[Federal Register Volume 70, Number 101 (Thursday, May 26, 2005)]
[Proposed Rules]
[Pages 30558-30589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10388]



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Part III





Department of Agriculture





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Food and Nutrition Service



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7 CFR Part 249



Senior Farmers' Market Nutrition Program Regulations; Proposed Rule

  Federal Register / Vol. 70, No. 101 / Thursday, May 26, 2005 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 249

RIN 0584-AD35


Senior Farmers' Market Nutrition Program Regulations

AGENCY: Food and Nutrition Service (FNS), USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule implements the provision of the Farm 
Security and Rural Investment Act of 2002 that gives the Department of 
Agriculture the authority to promulgate regulations for the operation 
and administration of the Senior Farmers' Market Nutrition Program 
(SFMNP). The purposes of the SFMNP are to provide resources in the form 
of fresh, nutritious, unprepared, locally grown fruits, vegetables, and 
herbs from farmers' markets, roadside stands, and community supported 
agriculture programs to low-income seniors; to increase the domestic 
consumption of agricultural commodities by expanding or aiding in the 
expansion of domestic farmers' markets, roadside stands, and community 
supported agriculture programs; and to develop or aid in the 
development of new and additional farmers' markets, roadside stands, 
and community supported agriculture programs.

DATES: To be assured of consideration, comments on this proposed rule 
must be received by the Food and Nutrition Service on or before July 
25, 2005.

ADDRESSES: The Food and Nutrition Service invites interested persons to 
submit comments on this proposed rule. Comments may be submitted by any 
of the following methods:
     Mail: Send comments to Patricia N. Daniels, Director, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, Room 528, Alexandria, Virginia 22302, (703) 
305-2746.
     Web site: Go to http://www.fns.usda.gov/wic. Follow the 
online instructions for submitting comments through the link at the 
Supplemental Food Programs Division Web site.
     E-Mail: Send comments to [email protected]. Include 
``Docket ID Number 0584-AD35, SFMNP Proposed Rule,'' in the subject 
line of the message.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    All comments submitted in response to this proposed rule will be 
included in the record and will be made available to the public. Please 
be advised that the substance of the comments and the identities of the 
individuals or entities submitting the comments will be subject to 
public disclosure. All written submissions will be available for public 
inspection at the address above during regular business hours (8:30 
a.m. to 5 p.m.) Monday through Friday.
    FNS may also make the comments publicly available by posting a copy 
of all comments on the FNS Web site at http://www.fns.usda.gov/wic.

FOR FURTHER INFORMATION CONTACT: Debra Whitford or Donna Hines, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, Room 528, Alexandria, Virginia, 22302, (703) 
305-2746, OR [email protected], or [email protected].

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.

Regulatory Impact Analysis

    As required for all rules that have been designated as Significant 
by the Office of Management and Budget, a Regulatory Economic Impact 
Analysis was developed for the SFMNP Proposed Rule. A complete copy of 
the Impact Analysis is available by contacting FNS as indicated in the 
ADDRESSES section of this Preamble.
    In summary, this analysis concludes that the proposed rule to 
establish the SFMNP is not likely to have a significant impact on the 
nutritional health of seniors, nor is it likely to have a substantial 
impact on the market for agricultural commodities, farmers, farmers' 
markets, community supported agriculture programs (CSAs), or roadside 
stands without additional program funding. While some alternatives to 
the proposed rule (set forth in the complete Regulatory Economic Impact 
Analysis) may increase the number of eligible seniors served or the 
number of SFMNP recipients, the SFMNP at its authorized funding level 
will still have minimal impact on the constituencies the program 
intends to serve. The current fiscal situation of the States further 
impedes possible program growth, as States may be unable to contribute 
their own funds for expansion. However, analysis undertaken by FNS 
indicates that the pilot program has been beneficial in areas where the 
SFMNP now operates. The proposed rule does allow for future growth, 
should additional funding be made available.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Eric Bost, Under 
Secretary of Agriculture 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 provisions of 
this proposed rulemaking are applicable to all State and local 
agencies, farmers, farmers' markets, roadside stands, and community 
supported agriculture programs, regardless of their size or of the 
volume of SFMNP business they conduct.

Public Law 104-4, Unfunded Mandate Reform Act of 1995 (UMRA)

    Title II of the 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, 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 by 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 proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, or 
tribal governments or the private sector of $100 million or more in any 
one year. Thus, the rule is not subject to the requirements of Sections 
202 and 205 of the UMRA.

Executive Order 12372

    The Senior Farmers' Market Nutrition Program (SFMNP) is listed in 
the Catalog of Federal Domestic Assistance under No. 10.576. For the 
reasons set forth in the final rule in 7 CFR part 3015, Subpart V and 
related Notice (48 FR 29115), this program is included in the scope of 
Executive Order 12372 that requires intergovernmental consultation with 
State and local officials.

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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 Dates paragraph of the preamble of the final 
rule, which will be promulgated once the comment period for this 
proposed rule has closed. Prior to any judicial challenge to the 
application of the provisions of this rule, all applicable 
administrative procedures must be exhausted. In the Senior Farmers' 
Market Nutrition Program, the administrative procedures are as follows: 
(1) Local agencies, farmers, farmers' markets, roadside stands, and 
community supported agriculture programs--State agency hearing 
procedures issued pursuant to 7 CFR 249.16; (2) Applicants and 
recipients--State agency hearing procedures pursuant to 7 CFR 249.16; 
(3) sanctions against State agencies (but not claims for repayment 
assessed against a State agency) pursuant to 7 CFR 249.17--
administrative appeal in accordance with 7 CFR 249.16, and (4) 
procurement by State or local agencies--administrative appeal to the 
extent required by 7 CFR 3016.36.

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 the impact of this rule on State and local governments and 
has determined that this rule does not have federalism implications. 
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 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 
SFMNP recipients, FNS has determined that none of the provisions in 
this rule have a discernible impact on minorities, women, or persons 
with disabilities that are likely to result in inequitable treatment. 
FNS specifically prohibits the State agencies, and their cooperators, 
that administer the SFMNP from engaging in actions that discriminate 
against any individual in any of the protected classes (see proposed 
Sec.  249.7 for the nondiscrimination policy in the SFMNP). 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 SFMNP regulations as proposed at 7 CFR 249.7.

Paperwork Reduction Act (60-Day Notice)

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
part 1320) requires that the Office of Management and Budget (OMB) 
approve all collections of information by a Federal agency from the 
public 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. This proposed rule contains information 
collections that are subject to review and approval by OMB; therefore, 
FNS is submitting for public comment the new information collection 
burden that would result from adoption of the proposals in the rule.
    Comments on this proposed rule must be received by July 25, 2005.
    Send comments to Office of Information and Regulatory Affairs, OMB, 
Attention: Desk Officer for FNS, Washington, DC 20503. Please also send 
a copy of your comments to Patricia N. Daniels, Director, Supplemental 
Food Programs Division, Food and Nutrition Service, U.S. Department of 
Agriculture, 3101 Park Center Drive, Alexandria, VA 22302. For further 
information, or for copies of the information collection, please 
contact Debra R. Whitford at the above address.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (b) the 
accuracy of the agency's estimate of the burden of the proposed 
collection of information, including the validity of the methodology 
and assumptions used; (c) ways to enhance the quality, utility, and 
clarity of the information to be collected; and (d) ways to minimize 
the burden of the collection of information on those who are to 
respond, including use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology.
    All responses to this request for comments will be summarized and 
included in the request for OMB approval. All comments will also become 
a matter of public record.
    Title: Senior Farmers' Market Nutrition Program.
    OMB Number: To be assigned.
    Expiration Date: Not applicable.
    Type of Request: New information collection (new program).
    Abstract: This proposed rule implements Section 4402 of the Farm 
Security and Rural Investment Act of 2002 that gives the Department of 
Agriculture the authority to promulgate regulations for the operation 
and administration of the Senior Farmers' Market Nutrition Program 
(SFMNP). The purposes of the SFMNP are to provide fresh, nutritious, 
unprepared, locally grown fruits, vegetables, and herbs from farmers' 
markets, roadside stands, and community supported agriculture programs 
to low-income seniors; to increase the consumption of agricultural 
commodities by expanding or aiding in the expansion of domestic 
farmers' markets, roadside stands, and community supported agriculture 
programs, and to develop or aid in the development of new and 
additional farmers' markets, roadside stands, and community supported 
agriculture programs.

1. Reporting

    Estimated Number of Respondents: 904,088.
    Respondents include State agencies, local agencies, recipients, and 
authorized SFMNP outlets (farmers, farmers' markets, roadside stands, 
and community supported agriculture (CSA) programs).
    Estimated Average Number of Responses per Respondent: 1.
    Estimated Time per Response: .26 hours.
    Estimated Total Annual Burden on Respondents: 235,153 hours.

2. Recordkeeping

    Estimated Number of Recordkeepings: 282.
    Respondents include State agencies, local agencies, SFMNP 
recipients, and authorized SFMNP outlets (farmers, farmers' markets, 
roadside stands, and community supported agriculture (CSA) programs).
    Estimated Average Number of Recordkeepings per Respondent: 1.
    Estimated Time Per Recordkeeping: 8 hours.

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    Estimated Total Annual Burden on Respondents: 2,256 hours.

3. Total Annual Reporting/Recordkeeping Requirements

    237,409 hours.

Government Paperwork Elimination Act Compliance

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

Background

SFMNP--FY 2001

    USDA's Commodity Credit Corporation (CCC) established the Senior 
Farmers' Market Nutrition Program (SFMNP) in November 2000 as a pilot 
program (65 FR 65825, Nov. 2, 2000). Under the program, CCC made grants 
to State agencies and Indian tribal governments on a competitive basis. 
The grants were to be used to provide low-income seniors with coupons 
they could exchange for eligible foods at farmers' markets, roadside 
stands, and community supported agriculture programs. Eligible foods 
were defined as fresh, nutritious, unprepared, locally grown fruits, 
vegetables, and herbs. Grant funds could be used only to support the 
costs of the foods provided under the program; no administrative 
funding was available. Because of its prior experience and expertise in 
the administration of the WIC Farmers' Market Nutrition Program (a 
similar program that provides farmers' market coupons to participants 
in the Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC)), the Food and Nutrition Service evaluated the grant 
applications and administered the SFMNP on behalf of CCC in its pilot 
year.
    From the inception of the program, the purposes of the SFMNP have 
been to: (1) Provide resources in the form of fresh, nutritious, 
unprepared, locally grown fruits, vegetables, and herbs from farmers' 
markets, roadside stands, and community supported agriculture programs 
to low-income seniors; (2) increase the domestic consumption of 
agricultural commodities by expanding or aiding in the expansion of 
domestic farmers' markets, roadside stands, and community supported 
agriculture programs; and (3) develop or aid in the development of new 
and additional farmers' markets, roadside stands, and community 
supported agriculture programs.
    A total of $15 million was made available for the pilot SFMNP 
grants for a one-year period ending December 31, 2001. The opportunity 
to submit grant applications for the SFMNP pilot was announced as a 
Federal Register Notice on November 2, 2000 (65 FR 65825). This Notice 
set out the basic requirements for the grant application as well as the 
evaluation criteria against which each application would be reviewed 
and scored. An evaluation panel made up of staff from both CCC and FNS 
reviewed the applications that were received. The initial competitive 
grant process resulted in awards to 30 States, 5 Indian tribal 
governments, and the District of Columbia. These grants ranged in 
amounts from $9,000 to $1.2 million.
    Funds for the pilot program in Fiscal Year (FY) 2001 were made 
available pursuant to the CCC Charter Act (``the Act''). Section 5(e) 
of the Act (15 U.S.C. 714c(e)) authorizes CCC to use its resources to 
``[i]ncrease the domestic consumption of agricultural commodities by 
expanding or aiding in the expansion of domestic markets or by 
developing or aiding in the development of new and additional markets, 
marketing facilities, and uses for such commodities.''
    During the 2001 market/harvest season, nearly 420,000 low-income 
seniors received coupons that were accepted by 8,500 farmers through 
1,200 farmers' markets, nearly 900 roadside stands, and 49 community 
supported agriculture programs. For the pilot year, individual coupon 
allotments ranged from $10 to $540, with a median value of $40 per 
recipient per season. Close to 85 percent of the total grant funds 
awarded were expended for the purchase of eligible fruits, vegetables, 
and herbs.

SFMNP--FY 2002 Through 2004

    The Agriculture, Rural Development, Food and Drug Administration 
and Related Agencies Appropriations Act, 2002 (Pub. L. 107-76) provided 
$10 million from the Department's Commodity Assistance Program account 
to continue the SFMNP for a second year. An additional $5 million was 
provided from CCC funds by Section 4402 of the Farm Security and Rural 
Investment Act of 2002 (the Farm Bill), Pub. L. 107-171 (7 U.S.C. 
3007). The Farm Bill also authorized the SFMNP for FY 2003 through FY 
2007, and provided funding at $15 million for each of those years (7 
U.S.C. 3007(a)). Section 4402 of the Farm Bill also gave the Department 
the authority to develop regulations deemed necessary for the SFMNP (7 
U.S.C. 3007(c)).
    FNS announced the opportunity to apply for SFMNP funding during FY 
2002 on December 13, 2001. A competitive process was once again used to 
review and evaluate applications that were received, and 32 States, 3 
Indian tribal governments, and the District of Columbia were awarded 
SFMNP grants. As in FY 2001, State agencies were responsible for all 
administrative expenses associated with the operation and 
administration of the SFMNP; the grant awards could only be used for 
food costs. In FY 2002, just over 500,000 individuals received SFMNP 
coupons for produce made available from approximately 10,000 farmers at 
1,500 farmers' markets, 1,000 roadside stands, and 200 community 
supported agriculture programs. Just over 89 percent of the SFMNP funds 
awarded were expended during the FY 2002 grant period, which ended on 
December 31, 2002.
    While still administered as a competitive grant for FY 2003, the 
SFMNP grant application process was modified slightly. State agencies 
that received SFMNP grants in FY 2002 (``current grantees'') were not 
required to compete against ``new'' State agencies, i.e., State 
agencies that had not previously received an SFMNP grant. Current 
grantees were guaranteed funding in FY 2003 equal to the amount of 
SFMNP funds they spent in FY 2002; proposals for funds over and above 
that level were reviewed against a specific set of evaluation criteria, 
separately from the criteria addressed in grant applications from new 
State agencies. Once FNS had met its commitment to the FY 2002 SFMNP 
grantees at the level of their prior-year expenditures, remaining funds 
were made available for allocation to new SFMNP State agencies and to 
current State agencies to support expansion or growth in their present 
program models. FNS was able to award grants to 4 new State agencies, 
as well as to 14 current grantees for expansion of their existing 
programs. Participation in the SFMNP for FY 2003 exceeded the FY 2002 
totals by a factor of more than 30 percent, serving over 800,000 senior 
recipients, with a redemption rate (percentage of coupons actually used 
to purchase eligible foods based on the total number of coupons issued 
to eligible recipients) of approximately 90 percent.
    The process used to award SFMNP grants in FY 2004 was the same as 
that used in FY 2003: Grant applications were solicited from State 
agencies who wished to receive funds above their FY 2003 expenditure 
levels and from State agencies who were interested in initiating the 
SFMNP. Again, two

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separate panels reviewed and scored the applications. Once FNS had met 
its commitment to the FY 2003 SFMNP grantees at the level of their 
prior-year expenditures, remaining funds were made available for 
allocation to new SFMNP State agencies and to current State agencies to 
support expansion or growth in their present program models. In FY 
2004, FNS was able to award grants to 7 new State agencies, as well as 
to 15 current grantees for expansion of their existing programs. 
Consistent with the pattern that is developing as the SFMNP matures, 
participation is expected to increase slightly over the FY 2003 level, 
and the redemption rate is expected to remain at between 85 and 90 
percent.

Consistency With the WIC Farmers' Market Nutrition Program (FMNP)

    USDA's Food and Nutrition Service has administered the FMNP since 
its inception as a pilot program in 1988, through its transition to an 
authorized independent program when the WIC Farmers' Market Nutrition 
Act of 1992 (Pub. L. 102-314) amended Section 17(m) of the Child 
Nutrition Act of 1966 (42 U.S.C. 1786(m)). The FMNP provides coupons to 
eligible WIC participants (or to individuals on WIC waiting lists) for 
the purchase of fresh, nutritious, unprepared fruits, vegetables and 
herbs at farmers' markets and, at the State agency's option, at 
roadside stands or farmstands. Many of the State agencies that have 
received SFMNP grant awards since FY 2001 were already established as 
administering agencies for the FMNP in that State. Based on the similar 
natures of the FMNP and the SFMNP, and in an effort to create 
consistency between the two programs, this proposed rule is constructed 
on the framework of the FMNP regulations, for which the final rule was 
published in the Federal Register on September 27, 1995 (60 FR 49739).

Difference Between SFMNP Competitive Grants and the SFMNP as an 
Established Nutrition Assistance Program

    As proposed, the SFMNP is very similar to the programs that have 
been operated by State agency grantees through the competitive grant 
program since the program's inception in FY 2001. For example, State 
agencies will continue to have some flexibility in the basic design of 
their programs. However, several significant modifications have been 
made to the SFMNP that must be implemented by all participating State 
agencies in order to receive future SFMNP grants. These modifications 
have been designed to achieve greater consistency within the SFMNP on a 
nationwide basis, and fall into 5 major categories:

1. State agency eligibility;
2. Recipient eligibility;
3. Benefit level;
4. Funding; and
5. Community supported agriculture programs.

    Following is a discussion of each section of the proposed rule, in 
the order presented; the major provisions set forth in each section, 
including the specific issues noted above; and the Department's 
rationale for each provision.

1. General Purpose and Scope (Sec.  249.1)

    While the essential purpose of the SFMNP is very similar to that of 
the FMNP, it differs from the FMNP purpose in one significant aspect: 
it includes community supported agriculture (CSA) programs as allowable 
outlets for accepting SFMNP coupons or funds. CSA programs, while 
fairly familiar to the small farmer and sustainable agriculture 
communities, have not previously been associated with FNS programs. 
Thus, the purposes and scope of the SFMNP are retained in regulation as 
directed by the provisions of Pub. L. 107-171 (7 U.S.C. 3007); i.e., to 
improve/enhance the diets of low-income seniors by enabling them to 
obtain fresh fruits and vegetables from farmers' markets, roadside 
stands, and CSA programs, and to develop or expand these outlets by 
broadening their customer bases.

2. Definitions (Sec.  249.2)

    Most of the definitions used in this rulemaking for the SFMNP are 
either the same as those used in the FMNP or are definitions used in 
the SFMNP competitive grant program. Some of the definitions used in 
this proposed rule warrant additional explanation, whereas others are 
more straightforward and self-explanatory.
    ``Administrative costs.'' The proposed rule defines 
``administrative costs'' as allowable SFMNP costs as defined in Sec.  
249.12(b). Further discussion of the Department's intention to provide 
administrative funding for the SFMNP can be found below in Section 12 
of this preamble. Allowable administrative costs, which have not 
previously been permitted in the SFMNP, are specifically listed at 
Sec.  249.12(b) of this proposed rulemaking, and generally include any 
expense associated with the operation of the SFMNP except the actual 
value of the coupons or CSA shares provided to eligible recipients.
    ``Community supported agriculture programs.'' CSA programs are 
discussed in greater detail in Section 10(i) of this preamble. In the 
proposed rule, ``community supported agriculture program'' refers to a 
less traditional program model under which one or more farmer(s) grows 
food for a group of shareholders (or subscribers) who pledge to buy a 
portion of the farmer's crop for that season. State agencies may 
purchase shares or subscribe to a CSA program on behalf of individual 
SFMNP recipients.
    ``Compliance buy.'' State agencies may conduct compliance buys as 
part of their monitoring efforts. Compliance buys are generally covert, 
on-site investigations in which a SFMNP representative poses as a SFMNP 
recipient or authorized representative and transacts one or more 
coupons and/or in the case of a CSA program, attempts to obtain produce 
purchased with SFMNP funds at a distribution site. Because the busy, 
informal atmosphere of a farmers' market and/or CSA program 
distribution site may make it difficult to detect program violations, 
compliance buys can provide an objective measure of whether farmers are 
violating SFMNP rules by providing change for SFMNP coupons, collecting 
sales tax on purchases made with SFMNP coupons, or providing ineligible 
foods to SFMNP recipients.
    ``Coupon.'' In the SFMNP proposed rule, the term ``coupon'' is used 
to refer to a check or to some other negotiable financial instrument by 
which benefits under the program are transferred to program recipients. 
While many State agencies issue checks (to eligible recipients) that 
can be endorsed and deposited directly into the farmer's checking 
account for immediate payment, others issue an actual coupon that must 
be submitted to the State agency, or to its agent, for review and 
payment. For the purposes of this rule, the term ``coupon'' is used 
generically to refer to either type of instrument.
    ``Distribution site.'' It is not always possible in the CSA program 
model for SFMNP recipients to travel to the farm where the fruits and 
vegetables are actually grown. Nor is it always cost-efficient for the 
State agency to include in its CSA contract a provision for the farmer 
to assemble and deliver the food packages to individual SFMNP 
recipients. Therefore, many State agencies work with their CSA program 
farmers to identify one or more locations where recipients or local 
agency staff can go on a predetermined schedule to obtain their SFMNP 
foods. This rule includes a definition of

