[Federal Register Volume 68, Number 176 (Thursday, September 11, 2003)]
[Rules and Regulations]
[Pages 53483-53490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23190]



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  Federal Register / Vol. 68, No. 176 / Thursday, September 11, 2003 / 
Rules and Regulations  

[[Page 53483]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 245

RIN 0584--AD20


Determining Eligibility for Free and Reduced Price Meals in 
Schools--Verification Reporting and Recordkeeping Requirements

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: This final rule amends the reporting and recordkeeping 
requirements under the National School Lunch Program (NSLP) and School 
Breakfast Program (SBP) relating to the verification of applications 
for free and reduced price meal benefits under the NSLP and the SBP. In 
spite of the efforts of school food authorities and State agencies to 
ensure the accuracy of free and reduced price applications, data 
indicate that the number of children certified as eligible to receive 
free meals exceeds the number of children who are eligible to receive 
those meals, given other poverty indicators. This rule requires school 
food authorities to report verification activity and results to their 
respective State agencies and requires State agencies to analyze and 
act on these data and to report school food authority level data to the 
Food and Nutrition Service (FNS) beginning with the school year which 
starts on July 1, 2004. School food authorities and State agencies are 
encouraged to begin to collect and report verification data prior to 
the required implementation date. Recordkeeping requirements will be 
revised consistent with the reporting requirements. Submission of these 
data on a school food authority basis will enable State agencies and 
FNS to improve and target oversight activities.

DATES: Effective date: This rule is effective October 14, 2003. 
However, the reporting requirements contained in 7 CFR 245.11 will not 
be in effect until approved by OMB under the Paperwork Reduction Act. 
FNS will publish a notice upon approval of those requirements to 
establish the effective date.
    Implementation dates: Beginning in School Year 2004-2005, each 
school food authority and State agency must collect and report data 
elements designated by FNS to their State agency and FNS, respectively.
    Contingent upon new funding to support this purpose, beginning in 
School Year 2005-2006, FNS will also require each school food authority 
and State agency to collect and report to their State agency and FNS, 
respectively, additional data concerning the reinstatement of students 
who have been terminated as a result of verification.

FOR FURTHER INFORMATION CONTACT: Robert M. Eadie, Chief, Policy and 
Program Development Branch, Child Nutrition Division, Food and 
Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, VA 22302 
or by telephone at (703) 305-2590.

SUPPLEMENTARY INFORMATION:

Background

What Was Proposed?

    On August 9, 2002, FNS published a proposed rule in the Federal 
Register (67 FR 51779) proposing to amend 7 CFR Sec.  245.6a(c) to 
require school food authorities to report verification activity and 
results to their respective State agencies in support of State agency 
and FNS oversight activities. Specifically, the document proposed 
amending Sec.  245.6a(c) to require school food authorities to report 
certain verification information to the State agency by March 1 
annually. The information would be reported on a form designated by 
FNS. The information requested on the form would address, but not be 
limited to, the characteristics of the verification sample and the 
results of verification activity. The preamble to the proposal provided 
the following examples of information to be collected: the number of 
children approved for free and reduced price meal benefits based on 
direct certification, income applications, and categorically eligible 
applications; the method of verification sample selection; the number 
of applications selected for verification; the number of students on 
selected applications; the number of students approved for free meal 
benefits and reduced price meal benefits whose eligibility for benefits 
were reduced or terminated as the result of verification activities; of 
those terminated, the number of non-respondents; and the number of 
students reinstated for free or reduced price meal benefits, as of 
February 15th of each year.
    In addition, the document proposed that Sec.  245.6a(c) would 
require school food authorities to retain copies of the information 
reported to the State agency and all supporting documents. The proposed 
rule also restated the existing requirements that verified applications 
and information submitted by households must be readily retrievable by 
schools and that school food authorities must retain all documents 
submitted by households to confirm eligibility, reproductions of those 
documents, or annotations made by the determining official that 
indicate which documents were submitted by households and the dates of 
submission. The existing requirement that relevant correspondence 
between the households selected for verification and the school or 
school food authority must be retained was also restated.
    FNS also proposed to add a new Sec.  245.11(i) to require each 
State agency to collect the annual verification data from each school 
food authority in accordance with guidance provided by FNS. To 
facilitate the reporting of these data, FNS would provide a data 
collection instrument in electronic format. In addition, the proposed 
rule required that each State agency analyze these data, determine if 
there are potential problems, and formulate corrective actions and 
technical assistance activities to support the objective of certifying 
only those children eligible for free or reduced price meals. The 
availability and review of this information at the State level is 
designed to assist State agencies in targeting more rigorous oversight 
and technical assistance activities on school food authorities when 
their verification activities result in a high termination rate. A high 
termination rate may be due to a number of applications either being 
changed from free or reduced price

