[Federal Register Volume 66, Number 8 (Thursday, January 11, 2001)]
[Rules and Regulations]
[Pages 2690-2723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-514]



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Part III





Department of Labor





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Employment and Training Administration



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20 CFR Part 645



Welfare-to-Work (WtW) Grants; Final Rule; Interim Final Rule

  Federal Register / Vol. 66 , No. 8 / Thursday, January 11, 2001 / 
Rules and Regulations  

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DEPARTMENT OF LABOR

Employment and Training Administration

20 CFR Part 645

RIN 1205-AB15


Welfare-to-Work (WtW) Grants

AGENCY: Employment and Training Administration (ETA), DOL.

ACTION: Final Rule; Interim Final Rule, Request for comments.

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SUMMARY: The Department of Labor (the Department) hereby issues a Final 
Rule implementing the Welfare-to-Work (WtW) grant provisions of Title 
IV, Part A of the Social Security Act. This action completes the 
rulemaking initiated by the publication of the Interim Final Rule 
(IFR1) on November 18, 1997. The Final Rule revises the IFR1 to reflect 
public comment, where appropriate. In addition, many matters of concern 
raised by commenters have been the subject of legislative changes to 
the WtW statute. Changes have been made to reflect new statutory 
requirements for these matters. Final Rule revisions to IFR1 are 
discussed in detail in Section II of this preamble.
    In addition, the Department hereby issues a new Interim Final Rule 
(IFR2) implementing the Welfare-to-Work and Child Support Amendments of 
1999 (1999 Amendments) which Congress passed on November 29, 1999 with 
the Administration's support. The 1999 Amendments, among other things, 
significantly changed the eligibility criteria for the Welfare-to-Work 
program. In IFR2, we have made the regulatory changes required by the 
1999 Amendments. These changes are discussed in Section III of this 
preamble. The Department requests public comment only on these new 
provisions and changes.
    So that all new changes to the WtW regulations are contained in one 
place, we are publishing the Final Rule and IFR2 in one package.

DATES: Effective Dates: These amendments will become effective on 
February 12, 2001.
    Comment Date: We invite comments only on those changes that are the 
result of the 1999 Amendments, contained in IFR2. These changes are 
described in Section III of this preamble. All comments must be 
received by the Department on or before March 12, 2001.

ADDRESSES: Written comments on the changes to the regulations contained 
in IFR2 (described in Section III of this preamble) may be mailed or 
delivered to the Division of Welfare-to-Work, Employment and Training 
Administration, 200 Constitution Avenue, NW., Room N-4671, Washington, 
DC 20210, Attention: Dennis Lieberman. Comments may also be submitted 
electronically by accessing the WtW web address at http://wtw.doleta.gov/amendcomments/default.htm.
    All comments will be made available for public inspection and 
copying during normal business hours at the above address.

FOR FURTHER INFORMATION CONTACT: Mr. Dennis Lieberman, Division of 
Welfare-to-Work, U.S. Department of Labor, 200 Constitution Avenue, 
NW., Room N-4671, Washington, DC 20210. Telephone: (202) 693-3910 
(voice) (this is not a toll-free number) or 1-800-326-2577 (TDD).

SUPPLEMENTARY INFORMATION: This preamble is divided into four sections. 
Section I provides general background information. Section II discusses 
the Final Rule promulgated in response to comments received on the 
November 18, 1997, IFR1. Section III discusses the new IFR2, 
implementing changes to the WtW statute made by the 1999 Amendments. 
Section IV discusses miscellaneous administrative requirements, e.g., 
Paperwork Reduction Act requirements.
    In addition to the changes made based upon the comments received, 
in order to clarify policy and interpretation, we have also made 
technical changes to correct typographical errors, such as consistent 
capitalization, abbreviations, grammatical corrections and citations, 
consistency with the regulations implementing the nondiscrimination and 
equal opportunity provisions of WIA section 188, which was first 
published in the Federal Register on November 12, 1999 (64 FR 61692 
through 61738, 29 CFR part 37). When publishing a final rule following 
comment period, it is customary to publish only changes made to the 
rule, however, in order to be more user-friendly, we are publishing the 
entire Rule, including the changes made by IFR2 as well as those parts 
that have not been changed from IFR1. This means that one document 
which contains all of the regulations may be consulted rather than 
needing to compare various documents.

I. Background

Final Rule

    On November 18, 1997, the Employment and Training Administration 
(ETA) published IFR1 in the Federal Register to establish the 
administrative framework for the Department's Welfare-to-Work (WtW) 
program. IFR1 also provided an opportunity for public comment. Comments 
were received from 88 entities. The commenters included: 25 State 
government agencies, 6 city and/or local government agencies, 3 Federal 
agencies, 10 Private Industry Councils (PICs), 14 local service 
providers, 4 private companies, 2 labor unions, 1 university and 16 
non-profit associations. Of the 16 non-profit associations, 3 are 
national, bipartisan associations representing State legislatures, 
governors, or county agencies, 7 are legal-aid associations, and 2 are 
research institutions. Responses also came from 7 other sources, 
including private citizens.
    We have reviewed and fully considered these comments in developing 
the Final Rule. The issues raised are addressed, where appropriate, in 
the Summary and Explanation of this Final Rule (Section II, below). 
Provisions of the IFR1 that neither elicited comments nor were affected 
by subsequent legislative action are not addressed in the discussion 
the Final Rule. Those provisions are addressed in the Summary and 
Explanation of IFR1, published at 62 FR 61589-61602 (Nov. 18, 1997).

Interim Final Rule (IFR2)

    The Clinton-Gore Administration worked closely with Congress to 
enact the 1999 Amendments that make several significant changes to the 
WtW grant programs. These significant changes include changes in the 
eligibility requirements for both long-term welfare recipients and non-
custodial parents of low-income children, an addition to the list of 
allowable activities that may be conducted under WtW, and the 
streamlining of WtW reporting requirements. The 1999 Amendments took 
effect on January 1, 2000, for competitive grantees and on July 1, 
2000, for formula grantees, although with certain restrictions on 
outlays of Federal WtW funds until October 1, 2000. For Indian and 
Native American WtW grantees, the 1999 Amendments were effective on the 
day of enactment, November 29, 1999.
    To allow for public comment, we are issuing the regulatory 
provisions promulgated as a direct result of the 1999 Amendments as a 
new Interim Final Rule. The new provisions open for comment under the 
IFR2 are discussed below in Section III of this preamble.

    Note: As this document went to press, the DOL/HHS/Education 
Appropriations bill for FY 2001 was enacted, containing provisions

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to extend by two years the period in which WtW grant funds may be 
spent and to delete the authority for the $50 million for 
performance bonuses. We have retained the performance bonus criteria 
in this Rule in the event of future funding for this purpose, but no 
bonus grants will be made in FY 2001.

II. Summary and Explanation--Final Rule

    This section contains a discussion of the comments we received 
during the comment period established in the November 18, 1997, IFR1. 
The headings in this section are the same as they appeared in the IFR1 
for ease of reference. Many of the comments on IFR1 addressed areas 
which were changed by intervening technical amendments to the WtW 
statute. For example, on November 13, 1997, shortly before the 
publication of the IFR1, Congress extended, to three years, the time 
period for the expenditure of WtW matching funds (originally discussed 
in Sec. 645.320) (Pub. L. 105-78). Congress also changed the time 
period for obligating WtW funds after a grant award (originally 
discussed in Sec. 645.320) from one to three years, and made this 
change retroactive to the date of passage of the Balanced Budget Act of 
1997 (Pub. L. 105-33), i.e., August 5, 1997. The main concerns 
commenters raised about the eligibility criteria for noncustodial 
parents in Sec. 645.212 were initially resolved through a technical 
amendment included in the Child Support Performance and Incentive Act 
of 1998 (Pub. L. 105-200) and later superseded by the 1999 Amendments 
discussed in Section III of this preamble. President Clinton's FY 2001 
budget has proposed providing grantees an additional two years to spend 
existing resources.
    The Transportation Equity Act for the 21st century (TEA-21) (Pub. 
L. 105-178) allows the Federal WtW funds to be used as matching funds 
for the Department of Transportation's ``Job Access and Reverse 
Commute'' program.
    Under Pub. L. 105-277 (Omnibus Consolidated and Emergency 
Supplemental Appropriations Act, 1999), Congress made changes to the 
WtW program to reflect the transition from the Job Training Partnership 
Act (JTPA) (Pub. L. 97-300, as amended, 29 U.S.C. 1501, et seq.) to the 
Workforce Investment Act of 1998 (WIA) (Pub. L. 105-220, 29 U.S.C. 
2801, et seq.). These changes are reflected in new or revised 
definitions under Sec. 645.120 regarding the particular circumstances 
of the different service areas.

Summary of Changes in the Final Rule

    Some commenters suggested that we provide more specific direction, 
especially about identifying allowable program activities and allowable 
items for State matching funds. Other commenters recommended that we 
clarify and expand the workforce protections available to the 
participants in the program. Those recommendations received careful 
consideration and revisions were made, where appropriate, as discussed 
in the Summary and Explanation (Section II, below).
    Many commenters recommended changes in the IFR1 provisions, such as 
those establishing eligibility and the ``work first'' approach, that 
could not be accommodated because the suggested changes would be 
inconsistent with the underlying statute. Congressional action would be 
required to accommodate these comments.
    The WtW program will operate during the period in which the 
Workforce Investment Act supersedes the Job Training Partnership Act. 
WIA requires significant changes in the workforce development system at 
the State and local levels. The WtW program is a required partner in 
the One-Stop system, which is the basic service delivery system for the 
new workforce investment system. This system is intended to provide 
services to all individuals seeking assistance, including welfare 
recipients. The participation of the WtW program in the One-Stop system 
will entail cooperative relationships with other agency partners 
through memoranda of understanding (MOU). Although WtW is separately 
funded, One-Stop centers will operate so that individuals receive a 
seamless array of services. A final rule implementing WIA was published 
in the Federal Register on August 11, 2000 (20 CFR parts 652, 660-671). 
The WtW Final Rule adds guidance at Secs. 645.220 and 645.430 about the 
relationship between WtW and the One-Stop delivery system under WIA in 
response to comments on how the two programs will interact. Also, the 
WtW IFR1 definition of ``administrative costs'' has been revised so 
that it more closely parallels the concept of functionality in the 
definition of this term at 20 CFR 667.220 of the WIA regulations.
    Also, this Final Rule acknowledges the definitions contained in the 
new Temporary Assistance for Needy Families (TANF) regulations 
published in the Federal Register on April 12, 1999 (45 CFR part 260, 
et seq.). Specifically, the TANF regulations define ``cash assistance'' 
at 45 CFR 260.30, and explain the terms ``assistance'' and ``WtW cash 
assistance'' at 45 CFR 260.31 and 260.32, respectively. Many comments 
on the WtW IFR1 related to the subject of ``assistance'' due to its 
effect on the TANF five-year time limit and WtW eligibility. We 
formulated a definition of ``TANF assistance'' for use in WtW 
eligibility determination guided by the Department of Health and Human 
Services' (DHHS) new TANF regulations and we refer to that rule in our 
response to comments. This change is discussed in more detail below.
    Finally, we note that the 1999 Amendments have superseded, in some 
cases, changes we might have made strictly in response to the comments. 
The 1999 Amendments have made significant changes which simplify the 
WtW eligibility criteria, for example, which require new provisions, 
those are established in the IFR2. Section III of this preamble 
discusses the new regulatory provisions which are open to public 
comment as a result of the 1999 Amendments.

Responses to Specific Comments on IFR1

Subpart A--Scope and Purpose

What Definitions Apply to this Part? (Sec. 645.120)
    Section 645.120 sets forth definitions applicable to the Welfare-
to-Work program. The phrase ``political subdivisions of a State,'' 
identified in Sec. 645.500 as eligible applicants for competitive 
grants, was not defined. One commenter notes that the varied terms for 
``political subdivision'' used in the Solicitation for Grant 
Applications (SGA) for competitive grants, such as ``political 
subdivision of a State,'' and ``unit of general purpose local 
government,'' are confusing, and suggested that we define this phrase.
    Response: We agree that the terms used to describe eligible 
applicants for competitive grants should be consistently defined in the 
SGA and the regulations, and have included a definition for the phrase 
``political subdivision'' in the Final Rule. Under this new provision, 
``political subdivision'' means a unit of general purpose local 
government, as provided for in State laws and/or Constitution, which 
has the power to levy taxes and spend funds and which also has general 
corporate and police powers. This definition is consistent with the 
definition in the SGA for Welfare-to-Work Competitive Grants published 
in the Federal Register on January 26, 1999.

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    For similar reasons, the definition of ``private entity'' which 
appeared in the January 26, 1999, SGA has been added to Sec. 645.120 in 
the Final Rule, so that the meaning of the term is clearly expressed. 
``Private entity'' means any organization, public or private, which is 
not a Local Board, PIC or alternate administering agency or a political 
subdivision of a State.
    Another commenter suggested that the Department amend language used 
throughout the IFR1 to include ``or alternate administering agency'' 
after each reference to a (PIC). The commenter was concerned that 
readers would believe that only PICs serve as WtW administering 
agencies. As noted in Sec. 645.210 of the IFR1, an alternate 
administering agency is one designated by the Governor and approved by 
the Secretary under Sec. 645.400 of this part.
    Response: For the sake of clarity, we have made the suggested 
change, but have generally replaced the term ``PIC'' with the WIA term 
``local board'' in this phrase. Under WIA (Pub. L. 105-220) (20 CFR, 
Part 652, et al.) passed in August, 1998, local workforce investment 
boards (local boards) have replaced PIC's in most places, and the JTPA 
service delivery areas used by the WtW program may undergo change as 
WIA is implemented and local workforce investment areas are designated 
in their place. Also, Pub. L. 105-277 (Omnibus Consolidated and 
Emergency Supplemental Appropriations Act, 1999) amended the Social 
Security Act (SSA) to revise the WtW definitions of PIC (section 
403(5)(D)(ii)), Service Delivery Area (section 403(5)(D)(iii)), and 
Chief Elected Official (section 403(5)(A)(vii)(I)). Therefore, in light 
of the legislative changes and the comment discussed above, the 
corresponding IFR1 definitions have been revised so that they refer to 
both the JTPA and WIA terminology in order to bridge the transition 
from JTPA to WIA. In this preamble, however, we generally use the term 
``local board'' to refer to these entities.
    Definition of TANF Assistance. The WtW program exists within the 
larger framework of the TANF program administered by DHHS which 
provides benefits in the form of cash or other assistance to eligible 
families and individuals, as well as a range of benefits and services 
consistent with the goals of the TANF law. In the preamble of IFR1, we 
stated that we would follow the lead of DHHS in defining certain terms, 
including ``assistance.'' What constitutes ``assistance'' is a major 
consideration both in applying the Federal 60-month time limit on 
receipt of TANF benefits and in determining eligibility for WtW. 
Therefore, we received numerous comments seeking clarification, 
particularly with regard to what constituted ``WtW cash assistance.''
    One commenter stated that the definition proposed by DHHS showed 
intent to include wage subsidies in the definition of assistance, 
including payments to employers to help cover the costs of employment 
or on-the-job training. The commenter disagreed with this approach and 
requested that such subsidies not be treated as assistance. Rather, the 
commenter suggested, they should be viewed as tax incentives which 
would not be considered assistance even if funded with TANF funds. 
Since DHHS defines assistance as benefits or services that would be 
considered welfare, the commenter suggested that activities under TANF 
that help pay for jobs that pay wages and confer employee status should 
be considered non-assistance, as should wage-paying publicly funded 
jobs created for recipients.
    Another comment stated that Congress distinguished between cash and 
non-cash assistance when it established the WtW program and that cash 
assistance, not non-cash assistance, should count against the five-year 
TANF limit. Further, the comment indicated that it is unclear whether 
child care would be considered cash assistance and thus count against 
the time limit. It suggested that the Final Rule provide clearly that 
child care is non-cash assistance, citing the precedent of the Food 
Stamp Program. This would enable WtW participants to receive child care 
through WtW without exhausting their TANF eligibility.
    Response: The DHHS has issued definitions for ``assistance'' and 
``WtW cash assistance'' for use in the TANF program, at 45 CFR 260.31 
and 260.32, respectively, published in the Federal Register on April 
12, 1999 (64 FR 17720). In 45 CFR 260.31, the DHHS defines the term 
``assistance'' to generally mean cash payments, vouchers, and other 
forms of benefits to meet a family's basic needs for food, clothing, 
shelter, etc. Exclusions from ``assistance'' include non-recurrent 
short-term benefits, wage subsidies to employers, supportive services 
for families who are employed, services such as counseling, case 
management, child care, and other job retention and employment-related 
services that do not provide basic income support. However, supportive 
services such as transportation and child care are included for 
families who are not employed. (See TANF Final Rule for full text).
    The term ``WtW cash assistance,'' as defined in 45 CFR 260.32, 
includes the benefits defined as assistance in 45 CFR 260.31 that are 
directed at basic needs. Such benefits are included when they are 
provided in the form of cash payments, checks, reimbursements, 
electronic fund transfers, or any other form that can legally be 
converted to currency. The TANF Final Rule became effective on October 
1, 1999. The TANF definitions are promulgated by DHHS; we cannot change 
them for purposes of TANF.
    However, we have determined that a definition of what it means to 
receive ``TANF assistance'' for the purposes of determining eligibility 
for the WtW program, as distinct from the definition as it relates to 
TANF time limits, work participation and other requirements, is 
necessary in order to respond to the comments and concerns about the 
potential negative impact the final DHHS definition could pose for 
certain individuals in the WtW target groups. The DHHS definition of 
``assistance'' and ``Welfare-to-Work cash assistance'' in the TANF 
Final Rule would preclude from participation in WtW persons who are 
receiving services such as counseling and case management and/or 
employment-related services such as job retention, that do not provide 
basic income support. Although the definition of ``WtW cash 
assistance'' in the TANF final regulations still stands for the purpose 
if the TANF time clock, for the purposes of determining if a person is 
receiving TANF assistance as a condition of WtW eligibility, we 
consider the phrase ``TANF assistance'' to mean ``any TANF benefits and 
services for the financially needy according to the appropriate income 
and resource criteria (if applicable) specified in the State TANF 
plan.''
    The funding sources for the TANF benefits and services an 
individual receives may be either Federal TANF funds or State 
Maintenance of Effort (MOE) funds expended in the TANF program.
    As this phrase is applicable to WtW for narrow eligibility purposes 
only, we have not added it to the definition section of this rule at 
Sec. 645.120. Rather, it is incorporated into the Rule at 
Sec. 645.212(d) and applies only to eligibility determinations under 
Secs. 645.212(a)(1) and 645.213(a).
    This provision should allow these otherwise eligible individuals to 
participate in WtW and alleviate some of the main concerns commenters 
had about how ``assistance'' is defined. Those who are served under WtW

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because of the new provision at Sec. 645.212(d) must be among the 
financially needy as determined by the State TANF plan. If there is no 
means test for the benefits and services a particular individual 
receives under TANF, the individual will be considered to be 
financially needy for purposes of eligibility under this provision at 
Sec. 645.212(d). If there is a means test, the individual must meet the 
income and resource criteria established by the State for the 
particular benefits or services.

Subpart B--General Program and Administrative Requirements

Who May be Served as a Hard-to-Employ Individual Under the 70 Percent 
Provision? (Sec. 645.212)
    The 70 percent eligibility criteria for a ``hard-to-employ'' 
individual under Sec. 645.212 of IFR1 tracked the underlying statutory 
language then in place. Paragraph 645.212(a) required that the 
individual must be receiving TANF; must face at least two of three 
specified barriers to employment (has not completed secondary school or 
obtained a certificate of general equivalency; requires substance abuse 
treatment for employment; and/or has a poor work history); and must be 
a long-term TANF recipient (at least 30 months receipt of TANF or must 
be within 12 months of a Federal or State time limit on TANF 
eligibility). Paragraphs 645.212(b) and (c) set the criteria for 
serving non-custodial parents and individuals who no longer receive 
TANF due to a Federal or State time limit on eligibility. Also, we have 
added a new paragraph (d) to reflect that for purposes of WtW 
eligibility, TANF assistance will mean, ``any TANF benefits and 
services for the financially needy according to the appropriate income 
and resource criteria (if applicable) specified in the State TANF 
plan.'' For a full discussion of this meaning of assistance that is 
applicable to WtW for eligibility determination purposes, see 
``Definition of Assistance'' above in the discussion of Sec. 645.120.
    The 1999 Amendments significantly changed the eligibility criteria 
for participants served under Sec. 645.212 by removing the barrier 
requirements, but, as described in the discussion of Sec. 645.211 in 
Section III of this preamble, retained the requirement that at least 70 
percent of a project's funds be used to serve participants meeting the 
criteria of Sec. 645.212. Generally, at least 70 percent of a project's 
WtW funds must be spent on long-term welfare recipients (without a 
requirement that they face barriers to employment) and noncustodial 
parents meeting certain criteria. Our discussion of these changes in 
Section III of the preamble presents a complete analysis of these 
changes and the resulting changes to the regulatory eligibility 
criteria in Sec. 645.212. Many of the comments on the hard-to-employ 
criteria of IFR1, summarized below, are no longer relevant because the 
1999 Amendments eliminated the criteria addressed by the comments, but 
we have presented them to reflect the concerns expressed by the 
interested parties. Some of the comments on IFR1, however, raise issues 
regarding the length of receipt of TANF assistance, which are still 
relevant to the revised Sec. 645.212. In response to these, we have 
made two other changes to Sec. 645.212.
    Under IFR1, among the eligibility criteria under the 70 percent 
provision, Sec. 645.212(a)(3)(ii) provided that an individual must be 
within 12 months of a Federal or State-imposed durational time limit on 
eligibility. An individual could meet this requirement if (s)he would 
have been within 12 months of such a durational time limit but was 
exempted from the limit due to a hardship exemption under section 
408(a)(7)(C) of the Act. Section 645.212(c) provides that an individual 
who otherwise meets the criteria of Sec. 645.212 may be served if (s)he 
is no longer receiving assistance due to a Federal or State-imposed 
lifetime limit on assistance.
    We received several comments regarding the use of the terms 
``State-imposed durational time limit'' and ``State-imposed lifetime 
limit'' in Sec. 645.212. Commenters suggested that we replace them with 
a phrase such as ``State-imposed time limit'' because not all States 
impose durational time limits or lifetime limits and many States have 
instituted intermittent time limits within the lifetime limit of five 
years. A commenter noted that in one State an individual's lifetime of 
TANF assistance could span a seven-year time frame, as assistance could 
be provided for 36 months, break for two years and then resume for an 
additional 24 months and that, under these circumstances, an individual 
would not be eligible for WtW under Sec. 645.212.
    Response: We agree that our use of these terms may have had 
unintended consequences due to variation in the way limits are applied 
throughout the States. As the lifetime limit criterion is still 
relevant under the 1999 Amendments, we have replaced references to 
``State lifetime limits'' with the phrase ``State-imposed time limits'' 
in Secs. 645.212 and 645.213.
    A commenter suggested that we revise Sec. 645.212 to provide that 
victims of domestic violence, addressed by section 402(a)(7) of the 
Act, would be eligible for WtW services even if exempt from the 
durational limits on receipt of TANF services.
    Response: Section 402(a)(7) of the Act provides that State TANF 
plans may provide for waiver of certain requirements, including time 
limits, when compliance with the time limits would make it more 
difficult for the TANF recipient to escape from domestic violence. We 
agree that where an individual is within 12 months of the State limit, 
but has received such a waiver, it would make no sense to deprive the 
person of WtW assistance simply because the individual is exempt from 
the State limit due to a domestic violence waiver instead of a hardship 
exemption. Accordingly, we have revised Sec. 645.212(a) to refer to 
section 402(a)(7) of the Act, to make it clear that victims of domestic 
violence who have received a waiver of the State-imposed time limit, 
like individuals who are exempted from the limit because they have been 
battered or subjected to extreme abuse, may be served under WtW (other 
changes to Sec. 645.212(a) made by IFR2 are discussed in Section III of 
this preamble).
    Many of the other comments we received on Sec. 645.212 made valid 
points, but the issues raised are no longer relevant because of the 
simplification of the eligibility criteria under the 1999 Amendments. 
In particular, the barriers to employment provisions of sect; 
645.212(a)(2) generated significant comment. Under the new eligibility 
criteria, long-term welfare recipients who are served under the 70 
percent provisions are not required to demonstrate that they face these 
barriers. Below, we have briefly summarized and discussed comments on 
the 70 percent criteria in general and the barriers to employment in 
particular, but, because they are no longer required as eligibility 
criteria, we have not responded in great detail.
    While most comments addressed the specific barriers to employment, 
several comments were more general in nature. Comments suggested that 
we revise the regulations to provide that an individual would be 
eligible if the individual satisfied any one of the three barriers 
instead of at least two of the three barriers. A commenter stated that 
persons with disabilities should be included among the hard-to-employ, 
because many people with disabilities are long-term welfare recipients. 
The commenter suggested that we amend 645.212(a)(2) by adding a fourth 
barrier to specifically cover persons with disabilities that affect 
their ability to