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``distribution site'' to refer to such locations.
    ``Eligible foods.'' One of the stated purposes of the SFMNP is to 
provide eligible recipients with ``fresh, nutritious, unprepared foods 
(such as fruits and vegetables).'' The Department realizes that a broad 
variety of foods are available at farmers' markets and roadside stands, 
and through CSA programs, that are not fresh and unprepared, including 
jams and jellies, baked goods, maple syrup, cider and fruit juices, and 
cheese. Such foods are not eligible foods for the SFMNP.
    Among the remaining food choices that meet the fresh, nutritious 
and unprepared criteria, the Department decided to limit eligible foods 
to fresh fruits, vegetables, and herbs. As a result, although some 
foods in addition to fruits, vegetables, and herbs may be considered 
``fresh, nutritious, and unprepared,'' they are excluded as eligible 
foods. These include honey, as well as protein foods such as eggs, raw 
seeds and nuts, meats, fish and seafood. Honey is neither a fruit nor a 
vegetable; it is further excluded from consideration as an eligible 
food in the interest of consistency with the FMNP, which does not allow 
the purchase of honey with program benefits.
    The definition of ``eligible foods'' in the SFMNP regulation is 
consistent with the one that has been used consistently in the SFMNP 
grant solicitations since the inception of the program, and is the one 
with which participating SFMNP State agencies are most familiar. This 
definition, which specifically addresses questions regarding the 
eligibility of certain specific food items, as well as certain types of 
foods, is in the Department's opinion more responsive to the issues 
that have arisen or are likely to arise in the operation of the SFMNP. 
For example, the proposed definition at Sec.  249.2 states that dried 
fruits and vegetables, such as prunes, raisins, sun-dried tomatoes, or 
dried chili peppers are ineligible for purchase with SFMNP benefits. 
Potted fruit, vegetable, or herb plants, dried herbs, wild rice, and 
nuts of any kind are likewise ineligible.
    ``Farmer.'' The term ``farmer'' in this rulemaking refers to 
someone who has been authorized by the SFMNP State agency to sell 
produce at participating farmers' markets and/or roadside stands, and/
or through CSA programs. Individuals who exclusively sell produce grown 
by someone else, such as wholesale distributors, cannot be authorized 
to participate in the SFMNP. This is consistent with the definition of 
farmer under the FMNP and the Department's belief that the SFMNP should 
benefit smaller, local farmers. The SFMNP State agency may authorize 
individual farmers or farmers' markets, roadside stands, and/or CSA 
programs, at its discretion.
    ``Farmers' market.'' Pursuant to 7 U.S.C. 3007, two of the three 
stated purposes of the SFMNP are to increase the domestic consumption 
of agricultural commodities by expanding or aiding in the expansion of 
domestic farmers' markets, roadside stands, and CSA programs, and to 
develop or aid in the development of new and additional farmers' 
markets, roadside stands, and CSA programs. Because the stated purpose 
of the SFMNP is virtually identical to that of the FMNP, as proposed in 
Sec.  249.2, the definition of ``farmers' market'' is the same as the 
definition used for the FMNP.
    ``Federally recognized Indian tribal government.'' Federally 
recognized Indian tribal governments are defined at 7 CFR 3016.3, the 
Department's Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and local governments. Federally 
recognized Indian tribal governments are recognized as independent 
entities, and as such are eligible to apply for and receive SFMNP 
grants under the same terms and conditions as geographic State 
agencies. These entities may also participate in the SFMNP as local 
agencies under the auspices and jurisdiction of the SFMNP-administering 
State agency in the geographic State where the tribe or tribal 
organization is located.
    ``Fiscal year.'' As with all Federal grant programs, ``fiscal 
year'' refers to the Federal fiscal year which begins on October 1.
    ``Food costs'' refers only to the cost of eligible foods purchased 
at authorized farmers' markets, roadside stands, and/or through CSA 
programs. Such costs may not include expenses associated with printing 
or issuing SFMNP coupons or benefits in any form.
    ``Household.'' The definition of ``household'' for the SFMNP is the 
same as that used in the FMNP, i.e., a group of related or nonrelated 
individuals who are living together as one economic unit (7 CFR 248.2).
    ``Local agency.'' FNS proposes that ``local agency'' mean a 
nonprofit entity or local government agency that is responsible for one 
or more administrative functions of the SFMNP's program operation. Such 
functions include certifying eligible recipients, issuing SFMNP 
coupons, arranging for the distribution of produce through CSA 
programs, and/or providing nutrition education or information on the 
operational aspects of the Program to SFMNP recipients.
    ``Locally grown.'' Under the SFMNP, ``locally grown'' refers to 
eligible foods (fruits, vegetables, and herbs) grown within the borders 
of the administering State and at State option, areas in counties 
adjacent to that State. Consistent with the WIC Program, the FMNP, and 
other food assistance programs administered by the Department, the 
SFMNP values its partnership with American agriculture and therefore 
promotes the use of SFMNP coupons to purchase domestically grown 
products at participating outlets. Many States already prohibit the use 
of SFMNP coupons to purchase foods grown outside of that State. 
However, some States define ``locally grown'' as including the counties 
outside but adjacent to the State boundary. Therefore, this proposed 
rulemaking provides State agencies the option to define ``locally 
grown'' to include produce grown in areas of States adjacent to that 
State, as long as such areas are part of the United States. State 
agencies may want to consider the advantages of establishing ``locally 
grown'' guidelines for the purpose of improving marketing opportunities 
for local farmers. State agencies other than State Departments of 
Agriculture that are administering the SFMNP should work closely with 
their Agriculture counterparts to establish a definition of locally 
grown that is satisfactory to both entities, i.e., that offers SFMNP 
recipients a broad choice of eligible foods while serving to benefit 
that State's small or mid-size farmers.
    ``Nonprofit agency.'' Consistent with other FNS programs, 
``nonprofit agency'' refers to a private agency that is exempt from 
Federal income tax under the Internal Revenue Code of 1986, as amended 
(26 U.S.C. 1, et seq.). While a nonprofit agency may participate as a 
local agency in the operation and administration of the SFMNP, it may 
not serve as the lead State agency for the Program.
    ``Nutrition education.'' Nutrition education is an integral 
component of all FNS nutrition assistance programs, including the 
SFMNP. The Department does not prescribe specific requirements as to 
how nutrition education must be provided for the SFMNP. Instead, this 
proposed rule offers a definition that addresses the principal elements 
of nutrition education. That definition includes individual or group 
sessions that encourage SFMNP recipients to build healthful eating 
patterns and take action for good health, and the provision of 
materials that emphasize

[[Page 30563]]

relationships between nutrition and health. All nutrition education 
models, whether they involve individual counseling, group 
demonstrations, or written materials such as recipes and pamphlets 
about food safety, must be designed to take into consideration the 
individual's personal, cultural, and socioeconomic preferences and the 
current Dietary Guidelines for Americans.
    ``Proxy.'' Many seniors are eligible to receive SFMNP benefits but 
are unable to participate in the Program for a variety of reasons. Some 
of these obstacles include frail health or other physical limitations, 
and lack of transportation to and from the farmers' market, roadside 
stand, or CSA program distribution site. Several State agencies have 
addressed these problems by allowing an eligible senior to designate 
another individual as his/her authorized representative, or ``proxy'', 
to conduct the SFMNP transactions. Proxies may perform a number of 
functions, including applying for the SFMNP on behalf of the eligible 
senior, accepting and signing for SFMNP coupons or CSA program shares 
when they are issued, shopping for eligible foods at the market or 
roadside stand, and/or picking up and delivering eligible foods from a 
CSA program distribution site. Therefore, ``proxy'' is defined in this 
proposed rule to mean an individual authorized by an eligible senior to 
perform any and all of these functions, as long as the eligible senior 
ultimately receives the SFMNP benefits. State agencies generally 
require a proxy to present documentation, signed by the eligible 
senior, of his/her authorization to represent the senior in any SFMNP 
activity or transaction, and to be equally responsible for any program 
abuse or violation. The terms ``proxy'' and ``authorized 
representative'' may be used interchangeably for purposes of this 
program.
    ``Recipient.'' ``Recipient'' is defined for the SFMNP in this 
proposed rule as someone whose SFMNP eligibility has been determined 
based on the eligibility requirements of the program (described in 
detail in Section 6 of this preamble), and to whom coupons or 
equivalent benefits have been issued. A recipient may, at State agency 
option, be either an individual or a household. This distinction is 
discussed in greater detail later in this preamble.
    ``Roadside stand.'' Also known as a farmstand, ``roadside stand'' 
in the SFMNP refers to an outlet through which an individual farmer 
sells his/her produce directly to consumers. This is in contrast to a 
group or association of farmers selling their produce at a farmers' 
market or through a CSA program.
    ``Senior.'' For the SFMNP, ``senior'' generally refers to an 
individual not less than 60 years of age. However, State agencies have 
the option to establish the minimum age at older than 60. Some SFMNP 
State agencies currently use 62 or 65 as the minimum age for SFMNP 
eligibility. On the other hand, as discussed in proposed Sec.  
249.6(a)(1), State agencies may exercise the option to deem Native 
Americans who are 55 years of age or older as categorically eligible 
for SFMNP benefits. State agencies may also, at their discretion, deem 
disabled individuals under 60 years of age who are currently living in 
housing facilities occupied primarily by older individuals (60 years or 
older) where congregate nutrition services are provided, as 
categorically eligible to receive SFMNP benefits.
    ``Shareholder.'' Sometimes called a subscriber, a shareholder means 
a SFMNP recipient who does not receive his/her program benefits in the 
form of checks or coupons that can be used at established farmers' 
markets or roadside stands. Instead, the SFMNP State agency may elect 
to purchase a full or partial share in a community supported 
agriculture program, and to provide the eligible senior with SFMNP 
benefits in the form of actual eligible foods.
    ``State.'' Consistent with Section 15(i) of the Child Nutrition Act 
of 1966 (42 U.S.C. 1784(i)), ``State'' for the purposes of the SFMNP 
means any of the 50 States, the District of Columbia, the Commonwealth 
of Puerto Rico, the Virgin Islands, Guam, and as applicable, American 
Samoa or the Commonwealth of the Northern Marianas.
    ``State agency.'' ``State agency'' means the organizational unit 
within the State, U.S. Territory, or federally recognized Indian tribal 
government that has administrative responsibility for the SFMNP. This 
includes a State Department of Agriculture, Health, Social Services, a 
State Agency on Aging, or any other agency approved by the chief 
executive officer of the State (generally the Governor or Tribal 
Chief). A nonprofit agency may not be designated as a State agency for 
the SFMNP, but may operate as a local agency under the oversight of the 
State agency.
    ``SFPD.'' ``SFPD,'' the entity within FNS that oversees the 
administration of the SFMNP on a national basis, refers in this 
proposed rule to the Supplemental Food Programs Division of the Food 
and Nutrition Service (FNS) of the U.S. Department of Agriculture.
    ``State Plan.'' ``State Plan'' means a plan of SFMNP operation and 
administration that must be submitted annually to FNS. The State Plan 
describes the manner in which the State agency intends to implement, 
operate, and administer all aspects of the SFMNP within its 
jurisdiction. Specific requirements of the SFMNP State Plan are set out 
in Sec.  249.4 of this proposed rule.
    ``WIC Farmers' Market Nutrition Program'' or ``FMNP.'' The WIC 
Farmers' Market Nutrition Program (FMNP) refers to an existing program, 
originally authorized by the Farmers' Market Nutrition Act of 1992 
(Pub. L. 102-314), that was designed to provide resources to women, 
infants, and children who are nutritionally at risk (i.e., WIC 
participants), in the form of fresh, nutritious, unprepared foods (such 
as fruits and vegetables) that can be purchased at farmers' markets; to 
expand the awareness and use of farmers' markets; and to increase sales 
at such markets. Legislative language pertaining to the FMNP is found 
at Section 17(m) of the Child Nutrition Act of 1966 (42 U.S.C. 
1786(m)).

3. Administration (Sec.  249.3)

    FNS is responsible for the administration of the SFMNP within the 
Department, and will provide assistance to State agencies and evaluate 
all levels of Program operations to ensure that the goals of the 
Program are effectively and efficiently achieved. The Supplemental Food 
Programs Division and the FNS Regional offices are responsible for 
administration within FNS. Each State agency is responsible for the 
effective and efficient administration of the SFMNP within that State, 
and must provide guidance to cooperating State and local agencies on 
all aspects of SFMNP operations. State SFMNP coordinators/program 
managers are expected to communicate with the designated SFMNP contacts 
in the appropriate FNS Regional offices, as set forth in Sec.  249.26 
of this proposed rule, regarding SFMNP operations.
    SFMNP grant funds will be provided to the administering State 
agency or agencies designated by the Chief Executive Officer of the 
State or Indian tribal organization. A State agency may be the 
agriculture department, the health department, the State agency on 
aging, or other comparable agency within State government; an Indian 
tribe, band, or group recognized by the Department of the Interior; an 
intertribal council or group that is an authorized representative of 
Indian tribes, bands, or groups recognized by the Department of the 
Interior and that has an ongoing relationship with such tribes, bands, 
or groups for other purposes and has

[[Page 30564]]

contracted with them to administer the Program; or the appropriate area 
office of the Indian Health Service of the Department of Health and 
Human Services.
    As set forth in this proposed rule, the Chief Executive Officer of 
the State would be responsible for coordination between the agency 
designated to administer the SFMNP and any other State, local or 
nonprofit agency, as necessary, by requiring written agreements between 
the agencies. In order to guarantee further successful operation, State 
agencies will need to ensure that sufficient staff is available to 
administer an efficient and effective Program, and to provide an 
outline of administrative staff and job descriptions for staff whose 
salaries will be provided in any part from SFMNP funds. Also as set 
forth in this proposed rulemaking, the availability of up to 8 percent 
of the Federal SFMNP grant for administrative funding for SFMNP 
operations (which was not available when the SFMNP was administered as 
a competitive grant program) is expected to aid the staffing and 
administrative requirements of the Program.
    In the absence of Federal administrative funds for the SFMNP under 
the pilot program and the competitive grant program, State agencies 
operating the program have established effective and often creative 
networks and collaborations with other State, local, and private 
nonprofit agencies and organizations in order to accomplish their goals 
and objectives for the SFMNP. The Department encourages all 
participating SFMNP State agencies to continue not only working within 
the networks that have already been established, but also to broaden 
and enhance these collaborations within the framework of the SFMNP as a 
permanent program. Although some administrative costs may now be 
covered by the Federal SFMNP grant (see section 14-c of this preamble), 
State agencies should keep in mind that SFMNP funds used to defray an 
administrative expense may also represent a reduction in the number of 
eligible recipients to whom SFMNP benefits can be provided. The 
Department does not intend to impose a stringent maintenance of effort 
provision that would require SFMNP State agencies to sustain the 
current level of non-Federal administrative support (cash as well as 
in-kind contributions) that has been available for the operation and 
administration of the SFMNP when it was a competitive grant program. 
The Department believes that in addition to protecting State agencies 
from the potential of significantly reducing their recipient base, 
there are many other benefits to maintaining these coordinated 
relationships wherever possible--streamlined service delivery, 
effective cross-program referrals, and better-targeted nutrition 
education modules, to name a few.

4. State Plan Provisions (Sec. 249.4)

    In establishing the SFMNP as a permanent program, Congress gave the 
Department the authority to set out basic standards and requirements 
for its operation. Consistent with other FNS nutrition assistance 
programs, each State agency that desires to receive a SFMNP grant, 
including State agencies currently participating in the SFMNP, will 
need to submit a State Plan of Operation for approval by the 
Department. These State Plans will be due by November 15 of each year.
    The State plan process replaces the grant application process that 
was used for the SFMNP since its inception in FY 2001. This proposed 
rule sets out at Sec.  249.4(a) the specific elements that are 
necessary to the approval of each State Plan submitted to the 
Secretary. A complete list of the proposed State Plan requirements is 
contained in proposed Sec.  249.4.
    The Department recognizes that many State agencies administering 
the SFMNP also administer the FMNP. Furthermore, many of the 
administrative provisions required for the SFMNP and FMNP State plans 
are identical. In an effort to minimize the administrative burden for 
these State agencies, the Department will allow them to submit one 
consolidated State Plan of Operation for both programs in accordance 
with guidance provided annually by FNS. This option will be available 
only to those State agencies that serve as the lead State agency for 
both programs. If the FMNP is administered by the WIC State agency and 
the SFMNP in that same State is administered by the State Department of 
Agriculture, then two separate State Plans of Operation must be 
submitted to FNS. Similarly, if the State Department of Agriculture 
administers the FMNP but the State Agency on Aging is the lead agency 
for the SFMNP, both of these State agencies must submit separate State 
Plans to the appropriate FNS Regional Office. In instances such as 
these, the individual State agencies will be responsible for 
coordinating any joint or overlapping functions, and for ensuring that 
all areas of overlapping functions are fully described in both State 
Plans. Examples of overlapping functions may include authorization, 
training, and monitoring of farmers, farmers' markets, and/or roadside 
stands; nutrition education classes and food demonstrations; and 
certification of and issuance to SFMNP recipients.
    Some of the issues related to the CSA program models used to 
deliver SFMNP benefits are addressed separately in this preamble. 
However, because CSA programs differ so significantly from the 
traditional coupon model, specific provisions pertaining to CSA 
programs will also be required as part of the SFMNP State Plan, as 
proposed at Sec.  249.4(a)(12).
    As noted above, State Plans of Operation are due to FNS by November 
15 of each year. Substantive changes in SFMNP operations that are 
anticipated for the coming year or market season, such as the addition 
of new service delivery areas or new procedures for certifying eligible 
recipients should be included, and fully described in the regular 
November 15 submission, whenever possible. The Department understands 
that alterations and modifications are sometimes necessary for the 
current year's program operation after the State Plan has already been 
submitted and approved. In the event that a State agency significantly 
modifies any aspect of its program operation or administration, e.g., 
the addition of a new partner agency or a change in its procedure for 
issuing coupons to eligible recipients during the course of the market 
season, a State Plan amendment must be submitted to FNS for approval. 
The State agency may not implement the requested modification until 
formal (written) approval has been received from FNS. These 
clarifications are described in proposed Sec.  249.4(b) of this rule. 
In addition, FNS plans to issue detailed guidance regarding the 
required content of the State Plan of Operation to all currently 
participating SFMNP State agencies, as well as to other interested 
State agencies, in advance of the November 15, 2005 deadline.

5. Selection of State Agencies (Sec.  249.5)

    Two major questions arose out of the Department's consideration of 
this issue:
    a. What entities should be eligible to serve as SFMNP State 
agencies, and
    b. Should current SFMNP grantees be grandfathered into the 
permanent program as participating State agencies?
    In regard to the first question (What entities should be eligible 
to serve as SFMNP State agencies?), the Department wishes to recognize 
and express its appreciation to those nonprofit organizations and local 
agencies, such as the Area Agencies on Aging, for their support and 
assistance in assuring the smooth operation of the

[[Page 30565]]

SFMNP at the local level. However, the nutrition assistance programs 
administered by FNS are generally structured so that Federal program 
grants are allocated to designated State agencies. All States, United 
States Territories, and federally recognized Indian tribal governments 
were eligible to receive SFMNP grants through a competitive process. As 
defined in the SFMNP grant solicitations used in the past, SFMNP State 
agency eligibility was limited to State Departments of Agriculture, 
Aging, Health, or any other agency approved by the chief executive 
officer of the State. The FMNP regulations at 7 CFR 248.2 provide a 
broader definition of State agency to include an intertribal council or 
group that is an authorized representative of Indian tribes, bands, or 
groups recognized by the Department of the Interior and that has an 
ongoing relationship with such tribes, bands, or groups for other 
purposes, and has contracted with them to administer the Program; or 
the appropriate area office of the Indian Health Service. Because of 
the FMNP, many of these entities--including all six of the Indian 
tribal organizations currently participating in the SFMNP--already have 
structures in place to administer the program.
    Therefore, at proposed Sec.  249.2, the Department sets out a 
specific definition of ``State agency'' for the SFMNP. We believe that 
the entities included in this definition are the most appropriate 
entities to administer the SFMNP. As appropriate, these entities may 
subcontract with nonprofit or local level organizations to perform 
specific functions, such as recipient outreach and certification, 
nutrition education, coupon issuance, market management, and/or coupon 
reconciliation.
    The implications of the second question (Should current SFMNP 
grantees be grandfathered into the permanent program as participating 
State agencies?) are significant with respect to the future growth and/
or expansion of the SFMNP. Since the inception of the pilot program in 
FY 2001, SFMNP grants have been awarded through a competitive grant 
process. In FY 2002, funds were not sufficient to award grants to all 
State agencies that operated the program in FY 2001 and applied in FY 
2002. Therefore, State agencies that operated the program in FY 2001 
and wanted to continue had to compete with new State agencies for 
available program funds. Initially, given limited funds, some State 
agencies that operated the program in FY 2001 were not chosen to 
operate the SFMNP in FY 2002. However, through Section 4402 of the Farm 
Bill (Pub. L. 107-171), Congress authorized the use of additional 
Commodity Credit Corporation funds for the SFMNP. During a Senate floor 
colloquy between Senators Kohl and Harkin on the day that the Farm Bill 
was passed by the Senate (May 8, 2002), and later confirmed in a letter 
to the Secretary of Agriculture, FNS was directed to provide funding to 
State agencies that were not selected during the FY 2002 grant review 
process, but who operated the SFMNP in FY 2001. For FY 2003 and FY 
2004, current grantees were guaranteed a base level of funding. 
Therefore, based on Congress' intent in FY 2002, the Department has set 
a precedent of guaranteeing funding to State agencies that have 
participated in the SFMNP in the prior year and who wish to continue 
operating during the next year. The Department, therefore, will 
grandfather all current SFMNP grantees into the permanent program as 
participating SFMNP State agencies. This means that any State agency 
that received an SFMNP grant award in FY 2005 will be guaranteed an 
SFMNP grant in FY 2006. As proposed at Sec.  249.14, the actual amount 
of each State agency's base grant would be equal to the total Federal 
funds received in FY 2005, contingent upon the availability of 
sufficient funds for the SFMNP and an approved State Plan. The National 
Association of Farmers' Market Nutrition Programs (NAFMNP) supports 
this provision.
    New State agencies wishing to participate in the SFMNP will have 
their State plans approved and ranked based on objective criteria 
established by FNS. Such criteria may include: the amount of funding 
requested (in proportion to the amount of funding available), the 
number of recipients projected to be served, and the projected benefit 
level.

