[Federal Register Volume 68, Number 200 (Thursday, October 16, 2003)]
[Rules and Regulations]
[Pages 59519-59524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26176]



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  Federal Register / Vol. 68, No. 200 / Thursday, October 16, 2003 / 
Rules and Regulations  

[[Page 59519]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 275

RIN 0584-AD31


Food Stamp Program: Non-Discretionary Quality Control Provisions 
of Title IV of Public Law 107-171

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim rule.

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

SUMMARY: On May 13, 2002, the President signed the Farm Security and 
Rural Investment Act of 2002 (the 2002 Act). Title IV of the 2002 Act 
(the Food Stamp Reauthorization Act of 2002) contains provisions 
concerning the Food Stamp Program. This rule amends the Food Stamp 
Program regulations to implement certain provisions concerning the 
Quality Control system in sections 4118 and 4119 of the Food Stamp 
Reauthorization Act of 2002. This interim rule revises the current 
regulations to reflect the new liability procedures and the new 
deadlines for completing the Quality Control review process and 
announcement of error rates. As a result of the change in the statute, 
a new two-year liability system will be instituted which will result in 
fewer State agencies being subject to liabilities for excessive payment 
error rates. There will be new time frames for State agencies to 
complete the quality control case review process and for the Department 
to issue error rates.

DATES: This interim rule is effective December 15, 2003. Comments on 
this rulemaking must be received on or before January 14, 2004 to be 
assured of consideration.

ADDRESSES: Comments should be submitted to Daniel Wilusz, Quality 
Control Branch, Program Accountability Division, Food and Nutrition 
Service, USDA, 3101 Park Center Drive, Alexandria, Virginia, 22302. 
Comments may also be faxed to the attention of Daniel Wilusz at (703) 
305-0928 or e-mailed to [email protected]. All written 
comments will be open for public inspection at the office of the Food 
and Nutrition Service during regular business hours (8:30 a.m. through 
5 p.m.). You may also download an electronic version of this rule at 
http://www.fns.usda.gov/fsp/rules/Regulations/default.htm.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking 
should be addressed to Margaret Werts Batko at the above address or by 
telephone at (703) 305-2516.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule in 7 CFR part 3015, subpart V and related Notice (48 FR 29115, 
June 24, 1983), this Program is excluded from the scope of Executive 
Order 12372 which requires intergovernmental consultation with State 
and local officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). 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. State and local welfare 
agencies will be the most affected to the extent that they administer 
the Program.

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 sector. Under section 202 of the UMRA, the Food and 
Nutrition Service (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.

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. FNS has 
considered this rule's impact on State and local agencies and has 
determined that it does not have Federalism implications under E.O. 
13132. 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.

Civil Rights Impact Analysis

    FNS has reviewed this interim rule in accordance with the 
Department Regulation 4300-4, ``Civil Rights Impact Analysis,'' to 
identify and address any major civil rights impacts the 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 rule has no impact on any of the protected classes. These changes 
affect the quality control review system and not individual recipients' 
eligibility for or participation in the Food Stamp Program. FNS has no

[[Page 59520]]

discretion in implementing these changes. The changes are required to 
be implemented by law. All data available to FNS indicate that 
protected individuals have the same opportunity to participate in the 
Food Stamp Program as non-protected individuals. FNS specifically 
prohibits the State and local government agencies that administer the 
Program from engaging in actions that discriminate based on race, 
color, national origin, gender, age, disability, marital or family 
status. Regulations at 7 CFR 272.6 specifically state that ``State 
agencies shall not discriminate against any applicant or participant in 
any aspect of program administration, including, but not limited to, 
the certification of households, the issuance of coupons, the conduct 
of fair hearings, or the conduct of any other program service for 
reasons of age, race, color, sex, handicap, religious creed, national 
origin, or political beliefs. Discrimination in any aspect of program 
administration is prohibited by these regulations, the Food Stamp Act 
of 1977 (the Act), the Age Discrimination Act of 1975 (Pub. L. 94-135), 
the Rehabilitation Act of 1973 (Pub. L. 93-112, section 504), and title 
VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d). Enforcement 
action may be brought under any applicable Federal law. Title VI 
complaints shall be processed in accord with 7 CFR Part 15.''