[[Page 53484]]

status to paid status because of documentation provided by households 
or because of households' failure to respond to the verification 
request.
    The proposed rule would also require that the State agency report 
to FNS, not later than April 15th of each year, the results of each 
school food authority's verification activities, submitted in 
accordance with Sec.  245.6a(c), and any ameliorative actions the State 
agency has taken or intends to take in those school food authorities 
with high numbers of applications changed due to verification 
activities. FNS intends to provide for the electronic submission of 
these data.
    Additionally, the proposed rule included in 7 CFR Part 245 a 
definition of the term ``FNS'' which means ``the Food and Nutrition 
Service of the Department of Agriculture''. This definition was 
inadvertently not included in this Part in earlier editions and FNS 
proposed to add the definition at 7 CFR 245.2(b-2) for the sake of 
clarity and completeness.

Has FNS Taken Other Actions To Address Over-Certification?

    FNS has taken several actions to address the issues associated with 
over-certification. On January 21, 2000, FNS published a notice in the 
Federal Register (65 FR 3409) soliciting States and school food 
authorities to participate in pilot projects to test alternate 
application, approval and verification procedures for free and reduced 
price eligibility determinations. Twenty-one school food authorities 
operated pilot projects. These pilot sites conducted alternative 
certification or verification processes for three consecutive school 
years, beginning in School Year 2000-2001. Preliminary data has shown 
the alternative methods have, to varying degrees, deterred and detected 
misreporting of eligibility information. FNS is currently conducting an 
in-depth analysis of the administrative data presented, to date, from 
the pilot sites. While the information derived from the pilots is not 
nationally representative, pilot activities have provided FNS with 
insight on the efficacy of the existing application and verification 
processes and on alternatives to those processes. This final rule is 
intended to complement pilot activities by collecting information on 
verification activity nationwide.

Discussion of Comments and Their Resolution

How Many Comments Were Received?

    During the 60 day comment period, 99 comment letters were received: 
81 from State and local agencies administering the school programs; 12 
from advocacy groups; 5 from the general public, and 1 from the food 
industry. In accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C 3507), the public was invited to send comments on the proposed 
information collection to the Office of Management and Budget (OMB). 
OMB received 12 comments on the information collection aspects of the 
proposed rule.

What Did Commenters Say About the Proposed Rule?

Discussion of General Comments
    In general, the commenters were supportive of ensuring that free 
and reduced price meal benefits only go to eligible children and gave a 
number of suggestions outside the scope of the proposed rule to address 
this problem. Some examples of suggested ideas are: hold households 
accountable for the information submitted on their application; 
eliminate publication of income eligibility guidelines; have other 
programs/agencies take more responsibility in regards to free and 
reduced price benefit determinations; consider/research reasons why 
households are not responding to verification requests (e.g., moved, 
limited English proficiency, undocumented immigrants, migrants, lack of 
understanding of the concept of verification); use the additional costs 
that the proposal would incur to provide universal free school meals to 
all children; and specify that the verification notification needs to 
be provided in a language that the families of participating children 
can understand. Additional studies of the issue of over-certification 
were also suggested.
    A few commenters expressed concern that the proposed rule did not 
address the inadequacies of the verification process (such as non-
respondents and language barriers). Several commenters recommended that 
FNS delay any changes to the verification requirements until completion 
of the pilot projects and the analysis of the results. As previously 
stated, the purpose of this regulation is to establish a method to 
obtain data about verification results as another step in the overall 
goal of improved program integrity. The requirements for the reporting 
of verification activities contained in this rule will complement the 
pilot activities. The data collection is a tool for FNS to better 
analyze current verification procedures and results. The information, 
when reviewed and analyzed, may lead to other proposals in the future 
to further refine the entire certification and verification process. 
The ideas that were suggested will also be kept in mind for future 
rulemaking.
Discussion of Comments on the Proposed Burden Under the Paperwork 
Reduction Act
    Over fifty commenters discussed the burden that the proposed 
requirements would place on school food authorities and State agencies. 
The general consensus is that the proposed reporting and recordkeeping 
requirements are too burdensome and the estimated annual reporting and 
recordkeeping burden hours under the Paperwork Reduction Act of 1995 
are too low. We have reviewed the burden hours and have adjusted the 
estimate to account for the fact that there will be differences in the 
amount of time required to complete the report based on the size of the 
school food authority. Small school food authorities, which constitute 
the majority of participating school food authorities, may only have a 
small number of verified applications to summarize, while larger school 
food authorities will have numerous verified applications to summarize. 
However, larger districts may also have automated information systems 
that will provide some or all of the information to complete the 
report, thereby reducing their overall burden hours. We have taken 
these different circumstances into consideration and have adjusted the 
burden hours as follows: School food authorities average burden hours 
have been increased from 16,342 to 32,684, an average of 2 hours per 
school food authority. State agency average burden hours are increased 
per response from 8 to 24 hours. This results in an increase of annual 
burden hours from 432 to 1,296 for State agencies. We submitted the 
revised burden to OMB for approval.
    A few commenters questioned the need for requiring additional data 
collection by school food authorities beyond the current requirements. 
Specifically, commenters stated that most school food authorities do 
not currently track data regarding the number of students whose 
benefits were terminated and who were then reinstated (due to 
submission of required documentation or a change in household 
circumstances) for free or reduced price meals by February 15. The 
Department is concerned about the