6. Recipient Eligibility (Sec.  249.6)

a. Categorical Eligibility
    Based primarily on other FNS programs that serve low-income elderly 
persons, categorical eligibility was established for the SFMNP pilot 
program in FY 2001 to refer to individuals 60 years of age and older, 
unless grantees applying to operate the SFMNP could provide 
justification to FNS for a lower age limit. Most State agencies have 
used the age of 60 as the minimum age for SFMNP recipients, with a few 
notable exceptions. FNS is proposing that all SFMNP State agencies 
would have the option to establish a higher age limit, such as 62 or 65 
years of age, at their discretion, based on the particular needs of the 
elderly populations in their States.
    Both the Food Stamp Program (7 CFR 271.2) and the Commodity 
Supplemental Food Program (CSFP) (7 CFR 247.2) define ``elderly'' to 
mean at least 60 years old. However, the Bureau of Indian Affairs 
defines ``elders'' and ``elderly'' for the Native American population 
as 55 years of age or older. Therefore, federally recognized Indian 
tribal governments that receive SFMNP grants, and other State agencies 
that serve Native American seniors, generally use 55 or older as the 
minimum age for Native Americans and 60 years of age for all other 
SFMNP recipients.
    In Sec. Sec.  249.2 and 249.6(a)(1) of this proposal, the 
Department defines a person categorically eligible for the SFMNP (a 
``senior'') as an individual 60 years of age or older. Indian tribal 
organizations administering the SFMNP are afforded the option to deem 
Native Americans who are 55 years of age or older as categorically 
eligible for SFMNP benefits. This position is consistent with existing 
legislation, policy and practice in other FNS and Department of Health 
and Human Services (HHS) programs serving elderly individuals, such as 
congregate meals provided under the Older Americans Act, 42 U.S.C. 
3001, et seq. Under Section 339 of the Older Americans Act, Pub. L. 86-
73, as amended by Section 313 of the Older Americans Act Amendments of 
2000, Pub. L. 106-501, (42 U.S.C. 3030g.21(2)(h)), FNS has also 
approved requests from some SFMNP grantees to provide benefits to 
disabled individuals who live in senior housing facilities but have not 
yet reached the age of 60. It is permissible, but not required, to 
provide services to disabled individuals who reside in housing 
facilities occupied primarily by older individuals where congregate 
nutrition services are provided. HHS' Administration on Aging has 
advised us that most States require service to disabled individuals in 
these circumstances.
    Therefore, in proposed Sec.  249.6(a)(1), the Department allows 
State agencies the option to deem disabled individuals under 60 years 
of age, who live in housing facilities occupied primarily by older 
individuals where congregate nutrition services are provided, as 
categorically eligible for SFMNP benefits. SFMNP State agencies opting 
to serve such disabled individuals would be responsible for weighing 
the relative benefits of serving those persons in certain housing 
facilities against serving additional elderly recipients who are 60 
years of age and older in the

[[Page 30566]]

same, or possibly another, service delivery area.
b. Residency Requirement
    In this proposed rulemaking, the Department allows State agencies 
to establish a residency requirement for SFMNP applicants, in Sec.  
249.6(a)(2). Further, the Department allows State agencies the option 
to determine a service area for any local agency, and may require an 
applicant to reside within the service area at the time of application. 
However, State agencies are not permitted to impose any durational or 
fixed residency requirement. A ``fixed residency requirement'' is one 
that would require an applicant to have a permanent domicile in order 
to be eligible to receive SFMNP benefits.
c. Income Eligibility
    In developing this proposed rulemaking, FNS identified and 
considered three major aspects to the determination of income 
eligibility for the SFMNP, as follows:
    1. What should be the maximum allowable household income?
    2. Should FNS allow automatic income eligibility based on an 
individual's participation in other programs? If so, which programs 
should be included?
    3. How much documentation or verification of income eligibility 
should be required for SFMNP applicants?
    Income eligibility guidelines. Since the inception of the SFMNP, 
the maximum household income has been 185 percent of the annual poverty 
income guidelines, consistent with the WIC Program (Section 17(d)(A)(i) 
of the Child Nutrition Act of 1966, 42 U.S.C. 1786(d)(A)(i)), unless 
the grant applicant could provide justification to FNS for a higher 
limit. In FY 2004, 36 of the 47 participating SFMNP State agencies used 
a maximum income level of 185 percent of the poverty guidelines to 
determine income eligibility for the program. Seven State agencies 
linked SFMNP income eligibility to the maximum income limit used in the 
Commodity Supplemental Food Program (CSFP), i.e., 130 percent (7 CFR 
247.7(a)(3)). Other variations existed, such as between 150 and 200 
percent of the poverty income guidelines.
    In Sec.  249.6(a)(3), the Department proposes to retain the maximum 
income limit of 185 percent level for the SFMNP in this proposed 
rulemaking. The NAFMNP supports this proposal.
    Automatic income eligibility based on participation in other 
programs. Many SFMNP grantees use participation in other means-tested 
programs to determine eligibility for the SFMNP. The programs most 
frequently used to establish automatic SFMNP income eligibility are, as 
might be expected, the Food Stamp Program, the CSFP, and the Food 
Distribution Program on Indian Reservations (FDPIR). As indicated 
above, all of these programs use an income eligibility limit that is at 
or below 130 percent of poverty. Allowing eligibility for the SFMNP to 
be based on participation in another program for which income 
eligibility has already been established enables SFMNP State agencies 
to reduce their administrative burden significantly in terms of cost as 
well as staffing resources. It also facilitates the certification 
process for elderly recipients by minimizing the burden and amount of 
time involved in establishing eligibility for the SFMNP.
    Under this proposal, the Department will continue to allow State 
agencies the option to deem applicants automatically eligible for the 
SFMNP based on participation/certified eligibility to receive benefits 
in another means-tested assistance program, as determined by the State 
agency, as long as (1) income eligibility is set at or below the SFMNP 
maximum income, i.e., 185 percent of the annual poverty income 
guidelines, and (2) some form of documentation is required to establish 
income eligibility for that program.
    Documentation of income eligibility. Currently, most SFMNP grantees 
deem applicants automatically income eligible for the program based on 
participation in (or certified eligibility to receive benefits in) 
another means-tested program, such as the Food Stamp Program, CSFP, or 
FDPIR. In general, the remaining grantees have applicants either 
provide proof of participation in such a program, or sign an affidavit 
affirming that their household income does not exceed the State 
agency's maximum income limit for their individual household size.
    While the burden on participants is significantly lessened by 
allowing State agencies to deem seniors eligible for the SFMNP based on 
a signed affidavit, the Department is concerned that such convenience 
may be achieved at the expense of program integrity.
    Therefore, proposed Sec.  249.6(b) requires SFMNP applicants who 
are not automatically income eligible for the program based on 
participation in or certified eligibility for another means-tested 
program to provide documentation of family income at certification. 
State and local agencies have the option to verify reported income 
further, in order to confirm an applicant's income eligibility for the 
SFMNP.
d. Certification Periods
    The Department proposes to establish in Sec.  249.6(c) a 
certification period for SFMNP recipients. This is consistent with the 
establishment of certification periods for other FNS programs. 
Recipients may be certified only for the current fiscal year's SFMNP 
period of operation. Prior fiscal year certifications may not be 
carried over into subsequent fiscal years; however, the State agency 
may use recipient enrollment listings from the prior fiscal year in its 
outreach efforts for the current fiscal year. Certification for the 
SFMNP must be performed at no cost to the applicant or the authorized 
representative/proxy.
e. Rights and Responsibilities
    In Sec.  249.6(d), the Department would require State/local 
agencies to inform applicants or authorized representatives/proxies of 
their SFMNP rights and responsibilities. This includes informing such 
individuals of:
     The illegality of dual participation, i.e., obtaining 
SFMNP benefits from more than one service delivery area or from more 
than one SFMNP program model within the same service delivery area;
     Their rights and obligations under the program; and
     Information about the use of SFMNP coupons and/or access 
to produce under a CSA program.

This section also requires State/local agencies to notify applicants in 
writing if they are ineligible for SFMNP benefits (including the 
reasons for the determination of ineligibility), and of their right to 
a fair hearing. In addition, State/local agencies must provide written 
notification, including specified information, if a claim is assessed 
against an individual for improperly issued SFMNP benefits.
f. Use of Authorized Representatives/Proxies
    The Department allows State agencies in this proposal to permit 
seniors to designate authorized representatives/proxies to act on their 
behalf to apply for certification and/or redeem SFMNP coupons or pick 
up eligible foods at distribution sites. This provision is intended to 
accommodate those seniors who may be unable to apply in person or 
travel to markets, roadside stands and/or pick up eligible foods at CSA 
distribution sites. Currently, many SFMNP grantees authorize the use of 
authorized representatives/proxies.
g. Processing Standards/Waiting Lists
    SFMNP State agencies are required, in proposed Sec.  249.6(g), to 
notify applicants

[[Page 30567]]

of their eligibility or ineligibility for benefits, or placement on a 
waiting list, within 10 days from the date of application. Further, the 
Department requires State agencies to keep a waiting list of 
individuals who apply for benefits but cannot be served. This 
information will enable State/local agencies to certify individuals if 
funding within the State is reallocated based on need. The waiting list 
must include the name of the applicant, the date he/she was placed on 
the waiting list, and an address or phone number in order to contact 
the applicant. These requirements are consistent with the FNS-
administered CSFP, which also serves seniors.
h. Limitations on Certification
    As set forth in Sec.  249.6(h) of this proposed rule, State 
agencies may impose other eligibility requirements or priorities for 
receiving SFMNP benefits as may be deemed necessary. For instance, most 
State agencies limit distribution to specific geographic areas, and 
some give priority to homebound seniors.

7. Nondiscrimination (Sec.  249.7)

    This section of the proposed rule describes the requirements of the 
SFMNP related to compliance with existing civil rights provisions, 
including racial/ethnic participation reporting and provisions for 
handling complaints of alleged discrimination based on race, color, 
national origin, age, sex, or disability.
    As indicated in Sec.  249.7(a) of the proposed rule, Title VI of 
the Civil Rights Act of 1964 requires that racial and ethnic 
participation data be collected from all SFMNP benefit recipients. This 
requirement represents a departure not only from what has been required 
of SFMNP State agencies as grantees under the competitive grant 
process, but also from the data collection requirements of the FMNP. 
Participants in the FMNP are by definition WIC participants, and as 
such, the racial/ethnic information on these individuals is collected 
and reported through the WIC Program. The necessary racial and ethnic 
data for SFMNP recipients must be reported on a form provided by FNS, 
according to the categories established by the Office of Management and 
Budget's regulations at 62 FR 58781.

8. Level of Benefits and Eligible Foods (Sec.  249.8)

    Unlike the FMNP, for which minimum and maximum benefit levels were 
established by law, SFMNP State agencies have since the inception of 
the program been permitted to choose their benefit levels without any 
restriction on the amount provided to recipients. This has resulted in 
variation from State to State in the total food benefit level per 
person. In FY 2003, the total food benefit level per person in the 
SFMNP ranged from $10 to $315, with an average annual benefit level of 
$44. This variation occurred because State agencies had the flexibility 
to experiment with the factors contributing to the determination of an 
appropriate benefit level for their SFMNP recipients. Such factors 
included but were not limited to: the locations of farmers? markets 
relative to where seniors generally live and/or shop; the ability of 
farmers to offer a variety of fruits and vegetables over the course of 
a market season; the senior's physical ability to use the produce he/
she purchases effectively; and the length of the growing season. 
However, as a permanent program, the Department believes that there 
should be specific guidelines for a minimum and maximum benefit level 
in the SFMNP. In FY 2003, even with a wide range of recipient benefit 
levels, the majority (80 percent) of grantees had a benefit level of 
$50 or below. Only 6 of the 40 grantees had a benefit level of less 
than $20.
    By law, Section 17(m)(5)(C) of the Child Nutrition Act of 1966 (42 
U.S.C. 1786(m)(5)(C)), the total food benefit level per participant, 
per year, in the FMNP is a minimum of $10, and a maximum of $30. This 
level was not changed from the start of the program in 1989 until the 
enactment of Public Law 108-265, the Child Nutrition and WIC 
Reauthorization Act of 2004. When the original FMNP maximum benefit 
level of $20 is adjusted for inflation over the past 13 years, the 
benefit level increases to $40. Further, FMNP participants tend to 
belong to multi-member households receiving multiple program benefits, 
whereas the majority of SFMNP recipients tend to live alone or with 
only one other person.
    Based on these considerations, the Department proposes to set the 
SFMNP minimum and maximum annual benefit levels at $20 and $50, 
respectively, for all coupon issuance program models (farmers' markets, 
roadside stands and/or CSA programs). These levels should accommodate 
the majority of State agencies that already use a $20 benefit level, 
and are consistent with the current average benefit level of SFMNP 
benefits issued nationwide.
    Another issue related to SFMNP benefit levels involves whether the 
same benefit level should be required on a statewide basis. Currently, 
a few SFMNP State agencies provide different benefit levels to eligible 
recipients within their State. Their rationale for this disparity is 
that there are more markets in some areas of the State; therefore, the 
senior recipients in those areas are better able to utilize more 
coupons. However, this policy penalizes senior recipients who live in a 
different part of the State by assuming that they would not be able to 
use the higher benefit level if it were provided to them. State 
agencies have also justified the variation in SFMNP benefit levels by 
expressing a concern that when the SFMNP is expanding into other areas 
within that State, the recipients in the ``new'' area may not use some 
or any of their benefits, resulting in a low redemption rate. Thus, 
some State agencies provide a lower benefit level in order to determine 
the level of interest in program participation by eligible seniors. The 
Department is concerned that in program models such as this, all senior 
recipients are not given an equal opportunity to spend an equivalent 
value of benefits within the State. State agencies have the flexibility 
to reallocate any unspent funds to other areas of the State where the 
demand is greater if it becomes necessary at any time during the market 
season. In order to ensure equitable treatment in and access to the 
SFMNP, the Department proposes in Sec.  249.8(c) that all SFMNP 
recipients served by the State agency must be offered the same level of 
SFMNP benefits. Subsequently, the State agency may reallocate unspent 
SFMNP funds within local agencies/areas served based on need.
    However, the Department's experience with CSA programs as a benefit 
delivery model in the SFMNP has shown that it may not be practical to 
mandate exactly the same benefit level for CSA program recipients in 
the same State as SFMNP recipients to whom coupons are issued for use 
at farmers' markets and/or roadside stands. Therefore, the Department 
has determined that the same statewide benefit level does not have to 
be applied for SFMNP recipients who are receiving benefits through a 
CSA program; such recipients are eligible to receive up to $50 in SFMNP 
benefits, even if SFMNP recipients in that same State are issued only 
$20 in coupons to use at farmers' markets or roadside stands.
    Finally, the Department considered whether SFMNP benefits should be 
issued only on an individual basis, or if a provision should be 
included in the proposed rule to allow SFMNP benefits to be issued on a 
household basis. State agencies currently have the option to issue 
SFMNP benefits on an individual

[[Page 30568]]

or a household basis. For example, in a household of two seniors, each 
person could receive an individual benefit of $30, equaling a combined 
benefit of $60. Another option would be to limit the SFMNP benefits 
allocated to a single household to only $30, enabling the State agency 
to serve more eligible seniors with the $30 it has ``saved'' through a 
limitation on household benefit issuance. A few SFMNP State agencies 
that issue benefits on a household basis argue that this policy allows 
them to provide benefits to more seniors because the household benefit 
is more cost effective than the individual benefit level. FMNP 
regulations also permit State agencies to issue program benefits on a 
household basis rather than upon the number of persons in a household 
that are individually eligible to receive such benefits. However, the 
vast majority of SFMNP State agencies currently issue benefits on an 
individual basis. Regardless of which system is used, all State 
agencies are required to report recipient information on an individual 
basis. In the interests of consistency with the FMNP and the 
Department's desire to offer SFMNP State agencies flexibility, to the 
extent possible, in their program design, proposed Sec.  249.8(c) would 
allow SFMNP State agencies the continued option to issue program 
benefits on either an individual or a household basis, as long as State 
agencies continue to report recipient information to FNS on an 
individual basis. This option, if SFMNP State agencies choose to 
implement it, also allows more recipients to be served with limited 
funds.
    While this proposed rule defines in Sec. Sec.  249.2 and 249.8(a) 
eligible foods as fresh, nutritious, unprepared fruits, vegetables, and 
herbs, States must specifically identify in their State Plans those 
foods that may be purchased (Sec.  249.4(a)(4)(vii)). The value of the 
Federal benefits received by any recipient under the SFMNP may not be 
less than $20 or more than $50 per year, as discussed above. Most 
States participating in the SFMNP competitive grant program found that 
the most practical distribution of coupons for the SFMNP is in booklets 
made up of small-denomination coupons--$1, $2, $3, or $5. If the SFMNP 
coupon's face value exceeds the purchase price of the selected produce, 
farmers are prohibited from giving cash change to recipients. Instead, 
this difference may be made up by providing recipients with extra 
eligible foods in the approximate value of the difference.
    In the interest of enhancing local revenues, the Department 
recognizes and proposes to establish in Sec.  249.8(a) a State agency's 
option to allow only locally grown produce, as defined by the State 
agency, to be purchased by SFMNP coupon recipients. Some States may 
consider this an attractive option for ensuring that SFMNP benefits 
remain in the State. State agencies also have the option to define what 
they consider to be ``locally grown''. For instance, some State 
agencies, for various reasons such as availability of an adequate 
volume and variety of produce, may consider produce grown in adjacent 
States as locally grown. At the same time, other State agencies may 
define ``locally grown'' only to be produce grown within the State 
boundaries. SFMNP State agencies other than State Departments of 
Agriculture should remember to include their agriculture counterparts 
in any discussions of how to define ``locally grown'' for purposes of 
the SFMNP.
    Section 249.8(c)(3) proposes to prohibit sharing of food purchased 
through the SFMNP with non-participating household members. The 
Department recognizes the difficulty of enforcing such a provision, but 
maintains that it is nonetheless an extremely important one. SFMNP 
benefits are, in the vast majority of instances, issued to individuals 
with particular nutritional needs with the intention of improving that 
individual's diet by increasing his/her consumption of fresh fruits and 
vegetables. Therefore, program administrators can discuss this issue 
when recipients are certified and/or provided basic information about 
the SFMNP.

9. Nutrition Education (Sec.  249.9)

    The Department believes nutrition education to be an integral 
component of any effective nutrition assistance program. For this 
reason, SFMNP State agencies have been required, since the inception of 
the pilot program in FY 2001, to include nutrition education as part of 
their program design in order to receive a Federal SFMNP grant.
    Nutrition education has also long been the hallmark of several 
other FNS-assisted nutrition assistance programs, particularly the WIC 
Program and the FMNP, upon which the SFMNP is closely modeled. While 
nutrition education is being made increasingly available in other FNS 
programs, such as the Food Stamp Program, FDPIR, and CSFP, there is 
still no guarantee that SFMNP recipients are also participating in any 
of these programs, or that the focus of the nutrition education that is 
offered is appropriate for the SFMNP recipient population.
    This proposed rule, at Sec.  249.9, requires all participating 
State agencies to describe the nutrition education that will be 
provided to SFMNP recipients, including the agencies that will be 
responsible for providing the nutrition education (e.g., Cooperative 
Extension Service, local Area Agencies on Aging, etc.), the format(s) 
in which the nutrition education will be provided (e.g., recipe cards, 
cooking demonstrations, etc.), and the locations where the nutrition 
education is likely to be offered (e.g., senior centers, farmers' 
markets, common rooms in assisted living facilities). The content of 
the nutrition education should be age- and circumstance-appropriate for 
SFMNP recipients. FNS will continue to encourage State agencies to take 
advantage wherever possible of existing nutrition education 
opportunities for senior recipients.

10. Coupon, Market and CSA Program Management (Sec.  249.10)

a. General
    The proposed requirements in Sec.  249.10 regarding coupon and 
market management in the SFMNP are the same or similar to corresponding 
requirements in the FMNP, 7 CFR 248.10, which are predicated on 
legislative provisions contained in Section 17(m) of the Child 
Nutrition Act of 1966 (42 U.S.C. 1786(m)). In those States where both 
the SFMNP and the FMNP are operating, State agencies are encouraged to 
consolidate and/or coordinate their policies and activities whenever 
possible. State agencies may deem farmers, farmers' markets and/or 
roadside stands as automatically authorized to operate the SFMNP based 
on current authorization to operate the FMNP. This will not only save 
time and money for both programs, but will also aid participating 
farmers and market managers by establishing the same rules and 
requirements for both programs.
    The State agency is responsible for the fiscal management of, and 
accountability for, all authorized SFMNP outlets (farmers, farmers' 
markets, roadside stands and/or CSA programs). Farmers' markets are 
authorized by the State agency, which may administer the SFMNP directly 
or through a sub-agency such as a farmers' market association. Each 
State agency may authorize individual farmers, farmers' markets, CSA 
programs, or all three. Roadside stands are operated by individual 
farmers, so State agencies authorizing such outlets will have to have 
procedures for authorizing these individual farmers at a minimum. When 
the State agency authorizes farmers'

[[Page 30569]]

markets, the farmers' markets may authorize the farmers within the 
market to accept SFMNP coupons. Market managers often play an important 
role in the day-to-day management of the SFMNP, such as in the receipt 
of coupon batches from farmers and the reimbursement to farmers. 
Experience with the FMNP demonstration project (1989-1991) shows that 
the strongest markets were often those where the market manager had an 
active role in farmer training, compliance monitoring, reimbursing 
farmers, and redeeming coupons. Farmers at these markets were more 
likely to have a sound understanding of the demonstration project and 
to comply strictly with program guidelines. In contrast, where the 
market manager's role in the FMNP demonstration project was limited, 
there was usually greater misunderstanding among participating farmers 
about FMNP operations. In addition, FMNP participation was typically 
lower at markets with only minimal market manager involvement.
    State agencies have broad discretion in developing systems for 
SFMNP coupon, market, and CSA program management. They should keep in 
mind, however, that it is the State agency that is ultimately 
responsible for the fiscal management of, and accountability for, all 
authorized outlets. The State agency is responsible for establishing 
criteria for the authorization of farmers, farmers' markets, and/or 
roadside stands, as well as the number of outlets that it plans to 
authorize, as provided in Sec.  249.10 of this proposed rule. As 
indicated earlier in this preamble, the Department believes that the 
SFMNP is in significant part intended to help small, local farmers. 
State agencies may limit the foods eligible for purchase under the 
SFMNP to those locally grown, as defined by the State. To support this 
objective further, individuals who exclusively sell produce grown by 
someone else (such as wholesale distributors) are not eligible to 
participate in the SFMNP. This requirement does not apply to 
individuals who have been employed by an authorized farmer to sell his 
produce at the farmers' market or roadside stand, to individuals hired 
by a nonprofit organization to sell produce at urban farmstands on 
behalf of local farmers, or to individuals hired by a CSA program to 
represent the farm(s) offering shares in that season's harvest.
    When SFMNP coupon reimbursement is delegated to farmers' market 
managers, farmers' market associations or non-profit organizations, or 
farmers' cooperatives (in the case of some CSA programs), State 
agencies may establish appropriate bonding procedures for these 
entities. The State agency may determine the best procedures to put in 
place for bonding. Costs of such bonding are not reimbursable 
administrative expenses. Additional criteria and requirements for 
authorizing farmers, farmers' markets, and/or CSA programs are 
identified in Sec.  249.10 of this proposed rule.
b. Agreements
    Section 249.10(b) of this proposed rule outlines the contents of 
the farmers' market/CSA program agreement. These agreements may be 
between the State agency and an authorized farmer, an authorized 
farmers' market, or an authorized CSA program, and may be no more than 
3 years in duration. State agencies have the option to authorize 
individual farmers, as long as written agreements with these 
individuals are executed. State agencies that operate both the SFMNP 
and the FMNP may execute a single agreement that includes both 
programs, as long as any requirements specific to only one of the 
programs, such as CSA programs for the SFMNP, are included either in 
the body of or as an appendix to the agreement.
    It is important that the agreement be signed by a representative 
who has the legal authority to obligate the farmer, farmers' market, 
roadside stand, and/or CSA program. The specific items that must be 
included in these agreements are listed in proposed Sec.  249.10(b), 
but the State agency may determine the exact wording to be used.
    The proposed rule also stipulates that the farmer, farmers' market, 
and/or roadside stand may neither seek restitution from SFMNP 
recipients for coupons not paid by the State agency, nor issue cash 
change for purchases that are in an amount less than the value of the 
SFMNP coupon(s). Regarding the second proposed prohibition, the 
Department recommends that SFMNP coupons be in small denominations, 
preferably $1 or $2, to present less of a problem in this area. Based 
on this recommendation, the difference between the purchase price and 
the value of the coupon should be less than $2. The Department, 
therefore, encourages farmers to adjust for any difference by adding 
more eligible produce to the purchase, such as an extra ear of corn or 
a small handful of cherries. Some State agencies, based on their 
experience with the FMNP, also encourage participating farmers to offer 
their produce for sale in units that are consistent with the coupon 
denominations, e.g., $2 baskets of tomatoes rather than $3 ones that 
would require the recipient to use $4 in coupons to make the $3 
purchase.
    Because they differ significantly from the traditional coupon model 
of SFMNP operations, the agreement provisions for CSA programs are set 
out separately under proposed Sec.  249.10(b)(3) and (b)(4).
c. Training
    Pursuant to Sec.  249.10(d), FNS is proposing that State agencies 
conduct annual training for farmers, farmers' market managers, and (as 
appropriate) CSA program managers. State agencies have discretion in 
determining the method used for training purposes. Training must 
include, at a minimum, dissemination of information concerning eligible 
foods, proper SFMNP coupon redemption procedures, including deadlines 
for submission of coupons for payment, and/or receipt of payment for 
CSA programs' distribution of eligible foods. Other points that must be 
covered in training are listed at proposed Sec.  249.10(d).
    Although these regulations would permit State agency discretion in 
determining the method of annual training, the State agency would be 
required to conduct a documented on-site visit. The visit could occur 
prior to or at the time of authorization, and must include, at a 
minimum, information concerning eligible foods, proper coupon 
redemption procedures, and/or proper payment procedures for CSA 
programs. For example, in a State with a 3-year agreement, a State 
agency could conduct an in-person training prior to or at the time of 
authorization, and if the agreement is renewed 3 years later, conduct 
another in-person training at least once during the next 3-year period. 
Other less comprehensive forms of training such as information handouts 
may be more appropriate for State agencies in the second or third years 
of operation under a SFMNP agreement. If a farmer or farmers' market is 
authorized to participate in both the SFMNP and the FMNP, State 
agencies are encouraged to consolidate the training offered to include 
both programs in the same visit or other training activity. However, 
State agencies must be careful to ensure that the differences between 
the SFMNP and the FMNP, such as different-colored coupons or checks, 
are highlighted in the training that is provided.
d. Monitoring
    The SFMNP has not had specific monitoring requirements as a 
competitive grant program, although grantees have been responsible for 
ensuring that only authorized outlets