[[Page 2694]]

obtain/retain employment or by expanding the definition of poor work 
history to include poor work history due to a disability.
    Response: Prior to the 1999 Amendments we could not have made these 
changes, although an individual meeting the poor work history criterion 
could be served regardless of the reason for the poor work history. 
Thus, an individual with a poor work history caused by a disability 
could be eligible if the other criteria were met. Under the 1999 
Amendments, the barriers criterion is eliminated. We expect that long 
term welfare recipients with disabilities will be served under the new 
eligibility criteria. Moreover, our competitive grant SGA's and formula 
grant planning instructions have encouraged State and local operating 
entities to give priority consideration to individuals with 
disabilities
    Education Level (Sec. 645.212(a)(2)(i)). IFR1 provided that 
individuals who had neither completed secondary school nor obtained a 
certificate of general equivalency and who had low skills in reading or 
mathematics satisfied the education level eligibility criterion of 
Sec. 645.212(a)(2)(i). Several commenters viewed this provision as 
overly restrictive, and suggested we revise the criterion so that it 
can be met by a showing that a participant meets either of the 
criteria. Commenters supported this suggestion with the observation 
that a high school diploma or equivalency did not guarantee that an 
individual had the requisite skills.
    Other comments recommended that the reading and mathematics skill 
level not be defined at the 8.9 grade level or below, but that 
operating entities be able to set grade skill levels based upon local 
labor market requirements, or that the threshold be raised to a higher 
grade level. Commenters recognized that the 8.9 grade level was 
consistent with similar criteria in JTPA, but suggested that WtW's 
relationship with TANF argued for flexibility to diverge from JTPA.
    Response: Based upon these comments, we tend to agree that the 
regulatory definition standards for the educational ability criterion 
may have been overly restrictive. In any event, under the new criteria 
set forth in IFR2, educational ability is no longer a criterion for 
eligibility of long-term welfare recipients.
    Poor Work History (Sec. 645.212(a)(2)(iii)). The IFR1, at 
Sec. 645.212(a)(2)(iii), defined ``poor work history'' generally as no 
more than 3 consecutive months worked in the past 12 calendar months. 
Commenters opined that this definition was overly restrictive and/or 
not an appropriate indicator of a poor work history. Some commenters 
provided anecdotes regarding individuals who, having worked part-time 
or through a program, would be ineligible for WtW under this 
definition, and proposed that States should be permitted to adopt their 
own definitions of poor work history.
    Commenters identified other perceived problems with the regulatory 
definition of poor work history:
     Individuals who have had a series of short spells of work 
covering three consecutive months would be ineligible despite 
demonstrating an inability to keep a job;
     The definition did not establish a required number of work 
hours in the three-month period;
     The definition would exclude hard-to-employ individuals 
who had only a part-time summer job within the last 12 months as well 
as the working poor and seasonal workers.
    Other commenters recommended revisions, some to conform with the 
JTPA and some to follow the pre-TANF Unemployed Parents regulations. 
Most requested that the Department obtain a more complete picture of an 
individual's work history by going back further in time.
    Several commenters asserted that the three consecutive months 
criterion is inconsistent with the requirement that at least half of 
the payment to service providers for job placement services occur after 
a participant placed in a job has worked for six months. To these 
commenters, those provisions indicated a Congressional determination 
that holding a job for less than six months was evidence of a poor work 
history.
    Response: Like the educational ability criterion, we tend to agree 
with commenters that the regulatory definition of ``poor work history'' 
may have been overly restrictive. In any event, under the new criteria 
set forth in IFR2, poor work history is no longer a criterion for 
eligibility of long-term welfare recipients.
    Length of Receipt of TANF Assistance (Sec. 645.212(a)(3)). A 
commenter asked if individuals who have been diverted from receiving 
TANF as part of a State's diversion strategy are eligible for WtW.
    Response: Individuals who might otherwise be eligible for WtW 
services, but who have been diverted (may have received one-time only 
financial assistance, for example) are not eligible for WtW under the 
old or new provisions of Sec. 645.212 because they are not eligible for 
TANF. Even as amended, receipt of TANF assistance is the basic 
criterion for WtW eligibility. Operating entities should assess whether 
diverted individuals may qualify under other criteria, such as the 
criteria for noncustodial parents at Sec. 645.212(c) or under 
Sec. 645.213 as an individual formerly in foster care or a low income 
custodial parent. These new eligibility criteria are more fully 
discussed in Section III of this preamble.
    Noncustodial Parents (Sec. 645.212(b)). The IFR1 stated that a 
noncustodial parent would be eligible if the custodial parent met the 
eligibility requirements of paragraph (a) of Sec. 645.212. Commenters 
asserted that this approach posed insurmountable difficulties for those 
entities who were in contact only with the noncustodial parent.
    Response: The 1999 Amendments address this issue. The statutory and 
regulatory changes that address these concerns are described below.
    A technical amendment, enacted on July 16, 1998, as part of the 
Child Support Performance and Incentive Act of 1998 (Pub. L. 105-200), 
changed the eligibility criteria for noncustodial parents under 
Sec. 645.212. This amendment revised the language of SSA section 
403(a)(5)(C)(ii) to apply the barriers to employment criteria to all 
participants, including noncustodial parents. In addition, the 
amendment clarified that the required length of receipt of cash 
assistance under TANF applies to either the custodial parent or the 
minor children of the noncustodial parent. The addition of the 
reference to the minor child of the noncustodial parent addresses those 
``child only'' cases where there is no custodial parent and also allows 
WtW to provide services to a noncustodial parent whose children are 
less than 30 months old, if the custodial parent has been on TANF for a 
longer period.
    We issued Training and Employment Guidance Letter (TEGL) No. 6-98 
on September 21, 1998, to convey this change and have posted this 
information on the WtW website. Subsequently, we issued TEGL 6-98 
Change 1 on December 17, 1998, to address those cases where there are 
custodial caretaker relatives who receive TANF benefits for themselves 
and on behalf of the children in their custody. While the number of 
these cases nationwide is small, these custodial caretaker relatives 
are subject to the same TANF participation requirements and time 
limitations as other TANF recipients and therefore may be eligible for 
the WtW program.
    The 1999 Amendments contain eligibility criteria pertaining to 
noncustodial parents that supersede the earlier statutory and 
subsequent technical changes. Section III of this preamble fully 
discusses the new

[[Page 2695]]

eligibility criteria for noncustodial parents.
Who May Be Served as an Individual With Long-Term Welfare Dependence 
Characteristics Under the 30 Percent Provision? (Sec. 645.213)
    This section of IFR1 stated the requirements for enrolling 
participants, under the 30 percent provision, as ``individuals with 
long-term welfare dependence characteristics.'' As with Sec. 645.212, 
commenters raised issues regarding time limits and State-to-State 
eligibility variations.
    A commenter recommended that we revise this section to provide that 
individuals would be eligible if they either are receiving TANF 
assistance or have one or more characteristic of long-term welfare 
dependence. Another commenter suggested that we include a history of 
domestic violence as an example of a characteristic associated with 
long-term welfare dependence, citing studies in support of that 
viewpoint. Another suggested that we add having a disability affecting 
the ability to obtain and retain employment to the list of 
characteristics associated with or predictive of long-term welfare 
dependency.
    Response: These changes have not been made, because they are not 
needed. Under IFR1, States, in consultation with the operating 
entities, already have the flexibility to identify characteristics 
associated with or predictive of long-term welfare dependence such as 
those suggested, in addition to those provided in the regulation. Under 
the 1999 Amendments, discussed in Section III of this preamble, this 
flexibility is maintained.
How Will Welfare-to-Work Eligibility Be Determined? (Sec. 645.214)
    A commenter recommended that we change the language in Sec. 645.214 
(b)(2), to permit a determination of eligibility to be ``based on 
information collected by the operating entity and/or the TANF agency'', 
in order to address those situations where State TANF agencies and 
operating entities share responsibility.
    Response: This editorial change has been made for the sake of 
clarity.
What Activities Are Allowable Under This Part? (Sec. 645.220)
    A significant number of commenters asserted that the ``work first'' 
philosophy undermines the successful transition of WtW participants to 
unsubsidized employment, by placing participants into jobs before they 
have received the training in basic and occupational skills needed to 
prepare them to succeed at those jobs.
    Response: We have not made any changes to the regulations based on 
these comments, because the ``work first'' requirements implement our 
understanding of the intent of the WtW legislation and the purpose of 
the program. While we acknowledge that the design and implementation of 
work-first programs can pose challenges, the purpose of the WtW program 
is to place participants in employment activities which will then lead 
to unsubsidized employment and long-term self-sufficiency. We also 
believe that the statute and the rule provide significant flexibility 
to combine work with training and other post-employment services that 
will help participants to build skills needed to succeed and advance in 
the workforce.
    Some commenters supported the IFR1's flexibility in the definitions 
of allowable activities, while others favored a more prescriptive 
approach. The terms that elicited particular interest were ``job 
readiness'', ``job placement'', ``on-the-job training'', ``community 
service'', ``work experience'', ``job creation'', ``post-employment 
activities'', ``job retention'', ``supportive services'', 
``assessment'', and ``Individual Development Accounts'' (IDAs).
    Response: We continue to believe that the States and localities 
should have the flexibility to develop definitions that fit their 
circumstances, therefore, we have not further defined these terms. We 
have formalized this flexibility in IFR2 by adding a new Sec. 645.125 
to describe the roles of Federal, State and local governmental partners 
in the governance of the WtW program. This section is discussed in 
section III of this preamble.
    Several commenters recommended we modify Sec. 645.220(e) so that 
supportive services could be provided to participants who are receiving 
job placement services.
    Response: We agree that it is appropriate for operating entities to 
be able to provide supportive services for individuals participating in 
job placement activities. Section Sec. 645.220 has been modified 
accordingly.
    A commenter noted that language used throughout WtW and JTPA 
recommends and mandates coordination of program activities and non-
duplication of services. This principle is also true of the Workforce 
Investment Act, under which workforce investment systems have replaced 
the job training systems created under JTPA. Under JTPA, the goal of 
coordination was achieved by utilizing resources outside of the funding 
source to supplement and extend services to the greatest number of 
participants possible, the commenter points out. The commenter 
recommends that funds from programs under WIA or JTPA or others 
available through the One Stop system should be available for WtW 
activities, and that WtW funds be used to provide supportive services 
for individuals engaged in activities under WIA, JTPA or other funding 
streams.
    Response: We concur that better coordination between the WtW system 
and the One-Stop system developed under JTPA/WIA is beneficial to all 
programs, and have added language to Sec. 645.220(f) that explains that 
job retention and support services may be provided to eligible WtW 
participants who are enrolled in WIA or JTPA activities (including 
occupational skills training). We seek to foster such coordination, 
especially as the WtW program is a required partner in the One-Stop 
system created under WIA. These services can be provided with WtW funds 
when they are not otherwise available to the participant. Furthermore, 
we have added a new section 645.430 (which is discussed below in this 
section II of the preamble) to more fully describe the role of WtW in 
the One-Stop system.
    Several commenters indicated support for the expanded use of WtW 
funds to provide medical services.
    Response: Section 408(a)(6)(A) of the SSA specifically prohibits 
the use of any TANF funds, including WtW funds, for medical services, 
so we have not made the suggested change. An explanation of this 
prohibition is available in the Q & A's on the WtW website, at number 
AA8, under ``Allowable Activities.''
    Based upon inquiries received from other sources, the Department 
has posted a Q&A to set forth our interpretation that Sec. 645.220(h) 
permits outreach and recruitment activities as part of the allowable 
program activities listed in paragraphs (a) through (f) of 
Sec. 645.220. Costs associated with these activities must be reported 
in the same category as intake, assessment, eligibility determination, 
development of an individualized service strategy and case management 
identified at Sec. 645.220(h). We have changed Sec. 645.220(h) to 
clarify that these outreach and recruitment activities are allowable 
uses of WtW funds.
    Under IFR1, occupational skills training activities could only be 
provided as a post-employment activity for individuals placed in a job 
or a WtW employment activity. Under the 1999 Amendments, short-term 
vocational educational training or job training are

[[Page 2696]]

permissible activities. This is discussed in more detail in section III 
of this preamble.
    Finally, as a technical correction, we have removed the phrase 
``but not limited to'' from this the list of suggested post-employment 
services and job retention and support services in this section. This 
does not change the meaning of this provision. Here, as throughout the 
regulations, the term ``include'' is used to indicate an illustrative, 
but not exhaustive list of examples. We also removed the reference to 
SSA section 404(h) in Sec. 645.220(f) to emphasize that IDAs 
established in accordance with statutory purposes or uses of TANF and 
WtW are allowable WtW activities.
What General Fiscal and Administrative Rules Apply to the Use of 
Federal Funds? (Sec. 645.230)
    The information technology provision of Sec. 645.235(c)(3) has been 
moved to Sec. 645.230(d) to relate it to the discussion of allowable 
costs. As a result, paragraph 645.230(d) is redesignated as paragraph 
(g) in the Final Rule and the remaining paragraphs have been 
redesignated accordingly. This is discussed further in the discussion 
of Sec. 645.235, below.
    Commercial Organizations. A commenter noted that the IFR1 did not 
specify fiscal and administrative requirements for commercial 
organizations.
    Response: The final rule clarifies, in Sec. 645.230 (a)(2), that 
commercial organizations, along with non-profit organizations, must 
follow OMB Circular A-110, codified at 20 CFR, Part 95. A similar 
provision, clarifying the audit requirements for commercial 
organizations, has been added at Sec. 645.230(b).
    Six-Month, 50 Percent Hold-back on Contracts and Vouchers. Several 
commenters asked for clarification and guidance on Sec. 645.230(a)(3), 
requiring that contracts and vouchers include a provision that at least 
one-half of the payment for job placement services occur after an 
eligible individual has been placed into the workforce for six (6) 
months. For example, some comments raised questions about the meaning 
of the phrase ``placement in the workforce'' during the six-month hold-
back period. Others wondered whether the six months must be either 
continuous or cumulative, whether participants had to remain with a 
single employer during the entire period, whether part-time or 
subsidized employment could count towards the six months and whether 
reasonable transition time between jobs could be considered part of the 
six-month hold-back period.
    Response: We have provided guidance that retention for six months 
in the workforce is achieved when a participant is placed in 
unsubsidized employment and receives earnings in the two consecutive 
quarters following the quarter in which placement occurred in the 
instructions for the WtW Formula Grant Cumulative Quarterly Financial 
Status Report (ETA 9068). Under these instructions, participants do not 
have to remain with a single employer during the entire period, and no 
minimum number of hours or level of earnings is specified.
    A commenter asked for guidance as to which contracts and vouchers 
are subject to the six-month hold-back provision. Other commenters 
suggested that we waive the six-month hold-back requirement under 
certain circumstances.
    Response: The mandatory six-month hold-back provision applies to 
all contracts and vouchers for placement services into unsubsidized 
jobs, except for those placement services that are provided to 
individual participants as a reasonable and necessary part of the 
operating entity's work experience, community service and/or on-the-job 
training program. This provision is mandated by statute and can not be 
waived for PICs and local boards. Under the 1999 Amendments, 
competitive grantees who are not PICs or local boards may provide 
services directly. See further discussion in section III of the 
preamble.
    A number of commenters inquired whether fixed unit price 
performance-based contracting can be used under WtW. One commenter 
questioned whether the regulations reflect DOL policy with regard to 
fixed-unit-price contracts. Another commenter recommended that the 
regulations not impose additional restrictions upon fixed-unit-price 
contracts over and above the hold-back requirement.
    Response: We see this contracting method as appropriate, especially 
in conjunction with the six-month hold-back requirement for 
performance. We have provided guidance on fixed unit price performance-
based contracts and the requisite reporting requirements in the Q & A's 
on the WtW website (http:/wtw.doleta.gov/q&a/administrative.htm) at 
numbers AF17 and AF18, under ``Administrative/Fiscal.''
    Program Income. Commenters expressed concern that the regulations 
prohibit profits as an allowable use of funds, and asked whether a non-
profit may earn a profit or whether all earnings must be reported as 
program income.
    Response: For the sake of clarity, a new paragraph has been added 
to Sec. 645.230(a)(6) which requires governmental or non-profit 
organizations that earn excess revenue over costs incurred to treat the 
excess revenue as program income earned, and report it as such. The 
regulation imposes no additional restrictions on fixed-unit-priced 
contracts or on program income derived from such contracts. It only 
clarifies the treatment of income earned by governments or non-profit 
organizations from fixed-unit-price contracts or other sources.
    One commenter requested further clarification of the addition 
method, which is addressed in Sec. 645.230(a)(5).
    Response: The Final Rule adds a reference, in this section, to 29 
CFR 97.25(g)(2), which describes the addition method. 29 CFR 
97.25(g)(2) clarifies that under the addition method, program income is 
added to the available WtW grant funds and must be used for the 
purposes and under the conditions set forth by the grant agreement. 
Section 97.25(g)(2) also explains both the net and gross income 
methodologies for determining the amount of program income to be 
credited to the grant program.
    Audit Requirements. As some comments noted, the IFR1 did not 
address the responsibility for audits of commercial organizations. 
Section 645.230(b) has been revised accordingly. A new paragraph (b)(3) 
is added to Sec. 645.230 to establish that the Department is 
responsible for audits of commercial organizations that are direct 
recipients of WtW grants. In addition, commercial subrecipient 
organizations that spend more than the threshold level specified in 29 
CFR part 99, which implements OMB Circular A-133 ($300,000 as of 
publication of this rule), must conduct either an organization-wide 
audit or a program-specific financial and compliance audit, as required 
by 29 CFR part 99.
    Drug-Free Workplace Requirements. Paragraph (d) in Sec. 645.230 of 
the IFR1 establishes that all WtW recipients and subrecipients must 
comply with government-wide requirements for a drug-free workplace. One 
comment, citing the provisions at 29 CFR 98.600, questioned whether the 
drug-free requirements should apply to both the recipient and 
subrecipient level, or should apply only to the recipient level.
    Response: We have divided Sec. 645.230(g) into two paragraphs, 
(g)(1) and (g)(2), to clarify how drug-free workplace requirements are 
to be

[[Page 2697]]

applied, at the recipient and subrecipient levels, respectively.
    Prohibition on the Construction or Purchase of Facilities and 
Business Start-up Costs. The WtW statute specifies the allowable 
activities for the formula and competitive grant programs at section 
403(a)(5)(C)(i). The statute does not include the construction or 
purchase of facilities or buildings as allowable activities. Section 
645.300(b)(1)(i) elaborates on this general prohibition on facilities 
expenses by specifying that the cost of constructing or purchasing 
facilities or buildings is not acceptable as match for a WtW formula 
grant. This is because match expenditures are only acceptable when 
spent on those costs which would be allowable if paid for with WtW 
grant funds, and because Federal funds may be used for such facilities 
expenses only where there is specific legislative authorization. Since 
WtW does not specifically authorize these expenses, they are not 
allowable WtW expenditures nor acceptable match. However, the IFR1 
inadvertently failed to include comparable language explicitly barring 
the use of formula grant funds or competitive grant funds to construct 
or purchase facilities or buildings.
    We are concerned that the apparent discrepancy could be 
misunderstood. Therefore, we added a provision at Sec. 645.230(e) to 
fix this oversight and indicate clearly that the same limitations on 
the use of WtW funds for the construction or purchase of facilities or 
buildings apply to competitive grant funds and to formula grant funds.
    Similarly, we wish to clarify that WtW funds generally may not be 
used to cover the costs of starting a business or for capital ventures. 
In response to a recommendation by a commenter that business start-up 
funds be provided by the WtW program, we have added a new provision in 
the Final Rule at Sec. 645.230(f) that states that WtW funds may not be 
used to cover these types of costs. We note, however, that there is a 
limited exception to this prohibition when WtW funds are used for 
Individual Development Accounts. These accounts, which are established 
by or for participants under Sec. 645.220(f), are permitted for the 
purpose of business capitalization, as well as other specified 
purposes.
What Types of Activities Are Subject to the Administrative Cost Limit 
on Welfare-to-Work Grants? (Sec. 645.235)
    WtW Definition of Administrative Costs. The IFR1 adopted the 
definition of ``Costs of Administration'' from the JTPA regulations at 
20 CFR 627.440, and noted that the Secretary might issue further rules 
to conform to similar provisions in the final regulations governing the 
TANF program. Two commenters recommended adopting the TANF description 
of administrative costs to reduce administrative confusion and costs 
and to encourage cooperation between TANF-funded and WtW-funded 
programs. Other commenters recommended not adopting the TANF definition 
of administrative costs, because of the number of activities that are 
considered administrative costs under TANF. One commenter considered 
the adoption of JTPA administrative cost definition as too permissive 
given the WtW 15 percent limit on administrative costs. Another 
commenter recommended adopting the Child Care Development Block Grant 
definition for administrative costs. Another commenter suggested using 
a single administrative cost definition for all three welfare-related 
programs, WtW, TANF and Child Care Development Block Grant.
    Response: Since the issuance of the IFR1, WIA was signed into law, 
reforming the employment and training service delivery system and 
replacing PIC's with local workforce investment boards. Because the WtW 
program will be operated through the workforce investment system under 
WIA, as areas make the transition from JTPA to WIA, we have decided 
that it makes more sense to coordinate the administrative cost 
definition with the WIA definition rather than the TANF definition. The 
WIA regulations provide a definition of administrative costs that is 
less restrictive than the JTPA definition. To minimize burden on the 
local boards, by providing consistency between WtW and WIA, 
Sec. 645.235 has been revised to set forth a new WtW definition of 
administrative costs that is to a great extent based on the WIA 
definition at 20 CFR 667.220. The WIA definition of administrative 
costs relies on the concept of function as the method to determine how 
a particular cost would be charged. Under this principle, 
administrative costs are defined as costs incurred for enumerated 
administrative functions by identified administrative entities for 
overall program management purposes. The administrative functions 
include but are not limited to the following activities undertaken for 
overall program management purposes: accounting and budgeting, 
financial and cash management, procurement and property management, and 
developing and operating systems and procedures required for 
administrative functions. The administrative entities include State and 
local workforce boards, direct WIA grant recipients, and local grant 
subrecipients. For additional information on covered activities and 
entities, see the Workforce Investment Act Final Rule.
    As part of the new definition, we no longer require first-line 
supervisory costs to be treated as administrative costs because this 
function is more closely related to the provision of direct services to 
participants than to overall management. Similarly, we no longer 
require data processing costs to be charged as administrative costs; 
rather, these costs must be allocated based on whether the functions 
they support are administrative or programmatic.
    Allowable Information Technology Costs. We received several 
comments on the composition and classification of information 
technology costs, but none on the allowability of such costs. As 
discussed above, in the discussion of Sec. 645.230, upon reviewing 
these comments we decided to clarify the Year 2000 limitations 
applicable to the allowability of information technology costs and to 
move this paragraph from Sec. 645.235(c)(3) to Sec. 645.230(d) to 
follow the paragraphs on allowable costs.
    The administrative cost definition at Sec. 645.235(d) of the Final 
Rule details the certain information technology costs that can be 
excepted from the administrative cost category. A commenter asked under 
which cost category are information technology systems development 
(above and beyond costs excluded from administrative cost limit) 
charged.
    Response: Costs that can be excepted from the administrative cost 
limit are any costs incurred for the lease or purchase of hardware, 
including installation costs, and software needed for tracking and 
monitoring participant activities under a WtW grant. The cost of 
software development related to the tracking and monitoring functions, 
including personnel costs associated with such software development, 
can also be charged to the program cost category. Those costs of 
systems development that do not fall under the information technology 
cost exemption (i.e., information technology systems that are not used 
for tracking and monitoring) may be charged to administrative costs 
until the administrative cap is reached. Once the administrative cap is 
reached, such costs must be charged to a non-Federal source.

