF final rule (63 FR 39959) uses 
the 75th percentile as a benchmark, not a requirement. Second, we want 
to ensure that States have a continued incentive to improve the access 
of low-income families to the market beyond any specific marker. Third, 
we want to ensure that the bonus approach does not inadvertently 
inhibit the ability of States to try a variety of approaches to rate-
setting that might enhance quality, including rate structures that 
offer incentives linked to provider qualifications, certification, or 
other quality measures. In the context of a shortage of dedicated 
Federal child care funds and the trade-offs that States could be forced 
to make as a result, we are concerned that a bonus linked to a single 
approach to payment could inadvertently be counter-productive. Our 
approach is intended to reward States that, by making the best use of 
all the resources and choices available to them, have established 
higher rates.
    Comments: Some commenters suggested that the child care bonus 
incorporate certain measures of quality. The ideas forwarded by one or 
more commenters consisted of:
     Excluding children who are in informal or unlicensed care 
from the population measure;
     Measuring the use of licensed care by subsidized families; 
and
     The payment of higher rates to accredited centers.
    Response: We concur that quality child care is important for the 
healthy development of all children and is especially crucial for 
children in low-income families who often are disadvantaged 
educationally as well as financially. Thus, we incorporated quality 
into the bonus measure by looking at factors that allow families to pay 
for better care, an approach that is consistent with the parental 
choice concept that is central to the statute governing the CCDF. 
Licensing and certification systems vary greatly, and we do not have 
the data to determine access to accredited care. Moreover, children 
often are in multiple arrangements or frequently are moved to different 
settings for various reasons. Available data would not support an 
unduplicated measure related to use of specific types of care.
    Comments: Several commenters also suggested a child care threshold 
measure, either as a qualifying factor for a child care bonus or in 
order for a State to receive other bonus awards. They suggested:
    1. Before a State could compete on a child care measure, the State 
must pay a child care rate equal to at least the 75th percentile of the 
local market rate based on a survey that is not more than two years 
old; or
    2. To qualify to compete, a State must spend a required percentage 
of child care funding for care that meets State certification 
standards.
    Other suggestions included granting high performance bonus awards 
only on the condition that a State based its child care payments on 
recent market surveys or served at least 70% of its income-eligible 
children.
    Response: We agree with commenters on the critical importance of 
quality and access to child care services. However, we do not believe 
it is useful to include these factors as qualifying conditions. 
Instead, we have taken a stronger position by addressing payment rates 
and percentage of children served directly in the child care measure we 
developed. In our response regarding the suggestion that we include use 
of

[[Page 52835]]

licensed or accredited care in the bonus itself, we explained why we 
believe that there are not data available to make a measurable 
determination on use of such care. As we pointed out earlier, we also 
sought to develop a measure that supports the central CCDF concept of 
parental choice.

Other Recommendations for New Measures in or Approaches to the 
Bonus System

    In addition to recommendations for a new child care measure, we 
received many comments for other measures as well as suggestions for 
how the high performance bonus system might be improved. We summarize 
and respond to these comments below.

A. Domestic Violence

    Comments: A substantial number of the letters and notecards 
recommended adding a measure of how well States address domestic 
violence. In support of this recommendation, some commenters provided 
detailed background information about the prevalence of domestic 
violence among women on TANF and how domestic violence can hinder an 
individual's ability to maintain work in a way that leads to self-
sufficiency.
    Most commenters on this issue recommended that the measure be 
designed to ``look at the proportion of women who disclose they are 
victims of domestic violence who receive services or waivers under the 
[TANF] family violence option.'' Alternatively, a few other commenters 
suggested that we add a threshold measure related to domestic violence, 
i.e., only States that adopted the TANF Family Violence Option and 
``meet the requirements of federally recognized good cause waivers'' 
(45 CFR 260.55) could compete for other bonuses. One commenter 
suggested that the Department would have to adopt ``a detailed 
statement on how to effectively implement a Family Violence Option''; 
another commenter suggested that competition for the bonus include 
interviewing domestic violence advocates in the State.
    Response: We strongly agree that domestic violence services are 
important to the well-being of families and to support work and self-
sufficiency. We are committed to efforts that both serve families who 
are victims of domestic violence and implement prevention programs. The 
Department has underway an on-going, coordinated, multi-agency 
initiative on Family and Intimate Partner Violence. This initiative is 
comprised of a wide range of activities whose purpose is to:
     Strengthen the health care system's ability to screen, 
treat, and prevent family and intimate partner violence;
     Provide education, training, and support for battered 
women and their families;
     Increase the ability of battered women, including those on 
welfare, to obtain and retain employment and obtain child support;
     Encourage greater linkages between child welfare, family 
and intimate partner violence, and criminal justice fields to better 
protect both children and parents in homes where violence occurs;
     Enhance community prevention and response systems by 
increasing collaboration between the Department's State and Tribal 
family violence grantees and the Department of Justice's State and 
community-based grantees and other community-based groups; and
     Increase the knowledge base about family and intimate 
partner violence, through data collection and research;
    Specific examples of activities related to this initiative include:
     As the commenters recognized, the TANF final rule includes 
provisions pertaining to the Family Violence Option instituted under 
PRWORA. The TANF final rule also provides States penalty relief when 
they fail to meet the numerical standards for time limits and the work 
participation rates because they provide good cause domestic violence 
waivers to battered women. It also includes provisions for the 
reporting of the strategies and procedures the State has put into place 
to ensure that victims of domestic violence receive appropriate 
alternative services.
     ACF awarded grants to several States and localities to 
increase collaboration between domestic violence programs and welfare 
programs. These grants have been used for training, policy development, 
and joint intervention responses.
     ACF's Office of Child Support Enforcement (OCSE) has four 
ongoing grants examining child support cooperation/good cause and 
domestic violence, and a fifth cross-site evaluation of the projects. 
The grants will provide additional information about the incidence of 
domestic violence among child support recipients and ways the child 
support and domestic violence communities can work collaboratively to 
meet the needs of battered women.
     OCSE has also been working with States on implementation 
of the ``Family Violence Indicator,'' an automated flagging mechanism 
within OCSE's national database, the Federal Parent Locator Service, 
that will prevent the release of data on battered women.
     ACF has formed an interstate domestic violence working 
group that is examining a number of issues surrounding domestic 
violence and child support.
     The Department's Office of the Assistant Secretary for 
Planning and Evaluation is conducting assessments of State policies and 
practices regarding domestic violence in the TANF program.
    ACF will issue periodic reports and technical assistance materials 
reflecting the results of these and other activities. For example, the 
Center for Law and Social Policy, in conjunction with OCSE, recently 
published ``models of Safe Child Support Enforcement,'' a guide for 
States and others.
    Finally, through the Family Violence and Services Program, ACF also 
provides grants to all States, all State coalitions, and a number of 
Indian tribes to provide immediate shelter and related assistance to 
victims of family violence and their dependents. ACF also funds five 
national resource centers and the national Domestic Violence Hotline.
    Although we are committed to addressing the problems and the often 
tragic consequences of domestic violence, our task with respect to the 
high performance bonus was to assess the appropriateness of such a 
measure in the context of our policy and evaluative framework. In the 
NPRM, we indicated that we considered a measure looking at the 
proportion of TANF recipients who received domestic violence services, 
but we noted that we had identified no objective and reliable data 
sources for this measure. Similarly, there is no existing source or 
uniform standards for determining whether a State is meeting federally 
recognized good cause waiver requirements (especially if it is not 
penalty-liable), and no existing Federal standards for qualitative 
measures of service.
    After carefully considering the comments and verifying that no data 
were available to support an outcome rather than a process measure, we 
decided we would not include a domestic violence measure in the bonus 
system at this time. Because competition for the bonus is voluntary, we 
were concerned that additional data collection would be burdensome and 
would not generate competition--particularly since we had a fixed 
amount of bonus funds.
    We also evaluated the recommendation for including domestic 
violence as a threshold measure, i.e., only States that adopted the 
Family Violence Option and met the federally

[[Page 52836]]

recognized good cause provisions for domestic violence waivers would be 
allowed to compete for other bonuses. We have not accepted this 
suggestion. First, in this final rule, we have dropped the qualifying 
conditions and qualifying State options as threshold measures in the 
Food Stamp and Medicaid/SCHIP performance measures, and we decline to 
add a new threshold measure. Second, the suggested threshold is already 
used in the TANF penalty reduction process, and, thus, is a substantial 
incentive for States to adopt these practices in addressing domestic 
violence under welfare reform.
    Nevertheless, we are continuing our efforts to encourage all States 
to plan pro-actively to meet the needs of victims of domestic violence 
and their dependents. We will be making technical assistance materials 
and research results available to States to enhance their efforts to 
prevent domestic violence and provide services to those in need.

B. Worker Displacement/Worker Protections

    In the preamble to the TANF final rule (April 12, 1999, 64 FR 
17748), we indicated that we would invite comments on whether to 
include a worker displacement/worker protection bonus measure during 
our rulemaking on the high performance bonus. We carried out this 
commitment in the NPRM when we specifically asked for comments on 
whether we should ``consider State enforcement of the TANF non-
displacement requirements in awarding bonuses, and, if so, how.''
    Comments: We received four letters in support of new worker 
displacement and/or worker protection measures. Commenters recommended 
the following:
     Require States to provide evidence of anti-displacement 
measures, e.g., demonstrating the existence of a grievance procedure, 
either as a threshold measure in order to compete for any high 
performance bonus measure, or as a threshold measure in order to 
compete for the work measures.
     Add a new measure based on: (a) Evidence of the 
integration of TANF, the Work force Investment Act (WIA), and the 
Welfare-to-Work (WtW) worker protection procedures (e.g., a Memorandum 
of Understanding with appropriate agencies, providing worker 
information, and monitoring); and (b) submission of payroll records by 
employers with significant numbers of TANF employees or review of 
unemployment insurance records through which displacement might be 
detected.
    These commenters believed in the importance of worker displacement 
protections in the TANF program and noted that they found that some 
States have been slow to put procedures into place. They provided one 
concrete suggestion for data sources. However, adopting this 
recommendation would have required additional State reporting--an 
approach that we said we wanted to avoid. One commenter specifically 
acknowledged that it is difficult to measure displacement accurately.
    Additionally, as the commenters also observed, the statutory WIA 
and WtW requirements in the area of worker protection are more detailed 
than the statutory TANF requirements; these differences would appear to 
pose problems for establishing uniform standards.
    Response: As we said in the preamble to the TANF final rule, it 
would not be consistent with the principle of State flexibility 
embodied in the TANF statute for us to regulate a State's 
administrative procedures and require States to adopt the more 
extensive WtW statutory provisions for the TANF program.
    Worker displacement is a matter of concern to us, however, and we 
will be monitoring it through review of information each State provides 
to us in its TANF annual report. Specifically, a State must include a 
description of procedures that it has established and is maintaining to 
resolve displacement complaints. (See 45 CFR 265.9(a)(7).)
    At the same time there are no standards available for us to 
objectively assess the extent and quality of State displacement 
procedures. Thus, we do not believe that we have adequate criteria or 
data upon which to base either a threshold or additional performance 
measure.

C. Child Poverty Measure

    In the preamble to the proposed rule, we discussed our 
consideration of whether to include a child poverty measure in the high 
performance bonus system. We cited the importance of this matter, our 
belief that States had the flexibility and resources to make an impact 
on child poverty, and the connection of a child poverty measure to two 
of the purposes of TANF: (1) Promoting work and employment; and (2) 
strengthening child and family well-being by assisting needy children 
in their own homes or in the homes of relatives. We invited public 
comment on this issue.
    On the other hand, child poverty is an area for which there are 
other mechanisms in the statute for monitoring and promoting positive 
State action. Section 413(i) of the Act requires that States report 
their child poverty rate annually and take corrective action when an 
increase in the child poverty rate is the result of the TANF program in 
the State. We published a final rule implementing these provisions on 
June 23, 2000 (65 FR 39234).
    Comments: A number of commenters were concerned that a State could 
not be performing well if large numbers of already poor children and 
families were allowed to fall deeper into poverty. One commenter 
suggested that we add compliance with the child poverty requirements 
under section 413(i) of the Act as a threshold measure.
    The commenters recommended the use of the official poverty measure 
(developed by the Census Bureau) and suggested possible measurement 
approaches for our future consideration. They also suggested that when 
there were economic conditions beyond the control of States, ACF could 
use rules for setting aside the measure.
    Response: We continue to believe that poverty, and child poverty in 
particular, is an issue of great importance, but we are not convinced 
that the best way to address the issue is through the TANF high 
performance bonus award. We considered the recommendation that State 
compliance with section 413(i) of the Act be added as a threshold 
measure, but we believe that the several requirements States may need 
to meet under section 413(i) do not lend themselves to effective 
inclusion in the high performance bonus system.

D. Other Suggested New Measures

    Comment: One national organization recommended the addition of a 
number of new measures directed at achieving economic independence and 
self-sufficiency, particularly for women and girls. As a part of their 
recommendations, they asked that we define the term ``self-
sufficiency'' in the final rule, using the Wider Opportunities for 
Women's ``Self-Sufficiency Standard.'' They believed that this 
comprehensive standard, which describes how much money is needed to 
meet a family's basic needs (i.e., for housing, food, child care, 
transportation, clothing, and related work expenses, calculated by 
family size on a per county basis) without public assistance, is an 
accurate and sensible indicator of true self-sufficiency. Without such 
a measure, they believed that it would be difficult, if not impossible, 
to accurately and consistently define self-sufficiency for a given 
family in the United States.