[[Page 53485]]

students that are terminated as a result of verification activities. 
Data regarding the number of students that reapply and are re-certified 
for free or reduced price meals would be beneficial in analyzing the 
over-certification issue. Commenters expressed concern that this data 
element would be labor intensive since it is not currently being 
collected. The Department is mindful of the commenters' concerns about 
this burden and recognizes that this requirement would result in 
additional administrative burden at a time when school food authorities 
are faced with serious fiscal and staff constraints. In order to 
balance the need for this data with the additional economic burden on 
school food authorities, the Department is modifying the implementation 
date for this data element, as well as attempting to secure additional 
funds to enable school food authorities to enhance their data 
collection and reporting systems. Therefore, reporting and collecting 
this data will be required for the School Year 2005-2006 contingent 
upon new funding to support this purpose. However, the implementation 
date for other data collection and reporting remains as proposed. The 
Department encourages school food authorities and State agencies to 
collect and report any or all verification data elements to their 
respective State agency before the required dates regardless of the 
availability of additional budgetary assistance.
Discussion of Comments on Public Law 104-4: Unfunded Mandates Reform 
Act of 1995
    One of the requirements for agencies when promulgating regulations 
is an assessment required by Public Law 104-4 the Unfunded Mandates 
Reform Act of 1995, of the impact of the proposed changes on State, 
local and tribal governments and the private sector. The threshold for 
this assessment is $100 million in any one year. One commenter took 
issue with FNS' assessment that the proposed rule contained no Federal 
mandates of $100 million. The commenter stated that there is no 
estimate of the overall time required to complete the entire 
verification, reporting, review and analysis at the State agency as 
``Each State agency must analyze these data, determine if there are 
potential problems, and formulate corrective action * * *''. The 
commenter indicated that the assumption was inaccurate and the 
procedures will create a significant burden on State agencies 
administering these programs.
    Upon further review, FNS continues to believe that this rule 
contains no Federal mandates (under the regulatory provisions of Title 
II of the UMRA) for State, local, and tribal governments or the private 
sector of $100 million or more in any one year. However, as discussed 
earlier, FNS has modified the burden hours from the proposed rule on 
the data collection and reporting requirements in order to address 
burden concerns. It is important to note that the determination of 
burden hours is based only on the compilation of data and the 
completion of the report. The analysis of the reported data and the 
corrective action and technical assistance activities are not part of 
the data collection and reporting burden as State agencies are 
obligated to ensure that school food authorities administer the program 
in accordance with program regulations. Therefore, program oversight, 
corrective action, and technical assistance resulting from the data 
reported are part of the overall administrative responsibility of State 
agencies.
Discussion of Comments on the Need for Guidance
    Over 20 commenters discussed the need for additional guidance on 
the procedures for the State agency's responsibilities outlined in the 
proposal. Many stated that the proposal language was vague and that 
definitions of ``corrective action'', ``rigorous oversight activity'', 
and ``ameliorative actions'' are needed. Commenters also indicated that 
there is a need to be more specific as to what the State agency is 
expected to do when reviewing questionable reports.
    The Department envisions that State agencies will note trends and 
notify school food authorities of these trends as well as provide 
training and technical assistance to school food authorities as needed. 
Also, in response to these concerns, FNS is developing guidance 
materials supporting the State agency's role in this effort, including 
an outline of possible review techniques and suggested technical 
assistance, which will be provided prior to the implementation date of 
this rule.
Discussion of Comments on Deadlines
    Some commenters discussed the deadlines for school food authorities 
to submit accumulated data to the State agency and for States agencies 
to submit consolidated data to FNS. Most suggested that the deadlines 
are too short and should be extended in order for the data to be 
collected, compiled and analyzed. A particular concern to commenters 
was the short turn around for collecting and reporting the information 
on students that are reinstated after termination due to verification.
    We recognize the commenters' concerns regarding the reporting 
deadlines and to alleviate some of the burden, we have modified, as 
discussed earlier in this preamble, the implementation date of the data 
element regarding reinstated students. Because the remaining data 
elements that were discussed in the proposed rule are based on data 
that is already collected, the Department is not changing the reporting 
deadlines of March 1st for each school food authority to submit data to 
their respective State agency, as well as the April 15th date for State 
agencies to submit the aggregated data to FNS.
    Three commenters requested a delay in the implementation of the 
rule. FNS does not feel that a delay in implementation for collection 
and reporting of existing data is warranted due to the urgency in 
finding a solution to the issue of over-certification. However, it is 
important to note that the first report on the majority of data 
elements will not be due from the school food authorities to the State 
agencies until March 1, 2005 and the first reports from the State 
agencies to FNS are not due until April 15, 2005.
    Over 20 commenters requested an extension to the comment period for 
the proposed rule. Again, due to the urgency of the over-certification 
issue, FNS believes that the 60-day comment period for the proposed 
rule was sufficient.
Discussion of Comments on Concerns That the Rule Will Have Adverse 
Results
    Some commenters expressed concern that the proposed rule may have 
adverse effects on eligible children. Specific comments on this issue 
are: (1) Verification has been shown to discourage participation by 
needy children, and (2) some efforts by State agencies to assure that 
only eligible children are certified may inadvertently impede program 
participation by some needy children. While FNS recognizes and shares 
the concerns about discouraging participation of eligible children, FNS 
does not believe that this rule will have any adverse results. The rule 
does not change existing certification and verification requirements, 
and should not change the way that school food authorities interact 
with families applying for benefits. The rule merely requires analysis 
and reporting of information, by school food authorities and State

