[Federal Register Volume 72, Number 96 (Friday, May 18, 2007)]
[Rules and Regulations]
[Pages 27972-27980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-9626]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 98

RIN 0970-AC18


Child Care and Development Fund State Match Provisions

AGENCY: Administration for Children and Families (ACF), HHS.

ACTION: Final rule.

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SUMMARY: This final rule revises the Child Care and Development Fund 
(CCDF) regulations to permit States to designate multiple public and/or 
private entities as eligible to receive private donations that may be 
certified as child care expenditures for purposes of receiving CCDF 
Federal matching funds. This final rule also raises from 20 to 30 
percent the amount of each State's match requirement that may be met 
with public pre-kindergarten expenditures in order to implement a 
provision of the President's Good Start, Grow Smart initiative. These 
provisions are intended to give States increased flexibility in making 
the necessary State expenditures on child care to draw down their full 
allotment of CCDF Federal matching funds.

DATES: Effective: October 1, 2007.

FOR FURTHER INFORMATION CONTACT: Andrew Williams, Child Care Program 
Specialist, Child Care Bureau, 1250 Maryland Ave, SW., 8th Floor, 
Washington, DC 20024, telephone (202) 401-4795, e-mail 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Child Care and Development Fund
    B. Summary of the Statutory Provisions Related to the State 
Match Requirement
    C. State Match Requirement Regulations
    D. Notice of Proposed Rulemaking
II. Statutory Authority
III. Provisions of Final Rule
    A. Certifying Private Donations as State Expenditures
    1. Summary of the Former Regulations Regarding Certifying 
Private Donations as State Expenditures in the CCDF Regulations
    2. Consultation With States and Other Organizations
    3. Discussion of Comments
    4. Changes Made in Final Rule
    B. Public Pre-Kindergarten Expenditures
    1. Summary of the Former Regulations Regarding Public Pre-
Kindergarten Expenditures in the CCDF Regulations
    2. Consultation With States and Other Organizations
    3. Discussion of Comments
    4. Changes Made in Final Rule
IV. Regulatory Impact Analyses
    A. Executive Order 12866
    B. Regulatory Flexibility Analysis
    C. Assessment of the Impact on Family Well-Being
    D. Paperwork Reduction Act
    E. Unfunded Mandates Reform Act of 1995
    F. Congressional Review
    G. Executive Order 13132

I. Background

    This final rule makes revisions to the matching fund requirements 
of the Child Care and Development Fund (CCDF) regulations. The new 
requirements permit States to designate multiple public and/or private 
entities as eligible to receive donated funds that States certify as 
child care expenditures for purposes of receiving Federal CCDF matching 
funds and permit States to use public pre-kindergarten expenditures for 
up to 30 percent of the expenditures required to claim their full 
allotment of CCDF Federal matching funds. A discussion of comments to 
the final rule's revisions that were received in response to the 
publication of a Notice of Proposed Rulemaking (NPRM) on November 9, 
2004, (69 FR 64881) may be found below in the preamble. This final rule 
is not substantively different from the revisions proposed by the NPRM; 
however, minor technical changes have been made to address concerns 
raised by some commenters.

A. Child Care and Development Fund (CCDF)

    CCDF assists low-income families, including families receiving or 
transitioning from the Temporary Assistance for Needy Families program 
(TANF), in the purchase of child care services, thereby allowing 
parents to work or attend training or education. States must spend a 
portion of their CCDF allotment on expenditures to improve the quality 
and availability of child care.

B. Summary of the Statutory Provisions Related to the State Match 
Requirement

    CCDF is comprised of three funding streams--discretionary funds 
subject to annual appropriation by Congress as authorized under Sec. 
658B of the CCDBG Act, 42 U.S.C. 9858, and mandatory and matching funds 
appropriated under Sec. 418 of the Social Security Act (``SSA''), 42 
U.S.C. 618. Pursuant to Sec. 418(a)(2) of the SSA, the Federal CCDF 
matching funds are the funds remaining after the mandatory funds have 
been distributed to the States. Matching funds are allocated to the 
States on the basis of the

[[Page 27973]]

number of children under age 13 in the State compared with the number 
of children under age 13 in the Nation. These funds must be matched by 
States at the State's Federal medical assistance percentage (FMAP) 
rate.