[[Page 52837]]

    Response: We agree that helping families achieve economic 
independence and self-sufficiency is one of the most important goals of 
the TANF program, and we believe that the recommended ``Self-
Sufficiency Standard'' is a useful tool in evaluating State and local 
efforts towards achieving that goal. However, since none of our 
measures incorporate this term, and any measure based on this concept 
would entail substantial new data collection, we have not accepted this 
recommendation.
    Comments: A number of commenters mentioned other topics on which 
new measures might be based, but the commenters' suggestions were 
general and, for the most part, undeveloped in terms of both design and 
data sources. One or two letters suggested each of the following 
topics:
     Diversion from TANF;
     Recidivism, i.e., returns to TANF;
     Savings and asset-building;
     Housing (with the measure to be developed by ACF in 
collaboration with the Department of Housing and Urban Development, 
e.g., a measure of the use of TANF funds to provide housing assistance 
for families moving from welfare to work);
     Transportation, e.g., demonstrating cooperation between 
the TANF and State transportation agencies;
     Education or training, i.e., the number of teens on TANF 
attending or completing high school or an equivalency program, or, 
using performance data under the Carl D. Perkins Vocational and 
Technical Education Act to determine the skill attainment success rate 
of public assistance recipients who enroll in advanced education and 
training programs following job entry;
     Reduction in the incidence of teenage pregnancy through 
abstinence education and other programs that encourage children to 
postpone starting a family until married;
     Availability of and utilization of various transitional 
services, e.g., Medicaid, and transportation;
     Programs to enhance family relationships and reduce family 
violence;
     Decreases in the number of children in foster care; and
     Child support, i.e., measurement of how many families in 
transition from welfare to work are receiving payments on child support 
or payments on child support arrearages; and medical child support, 
i.e., measurement of the number of children in families that are in 
transition [from TANF] that have medical support orders as part of 
their child support order and who are receiving benefits from those 
orders.
    Response: Many of these suggested areas are viable strategies for 
helping families move toward self-sufficiency. However, most of these 
suggestions do not lend themselves to the construction of a 
quantifiable outcome measure; lack an objective, uniform, and reliable 
data source; or have other problems when viewed in the context of our 
policy and evaluative framework. In the case of the suggestion 
regarding child support and associated medical orders, the proposed 
measure would duplicate the existing incentive and penalty system that 
is already part of the child support enforcement program.
    Comment: Another suggestion, rewarding States for the enactment of 
a State EITC, had support from a substantial number of commenters. 
However, none of the commenters was specific about how we might 
construct an outcome measure. One commenter noted that the existence of 
a State and local EITC program worked against the State's being able to 
compete successfully in the proposed family formation measure. Another 
commenter noted that enrollment in EITC is a difficult measure to 
document.
    Response: We agree that an EITC program can be a major support to 
families working towards self-sufficiency. At the present time, 
however, approximately ten States administer State EITC programs. We 
believe that, to be a meaningful incentive, the high performance bonus 
system should offer all States the opportunity to compete on all of the 
measures. Thus, we have not accepted this suggestion.

E. Recommendations for Other Approaches to the Design of the Bonus 
System

    We received a few additional recommendations and suggestions to 
which we wish to respond.
    Comment: A commenter recommended that DHHS adopt an overall high 
performance award that would be given to the top one to three States 
that exhibited overall outstanding success in meeting the TANF goals. 
They argued that such a bonus award was needed to overcome various 
shortcomings in the proposed system, e.g., rewarding States for one 
area of performance when they fell short overall, giving awards in 
areas of performance where all States were experiencing only mediocre 
success, and having the unintended effect of encouraging States to take 
a narrowly focused approach to welfare reform in order to achieve the 
specified rewards. Such a measure was needed, they believed, to measure 
performance with respect to all poor families in the State, not just 
the segments of the population covered by the proposed bonuses.
    The commenter recognized the lack of currently available data that 
could be used to support such a measure, but suggested that we could 
develop such data. They gave examples of factors that we could measure 
in an overall bonus but did not go into detail regarding the data that 
would need to be developed. Rather, they suggested an alternate 
approach of letting individual States choose multiple areas in which 
they wished to compete.
    Response: We have not accepted this recommendation for a number of 
reasons. As the commenter pointed out, data are limited and would have 
to be developed in order for the measure to be workable. From a 
logistical standpoint alone, new information sources could not be 
developed in time to be implemented for the 2002 award year.
    We believe the measures in the final rule permit an overall high 
performing State to compete successfully on several of the measures and 
to receive a commensurate monetary award. At the same time, a statutory 
cap on the total award a State can receive in a year provides a 
deterrent to any misplaced incentive to over-focus on certain aspects 
of welfare reform that might be generated by the proposed system of 
bonuses.
    In addition, having States compete for an overall bonus that 
encompasses items of their own choosing would not only be exceedingly 
complex, but would be a challenge to objectivity. Also, based on our 
experience in awarding the FY 1999 bonuses, we did not identify a large 
number of States winning on certain measures that exhibited only 
mediocre success on other measures.
    Comment: Two commenters suggested new bonuses based on innovative 
or extraordinary practices. One commenter encouraged bonus awards for 
``extraordinary practices that lead to quality achievement in advancing 
the goals of TANF.'' Similar to the previous comment, the commenter 
noted that this approach would recognize individual programs that show 
promising results but do not directly contribute to a State's 
performance in the specific bonus categories. The commenter also noted 
that this approach would serve to reward individual efforts in States 
``that, for various reasons, may not be able to compete well in the 
specific categories.'' One commenter also suggested a separate measure 
that ``rewards states for implementing policies or programs that 
address a particular need in their

[[Page 52838]]

state.'' The State would identify a specific category of client need 
and submit an explanation of how the State responded to the need.
    Response: While we agree that innovative or extraordinary practices 
deserve to be recognized and promoted, a high performance bonus award 
for such practices would not meet the statutory requirements for 
comparing and ranking States and awarding bonuses based on a formula. 
In addition, such a bonus would focus on process rather than outcomes.
    ACF has in place a strong system of peer technical assistance that 
serves to recognize promising practices. The Welfare Peer Technical 
Assistance Network provides guidance and instruction to States on 
promising practices for moving welfare and low-income families to self-
sufficiency. It provides information to States about TANF program 
resources and increases communication among the States about promising 
practices. Access to this Network is available at: http://www.calib.com/peerta/.
    Comment: In response to a question we posed in the NPRM regarding 
whether we should consider thresholds (such as denying a bonus to a 
State that was subject to a work participation or other noncompliance 
penalty), one commenter suggested that a competing State should not be 
in a penalty situation of any kind. The commenter stated that the 
purpose of the bonus is to reward high performing States and that 
penalties indicate a failure to perform in some way.
    Response: Although we specifically solicited comments on whether we 
should consider such a threshold measure, we received only one 
recommendation that we do so. We gave this proposal serious 
consideration and concluded that potential for delay in the due process 
provisions for TANF penalties would make the recommendation difficult 
to implement, i.e., to match the penalty year with the performance year 
for the bonus. We also foresaw other implementation issues, such as how 
to treat States under corrective compliance plans and whether to take 
into account the severity of a penalty.
    Comment: A national organization recommended that the Department 
``collect and evaluate data broken down by race and ethnicity for all 
components of the high performance measure, and move towards the 
ultimate goal of assessing states' efforts to eliminate racial, ethnic, 
or other disparities in their welfare programs.'' To support this 
proposal, the commenter cited various studies that reported disparity 
in treatment of various population groups and in their success in 
leaving the welfare rolls. The commenter said that ``states should not 
be rewarded if their programs treat certain groups of clients 
differently,'' but should be rewarded ``for working proactively to 
address the different needs of different communities and to correct 
problems that may occur in their programs.''
    The commenter recommended that ACF could use the data sources 
proposed in the NPRM since they either contained race/ethnicity 
variables or could be matched with a data source, such as TANF data, 
that contained the variables. The commenter acknowledged, however, that 
there could be additional reporting burden and that ``states are the 
only entities in a position to perform the matching of data to 
determine whether certain groups are faring worse than others.'' The 
commenter urged DHHS to explore ways to incorporate the results of the 
various studies and analyses into the bonus system.
    In addition, the commenter suggested that DHHS ``use any 
statistically significant racial or ethnic disparity of outcomes as a 
factor in evaluating the state's performance the following year,'' 
i.e., to show improvement in the disparity as a threshold measure for 
competing in the measure in which the disparity occurred.
    Response: We agree with the importance of equitable treatment of 
various welfare populations. The Department has demonstrated its strong 
commitment to fair and equitable treatment of individuals in the 
welfare population. For example, in August, 1999, we provided governors 
and State TANF administrators with comprehensive written technical 
assistance to help them understand the application of Federal civil 
rights laws in the implementation of welfare reform. We have also 
worked on developing technical assistance to clarify the 
responsibilities of health and social agencies that receive Federal 
funding in fulfilling their responsibilities to persons of limited 
English proficiency, pursuant to title VI of the Civil Rights Act of 
1964.
    We also believe that, if it were feasible to secure adequate data, 
there may be factors beyond a State's control when there are 
disparities in the outcomes among welfare sub-populations. Immigration 
and refugee resettlement patterns are examples of factors that are 
beyond State control. Thus, it would be difficult to construct a 
measure that would be fair to States. The commenter did not assess the 
availability and interaction of racial/ethnic data for the various 
measures. Without doing a full analysis, we were also concerned that 
the suggestion might require that States conduct additional data 
collection and analysis. For these reasons, we have decided not to add 
a performance or a threshold measure based on racial/ethnic 
disparities.

Former Section 270.4(e), Now New Section 270.4(f)  Measure of Family 
Formation and Stability

    In the overview section above (IV.C. Overview of Comments on the 
Family Formation Measure), we described our continuing efforts to 
develop an outcome measure related to family formation and our 
commitment to including in the high performance bonus system measures 
to address the non-work purposes of the statute. In addition, we 
summarized the public comments on, and the objections to, this proposed 
measure and our rationale for retaining the measure in the final rule.
    By including this measure in the final rule, we want to emphasize 
that our primary focus is on the second statutory purpose of TANF, 
i.e., ``* * * to promote marriage.'' At the same time, including this 
measure in the high performance bonus does not preclude State efforts 
to support two-parent families or responsible fatherhood activities for 
parents who are not married. Nor does the focus on this measure 
preclude parents making responsible choices that best meet their needs 
and the needs of their children.
    We have made one substantive change in this measure. In response to 
comments, we will base this measure on a universal population, i.e., 
the increase in the percentage of all children in the State who reside 
in married couple families, regardless of income. Given the remaining 
issues, we have also reduced the allocation for this measure to $10 
million. In addition, we have made one clarifying and one technical 
change in this section: We have clarified that we will rank only those 
States who wish to compete on this measure and added the provision that 
we will measure performance based on percentage point change rather 
than the percentage change.
    We want to respond more specifically to some of the commenters' 
major concerns.
    Comment: A number of commenters objected to the proposed use of a 
quantitative measure (promoting marriage) while ignoring the more 
qualitative goal of ``encouraging the formation of two-parent 
families,'' i.e., purpose four in the statute. They noted that, under 
the proposed measure, stable but less traditional families, such as

[[Page 52839]]

