[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Rules and Regulations]
[Pages 6313-6323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2260]



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  Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules 
and Regulations  

[[Page 6313]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 275

RIN 0584-AD29


Food Stamp Program: High Performance Bonuses

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: This rule finalizes amendments to the Food Stamp Program (FSP) 
regulations that were proposed in a Notice of Proposed Rulemaking 
(NPRM), ``Food Stamp Program High Performance Bonuses'', published on 
December 17, 2003 in the Federal Register. The NPRM proposed 
regulations that would implement section 4120 of the Farm Security and 
Rural Investment Act of 2002 (FSRIA) which authorized the Food and 
Nutrition Service (FNS) to award bonuses to States that demonstrate 
high or improved performance in administering the FSP. The NPRM 
proposed performance measures for the high performance bonuses for 
fiscal year (FY) 2005 and beyond. It also proposed the data that would 
be used to measure the identified performance. This final rule 
summarizes and discusses the comments we received as well as adjusts 
the regulatory language when necessary in response to those comments.

DATES: This final rule is effective April 8, 2005. The provisions of 
this final rule are required to be implemented no later than April 8, 
2005.

FOR FURTHER INFORMATION CONTACT: Moira Johnston, Senior Program 
Analyst, Program Design Branch, Program Development Division, Food 
Stamp Program, FNS, 3101 Park Center Drive, Room 812, Alexandria, 
Virginia, 703-305-2515, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Procedural Matters

Executive Order 12866

    This final rule was determined to be significant, although not 
economically significant, and was reviewed by the Office of Management 
and Budget (OMB) in conformance with Executive Order 12866.

Executive Order 12372

    The FSP 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 3105, subpart V and related Notice (48 FR 29115, June 24, 1983), 
the FSP is excluded from the scope of Executive Order 12372. This 
Executive Order requires intergovernmental consultation with State and 
local officials regarding Federal financial assistance and direct 
Federal development. The Food Stamp Program is excluded because it is 
an entitlement program and benefits are provided directly to 
individuals.

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This final 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 final rule is not intended to have 
retroactive effect unless so specified in the ``Dates'' paragraph of 
this 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.

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. The changes will affect State 
and local agencies that administer the FSP, to the extent that they 
must implement the provisions described in this action.

Unfunded Mandate Analysis

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L. 
104-4, 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 UMRA, the 
Department 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 UMRA generally requires the Department 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) that impose costs on State, local, 
or tribal governments or to the private sector of $100 million or more 
in any one year. Thus, this rule is not subject to the requirements of 
section 202 and 205 of UMRA.

Regulatory Impact Analysis

Need for Action
    This final rule is needed to implement the provisions of Section 
4120 of the FSRIA that authorized FNS to establish performance measures 
relating to actions taken to correct errors, reduce rates of error, 
improve the eligibility determinations and other indicators of 
effective administration; measure States' performance against these 
performance measures; and award performance bonus payments totaling $48 
million for each fiscal year to State agencies that show high or 
improved performance relating to the performance measures.
Benefits
    State agencies will benefit from the provisions of this rule 
because they have the potential to be awarded bonuses for high or 
improved performance in administering the FSP.
    Recipients will benefit from the provisions of this rule because, 
as the State agencies seek to improve their performance in determining 
eligibility, issuing benefits, and attracting and

[[Page 6314]]

retaining participants, their actions will positively affect applicants 
and participants.
Costs
    The cost of implementing these provisions is $48 million each 
fiscal year, or $240 million over 5 years.

Executive Order 13132

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 
regulation describing the agency's considerations in terms of the three 
categories called for under section (6)(b)(2)(B) of Executive Order 
13132.
Prior Consultation With State Officials
    Prior to drafting the NPRM, FNS received input from State and local 
agencies. Since the FSP is a State administered, Federally funded 
program, our national headquarters staff and regional offices have 
formal and informal discussions with State and local officials on an 
ongoing basis regarding FSP implementation and policy issues. This 
arrangement allows State and local agencies to provide feedback that 
forms the basis for any discretionary decisions made in this and other 
FSP rules. In addition, FNS solicited ideas at various State, regional, 
national, and professional conferences. FNS also consulted with State 
government representatives and our partners in the anti-hunger arena 
through meetings with such entities as the National Conference of State 
Legislators (NCSL), the National Governors Association (NGA), and the 
American Public Human Services Association (APHSA). Finally, we 
solicited comments on these amendments through the rulemaking process. 
The comment period for the NPRM opened on December 17, 2003 and closed 
on February 17, 2004. FNS received comments from 14 State or local 
agencies that administer the FSP, 3 interest groups, one university and 
one individual.
Nature of Concerns and the Need To Issue This Rule
    Results of the consultations that were held prior to the 
publication of the NPRM were discussed in the preamble of that rule and 
therefore will not be discussed here. The comments that FNS received in 
response to the NPRM are discussed at length later in this preamble.
Extent to Which We Met Those Concerns
    FNS considered comments on the NPRM prior to publishing this final 
rule. Our responses to these comments are discussed at length later in 
this preamble.

Civil Rights Impact Analysis

    FNS has reviewed this final 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, and the characteristics of 
food stamp households and individual participants, FNS has determined 
that there is no adverse effect on any of the protected classes. The 
rulemaking is directed at State agencies and not applicants or 
recipients. If there were a trickle down effect on applicants or 
recipients, it would more than likely be positive and affect all 
applicants and recipients as this rulemaking includes incentives for 
State agencies to improve the eligibility determination and 
certification systems.
    FNS has no discretion in implementing the law, which was effective 
upon enactment of the FSRIA on May 13, 2002. However, FNS does have 
discretion regarding the performance measures on which to base the 
awards. As discussed above, these performance measures are directed at 
State agencies. To the extent States act on these incentives, customer 
service and payment accuracy may improve. Therefore, FNS anticipates no 
adverse impact on any of the individuals eligible for food stamps and 
no disproportionate impact on any protected class.
    In general, all data available to FNS indicate that protected 
individuals have the same opportunity to participate in the FSP as non-
protected individuals. FNS specifically prohibits the State and local 
government agencies that administer the FSP from engaging in actions 
that discriminate based on race, color, national origin, gender, age, 
disability, marital or family status (FSP nondiscrimination policy can 
be found at 7 CFR 272.6(a)). Where State agencies have options, and 
they choose to implement a certain provision, they must implement it in 
such a way that it complies with the regulations at 7 CFR 272.6.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
1320) requires that the Office of Management and Budget (OMB) approve 
all collections of information by a Federal agency before they can be 
implemented. Respondents are not required to respond to any collection 
of information unless it displays a current valid OMB control number. 
There are no revisions to information collections identified in this 
rule. This rule contains information collections that have been 
previously approved by OMB. The burden for the Quality Control Negative 
Case Action Review Schedule (FNS-245) is approved under OMB 
0584-0034. The Quality Control Review Schedule (FNS-380-1) is 
approved under OMB 0584-0299. The Integrated Quality Control 
Review Worksheet (FNS-380) is approved under OMB 0584-0074. 
The State Coupon Issuance and Participation Estimates (FNS-388) is 
approved under OMB 0584-0081.

Government Paperwork Elimination Act (GPEA)

    FNS is committed to compliance with the GPEA, which requires 
Government agencies, in general, to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible.

