    [Federal Register Volume 85, Number 168 (Friday, August 28, 2020)]
    [Rules and Regulations]
    [Pages 53189-53209]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 2020-17746]

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    DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Administration for Children and Families

    45 CFR Parts 1304 and 1305

    RIN 0970-AC77

    Head Start Designation Renewal System

    AGENCY: Office of Head Start (OHS), Administration for Children and
    Families (ACF), Department of Health and Human Services (HHS).

    ACTION: Final rule.

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    SUMMARY: This final rule refines how the Office of Head Start uses
    deficiencies, Classroom Assessment Scoring System: Pre-K
    (CLASS[supreg]) scores, and audit findings for designation renewal. It
    also streamlines and updates the regulatory provisions on designation
    renewal to make them easier to understand.

    DATES: This final rule is effective on October 27, 2020.

    FOR FURTHER INFORMATION CONTACT: Catherine Hildum, Office of Head
    Start, 202-205-7328 (not a toll-free call). Deaf

    [[Page 53190]]

    and hearing impaired individuals may call the Federal Dual Party Relay
    Service at 1-800-877-8339 between 8:00 a.m. and 7:00 p.m. Eastern Time.

    SUPPLEMENTARY INFORMATION:

    Table of Contents

    I. Statutory Authority
    II. Executive Summary
    III. Background
    IV. Public Comments Analysis
    V. Section-by-Section Discussion of Changes to the Designation
    Renewal System
        1304.11(a) Deficiency Condition
        1304.11(b) School Readiness Goals Condition
        1304.11(c) CLASS Condition
        1304.11(d) Revocation Condition
        1304.11(e) Suspension Condition
        1304.11(g) Fiscal Condition
        1304.12 Grantee Reporting Requirements Concerning Certain
    Conditions
        1304.15 Designation Request, Review, and Notification Process
        1305 Definitions
        Effective Dates
    VI. Regulatory Process Matters
        Regulatory Flexibility Act
        Unfunded Mandates Reform Act
        Treasury and General Government Appropriations Act of 1999
        Federalism Assessment Executive Order 13132
        Congressional Review
        Paperwork Reduction Act of 1995
        Regulatory Planning and Review Executive Order 12866, Executive
    Order 13563, and Executive Order 13771
    VII. Regulatory Impact Analysis

    Tribal Consultation Statement

    I. Statutory Authority

        The Office of Head Start (OHS) publishes this final rule under the
    authority granted to the Secretary of Health and Human Services (the
    Secretary) by sections 641(a), 641(c), and 644(c), of the Head Start
    Act, as amended by the Improving Head Start for School Readiness Act of
    2007 (Pub. L. 110-134). Generally, under these sections, the Secretary
    is authorized to implement a system for designation renewal that
    determines if a grantee delivers high-quality and comprehensive
    services and adheres to financial management requirements. The
    Secretary is also authorized to designate any local public or private
    non-profit agency, including community-based and faith-based
    organizations, and for-profit organizations as a Head Start agency, as
    well as prescribe rules or regulations, which are binding on all
    agencies that perform Head Start activities.

    II. Executive Summary

        Since its inception in 1965, Head Start has been a leader in
    helping children from low-income families reach kindergarten more
    prepared to succeed in school. Through the Improving Head Start for
    School Readiness Act of 2007 (the 2007 Reauthorization) amending the
    Head Start Act (the Act), Congress required HHS to ensure these
    children and their families receive the highest quality services
    possible. In support of that requirement, the 2007 Reauthorization
    directed the Secretary to establish the Designation Renewal System to
    (1) identify Head Start grantees delivering a high-quality and
    comprehensive Head Start program that could receive funding
    noncompetitively for a 5-year period and grantees not delivering a
    high-quality and comprehensive Head Start program that will be required
    to compete for continued funding, and (2) to transition all grants from
    indefinite grants to 5-year grant periods. Congress required that
    decisions about which grantees would have to compete be based on budget
    and fiscal management data (including annual audits), program
    monitoring reviews, classroom quality as measured by a valid and
    reliable research-based observational instrument, and other program
    information.
        The Designation Renewal System regulation, promulgated in 2011,
    requires grantees to compete for continued funding if they meet one or
    more of the following seven conditions: (1) One deficiency under
    section 641A(c)(1)(A), (C), or (D) of the Act; (2) failure to
    establish, use, and analyze children's progress on agency-established
    school readiness goals; (3) scores below minimum thresholds in any of
    the three domains of the Classroom Assessment Scoring System: Pre-K
    (CLASS) or in the lowest 10 percent in any CLASS domain out of the
    grantees monitored in a given year, unless the grantee's score is equal
    to or above the standard of excellence for that domain; (4) revocation
    of a license to operate a center or program; (5) suspension from the
    program; (6) debarment from receiving federal or state funds or
    disqualification from the Child and Adult Care Food Program; or (7) an
    audit finding of being at risk for failing to continue as a ``going
    concern.''
        Since 2011, all Head Start and Early Head Start grants have been
    reviewed under the Designation Renewal System and transitioned from
    indefinite to 5-year grant periods. Approximately a third of grants
    have been required to compete and two-thirds have received a new grant
    non-competitively. As required in section 641(c)(8) of the Head Start
    Act (42 U.S.C. 9836(c)(8)), ACF has been regularly analyzing data on
    the implementation of the Designation Renewal System and on those
    grantees required to compete. In 2016, the ACF Office of Planning,
    Research and Evaluation published a report of its designation renewal
    evaluation, titled ``Early Implementation of the Head Start Designation
    Renewal System,'' which examined how the system is addressing the goals
    of transparency, validity, and reliability.\1\ The study explored
    whether the Designation Renewal System identifies lower-performing
    grantees for competition and how designation renewal might support
    program quality improvement. From the experience of individual grantees
    and the results of the designation renewal evaluation and other Head
    Start research, ACF is confident the Designation Renewal System has
    driven increases in the quality of Head Start and Early Head Start
    services, but believes improvements can be made to the system.
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        \1\ Derrick-Mills, T., Burchinal, M., Peters, H.E., De Marco,
    A., Forestieri, N., Fyffe, S., Hanson, D., Heller, C., Pratt, E.,
    Sandstrom, H., Triplett, T., & Woods, T. (2016). Early
    Implementation of the Head Start Designation Renewal System: Volume
    I. OPRE Report #: 2016-75a. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
    ---------------------------------------------------------------------------