separated families, common-law families, same sex families, or two 
related adults living together would not be counted for bonus purposes. 
In addition, they pointed out that DHHS had supported the qualitative 
position in policy guidance by encouraging both parents to meet 
parental responsibilities whether they are married and live together or 
not.
    Response: Although we explored a possible measure based on ``two-
parent families,'' we were constrained by the lack of available data. 
The Census Bureau, our source of data for this measure, does not 
collect information on two-parent families as a category but does 
collect information on married couple families. We recognize the 
diversity of views on this issue, but point out that the second purpose 
of TANF includes the promotion of marriage. In using this measure in 
the bonus system, we are not intending to diminish our strong support 
for responsible parenthood, regardless of parental living arrangements. 
We also reward States that support and encourage responsible parenthood 
by non-custodial parents through the child support program and its 
incentives.
    Comment: Some commenters objected to the design of the proposed 
measure. They observed that the measure appears to reward States for 
increasing the number of children in poverty in married couple 
families; it will not reward States when a married couple's income 
exceeds 200 percent of poverty. Further, States that are successful in 
encouraging single parents to marry might be less likely to receive a 
bonus since single mothers usually improve their economic situation 
when they marry.
    Response: We agree with commenters that the proposed measure, based 
on the percent of children below 200 percent of poverty who reside in 
married couple families, raises programmatic and measurement issues. We 
believe the change we have made in the final rule, i.e., to measure the 
percent of all children in the State who reside in married couple 
families, will address these concerns. It also makes this measure more 
consistent with the out-of-wedlock birth bonus which, by statute, is 
based on all out-of-wedlock births and not just those to low-income 
mothers.
    Comment: A number of commenters believed that the proposed family 
formation measure, like the proposed Food Stamp measure, was 
dissociated from the TANF population and State efforts to help TANF 
families become self-sufficient. Rather, they believed that it would 
merely reward States for changes in State demographics or fluctuations 
in the State economy. In addition, some commenters envisioned negative 
consequences to families as a result of coercive actions a State might 
take in order to compete for the bonus.
    Response: We believe this bonus provision may be an incentive to 
States to increase their attention to some of the non-work purposes of 
the TANF program, i.e., purposes that go beyond the population 
receiving TANF assistance. We agree that this is a new program area for 
many States, and we believe that States will respond by reducing 
barriers and developing new activities to support marriage and 
strengthen families. The universal measure in the final rule addresses 
the concern about fluctuations in the States' economy.
    Some of the recent steps ACF has taken will help us track State 
efforts to meet the family formation goals of TANF. First, under the 
provisions in the final TANF rule, published April 12, 1999 (64 FR 
17720), the new fiscal reporting form (ACF-196) will capture 
expenditures on ``Two-parent family formation and maintenance 
activities.'' This will help us determine which States are making the 
biggest investments in this area.
    Second, the new annual report from States will include summaries of 
State programs and activities directed at the third and fourth purposes 
of the TANF program (see 45 CFR 265.9(a)(8)). We anticipate that this 
information will provide leads about promising practices that we can 
share among States to encourage innovation and increase efforts in 
these areas. It might also provide leads about policies or practices 
that merit further review.
    Third, in the summer of 1999, we issued a TANF funding guidance 
document entitled ``Helping Families Achieve Self-Sufficiency.'' This 
document provides several examples of family formation activities that 
States could undertake to encourage and reduce barriers to marriage, 
funded with Federal TANF or State MOE funds, e.g., providing premarital 
and marriage counseling and mediation services, and changing State TANF 
eligibility rules to provide incentives for single parents to marry 
and/or for two-parent families to stay together.
    Finally, recent results from a rigorous evaluation of the Minnesota 
Family Investment Plan found that a program combining generous work 
incentives with work requirements significantly increased the 
proportion of married families for both two-parent recipients and 
single-parent, long-term recipient families.
    Comment: A few commenters objected to this proposed measure because 
it did not meet the principles outlined by NGA and APHSA, i.e., that it 
did not minimize double jeopardy or reward. They believed that there 
was a very narrow distinction between the proposed measure of the out-
of-wedlock birth bonus in section 403(a)(2) of the Act. Some commenters 
urged us to develop a measure to reward reductions in teen pregnancies 
instead of the family formation measure.
    Response: We believe the out-of-wedlock birth bonus and the family 
formation measure are sufficiently different in focus so as not to 
violate the principle of non-duplication. For example, the out-of-
wedlock birth bonus focuses on all births, in conjunction with the 
abortion rate in the State, while the family formation measure focuses 
on children of all ages, including newborns. In addition, the out-of-
wedlock birth bonus addresses the third purpose of TANF (preventing and 
reducing the incidence of out-of-wedlock pregnancies) while the family 
formation measure addresses the broader goal of promoting job 
preparation, work, and marriage.
    We had previously devoted considerable thought to the question of 
whether we should include a teen pregnancy measure because this 
question came up in our earlier consultation with the States. While the 
Centers for Disease Control and Prevention and the Alan Guttmacher 
Institute both publish State-level teen pregnancy data, some of these 
data are based on estimates because teen abortion data are not 
available for all States, and we did not consider these figures 
sufficiently reliable for the purpose of awarding bonuses.
    In the areas of teen pregnancy prevention and out-of-wedlock 
childbearing, we have sought to focus more State attention on the 
pregnancy prevention goals of TANF. First, we believe the new reporting 
form (ACF-196) and the annual reports from States will provide 
information on promising State practices that we can share to encourage 
innovation in this area. The TANF funding guidance (``Helping Families 
Achieve Self-Sufficiency'') also provided several examples of pregnancy 
prevention activities that States could undertake with Federal TANF or 
State MOE funds.
    In addition, the Department has continued its efforts to improve 
State and national outcomes in these areas. The latest national data 
show continued success in reducing the teen birth rate (which dropped 
20 percent between 1991 and 1999). The 1999 rate of births

[[Page 52840]]

to all unmarried women has dropped six percent from its peak in 1994, 
and the birth rate for unmarried teens dropped 11 percent from its peak 
in 1994 to 1998, based on the most recent available data.
    On April 14, 1999, we issued the final regulations on the bonus to 
reward States with the largest decreases in their out-of-wedlock 
childbearing. On September 13, 1999, Secretary Shalala announced the 
first five winners of that bonus: Alabama, California, the District of 
Columbia, Massachusetts, and Michigan. Each received $20 million. The 
reductions in their out-of-wedlock birth ratios ranged from 1.5 to 5.7 
percent.
    Prior to these issuances, the Department had undertaken a number of 
initiatives directed at reducing out-of-wedlock and teen pregnancies.
     In 1995, the Department produced the Report to Congress on 
Out-of-Wedlock Childbearing, and Beginning Too Soon: Adolescent Sexual 
Behavior, Pregnancy and Parenthood--both of which contained valuable 
information about the occurrence of out-of-wedlock and teen pregnancy 
as well as strategies for addressing these concerns.
     In 1997, the Department developed the National Strategy to 
Prevent Teen Pregnancy, as required in section 905 of PRWORA. The 
Department has released three annual reports to Congress since then. 
Among other things, the 2000 report noted that HHS has funded teen 
pregnancy prevention programs in at least 35 percent of communities 
across the country and listed more than 20 Departmental programs aimed 
at educating teens and preventing pregnancy (including Girl 
Neighborhood Power! and demonstration grants to 13 communities in 11 
States funded through the Centers for Disease Control and Prevention 
Community Coalition Partnership Programs).
     The Department, in partnership with the National Campaign 
to Prevent Teen Pregnancy and Johnson and Johnson, has developed ``Get 
Organized: A Guide to Preventing Teen Pregnancy.'' This publication 
stresses a localized approach, a long-term commitment, and careful 
evaluation. The Department will be disseminating additional information 
to communities regarding programs that specifically target boys and 
young men.
     The Department has been administering the State Abstinence 
Education Program, as authorized by section 912 of the PRWORA. This 
program authorizes $50 million per year beginning in FY 1998. Every 
State applied for this money to build on its efforts to prevent teen 
pregnancy in FY 1998 and FY 1999 (although New Hampshire declined its 
funding for FY 1998 and California did not draw down its 1998 or 1999 
grant). For FY 2000, all States applied for an abstinence education 
grant except California. As mandated in the Balanced Budget Act of 
1997, the Department is conducting an evaluation of a selected number 
of sites receiving funding under this provision.
     The Department is actively supporting expanding pregnancy 
prevention efforts to include a focus on boys and young men.
     The Department's Regional Offices have awarded $2 million 
in small grants to Title X Family Planning Clinics to develop pilot 
programs designed to prevent premature fatherhood. These projects 
employ male high school students as interns to provide them with on-
the-job training in clinic operations and allied health occupations and 
provide education about male responsibility, family planning and 
reproductive health.
     In addition to these initiatives, the Department supports 
other research efforts, including the National Study of Adolescent 
Health, the National Survey of Family Growth, and the National Survey 
of Adolescent Males, which have all provided important insight into 
adolescent risk behaviors including sexual activity and response to 
pregnancy.

New Section 270.4(g)  Option to Compete

    Under the NPRM, we proposed to rank only the competing States for 
the work measures, but to rank all States that met the qualifying 
conditions for the Food Stamp and the family formation measure, based 
on Census Bureau data.
    Comment: A number of commenters objected to not being given the 
option whether to compete on all measures.
    Response: In the final rule, we have added new language in 
Secs. 270.4 (c), (d), (e), (f), and (g) and Sec. 270.6(c) to make it 
clear that States have the option whether to compete on all measures. 
Under Sec. 270.11, each State must submit to us a list of the measures 
on which it is competing by February 28 of each bonus year.

Section 270.5  What Factors Will We Use To Determine a State's Score on 
the Work Measures?

    In Sec. 270.5 of the NPRM, we proposed definitions of the four work 
measures and a description of the factors that we would use to 
determine a State's score on the work measures. We also proposed that 
States could compete on one, any number of, or none of these work 
measures. We would score and rank competing States and award bonuses to 
the ten States with the highest scores in each measure.
    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 would 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 degree to which their earnings increase over time.
    The comments were strongly supportive of our proposed work 
measures, although a number of commenters suggested substantive and 
technical modifications or recommended the addition of threshold 
measures. A few commenters opposed some of the measures. Briefly, we 
made the following changes in the final rule in response to comments:
    (1) Revised the calculation of the improvement measures to measure 
percentage point improvement rather than percentage improvement in 
Sec. 270.5(a);
    (2) Revised the calculation of the State rankings in Sec. 270.5(b) 
to drop the proposed double-weighting of the job retention sub-
measure--thus giving both sub-measures equal weight;
    (3) Dropped the distinction on what kinds of subsidized jobs count 
under the work measures;
    (4) Streamlined the description of the ranking procedures in 
Sec. 270.5(b);
    (5) Clarified that we will award bonuses only to States with 
positive scores; and
    (6) Clarified how we will rank States on the increase in success in 
the work force improvement measure.
    Following is a discussion of the comments we received, by issue.

A. Establishing a Performance Threshold

    The NPRM did not specify a level of earnings or other threshold 
factor that a TANF recipient would need to achieve in order for the 
State to count the individual in the job entry, job retention, or 
earnings gain measures. Thus, as little as one dollar of earnings in a 
quarter would count in determining who entered employment, how long 
they remained employed, and how much their earnings increased.
    Comment: Some commenters suggested that we tie work measures to a 
minimum threshold, e.g., that we count only those persons whose wages 
are at the poverty level or above the

[[Page 52841]]

minimum wage. These commenters reasoned that the proposed measures 
reward States that place recipients in jobs without regard to how long 
they will last or whether they move the family towards self-
sufficiency. One commenter suggested a specific threshold factor, i.e., 
that at least 50 percent of those who leave TANF be employed at wage 
levels above poverty one year after leaving TANF.
    Two commenters recommended that we link job entry with success in 
the work place. They asserted that a State could receive bonus grants 
for moving TANF recipients into work and at the same time have a dismal 
record regarding recipients' remaining employed and/or earning a 
livable wage that would propel them out of poverty.
    Several commenters recommended that we establish a threshold 
requiring a minimum percentage of expenditures to be spent on education 
and training or requiring the full use of Federal programs, e.g., the 
Work Investment Act (WIA) and Welfare-to-Work (WtW) programs, before we 
would consider a State for a bonus on a work measure.
    Response: It is our intention, and many commenters agree, to reward 
the statutory work purpose of TANF across a wide range of part-time and 
full-time work. We take account of how good the jobs are with the 
success in the work force measure. We have not established an earnings 
threshold in the final rule because there is currently insufficient 
baseline information for selecting a threshold. We believe a threshold 
should be high enough to foster placement in substantive jobs, but not 
so high as to disadvantage States with large numbers of recipients with 
significant employment barriers or substantially more difficult labor 
markets. We may consider adding an earnings threshold (e.g., a minimum 
amount of quarterly earnings based on the NDNH reporting), after 
further analysis and consultation with States and other interested 
parties.
    We do not agree with the commenters' recommendations that we 
establish a threshold requiring a minimum percentage of expenditures to 
be spent on education and training or requiring the full use of Federal 
programs, e.g., the Workforce Investment Act (WIA) and Welfare-to-Work 
(WtW) programs, before we would consider a State for a bonus on a work 
measure. Such a threshold would hinder a State's flexibility in 
designing its TANF program and would not be a measure or indicator of 
outcomes.

B. A More Rigorous Job Retention Measure

    In the definition of ``job retention rate,'' we proposed a job 
retention period of six months, i.e., States could count those 
individuals employed in one quarter who remain employed in the next two 
consecutive quarters.
    Comment: There were a number of comments in support of extending 
the retention measurement period; only one State commenter recommended 
a shorter retention period. Most of these commenters supported 
extending the retention measure to one year, but other recommendations 
included an 18 month period or a longer period, if possible. In 
general, they believed that six months is too short a period of time to 
demonstrate that an individual has achieved job stability. Other 
specific suggestions ranged from extending retention to the sixth 
tracking quarter, or measuring retention only in the same job unless 
the change is to a job that pays a higher wage, offers enhanced 
benefits, or promotes job stability or career growth. The latter 
suggestion did not include a specified period of time for measuring 
retention.
    Response: After careful consideration of the comments, we did not 
adjust the retention period. We proposed in the NPRM that job retention 
be measured in the initial quarter and the two consecutive subsequent 
quarters, in part, because this is similar, though not identical, to 
measures of job retention in the WIA and WtW programs. We continue to 
believe that job retention over six months is a reasonable indication 
of stable employment. In addition, an extended retention period would 
delay when critical performance data would be available. Given the lag 
in data availability, the longer time frame would not allow us to make 
the bonus awards in the bonus year to which they apply. Further, if we 
did not issue the FY 2003 bonus funds by September 30, 2003, they would 
return to the Treasury, unless Congress reauthorizes the bonus and 
appropriates funds.
    We also considered the suggestion that we measure retention in the 
same job, but decided against it because, moving to another job can, in 
fact, represent moving up to a better job. In addition, tracking job 
characteristics, other than wages, e.g., benefits, would be extremely 
burdensome, if not impossible.