[[Page 30570]]

accepted SFMNP coupons. In the case of CSA programs, grantees have been 
required to ensure that only authorized outlets accepted SFMNP funds; 
that only eligible foods were purchased with SFMNP monies; that no cash 
change was given for coupons. The monitoring requirements set out at 
Sec.  249.10(e) of the proposed rule are identical to those required 
under the FMNP, most of which have their basis in the experience 
gleaned from the FMNP demonstration projects that were operated from 
1989 through 1991.
    Pursuant to the proposed rule, State agencies would be required to 
conduct on-site monitoring visits to at least: 10 percent of authorized 
farmers, starting with the highest risk farmers and working down; 10 
percent of the highest risk farmers' markets and working down; and if 
applicable, 10 percent of the highest risk CSA programs and working 
down. Mandatory high-risk indicators are set out at Sec.  
249.10(e)(2)(ii) of this proposed rule.
    Participating State agencies have the option to conduct compliance 
buys and the Department encourages such activity when possible. A State 
agency may be required to conduct compliance buys as a follow-up 
measure when a farmer/farmers' market in a State is found to be out of 
compliance during an FNS management evaluation.
    Compliance activity can provide an objective measure of whether 
farmer training is adequate and whether farmers are following SFMNP 
rules such as not providing change, selling or providing only eligible 
foods to SFMNP recipients, and ensuring participation only by 
authorized farmers. In addition, compliance buys can induce compliance 
and provide a justification for sanctions and removal of noncompliant 
farmers.
e. Coupon Control and Payment
    Under proposed Sec.  249.10(f), State agencies would be responsible 
for the overall control and accountability of the receipt and issuance 
of SFMNP coupons. The State agency must also ensure that there is 
secure transportation and storage of unissued SFMNP coupons, and must 
design and implement a system of review of SFMNP coupons to detect 
errors. At a minimum, such errors must include a missing recipient 
signature (if required by the State agency), a missing farmer and/or 
market identifier, and redemption by a farmer outside of the valid 
date. The State agency must also implement procedures to reduce the 
number of errors in transactions, where possible. Section 249.10(g) of 
the proposed rule would require State agencies to ensure that farmers, 
farmers' markets, roadside stands, and/or CSA programs are promptly 
paid for all legitimate food costs.
f. Coupon Reconciliation
    Section 249.10(h), as proposed, requires the State agency to 
identify the disposition of all SFMNP coupons as validly redeemed, lost 
or stolen, expired, or not matching issuance records. This 
identification must be determined on a one-to-one reconciliation basis. 
Validly redeemed coupons are those that are issued to a certified 
recipient or his/her proxy, and redeemed by an authorized farmer, 
farmers' market, or roadside stand before the expiration date. Coupons 
that are redeemed but cannot be traced to a certified recipient/proxy 
or authorized farmer will be subject to claims action in accordance 
with Sec.  249.20 of this proposed rule. A State agency has the option 
to replace lost, stolen, or damaged coupons (or proof of shareholder 
status, for CSA programs), and must describe its system for doing so in 
the State Plan of Operations. A State agency must use uniform SFMNP 
coupons within its jurisdiction, which must include at a minimum, the 
specific information as proposed at Sec.  249.10(h)(3).
    Inclusion of individual farmer identifiers on all SFMNP coupons is 
a requirement in the SFMNP in this proposed rule in order to trace 
coupon redemption to an authorized farmer. This procedure is consistent 
with the system currently in place for FMNP coupon reconciliation. 
State agencies have the option to authorize either farmers' markets, 
individual farmers, or both. However, if the State agency authorizes 
farmers' markets and not farmers, an individual farmer identifier must 
be included on the coupon and a farmers' market identifier included on 
the batch set of coupons submitted by the farmers' market manager for 
reimbursement. Those State agencies that have agreements directly with 
individual farmers and not markets must include individual farmer 
identifiers on each redeemed coupon. A farmer identifier will provide 
protection for the farmers' market, because it is the individual farmer 
who may be identified and penalized for abuse rather than the entire 
market, if appropriate.
g. Instructions to Recipients
    In order for the SFMNP to be fully successful, Sec.  249.10(i) 
proposes that each SFMNP recipient receive instructions on the proper 
use of coupons, or participation in a CSA program (where applicable). 
Section 249.10(i) provides minimum standards for recipient education, 
including where and when SFMNP coupons may be used; what foods can be 
purchased with the checks or coupons; a reminder that cash change 
cannot be given for SFMNP purchases; how to designate a proxy or 
authorized representative if the recipient cannot do his/her own 
shopping; and how to complain about any aspect of the SFMNP that may be 
troublesome or unsatisfactory. SFMNP recipients who will be 
participating in the program through a CSA will also need information 
about the participating farmer(s) in the CSA; what foods will be 
provided to them; how often the foods will be distributed; and where it 
can be picked up.
h. Complaints and Sanctions
    Consistent with requirements already in place for the FMNP, 
proposed Sec.  249.10(j) requires that the State agency have procedures 
in place to document the handling of complaints from recipients and 
farmers/farmers' markets, roadside stands, and/or CSA programs. 
Complaints and allegations of civil rights discrimination are to be 
handled in accordance with Sec.  249.7(b) of this proposed rule.
    Section 249.10(k) proposes a number of provisions related to 
sanctions that would be applied in the SFMNP. The State agency would be 
required to establish policies that determine the type and level of 
sanctions to be applied against recipients and farmers, farmers' 
markets, roadside stands, and/or CSA programs, based on the severity 
and nature of the SFMNP violations observed, and such other factors as 
the State agency may determine to be appropriate. Farmers, farmers' 
markets, roadside stands, and/or CSA programs may be sanctioned, 
disqualified, or both, when appropriate. Sanctions may include fines 
for improper SFMNP coupon redemption procedures and the penalties 
outlined in Sec.  249.20, in cases of deliberate fraud.
    As mentioned earlier in this preamble, in those instances where 
compliance purchases are conducted, the results of covert compliance 
purchases can be a basis for farmer, farmers' market, and/or roadside 
stand sanctions. Any authorized farmer or outlet committing fraud or 
other unlawful activities is liable to prosecution under applicable 
Federal, State or local laws.
    State agency policies are required to ensure that a farmer who is 
disqualified from the SFMNP at one market, roadside stand, or CSA 
program may not participate in the SFMNP at any other

[[Page 30571]]

farmers' market, roadside stand, or CSA program within the State 
agency's jurisdiction during the disqualification period. Finally, 
State agency policies must require that a farmer, farmers' market, 
roadside stand, and/or CSA program that is disqualified from 
participating in the FMNP is also disqualified from participating in 
the SFMNP under the State agency's jurisdiction during the 
disqualification period. In those State agencies where different 
agencies or offices administer the SFMNP and the FMNP, the respective 
State agencies must develop a system for the prompt exchange of such 
disqualification information, given the relatively short operating 
timeframe for these programs.
i. Community Supported Agriculture (CSA) Programs
    As proposed in this rulemaking, the most significant difference 
between the FMNP and the SFMNP regarding market management procedures 
falls in the area of CSA programs, which are not allowable outlets for 
program funds in the FMNP. A detailed discussion of CSA programs and 
their unique requirements is provided below.
    Since its inception, the SFMNP was designed to permit recipients to 
use program benefits to obtain fresh fruits and vegetables at farmers' 
markets, roadside stands, and/or through CSAs. The use of CSA programs 
is a different program model from the standard issuance of paper 
coupons that are used at the more popular farmers' markets and roadside 
stands. In this alternative program model for the SFMNP, shares of an 
individual grower's or a group of growers' crops for that season are 
purchased by the SFMNP State agency on behalf of a certain number of 
eligible senior recipients, at the beginning of the planting season. 
Once the crops are ready to be harvested, standard packages of eligible 
foods, depending on the variety and types of fruits and vegetables that 
are available, are assembled and delivered to a central location (such 
as the local senior center) for distribution, or are delivered directly 
to recipients' homes. The majority of State agencies that include a CSA 
program component in their SFMNP operations only do so on a limited 
basis, in combination with the more traditional coupon model. However, 
at least two State agencies have operated their SFMNP programs 
exclusively through the CSA program model since the SFMNP began in FY 
2001.
    A SFMNP State agency that operates exclusively through a CSA 
program presents some unique challenges for effective Departmental 
oversight of the program. When the SFMNP was initiated as a pilot 
program, State agencies were given considerable latitude in their 
program design. CSA-based program models help to promote innovative 
ways to assist the small farmer who may not have the resources to 
transport his harvest and set up a booth at an established market. They 
may also work very well for programs that target homebound seniors who 
cannot get to markets to select and purchase their own produce.
    However, it is extremely difficult to ensure that program benefits 
are provided equitably to all recipients when CSAs are included as a 
component of the SFMNP. The actual value of the produce offered each 
week, or every other week, is dependent on a number of factors, some of 
which are entirely beyond the control of the farmer or the SFMNP State 
or local agency--weather, success of the crop, soil conditions, etc. If 
a SFMNP recipient is locked into a CSA program and one crop is 
unsuccessful, the recipient does not have the latitude simply to 
purchase another type of fruit or vegetable in its place or from an 
alternate authorized farmer. Currently, the benefit levels issued to 
coupon recipients may differ widely from the value of the shares 
provided to CSA program recipients within the same State when both 
program models are used.
    These intrinsic uncertainties, combined with the fact that the 
mission of FNS includes making sure that all of the programs 
administered by this agency are focused on providing nutritional 
benefits to as many eligible recipients as possible, have led the 
Department to propose in this rulemaking at Sec.  249.10(a)(3) that a 
State agency must limit the number of CSA programs to represent no more 
than 50 percent of the total Federal SFMNP food grant. This limitation 
is intended to allow the State agency the opportunity to work with its 
small farmers toward the development and use of a creative program 
operations model that also fulfills the expectations of programs funded 
through the Commodity Credit Corporation, yet balances the mission of 
FNS to ensure that recipients actually receive the food benefits in 
exchange for the coupons. The only exception to this requirement is 
allowed for SFMNP State agencies that are grandfathered into the SFMNP. 
A State agency that received a SFMNP grant under the competitive grant 
process and whose operations committed more than 50 percent of its 
SFMNP grant to a CSA program model before the implementation of this 
proposed rule may continue to use a larger portion of its grant for 
CSA's, at its discretion. However, all State agencies, regardless of 
grandfathered status, must abide by the requirements set forth in this 
rulemaking regarding maximum individual recipient benefit levels and 
accountability, as discussed at greater length later in this section of 
the preamble. State agencies that begin participation in the SFMNP 
after the publication of a final rule would not be permitted to use 
more than 50 percent of their grants for CSA program operations. This 
provision would also apply to current State agencies that under the 
competitive grant process did not exceed this limit.
    The Department proposes to establish at Sec.  249.8(b) one minimum 
and one maximum benefit level in the SFMNP, regardless of the program 
model used by the State agency. This requirement is likely to have a 
direct (and possibly prohibitive) impact on the CSA program models in 
use by SFMNP State agencies around the country. One of the difficulties 
FNS has encountered in its oversight of SFMNP State agencies that make 
extensive use of CSA programs to deliver program benefits to eligible 
recipients is the grantee's limited ability to attribute a specific 
benefit level to each individual recipient, and to ensure that the 
specific benefit level is consistently provided to each recipient. When 
crop shares are purchased at the beginning of the season, there is no 
positive assurance of the total value of produce that each shareholder 
will receive by the end of the season. Individual shares may be 
purchased, for example, at $100 each, but if there is a drought, flood, 
insect infestation or blight that adversely impacts the harvest, the 
farmer holding the SFMNP contract(s) may not be able to provide the 
full value of produce that was initially purchased by the State agency. 
In the more traditional coupon issuance system, however, if one farmer 
experiences a problem with his production, the SFMNP recipient still 
has a negotiable currency that can be used at another authorized 
farmer's booth and/or roadside stand.
    Beyond the inherent risk of inequitable benefit distribution 
systems among SFMNP recipients, CSA programs also present a challenge 
in terms of general program accountability. Currently, State agencies 
can only estimate the per-recipient benefit level when CSA program 
shares are purchased. As the SFMNP matures, it becomes increasingly 
important to be able to collect and compile aggregate data on specific 
aspects of program operations. SFMNP State agencies have not been 
required to provide data at this level of detail up to now; with the

[[Page 30572]]

implementation of the SFMNP as a permanent nutrition assistance 
program, such information will be essential.
    Therefore, in Sec.  249.10(b)(3)(vi), the Department proposes to 
require State agencies to enter into written agreements with CSA 
programs, to ensure that CSA programs track the value of program 
benefits actually provided to individual recipients and the remaining 
value owed, provide State agencies with access to such a tracking 
system, and ensure that the value of program benefits provided is 
consistent with program requirements addressing minimum and maximum 
benefit levels for each recipient.
    Finally, a few SFMNP State agencies have used a portion of their 
grants to purchase CSA program shares that are then used to supplement 
meals served at congregate feeding sites. While such a practice was 
technically allowable under the SFMNP competitive grants, primarily 
because there were no legislative or regulatory provisions to prevent 
it and the grants provided an opportunity to look at various program 
models, it is not consistent with the underlying intent of the SFMNP, 
which is to provide individual low-income seniors with a resource that 
benefits their diets directly, rather than through any type of 
congregate feeding program. Therefore, at Sec.  249.12(a)(3), this 
proposed rule specifically prohibits the use of any SFMNP funds to 
supplement congregate meal programs.

11. Financial Management System (Sec.  249.11)

    Based on the Department's experience with the SFMNP as a 
competitive grant program, participating SFMNP State agencies have 
financial management systems in place that provide accurate, current, 
and complete disclosure of the financial status of the SFMNP. State 
agencies have been cautioned expressly about the importance of 
maintaining separate accounts for the SFMNP and the FMNP, when 
applicable, and most State agencies are using a check system that 
expedites payment to farmers for SFMNP purchases. In accordance with 
the provisions of this proposed rulemaking, participating State 
agencies will be required to implement procedures that ensure prompt 
and accurate payment of allowable costs, and that ensure the 
allowability and allocability of costs in accordance with the cost 
provisions set forth in Sec.  249.11 of this proposed rule, 7 CFR Part 
3016, and FNS guidelines and Instructions.

12. SFMNP Costs (Sec.  249.12)

a. Administrative Funding
    Since the inception of the SFMNP as a pilot program in fiscal year 
2001, funds provided to State agencies through the competitive grant 
process have only been available to support the cost of the eligible 
foods obtained by SFMNP recipients. SFMNP grant funds have not been 
available to State agencies to cover any administrative costs 
associated with the operation and administration of the program, such 
as administrative oversight, printing coupons, coupon issuance, and/or 
authorization of farmers, farmers' markets, roadside stands, and/or CSA 
programs. Therefore, State agencies have heretofore been responsible 
for 100 percent of the administrative costs necessary to operate the 
SFMNP. In general, State agencies have indicated that their 
administrative costs for the SFMNP have amounted to approximately 16 
percent above the total Federal grant awards.
    Once the SFMNP is no longer operated as a competitive grant program 
and becomes one of the FNS' established nutrition assistance programs, 
there is a greater expectation that administrative costs be allowed as 
part of the Federal grant. Compensation for administrative costs is 
generally an allowable cost under FNS grant programs. However, SFMNP 
funds that are earmarked and used for administrative costs will reduce 
available program funds to provide eligible foods to eligible SFMNP 
recipients. The Department is willing, therefore, to allow a State 
agency to use up to 8 percent of its total Federal grant to defray 
administrative costs associated with the SFMNP, as described at Sec.  
249.12(a)(1)(i). This position is consistent with OMB Circular A-87 and 
the mission of this Agency to provide a level of administrative funding 
to help reasonably offset the costs for administering the program. The 
NAFMNP also supports allowing a portion of the Federal SFMNP grant 
funds to be used for administrative expenses.
b. Food and Administrative Costs
    In light of the preceding discussion, FNS is proposing that SFMNP 
costs consist of both food and administrative costs. Food costs, as set 
forth in Sec.  249.12(a)(1)(i) of this proposed rule, are the costs of 
eligible foods provided to SFMNP recipients. As discussed in Section 10 
of this preamble, SFMNP funds may not be used to supplement congregate 
meal programs.
    Administrative costs are those costs associated with providing 
benefits and services to recipients. A list of allowable administrative 
costs is set forth at proposed Sec.  249.12(b).

13. SFMNP Income (Sec.  249.13)

    Program income, as defined and explained in this proposed rule at 
Sec.  249.13, means gross income the State agency earns from grant 
supported activities. It includes fees for services performed and 
receipts from the use or rental of real or personal property acquired 
with Federal grant funds, but does not include proceeds from the 
disposition of such property. For example, if the SFMNP State agency, 
in the process of authorizing farmers and farmers' markets, also agrees 
to distribute an unrelated survey form to the farmers and markets 
visited by SFMNP staff on behalf of another State agency, the second 
State agency (who needs the survey form distributed) may agree to pay 
the SFMNP State agency a fee for performing this service. Any SFMNP 
income earned during the agreement period must be fully documented, 
retained by the SFMNP State agency, and used for SFMNP purposes in 
accordance with the addition method described in 7 CFR 3016.25(g)(2). 
Fines, penalties, or assessments paid by local agencies or farmers, 
farmers' markets, roadside stands, and/or CSA programs are also deemed 
to be program income.

14. Distribution of Funds (Sec.  249.14)

a. Base Grants
    In order to grandfather in those State agencies currently 
participating in the SFMNP competitive grant program, as previously 
discussed in Section 5 of this preamble, Selection of State Agencies, 
it is necessary to establish some fundamental principles for the 
allocation of SFMNP funds. In the grant program, the Department has 
established a base grant level for the SFMNP. For FYs 2002, 2003, and 
2004, SFMNP grants were based on each State agency's expenditure level 
from the prior fiscal year. Using this process, grant awards could not 
be announced until after closeout of the prior FY's operations in order 
to determine each State agency's prior year expenditure level. Many 
State agencies begin to plan program operations, print coupons, and 
certify senior recipients in advance of the announcement of grant 
awards. Basing SFMNP grants on expenditure levels from the prior year 
presents challenges for State agencies in their ability to plan current 
and future SFMNP operations effectively.

[[Page 30573]]

Therefore, Sec.  249.14(b) proposes that the base grant levels will be 
based on the prior fiscal year's grant levels, rather than on that 
fiscal year's expenditure levels. Providing each State agency a base 
grant level that consists of the total Federal funds received in the 
prior year allows them to plan their program operations more 
effectively and accurately. This procedure is also consistent with the 
allocation of FMNP base grants, and many SFMNP State agencies 
participate in both programs. Since the two programs are similar in 
their operations and their missions, there is interest in making SFMNP 
and FMNP requirements consistent wherever possible.
    In proposed Sec.  249.14(c), the Department states that if amounts 
appropriated for any fiscal year for the SFMNP are not sufficient to 
maintain prior fiscal year funding levels for each State participating 
in the SFMNP, each State's grant will be ratably reduced by FNS. For 
example, a State agency whose prior fiscal year's final grant 
represented 10 percent of the total SFMNP allocation in that fiscal 
year would receive 10 percent of whatever amount of funding is 
available for the SFMNP in the current fiscal year.
b. Expansion Funding
    For FY 2003 and FY 2004, current SFMNP State agencies wanting to 
expand, and new State agencies wanting to participate in the SFMNP for 
the first time, competed equally for the money left over after funding 
current States at their prior year's expenditure (base grant) levels. 
Given that the SFMNP is relatively new and with the initial success of 
the program, many current State agencies will likely want to expand 
their programs, and new State agencies will want to participate in the 
program. Additionally, in the first year of the SFMNP's operation as a 
permanent program, currently participating State agencies may need to 
request additional funds to replace those monies that may now be used 
to defray administrative expenses. Other State agencies that have been 
providing recipients with a benefit level lower than the minimum of $20 
established in Sec.  249.8 of this proposed rule may need to request 
additional SFMNP funds in order to bring their program fully into 
compliance with the proposed requirements. Therefore, while the 
Department in no way guarantees that State agencies in either of these 
situations will be provided the additional funds they may need, a 
funding structure is needed to accommodate growth in both areas. The 
FMNP regulations at 7 CFR 248.14 provide a funding structure for 
expansion of participating State agencies and new State agencies that 
could be used in the SFMNP. Under this FMNP regulation, after 
satisfying base grants, 75 percent of the remaining funding is 
available to those State agencies that wish to serve additional 
recipients, increase benefit levels, or offer program services in 
additional areas within the State. The remaining 25 percent is 
available to State agencies that have not previously participated in 
the FMNP. If either amount is greater than that necessary to satisfy 
requests for that category (e.g., current State agencies), the 
unallocated amount is then applied toward satisfying any unmet need in 
the other category (e.g., new State agencies). The Department describes 
at proposed Sec.  249.14(d) through (f) its intention to adopt this 
same process for the SFMNP. This will allow current State agencies to 
expand, and still allow new State agencies to participate in the SFMNP. 
Also, this process will provide consistency between the SFMNP and the 
FMNP. FNS' proposal is consistent with the NAFMNP recommendations that 
a funding structure and regulations be developed for the SFMNP that 
allow for the addition of new SFMNP State agencies.

15. Closeout Procedures (Sec.  249.15)

    This section of the proposed rule requires SFMNP State agencies to 
submit to FNS a final closeout report for each fiscal year on a form 
and by a date specified by FNS. It also establishes procedures to be 
followed, in accordance with 7 CFR Part 3016, when SFMNP grants to 
State agencies are terminated. All of the provisions proposed at Sec.  
249.15 are identical to those currently in place for the FMNP under 7 
CFR Part 248.

16. Administrative Appeal of State Agency Decisions (Sec.  249.16)

    As proposed in Sec.  249.16 of this rulemaking, SFMNP State 
agencies will be required to provide a hearing procedure whereby any 
entity (applicants, recipients, local agencies and farmers, farmers' 
markets, roadside stands, and/or CSA programs) adversely affected by 
certain actions of the State agency may appeal those actions. This 
section provides a list of the adverse actions that may be appealed. It 
also sets out the procedures that must be followed when an appeal is 
requested, and clarifies that appealing an adverse action does not 
relieve the entity that has been permitted to continue in the SFMNP 
while its appeal is pending from responsibility for continued 
compliance with the terms of the written agreement or contract with the 
State agency. Finally, Sec.  249.16 would require that the State agency 
explain the appellant's right to judicial review of any State level 
decision rendered against the appellant, and sets forth additional 
proposed appeals procedures for State agencies that authorize farmers' 
markets rather than individual farmers.