        ACF believes revisions to the current conditions will better
    distinguish grantees for noncompetitive continued funding from those
    that could most benefit from competition, particularly after the
    transition of all grantees from indefinite to definite project periods.
    Therefore, we are making some adjustments to the seven conditions that
    require competition; we believe the adjustments will, going forward,
    better identify grantees whose data indicate they are lower performing
    in the important dimensions of quality that Congress requires we
    consider under the Designation Renewal System.
        Regarding the deficiency condition, we will no longer require
    competition for grantees with a single deficiency during their project
    period. While all deficiencies are serious and substantial or systemic,
    we believe changing the condition to require competition after two
    deficiencies during the project period will better reflect significant
    quality failures of an agency. Additionally, the change will
    appropriately put the focus on grantees having systems in place to
    ensure health and safety incidents do not occur or are quickly
    identified and rectified, and on financial and human resource systems
    that support ongoing, high-quality operations.
        With respect to the CLASS condition, we want to ensure this tool
    supports

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    quality improvement as part of the Designation Renewal System. The
    aspect of the CLASS condition that requires grantees scoring in the
    lowest 10 percent of any of the three domains of the tool to compete
    creates a moving target for grantees. The moving target combined with
    implementation challenges of this condition have led to periods of
    uncertainty for grantees regarding their designation status. Further,
    the relative nature of the condition in some cases has resulted in
    grantees with rather high scores on a specific domain being designated
    for competition due to that score, while grantees with a rather low
    score on another domain have not always been required to compete.
        In the final rule, we drop the 10 percent criterion, while
    simultaneously establishing quality thresholds and raising the
    competitive thresholds (formerly minimum threshold) for each domain of
    the CLASS. For any grantee with a score below a quality threshold, OHS
    will provide support for quality improvement and help ensure the
    grantee's coordinated approach to training and professional development
    is supporting improvements in the learning environment, particularly in
    teaching practices and teacher-child interactions. We also raise the
    competitive thresholds for each domain and any grantee with a score
    below a competitive threshold will be designated for competition.
        The establishment of quality thresholds for the CLASS domains
    builds on existing program quality improvement efforts to enhance
    classroom quality and will lead to more intentional OHS support for
    these efforts. Further, it is important to raise the CLASS competitive
    thresholds. Evidence suggests children learn more in well-organized
    classroom environments that are characterized by sensitive and
    responsive interactions that promote autonomy, conversation, literacy
    skills, and executive functioning. Children gain these skills when they
    experience higher quality teacher-child interactions and instruction.
    This revised approach will remove the moving target but appropriately
    set the focus on improving the quality of teacher-child interactions in
    all areas the CLASS measures and ensure grantees are focused on
    promoting rich, engaging, and sensitive interactions between teachers
    and children in all classrooms.
        The fiscal condition is also being revised because the current
    condition does not adequately identify grantees whose audit data
    indicates they may have serious fiscal issues warranting competition.
    The current condition identifies for competition grantees that are at
    risk of failing to continue as a going concern, which means the
    organization is in such a dire financial situation that they are likely
    to no longer be a viable financial entity within 12 months. This
    condition only identifies grantees in the last stages of financial
    problems and has identified less than a dozen Head Start grantees for
    competition within the last 8 years, even as many other grantees have
    experienced significant financial management problems. While we retain
    the going concern condition and adjust the time window in which it is
    considered, we also add a second fiscal criterion in which any grantee
    that has a total of two or more audit findings of material weakness or
    questioned costs related to their Head Start funds in audits for a
    financial period within the current project period will also be
    required to compete. Material weaknesses and questioned costs indicate
    challenges in grantees' internal controls, appropriate use of funds,
    financial management, and reporting. These two audit findings indicate
    significant fiscal concerns that we believe warrants competition. We
    believe the additional criterion will provide a richer look at a
    grantee's fiscal management systems and financial systems and better
    identify grantees with potentially serious financial problems
    specifically in their Head Start grant before the financial problems
    might impact their viability. The new criterion will look more deeply
    at Head Start specific audit information, which is consistent with
    section 641(c)(1)(C) of the Act requiring use of annual audits in the
    system. However, it will not identify for competition grantees that
    have less significant audit findings or findings related to non-Head
    Start funds.
        The new conditions will be effective on October 27, 2020. In
    general, grantee performance before the effective date of the rule is
    subject to the prior conditions and grantee performance after the
    effective date is subject to new conditions. Going forward, all
    decisions about which grantees will have to compete for renewed funding
    will be based on the conditions described in this rule. Grantees whose
    performance prior to the effective date of the rule met one or more
    conditions requiring them to compete will have a second look to
    determine if they still meet the new conditions. These grantees whose
    performance would have required competition under the prior conditions
    will only be required to compete after the effective date of this rule
    if they would also be required to compete under the new conditions.
    Likewise, there will be no retroactive implementation of the new
    conditions to ensure grantees are not designated for competition based
    a condition on which they did not know they would be judged.
        Prior to the effective date of this final rule, some grantees will
    have received a letter from OHS with a preliminary decision that they
    are eligible for renewed funding without competition based on not
    having met any of the DRS conditions at the time of the determination.
    These preliminary decisions will not be revisited under the new
    conditions, and these grantees will continue to be eligible for a
    noncompetitive new grant. Only in the rare case that such a grantee
    receives two or more deficiencies, a license revocation, suspension,
    debarment from any federal or state funds, disqualification from the
    Child and Adult Care Food Program, or an audit finding of a going
    concern before receiving their non-competitive 5-year grant award would
    the grantee be required to compete. This would also have happened under
    the current regulation, with the only difference being the number of
    deficiencies requiring competition.
        Prior to the effective date of this final rule, other grantees will
    have received a letter from OHS with a preliminary decision that they
    will have to compete for renewed funding. These preliminary decisions
    will be revisited for each grantee, as long as the Funding Opportunity
    Announcement (FOA) for the competition has not yet been posted, to
    determine if a given grantee will still have to compete based on the
    new conditions put forth in this final rule. For competitions awaiting
    a FOA posting, only those grantees required to compete under the
    current conditions and the new conditions will be required to compete.
    For example, if a grantee was designated for competition based on the
    deficiency condition but had only one deficiency and the FOA has not
    been posted, they would not meet the new condition (two or more
    deficiencies). Therefore, this grantee would become preliminarily
    eligible for a non-competitive new grant. However, if a grantee was
    previously designated for competition based on the deficiency condition
    and had two deficiencies, the grantee would still be required to
    compete because the grantee would meet the new deficiency condition
    (two or more deficiencies) as well.
        Similarly for the CLASS condition and fiscal condition, when making
    DRS