Paperwork Reduction Act

    This interim rule does not contain changes to the reporting or 
recordkeeping requirements subject to approval by the Office of 
Management and Budget (OMB) under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3507). Reporting and recordkeeping requirements for quality 
control are approved under OMB numbers 0584-0074, 0584-0299, 0584-0303, 
and 0584-0034. There are no changes being made in this rulemaking that 
will alter the reporting and recordkeeping requirements related to 
quality control approved under these burdens. The legislative change 
concerning corrective action planning does not affect the burden in 
0584-0010 for reporting and recordkeeping because the change only 
affects which States would be required to submit corrective action 
plans and because the number of states required to submit corrective 
action plans will not change under the new requirement. The burden 
approved under OMB number 0584-0010 was allowed to expire. The Food and 
Nutrition Service has initiated action to reinstate the burden under 
0584-0010.

Government Paperwork Elimination Act

    In compliance with the Government Paperwork Elimination Act, FNS is 
committed to providing electronic submission as an alternative for 
information collections associated with this rule. However, we are not 
able to make the entire process electronic at this time.
    Part of the process allows electronic submission. The Quality 
Control review schedule (approved under OMB 0584-0299) serves 
as both the data summary entry form that the reviewer completes during 
each review, and subsequently, as the data input document for direct 
data entry into the Kansas City Computer Center (KCCC). While the data 
is manually collected on a paper form from information extracted from a 
case file, it is electronically submitted to the KCCC for tabulation 
and analysis. Some States have begun to use computerized versions of 
the worksheet (OMB number 0584-0074), which provides information 
collected on the review schedule. In addition, the FNS contractor for 
the data collection system has developed, at FNS request, a 
computerized version of the worksheet. States are being given the 
option to continue to use their own systems, the new computerized 
version provided by FNS or the paper version. When FNS computerized 
versions of the worksheet are used, the information is linked to and 
creates the review schedule.
    Under OMB number 0584-0034, the burden for collecting and reporting 
information related to the review of negative cases and the status of 
sample selection and completion is approved. The FNS-245 serves as both 
the data summary entry form that the reviewer completes during each 
negative case review, and subsequently as the data input document for 
direct data entry into the KCCC. Therefore, while data is manually 
collected, it is electronically submitted to the KCCC for tabulation 
and analysis. The FNS-248 (Status of Sample Selection and Completion) 
collects information on the status of State reviews. The FNS-248 
contains information not produced by the automated system, therefore 
this report is still necessary. However, we are considering ways that 
this data could be collected electronically.
    The burden under OMB number 0584-0303 encompasses the sampling 
plan, arbitration, and good cause. At this time, these areas are not 
substantively electronic submittals. To the extent possible, States may 
submit documents or portions of documents electronically.
    States have the option to maintain in paper or electronic format 
information compiled for the Performance Reporting System, including 
Management Evaluation, Data Analysis and Corrective Action information. 
The State maintains the information on site to be available for FNS 
review (OMB number 0584-0010).

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations, or policies that 
conflict with its provisions or that would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' paragraph of the final 
rule. Prior to any judicial challenge to the provisions of this rule or 
the application of its provisions, all applicable administrative 
procedures must be exhausted. In the Food Stamp Program the 
administrative procedures are as follows: (1) For Program benefit 
recipients--State administrative procedures issued pursuant to 7 U.S.C. 
2020(e)(1) and 7 CFR 273.15; (2) for State agencies--administrative 
procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for 
rules related to non-quality control (QC) liabilities) or Part 283 (for 
rules related to QC liabilities); (3) for retailers and wholesalers--
administrative procedures issued pursuant to 7 U.S.C. 2023 set out at 7 
CFR 278.8 and part 279.