II. Discussion of Comments

A. Background

    Section 16(a) of the Food Stamp Act of 1977 (the Act), 7 U.S.C. 
2025(a), establishes the base administrative cost-sharing rate between 
the Federal Government and States at 50 percent. That is, pursuant to 
Section 16(a), FNS will typically reimburse half a State's costs 
incurred in administering the FSP. The Act, prior to enactment of the 
FSRIA, provided that a State agency would receive enhanced funding if 
it had a payment error rate less than or equal to 5.9 percent and a 
negative case error rate less than the national weighted mean negative 
case error rate for the previous year. State agencies and advocate 
groups expressed concerns that this incentive was too narrowly focused 
on payment accuracy and should be modified to also reward States for 
efficient management of the FSP in other areas.
    On May 13, 2002, the enactment of FSRIA re-designed the quality 
control (QC) system, replacing enhanced funding with bonuses for States 
with high or most improved performance in administering the FSP, while 
significantly reducing liabilities assessed against States with poor 
accuracy outcomes.
    On December 17, 2003, FNS published the NPRM titled ``Food Stamp 
Program High Performance

[[Page 6315]]

Bonuses'' (68 FR 70193) which proposed to implement the FSRIA high 
performance bonus provisions. Elimination of enhanced funding and 
changes in the liability system will be dealt with in a separate 
rulemaking.
    Section 4120 of the FSRIA (Pub. L. 107-171) amended Section 16 of 
the Act (7 U.S.C. 2025) to authorize FNS to: establish performance 
measures relating to actions taken to correct errors, reduce rates of 
error, improve eligibility determinations, and other indicators of 
effective administration; measure States' performance against these 
performance measures; and award performance bonus payments totaling $48 
million for each fiscal year to State agencies that show high or most 
improved performance relating to the performance measures. Section 
16(d)(2) of the Act (7 U.S.C. 2025 (d)(3)) provides that FNS must 
establish the performance measures through guidance for FY 2003 and FY 
2004 and by regulation for FY 2005 and beyond. Section 16(d)(3) (7 
U.S.C. 2025(d)(3)) prohibits a State from being eligible for a 
performance bonus payment any fiscal year for which it has a liability 
amount established. Section 16(d)(4) (7 U.S.C. 2025(d)(4)) provides 
that the amount of the bonus payment and whether or not to award such 
bonus payment is not subject to administrative or judicial review. 
Pursuant to Section 16(d)(2)(B)(ii) of the amended Act (7 U.S.C. 2025 
(d)(2)(B)(ii)), FNS is to award the bonus payments in the fiscal year 
following the fiscal year of performance.

B. General Rule

1. Section 275.24
    The NPRM proposed to establish a new section 7 CFR 275.24, High 
Performance Bonuses. Section 275.24 (a)(1) through (a)(7) of the 
proposal set forth the general guidelines for the high performance 
bonuses. We received several comments on these provisions. FNS will 
address each provision and the comments received individually.
2. Section 275.24(a)(1)
    In the NPRM, section 275.24(a)(1) proposed that FNS would award 
bonuses totaling $48 million for each fiscal year to State agencies 
that show high or most improved performance. Section 275.24(b) proposed 
to make awards to 30 States in 7 categories: the lowest and most 
improved combined payment error rates ($24 million); the lowest and 
most improved negative error rates ($6 million); the highest and most 
improved participant access rates (PAR) ($12 million); and the best 
application processing timeliness rate ($6 million). It proposed that 
50 percent, or $24 million, of the award money be allocated to payment 
accuracy based upon States' error rates, the sole criterion used under 
the previous enhanced funding.
    One commenter generally disagreed with dividing the bonuses among a 
limited number of States. The commenter claimed that such a 
distribution was a disincentive because States could maintain a low 
error rate year after year and yet never qualify for a bonus. This 
commenter suggested that every State that strives to reach and maintain 
an acceptable performance level should receive a bonus. FNS does not 
believe that providing bonus funds to all States that attempt to 
maintain a certain level of error meets the intent of the legislation 
or that such an approach would be as effective as the proposed process.
    One commenter suggested FNS use a composite ranking to determine 
the best overall State and make awards based on that ranking. FNS held 
many discussions with various stakeholders prior to drafting the NPRM. 
It was clear from these meetings that several individual performance 
measures were preferable over a composite measure. Because many 
stakeholders specifically mentioned this in those discussions, and 
because FNS received no other comments to this affect on the NPRM, FNS 
has decided to retain the structure of providing the awards based on 
individual performance measures.
    Five commenters expressed dissatisfaction with the way FNS proposed 
to divide the money among the categories. Four of these commenters 
expressed concern that too much money had been allocated towards 
payment accuracy. One commenter argued that, while program integrity is 
important, there are other indicators of successful FSP administration 
that should be recognized and rewarded equally. This commenter 
recommended allocating more money towards rewarding States with high 
and improved PAR. Another commenter argued that the FSRIA intended to 
move away from a system that measured FSP performance solely via 
payment accuracy. This same commenter pointed out that while the FSRIA 
modified the quality control sanction system, the system remains in 
place and, due to the national average feature, a number of States 
would continue to be sanctioned every year. Therefore, this commenter 
found it inappropriate that FNS should emphasize payment accuracy in 
the high performance bonus system as well. This commenter recommended a 
more balanced division of the bonus money--awarding the majority to 
customer service measures. A third commenter argued that the QC system 
already imposes severe fiscal penalties on States that do not perform 
within acceptable standards. In addition, States are given incentives 
to focus on program integrity by keeping a share of the recipient 
claims they collect. This commenter argued that the purpose of the high 
performance bonus system was to provide a balance to the system. This 
commenter recommended that the best way to do this would be to allocate 
70 percent of the $48 million to client service/access measures. A 
fourth commenter urged FNS to consider apportioning a larger share of 
the $48 million towards the customer service measures thus buttressing 
an emphasis on improving access.
    One commenter suggested that FNS allocate even more towards payment 
accuracy--$30 million. This suggestion was not based on the importance 
of payment accuracy, but on the belief that less should be allocated 
for the PAR due to inaccurate data.
    FNS maintains its conviction that allocating fifty percent of the 
total amount towards payment accuracy is appropriate. FNS is aware that 
the FSRIA intended to move away from awarding States solely on the 
merits of error rates. The last year of enhanced funding, FNS paid out 
more than $77 million in bonuses based on States' error rates. 
Therefore, allocating $24 million in performance bonuses based on 
payment accuracy is a significant reduction in money awarded to States 
based on error rates. At the same time, FNS believes it is important to 
allocate this amount to payment accuracy as it continues to be one of 
the Agency's highest priorities and of critical importance to Congress 
and the taxpayer. In addition, it is an established index that measures 
outcomes that are influenced by many aspects of FSP management, such as 
policies, training and customer service. FNS believes allocating more 
than $24 million towards payment accuracy would be excessive, as the 
other measurements are also significant. Therefore, FNS is retaining 
this provision to allocate $24 million towards payment accuracy.
3. Section 275.24(a)(2)
    Section 275.24(a)(2) proposed awarding the bonuses no later than 
September 30th of the fiscal year following the performance measurement 
year. FNS received no comments on this specific provision. However, FNS 
did receive comments on how it relates to