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    determinations that consider grantee performance prior to the effective
    date of the rule, OHS will take a second look to see if grantees would
    still be required to compete under the new conditions until a FOA for
    that grantee's service area has been posted. Grantees with CLASS data
    collected prior to the effective date of this rule will only still be
    required to compete after this final rule is effective if those CLASS
    scores would require competition under both the current CLASS condition
    and the new CLASS condition. For example, if a grantee was required to
    compete solely based on a CLASS score that was in the lowest 10 percent
    for one domain, but that score is above the new competitive threshold
    for that domain, this grantee will become preliminarily eligible for a
    non-competitive grant and not have to compete. However, if a grantee's
    CLASS score was in the lowest 10 percent for a given CLASS domain and
    is also below the new competitive threshold for that domain, they will
    still be required to compete. Additionally, any grantee with a going
    concern audit finding will still have to compete since that condition
    exists in both the current and new Designation Renewal System
    conditions. Because audit findings of material weakness and questioned
    costs are included in the new fiscal condition but not the prior fiscal
    condition, only audits from a grantee's fiscal years beginning after
    the effective date of the rule will be considered in competitive
    determinations.
        Once a FOA has been posted to inform the public of the availability
    of funding in that service area, competition decisions will be final.
    After that time, there will be no opportunity for reconsideration based
    on changes in regulatory conditions requiring competition. During the
    first several years after the effective date of this rule, grantees
    that would have been subject to competition under the CLASS and
    deficiency conditions may no longer be required to compete under the
    new conditions. In addition, audit data from grantee fiscal years after
    the effective date of the rule to evaluate the new fiscal criterion
    will not yet be available. This means there may be less competition in
    the first few years of implementation of this final rule, compared to
    when the new conditions are fully implemented. However, the purpose of
    these revisions to the Designation Renewal System is not to ensure a
    certain level of competition, but to ensure all grantees understand the
    markers of quality that they should be aiming for so that quality is
    improved across all Head Start programs.

    III. Background

        OHS released a request for comment in December 2017, titled ``CLASS
    Condition of the Head Start Designation Renewal System,'' (82 FR 57905)
    in the Federal Register to collect information and input from the
    public for this rulemaking. The request solicited public input on
    specific changes to the way we use Classroom Assessment Scoring System
    (CLASS) for designation renewal. Specifically, we wanted the public's
    feedback on whether we should: (1) Remove the ``lowest 10 percent''
    provision of the CLASS condition; (2) increase the minimum thresholds
    for the Emotional Support and Classroom Organization domains; (3)
    remove the minimum threshold for the Instructional Support domain; and
    (4) establish authority for the Secretary to set an absolute minimum
    threshold for the Instructional Support domain prior to the start of
    each fiscal year to be applied for CLASS reviews in the same fiscal
    year. We also sought feedback on ways we could incentivize robust
    competition to include new applicants, facilitate smooth transitions
    when there is a new grantee as a result of competition, and improve the
    designation renewal processes.
        We considered comments we received from the request for comment,
    along with data we collected over the years, and published a notice of
    proposed rulemaking (NPRM) in the Federal Register on August 13, 2019
    (84 FR 39996). In the NPRM, we sought the public's opinion on whether
    we should consider a change to the single deficiency trigger. We also
    proposed changes to both the CLASS and fiscal conditions. Specifically,
    we proposed to raise the absolute threshold for each CLASS domain and
    to remove the lowest 10 percent criterion. We also proposed to add a
    second criterion related to audit findings to the fiscal condition.
        The NPRM generated a diverse pool of comments. We analyze and
    discuss those comments below in Part IV. Public Comments Analysis and
    Part V. Section-by-Section Discussion of Changes with this Final Rule.

    IV. Public Comments Analysis

        We received 63 unique submissions, which included a few comments
    with up to 100 signatories and one comment with 1,600 signatories on
    the NPRM. Commenters included Head Start grantees, teachers, other
    staff, large early childhood associations, advocacy organizations,
    early childhood vendors, Members of Congress, Indian tribes, child
    development and policy experts, CLASS experts, and parents.
        In drafting this final rule, we carefully reviewed each comment.
    Most of the comments were supportive of our efforts to hold programs
    accountable for delivering high-quality services. However, commenters
    also criticized our current approach to identifying low performing
    grantees. Commenters gave specific recommendations for how we should
    use deficiencies, CLASS, and the fiscal condition under designation
    renewal. We discuss those comments in Part V., Section-by-Section
    Discussion of Changes with this Final Rule. We also received the
    following comments that were not germane to what we proposed in the
    notice of proposed rulemaking.
        Comment: Many commenters recommended OHS look for ways to move
    designation renewal from being punitive to an approach that better
    integrates continuous quality improvement and provides intentional
    support for programs to address challenges and improve quality. This
    was emphasized due to the disruption competition could cause to
    communities when there is a change in provider.
        Response: Having to compete for continued funding is not an adverse
    action. All eligible grantees can compete for renewed funding and, in
    fact, the majority of grantees are re-awarded the grant following open
    competition. We are revising the conditions to better ensure grantees
    that are required to compete are those whose data and history show they
    are not high performing. Furthermore, the improvements we make in this
    final rule focus designation renewal more on continuous quality
    improvement.
        Comment: A few commenters wanted to see the tribal consultation
    process improved. They wanted a forum where tribal officials could
    openly discuss issues that affect Head Start service delivery and have
    those issues resolved within a timely manner. A few commenters believed
    federal officials with policy-making authority should be required to
    attend tribal consultations and tribal leaders should be afforded
    sufficient advance notice and an agenda (at least 60 days) of scheduled
    consultations. Commenters asked for consultation reports to include a
    record of topics discussed along with next action steps.
        Response: OHS conducts tribal consultations in accordance with the
    HHS policy on tribal consultations. We provide notice of all tribal
    consultations scheduled for the fiscal year to the leadership of tribal
    governments operating Head Start and Early Head

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    Start programs, and we ensure a federal official with policy-making
    authority attends each one. We organize the agenda around the statutory
    purposes of Head Start tribal consultations related to meeting the
    needs of American Indian/Alaska Native children and families. In
    addition, we share what actions we have taken and progress made to
    address the issues and concerns raised at these consultations. We
    appreciate commenters' suggestions, and we will continue to consider
    ways in which we can improve our consultations and align with the HHS
    policy.
        Comment: According to some commenters, programs that are designated
    to compete spend money and other resources that could be better spent
    elsewhere, particularly given most of those programs get their grants
    back after competition.
        Response: The purpose of designation renewal has always been to
    identify those communities where competition is most warranted and to
    improve quality through the process. We believe this final rule strikes
    an appropriate balance between the importance of competition to drive
    quality improvement and the resources required for the competitive
    process, and better ensures the right grantees are in competition.
    Specifically, we make changes in the CLASS condition and the deficiency
    condition to better target competition where scores show lower
    performance or there are systemic problems in operations. Further,
    Congress directed Head Start to establish a system of designation
    renewal that would (1) identify Head Start grantees delivering a high-
    quality and comprehensive program that could receive funding
    noncompetitively for a 5-year period and grantees not delivering a
    high-quality and comprehensive program that will be required to compete
    for continued funding, and (2) to transition all grants from indefinite
    grants to 5-year grant periods.
        Comment: Many commenters suggested OHS establish an appeals process
    that has clear parameters, procedures, and time frames for final
    determinations, which would make the Designation Renewal System more
    transparent and equitable. Some believed an appeals process would
    afford grantees the opportunity to express concerns, seek
    clarification, address inconsistencies, and provide feedback about ways
    to improve the Designation Renewal System. A few commenters believed an
    appeals process would allow programs to reevaluate findings, seek
    redress, and better integrate the principles of continuous quality
    improvement into the Designation Renewal System.
        Response: Congress did not require grantees designated to compete
    for further funding be given an opportunity to appeal. However,
    Congress did require appeals for grantees that are terminated or
    suspended for more than 30 days. These different approaches indicate
    that Congress did not believe the requirement that a grantee compete
    for further funding was on par with termination or other actions for
    which Congress did require appeals.
        Additionally, all eligible entities that have not been terminated
    from providing Head Start or Early Head Start services or denied
    refunding in the preceding five years, including the grantees
    designated for competition, are able and encouraged to apply through
    competition. Unlike a grant termination, a requirement to compete
    provides a mechanism for a current grantee to demonstrate its capacity
    to provide a high-quality program while providing the ability to shift
    funding to more capable entities if such entities exist in the
    community. Further, a grantee that competed and lost a competition
    would remain eligible for future competitions. The grantee that must
    compete for further funding is one whose level of compliance is
    sufficient to justify continuance in the Head Start program, provided
    that no other organization in the same community establishes through a
    competitive process that it is better able to provide a high-quality
    and comprehensive program.