17. Management Evaluations and Reviews (Sec.  249.17)

    This proposed rulemaking would require FNS and each SFMNP State 
agency to establish a management evaluation system in order to assess 
the accomplishment of SFMNP objectives, the State Plan, and the written 
agreement with the Department. FNS will provide assistance to State 
agencies in discharging this responsibility, will establish standards 
and procedures to determine how well the objectives of this Part are 
being accomplished, and will implement sanction procedures as warranted 
by State SFMNP performance.
    The monitoring responsibilities of the SFMNP State agency (set out 
at proposed Sec.  249.17(c)) would be the same as those in place for 
the FMNP. As in the FMNP, this proposed rule would mandate that an 
authorized outlet's first year of operation in the SFMNP be considered 
a high-risk indicator. Other indicators are to be defined by the State 
agency. This section also proposes that all local SFMNP agencies within 
the State agency's jurisdiction be reviewed at least once every two 
years, and itemizes the aspects of program operation that should be 
monitored. Monitoring activities for the SFMNP and the FMNP should be 
coordinated and consolidated when a State agency administers both 
programs.

18. Audits (Sec.  249.18)

    SFMNP programs would be subject to audits under the same terms and 
conditions as the FMNP. This section assures access to any books, 
records, papers, and documents of the State agency and its contractors, 
for the purpose of making surveys, audits, examinations, excerpts, and 
transcripts, by the Secretary, the Comptroller General of the United 
States, or any of their duly authorized representatives, or by duly 
authorized State auditors. This section also describes the ability of 
the State agency to take exception to particular audit findings and 
recommendations, and the process to be used by FNS in obtaining 
corrective action regarding any SFMNP deficiencies identified in an 
audit. Finally, the Department requires State

[[Page 30574]]

and local SFMNP agencies to conduct independent audits in accordance 
with 7 CFR part 3015, Sec.  3016.26, or part 3051, as applicable, and 
allows a State or local agency to elect to obtain either an 
organization-wide audit or an audit of the SFMNP if it qualifies to 
make such an election under applicable regulations.

19. Investigations (Sec.  249.19)

    The Department would be allowed under this proposal to make an 
investigation of any allegation of noncompliance with this part and FNS 
guidelines and instructions. Further, under this proposed rule, at 
Sec.  249.19(b), the identity of every complainant must be kept 
confidential except to the extent necessary to carry out the 
investigation, or any related administrative hearing or judicial 
proceeding.

20. Claims and penalties (Sec.  249.20)

    This section identifies the circumstances under which the 
Department could assess a claim against a State agency, and establishes 
opportunity for the State agency to submit evidence, explanations, or 
information challenging such claim. The proposed rule also stipulates 
that interest must be charged on any outstanding claim or the unpaid 
balance of such a claim, and sets forth the penalties that must be 
applied in the event of embezzlement, willful misapplication, theft, or 
the fraudulent acquisition of any funds, assets, or property associated 
with the SFMNP. Such penalties may involve monetary restitution, 
imprisonment, or both.

21. Procurement and Property Management (Sec.  249.21)

    SFMNP State agencies would be required under this rule to comply 
with the same requirements set forth for the FMNP, at 7 CFR 248.21, for 
the procurement of supplies, equipment, and other services with SFMNP 
funds. These requirements are proposed by FNS to ensure that such 
materials and services are obtained for the SFMNP in an effective 
manner and in compliance with the provisions of applicable law and 
executive orders. The State agency is responsible for the settlement 
and satisfaction of all contractual and administrative issues arising 
out of procurements entered into in connection with the SFMNP. However, 
the State agency may use its own procurement regulations that reflect 
applicable State and local regulations, as long as procurements made 
with SFMNP funds adhere to the standards set forth in 7 CFR part 3016.

22. Nonprocurement/Suspension, Drug-Free Workplace, and Lobbying 
Restrictions (Sec.  249.22)

    SFMNP State agencies, under this proposed rule, are required to 
ensure compliance with the requirements of the Department's regulations 
governing nonprocurement debarment and suspension (7 CFR 3017), drug-
free workplace (7 CFR 3021), and the Department's regulations governing 
restrictions on lobbying (7 CFR part 3018), where applicable.

23. Records and Reports (Sec.  249.23)

    The Department proposes to require each State agency to maintain 
full and complete records concerning SFMNP operations. This section 
sets forth the types of records that must be maintained, the retention 
requirements for such records, and the requirements pertaining to 
access and availability of such records. The Department also requires 
State agencies to submit financial and SFMNP performance data on a 
yearly basis as specified by FNS, and identifies the minimum data that 
must be reported. Source documentation should be on file for all 
financial and SFMNP performance reports. These reports will also need 
to be certified as complete and accurate by the person given that 
responsibility by the State agency. The Department intends to use State 
agency reports to measure progress in achieving objectives set forth in 
the State Plan, the SFMNP regulations, and/or other State agency 
performance plans.

24. Confidentiality (Sec.  249.24)

    Consistent with the FMNP regulations, 7 CFR 248.24(c), the 
Department proposes that State agencies restrict the use or disclosure 
of information obtained from SFMNP applicants and recipients and 
generated by the program to certain individuals and/or entities. To 
ensure confidentiality, SFMNP State agencies may execute a written 
agreement to share certain information with other public organizations 
designated by the chief State agency officer that administer food, 
nutrition, or other assistance programs that serve persons 
categorically eligible for the SFMNP. Proposed Sec.  249.24(b) sets 
forth the specific terms of such a written agreement.

25. Other Provisions (Sec.  249.25)

    SFMNP recipients are often eligible to receive benefits under other 
Federal or State food or nutrition assistance programs, such as the 
Food Stamp Program, CSFP, or Meals on Wheels. Proposed Sec.  249.25(a) 
would clarify that participation in the SFMNP does not preclude a 
recipient from participating in food or nutrition assistance programs 
for which s/he may also be eligible. It also delineates, in proposed 
Sec.  249.25(b), the circumstances and conditions under which FNS is 
authorized to use information that is obtained from the SFMNP.

26. SFMNP Information (Sec.  249.26)

    This section lists the seven Regional offices of FNS, provides 
their contact information, and identifies the State agencies that are 
covered by each one.

27. OMB Control Number (Sec.  249.27)

    When provided, this section will identify the control number 
assigned by the Office of Management and Budget indicating its approval 
of the collection of information requirements for Part 249.

List of Subjects in 7 CFR Part 249

    Aging, Community supported agriculture programs, Elderly, Farmers, 
Farmers' Markets, Food assistance programs, Food donations, Grant 
programs, Nutrition education, Public assistance programs, Seniors, 
Social programs.

    Accordingly, 7 CFR part 249 is added to read as follows:

PART 249--SENIOR FARMERS' MARKET NUTRITION PROGRAM (SFMNP)

Subpart A--General
Sec.
249.1 General purpose and scope.
249.2 Definitions.
249.3 Administration.
Subpart B--State Agency Eligibility
249.4 State Plan.
249.5 Selection of new State agencies.
Subpart C--Recipient Eligibility
249.6 Recipient eligibility.
249.7 Nondiscrimination.
Subpart D--Recipient Benefits
249.8 Level of benefits and eligible foods.
249.9 Nutrition education.
Subpart E--State Agency Provisions
249.10 Coupon, market, and CSA program management.
249.11 Financial management system.
249.12 SFMNP costs.
249.13 Program income.
249.14 Distribution of funds.
249.15 Closeout procedures.
249.16 Administrative appeal of State agency decisions.
Subpart F--Monitoring and Review of State Agencies
249.17 Management evaluations and reviews.
249.18 Audits.

[[Page 30575]]

249.19 Investigations.
Subpart G--Miscellaneous Provisions
249.20 Claims and penalties.
249.21 Procurement and property management.
249.22 Nonprocurement debarment/suspension, drug-free workplace, and 
lobbying restrictions.
249.23 Records and reports.
249.24 Confidentiality.
249.25 Other provisions.
249.26 SFMNP information.
249.27 OMB control number.

    Authority: 7 U.S.C. 3007.

Subpart A--General


Sec.  249.1  General purpose and scope.

    (a) This part announces regulations under which the Secretary of 
Agriculture shall carry out the Senior Farmers' Market Nutrition 
Program (SFMNP). The purposes of the SFMNP are to:
    (1) Provide resources in the form of fresh, nutritious, unprepared, 
locally grown fruits, vegetables and herbs from farmers' markets, 
roadside stands, and community supported agriculture (CSA) programs to 
low-income seniors;
    (2) Increase the domestic consumption of agricultural commodities 
by expanding or aiding in the expansion of domestic farmers' markets, 
roadside stands, and CSAs; and
    (3) Develop or aid in the development of new and additional 
farmers' markets, roadside stands, and CSAs.
    (b) These goals will be accomplished through payment of cash grants 
to approved State agencies. The SFMNP shall be supplementary to the 
food stamp program carried out under the Food Stamp Act of 1977 (7 
U.S.C. 2011, et seq.), and to any other Federal or State food or 
nutrition assistance program under which foods are distributed to needy 
families in lieu of food stamps.


Sec.  249.2  Definitions.

    For the purpose of this part and all contracts, guidelines, 
instructions, forms and other documents related hereto, the term:
    Administrative costs means those direct and indirect costs (as 
defined in Sec.  249.12(a)(1)(ii)), exclusive of food costs, which 
State agencies determine to be necessary to support SFMNP operations. 
Administrative costs include, but are not limited to, the costs 
associated with administration and start-up; the provision of nutrition 
education; SFMNP coupon issuance; recipient education covering proposed 
coupon redemption procedures; eligibility determinations; outreach 
services; printing SFMNP coupons, processing redeemed coupons, and 
training farmers, market managers, and/or farmers who operate CSA 
programs on the food delivery system; monitoring and reviewing Program 
operations; required reporting and recordkeeping; determining which 
local sites will be utilized; recruiting and authorizing farmers, 
farmers' markets, roadside stands, and/or CSA programs to participate 
in the SFMNP; preparing contracts for farmers, farmers' markets, 
roadside stands, and/or CSA programs; developing a data processing 
system for redemption and reconciliation of coupons; designing program 
training and informational materials; and coordinating SFMNP 
implementation responsibilities between designated administering 
agencies.
    Community supported agriculture (CSA) program means a program under 
which a farmer or group of farmers grows food for a group of 
shareholders (or subscribers) who pledge to buy a portion of the 
farmer's crop(s) for that season. State agencies may purchase shares or 
subscribe to a community supported agriculture program on behalf of 
individual SFMNP recipients.
    Compliance buy means a covert, on-site investigation in which a 
SFMNP representative poses as a SFMNP recipient or authorized 
representative and attempts to transact one or more SFMNP coupons, or, 
in the case of CSA programs, attempts to obtain eligible foods 
purchased with SFMNP funds at a distribution site.
    Coupon means a check or other negotiable financial instrument by 
which benefits under the program are transferred to program recipients.
    Days means calendar days.
    Department means the U.S. Department of Agriculture.
    Distribution site means the location where packages of eligible 
foods are assembled for and/or distributed to SFMNP recipients who are 
shareholders in CSA programs.
    Eligible foods means fresh, nutritious, unprepared, locally grown 
fruits, vegetables and herbs for human consumption. Eligible foods may 
not be processed or prepared beyond their natural state except for 
usual harvesting and cleaning processes. Dried fruits or vegetables, 
such as prunes (dried plums), raisins (dried grapes), sun-dried 
tomatoes, or dried chili peppers are not considered eligible foods. 
Potted fruit or vegetable plants, potted or dried herbs, wild rice, 
nuts of any kind (even raw), honey, maple syrup, cider, seeds, eggs, 
meat, cheese and seafood are also not eligible foods for purposes of 
the SFMNP.
    Farmer means an individual authorized to sell eligible foods at 
participating farmers' markets and/or roadside stands, and through 
CSAs. Individuals who exclusively sell produce grown by someone else, 
such as wholesale distributors, cannot be authorized to participate in 
the SFMNP. A participating State agency has the option to authorize 
individual farmers or farmers' markets, roadside stands, and/or CSA 
programs.
    Farmers' market means an association of local farmers who assemble 
at a defined location for the purpose of selling their produce directly 
to consumers.
    Federally recognized Indian tribal government means the same as the 
definition of that term found at 7 CFR 3016.3, i.e., the governing body 
or a governmental agency of any Indian tribe, band, organization, or 
other organized group or community (including any Native village as 
defined in section 3 of the Alaska Native Claims Settlement Act, 85 
Stat. 688) certified by the Secretary of the Interior as eligible for 
the special programs and services provided by him through the Bureau of 
Indian Affairs.
    Fiscal year means the period of 12 calendar months beginning 
October 1 of any calendar year and ending September 30 of the following 
calendar year.
    FNS means the Food and Nutrition Service of the U.S. Department of 
Agriculture.
    Food costs means the cost of eligible foods purchased at authorized 
farmers' markets, roadside stands, and/or through CSA programs.
    Household means a group of related or nonrelated individuals who 
are living together as one economic unit.
    Local agency means any nonprofit entity or local government agency 
that certifies eligible recipients, issues SFMNP coupons, arranges for 
distribution of eligible foods through CSA programs, and/or provides 
nutrition education or information on operational aspects of the 
Program to SFMNP recipients.
    Locally grown means grown within the borders of the State that the 
project serves. If the State agency chooses, ``locally grown'' may also 
mean grown in areas of States adjacent to that State, as long as such 
areas are part of the United States.
    Nonprofit agency means a private agency that is exempt from the 
payment of Federal income tax under the Internal Revenue Code of 1986, 
as amended, (26 U.S.C. 1, et seq.).
    Nutrition education means:
    (1) Individual or group sessions; and

[[Page 30576]]

    (2) The provision of relevant materials, in keeping with the 
individual's personal, cultural, and socioeconomic preferences and the 
Dietary Guidelines for Americans, that:
    (i) Emphasize relationships between nutrition and health; and
    (ii) Encourage participants to build healthful eating patterns, and 
to take action for good health.
    OIG means the Department's Office of Inspector General.
    Program or SFMNP means the Senior Farmers' Market Nutrition Program 
authorized by Section 4402 of the Farm Security and Rural Investment 
Act of 2002, 7 U.S.C. 3007.
    Proxy means an individual authorized by an eligible senior to act 
on the senior's behalf, including application for certification, 
receipt of SFMNP coupons or other benefits, use of SFMNP coupons at 
authorized outlets, and/or acceptance of SFMNP foods provided through a 
CSA program, as long as the SFMNP benefits are ultimately received by 
the eligible senior. The terms ``proxy'' and ``authorized 
representative'' may be used interchangeably for purposes of this 
program.
    Recipient means a person or household who meets the eligibility 
requirements of the SFMNP and to whom coupons or equivalent benefits 
have been issued.
    Roadside stand means a location at which an individual farmer sells 
his/her produce directly to consumers. This is in contrast to a group 
or association of farmers selling their produce at a farmers' market or 
through a CSA program. The term ``roadside stand'' may be used 
interchangeably with the term ``farmstand'' as defined in Sec.  248.2 
of this chapter.
    Senior means an individual 60 years of age or older, or as defined 
in Sec.  249.6(a)(1).
    SFPD means the Supplemental Food Programs Division of the Food and 
Nutrition Service of the U.S. Department of Agriculture.
    Shareholder means a SFMNP recipient for whom a full or partial 
share in a community supported agriculture program has been purchased 
by the State agency, and who receives SFMNP benefits in the form of 
actual eligible foods rather than coupons that must be exchanged for 
eligible foods at farmers' markets and/or roadside stands.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and as 
applicable, American Samoa or the Commonwealth of the Northern 
Marianas.
    State agency means the agriculture, aging, or health department, or 
any other agency approved by the Chief Executive Officer of the State 
that has administrative responsibility for the SFMNP; an intertribal 
council or group that is an authorized representative of Indian tribes, 
bands, or groups recognized by the Department of the Interior and that 
has an ongoing relationship with such tribes, bands, or groups for 
other purposes and has contracted with them to administer the Program; 
or the appropriate area office of the Indian Health Service, a division 
of the Department of Health and Human Services.
    State Plan means a plan of SFMNP operation and administration that 
describes the manner in which the State agency intends to implement, 
operate and administer all aspects of the SFMNP within its jurisdiction 
in accordance with Sec.  249.4.
    WIC means the Special Supplemental Nutrition Program for Women, 
Infants and Children authorized by Section 17 of the Child Nutrition 
Act of 1966 (42 U.S.C. 1786).
    WIC Farmers' Market Nutrition Program (FMNP) means the nutrition 
assistance program authorized by Section 17(m) of the Child Nutrition 
Act of 1966 (42 U.S.C. 1786(m)), to provide resources to women, 
infants, and children who are nutritionally at risk, in the form of 
fresh, nutritious, unprepared foods (such as fruits and vegetables) 
from farmers' markets; to expand the awareness and use of farmers' 
markets; and to increase sales at such markets.


Sec.  249.3  Administration.

    (a) Delegation to FNS. Within the Department, FNS shall act on 
behalf of the Department in the administration of the SFMNP. Within 
FNS, SFPD and the FNS Regional Offices are responsible for SFMNP 
administration. FNS shall provide assistance to State agencies and 
evaluate all levels of SFMNP operations to ensure that the goals of the 
SFMNP are achieved in the most effective and efficient manner possible.
    (b) Delegation to State agency. The State agency is responsible for 
the effective and efficient administration of the SFMNP in accordance 
with the requirements of this Part; the requirements of the 
Department's regulations governing nondiscrimination (7 CFR parts 15, 
15a and 15b), administration of grants (7 CFR part 3016), 
nonprocurement debarment/suspension (7 CFR part 3017), drug-free 
workplace (7 CFR part 3021), and lobbying (7 CFR part 3018); FNS 
guidelines; FNS Instructions issued under the FNS Directives Management 
System; and Office of Management and Budget Circular A-130 (For 
availability of OMB Circulars referenced in this section, see 5 CFR 
1310.3). The State agency shall provide guidance to cooperating State 
and local agencies on all aspects of SFMNP operations. State agencies 
may operate the SFMNP locally through nonprofit organizations or local 
government entities and must ensure coordination among the appropriate 
agencies and organizations.
    (c) Agreement and State Plan. Each State agency desiring to 
administer the SFMNP shall annually submit a State Plan of Operations 
and enter into a written agreement with the Department for 
administration of the Program in the jurisdiction of the State agency 
in accordance with the provisions of this Part. If the State agency 
administers both the SFMNP and the WIC Farmers' Market Nutrition 
Program (FMNP), one consolidated State Plan may be submitted for both 
programs, in accordance with guidance provided by FNS.
    (d) Coordination with other agencies. The Chief Executive Officer 
of the State shall ensure coordination between the designated 
administering State agency and any other State, local, or nonprofit 
agencies or entities involved in administering any aspect of the SFMNP 
by ensuring that the agencies enter into a written agreement. The 
written agreement shall delineate the responsibilities of each agency, 
describe any compensation for services, and shall be signed by the 
designated representative of each agency.
    This agreement shall be submitted each year along with the State 
Plan.
    (e) State staffing standards. Each State agency shall ensure that 
sufficient staff is available to administer the SFMNP efficiently and 
effectively. This shall include, but not be limited to, sufficient 
staff to identify and certify eligible SFMNP recipients, provide 
program information and nutrition education to recipients, and to 
oversee coupon, market, and/or CSA program management, fiscal 
reporting, monitoring, and training. The State agency shall provide in 
its State Plan an outline of administrative staff and job descriptions 
for staff whose salaries will be paid from program funds.

Subpart B--State Agency Eligibility


Sec.  249.4  State Plan.

    (a) Requirements. By November 15 of each year, each applying or 
participating State agency shall submit to FNS for approval a State 
Plan for the following year as a prerequisite to receiving funds under 
this section. If the

[[Page 30577]]

State agency administers both the SFMNP and the FMNP, one consolidated 
State Plan may be submitted for both programs, in accordance with 
guidance provided by FNS. The State Plan must be signed by the State-
designated official responsible for ensuring that the Program is 
operated in accordance with the State Plan. FNS will provide written 
approval or denial of a completed State Plan or amendment within 30 
days of receipt. Portions of the State Plan that do not change annually 
need not be resubmitted. However, the State agency shall provide the 
title of the sections that remain unchanged, as well as the year of the 
last Plan in which the sections were submitted. At a minimum, the Plan 
must include the following items, which must include sufficient detail 
to demonstrate the State agency's ability to meet the requirements of 
the SFMNP:
    (1) A copy of the agreement between the designated administering 
State agency and any other cooperating State, local, or nonprofit 
agencies or organizations for services such as certification of 
eligible recipients, issuance of SFMNP coupons or benefits, and/or 
nutrition education, as required in Sec.  249.3(d).
    (2) A description of the State agency's procedures for identifying 
and certifying eligible SFMNP recipients, including the specific age 
and income criteria that will be used to determine SFMNP eligibility.
    (3) An estimated number of recipients for the fiscal year, and 
proposed months of operation.
    (4) A detailed budget for the SFMNP, including:
    (i) The minimum amount necessary to operate the SFMNP;
    (ii) A description of the Federal and non-Federal funds that will 
be used to operate the Program; and
    (iii) An assurance that no more than 50 percent of the Federal 
SFMNP grant will be used to support a CSA program model for the 
delivery of SFMNP benefits.
    (5) An outline of administrative staff and job descriptions.
    (6) A detailed description of the SFMNP recordkeeping system 
including, but not limited to, the system for maintaining separate 
records for SFMNP funds pertaining to financial operations, coupon 
issuance and redemption, authorization of farmers, markets, and/or CSA 
programs, distribution of eligible foods through CSA programs, and 
SFMNP participation.
    (7) A detailed description of the State agency's financial 
management system, including how the system will provide accurate, 
current and complete disclosure of the program's financial status and 
required reports.
    (8) A detailed description of the service area, including:
    (i) the number and addresses of authorized participating markets, 
roadside stands, and community supported agriculture programs; and
    (ii) SFMNP certification/issuance sites (such as senior centers or 
senior housing facilities), including a map outlining the service area 
and proximity of markets, roadside stands, and/or community supported 
agriculture programs to certification/issuance or distribution sites.
    (9) A description of the coupon issuance system including:
    (i) A description of how the State agency will target areas with 
the highest concentrations of eligible persons and greatest access to 
farmers' markets and/or roadside stands;
    (ii) The benefit level per recipient, or household if benefits are 
issued on a household basis, including:
    (A) How coupons will be issued;
    (B) The value of benefits provided to each recipient or household 
at each issuance during the year;
    (C) The frequency of coupon issuance; and
    (D) The total amount of SFMNP benefits issued to each recipient or 
household during the year;
    (iii) A method for instructing recipients on the proper use of 
SFMNP coupons and the purpose of the SFMNP;
    (iv) A method for ensuring that SFMNP coupons are issued only to 
eligible recipients; and
    (v) A method for preventing and identifying dual participation in 
accordance with Sec.  249.6(d)(1).
    (10) If the agency is using a ``paperless'' system, i.e., a system 
that does not issue actual coupons, a complete description of how such 
a system will be operated in a manner that ensures the integrity of 
SFMNP funds and benefits.
    (11) A detailed description of the SFMNP coupon redemption process 
including:
    (i) The procedures for ensuring the secure transportation and 
storage of SFMNP coupons;
    (ii) A system for identifying and reconciling SFMNP coupons; and
    (iii) The timeframes for SFMNP coupon redemption by recipients, 
submission for payment by farmers or authorized outlets (farmers' 
markets and/or roadside stands), and payment by the State agency.
    (12) A description of the State agency's CSA program, if 
applicable, including:
    (i) How the State agency will target and select community supported 
agriculture programs designed to provide SFMNP benefits to eligible 
recipients;
    (ii) The annual benefit amount per recipient or household, if 
benefits are issued on a household basis;
    (iii) How CSA program contracts are developed, negotiated, and 
executed by the State agency;
    (iv) How CSA program shares are allocated to eligible SFMNP 
recipients;
    (v) A method for instructing recipients and farmers participating 
in the CSA program on the purpose of the SFMNP, and the procedures for 
delivery and distribution of eligible foods provided for the SFMNP 
through the CSA;
    (vi) A system to ensure receipt by eligible recipients of eligible 
foods provided through a CSA program. Such a system should include a 
written receipt or distribution log, with the recipient's signature (or 
that of the eligible recipient's proxy, if proxies are allowed) and the 
date of each distribution;
    (vii) The payment procedures for the CSA program(s) used by the 
State agency;
    (viii) How the State agency ensures that the full value of eligible 
foods for which it has contracted is provided regularly throughout the 
SFMNP season;
    (ix) A listing of delivery dates and distribution sites for CSA 
program-provided eligible foods; and
    (x) A system for ensuring that each SFMNP shareholder receives an 
equitable amount of eligible foods at each delivery, and that the total 
value of the eligible foods provided under the SFMNP falls within the 
minimum and maximum Federal SFMNP benefit levels, as specified in Sec.  
249.8(b).
    (13) A complete description of age- and circumstance-appropriate 
nutrition education to be provided to SFMNP recipients, including:
    (i) The agencies that will provide the nutrition education;
    (ii) The format(s) in which the nutrition education will be 
provided; and
    (iii) The locations where nutrition education is likely to be 
provided.
    (14) A detailed description of the State agency's system for 
managing its coupon, market, and CSA program management systems, 
including:
    (i) The criteria for authorizing farmers' markets, roadside stands, 
and/or community supported agriculture programs, including the agency 
responsible for authorization;
    (ii) The procedures for training farmers, market managers, and/or 
CSA