[[Page 6316]]

awarding the bonus for the best and most improved PAR. These comments 
will be discussed later in the preamble. This provision is statutorily 
mandated (7 U.S.C. 2025(d)(2)(B)(ii)) and, therefore, we are adopting 
the proposed regulatory modification as final with no changes.
4. Section 275.24(a)(3)
    Section 275.24(a)(3) proposed that a State agency would not be 
eligible for a bonus payment in any fiscal year for which it has a 
liability amount established. FNS received three comments opposing this 
provision. One commenter argued that this provision penalizes States 
that have made the greatest strides in addressing problem areas. This 
commenter suggested that, if a State against which a liability has been 
established wins an award, FNS should use the award to offset any 
liabilities. This commenter stressed that this would not only recognize 
improvement but serve as an incentive as well. Another commenter argued 
that awards for improvement should not be tied to a liability payment 
because improvement should be rewarded regardless of the national 
standard for payment accuracy. This commenter urged FNS to consider a 
legislative change. This commenter believes high achievement in 
customer service should be rewarded regardless of a State's payment 
accuracy rate. One commenter plans to seek a legislative change which 
would allow FNS to award bonuses to States even if they have been 
assessed a liability.
    At this point in time, FNS is unable to modify this provision due 
to the statutory mandate of 7 U.S.C. 2025(d)(3). Therefore, FNS is 
adopting this provision as final with no changes.
    FNS received one comment suggesting we modify the regulatory 
language to clarify that the only kind of liability that may render a 
State ineligible for a bonus is a penalty for an excessive QC payment 
error rate in the same year for which enhanced funding might otherwise 
be awarded. This commenter suggested that we articulate that this does 
not include leftover QC penalties due to a failed reinvestment plan or 
penalties for other deficiencies in FSP operations. This same commenter 
noted that the proposed rule does not clearly state that if a State is 
disqualified from receiving a bonus payment due to a QC penalty, the 
State with the next best performance will win the performance bonus 
just as if the disqualified State were a poor performer.
    FNS agrees with this commenter and, therefore, is modifying the 
regulatory language at Sec.  275.24(a)(3) to provide that a State 
agency is not eligible for a bonus payment in any fiscal year for which 
it has a liability amount established as a result of an excessive 
payment error rate in the same year. If a State is disqualified from 
receiving a bonus payment and the State is not tied for a bonus, the 
State with the next best performance will be awarded a bonus payment.
5. Section 275.24(a)(4)
    Section 275.24(a)(4) proposed that the determination whether, and 
in what amount, to award a performance bonus payment is not subject to 
administrative or judicial review. FNS received no comments on this 
provision. This provision is statutorily mandated by 7 U.S.C. 
2025(d)(4) and, therefore, FNS is adopting it as final.
6. Section 275.24(a)(5)
    Section 275.24(a)(5) proposed that FNS divide the award money among 
the States in each category in proportion to the size of their 
caseloads (the average number of households per month for the fiscal 
year for which performance is measured). FNS received four comments on 
this provision, each arguing that this method is unfair to small States 
with small caseloads. Each of these commenters suggested that FNS 
establish a base amount for each award and then divide the remainder 
according to caseload size. This method, they argue, would provide more 
of an incentive for smaller States. Suggestions for the amount of the 
base award differed among commenters, from $150,000 in general to $1 
million specifically in the payment accuracy category.
    FNS recognizes that the proposed system is somewhat biased against 
smaller States, especially if a State with a small caseload wins in the 
same category as a State with a large caseload. Therefore, FNS is 
modifying the regulatory language at Sec.  275.24(a)(5) to provide that 
FNS will award a base amount of $100,000 to each State agency that is 
an identified winner in each category. FNS will divide the remaining 
award money among the States in each category in proportion to the size 
of their caseloads.
7. Section 275.24(a)(6)
    Section 275.24(a)(6) proposed that a State cannot be awarded two 
bonuses in the same category (payment accuracy, negative error rate, or 
participant access rate). If a State is determined to be the best and 
the most improved in a category, it would only be awarded a bonus for 
being the most improved. This allows the ``next best'' State to receive 
an award as being among the best States.
    FNS received three comments on this provision. One commenter agreed 
with awarding a State only one award, but suggested that it be for the 
best and not for the most improved. This commenter reasoned that the 
State with the best performance should get the award for being the 
best, regardless of the degree of improvement. One commenter agreed 
with the proposal to recognize the State in the most improved category 
thus allowing the State with the next best performance to receive an 
award. This commenter reasoned that this method allows more States 
exhibiting outstanding performance to receive awards. This commenter 
also stated that recognizing and rewarding improvement is important, 
but it is more appropriate to give award money to States qualifying as 
the best. The third commenter suggested that FNS first calculate the 
monetary amount of the award for each bonus and then award the State in 
the category in which it would receive the higher bonus.
    FNS is committed to awarding both high and improved performance in 
administering the FSP. FNS believes it is important to emphasize high 
performance. Therefore, FNS has decided to award a State that is a 
double winner (best and most improved) the award for being the best 
while at the same time acknowledging that the State also achieved in 
the most improved category. FNS will then award a bonus to the next 
State in the best category. FNS is not adopting the commenter's 
suggestion concerning awarding the State the highest monetary amount. 
FNS believes that the amount of the bonus award is secondary to the 
recognition a State receives.
8. Section 275.25(a)(7)
    Section 275.24(a)(7) proposed that, where there is a tie to the 
fourth decimal point, FNS will add the additional State(s) into the 
category and the money will be divided among all the States. FNS 
received no comments on this provision and is adopting it as final with 
no changes.
9. Innovation
    In the preamble of the NPRM, FNS specifically solicited comments on 
whether or not to include ``innovation'' as a measure of high 
performance and, if so, what criteria could be used to rank innovative 
projects. We received two comments suggesting we create a category for 
innovation. One commenter indicated that to be valid, results of a 
project need to be measurable (quantifiable) and repeatable among

[[Page 6317]]

other states; need to affect something important to the FSP; and need 
to be something an individual State can effect. One commenter strongly 
supported the idea of allocating money to reward State innovation, even 
if that pot of money is relatively small. This commenter recommended 
requiring States to apply for the award. This way, FNS would be able to 
collect information on innovative practices that it could then share 
with all the States. This commenter suggested that in the application 
the States answer the following questions: What problem did the State 
attempt to solve? Did the State work in partnership with other state 
agencies or non-profit groups to identify and resolve the problem? What 
quantifiable results are available to support the States' success? Is 
the idea exportable to other States?
    FNS appreciates the comments concerning creating a performance 
bonus category for innovation. However, FNS received only two comments 
supporting this idea and has concluded that a determination of 
innovation would be too subjective. At the same time, FNS values the 
idea of collecting and sharing innovative ideas. Therefore, FNS is 
examining how best to do this outside of the performance bonus arena.
10. Additional Comments
    FNS received two comments suggesting it include a performance 
measurement for Food Stamp Employment and Training (FSET) participation 
rate and most employed. One of the commenters put forth this suggestion 
because FSET is a major component of the FSP. The other indicated that 
this category would be an outcome measure that supports the goal of 
increasing family self-sufficiency rather than just an administrative 
process.
    In drafting the policy for FY 2003 and FY 2004 and in drafting the 
NPRM, FNS did consider including a category for FSET. While FNS 
recognizes that this activity is important, it is not critical to the 
administrative performance of the FSP as outlined in the FSRIA. 
Furthermore, FNS does not have access to data that would be necessary 
for such a measure. Therefore, FNS is not adopting this suggestion.