[[Page 53486]]

agencies, related to existing certification and verification 
requirements.
Discussion of Comments on Data Presented by FNS and Need for Rulemaking
    Two commenters suggested that the preamble overstated the strength 
of available data and that the preamble should have included a more 
careful discussion of the limitations of verification data. These 
comments specifically stated that FNS should not, especially in the 
context of a call for better analysis, present misleading data and 
questionable analysis without any discussion of its meaning and 
soundness of the methodology employed. The commenters also felt that 
the actions described in the preamble were an example of the type of 
cursory use of data that could lead State agencies to take harmful or 
ineffective steps in response to the verification data. Further, they 
recommended that the preamble to the proposed rule should have clearly 
addressed the limitations of verification data and, thus, the 
conclusions that may be drawn from analyses of these data. In response 
to these concerns, it is the intent of this rule to simply provide 
information in order to provide a broader understanding of the over-
certification problem. This rule is intended to provide information 
about the verification problem by collecting data nationally. At this 
point in time, FNS does not have enough information to discuss any 
conclusions that may result from collection and analysis of this data.
    A few commenters discussed the background information provided in 
the preamble to the proposal. In particular, they noted that the 
preamble stated that when State agencies conducted comprehensive on-
site evaluations of school food authorities the resulting findings 
indicate that school food authorities have been determining free and 
reduced price eligibility correctly. Commenters agree with this 
conclusion and stated that this indicates that the problem does not lie 
with administrative procedures and measures taken by school food 
authorities and State agencies, but likely with household reporting. 
Other commenters said that requiring school food authorities and State 
agencies to annually collect, review and report a massive amount of 
data to confirm what is already known, is counter-productive--a waste 
of scarce and valuable resources.
    In response to these commenters, we reiterate that the purpose of 
this rule is to better understand these issues in order to determine 
our course of action to correct problems with certification as well as 
the verification process. The purpose of this rule is to gather and 
assess the results of verification as a means to compare the initial 
certification decisions and the disposition of verified applications 
when households are asked to provide information confirming their 
current eligibility.
    Some commenters discussed the statement made in the preamble that 
there is a 27% over certification of students eligible for free meals 
based on a comparison of NSLP data and Current Population Survey (CPS) 
data. These commenters mentioned that CPS data might not be the best 
source of data to compare with NSLP data.
    The CPS, a joint project between the Bureau of Labor Statistics and 
the Bureau of the Census, is a well established, technically sound 
survey that is used for, among other things, official U.S. unemployment 
and poverty estimates. In conjunction with FNS program data, the CPS is 
one of the best sources of information to use in understanding the 
problem of certification inaccuracy. One of the strengths of CPS is 
that it includes the non-institutionalized population of the United 
States and is designed to include undocumented persons and migrants in 
the sample. We know that these groups are hard to capture with surveys. 
However, the CPS does not rely solely on the sample's ability to fully 
record these groups--the CPS data are adjusted to reflect the Census' 
best estimate of the size of the undocumented population. FNS believes 
that the use of CPS data is a critical tool available in understanding 
the magnitude of the over-certification problem.
    The Agency will continue to make use of CPS and other data sources 
in assessing certification accuracy.