[[Page 30578]]

program farmers at authorization, and annually thereafter;
    (iii) The procedures for monitoring farmers' markets, roadside 
stands, and/or community supported agriculture programs;
    (iv) A description of the State agency's system for identifying 
high-risk farmers and farmers' markets, roadside stands, and/or 
community supported agriculture programs, as set forth at Sec.  
249.10(e)(2)(ii);
    (v) The procedures for sanctioning farmers, farmers' markets, 
roadside stands, and/or community supported agriculture programs;
    (vi) A facsimile of the SFMNP coupon, including the denominations 
of coupons that will be issued, and a clear indication of where the 
recipient/proxy and (if applicable) farmer are required to sign, stamp, 
or otherwise endorse the coupon before it can be redeemed;
    (vii) A complete listing of the fresh, nutritious, unprepared 
fruits, vegetables, and herbs eligible for purchase under the SFMNP;
    (viii) A description of SFMNP coupon replacement policy or 
statement that coupons will not be replaced;
    (ix) The State agency's procedures for handling recipient and 
farmer/farmers' market, roadside stands, and CSA program complaints.
    (15) A system for ensuring that SFMNP coupons are redeemed only by 
authorized farmers/farmers' markets/roadside stands, and only for 
eligible foods.
    (16) A system for identifying SFMNP coupons that are redeemed or 
submitted for payment outside valid dates or by unauthorized farmers/
farmers' markets/roadside stands.
    (17) A copy of the written agreement to be used between the State 
agency and authorized farmers/farmers' markets, roadside stands, and/or 
community supported agriculture programs. In those States that 
authorize farmers' markets, but not individual farmers, this agreement 
shall specify in detail the role of and procedures to be used by 
farmers' markets for monitoring and sanctioning farmers, and the 
appropriate procedures to be used by a farmer to appeal a sanction or 
disqualification imposed by a farmers' market.
    (18) If available, information on the change in consumption of 
fresh fruits, vegetables, and herbs by SFMNP recipients. This 
information shall be submitted as an addendum to the State Plan and 
shall be submitted at a date specified by the Secretary.
    (19) If available, information on the effects of the program on 
farmers' markets, roadside stands, and/or community supported 
agriculture programs. This information shall be submitted as an 
addendum to the State Plan and shall be submitted at a date specified 
by the Secretary.
    (20) A description of the procedures the State agency will use to 
comply with the civil rights requirements described in Sec.  249.7(a), 
including the processing of discrimination complaints.
    (21) A copy of the State agency's fair hearing procedures for SFMNP 
recipients and the administrative appeal procedures for local agencies, 
farmers, farmers' markets, roadside stands, and/or CSA programs.
    (22) State agencies that have not previously participated in the 
SFMNP must provide:
    (i) A description of the need for the SFMNP in that State agency;
    (ii) The specific goals and objectives of the SFMNP, designed to 
fulfill the purpose of the Program as set forth in Sec.  249.1; and
    (iii) A capability statement that includes a summary description of 
any prior experience with farmers' market projects or programs, 
including information and data describing the attributes of such 
projects or programs.
    (23) For State agencies making expansion requests, documentation 
that demonstrates:
    (i) The need for an increase in funding;
    (ii) That the use of the increased funding will be consistent with 
serving eligible SFMNP recipients by expanding benefits to more 
persons, by enhancing current benefits, or a combination of both, and 
expanding the awareness and use of farmers' markets, roadside stands, 
and CSA programs;
    (iii) The ability of the State agency to operate the existing SFMNP 
satisfactorily;
    (iv) The management capabilities of the State agency to expand; and
    (v) Whether, in the case of a State agency that intends to use the 
funding to increase the value of the Federal benefits received by a 
recipient, the funding provided will increase the rate of coupon 
redemption.
    (b) Amendments. At any time after approval, the State agency may 
amend the State Plan to reflect changes. The State agency shall submit 
such amendments to FNS for approval. The proposed amendments shall be 
signed by the State-designated official responsible for ensuring that 
the SFMNP is operated in accordance with the State Plan. The amendments 
must be approved by FNS prior to implementation.
    (c) Retention of copy. A copy of the approved State Plan shall be 
kept on file at the State agency for public inspection.


Sec.  249.5  Selection of new State agencies.

    In selecting new State agencies, the Department will use objective 
criteria to rank and approve State plans submitted in accordance with 
Sec.  249.4. In making this ranking, the Department will consider the 
amount of funds necessary to operate the SFMNP successfully in the 
State compared with other States and with the total amount of funds 
available to the SFMNP, the number of recipients estimated to be 
served, and the projected benefit level. Approval of a State Plan does 
not equate to an obligation on the part of the Department to fund the 
SFMNP within that State.

Subpart C--Recipient Eligibility


Sec.  249.6  Recipient eligibility.

    (a) Eligibility for certification. Individuals who are eligible to 
receive Federal benefits under the SFMNP are those who meet the 
following criteria:
    (1) Categorical eligibility. Recipients must be not less than 60 
years of age, except that State agencies may exercise the option to 
deem Native Americans who are 55 years of age or older as categorically 
eligible for SFMNP benefits. State agencies may, at their discretion, 
also deem disabled individuals less than 60 years of age who are 
currently living in housing facilities occupied primarily by older 
individuals where congregate nutrition services are provided, as 
categorically eligible to receive SFMNP benefits.
    (2) Residency requirement. The State agency may establish a 
residency requirement for SFMNP applicants. The State agency may 
determine a service area for any local agency, and may require that an 
applicant be residing within the service area at the time of 
application to be eligible for the Program. However, the State agency 
may not impose any durational or fixed residency requirements.
    (3) Income eligibility. The State agency must ensure that local 
agencies determine income eligibility through the use of a clear and 
simple application process approved by the State agency. Recipients 
must have a maximum household income of not more than 185 percent of 
the annual poverty income guidelines, or be determined automatically 
income eligible based on current participation/eligibility to receive 
benefits in another means-tested program, as designated by the State 
agency, for which income eligibility is set at or below 185 percent of 
the poverty income guidelines and for which documentation of family 
income

[[Page 30579]]

is required. FNS will announce the income poverty guidelines annually.
    (b) Documentation of income eligibility. (1) Automatically income 
eligible applicants. The State or local agency must require applicants 
determined to be automatically income eligible to provide documentation 
of their eligibility to participate in another means-tested assistance 
program, as designated by the State agency.
    (2) Other applicants. The State or local agency must require all 
other applicants to provide documentation of family income at 
certification.
    (c) Certification periods. Recipients may be certified only for the 
current fiscal year's SFMNP period of operation. Eligibility must be 
determined at the beginning of each period of operation. Prior fiscal 
year certifications may not be carried over into subsequent fiscal 
years, but the State agency may make use of its recipient enrollment 
listings from the prior fiscal year in its outreach efforts for the 
current fiscal year.
    (d) Recipient rights and responsibilities. Where a significant 
number or proportion of the population eligible to be served needs this 
information in a language other than English, reasonable steps must be 
taken to provide the information in the appropriate language(s) to such 
persons, considering the scope of the Program and the size and 
concentration of such population(s). In order to inform applicants and 
participants or their authorized representatives/proxies of SFMNP 
rights and responsibilities, State/local agencies must provide the 
following information:
    (1) During the certification process, every program applicant or 
authorized representative must be informed of the illegality of dual 
participation, i.e., obtaining SFMNP benefits from more than one 
service delivery area or from more than one SFMNP program model (coupon 
system and CSA program) within the same service delivery area.
    (2) At the time of certification, each SFMNP applicant or 
authorized representative must read or have read to him or her the 
following statements or similar statements:
    ``I have been advised of my rights and obligations under the 
SFMNP. I certify that the information I have provided for my 
eligibility determination is correct, to the best of my knowledge. 
This certification form is being submitted in connection with the 
receipt of Federal assistance. Program officials may verify 
information on this form. I understand that intentionally making a 
false or misleading statement or intentionally misrepresenting, 
concealing, or withholding facts may result in paying the State 
agency, in cash, the value of the food benefits improperly issued to 
me and may subject me to civil or criminal prosecution under State 
and Federal law.
    Standards for eligibility and participation in the SFMNP are the 
same for everyone, regardless of race, color, national origin, age, 
handicap, or sex.
    I understand that I may appeal any decision made by the local 
agency regarding my eligibility for the SFMNP.''

    (3) At least during the initial certification visit, each recipient 
or authorized representative must:
    (i) Receive an explanation of how to use his/her SFMNP coupons at 
farmers' markets and roadside stands, and/or how SFMNP foods will be 
provided under the CSA program in that service delivery area; and
    (ii) Be advised of the other types of services that are available 
to SFMNP recipients, where such services are located, how they may be 
obtained, and why they may be useful.
    (4) Persons found ineligible for the SFMNP during a certification 
visit must be advised in writing of their ineligibility, of the reasons 
for their ineligibility, and of their right to a fair hearing. The 
reasons for ineligibility must be properly documented and must be 
retained on file at the local agency.
    (5) When a State or local agency pursues collection of a claim 
pursuant to Sec.  249.20(c) against an individual who has been issued 
SFMNP benefits for which s/he is not eligible, the person must be 
advised in writing of the reason(s) for the claim, the value of the 
improperly issued benefits that must be repaid, and of his/her right to 
a fair hearing.
    (e) Certification without charge. Certification for the SFMNP must 
be performed at no cost to the applicant or the authorized 
representative.
    (f) Use of proxies or authorized representatives. At the State 
agency's discretion, a senior may designate an authorized 
representative (proxy) to apply for certification, shop at the farmers' 
market or roadside stands, and/or pick up their eligible foods from CSA 
program distribution sites on his/her behalf if the senior is unable to 
perform these actions. The State agency must obtain a signed statement 
from the eligible senior designating another individual as his/her 
authorized representative. A senior who has been certified to receive 
SFMNP benefits may designate an authorized representative at any point 
during the program's period of operation.
    (g) Processing standards. (1) Applicants for the SFMNP must be 
notified of their eligibility or ineligibility for benefits, or of 
their placement on a waiting list, as described in paragraph (g)(2) of 
this section, within 10 days from the date of application.
    (2) When all available program benefits have been allocated to 
eligible recipients, the local agency must maintain a waiting list of 
individuals who contact the local agency to apply for the Program. 
Individuals must be notified of their placement on a waiting list 
within 10 days after they contact the local agency to request Program 
benefits. To enable the local agency to contact these individuals when 
caseload space becomes available, the waiting list must include the 
name of the applicant, the date placed on the waiting list, and an 
address or phone number of the applicant.
    (h) Limitations on certification. If necessary to limit the number 
of recipients, State agencies may impose additional eligibility 
requirements, such as limiting recipient certification to certain 
geographic areas. Each State agency must specifically identify these 
limitations on certification in its State Plan.


Sec.  249.7  Nondiscrimination.

    (a) Civil rights requirements. (1) The State agency must comply 
with the following requirements to ensure that no person shall, on the 
grounds of race, color, national origin, age, sex or disability, be 
excluded from participation, be denied benefits, or be otherwise 
subjected to discrimination, under the SFMNP:
    (i) Title VI of the Civil Rights Act of 1964;
    (ii) Title IX of the Education Amendments of 1972;
    (iii) Section 504 of the Rehabilitation Act of 1973;
    (iv) The Age Discrimination Act of 1975;
    (v) Department of Agriculture regulations on nondiscrimination (7 
CFR parts 15, 15a and 15b); and
    (vi) Applicable FNS Instructions, including requirements for racial 
and ethnic participation data collection, public notification of the 
nondiscrimination policy, and annual reviews of each local agency's 
racial and ethnic participation data (as required by title VI of the 
Civil Rights Act of 1964).
    (2) Compliance with Title VI of the Civil Rights Act of 1964, Title 
IX of the Education Amendments of 1972, Section 504 of the 
Rehabilitation Act of 1973, the Age Discrimination Act of 1975, and 
regulations and instructions issued thereunder shall include, but not 
be limited to:
    (i) Notification to the public of the nondiscrimination policy and 
complaint rights of recipients and potentially eligible persons, which 
may be satisfied

[[Page 30580]]

through the Department's required nondiscrimination statement on 
brochures and publications;
    (ii) Review and monitoring activity to ensure SFMNP compliance with 
the nondiscrimination laws and regulations; and
    (iii) Establishment of grievance procedures for handling recipient 
complaints based on sex and handicap.
    (b) Complaints. Persons seeking to file discrimination complaints 
may file them either with the Secretary of Agriculture, or the 
Director, Office of Civil Rights, USDA, Washington, DC 20250 or with 
the office established by the State agency to handle discrimination 
grievances or complaints. All complaints received by State agencies 
that allege discrimination based on race, color, national origin, or 
age shall be referred to the Secretary of Agriculture or the Director 
of the Office of Civil Rights, USDA. A State agency may process 
complaints that allege discrimination based on sex or disability if 
grievance procedures are in place.

Subpart D--Recipient Benefits


Sec.  249.8  Level of benefits and eligible foods.

    (a) General. State agencies must identify in the State Plan the 
fresh, nutritious, unprepared, locally grown fruits, vegetables and 
herbs that are eligible for purchase under the SFMNP. Eligible foods 
may not be processed or prepared beyond their natural state except for 
usual harvesting and cleaning processes. Dried fruits or vegetables, 
such as prunes (dried plums), raisins (dried grapes), sun-dried 
tomatoes, or dried chili peppers are not considered eligible foods in 
the SFMNP. Potted fruit or vegetable plants, potted or dried herbs, 
wild rice, nuts of any kind (even raw), honey, maple syrup, cider, 
seeds, eggs, meat, cheese, and seafood are also not eligible for 
purposes of the SFMNP. ``Locally grown'' means produce grown only 
within a State's borders but may be defined by State agencies to 
include border areas in adjacent States. Under no circumstances may 
produce grown outside of the United States and its territories be 
considered eligible food.
    (b) The value of the Federal benefits received. The Federal SFMNP 
benefit level received by each recipient, whether individual or 
household, may not be less than $20 per year or more than $50 per year, 
except that recipients who are participating in the SFMNP through a CSA 
program may receive a higher total benefit level than recipients 
participating in a check or coupon program model, as long as that level 
is consistent for all Senior CSA program participants and does not 
exceed the $50 annual maximum per individual or household.
    (c) Recipient or household benefit allocation. (1) All SFMNP 
recipients living in the areas served by the State agency must be 
offered the same amount of SFMNP benefits, regardless of the program 
model(s) used by that State agency.
    (2) Benefits may be allocated on an individual or on a household 
basis.
    (3) Foods provided are intended for the sole benefit of SFMNP 
recipients and are not to be shared with other non-participating 
household members.
    (4) Recipients must receive SFMNP benefits free of charge.


Sec.  249.9  Nutrition education.

    (a) Goal. Nutrition education shall emphasize the relationship of 
proper nutrition to the total concept of good health, including the 
importance of consuming fruits and vegetables.
    (b) Requirement. The State agency shall integrate nutrition 
education into SFMNP operations and may satisfy nutrition education 
requirements through coordination with other agencies within the State. 
State agencies wishing to coordinate nutrition education with another 
State agency or organization must enter into a written cooperative 
agreement with such agencies to offer nutrition education relevant to 
the use and nutritional value of foods available to SFMNP recipients. 
In cases where SFMNP recipients are receiving relevant nutrition 
education from an agency other than the administering State agency, the 
provision of nutrition education is an allowable administrative cost 
under the SFMNP.

Subpart E--State Agency Provisions


Sec.  249.10  Coupon, market, and CSA program management.

    (a) General. This section sets forth State agency responsibilities 
regarding the authorization of farmers, farmers' markets, roadside 
stands, and/or CSA programs. The State agency is responsible for the 
fiscal management of and accountability for SFMNP-related activities 
for farmers, farmers' markets, roadside stands, and CSA programs. Each 
State agency may decide whether to authorize individual farmers and 
farmers' markets separately, or to authorize only farmers' markets. In 
addition, each State agency may decide whether to authorize roadside 
stands and/or CSA programs. The State agency may authorize a farmer for 
participation in a farmers' market, a roadside stand, and/or CSA 
program simultaneously. All contracts or agreements entered into by the 
State agency for the management or operation of farmers, farmers' 
markets, roadside stands, and/or CSA programs shall conform with the 
requirements of 7 CFR part 3016.
    (1) Only farmers, farmers' markets, and/or roadside stands 
authorized by the State agency may redeem SFMNP coupons. Only farmers 
authorized by the State agency, or having a valid agreement with an 
authorized farmers' market, may redeem coupons. Only CSA programs 
authorized by the State agency may receive payment from the State 
agency at the beginning of the planting season, in order to provide 
eligible foods to senior recipients who are shareholders.
    (2) The State agency must establish criteria for the authorization 
of individual farmers and/or farmers' markets, roadside stands, and/or 
CSA programs. Any authorized farmer, farmers' market, roadside stand 
and/or CSA program must agree to sell recipients only those foods 
identified as eligible by the State agency. State agencies may 
determine farmers, farmers' markets and/or roadside stands as 
automatically authorized to participate in the SFMNP based on current 
authorization to operate in the FMNP under Part 248 of this chapter. 
Individuals who exclusively sell produce grown by someone else, such as 
wholesale distributors, cannot be authorized to participate in the 
SFMNP, except individuals employed by a farmer otherwise qualified 
under these regulations, or individuals hired by a nonprofit 
organization to sell produce at roadside stands on behalf of local 
farmers.
    (3) The State agency must ensure that an appropriate number of 
farmers, farmers' markets, roadside stands, and/or CSA programs are 
authorized for adequate recipient access in the area(s) proposed to be 
served and for effective management of the farmers, farmers' markets, 
roadside stands, and/or CSA programs by the State agency. The State 
agency may establish criteria to limit the number of authorized 
farmers, farmers' markets, and/or roadside stands. The State agency 
must limit the value of shares awarded to CSA programs to no more than 
50 percent of their total Federal SFMNP food grant. The State agency 
shall make efforts to select the CSA program(s) that provides the 
greatest variety of eligible foods.
    (4) The State agency shall ensure that face-to-face training is 
conducted prior to start up of the first year of SFMNP participation of 
an individual farmer, farmers' market, roadside stand, and/or

[[Page 30581]]

CSA program. The face-to-face training shall include at a minimum those 
items listed in paragraph (d) of this section.
    (5) Authorized farmers shall display a sign stating that they are 
authorized to redeem SFMNP coupons.
    (6) Authorized farmers, farmers' markets, roadside stands, and/or 
CSA programs shall comply with the requirements of Title VI of the 
Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, 
Section 504 of the Rehabilitation Act of 1973, the Age Discrimination 
Act of 1975, Department of Agriculture regulations on nondiscrimination 
(7 CFR parts 15, 15a and 15b), and FNS Instructions as outlined in 
Sec.  249.7.
    (7) The State agency shall ensure that there is no conflict of 
interest between the State or local agency and any participating 
farmer, farmers' market, roadside stand and/or CSA program.
    (b) Farmer, farmers' market, roadside stand, and/or CSA program 
agreements. The State agency shall ensure that all participating 
farmers' markets, roadside stands, and/or CSA programs enter into 
written agreements with the State agency. State agencies that authorize 
individual farmers shall also enter into written agreements with the 
individual farmers. The agreement must be signed by a representative 
who has legal authority to obligate the farmer, farmers' market, 
roadside stand, and/or CSA program. Agreements must include a 
description of sanctions for noncompliance with SFMNP requirements and 
shall contain, at a minimum, the following specifications, although the 
State agency may determine the exact wording to be used:
    (1) The farmer, farmers' market and/or roadside stand shall:
    (i) Provide such information as the State agency may require for 
its periodic reports to FNS;
    (ii) Assure that SFMNP coupons are redeemed only for eligible 
foods;
    (iii) Provide eligible foods at or less than the price charged to 
other customers;
    (iv) Accept SFMNP coupons within the dates of their validity and 
submit such coupons for payment within the allowable time period 
established by the State agency;
    (v) In accordance with a procedure established by the State agency, 
mark each transacted coupon with a farmer identifier. In those cases 
where the agreement is between the State agency and the farmer and/or 
roadside stand, each transacted SFMNP coupon shall contain a farmer 
identifier and shall be batched for reimbursement under that 
identifier. In those cases where the agreement is between the State 
agency and the farmers' market, each transacted SFMNP coupon shall 
contain a farmer identifier and be batched for reimbursement under a 
farmers' market identifier.
    (vi) Accept training on SFMNP procedures and provide training to 
farmers and any employees with SFMNP responsibilities on such 
procedures;
    (vii) Agree to be monitored for compliance with SFMNP requirements, 
including both overt and covert monitoring;
    (viii) Be accountable for actions of farmers or employees in the 
provision of eligible foods and related activities;
    (ix) Pay the State agency for any coupons transacted in violation 
of this agreement;
    (x) Offer SFMNP recipients the same courtesies as other customers;
    (xi) Comply with the nondiscrimination provisions of USDA 
regulations as provided in Sec.  249.7; and
    (xii) Notify the State agency if any farmer, farmers' market or 
roadside stand ceases operation prior to the end of the authorization 
period.
    (2) The farmer, farmers' market and/or roadside stand shall 
neither:
    (i) Seek restitution from SFMNP recipients for coupons not paid by 
the State agency; nor
    (ii) Issue cash change for purchases that are in an amount less 
than the value of the SFMNP coupon(s).
    (3) The CSA program shall:
    (i) Provide such information as the State agency may require for 
its periodic reports to FNS;
    (ii) Assure that SFMNP recipients receive only eligible foods;
    (iii) Provide eligible foods to their SFMNP shareholders at or less 
than the price charged to other customers;
    (iv) Assure that the shareholder receives eligible foods that are 
of equitable value and quantity to their share;
    (v) Assure that all funds from the State agency are used for 
planting of crops for SFMNP shareholders;
    (vi) Provide to the State agency access to a tracking system that 
determines the value of the eligible foods provided and the remaining 
value owed to each SFMNP shareholder;
    (vii) Assure that SFMNP shareholders/authorized representatives 
provide written acknowledgement of receipt of eligible foods;
    (viii) Accept training on SFMNP procedures and provide training to 
farmers and any employees with SFMNP responsibilities for such 
procedures;
    (ix) Agree to be monitored for compliance with SFMNP requirements, 
including both overt and covert monitoring;
    (x) Be accountable for actions of farmers or employees in the 
provision of eligible foods and related activities;
    (xi) Offer SFMNP shareholders the same courtesies as other 
customers;
    (xii) Notify the State agency immediately when the CSA program is 
experiencing a problem with its crops, and may be unable to provide 
SFMNP shareholders with the complete amount of eligible foods agreed 
upon between the CSA program and the State agency;
    (xiii) Comply with the nondiscrimination provisions of USDA 
regulations as provided in Sec.  249.7; and
    (xiv) Notify the State agency if any CSA program ceases operation 
prior to the end of the authorization period.
    (4) The CSA program shall not substitute ineligible produce when 
eligible foods are not available.
    (5) Neither the State agency nor the farmer, farmers' market, 
roadside stand, and/or CSA program has an obligation to renew the 
agreement. The State agency or the farmer, farmers' market, roadside 
stand and/or CSA program may terminate the agreement for cause after 
providing advance written notification.
    (6) The State agency may deny payment to the farmer, farmers' 
market and/or roadside stand for improperly redeemed SFMNP coupons and 
may demand refunds for payments already made on improperly redeemed 
coupons.
    (7) The State agency may demand a refund from any CSA program that 
fails to provide the full benefit to all SFMNP shareholders as 
specified in its contract, or that provides ineligible foods as 
substitutes for eligible foods.
    (8) The State agency may disqualify a farmer, farmers' market, 
roadside stand, and/or CSA program for SFMNP violations. The farmer, 
farmers' market, roadside stand, and/or CSA program has the right to 
appeal a denial of an application to participate, a disqualification, 
or a SFMNP sanction by the State agency. Expiration of a contract or 
agreement with a farmer, farmers' market, roadside stand, and/or CSA 
program, and claims actions under Sec.  249.20, are not appealable.
    (9) A farmer, farmers' market, roadside stand, and/or CSA program, 
which commits fraud or engages in other illegal activity is liable to 
prosecution under applicable Federal, State or local laws.
    (10) Agreements may not exceed 3 years.
    (c) Agreements with farmers' markets that do not authorize 
individual farmers. Those State agencies that authorize farmers' 
markets but not