C. Payment Accuracy

1. Section 275.24(b)(1)
    Section 275.24(b)(1) proposed to divide $24 million (50 percent of 
the total amount) among the 10 States with the lowest and the most 
improved combined payment error rate (the error rate). Section 
275.24(b)(1)(i) proposed awarding bonuses to the 7 States with the 
lowest combined payment error rates based on the validated quality 
control payment error rates for the performance measurement year. One 
commenter suggested that FNS award bonuses in the area of payment 
accuracy to the ten best and the ten most improved States. This 
commenter argued that such a method would provide a greater incentive 
to States and would represent FNS' highest priority and the State's 
ability to manage the FSP. One commenter argued that rewarding 
improvement is more important than rewarding the best and, therefore, 
FNS should award 12 States in this category: six States that are the 
best and six States that are the most improved.
    FNS appreciates these comments. However, FNS believes that awarding 
20 States in the area of payment accuracy would result in bonus amounts 
that would be so small they would reduce States' incentive. 
Furthermore, FNS believes that the proposed provision strikes a good 
balance by recognizing three States that improved the most while still 
providing the greater number of bonuses for the best performers. FNS 
will adopt this provision as final with no changes.
2. Section 275.24(b)(1)(ii)
    Section 275.24(b)(1)(ii) proposed awarding the 3 States with the 
largest percentage point decrease in the combined payment error rates 
based on the comparison of the validated quality control payment error 
rates for the performance measurement year and the previous fiscal 
year. FNS received four comments on this provision.
    Two commenters suggested that States only get awards if States' 
error rates are at or below the national average payment error rate. 
The FSRIA provided no restrictions on awarding States for improvement, 
while it did provide for a restriction for awarding States with 
established liabilities. FNS views these awards as an incentive for 
improvement, especially for States with already high error rates. If 
FNS only awarded States that were at or below the national average, 
what incentive then would these bonuses serve for those States that 
have high error rates? Also, if States had significantly higher error 
rates than the national average, they very well may be in sanction mode 
and would be statutorily prohibited from receiving a bonus. Finally, 
FNS contends that States that are already at or below the national 
average can compete for an award in the ``best'' category. Therefore, 
while FNS appreciates the comments on this subject, FNS is not adopting 
the commenters' suggestion.
    One commenter supported basing the award for most improved on 
percentage point decrease (absolute improvement). Another commenter 
disagreed with this suggestion. This commenter argued that it is much 
harder for a State with an already low error rate to improve by several 
percentage points and, therefore, States with a solid performance 
record and significant percentage improvement would not be rewarded. In 
addition, this commenter argued that the State with a lower error rate 
is costing the FSP less money. This commenter suggested that FNS 
measure percentage improvement (relative improvement) so all States 
have an opportunity to realize a performance bonus not just those that 
have high dollar errors.
    FNS stands by the proposal to use percentage point improvement 
(absolute improvement) as the best means of measuring improvement. To 
illustrate, we will repeat the example given in the proposed rulemaking 
at 68 FR 70197: if State A has a 10 percent error rate in FY 2004 and a 
6 percent error rate in FY 2005, it has shown an absolute improvement 
rate of 4 percent (the difference between 10 and 6) and a relative 
improvement rate of 40 percent (the percentage reduction from 10) If 
State B has a 6 percent error rate in FY 2004 and a 3 percent error 
rate in FY 2005, it has had an absolute improvement rate of 3 and a 
relative improvement rate of 50 percent. States that improve by more 
percentage points have more of an impact on the national FSP and on 
their own caseload than States that make a relative improvement. And, 
as discussed above, States that have already low error rates can 
compete for and very well may win in the ``best'' category. Therefore, 
we are adopting this provision as final with no changes.

D. Negative Error Rate

1. Section 275.24(b)(2)
    Section 275.24(b)(2) proposed to divide $6 million among the 4 
States with the lowest negative error rates and the 2 States with the 
most improved negative error rates. The negative error rate measures 
the correctness of the State agency's action to deny an application, or 
suspend or terminate the benefits of a participating household. It also 
measures whether a State correctly determined a household's eligibility 
in terms of the State's compliance with Federal procedural 
requirements.
    One commenter recommended that the definition of a negative error 
be revised to exclude procedural issues

[[Page 6318]]

when the household is not eligible anyway, e.g. denying the case on the 
29th day instead of the 30th. Negative cases are defined in 7 CFR 271.2 
and the review procedures for negative cases are specified in 7 CFR 
275.12 and the FNS Handbook 310, the Food Stamp Program Quality Control 
Review Handbook. Those procedures are based on certification policy. 
Revisions to quality control review policy are outside of the scope of 
this rulemaking. Therefore, FNS will not adopt the commenter's 
suggestion, but will consider the idea in future rulemaking.
2. Section 275.24(b)(2)(i)
    Section 275.24(b)(2)(i) proposed to award bonuses to the 4 States 
with the lowest negative error rates based on validated quality control 
negative error rates for the performance year. One commenter supported 
this measure. One commenter questioned how FNS would validate the 
negative error rate from year to year to determine the most improved. 
This commenter pointed out that in the past the State's negative error 
rates have not been validated unless the State was below the national 
average for active reviews. This commenter questioned if the negative 
error rates would be validated for all States whether or not they have 
met the active error rate or would only the State's error rate be used. 
If the State's rate will be used, this commenter expressed concern that 
the results would be questionable if not validated. For several years, 
FNS has been validating all State agencies' negative case error rates 
because of concerns about the quality of the data and fair and 
equitable treatment of applicants. Although this comment is outside the 
scope of this rulemaking, FNS recognizes the merit of the comment and 
intends to continue to validate all State agencies'' negative case 
error rates.
3. Section 275.24(b)(2)(ii)
    Section 275.24(b)(2)(ii) proposed to award bonuses to the 2 States 
with the largest percentage point decrease in their negative error 
rates based on the comparison or the performance measurements year's 
validated quality control negative error rates with those of the 
previous fiscal year. One commenter supported the idea of awarding 
States for improvement in the negative error rate but suggested it be a 
smaller amount of money than for the best. One commenter supported 
using percentage points versus percentage improved. One commenter 
opposed this method. This commenter suggested that awarding funds for 
improvement may result in States that have worked diligently to reach a 
low error rate losing to States that have had continuously high error 
rates. Again, as discussed above, FNS believes that States that improve 
by more percentage points have more of an impact on the national FSP 
and on their own caseload than States that make percentage improvement. 
Additionally, States that have already low error rates can compete for 
and very well may win in the ``best'' category. Therefore, we are 
adopting this provision as final with no changes.
4. Threshold
    In the preamble of the NPRM, FNS specifically solicited comments on 
whether States must attain a certain threshold to be rewarded for an 
improved negative error rate. For example, should a State be rewarded 
if it improves its negative error rate from 20 percent to 15 percent, 
even though its negative error rate is still very high? One commenter 
suggested setting separate thresholds for groups of States created 
within each bonus category. These groups could be based on caseload, 
metropolitan area, and expenditure level. Alternatively, this commenter 
suggested setting no threshold because it could exclude those States 
whose improvement had the largest possible impact on the caseload, in 
terms of the number of cases positively affected. In addition, using a 
threshold for the most improved negative error rate would be 
incongruous since no such thresholds are used for the other most 
improved categories. One commenter supported awarding States for most 
improved even if their negative error rate was above the national 
average. At the same time, this commenter suggested that in lieu of the 
bonus money, we award these States special recognition.
    Three commenters opposed awarding States for most improved when 
their negative error rates were above the national average. One 
commenter argued that it would not be fair to award a State for 
improvement when its negative error rate was still very high. A second 
commenter argued that since the entire purpose of the bonuses is to 
reward States for correct administration of the FSP, a State that is 
incorrectly denying or terminating more cases than the national average 
should not receive a financial award. A third argued that States that 
win awards for improvement in their negative error rate should be held 
to some basic level of performance. This commenter suggested that 
States should not be awarded for most improved if they are more than 30 
percent above the national average for negative error rates. According 
to this commenter this approach is consistent with the statutory 
provision that disqualifies States from receiving a bonus payment if 
they are subject to a QC penalty in that fiscal year.
    FNS views these bonuses as incentives for States to improve. 
However, FNS also recognizes that if a State has an excessively high 
negative error rate even after improvement, then it should not be 
rewarded. While the FSRIA did not provide for a restriction, FNS agrees 
with the comments. Therefore, FNS has decided to take a moderate 
position on this issue and provide that States that are more than 50 
percent above the national average negative error rate may not receive 
a bonus in this category regardless of improvement.