[[Page 2698]]

What are the Reporting Requirements for Welfare-to-Work Programs? 
(Sec. 645.240)
    The IFR1 stated that grantees would be required to provide the 
Department with financial data and to provide DHHS with participant 
data. As discussed in Section III of this preamble, the 1999 Amendments 
transferred the responsibility for collecting participant data to the 
Department and simplified these requirements. The IFR1 indicated that 
the Department would issue instructions for financial reporting. We 
received many comments with suggestions for the financial reporting 
instructions.
    Several comments suggested that reporting requirements conform to 
TANF requirements as closely as possible, while others recommended that 
WtW establish a reporting mechanism different from TANF, in order to 
avoid having WtW activities count towards the 60-month TANF clock. Some 
comments recommended that reporting requirements should differ from 
those required under the One-Stop system, while others recommended 
using the JTPA format for reporting requirements.
    Other comments recommended against requiring reporting by Fiscal 
Year, recommended that we minimize our reporting requirements, and 
suggested that the reporting instructions require the reporting of 
post-employment services, unsubsidized employment, and wage data.
    Response: We have issued instructions and formats for on-line 
financial reporting that have been approved by the Office of Management 
and Budget (OMB). These financial reporting instructions and formats 
are available at the WtW website (http://www.etareports.doleta.gov). 
Reference to this website has been added to the Final Rule. Overall, 
grantee response has been favorable to on-line financial reporting, as 
it reduces the burden on recipients and subrecipients. While the 
Department considered other program reporting formats, such as TANF and 
JTPA, as we developed the WtW reporting instructions, our intention was 
to remain consistent with statutory requirements. Establishing a 
reporting system either similar to or different from TANF's would have 
no impact upon the applicability of the 60-month limit on TANF for WtW 
participants.
    In addition, electronic reporting has simplified cumulative 
reporting by fiscal year of appropriation. Grantees are required to 
report expenditure data for post-employment services. Grantees are also 
required to report cumulative number of placements in unsubsidized 
employment, broken out by greater than or less than 30 hours a week. 
For purposes of calculating an ``earnings gain'' percentage, wage data 
is reported, both at the time of placement and when the participant is 
retained six months in unsubsidized employment.
    Several comments suggested easing reporting requirements on 
tracking expenditures according to the 70 percent and the 30 percent 
eligibility categories. Two comments noted that the WtW statute imposes 
significant administrative and reporting burdens. They recommended that 
we consider the 70 percent criteria to be satisfied when 70 percent of 
the participants are hard-to-employ individuals, citing a precedent in 
JTPA Title II where at least 65 percent of participants must be ``hard-
to-serve individuals.''
    Response: The 1999 Amendments have resulted in a change in the 
original 70/30 requirements which is discussed in section III under 
Sec. 645.211.
    Some comments stated that the accounting requirements were overly 
burdensome. One comment suggested allowing States the option to choose 
the accounting method, employing either a cash method or an accrual 
method. One comment supported the use of the accrual method.
    Response: States already have the option to choose which accounting 
method they use. However, if they use a cash method of accounting, they 
need to develop accrual information for reporting purposes.
    The 1999 Amendments called for the simplification and coordination 
of reporting requirements. The Department was given the responsibility 
of establishing requirements for both financial and participant 
information. To fulfill this mandate, the Department has prepared 
revised reporting formats for formula and competitive grantees to 
include both participant and financial information.
    The existing format was redesigned to reflect a streamlined 
approach in the reporting of both financial and participant data on one 
form. This data collection package will be submitted to OMB for 
approval separately from this rule. The status of the submission is 
discussed in section IV. A. Paperwork Reduction Act. Section 645.240 in 
IFR2 also discusses the changes in reporting due to the 1999 
Amendments.
    The proposed WtW reporting requirements reflect the Department's 
efforts to strike a balance between minimizing the burden on recipients 
and subrecipients while obtaining necessary information on the status 
of funds and program outcomes required by various Federal laws 
concerned with integrity, accountability, and the measurement of 
program results.
What Procedures Apply to the Resolution of Findings Arising From 
Audits, Investigations, Monitoring and Oversight Reviews? 
(Sec. 645.250)
    We received comments about the liability of the States and local 
entities. One commenter recommended that the regulations specify local 
liability for all categories of disallowed costs associated with the 
funds allocated to the substate areas.
    Response: Because the IFR1 did not explicitly address the 
relationship between grantees and their subgrantees, we have revised 
Sec. 645.250(a) to indicate clearly that the State or competitive 
grantee must establish the necessary rules and procedures.
    Other comments asked that we clarify that the State is not liable 
for disallowed costs resulting from local entities' use of competitive 
grant funds, and suggested that we revise the regulations to require 
that the State share equitably with the substate entity in any 
disallowed costs.
    Response: Under the regulations as written, a State is not 
responsible for disallowed costs under WtW competitive grants awarded 
to local governments, as it is not a party to the grant agreement. Our 
position on the suggestion that we specify the distribution of 
liability for disallowed costs as between recipients and subrecipients, 
and particularly as between States and local governments, is that we do 
not have the authority to do so without explicit direction in the 
statute. Accordingly, the suggested changes have not been made.
What Nondiscrimination Protections Apply to Participants in Welfare-to-
Work Programs? (Sec. 645.255)
    Section 645.255 provides that participants in WtW programs have 
such rights as are available under all applicable Federal, State and 
local laws prohibiting discrimination, and lists four such laws 
specifically identified in the WtW statute. We received comments from 
several human rights organizations strongly suggesting that ETA add the 
Civil Rights Act of 1964 (Title VII) and the Education Amendment of 
1972 Title (IX) to the list of statutes in Sec. 645.255(a).
    Response: The list in Sec. 645.255(a) contains those laws 
identified in section 408(d) of the WtW statute, so the suggested 
statutes could not be added to that section. However, we have reordered 
the paragraphs in Sec. 645.255 and have explained in a new paragraph 
(c) that complaints alleging

[[Page 2699]]

discrimination in violation of any applicable Federal, State or local 
laws, such as Titles VII and IX, as well as the Pregnancy 
Discrimination Act (42 U.S.C. 2000e (paragraph k)), are to be processed 
in accordance with those laws and their implementing regulations.
    A few commenters expressed concern that IFR1 limits WtW 
participants' protection under gender discrimination laws to ``job 
readiness and employment activities''.
    Response: The WtW statute, at section 403(a)(5)(J)(iii), specifies 
that participants in ``work activities'' are protected under gender 
discrimination laws. To be consistent with the language in the law, the 
Final Rule replaces the phrase ``job readiness and employment 
activities'' in Sec. 645.255(d) with the phrase ``work activities, as 
defined in section 407(d) of the Social Security Act.''
    In addition, Section 188 of the Workforce Investment Act and its 
implementing regulations prohibit discrimination on a number of bases, 
including sex, in all programs and activities, including WtW programs, 
that are part of the One-Stop delivery system and that are operated by 
One-Stop partners to the extent that the program activities are being 
conducted as part of the One-Stop delivery system. The programs and 
activities covered under these WIA nondiscrimination provisions include 
those that qualify as ``work activities'' under the WtW statute, as 
well as the broader range of programs and activities that are offered 
within the One-Stop system.
    We have added new language to the Final Rule in Secs. 645.230(i), 
645.255, and 645.430, to acknowledge that the DOL regulations 
implementing WIA section 188, at 29 CFR part 37, are applicable to WtW 
actvities conducted as part of the One-Stop delivery system. 29 CFR 
37.2(a)(2) provides that the WIA nondiscrimination regulations apply to 
``[p]rograms and activities that are part of the One-Stop delivery 
system and that are operated by One-Stop partners listed in section 
121(b) of WIA, to the extent that the programs and activities are being 
conducted as part of the One-Stop delivery system.'' Since the WtW 
program is one of the required One-Stop partners identified in WIA sec. 
121(b), part 37 is applicable to WtW activities carried out as part of 
the One-Stop delivery system. Similarly, under 29 CFR 37.2(a)(3), the 
employment practices of such WtW One-Stop partner programs are covered 
by part 37. WtW One-Stop partner programs should be mindful of their 
responsibilities under 29 CFR part 37. For example, specific 
requirements relating to outreach and recruitment, sectarian 
activities, participant data collections and record-keeping, 
monitoring, and discrimination complaints processing apply to WtW One-
Stop partner programs carrying out WtW activities as part of the One-
Stop delivery system. We intend to work closely with the Department's 
Civil Rights Center, to provide guidance so that WtW programs can meet 
their responsibilities under part 37.
What Safeguards are There to Ensure that Participants in Welfare to 
Work Employment Activities do not Displace Other Employees? 
(Sec. 645.265)
    A comment expressed concern about the interpretation of 
``employment activity,'' in the first sentence of Sec. 645.265(b), as 
it pertains to the prohibition on the use of WtW funds in violation of 
existing contracts for services or collective bargaining agreements, 
and recommended that we indicate which elements of Sec. 645.220 would 
constitute employment activities for purposes of the non-displacement 
requirement.
    Response: We recognize that IFR1 may be unclear about which 
employment activities are covered under Sec. 645.220. Therefore, we 
have added a cross reference to Sec. 645.220(b) and (c) in the first 
sentence of Sec. 645.265 to more clearly indicate what is meant by 
``employment activities.'' These activities are as follows: vocational 
educational and job training, community service programs, work 
experience programs, job creation through public or private sector 
employment wage subsidies, and on-the-job training.
    One commenter urged that we specify the amount of time that an 
employer must wait before filling a position that became available due 
to a lay-off.
    Response: Upon review, we believe that it is not appropriate for us 
to set a minimum waiting period. In our view, individual States and 
localities should be accorded the discretion to take their particular 
circumstances into account.
What Procedures are There to Ensure that Currently Employed Workers May 
File Grievances Regarding Displacement and that Welfare-to-Work 
Participants in Employment Activities May File Grievances Regarding 
Displacement, Health and Safety Standards and Gender Discrimination? 
(Sec. 645.270)
    A number of comments from union and labor management organizations 
stated that the regulatory procedures for establishing and maintaining 
grievance procedures are either overly prescriptive or too broadly 
defined.
    Response: We have written the regulations governing grievance 
procedures to precisely reflect the language of the Act at section 
403(a)(5)(J)(iv), while seeking to make the complaint filing system 
sufficiently clear and to provide State and local governments with the 
maximum flexibility to establish grievance procedures that adequately 
address State and local needs. Therefore, no changes have been made in 
the Final Rule. However, we have added a new section (i) to provide 
that participants alleging discrimination by WtW programs that are part 
of the One-Stop system may file a complaint using the procedures 
developed by the State under the WIA nondiscrimination regulations at 
29CFR 37.70-37.80.

Subpart C--Additional Formula Grant Administrative Standards and 
Procedures

What Constitutes an Allowable Match? (Sec. 645.300)
    Several commenters opined that the match provisions were overly 
burdensome and impeded program implementation, and requested more 
flexibility to meet the match requirement with non-cash funds.
    Response: While the amount of the required match is statutory, we 
have provided flexibility by changing the 50 percent limit in 
Sec. 645.300(b)(3), to allow up to 75 percent of matching funds to be 
third party in-kind match. At least 25 percent of matching funds must 
be cash match.
    Several commenters recommended expanding the universe of resources 
that can qualify as match. Some commenters suggested that capital 
costs, donated property, and funds spent on renovation of existing 
facilities be considered allowable match.
    Response: The Balanced Budget Act of 1997 established WtW as a 
short-term program. Resources which would be expected to outlast the 
WtW program, such as those mentioned above, therefore, are not 
allowable WtW program costs and are not acceptable as match. We have 
not made the suggested change. However, under the regulations as 
written, depreciation or use allowances which reflect the use or 
consumption of capital assets during a reporting period are allowable 
WtW costs and allowable as match.
    Matching funds must be spent on WtW allowable activities for WtW 
eligible individuals, whether or not the individuals are actually 
enrolled in a WtW program. Some commenters opined that in their view 
this definition was overly restrictive and suggested that

[[Page 2700]]

any funds spent on training, support or assistance for any individuals 
should be permitted as allowable match. Other commenters suggested that 
we permit in-kind contributions, employer-paid wages or employer-paid 
benefits as allowable match.
    Response: Because the purpose of the WtW program is targeted to a 
specific population and has the specific goal of moving welfare 
recipients and certain noncustodial parents into unsubsidized 
employment, matching funds must support the overall design of the 
program. The purpose of the matching requirement is to leverage these 
targeted Federal funds and expand services to this population. Thus, 
while the individuals served with matching funds need not be enrolled 
in the WtW program, we believe it is important that only funds spent on 
individuals within the WtW target populations are counted toward the 
matching requirement. Likewise, we do not believe it is appropriate to 
eliminate the prohibition in Sec. 645.300(c)(1) on using the employer 
share of participant wage payments, because it also is intended to 
ensure that matching funds are spent on expanded services that might 
not otherwise be provided. On the other hand, as discussed above, we 
have increased the limit on third-party in-kind contributions to 75 
percent. As discussed in Section III of the preamble, the eligibility 
criteria for the program have been simplified. Any non-Federal dollars 
spent on the activities identified in Sec. 645.220 for individuals in 
the new eligible population would count as match. In addition, any 
excess of funds spent to meet TANF maintenance-of-effort would count as 
match. We believe that States will now have sufficient flexibility to 
meet their matching requirement in a manner that will effectively serve 
the needs of the target population.
    A number of commenters have inquired whether Community Development 
Block Grant funds may be used as match.
    Response: As the underlying statute at sections 403(a)(5)(A)(i)(I) 
and 409(a)(7)(B)(iv)(I) and (IV) does not allow other Federal funds to 
be used as match, these funds are not an allowable source of match 
funds. No change to this provision is warranted.
    Paragraph 645.300(e)(2) mandates that third-party donations of 
equipment or space be valued at the fair rental rate. One commenter 
noted that in certain cases this rule may conflict with OMB Circular A-
87, which allows space donated by governmental third parties to be 
charged based on a use allowance.
    Response: The provision has been modified to clarify the 
distinction between valuation of equipment and space donated by a 
governmental third party from that donated by a non-governmental third 
party.
What Actions are to be Taken if a State Fails to Make the Required 
Matching Expenditures? (Sec. 645.315)
    Section 645.315 provided that we would implement an annual 
reconciliation of match expenditures and, if necessary, adjust those 
grants for which the match requirement has not been met. On November 
13, 1997, a technical amendment affecting the expenditure of matching 
funds became law as part of the Labor, Health and Human Services and 
Education Appropriations Act (Pub. L. 105-78). As requested by 
comments, the technical amendment changed the period of expenditure for 
matching funds from one year to three years. States may now spend 
matching funds over the course of the same three-year period during 
which they spend the Federal WtW funds. The technical amendment became 
law immediately after the publication of the November 18, 1997 IFR1 and 
we received many comments asking that we change the expenditure period 
from one to three years and pointing out that the regulation had been 
superseded by the technical amendment.
    Response: As a result of this technical amendment, Sec. 645.315, 
which provided for annual reconciliation and grant adjustment, is 
superfluous. We have deleted the provision at Sec. 645.315(a). Section 
645.315(b) has been revised and redesignated as Sec. 645.315(a) to 
describe the process that will be followed if a State fails to meet its 
match requirements at the end of the three-year expenditure period. We 
have added a new Sec. 645.315(b) to clarify the impact on the 
administrative cost limit of any failure to satisfy the match 
requirements.
When Will Formula Funds be Reallotted and What Reallotment Procedures 
will the Secretary Use? (Sec. 645.320)
    Section 645.320 described the circumstances under which we would 
reallocate formula funds. Funds that were subject to reallocation 
included those formula funds returned to the Department after a State 
had under-expended matching funds within a fiscal year, or had failed 
to fully obligate formula funds. Some commenters noted that under the 
technical amendment (Pub. L. 105-78) described above in the discussion 
of Sec. 645.315, States may now expend required matching funds over a 
three-year period. In addition, another technical amendment was enacted 
on October 28, 1998, (Pub. L. 105-306) which altered the obligation 
requirement for States. Under this amendment, States are not required 
to obligate certain funds within the fiscal year of appropriation. 
Under SSA section 403(a)(5)(A)(iv)(II), these funds are the 15 percent 
funds reserved for the Governor's special projects and the funds 
allocated within single SDA States.
    Response: As a result of the technical amendments identified by the 
commenters, we will not reallocate any formula funds during the course 
of the program. Therefore, Sec. 645.320 is no longer relevant and has 
been deleted.

Subpart D--State Formula Grants Administration

Under What Conditions May the Governor Request a Waiver to Designate an 
Alternate Local Administering Agency? (Sec. 645.400)
    Waiver Authority. Some commenters stated that the case-by-case 
review process established by the IFR1 was inflexible, cumbersome, and 
fraught with delay. The commenters proposed that we modify the system 
to allow approval of waivers on a statewide basis.
    Response: The case-by-case approach is prescribed by the statute at 
section 403(a)(5)(A)(vii)(III), so the suggested change has not been 
made. Furthermore, we have determined that, while perhaps somewhat 
burdensome, the mandated process has functioned adequately.
What Elements Will the State Use in Distributing Funds Within the 
State? (Sec. 645.410)
    Many comments opposed the Sec. 645.410(a)(7) requirement that a 
State distribute its SDAs' allocations within thirty days after the 
State's allotment was received. These comments suggested that the 
thirty-day deadline for distribution curtailed the States' ability to 
achieve coordination with local level plans and reduced the States' 
ability to ensure optimal utilization of funds.
    Response: We agree that the 30-day deadline may be overly 
restrictive and could compromise the States' ability to distribute the 
funds in an efficient and equitable manner. However, since all of the 
FY 1998 and FY 1999 formula funds authorized have now been distributed 
to the local level, such a change would be moot. Therefore, we have 
made no change in this provision. Further, because all funds have been 
distributed in a timely manner, we will not be

[[Page 2701]]

retroactively looking into whether the 30 day requirement had been met.
What Factors will be Used in Measuring State Performance? 
(Sec. 645.420)
    Section 645.220(a) provides that we will issue a performance 
measurement formula following consultation with DHHS, the National 
Governors Association and the American Public Welfare Association. We 
have completed the necessary consultation process and received approval 
of the performance measures from OMB. The Performance Bonus Criteria 
were published in the Federal Register at 63 FR 64832 (Nov. 23, 1998). 
The formula and data elements used for measuring State performance are 
included on the OMB-approved WtW Formula Cumulative Quarterly Financial 
Status Report (ETA 9068). Section 645.420(a) is revised to specify that 
job placement (job entry rate), retention in employment and earnings 
gain are the elements that will be used to measure performance.
    Section 645.420(b) is revised to identify the weights to be 
accorded the factors included in the performance bonus formula. The 
formula is based on four factors: (1) Job entry rate as measured by the 
proportion of WtW participants who enter either subsidized employment 
or unsubsidized employment; (2) Substantive job entry rate as measured 
by the proportion of WtW participants who are placed in or who have 
moved into subsidized or unsubsidized employment of 30 hours or more 
per week; (3) Retention as measured by the proportion of WtW 
participants who remain in unsubsidized employment six months after 
initial placement; and (4) Measured earnings gains of WtW participants 
who remain in unsubsidized employment six months after initial 
placement.
How Does the Welfare-to-Work Program Relate to the One-Stop Delivery 
System and Workforce Investment Act (WIA) Programs? (Sec. 645.430)
    We received several comments about One-Stop systems. Generally, 
they pointed out the need to address the role of the WtW program in the 
new One-Stop delivery system initiated under JTPA, and now being 
implemented under WIA. Specifically, one commenter suggested that 
intake, assessment, eligibility determination and development of an 
Individual Service Strategy should be part of the One-Stop system.
    Response: The advent of WIA resulted in the inclusion of the WtW 
program in the One-Stop delivery system as a required partner, and the 
transition from PIC's to local workforce boards. As discussed above, in 
relation to Sec. 645.220, we agree with the comments that close 
coordination between the WtW program and the One-Stop system will be 
beneficial to all programs that are partners in the system. While the 
IFR1 delineated the roles and responsibilities of the State(s) and 
PIC(s) at Sec. 645.425, and that the WtW roles of State and local 
entities will be the same under WIA as they have been under JTPA, we 
agree that it is advisable to also provide acknowledgment and guidance 
about the interaction of the WtW program with WIA programs and other 
programs delivered through the One-Stop delivery system. We added a new 
Sec. 645.430 to foster this coordination. As a required partner in the 
One-Stop delivery system, the WtW program and the local board will 
enter into a Memorandum of Understanding that includes provisions 
relating to the services to be provided through the One Stop system and 
the methods for referring individuals between the One-Stop and the 
partner WtW program. We expect that WtW participants will have access 
to the broad range of services available in the One-Stop system. 
Individuals eligible for WtW who need skill training may receive that 
service through the One-Stop system and will also be eligible to 
receive services under WtW such as child care assistance and 
transportation assistance while participating in the WIA activity. WIA 
participants who are also eligible for WtW may be referred to WtW for 
assistance such as job placement and other services.
    Also, paragraph (d) of this section explains that 29 CFR part 37 
applies to recipients of WtW financial assistance who operate programs 
that are part of the One-Stop system established under WIA to the 
extent that the WtW programs and activities are being conducted as part 
of the One-Stop delivery system.

Subpart E--Welfare-to-Work Competitive Grants

Who Are Eligible Applicants for Competitive Grants? (Sec. 645.500)
    Several comments suggested changes to the categories of entities 
eligible to apply for competitive grants. Comments proposed the 
addition of specific types of entities (e.g.) labor unions, women's 
organizations, area vocational schools and public transit agencies) to 
the list of entities which can apply as a ``private entity'' in 
conjunction with a local PIC or political subdivision.
    Response: As noted above in the discussion of the definitions at 
Sec. 645.120, we have added the definition of ``private entity'' 
contained in the WtW competitive grant SGA. Under this definition, a 
``private entity'' is any organization, public or private, which is not 
a Local Board, PIC or alternate administering agency or a political 
subdivision of a State. The types of organizations that commenters 
suggested adding meet this definition and are eligible to apply as 
private entities. Moreover, Sec. 645.500(a)(3) provides an illustrative 
list of types of private entities that would include the suggested 
entities as ``nonprofit organizations'' or as ``other qualified private 
organizations.'' Therefore, because the suggested entities are eligible 
to apply for WtW competitive grants under the existing IFR1, we do not 
believe it is necessary to make any other changes to this section.
What Is the Required Consultation With the Governor? (Sec. 645.510)
    Three comments expressed concern about the State-level consultation 
process. One commenter stated that States should have the same amount 
of time for comment on competitive grant proposals as the PIC or 
political subdivision. One commenter argued that the State and local 
reviews should be concurrent rather than consecutive. One commenter 
asserted that the Governor's review was counter-productive.
    Response: While the reviews of competitive grant applications at 
the local level and at the State level serve different purposes, they 
operate sequentially to further the goals of the competitive grant 
program. We consider it important that the Governor be aware of any 
concerns about an application that the local board or PIC may have so 
that the Governor is able to foster cooperation and coordination of 
resources at the local level. Furthermore, while we acknowledge that 
the volume of competitive grant proposals has placed a considerable 
burden on some States, we do not believe that the burden imposed has 
compromised the competitive grant program.