    V. Section-by-Section Discussion of Changes With This Final Rule

        In this section, we discuss comments we received specific to what
    we asked the public to consider, regarding the single deficiency
    trigger, and to what we proposed regarding the CLASS and fiscal
    conditions. We analyze and describe the changes we make to each section
    in the final rule, based on those comments.
        We also make technical fixes that do not alter the substance of the
    standards in these sections. In drafting this final rule, we realize
    outdated, repetitive, and unnecessary language make these sections
    cumbersome and hard to follow. We believe the technical fixes we make
    below ensure these sections are clear, updated, streamlined, and
    transparent to the public.

    1. Section 1304.11 Basis for Determining Whether a Head Start Agency
    Will Be Subject to an Open Competition

        This section sets forth the seven conditions for designation
    renewal. It requires a program to compete for continued funding in
    their service area, if they meet any of these seven conditions. While
    we did not propose any changes to this introductory paragraph nor did
    we receive comments on it, we make a few technical fixes to this
    paragraph that do not alter the substance of the provision. We remove
    the word ``shall'' and replace it with the word ``will.'' We also
    remove the phrase ``covered by the responsible HHS official's review.''
    These fixes remove outdated regulatory language, along with
    repetitious, unnecessary language to streamline the section and make it
    easier to read.
    i. 1304.11(a) Deficiency Condition
        This paragraph establishes the trigger for competition related to
    deficiencies. It requires an agency that has one or more deficiencies
    on a single review to compete for continued funding. Since the
    Designation Renewal System was launched in 2011, we have held one
    deficiency is serious enough to cause a grantee to compete for
    continued funding. However, we have heard concerns the single
    deficiency trigger is too stringent and causes grantees that otherwise
    provide high-quality comprehensive services to compete because of a
    single incident that is not a result of system failures. Most of the
    comments we received addressed the deficiency condition.
        In the NPRM, while we did not propose a change to the deficiency
    condition, we did seek comment about whether we should consider a
    change to the single deficiency trigger.
        In this final rule, we amend the deficiency condition requiring a
    grantee to compete from a single deficiency to two or more
    deficiencies. However, this does not mean that all single incidents
    necessarily reflect an isolated issue. If a single serious incident is
    the result of multiple failures within a program, it may very well
    result in more than one deficiency. In addition, it is important to
    note that a single deficiency always leads to follow-up reviews to
    ensure it is corrected. Additionally, if there is serious risk for harm
    to staff and/or children's health and safety, substantial injury to
    property or loss of project funds, OHS can exercise its authority to
    suspend or terminate financial assistance pursuant to Sec. Sec.  1304.4
    and 1304.5(a)(2)(iii).
        Comment: Most commenters believed two or more deficiencies, within
    a project period, better reflect a significant issue in a program than
    a single deficiency. A few commenters offered other suggestions for how
    we should further change the deficiency condition including to combine
    the CLASS and

