[Federal Register Volume 77, Number 164 (Thursday, August 23, 2012)]
[Rules and Regulations]
[Pages 50903-50907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20377]



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 Rules and Regulations
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  Federal Register / Vol. 77, No. 164 / Thursday, August 23, 2012 / 
Rules and Regulations  

[[Page 50903]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 253

[FNS-2010-0020]
RIN 0584-AD85


Food Distribution Program on Indian Reservations: Administrative 
Funding Allocations

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: This rulemaking establishes the requirements regarding the 
allocation of administrative funds for the Food Distribution Program on 
Indian Reservations and the Food Distribution Program for Indian 
Households in Oklahoma, both of which are referred to as ``FDPIR'' in 
this rulemaking. The rulemaking amends FDPIR regulations to ensure that 
administrative funding is allocated in a fair and equitable manner. The 
final rule also revises FDPIR regulations to clarify current program 
requirements relative to the distribution of administrative funds to 
Indian Tribal Organizations (ITOs) and State agencies.

DATES: Effective Date: This rule is effective September 24, 2012.

FOR FURTHER INFORMATION CONTACT: Dana Rasmussen, Chief, Policy Branch, 
Food Distribution Division, Food and Nutrition Service, 3101 Park 
Center Drive, Room 506, Alexandria, Virginia 22302, or by telephone 
(703) 305-2662.

SUPPLEMENTARY INFORMATION: 

A. Executive Order 12866, ``Regulatory Planning and Review''

    This final rule has been determined to be not significant for 
purposes of Executive Order 12866. Therefore it was not reviewed by the 
Office of Management and Budget (OMB).

B. Title 5, United States Code 601-612, ``Regulatory Flexibility Act''

    This final rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act (5 U.S.C. 601-612). The administrator 
of the Food and Nutrition Service certified that this action will not 
have a significant impact on a substantial number of small entities. 
While ITOs and State agencies that administer FDPIR will be affected by 
this rulemaking, the economic effect will not be significant.

C. Public Law 104-4, ``Unfunded Mandates Reform Act of 1995'' (UMRA)

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under Section 202 of the UMRA, the 
Food and Nutrition Service (FNS) generally must prepare a written 
statement, including a cost-benefit analysis, for proposed and final 
rules with Federal mandates that may result in expenditures to State, 
local, or Tribal governments, in the aggregate, or to the private 
sector, of $100 million or more in any one year. When such a statement 
is needed for a rule, Section 205 of the UMRA generally requires FNS to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, more cost-effective or least burdensome 
alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, and Tribal 
governments or the private sector of $100 million or more in any one 
year. This rule is, therefore, not subject to the requirements of 
Sections 202 and 205 of the UMRA.

D. Executive Order 12372, ``Intergovernmental Review of Federal 
Programs''

    The program addressed in this action is listed in the Catalog of 
Federal Domestic Assistance under No. 10.567. For the reasons set forth 
in the final rule in 7 CFR part 3015, Subpart V and related Notice 
published at 48 FR 29115 on June 24, 1983, the donation of foods in 
such programs is included in the scope of Executive Order 12372, which 
requires intergovernmental consultation with State and local officials.

E. Executive Order 13132, ``Federalism''

    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.

1. Prior Consultation With State and Local Officials

    This rulemaking makes regulatory changes regarding the allocation 
of FDPIR administrative funds to the FNS Regional Offices for further 
allocation to the ITOs and State agencies that administer FDPIR. The 
programs that receive FDPIR administrative funding from FNS' Regional 
Offices are all Tribal or State-administered, federally-funded 
programs. On an ongoing basis, the FNS National and Regional Offices 
have formal and informal discussions related to FDPIR with Tribal and 
State officials. FNS meets regularly with the Board and the membership 
of the National Association of Food Distribution Programs on Indian 
Reservations (NAFDPIR), an association of Tribal and State-appointed 
FDPIR Program Directors, to discuss issues relating to the program. 
Section F, Tribal Impact Statement, below, provides additional 
information on FNS' efforts to work directly with ITOs and State 
agencies in the development of the funding methodology specified in 
this rule.

2. Nature of Concerns and the Need To Issue This Rule

    For many years, the FNS National Office used fixed percentages to 
allocate FDPIR administrative funds to each of the FNS Regional 
Offices, which in turn allocated the available funding to FDPIR ITOs 
and State agencies. However, this funding methodology did not account 
for any administrative cost drivers, such as the number of ITOs and 
State agencies within each Region or the number of individuals served 
by each ITO/State agency. ITOs and State agencies expressed concern 
that the methodology did not allocate funds equitably to the FNS 
Regional Offices, which negatively impacted the capacity

[[Page 50904]]

of certain agencies to adequately administer the program.