III. Summary and Explanation--Interim Final Rule (IFR2)

Substantive Changes Under the Welfare-to-Work and Child Support 
Amendments of 1999

    As a result of the Welfare-to-Work and Child Support Amendments of 
1999 (1999 Amendments) (introduced as Title VIII of H.R. 3424, and 
enacted as part of

[[Page 2702]]

the Consolidated Appropriations Act for FY 2000, (Pub. L. 106-113)), we 
have made significant changes to the regulations implementing the WtW 
grant program. These changes are implemented as an Interim Final Rule 
(IFR2), published with the Final Rule discussed in Section II of this 
preamble. These revisions provide WtW grantees with greater flexibility 
to serve both long-term welfare recipients and noncustodial parents of 
low-income children. The effective dates of the changes made by the 
1999 Amendments are discussed in new Secs. 645.130 and 645.135, which 
are discussed later in this section of the preamble.
    The most significant of these changes removes the requirement that 
long-term TANF recipients must meet additional barriers to employment 
in order to be eligible for program services, as described in 
Sec. 645.212. Also, under the 30 percent provision at Sec. 645.213, as 
provided by the 1999 Amendments, we have added two new categories of 
eligible participants: former foster care recipients, and custodial 
parents with income below the poverty line. Among the regulatory 
definitions in Sec. 645.120, we have defined ``local workforce 
investment board'' to include former ``PICs'' and ``alternative 
administrative agencies'' to cover all possible entities operating the 
WtW program.
    We wish to emphasize that we are implementing the changes resulting 
from the 1999 Amendments as an Interim Final Rule to afford the 
opportunity for public comment. The preamble also contains guidance to 
the WtW system in areas where regulations are not promulgated but 
clarification may be needed.
    We invite public comments on the provisions discussed below:
What Definitions Apply to This Part? (Sec. 645.120)
    As a result of the 1999 Amendments, this section has been amended 
to include additional definitions of terms, acronyms and phrases where 
needed. To maintain the program's underlying principle of providing 
State/local governments with maximum flexibility in designing and 
implementing program objectives, we generally allow State/local 
discretion in defining most terms.
    However, we believe it is necessary to define the term 
``unemployed'' for purposes of determining the eligibility of a 
noncustodial parent at Sec. 645.212(c)(1). For consistency, we are 
defining this term as it is defined under Title I of the Workforce 
Investment Act. Under this definition, the term ``unemployed 
individual'' means an ``individual who is without a job and who wants 
and is available for work.'' The determination of whether an individual 
is without a job must be made in accordance with criteria established 
by the Bureau of Labor Statistics. Information can be found in the BLS 
publication, How the Government Measures Unemployment, at http://stats.bls.gov/cps_htgm.htm.
    We have not defined the term ``underemployed,'' which permits the 
State to define it, in consultation with local entities, including 
competitive grantees within their jurisdiction. Similarly, States, in 
consultation with local entities, including competitive grantees within 
their jurisdiction, may define the term ``having difficulty paying 
child support obligations.'' In developing this definition, State 
agencies should also consult with the State or local child support 
enforcement entity. We discuss the terms ``underemployed'' and ``having 
difficulty paying child support'' in more detail in the discussion of 
Sec. 645.212 in this section of the preamble.
    Additionally, the phrase ``PIC or alternate administering agency'' 
has been added after each reference to a local workforce investment 
board throughout 20 CFR part 645. While local workforce investment 
boards (local boards) are the presumed administering entities under 
transition from JTPA to WIA, we believe it is important to recognize 
the administering role of PIC's in the WtW system. We have included 
these additional terms to emphasize that entities other than local 
workforce investment boards may serve as WtW administering agencies and 
that PIC's may still retain their role as the operating entity until 
such time as WIA is fully implemented, and in some cases, afterward. In 
accordance with Sec. 661.300 of WIA, we anticipate that most PIC's will 
be replaced by local workforce investment boards, for purposes of WtW 
and WIA.
    We have also added a definition of ``IV-D Agency'' to clarify that 
this means the organizational unit in a State that has responsibility 
for the plan under title IV-D of the SSA which is child support 
enforcement. The 1999 Amendments have given such entities a definite 
role in the development of personal responsibility contracts and other 
matters relating to noncustodial parents.
What Are the Roles of the State and Local Governmental Partners in the 
Governance of the WtW Program? (Sec. 645.125)
    As we discussed in the preamble to IFR1 (62 FR 61588, 61589), we 
have tried to limit WtW regulations to only those instances where they 
are necessary to clarify or explain how we interpret the statute. IFR1 
provided States and local governments with the primary responsibility 
for developing program and policy guidance for this program. We have 
tried to maintain this flexibility in the changes we have made under 
the 1999 Amendments. The WIA regulations were drafted under the same 
principle and, at 20 CFR 661.120, codify this flexibility by providing 
authority to States and local governments to establish such policy 
guidance and interpretations, as long as they are not inconsistent with 
the statutory and regulatory requirements. For consistency, we added a 
similar regulation to part 645 to reiterate our intention that States 
and local governments have this policy-making flexibility in 
administering the WtW program.
What Are the Effective Dates for Implementation of the Welfare-to-Work 
Amendments? (Sec. 645.130)
    The 1999 Amendments to the WtW eligibility criteria and allowable 
activities have staggered effective dates depending on the type of 
funds (competitive, formula, or Indian and Native American) used to pay 
for the activities. Section 645.130 explains when the various changes 
made by the 1999 Amendments and this IFR2 took effect:
     For Indian and Native American (INA) grantees, all of the 
1999 Amendments took effect upon enactment of the legislation on 
November 29, 1999.
     For WtW competitive grants, provisions relating to the new 
eligibility and allowable activities took effect on January 1, 2000, 
while the other provisions of the 1999 Amendments were effective upon 
enactment of the legislation on November 29, 1999.
     For WtW formula grantees, provisions relating to the new 
eligibility and allowable activities took effect on July 1, 2000, 
except that expenditures could not be made from State allotments until 
October 1, 2000, as provided in Sec. 645.135.
What is the Effective Date for Spending Federal Welfare-to-Work Formula 
Funds on Newly Eligible Participants and Newly Authorized Services? 
(Sec. 645.135)
    As stated above in the discussion of Sec. 645.130, the changes made 
under the 1999 Amendments became effective for formula grants on July 
1, 2000, except that expenditures could not be made from Federal WtW 
formula allotments until October 1, 2000. The intent of this provision 
is to prevent the outlay of

[[Page 2703]]

Federal WtW formula funds until the first day of fiscal year 2001. It 
is not intended to prevent the normal incurrence of unpaid obligations 
until that date, provided that Federal WtW formula funds were not drawn 
down to liquidate the obligations until October 1, 2000. Therefore 
States could not draw down WtW formula funds from the Federal Treasury 
until that date. During the period of July 1, 2000 to September 30, 
2000, States could expend matching funds and incur unpaid obligations 
within the normal course of business, provided that the timing of those 
transactions ensure that the draw down of Federal WtW formula funds to 
liquidate the obligations did not occur until October 1, 2000.
How Must Welfare-to-Work Funds be Spent by the Operating Entity? 
(Sec. 645.211)
    Before the 1999 Amendments, the WtW statute and IFR1 provided for 
two categories of eligible individuals, those served under the 70 
percent provisions and those served under the 30 percent provisions. 
Noncustodial parents could qualify under either provision, if they met 
the appropriate criteria. IFR1 required operating entities to expend at 
least 70 percent of the grant funds awarded on hard-to-employ 
individuals enrolled under the ``70 percent provision,'' according to 
the eligibility criteria at Sec. 645.212 of IFR1, and no more than 30 
percent on individuals with characteristics associated with long-term 
welfare dependence under the criteria at Sec. 645.213 of IFR1.
    A practical effect of this requirement was that if an operating 
entity spent up to 30 percent of its funds on individuals with 
characteristics associated with long-term welfare dependence, but was 
only able to spend 69 percent of the total funds (or less) on hard-to-
employ individuals under the 70 percent provision, it could be 
penalized with disallowed costs for failure to expend at least 70 
percent of its funds on these hard-to-employ individuals. The costs to 
be disallowed could be otherwise allowable expenditures for the 30 
percent ``other eligibles'' individuals. While it was certainly the 
intent of Congress to insure that the bulk of WtW grant funds be spent 
on the hardest-to-serve, we do not believe it intended to unnecessarily 
penalize grantees by disallowing what otherwise would be legitimate 
expenditures to help other eligible individuals solely on the basis of 
the fact that the 70/30 ratio was not met. But because of the language 
of the original statute, this was a possible result.
    The 1999 Amendments divide the WtW eligible population into three 
groups:
    1. Hard-to-employ individuals served under ``general eligibility'' 
provisions at section 403(a)(5)(C)(ii);
    2. A separate category for noncustodial parents at section 
403(a)(5)(C)(iii); and
    3. Others, including individuals with characteristics of long-term 
welfare dependence, served under the 30 percent provisions at section 
403(a)(5)(C)(iv).
    The 1999 Amendments alter the eligibility requirements for hard-to-
employ individuals and for noncustodial parents and eliminate language 
referring to any mandatory expenditure level of 70 percent for these 
groups. The 1999 Amendments do, however, retain the 30 percent maximum 
expenditure provision for individuals with the characteristics of long-
term welfare dependence at section 403(a)(5)(C)(iv).

    Note: For ease of identification, IFR2 refers to the group of 
individuals served under the 30 percent provision as ``other 
eligibles,'' at Sec. 645.212, and IFR2 refers to the ``general 
eligibility and noncustodial parent'' category at Sec. 645.212 as 
the ``primary'' eligibility category (formerly the 70 percent 
category).

    Since the statute no longer specifies a 70 percent expenditure 
requirement and says only that no more than 30 percent of grant funds 
may be spent on individuals served under the ``other eligibles'' 
category, we interpret it to mean that all other expended funds must be 
spent on individuals enrolled under the primary ``general eligibility 
and noncustodial parents'' category.
    Thus, an operating entity which does not quite spend all of its 
grant funds, resulting in an expenditure ratio slightly below 70 
percent for the general and noncustodial (primary) population, will 
still be in compliance with the expenditure requirements as long as its 
expenditures on the other eligibles does not exceed 30 percent of the 
total grant funds allotted. An operating entity may in fact spend up to 
100 percent of its grant funds to benefit individuals in the general 
eligibility and noncustodial parents (primary) category, as described 
in Sec. 645.212, as the provision of ``no more than'' 30 percent of the 
funds spent on ``other eligibles'' would have been met.
    This change in the 1999 Amendments allows operating entities more 
of an opportunity to achieve the intended goal of targeting the 
hardest-to-employ individuals in the program by the end of the grant 
period without unintended punitive consequences. To be in compliance, 
an operating entity must have spent no more than 30 percent of the 
funds allotted or awarded on the ``other eligibles'' in Sec. 645.213, 
even if the operating entity has not expended all of its funds.
    We see this change as a move away from an arbitrarily punitive way 
of assessing compliance towards a more realistic approach that 
recognizes that overall expenditure rates may have been suppressed by 
the original WtW eligibility criteria. Operating entities are not 
absolved of the underlying requirement that spending is to be targeted 
to the hardest-to-serve primary eligibility category and that poor 
performance in this area will be cited through routine monitoring and 
oversight. Such poor performance may lead to sanctions such as 
termination, reduction in grant amount or other actions warranted by 
the circumstances as determined by the Grant Officer. Falling short of 
expenditure goals due to lack of effort in serving the primary 
eligibles will be viewed far differently from a good faith effort to 
achieve those goals. This change, coupled with the more flexible 
eligibility criteria in the 1999 Amendments, should encourage grantees 
to move ahead on enrollments and expenditures in the remaining years of 
the program without the previous overcaution and concern about how the 
original 70 percent expenditure requirement would be applied at the 
closeout of the grant.
    The 30 percent maximum expenditure requirement applies to all WtW 
funds, i.e., to substate formula funds, Governors' funds for long-term 
recipients of assistance, and competitive funds. The requirement does 
not apply to the proportion of WtW participants served; rather, it 
applies to the percentage of WtW funds expended on the participants in 
each category of eligibility.
    The ``general eligibility and noncustodial parents'' (primary) 
category may include participants who were originally enrolled as 
individuals with characteristics of long-term welfare dependence under 
the 30 percent category and transferred to the ``general eligibility 
and noncustodial parents'' (primary) category after the effective date 
of the 1999 Amendments. Operating entities should note that 
expenditures on these individuals prior to their transfer to the 
``general eligibility/noncustodial parents'' (primary) category may not 
be reported as and will not count as expenditures under the new primary 
category. We intend to provide more guidance on tracking and reporting 
expenditures under Sec. 645.212 (primary eligibility) and Sec. 645.213 
(``other eligibles'' eligibility)

[[Page 2704]]

in revised WtW participant and financial reporting instructions to be 
issued separately.
Who May Be Served Under the General Eligibility and Noncustodial Parent 
Eligibility (Primary Eligibility) Provision? (Sec. 645.212)
    As discussed above, under the 1999 Amendments, 30 percent of WtW 
funds may be spent on individuals served under the ``other eligibles'' 
category, and the remaining funds must be spent on the ``general 
eligibility and noncustodial parents'' (primary) category of 
eligibility. The main purpose of the 1999 Amendments was to simplify 
the WtW eligibility requirements by eliminating the requirement that 
long-term TANF recipients or exhaustees demonstrate two of three 
specified barriers to employment (education level and low skills in 
reading or math; requires substance abuse treatment for employment; and 
poor work history). The comments from a variety of public and private 
entities about these barriers are discussed in detail in Section II of 
this preamble in the discussion of Sec. 645.212.
    General Eligibility. The general eligibility portion of the primary 
eligibility provision focuses on the target groups expected to 
constitute the majority of those served in WtW due to their status as 
TANF recipients. The regulations reflect the statute in describing 
these target groups as follows:
    1. Current TANF recipients who have received TANF assistance for at 
least 30 months;
    2. Current TANF recipients who will become ineligible for TANF 
assistance within 12 months; or
    3. Former TANF recipients who are no longer receiving TANF 
assistance because they reached the Federal or State-imposed time 
limit.
    As these groups were already included in the groups possibly 
eligible for the the primary eligibility portion of WtW, the 1999 
Amendment's elimination of the barriers to employment requirements 
should significantly increase the number of participants eligible for 
the program, without requiring the addition of any verification 
procedures not already in place.
    Noncustodial Parent Eligibility. Under the 1999 Amendments, 
operating entities now serve noncustodial parents in the WtW program 
under separate noncustodial parent eligibility criteria, set forth in 
the primary eligibility provision for general eligibility and 
noncustodial parents at Sec. 645.212. Most often, noncustodial parents 
are fathers with minor children who do not live in the same household 
as the child. To be eligible under this provision, noncustodial parents 
must meet three criteria (generally, the noncustodial parent must be 
unemployed, underemployed or having difficulty making child support 
payments; the minor child must be receiving or be eligible for TANF or 
other specified assistance; and the noncustodial parent must enter into 
a personal responsibility contract).
    The first requirement is that the noncustodial parent be 
``unemployed, underemployed, or having difficulty making child support 
payments.'' Since the WtW program is a required partner in the 
workforce investment system established under WIA, we believe it is 
important to coordinate WtW program definitions or requirements with 
those set forth under WIA wherever possible or appropriate. Therefore, 
the definition for ``unemployed'' set forth in the WtW regulations at 
Sec. 645.120 corresponds to the definition of ``unemployed individual'' 
in section 101(47) of WIA. This is discussed in more detail above under 
the discussion of Sec. 645.120 in this section of the preamble. We have 
not defined the other two terms in this criterion.
    We allow the States to determine how to define the term 
``underemployed,'' in consultation with local operating entities, 
including local competitive grantees. We suggest that States consider 
the definition used in the Indian and Native American WIA program at 20 
CFR 668.150, where underemployed means an individual who is working 
part time but desires full time employment, or who is working in 
employment not commensurate with the individuals's demonstrated level 
of educational and/or skill achievement.
    States, in consultation with local entities, including competitive 
grantees within their jurisdiction, and the State Child Support 
Enforcement (IV-D) Agency, may define what constitutes ``having 
difficulty paying child support obligations,'' and should coordinate 
with the State or local child support enforcement entity. For example, 
a State may decide that if a noncustodial parent is behind in his/her 
payments as specified in a child support order for one or more months, 
this constitutes ``having difficulty paying child support 
obligations,'' as the noncustodial parent is now in arrears. In such 
cases, the child support enforcement entity would be able to assist in 
identifying such arrearages. Another example of a definition of 
``having difficulty paying child support'' would be any noncustodial 
parent that has not yet established paternity or who does not have a 
child support order but is not working and hence, has no ability to pay 
child support, if ordered.
    Effective dates for the implementation of the 1999 Amendments are 
discussed in this section of the preamble at Sec. 645.130 and 
Sec. 645.135. However, entities operating competitive grants have 
expressed concern that there may be a delay before States articulate 
definitions for these and other terms under the 1999 Amendments, given 
the later effective date for formula grantees.
    States and local workforce investment boards may establish 
definitions for the WtW program. Competitive grantees are encouraged to 
provide input in the development of these definitions, as they will be 
required to follow these definitions once established by the State and 
local area, as was the case in the establishment of definitions for 
``characteristics of long-term welfare dependence'' under IFR1. When 
terms are not defined by the State or local board in the area in which 
a competitive grantee operates, competitive grantees may establish 
their own definitions for ``underemployed'' and ``having difficulty 
making child support payments.'' However, once State or local board 
definitions become effective, competitive grantees are required to 
follow them.
    The second requirement for the enrollment of a noncustodial parent 
in the WtW program relates to the financial status of the minor child 
(or, in certain cases, the custodial parent). The noncustodial parent 
may be eligible if the minor child or custodial parent is a long-term 
TANF recipient. The noncustodial parent may also establish eligibility 
if the minor child is a current or recent TANF recipient, or is 
receiving or is eligible for Food Stamps, Supplemental Security Income, 
Medicaid, or State Children's Health Insurance Program (SCHIP).
    Operating entities must first attempt to determine whether a 
noncustodial parent's child(ren) is actually receiving any of the above 
benefits by obtaining documentation of such benefits from the custodial 
parent or by confirmation from the agency that the minor child or 
custodial parent, for purposes of determining long-term TANF receipt, 
is receiving services under the program.
    It is important to note, however, that the 1999 Amendments 
explicitly state that in order to protect custodial parents and 
children at risk of domestic violence, the custodial parent may not be 
required to cooperate in the establishment of the noncustodial

[[Page 2705]]

parent's eligibility based upon the custodial parent's or minor child's 
receipt of certain benefits and services. The cooperation of the 
custodial parent is not to be construed as a condition for 
participation in the program of either parent, as the safety of the 
custodial parent and/or child takes precedence over the direct 
gathering of information from a custodial parent when domestic violence 
or risk of domestic violence is a factor. If a grantee wishing to 
enroll a noncustodial parent under the above eligibility criterion is 
not able to verify receipt of benefits and services from the custodial 
parent due to the risk of domestic violence, the grantee should attempt 
to get this information from the responsible agency, or should employ 
the presumptive eligibility determination methods outlined below.
    Presumptive Eligibility Determination. We are especially seeking 
comments on the IFR2's method of determining if a minor child is 
eligible for assistance under the Food Stamps Act of 1977, benefits 
under the supplemental security income program under Title XVI (SSI), 
medical assistance under Title XIX (Medicaid), or child health 
assistance under title XXI of the Social Security Act (SCHIP). For 
purposes of this new IFR2, we offer the following method.
    In cases where the child or custodial parent is not receiving 
benefits, or when there is not a timely response from the responsible 
agency, the State or the operating entity must develop its own 
reasonable method for determining whether a child is eligible for 
benefits under any of the above-specified programs. The method devised 
by the operating entity may include an objective standard to be used as 
a proxy determination for eligibility for the specified programs. For 
example, the State may adopt an income test under which an individual 
or family would be eligible for one or more of these programs for 
purposes of determining WtW noncustodial parent eligibility.
    In general, SCHIP has the simplest eligibility of the four 
programs, requiring only an income determination. In most States, the 
SCHIP program is also the most generous program (i.e., it has the 
highest minimum income level for eligibility purposes), with 30 States 
providing benefits for children with family incomes up to 200 percent 
of the poverty guidelines. To determine eligibility for SCHIP, and 
hence qualification of the noncustodial parent as meeting this portion 
of the criteria in these States, it makes sense for the State or an 
operating entity to establish a presumptive eligibility guideline for 
WtW purposes based on the SCHIP income level for that State since this 
program likely has the largest group of potentially eligible 
individuals and families. For those States where SCHIP eligibility is 
set at a level lower than 200 percent of poverty, or where another of 
the programs identified may have more generous eligibility criteria, 
States and operating entities should consider adopting the eligibility 
criteria which is most generous of the four specified programs as a 
presumptive eligibility guideline for determining eligibility for 
noncustodial parents under WtW. The website which discusses State 
income eligibility limits for SCHIP may be found at http://www.insurekidsnow.gov/childhealth/states/states.asp.
    Upon determining presumptive eligibility for the WtW program based 
on any of the relevant programs, operating entities should notify the 
noncustodial parent or the custodial parent, if the address is known, 
that his/her children may be eligible for additional services. 
Determining presumptive eligibility for WtW under this provision does 
not change the application or eligibility requirements for any other 
programs. In most programs, only the custodial parent or child's 
caretaker is able to make application for benefits or services.
    Additional Eligibility Requirement for Noncustodial Parents: 
Personal Responsibility Contracts. The third factor in the eligibility 
determination process for noncustodial parents under the 1999 
Amendments is participation in a personal responsibility contract. This 
essential element for the enrollment of noncustodial parents is covered 
in a new section of the regulations. A description of the contents, the 
parties to the contract, and time frames is contained in a new 
Sec. 645.215, and is discussed in this section of the preamble under 
that designation.
Who May Be Served as an Individual in the ``Other Eligibles'' (30 
percent) Provision? (Sec. 645.213)
    This section describes the new eligibility criteria for individuals 
under the 30 percent provision as required by the 1999 Amendments. The 
new 30 percent criteria retain eligibility for individuals who are 
receiving TANF assistance and who have characteristics associated with, 
or predictive of long term welfare dependence, as determined by the 
State in consultation with the local operating entities. The examples 
given in IFR1 of school dropout, teenage pregnancy or having a poor 
work history remain as guidance. The 1999 Amendments also allow local 
boards to establish criteria for determining if an individual has 
significant barriers to self-sufficiency.
    New provisions in the amendments also add two new groups of 
eligible individuals to those who may be served under the ``other 
eligibles'' provisions of Sec. 645.213. These are certain individuals 
who have been in foster care and custodial parents with incomes below 
the poverty line.
    The provision at Sec. 645.213(c) of IFR1 provided eligibility under 
the 30 percent provision for individuals with characteristics 
associated with long-term welfare dependence but who were not TANF 
recipients because they had reached federal or State-imposed time 
limits. We have deleted this provision because these individuals can be 
served under the 70 percent provisions at Sec. 645.212(b) as a result 
of the 1999 Amendments.
    Individuals Who Have Been in Foster Care. Section 645.213(c) 
provides that an individual who is at least 18 but not yet 25 years of 
age, who was in foster care before age 18, is eligible for the WtW 
program under the ``'other eligibles'' portion. The 1999 Amendments 
provide that the individual must have been a recipient of foster care 
maintenance payments, as defined in section 475(4) of the Social 
Security Act (42 U.S.C. 675(4)), or was in foster care under the 
responsibility of the State. This foster care could have occurred in, 
but is not limited to, family homes, group homes or child care 
institutions.
    Section 475(4) of the Social Security Act contains a definition of 
``foster care maintenance payments.'' Section 472 of the Social 
Security Act describes the Federal Foster Care Maintenance Payments 
Program itself.
    It should be noted that the definition of foster care under the 
responsibility of the State includes children on whose behalf Federal 
foster care payments were made. Thus, for WtW eligibility purposes, all 
individuals under foster care in the State, whether or not State or 
Federal funds are paid on the individuals' behalf, are considered to 
have been under the responsibility of the State. For assistance in 
determining eligibility for WtW, operating entities should contact the 
appropriate State Child Welfare or Child Protective Services Agency to 
verify whether, in fact, an individual was in its foster care system.
    Recruiting Youth Who Have Been in Foster Care. We suggest that 
operating entities contact their State's Independent Living Coordinator 
to ensure that former foster care individuals who meet the eligibility 
requirement are referred to WtW

[[Page 2706]]

programs. Grantees can find the Independent Living Coordinator in their 
area by calling their State Department of Health and Human Services.
    Custodial Parents With Incomes Below the Poverty Line. A new 
category of eligible WtW participants under the ``other eligibles'' 
provision is custodial parents with incomes below the poverty line. 
Receipt of TANF or other public assistance is not a requirement for 
eligibility under this provision. To ensure consistency with other 
Federal programs and among States, Sec. 645.213(c)(1) provides that 
operating entities must use the most recent DHHS Poverty Guidelines to 
determine whether an individual's income is below the poverty line. The 
Guidelines are updated annually, as required by section 673(2) of the 
Omnibus Budget Reconciliation Act (OBRA) of 1981 (Pub. L. 97-35). The 
1999 DHHS Poverty Guidelines are available in the Federal Register, at 
64 FR 13428-13430 (Mar. 18, 1999), or on the following website: http://aspe.hhs.gov/poverty/00poverty.htm.
    Determination of Income. To determine whether an individual's 
income is below the poverty line, Sec. 645.213(c) provides a method 
that is based upon the WIA method for determining income under the 
definition of ``low income individual,'' at WIA section 101(25). This 
method entails utilizing total family income for the last six months 
with exclusions for unemployment compensation, child support payments, 
cash payments under a Federal, State or local income-based public 
assistance program, and old-age, survivors benefits received under 
section 202 of the Social Security Act (42 U.S.C. 402), and other 
amounts specifically excluded by any other Federal statute for 
consideration as income.
    Allowing each State to determine income could lead to many 
variations on what is considered income as there are a variety of 
income requirements among the various entitlement programs such as Food 
Stamps and Medicaid. There are also variations within the same programs 
from one State to another. The WIA-based method adapted here would 
provide consistency among operating entities while fulfilling the 
intent of serving low income custodial parents.
    Receipt of cash payments for a Federal, State, or local income-
based public assistance program might be an acceptable indication that 
an individual's income is below the poverty line for purposes of 
meeting the eligibility criteria in Sec. 645.213(c)(1). However, it is 
acknowledged that some States benefits and services are provided to 
individuals and families whose income may be above the poverty line. If 
the operating entity is able to confirm that receipt of a particular 
kind of assistance is limited to individuals with incomes below the 
poverty line, receipt of assistance from that program would be an 
acceptable proxy for income below the poverty line. If the program used 
as a proxy income test also serves individuals or families with incomes 
above the poverty line, then operating entities must take care to 
determine that individuals served with WtW funds meet the income test 
of Sec. 645.213(c)(1). For programs limited to individuals or families 
below the poverty line, documented receipt of assistance will suffice 
for purposes of complying with Sec. 645.213(c)(1).
    Finally, as provided in WIA low income guidelines, a custodial 
parent with a disability whose own income includes receipt of cash 
payments under a Federal, State or local income-based public assistance 
program, or whose own income for the prior six month period with the 
exclusions discussed above, does not exceed the poverty line would be 
eligible under this provision. The disabled individual may be a member 
of a family whose income does not meet these requirements. The overall 
consistency with WIA's definition of ``low-income individual'' should 
enhance the partnership at the local level required between WtW and 
WIA.
How Will Welfare-to-Work Participant Eligibility Be Determined? 
(Sec. 645.214)
    Section 645.214 has been revised to reflect the 1999 Amendments' 
addition of new groups of eligible individuals, and its removal of the 
barriers to employment formerly required under Sec. 645.212(a)(2). As 
amended, the IFR2 requires that operating entities have mechanisms in 
place to determine the eligibility of all participants. It is 
especially important that operating entities have effective mechanisms 
in place to determine the eligibility of noncustodial parents as well 
as individuals formerly in foster care, because these groups have not 
traditionally been closely attached to the TANF system. As described 
above, this section provides States and operating entities with 
authority to use a presumptive eligibility determination procedure for 
purposes of noncustodial parent eligibility under 
Sec. 645.212(c)(2)(iii), when WtW eligibility is based upon the minor 
child's eligibility for other programs.
What Must a WtW Operating Entity That Serves Noncustodial Parents Do? 
(Sec. 645.215)
    Preference. According to the 1999 Amendments, among all eligible 
noncustodial parents, preference for admission must be given to those 
noncustodial parents of minor children who are, or whose custodial 
parents are, long-term TANF recipients (i.e., received TANF for at 
least 30 months or will become ineligible for TANF within 12 months due 
to time limits). However, these noncustodial parents eligible under 
Sec. 645.212(c)(2)(i) do not have preference over all other categories 
of eligible participants, just over other noncustodial parents.
    In order to satisfy this requirement for preference to noncustodial 
parents of minor children who are, or whose custodial parents are, 
long-term recipients of TANF, Sec. 645.214 requires that operating 
entities must create a mechanism to implement this preference. However, 
in creating this mechanism to establish preference for these 
noncustodial parents, we would like to make clear that this does not 
mean that this category of eligible noncustodial parents must be 
exhausted before any other category of eligible noncustodial parents 
may be served. The operating entity may establish a process that gives 
preference to noncustodial parents eligible under Sec. 645.212(c)(2)(i) 
and that also provides services to noncustodial parents eligible under 
the other provisions of Sec. 645.212(c)(2).
    Personal Responsibility Contracts. The WtW operating entity must 
ensure the fulfillment of the personal responsibility contract 
provision of section 403(a)(5)(C)(iii)(III) of the Act. Section 
645.215(c) requires that noncustodial parents participating in a 
Welfare-to-Work program must comply with the terms of a personal 
responsibility contract as a condition of their eligibility and 
continued participation in the WtW program. The parties to the contract 
are (1) the noncustodial parent, (2) the entity operating the WtW 
program and (3) the agency responsible for administering the State 
child support enforcement plan under title IV, part D of the Social 
Security Act (IV-D agency, or Child Support Enforcement agency). In 
drawing up the personal responsibility contract, the parties must take 
into consideration the employment and child support status of the 
noncustodial parent.
    The State IV-D agency has an important role in establishing 
personal responsibility contracts, because these