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    deficiency condition, increase the number of deficiencies to three or
    more, and not count self-reported or corrected deficiencies.
        Most commenters expressed concern we do not differentiate
    deficiencies either by severity or between a one-time incident that is
    or is not a result of multiple system failures. This would result in
    cases where one mishap of an individual could require an entire program
    to compete. A few of these commenters recommended we take steps to
    distinguish whether a one-time incident is a result of multiple system
    failures, while most commenters indicated a change to two or more
    deficiencies would help address this concern since two or more
    deficiencies would be a better reflection of systemic issues.
        Response: We considered commenters' suggestions, along with
    monitoring data we collected over the years. Our data shows about half
    of the deficiencies that programs received are most likely the result
    of a single incident of inadequate supervision, which often occur
    during the transition of a group of children from one space to another.
    These findings are substantial but can be often seen as isolated by the
    grantee, especially when training was provided to the staff to prevent
    such an incident or the staff involved faced consequences for the
    incident. We believe a change to two or more deficiencies will capture
    significant quality failures of an agency and will mitigate the concern
    of grantees that a single incident that is not a result of multiple
    system failures could lead to competition.
        One of our primary goals of competition is to improve quality
    through competition. Multiple deficiencies are an indication of lower
    quality in overall program performance and changing the deficiency
    trigger to two or more better aligns with this goal. However, in cases
    where there is a substantial material failure, a serious risk for
    substantial injury to property or loss of project funds or harm to
    staff and children's health and safety, OHS will exercise its authority
    to suspend or terminate financial assistance pursuant to Sec. Sec.
    1304.4 and 1304.5(a)(2)(iii) regardless of the number of deficiencies
    involved. We would not change the deficiency condition if we did not
    have the authority to mitigate or remove serious risk. In prior years'
    competitions, determinations for about half of grantees were based on a
    single deficiency, and we therefore expect this revision may result in
    a reduction in competition associated with deficiencies.
        In this final rule, we do not define and differentiate deficiencies
    based on severity or distinguish whether a one-time incident is a
    result of multiple system failures since Congress, as discussed
    earlier, already defined the term ``deficiency'' under section 637 of
    the Head Start Act in part as ``systemic or substantial material
    failure.'' However, we revise the deficiency condition from a single
    deficiency to two or more deficiencies to mitigate the concern that a
    single isolated incident that is not a result of multiple system
    failures may cause a grantee to have to compete. Specifically, we amend
    paragraph (a), by removing the word ``one'' and replacing it with the
    word ``two.'' We also remove the phrase ``been determined by the
    responsible HHS official to have.'' This phrase is repetitious as this
    language is established in the introductory paragraph of this section
    and does not add anything of substance by being in this paragraph.
    Further, we remove the phrase ``on a single review'' and replace it
    with the phrase ``on reviews'' to ensure grantees that receive one
    deficiency on one monitoring review and another deficiency on a second
    review within the same five-year grant period would be designated for
    competition since the total count of deficiencies is cumulative across
    all reviews within a project period. Finally, we remove the phrase
    ``covered by the responsible HHS official's review'' because it is
    unnecessary and does not make the sentence easy to understand.
    ii. 1304.11(b) School Readiness Goals Condition
        In this paragraph, a program meets one of the two or more
    conditions for designation renewal if the program does not have school
    readiness goals that meet specific criteria, that are not aggregated
    and analyzed at least three times a year, and that are not analyzed to
    inform progress. We did not receive any comments on this paragraph.
    Therefore, as we proposed in the NPRM, we remove dates and learning
    tools that are either outdated or are no longer relevant. Specifically,
    we amend this paragraph by removing the phrase ``After December 9,
    2011'' in paragraphs (b)(1) and (2). We also remove the phrase ``Birth
    to Five Head Start Child Outcomes Framework'' and replace it with the
    new framework ``Head Start Early Learning Outcomes Framework: Ages
    Birth to Five'' in paragraph (b)(1)(ii).
        In addition, we make a few technical fixes to streamline this
    paragraph by removing unnecessary, repetitive language that is already
    established in the introductory paragraph. These fixes do not alter the
    substance of the regulation, but they make this section easier to read.
    In paragraph (b), we remove the phrase ``been determined by the
    responsible HHS official'' and replace that phrase with the word
    ``not,'' and a comma. Similarly, in the same paragraph, we remove the
    phrase ``covered by the responsible HHS official's review.'' It is well
    established in the introductory paragraph that the responsible HHS
    official reviews a program's operations to determine whether that
    program meets a condition for designation renewal. It is not necessary
    for us to repeat that here. Finally, we remove the phrase ``not to
    have'' to make the sentence easier to read.
    iii. 1304.11(c) CLASS Condition
        Section 1304.11(c) describes the use of the CLASS tool to assess a
    grantee's designation status. The current CLASS condition consists of
    two criteria for each domain of the tool: An absolute threshold and a
    relative threshold. The CLASS domains are Emotional Support, Classroom
    Organization, and Instructional Support.
        In the NPRM, we proposed to amend the CLASS condition in the
    following ways:
        (1) Drop the relative threshold criterion of this condition, often
    referred to as the ``lowest 10 percent'' criterion.
        (2) Raise the absolute thresholds across the three CLASS domains as
    follows: Raise Emotional Support threshold from 4 to 5; raise Classroom
    Organization threshold from 3 to 5; raise Instructional Support
    threshold from 2 to 2.5.
        In this final rule, we:
        (1) Drop the relative threshold criterion of this condition, often
    referred to as the ``lowest 10 percent'' criterion.
        (2) Raise the competitive threshold for Emotional Support from 4 to
    5, for Classroom Organization from 3 to 5, and for Instructional
    Support from 2 to 2.3. Further, for CLASS reviews beginning on August
    1, 2025, the competitive threshold for Instructional Support will be
    raised to 2.5.
        (3) Establish a quality threshold for each CLASS domain as follows:
    6 for Emotional Support, 6 for Classroom Organization, and 3 for
    Instructional Support.
        Most of the public comments on the NPRM included discussion of the
    proposed changes to the CLASS condition or some other aspect of CLASS
    in relation to its use in the Designation Renewal System. We summarize
    the types of comments we received related to CLASS and our

    [[Page 53195]]

    corresponding responses, including our approach for the CLASS condition
    in this final rule. The comments we received on the CLASS condition
    were diverse as they covered various aspects of the condition. To make
    our discussion below easier to follow, we organize the comments, our
    responses, and regulatory text changes (if applicable) as follows: (1)
    Absolute Thresholds for the CLASS Condition; (2) Lowest 10 Percent
    Criterion of the CLASS Condition; (3) CLASS as a Quality Improvement
    Tool; (4) Methodological and Implementation Issues with CLASS; (5)
    Research Base on CLASS; and (6) Other Miscellaneous Comments on CLASS.
    Absolute Thresholds (Competitive Thresholds) for the CLASS Condition
        Comment: Most commenters discussed the proposed changes to the
    absolute thresholds across the three CLASS domains. Some were
    supportive of the increased thresholds we proposed across all three
    domains (Emotional Support = 5, Classroom Organization = 5,
    Instructional Support = 2.5). These commenters noted that the increased
    thresholds seemed fair and are supported by research or are a ``step in
    the right direction'' to move programs toward higher quality.
        However, most commenters who discussed the absolute thresholds were
    not supportive of some aspect of our proposal to increase the
    thresholds. More specifically, most commenters supported the proposed
    higher thresholds of 5 for the Emotional Support and Classroom
    Organization domains, but did not support the proposal to raise the
    Instructional Support threshold from 2 to 2.5. These commenters stated
    there is not sufficient evidence for a specific threshold for
    Instructional Support that is related to improved outcomes for
    children. Some commenters said we should not increase any of the
    absolute thresholds. They stated that they believed the raised
    thresholds are not supported by research. Commenters also expressed
    concerns that the higher threshold on Instructional Support would
    create more fear and stress for programs and teachers.
        A few commenters supported the proposed thresholds for Emotional
    Support and Instructional Support, but said Classroom Organization
    should not be raised to 5. These commenters argued that there has been
    an increase in challenging behaviors in Head Start classrooms due to
    more exposure to traumatic experiences among the population of children
    and families that Head Start serves, and this makes it difficult for
    teachers to score highly on the Classroom Organization domain of CLASS.
    One commenter suggested that a threshold of 5 for the Classroom
    Organization domain may unintentionally incentivize programs to ``pass
    over'' children that are harder to serve due to behavior issues. One
    commenter agreed with our proposal to raise the Instructional Support
    threshold to 2.5, but said the Emotional Support and Classroom
    Organization thresholds should each be 4. One commenter felt the
    Instructional Support threshold of 2.5 is too low and should, instead,
    be a 3. One commenter requested an exemption for American Indian/Alaska
    Native programs if the CLASS absolute thresholds are raised as proposed
    in the NPRM.
        Response: We believe it is important to raise the absolute
    thresholds (now referred to as competitive thresholds in this final
    rule) across the three CLASS domains to continue to encourage Head
    Start programs to strive for improving the quality of teaching
    practices and teacher-child interactions in their classrooms. To inform
    the CLASS competitive thresholds in this final rule, we considered the
    public comments received on the NPRM and research on the use of the
    measure in early education settings, as well as our own data from
    several years of implementation of the CLASS condition.
        Evidence suggests children learn more in well-organized classroom
    environments that are characterized by sensitive and responsive
    interactions that promote autonomy, conversation, literacy skills, and
    executive functioning. Children gain these skills when they experience
    higher quality teacher-children interactions and instruction.\2\ On the
    CLASS tool, scores of 1 to 2 (low range of quality) reflect a classroom
    environment where teachers poorly manage children's behaviors,
    instruction is purely rote, and where there is little teacher-child
    interaction. Scores of 3 to 5 (midrange of quality) reflect a classroom
    environment where teachers show a mix of effective interactions with
    periods when interactions are either not effective or are absent.
    Scores of 6 to 7 (high range of quality) reflect a classroom
    environment where teachers consistently demonstrate effective teacher-
    child interactions. Research suggests that higher levels of
    instructional quality are linked to improvements in child outcomes.
    Although research does not indicate a specific threshold of classroom
    quality that programs must reach to see impacts on child outcomes,
    there is a growing body of research indicating classrooms need to be
    out of the low-quality range (i.e., above a 2 on CLASS) to support
    children's development.\3\
    ---------------------------------------------------------------------------