C. Success in the Work Force Measures

    In the NPRM, we proposed a ``success in the work force measure'' 
that combined the performance scores of two sub-measures, i.e., job 
retention and earnings gain. We proposed a combined measure because of 
the linkage between these two outcomes, i.e., with earnings gain viewed 
as dependent on an individual's success at retaining employment. In 
ranking and combining the scores of these measures, we proposed a 
double weight for the job retention measure. We also proposed to 
measure the change in the earnings for those employed in one quarter 
who were also employed in the second subsequent quarter.
    Comment: Several commenters thought that we had not given 
sufficient weight to earnings gain. Commenters also recommended that 
we:
     Treat earnings gain as a separate measure instead of 
incorporating it into the success in the work force measure;
     Measure earnings gain at both six and 12 months;
     Adjust the earnings gain for the cost of living in each 
State using the HUD fair market rent amount;
     Measure only full quarters' earnings; or
     Allow administrative data on a voluntary basis as a source 
of earnings.
    Response: Several commenters questioned why we weighted the job 
retention submeasure at twice the rate of the earnings gain submeasure 
and recommended that we give each measure equal weight. They believed 
earnings gain is a better indicator of stable employment and a key 
component to achieving economic independence.
    For the reasons expressed by the commenters and, after further 
analysis of the available data, we agree that job retention and 
earnings gain should be weighted equally in developing State rankings. 
We have made this change in Sec. 270.5(b).
    We agree that separate measures for both job retention and earnings 
gain would provide a discrete focus and reward for each measure. Job 
retention is an important measure of success in transitioning from 
welfare to work. It is correlated with long-term employment stability, 
e.g., the longer an individual remains employed the more opportunities 
there are to acquire specific job skills and refine successful work 
habits. However, we also believe that job retention and performance in 
earnings gain are directly linked in the work world. Research in this 
area has shown a correlation between persistent work force attachment 
and earnings. We also believe that de-linking these measures could 
create perverse incentives for States, e.g., to focus on placement and 
retention of recipients in any job without regard to the quality of

[[Page 52842]]

the job or to ``cream'' in order to show larger earnings gains. 
Finally, creating a separate earnings gain measure would result in 
fewer bonus dollars for any one work measure.
    Therefore, we have retained the link between job retention and 
earnings gain in order to focus attention and resources on both. 
Helping people rapidly get employed, remain employed, or enter higher 
paying jobs after training and progress to even higher paying jobs are 
all important strategies. States may choose to emphasize different 
strategies at different times, depending on their populations, goals, 
and economies.
    Several commenters recommended that we measure earnings gain at 
both six and twelve months. We did not want to make this change for 
essentially the same reasons we did not want to extend the retention 
rate to twelve months, i.e., it would delay obtaining critical data for 
analysis and impede our ability to award the bonus in the bonus year.
    In addition, we have not accepted the comment to adjust the 
earnings gain sub-measure based on the cost of living in each State 
using the HUD fair market rate amount as this would add a level of 
complexity that would counter one of our basic principles, i.e., to 
maintain simplicity. First, it is not clear that differences in 
earnings directly track differences in fair market rent. More 
importantly, it is not clear that differences in the cost of living 
would make any difference in the comparison of earnings gains between 
States. Because we are measuring an increase in earnings in a single 
State from the reporting quarter to the second subsequent quarter, 
differences in the cost of living among different States would not be 
relevant. It is not the absolute difference between earnings in 
different States that is relevant, but the percentage point difference 
of the change in earnings amount from one year to the following year in 
the same State. Thus, a State would not be advantaged or disadvantaged 
by having a higher or lower cost of living than other States.
    We also did not accept the recommendation to measure only full 
quarters' earnings because that would require a substantially increased 
data collection and reporting burden on the States. Because 
Unemployment Insurance (UI) and NDNH records do not indicate whether 
earnings reflect a full quarter of employment or not, we would have to 
establish a proxy measure, require States to collect and submit 
administrative data, or conduct new surveys. Also, allowing States to 
submit administrative data on a voluntary basis would not be helpful 
because we believe that the bonus awards must be based on data that are 
uniformly available and comparable across States.
    Finally, although we received no comments on this matter, we have 
clarified how we will calculate scores, rank States, and award bonuses 
for the increase in success in the work force measure. First, we will 
award bonuses only to States with a positive improvement score on at 
least one of the sub-measures. Second, we will not exclude a State with 
a negative score in calculating a rate and ranking States on this 
measure. For example, a State may have a negative score on one sub-
measure (e.g., job retention) and a positive score on the other sub-
measure (e.g., earnings gain). We have added language in 
Sec. 270.5(a)(4) to specify that we will award bonuses only to States 
that achieve a positive percentage point difference on at least one 
sub-measure between the rate for the performance year and the 
comparison year.

D. Sustained Employment Rate

    Comment: Two organizations suggested a somewhat different approach 
to the proposed work measures. Their approach would create a 
``sustained employment rate,'' a separate earnings gain rate, and a new 
measure of the earnings gap for poor families in a State.
    They recommended that we develop a single sustained employment rate 
in lieu of the job entry and job retention rates. The base 
(denominator) for the sustained employment rate would be all TANF adult 
recipients except those engaged in employment with earnings equal to or 
greater than an average of twenty hours per week for the quarter 
multiplied by the Federal minimum wage. A recipient would be counted as 
a ``sustained employment recipient'' if the recipient has at least two 
consecutive quarters with earnings at or above the threshold noted 
above during the next year. The earnings gain rate would be measured 
over a one-year period beginning after the initial quarter of 
employment where the earnings are at or above the earnings threshold in 
the measurement quarter, e.g., quarter two and quarter six.
    Under the earnings gap measure, the difference between the amount 
of earnings for poor families with children in a State and the official 
poverty level would be determined. We would rank States on their 
success (improvement) in closing that difference. We would also make 
adjustments based on changes in unemployment rates and changes in the 
number of families in the measurement period.
    Response: These recommendations would result in a significant 
change in the work performance measures, add a high degree of 
complexity, and substantially increase the data collection burden. 
Further, because the ``sustained employment rate'' recommendation does 
not differentiate between the unemployed and the underemployed, it 
would result in the loss of information on the number of adult 
recipients entering employment for the first time in a year. The 
suggested time frames for these recommendations would result in the 
issuance of the bonus awards well after the end of the bonus year. In 
addition, most commenters supported staying within the existing 
framework for the work measures. For these reasons, we are not adopting 
this proposal.

E. Subsidized Work

    In the NPRM, we proposed to count only jobs that were not fully 
subsidized in order to focus on jobs that were likely to lead to self-
sufficiency.
    Comment: Several commenters suggested that we count fully 
subsidized jobs, or at least exclude them from the denominator as well 
as the numerator. They contended that, unlike community experience and 
work experience, wage-paying subsidized jobs resemble unsubsidized 
employment in every aspect, except for the subsidy paid to the 
employer. Another commenter recommended that we link work experience 
and subsidized work with the provision of ancillary services such as 
education and training. One commenter suggested that we clarify that, 
while subsidized work would not be counted, ``supported'' work would 
be, since ongoing funding is provided to the job coaches rather than to 
the individuals' wages.
    Response: First, ``supported'' work currently is counted in the 
calculation of the work measure. Second, we have decided to count wage-
paying, fully subsidized jobs in the numerator and the denominator of 
the work measures in the final rule. We have made this change because 
we believe the numbers are small, and we recognize that the distinction 
between partially and fully subsidized employment is somewhat 
artificial and is governed by changes based on the wage rate of the 
individual TANF recipient. We also believe that this change will reduce 
the burden on States as they will not need to separate out and report 
different types of subsidized jobs. We also note that community service 
and work experience ``jobs'' would also count to the extent that wages 
are actually paid and

[[Page 52843]]

reported to the State Employment Service agency.

F. Measuring Improvement

    In the NPRM, we proposed to award bonuses to the States 
demonstrating the greatest improvement in job entry and success in the 
work force. We proposed to measure the percentage increase from the 
comparison year to the performance year.
    Comment: There was strong support for the improvement measures, 
including one commenter who expressed the view that we should use only 
improvement measures, in order to give States more incentive for 
continuous progress, and to give all States an equal chance of earning 
a bonus, regardless of their starting point.
    Another commenter, however, recommended that we should use only 
absolute measures or reduce the amount of the awards for the 
improvement measures because States that have been high performers in 
the past would have little room for improvement. They believed that the 
proposed method of calculating the performance improvement rate for job 
entry and the success in the work force measure (combination of job 
retention and earnings gain) did not take into consideration the past 
performance of States that had implemented welfare reform early. These 
commenters indicated that States were disadvantaged if they had 
achieved earlier success in moving recipients from welfare to work and 
self-sufficiency that would not be measured. In addition, such States' 
remaining caseloads have a higher proportion of recipients that have 
significant employment barriers. Commenters made the following 
recommendations:
     Adjust the proposed method of calculating the improvement 
rate, i.e., average the comparison and performance year rate scores and 
add the percent change between the two years to the average score.
     Set a minimum target for improvement, e.g., ten percent, 
and make awards to all States that met the target without limiting the 
number of States that could receive an award.
    Response: The bonus awards are based on current performance. Even 
for the improvement measures, we assess the level of current 
performance in relation to the immediately preceding year. Because the 
statute specifies the performance year for each of the bonus years, it 
is not clear that the recommendations are consistent with either that 
statute or Congressional intent. Further, even if we agreed with the 
argument that we should consider past performance (prior to the FY 1997 
comparison year), there is no objective way to provide for such an 
adjustment, because we do not have access to data for prior-year 
periods.
    Finally, we recalculated the FY 1999 bonus improvement scores based 
on the recommended adjustment formula and found that it had the effect 
of narrowing the range of the improvement scores and had some limited 
impact on bonus winners. There was only a modest change in the 
improvement rate ranking of ``early reform'' States, based on this 
recommended approach. For these reasons, we have not adopted the 
suggestion to consider past performance earlier than the comparison 
year.
    We also have not accepted the recommendation that we establish a 
minimum target for improvement largely because caseloads are changing. 
With the available baseline data it would be difficult to determine a 
reasonable goal, especially over more than one bonus year.
    However, in Sec. 270.5(a) and (b)(3), we have changed the method of 
calculating the improvement rate. Specifically, we have decided to use 
the percentage point change instead of the percentage change. For 
example, under the NPRM, a State that went from a 50 percent to a 60 
percent job entry rate would have an improvement rate of 20 percent 
((60%-;50%)/50%=20%), while a State that went from a lower base of 40 
percent to a 50 percent job entry rate would have a bigger increase, 
i.e., 25 percent ((50%-40%)/40%=25%). Under the final rule, these same 
States would have identical improvement rates of ten percent 
(60%-50%=10% and 50%-40%=10%). We believe this new approach will reward 
substantial improvement rather than relative improvement and will raise 
expectations about the level of improvement required to receive a 
bonus, particularly among States whose baseline performance was low.

G. Leveling the Playing Field

    We stated in the NPRM that we believed that competition for the 
high performance bonus should primarily reflect a State's welfare to 
work strategies and should be a competition among States that is 
objective and fair. We indicated that 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. We asked if we should attempt to develop 
adjustment factors in order to ensure an objective and fair 
competition.
    Comment: There were two comments suggesting that we level the 
playing field to take into account such factors as economic, 
demographic, and cultural differences. We did not receive any specific 
proposals.
    Response: We believe that by incorporating both absolute 
performance and performance improvement measures, we have helped 
produce a more level playing field for States competing for the high 
performance bonus. Further, by changing from a percentage increase to a 
percentage point increase to measure improvement, we have struck a 
balance between recognizing past performance and encouraging 
improvement from a low base.
    The adjustment of performance scores by external factors would be a 
complex and difficult task involving the establishment of a correlation 
between external factors and the performance being measured and, if a 
strong correlation was detected, determining the scope of the 
adjustment. Also, such adjustment(s) could add a level of subjectivity 
and contentiousness to the performance system beyond the value of 
potentially leveling the playing field.
    Nevertheless, in order to test whether we could detect a 
correlation between certain external factors and the work measures, we 
performed regression analysis using job entry rate performance and such 
factors as the unemployment rate, recipient characteristics, and TANF 
payment levels. (We chose job entry rate performance because we thought 
State performance under this work measure would more likely be 
influenced by external factors.) Our analysis showed that none of these 
factors was highly correlated with job entry rate. In fact, the highest 
correlation coefficient was -0.28 for the unemployment rate. Thus, the 
implication is that these specific factors do not determine the job 
entry rate to any significant degree. In addition, adding adjustment 
factors makes it much more difficult to explain performance and for 
States to set meaningful targets. Therefore, we have decided not to 
make any adjustments to the way we calculate job entry or any of the 
other work measures based on economic, demographic, or other factors.

H. Other Comments and Recommendations

    Comment: One commenter recommended that we should measure all those 
served, not just those receiving TANF cash assistance.
    Response: We have not limited the population we are measuring with 
the

[[Page 52844]]

work measures to just those currently receiving cash assistance. We 
also include all individuals receiving TANF ``assistance'' as specified 
in Sec. 260.31 of the TANF final rule, i.e., primarily cash assistance. 
We also look at work-related outcomes for those who received cash 
assistance in a prior period. There is no practical way that we could 
include all those served, regardless of whether they are receiving 
assistance, e.g., diverted individuals. Such a change would involve a 
major new data collection effort and impose a substantial burden on the 
States.
    Comment: In response to a series of questions we posed, one 
commenter recommended that we should include core measures, while 
another suggested that States should have to compete on a universal set 
of measures.
    Response: We have not required any core measures or a universal set 
of measures because we want to allow States maximum flexibility to 
elect the areas in which they will compete. We believe this is 
consistent with the flexibility provided States in the operation of 
their TANF programs and the voluntary nature of the high performance 
bonus.
    Comment: Two commenters indicated that some States have expressed 
concern over the current method of calculating the job entry rate. They 
suggested instead that the measure should be the percent of the total 
recipients in the current quarter employed for the first time. No 
reason was given for wanting this change.
    Response: It is unclear what the commenters would change in the 
proposed method for calculating the job entry rate. Under our proposed 
method, the denominator is the unduplicated number of adult recipients 
who were unemployed at some point during the year, and the numerator is 
the unduplicated number of job entries. We believe the commenters are 
proposing to change the denominator to either employed adult recipients 
or to all adult recipients. This suggested change would significantly 
alter the job entry measure. The purpose of this measure is to 
determine the extent to which unemployed adult recipients enter 
employment for the first time in the year as a percentage of those who 
are unemployed. The suggestion, if adopted, would result in a different 
focus, i.e., of the adult recipients who are employed, how many are new 
job entries or, of all adult TANF recipients (employed or unemployed), 
how many are new job entries. We continue to believe that the 
appropriate focus for this measure should be on the impact of States' 
efforts on its unemployed caseload. For this reason, we have not made 
this change.
    Comment: One commenter suggested that because research has shown 
that many TANF recipients attain and lose jobs several times, that we 
should reward States for job entries over a longer period of time, such 
as a two-year performance period. Specifically, for the job entry 
measure, the commenter indicated that we should count only job entries 
that are the first job entry in a two-year period. They proposed that 
retention would then be measured from the point of job entry to a time 
period one year later.
    Response: Given the lag in data availability, the longer time frame 
would not allow us to make the bonus awards in the bonus year to which 
they apply. If we did not issue the FY 2003 bonus funds by September 
30, 2003, they would return to the Treasury, unless Congress 
reauthorizes the bonus program and appropriates funds. In addition, the 
statute requires that we award bonuses for a single performance year, 
not over a two-year period.