C. State Match Requirement Regulations

    CCDF regulations are codified at 45 CFR part 98. Previously, the 
relevant matching fund requirements of the CCDF regulations provided 
that donated funds from private sources could be qualified as State 
expenditures for purposes of receiving Federal CCDF matching funds, 
provided that such funds were transferred to or under the control of 
the State CCDF Lead Agency or given to the single entity designated by 
the State to receive donated funds. 45 CFR 98.53(f). In order to 
qualify as State CCDF matching funds, the former CCDF regulations also 
stipulated that private donations, whether they were transferred 
directly to the State or to a designated entity, (i) must have been 
donated without any restriction that would require their use for a 
specific individual, organization, facility or institution; (ii) could 
not revert to the donor's facility or use; (iii) were not used to match 
other Federal funds; (iv) shall have been certified both by the donor 
and by the Lead Agency as available and representing expenditures 
eligible for Federal match; and (v) shall have been subject to the 
audit requirements in Sec. 98.65. 45 CFR 98.53(e)(2).
    The former relevant matching fund requirements also provided that 
States could use public pre-kindergarten expenditures for up to 20 
percent of the expenditures serving as maintenance-of-effort and up to 
20 percent of the expenditures meeting CCDF matching requirements. 45 
CFR 98.53(h). States seeking to use pre-kindergarten expenditures for 
between 10 and 20 percent of the expenditures serving as maintenance-
of-effort or meeting CCDF matching requirements had to provide a 
description of the efforts they would undertake to ensure that pre-
kindergarten programs meet the needs of working families. They also 
were required to demonstrate how they will coordinate their pre-
kindergarten and child care services to expand the availability of 
child care. 45 CFR 98.53(h)(4).
    While retaining most of the provisions governing CCDF State 
matching requirements, this rule finalizes the provisions of the NPRM 
to give States more flexibility in making the necessary State 
expenditures for child care to draw down their full allotment of 
Federal CCDF matching funds. Since FY1999, nine States have failed to 
draw down their full allotment of Federal CCDF matching funds in at 
least one year. Five of these States have failed to draw down their 
full allotment of Federal CCDF matching funds in multiple years. Three 
States failed to draw down their full allotment of Federal CCDF 
matching funds in each of fiscal years 2003 and 2004. State expenditure 
and allotment data can be found at http://www.acf.dhhs.gov/programs/ccb/data/index.htm. In recent months, ACF Regions and the Child Care 
Bureau have received requests from States for increased flexibility in 
the use of donated funds and public pre-kindergarten expenditures to 
meet CCDF matching requirements.
    Furthermore, Good Start, Grow Smart: The Bush Administration's 
Early Childhood Initiative, the document that describes the President's 
Good Start, Grow Smart initiative, specifically provides that the 
amount of State pre-kindergarten expenditures that may be used for 
Federal match should be increased to give States more flexibility in 
funding quality activities in support of early learning. This final 
rule implements that recommendation. Good Start, Grow Smart: The Bush 
Administration's Early Childhood Initiative may be downloaded from the 
President's Web site at http://www.whitehouse.gov/infocus/earlychildhood/toc.html.
    Finally, this final rule makes technical corrections and clarifies 
some ambiguities in the CCDF regulations.

D. Notice of Proposed Rulemaking

    A Notice of Proposed Rulemaking (NPRM) was published in the Federal 
Register on November 9, 2004 (69 FR 64881) with a 60-day public comment 
period. As discussed later in this preamble, we received comments from 
9 commenters: three State child care administrators and six national 
advocacy groups for child care.

II. Statutory Authority

    This final rule is being issued under the authority granted to the 
Secretary of Health and Human Services (HHS) by Sec. 658E of the CCDBG 
Act, 42 U.S.C. Sec.  9858c.

III. Provisions of Final Rule

A. Certifying Private Donations as State Expenditures

1. Summary of the Former Regulations Regarding Certifying Private 
Donations as State Expenditures in the CCDF Regulations
    In order to certify funds donated from private sources that are not 
transferred to or under State control as expenditures for the purpose 
of receiving Federal CCDF matching funds, former CCDF regulations 
provided that States must designate a single entity to receive such 
privately donated funds and all such privately donated funds must be 
transferred to this single designated entity. The specific provisions 
setting forth this requirement appeared at Sec.  98.53(f) of the CCDF 
regulations and provided that funds donated from private sources ``may 
be given to the entity designated by the State to receive donated 
funds'' in the State Plan.
2. Consultation With States and Other Organizations
    Requests have been made by State officials for increased 
flexibility in meeting the States' CCDF matching requirements. The 
Child Care Bureau has also learned that States found the CCDF 
regulations too restrictive when States sought to encourage 
coordination among early childhood education programs or to implement 
the President's Good Start, Grow Smart initiative. For example, the 
requirement for a single designated entity to receive privately donated 
funds has impeded the ability of some States to partner with multiple 
organizations that are interested in contributing towards the State's 
match requirement.
3. Discussion of Comments
Greater Flexibility and Coordination
    Comment: Two commenters noted that the proposed rule would allow 
greater flexibility in making the necessary State expenditures on child 
care to draw down the full allotment of Federal CCDF matching funds and 
would promote the ability of States to coordinate the use of private 
funds in a more cohesive system of early care and education. However, 
several commenters noted concerns regarding the tracking and reporting 
that would be needed to comply with Federal requirements.
    Response: It is the intent of the Child Care Bureau that the 
flexibility created by this rule will ease the burden on States in 
meeting their CCDF matching requirement and free more State funds for 
use in coordinated efforts that emphasize quality child care and early 
education.
    With respect to the concerns raised by the commenters regarding the 
tracking and reporting of privately donated funds, we note that States 
are responsible for ensuring that private donations counted towards a 
State's CCDF match requirements meet all the

[[Page 27974]]