        \2\ Hatfield, B.E., Burchinal, M.R., Pianta, R.C., & Sideris, J.
    (2016). Thresholds in the association between quality of teacher-
    child interactions and preschool children's school readiness skills.
    Early Childhood Research Quarterly, 36, 561-571.
        \3\ Broekhuizen, M.L., Mokrova, I.L., Burchinal, M.R., Garrett-
    Peters, P.T., & The Family Life Project Key Investigators. (2017).
    Classroom quality at pre-kindergarten and kindergarten and
    children's social skills and behavior problems. Early Childhood
    Research Quarterly, 36, 212-222.; Burchinal, M., Vernon-Feagans, L.,
    Vitiello, V., & Greenberg, M. (2014). Thresholds in the association
    between child care quality and child outcomes in rural preschool
    children. Early Childhood Research Quarterly, 29(1), 41-51.;
    Burchinal, M., Zaslow, M., & Tarullo, L. (2016). Quality thresholds,
    features and dosage in early care and education: Secondary data
    analyses of child outcomes. Monographs of the Society for Research
    in Child Development.; U.S. Department of Health and Human Services.
    (2012). Report from the Secretary's Advisory Committee on Head Start
    Research and Evaluation. Washington, DC: HHS. Retrieved from:
    https://www.acf.hhs.gov/sites/default/files/opre/eval_final.pdf.
    ---------------------------------------------------------------------------

        Therefore, we believe strongly that the competitive thresholds for
    all domains of the CLASS should be above a 2, in order to continue to
    strengthen the quality of teacher-child interactions across all Head
    Start classrooms. This final rule raises the competitive threshold for
    Emotional Support from 4 to 5, for Classroom Organization from 3 to 5,
    and for Instructional Support from 2 to 2.3, as of the effective date
    of this rule. Further, beginning on August 1, 2025, the competitive
    threshold for Instructional Support will be raised to 2.5. A grantee
    with a score below any of these competitive thresholds will be
    designated for competition. Scores of 5 in Emotional Support and
    Classroom Organization are in the mid-quality range on the CLASS tool.
    We believe the changes to these competitive thresholds increase the
    minimum standard of quality and set the expectation for programs to
    work toward moving into the high-quality range.
        We take a different approach with the Instructional Support domain
    than the other two CLASS domains, as a result of public comments,
    research, and our own data. We recognize the concern expressed by
    commenters regarding increased stress and fear among program staff that
    may result if the competitive threshold for the Instructional Support
    domain is raised immediately from 2 to 2.5 (as proposed in the NPRM).
    We also recognize the fact that teachers across a variety of preschool
    settings tend to score lower in this domain, and that it takes time to
    improve teacher-child interactions in a way that reflects in

    [[Page 53196]]

    improved CLASS scores.\4\ For example, the Head Start Family and Child
    Experiences Survey (FACES)--a large, nationally representative study of
    Head Start children, families, staff, and programs--examined changes
    over time in classroom quality after the implementation of the
    Designation Renewal System, and findings showed an increase in average
    Instructional Support scores across programs, but only over a
    significant time, from an average of 1.9 across programs in 2007 to an
    average of 2.4 in 2015.\5\ This study also found an increase over this
    time period in the number of programs scoring in the mid- or high-range
    of quality for the Instructional Support domain, and fewer programs
    scoring in the low-range of quality for this domain.\6\ Qualitative
    findings from the evaluation of the early Designation Renewal System
    implementation indicate that inclusion of CLASS in this system is
    incentivizing Head Start programs to focus on improving teacher-child
    interactions as part of their overall quality improvement efforts.\7\
    ---------------------------------------------------------------------------

        \4\ Hamre, B.K., Pianta, R.C., & Mashburn, A.J. Building a
    science of classrooms: Application of the CLASS framework in over
    4,000 U.S. early childhood and elementary classrooms.
    Charlottesville, VA: University of Virginia.; Denny, J.H., Hallam,
    R., & Homer, K. (2012) A multi-instrument examination of preschool
    classroom quality and the relationship between program, classroom,
    and teacher characteristics. Early Education and Development, 23:5,
    678-696.; Aikens, N., Bush, C., Gleason, P., Malone, L., & Tarullo,
    L. (2016). Tracking quality in Head Start classrooms: FACES 2006 to
    2014. OPRE Report #2016-82. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
        \5\ Aikens, N., Bush, C., Gleason, P., Malone, L., & Tarullo, L.
    (2016). Tracking quality in Head Start classrooms: FACES 2006 to
    2014. OPRE Report #2016-82. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
        \6\ Ibid.
        \7\ Derrick-Mills, T., Burchinal, M., Peters, H.E., De Marco,
    A., Forestieri, N., Fyffe, S., Hanson, D., Heller, C., Pratt, E.,
    Sandstrom, H., Triplett, T., & Woods, T. (2016). Early
    Implementation of the Head Start Designation Renewal System: Volume
    I. OPRE Report #: 2016-75a. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
    ---------------------------------------------------------------------------

        According to our own monitoring data from the past 5 fiscal years,
    programs have averaged between a 2.8 and 3.0 in the Instructional
    Support domain. In addition, the average cut-off for the bottom 10
    percent of grantee scores in this domain has been about a 2.2 or 2.3
    over the past 5 fiscal years.
        These data demonstrate that, in general, most programs are scoring
    above a 2 in this domain of CLASS over the past five fiscal years.
    However, our monitoring data also demonstrate that a fair number of
    programs score below a 2.5 in this domain (approximately 20 percent of
    those grantees with CLASS scores from the past five years). Meanwhile,
    we must consider the growing body of research indicating programs need
    to be out of the low-quality range to support children's
    development.\8\ Therefore, to take into account both where Head Start
    grantees currently score in this CLASS domain as well as concerns we
    heard in the public comments, but to still push quality improvement
    over time and on an ongoing basis, this final rule uses a graduated
    approach to increasing the competitive threshold for the Instructional
    Support domain, rather than immediately raising the threshold to 2.5 as
    proposed in the NPRM.
    ---------------------------------------------------------------------------