Regulatory Impact Analysis

    Need for Action: This rule amends the Food Stamp Program 
regulations to implement certain provisions concerning the Quality 
Control system in sections 4118 and 4119 of the Food Stamp 
Reauthorization Act of 2002. These provisions revise the liability 
procedures and establish new deadlines for completing the Quality 
Control review process and announcement of payment error rates. The 
rule has no Federal Program cost impacts, however, fewer States will be 
identified as having any potential liability, and any such liabilities 
will be significantly lower than under the existing system.
    Justification of alternatives. The Department has no discretion 
regarding the legislative mandate to revise the liability and enhanced 
funding provisions of the QC system. Nor does it have discretion 
regarding the provision that revises time frames for completing the 
review and arbitration process and announcing individual State agency 
payment error rates at the

[[Page 59521]]

end of each annual review period. The Department does have discretion 
in resolving the liabilities established under the new system. The 
Secretary may: Waive all or a portion of the liability; require the 
State agency to reinvest up to 50 percent of the liability in 
activities to improve program administration, which new investment 
money shall not be matched by Federal funds; designate up to 50 percent 
of the liability as at-risk for repayment if a liability is established 
based on the State agency's payment error rate for the subsequent 
fiscal year; or assert any combination of these options. Once the 
Secretary issues the original resolution proposal, only the amounts 
designated as waived or reinvestment are subject to negotiation between 
the State agency and the Department.
    Effects on Food Stamp Recipients. This action is not anticipated to 
have any impact on benefit levels or food stamp program participation, 
as it does not change the program's eligibility requirements or benefit 
calculation.
    Effects on Federal Program Costs. Since this action is not 
anticipated to have any impact on benefit levels or food stamp 
participation, we do not anticipate any impact on food stamp benefit 
costs. There is also no anticipated financial impact in administration 
costs from the changes in how liabilities are calculated, assessed, or 
collected.
    Effects on Administering State Agencies: This rule affects State 
agencies by revising the QC sanction system. Under this rule, fewer 
States will be identified as having any potential liability, and any 
such liabilities will be significantly lower than under the existing 
sanction system. State agencies will also have additional time to 
complete the quality control review process.
    Effect on Retailers. This action is not anticipated to have any 
impact on food stamp retailers.

Justification for Interim Rulemaking

    This action is being finalized without prior notice or public 
comment under authority of 5 U.S.C. 553(b)(3)(A) and (B). The 
provisions contained in this rule are mandated by sections 4118 and 
4119 of the Food Stamp Reauthorization Act of 2002. The Department has 
no discretion in implementing the specific provisions contained in this 
rule. These provisions are effective for the Fiscal Year 2003 review 
period beginning October 1, 2002. The provisions included in this rule 
are mandated by legislation, and the Department has no discretion in 
the methodology establishing the national performance measure, or in 
determining when State agencies develop corrective action plans 
resulting from payment error rates. Thus, the Department has determined 
in accordance with 5 U.S.C. 553(b) that a notice of proposed rulemaking 
and an opportunity for prior public comments is unnecessary. 
Discretionary regulatory changes that result from sections 4118 and 
4119 will be addressed subsequently in one or more proposed 
rulemakings.

Background

    On May 13, 2002, the President signed Public Law 107-171, the Farm 
Security and Rural Investment Act of 2002. Title IV of Public Law 107-
171, the Food Stamp Reauthorization Act of 2002, significantly revised 
the liability and enhanced funding provisions of the Quality Control 
(QC) system. In this interim rule, we are addressing the provisions in 
section 4118 of the Food Stamp Reauthorization Act of 2002 concerning 
establishment, adjustment, and collection of potential liabilities and 
the requirement to develop a corrective action plan when a State's 
payment error rate exceeds six percent. In this interim rule, we are 
also addressing the provision in Section 4119 that revises time frames 
for completing the review and arbitration process and announcing 
individual State agency error rates at the end of each annual review 
period. All remaining provisions not addressed in this rule will be 
addressed in one or more subsequent proposed rulemakings.