rules and restrictions set forth for such funds in CCDF regulations. As 
provided in the Child Care Bureau's October 30, 1996 Program 
Instruction on Matching Funds, Maintenance of Effort, and 
Administrative Costs (ACYF-PI-CC-96-17), ``Federal matching funds are 
only available to match State expenditures for those child care service 
[sic] and related activities, including quality activities, that are 
allowable and are also included by the State as part of its program 
under the Act and noted in the approved State Plan.'' Sec. 98.53(e)(2) 
of the CCDF regulations (as amended by this final rule) provides for 
special rules concerning privately donated funds: (1) Such funds must 
be donated without any restriction that would require their use for a 
specific individual, organization, facility or institution; (2) such 
funds may not revert to the donor's facility or use; (3) such funds may 
not be used to match other Federal funds; (4) such funds must be 
certified both by the Lead Agency and by the donor (if funds are 
donated directly to the Lead Agency) or the entity designated by the 
State to receive donated funds pursuant to Sec. 98.53(f) (if funds are 
donated directly to the designated entity) as available and 
representing funds eligible for Federal match; and (5) such funds shall 
be subject to the audit requirements in Sec. 98.65 of the CCDF 
regulations. States must take responsibility to ensure compliance with 
CCDF rules and restrictions regarding private donations when 
considering which and how many private or public entities will be 
designated as eligible to receive private donations for CCDF match.
    We take this opportunity to make a technical change to the CCDF 
regulations in response to the concern raised regarding the tracking of 
private donations. Sec. 98.53(e)(2)(iv) of the former CCDF regulations 
required both the donor and the Lead Agency to certify that privately 
donated funds were ``available and representing expenditures eligible 
for Federal match.'' Read literally in the case of a State using 
private donations to an entity designated by the State to receive such 
funds for the purpose of meeting CCDF matching requirements, this would 
require the State and/or the designated entity to obtain numerous 
certifications from individual donors who neither had control over 
funds they had already donated to the designated entity, nor had the 
expertise to determine whether such funds represented expenditures 
eligible for Federal match.
    We believe that requiring donors to certify to the availability and 
eligibility of unrestricted funds donated to a designated entity would 
be unduly burdensome on donors, designated entities, and Lead Agencies. 
Requiring designated entities to make or collect numerous 
certifications from donors who contributed some portion of unrestricted 
funds, often in small amounts, that were used to pay for an expenditure 
meeting CCDF State match requirements, would have a chilling effect on 
the donation process. Further, we see little value in certifications 
from donors who have neither control over funds that have already been 
donated, nor the expertise to determine whether such funds represent 
expenditures eligible for CCDF State match. We therefore revise Sec. 
98.53(e)(2)(iv) to provide that privately donated funds must ``be 
certified both by the Lead Agency and by the donor as available and 
representing funds eligible for Federal match if funds are donated 
directly to the Lead Agency. If private funds are donated directly to 
the designated entity, those funds must be certified both by the Lead 
Agency and the entity designated by the State to receive donated funds 
as available and representing funds eligible for Federal match, 
pursuant to Sec. 98.53(e).'' The preamble to the CCDF regulations 
supports this interpretation, noting, ``Both the Lead Agency and the 
entity designated by the State to receive donated funds must * * * 
certify that the donated funds are available and eligible for Federal 
match.'' 63 FR 39965. Therefore, we believe that the intent of the CCDF 
regulations has always been that the Lead Agency and the entity 
designated by the State to receive donated funds should certify to the 
availability and eligibility of privately donated funds donated to the 
designated entity, and thus consider this revision to be a technical 
change. In cases where private donations are made directly to the Lead 
Agency, donors are still required to make the required certifications.
Reduced Accountability/Increased Fraud and Misexpenditure
    Comment: Several commenters opined that allowing States to 
designate multiple entities to receive private donations would lead to 
reduced accountability and increased fraud and misexpenditure. 
According to these commenters, it would be difficult under the proposed 
rule for States to independently determine whether funds reported as 
collected were actually collected in a manner consistent with the CCDF 
regulations and harder to determine whether the safeguards were being 
followed. The commenters suggested: (1) Making funds subject to audit 
requirements that would specifically focus on determining compliance 
with safeguards applicable to donated funds; (2) collecting and 
publishing information on the amount of donated funds used to help 
States draw down Federal matching funds and ensuring that program 
reviews include components designed to monitor compliance with Federal 
requirements applicable to donated funds; and (3) requiring the State 
agency, rather than the agency receiving the donated funds, to make 
determinations on whether donated funds count as a State match.
    Response: It is important to recognize that under existing CCDF 
regulations, States have the flexibility to designate a single entity 
to receive privately donated funds. To date, we are not aware of any 
documented instances of fraud or misexpenditure by these designated 
entities despite regular audits. We see no reason why simply allowing 
States to designate more than one entity to receive privately donated 
funds would lead to greater fraud or misexpenditure.
    At the same time, we recognize the importance of maintaining 
accountability and integrity in the program, and we reiterate that Sec. 
98.53(e)(2)(v) of the CCDF regulations explicitly requires that State 
match funds derived from privately donated funds are subject to the 
audit requirements in Sec. 98.65 of the CCDF regulations.
    Therefore, pursuant to Sec. 98.65(d), any Federal match funds drawn 
down with privately donated funds that are determined through the audit 
process not to have been expended in accordance with CCDF statutory or 
regulatory provisions, or with the State Plan, are subject to 
disallowance and being returned to the Federal government. States using 
privately donated funds to meet their CCDF State match requirement, 
whether such funds are received by the State or a designated third 
party, should be cognizant of this requirement and implement all 
necessary systems and procedures to ensure that all funds used to meet 
CCDF State match requirements comply with CCDF's statutory and 
regulatory requirements.
    We also note that States are required to report their use of 
privately donated funds to meet their CCDF State match requirement in 
two places. First, in Sec. 1.8 of the Child Care and Development Fund 
Plan for FFY 2006-2007, States must answer whether they will use 
privately donated funds to meet a part of their CCDF State match 
requirement and identify and describe the entity or

[[Page 27975]]