3. Extent to Which we Address Those Concerns

    FNS has considered the impact of the final rule on FDPIR ITOs and 
State agencies. FNS does not expect the provisions of this rule to 
conflict with any State or local laws, regulations, or policies. The 
intent of this rule is to respond to the concerns of ITOs and State 
agencies by ensuring that funds are allocated to the FNS Regional 
Offices as fairly as possible; and to ensure that related program 
requirements with regard to the allocation of administrative funds to 
ITOs and State agencies, as well as ITO and State agency matching 
requirements, are clear and easy to understand.

F. Executive Order 13175, ``Tribal Impact Statement''

    This rulemaking makes regulatory changes regarding the allocation 
of FDPIR administrative funds to the FNS Regional Offices, which 
further allocate the funds to the ITOs and State agencies that 
administer FDPIR. The changes are intended to ensure that FDPIR 
administrative funding is allocated to the FNS Regional Offices in a 
fair and equitable manner. The final rule also revises FDPIR 
regulations to clarify current program requirements relative to the 
allocation of administrative funds to ITOs and State agencies.
    During the course of developing the proposed and final rules, FNS 
took numerous actions to ensure meaningful and timely input by elected 
Tribal leaders. In 2005, FNS convened a work group comprised of FNS 
staff and Tribal and State-appointed FDPIR Program Directors 
representing NAFDPIR and its membership. The work group was asked to 
develop a proposal(s) for a new funding methodology for the allocation 
of FDPIR federal administrative funds. The work group conducted its 
deliberations via 33 conference calls and six face-to-face meetings 
from May 2005 through October 2007. Discussions were also held at the 
annual meetings of the membership of NAFDPIR, in which some elected 
Tribal leaders took part. The work group and FNS solicited written 
comments from elected Tribal leaders and State officials at various 
stages of the development of the funding methodology. In addition to 
the requests for written comments, FNS hosted public meetings that were 
held in January 2007 at four locations throughout the country. Elected 
Tribal leaders and State officials were invited to discuss the proposal 
to develop a funding methodology at those public meetings. Discussion 
from the public meetings and written comments submitted to the work 
group were considered in presenting recommendations for a funding 
methodology to the FNS Administrator.
    In fiscal year 2008, FNS implemented the funding methodology on a 
trial basis. FNS solicited comments from elected Tribal leaders and 
State officials on the impact of the funding methodology in fiscal year 
2008 for consideration in determining the funding methodology to be 
used in fiscal year 2009, pending the development of proposed 
rulemaking.
    A rule which proposed to formalize the funding methodology and 
clarify other related program requirements was published in the Federal 
Register (75 FR 54530) on September 8, 2010. The proposed rule 
referenced the written comments received on the pilot after 
implementation, and solicited further comments from elected Tribal 
leaders, State officials, and other interested members of the public. A 
summary of public comments received on the September 8, 2010 proposed 
rule and the agency's responses to comments received are discussed in 
section II of the preamble.

G. Executive Order 12988, ``Civil Justice Reform''

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Although the provisions of this rule are not 
expected to conflict with any State or local laws, regulations, or 
policies, the 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. Prior to any 
judicial challenge to the provisions of this rule or the application of 
its provisions, all applicable administrative procedures must be 
exhausted.

H. Department Regulation 4300-4, ``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, FNS has determined that 
this rule will not in any way limit or reduce the ability of 
participants to receive the benefits of donated foods on the basis of 
an individual's or group's race, color, national origin, sex, age, 
political beliefs, religious creed, or disability. FNS found no factors 
that would negatively and disproportionately affect any group of 
individuals.

I. Title 44, United States Code, Chapter 35, ``Paperwork Reduction 
Act''

    The Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35; see 5 
CFR part 1320) requires that 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 
final rule does not contain any new information collection requirements 
subject to review and approval by OMB under the Paperwork Reduction Act 
of 1995. However, previous burdens for 7 CFR part 253 information 
collections associated with this rule have been approved under OMB 
control number 0584-0293.