Specific Comments

Sections 245.6a(c) and 245.11(i)

    Two commenters wanted to replace ``State agency'' with ``FNS'' as 
the recipient of school food authorities' report verification 
information. However, since State agencies are responsible for ensuring 
school food authority compliance with program requirements, including 
accurate and timely reporting, it is more appropriate to require that 
school food authorities report data to the State agencies, not to FNS. 
State agencies (1) need to receive data to focus their efforts; (2) are 
in the best position to ensure accurate reporting; and (3) are 
responsible for all aspects of program operations within their States. 
The final rule will continue to require that school food authorities 
report verification information to their respective State agencies.

Section 245.11(i)

    Another comment questioned why ``high termination rates'' should 
trigger more rigorous oversight activities on the part of the State 
agency. This comment went on to state that this part of the proposal 
seems to be completely at odds with the statement in the preamble that 
``School food authorities generally have been determining free and 
reduced price eligibility in accordance with the regulatory 
requirements * * *''.
    If the State agency sees that the school food authority has 
submitted data that has a high termination rate, then the State agency 
will need to work with that school food authority to see if it has 
taken appropriate actions to ensure accuracy of the application 
process. State agencies are expected to develop technical assistance 
activities in conjunction with school food authorities to assure that 
they are utilizing direct certification to its fullest, providing 
appropriate translations (if needed), and/or providing appropriate 
follow-up to households that do not respond to verification requests, 
if needed. School food authorities should use the data collected to 
determine what improvements are needed in their certification and 
verification procedures (i.e. single versus multi-child applications, 
additional assistance for parents, use of other/additional verification 
procedures). School food authorities also should notify State agencies 
of what technical assistance is needed and in what form (training, 
materials, etc.) in order to improve the verification process. FNS will 
provide training, technical assistance, additional translations and the 
like, for school food authorities and State agencies to assist them in 
analyzing how their procedures could be improved and in developing/
supplying technical assistance and training. This provision is adopted 
as proposed in this final regulation, as FNS will be providing guidance 
and resources to assist school food authorities and State agencies in 
addressing the issue of high termination rates.
    Numerous commenters discussed concerns with the proposed regulatory 
requirement in Sec.  245.11(i) that ``Each State agency must analyze 
these data, determine if there are potential problems, and formulate 
corrective actions and technical assistance activities that will 
support the objective of certifying only those children eligible for 
free or reduced price meals.'' Some

[[Page 53487]]

of the concerns with this requirement are that it penalizes the school 
food authority for a high termination rate and creates an incentive to 
reduce the number of terminations. Commenters were also concerned that 
this focus could reduce the ability of State agencies to provide 
technical assistance in other significant areas like improved nutrition 
and menu planning. Commenters went on to say that there should be more 
emphasis on the number of children determined eligible who are not 
participating in the NSLP and SBP and that a high level of application 
information changed due to verification requests is not necessarily a 
negative reflection upon the school food authorities. Corrective action 
should not be required solely on the number of applications changed due 
to verification efforts.
    Again, we emphasize that the regulation is designed to have State 
agencies collect and analyze information on the results of school food 
authorities verification activities in order to improve oversight, 
corrective action, and technical support with the objective of 
certifying only those children who are eligible for free and reduced 
price meals. A high rate of terminations resulting from verification 
activities is one indicator that there could be an underlying problem 
with the school food authorities certification actions. It may show, 
for example, areas where the school food authority needs technical 
assistance on certain application procedures. However, it is important 
that school food authorities and State agencies continue to do as much 
as possible to ensure that eligible children are not inadvertently 
hindered from receiving their appropriate level of benefits due to the 
procedures of the school food authority or State agency. The corrective 
action and technical assistance required by this rulemaking is not 
directed toward the verification termination rate per se, but rather 
toward other issues, such as ensuring that school food authorities are 
utilizing direct certification to its fullest, providing appropriate 
translations if there is a large foreign population, and/or providing 
appropriate follow-up to households when there is no response to a 
verification request.

How Will the State Agency Transmit the Data to FNS?

    The proposed regulation indicated that State agencies would collect 
the data on verification activities already completed by school food 
authorities in accordance with existing regulation at 7 CFR 245.6a(c). 
State agencies would then consolidate that information in a format 
designated by FNS. FNS is designing the format to minimize the burden 
on State agencies while still providing FNS with the data needed to 
formulate any additional measures to improve the certification and 
verification processes. We will be working with our cooperators prior 
to issuing the final format in order to obtain their input regarding 
the best manner to summarize the information from the school food 
authority level.

What Other Changes Are Being Made to the Rule?

    In order to help reduce the burden on State agencies, and to allow 
FNS to obtain the data in a timely and accurate form, State agencies 
must submit a consolidated electronic file to FNS that transmits the 
required verification information for all the school food authorities 
under its administration. The proposed rule required school food 
authorities to report certain verification information to the State 
agency on a form designated by FNS. FNS will also develop a prototype 
form, which specifies the data elements that must be collected from 
each school food authority and reported to FNS. FNS will not provide a 
mandatory form for school food authorities to report to their State 
agencies. State agencies may adopt this prototype form, or may develop 
their own paper or electronic reporting forms to collect this data from 
school food authorities, as long as all required data elements are 
collected from each school food authority. FNS will issue guidance for 
State agencies on the requirements and procedures for collecting school 
food authority data and transmitting it to FNS.