[[Page 2707]]

contracts involve matters relating to paternity (if the participant is 
male), establishing and monitoring child support orders, and 
modification of such orders as program participation warrants. Section 
645.215(c)(2) requires that the State IV-D agency be a party to the 
personal responsibility contract. We expect that the WtW operating 
entity and the IV-D agency will develop a working relationship at the 
local level so that personal responsibility contracts are executed in a 
timely fashion. However, the Secretary may permit the WtW operating 
entity to enter into a personal responsibility contract with a 
noncustodial parent, without the State IV-D agency as a party to that 
contract, if the operating entity demonstrates, through written 
documentation, that it is not able to coordinate with the IV-D agency. 
We expect that this will be a rare occurrence, and will issue guidance 
on how to demonstrate this in the future.
    Content of the Personal Responsibility Contract. Section 
645.215(c)(3) requires that the personal responsibility contract 
contain certain specified elements. The first required element is a 
commitment by the noncustodial parent to cooperate, at the earliest 
opportunity, in the establishment of the paternity of the minor child 
(if the participant is male). Paternity may be established through 
voluntary acknowledgment or through other procedures that may be 
pursued by the WtW operating entity and/or the State IV-D agency. The 
noncustodial parent must commit to cooperate with the State IV-D agency 
in establishing a child support order, if one is not already in place.
    It is very important to remember that the cooperation of the 
custodial parent must not be required as a condition of the 
noncustodial parent's eligibility. The 1999 Amendments expressly state 
that in order to protect custodial parents and children at risk of 
domestic violence, the custodial parent may not be required to 
cooperate in the establishment of paternity or establishing and 
enforcing a support order with regard to a child. The cooperation of 
the custodial parent is not a condition for participation in the 
program of either parent, as the safety of the custodial parent and/or 
child takes precedence over the establishment of paternity when 
domestic violence or the risk of domestic violence is a factor. 
However, because voluntary paternity establishment can only be 
accomplished with the consent and signatures of both parents, issues of 
how to approach custodial parents should be part of the consultation 
that WtW programs have with domestic violence organizations (see 
discussion below in this section).
    The second required element in the personal responsibility contract 
is the noncustodial parent's commitment to cooperate in the payment of 
child support for the minor child. The parties should take into 
consideration the ability of the parent to pay the child support during 
participation in the WtW program. The IV-D agency might be able to 
provide flexibility within their State guidelines on the payment of 
child support such as the establishment or modification of a child 
support order while noncustodial parents are participating in the 
program, suspension or reduction in the order, suspension of interest 
accruing on arrears, suspension of enforcement actions, such as 
driver's license suspension; and compromise of child support debt owed 
to the State.
    The third required element in the personal responsibility contract 
is a commitment from the noncustodial parent to participate in the WtW 
program in order to meet these child support obligations. We expect 
that the noncustodial parents will generally be engaged in employment 
or work-related activities that provide income at a level that will 
allow these obligations to be met in a timely fashion to benefit the 
minor child. If a noncustodial parent is less than 20 years of age, the 
individual may engage in activities that relate to obtaining a high 
school diploma or a general equivalency degree, or other education 
directly related to employment. Because of the overall intent to engage 
noncustodial parents in the provision of monetary support to a child, 
this other pre-employment education must be directly related to 
employment and should not exceed six months in duration. This time 
limit is consistent with the time limit on vocational educational 
training and job training which occur prior to employment as provided 
in Sec. 645.220 of the IFR2, which is described below in this section 
of the preamble. Education directly related to obtaining a high school 
diploma or a general equivalency degree has no specific time limit but 
the duration of participation should be estimated and monitored by the 
operating entity.
    The fourth required element in the personal responsibility contract 
is a description of the services to be provided by the WtW program to 
the noncustodial parent which are designed to assist the noncustodial 
parent to obtain and retain employment and increase his or her earnings 
to enhance his or her financial and emotional contributions to the 
well-being of the child.
    Documentation of the Personal Responsibility contract. Section 
645.212(c)(3) provides that the personal responsibility contract may be 
either an oral or written agreement. We believe it is in the best 
interest of all parties that the agreed-upon terms of the personal 
responsibility contract be clearly described in a written document. 
However, if all the required parties choose to enter into an oral 
personal responsibility contact, meeting all the required conditions, 
we strongly encourage WtW operating entities to document the oral 
personal responsibility contract so that there is a record of what 
agreements the parties reached. An example of such documentation would 
be a notation in the participant's file noting the date the oral 
contract was made, the parties to the contract, and the terms of the 
contract. We also strongly recommend that the noncustodial parent be 
given a copy of the documentation or a letter summarizing the terms 
agreed upon for the sake of consistency in following up on the oral 
contract during the period of enrollment in the program.
    Timeframe for the Establishment of Personal Responsibility 
Contracts. Under Sec. 645.215(c)(4), the parties must enter into a 
personal responsibility contract no later than 30 days after the 
noncustodial parent enrolls in a WtW program and is receiving services 
through a Federally funded WtW project. When there is good cause, the 
operating entity has the option of extending this time period to no 
later than 90 days for itself or its subrecipients. The entity has the 
discretion to grant such an extension on an individual or a broader 
basis. It is up to the operating entity to decide what is good cause 
for the extension. For example, the entity may require a showing of a 
particular reason why more than 30 days is needed in individual cases, 
or may determine that more than 30 days is generally needed and grant 
an across-the-board extension.
    Pre-existing Personal Responsibility Contracts. For participants 
for whom similar personal responsibility agreements already exist, 
these pre-existing agreements may be used for WtW purposes, as long as 
they contain the elements described in Sec. 645.215(c). Therefore, any 
pre-existing agreements may be adapted to incorporate a commitment on 
the part of the noncustodial parent to cooperate in establishing 
paternity (if male), paying child support, and participating in WtW 
services designed increase his/her employment and earnings if it does 
not already contain these elements.

[[Page 2708]]

    Domestic Violence Consultation. WtW entities that operate a program 
serving noncustodial parents under the new noncustodial parent 
eligibility criteria in Sec. 645.212(c) must take certain precautions 
when determining eligibility for the program and establishing personal 
responsibility contracts with noncustodial parents. As described above, 
the statute explicitly states that, to protect custodial parents and 
children at risk of domestic violence, the custodial parent cannot be 
required to cooperate in the establishment of paternity or establishing 
and enforcing a support order with regard to a child. To assist the WtW 
operating entity with developing such precautions, Sec. 645.215(b) 
requires that it must consult with domestic violence prevention and 
intervention organizations before operating a project to serve 
noncustodial parents under Sec. 645.212(c). This consultation is 
intended to raise the awareness of operating entities about the issues 
associated with domestic violence, and to provide operating entities 
with the practical knowledge and resources needed to safely and 
effectively address domestic violence issues as they arise in programs 
where noncustodial parents are served.
    Operating entities who have been serving noncustodial parents in 
their WtW programs prior to the passage of the 1999 Amendments are 
strongly encouraged to amend their operating procedures to include 
regular and continuing consultation with domestic violence 
organizations regarding their services to these individuals. This 
consultation is mandatory if the operating entity wishes to continue to 
enroll noncustodial parents under the criteria set forth in this IFR2.
    Domestic violence information, including assessment and 
intervention resources, hotline and referral telephone numbers, 
confidentiality protections information, legal, supportive services, 
and safety planning resources; and contact information for domestic 
violence organizations, will be posted on the WtW web site shortly 
(http://wtw.doleta.gov). Operating entities may use this information to 
locate domestic violence organizations in their areas and fulfill the 
consultation requirement. We urge WtW operating entities to use these 
resources to help meet the consultation requirement and to ensure that 
their programs fully address domestic violence issues and concerns in 
the context of the provision of services to noncustodial parents, and 
the provision of services to custodial parents and children at risk for 
domestic violence.
What Activities are Allowable Under this Part? (Sec. 645.220)
    As provided in the 1999 Amendments, new Sec. 645.220(b) adds short-
term vocational educational training and job training to the list of 
allowable WtW activities. Under this provision, operating entities may 
provide these activities before the participant enters into employment 
or a WtW employment activity (as specified in Sec. 645.220(c), formerly 
Sec. 645.220(b)). These training activities have been allowed as post-
employment services since the inception of the WtW program. We have not 
defined the terms ``vocational educational training'' and ``job 
training,'' to permit the States and competitive grantees to define 
them. However, under any such definition, these activities must be 
related to preparing a participant for employment. Therefore, for 
example, English-as-a-Second Language training must be directly tied to 
the needs of the workplace, such as by teaching the terms a participant 
will need for a particular job, in order to be allowable vocational 
educational training.
    A participant may only receive up to six calendar months of 
vocational educational training or job training prior to entering 
employment or beginning a WtW employment activity. The six month period 
begins on the date the participant enters a training activity and must 
end no later than six calendar months from the beginning date, unless 
the participant enters into employment or a WtW employment activity 
before the conclusion of the six month period. In that case, the six 
month ``clock'' stops. If a participant leaves the employment activity 
or ceases to be employed, the participant could again enroll in 
vocational educational training or job training. Re-enrollment restarts 
the ``clock'' and is available for the time remaining in the six month 
period. In no case may a participant receive, in aggregate, greater 
than six months of pre-employment vocational educational training or 
job training.
    Although vocational education and job training are new additions to 
the list of allowable activities, these activities may, in some cases, 
be the same as those provided by an operating entity as post-employment 
services to participants who are employed or participating in a WtW 
employment activity. The important distinction is that no time limit 
applies to any type of vocational educational training or job training 
when the participant is employed or engaged in an employment activity, 
as described in Sec. 645.220(c).
For What Activities Must Local Workforce Investment Boards and PICs Use 
Contracts or Vouchers? (Sec. 645.221)
    When enacted in 1997, the WtW statute required that all WtW 
operating entities, both competitive and formula, provide job 
readiness, job placement and post-employment activities through job 
vouchers or through contracts with public or private providers. This 
requirement anticipated the subsequent passage of the WIA by generally 
putting PIC's into the role of oversight, planning and policy direction 
as opposed to program operations. Under WIA, PIC's will be replaced by 
local workforce investment boards. Unlike PIC's under JTPA, local 
workforce investment boards generally may not directly provide WIA 
services. The Balanced Budget Act's attempt to anticipate WIA had 
several unintended consequences.
    Although PIC's were the presumed local operating entities under the 
WtW formula grant program, they have not been in all cases. In 
addition, most WtW competitive grantees are not PIC's. WtW competitive 
grantees are mostly local community-based public or private 
organizations with special capabilities, innovations or partnerships 
that allow them to operate an effective program at the community level. 
By prohibiting all WtW grantees from directly providing job readiness, 
job placement, and post-employment services in order to anticipate a 
changing local board role under WIA, the WtW statute unintentionally 
restricts community-based organization grantees from providing direct 
services which they are uniquely qualified to deliver.
    The 1999 Amendments correct this unintended consequence by allowing 
WtW operating entities that are not PIC's or local workforce investment 
boards to provide services directly, including the previously limited 
job readiness, job placement, and post-employment services.
    Prior to the passage of the 1999 Amendments, we issued a Q and A in 
Training and Employment Guidance Letter (TEGL) No. 5-98 in an attempt 
to clarify this issue. In TEGL 5-98, we said that a WtW operating 
entity may not directly operate a program to provide job readiness, job 
placement or post-employment services. However, a WtW operating entity 
may directly operate a work experience program, a community service 
program or an on-the-job training program. TEGL 5-98 states that where 
job readiness, job placement or post-employment services are a 
reasonable and necessary component of the operating entity's work 
experience program, a community service program

[[Page 2709]]

or an on-the-job training program, then the operating entity could 
provide those services as part of the overall program. We have found 
that this guidance was widely misinterpreted in the field, and that 
many operating entities may have provided direct services where the 
circumstances would not have allowed this under the narrow 
circumstances permitted under TEGL 5-98. We now recognize that our 
guidance was not clear enough to ensure all grantees were in conformity 
with the contract/voucher requirement.
    The 1999 Amendments have now corrected the unintended consequence 
of applying the contract/voucher requirement to all operating entities, 
by specifically permitting all WtW operating entities that are not PICs 
or local boards to directly provide job readiness, job placement and 
post-employment services. We do not intend to penalize operating 
entities which may have previously violated the contract/voucher 
requirement while relying in good faith on guidance promulgated by the 
Department that was open to misinterpretation. However, we do intend to 
ensure that operating entities that are PIC's or local boards conform 
with the contract/voucher requirement. Towards that end, we have added 
a new Sec. 645.221 to clarify how the contract/voucher requirement 
applies to PIC's and local boards and other operating entities, and to 
provide a grace period for entities that may have violated this 
requirement in reliance on our guidance. Section 645.221(b) provides 
that all PIC's and local boards operating WtW programs must come into 
compliance with the contracts and vouchers requirements in this section 
by February 12, 2001.

What are the Reporting Requirements for Welfare-to-Work Programs? 
(Sec. 645.240)

    The WtW Amendments of 1999 eliminated the reporting requirements 
for WtW formula grants found at section 411(a)(1)(A) and amended 
section 403(a)(5)(C) of the Act to grant responsibility for simplified 
WtW State formula and competitive grant financial and participant data 
collection and reporting to the Secretary of Labor, in consultation 
with the Secretary of Health and Human Services, States, and 
organizations that represent State or local governments.
    The previous participant data collection and reporting requirements 
mandated that States collect on a monthly basis, and report to the 
Department of Health and Human Services on a quarterly basis, numerous 
disaggregated case record data on individuals who were receiving 
assistance under a State TANF program, and who were also participating 
in a WtW program. The Secretary of Labor was responsible for 
establishing participant data collection and reporting requirements for 
WtW competitive grant recipients and for establishing financial 
reporting requirements.
    Under the 1999 Amendments, the Secretary of Labor will establish 
requirements for the collection and maintenance of financial and 
participant information and the reporting of that information by WtW 
State formula grants and WtW competitive grantees. Section 645.240 has 
been revised to reflect the Secretary's authority to establish these 
reporting requirements.
What Factors Will Be Used in Measuring State Performance? 
(Sec. 645.420)
    As originally enacted in section 403(a)(5)(E) of the Act, $100 
million was set aside from FY 1999 funds to provide a performance bonus 
to successful States. This bonus award was to be made in FY 2000. The 
1999 Amendments reduced the amount available for performance bonuses to 
$50 million, and require that no outlays of these funds occur before 
October 1, 2000 (FY 2001). As discussed in Section I of this preamble, 
we have revised Sec. 645.420 to reflect the criteria that will used to 
award performance bonuses to successfully performing States. 
Additionally, we have amended paragraph (c) of this section to indicate 
that bonus awards will not be made until FY 2001.
    Under What Circumstances May States Disclose Information to Aid 
Administration of Welfare-to-Work Grant Funds? The 1999 Amendments made 
several changes to existing information disclosure requirements, in 
order to assist the WtW system in serving noncustodial parents. The 
1999 Amendments amended sections 403(a)(5) and 454A(f) of the Act to 
authorize State IV-D agencies and State TANF agencies to share certain 
information on noncustodial parents with local workforce investment 
boards or PIC's for the purpose of identifying and contacting the 
individuals about participation in the WtW program. The State agencies 
may share the names, addresses, telephone numbers and identifying case 
number information of noncustodial parents residing in the local area/
service delivery area of the local board or PIC. The information can 
only be shared with local boards or PICs operating WtW programs. The 
State IV-D agencies and State TANF agencies disclosing this information 
must ensure that the recipients of this information have procedures in 
place for safeguarding the privacy of the information and for ensuring 
that the information will be used solely for WtW recruiting purposes.
    We recognize the need for guidance about information sharing under 
the 1999 Amendments, and about the safeguards needed for protecting 
that information. We do not, however, intend to issue regulations on 
this subject, since the ultimate responsibility for ensuring that 
States safeguard this information lies with DHHS. Instead, we consulted 
with DHHS, and intend to issue information and guidance on the 
applicable requirements in the future, and expect that the specific 
safeguards to be established will be left up to each State.
    In May, 2000 we distributed TEGL No. 11-99 which provides ``Joint 
Guidance on Strategies to Enhance the Recruitment, Referral, 
Eligibility Determination, and Service Provision Processes Between 
Welfare-to-Work, Temporary Assistance for Needy Families, and Child 
Support Enforcement Entities.'' This was a product of earlier 
collaboration between the Department and DHHS to improve WtW program 
operations by presenting strategies and suggestions on cross-cutting 
issues including the sharing of information on noncustodial parents. 
This document can be found at http:wtw.doleta.gov/11-99at.htm.

IV. Administrative Information

A. Paperwork Reduction Act

    Information collection requirements are contained in this rule at 
Sec. 645.240. As required by the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), the Department submitted pertinent reporting documents 
and justification separately to OMB at the time IFR1 was published. OMB 
has assigned Control Number 1205-0385 to the Welfare-to-Work Formula 
(ETA 9068) and Competitive (ETA 9068-1) Cumulative Quarterly Financial 
Status Reports.
    Because the 1999 Amendments called for the Department to simplify 
reporting requirements and to collect participant data, we have revised 
the existing reporting formats and instructions for competitive and 
formula grantees, in consultation with DHHS and State and local 
government representatives. On August 22, 2000, we published a Notice 
in the Federal Register inviting public comment on the proposed 
information collection package. After the comment period, we will 
submit this revised

[[Page 2710]]

information collection to OMB for approval. Therefore, the information 
collection requirements associated with this rulemaking will not become 
effective until approved by OMB.

B. Executive Order 13132 (Federalism)

    ETA has reviewed this rule in accordance with Executive Order 13132 
regarding Federalism, and has determined that it does not have 
``federalism implications.'' While this rulemaking was begun prior to 
the issuance of Executive Order 13132, we have attempted to provide 
States with the maximum administrative discretion possible. As 
described in the preamble to IFR1, we have conducted extensive 
consultations with State and local governmental officials in the 
development of IFR1, and this Final Rule.
    Shortly after enactment of the 1999 Amendments, the Department 
consulted with public interest groups and intergovernmental groups on 
the development of regulations necessary to implement the 1999 
Amendments. Included in the consultation process were representatives 
of the National Association of Counties, the Conference of Mayors, the 
National Governors' Association, and the Interstate Conference of 
Employment Security Agencies.

C. Regulatory Flexibility and Regulatory Impact Analysis, SBREFA; 
Family Well-being

    The Regulatory Flexibility Act (5 U.S.C. Chapter 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 as small businesses (those with fewer 
than 500 employees, except where otherwise provided), small non-profit 
organizations (those with fewer than 500 employees, except where 
otherwise provided) and small governmental entities (those in areas 
with fewer than 50,000 residents). This rule will affect primarily the 
50 States, the District of Columbia, and certain Territories. As 
described in the preamble to IFR1, ETA has taken a variety of measures 
to minimize any potential burdens for grant applicants and recipients 
in order to maximize the resources available to achieve the purposes of 
the WtW program. The Department has assessed the potential impact of 
the Final Rule and IFR2, consulting with a wide range of small 
entities, in order to identify any areas of concern. Therefore, based 
on that assessment, the Department certifies that these Rules, as 
promulgated, will not have a significant impact on a substantial number 
of small entities.
    In addition, under the Small Business Regulatory Fairness Act 
(SBREFA) (5 U.S.C. Chapter 8), the Department has determined that these 
are not ``major rules'', as defined in 5 U.S.C. 804(2). The Department 
certifies that the Final Rule and IFR2 have been assessed in accordance 
with Pub. L. 105-277, 112 Stat. 2681, for their effect on family well-
being. The purpose of the WtW program is to provide job opportunities 
and support and job retention services to current or former TANF 
recipients, low income custodial parents, noncustodial parents and 
other eligible individuals so that they may attain economic self-
sufficiency. Programs are designed at the State and local level to 
fulfill this purpose with the effect of enhancing family well-being 
through increased earnings and increased ability for noncustodial 
parents to pay child support.

D. 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. We have determined that these rules are 
consistent with these priorities and principles. This rulemaking 
implements statutory authority based on broad consultation and 
coordination. It reflects our response to comments received on IFR1 
that we issued on November 18, 1997.
    The Executive Order encourages agencies, as appropriate, to provide 
the public with meaningful participation in the regulatory process. We 
consulted with the Departments of Health and Human Services, Housing 
and Urban Development, and Transportation, and with other responsible 
agencies as well as with State and local officials and their 
representative organizations, in addition to a broad range of advocacy 
groups and others to obtain their views prior to the publication of 
IFR2. We also considered comments received in response to IFR1. We have 
responded to the comments received in the ``Background'' and the 
``Summary and Explanation'' sections of the preamble.
    To a considerable degree, these rules reflect the comments that we 
received in response to IFR1. They also reflect the intent of the Act 
to move hard-to-employ welfare recipients and certain noncustodial 
parents into unsubsidized employment and economic self-sufficiency. We 
have determined that the revisions made by the Final Rule and IFR2 will 
not have an adverse effect in a material way on the nation's economy.
    This is a significant regulatory action under section (3)(f)(1) of 
Executive Order 12866 and, therefore, the Final Rule and IFR2 have been 
reviewed by the Office of Management and Budget in accordance with that 
Order.

E. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1501 et seq.) 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 rule.
    We have determined that the revisions made by the Final Rule and 
IFR2 will not require the expenditure by State, local, or Tribal 
governments, in the aggregate, or by the private sector, of more than 
$100 million in any one year. Accordingly, we have not prepared a 
budgetary impact statement, specifically addressed the regulatory 
alternatives considered, or prepared a plan for informing and advising 
any significantly or uniquely impacted small government.

F. Effective Date and Absence of Notice and Comment

    In 1997, we provided a period of 60 days for public comment on 
IFR1. We fully reviewed all comments, and considered input from our 
State, local and Federal partners through our consultation process. The 
Final Rule will become effective on February 12, 2001.
    For IFR2, we have determined, pursuant to 5 U.S.C. 553(b)(3)(B), 
that the statutory mandate to issue interim final regulations 
constitutes good cause for waiving notice and comment proceedings for 
IFR2. Moreover, because certain changes made by the 1999 Amendments are 
already in effect, it is important to have regulations implementing 
these provisions as soon as possible. Accordingly, we find that the 
issuance of a proposed rule rather than an interim final rule would be 
contrary to the public interest. IFR will become effective on February 
12, 2001. IFR2 provides a 60-day comment

[[Page 2711]]

period, so that the public may submit comments on regulatory provisions 
implementing the 1999 Amendments. The information collection 
requirements associated with the rule will not be effective until 
approved by OMB.

G. Catalog of Federal Domestic Assistance Number

    The program is listed in the Catalog of Federal Domestic Assistance 
at No. 17.253, ``Employment and Training Assistance-Welfare-to-Work 
Grants to States & Local Entities for Hard-to-Employ Welfare Recipient 
Programs.''