Establishing Liabilities for Excessive Payment Error Rates

    Section 4118 of the Food Stamp Reauthorization Act of 2002 amended 
Section 16(c) of the Food Stamp Act of 1977, as amended, significantly 
revising the system for determining liabilities for payment error 
rates. Under the Food Stamp Act, as amended, prior to enactment of the 
Food Stamp Reauthorization Act of 2002, liability was determined each 
fiscal year. As defined in 7 CFR 275.23(e) of the program regulations, 
the payment error tolerance level was the national performance measure 
for the fiscal year. The national performance measure is defined as the 
sum of the products of each State agency's payment error rate times 
that State agency's proportion of the total value of national 
allotments issued for the fiscal year using the most recent issuance 
data available at the time the State agency is notified of its payment 
error rate. A State agency that exceeded this tolerance level was 
subject to a liability claim equivalent to the total value of the 
allotments issued in the fiscal year by the State agency, multiplied by 
a factor that is the lesser of: (1) The ratio of the amount by which 
the payment error rate of the State agency for the fiscal year exceeds 
the national performance measure for the fiscal year, to the national 
performance measure for the fiscal year, or (2) one. This figure was 
then multiplied by the amount by which the payment error rate of the 
State agency for the fiscal year exceeded the national performance 
measure for the fiscal year.
    Section 4118 of the Food Stamp Reauthorization Act of 2002 
establishes a new multi-year liability system. The national performance 
measure continues to be defined as the sum of the products of each 
State agency's payment error rate times that State agency's proportion 
of the total value of national allotments issued for the fiscal year 
using the most recent issuance data available at the time the State 
agency is notified of its payment error rate. However, the method for 
determining any potential liability has changed. Under this system, 
Fiscal Year 2003 serves as the initial base year. For Fiscal Year 2004 
and subsequent years, liability for payment shall be established 
whenever there is a 95 percent statistical probability that, for the 
second or subsequent consecutive fiscal year, a State agency's payment 
error rate exceeds 105 percent of the national performance measure. For 
example, if there were a 95 percent statistical probability that a 
State agency's payment error rate for Fiscal Year 2003 exceeded 105 
percent of the Fiscal Year 2003 national performance measure, and again 
in Fiscal Year 2004, if there was a 95 percent statistical probability 
that the State's payment error rate exceeded 105 percent of the Fiscal 
Year 2004 national performance measure, a liability for Fiscal Year 
2004 would be established. The amount of the liability shall be equal 
to the product of: The value of all allotments issued by the State 
agency in the (second or subsequent consecutive) fiscal year; 
multiplied by the difference between the State agency's payment error 
rate and 6 percent; multiplied by 10 percent.
    In order to implement this change, we are revising 7 CFR 275.23(e). 
First, we are deleting subsections (e)(2), (e)(3), and (e)(4) because 
they address liability determinations for prior fiscal years that have 
already been resolved. Second, we are redesignating paragraph (e)(5) as 
paragraph (e)(2) and amending that subsection by deleting the words 
``and beyond'' and replacing them with the words ``through Fiscal Year 
2002.'' Finally, a new paragraph (e)(3) is being

[[Page 59522]]

added that established the liability system for Fiscal Year 2004 and 
beyond. A conforming amendment is also being made redesignating 
paragraphs (e)(6), (e)(7), (e)(8), (e)(9), (e)(10), and (e)(11) as 
(e)(4), (e)(5), (e)(6), (e)(7), (e)(8), and (e)(9).