Section 270.6  What Data for the Work Measures Must a State Report to 
Us? (Title of This Section in the NPRM.)

Section 270.6  What Data and Other Information Must a State Report to 
Us? (Title of This Section in the Final Rule.)

    In the NPRM, we proposed that the State, if it chose to compete on 
any or all of the work measures, must report one of two alternative 
sets of data, as specified by the Secretary. In one alternative, the 
State would provide three items of identifying information on its adult 
TANF recipients that we would match against the NDNH data. In the 
second alternative, the State would provide actual performance data for 
the work measures based on data matches with State UI records or other 
records. We also specified the SSP-MOE reporting requirements.
    We have broadened the content of this section in the final rule. In 
paragraph (a), we specify the data a State must report if it wishes to 
compete on the work measures. In paragraph (b), we specify that a State 
must report data on SSP-MOE programs in order to compete on any high 
performance bonus measure. In new paragraphs (c) and (d), we specify 
the data a State must report if it wishes to compete on the Medicaid/
SCHIP measures and/or the child care measure. Finally, in paragraph 
(e), we have retained the requirement (paragraph (d) in the NPRM) that 
each State must notify us regarding which measures it will compete on 
in each bonus year.
    Comments: Regarding paragraph (a) and the data States must report 
on the work measures, most commenters supported reporting minimal 
information on recipients and the use of the NDNH. A number of States 
believed strongly that no other source could provide Federal employment 
and out-of-State employment. However, a number of commenters raised 
issues about the use of NDNH data. Several questioned whether the NDNH 
contains all the necessary information to calculate the performance 
scores for all the work measures. One raised concerns about privacy 
protection of the NDNH data. Two wanted to use State administrative 
data to supplement the NDNH data, since we could not detect a period of 
unemployment within a quarter through the use of NDNH quarterly wage 
data.
    Response: After considering the comments and other factors relating 
to our operational use of the NDNH, we agree with commenters that State 
reporting of minimal identifying information on all adult TANF 
recipients and a match of this information by ACF at the Federal level 
would result in the least burden to States and the maximum accuracy in 
implementing the bonus awards.
    We have not specified the identifying information that States must 
submit in Sec. 270.6(a). Rather, because some operational factors are 
unclear in our use of the NDNH, we will specify these data in program 
guidance. The data that will be required will be limited to some or all 
of the information proposed in the NPRM, i.e., the name, date of birth, 
and social security number of all adult TANF recipients.
    In addition, we want to clarify what data are available through the 
NDNH. The NDNH contains not only a national database of new hires, but 
also national wage data compiled by the State Unemployment Insurance 
agencies and Federal employment and wages. (This addresses commenters' 
concerns for information on out-of-State and Federal employment.) 
Matching adult TANF recipient data with quarterly wage data on the NDNH 
data base will provide the necessary work performance information to 
rank States on all the work measures.
    With respect to the privacy concerns, the match of adult TANF 
recipients with the NDNH database will not reflect information about 
individuals, but will produce only aggregate information for use in 
calculating the State rankings on the work measures.
    Prior to these regulations, we provided States flexibility in what 
data source(s) they could use for compiling performance data for the 
work

[[Page 52845]]

measures. We note that States competing for the FY 1999 bonus awards 
compiled their work measurement performance data based on their State 
unemployment wage data system. Our proposal builds on and strengthens 
that system. The use of the NDNH will ensure that we rank States based 
on the most uniform, objective, and reliable data available. In 
addition, States will have the benefit of the employment data on their 
TANF recipients, including out-of-State employment and Federal 
employment.
    We specify in new paragraph (c) that we will issue program guidance 
on the data a State must submit if it wishes to compete on the 
Medicaid/SCHIP measure.
    We specify in new paragraph (d) that if a State wishes to compete 
on the child care measure in FY 2002, it must report the data required 
by the CCDF program. These data are found in ACF Forms 800, 801, and 
696. In addition, after external consultation, we will issue program 
guidance to specify the additional data on child care market rates that 
States must submit in order to compete in FY 2003.

Section 270.7  What Data Will We Use To Measure Performance on the Work 
Support and Other Measures?

    In the NPRM, we proposed to use Census Bureau data to rank State 
performance on the Food Stamp and the Family Formation measures. We 
also proposed to rank State performance on the Medicaid/SCHIP measure 
based on the data submitted by States following their match of 
individuals no longer receiving TANF assistance with Medicaid/SCHIP 
enrollment data.
    In the final rule, we specify in paragraph (c) that we will use 
data from the ACF Forms 800, 801, and 696 to rank State performance on 
the child care measure. Also, after external consultation, we will 
issue program guidance specifying the other information States must 
submit in order to compete on this measure.
    In addition, we have made the following editorial and technical 
changes in this section: we have substituted the acronym SCHIP for the 
acronym CHIP and clarified that we will rank only those States that 
choose to compete on these measures. In addition, we received a number 
of comments on this section.
    Comment: Several commenters expressed concern about the proposed 
use of Census Bureau data. Commenters based their concerns on perceived 
problems with the Current Population Survey (CPS) or the decennial 
census, e.g., the CPS data could not produce reliable State-level 
estimates for all States, given the sample sizes. They cited the lack 
of reliability of the CPS data and recommended, alternatively, that we 
base Food Stamp and the Medicaid/SCHIP measures on State administrative 
data that are more current. They also believed that the decennial 
census data, despite periodic updates, under-reports many low-income 
populations, focuses on married households, and undercounts households 
where two adults may be responsible for parenting and child-rearing. 
Undercounting the increasing number of grandparents raising children 
was also of concern to commenters.
    Response: We agree that State administrative data, in some cases, 
are more current than decennial census data or the CPS estimates. Our 
aim in the NPRM, however, was to propose to use the most uniform, 
reliable, and objective data available with as little burden to States 
as possible.
    We want to clarify that we will use data from the Census Bureau's 
Census 2000 Supplementary Survey and the Census Long-Form Transitional 
Database in awarding bonuses for FY 2002 and FY 2003. The Supplementary 
Survey and the Transitional Database will provide reliable State-level 
data based on a sample of 700,000 cases. If high performance bonus 
awards are authorized in subsequent years, we plan to use data from the 
Census Bureau's American Community Survey (ACS), which will provide 
annual reliable State and county-level data, starting in 2004 for areas 
with populations of 65,000 or more.
    Comment: A number of commenters recommended that the final rule 
require States to report data separately on the number of adults and 
the number of children no longer receiving TANF assistance who are 
enrolled in Medicaid or SCHIP. They commended our proposal to evaluate 
States on the percentage of individuals enrolled in Medicaid or SCHIP, 
rather than the percentage of families enrolled. They based their 
recommendation on the need for better data and findings from recent 
studies that indicated that often only selected family members retain 
health care coverage after leaving welfare. In particular, parents 
appear to be at much greater risk than children of losing out on health 
care coverage for which they are eligible.
    Response: We agree that information on the participation of adults 
and children in these programs could be useful in monitoring program 
outcomes. However, we do not believe that the value of this information 
justifies the additional data collection effort that would be required.

Section 270.8  How Will We Allocate the Bonus Award?

    This section of the NPRM proposed to:
 Make awards to the ten States with the highest scores in each 
measure;
 Allocate a total of $140 million to the four work measures as 
follows:
     Job entry rate--$56 million
     Success in the work force--$35 million
     Increase in job entry rate--$28 million
     Increase in success in the work force--$21 million
 Allocate a total of $60 million to the non-work measures with 
$20 million each to the Food Stamp, Medicaid/SCHIP, and family 
formations measures; and
 Within each measure, distribute the bonus money based on each 
State's percentage of the total amount of the SFAG of the ten States 
that will receive a bonus.

    There were no major objections to this section of the NPRM, but 
several commenters made alternate recommendations. In general, most 
States and their representative organizations recommended that the full 
amount of the annual bonus ($200 million) be awarded based on the work 
measures. On the other hand, a large number of the other commenters 
recommended various increases in the amount of funding allocated to the 
work support measures.
    In addition, although there was general support for awarding 
bonuses to the top ten States with the highest scores in each measure, 
we received several suggestions for alternative approaches to the Food 
Stamp and Medicaid/SCHIP measures: (1) Award bonuses in each measure 
for both absolute performance and performance improvement; (2) award 
five bonuses for absolute performance and five for improved 
performance; (3) alternatively, award three bonuses for absolute 
performance and seven for performance improvement; and (4) award the 
same amount of money for each measure.
    Comment: Several commenters recommended specific changes in the 
amounts proposed for the four work measures that would emphasize 
``success in the workplace.'' They believed that the proposed 
allocations seem unduly weighted towards job entry (i.e., $56 million 
of the $140 million) at a time when the focus of the TANF program has 
shifted to an emphasis on earnings gain (measured by success in the 
work force and increased

[[Page 52846]]

success in the work force). They indicated that job entry is no longer 
the critical measure that job success is. One commenter, for example, 
suggested that we alter the bonus amounts as follows:

     Job entry--$28 million
     Success in work force--$56 million
     Increase in job entry--$21 million
     Increase in success in work force--$35 million

    Response: We considered this recommendation in light of our 
knowledge of and experience with State TANF programs to date. At the 
present time, we believe it is important to retain a priority focus on 
job entry, not only because of the emphasis throughout the TANF statute 
on work and economic self-sufficiency, but also because initial 
employment is a prerequisite for the rest of the work measures. It also 
remains a primary focus for most State programs in leading to self-
sufficiency. However, the bonuses also recognize that job entry is not 
sufficient for meeting the work-related objectives of TANF and that 
TANF goals encompass more than work.
    Comment: Commenters were concerned that, in competing for the 
bonus, a State with a relatively small SFAG might be likely to lose 
money if the cost of competing for the bonus was greater than the 
amount the State might receive as a winner. They recommended that 
States should at least be able to recover the costs of applying for the 
bonus in a category where they made the top ten winners list. They also 
recommended that we award any State receiving a bonus some minimum 
amount based on an estimated cost of applying for the bonus in that 
category. We could allocate the remainder of the award money in that 
category as proposed.
    Response: We are aware that, for a few States, it may be difficult 
to compile data in order to compete for the bonuses. In the final rule, 
we have addressed this difficulty, in part, by requiring no information 
from States for the Food Stamp and the family formation measures and 
minimal information from States for the work measures and matching 
these minimal data with the NDNH data at the Federal level. For the 
child care measure in FY 2002, we have relied on data States report to 
us under the CCDF program. With respect to the commenter's specific 
suggestions, we could find no support for specifying minimum bonuses in 
section 403(a)(4) of the Act and believe it could be very problematic 
to administer. Thus, we have not accepted these recommendations.
    Comment: A number of commenters, including Members of Congress, 
recommended increases in the amounts allocated to each of the work 
support measures, ranging from increasing the allocation for the Food 
Stamp and Medicaid/SCHIP measures to $30, $35, or $40 million; 
allotting amounts ranging from $20 to $40 million for a new child care 
measure; and allotting $20 million for a new measure on domestic 
violence and $20 million each for two measures on worker protections. 
Commenters offered the following opinions:
     States already have many incentives to help individuals 
enter the work force, e.g., the penalties if States do not meet the 
work participation requirements. Skewing performance bonuses further 
towards work is unnecessary. Giving equal weight to work and work 
support measures better reflects the reality that a job alone is not 
enough for a family to succeed.
     Families will not be able to get or maintain employment 
without these essential supports. Further, the work support measures 
(including the addition of any new measures related to child care or 
other measure) support two of the four purposes on TANF by providing 
assistance so that children can be cared for in their own homes as well 
as promoting job preparation and work.
     As proposed in the NPRM, the $20 million for each of the 
Food Stamp and Medicaid/SCHIP measures, divided among the top ten 
winning States, creates little incentive for States, compared to the 
more generously funded work measures.
    Response: We seriously considered increasing the allocations for 
the Food Stamp measure and the Medicaid/SCHIP measure. However, we 
continue to believe that the work measures most directly address the 
overall focus of the TANF program, including purposes one, two, and 
four of the Act. Therefore, we continue our proposed allocation plan 
and will allot $140 million to the work measures, $20 million to the 
Food Stamp measures, and $20 million to the Medicaid/SCHIP measures. We 
also specify in new paragraph (c) that we will allot $10 million to the 
child care measure and $10 million to the family formation measure.
    Comment: In commenting on one State's receipt of a multi-million 
dollar bonus in 1999 for 1.7 and 2.9 percent increases in two work 
measures, one organization objected to the lack of a benchmark or other 
threshold standard as a part of the bonus system. They believed such 
``minuscule changes'' in State performance do not represent high 
performance. Rather than funding the ten States with the highest scores 
in each measure, they recommended that we set limits for what we 
consider acceptable and successful performance.
    Response: In the preamble to the NPRM, we solicited public comment 
on some of the issues we had considered related to absolute 
performance, performance improvement, and threshold levels. (See 
Section IV. Discussion of Other Issues Related to Performance 
Measurement.) The issue of a threshold level, benchmark, or performance 
standard is one we struggled with, both internally and in our 
consultations with external groups. Given the lack of experience in 
establishing and implementing a bonus system, the general consensus on 
this matter was that an ordinal standard, such as rewarding the ten 
States with the highest scores, was initially most appropriate.
    As we said in the NPRM, awarding bonuses to the top ten States not 
only provides a clear incentive to States, but also helps avoid 
problems associated with the need to re-allocate funds. More 
importantly, we did not want to set a numerical threshold based on an 
absolute level of performance, given the absence of baseline data. 
Another factor we considered is that what works now in terms of a bonus 
system may not be appropriate as the States' caseloads continue to 
change.
    Finally, we believe that State programs are still evolving and 
continue to reflect the flexibility provided in the statute in their 
programs and services. Given that diversity, we have decided not to 
change our proposed standard.
    Comment: This same commenter recommended that we invest most of the 
award funds in the work support measures on the grounds that the State 
Food Stamp and Medicaid/SCHIP enrollment data are the most solid, i.e., 
they follow individuals over time, and they are backed by quality 
control efforts. They recommended that we delay awarding bonuses to 
measure job retention and earnings until we have a valid source of data 
for these categories.
    Response: We believe the minimal data States must provide to 
compete for the work measures, cross-referenced to or matched with the 
NDNH data, will provide the basis for national uniform, objective, and 
reliable job retention and earnings information on which we can make 
bonus awards on these measures with full confidence. As proposed, we 
will use Census Bureau data as the data source for the Food Stamp and 
the family formation measures; we will use State Medicaid and SCHIP 
data (matched with TANF data at the State level) as the data source for 
the Medicaid/SCHIP measure.