        \8\ Burchinal, M., Kainz, K., & Cai, Y. (2011). How well do our
    measures of quality predict child outcomes? A meta-analysis and
    coordinated analysis of data from large-scale studies of early
    childhood settings. In M. Zaslow, I. Martinez-Beck, K. Tout, & T.
    Halle (Eds.), Quality measurement in early childhood settings (pp.
    11-32). Baltimore, MD: Paul H. Brookes Publishing Co.; Burchinal,
    M., Vandergrift, N., Pianta, R., & Mashburn, A. (2010). Threshold
    analysis of association between child care quality and child
    outcomes for low-income children in pre-kindergarten programs. Early
    Childhood Research Quarterly, 25, 166-176.; Burchinal, M., Vernon-
    Feagans, L., Vitiello, V., & Greenberg, M. (2014). Thresholds in the
    association between child care quality and child outcomes in rural
    preschool children. Early Childhood Research Quarterly, 29(1), 41-
    51.; Burchinal, M., Zaslow., M., & Tarullo, L. (2016). Quality
    thresholds, features and dosage in early care and education:
    Secondary data analyses of child outcomes. Monographs of the Society
    for Research in Child Development.
    ---------------------------------------------------------------------------

        For the first five years following the effective date of this final
    rule, through July 31, 2025, there will be an interim competitive
    threshold for Instructional Support of 2.3. A grantee with a score
    below this interim competitive threshold from a CLASS observation
    conducted as part of Head Start monitoring through July 31, 2025, will
    be designated for competition. Beginning on August 1, 2025, the
    competitive threshold for the Instructional Support domain will be
    raised to 2.5. Therefore, a grantee with a score below 2.5 in
    Instructional Support from a CLASS observation conducted as part of
    Head Start monitoring on or after August 1, 2025, will be designated
    for competition. A score of 2.3 in Instructional Support is an interim
    step that will encourage all grantees to move out of the low-range and
    toward the mid-range of quality on CLASS. Our graduated approach to
    increasing this threshold incentivizes programs to undertake quality
    improvement efforts and provides a window of opportunity for programs
    to make such improvements before the competitive threshold for
    Instructional Support raises to a higher bar. This five-year window
    also aligns with the five-year grant cycle, allowing grantees a
    reasonable amount of time to make improvements. Furthermore, we believe
    our graduated approach sets a minimum bar for quality, considers where
    most programs as well as the broader early childhood field tend to
    score on this domain, addresses concerns raised by public comments, and
    pushes up the bar to a higher standard within a reasonable timeframe.
    Finally, in this final rule we do not provide an exemption from the
    raised competitive thresholds for any specific programs because we
    believe it is important that all children in Head Start are in
    classroom environments with high-quality teacher-child interactions.
    The next paragraph provides a summary of the changes to the regulation
    text for the absolute (competitive) thresholds for CLASS.
        We amend Sec.  1304.11(c)(1) by removing the phrase ``After
    December 9, 2011,'' and capitalizing ``To.'' We also remove the word
    ``minimum'' from that same provision and replace it with the word
    ``competitive.'' We also amend paragraph (c)(1)(i) (Emotional Support)
    in that section by removing the word ``minimum'' and replacing it with
    the word ``competitive,'' and we remove the number ``4'' and replace it
    with ``5.'' Similarly, in paragraph (c)(1)(ii) (Classroom
    Organization), we remove the word ``minimum'' and replace it with the
    word ``competitive'' and we remove the number ``3'' and replace it with
    ``5.'' Finally, in paragraph (c)(1)(iii) (Instructional Support), we
    remove the word ``minimum'' and replace it with the word
    ``competitive'' and we remove the number ``2'' and replace it with the
    phrase ``2.3 through July 31, 2025, and 2.5 on and after August 1,
    2025.''
    Lowest 10 Percent Trigger of the CLASS Condition
        Comment: Most commenters agreed with our proposal to remove the
    ``lowest 10 percent'' criterion from the CLASS condition in the
    Designation Renewal System. These commenters cited reasons similar to
    those described in the NPRM, including that the lowest 10 percent
    criterion lacks transparency for programs and creates a significant
    amount of stress and uncertainty, as programs usually must wait several
    months to learn if they are designated for competition based on the
    annual calculation of the lowest 10 percent in each CLASS domain.
    Commenters discussed how this aspect of the CLASS condition feels
    arbitrary and unfair, as the ``cut-off'' for the lowest 10 percent for
    any given fiscal year depends on the

    [[Page 53197]]

    grantees that were observed that fiscal year. As described in the NPRM,
    commenters also noted how the lowest 10 percent criterion sometimes
    captures grantees with fairly high scores (i.e., scores above a 5) in
    the domains of Emotional Support and Classroom Organization. One
    commenter disagreed with our proposal to remove the lowest 10 percent
    criterion and described it as a ``safety net'' that ``saved'' their
    program from competition.
        Response: We agree with some of the concerns noted by commenters
    regarding the lowest 10 percent criterion of the CLASS condition.
    Additionally, our approach of raising the Instructional Support
    competitive threshold to 2.3 combined with the implementation of the
    new quality threshold of 3.0 (discussed in more detail in the next
    section) will maintain the same expectation of minimum quality
    standards under the current CLASS condition while also raising
    expectations for quality beyond the minimum and eliminating the
    uncertainty created by the lowest 10 percent criterion. Therefore, in
    this final rule, we eliminate this aspect of the CLASS condition in the
    Designation Renewal System. Specifically, we amend Sec.  1304.11(c)(2)
    by removing the current provision that describes the ``lowest 10
    percent'' criterion of the CLASS condition.
    CLASS as a Quality Improvement Tool
        Comment: Many commenters described the way CLASS is used in the
    Designation Renewal System as punitive. These commenters said CLASS can
    be helpful as a professional development tool to examine and reflect on
    teachers' practices in the classroom and support quality improvement
    efforts, but should not be used in the types of decisions made under
    the Designation Renewal System. A few said CLASS should not be used in
    the Designation Renewal System at all or should be used differently.
    One commenter suggested the specific mention of CLASS in regulation has
    undermined the market for the development of other tools to measure
    classroom quality. A few stated that they believe the CLASS tool does
    not meet, or is not the only tool that could meet, the requirements of
    the Head Start Act for use of a valid and reliable research-based
    observational measure of teacher-child interactions in the Designation
    Renewal System.
        Many commenters noted that CLASS as used in the Designation Renewal
    System creates fear and stress for teachers and does not provide enough
    support for improvement, which undermines its usefulness as a
    professional development tool. A few commenters specifically suggested
    CLASS scores below the designated thresholds should trigger support or
    professional development for teachers and programs. Some said that
    American Indian/Alaska Native programs in particular need more
    professional development and technical assistance support in order to
    achieve higher CLASS scores.
        Response: A large body of research points to the importance of
    effective teacher-child interactions as a critical component of a high-
    quality early education program that promotes children's development
    and learning.\9\ The Act requires the use of a research-based
    observational measure of teacher-child interactions as a basis for
    competition in the Designation Renewal System. CLASS is a research-
    based measure of the quality of teacher-child interactions in preschool
    classrooms, meeting the requirement in the law. In fact, in the
    Conference Report accompanying the 2007 Reauthorization,\10\ Congress
    specifically suggested HHS consider using the CLASS to meet this
    requirement. Following the passage of the 2007 Reauthorization, the
    Office of Head Start had discussions with numerous early childhood
    research experts who agreed that the CLASS was the best tool that fits
    these requirements. The CLASS can also be used to help understand areas
    of teaching and learning where individual teachers excel, as well as
    areas where they may need extra support. Its use in the Designation
    Renewal System over the past several years has enhanced programs' focus
    on the importance of effective teacher-child interactions for promoting
    stronger outcomes for children served in Head Start programs. Indeed,
    as summarized previously, the evaluation of the Designation Renewal
    System found that the inclusion of the CLASS in this system
    incentivized programs to focus on improving teacher-child interactions
    as part of their quality improvement efforts.\11\ Furthermore, data
    from the 2015 Head Start FACES study demonstrate that, on average,
    CLASS scores are improving over time across Head Start programs.\12\
    ---------------------------------------------------------------------------