Resolving Liabilities

    Prior to the passage of the Food Stamp Reauthorization Act of 2002, 
potential liabilities were established each year. The Secretary had 
unlimited authority to propose a resolution, including: waiving any or 
all of the amount; requiring that any or all of the amount be repaid to 
the Federal government; entering into an agreement to allow some or all 
of the liability amount to be reinvested in error reduction activities; 
or combining these options. Once issuing a proposed settlement plan to 
a State agency, the Secretary could negotiate with the State agency to 
revise any and all aspects of the proposed liability resolution.
    Section 4118 establishes new requirements for resolving State 
agency liabilities for payment errors. Under the Food Stamp Act, as 
amended by the Food Stamp Reauthorization Act of 2002, the Secretary 
has the authority to waive or reduce any liability. The Secretary may 
require a State agency to reinvest up to 50 percent of the established 
liability in activities designed to reduce the payment error rate. The 
Secretary may also designate up to 50 percent of the liability as being 
``at-risk.'' A State agency would be required to pay to USDA any money 
designated as ``at-risk'' if a liability for payment errors is 
established for the State agency the following fiscal year. The 
Secretary may combine these three options. In accordance with the Food 
Stamp Reauthorization Act of 2002, the Department and any State agency 
found liable for an excessive payment error rate must settle any waiver 
amount or reinvestment amount before the end of the fiscal year in 
which the liability is determined. The amount designated as being at-
risk in the proposed settlement plan sent to the State agency is not 
subject to negotiation, in accordance with the provision in the Food 
Stamp Reauthorization Act of 2002 which provides that the Department 
shall make its liability resolution determinations and enter into a 
settlement with the State agency only with respect to any waiver amount 
or new investment amount (emphasis added). When the Department notifies 
the State agency of its payment error rate and its potential liability, 
that letter will also designate the amount to be waived, and what 
amount is designated as at risk and/or subject to reinvestment. Because 
the Department is authorized to enter into a settlement with a State 
agency concerning the amount to be waived or reinvested, the Department 
may opt to enter into negotiations with the State agency to waive any 
or all of the amount designated for reinvestment. Current regulations 
specify the requirements for reinvestment. Any reinvestment plan 
established for the amount designated for reinvestment either in the 
initial letter or as a result of negotiations much meet the 
requirements in 7 CFR 275.23(e)(11). However, the law does not allow 
the Department to negotiate any amount designated as at-risk, once that 
amount has been designated. Therefore, the Department will not 
negotiate with the State agency on the amount designated as at-risk 
once the notification letter has been sent to the State agency. The 
amount designated as at-risk cannot be reconsidered for waiving or 
reinvestment in the following year if a liability for payment errors is 
established for the State agency in the following fiscal year. A new 
paragraph (e)(10) is being added to Sec.  275.23 establishing the 
Secretary's authority to resolve the liabilities under these three 
options.

Appeals

    In accordance with the Food Stamp Act, as amended, State agencies 
may appeal the amount of the liability established as described above. 
However, State agencies may not appeal the Secretary's decision as to 
how such liability will be resolved; i.e., waived, at-risk, or 
reinvestment. Nor is the amount of the national performance measure 
subject to either administrative or judicial appeal, in accordance with 
section 4118 of the Food Stamp Reauthorization Act of 2002. The time 
frames and procedures for appealing were not changed by the Food Stamp 
Reauthorization Act of 2002 and the procedures in 7 CFR part 283 of the 
regulations remain in place.
    The Secretary is required to initiate collection for any amount 
owed by the State agency before the end of the fiscal year in which the 
liability is determined. However, the requirement to resolve all 
liabilities before the end of the fiscal year shall be suspended if an 
administrative appeal relating to the liability is pending. The 
provision suspending collection pending an administrative appeal 
existed in the Food Stamp Act prior to the passage of the Food Stamp 
Reauthorization Act of 2002 and was not changed by that Act. Current 
regulations address this suspension, and accordingly, no changes are 
being made to the regulations.
    Section 4118 provides that if a State agency appeals its liability 
determination, if the State agency began required reinvestment 
activities prior to an appeal determination, and if the liability 
amount is reduced to $0 through the appeal, the Secretary shall pay to 
the State agency an amount equal to 50 percent of the new investment 
amount that was included in the liability amount subject to the appeal. 
If the Secretary wholly prevails on a State agency's appeal, section 
4118 provides that the Secretary will require the State agency to 
invest all or a portion of the amount designated for reinvestment 
during the appeal to be reinvested or to be repaid to the Federal 
government. Section 4118 further specifies that if neither party wholly 
prevails that the remaining liability will be treated pursuant to 
regulations issued by the Secretary. In this rule, we are incorporating 
into new Sec.  275.23(e)(10) the provisions in section 4118 concerning 
either the Secretary or the State wholly prevailing. We will address in 
a proposed rule how any remaining liability will be handled if neither 
party wholly prevails on appeal.