E. Program Access Index

1. Section 275.24(b)(3)
    Section 275.24(b)(3)(i) and (b)(3)(ii) proposed to divide $12 
million among the 4 States with the highest and the 4 States with the 
most improved participant access rate (PAR). Section 275.24(b)(3)(iii) 
proposed to use a variety of data sources to calculate the PAR. FNS 
proposed that the denominator be composed of annual State counts of 
persons below 125 percent of poverty from the Census Bureau's March 
Supplement to the Current Population Survey (CPS). These counts are 
based on annual income received in the previous calendar year. For the 
numerator, or the number of food stamp participants, FNS proposed to 
use administrative counts of participants by State over the same 
calendar year as for the Census Bureau's persons below 125 percent of 
poverty, averaging 12 months of data. In addition, FNS proposed to make 
adjustments for two special situations. First, because persons 
receiving Supplemental Security Income (SSI) are ineligible for food 
stamps in California, FNS proposed to reduce the number of persons 
below 125 percent of poverty in California by the percentage of such 
persons who received SSI in the previous year. Second, because some 
individuals residing on reservations may choose to receive food 
assistance from either the FSP or the Food Distribution Program on 
Indian Reservations (FDPIR) but not both simultaneously, FNS proposed 
to add the number of FDPIR participants to the number of food stamp 
participants, using administrative data averaged over a calendar year.

[[Page 6319]]

2. Name Change
    It has come to FNS' attention that there is a lot of confusion 
between the PAR and the official Participation Rate. FNS believes that 
part of the confusion is due to the similar names. In an attempt to 
distinguish this performance bonus measure from the official 
participation rate, FNS is changing the term Participant Access Rate 
(PAR) to the Program Access Index (PAI). Normally, ``rate'' is used to 
measure how often something occurs (food stamp participation) among all 
the times it could occur (food stamp eligibles). By changing this to an 
``index'' FNS believes it will be clearer that it is relating a pair of 
numbers that are similar but do not have the same properties of a rate. 
Not all food stamp participants have low-income as defined in the 
denominator of the index, nor are all persons in the denominator 
eligible to participate.
3. Poverty Threshold
    Section 275.24(b)(3)(iii) proposed to use 125 percent of poverty in 
calculating the PAI. This threshold differs from what FNS used for 
fiscal years 2003 and 2004 (100 percent of poverty). However, our 
analysis showed that using 125 percent of poverty better correlates to 
the official FSP participation rates. The official FSP participation 
rate uses 130 percent of income in the denominator. FNS looked at using 
130 percent of poverty in the PAI but found that the data is not 
readily available from the Census Bureau and it would require time and 
additional expense to obtain the tabulations. In addition, FNS analyses 
found that using 130 percent in the PAI denominator versus 125 percent 
made no impact in the correlation to the official participation rates. 
As a result, FNS decided for efficiency and validity that using 125 
percent of poverty in the PAI denominator was acceptable. FNS proposed 
in the preamble that, if the Agency could receive the estimate of 
individuals with income below 130 percent of poverty from the Census 
Bureau within a reasonable timeframe and the data better correlates to 
the official statistics, FNS would use numbers of people below 130 
percent rather than 125 percent of poverty.
    FNS received several comments on this proposal. Two commenters 
supported using 130 percent of poverty, stating it is more accurate. 
One commenter suggested we request a re-tabulation of data from Census. 
Two commenters, while not opposed to using 125 percent or 130 percent, 
proposed making adjustments for immigrants and individuals who live on 
reservations. Finally, one commenter suggested FNS not foreclose the 
possibility of Census providing data on the number of individuals with 
income below 130 percent of the poverty line in a timely fashion. This 
commenter suggested FNS craft the regulatory language so that FNS 
reserves the right to substitute the number of people below 130 percent 
for the number below 125 percent of poverty if the data is available in 
a timely manner. Comments related to ineligible aliens and undocumented 
immigrants will be discussed later in the preamble. FNS analyses show 
that a denominator using persons with income below 125 percent of 
poverty with certain adjustments produces a rate that best correlates 
to the official State participation rates. However, FNS does not want 
to preclude using 130 percent of poverty if that information should 
become available in time to calculate the PAI. FNS agrees that the 
final regulation should allow certain flexibility in improving the PAI 
calculation because of new and better data. Therefore, FNS is amending 
the proposed language to provide that FNS reserves the right to use the 
number of people below 130 percent of poverty should the data be 
available in a timely manner. Any such substitution would apply to all 
States.
    One commenter expressed concern that the Census Bureau poverty 
counts appeared to be inaccurate for FY 2002 because, in one particular 
State identified by the commenter, the poverty count increased more 
than the State population, and because unemployment did not increase by 
as much in that State during that time period. FNS contends that in 
addition to population growth, there are several other factors that can 
affect the poverty count. Poverty can increase faster than unemployment 
if wage rates are not increasing or more workers are employed only 
part-time. The Census Bureau and FNS recognize the problems small 
entities have with uncertainty in the poverty estimates. However, FNS 
knows of no specific problem in that particular State and, moreover, 
knows of no other more reliable data source. Lacking better information 
or data, FNS will continue to use Census Bureau data on the count of 
people in poverty in each State.
4. American Community Survey versus the Current Population Survey
    In the preamble to the proposed rule, FNS stated that since the 
American Community Survey (ACS) has a larger sample and is released 
earlier than the CPS, FNS was considering using data from that survey 
to calculate the PAI. However, since the survey was relatively new, FNS 
was going to examine the data over time to determine how well the PAI 
using ACS poverty counts correlated to the official FSP participation 
rate. If this data were more consistent, FNS would use it instead of 
the CPS.
    FNS received several comments on this proposal. One commenter 
agreed that FNS should evaluate data from the ACS because of its larger 
sample size. One commenter suggested that FNS use whichever data source 
best correlates with the full Census. One commenter argued that neither 
data source was appropriate because they are both based on samples that 
do not accurately reflect the true extent of poverty, particularly in 
small jurisdictions subject to small sample sizes. One commenter urged 
FNS to use the ACS because it is a year-by-year supplement to the 
Decennial Census and is, therefore, more up-to-date, and because of its 
larger sample size.
    FNS agrees that the national survey based on a sample is 
problematic for smaller jurisdictions. However, FNS knows of no other 
more reliable source of data available in a timely manner that could be 
used to calculate a measure of participation access that is comparable 
across all States and time. The CPS is made up of a scientifically 
selected sample designed to represent the civilian non-institutional 
population. While it does not pull a sample from every county in the 
country, it does statistically represent State populations. As it is 
planned, the ACS will have a much larger sample size than the CPS when 
fully implemented. FNS does not want to preclude using the ACS, 
especially if, when it becomes nationally representative, it proves to 
be a better source of data for calculating the PAI. Therefore, this 
final regulation provides that FNS will use the CPS, but reserves the 
right to use new and better data should it become available.
5. Determining the Number of Participants
    Section 275.24(b)(3)(iii) proposed using State participation data, 
averaged over 12 months, to determine the number of participants. One 
commenter opposed using an average because it flattens out the actual 
increase in participation, especially for States that are actively 
conducting outreach activities throughout the year. This commenter 
suggested using the end results for the last month of the year 
(December). However, using participation in a single month like 
December is an advantage only when