entities designated to receive privately donated funds. Second, States 
must report on a quarterly basis the amount of privately donated funds 
used to meet their CCDF State match requirement on the ACF-696 
Financial Report. We recommend that States take appropriate measures 
with respect to their own data-collection requirements to ensure that 
donors and entities designated to receive private donations comply with 
CCDF statutory and regulatory requirements.
    Further, we note that the State as well as the donor or the entity 
receiving privately donated funds are required by CCDF regulations to 
certify that the privately donated funds are both available and 
represent expenditures eligible for Federal match. Through the 
certification process, States are held accountable for all privately 
donated funds used as CCDF State match whether such funds are donated 
to the State directly or donated to a designated entity. Further, we 
reiterate that designations of privately donated funds as eligible for 
CCDF Federal matching funds are subject to verification through audit.
    Finally, in an effort to reduce the chances of fraud or 
misexpenditure and to further clarify our regulations, we take this 
opportunity to make another technical change by removing the word 
``and'' after Sec. 98.53(e)(2)(ii). One Lead Agency interpreted the 
inclusion of the word ``and'' between clauses (ii) and (iii) of Sec. 
98.53(e)(2) to mean that privately donated funds were only required to 
meet the requirements of clauses (i) and (ii) or clauses (iii)-(v), but 
not all five clauses. We believe that the word ``and'' was 
inadvertently left in the regulations when they were revised in 1998. 
We further believe that removing the word ``and'' does not change the 
meaning or our interpretation of Sec. 98.53(e)(2). However, we want to 
avoid any misinterpretation of Sec. 98.53(e)(2) that might lead to 
privately donated funds being claimed as CCDF State match without 
meeting all five requirements of Sec. 98.53(e)(2). We consider this 
revision to be a technical change.
Distorted Program Priorities
    Comment: Several commenters argued that CCDF rules that prohibit 
special conditions on private donations and the reversion of donations 
back to the donor may be interpreted to apply only to donors and not 
the entities designated to receive donations. According to these 
commenters, if private donations are generated with special conditions, 
entities could raise funds that would be limited to the benefit of 
their members. Allowing the entity receiving donated funds to impose 
special conditions or spend donated funds on their own programs 
increases the risk that overall program priorities would be distorted. 
The commenters suggested: (1) Specifying that the entity receiving 
funds may not impose a requirement that the funds be used for a 
specific individual or group of individuals, organization, facility or 
institution; (2) specifying that funds may not revert to such entity's 
facility or use; and (3) specifying that decisions about the 
appropriate expenditures of donated funds counting as State match must 
be made by the State agency rather than the entity receiving donated 
funds.
    Response: Sec. 98.53(e)(2) prohibits donors from placing special 
conditions on private donations that would require their use for a 
specific individual, organization, facility or institution or that 
would result in their reversion to the donor's facility or use. 
However, the preamble to the CCDF regulations makes clear that limiting 
the use of privately donated funds to a specific geographic area, such 
as within the limits of a specific city or even a single neighborhood, 
is permissible, as this was one of the intentions of allowing separate 
entities to receive privately donated funds for use as CCDF State 
match. 63 FR 39965.
    CCDF regulations provide that restrictions on placing special 
conditions on privately donated funds apply only to donors and not to 
the entities receiving them. However, CCDF regulations also provide 
that the entities receiving privately donated funds as well as the 
State must certify that such donated funds are both available and 
eligible for Federal match. Therefore, both the entities receiving 
privately donated funds as well as the State must take appropriate 
steps to ensure that such funds are spent on allowable activities, as 
described in the approved State Plan, that meet the goals and purposes 
of the CCDBG Act. States must be vigilant in monitoring the entities 
that they designate as eligible to receive privately donated funds, and 
should act quickly and decisively to remove their designation if any 
impropriety has occurred.
    Entities that receive privately donated funds may expend such funds 
on their own activities, provided that such activities qualify as 
eligible child care activities under the CCDBG Act and CCDF 
regulations, and provided further that such activities are permissible 
under State or local law and regulations governing conflict of 
interest. Qualifying child care activities may include child care 
direct services or related activities, including quality activities, 
provided that such services and activities meet eligibility and other 
program requirements, are consistent with the goals and purposes of the 
CCDBG Act, and are noted in the approved State Plan. Again, States have 
the responsibility of ensuring that the activities funded through 
private donations meet all the requirements to qualify as CCDF State 
match. If a State determines that an entity designated to receive 
private donations is acting improperly, it must remove that entity's 
designation and find another source to meet the State's CCDF State 
match requirement.
Competition/Inequitable Distribution of Funds
    Comment: Several commenters believed that allowing States to 
designate multiple entities to receive private donations creates the 
risk that that such entities would compete in the collection of private 
funds. These commenters opined that competition could lead to 
inequitable distribution of funds because wealthy communities could 
generate more private donations than poor communities. They also argued 
that the proposed rule could result in competition among child care 
providers that might be put in a position of having to raise funds to 
contribute to match. The commenters suggested: (1) Specifying that any 
State electing to use donated funds as CCDF State match must provide 
assurances that CCDF matching funds will be allocated in an equitable 
manner that does not result in disproportionate allocation of resources 
to communities or entities based on the collection of donated funds; 
and (2) requiring States to describe in their State Plans how the 
allocation of funds for services and quality activities between areas 
of the State is reasonable and appropriate in light of the identified 
needs of the respective areas of the State.
    Response: As noted above, the preamble to the CCDF regulations 
makes clear that limiting the use of privately donated funds to a 
specific geographic area, such as within the limits of a specific city 
or even a single neighborhood, was one of the intentions of allowing 
separate entities to receive privately donated funds for use as CCDF 
State match. To date, we have found no evidence that this has led to 
inequity in child care spending among communities of varying economic 
status. We see no reason why simply allowing States to designate more 
than one entity to receive privately donated funds would lead to 
greater inequities among various regions of a State.

