[Federal Register Volume 74, Number 211 (Tuesday, November 3, 2009)]
[Rules and Regulations]
[Pages 56719-56721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-26303]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510-AB23


Administrative Offset Under Reciprocal Agreements With States

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Final rule.

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

SUMMARY: This final rule describes the rules applicable to the offset 
of Federal nontax payments to collect delinquent debts owed to States 
pursuant to reciprocal agreements between the Secretary of the Treasury 
and the States. In addition to providing for the offset of Federal 
nontax payments, the reciprocal agreements provide for the offset of 
State payments to collect delinquent, nontax Federal debts. The offsets 
described in this rule are processed by the Treasury Offset Program 
(TOP), which the Department of the Treasury's Financial Management 
Service (FMS) established to centralize the process by which Federal 
payments are withheld or reduced (in other words, offset) to collect 
delinquent debts.

DATES: This rule is effective November 3, 2009.

FOR FURTHER INFORMATION CONTACT: Thomas Dungan, Senior Policy Analyst, 
at (202) 874-6660, or Tricia Long, Senior Counsel, at (202) 874-6680.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Debt Collection Improvement Act of 1996 DCIA), Public Law 104-
134, 110 Stat. 1321-358 et seq. (April 26, 1996), authorized Federal 
disbursing officials to withhold or reduce eligible Federal payments to 
pay the payee's delinquent debt owed to the United States. See 31 
U.S.C. 3716(c). This process is known as ``administrative offset'' or 
``offset.'' The DCIA also provided that Federal payments may be offset 
to collect delinquent debts owed to States provided that the States 
enter into reciprocal agreements with the Secretary of the Treasury and 
meet certain other qualifications. See 31 U.S.C. 3716(h). Section 
3716(h) authorizes the Secretary of the Treasury to allow States to 
participate in administrative offset to collect delinquent State debts 
so long as the States meet the requirements of 31 U.S.C. 3716(h), 
including entering into reciprocal agreements with the Secretary of the 
Treasury. Such reciprocal agreements shall contain any requirements 
that the Secretary considers appropriate, to facilitate offset and 
prevent duplicative efforts.
    On January 11, 2007, FMS issued an interim rule with request for 
comments that established the reciprocal offset program with States 
through TOP. See 72 FR 1283. In that interim rule, FMS also described 
the pilot program that was initiated in June 2007. The purpose of the 
pilot program was to determine if it is in the best interests of the 
United States and the States to fully implement reciprocal offsets 
under this section. FMS invited the States to participate in the pilot 
program, and two States participated. The purposes of the pilot were to 
test offset systems and procedures and to evaluate whether the benefits 
of the program outweigh the costs. In the interim rule, FMS indicated 
it would consider information gained from the operation of the pilot, 
in addition to comments received on the interim rule, before issuing a 
final rule.
    Based upon the results of the pilot program, FMS has determined 
that it is in the best interests of the United States to continue with 
the reciprocal offset program with the States with some changes set 
forth in this final rule.

II. Discussion of Comments and Results of the Pilot Public Comments

    FMS received comments from one association of auditors, 
comptrollers, and treasurers. Following is a discussion of the 
substantive issues raised in the comments.

1. Limitations on Payments Available for Offset To Collect State Debts

    The commenter noted that TOP processes offsets of many payments 
that are not available for offset to collect State debts. Among those 
payments are federal tax refunds, social security payments, and federal 
salary payments. The statute authorizing reciprocal offsets under this 
section expressly excludes offset of federal tax refunds and social 
security benefit payments. See 31 U.S.C. 5 3701(d)(1) and 3716(h)(3), 
respectively. Therefore, offset of those payments is beyond the scope 
of this rule. In addition, as noted in the interim rule, there are many 
statutes and regulations that affect federal salary offset, including 
statutes administered by other federal agencies such as the Office of 
Personnel Management. See 72 FR 1284. Such laws contain additional 
requirements for offset of federal salary payments, including the 
requirement that federal employees have an opportunity for a hearing by 
an authority not under the control of the creditor agency. See 5 CFR 
550.1104(d)(7). The additional legal

[[Page 56720]]

requirements also have an impact on operations of both the States and 
the Federal Government. For these reasons, FMS decided not to include 
administrative offset of federal salary payments in this rule.

2. Fees

    The commenter noted that the rule provides for FMS to charge a fee 
to the States to recoup FMS's administrative costs, while not providing 
for the States to charge 5515 for their administrative costs. The 
commenter encouraged FMS to include a provision for the States to 
charge a fee in the reciprocal agreements. The DCIA authorizes FMS to 
charge creditor agencies a fee sufficient to cover the full cost of 
implementing administrative offsets. See 31 U.S.C. 3716(c)(4). There is 
no authority for States to charge FMS a fee or for FMS to pay a fee to 
the States. Therefore, it would be beyond FMS's authority to include a 
provision for a fee in this rule or in the reciprocal agreements.

3. State Legislation

    The commenter noted that States may have to pass legislation to 
allow officials other than the governor to sign a reciprocal agreement 
and to authorize offset of State payments to collect delinquent federal 
debts. FMS anticipates that all States wishing to participate in the 
program authorized by this rule will have to enact legislation. Both of 
the States participating in the pilot program passed legislation in 
order to implement the program. FMS worked closely with those States to 
ensure that the legislative language would be sufficient. FMS will 
continue to assist participating States in that effort.