List of Subjects in 20 CFR Part 645

    Employment programs, Grant programs-labor, Welfare-to-Work 
programs.

    Signed at Washington, D.C. this 4th day of January, 2001.
Alexis M. Herman,
Secretary of Labor.
Raymond L. Bramucci,
Assistant Secretary of Labor, Employment and Training Administration.

    For the reasons set out in the preamble, 20 CFR part 645 is revised 
to read as follows:

PART 645--PROVISIONS GOVERNING WELFARE-TO-WORK GRANTS

Subpart A--Scope and Purpose
Sec.
645.100   What does this part cover?
645.110   What are the purposes of the Welfare-to-Work program?
645.120   What definitions apply to this part?
645.125   What are the roles of the local and State governmental 
partners in the governance of the WtW program?
645.130   What are the effective dates for the Welfare-to-Work 1999 
Amendments?
645.135   What is the effective date for spending Federal Welfare-
to-Work formula funds on newly eligible participants and newly 
authorized services?
Subpart B--General Program and Administrative Requirements
645.200   What does this subpart cover?
645.210   What is meant by the terms ``entity'' and ``project'' in 
the statutory phrase ``an entity that operates a project'' with 
Welfare-to-Work funds?
645.211   How must Welfare-to-Work funds be spent by the operating 
entity?
645.212   Who may be served under the general eligibility and 
noncustodial parent eligibility (primary eligibility) provision?
645.213   Who may be served as an individual in the ``other 
eligibles'' (30 percent) provision?
645.214   How will Welfare-to-Work participant eligibility be 
determined?
645.215   What must a WtW operating entity that serves noncustodial 
parent participants do?
645.220   What activities are allowable under this part?
645.221   For what activities and services must local boards use 
contracts and vouchers?
645.225   How do Welfare-to-Work activities relate to activities 
provided under TANF and other related programs?
645.230   What general fiscal and administrative rules apply to the 
use of Federal funds?
645.233   What are the time limitations on the expenditure of 
Welfare-to-Work grant funds?
645.235   What types of activities are subject to the administrative 
cost limit on Welfare-to-Work grants?
645.240   What are the reporting requirements for Welfare-to-Work 
programs?
645.245   Who is responsible for oversight and monitoring of 
Welfare-to-Work grants?
645.250   What procedures apply to the resolution of findings 
arising from audits, investigations, monitoring, and oversight 
reviews?
645.255   What nondiscrimination protections apply to participants 
in Welfare-to-Work programs?
645.260   What health and safety provisions apply to participants in 
Welfare-to-Work programs?
645.265   What safeguards are there to ensure that participants in 
Welfare-to-Work employment activities do not displace other 
employees?
645.270   What procedures are there to ensure that currently 
employed workers may file grievances regarding displacement and that 
Welfare-to-Work participants in employment activities may file 
grievances regarding displacement, health and safety standards and 
gender discrimination?
Subpart C--Additional Formula Grant Administrative Requirements and 
Procedures
645.300   What constitutes an allowable match?
645.310   What assurances must a State provide that it will make the 
required matching expenditures?
645.315   What actions are to be taken if a State fails to make the 
required matching expenditures?
645.320   When will formula funds be reallotted, and what 
reallotment procedures will the Secretary use?
Subpart D--State Formula Grant Administration
645.400   Under what conditions may the Governor request a waiver to 
designate an alternate local administering agency?
645.410   What elements will the State use in distributing funds 
within the State?
645.415   What planning information must a State submit in order to 
receive a formula grant?
645.420   What factors will be used in measuring State performance?
645.425   What are the roles and responsibilities of the State(s) 
and local boards or alternate administering agencies?
645.430   How does the Welfare-to-Work program relate to the One-
Stop system and Workforce Investment Act (WIA) programs?
Subpart E--Welfare-to-Work Competitive Grants
645.500   Who are eligible applicants for competitive grant funds?
645.510   What is the required consultation with the Governor?
645.515   What are the program and administrative requirements that 
apply to both the formula grants and competitive grants?
645.520   What are the application procedures and timeframes for 
competitive grant funds?
645.525   What special consideration will be given to rural areas 
and cities with large concentrations of poverty?
Subpart F--Administrative Appeal Process
645.800   What administrative remedies are available under this 
Part?

    Authority: 42 U.S.C. 603 (a)(5)(C)(viii).

Subpart A--Scope and Purpose


Sec. 645.100  What does this part cover?

    (a) Subpart A establishes regulatory provisions that apply to the 
Welfare-to-Work (WtW) programs conducted at the State and at the local 
area levels.
    (b) Subpart B provides general program requirements applicable to 
all WtW formula and competitive funds. The provisions of this subpart 
govern how WtW funds must be spent, who is eligible to participate in 
the program, allowable activities and their relationship to TANF, 
Governor's projects for long-term recipients, administrative and fiscal 
provisions, and program oversight requirements. This subpart also 
addresses worker protections and the establishment of a State grievance 
system.
    (c) Subpart C sets forth additional administrative standards and 
procedures for WtW Formula Grants, such as matching requirements and 
reallotment procedures.
    (d) Subpart D sets forth the conditions under which the Governor 
may request a waiver to designate an alternate administering agency, 
sets forth the formula elements that must be included in the within-
State distribution formula, the submission of a State annual plan, the 
factors for measuring State performance, and the roles and 
responsibilities of the States and the local boards or alternate 
administering agencies.
    (e) Subpart E outlines general conditions and requirements for the 
WtW Competitive Grants.
    (f) Subpart F sets forth the administrative appeals process.
    (g) Regulatory provisions applicable to the Indian and Native 
American

[[Page 2712]]

Welfare-to-Work Program (INA WtW) are found at 20 CFR part 646.


Sec. 645.110  What are the purposes of the Welfare-to-Work Program?

    The purposes of the WtW program are:
    (a) To facilitate the placement of hard-to-employ welfare 
recipients and certain noncustodial parents into transitional 
employment opportunities which will lead to lasting unsubsidized 
employment and self-sufficiency;
    (b) To provide a variety of activities, grounded in TANF's ``work 
first'' philosophy, to prepare individuals for, and to place them in, 
lasting unsubsidized employment;
    (c) To provide for a variety of post-employment and job retention 
services which will assist the hard-to-employ welfare recipient and 
certain noncustodial parents to secure lasting unsubsidized employment;
    (d) To provide targeted WtW funds to high poverty areas with large 
numbers of hard-to-employ welfare recipients.


Sec. 645.120  What definitions apply to this part?

    The following definitions apply under this part:
    Act means Title IV, Part A of the Social Security Act, 42 U.S.C. 
601-619.
    Adult means an individual who is not a minor child.
    Chief Elected Official(s) (CEOs) means:
    (1) The chief elected official of the sole unit of general local 
government in the service delivery area,
    (2) The individual or individuals selected by the chief elected 
officials of all units of general local government in such area as 
their authorized representative, or
    (3) In the case of a service delivery area designated under section 
101(a)(4)(A)(iii) of JTPA, the representative of the chief elected 
official for such area (as defined in section 4(4)(C) of JTPA) or as 
defined in section 101 of the Workforce Investment Act of 1988.
    Competitive grants means those grants in which WtW funds have been 
awarded by the Department under a competitive application process to 
local governments, PICs, and private entities (such as community 
development corporations, community-based and faith-based 
organizations, disability community organizations, and community action 
agencies) who apply in conjunction with a PIC or local government.
    Department or DOL means the U.S. Department of Labor.
    Employment activities means the activities enumerated at 
Sec. 645.220(b).
    ETA means the Employment and Training Administration of the U.S. 
Department of Labor.
    Fiscal year (FY) means any 12-month period ending on September 30 
of a calendar year.
    Formula grants means those grants in which WtW funds have been 
allotted to each Welfare-to-Work State, based on a formula prescribed 
by the Act, which equally considers States' shares of the national 
number of poor individuals and of adult recipients of assistance under 
TANF. The State is required to distribute not less than 85 percent of 
the allotted formula grant funds to service delivery areas in the 
State; and the State may retain not more than 15 percent for projects 
to help long-term recipients of assistance enter unsubsidized 
employment. Unless otherwise specified, the term ``formula grant'' 
refers to the 85 percent and 15 percent funds.
    Governor means the Chief Executive Officer of a State.
    IV-D Agency (Child Support Enforcement) means the organizational 
unit in the State that has the responsibility for administering or 
supervising the administration of the State plan under title IV-D of 
the Act (SSA).
    Job Training Partnership Act or JTPA means Public Law (Pub. L.) 97-
300, as amended, 29 U.S.C. 1501, et seq.
    Local area means a local workforce investment area designated under 
section 116 of the Workforce investment Act of 1998, or a service 
delivery area designated under section 101 of the Job Training 
partnership Act, as appropriate.
    Local workforce investment board (local board) means a local board 
established under section 117 of the Workforce Investment Act, or a 
Private Industry Council established under section 102 of the Job 
Training Partnership Act (JTPA), which performs the functions 
authorized at section 103 of the JTPA, or an alternate administering 
agency designated under section 405(a)(5)(A)(vii)(II) of the Act and 
Sec. 645.400 of this part.
    Minor child means an individual who has not attained 18 years of 
age, or has not attained 19 years of age and is a full-time student in 
a secondary school (or in the equivalent level of vocational or 
technical training).
    MOE means maintenance of effort. Under TANF, States are required to 
maintain a certain level of spending on welfare based on ``historic'' 
FY 1994 expenditure levels (Section 409(a)(7) of the Act).
    PIC means a Private Industry Council established under Section 102 
of the Job Training Partnership Act, which performs the functions 
authorized at Section 103 of the JTPA.
    Political subdivision of a State means a unit of general purpose 
local government, as provided for in State laws and/or Constitution, 
which has the power to levy taxes and spend funds and which also has 
general corporate and police powers.
    Private entity means any organization, public or private, which is 
not a local board, PIC or alternate administering agency or a political 
subdivision of a State.
    PRWORA means the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, Public Law (Pub. L.) 104-193, which 
established the TANF program.
    SDA means a service delivery area designated under section 101 of 
the Job Training Partnership Act or a local area designated under 
section 116 of the Workforce Investment Act of 1998, as appropriate.
    Secretary means the Secretary of Labor.
    Separate State program means a program operated outside of TANF in 
which the expenditures of State funds may count for TANF MOE purposes.
    State means the 50 States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the US Virgin Islands, Guam, 
and American Samoa, unless otherwise specified.
    State TANF Program means those funds expended under the State 
Family Assistance Grant (SFAG), the basic block grant allocated to the 
States under Section 403(a)(1) of the Act.
    TANF means Temporary Assistance for Needy Families Program 
established under PRWORA.
    TANF MOE means the expenditure of State funds that must be made in 
order to meet the Temporary Assistance for Needy Families Maintenance 
of Effort requirement.
    Unemployed means the individual is without a job and wants and is 
available for work.
    WIA means the Workforce Investment Act of 1998 (Pub. L. 105-220)(29 
U.S.C. 2801 et seq.).
    WtW means Welfare-to-Work.
    WtW State means those States that the Secretary of Labor determines 
have met the five conditions established at Section 403(a)(5)(A)(ii) of 
the Act. Only States that are determined to be WtW States can receive 
WtW grant funds.
    WtW statute means those provisions of the Balanced Budget Act of 
1997 containing certain amendments to PRWORA and establishing the new 
Welfare-to-Work program, amending

[[Page 2713]]

Title IV of the Social Security Act, (codified at 42 U.S.C. 601-619).


Sec. 645.125  What are the roles of the local and State governmental 
partners in the governance of the WtW program?

    (a) Local boards or alternate administering agencies, in 
coordination with CEO's should establish policies, interpretations, 
guidelines and definitions to implement provisions of the WtW statute 
to the extent that such policies, interpretations, guidelines and 
definitions are not inconsistent with the WtW statute or regulations or 
with State policies.
    (b) States should establish policies, interpretations, guidelines 
and definitions to implement provisions of the WtW statute to the 
extent that such policies, interpretations, guidelines and definitions 
are not inconsistent with the WtW statute or regulations.
    (c) The Secretary, in consultation with other Federal Agencies, as 
appropriate, may publish guidance on interpretations of statutory and 
regulatory provisions. State and local policies, interpretations, 
guidelines and definitions that are consistent with interpretations 
contained in such guidance will be considered to be consistent with the 
WtW statute for purposes of this section.


Sec. 645.130  What are the effective dates for the Welfare-to-Work 1999 
Amendments?

    The legislative changes made by the 1999 amendments:
    (a) Are effective on November 29, 1999, except as provided in 
paragraphs (b) and (c) of this section;
    (b) Provisions relating to the eligibility of participants for WtW 
competitive grants are effective on January 1, 2000;
    (c)(1) Provisions relating to the eligibility of participants for 
WtW formula grants are effective on July 1, 2000, except that 
expenditures from allotments to the States, as discussed in 
Sec. 645.135 of this subpart, must not have been made before October 1, 
2000, for individuals who would not have been eligible under the 
criteria in effect before the changes made by the 1999 Amendments;
    (2) Provisions authorizing pre-placement vocational educational 
training and job training for WtW formula grants, at Sec. 645.220(b) of 
this part, are effective on July 1, 2000, except that expenditures from 
allotments to the States, as discussed in Sec. 645.135 of this subpart, 
must not have been made before October 1, 2000.


Sec. 645.135  What is the effective date for spending Federal Welfare-
to-Work formula funds on newly eligible participants and newly 
authorized services?

    States and local areas may expend matching funds beginning July 1, 
2000. States and local areas may incur unpaid obligations within the 
normal course of business, beginning July 1, 2000, provided that the 
timing of those transactions ensures that drawdown of federal Welfare-
to-Work formula funds to liquidate the obligations did not occur until 
October 1, 2000.

Subpart B--General Program and Administrative Requirements


Sec. 645.200  What does this subpart cover?

    This subpart provides general program and administrative 
requirements for WtW formula funds, including Governors' funds for 
long-term recipients of assistance, and for competitive grant funding 
(section 403(a)(5)).


Sec. 645.210  What is meant by the terms ``entity'' and ``project'' in 
the statutory phrase ``an entity that operates a project'' with 
Welfare-to-Work funds?

    The terms ``entity'' and ``project'', in the statutory phrase ``an 
entity that operates a project'', means:
    (a) For WtW substate formula funds:
    (1) ``Entity'' means the PIC, local board (or the alternate 
administering agency designated by the Governor and approved by the 
Secretary pursuant to Sec. 645.400 of this part) which administers the 
WtW substate formula funds in a local area(s). This entity is referred 
to in Secs. 645.211 through 645.225 of this part as the ``operating 
entity.''
    (2) ``Project'' means all activities, administrative and 
programmatic, supported by the total amount of the WtW substate formula 
funds allotted to the entity described in section (a)(1) of this 
paragraph.
    (b) For WtW Governors' funds for long-term recipients of 
assistance:
    (1) ``Entity'' means the agency, group, or organization to which 
the Governor has distributed any of the funds for long-term recipients 
of assistance, as described in Sec. 645.410 (b) and (c) of this part. 
This entity is referred to in Secs. 645.211 through 645.225 of this 
part as the ``operating entity.''
    (2) ``Project'' means all activities, administrative and 
programmatic, supported by the total amount of one discrete award of 
WtW Governors' funds for long-term recipients of assistance awarded to 
the entity described in section (b)(1) of this paragraph.
    (c) For competitive WtW funds:
    (1) ``Entity'' means an eligible applicant, as described in 
Sec. 645.500 of this part, which is awarded a competitive WtW grant. 
This entity is referred to in Secs. 645.211 through 645.225 of this 
part as the ``operating entity.''
    (2) ``Project'' means all of the activities, administrative and 
programmatic, supported by the total amount of one discrete WtW 
competitive grant awarded to the entity described in section (c)(1) of 
this paragraph (section 403(a)(5)(C)).


Sec. 645.211  How must Welfare-to-Work funds be spent by the operating 
entity?

    An operating entity, as described in Sec. 645.210 of this subpart, 
may spend not more than 30 percent of the WtW funds allotted to or 
awarded to the operating entity to assist individuals who meet the 
``other eligibles'' eligibility requirements under Sec. 645.213 of this 
subpart. The remaining funds allotted to or awarded to the operating 
entity are to be spent to benefit individuals who meet the ``general 
eligibility'' and/or ``noncustodial parents'' eligibility requirements, 
under Sec. 645.212 of this subpart. (section 403(a)(5)(C) of the Act).


Sec. 645.212  Who may be served under the general eligibility and 
noncustodial parent eligibility (primary eligibility) provision?

    An individual may be served under this provision if:
    (a)(1) (S)he is currently receiving TANF assistance under a State 
TANF program, and/or its predecessor program, for at least 30 months, 
although the months do not have to be consecutive; or
    (2) (S)he will become ineligible for assistance within 12 months 
due to either Federal or State-imposed time limits on the receipt of 
TANF assistance. This criterion includes individuals (as well as 
children of noncustodial parents) exempted from the time limits due to 
hardship under section 408(a)(7)(C) of the Act or due to a waiver 
because of domestic violence under section 402(a)(7) of the Act, who 
would become ineligible for assistance within 12 months without the 
exemption or waiver;
    (b) (S)he is no longer receiving TANF assistance because (s)he has 
reached either the Federal five-year limit or a State-imposed time 
limit on receipt of TANF assistance (section 403(a)(5)(C) of the Act); 
or
    (c) (S)he is a noncustodial parent of a minor child if:
    (1) The noncustodial parent is:
    (i) ``Unemployed,'' as defined in Sec. 645.120 of this part,
    (ii) ``Underemployed,'' as defined by the State in consultation 
with local

[[Page 2714]]

boards and WtW competitive grantees, or
    (iii) ``Having difficulty paying child support obligations,'' as 
defined by the State in consultation with local boards and WtW 
competitive grantees and the State Child Support Enforcement (IV-D) 
Agency, and
    (2) At least one of the following applies:
    (i) The minor child, or the custodial parent of the minor child, 
meets the long-term recipient of TANF requirements of paragraph (a) of 
this section;
    (ii) The minor child is receiving or is eligible for TANF benefits 
and services;
    (iii) The minor child received TANF benefits and services during 
the preceding year; or
    (iv) The minor child is receiving or eligible for assistance under 
the Food Stamp program, the Supplemental Security Income program, 
Medicaid, or the Children's Health Insurance Program; and
    (3) The noncustodial parent is in compliance with the terms of a 
written or oral personal responsibility contract meeting the 
requirements of Sec. 645.215 of this subpart.
    (d) For purposes of determining whether an individual is receiving 
TANF assistance in paragraphs (a)(1) of this section and 
Sec. 645.213(a), TANF assistance means any TANF benefits and services 
for the financially needy according to the appropriate income and 
resource criteria (if applicable) specified in the State TANF plan.


Sec. 645.213  Who may be served as an individual in the ``other 
eligibles'' (30 percent) provision?

    Any individual may be served under this provision if (s)he:
    (a) Is currently receiving TANF assistance (as described in 
Sec. 645.212(d)) and either:
    (1) Has characteristics associated with, or predictive of, long-
term welfare dependence, such as having dropped out of school, teenage 
pregnancy, or having a poor work history. States, in consultation with 
the operating entity, may designate additional characteristics 
associated with, or predictive, of long term-welfare dependence; or
    (2) Has significant barriers to self-sufficiency, under criteria 
established by the local board or alternate administering agency.
    (b) Was in foster care under the responsibility of the State before 
s(he) attained 18 years of age and is at least 18 but not 25 years of 
age or older at the time of application for WtW. Eligible individuals 
include those who were recipients of foster care maintenance payments 
as defined in section 475(4) under part E of the Social Security Act, 
or
    (c)(1) Is a custodial parent with income below 100 percent of the 
poverty line, determined in accordance with the most recent HHS Poverty 
Guidelines established under section 673(2) of the Omnibus Budget 
Reconciliation Act of 1981 (Pub. L. 97-35), including any revisions 
required by such section, applicable to a family of the size involved.
    (2) For purposes of paragraph (c)(1) of this section, income is 
defined as total family income for the last six months, exclusive of 
unemployment compensation, child support payments, and old-age and 
survivors benefits received under section 202 of the Social Security 
Act (42 U.S.C. 402).
    (3) A custodial parent with a disability whose own income meets the 
requirements of a program described in paragraph (c)(1) or (c)(3)(i) 
but who is a member of a family whose income does not meet such 
requirements is considered to have met the requirements of paragraph 
(c)(1) of this section.


Sec. 645.214  How will Welfare-to-Work participant eligibility be 
determined?

    (a) The operating entity, as described in Sec. 645.210(a)(1), 
(b)(1), and (c)(1) of this subpart, is accountable for ensuring that 
WtW funds are spent only on individuals eligible for WtW projects.
    (b) The operating entity must ensure that there are mechanisms in 
place to determine WtW eligibility for individuals who are receiving 
TANF assistance. These mechanisms:
    (1) Must include arrangements with the TANF agency to ensure that a 
WtW eligibility determination is based on information, current at the 
time of the WtW eligibility determination, about whether an individual 
is receiving TANF assistance, the length of receipt of TANF assistance, 
and when an individual may become ineligible for assistance, pursuant 
to Secs. 645.212 and 645.213 of this part (section 
403(a)(5)(I)(A)(ii)(dd)).
    (2) May include a determination of WtW eligibility for 
characteristics of long-term welfare dependence and for significant 
barriers to self-sufficiency under Sec. 645.213(a) of this subpart, 
based on information collected by the operating entity and/or the TANF 
agency up to six months prior to the WtW eligibility determination.
    (c) The operating entity must ensure that there are mechanisms in 
place to determine WtW eligibility for individuals who have reached the 
time limit on receipt of TANF, under Sec. 645.212(b) of this subpart; 
individuals who are not receiving TANF assistance (i.e., noncustodial 
parents under Sec. 645.212(c) of this subpart; individuals who are 
former foster care recipients under Sec. 645.213(b) of this subpart, 
and low-income custodial parents under Sec. 645.213(c) of this 
subpart). The mechanisms for establishing noncustodial parent 
eligibility must include a process for applying the preference required 
under Sec. 645.215(a) of this subpart, and may include an objective 
standard to be used as a presumptive determination for establishing the 
eligibility of the minor child for the programs specified in 
Sec. 645.212(c)(2)(iv) of this subpart.


Sec. 645.215  What must a WtW operating entity that serves noncustodial 
parent participants do?

    (a) In programs that serve noncustodial parents, the operating 
entity must give preference to those noncustodial parents who qualify 
under Sec. 645.212(c)(2)(i) of this subpart over other noncustodial 
parents. The preference for admission into the program applies only to 
noncustodial parents and not to any other group eligible under the 
``general eligibility'' provisions of Sec. 645.212(a) or (b) or the 
``other eligibles'' provisions of Sec. 645.213. The preference does not 
require that the category of noncustodial parents eligible under 
Sec. 645.212(c)(2)(i) must be exhausted before any other category of 
eligible noncustodial parents may be served. The operating entity may 
establish a process that gives preference to noncustodial parents 
eligible under Sec. 645.212(c)(2)(i) and that also provides WtW 
services to noncustodial parents eligible under the other provisions of 
Sec. 645.212(c)(2).
    (b) In order to protect custodial parents and children who may be 
at risk of domestic violence, the operating entity must consult with 
domestic violence prevention and intervention organizations in the 
development of its WtW project serving noncustodial parents; and must 
not require the cooperation of the custodial parent as a condition of 
participation in the WtW program for either parent; and
    (c) The operating entity must ensure that personal responsibility 
contracts:
    (1) Take into account the employment and child support status of 
the noncustodial parent;
    (2) Include all of the following parties:
    (i) The noncustodial parent,
    (ii) The operating entity, and
    (iii) The agency responsible for administering the State Child 
Support Enforcement program as described under Title IV-D of the Act, 
unless the

[[Page 2715]]

operating entity demonstrates to the Secretary of Labor with written 
documentation that it is not able to coordinate with the State IV-D 
agency;
    (3) Include the following elements:
    (i) A commitment by the noncustodial parent to cooperate:
    (A) In the establishment of paternity (if the participant is male) 
of the minor child at the earliest opportunity, through voluntary 
acknowledgment or other procedures, and
    (B) In the establishment of a child support order;
    (ii) A commitment by the noncustodial parent to cooperate in the 
payment of child support for the minor child. This commitment may 
include a modification of an existing support order to take into 
account:
    (A) The ability of the noncustodial parent to pay such support; and
    (B) The participation of the noncustodial parent in the WtW 
program, and
    (iii) A commitment by the noncustodial parent to participate in 
employment or related activities that will enable the noncustodial 
parent to make regular child support payments. For noncustodial parents 
who have not reached 20 years of age, such activities may include:
    (A) Completion of high school,
    (B) Earning a general equivalency degree, or
    (C) Participating in other education directly related to 
employment;
    (iv) A description of the services to be provided to the 
noncustodial parent under the WtW program;
    (4) Contain a commitment by the noncustodial parent to participate 
in the services that are described in the personal responsibility 
contract under paragraph (c)(3)(iv) of this section; and
    (5) Be entered into no later than thirty (30) days after the 
individual is enrolled in and is receiving services through a WtW 
project funded under this part, unless the operating entity has 
determined that good cause exists to extend this period. This extension 
may not extend to a date more than ninety (90) days after the 
individual is enrolled in and receiving services through a WtW project 
funded under this part.