What Technical Amendment Is Included in This Rule?

    On January 11, 2001, the Department issued an interim regulation 
(66 FR 2195) to implement a provision of the Agricultural Risk 
Protection Act of 2000, Public Law 106-224. An amendment to 7 CFR 245.2 
in that regulation redesignated paragraph (a-3) ``Documentation'' as 
paragraph (a-4) and added a new paragraph (a-3) ``Disclosure'' in its 
place. The Department inadvertently neglected to amend sections 245.5 
and 245.6 to remove the obsolete citation and add the new citation in 
its place. This rule corrects that error.

Executive Order 12866

    This proposed rule has been determined to be significant and was 
reviewed by the Office of Management and Budget under Executive Order 
12866.

Regulatory Impact Analysis

    A regulatory impact analysis of the rule identified that these 
provisions will place a small additional burden on school food 
authorities and State agency staff and budgets. However, the new effort 
required will be an extension of existing reporting, record keeping, 
analysis, and ameliorative action, therefore the budget cost of this 
rule will be minimal. The analysis also indicated that reporting 
activities for both school food authorities and State agencies would 
improve understanding of certification problems. As a result of data 
extraction activities, school food authorities may more closely 
understand and utilize the data from the completed verification 
activities. School food authorities will be more equipped to respond to 
problems that they identify themselves through the reporting activity. 
In addition, State agencies will be more equipped to provide technical 
assistance to the school food authorities. The analysis indicated that 
the data would help FNS to evaluate the efficacy of the existing 
application and verification processes and alternatives to those 
processes. Additional nationally representative data on the efficacy of 
these processes are necessary to guide FNS policy concerning over-
certification.

Regulatory Flexibility Act

    This final rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act (5 U.S.C. 601-612). Pursuant to that 
review, Eric M. Bost, Under Secretary for Food, Nutrition, and Consumer 
Services, has certified that this rule will not have a significant 
economic impact on a substantial number of small entities. By requiring 
the reporting of verification information, this rule would result in 
critical information being gathered and enable State agencies and FNS 
to take measures that would increase the level of accountability of the 
NSLP. FNS does not anticipate any adverse fiscal impact resulting from 
implementation of this rulemaking. Although there may be some burdens 
associated with this rule, the burdens would not be significant and 
would be outweighed by the benefits to programs reporting the 
information to the State agency and FNS.

Public Law 104-4

    Unfunded Mandate Reform Act of 1995 (UMRA) Title II of UMRA 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private

[[Page 53488]]

sector. Under Section 202 of the UMRA, FNS generally must prepare a 
written statement, including a cost-benefit analysis, for proposed and 
final rules with ``Federal mandates'' that may result in expenditures 
to State, local, or tribal governments in the aggregate, or to the 
private sector, of $100 million or more in any one year. When such a 
statement is needed for a rule, section 205 of the UMRA generally 
requires FNS to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, more cost-effective or least 
burdensome alternative that achieves the objectives of the rule. This 
rule contains no Federal mandates (under the regulatory provisions of 
Title II of the UMRA) for State, local, and tribal governments or the 
private sector of $100 million or more in any one year. This rule is, 
therefore, not subject to the requirements of sections 202 and 205 of 
the UMRA.

Executive Order 12372

    The National School Lunch Program and School Breakfast Program are 
listed in the Catalog of Federal Domestic Assistance under No. 10.555 
and 10.556. These programs are subject to the provisions of Executive 
Order 12372, which requires intergovernmental consultation with State 
and local officials (7 CFR Part 3015, Subpart V, and final rule related 
notice at 48 FR 29115, June 24, 1983).

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section (6)(b)(2)(B) of Executive Order 13132. The 
Food and Nutrition Service (FNS) has considered the impact of this rule 
on State and local governments and has determined that this rule does 
not have Federalism implications. This rule does not impose substantial 
or direct compliance costs on State and local governments. Therefore, 
under Section 6(b) of the Executive Order, a federalism summary impact 
statement is not required.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. It is intended to have preemptive effect with respect 
to any State or local laws, regulations or policies which conflict with 
its provisions or which would impede its full implementation. This rule 
is not intended to have retroactive effect unless that is specified in 
the Effective Date section of the preamble. Before any judicial 
challenge to the provisions of this rule or the application of its 
provisions, all administrative procedures that apply must be followed. 
The only administrative appeal procedures relevant to this rule are the 
hearings that schools must provide for decisions relating to 
eligibility for free and reduced price meals (7 CFR 245.7 for the NSLP 
and SBP, in schools).