[[Page 52847]]

    Comment: Rather than basing the amount of the award on the 
percentage of TANF funds a State is allotted, one commenter recommended 
that, in distributing funds among the top ten winners in each measure, 
we base the bonus amount on the percentage improvement a State 
achieves.
    Response: We continue to believe that the allocation of bonus funds 
based on a percentage of a State's family assistance grant in relation 
to the total bonus award for that measure is the most appropriate 
allocation method. This approach recognizes the potential number of 
individuals affected by the State's performance, the State resource 
costs to achieve levels of high performance, and the five-percent 
funding limitation in the statute.

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

    In the NPRM, we proposed a two-step process to redistribute funds, 
if for some reason we cannot award the full annual amount of $200 
million in any fiscal year. We proposed that, if we could not 
distribute the funds as specified in Sec. 270.8, due to the statutory 
limit on each State's bonus award, we would reallocate the funds among 
the measures proposed in Sec. 270.4. If the funds still could not be 
distributed within the bonus year, we proposed that they would be 
available for distribution in the following year.
    We have made one editorial change in the regulatory text for 
clarity. In Sec. 270.9(a), we deleted the phrase ``due to the statutory 
limit on the amount of each State's bonus award,'' as there may be 
additional reasons why funds could not be awarded, e.g., if 
insufficient numbers of States qualify for bonuses in a particular 
measure in a given year.
    Comments: Two commenters concurred with the proposal that we re-
allocate any undistributed funds among the top ten States. However, 
they also recommended that if we still cannot distribute funds within 
the bonus year, we should award the funds to the eleventh and twelfth 
State in rank order.
    Response: We reconsidered these suggestions, which we had evaluated 
earlier, in the context of our external consultations. We find no 
compelling reason to accept the suggestion that funds be awarded to the 
eleventh or twelfth State or to change the process we proposed in the 
NPRM. As we indicated above, we believe ten awards in each measure 
offers a reasonable and clear incentive to States. We do not believe 
diluting this incentive would further the aims of the bonus system, 
particularly as we proposed another more efficient mechanism to ensure 
that funds that cannot be awarded in a fiscal year will remain 
available, i.e., will be rolled into the next fiscal year's awards.
    However, we will reconsider this suggestion if: (1) We find that, 
in FY 2003, the bonus awards have not been re-authorized in the 
statute, and we cannot roll funds forward; and (2) we have a situation 
in which funds would remain unawarded.

Section 270.10  How Will We Annually Review the Award Process?

    In this section of the NPRM, we proposed to annually review the 
measures, data sources, and funding allocations for the high 
performance bonus system to determine if modifications, adjustments, or 
technical changes were needed. We stated explicitly that we would not 
add new measures or change funding allocations except through 
regulations.
    Also in this section, we proposed that we would consult with NGA 
and APHSA and other interested parties before we made our final 
decisions on performance components for bonus awards in FY 2002, FY 
2003 and beyond; notify States through program guidance of our 
decisions; and post this information on the Internet.
    Comments: Most commenters were supportive of these proposed 
provisions but provided additional comments and recommendations.
    (1) Regarding the proposed annual review of data sources, one 
commenter urged us to use the review process to evaluate annually 
whether new data sources are available. They supported a broader 
measure for determining State success in assuring health coverage for 
low-income families that would require additional data sources.
    (2) Regarding the proposed consultation activities, a State 
``welcomed the flexibility and input but only if changes produce little 
burden on States.''
    (3) Other commenters urged us to include members of the advocacy 
community in the review process, i.e., ``specify in the final rule that 
our consultation with interested parties will include, among others, 
local elected officials (such as mayors and county officials), labor 
unions, charitable organizations (such as those providing emergency 
food assistance and monitoring services to families with children), and 
low-income clients and their advocates.''
    (4) One commenter recommended that we should release the findings 
of the annual review process.
    Response: One of the purposes of the annual review is to identify 
and possibly implement certain changes, modifications, and technical 
corrections in the high performance bonus system, but not changes in 
the measures or funding allocations. We will change these latter items 
only through rulemaking.
    We view the high performance bonus system, however, as one that is 
still new for both the States and the Federal government and one that 
will evolve and need refinements in the future. We agree with the first 
commenter and are committed to looking to identify new, more reliable 
data sources. We also agree that our external consultations, as they 
have done in the past, will include a broad range of ``interested 
parties.'' However, we have not added specific examples of such 
agencies and organizations in the regulatory text because we do not 
think it is necessary or appropriate. (We specified the National 
Governors' Association and the American Public Human Services 
Association in this section because they are specified in the statute.)
    Finally, we have not accepted the suggestion to release the 
findings of the annual review. We believe such a release would be 
duplicative because the results will be shared through our consultation 
activities and/or through periodic guidance. If any changes result, the 
guidance containing these changes will explain the basis for the 
changes, including our rationale and the results of our review and 
consultation.
    Comment: One commenter recommended that, as a part of the 
consultation process, we should post on the Internet the data submitted 
by States in competing for the bonus.
    Response: We will make some of the data that are submitted by the 
States competing for the bonus available annually, after we have ranked 
the States and officially awarded the bonuses.
    We will not make any social security numbers available.

Section 270.11  When Must the States Report the Adult Recipient Data 
and Other Information Related to the Work Measures? (Title of This 
Section in the NPRM)

Section 270.11  When Must the States Report the Data and Other 
Information in Order To Compete for Bonus Awards? (Title of This 
Section in the Final Rule)

    In the NPRM, we proposed time frames for States to submit various 
information and data required to compete on the proposed work measures.
    In the final rule, we have broadened the content of this section to 
include

[[Page 52848]]

information on when the data for the Medicaid/SCHIP measures and the 
child care measure must be reported to us. In paragraph (a), we specify 
that each State must submit a list of measures on which it wishes to 
compete by February 28 of each bonus year. This provision is unchanged 
from the NPRM. In paragraphs (b) and (d), we specify that the dates for 
submitting data for the work measures and the Medicaid/SCHIP measures 
will be specified in program guidance. In paragraph (c), we specify 
when States must submit SSP-MOE data. This provision is unchanged from 
the NPRM. In new paragraph (d), we specify that States competing on the 
child care measure must report the child care information by the date 
specified by us.
    In the NPRM, we proposed that States must submit data for the work 
measures by February 28 and August 31 of each bonus year. These time 
frames reflected the proposed option for States to match adult 
recipient data with Unemployment Insurance data. We have dropped that 
option in the final rule. The final rule provides that we will match 
State adult recipient identifying information provided by competing 
States with wage data in the NDNH. We are working closely with the 
Office of Child Support Enforcement to finalize all technical issues 
related to this match, and we will specify the reporting timeframes in 
program guidance at a later date.
    Comment: One commenter recommended that the final data be reported 
13 months after the last quarter of the Federal fiscal year. The 
commenter did not discuss the reason for the suggested revision.
    Response: If we adopted the time frame suggested by the commenter, 
we could not issue the awards during the bonus year. Therefore, we have 
not accepted this comment.

Section 270.12  Must States File the Data Electronically?

    In this section, we proposed that, in order to compete for the high 
performance bonus, each State must submit data electronically on the 
work measures and on the Medicaid/SCHIP outcome measure in a manner 
that we and HCFA will specify.
    Comment: One commenter said that, if States are to submit data 
electronically, we must develop procedures well in advance, with 
adequate testing at the State and Federal levels.
    Response: We agree that we should develop and test the data 
submission procedures in time for use in the FY 2002 bonus year. We 
intend to have further discussions on these matters with Federal and 
State staff following publication of the final rules and prior to 
implementation.

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

    In the NPRM, we specified some of the requirements for the use of 
bonus funds, e.g., that funds must be used to carry out the purposes of 
the Act (section 401) and must meet the requirements of section 404 
(Use of Funds) and 408 (Prohibitions; Requirements) of the Act.
    Comments: The majority of commenters on this section urged us to 
provide as much flexibility as possible in the use of these funds, 
e.g., to ``exempt these funds from the constraints of the regulations 
and administrative caps associated with the SFAG.'' One commenter urged 
us to follow the model of the Department of Agriculture's Food and 
Nutrition Service, which rewards States for payment accuracy by 
providing additional administrative funds without restrictions. Without 
this flexibility, the bonus award would not provide an incentive to 
achieve but would become ``just another quarterly advice of TANF 
funding availability.''
    In emphasizing recommendations for flexibility, several commenters 
noted the lack of congruence between the proposed bonus awards tied to 
success in the Food Stamp and the Medicaid/SCHIP programs and a State 
TANF agency's inability to use TANF dollars to, for example, increase 
health care coverage for an additional portion of the low-income 
population, provide food stamp outreach, or directly fund food shelves. 
They recommended that we allow bonus dollars for expenditures that 
could positively affect the outcomes being measured, i.e., an increase 
in health care coverage or Food Stamp use.
    Other commenters suggested that, if flexibility were provided, 
States could use bonus funds for a wide range of activities, such as 
economic development targeted at TANF families; supplemental wages for 
newly employed TANF workers; allowable medical services; supplements 
for physician reimbursement rates for Medicaid to stimulate more access 
to health care; State programs or initiatives that reduce poverty, such 
as EITC credits; and increases in the number and quality of child care 
slots.
    One commenter, aware of the statutory restrictions on these funds, 
urged us to seek a legislative amendment to provide greater 
flexibility.
    Response: First, we want to reiterate that a State has the same 
flexibility in the use of these bonus funds as it has in the use of 
other TANF block grant funds.
    Second, despite a commenter's assertion that the statute does not 
require these limitations on the bonus funding, sections 404 and 408 of 
the Act limit the purposes for which high performance bonus funds can 
be used. Both sections refer to the use of a grant ``under section 
403.'' Since high performance bonus awards (as well as bonus awards to 
reduce out-of-wedlock births, contingency funds, and supplemental 
funds) are grants under section 403, the limitations in sections 404 
and 408 are statutory. Likewise, the restriction on the use of TANF 
funds for Food Stamp outreach is statutory, based on the Agricultural 
Research, Extension, and Education Reform Act of 1998, Pub. L. 105-185.
    Comment: One commenter questioned whether 45 CFR 263.13(a)(i) 
applied the 15-percent administrative cap limitation to the State's 
SFAG or to all funds a State may receive under section 403 of the Act.
    Response: Under 45 CFR 263.13(a)(i), the 15-percent cap applies to 
all funds a State receives under section 403 of the Act, except for 
Welfare-to-Work funds under section 403(a)(5). As explained in the 
preamble to the final TANF rule, this section provides for a 
consolidated administrative cap. Thus, it limits the total amount a 
State could spend on administrative costs based on the total amount of 
funding a State receives under section 403. We will not apply the 15-
percent cap separately to each grant or award under section 403.
    Comment: Other commenters asked that we clearly state that the high 
performance bonus funds, if not expended in the year of the award, 
would be available in future fiscal years until such time as they are 
spent.
    Response: Under section 404 of the Act, there is no expenditure 
period for TANF funds awarded to States under section 403 of the Act. 
The ``carryover'' provision includes the bonus award funds. Therefore, 
bonus funds, once awarded to States, are available until such time as 
they are spent in accordance with TANF requirements (including the 
requirement that reserved funds must be spent on ``assistance'' or 
associated administrative costs under the TANF program).
    In the NPRM, we also indicated that any expenditures for 
``assistance'' are subject to the restrictions on the use of Federal 
funds at 45 CFR 263.11. We have revised the proposed regulatory 
language because we did not want it

[[Page 52849]]

misinterpreted. Regardless of the purpose to which the bonus funds are 
put, a State's expenditure of bonus funds is subject to the 
requirements in Sec. 263.11. We had referred specifically to 
``assistance'' in the NPRM because we wanted to alert States to the 
special restrictions applying to the use of reserved (i.e., carryover) 
funds under section 404(e) of the Act. A State may spend reserved funds 
only on assistance and related administrative costs. (See 64 FR 17840 
for further discussion.)
    For clarity, we have added new paragraph (d) in this section to 
specify that States must report quarterly on the use of the bonus 
funds, along with other TANF funds, using the ACF-196.