[[Page 27976]]

    We take this opportunity to remind States of CCDF's parental choice 
requirements. Sec. 98.30(f) of the CCDF regulations prohibits States or 
local governments from establishing rules, procedures or other 
requirements promulgated for purposes of the CCDF that significantly 
restrict parental choice by: (i) Expressly or effectively excluding any 
category of care or type of provider, or any type of provider within a 
category of care; (ii) having the effect of limiting parental access to 
or choice from among such categories of care or types of providers; or 
(iii) excluding a significant number of providers in any category of 
care or of any type of care. If a State enacted a rule, procedure or 
other requirement to take advantage of the additional flexibility 
provided by this final rule that had the effect of limiting parental 
choice in violation of CCDF regulations, then that State would be 
subject to losing all or a portion of its CCDF grant. We urge States to 
consider CCDF's parental choice requirements carefully in crafting new 
rules, procedures, or other requirements designed to take advantage of 
this final rule.
    We further urge States to monitor how State and Federal child care 
funds are distributed across a State and use the flexibility provided 
by CCDF statute and regulations to ensure that child care resources are 
distributed equitably and optimally. Further, we will take under 
advisement prior to the 2010-2011 State Plan submission process the 
recommendation to require States to describe in their State Plans how 
they make use of privately donated funds and whether such use leads to 
disparate services across varying regions of a State. We will, at that 
time, publish a Federal Register notice (OMB Control Number 0970-0114) 
to solicit public comment as to the availability of child care services 
that meet the needs of working parents.
Reduced Funding for Child Care
    Comment: Several commenters opined that child care is not 
adequately funded and that the proposed changes to CCDF regulations may 
actually result in fewer child care services, particularly for infants 
and toddlers. They argue that increased use of private donations to 
meet CCDF State match requirements could result in shrinkage of public 
commitment because legislatures might reduce appropriations in the 
expectation that agencies or communities should generate private match 
instead. Those commenters suggest that States be prohibited from 
reducing their current child care spending for subsidies, quality 
improvement, and infants and toddlers.
    Response: Allowing more than one public or private entity to 
receive private donations in no way changes States' CCDF matching and 
MOE requirements. Whether the source of the CCDF matching or MOE funds 
is from the State or from a private donation to a designated entity, 
the amount required to draw down a State's full allotment of CCDF 
matching funds is not altered by this regulatory change. Further, these 
rules are intended to increase State flexibility and should have a 
positive impact on funding child care. States ultimately have 
responsibility to determine how best to address child care and this 
regulation will give States additional flexibility to meet the needs of 
children and families.
    With respect to child care funding for certain ages of eligible 
children, such as infants and toddlers, we note that States already 
have the flexibility to allocate funds between direct services and 
quality activities and among the various ages of eligible children 
according to the particular circumstances within the State. However, 
there are several requirements of States that ensure that CCDF funds 
are spread across all eligible children and types of child care 
activities. States are required to spend at least four percent of their 
CCDF allotment on quality activities and at least 70 percent of their 
allotment of CCDF mandatory and matching funds on direct services for 
families receiving TANF assistance, transitioning off of TANF 
assistance, or at risk of becoming dependent on TANF assistance. 
Additionally, set-asides in annual appropriation of CCDF discretionary 
funds require States to spend CCDF funds on specified activities, such 
as ``activities that improve the quality of infant and toddler care.''
    This rule is not intended to reward one group of children at the 
expense of the other. Rather, this rule hopes to facilitate greater 
funding opportunities for all eligible children through private 
donations and to encourage greater cooperation and coordination between 
the child care and early education communities. We feel this is in the 
best interests of all children. However, we will continue to monitor 
States' implementation of the CCDF program through State Plans, annual 
State expenditure data and other reporting requirements. We also will 
publish a Federal Register notice (OMB Control Number 0970-0114) to 
solicit public comment as to the availability and coordination of child 
care services that meet the needs of working parents prior to 2010-2011 
State Plan submission process.
Lack of Rationale
    Comment: Several commenters noted that the NPRM does not adequately 
explain why the existing requirement restricting States to the 
designation of a single entity for receipt of private donations has 
been a problem and offers no examples of any instance in which it has 
impeded coordination or discouraged the use of private contributions. 
They argue that States should be required to demonstrate in their State 
plan how they are using any increase in available funds to both improve 
coordination and to increase the availability of services for low-
income working families.
    Response: As noted above, since FY1999, nine States have failed to 
draw down their full allotment of Federal CCDF matching funds in at 
least one year, and five of these States have failed to draw down their 
full allotment of Federal CCDF matching funds in multiple years. It is 
our belief that greater flexibility in meeting their State match could 
have helped these States draw down their full allotment of CCDF Federal 
match funds. We also reiterate that the Child Care Bureau has received 
requests from State officials for increased flexibility in meeting the 
States' CCDF matching requirements, particularly for States seeking to 
encourage coordination among early childhood education programs or to 
implement the President's Good Start, Grow Smart initiative. It is our 
belief that this rule change will enable States to raise more funds for 
child care and encourage more public-private partnerships in increasing 
the quality and availability of affordable child care.
    We do see merit in the suggestion that States should be required to 
demonstrate in their State Plan how they are using privately donated 
funds to both improve coordination and to increase the availability of 
services for low-income working families. While no regulatory changes 
are needed, we will take that suggestion under advisement prior to the 
2010-2011 State Plan submission process. We will, at that time, publish 
a Federal Register notice (OMB Control Number 0970-0114) to solicit 
public comment as to the availability and coordination of child care 
services that meet the needs of working parents.
4. Changes Made in Final Rule
    In order to grant States greater flexibility in meeting the 
matching requirements for Federal CCDF matching funds, this final rule 
provides

[[Page 27977]]

that States shall be allowed to designate multiple public and/or 
private entities to receive privately donated funds that may be 
certified as State expenditures for purposes of receiving Federal CCDF 
matching funds. We revised Sec. 98.53(f) to provide that privately 
donated funds ``may be given to the public or private entities 
designated by the State to implement the child care program in 
accordance with Sec. 98.11 provided that such entities are identified 
and designated in the State Plan to receive donated funds pursuant to 
Sec. 98.16(c)(2).'' Additionally, conforming changes to Secs. 
98.16(c)(2) and 98.53(e)(2)(iv) reflect the fact that privately donated 
funds may be given to ``public or private entities.''
    Also, as discussed above, two technical changes are made to address 
concerns noted in comments. First, Sec. 98.53(e)(2)(iv) is revised to 
provide that privately donated funds must ``be certified both by the 
Lead Agency and by the donor (if funds are donated directly to the Lead 
Agency) or the entity designated by the State to receive donated funds 
pursuant to Sec. 98.53(f) (if funds are donated directly to the 
designated entity) as available and representing funds eligible for 
Federal match.'' Second, the word ``and'' after Sec. 98.53(e)(2)(ii) is 
removed.