Time Frames for Announcing the National Performance Measure and for 
Completing Quality Control Reviews and Resolving State/Federal 
Differences

    Section 4119 of the Food Stamp Reauthorization Act of 2002 
establishes new dates for resolution of the case review and arbitration 
process and for issuance of the national average payment error rate, 
the individual State final error rates, and the amounts of any payments 
claimed or liability amounts established. Under the Food Stamp Act 
prior to the Food Stamp Reauthorization Act of 2002, all case reviews 
and arbitration had to be completed not later than 180 days after the 
end of the fiscal year. FNS was required to announce the national 
average payment error rate, the individual State final error rates, and 
the amounts of any liabilities within 30 days following completion of 
the case reviews and arbitration. Under section 4119, all case reviews 
and arbitration are required to be completed by May 31 following the 
end of the fiscal year. The national average payment error rate, the 
individual State final error rates, and the amounts of any payments 
claimed or liability amounts established are required to be announced 
by June 30 following the end of the fiscal year. In accordance with 
section 4118, this rule also requires that FNS provide a copy of each 
State agency's notice of payment claimed or liability amount due to the

[[Page 59523]]

State's chief executive officer and legislature. In this interim 
rulemaking, we are revising redesignated paragraph (e)(7) in Sec.  
275.23 to establish these new dates. Redesignated paragraph (e)(7) also 
requires FNS to provide the State chief executive officer and the 
legislature with a copy of the State's notice of payment claimed or 
liability amount. At this time we are not revising the time frames for 
processing individual cases or conducting individual arbitration cases. 
Implementing guidance was issued on January 22, 2003, providing interim 
direction to State agencies on completing cases reviews under these new 
time frames for Fiscal Year 2003. A proposed rule will be issued that 
addresses these issues.

Corrective Action Planning

    Current regulations provide that corrective action planning shall 
be done by a State agency when it fails to reach the yearly target 
(Sec.  275.16(b)(1)), when the State agency is not entitled to enhanced 
funding (Sec.  275.16(b)(2)), or when the State agency's negative case 
error rate exceeds one percent (Sec.  275.16(b)(3)). Section 4118 of 
the Food Stamp Reauthorization Act of 2002 requires State agencies to 
do corrective action planning whenever its payment error rate is six 
percent or greater. Accordingly, we are revising Sec.  275.16(b)(1) to 
require corrective action planning whenever a State agency's error rate 
equals or exceeds six percent. This change will have little real impact 
on State agencies because current regulations require corrective action 
planning whenever a State agency is not eligible for enhanced funding. 
One of the criteria for enhanced funding is that the payment error rate 
is below 5.90 percent. Therefore, all State agencies with error rates 
above 5.90 percent are already required to develop corrective action 
plans.
    In addition several technical changes throughout 7 CFR part 275 
have been made to correct references to paragraphs changed in this 
rulemaking and to fix typographical errors.

Implementation

    This rule is effective December 15, 2003. Section 4118 of the Food 
Stamp Reauthorization Act of 2002 was effective October 1, 2002, and 
section 4119 was effective upon enactment, May 13, 2002. This rule 
reflects these statutory provisions which impact the establishment of 
payment error rates, the national performance measure, and sanctions 
and liabilities for Fiscal Year 2003 and beyond.

List of Subjects

7 CFR Part 272

    Alaska, Civil rights, Claims, Food stamps, Grant programs, Social 
programs, Reporting and recordkeeping requirements, Unemployment 
compensation, Wages

7 CFR Part 275

    Administrative practice and procedure, Food stamps, Reporting and 
recordkeeping requirements.

0
Accordingly, 7 CFR parts 272 and 275 are amended as follows:
0
1. The authority citation for parts 272 and 275 continue to read as 
follows:

    Authority: 7 U.S.C. 2011-2036.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

0
2. In Sec.  272.1, add paragraph (g)(169) to read as follows:


Sec.  272.1  General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (169) Amendment No. 395. The provisions of Amendment 395 are 
effective December 15, 2003.