[[Page 6320]]

caseloads are rising. When caseloads are decreasing, this would 
actually disadvantage some States.
    Using an average smoothes out this effect. FNS chose average 
participation in the calendar year because the income data from the 
CPS, which is the basis for the count of persons with income below 125 
percent of poverty, is available solely for a calendar year.
    The Census Bureau does not collect monthly income in a large enough 
national survey to provide accurate monthly counts of persons with 
incomes below 125 percent of poverty by State. FNS is not adopting the 
commenter's suggestion and instead will continue to use an average 12 
months of data based on a calendar year.
6. Making Adjustments
    Section 275.24(b)(3)(iii) proposed that, to calculate the PAI, FNS 
would make adjustments for the SSI population in California and the 
FDPIR participants in States with reservations. FNS received several 
comments concerning the proposed adjustments. Several commenters 
proposed that, to improve the accuracy of the PAI, FNS should make 
adjustments for all those who are ineligible (such as immigrants or 
individuals who are not meeting the work requirements), or take into 
consideration other State specific situations that affect participation 
in the FSP such as the economy or urban versus rural populations. In 
addition, these commenters pointed out that FNS proposed to adjust 
differently for SSI recipients in California and individuals that 
received FDPIR. These commenters argued that since both populations are 
ineligible for the FSP they should be treated similarly. Several 
commenters suggested alternative ways to calculate the PAI, or that FNS 
seek a legislative change that would allow it to award these bonuses 
later so it can use the official participation rate.
    FNS has decided not to change the method used to calculate the PAI 
or to adjust for such factors as ineligible individuals not addressed 
in the proposed rule (immigrants or individuals who are not meeting the 
work requirements), the economy, or rural versus urban populations with 
one exception. State-reported participation includes people provided 
benefits under special disaster conditions. FNS will subtract from the 
number of participants the state-reported number of people who received 
food stamp disaster assistance to better reflect on-going 
administration of the regular FSP. Disaster assistance is approved in 
limited circumstances and operates under special rules that differ from 
those of the regular FSP. FNS will subtract only those disaster 
assistance recipients who are new to the FSP--not existing participants 
who are issued replacement benefits. These individuals were not 
participating in the FSP under normal operations before the disaster. 
To the extent they apply and continue to participate under normal 
program rules in the following months, they are included in the count 
of participants.
    FNS agrees with the comment that some adjustment should be made for 
FDPIR participants and SSI recipients in California, and that the 
adjustment approach should be consistent for both. Consistency could be 
achieved by either: (1) Adding the count of FDPIR and California SSI 
recipients to the numerator of the PAI, or (2) subtracting the count of 
low-income FDPIR and California SSI recipients from the denominator. 
Because the number of participants in FDPIR and California SSI 
recipients offers no information on the effectiveness of State food 
stamp agency operations, FNS believes it is preferable to exclude FDPIR 
and California SSI participants from the denominator of the PAI.
    FNS will make this adjustment by using prior-year information from 
the CPS to estimate the number of California SSI recipients with income 
below 125 percent of poverty. Data limitations prevent a similar 
estimate of the number of FDPIR participants with income below the 125 
percent of poverty. Therefore, FNS will subtract the average monthly 
number of FDPIR participants from the number of persons with income 
below 125 percent of poverty in each State. Although some FDPIR 
participants with incomes above 125 percent of poverty may qualify for 
benefits, FNS believes that the number will be relatively small.
    We received one comment on the data used to remove SSI recipients 
in California from the denominator. This commenter suggested that since 
FNS is using Census data to determine the number of eligibles in the 
State, FNS should use Census figures to back out the SSI recipients 
from the denominator. In fact, the methodology proposed in the NPRM 
used Census data from the CPS to remove from the denominator the SSI 
recipients with incomes below 125 percent of poverty in California.
7. Additional Comments
    One commenter urged FNS to clarify in the regulations how the PAI 
is calculated in order to ``ensure full transparency'' regarding 
distribution of funds and to make it more difficult for future 
Administrations to tinker with the formula without going through the 
public comment process. FNS agrees with this commenter that the 
regulations should be as complete as possible and believes that the 
regulations as written in this final rule are complete.
    This same commenter suggested that FNS specify that the PAI is the 
share of eligible individuals in food stamp households who participate 
in the FSP. FNS would like to reiterate in the preamble that the PAI is 
the ratio of participants to persons with incomes below 125 percent of 
poverty, not eligible individuals. The official State participation 
rate is the ratio of participants to eligibles. FNS agrees and regrets 
that there is a lot of confusion over these two rates. Therefore, as 
discussed above, this measure will now be referred to as the Program 
Access Index.

F. Application Processing Timeliness

1. Section 275.24(b)(4)
    Section 275.24(b)(4) proposed to divide $6 million among the 6 
States with the highest percentage of timely-processed applications. 
One commenter supported the proposal to measure application-processing 
timeliness because it is an essential component of customer service.
2. Section 275.24(b)(4)(i)
    Section 275.24(b)(4)(i) proposed collecting data on application-
processing timeliness through the QC system. FNS initiated collection 
of data as part of the QC reviews beginning with FY 2003 cases. 
Instructions for collecting this information are found in the FNS 310 
Handbook, The Food Stamp Program Quality Control Review Handbook. In 
the preamble to the proposed rule, FNS specifically sought comment on 
this data collection instrument and its ability to collect the sought 
after information. FNS received two comments regarding the data 
collection instrument. One commenter suggested we use different QC 
codes for the data collection instrument: 1. Timely; 2. Not timely--
agency caused; 3. Not timely--client caused; 4. Application filed 
outside of fiscal year; and, 5. Unable to determine timeliness of 
application processing. FNS appreciates the merit of this comment. 
However, FNS has determined that there is no reason to change the codes 
since client-versus agency-caused delays is not relevant with regard to 
this measure.
    One commenter opposed using QC data for this measurement saying it 
would result in inconsistent reporting.

[[Page 6321]]