J. Public Law 107-347, ``E-Government Act Compliance''

    FNS is committed to complying with the E-Government Act of 2002 to 
promote the use of the Internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

Background and Discussion of the Final Rule

A. Prior Administrative Funding Allocation Methodology

    Prior to this final rulemaking, FDPIR regulations at 7 CFR part 253 
did not specify a methodology for the allocation of administrative 
funds. Under the traditional practice, the FNS National Office 
allocated funds to the FNS Regional Offices using fixed percentages. 
These funding percentages varied from one Region to the next, did not 
change for many years prior to fiscal year 2008, and did not reflect 
cost drivers such as each Region's share of national program 
participation and current number of ITOs and State agencies. Regional 
Offices then allocated to each ITO or State agency its share of 
administrative funds based on negotiations with such entity. Because 
FNS Regional Offices received funding without regard to the effect of 
cost drivers, similar ITOs and State agencies in different Regions 
could have received significantly different funding levels. 
Consequently, this method of allocating funds had the potential to 
negatively impact program operations and result in

[[Page 50905]]

inconsistent or uneven service to participants.

B. FDPIR Funding Methodology Work Group and Pilot

    To address concerns raised by FDPIR ITOs and State agencies over 
potential FDPIR administrative funding inequities, a funding 
methodology work group was convened by FNS in 2005. The work group, 
which was comprised of FDPIR program representatives, including NAFDPIR 
officers, and FNS staff, was charged with developing a new methodology 
for the distribution of FDPIR administrative funds that would be fair, 
objective, and easy to understand.
    Based on the work group's proposals, FNS developed an 
administrative funding allocation methodology which was initially 
implemented on a pilot basis in fiscal year 2008, and has continued as 
a pilot up to the present time. This funding methodology allocates 
funds to the Regional Offices based on two weighted components: Each 
Region's share of the total number of participants nationally, and each 
Region's share of the total current number of ITOs and State agencies 
administering the program nationally. Proportionally more weight was 
given to the first element, program participation, since FNS believes 
this to be the major cost driver in the administration of FDPIR. By 
using these two factors, FNS intended to design a funding methodology 
that would provide each FNS Regional Office with adequate funding to 
support the operational costs of all of its programs, including both 
larger programs with high participation and smaller programs with 
certain basic administrative costs.
    FNS sought comments regarding the impact of the piloted methodology 
on the program. The comments received were considered in the 
development of the proposed rule. Further details on the proceedings of 
the work group in developing proposals for a funding methodology and 
the implementation of the pilot may be found in the preamble of the 
proposed rule.