PART 275--PERFORMANCE REPORTING SYSTEM


Sec.  275.3  [Amended]

0
3. In Sec.  275.3, the last sentence of paragraph (c) is amended by 
removing the reference ``Sec.  275.23(e)(8)'' and adding in its place 
the reference ``Sec.  275.23(e)(6)''.


Sec.  275.11  [Amended]

0
4. In Sec.  275.11, the third sentence of paragraph Sec.  275.11(g) is 
amended by removing the reference ``Sec.  275.25(e)(8)'' and adding in 
its place the reference ``Sec.  275.23(e)(6)''.

0
5. In Sec.  275.16, paragraph (b)(1) is revised to read as follows:


Sec.  275.16  Corrective action planning.

* * * * *
    (b) * * *
    (1) Result from a payment error rate of 6 percent or greater 
(actions to correct errors in individual cases, however, shall not be 
submitted as part of the State agency's corrective action plan);
* * * * *

0
6. In Sec.  275.23:
0
a. Paragraph (d)(1)(iii) is amended by removing the reference 
``(e)(8)(iii)'' and adding in its place the reference ``(e)(6)(iii)''.
0
b. Paragraph (e)(1) is amended by removing the reference ``(e)(8)'' and 
adding in its place the reference ``(e)(6)''.
0
c. Paragraphs (e)(2), (e)(3), and (e)(4) are removed.
0
d. Paragraph (e)(5) is redesignated as paragraph (e)(2) and is further 
amended by removing the words ``and beyond'' in the paragraph heading 
and adding in their place the words ``through Fiscal Year 2002''.
0
e. Newly redesignated paragraph (e)(2)(i) is amended by removing the 
words ``and subsequent years'' and adding in their place the words 
``through Fiscal Year 2002''; and further amended by removing the word 
``rates'' in the second sentence and adding in its place the word 
``rate''.
0
f. A new paragraph (e)(3) is added.
0
g. Paragraphs (e)(6), (e)(7), (e)(8), (e)(9), (e)(10), and (e)(11) are 
redesignated as paragraphs (e)(4), (e)(5), (e)(6), (e)(7), (e)(8) and 
(e)(9), respectively.
0
h. Newly redesignated paragraph (e)(5)(i)(B)(3) is amended by removing 
the reference ``(e)(7)(i)(A)'' and adding in its place the reference 
``(e)(5)(i)(A)''.
0
i. Newly redesignated paragraph (e)(5)(i)(C)(3)(iii) is amended by 
removing the reference ``(e)(5)(i)'' wherever it appears and adding in 
its place the reference ``(e)(2)(i)''.
0
j. Newly redesignated paragraph (e)(5)(i)(E) is amended by removing the 
reference ``(e)(7)(i)(A) through (e)(7)(i)(D)'' and adding in its place 
the reference ``(e)(5)(i)(A) through (e)(5)(i)(D)''.
0
k. Newly redesignated paragraph (e)(5)(i)(E)(2) is amended by removing 
the reference ``(e)(7)(i)(E)'' and adding in its place the reference 
``(e)(5)(i)(E)''.
0
l. Newly redesignated paragraph (e)(5)(ii) is amended by removing the 
reference ``(e)(7)(i)(A) through (e)(7)(i)(E)'' and adding in its place 
the reference ``(e)(5)(i)(A) through (e)(5)(i)(E)''.
0
m. Newly redesignated paragraph (e)(5)(iii) is amended by removing the 
reference ``(e)(7)'' and adding in its place the reference ``(e)(5)''.
0
n. Newly redesignated paragraph (e)(6)(i)(D) is amended by removing the 
reference ``(e)(8)(iii)'' and adding in its place the reference 
``(e)(6)(iii)''.
0
o. Newly redesignated paragraphs (e)(6)(iii)(A) and (e)(6)(iii)(B) are 
amended by removing the reference ``(e)(8)(i)(C)'' wherever it appears 
and adding in its place the reference ``(e)(6)(i)(C)''.
0
p. Newly redesignated paragraph (e)(7) is amended by removing the first 
and second sentences and adding in their place four new sentences.
0
q. Newly redesignated paragraph (e)(8) is amended by removing the 
reference ``Sec.  275.23(e)(5)'' and adding in its place the reference 
``paragraphs (e)(2) and (e)(3) of this section''.
0
r. Newly redesignated paragraph (e)(9) is amended by removing the words 
``and