Civil Rights Impact Analysis

    Under USDA Regulation 4300-4, Civil Rights Impact Analysis, FNS has 
reviewed this final rule to identify and address any major civil rights 
impacts the final rule might have on minorities, women, and persons 
with disabilities. After a careful review of the rule's intent and 
provisions, FNS has determined that this final rule will not in any way 
limit or reduce participants ability to participate in the Child 
Nutrition Programs on the basis of an individual's or group's race, 
color, national origin, sex, age, or disability. FNS found no factors 
that would negatively and disproportionately affect any group of 
individuals.

Paperwork Reduction Act of 1995

    The information collection burden for the general reporting 
requirements in place prior to this rule are approved under OMB Number 
0584-0026. This rule contains burdens that were included in the burden 
estimate in the proposed rule, Determining Eligibility for Free and 
Reduced Price Meals in Schools--Verification Reporting and 
Recordkeeping Requirements, published on August 9, 2002 at 67 FR 51779. 
In accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3507, 
the information reporting and recordkeeping requirements included in 
the proposed rule outlined the changes in the information collection 
burden. OMB accepted public comments on FNS' estimated reporting and 
recordkeeping burden. Commenters indicated that the proposed reporting 
and recordkeeping requirements are too burdensome and the proposed 
estimated annual reporting and recordkeeping burden hours under the 
Paperwork Reduction Act of 1995 are too low. We have reviewed the 
burden hours and have adjusted the estimate to account for the fact 
that there will be a significant disparity in the amount of time 
required to report the data elements based on the size of the school 
food authority. We have taken these different circumstances into 
consideration and have adjusted the burden hours as follows: School 
food authorities average burden hours have been increased from 16,342 
to 32,684, an average of 2 hours per school food authority. State 
agency average burden hours are increased per response from 8 to 24. 
This results in an increase of the total annual burden hours from 432 
to 1296 for State agencies. FNS is requesting approval of the data 
collection instruments from OMB in the near future. Implementation of 
the data collection elements of the rule is contingent upon OMB 
approval under the Paperwork Reduction Act.

                                        Estimated Annual Reporting Burden
----------------------------------------------------------------------------------------------------------------
                                                   Annual number      Annual      Average burden   Annual burden
                                      Section     of respondents     frequency     per response        hours
----------------------------------------------------------------------------------------------------------------
                     School food authorities report verification information to State agency
----------------------------------------------------------------------------------------------------------------
Existing........................  ..............               0               0               0               0
Proposed........................       245.6a(c)          16,342               1         2 hours          32,684
Total Reporting Burden:
    Total Existing..............               0
    Total Proposed..............          24,513
Change..........................         +24,513
---------------------------------

[[Page 53489]]

 
                                State agencies report district level data to FNS
----------------------------------------------------------------------------------------------------------------
Existing........................  ..............               0               0               0               0
Proposed........................       245.11(i)              54               1        24 hours           1,296
Total Reporting Burden:
    Total Existing..............               0
    Total Proposed..............           1,296
Change..........................          +1,296
----------------------------------------------------------------------------------------------------------------


                                      Estimated Annual Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                   Annual number      Annual      Average burden   Annual burden
                                      Section     of respondents     frequency     per response        hours
----------------------------------------------------------------------------------------------------------------
                        School food authorities maintain summary of verification efforts
----------------------------------------------------------------------------------------------------------------
Existing........................       245.6a(c)          16,342               1             .75          12,256
Proposed........................       245.6a(c)          16,342               1             .85          13,891
Total Recordkeeping Burden:
    Total Existing..............          12,256
    Total Proposed..............          13,891
Change..........................          +1,635
---------------------------------
                                    State agencies retain district level data
----------------------------------------------------------------------------------------------------------------
Existing........................  ..............               0               0               0               0
Proposed........................       245.11(i)              54               1               1              54
Total Recordkeeping Burden:
    Total Existing..............               0
    Total Proposed..............              54
Change..........................             +54
----------------------------------------------------------------------------------------------------------------

Government Paperwork Elimination Act (GPEA)

    In compliance with GPEA, 44 U.S.C. 3504, the Food and Nutrition 
Service is committed to implementing electronic reporting and 
recordkeeping processes whenever it is feasible to help minimize 
information collection burdens on the public. The required data 
elements will be specified by FNS. State agencies may develop paper or 
electronic reporting forms to collect this data from school food 
authorities, as long as all required data elements are collected from 
each school food authority.

List of Subjects in 7 CFR Part 245

    Food assistance programs, Grant programs-education, Civil rights, 
Food and Nutrition Service, Grant programs-health, Infants and 
children, Milk, Reporting and recordkeeping requirements, School 
breakfast and lunch programs.