C. Proposed Rule and Analysis of Comments Received

    In a proposed rule published in the Federal Register on September 
8, 2010 (75 FR 54530), FNS proposed to include in 7 CFR part 253 the 
administrative funding methodology that was implemented on a pilot 
basis, and that was based on the work group proposal. In accordance 
with that methodology, sixty-five percent of all administrative funds 
available nationally are allocated to FNS Regional Offices in 
proportion to their share of the number of participants nationally, 
averaged over the three previous fiscal years. FNS believes program 
participation to be the major cost driver. However, in order to 
recognize the fixed costs common to programs of all participation 
levels, the remaining 35 percent of all administrative funds available 
nationally are allocated to each FNS Regional Office in proportion to 
its share of the total current number of ITOs and State agencies 
administering the program nationally. By using these two factors, FNS 
intended to design a funding methodology that would provide each FNS 
Regional Office with the funding to support the operational costs of 
all of its programs, both large and small.
    Comments were solicited through December 7, 2010, on the provisions 
of the proposed rulemaking. These comments are discussed below and are 
available for review at www.regulations.gov. To view the comments 
received, select ``Public Submissions'' from the dropdown menu entitled 
``Select Document Type,'' and enter ``FNS-2010-0020'' in the box under 
``Enter Keyword or ID.'' Then click on ``Search.''
    FNS received written comments from two elected Tribal leaders, five 
FDPIR program administrators, one Tribal nutrition services 
administrator, and one private citizen regarding the proposed funding 
methodology. Six commenters supported the funding allocation 
methodology, while three commenters opposed it. Of the six commenters 
supporting the methodology, five specifically cited support for the 
funding allocation factors proposed, i.e., each Region's proportionate 
share of national program participation and number of programs. Four of 
the six commenters cited equity or fairness as another factor in their 
support of the methodology. Four of the six commenters also specified 
that the funding methodology is simple, straightforward, and easy to 
understand. Three supporting commenters cited the fact that the piloted 
and proposed provisions, in conjunction with increased funding from 
Congress, provided the resources needed for their programs. Finally 
three commenters expressed support for the consultation process prior 
to pilot implementation.
    One commenter stated three key objections to the proposed funding 
methodology: (1) FNS did not consult with the Tribes and State 
agencies; (2) the funding methodology represents a ``one-size fits 
all'' approach that does not recognize each Tribe as a government with 
unique needs; and (3) the funding methodology is more beneficial to 
Tribes with greater participation rates, and minimizes services to 
Tribes with lower participation rates. Regarding the third objection, 
the commenter further stated that small Tribes should be considered for 
supplemental funding.
    FNS consulted with elected Tribal leaders and State officials on 
multiple occasions prior to piloting the funding allocation 
methodology, as outlined in the proposed rule. The decision to pilot 
the methodology was made in response to the Congressional expectation 
that FNS address funding inequities with the additional funds provided 
in fiscal year 2008. In addition to meeting the intent of Congress, the 
pilot permitted FNS to continue consultations with elected Tribal 
leaders and State officials. While we acknowledge that there are 
varying perspectives regarding what constitutes consultation, we 
believe that there was adequate consultation.
    Regarding the commenter's objections in reference to the funding 
methodology's ``one-size-fits-all'' approach, and its failure to meet 
the needs of smaller programs, each FNS Regional Office continues to 
negotiate budgets directly with each FDPIR ITO and State agency, once 
the funds are allocated to the Regions. This permits each FNS Regional 
Office the flexibility to meet the special needs of each ITO and State 
agency within its share of the total administrative funds available, 
including smaller ITOs.
    In reference to the commenter's objection that the funding 
methodology is more beneficial to Tribes with greater participation 
rates, FNS believes that program participation is the major cost 
driver. However, FNS also recognizes that there are fixed costs common 
to programs of all participation levels. For that reason, the funding 
methodology provides 35 percent of all administrative funds available 
nationally to each FNS Regional Office in proportion to its share of 
the total current number of State agencies administering the program 
nationally. The establishment of this second factor in allocation 
offers a proper balance by providing each FNS Regional Office with 
funding to support the operational costs of all programs, regardless of 
participation levels.
    Another commenter objected to the use of program participation as a 
factor in the funding methodology, stating that the factor is flawed 
because increased Supplemental Nutrition Assistance Program (SNAP) 
benefits led to a decline in FDPIR participation. However, while FDPIR 
did experience a decline in participation, the decline did not have a 
disproportionate negative

[[Page 50906]]

impact in a specific Region, nor did it affect the total administrative 
funding available to the program. On the contrary, such funding 
increased after fiscal year 2008.
    One commenter stated that the proposed funding methodology will not 
work without: (1) Increasing the FDPIR income limit and changing the 
standard earned income deduction, (2) increasing the resource limits 
for the program, (3) providing more food, including fresh produce, in 
FDPIR, and (4) making all Social Security recipients categorically 
eligible for FDPIR. However, these changes would, for the most part, 
impact program eligibility and benefits, and would not affect the 
methodology of allocating administrative funds, which is the subject of 
this rule. In a proposed rule published in the Federal Register on 
January 11, 2012 (77 FR 1642), FNS proposed to eliminate the 
requirement that household resources be considered in determining 
program eligibility, and proposed to include additional income 
deductions. These changes, if implemented, would simplify program 
administration, and make it easier for applicants to qualify for 
program benefits.
    Another commenter stated that the higher incidence of Native 
American health conditions (e.g., diabetes, obesity, heart conditions) 
should be the impetus that drives funding in FDPIR. FNS recognizes the 
need to contribute positively to the health of participants in all of 
its nutrition assistance programs, including FDPIR. Since 2008, FNS has 
made $1 million available on an annual basis for FDPIR nutrition 
education, with the goal of enhancing the nutrition knowledge of FDPIR 
participants and fostering positive lifestyle changes. These funds are 
allocated separately from program administrative funds.