4. Requirement for a Reciprocal Agreement

    The commenter expressed concern that use of the program may be 
hindered by the need for a reciprocal agreement in States where debt 
collection is not centralized. A reciprocal agreement with the State is 
a statutory requirement. See 31 U.S.C. 3716(h)(1)(B). This rule, 
therefore, is only repeating the requirement contained in the statute. 
To the extent this comment is intended to address any requirements in 
the reciprocal agreements that the States centralize offset operations, 
such issues are not within the scope of this rule. Section 
3716(h)(1)(B) authorizes FMS to include in the reciprocal agreements 
any requirements which it considers appropriate to facilitate the 
offset and prevent duplicative efforts. FMS has chosen not to include 
the detailed operational requirements of the reciprocal agreements in 
this rule, thus preserving the flexibility to prescribe such terms as 
may be deemed appropriate in the future. This rule, therefore, only 
sets forth the basic parameters for the reciprocal agreements between 
FMS and the States.

Results of the Pilot Program

    The pilot commenced in June 2007. Two States--Maryland and New 
Jersey--participated. Collection results indicate that the program 
benefited the States as well as the federal agencies. The 
implementation costs for each of the two participating States were 
approximately $1 million. As of July 31, 2008, Maryland had collected 
over $19 million, and New Jersey had collected over $14 million.
    The estimated implementation costs for TOP were $230,000 and for 
the federal agencies were $100,000. As of July 31, 2008, TOP had 
collected a total of $5,495,163.28 of federal nontax debts from the 
payments made by Maryland and New Jersey.
    While the benefit to the States greatly exceeds the benefits to the 
Federal government, the program is nonetheless a beneficial collection 
tool for federal agencies. FMS has, therefore, determined that the 
program should continue.
    In addition to evaluating the financial benefits of the reciprocal 
offset program, FMS analyzed the legal requirements for participation 
in the program. In the interim rule, FMS imposed an extra due process 
requirement on the States for debts they had submitted for offset under 
section 285.8 of this part. See paragraph (f) of this section, ``Debts 
previously submitted by States for tax refund offset.'' Prior to the 
pilot, if a State had already submitted a debt to TOP for purposes of 
federal tax refund offset, the State was not required to send out 
another advance due process notice informing the debtor that additional 
federal payments would be subject to offset to collect that debt. 
However, under the interim rule, a State was required to send out a 
post-offset due process notice if a federal payment was offset under 
this section. A comparable requirement for post-offset notice was 
imposed on federal agencies, under the reciprocal agreements, if a 
State payment was offset to collect a federal debt that had been 
submitted for offset prior to promulgation of the interim rule.
    The extra notice required by paragraph (f) of the interim rule is 
not required by statute. FNS imposed this additional notice requirement 
solely because the program was new, and it was unknown if there might 
be significant numbers of debtors who would claim that they would have 
availed themselves of their due process rights earlier if they had 
known that State payments would be subject to offset. Such claims did 
not emerge during the pilot, and the post-offset notice requirement 
places an unnecessary administrative obligation on States without any 
resulting benefit to debtors. FMS has therefore determined that this 
additional notice is no longer necessary. Accordingly, paragraph (f) 
has been modified to delete the requirement for any post-offset due 
process notice.

III. Procedural Analysis

Administrative Procedures Act

    FMS has determined that good cause exists to make this final rule 
effective upon publication without providing the 30-day period between 
publication and the effective date contemplated by 5 U.S.C. 553(d). The 
purpose of a delayed effective date is to afford persons affected by a 
rule a reasonable time to prepare for compliance. This final rule makes 
only minor changes to the currently effective interim final rule and 
provides guidance that is expected to facilitate States' participation 
in the reciprocal offset program. Therefore, FMS believes that good 
cause exists, and that it is in the public interest, to make this final 
rule effective upon publication.

Regulatory Planning and Review

    The rule does not meet the criteria for a ``significant regulatory 
action'' as defined in Executive Order 12866. Therefore, the regulatory 
review procedures contained therein do not apply.

Regulatory Flexibility Act

    Because no notice of proposed rulemaking was required for this 
rule, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) do not apply.

List of Subjects in 31 CFR Part 285

    Administrative practice and procedure, Black lung benefits, Child 
support, Claims, Credit, Debts, Disability benefits, Federal employees, 
Garnishment of wages, Hearing and appeal procedures, Loan programs, 
Privacy, Railroad retirement, Railroad unemployment insurance, 
Salaries, Social Security benefits, Supplemental Security Income (SSI), 
Taxes, Veteran's benefits, Wages.

[[Page 56721]]


0
For the reasons set forth in the preamble, 31 CFR part 285 is amended 
as follows:

PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION 
IMPROVEMENT ACT OF 1996

0
1. The authority citation for part 285 continues to read as follows:

    Authority: 5 U.S.C. 5514; 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 
3711, 3716, 3719, 3720A, 3720B, 3720D; 42 U.S.C. 664; E.O. 13019, 61 
FR 51763, 3 CFR, 1996 Comp., p. 216.


0
2. Revise Sec.  285.6, paragraph (f), to read as follows:


285.6  Administrative offset under reciprocal agreements with states.

* * * * *
    (f) State debts submitted to FMS for tax refund offset. A State 
shall be deemed to have complied with the requirements of paragraph 
(e)(2) of this section with respect to any State debt that the State 
certified to Treasury for collection pursuant to Sec.  285.8 of this 
part.
* * * * *

    Dated: October 23, 2009.
Richard L. Gregg,
Acting Fiscal Assistant Secretary.
[FR Doc. E9-26303 Filed 11-2-09; 8:45 am]
BILLING CODE 4810-35-M