B. Public Pre-Kindergarten Expenditures

1. Summary of the Former Regulations Regarding Public Pre-Kindergarten 
Expenditures in the CCDF Regulations
    Former CCDF regulations provided that, once States had met their 
maintenance-of-effort requirement, they could use public pre-
kindergarten expenditures for up to 20 percent of their child care 
expenditures designated toward meeting CCDF matching requirements. 
States seeking to use the full 20 percent of pre-kindergarten 
expenditures to meet the matching requirements were required to provide 
a description of the efforts they would undertake to ensure that pre-
kindergarten programs met the needs of working families. They were also 
required to demonstrate how they would coordinate their pre-
kindergarten and child care services to expand the availability of 
child care. The specific provisions setting forth this requirement 
appeared at Sec. 98.53(h)(3) of the CCDF regulations and provided that 
``[i]n any fiscal year, a State may use other public pre-K funds for up 
to 20% of the expenditures serving as the State's matching funds under 
this subsection.''
2. Consultation With States and Other Organizations
    Requests have been made by State officials for increased 
flexibility in meeting the States' CCDF matching requirements. The 
Child Care Bureau has also been informed that States were finding the 
former CCDF regulations to be too restrictive when States sought to 
encourage coordination among early childhood education programs or to 
implement the President's Good Start, Grow Smart initiative. This rule 
will provide greater leverage to ensure coordination between pre-
kindergarten and child care.
3. Discussion of Comments
More Funds for Quality Enhancements
    Comment: Two commenters noted that CCDF funds freed by the proposed 
change could be directed toward quality enhancements supporting early 
learning, and that increased coordination could lead to increased 
efficiencies, improved service effectiveness, and the potential to 
leverage additional private donations.
    Response: We agree. It is the intent of the Child Care Bureau that 
the flexibility created by this rule will ease the burden on States in 
meeting their CCDF matching requirement, free more State funds for use 
in funding quality activities in support of early learning, and 
encourage coordination among those working to improve and expand early 
education and child care.
Reduced Funding for Child Care
    Comment: Several commenters reiterated their argument that child 
care is not adequately funded and the proposed changes to the CCDF 
regulations may actually result in fewer child care services, 
particularly for infants and toddlers. One commenter argued that if 
preschool children move away from community-based child care to State 
pre-K programs, child care providers would be left with a 
disproportionate share of infants and toddlers who are more expensive 
to serve. Commenters noted that increased use of pre-k expenditures for 
CCDF State match could lead to the supplanting of current State 
investments in child care subsidy programs and an overall reduction of 
funding for child care. The commenters suggested: (1) Prohibiting 
States from reducing their current child care spending for subsidies, 
quality improvement, and infants and toddlers; and (2) specifying that 
any State using pre-k expenditures for more than 20 percent of their 
matching funds provide assurances that the State will not supplant 
existing services and demonstrate that the increase in funds has not 
resulted in a decline in State child care expenditures.
    Response: Increasing the allowable pre-K funds for State match from 
20% to 30% is intended to provide an incentive for States to more 
closely link their pre-K and child care systems and establish a 
coordinated system that better meets the needs of working families for 
full-day/full-year services that prepare children to enter school ready 
to learn. The intent is not to create an incentive for States to divert 
State funds away from other child care programs to meet their Matching 
requirements solely through pre-K expenditures. Additionally, we note 
that to address potential concerns about the use of pre-K expenditures 
in meeting CCDF requirements, expenditures for pre-K programs may 
constitute no more than 30 percent of State match expenditures.
    To reiterate what we stated in the 1998 final rule, a chief concern 
to working parents is that many pre-K services are only part-day and or 
part-year and such programs may not serve the family's real needs. CCDF 
regulations require a State using pre-k expenditures to meet its CCDF 
State match requirement to describe in its State Plan the efforts it 
will undertake to ensure that pre-K programs meet the needs of working 
parents.
    We further note that CCDF regulations require that State Plans 
shall reflect a State's intent to use public pre-K funds in excess of 
10% of its or State matching funds in a fiscal year and how the State 
will coordinate its pre-K and child care services to expand the 
availability of child care. Thus, the CCDF regulations do require 
States to take steps to ensure that their pre-k programs meet the needs 
of working parents and, in some instances, to coordinate their pre-k 
and child care services to expand the availability of child care to 
all.
Rationale for Rule Change
    A number of commenters argued that it is unclear how increasing the 
amount of State pre-k dollars that can be used to meet the match 
requirement will in any way improve coordination. These commenters 
suggested requiring States to demonstrate in their State plan how they 
are using any increase in available funds to both improve coordination 
and to increase the availability of services for low-income working 
families.
    Response: As discussed above, since FY1999, nine States have failed 
to draw down their full allotment of Federal CCDF matching funds in at 
least one year, and five of these States have failed to draw down their 
full allotment of

[[Page 27978]]