D. Regulatory Revisions, 7 CFR 253.11

    For the purposes of this rule, FDPIR State agencies include both 
ITOs and agencies of state government. In 7 CFR 253.11 of the proposed 
rule, we proposed to remove paragraph (a) and redesignate paragraphs 
(b) through (h), and to include, in new paragraphs (a), (b), and (c):
    (1) The methodology for allocating administrative funds to FNS 
Regional Offices, as described above, which has been implemented on a 
pilot basis;
    (2) Clarification of the requirement for State agencies to submit 
budgets to FNS Regional Offices, and subsequent allocation to State 
agencies of funds required to meet 75 percent of approved 
administrative costs; and
    (3) Clarification of the requirement for State agencies to match 
administrative funds allocated to them by covering 25 percent of 
approved administrative costs, unless a waiver is submitted and 
approved to reduce the matching requirement.
1. Funding Methodology
    In 7 CFR 253.11(a) of the proposed rule, we proposed to allocate 
administrative funds to the FNS Regional Offices, to the extent 
practicable, in the following manner: Sixty-five percent of all 
administrative funds available nationally would be allocated to each 
FNS Regional Office in proportion to its share of the total number of 
participants nationally, averaged over the three previous fiscal years; 
and thirty-five percent of all administrative funds available 
nationally would be allocated to each FNS Regional Office in proportion 
to its share of the total current number of State agencies 
administering the program nationally.
    As an outcome of the pilot implementation, FNS identified the need 
to include regulatory language to ensure that funding is available to 
support participation of new State agencies for which prior 
participation data is not available, and that would permit FNS some 
limited flexibility to meet individual State agency administrative 
funding needs not reflected under the two weighted factors. 
Consequently, we proposed to allocate funds to FNS Regional Offices, in 
accordance with the funding methodology described above, ``to the 
extent practicable * * *.'' Based on the comments discussed above, most 
of which were in support of the proposals, the proposed funding 
methodology is included without change in 7 CFR 253.11(a) of this final 
rule.
2. State Agency Budget Submissions and Allocations
    In 7 CFR 253.11(b) of the proposed rule, we proposed to include the 
requirement, in current 7 CFR 253.11(b), that State agencies submit 
annual budgets to FNS for approval, and that only administrative costs 
that are allowable under 7 CFR part 277 may be included. We proposed to 
clarify that the budget request must be sent to the FNS Regional Office 
for approval, which is consistent with directives in FNS Instruction 
700-1, Rev. 2. Finally, we proposed to include the provision in current 
7 CFR 253.11(a) which specifies that, within funding limitations, FNS 
provides State agencies with administrative funds necessary to meet 75 
percent of approved administrative costs, with the clarification that 
FNS Regional Offices provide the administrative funds to State 
agencies. No comments were received on these proposed provisions. Thus, 
the proposed changes are retained in 7 CFR 253.11(b) of this final 
rule.
3. State Agency Matching Requirement
    In 7 CFR 253.11(c) of the proposed rule, we proposed to set forth 
the State agency matching requirements. In 7 CFR 253.11(c)(1), we 
proposed to indicate that the State agency must contribute 25 percent 
of approved administrative costs, and that both cash and non-cash 
contributions may be used to meet the matching requirement. This is 
currently required via FNS Instruction 716-4, Rev. 1. For the sake of 
clarity, we proposed to include in paragraph (c)(1) the criteria for 
allowable cash and non-cash contributions, similar to what is currently 
provided in 7 CFR part 277. No comments were received on these proposed 
provisions. Thus, the proposed changes are retained in 7 CFR 
253.11(c)(1) of this final rule. We have also added the provision, in 
current 7 CFR 253.11(b), that the value of services rendered by 
volunteers may be used to meet the matching requirement.
    In 7 CFR 253.11(c)(2), we proposed to permit the State agency to 
request a waiver to reduce the matching requirement to less than 25 
percent of approved administrative costs. In essence, this clarifies 
the provision, in current 7 CFR 253.11(a), regarding requests for 
payment of Federal funds in excess of 75 percent of administrative 
costs. We proposed to retain the requirement that the State agency 
provide compelling justification for meeting less than the 25 percent 
match and receiving additional administrative funds. Furthermore, we 
proposed to add a provision which gives the FNS Regional Office the 
discretion to provide additional administrative funds beyond 75 
percent. This is consistent with current program practice. No comments 
were received on these proposed provisions. Thus, the proposed changes 
are retained in 7 CFR 253.11(c) of this final rule.
4. Allowable Costs
    In this final rule, we are redesignating current 7 CFR 253.11(c) 
through (h) as 7 CFR 253.11(e) through (j), in order to include a new 
paragraph (d) to clarify requirements in current 7 CFR 253.11(b) 
regarding allowable costs in the use of administrative funds. Such 
costs must be used only for costs that are allowable under 7 CFR part 
277, and that are incurred in operating FDPIR, and may not be used to 
pay costs that are, or may

[[Page 50907]]

be, paid with funds provided from other Federal sources.
    We also proposed to revise the heading of 7 CFR 253.11 to 
``Administrative funds'' to more clearly describe the provisions in the 
section, as proposed. As we did not receive any comments relating to 
this proposal, this final rule revises the section heading as proposed.