[[Page 30582]]

individual farmers shall require authorized farmers' markets to enter 
into a written agreement with each farmer within the market that is 
participating in SFMNP. The State agency must set forth the required 
terms for the agreement and provide a sample agreement that may be 
used.
    (d) Annual training for farmers, farmers' market managers and/or 
farmers that operate a roadside stand or CSA program. State agencies 
shall conduct annual training for farmers, farmers' market managers, 
and/or farmers who operate a CSA program in the SFMNP. The State agency 
must conduct a face-to-face training for all farmers and farmers' 
market managers who have never previously participated in the SFMNP. 
After a farmer/farmers' market manager's first year of SFMNP operation, 
State agencies have discretion in determining the method used for 
annual training purposes. At a minimum, annual training shall include 
instruction emphasizing:
    (1) Eligible food choices;
    (2) Proper SFMNP coupon redemption procedures, including deadlines 
for submission of coupons for payment, and/or receipt of payment for 
CSA programs' distribution of eligible foods;
    (3) Equitable treatment of SFMNP recipients, including the 
availability of eligible foods to SFMNP recipients that are of the same 
quality and cost as that sold to other customers;
    (4) Civil rights compliance and guidelines;
    (5) Guidelines for storing SFMNP coupons safely; and
    (6) Guidelines for cancelling SFMNP coupons, such as punching holes 
or rubber-stamping.
    (e) Monitoring and review of farmers, farmers' markets, roadside 
stands, CSA programs and local agencies. The State agency shall be 
responsible for the monitoring of farmers, farmers' markets, roadside 
stands, CSA programs and local agencies within its jurisdiction. This 
shall include developing a system for identifying high risk farmers, 
farmers' markets, roadside stands, and/or CSA programs, and ensuring 
on-site monitoring, conducting further investigation, and sanctioning 
of such farmers, farmers' markets, roadside stands, and/or CSA programs 
as appropriate. In States where both the SFMNP and the FMNP are in 
operation, these monitoring/review requirements may be coordinated to 
avoid duplication. If the same farmers, farmers' markets, roadside 
stands, and/or CSA programs are authorized for both programs, a review 
conducted by one program may be counted toward the requirement for the 
other program.
    (1) Where coupon reimbursement responsibilities are delegated to 
farmers' market managers, farmers' market associations, or nonprofit 
organizations, the State agency may establish bonding requirements for 
these entities. Costs of such bonding are not reimbursable 
administrative expenses.
    (2)(i) Each State agency shall rank participating farmers, farmers' 
markets, roadside stands, and/or CSA programs by risk factors, and 
shall conduct annual, on-site monitoring of at least 10 percent of 
farmers, 10 percent of farmers' markets, 10 percent of roadside stands, 
and 10 percent of the CSA programs or one of each program model, 
whichever is greater, which shall include those farmers, farmers' 
markets, roadside stands, and/or CSA programs identified as being the 
highest-risk.
    (ii) Mandatory high-risk indicators include:
    (A) A proportionately high volume of SFMNP coupons redeemed by a 
farmer within a farmers' market or at a single roadside stand (as 
compared to other farmers within the farmers' market or within the 
State);
    (B) Recipient complaints;
    (C) In the case of CSA programs, an extended or ongoing inability 
to provide the full SFMNP benefit to each shareholder as contracted; 
and
    (D) Farmers, farmers' markets, roadside stands, and/or CSA programs 
in their first year of SFMNP operation. States are encouraged to 
formally establish other high-risk indicators for identifying potential 
problems.
    (iii) If additional high-risk indicators are established, they must 
be set forth in the farmers, farmers' market, roadside stand, and/or 
CSA program agreement and in the State Plan. If application of the 
high-risk indicators results in fewer than 10 percent of farmers, 
farmers' markets, roadside stands, and/or CSA programs being designated 
as high-risk, the State agency shall randomly select additional 
farmers, farmers' markets, roadside stands, and/or CSA programs to be 
monitored in order to meet the 10 percent minimum. The high-risk 
indicators listed above generally apply to a State agency already 
participating in the SFMNP. A State agency participating in the SFMNP 
for the first time shall, in lieu of applying the high-risk indicators, 
randomly select 10 percent of its participating farmers, 10 percent of 
its participating farmers' markets, 10 percent of its participating 
roadside stands, and 10 percent of its participating CSA programs or at 
least one farmers' market, roadside stand, and/or CSA program, 
whichever is greater, for monitoring visits.
    (3)(i) The following shall be documented for all on-site monitoring 
visits to farmers, farmers' markets, roadside stands, and/or CSA 
programs, at a minimum:
    (A) Names of both the farmer, farmers' market, roadside stand, and/
or CSA program and the reviewer;
    (B) Date of review;
    (C) Nature of problem(s) detected or the observation that the 
farmer, farmers' market, roadside stand, and/or CSA program appears to 
be in compliance with SFMNP requirements;
    (D) Record of interviews with recipients, market managers, farmers, 
and/or farmers who operate a CSA program; and
    (E) Signature of the reviewer.
    (ii) Reviewers are not required to notify the farmer, farmers' 
market, roadside stand, and/or CSA program of the monitoring visit 
before, during, or immediately after the visit. The State agency shall 
do so after a reasonable delay when necessary to protect the identity 
of the reviewer(s) or the integrity of the investigation.
    (iii) In instances where the farmer, farmers' market, roadside 
stand, and/or CSA program will be permitted to continue participating 
in the SFMNP after being informed of any deficiencies detected by the 
monitoring visit, the farmer, farmers' market, roadside stand, and/or 
CSA program shall provide plans as to how the deficiencies will be 
corrected.
    (4) At least every 2 years, the State agency must review all local 
agencies within its jurisdiction.
    (f) Control of SFMNP coupons. The State agency must:
    (1) Control and provide accountability for the receipt and issuance 
of SFMNP coupons;
    (2) Ensure that there is secure transportation and storage of 
unissued SFMNP coupons; and
    (3) Design and implement a system of review of SFMNP coupons to 
detect errors. At a minimum, the errors the system must detect are a 
missing recipient signature (if such signature is required by the State 
agency), a missing farmer and/or market identification, and redemption 
by a farmer outside of the valid date. The State agency must implement 
procedures to reduce the number of errors in transactions, where 
possible.
    (g) Payment to farmers, farmers' markets, roadside stands, and/or 
CSA programs. The State agency must ensure that farmers, farmers' 
markets, roadside stands, and/or CSA programs are promptly paid for 
food costs.

[[Page 30583]]

    (h) Reconciliation of SFMNP coupons. The State agency shall 
identify the disposition of all SFMNP coupons as validly redeemed, lost 
or stolen, expired, or not matching issuance records. Validly redeemed 
SFMNP coupons are those that are issued to a valid recipient and 
redeemed by an authorized farmer, farmers' market, and/or roadside 
stand within valid dates. SFMNP coupons that were redeemed but cannot 
be traced to a valid recipient or authorized farmer, farmers' market, 
and/or roadside stand shall be subject to claims action in accordance 
with Sec.  249.20.
    (1) If the State agency elects to replace lost, stolen or damaged 
SFMNP coupons, it must describe its system for doing so in the State 
Plan.
    (2) The State agency must use uniform SFMNP coupons within its 
jurisdiction.
    (3) SFMNP coupons must include, at a minimum, the following 
information:
    (i) The last date by which the recipient may use the coupon. This 
date shall be no later than November 30 of each year.
    (ii) A date by which the farmer or farmers' market must submit the 
coupon for payment. When establishing this date, State agencies shall 
take into consideration the date financial statements are due to the 
FNS, and allow time for the corresponding coupon reconciliation that 
must be done by the State agency prior to submission of financial 
statements. Financial statements are due to FNS by January 30.
    (iii) A unique and sequential serial number.
    (iv) A denomination (dollar amount).
    (v) A farmer identifier for the redeeming farmer when agreements 
are between the State agency and the farmer.
    (vi) In those instances where State agencies have agreements with 
farmers' markets, there must be a farmer identifier on each coupon and 
a market identifier on the cover of coupons that are batched by the 
market manager for reimbursement.
    (i) Instructions to recipients. Each recipient must receive 
instruction on the redemption of the SFMNP coupons, or participation in 
a CSA program (where applicable), including, but not limited to:
    (1) A list of names and addresses of authorized farmers, farmers' 
markets, and/or roadside stands at which SFMNP coupons may be redeemed, 
or procedures on the home-delivery process;
    (2) Procedures to designate a proxy;
    (3) The name and address of the authorized farmer of the CSA 
program, and locations of distribution sites;
    (4) A description of eligible foods and the prohibition against 
cash change for SFMNP purchases of eligible foods;
    (5) A description of eligible foods that will be provided through 
the CSA program;
    (6) A schedule outlining a timeframe for distribution of the 
eligible foods from the CSA program; and
    (7) An explanation of his/her right to complain about improper 
farmer, farmers' market, roadside stand, and/or CSA program practices 
with regard to SFMNP responsibilities and the process for doing so.
    (j) Recipient and farmer, farmers' market, roadside stand, and/or 
CSA program complaints. The State agency must have procedures that 
document the handling of complaints from recipients and farmers/
farmers' markets, roadside stands, and/or CSA programs. Complaints of 
civil rights discrimination shall be handled in accordance with Sec.  
249.7(b).
    (k) Recipient and farmer, farmers' market, roadside stand, and/or 
CSA program sanctions. (1) The State agency must establish policies 
which determine the type and level of sanctions to be applied against 
recipients and farmers, farmers' markets, roadside stands, and/or CSA 
programs based upon the severity and nature of the SFMNP violations 
observed, and such other factors as the State agency determines 
appropriate, such as whether repeated offenses have occurred over a 
period of time. Farmers, farmers' markets, roadside stands, and/or CSA 
programs may be sanctioned, disqualified, or both, when appropriate. 
Sanctions may include fines for improper SFMNP coupon redemption and 
the penalties outlined in Sec.  249.20, in the case of deliberate 
fraud.
    (2) In those instances where compliance purchases are conducted, 
the results of covert compliance purchases can be a basis for farmer, 
farmers' market, and/or roadside stand sanctions.
    (3) A farmer, farmers' market, roadside stand, and/or CSA program 
committing fraud or other unlawful activities are liable to prosecution 
under applicable Federal, State or local laws.
    (4) State agency policies must ensure that a farmer that is 
disqualified from the SFMNP at one market, roadside stand, or CSA 
program shall not participate in the SFMNP at any other farmers' 
market, roadside stand or CSA program in the State's jurisdiction 
during the disqualification period.
    (5) State agency policies must ensure that a farmer, farmers' 
market, roadside stand, and/or CSA program that is disqualified from 
participating in the WIC Farmers' Market Nutrition Program is also 
disqualified from participating in the SFMNP in the State's 
jurisdiction during the disqualification period.


Sec.  249.11  Financial management system.

    (a) Disclosure of expenditures. The State agency must maintain a 
financial management system that provides accurate, current and 
complete disclosure of the financial status of the SFMNP. This must 
include an accounting for all property and other assets and all SFMNP 
funds received and expended each fiscal year.
    (b) Internal controls. The State agency shall maintain effective 
controls over and accountability for all SFMNP funds. The State agency 
must have effective internal controls to ensure that expenditures 
financed with SFMNP funds are authorized and properly chargeable to the 
SFMNP.
    (c) Record of expenditures. The State agency must maintain records 
that adequately identify the source and use of funds expended for SFMNP 
activities. These records must contain, but are not limited to, 
information pertaining to authorization, receipt of funds, obligations, 
unobligated balances, assets, liabilities, outlays, and income.
    (d) Payment of costs. The State agency must implement procedures 
that ensure prompt and accurate payment of allowable costs, and ensure 
the allowability and allocability of costs in accordance with the cost 
principles and standard provisions of this part, 7 CFR part 3016, and 
FNS guidelines and Instructions.
    (e) Identification of obligated funds. The State agency must 
implement procedures that accurately identify obligated SFMNP funds at 
the time the obligations are made.
    (f) Resolution of audit findings. The State agency shall implement 
procedures that ensure timely and appropriate resolution of claims and 
other matters resulting from audit findings and recommendations.
    (g) Reconciliation of food instruments. The State agency must 
reconcile SFMNP coupons in accordance with Sec.  249.10(h).
    (h) Transfer of cash. The State agency must establish the timing 
and amounts of its cash draws against its Letter of Credit in 
accordance with 31 CFR part 205.


Sec.  249.12  SFMNP costs.

    (a) General. (1) Composition of allowable costs. In general, a cost 
item will be deemed allowable if it is

[[Page 30584]]

reasonable and necessary for SFMNP purposes and otherwise satisfies 
allowability criteria set forth in 7 CFR 3016.22 and this Part. SFMNP 
purposes include the administration and operation of the SFMNP. 
Allowable SFMNP costs may be classified as follows:
    (i) Food costs and administrative costs. Food costs are the costs 
of eligible foods provided to SFMNP recipients. Administrative costs 
are the costs associated with providing SFMNP benefits and services to 
recipients and generally administering the SFMNP. Specific examples of 
allowable administrative costs are listed in paragraph (b) of this 
section. A State agency may use up to 8 percent of its total Federal 
SFMNP grant to cover administrative costs. Any costs incurred for food 
and/or administration above the Federal grant level will be the State 
agency's responsibility.
    (ii) Direct and indirect costs. Direct costs are food and 
administrative costs incurred specifically for the SFMNP. Indirect 
costs are administrative costs that benefit multiple programs or 
activities, and cannot be identified to any one program or activity 
without effort disproportionate to the results achieved. In accordance 
with the provisions of 7 CFR part 3016, a claim for reimbursement of 
indirect costs shall be supported by an approved allocation plan for 
the determination of such costs. An indirect cost rate developed 
through such an allocation plan may not be applied to a base that 
includes food costs.
    (2) Costs allowable with prior approval. A State or local agency 
must obtain prior approval in accordance with 7 CFR 3016.22 before 
charging to the SFMNP any capital expenditures and other cost items 
designated by 7 CFR 3016.22 as requiring such approval.
    (3) Unallowable costs. Costs that are not reasonable and necessary 
for SFMNP purposes, or that do not otherwise satisfy the cost 
principles of 7 CFR 3016.22, are unallowable. Notwithstanding any other 
provision of 7 CFR Part 3016 or this Part, the cost of constructing or 
operating a farmers' market is unallowable. The use of SFMNP funds to 
supplement congregate meal programs is prohibited. Unallowable costs 
may never be claimed for Federal reimbursement.
    (b) Specified allowable administrative costs. Allowable 
administrative costs include the following:
    (1) The costs associated with administration and start-up;
    (2) The costs associated with the provision of nutrition education 
that meets the requirements of Sec.  249.9;
    (3) The costs of SFMNP coupon issuance, or recipient education 
covering proper coupon redemption procedures;
    (4) The cost of eligibility determinations and outreach services;
    (5) The costs associated with the coupon and market management 
process, such as printing SFMNP coupons, processing redeemed coupons, 
and training farmers, market managers, and/or farmers who operate CSA 
programs on SFMNP operations;
    (6) The cost of monitoring and reviewing Program operations;
    (7) The cost of SFMNP training;
    (8) The cost of required reporting and recordkeeping;
    (9) The cost of determining which local sites will be utilized;
    (10) The cost of recruiting and authorizing farmers, farmers' 
markets, roadside stands, and/or CSA programs to participate in the 
SFMNP;
    (11) The cost of preparing contracts for farmers, farmers' markets, 
roadside stands, and/or CSA programs;
    (12) The cost of developing a data processing system for redemption 
and reconciliation of SFMNP coupons;
    (13) The cost of designing program training and informational 
materials; and
    (14) The cost of coordinating SFMNP responsibilities between 
designated administering agencies.


Sec.  249.13  Program income.

    Program income means gross income the State agency earns from grant 
supported activities. It includes fees for services performed and 
receipts from the use or rental of real or personal property acquired 
with Federal grant funds, but does not include proceeds from the 
disposition of such property. The State agency must retain Program 
income earned during the agreement period and use it for Program 
purposes in accordance with the addition method described in 7 CFR 
3016.25(g)(2). Fines, penalties or assessments paid by local agencies 
or farmers, farmers' markets, roadside stands, and/or CSA program are 
also deemed to be Program income. The State agency must ensure that the 
sources and applications of Program income are fully documented.


Sec.  249.14  Distribution of funds.

    (a) State Plan and agreement. As a prerequisite to the receipt of 
Federal funds, a State agency must have its State Plan approved and 
must execute an agreement with the Department in accordance with Sec.  
249.3(c).
    (b) Distribution of SFMNP funds to previously participating State 
agencies. Provided that sufficient SFMNP funds are available, each 
State agency that participated in the SFMNP in any prior fiscal year, 
shall receive not less than the amount of funds the State agency 
received in the most recent fiscal year in which it received funding, 
if it otherwise complies with the requirements established in this 
Part.
    (c) Ratable reduction. If amounts appropriated for any fiscal year 
for grants under the SFMNP are not sufficient to pay to each previously 
participating State agency at least an amount as identified in 
paragraph (b) of this section, each State agency's grant must be 
ratably reduced. However, to the extent permitted by available funds, 
each State agency shall receive at least $75,000 or the amount that the 
State agency received for the most recent prior fiscal year in which 
the State participated, if that amount is less than $75,000.
    (d) Expansion of participating State agencies and establishment of 
new State agencies. Any SFMNP funds remaining for allocation after 
meeting the requirements of paragraph (b) of this section shall be 
allocated in the following manner:
    (1) Of the remaining funds, 75 percent shall be made available to 
State agencies already participating in the SFMNP that wish to serve 
additional recipients or increase the current benefit level. If this 
amount is greater than that necessary to satisfy all State Plans 
approved for expansion, the unallocated amount shall be applied toward 
satisfying any unmet need in paragraph (d)(2) of this section.
    (2) Of the remaining funds, 25 percent shall be made available to 
State agencies that have not participated in the SFMNP in any prior 
fiscal year. If this amount is greater than that necessary to satisfy 
the approved State Plans for new States, the unallocated amount shall 
be applied toward satisfying any unmet need in paragraph (d)(1) of this 
section. The Department reserves the right not to fund every State 
agency with an approved State Plan.
    (e) Expansion for current State agencies. In providing funds to 
State agencies that participated in the SFMNP in the previous fiscal 
year, the Department must consider on a case-by-case basis, the 
following factors:
    (1) Whether the State agency utilized at least 80 percent of its 
prior year food grant. States that did not spend at least 80 percent of 
their prior year food grant may still be eligible for expansion funding 
if, in the judgment of the Department, good cause existed which was 
beyond the management control of the State, such as severe weather 
conditions or unanticipated decreases in participant caseload;

[[Page 30585]]

    (2) Documentation supporting the funds expansion request as 
outlined in Sec.  249.4(a)(23).
    (f) Funding of new State agencies. Funds will be awarded to new 
SFMNP State agencies in accordance with Sec.  249.5.
    (g) Administrative funding. A State agency will have available for 
administrative costs an amount not greater than 8 percent of total 
SFMNP funds.
    (h) Recovery of unused funds. State agencies must return to FNS any 
unexpended funds made available for a given fiscal year by February 1 
of the following fiscal year.


Sec.  249.15  Closeout procedures.

    (a) General. State agencies must submit to FNS a final closeout 
report for the fiscal year on a form prescribed by FNS and on a date 
specified by FNS.
    (b) Grant closeout procedures. When grants to State agencies are 
terminated, the following procedures shall be followed in accordance 
with 7 CFR part 3016.
    (1) FNS may disqualify a State agency's participation under the 
SFMNP, in whole or in part, or take such remedies as may be 
appropriate, whenever FNS determines that the State agency failed to 
comply with the conditions prescribed in this part, in its Federal-
State Agreement, or in FNS guidelines and Instructions. FNS will 
promptly notify the State agency in writing of the disqualification 
together with the effective date.
    (2) FNS may terminate a grant when both parties agree that 
continuation under the SFMNP would not produce beneficial results 
commensurate with the further expenditure of funds.
    (3) Upon termination of a grant, the affected agency may not incur 
new obligations after the effective date of the disqualification, and 
must cancel as many outstanding obligations as possible. FNS will allow 
full credit to the State agency for the Federal share of the 
noncancellable obligations properly incurred by the State agency prior 
to disqualification, and the State agency shall do the same for 
farmers, farmers' markets, roadside stands, and/or CSA programs.
    (4) A grant closeout shall not affect the retention period for, or 
Federal rights of access to, SFMNP records as specified in Sec.  
249.23(a). The closeout of a grant does not affect the responsibilities 
of the State agency regarding property or with respect to any SFMNP 
income for which the State agency is still accountable.
    (5) A final audit is not a required part of the grant closeout and 
should not be needed unless there are problems with the grant that 
require attention. If FNS considers a final audit to be necessary, it 
shall so inform OIG. OIG will be responsible for ensuring that 
necessary final audits are performed and for any necessary coordination 
with other Federal cognizant audit agencies or State or local auditors. 
Audits performed in accordance with Sec.  249.18 may serve as final 
audits providing such audits meet the needs of requesting agencies. If 
the grant is closed out without an audit, FNS reserves the right to 
disallow and recover an appropriate amount after fully considering any 
recommended disallowances resulting from an audit which may be 
conducted later.