Sec. 645.220  What activities are allowable under this part?

    Entities operating WtW projects may use WtW funds for the 
following:
    (a) Job readiness activities, subject to the requirements of 
Sec. 645.221 of this subpart.
    (b) Vocational educational training or job training. A participant 
is limited to six calendar months of such training if (s)he is not also 
employed or participating in an employment activity, as described in 
paragraph (c) of this section.
    (c) Employment activities which consist of any of the following:
    (1) Community service programs;
    (2) Work experience programs;
    (3) Job creation through public or private sector employment wage 
subsidies; and
    (4) On-the-job training.
    (d) Job placement services subject to the requirements of 
Sec. 645.221 of this subpart.
    (e) Post-employment services which are provided after an individual 
is placed in one of the employment activities listed in paragraph (c) 
of this section, or in any other subsidized or unsubsidized job, 
subject to the requirements of Sec. 645.221 of this subpart. Post-
employment services include such services as:
    (1) Basic educational skills training;
    (2) Occupational skills training;
    (3) English as a second language training; and
    (4) Mentoring.
    (f) Job retention services and support services that are provided 
after an individual is placed in a job readiness activity, as specified 
in paragraph (a) of this section; in vocational education or job 
training, as specified in paragraph (b) of this section; in one of the 
employment activities, as specified in paragraph (c) of this section, 
or in any other subsidized or unsubsidized job. WtW participants who 
are enrolled in Workforce Investment Act (WIA) or JTPA activities, such 
as occupational skills training, may also receive job retention and 
support services funded with WtW monies while they are participating in 
WIA activities. Job retention and support services can be provided with 
WtW funds only if they are not otherwise available to the participant. 
Job retention and support services include such services as:
    (1) Transportation assistance;
    (2) Substance abuse treatment (except that WtW funds may not be 
used to provide medical treatment);
    (3) Child care assistance;
    (4) Emergency or short term housing assistance; and
    (5) Other supportive services.
    (g) Individual development accounts which are established in 
accordance with the Act.
    (h) Outreach, recruitment, intake, assessment, eligibility 
determination, development of an individualized service strategy, and 
case management may be incorporated in the design of any of the 
allowable activities listed in paragraphs (a) through (g) of this 
section (section 403(a)(5)(C) of the Act).


Sec. 645.221  For what activities and services must local boards use 
contracts or vouchers?

    (a) Local boards and PIC's must provide the following activities 
and services through vouchers or contracts with public or private 
providers: the job readiness activities described in Sec. 645.220(a) of 
this subpart, the job placement services described in Sec. 645.220(d) 
of this subpart, and the post-employment services described in 
Sec. 645.220(e) of this subpart. Job placement services provided with 
contracts or vouchers are subject to the payment requirements at 
Sec. 645.230(a)(3) of this subpart. If an operating entity is not a 
local board or a PIC, it may provide such services directly.
    (b) Local boards and PIC's which are directly providing job 
readiness activities or job placement and/or post-employment services 
must conform to the requirement in paragraph (a) of this section, to 
provide such services through contract or voucher, by February 12, 
2001.


Sec. 645.225  How do Welfare-to-Work activities relate to activities 
provided through TANF and other related programs?

    (a) Activities provided through WtW must be coordinated effectively 
at the State and local levels with activities being provided through 
TANF (section 403(a)(5)(A)(vii)(II)).
    (b) The operating entity must ensure that there is an assessment of 
skills, prior work experience, employability, and other relevant 
information in place for each WtW participant. Where appropriate, the 
assessment performed by the TANF agency or JTPA should be used for this 
purpose.
    (c) The operating entity must ensure that there is an 
individualized strategy for transition to unsubsidized employment in 
place for each participant which takes into account participant 
assessments, including the TANF assessment and any JTPA assessment. 
Where appropriate, the TANF individual responsibility plan (IRP), a WIA 
individual employment plan, or a JTPA individual service strategy 
should be used for this purpose.
    (d) Coordination of resources should include not only those 
available through WtW and TANF grant funds, and the Child Care and 
Development Block Grant, but also those available through other related 
activities and programs such as the WIA or JTPA programs (One-Stop 
systems), the State employment service, private sector employers, labor 
organizations, business and trade associations, education agencies, 
housing agencies, community development corporations,

[[Page 2716]]

transportation agencies, community-based and faith-based organizations, 
disability community organizations, community action agencies, and 
colleges and universities which provide some of the assistance needed 
by the targeted population (section 402(a)(5)(A)).


Sec. 645.230  What general fiscal and administrative rules apply to the 
use of Federal funds?

    (a) Uniform fiscal and administrative requirements.
    (1) State, local, and Indian tribal government organizations are 
required to follow the common rule ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments'' which is codified in the DOL regulations at 29 CFR part 
97.
    (2) Institutions of higher education, hospitals, and other non-
profit organizations and other commercial organizations are required to 
follow OMB Circular A-110 which is codified in the DOL regulations at 
29 CFR part 95.
    (3) In addition to the requirements at 29 CFR 95.48 and 29 CFR 
97.36(i), contracts or vouchers for job placement services supported by 
funds provided for this program must include a provision to require 
that at least one-half (\1/2\) of the payment occur after an eligible 
individual placed into the workforce has been in the workforce for six 
(6) months. This provision applies only to placement in unsubsidized 
jobs (section 403(a)(5)(C)(i)).
    (4) In addition to the requirements at 29 CFR 95.42 and 29 CFR 
97.36(b)(3) which address codes of conduct and conflict of interest 
issues related to employees, it is also required that:
    (i) A local board or alternate administering agency member shall 
neither cast a vote on, nor participate in, any decision making 
capacity on the provision of services by such member (or any 
organization which that member directly represents), nor on any matter 
which would provide any direct financial benefit to that member or a 
member of his immediate family; and
    (ii) Neither membership on the local board or alternate 
administering agency nor the receipt of WtW funds to provide training 
and related services shall be construed, by itself, to violate these 
conflict of interest provisions.
    (5) The addition method, described at 29 CFR 97.25(g)(2), is 
required for the use of all program income earned under WtW grants. 
When the cost of generating program income has been charged to the 
program, the gross amount earned must be added to the WtW program. 
However, the cost of generating program income must be subtracted from 
the amount earned to establish the net amount of program income 
available for use under the grants when these costs have not been 
charged to the WtW program.
    (6) Any excess revenue over costs incurred for services provided by 
a governmental or non-profit entity must be included in program income 
earned.
    (b) Audit requirements. All recipients and subrecipients of 
Department of Labor WtW awards must comply with the audit requirements 
codified at 29 CFR part 96.
    (1) All governmental and non-profit organizations must follow the 
audit requirements of OMB Circular A-133 which is codified at 29 CFR 
part 99. This requirement is imposed at 29 CFR 97.26 for governmental 
organizations and at 29 CFR 95.26 for institutions of higher education, 
hospitals, and other non-profit organizations.
    (2) The Department is responsible for audits of commercial 
organizations which are direct recipients of WtW grants.
    (3) Commercial organizations which are WtW subrecipients and which 
expend more than the minimum level specified in OMB Circular A-133 
($300,000 as of April 15, 1999) must have either an organization-wide 
audit conducted in accordance with 29 CFR part 99 or a program specific 
financial and compliance audit.
    (c) Allowable costs/cost principles. The DOL regulations at 29 CFR 
95.27 and 29 CFR 97.22 identify the Federal principles for determining 
allowable costs which each kind of recipient and subrecipient must 
follow. For those selected items of cost requiring prior approval, the 
authority to grant or deny approval is delegated to the Governor.
    (1) State, local, and Indian tribal government organizations must 
determine allowability of costs in accordance with the provisions of 
OMB Circular A-87, ``Cost Principles for State and Local Governments.''
    (2) Non-profit organizations must determine allowability of costs 
in accordance with OMB Circular A-122, ``Cost Principles for Non-Profit 
Organizations.''
    (3) Institutions of higher education must determine allowability of 
costs in accordance with OMB Circular A-21, ``Cost Principles for 
Education Institutions.''
    (4) Hospitals must determine allowability of costs in accordance 
with the provisions of Appendix E of 45 CFR Part 74, ``Principles for 
Determining Costs Applicable to Research and Development Under Grants 
and Contracts with Hospitals.''
    (5) Commercial organizations and those non-profit organizations 
listed in Attachment C to OMB Circular A-122 must determine 
allowability of costs in accordance with the provisions of the Federal 
Acquisition Regulation (FAR) at 48 CFR Part 31.
    (d) Information technology costs. In addition to the allowable cost 
provisions identified in Sec. 645.235 of this subpart, the costs of 
information technology--computer hardware and software--will only be 
allowable under WtW grants when such computer technology is ``Year 2000 
compliant.'' To meet this requirement, information technology must be 
able to accurately process date/time data (including, but not limited 
to, calculating, comparing and sequencing) from, into and between the 
twentieth and twenty-first centuries, and the years 1999 and 2000. The 
information technology must also be able to make leap year 
calculations. Furthermore, ``Year 2000 compliant'' information 
technology when used in combination with other technology shall 
accurately process date/time data if the other information technology 
properly exchanges date/time data with it.
    (e) Prohibition on Construction or Purchase of Facilities. WtW 
federal funds may not be used to pay for the construction or purchase 
of facilities or buildings.
    (f) Prohibition on Business Start-up Costs. WtW federal funds may 
not be used to cover the costs of business start-up and/or capital 
ventures.
    (g) Government-wide debarment and suspension, and government-wide 
drug-free workplace requirements. All WtW grant recipients and 
subrecipients are required to comply with:
    (1) Government-wide requirements for debarment and suspension which 
are codified at 29 CFR part 98, subparts A through E; and
    (2) The government-wide requirements for a drug-free workplace. 
Recipients and subrecipients are required to comply with 29 CFR part 
98, subpart F, except that the definition of ``grantee'' shall be read 
to include recipients and subrecipients.
    (h) Restrictions on Lobbying. All WtW grant recipients and 
subrecipients are required to comply with the restrictions on lobbying 
which are codified in the DOL regulations at 29 CFR Part 93.
    (i) Nondiscrimination. All WtW grant recipients and subrecipients 
are required to comply with the nondiscrimination provisions codified 
in the DOL regulations at 29 CFR parts 31 and 32. In addition, 29 CFR 
part 37 applies to recipients of WtW financial

[[Page 2717]]

assistance who are also WIA recipients and applies to recipients of WtW 
financial assistance who operate programs that are part of the One-Stop 
system established under the Workforce Investment Act, to the extent 
that the WtW programs and activities are being conducted as part of the 
One-Stop delivery system. Furthermore, WtW programs that are part of 
larger State agencies that are recipients of WIA title I financial 
assistance must also comply with the provisions of 29 CFR part 37. For 
purposes of this paragraph, the term ``recipient'' has the same meaning 
as the term is defined in 29 CFR part 37. That part also contains 
participant rights related to nondiscrimination.
    (j) Nepotism. (1) No individual may be placed in a WtW employment 
activity if a member of that person's immediate family is engaged in an 
administrative capacity for the employing agency.
    (2) To the extent that an applicable State or local legal 
requirement regarding nepotism is more restrictive than this provision, 
such State or local requirement shall be followed.


Sec. 645.233  What are the time limitations on the expenditure of 
Welfare-to-Work grant funds?

    (a) Formula grant funds: The maximum time limit for the expenditure 
of a given fiscal year allotment is three years from the effective date 
of the Federal grant award to the State. The maximum time limit will be 
allowed and will be specified in the Department's formula grant 
document for each fiscal year of funds provided to the State. Any 
remaining funds that have not been expended at the end of the 
expenditure period must be returned to the Department in accordance 
with the applicable closeout procedures for formula grants.
    (b) Competitive grant funds: The maximum time limit for the 
expenditure of these funds is three years from the effective date of 
award, but will, in all cases, be determined by the grant period and 
the terms and conditions specified in the Federal grant award agreement 
(including any applicable grant modification documents). Any remaining 
funds that have not been expended at the end of the approved grant 
period must be returned to the Department in accordance with the 
applicable closeout procedures for competitive grants (section 
503(a)(5)(C)(vii)).


Sec. 645.235  What types of activities are subject to the 
administrative cost limit on Welfare-to-Work grants?

    (a) Administrative cost limitation (section 404(b)(1)).--(1) 
Formula grants to states. Expenditures for administrative purposes 
under WtW formula grants to States are limited to fifteen percent (15%) 
of the grant award.
    (2) Competitive grants. The limitation on expenditures for 
administrative purposes under WtW competitive grants will be specified 
in the grant agreement but in no case shall the limitation be more than 
fifteen percent (15%) of the grant award.
    (3) Although administrative in nature, costs of information 
technology--computer hardware and software--needed for tracking and 
monitoring of WtW program, participant, or performance requirements, 
are excluded from the administrative cost limit calculation.
    (b) The costs of administration are that allocable portion of 
necessary and allowable costs associated with those specific functions 
identified in paragraph (c) of this section for the administration of 
the WtW program and which are not related to the direct provision of 
services to participants. These costs can be both personnel and non-
personnel and both direct and indirect.
    (c) The costs of administration are the costs associated with 
performing the following functions:
    (1) Performing overall general administrative functions and 
coordination of those functions under WtW including:
    (i) Accounting, budgeting, financial and cash management functions;
    (ii) Procurement and purchasing functions;
    (iii) Property management functions;
    (iv) Personnel management functions;
    (v) Payroll functions;
    (vi) Coordinating the resolution of findings arising from audits, 
reviews, investigations and incident reports;
    (vii) Audit functions;
    (viii) General legal services functions; and
    (ix) Developing systems and procedures, including information 
systems, required for these administrative functions;
    (2) Performing oversight and monitoring responsibilities related to 
WtW administrative functions,
    (3) Costs of goods and services required for administrative 
functions of the program, including goods and services such as rental 
or purchase of equipment, utilities, office supplies, postage, and 
rental and maintenance of office space;
    (4) Travel costs incurred for official business in carrying out 
administrative activities or the overall management of the WtW system; 
and
    (5) Costs of information systems related to administrative 
functions (for example, personnel, procurement, purchasing, property 
management, accounting and payroll systems) including the purchase, 
systems development and operating costs of such systems.
    (d)(1) Only that portion of the costs of WtW grantees that are 
associated with the performance of the administrative functions 
described in paragraph (c) of this section and awards to subrecipients 
or vendors that are solely for the performance of these administrative 
functions are classified as administrative costs. All other costs are 
considered to be for the direct provision of WtW activities and are 
classified as program costs.
    (2) Personnel and related non-personnel costs of staff who perform 
both administrative functions specified in paragraph (c) of this 
section and programmatic services or activities are to be allocated as 
administrative or program costs to the benefitting cost objectives/
categories based on documented distributions of actual time worked or 
other equitable cost allocation methods.
    (3) Specific costs charged to an overhead or indirect cost pool 
that can be identified directly as a program cost may be charged as a 
program cost. Documentation of such charges must be maintained.
    (4) Except as provided at paragraph (d)(1) of this section, all 
costs incurred for functions and activities of subrecipients and 
vendors are program costs.
    (5) Costs of the following information systems including the 
purchase, systems development and operating (e.g., data entry) costs 
are charged to the program category.
    (i) Tracking or monitoring of participant and performance 
information;
    (ii) Employment statistics information, including job listing 
information, job skills information, and demand occupation information; 
and
    (iii) Local area performance information.


Sec. 645.240  What are the reporting requirements for Welfare-to-Work 
programs?

    (a) General. State formula and other direct competitive grant 
recipients must report financial and participant data in accordance 
with revised instructions that will be issued by the Department after 
consultation with the Secretary of Health and Human Services, States, 
and organizations that represent State or local governments. Reports 
must be submitted to the Department quarterly. Existing WtW financial 
reporting

[[Page 2718]]

instructions and formats are available on the WtW web site at http://wtw.doleta.gov/linkpages/tegltein.htm. The Internet reporting system 
for WtW grantees is accessible at http://www.etareports.doleta.gov.
    (b) Subrecipient reporting. A State formula or other direct 
competitive grant recipient may impose different forms or formats, 
shorter due dates, and more frequent reporting requirements on 
subrecipients. However, the recipient is required to meet the reporting 
requirements imposed by the Department.
    (c) Financial reports. Each grant recipient must submit financial 
reports to the Department. Reported expenditures and program income 
must be on the accrual basis of accounting and cumulative by fiscal 
year of appropriation. If the recipient's accounting records are not 
normally kept on the accrual basis of accounting, the recipient must 
develop accrual information through an analysis of the documentation on 
hand.
    (d) Participant reports. Each grant recipient must submit 
participant reports to the Department. Participant data must be 
aggregate data, and, for most data elements, must be cumulative by 
fiscal year of appropriation.
    (e) Due dates. Financial and participant reports are due no later 
than 45 days after the end of each quarter. A final financial and 
participant report is required 90 days after the expiration of a 
funding period or the termination of grant support.


Sec. 645.245  Who is responsible for oversight and monitoring of 
Welfare-to-Work grants?

    (a) The Secretary may monitor all recipients and subrecipients of 
all grants awarded and funds expended under WtW. Federal oversight will 
be conducted primarily at the State level for formula grants and at the 
recipient level for competitive grants.
    (b) The Governor must monitor local boards (or other approved 
administrative entities) funded under the State's formula allocated 
grants on a periodic basis for compliance with applicable laws and 
regulations. The Governor must develop and make available for review a 
State monitoring plan.


Sec. 645.250  What procedures apply to the resolution of findings 
arising from audits, investigations, monitoring and oversight reviews?

    (a) Resolution of subrecipient level findings.
    (1) The WtW grantee is responsible for the resolution of findings 
that arise from its monitoring reviews, investigations and audits 
(including OMB Circular A-133 audits) of subrecipients.
    (2) A State or competitive grantee, as appropriate, must use the 
audit resolution, debt collection and appeal procedures that it uses 
for other Federal grant programs.
    (3) If a State or competitive grantee, as appropriate, does not 
have such procedures, it must prescribe standards and procedures for 
the WtW grant program.
    (b) Resolution of State level findings.
    (1) The Secretary is responsible for the resolution of findings 
that arise from Federal audits, monitoring reviews, investigations, 
incident reports, and recipient level OMB Circular A-133 audits.
    (2) The Secretary will use the DOL audit resolution process, 
consistent with the Single Audit Act of 1996 and OMB Circular A-133.
    (3) A final determination issued by a grant officer pursuant to 
this process may be appealed to the DOL Office of Administrative Law 
Judges under the procedures at Sec. 645.800.
    (c) Resolution of nondiscrimination findings. Findings arising from 
investigations or reviews conducted under nondiscrimination laws shall 
be resolved in accordance with those laws and the applicable 
implementing regulations.


Sec. 645.255  What nondiscrimination protections apply to participants 
in Welfare-to-Work programs?

    (a) All participants in WtW programs under this part shall have 
such rights as are available under all applicable Federal, State and 
local laws prohibiting discrimination, and their implementing 
regulations, including:
    (1) The Age Discrimination Act of 1975 (42 U.S.C. 6101 et seq.);
    (2) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794);
    (3) The Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.); and
    (4) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et 
seq.).
    (b) Participants in work activities, as defined in section 407(a) 
of the Social Security Act, operated with WtW funds, shall not be 
discriminated against because of gender. Participants alleging gender 
discrimination may file a complaint using the State's grievance system 
procedures as described in Sec. 645.270 of this subpart (section 
403(a)(5)(J)(iii)) of the Act). Participants alleging gender 
discrimination in WtW programs conducted by One-Stop partners as part 
of the One-Stop delivery system may file a complaint using the 
complaint processing procedures developed and published by the State in 
accordance with the requirements of 29 CFR 37.70-37.80.
    (c) Complaints alleging discrimination in violation of any 
applicable Federal, State or local law, such as Title VII of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e et seq.), Title IX of the Education 
Amendments of 1972 (20 U.S.C. 1681 et seq.), the Pregnancy 
Discrimination Act (42 U.S.C. 2000e (paragraph k)), or Section 188 of 
the Workforce Investment Act of 1998 (29 U.S.C. 2938), as well as those 
listed in paragraph (a) of this section, shall be processed in 
accordance with those laws and the implementing regulations.
    (d) Questions about or complaints alleging a violation of the 
nondiscrimination laws in paragraph (a) of this section may be directed 
or mailed to the Director, Civil Rights Center, U.S. Department of 
Labor, Room N-4123, 200 Constitution Avenue, NW, Washington, D.C. 20210 
for processing.


Sec. 645.260  What health and safety provisions apply to participants 
in Welfare-to-Work programs?

    (a) Participants in an employment activity operated with WtW funds, 
as defined in Sec. 645.220 of this part, are subject to the same health 
and safety standards established under State and Federal law which are 
applicable to similarly employed employees, of the same employer, who 
are not participants in programs under WtW.
    (b) Participants alleging a violation of these health and safety 
standards may file a complaint pursuant to the procedures contained in 
Sec. 645.270 of this part (section 403(a)(5)(J)(ii)).


Sec. 645.265  What safeguards are there to ensure that participants in 
Welfare-to-Work employment activities do not displace other employees?

    (a) An adult participating in an employment activity operated with 
WtW funds, as described in Sec. 645.220 (b) and (c) of this subpart, 
may fill an established position vacancy subject to the limitations in 
paragraph (c) of this section.
    (b) An employment activity operated with WtW funds, as described in 
Sec. 645.220(c) of this subpart, must not violate existing contracts 
for services or collective bargaining agreements. Where such an 
employment activity would violate a collective bargaining agreement, 
the appropriate labor organization and employer must provide written 
concurrence before the employment activity is undertaken.
    (c) An adult participating in an employment activity operated with 
WtW funds, as described in Sec. 645.220(c)

[[Page 2719]]

of this subpart, must not be employed or assigned:
    (1) When any other individual is on layoff from the same or any 
substantially equivalent job within the same organizational unit;
    (2) If the employer has terminated the employment of any regular, 
unsubsidized employee or otherwise caused an involuntary reduction in 
its workforce with the intention of filling the vacancy so created with 
the WtW participant; and,
    (3) If the employer has caused an involuntary reduction to less 
than full time in hours of any employee in the same or substantially 
equivalent job within the same organizational unit.
    (d) Regular employees and program participants alleging 
displacement may file a complaint pursuant to Sec. 645.270 of this part 
(section 403(a)(5)(J)(i)).


Sec. 645.270  What procedures are there to ensure that currently 
employed workers may file grievances regarding displacement and that 
Welfare-to-Work participants in employment activities may file 
grievances regarding displacement, health and safety standards and 
gender discrimination?

    (a) The State shall establish and maintain a grievance procedure 
for resolving complaints from:
    (1) Regular employees that the placement of a participant in an 
employment activity operated with WtW funds, as described in 
Sec. 645.220 of this part, violates any of the prohibitions described 
in Sec. 645.265 of this part; and
    (2) Program participants in an employment activity operated with 
WtW funds, as described in Sec. 645.220 of this part, that any 
employment activity violates any of the prohibitions described in 
Secs. 645.255(d), 645.260, or 645.265 of this part.
    (b) Such grievance procedure should include an opportunity for 
informal resolution.
    (c) If no informal resolution can be reached within the specified 
time as established by the State as part of its grievance procedure, 
such procedure shall provide an opportunity for the dissatisfied party 
to receive a hearing upon request.
    (d) The State shall specify the time period and format for the 
hearing portion of the grievance procedure, as well as the time period 
by which the complainant will be provided the written decision by the 
State.
    (e) A decision by the State under paragraph (d) of this section may 
be appealed by any dissatisfied party within 30 days of the receipt of 
the State's written decision, according to the time period and format 
for the appeals portion of the grievance procedure as specified by the 
State.
    (f) The State shall designate the State agency which will be 
responsible for hearing appeals. This agency shall be independent of 
the State or local agency which is administering, or supervising the 
administration of the State TANF and WtW programs.
    (g) No later than 120 days of receipt of an individual's original 
grievance, the State agency, as designated in paragraph (f) of this 
section, shall provide a written final determination of the 
individual's appeal.
    (h) The grievance procedure shall include remedies for violations 
of Secs. 645.255(d), 645.260, and 645.265 of this part which may 
continue during the grievance process and which may include:
    (1) Suspension or termination of payments from funds provided under 
this part;
    (2) Prohibition of placement of a WtW participant with an employer 
that has violated Secs. 645.255(b), 645.260, and 645.265 of this part;
    (3) Where applicable, reinstatement of an employee, payment of lost 
wages and benefits, and reestablishment of other relevant terms, 
conditions, and privileges of employment; and,
    (4) Where appropriate, other equitable relief (section 
403(a)(5)(J)(iv)).
    (i) Participants alleging gender discrimination by WtW programs 
that are not part of the One-Stop system may file a complaint using the 
grievance system procedures described above. Participants alleging 
gender discrimination by WtW programs that are part of the One-Stop 
system may file a complaint using the procedures developed by the State 
under the WIA nondiscrimination regulations at 29 CFR 37.70-37.80.