Federal CCDF matching funds in multiple years. It is our belief that 
greater flexibility in meeting their State match could have helped 
these States draw down their full allotment of CCDF Federal match 
funds. We also reiterate that the Child Care Bureau has received 
requests from State officials for increased flexibility in meeting the 
States' CCDF matching requirements, particularly for States seeking to 
encourage coordination among early childhood education programs or to 
implement the President's Good Start, Grow Smart initiative. It is our 
belief that this rule change will enable States to raise more funds for 
child care and encourage more public-private partnerships in increasing 
the quality and availability of affordable child care.
    We do see merit in the suggestion that States should be required to 
demonstrate in their State Plan how they are using any increase in 
available funds to both improve coordination and to increase the 
availability of services for low-income working families. While no 
regulatory changes are needed, we will take that suggestion under 
advisement prior to the 2010-2011 State Plan submission process.. We 
will, at that time, publish a Federal Register notice (OMB Control 
Number 0970-0114) to solicit public comment as to the availability and 
coordination of child care services that meet the needs of working 
parents.
4. Changes Made in This Final Rule
    In order to grant States greater flexibility in meeting the 
matching requirements for Federal CCDF matching funds, this final rule 
provides that once a State has met its maintenance-of-effort 
requirement, it may designate a portion of its public pre-kindergarten 
expenditures as expenditures toward Federal CCDF matching funds; 
provided that the portion of public pre-kindergarten expenditures 
designated as State matching funds may not exceed 30 percent of the 
amount of expenditures required by the State to draw down its full 
allotment of Federal CCDF matching funds. We propose to revise Sec. 
98.53(h)(3) to provide that, ``[i]n any fiscal year, a State may use 
other public pre-K funds as expenditures serving as State matching 
funds under this subsection; such public pre-K funds used as State 
expenditures may not exceed 30% of the amount of a State's expenditures 
required to draw down the State's full allotment of Federal matching 
funds available under this subsection.'' Additionally, conforming 
changes would be made to Sec. 98.53(h)(4) to provide that the CCDF Plan 
``shall reflect the State's intent to use public pre-K funds in excess 
of 10%, but not for more than 20% of its maintenance-of-effort or 30% 
of its State matching funds in a fiscal year.''

III. Regulatory Impact Analyses

A. Executive Order 12866

    Executive Order 12866 requires that regulations be drafted to 
ensure that they are consistent with the priorities and principles set 
forth in Executive Order 12866. The Department has determined that this 
final rule is consistent with these priorities and principles. 
Moreover, we have consulted with the Office of Management and Budget 
(OMB) and determined that these final rules meet the criteria for a 
significant regulatory action under Executive Order 12866. Thus, they 
were subject to OMB review.
    Executive Order 12866 encourages agencies, as appropriate, to 
provide the public with meaningful participation in the regulatory 
process. As described earlier, the Child Care Bureau and ACF regional 
offices have been contacted by numerous States expressing their desire 
for greater flexibility in meeting their matching requirement for 
Federal CCDF matching funds. This rule addresses these concerns. In 
addition, we have provided a 60-day public comment period and have 
responded to or addressed all comments in this final rule.

B. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. Ch. 6) (RFA) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses and other small entities. 
Small entities are defined in the RFA to include small businesses, 
small non-profit organizations, and small governmental entities. This 
rule will affect only the 50 States and the District of Columbia. 
Therefore, the Secretary certifies that this rule will not have a 
significant impact on small entities.

C. Assessment of the Impact on Family Well-Being

    We certify that we have made an assessment of this final rule's 
impact on the well-being of families, as required under Sec. 654 of the 
Treasury and General Appropriations Act of 1999. This final rule will 
make it easier for States to receive their full allotment of Federal 
matching funds through CCDF. These funds are to be used by States to 
assist low-income families in purchasing child care services, to 
provide comprehensive consumer education to parents and the public, and 
to improve the quality and availability of child care.

D. Paperwork Reduction Act

    In order for States to use the increased flexibility provided by 
the final rule, Lead Agencies must amend their Lead Agency Plans, the 
information requirements of which are set forth in Sec. 98.16 of the 
CCDF regulations. As required by the Paperwork Reduction Act of 1995 
(44 U.S.C. 3507 (d)), the Administration for Children and Families has 
submitted a copy of this section, together with a copy of this final 
rule to the Office of Management and Budget (OMB) for its review.
    Title: Amendment to State/Territorial Plan Pre-Print (ACF-118) for 
the Child Care and Development Fund (Child Care and Development Block 
Grant).
    Description: The legislatively-mandated plans serve as the 
agreement between the Lead Agency and the Federal Government as to how 
CCDF programs will be administered in conformance with legislative 
requirements, pertinent Federal regulations, and other applicable 
instructions and guidelines issued by ACF. This information is used for 
Federal oversight of the Child Care and Development Fund. Because the 
State Plans must accurately reflect the manner in which a State meets 
the matching requirements for Federal CCDF matching funds, in order for 
a State to use the increased flexibility provided by this final rule, 
it must submit an amendment to its plan reflecting the change in the 
manner in which it meets the matching requirement for Federal CCDF 
matching funds. Because the information required to take advantage of 
the provisions of this final regulation are already collected in the 
ACF-118 (OMB Control Number 0970-0114), a new information collection 
document will not be necessary.
    Respondents: State and territorial governments.

[[Page 27979]]



                         Annual Burden Estimates
------------------------------------------------------------------------
                                       Average burden
    Number of          Number of          hour per        Total burden
   respondents*        submittals         submittal           hours
------------------------------------------------------------------------
             22                  1                  2               44
------------------------------------------------------------------------
* Estimate based upon the total number of States using private donations
  and/or their public pre-kindergarten expenditures as their
  expenditures toward Federal CCDF matching funds in FY2002, plus an
  additional number of States that are expected to take advantage of the
  increased flexibility in using private donations and/or public pre-
  kindergarten expenditures to meet their State CCDF matching
  requirement.