VII. Amendment to 45 CFR Part 265

    Comment: A few commenters objected to the requirement that States 
must submit Sections One and Three of the SSP-MOE reports in order to 
qualify for the high performance bonus. They also commented that a 
State should not be required to submit MOE data as a condition of 
competing for the food stamp and Medicaid/SCHIP awards since these 
measures do not use the SSP-MOE data.
    Response: This first comment was similar to one we received on the 
NPRM for the general TANF rule. It reappeared because Sec. 270.11(b) of 
the high performance bonus NPRM reiterated the requirement from the 
general TANF rule (at 45 CFR 265.3(d)) that States wishing to compete 
for a high performance bonus must submit data reports on their separate 
State programs (SSPs). The SSP-MOE reporting requirement in the general 
TANF rule covers all high performance bonus measures.
    Last year, when we published the TANF final rule and the high 
performance bonus NPRM, we believed that submission of the SSP-MOE 
reports was critical to understanding State caseload changes and work 
performance. However, as TANF and SSPs have continued to evolve, and we 
have gained more experience with the caseload reduction credit and high 
performance bonus processes, we have encountered situations where a 
waiver of the SSP-MOE reporting requirement seemed appropriate. Most 
notably, as discussed in more detail later, States have raised 
questions about a very few SSPs that do not address basic needs; do not 
appear to be particularly germane to assessing State caseload 
reductions, work efforts, or performance; and are not amenable to TANF-
like reporting. Our general TANF rules do not allow us any discretion 
to grant waivers of the SSP-MOE reporting requirements, even in such 
circumstances. Based on discussions with States, we are concerned that, 
in some of these cases where the SSP-MOE reporting requirements are 
particularly problematic, States might elect not to provide certain 
benefits that support the goals of TANF rather than to develop the data 
collection and reporting system that the SSP-MOE requirements would 
entail.
    Since these problematic situations can arise with respect to either 
the high performance bonus or the caseload reduction credit, we wanted 
to provide an opportunity for waiver of the requirements in both 
circumstances. We believe the clearest way to make that change is in 
the general TANF rule. Thus, in this rulemaking, we have revised the 
TANF final rules at Sec. 265.3(d)(2) to allow waivers of the SSP-MOE 
reporting requirements, under very limited circumstances. More 
specifically, we would allow waivers only if the benefits being 
provided in the SSPs were considered assistance under Sec. 260.31(a)(3) 
and the State made a clear case that the cost and burden associated 
with collection and reporting of the data substantially outweighed any 
potential benefit.
    The first condition means that waivers would be available only for 
benefits that are defined as ``assistance'' because they are 
``supportive services such as transportation and child care provided to 
families that are not employed.'' We would not waive SSP-MOE reporting 
requirements for SSPs that provide assistance under paragraphs (a)(1) 
or (a)(2)--that is, for programs that: (1) provide assistance that 
meets the basic needs of a family (even if the family's receipt of such 
benefits is conditioned upon participation in work experience or 
community service); or (2) provide benefits that would have 
historically been considered ``welfare'' benefits. For example, we 
would never waive SSP-MOE reporting when the State had elected to meet 
the basic needs of its two-parent TANF cases through a SSP. We would 
only grant waivers for SSPs that provide supportive services, such as 
transportation and child care, to families that are unemployed. In 
fact, we anticipate that SSPs receiving reporting waivers would 
typically be serving a mix of employed and unemployed families, but 
mostly employed families. However, separating the families into 
employed and unemployed families and gathering detailed characteristics 
data on a monthly basis for only the employed families would be 
extremely burdensome.
    In deciding whether a State had made its case, we would look at 
factors such as:
     The capacity of the SSP to provide the kind of information 
required in the SSP-MOE report;
     The size of the separate State program (e.g., the number 
of beneficiaries and the proportion of the TANF caseload that would 
represent); and
     Whether the data would be important to a full 
understanding of the State's work efforts, caseload changes, or 
performance.
    An example of a situation where we might waive SSP-MOE reporting 
would be the following: a State provides funds to a local 
transportation initiative that provides shuttle bus service between a 
low-income, inner-city neighborhood and suburban jobs. While most of 
the shuttle passengers are employed, unemployed neighborhood residents 
can use the shuttle to get to a pre-employment training program. Thus, 
there may be families receiving benefits that meet the definition of 
``assistance'' under Sec. 260.31(a)(3). The State agency, working with 
the transportation program, can determine the proportion of ``eligible 
families'' using this service through a simple survey. However, the 
program does not collect detailed case-specific and monthly information 
on the families they serve, and it has no mechanism for collecting such 
data or submitting data electronically to the State. In addition, the 
number of families receiving ``assistance'' in the program is thought 
to be negligible, and they would have little chance of showing up in, 
or affecting, the SSP sample.

VIII. 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 
final rule is consistent with these priorities and principles.
    The Executive Order encourages agencies, as appropriate, to provide 
the public with meaningful participation in the regulatory process. 
This rulemaking implements statutory authority based on broad 
consultation and coordination. Section 403(a)(4) of the Act 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 earlier in 
the preamble and in section G. of this

[[Page 52850]]

Regulatory Impact Analysis, ACF consulted with States, their 
representative organizations, and a broad range of advocacy groups, 
researchers, and others to obtain their views. This rule reflects 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. It will determine how $200 
million will be awarded annually to high performing States to be used 
to carry out the purposes of the TANF program. It will also have the 
additional effect of improving State efforts to implement welfare 
reform. High performing States could see their funding increase by as 
much as five percent of their State family assistance grant. We believe 
the cost of competing for a high performance bonus award in FY 2002 
should be minimal since competition for these awards will be based, to 
the extent possible, on existing data sources. After consultation with 
States, advocates, and others, we will specify the data States must 
submit in order to compete on the child care measure in FY 2003.

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 are a statutory 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 final rule 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 the PRA, we have submitted the 
data collection requirements to OMB for review and approval. We used 
the NPRM as a vehicle for seeking comment from the public on these and 
any additional information collection activities that they believe 
should be added as a part of the bonus award process.
    Based on this final rule, we will award bonuses, in FY 2002 and 
beyond, on four work measures, five work support measures, and one 
measure on family formation and stability in Sec. 270.4. We have 
computed the burden based only on the work measures and the measure of 
Medicaid/SCHIP participation. No reporting burden would fall on the 
States in competing on the Food Stamp measure or the family formation 
measure as we will use the Census Bureau's Census 2000 Supplementary 
Survey and the Transitional Long-Form Database as the data source for 
this measure. In FY 2002, no additional reporting burden will fall on 
the States in competing on the child care measure as States will be 
ranked based on data they currently report under the Child Care and 
Development Fund program (ACF Forms 800, 801, and 696). After external 
consultation on the child care measure, we will specify, by the end of 
the calendar year, the additional information States must submit in 
order to compete on this measure in FY 2003 and submit any additional 
paperwork burden requirements to OMB for approval. These requirements 
would not become effective until approved by OMB.
Burden Estimate for the Work Measures
    In Sec. 270.6 of the NPRM, we proposed the use of two alternative 
sets of data. In the first alternative, States would collect quarterly 
and report semi-annually a minimal set of identifying information on 
adult TANF recipients that we would match against the information in 
the National Directory of New Hires (NDNH) to determine the State's 
scores for the work measures. In the second alternative, the State 
would submit more detailed work performance data based on its matching 
of adult recipient data with its UI data. Commenters strongly supported 
the first alternative and the use of the NDNH whenever possible.
    In the final rule, we specify that we will use the first reporting 
alternative. We estimate the reporting burden for the first reporting 
alternative in Sec. 270.6(a) to be 1,728 hours, based on the 
requirement that States report some or all of the following three data 
elements: the name, birth date, and social security number of all adult 
TANF and SSP-MOE recipients. (The specific data elements will be issued 
in program guidance.) Our estimate of the burden is as follows: 16 
hours per response, times 54 respondents, times two (semi-annual 
reporting), for a total annual burden of 1,728 hours.
    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 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 have not revised our 
estimates, but we note that this burden may be reduced in view of the 
amendment to Sec. 265.3(d) included in this rulemaking which waives 
SSP-MOE reporting requirements under certain circumstances.
    We believe the burden of reporting the identifying information on 
work measures will be minimal for most States, particularly as we will 
be using the NDNH as a match at the Federal level. 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/SCHIP Participation
    The Medicaid/SCHIP performance measures at Sec. 270.4(d) are based 
on semi-annual reporting of the data from a match of TANF data and 
Medicaid/SCHIP enrollment data, using information from HCFA's MSIS 
system and the HCFA Form 21-E. Because this activity is similar to 
State activity in matching TANF data and UI data, as is currently done 
for the ACF-200 (OMB No. 0970-0180), we estimate that the burden will 
be approximately the same, i.e., 4,320 hours, excluding start-up costs. 
We understand that some States may not have social security numbers for 
SCHIP 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.

[[Page 52851]]

    We estimate that the 50 States, the District of Columbia, Guam, 
Puerto Rico, and the United States Virgin Islands will be potential 
respondents. (Currently, American Samoa has not applied to implement 
the TANF program.)
    The annual burden estimate for this data collection is:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
            Instrument or requirement                Number of     responses per   burden hours    Total burden
                                                    respondents     respondent     per response        hours
----------------------------------------------------------------------------------------------------------------
Work Measures...................................              54               2              16           1,728
Medicaid/SCHIP Measures.........................              54               2              40           4,320
                                                 ---------------------------------------------------------------
    Estimated Total Annual Burden Hours.........  ..............  ..............  ..............           6,048
----------------------------------------------------------------------------------------------------------------

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 this final rule 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. 
Competition for a high performance bonus is entirely at State option. 
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 State or small government.

F. Congressional Review

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

G. Executive Order 13132

    On August 4, 1999, the President issued Executive Order 13132, 
``federalism.'' The purposes of the Order are: ``to guarantee the 
division of governmental responsibilities between the national 
government and the States that was intended by the Framers of the 
Constitution, to ensure that the principles of federalism established 
by the Framers guide the executive departments and agencies in the 
formulation and implementation of policies, and to further the policies 
of the Unfunded Mandates Reform Act * * * *''
    We certify that this final rule does not have a substantial direct 
effect on States, on the relationship between the Federal government 
and the States, or on the distribution of power and responsibilities 
among the various levels of government. The final rule does not pre-
empt State law and does not impose unfunded mandates.
    This rule does not contain regulatory policies with federalism 
implications that would require specific consultations with State or 
local elected officials. The statute, however, requires consultations 
with the National Governors' Association and the American Public Human 
Services Association in the development of a high performance bonus 
system.
    During the development of the NPRM, we held two types of 
consultations. First, we raised issues related to this provision in the 
general TANF consultation meetings with a broad range of 
representatives of State and local governments; nonprofit, advocacy, 
and community organizations; foundations; and others. Second, we 
consulted intensively with representatives of the National Governors' 
Association, the American Public Human Services Association, the 
National Conference of State Legislatures, and approximately 30 State 
representatives who participated by regularly scheduled conference 
calls over a period of approximately nine months.

List of Subjects in 45 CFR Parts 265 and 270

    Grant programs--social programs; Public assistance programs; 
Reporting and Recordkeeping Requirements; Poverty.

(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: August 15, 2000.
Olivia A. Golden,
Assistant Secretary for Children and Families.
    Approved: August 16, 2000.
Donna E. Shalala,
Secretary, Department of Health and Human Services.

    For the reasons set forth in the preamble, we are amending 45 CFR 
Chapter II as follows:

PART 265--DATA COLLECTION AND REPORTING REQUIREMENTS

    1. The authority citation for part 265 continues to read as 
follows:

    Authority: 42 U.S.C. 603, 605, 607, 609, 611, and 613.

    2. We are amending Sec. 265.3 by redesignating paragraph (d)(2) as 
paragraph (d)(2)(i) and adding a new paragraph (d)(2)(ii) to read as 
follows:


Sec. 265.3  What reports must the State file on a quarterly basis?

* * * * *
    (d) * * *
    (2) * * *
    (ii) We may grant waivers of this reporting requirement under 
certain limited circumstances.
    (A) We will only grant waivers for separate State programs that 
provide benefits that meet the definition of assistance under 
Sec. 260.31(a)(3) of this chapter; and
    (B) The State must demonstrate to our satisfaction that the cost 
and burden associated with collection and reporting of the data would 
substantially outweigh any potential benefit.

PART 270--HIGH PERFORMANCE BONUS AWARDS

    3. We are adding a new part 270 to read as follows:
Sec.
270.1   What does this part cover?
270.2   What definitions apply to this part?