[[Page 59524]]

subsequent'' in the first sentence and adding in their place the words 
``through Fiscal Year 2002''.
0
s. Newly redesignated paragraph (e)(9)(iii) is amended by removing the 
reference ``(e)(11)(vi)'' and adding in its place the reference 
``(e)(9)(vi)''.
0
t. A new paragraph (e)(10) is added.
    The additions read as follows:


Sec.  275.23  Determination of State agency program performance.

* * * * *
    (e) * * *
    (3) Establishment of payment error rates and liability. For Fiscal 
Year 2003 and subsequent years, FNS shall announce a national 
performance measure not later than June 30 after the end of the fiscal 
year. The national performance measure is the sum of the products of 
each State agency's error rate times that State agency's proportion of 
the total value of national allotments issued for the fiscal year using 
the most recent issuance data available at the time the State agency is 
notified of its payment error rate. Once announced, the national 
performance measure for a given fiscal year will not be subject to 
change. The national performance measure announced under this paragraph 
(e)(3) is not subject to administrative or judicial review. Liability 
for payment shall be established for Fiscal Year 2004 and beyond 
whenever there is a 95 percent statistical probability that, for the 
second or subsequent consecutive fiscal year, a State agency's payment 
error rate exceeds 105 percent of the national performance measure. The 
amount of the liability shall be equal to the product of:
    (i) The value of all allotments issued by the State agency in the 
(second or subsequent consecutive) fiscal year; multiplied by
    (ii) the difference between the State agency's payment error rate 
and 6 percent; multiplied by
    (iii) 10 percent.
* * * * *
    (7) * * * The case review process and the arbitration of all 
difference cases shall be completed by May 31 following the end of the 
fiscal year. FNS shall determine and announce the national average 
payment error rate for the fiscal year by June 30 following the end of 
the fiscal year. At the same time FNS shall notify all State agencies 
of their individual payment error rates and payment error rate 
liabilities, if any. FNS shall provide a copy of each State agency's 
notice to its respective chief executive officer and legislature. * * *
* * * * *
    (10) Resolution of liabilities for FY 2003 and beyond. FNS may: 
waive all or a portion of the liability; require the State agency to 
reinvest up to 50 percent of the liability in activities to improve 
program administration, which new investment money shall not be matched 
by Federal funds; designate up to 50 percent of the liability as ``at-
risk'' for repayment if a liability is established based on the State 
agency's payment error rate for the subsequent fiscal year; or assert 
any combination of these options. Once FNS establishes its proposed 
liability resolution plan, the amount assigned as at-risk is not 
subject to settlement negotiation between FNS and the State agency and 
may not be reduced unless an appeal decision revises the total dollar 
liability. FNS and the State shall settle any waiver amount or 
reinvestment amount before the end of the fiscal year in which the 
liability amount is determined unless an administrative appeal relating 
to the claim is pending. If a State agency appeals its liability 
determination, if the State agency began required reinvestment 
activities prior to an appeal determination, and if the liability 
amount is reduced to $0 through the appeal, FNS shall pay to the State 
agency an amount equal to 50 percent of the new investment amount that 
was included in the liability amount subject to the appeal. If FNS 
wholly prevails on a State agency's appeal, FNS will require the State 
agency to invest all or a portion of the amount designated for 
reinvestment during the appeal to be reinvested or to be repaid to the 
Federal government.

    Dated: October 3, 2003.
Eric M. Bost,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 03-26176 Filed 10-15-03; 8:45 am]
BILLING CODE 3410-30-P