    The Administration for Children and Families will consider comments 
by the public on this proposed collection of information in the 
following areas:
    (1) Evaluating whether the proposed collection is necessary for the 
proper performance of the functions of ACF, including whether the 
information will have practical utility;
    (2) Evaluating the accuracy of the ACF's estimate of the burden of 
the proposed collection of information, including the validity of the 
methodology and assumptions used;
    (3) Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    (4) Minimizing the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technology, e.g., permitting 
electronic submission of responses.
    OMB is required to make a decision concerning the collection of 
information contained in this final rule between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment is best assured of having its full effect if OMB receives it 
within 30 days of publication. This does not affect the deadline for 
the public to comment to the Department on the final rule. Written 
comments to OMB for the proposed information collection should be sent 
directly to the following: Office of Management and Budget, either by 
fax to 202-395-6974 or by e-mail to [email protected]. 
Please mark faxes and e-mails to the attention of the desk officer for 
ACF.

E. Unfunded Mandates Reform Act of 1995

    Sec. 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that a covered agency prepare a budgetary impact statement 
before promulgating a rule that includes any Federal mandate that may 
result in the expenditure by State, local, and Tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year.
    This final rule will not result in the expenditure by State, local, 
and Tribal governments, in the aggregate, or by the private sector, of 
$100 million or more in any one year. Expenditures made to meet the 
requirements for Federal CCDF matching funds are made entirely at the 
option of the State or Tribal government seeking the Federal CCDF 
matching funds.

F. Congressional Review

    This final rule is not a major rule as defined in 5 U.S.C. 804.

G. Executive Order 13132

    Executive Order 13132 guarantees ``the division of governmental 
responsibilities between the national government and the States that 
was intended by the Framers of the Constitution, to ensure that the 
principles of federalism established by the Framers guide the executive 
departments and agencies in the formulation and implementation of 
policies, and to further the policies of the Unfunded Mandates Reform 
Act.''
    The Secretary certifies that this final rule does not have a 
substantial direct effect on States, on the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. This final 
rule does not preempt State law and does not impose unfunded mandates.
    This final rule does not contain regulatory policies with 
federalism implications that would require specific consultations with 
State or local elected officials.

List of Subjects

    Charitable donation, Child care, Day care, Early education, Grant 
programs--social programs, Pre-kindergarten, State match.

(Catalogue of Federal Domestic Assistance Programs: 93.575, Child 
Care and Development Block Grant; 93.596, Child Care Mandatory and 
Matching Funds)

    Dated: April 13, 2007.
Daniel C. Schneider,
Acting Assistant Secretary for Children and Families.
    Approved: May 9, 2007.
Michael O. Leavitt,
Secretary, Department of Health and Human Services.

0
For the reasons set forth in the preamble, Part 98 of Subtitle A of 
Title 45 of the Code of Federal Regulations are amended as follows:

PART 98--CHILD CARE AND DEVELOPMENT FUND

0
1. The authority for part 98 continues to read:

    Authority: 42 U.S.C. 618, 9858.


0
2. Amend 45 CFR 98.16 to revise paragraph (c)(2) as follows:


Sec.  98.16  Plan provisions.

* * * * *
    (c) * * *
    (2) Identification of the public or private entities designated to 
receive private donated funds and the purposes for which such funds 
will be expended, pursuant to Sec. 98.53(f);
* * * * *

0
3. Amend 45 CFR 98.53 to revise paragraphs (e)(2), (f), (h)(3), and 
(h)(4) to read as follows:


Sec.  98.53  Matching fund requirements.

* * * * *
    (e) An expenditure in the State for purposes of this subpart may 
be:
* * * * *
    (2) Donated from private sources when the donated funds:
    (i) Are donated without any restriction that would require their 
use for a specific individual, organization, facility or institution;
    (ii) Do not revert to the donor's facility or use;
    (iii) Are not used to match other Federal funds;
    (iv) Shall be certified both by the Lead Agency and by the donor 
(if funds are donated directly to the Lead Agency) or the Lead Agency 
and the entity designated by the State to receive donated funds 
pursuant to Sec.  98.53(f) (if funds are donated directly to the

[[Page 27980]]

designated entity) as available and representing funds eligible for 
Federal match; and
    (v) Shall be subject to the audit requirements in Sec.  98.65 of 
these regulations.
    (f) Donated funds need not be transferred to or under the 
administrative control of the Lead Agency in order to qualify as an 
expenditure eligible to receive Federal match under this subsection. 
They may be given to the public or private entities designated by the 
State to implement the child care program in accordance with Sec.  
98.11 provided that such entities are identified and designated in the 
State Plan to receive donated funds in accordance with Sec.  
98.16(c)(2).
* * * * *
    (h) * * *
    (3) In any fiscal year, a State may use public pre-K funds for up 
to 20% of the funds serving as maintenance-of-effort under this 
subsection. In addition, in any fiscal year, a State may use other 
public pre-K funds as expenditures serving as State matching funds 
under this subsection; such public pre-K funds used as State 
expenditures may not exceed 30% of the amount of a State's expenditures 
required to draw down the State's full allotment of Federal matching 
funds available under this subsection.
    (4) If applicable, the CCDF Plan shall reflect the State's intent 
to use public pre-K funds in excess of 10%, but not for more than 20% 
of its maintenance-of-effort or 30% of its State matching funds in a 
fiscal year. Also, the Plan shall describe how the State will 
coordinate its pre-K and child care services to expand the availability 
of child care.
* * * * *
[FR Doc. E7-9626 Filed 5-17-07; 8:45 am]
BILLING CODE 4184-01-P