[[Page 52852]]

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 and other information must a State report to us?
270.7   What data will we use to measure performance on the work 
support and other 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 data and other information 
in order to compete for bonus awards?
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:
    Absolute rate means the actual rate of performance achieved in the 
performance year or the comparison year.
    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, as well as any subsequent fiscal year for 
which Congress authorizes and appropriates bonus funds.
    CCDF means the Child Care and Development Fund.
    Comparison year means the fiscal or calendar 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.
    Improvement rate means the positive percentage point change between 
the absolute rate of performance in the performance year and the 
comparison year, except for the calculation and ranking of States on 
the increase in success in the work force measure in Sec. 270.5(a)(4).
    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 year in which a State's performance is 
measured, i.e., the fiscal year or the calendar year immediately 
preceding the bonus year.
    SCHIP is the State Children's Health Insurance Program as described 
in title XXI of the Act.
    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) of this chapter.
    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 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.
    In FY 2002 and beyond, we will base the high performance bonus 
awards on: four work measures; five measures that support work and 
self-sufficiency related to participation by low-income working 
families in the Food Stamp Program, participation of former TANF 
recipients in the Medicaid and SCHIP programs, and receipt of child 
care; and one measure on family formation and stability.
    (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.
    (c) Measures of participation by low-income working households in 
the Food Stamp Program.
    (1) Food Stamp absolute measure.
    (i) Beginning in FY 2002, we will measure the number of low-income 
working households with children (i.e., households with children under 
age 18 which 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 
households with children (as defined in this paragraph) in the State.
    (ii) We will rank all States that choose to compete on this measure 
and will award bonuses to the three States with the highest scores. We 
will calculate the percentage rate for this measure to two decimal 
points. If two or more States have the same percentage rate for the 
measure, we will calculate the rates for these States to as many 
decimal points as necessary to eliminate the tie.
    (2) Food Stamp improvement measure.
    (i) Beginning in FY 2002, we will measure the improvement in the 
number of low-income working households with children (i.e., households 
with children under age 18 which have an income less than 130 percent 
of poverty and earnings equal to at least half-time, full-year Federal 
minimum wage) receiving Food Stamps as a percentage of the number of 
low-income working households with children (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 calendar (CY) 2000 to CY 2001, based on Census Bureau 
decennial and annual demographic program data.
    (iii) We will rank all States that choose to compete on this 
measure and will award bonuses to the seven States with the greatest 
percentage point improvement in this measure. We will

[[Page 52853]]

calculate the percentage rate for this measure to two decimal points. 
If two or more States have the same percentage rate for this measure, 
we will calculate the rates for these States to as many decimal points 
as necessary to eliminate the tie.
    (d) Measures of participation by low-income families in the 
Medicaid/SCHIP Programs.
    (1) Medicaid/SCHIP absolute measure.
    (i) Beginning in FY 2002, we will measure the number of individuals 
receiving TANF benefits who are also enrolled in Medicaid or SCHIP, who 
leave TANF in a calendar year and are enrolled in Medicaid or SCHIP in 
the fourth month after leaving TANF assistance, and who are not 
receiving TANF assistance in the fourth month as a percentage of 
individuals who left TANF in the fiscal year and are not receiving TANF 
assistance in the fourth month after leaving.
    (ii) We will rank the performance of each State that chooses to 
compete on this absolute measure and award bonuses to the three States 
with the highest scores.
    (iii) We will calculate the percentage rate for this measure to two 
decimal points. If two or more States have the same percentage rate for 
this measure, we will calculate the rates for these States to as many 
decimal points as necessary to eliminate the tie.
    (2) Medicaid/SCHIP improvement measure.
    (i) Beginning in FY 2002, we will measure the improvement in the 
number of individuals receiving TANF benefits who are also enrolled in 
Medicaid or SCHIP, who leave TANF in a fiscal year and are enrolled in 
Medicaid or SCHIP in the fourth month after leaving TANF assistance, 
and who are not receiving TANF assistance in the fourth month as a 
percentage of individuals who left TANF in the fiscal year and are not 
receiving TANF assistance in the fourth month after leaving.
    (ii) For any given year, we will compare a State's performance on 
this improvement measure to its performance in the previous year, 
beginning with a comparison of FY 2000 to FY 2001, based on a quarterly 
submission by the State as determined by matching individuals (adults 
and children) who have left TANF assistance and who are not receiving 
it in the fourth month with Medicaid or SCHIP enrollment data.
    (iii) We will rank the performance of all States that choose to 
compete on this improvement measure and will award bonuses to the seven 
States with the greatest percentage point improvement in this measure.
    (iv) We will calculate the percentage rate for the measure to two 
decimal points. If two or more States have the same percentage rate for 
this measure, we will calculate the rates for these States to as many 
decimal points as necessary to eliminate the tie.
    (e) Child care subsidy measure.
    (1) Beginning in FY 2002, we will measure State performance based 
upon a composite ranking of:
    (i) The percentage of children in the State who meet the maximum 
allowable Federal eligibility requirements for the Child Care and 
Development Fund (CCDF) who are served by the State during the 
performance year, including any such eligible children served with 
additional funds reported on the ACF-696 financial reporting form for 
the same fiscal year; and
    (ii) The affordability of CCDF services based on a comparison of 
the reported assessed family co-payment to reported family income.
    (2) Beginning in FY 2003, we will measure State performance based 
upon a composite ranking of:
    (i) The two measures described in Sec. 270.4(e)(1); and
    (ii) A measure that compares reimbursement rates during the 
performance year to the market rates, determined in accordance with 45 
CFR 98.43(b)(2), applicable to that year.
    (3) For any given year, we will rank the States that choose to 
compete on the child care measure on each component of the overall 
measure and award bonuses to the ten States with the highest composite 
rankings.
    (4) We will calculate each component score for this measure to two 
decimal points. If two or more States have the same score for a 
component, we will calculate the scores for these States to as many 
decimal points as necessary to eliminate the tie.
    (5)(i) The rank of the measure for the FY 2002 bonus year will be a 
composite weighted score of the two components at 270.4(e)(1), with the 
measure at Sec. 270.4(e)(1)(i) having a weight of 6 and the component 
at Sec. 270.4(e)(1)(ii) having a weight of 4.
    (ii) The rank of the measure for the bonus beginning in FY 2003 
will be a composite weighted score of the three components at 
Sec. 270.4(e)(2), with the component at Sec. 270.4(e)(1)(i) having a 
weight of 5, the component at Sec. 270.4(e)(1)(ii) having a weight of 
3, and the component at Sec. 270.4(e)(2)(ii) having a weight of 2.
    (6) We will award bonuses only to the top ten qualifying States 
that have fully obligated their CCDF Matching Funds for the fiscal year 
corresponding to the performance year and fully expended their CCDF 
Matching Funds for the fiscal year preceding the performance year.
    (f) Family formation and stability measure.
    (1) Beginning in FY 2002 and beyond, we will measure the increase 
in the percent of children in each State who reside in married couple 
families, beginning with a comparison of CY 2000 and CY 2001 data 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.
    (2) We will rank the performance of those States that choose to 
compete on this measure and will award bonuses to the ten States with 
the greatest percentage point improvement in this measure.
    (3) We will calculate the percentage rate for the measure to two 
decimal points. If two or more States have the same percentage rate for 
this measure, we will calculate the rates for these States to as many 
decimal points as necessary to eliminate the tie.
    (g) Option to compete.
    Each State has the option to compete on one, any number of, or none 
of the measures specified in this section.


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 employment for the first time in the performance 
year (job entries) as a percentage of the total unduplicated number of 
adult recipients unemployed at some point in the performance year.
    (2) The Success in the Work Force Rate is composed of two equally 
weighted sub-measures 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 percentage of the sum of the unduplicated number of 
employed adult recipients in each quarter. (At some point, the adult 
might become a former recipient.); 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

[[Page 52854]]

employed in both these quarters as a percentage of the sum of their 
initial earnings in each of quarters one through four. (At some point, 
the adult might become a former recipient.)
    (3) The Increase in the Job Entry Rate means the positive 
percentage point difference between the job entry rate for the 
performance year and the job entry rate for the comparison year; and
    (4) The Increase in Success in the Work Force Rate means the 
positive percentage point difference on at least one sub-measure 
between the success in the work force rate for the performance year and 
the success in the work force rate for the comparison year. It is 
composed of two equally weighted sub-measures defined as follows:
    (i) The Increase in the Job Retention Rate means the percentage 
point difference between the job retention rate for the performance 
year and the job retention rate for the comparison year; and
    (ii) The Increase in the Earning Gain Rate means the percentage 
point difference between the earnings gain rate for the performance 
year and the earnings gain rate for the comparison year.
    (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 time frames 
specified in Sec. 270.11.
    (3) We will rank the States on absolute performance in each of the 
work measures in paragraphs (a)(1) and (a)(2) of this section. For each 
of the work measures in paragraphs (a)(3) and (a)(4) of this section, 
we will rank States based on the percentage point change 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 score of the rank of the job retention 
and the earnings gain measures.
    (4) We will calculate the percentage rate for each work measure to 
two decimal points. If two or more States have the same absolute or 
improvement rate for a specific work measure, we will calculate the 
rates for these States to as many decimal points as necessary to 
eliminate the tie.


Sec. 270.6  What data and other information must a State report to us?

    (a) Data for work measures.
    (1) If a State wishes to compete on any of the work measures 
specified in Sec. 270.5(a), it 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, the identifying 
information on all adult TANF recipients as specified in program 
guidance.
    (2) Each State must submit the information in this paragraph for 
both adult TANF recipients and adult SSP-MOE recipients for whom the 
State would report the data described in paragraph (b) of this section.
    (b) Data on SSP-MOE programs.
    In order to compete on any high performance bonus measure, each 
State must submit the information in Sections One and Three of the SSP-
MOE Data Report as specified in Sec. 265.3(d) of this chapter.
    (c) Data for the Medicaid/SCHIP measures.
    If a State wishes to compete on the Medicaid/SCHIP measures in 
Sec. 270.4(d), it must submit the information that we and HCFA will 
specify.
    (d) Data for the child care measure.
    If a State wishes to compete on the child care measure in 
Sec. 270.4(e), it must report the data as required by the CCDF program 
and additional data on child care market rates that we will specify.
    (e) Intent to compete.
    Each State must notify us on which of the measures it will compete 
in each bonus year.


Sec. 270.7  What data will we use to measure performance on the work 
support and other measures?

    (a) We will use Census Bureau data to rank States on their 
performance on the Food Stamp measures in Sec. 270.4(c) and on the 
measure of family formation and stability in Sec. 270.4(f). We will 
also use Census Bureau data, along with other information, to rank 
States on the child care measure in Sec. 270.4(e). We will rank only 
those States that choose to compete on these measures.
    (b) We will rank State performance on the Medicaid/SCHIP measures 
in Sec. 270.4(d) based on data submitted by those States that choose to 
compete on these measures, as determined by matching TANF individuals 
who were enrolled in Medicaid/SCHIP and are no longer receiving TANF 
assistance with Medicaid/SCHIP enrollment data.
    (c) We will rank State performance on the child care measure based 
on data submitted by those States that choose to compete on this 
measure. We will use data reported on Forms ACF 800, ACF 801, ACF 696 
and other necessary data we will specify.


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 $20 million 
to the ten States with the highest scores on the Food Stamp measures 
and $20 million to the ten States with the highest scores on the 
Medicaid/SCHIP measures, subject to reallocation as specified in 
Sec. 270.9. For these measures, we will:
    (1) Award $6 million to the three States with the highest scores on 
the Food Stamp absolute measure;
    (2) Award $6 million to the three States with the highest scores on 
the Medicaid/SCHIP absolute measure;
    (3) Award $14 million to the seven States with the highest scores 
on the Food Stamp improvement measure; and
    (4) Award $14 million to the seven States with the highest scores 
on the Medicaid/SCHIP improvement measure.
    (c) In FY 2002 and beyond, we will allocate and award $10 million 
to the ten States with the highest scores on the child care subsidy 
measure and $10 million to the ten States with the highest scores on 
the family formation and stability improvement measure.
    (d) 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 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, 
we will reallocate any undistributed funds among the measures listed in 
Sec. 270.4.
    (b) If we still cannot distribute funds within the bonus year, they 
will remain available for distribution in the next bonus year, to the 
extent authorized by law.


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

[[Page 52855]]

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 any modification, 
adjustment, or technical changes for the bonus awards. We will notify 
States and other interested parties 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 data and other information 
in order to compete for bonus awards?

    (a) All measures.
    Each State must submit a list of the measures on which it is 
competing by February 28 of each bonus year.
    (b) Work measures.
    Each State must collect quarterly and submit semi-annually during 
the bonus year the data specified in Sec. 270.6(a) as follows:
    (1) The data 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, must be submitted by 
the dates we will specify in program guidance.
    (2) The data 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, must be submitted by 
the dates we will specify in program guidance.
    (c) SSP-MOE reporting.
    Each State must collect quarterly its SSP-MOE Data Report as 
specified in Sec. 270.6(b) 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.
    (d) Medicaid/SCHIP measures.
    Each State must submit the data required to compete on the 
Medicaid/SCHIP measures by the dates and in a manner that we and HCFA 
will specify.
    (e) Child care subsidy measure.
    Each State must submit the data required to compete on the child 
care measure by the date(s) we will specify.


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/SCHIP measures 
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 of the Act and Sec. 263.11 of 
this chapter.
    (c) 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.
    (d) States must report quarterly on the use of the bonus funds.

[FR Doc. 00-21770 Filed 8-29-00; 8:45 am]
BILLING CODE 4184-01-P