This commenter cautioned that since the QC data collection instrument 
is new, States would be unfamiliar with it, and would, therefore, have 
many questions and may not report the data in the same way. This 
commenter suggested FNS modify the Program Activity Statement (FNS-366) 
to capture the data since States already have this procedure in place. 
This commenter felt that specific revisions to the FNS-366 form would 
result in more consistency since it is common to all States. FNS 
seriously considered using the FNS-366 form, but wanted to have a 
mechanism for validating these numbers. QC provides that mechanism. 
Therefore, FNS will verify the QC application processing data for any 
State that is in contention for a bonus.
3. Section 275.24(b)(4)(ii)
    Section 275.24(b)(4)(ii) proposed that a timely processed 
application is one that provides an eligible applicant the 
``opportunity to participate,'' as defined in 7 CFR 274.2, within 
thirty days for normal processing or 7 days for expedited processing. 
New applications that are processed outside of this standard would be 
untimely for this measure, except for applications that are properly 
pended in accordance with 7 CFR 273.2(h)(1)(i)(C). Properly pended 
applications would not be counted for (as timely) nor against (as 
untimely) States' timeliness rate--they will be excluded from this 
particular calculation altogether.
    One commenter argued that the measure as proposed does not fully 
capture the issue of timeliness and its importance in the delivery of 
food assistance. This commenter pointed out that this measure treats 
States with average processing times of 15 days the same as States with 
average processing times of 25 days and, thus, treating these States 
the same does not accurately reflect their performance with respect to 
timeliness. This commenter suggested we incorporate average processing 
time into the measure to provide States with an incentive to do better 
than simply meeting the statutory deadlines. FNS contends that average 
processing time can mask the effect of those States that process the 
bulk of their applications outside of the 30 days, but their average 
processing time is better than those States that consistently process 
their application within the 30 day standard. For example State X 
processes 100 applications, 20 in 31 days and the rest in 10 days, for 
an average of 14.1 days. State Y processes 90 applications in 20 days 
and 10 in 40 days, for and average of 22 days. FNS believes it is 
important that as many applicants as possible be served in a timely 
manner. Therefore, while FNS sees merit in using averaging, FNS 
believes that the timeliness rate as proposed is a more accurate 
measure and is adopting it in this final rule.
4. Client-Caused Delays
    In the preamble of the NPRM, FNS specifically sought comment on 
whether to exclude all client-caused delays from this measure and, if 
so, how to work that into the existing reporting and QC framework. Two 
commenters opposed the proposal to measure timeliness against the 
statutory standard of 30 days from the date of application. These 
commenters suggested that we measure timeliness in accordance with the 
regulations at 7 CFR 273.2(h)(2)(i), which provide procedures for when 
the 30-day standard is not met (such as State and client-caused 
delays). Otherwise, a State following these regulatory procedures would 
be penalized for purposes of awarding the performance bonus even though 
all timeliness standards may have been complied with under Federal 
regulations. Excluding client-caused delays would also have a big 
impact on States with large immigrant populations and multiple 
languages as client-caused delays are considerably higher in such 
States than those without such populations. As discussed in the 
preamble to the NPRM, FNS recognizes that the statutory time frame 
differs from the latitude afforded by the regulations. However, FNS 
believes that excellent customer service should be measured by whether 
or not the statutory time frame of 30-day processing is met as opposed 
to compliance with the regulations that allows for up to 60-day 
processing in some cases. Furthermore, FNS believes all States are 
faced with challenges of serving applicants with one barrier or another 
(e.g., language and culture). Measuring application-processing 
timeliness against a 30-day standard, therefore, rewards States that 
take the extra steps to overcome these challenges.
    Four commenters suggested excluding all client-caused delays from 
the measurement, not just those client-caused delays due to lack of 
verification. While FNS appreciates the merit of these comments, FNS 
believes that a State has the ability and the responsibility to 
influence clients' performance throughout the application process, such 
as helping to obtain verification, or accurately and adequately 
explaining the processing time frames and deadline dates. Again, this 
measure will reward States that go above and beyond to provide 
excellent customer service by providing needy individuals benefits in a 
timely fashion.
    Two commenters agreed with the exception that applications that are 
properly pended because the applicant failed to provide verification 
should not count in the measure of overdue applications.
    One commenter stated that States should not be held to a time frame 
of an application date for another program (such as TANF) when the 
client did not request food stamp benefits until a later date, perhaps 
during the interview for the other program. In this instance, the 
commenter suggested that the date of the interview should be the date 
the client requested food stamps. Existing FSP policy is that if an 
individual applies for another program but does not apply for the FSP 
until sometime later in the application process for the other program, 
then the date of application is the date that the individual applies 
for the FSP and not the other program.
5. Expedited Time Frames
    Three commenters pointed out that the proposed rule does not 
address expedited time frames. One of these commenters questioned 
whether the policy regarding 30-day processing, which makes an 
exception for cases the State agency has pending due to incomplete 
verification, applied to expedited service cases. This commenter 
suggested that this policy be extended to all situations in which the 
client fails to comply with requirements necessary for agencies to meet 
the 7-day timeframe. FNS contends that the exception regarding failure 
to provide verification should not apply in cases that are entitled to 
expedited service. Verification requirements for expedited service 
cases are greatly reduced. The only information the State agency is 
required to verify in such cases is the identity of the head of the 
household. The State agency is not required to verify this information 
with paper documents, but may do so through a collateral contact. State 
agencies are encouraged to verify all other information prior to 
certification; however, they are permitted to postpone verification in 
the interest of providing food stamp benefits to destitute individuals. 
Therefore, since the probability of client-caused delays in expedited 
service cases due to failure to provide verification is minimal, FNS is 
not adopting the commenters suggestion.
    Two commenters recommended that in cases of late determination for

[[Page 6322]]

expedited service, the 7-day time period be calculated from the date 
the agency discovers a household is entitled to expedited service and 
not the date of application. FNS believes that it is important to note 
that States are required to pre-screen applications to determine 
whether or not the applicant is entitled to expedited service. While 
all States face the challenge of accurately determining this need, 
those that do an excellent job in this endeavor or take the extra step 
to determine if a client is in dire need of nutritional assistance 
should be rewarded appropriately.
6. Section 275.24(b)(4)
    Proposed Sec.  275.24(b)(4) defined a timely-processed application 
as one that provides an eligible applicant the ``opportunity to 
participate,'' as defined in 7 CFR 274.2, within 30 days or 7 days for 
expedited processing. One commenter recommended that the ``opportunity 
to participate'' in the Electronic Benefit Transfer (EBT) environment 
be described. FNS recognizes that the ``opportunity to participate,'' 
as defined in 7 CFR 274.2, addresses systems that provide benefits in 
the form of food stamps or authorization documents as opposed EBT. 
However, revising that definition is outside of the scope of this 
rulemaking. Nevertheless, FNS has provided guidance delineating this 
term further, particularly in the EBT environment. Existing FSP policy 
regarding this performance measure is that the ``opportunity to 
participate'' consists of providing households with authorization 
documents (ATP cards), coupons, or EBT cards and having issuance 
facilities open and available for households to obtain their benefits. 
State agencies must mail or have EBT cards available for pick-up (and 
post benefits to the EBT account and provide all the training and PIN 
numbers) in time to assure that the recipient can access his benefits 
before the 30-day standard or 7-day standard expires.
    Furthermore, in an EBT system, the client has the opportunity to 
participate:
     24 hours after the client is notified by phone or in 
person to come into the office to pick up his card (assuming benefits 
are posted to the account, and the client has his PIN number or will be 
provided his PIN number when he comes in to get his card); or,
     Three days after he has been notified by mail to come in 
and pick up his card (assuming benefits are posted to his account, and 
the client has his PIN number or will be provided his PIN number when 
he comes in to get his card).
7. Approvals
    In the preamble of the NPRM, FNS proposed that only approvals be 
included in the determination of timeliness since this measure is 
focused on meeting the 30-day and 7-day standards for providing 
eligible households the opportunity to participate. FNS received five 
comments on this proposal. Two commenters supported excluding denials 
from this measurement because an early denial is not an indicator of 
strong performance. Three commenters supported including denials in 
this measurement because it is important to advise households of 
denials as well as certification and it requires as much time. While 
FNS believes it is important to notify a client about denial of 
benefits in a timely fashion, FNS agrees that an early denial is not 
good if the applicant has not been provided sufficient time to provide 
the required documentation. FNS is not aware of problems with late 
denials, but also does not collect information on the timeliness of 
denials at this time. FNS will investigate the timeliness of denials 
with States and determine whether further data analysis and regular 
collection of data might be warranted. However, denials will not be 
included in this measure.
8. Section 275.24(b)(4)(iii)
    Section 275.24(b)(4)(iii) proposed that QC reviewers evaluate for 
timeliness only new applications in the State QC active sample that 
were filed on or after the beginning of the fiscal year because they 
were filed within the performance measurement year for which the 
bonuses are awarded. Two commenters opposed this provision. One 
commenter expressed concern that the sample pool would be too small to 
yield valid program data. This commenter suggested that the sample be 
expanded to all active cases sampled during the fiscal year. One 
commenter pointed out that this method excludes clients who apply in 
August and September whose eligibility is not determined until October 
or later. This might bias timeliness determinations for states that 
experience increases in applications in the late summer. FNS has been 
monitoring the sample size based on the proposed policy and contends 
that it is large enough to be statistically valid. In addition, FNS 
believes that it is important to measure a State agency's performance 
within a fiscal year and, therefore, will retain the provision as 
proposed.