Sec.  249.16  Administrative appeal of State agency decisions.

    (a) Requirements. The State agency shall provide a hearing 
procedure whereby applicants, recipients, local agencies and farmers, 
farmers' markets, roadside stands, and/or CSA programs adversely 
affected by certain actions of the State agency may appeal those 
actions.
    (1) What may be appealed.
    (i) An applicant may appeal denial of certification of SFMNP 
benefits.
    (ii) A recipient may appeal disqualification/suspension of SFMNP 
benefits.
    (iii) A local agency may appeal an action of the State agency 
disqualifying it from participating in the SFMNP.
    (iv) A farmer, farmers' market, roadside stand, and/or CSA program 
may appeal an action of the State agency denying its application to 
participate, imposing a sanction, or disqualifying it from 
participating in the SFMNP.
    (2) What may not be appealed. Expiration of a contract or agreement 
shall not be subject to appeal.
    (b) Time limit for request. The State or local agency must provide 
individuals, local agencies, farmers, farmers' markets, roadside 
stands, and/or CSA programs a reasonable period of time to request a 
fair hearing. Such time limit must not be less than 30 days from the 
date the agency mails or otherwise issues the notice of adverse action.
    (c) Postponement pending decision. An adverse action may, at the 
State agency's option, be postponed until a decision in the appeal is 
rendered.
    (1) In a case where an adverse action affects a local agency or 
farmer, farmers' market, roadside stand, and/or CSA program, a 
postponement is appropriate where the State agency finds that 
recipients would be unduly inconvenienced by the adverse action. In 
addition, the State agency may determine other relevant criteria to be 
considered in deciding whether or not to postpone an adverse action.
    (2) Applicants who are denied benefits at initial certification may 
appeal the denial, but must not receive SFMNP benefits while awaiting 
the hearing. Recipients who appeal the termination of benefits within 
the period of time provided under paragraph (b) of this section must 
continue to receive Program benefits until the hearing official reaches 
a decision or the certification period expires, whichever occurs first. 
This does not apply to recipients whose certification period has 
already expired or who become otherwise ineligible for SFMNP benefits. 
Recipients who become ineligible during a certification, or whose 
certification period expires, may appeal the termination, but must not 
receive benefits while awaiting the hearing.
    (d) Procedure. The State agency hearing procedure shall at a 
minimum provide the recipient, local agency or farmer, farmers' market, 
roadside stand, and/or CSA program with the following:
    (1) Written notification of the adverse action, the cause(s) for 
the action, and the effective date of the action, including the State 
agency's determination of whether the action shall be postponed under 
paragraph (c) of this section if it is appealed, and the opportunity 
for a hearing. Such notification shall be provided within a reasonable 
timeframe established by the State agency and in advance of the 
effective date of the action.
    (2) The opportunity to appeal the action within the time specified 
by the State agency in its notification of adverse action.
    (3) Adequate advance notice of the time and place of the hearing to 
provide all parties involved sufficient time to prepare for the 
hearing.
    (4) The opportunity to present its case and at least one 
opportunity to reschedule the hearing date upon specific request. The 
State agency may set standards on how many hearing dates can be 
scheduled, provided that a minimum of two hearing dates is allowed.
    (5) The opportunity to confront and cross-examine adverse 
witnesses.
    (6) The opportunity to be represented by counsel or, in the case of 
a recipient appeal, by a representative designated by the recipient, if 
desired.
    (7) The opportunity to review the case record prior to the hearing.
    (8) An impartial decision maker, whose decision as to the validity 
of the State agency's action shall rest solely on the evidence 
presented at the hearing

[[Page 30586]]

and the statutory and regulatory provisions governing the SFMNP. The 
basis for the decision shall be stated in writing, although it need not 
amount to a full opinion or contain formal findings of fact and 
conclusions of law.
    (9) Written notification of the decision in the appeal, within 60 
days from the date of receipt of the request for a hearing by the State 
agency.
    (e) Continuing responsibilities. When a farmer, farmers' market, 
roadside stand, CSA program, and/or local agency appeals an adverse 
action (and is permitted to continue in the SFMNP while its appeal is 
pending), it continues to be responsible for compliance with the terms 
of the written agreement or contract with the State agency.
    (f) Judicial review. If a State level decision is rendered against 
the recipient, local agency, farmer, farmers' market, roadside stand, 
and/or CSA program and the appellant expresses an interest in pursuing 
a further review of the decision, the State agency shall explain any 
further State level review of the decision and any available State 
level rehearing process. If neither is available or both have been 
exhausted, the State agency shall explain the right to pursue judicial 
review of the decision.
    (g) Additional appeals procedures for State agencies that authorize 
farmers' markets and not individual farmers. A State agency that 
authorizes farmers' markets and not individual farmers shall ensure 
that procedures are in place to be used when a farmer seeks to appeal 
an action of a farmers' market or association denying the farmer's 
application to participate, or sanctioning or disqualifying the farmer. 
The procedures shall be set forth in the State Plan and in the 
agreements entered into by the State agency and the farmers' market and 
the farmers' market and the farmer.

Subpart F--Monitoring and Review of State Agencies


Sec.  249.17  Management evaluations and reviews.

    (a) General. FNS and each State agency shall establish a management 
evaluation system in order to assess the accomplishment of SFMNP 
objectives as provided under these regulations, the State Plan, and the 
written agreement with the Department. FNS will:
    (1) Provide assistance to State agencies in discharging this 
responsibility;
    (2) Establish standards and procedures to determine how well the 
objectives of this Part are being accomplished; and
    (3) Implement sanction procedures as warranted by State SFMNP 
performance.
    (b) Responsibilities of FNS. FNS will establish evaluation 
procedures to determine whether State agencies carry out the purposes 
and provisions of this part, the State Plan, and the written agreement 
with the Department. As a part of the evaluation procedure, FNS will 
review audits to ensure that the SFMNP has been included in audit 
examinations at a reasonable frequency. These evaluations shall also 
include reviews of selected local agencies, and on-site reviews of 
selected farmers, farmers' markets, roadside stands, and community 
supported agriculture programs. These evaluations will measure the 
State agency's progress toward meeting the objectives outlined in its 
State Plan and the State agency's compliance with these regulations.
    (1) FNS may withhold up to 8 percent of the State agency's total 
SFMNP grant if FNS determines that the State agency has:
    (i) Failed, without good cause, to demonstrate efficient and 
effective administration of its SFMNP; or
    (ii) Failed to comply with the requirements contained in this 
section or the State Plan.
    (2) Sanctions imposed upon a State agency by FNS in accordance with 
this section (but not claims for repayment assessed against a State 
agency) may be appealed in accordance with the procedures established 
in Sec.  249.20(a). Before carrying out any sanction against a State 
agency, the following procedures will be followed:
    (i) FNS will notify the chief departmental officer of the 
administering agency in writing of the deficiencies found and of FNS' 
intention to withhold administrative funds unless an acceptable 
corrective action plan is submitted by the State agency to FNS within 
45 days after mailing of notification.
    (ii) The State agency shall develop a corrective action plan, 
including timeframes for implementation to address the deficiencies and 
prevent their future recurrence.
    (iii) If the corrective action plan is acceptable, FNS will notify 
the chief departmental officer of the administering agency in writing 
within 30 days of receipt of the plan. The letter will advise the State 
agency of the sanctions to be imposed if the corrective action plan is 
not implemented according to the schedule set forth in the approved 
plan.
    (iv) Upon notification from the State agency that corrective action 
has been taken, FNS will assess such action and, if necessary, perform 
a follow-up review to determine if the noted deficiencies have been 
corrected. FNS will then advise the State agency of whether the actions 
taken are in compliance with the corrective action plan, and whether 
the deficiency is resolved or further corrective action is needed. 
Compliance buys can be required if, during FNS management evaluations 
by regional offices, a State agency is found to be out of compliance 
with its responsibility to monitor and review farmers, farmers' 
markets, roadside stands, and community supported agriculture programs.
    (v) If an acceptable corrective action plan is not submitted within 
45 days, or if corrective action is not completed according to the 
schedule established in the corrective action plan, FNS may withhold 
the award of SFMNP administrative funds. If the 45-day warning period 
ends in the fourth quarter of a fiscal year, FNS may elect not to 
withhold funds until the next fiscal year. In such an event, FNS will 
notify the chief departmental officer of the administering State 
agency.
    (vi) If compliance is achieved before the end of the fiscal year in 
which the SFMNP administrative funds are withheld, the funds withheld 
may be restored to the State agency. FNS is not required to restore 
funds withheld beyond the end of the fiscal year for which the funds 
were initially awarded.
    (c) Responsibilities of State agencies. The State agency is 
responsible for meeting the following requirements:
    (1) The State agency must establish evaluation and review 
procedures and document the results of such procedures. The procedures 
must include, but are not limited to:
    (i) Conducting annual monitoring reviews of participating farmers' 
markets, roadside stands, and community supported agriculture programs. 
This includes on-site reviews of a minimum of 10 percent of farmers and 
10 percent of each type of authorized outlet (farmers' markets, 
roadside stands, and community supported agriculture programs), and 
includes those farmers and authorized outlets identified as being at 
the highest risk. The first year of operation in the SFMNP shall be 
considered a high-risk indicator. More frequent reviews may be 
performed, as the State agency deems necessary. In States where both 
the SFMNP and the WIC Farmers' Market Nutrition Program are in 
operation, these reviews may be coordinated to avoid duplication. A 
review by one

[[Page 30587]]

program may be counted by the other program toward the monitoring 
requirement, provided that appropriate sanction action is taken for all 
violations found.
    (ii) Conducting monitoring reviews of all local agencies within the 
State agency's jurisdiction at least once every 2 years. Monitoring of 
local agencies shall encompass, but not be limited to, evaluation of 
management, accountability, certification, nutrition education, 
financial management systems, and coupon and/or CSA program management 
systems. When the State agency conducts a local agency review outside 
of the SFMNP season, a review of documents and procedural plans of the 
SFMNP, rather than actual SFMNP activities, is acceptable.
    (iii) Instituting the necessary follow-up procedures to correct 
identified problem areas.
    (2) On its own initiative or when required by FNS, the State agency 
must provide special reports on SFMNP activities, and take positive 
action to correct deficiencies in SFMNP operations.


Sec.  249.18  Audits.

    (a) Federal access to information. The Secretary of the U.S. 
Department of Agriculture, the Comptroller General of the United 
States, or any of their duly authorized representatives, or duly 
authorized State auditors shall have access to any books, documents, 
papers, and records of the State agency and their contractors, for the 
purpose of making surveys, audits, examinations, excerpts, and 
transcripts.
    (b) State agency response. The State agency may take exception to 
particular audit findings and recommendations. The State agency shall 
submit a response or statement to FNS as to the action taken or planned 
regarding the findings. A proposed corrective action plan developed and 
submitted by the State agency must include specific time frames for its 
implementation and for completion of the correction of deficiencies and 
problems leading to the deficiencies.
    (c) Corrective action. FNS will determine whether SFMNP 
deficiencies identified in an audit have been adequately corrected. If 
additional corrective action is necessary, FNS shall schedule a follow-
up review, allowing a reasonable time for such corrective action to be 
taken.
    (d) State sponsored audits. State and local agencies must conduct 
independent audits in accordance with 7 CFR parts 3015, 3016 (Sec.  
3016.26), or 3051, as applicable. A State or local agency may elect to 
obtain either an organization-wide audit or an audit of the Program if 
it qualifies to make such an election under applicable regulations.


Sec.  249.19  Investigations.

    (a) Authority. The Department may make an investigation of any 
allegation of noncompliance with this part and FNS guidelines and 
instructions. The investigation may include, where appropriate, a 
review of pertinent practices and policies of any State and local 
agency, the circumstances under which the possible noncompliance with 
this Part occurred, and other factors relevant to a determination as to 
whether the State and local agency has failed to comply with the 
requirements of this Part.
    (b) Confidentiality. No State or local agency, recipient, or other 
person shall intimidate, threaten, coerce, or discriminate against any 
individual for the purpose of interfering with any right or privilege 
under this Part because that person has made a complaint or formal 
allegation, or has testified, assisted, or participated in any manner 
in an investigation, proceeding, or hearing under this Part. The 
identity of every complainant shall be kept confidential except to the 
extent necessary to carry out the purposes of this Part, including the 
conducting of any investigation, hearing, or judicial proceeding.

Subpart G--Miscellaneous Provisions


Sec.  249.20  Claims and penalties.

    (a) Claims against State agencies. (1) If FNS determines through a 
review of the State agency's reports, program or financial analysis, 
monitoring, audit, or otherwise, that any SFMNP funds provided to a 
State agency for food or administrative purposes were, through State 
agency negligence or fraud, misused or otherwise diverted from SFMNP 
purposes, a formal claim will be assessed by FNS against the State 
agency. The State agency must pay promptly to FNS a sum equal to the 
amount of the administrative funds or the value of coupons and/or 
eligible foods so misused or diverted.
    (2) If FNS determines that any part of the SFMNP funds received, 
coupons printed, and/or eligible foods otherwise lost by a State agency 
were lost as a result of theft, embezzlement, or unexplained causes, 
the State agency must, on demand by FNS, pay to FNS a sum equal to the 
amount of the money or the value of the SFMNP funds or coupons/eligible 
foods so lost.
    (3) The State agency will have full opportunity to submit evidence, 
explanation or information concerning alleged instances of 
noncompliance or diversion before a final determination is made in such 
cases.
    (4) FNS is authorized to establish claims against a State agency 
for unreconciled SFMNP coupons, and/or for failure to comply with the 
terms of duly executed CSA program contracts or agreements. When a 
State agency can demonstrate that all reasonable management efforts 
have been devoted to reconciliation and 99 percent or more of the SFMNP 
coupons issued, or of the eligible foods contracted for delivery by the 
CSA program, have been accounted for by the reconciliation process, FNS 
may determine that the reconciliation process has been completed to 
satisfaction.
    (b) Interest charge on claims against State agencies. If an 
agreement cannot be reached with the State agency for payment of its 
debts or for offset of debts on its current Letter of Credit within 30 
days from the date of the first demand letter from FNS, FNS will assess 
an interest (late) charge against the State agency. Interest accrual 
shall begin on the 31st day after the date of the first demand letter, 
bill or claim, and shall be computed monthly on any unpaid balance as 
long as the debt exists. From a source other than the SFMNP, the State 
agency shall provide the funds necessary to maintain SFMNP operations 
at the grant level authorized by FNS.
    (c) Penalties. Penalties will be assessed on whoever embezzles, 
willfully misapplies, steals or obtains by fraud funds, assets or 
property (whether received directly or indirectly) provided under 
Section 4402 of the Farm Security and Rural Investment Act of 2002 
(Pub. L. 107-171). The same penalties apply to whoever receives, 
conceals or retains such funds, assets or property for his or her own 
interest, knowing that such funds, assets or property were obtained 
illegally. For funds, assets or property valued at $100 or more, a fine 
of not more than $25,000 or imprisonment of not more than five years 
(or both) shall apply. For funds, assets or property valued at less 
than $100, a fine not more than $1,000 or imprisonment for not more 
than one year (or both) shall apply.


Sec.  249.21  Procurement and property management.

    (a) Requirements. State agencies must comply with the requirements 
of 7 CFR part 3016 for procurement of supplies, equipment and other 
services with SFMNP funds. These requirements are adopted for use by 
FNS to ensure that such materials and services are obtained for the 
SFMNP in an effective manner

[[Page 30588]]

and in compliance with the provisions of applicable laws and executive 
orders.
    (b) Contractual responsibilities. The standards contained in 7 CFR 
part 3016 do not relieve the State agency of the responsibilities 
arising under its contracts. The State agency is the responsible 
authority, without recourse to FNS, regarding the settlement and 
satisfaction of all contractual and administrative issues arising out 
of procurements entered into in connection with the SFMNP. This 
includes, but is not limited to, disputes, claims, protests of award, 
source evaluation, or other matters of a contractual nature. Matters 
concerning violation of law are to be referred to such local, State or 
Federal authority as may have proper jurisdiction.
    (c) State regulations. The State agency may use its own procurement 
regulations provided that:
    (1) Such regulations reflect applicable State and local 
regulations; and
    (2) Any procurements made with SFMNP funds adhere to the standards 
set forth in 7 CFR part 3016.
    (d) Property acquired with program funds. State and local agencies 
shall observe the standards prescribed in 7 CFR part 3016 in their 
utilization and disposition of real property and equipment acquired in 
whole or in part with SFMNP funds.


Sec.  249.22  Nonprocurement debarment/suspension, drug-free workplace, 
and lobbying restrictions.

    The State agency must ensure compliance with the requirements of 
the Department's regulations governing nonprocurement debarment/
suspension (7 CFR part 3017) and drug-free workplace (7 CFR part 3021), 
as well as the Department's regulations governing restrictions on 
lobbying (7 CFR part 3018), where applicable.


Sec.  249.23  Records and reports.

    (a) Recordkeeping requirements. Each State agency must maintain 
full and complete records concerning SFMNP operations. Such records 
must comply with 7 CFR part 3016 and the following requirements:
    (1) Records must include, but not be limited to, information 
pertaining to certification, financial operations, SFMNP coupon 
issuance and redemption, CSA program agreements, invoices, delivery 
receipts, equipment purchases and inventory, nutrition education, and 
civil rights procedures.
    (2) All records must be retained for a minimum of 3 years following 
the date of submission of the final expenditure report for the period 
to which the report pertains. If any litigation, claim, negotiation, 
audit or other action involving the records has been started before the 
end of the 3-year period, the records must be kept until all issues are 
resolved, or until the end of the regular 3-year period, whichever is 
later. If FNS deems any of the SFMNP records to be of historical 
interest, it may require the State agency to forward such records to 
FNS whenever the State agency is disposing of them.
    (3) Records for nonexpendable property acquired in whole or in part 
with SFMNP funds must be retained for three years after its final 
disposition.
    (4) All records must be available during normal business hours for 
representatives of the Department of the Comptroller General of the 
United States to inspect, audit, and copy. Any reports resulting from 
such examinations shall not divulge names of individuals.
    (b) Financial and recipient reports. State agencies must submit 
financial and SFMNP performance data on a yearly basis as specified by 
FNS. Such information must include, but shall not be limited to:
    (1) Number and type of recipients served with Federal SFMNP funds;
    (2) Value of coupons issued and/or eligible foods ordered under CSA 
programs;
    (3) Value of coupons redeemed and/or eligible foods provided to 
recipients under CSA programs; and
    (4) Number of authorized outlets by type; i.e., farmers, farmers' 
markets, roadside stands, and CSA programs.
    (c) Source documentation.  To be acceptable for audit purposes, all 
financial and SFMNP performance reports must be traceable to source 
documentation.
    (d) Certification of reports. Financial and SFMNP reports must be 
certified as to their completeness and accuracy by the person given 
that responsibility by the State agency.
    (e) Use of reports.  FNS will use State agency reports to measure 
progress in achieving objectives set forth in the State Plan, and this 
part, or other State agency performance plans. If it is determined, 
through review of State agency reports, SFMNP or financial analysis, or 
an audit, that a State agency is not meeting the objectives set forth 
in its State Plan, FNS may request additional information including, 
but not limited to, reasons for failure to achieve these objectives.


Sec.  249.24  Confidentiality.

    The State agency must restrict the use or disclosure of information 
obtained from SFMNP applicants and recipients to:
    (a) Persons directly connected with the administration or 
enforcement of the SFMNP, including persons investigating or 
prosecuting violations in the SFMNP under Federal, State or local 
authority;
    (b) Representatives of public organizations designated by the chief 
State agency officer (or, in the case of Indian Tribal governments 
acting as SFMNP State agencies, the governing authority) that 
administer food, nutrition, or other assistance programs that serve 
persons categorically eligible for the SFMNP. The State agency must 
execute a written agreement with each such designated organization:
    (1) Specifying that the receiving organization may employ SFMNP 
information only for the purpose of establishing the eligibility of 
SFMNP applicants and recipients for food, nutrition, or other 
assistance programs that it administers and conducts outreach to SFMNP 
applicants and recipients for such programs; and
    (2) Containing the receiving organization's assurance that it will 
not, in turn, disclose the information to a third party.
    (c) The Comptroller General of the United States for audit and 
examination authorized by law.


Sec.  249.25  Other provisions.

    (a) No aid reduction. Any programs for which a grant is received 
under this part shall be supplementary to the food stamp program 
carried out under the Food Stamp Act of 1977 as amended (7 U.S.C. 2011, 
et seq.) and to any other Federal or State food or nutrition assistance 
program.
    (b) Statistical information. FNS reserves the right to use 
information obtained under the SFMNP in a summary, statistical or other 
form that does not identify particular individuals.


Sec.  249.26  SFMNP information.

    (a) Any person who wishes information, assistance, records or other 
public material must request such information from the State agency, or 
from the FNS Regional Office serving the appropriate State as listed 
below:
    (1) Connecticut, Maine, Massachusetts, New Hampshire, New York, 
Rhode Island, Vermont: U.S. Department of Agriculture, FNS, Northeast 
Region, 10 Causeway Street, Room 501, Boston, Massachusetts 02222-1066.
    (2) Delaware, District of Columbia, Maryland, New Jersey, 
Pennsylvania, Puerto Rico, Virginia, Virgin Islands, West Virginia: 
U.S. Department of Agriculture, FNS, Mid-Atlantic Region, Mercer 
Corporate Park, 300 Corporate

[[Page 30589]]

Boulevard, Robbinsville, New Jersey, 08691-1598.
    (3) Alabama, Florida, Georgia, Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee: U.S. Department of Agriculture, 
FNS, Southeast Region, 61 Forsyth Street, SW., Room 8T36, Atlanta, 
Georgia 30303.
    (4) Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin: U.S. 
Department of Agriculture, FNS, Midwest Region, 77 West Jackson 
Boulevard--20th floor, Chicago, Illinois 60604-3507.
    (5) Arkansas, Louisiana, New Mexico, Oklahoma, Texas: U.S. 
Department of Agriculture, FNS, Southwest Region, 1100 Commerce Street, 
Room 555, Dallas, Texas 75242.
    (6) Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North 
Dakota, South Dakota, Utah, Wyoming: U.S. Department of Agriculture, 
FNS, Mountain Plains Region, 1244 Speer Boulevard, Suite 903, Denver, 
Colorado 80204.
    (7) Alaska, American Samoa, Arizona, California, Guam, Hawaii, 
Idaho, Nevada, Oregon, Trust Territory of the Pacific Islands, the 
Northern Mariana Islands, Washington: U.S. Department of Agriculture, 
FNS, Western Region, 550 Kearny Street, Room 400, San Francisco, 
California 94108.
    (b) Inquiries pertaining to the SFMNP administered by a federally 
recognized Indian tribal organization (ITO) should be addressed to the 
FNS Regional Office responsible for the geographic State in which that 
ITO is located.


Sec.  249.27  OMB control number.

    The information collection requirements for part 249 are under 
review by the Office of Management and Budget. The OMB approval number 
will be included in this section upon publication of the final rule.

    Dated: May 17, 2005.
Eric M. Bost,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 05-10388 Filed 5-25-05; 8:45 am]
BILLING CODE 3410-30-P