0
Accordingly, 7 CFR Part 245 is amended as follows:

PART 245--DETERMINING ELIGIBILITY FOR FREE AND REDUCED PRICE MEALS 
AND FREE MILK IN SCHOOLS

0
1. The authority citation continues to read as follows:

    Authority: 42 U.S.C. 1752, 1758, 1759a, 1772, 1773, and 1779.

0
2. In Sec.  245.2:
0
a. Redesignate paragraph (c) as paragraph (b-3);

0
b. Redesignate paragraph (b-2) as paragraph (c); and
0
c. Add a new paragraph (b-2) to read as follows:


Sec.  245.2  Definitions.

* * * * *
    (b-2) FNS means the Food and Nutrition Service, United States 
Department of Agriculture.
* * * * *


Sec.  245.5  [Amended]

0
3. In Sec.  245.5:
0
a. Remove the citation ``Sec.  245.2(a-3)'' in paragraph (a)(1)(iii) 
and add the citation ``Sec.  245.2(a-4)(1)(i)'' in its place; and
0
b. Remove the citation ``Sec.  245.2(a-3)'' in paragraph (a)(1)(iv) and 
add the citation ``Sec.  245.2(a-4)(1)(ii)'' in its place.


Sec.  245.6  [Amended]

0
4. In Sec.  245.6:
0
a. Remove the citation ``Sec.  245.2(a-3)(2)'' in paragraph (b) and add 
the citation ``Sec.  245.2(a-4)(2)'' in its place; and
0
b. Remove the citations ``Sec.  245.2(a-3)(1)(i),'' ``Sec.  245.2(a-
3)(1)(ii),'' and ``Sec.  245.2(a-3)(2)'' in paragraph (c) introductory 
text and add the citations ``Sec.  245.2(a-4)(1)(i),'' ``Sec.  245.2(a-
4)(1)(ii),'' and ``Sec.  245.2(a-4)(2),'' respectively, in their 
places.

0
5. In Sec.  245.6a, revise paragraph (c) to read as follows:


Sec.  245.6a  Verification requirements.

* * * * *
    (c) Verification reporting and recordkeeping requirements. No later 
than March 1, 2005 and by March 1st each year thereafter, each school 
food authority must report information related to its annual 
verification activity to the State agency in accordance with guidelines 
provided by FNS. These required data elements will be specified by FNS. 
Contingent upon new funding

[[Page 53490]]

to support this purpose, FNS will also require each school food 
authority to collect and report the number of students who were 
terminated as a result of verification but who were reinstated as of 
February 15th. The first report containing this data element would be 
required in the school year beginning July 1, 2005 and each school year 
thereafter. State agencies may develop paper or electronic reporting 
forms to collect this data from school food authorities, as long as all 
required data elements are collected from each school food authority. 
School food authorities shall retain copies of the information reported 
under this section and all supporting documents for a minimum of 3 
years. All verified applications must be readily retrievable on an 
individual school basis and include all documents submitted by the 
household for the purpose of confirming eligibility, reproductions of 
those documents, or annotations made by the determining official which 
indicate which documents were submitted by the household and the date 
of submission. All relevant correspondence between the households 
selected for verification and the school or school food authority must 
be retained. School food authorities are encouraged to collect and 
report any or all verification data elements before the required dates.
* * * * *

0
4. In Sec.  245.11, add a new paragraph (i) to read as follows:


Sec.  245.11  Action by State agencies and FNSROs.

* * * * *
    (i) No later than March 1, 2005 and by March 1st each year 
thereafter, each State agency must collect annual verification data 
from each school food authority as described in Sec.  245.6a(c) and in 
accordance with guidelines provided by FNS. Each State agency must 
analyze these data, determine if there are potential problems, and 
formulate corrective actions and technical assistance activities that 
will support the objective of certifying only those children eligible 
for free or reduced price meals. No later than April 15, 2005 and by 
April 15 each year thereafter, each State agency must report to FNS the 
verification information in a consolidated electronic file that has 
been reported to it as required under Sec.  245.6a(c), by school food 
authority, and any ameliorative actions the State agency has taken or 
intends to take in school food authorities with high levels of 
applications changed due to verification. Contingent upon new funding 
to support this purpose, FNS will also require each State agency to 
report the aggregate number of students who were terminated as a result 
of verification but who were reinstated as of February 15th. The first 
report containing this data element would be required in the school 
year beginning July 1, 2005 and each school year thereafter. State 
agencies are encouraged to collect and report any or all verification 
data elements before the required dates.

    Dated: September 5, 2003.
Eric M. Bost,
Under Secretary, Food, Nutrition and Consumer Service.
[FR Doc. 03-23190 Filed 9-10-03; 8:45 am]
BILLING CODE 3410-30-U