List of Subjects

7 CFR Part 272

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

7 CFR Part 275

    Administration, Management evaluation reviews, Quality control 
reviews, Data analysis and evaluation, Corrective action, 
Responsibilities for reporting on program performance, Program 
performance.

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

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

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

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2. In Sec.  272.1, add paragraph (g)(170) to read as follows:


Sec.  272.1  General terms and conditions.

    (g) * * *
    (170) Amendment No. 396. The provisions of amendment number 396 are 
effective April 8, 2005.

PART 275--PERFORMANCE REPORTING SYSTEM

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3. A new Sec.  275.24 is added to read as follows:


Sec.  275.24  High performance bonuses.

    (a) General rule. (1) FNS will award bonuses totaling $48 million 
for each fiscal year to State agencies that show high or improved 
performance in accordance with the performance measures under paragraph 
(b) of this section.
    (2) FNS will award the bonuses no later than September 30th of the 
fiscal year following the performance measurement year.
    (3) A State agency is not eligible for a bonus payment in any 
fiscal year for which it has a liability amount established as a result 
of an excessive payment error rate in the same year. If a State is 
disqualified from receiving a bonus payment under this paragraph 
(a)(3), and the State is not tied for a bonus, the State with the next 
best performance will be awarded a bonus payment.
    (4) The determination whether, and in what amount, to award a 
performance bonus payment is not subject to administrative or judicial 
review.
    (5) In determining the amount of the award, FNS will first award a 
base amount of $100,000 to each State agency that is an identified 
winner in each

[[Page 6323]]

category. Subsequently, FNS will divide the remaining money among the 
States in each category (see paragraph (b) of this section) in 
proportion to the size of their caseloads (the average number of 
households per month for the fiscal year for which performance is 
measured).
    (6) A State cannot be awarded two bonuses in the same category; the 
relevant categories are payment accuracy (which is outlined in 
paragraph (b)(1) of this section), negative error rate (which is 
outlined in paragraph (b)(2) of this section), or program access index 
(which is outlined in paragraph (b)(3) of this section). If a State is 
determined to be among the best and the most improved in a category, it 
will be awarded a bonus only for being the best. The next State in the 
best category will be awarded a bonus as being among the best States.
    (7) Where there is a tie to the fourth decimal point for the 
categories outlined in paragraphs (b)(1) through (b)(4) of this 
section, FNS will add the additional State(s) into the category and the 
money will be divided among all the States in accordance with paragraph 
(a)(5) of this section.
    (b) Performance measures. FNS will measure performance by and base 
awards on the following categories of performance measures:
    (1) Payment accuracy. FNS will divide $24 million among the 10 
States with the lowest and the most improved combined payment error 
rates as specified in paragraphs (b)(1)(i) and (b)(1)(ii) of this 
section.
    (i) Excellence in payment accuracy. FNS will provide bonuses to the 
7 States with the lowest combined payment error rates based on the 
validated quality control payment error rates for the performance 
measurement year as determined in accordance with this part.
    (ii) Most improved in payment accuracy. FNS will provide bonuses to 
the 3 States with the largest percentage point decrease in their 
combined payment error rates based on the comparison of the validated 
quality control payment error rates for the performance measurement 
year and the previous fiscal year, as determined in accordance with 
this part.
    (2) Negative error rate. FNS will divide $6 million among the 6 
States with the lowest and the most improved negative error rates as 
specified in paragraphs (b)(2)(i) and (b)(2)(ii) of this section.
    (i) Lowest negative error rate. FNS will provide bonuses to the 4 
States with the lowest negative error rates based on the validated 
quality control negative error rates for the performance year as 
determined in accordance with this part.
    (ii) Most improved negative error rate. FNS will provide bonuses to 
the 2 States with the largest percentage point decrease in their 
negative error rates, based on the comparison of the performance 
measurement year's validated quality control negative error rates with 
those of the previous fiscal year, as determined in accordance with 
this part. A State agency is not eligible for a bonus under this 
criterion if the State's negative error rate for the fiscal year is 
more than 50 percent above the national average.
    (3) Program access index (PAI). FNS will divide $12 million among 
the 8 States with the highest and the most improved level of 
participation as specified in paragraphs (b)(3)(i) through (b)(3)(iii) 
of this section. The PAI is the ratio of participants to persons with 
incomes below 125 percent of poverty, as calculated in accordance with 
paragraph (b)(3)(iii) of this section (the PAI was formerly known as 
the participant access rate (PAR)).
    (i) High program access index. FNS will provide bonuses to the 4 
States with the highest PAI as determined in accordance with paragraph 
(b)(3)(iii) of this section.
    (ii) Most improved program access index. FNS will provide bonuses 
to the 4 States with the most improved PAI as determined in accordance 
with paragraph (b)(3)(iii) of this section.
    (iii) Data. For the number of participants (numerator), FNS will 
use the administrative annual counts of participants minus new 
participants certified under special disaster program rules by State 
averaged over the calendar year. For the number of people below 125 
percent of poverty (denominator), FNS will use the Census Bureau's 
March Supplement to the Current Population Survey's (CPS) count of 
people below 125 percent of poverty for the same calendar year. FNS 
will reduce the count in each State where a Food Distribution Program 
on Indian Reservations (FDPIR) program is operated by the 
administrative counts of the number of individuals who participate in 
this program averaged over the calendar year. FNS will reduce the count 
in California by the Census Bureau's percentage of people below 125% of 
poverty in California who received Supplemental Security Income in the 
previous year. FNS reserves the right to use data from the American 
Community Survey (ACS) in lieu of the CPS, and to use the count of 
people below 130 percent of poverty, should these data become available 
in a timely fashion and prove more accurate. Such a substitution would 
apply to all States.
    (4) Application processing timeliness. FNS will divide $6 million 
among the 6 States with the highest percentage of timely processed 
applications.
    (i) Data. FNS will use quality control data to determine each 
State's rate of application processing timeliness.
    (ii) Timely processed applications. A timely processed application 
is one that provides an eligible applicant the ``opportunity to 
participate'' as defined in Sec.  274.2 of this chapter, within thirty 
days for normal processing or 7 days for expedited processing. New 
applications that are processed outside of this standard are untimely 
for this measure, except for applications that are properly pended in 
accordance with Sec.  273.2(h)(2) of this chapter because verification 
is incomplete and the State agency has taken all the actions described 
in Sec.  273.2(h)(1)(i)(C) of this chapter. Such applications will not 
be included in this measure. Applications that are denied will not be 
included in this measure.
    (iii) Evaluation of applications. Only applications that were filed 
on or after the beginning of the performance measurement (fiscal) year 
will be evaluated under this measure.

    Dated: January 31, 2005.
Eric M. Bost,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 05-2260 Filed 2-4-05; 8:45 am]
BILLING CODE 3410-30-P