List of Subjects in 7 CFR Part 253

    Administrative practice and procedure, Food assistance programs, 
Grant programs, Social programs, Indians, Reporting and recordkeeping 
requirements, Surplus agricultural commodities.

    Accordingly, 7 CFR part 253 is amended as follows:

PART 253--ADMINISTRATION OF THE FOOD DISTRIBUTION PROGRAM FOR 
HOUSEHOLDS ON INDIAN RESERVATIONS

0
1. The authority citation for 7 CFR part 253 continues to read as 
follows:

    Authority: 91 Stat. 958 (7 U.S.C. 2011-2036).


0
2. In Sec.  253.11:
0
a. Revise the section heading;
0
b. Remove paragraphs (a) and (b);
0
c. Redesignate paragraphs (c) through (h) as paragraphs (e) through 
(j); and
0
d. Add new paragraphs (a) through (d).
    The revisions and additions read as follows:


Sec.  253.11  Administrative funds.

    (a) Allocation of administrative funds to FNS Regional Offices. 
Each fiscal year, after enactment of a program appropriation for the 
full fiscal year and apportionment of funds by the Office of Management 
and Budget, administrative funds will be allocated to each FNS Regional 
Office for further allocation to State agencies. To the extent 
practicable, administrative funds will be allocated to FNS Regional 
Offices in the following manner:
    (1) 65 percent of all administrative funds available nationally 
will be allocated to each FNS Regional Office in proportion to its 
share of the total number of participants nationally, averaged over the 
three previous fiscal years; and
    (2) 35 percent of all administrative funds available nationally 
will be allocated to each FNS Regional Office in proportion to its 
share of the total current number of State agencies administering the 
program nationally.
    (b) Allocation of administrative funds to State agencies. Prior to 
receiving administrative funds, State agencies must submit a proposed 
budget reflecting planned administrative costs to the appropriate FNS 
Regional Office for approval. Planned administrative costs must be 
allowable under part 277 of this chapter. To the extent that funding 
levels permit, the FNS Regional Office allocates to each State agency 
administrative funds necessary to cover 75 percent of approved 
administrative costs.
    (c) State agency matching requirement. State agencies must match 
administrative funds allocated to them as follows:
    (1) Unless Federal administrative funding is approved at a rate 
higher than 75 percent of approved administrative costs, in accordance 
with paragraph (c)(2) of this section, each State agency must 
contribute 25 percent of its total approved administrative costs. Cash 
or non-cash contributions, including third party in-kind contributions, 
and the value of services rendered by volunteers, may be used to meet 
the State agency matching requirement. In accordance with part 277 of 
this chapter, such contributions must:
    (i) Be verifiable;
    (ii) Not be contributed for another federally-assisted program, 
unless authorized by Federal legislation;
    (iii) Be necessary and reasonable to accomplish program objectives;
    (iv) Be allowable under Part 277 of this chapter;
    (v) Not be paid by the Federal Government under another assistance 
agreement unless authorized under the other agreement and its subject 
laws and regulations; and
    (vi) Be included in the approved budget.
    (2) The State agency may request a waiver to reduce its matching 
requirement below 25 percent of approved administrative costs. In its 
proposed budget, the State agency must submit compelling justification 
to the appropriate FNS Regional Office that it is unable to meet the 25 
percent matching requirement and that additional administrative funds 
are necessary for the effective operation of the program. The FNS 
Regional Office may, at its discretion, approve a reduction of the 
matching requirement and provide additional administrative funds to 
cover more than 75 percent of approved administrative costs to a State 
agency that provides compelling justification. In its compelling 
justification submission, the State agency must include a summary 
statement and recent financial documents, in accordance with FNS 
instructions. Compelling justification may include but is not limited 
to:
    (i) The need for additional administrative funding for startup 
costs during the first year of program operation; or
    (ii) The need to prevent a reduction in the level of necessary and 
reasonable program services provided.
    (d) Use of funds by State agencies. Any funds received under this 
section shall be used only for costs that are allowable under part 277 
of this chapter, and that are incurred in operating the food 
distribution program. Such funds may not be used to pay costs that are, 
or may be, paid with funds provided from other Federal sources.
* * * * *

    Dated: August 13, 2012.
Audrey Rowe,
Administrator, Food and Nutrition Service.
[FR Doc. 2012-20377 Filed 8-22-12; 8:45 am]
BILLING CODE 3410-30-P