Subpart C--Additional Formula Grant Administrative Standards and 
Procedures


Sec. 645.300  What constitutes an allowable match?

    (a) A State is entitled to receive two (2) dollars of Federal funds 
for every one (1) dollar of State match expenditures, up to the amount 
available for allotment to the State based on the State's percentage 
for WtW formula grant for the fiscal year. The State is not required to 
provide a level of match necessary to support the total amount 
available to it based on the State's percentage for WtW formula grant. 
However, if the proposed match is less than the amount required to 
support the full level of Federal funds, the grant amount will be 
reduced accordingly (section 403(a)(5)(A)(i)(I)).
    (b) States shall follow the match or cost-sharing requirements of 
the ``Common Rule'' Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments (codified for DOL 
at 29 CFR 97.24). Paragraphs (b)(1)(i) and (ii), (b)(3), and (b)(4) and 
(c)(1) of this section are in addition to the common rule requirements. 
Also, paragraphs included in the common rule which relate to the use of 
donated buildings and other real property as match have been excluded 
from this provision.
    (1) Only costs that would be allowable if paid for with WtW grant 
funds will be accepted as match.
    (i) Because the use of Federal funds is prohibited for construction 
or purchase of facilities or buildings except where there is explicit 
statutory authority permitting it, costs incurred for the construction 
or purchase of facilities or buildings shall not be acceptable as match 
for a WtW grant.
    (ii) Because the costs of construction or purchase of facilities or 
buildings are unallowable as match, the donation of a building or 
property as a third party in-kind contribution is also unallowable as a 
match for a WtW grant.
    (2) A match or cost-sharing requirement may be satisfied by either 
or both of the following:
    (i) Allowable costs incurred by the grantee, subgrantee or a cost 
type contractor under the assistance agreement. This includes allowable 
cost borne by non-Federal grants or by others and cash donations from 
non-Federal third parties.
    (ii) The value of third party in-kind contributions applicable to 
the FY period to which the cost-sharing or matching requirement 
applies.
    (3) No more than seventy-five percent (75%) of the total match 
expenditures may be in the form of third party in-kind contributions.
    (4) Match expenditures must be recorded in the books of account of 
the entity that incurred the cost or received the contribution. These 
amounts may be rolled up and reported as aggregate State level match.
    (c) Qualifications and exceptions--
    (1) The matching requirements may not be met by the use of an 
employer's share of participant wage payments (e.g., employer share of 
OJT wages).
    (2) Costs borne by other Federal grant agreements. A cost-sharing 
or matching requirement may not be met by costs borne by another 
Federal grant. This prohibition does not apply to income earned by a 
grantee or subgrantee from a contract awarded under another Federal 
grant.

[[Page 2720]]

    (3) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (4) Cost or contributions counted towards other Federal cost-
sharing requirements. Neither costs nor the values of third party in-
kind contributions may count towards satisfying a cost-sharing or 
matching requirement of a grant agreement if they have been or will be 
counted towards satisfying a cost-sharing or matching requirement of 
another Federal grant agreement, a Federal procurement contract, or any 
other award of Federal funds.
    (5) Costs financed by program income. Costs financed by program 
income, as defined in 29 CFR 97.25, shall not count towards satisfying 
a cost-sharing or matching requirement unless they are expressly 
permitted in the terms of the assistance agreement. (This use of 
general program income is described in 29 CFR 97.25(g)).
    (6) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying a cost-sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (7) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost-sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third 
party in-kind contributions was derived. To the extent feasible, 
volunteer services will be supported by the same methods that the 
organization uses to support the allocability of regular personnel 
costs.
    (8) Special standards for third party in-kind contributions.
    (i) Third party in-kind contributions count towards satisfying a 
cost-sharing or matching requirement only where, if the party receiving 
the contributions were to pay for them, the payments would be allowable 
costs.
    (ii) Some third party in-kind contributions are goods and services 
that, if the grantee, subgrantee, or contractor receiving the 
contribution had to pay for them, the payments would have been an 
indirect costs. Cost sharing or matching credit for such contributions 
shall be given only if the grantee, subgrantee, or contractor has 
established, along with its regular indirect cost rate, a special rate 
for allocating to individual projects or programs the value of the 
contributions.
    (iii) A third party in-kind contribution to a fixed-price contract 
may count towards satisfying a cost-sharing or matching requirement 
only if it results in:
    (A) An increase in the services or property provided under the 
contract (without additional cost to the grantee or subgrantee) or
    (B) A cost savings to the grantee or subgrantee.
    (iv) The values placed on third party in-kind contributions for 
cost-sharing or matching purposes must conform to the rules in the 
succeeding sections of this part. If a third party in-kind contribution 
is a type not treated in those sections, the value placed upon it must 
be fair and reasonable.
    (d) Valuation of donated services.
    (1) Volunteer services. Unpaid services provided to a grantee or 
subgrantee by individuals must be valued at rates consistent with those 
ordinarily paid for similar work in the grantee's or subgrantee's 
organization. If the grantee or subgrantee does not have employees 
performing similar work, the rates must be consistent with those 
ordinarily paid by other employers for similar work in the same labor 
market. In either case, a reasonable amount for fringe benefits may be 
included in the valuation.
    (2) Employees of other organizations. When an employer other than a 
grantee, subgrantee, or cost-type contractor furnishes free of charge 
the services of an employee in the employee's normal line of work, the 
services must be valued at the employee's regular rate of pay exclusive 
of the employee's fringe benefits and overhead costs. If the services 
are in a different line of work, paragraph (d)(1) of this section 
applies.
    (e) Valuation of third party donated supplies and loaned equipment 
or space.
    (1) If a third party donates supplies, the contribution must be 
valued at the market value of the supplies at the time of donation.
    (2) If a third party donates the use of equipment or space in a 
building but retains title, the contribution must be valued at:
    (i) the fair rental rate of the equipment or space for property 
donated by non-governmental entities, or
    (ii) a depreciation or use-allowance based on the property's market 
value at the time it was donated for property donated by governmental 
entities.


Sec. 645.310  What assurance must a State provide that it will make the 
required matching expenditures?

    In its State plan, a State must provide a written estimate of 
planned matching expenditures and describe the process by which the 
funds will be tracked and reported to ensure that the State meets its 
projected match (section 403(a)(5)(A)(i)(I)).


Sec. 645.315  What actions are to be taken if a State fails to make the 
required matching expenditures?

    (a) If State match expenditures do not satisfy the requirements of 
the FY grant award by the end of the three year fund availability 
period, the grant award amount will be reduced by the appropriate 
corresponding amount (i.e., the grant will be reduced by two (2) 
dollars for each one (1) dollar shortfall in State matching funds) when 
the grant is closed out.
    (b) Compliance with the fifteen percent (15%) administrative cost 
limit will be recalculated based on the FY formula grant award amount, 
as reduced under paragraph (a) of this section.

Subpart D--State Formula Grants Administration


Sec. 645.400  Under what conditions may the Governor request a waiver 
to designate an alternate local administering agency?

    (a)(1) The Governor may include in the State's WtW Plan a waiver 
request to select an agency other than the local board or PIC to 
administer the program for one or more local areas or SDA's in a State; 
or
    (2) When the Governor determines the local board or alternate 
administering agency has not coordinated its expenditures with the 
expenditure of funds provided to the State under TANF, pursuant to 
section 403(a)(5)(A)(vii)(II) of the Act, the Governor must request a 
waiver.
    (b) The Governor shall bear the burden of proving that the 
designated alternate administering agency, rather than the local board 
or other alternate administering agency, would improve the 
effectiveness or efficiency of the administration of WtW funds in the 
SDA. The Governor's waiver request shall include information to meet 
that burden. The Governor shall provide a copy of the waiver request 
and any supporting information submitted to the Secretary to the local 
board and CEO of the local area for which an alternative administering 
agency is requested.
    (c) The local board and CEO shall have fifteen (15) days in which 
to submit his or her written response to the Department. The local 
board and CEO

[[Page 2721]]

shall provide a copy of such response to the Governor.
    (d) The Secretary will assess the waiver information submitted by 
the Governor, including input from the local board and CEO in reaching 
the decision whether to permit the use of an alternate administering 
agency.
    (e) The Secretary shall approve a waiver request if she determines 
that the Governor has established that the designated alternate 
administering agency, rather than the local board or other 
administering agency, will improve the effectiveness or efficiency of 
the administration of WtW funds provided for the benefit of the local 
area.
    (f) Where an alternate administering agency is approved by the 
Secretary, such administrative entity shall coordinate with the CEO for 
the applicable local area(s) regarding the expenditure of WtW grant 
funds in the local area(s).
    (g) The decision of the Secretary to approve or deny a waiver 
request will be issued promptly and shall constitute final agency 
action.


Sec. 645.410  What elements will the State use in distributing funds 
within the State?

    (a) Of the WtW funds allotted to the State, not less than 85 
percent of the State allotment must be distributed to the local areas 
or SDA's in the State.
    (1) The State shall prescribe a formula for determining the amount 
of funds to be distributed to each local area or SDA in the State using 
no factors other than the three factors described in paragraphs (2) and 
(3) of this paragraph;
    (2) The formula prescribed by the Governor must include as one of 
the formula factors for distributing funds the provision at section 
403(a)(5)(A)(vi)(I)(aa) of the Act. The Governor is to distribute funds 
to a local area or SDA based on the number by which the population of 
the area with an income that is less than the poverty line exceeds 7.5 
percent of the total population of the area, compared to all such 
numbers in all such areas in the State. The Governor must assign a 
weight of not less than 50 percent to this factor;
    (3) The Governor shall distribute the remaining funds, if any, to 
the local area or SDA's utilizing only one or both of the following 
factors:
    (i) the local area or SDA's share of the number of adults receiving 
assistance under TANF or the predecessor program in the local area or 
SDA for 30 months or more (whether consecutive or not), relative to the 
number of such adults residing in the State;
    (ii) the local area or SDA's share of the number of unemployed 
individuals residing in the local area or SDA, relative to the number 
of such individuals residing in the State.
    (4) If the amount to be distributed to a local area or SDA by the 
Governor's formula is less than $100,000, the funds shall be available 
to be used by the Governor to fund projects described at paragraph (b) 
of this section.
    (5) States shall use the guidance provided at section 403(a)(5)(D) 
of the Act in determining the number of individuals with an income that 
is less than the poverty line.
    (6) Local Boards (or alternate administering agency) shall 
determine, pursuant to section 403(a)(5)(A)(vii)(I) of the Act, on 
which individual(s) and on which allowable activities to expend its WtW 
fund allocation.
    (7) The State must distribute the local boards' or SDAs' 
allocations in a timely manner, but not longer than 30 days from 
receipt of the State's fund allotment.
    (b) Of the funds allocated to the State, up to 15 percent of the 
funds may be retained at the State level to fund projects that appear 
likely to help long-term recipients of assistance enter unsubsidized 
employment. Any additional funds available as a result of the process 
described at paragraph (a)(4) of this section, shall also be available 
to be used to fund projects to help long-term recipients of assistance 
enter unsubsidized jobs.
    (c) The Governors may distribute the funds retained pursuant to 
paragraph (b) of this section to a variety of workforce organizations, 
in addition to local boards or alternate administering agencies, and 
other entities such as One-Stop systems, private sector employers, 
labor organizations, business and trade associations, education 
agencies, housing agencies, community development corporations, 
transportation agencies, community-based and faith-based organizations, 
disability community organizations, community action agencies, and 
colleges and universities which provide some of the assistance needed 
by the targeted population.


Sec. 645.415  What planning information must a State submit in order to 
receive a formula grant?

    (a) Each State seeking financial assistance under the formula grant 
portion of the WtW legislation must submit an annual plan meeting the 
requirements prescribed by the Secretary. This plan shall be in the 
form of an addendum to the TANF State plan and shall be submitted to 
the Secretaries of Labor and Health and Human Services.
    (b) The Secretary shall review the State plan for compliance with 
the statutory and regulatory provisions of the WtW program. The 
Secretary's decision whether to accept a State plan as in compliance 
with the Act shall constitute final agency action.
    (c) If the Governor has requested a waiver to permit the selection 
of an alternate administering agency in the State plan, the provisions 
of Sec. 645.400 of this part shall apply (section 403(a)(5)(A)(ii)).


Sec. 645.420  What factors will be used in measuring State performance?

    (a) The Department will use the following factors to measure State 
performance:
    (1) Job entry rate as measured by the proportion of WtW 
participants who enter either subsidized employment or unsubsidized 
employment,
    (2) Substantive job entry rate as measured by the proportion of WtW 
participants who are placed in or who have moved into subsidized or 
unsubsidized employment of 30 hours or more per week,
    (3) Retention as measured by the proportion of WtW participants who 
remain in unsubsidized employment six months in the second subsequent 
quarter after the quarter in which placement occurred after initial 
placement, and
    (4) Measured earnings gains of WtW participants who remain in 
unsubsidized employment six months after initial placement.
    (b) The formula for calculating the performance bonus is weighted 
as follows:
    (1) 30 percent on job entry rate,
    (2) 30 percent on substantive job entry rate,
    (3) 20 percent on retention in unsubsidized employment,
    (4) 20 percent on earnings gains in unsubsidized employment.
    The formula will reflect general economic conditions on a State-by-
State basis.
    (c) The formula shall serve as the basis for the award of FY 2000 
bonus grants based on successful performance to be made in FY 2001 
(section 403(a)(5)(E)).


Sec. 645.425  What are the roles and responsibilities of the State(s) 
and local boards or alternate administering agencies?

    (a) State roles and responsibilities. A State:
    (1) Designates State WtW administering agency;

[[Page 2722]]

    (2) Provides overall administration of WtW funds, consistent with 
the WtW statute, WtW regulations and the State's WtW Plan;
    (3) Develops the State WtW Plan in consultation and coordination 
with appropriate entities in substate areas, such as One-Stop systems, 
private sector employers, labor organizations, business and trade 
associations, education agencies, housing agencies, community 
development corporations, transportation agencies, community-based and 
faith-based organizations, disability community organizations, 
community action agencies, and colleges and universities which provide 
some of the assistance needed by the targeted population (section 
403(a)(5)(A)(ii)(I)(cc));
    (4) Distributes funds to SDAs, consistent with the provisions 
described at Sec. 645.410(a) (section 403(a)(5)(A)(ii)(I)(bb));
    (5) Conducts oversight and monitoring of WtW activities and fund 
expenditures at the State and local levels for compliance with 
applicable laws and regulations, consistent with the provisions at 
Sec. 645.245 and provides technical assistance as appropriate;
    (6) Ensures coordination of local board or alternate administering 
agency fund expenditures with the State TANF expenditures and other 
programs (section 403(a)(5)(A)(ii)(I)(dd));
    (7) Determines whether to request waivers to select an alternate 
administering agency consistent with the provisions described at 
Sec. 645.400 of this part (sections 403(a)(5)(A)(ii)(I)(ee) and 
403(a)(5)(A)(vii)(III));
    (8) Manages and distributes State level WtW funds (15 percent), 
consistent with the provisions at Sec. 645.410(b) and (c) (section 
403(a)(5)(A)(vi)(III));
    (9) Ensures that the 15 percent administration limitation and the 
match requirement are met;
    (10) Ensures that worker protections provisions are observed and 
establishes an appropriate grievance process, consistent with 
Secs. 645.255 through 645.270 of this part (section 403(a)(5)(J));
    (11) Provides comments on Competitive Grant Application(s) from 
eligible entities within the State, consistent with Sec. 645.510 of 
this part (section 403(a)(5)(B)(ii));
    (12) Cooperates with the Department of Health and Human Services on 
the evaluation of WtW programs (section 403(a)(5)(A)(ii)(III));
    (13) Provides technical assistance to PIC's, local boards or 
alternate administering agencies; and
    (14) Establishes internal reporting requirements to ensure Federal 
reports are accurate, complete and are submitted on a timely basis, 
consistent with Sec. 645.240 of this part.
    (b) Local Boards (or alternate administering agency) roles and 
responsibilities. A local board:
    (1) Has sole authority, in coordination with CEOs, to expend 
formula funds (section 403(a)(5)(A)(vii)(I));
    (2) Has authority to determine the individuals to be served in the 
local area (section 403(a)(5)(A)(vii)(I));
    (3) Has authority to determine the services to be provided in the 
local area (section 403(a)(5)(A)(vii)(I));
    (4) Ensures funds are expended on eligible recipients and on 
allowable activities, consistent with Sec. 645.410(a)(5) of this part;
    (5) Coordinates WtW fund expenditures with State TANF expenditures 
and other programs (section 403(a)(5)(A)(ii)(dd));
    (6) Ensures that there is an assessment and an individual service 
strategy in place for each WtW participant, consistent with 
Sec. 645.225(a) and (b) of this part;
    (7) Conducts oversight and monitoring of subrecipients, consistent 
with the provisions at Sec. 645.245 of this part;
    (8) Ensures worker protection provisions and grievance process are 
observed, consistent with State guidelines (section 403(a)(5)(J)); and
    (9) Consults with and provides comments on private entity 
Competitive Grant Application(s), consistent with the provisions at 
Sec. 645.500(b)(1)(i) of this part.


Sec. 645.430  How does the Welfare-to-Work program relate to the One-
Stop system and Workforce Investment Act (WIA) programs?

    (a) As provided in the Workforce Investment Act regulations at 20 
CFR 663.620, the local WtW formula grant program operator is a required 
partner in the One-Stop system. 20 CFR part 662 describes the roles of 
such partners in the One-Stop system and applies to the WtW formula 
grant program operators. A Memorandum of Understanding must be 
developed between the Local Workforce Investment Board and the WtW 
program that meets the requirements of 20 CFR 662.300, such as 
containing provisions relating to the services to be provided through 
the One-Stop system and methods for referring individuals between the 
One-Stop operator and the partner WtW program.
    (b) WtW participants may also be served by the WIA programs and, 
through appropriate linkages and referrals, these individuals will have 
access to a broader range of activities and services through the 
cooperation of the WtW and WIA programs in the One-Stop system. For 
example, WtW participants, who are also determined eligible for WIA, 
and who need occupational skills training, may be referred through the 
One-Stop system to receive WIA training. These participants are also 
eligible to receive services available under WtW, such as 
transportation and child care while participating in the WIA activity.
    (c) WIA participants, who are determined to be eligible for WtW, 
may also be served by the WtW programs through cooperation with the WIA 
programs in the One-Stop system. For example, WIA participants, who are 
also determined eligible for WtW, may be referred to the WtW program 
for job placement and other WtW assistance.
    (d) 29 CFR part 37 applies to recipients of WtW financial 
assistance who operate programs that are part of the One-Stop system 
established under WIA to the extent that the WtW programs and 
activities are being conducted as part of the One-Stop delivery system.

Subpart E--Welfare-To-Work Competitive Grants


Sec. 645.500  Who are eligible applicants for competitive grants?

    (a) Eligible applicants for competitive grants are:
    (1) Local boards or alternate administering agencies
    (2) Political subdivisions of a State; and
    (3) Private entities, as defined in Sec. 645.120 of this part, 
including nonprofit organizations such as community development 
corporations, community-based and faith-based organizations, disability 
community organizations, community action agencies, and public and 
private colleges and universities, and other qualified private 
organizations.
    (b) Entities other than a local board or alternate administering 
agency or a political subdivision of the State must submit an 
application for competitive grant funds in conjunction with the 
applicable local board or alternate administering agency or political 
subdivision.
    (1) The term ``in conjunction with'' shall mean that the 
application submitted by such an entity must include a signed 
certification by both the applicant and either the applicable local 
board or alternate administering agency or political subdivision that:
    (i) The applicant has consulted with the applicable local board or 
alternate

[[Page 2723]]

administering agency or political subdivision during the development of 
the application; and
    (ii) The activities proposed in the application are consistent 
with, and will be coordinated with, WtW efforts of the local board or 
alternate administering agency or political subdivision.
    (2) If the applicant is unable to include such a certification in 
its application, the applicant will be required to certify, and provide 
information indicating that efforts were undertaken to consult with the 
local board or alternate administering agency or political subdivision 
and that the local board or alternate administering agency or political 
subdivision was provided a sufficient opportunity to cooperate in the 
development of the project plan and to review and comment on the 
application prior to its submission to the Secretary. ``Sufficient 
opportunity for local Board or alternate administering agency or 
political subdivision review and comment'' shall mean at least 30 
calendar days.
    (3) The certification described in paragraph (b)(1) of this 
section, or the evidence of efforts to consult described in paragraph 
(b)(2), must be with each local board or alternate administering agency 
or political subdivision included in the geographic area in which the 
project proposed in the application is to operate (section 
403(a)(5)(B)(ii)).


Sec. 645.510  What is the required consultation with the Governor?

    (a) All applicants for competitive grants, including local boards 
or alternate administering agencies and political subdivisions, must 
consult with the Governor by submitting their application to the 
Governor or the designated State administrative entity for the WtW 
program for review and comment prior to submission of the application 
to the Secretary. The application submitted to the Secretary must 
include:
    (1) Comments on the application from the State; or
    (2) Information indicating that the State was provided a sufficient 
opportunity for review and comment prior to submission to the 
Secretary. ``Sufficient opportunity for State review and comment'' 
shall mean at least 15 calendar days.
    (b) For private entity applicants, the submission of the 
application for State review and comment must follow the 30 day period 
provided for local board or alternate administering agency/political 
subdivision review. Evidence of local board or alternate administering 
agency or political subdivision review should be included in the 
submission to the State (section 403(a)(5)(B)(ii)).


Sec. 645.515  What are the program and administrative requirements that 
apply to both the formula grants and competitive grants?

    (a) All of the general program requirements and administrative 
standards set by 29 CFR Part 645 Subpart B apply (section 403(a)(5)(C) 
and section 404(b)).
    (b) In addition, competitive grants will be subject to:
    (1) Supplemental reporting requirements; and
    (2) Additional monitoring and oversight requirements based on the 
negotiated scope-of-work of individual grant awards (section 
403(a)(5)(B)(iii) and (v)).


Sec. 645.520  What are the application procedures and timeframes for 
competitive grant funds?

    (a) The Secretary shall establish appropriate application 
procedures, selection criteria and an approval process to ensure that 
grant awards accomplish the purpose of the competitive grant funds and 
that available funds are used in an effective manner.
    (b) The Secretary shall publish such procedures in the Federal 
Register and establish submission timeframes in a manner that allows 
eligible applicants sufficient time to develop and submit quality 
project plans (section 403(a)(5)(B)(i) and (iii)).


Sec. 645.525  What special consideration will be given to rural areas 
and cities with large concentrations of poverty?

    (a) Competitive grant awards will be targeted to geographic areas 
of significant need. In developing application procedures, special 
consideration will be given to rural areas and cities with large 
concentrations of residents living in poverty.
    (b) Grant application guidelines will clarify specific requirements 
for documenting need in the local area (section 403(a)(5)(B)(iv)).

Subpart F--Administrative Appeal Process


Sec. 645.800  What administrative remedies are available under this 
Part?

    (a) Within 21 days of receipt of a final determination that has 
directly imposed a sanction or corrective action pursuant to 
Sec. 645.250(b) of this part, a recipient, subrecipient, or a vendor 
directly against which the Grant Officer has imposed a sanction or 
corrective action, may request a hearing before the Department of Labor 
Office of Administrative Law Judges, pursuant to the provisions of 29 
CFR part 96 subpart 96.6.
    (b) In accordance with 29 CFR 96.603(b)(2), the rules of practice 
and procedure published at 29 CFR part 18 shall govern the conduct of 
hearings under this section, except that a request for hearing under 
this section shall not be considered a complaint to which the filing of 
an answer by DOL or a DOL agency is required. Technical rules of 
evidence shall not apply to a hearing conducted pursuant to this part; 
however, rules or principles designed to assure production of the most 
credible evidence available and to subject testimony to cross-
examination shall apply.
    (c) The decision of the Administrative Law Judge (ALJ) shall 
constitute final agency action unless, within 20 days of the decision, 
a party dissatisfied with the decision of the ALJ has filed a petition 
for review with the Administrative Review Board (ARB) (established 
pursuant to the provisions of Secretary's Order No. 2-96, published at 
61 FR 19977 (May 3, 1996)), specifically identifying the procedure, 
fact, law or policy to which exception is taken. Any exception not 
specifically urged shall be deemed to have been waived. A copy of the 
petition for review must be sent to the opposing party at that time. 
Thereafter, the decision of the ALJ shall constitute final agency 
action unless the ARB, within 30 days of the filing of the petition for 
review, has notified the parties that the case has been accepted for 
review. Any case accepted by the ARB shall be decided within 120 days 
of such acceptance. If not so decided, the decision of the ALJ shall 
constitute final agency action.

[FR Doc. 01-514 Filed 1-10-01; 8:45 am]
BILLING CODE 4510-30-P