        \9\ Bredekamp, S., & Copple, C., eds. (2002). Developmentally
    Appropriate Practice in Early Childhood Programs. Rev. ed.
    Washington, DC: National Association for the Education of Young
    Children.; Burchinal, M. (2017). Measuring early care and education
    quality. Child Development Perspectives, 12(1), 3-9.; Melhuish, E.,
    Ereky-Stevens, K., Petrogiannis, K., Ariescu, A., Penderi, E.,
    Rentzou, K., Tawell, A., Slot, P., Broekhuizen, M., & Leseman, P.
    (2015). A review of research on the effects of early childhood
    Education and Care (ECEC) upon child development. CARE project;
    Curriculum Quality Analysis and Impact Review of European Early
    Childhood Education and Care (ECEC). Retrieved from: http://ecec-care.org/resources/publications/; Pianta, R., Downer, J., & Hamre,
    B. (2016). Quality in early education classrooms: Definitions, gaps,
    and systems. The Future of Children, 26(2), 119-137.; Phillipsen,
    L.C., Burchinal, M.R., Howes, C., & Cryer, D. (1997). The prediction
    of process quality from structural features of child care. Early
    Childhood Research Quarterly, 12, 281-303.; Soliday Hong, S.L.,
    Sabol, T.J., Burchinal, M.R., Tarullo, L., Zaslow, M., & Pesiner-
    Feinberg, E.S. (2019). ECE quality indicators and child outcomes:
    Analyses of six large child care studies. Early Childhood Research
    Quarterly, 49, 202-217.
        \10\ https://www.congress.gov/110/crpt/hrpt439/CRPT-110hrpt439.pdf.
        \11\ Derrick-Mills, T., Burchinal, M., Peters, H.E., De Marco,
    A., Forestieri, N., Fyffe, S., Hanson, D., Heller, C., Pratt, E.,
    Sandstrom, H., Triplett, T., & Woods, T. (2016). Early
    Implementation of the Head Start Designation Renewal System: Volume
    I. OPRE Report #: 2016-75a. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
        \12\ Aikens, N., Bush, C., Gleason, P., Malone, L., & Tarullo,
    L. (2016). Tracking quality in Head Start classrooms: FACES 2006 to
    2014. OPRE Report #2016-82. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
    ---------------------------------------------------------------------------

        However, although it is not the intent of the CLASS regulatory
    provisions, we appreciate the public comments we received describing
    how CLASS, as used in the Designation Renewal System, can feel
    punitive. We share the view expressed by many commenters that CLASS can
    be an effective tool for programs to use as part of their local
    continuous quality improvement efforts, and we recognize that many
    programs already do so, separate from the Head Start monitoring
    process. The competitive thresholds represent the minimum scores in
    each CLASS domain that a program must achieve to avoid competition.
    Meanwhile, OHS recognizes programs already strive for CLASS scores
    above the competitive thresholds since the aim by programs is to
    continuously improve classroom quality and eventually reach high-
    quality scores across all three domains. Therefore, in this final rule,
    we develop an approach to reframe the use of CLASS in the Designation
    Renewal System that supports using CLASS as a tool for quality
    improvement, while also continuing to use it as a quality indicator as
    required by the Head Start Act. This approach includes the
    establishment of a quality threshold for each CLASS domain that does
    not relate to competition, but instead reflects a quality improvement
    focus in teacher-child interactions, with support from OHS. We believe
    the establishment of quality thresholds for the CLASS domains will
    build on existing program quality improvement efforts to enhance

    [[Page 53198]]

    classroom instruction beyond any set floor and will lead to more
    intentional OHS support for these efforts.
        In this final rule, we establish a quality threshold for each CLASS
    domain as follows: 6 for Emotional Support, 6 for Classroom
    Organization, and 3 for Instructional Support. A score of 6 is in the
    high-quality range and a score of 3 is in the mid-quality range on
    CLASS. Over the previous five fiscal years, the average score across
    grantees in Emotional Support and Classroom Organization is about 6.1
    and 5.8, respectively. The average score in Instructional Support over
    the previous five fiscal years is 2.9. The quality thresholds we
    establish in this final rule will encourage programs to continue to
    strive for improvements in classroom quality and will also lead to OHS
    support for quality improvement efforts among programs as they
    continuously examine and improve effective teacher-child interactions
    in their preschool classrooms. The inclusion of quality thresholds for
    the CLASS addresses the request of commenters to make better use of
    CLASS as a quality improvement tool.
        If a grantee receives a score on any domain of the CLASS that is
    below the quality threshold, then OHS will support the grantee to
    promote improvement in teacher-child interactions across classrooms.
    Specifically, OHS will identify and connect grantees to resources
    (e.g., resources on the ECLKC website including webinars and
    professional development materials, meetings with OHS regional TA
    specialist if appropriate, etc.) designed to support improvement in the
    area(s) of teacher-child interactions that are below the quality
    thresholds. OHS will further support the program to analyze areas where
    their education staff most need support, and ensure a coordinated
    approach to training and professional development.
        This approach does not place new requirements on programs but,
    rather, provides an opportunity for OHS to support programs in refining
    and improving their existing quality improvement efforts to meet the
    related requirements in the Head Start Act and the Head Start Program
    Performance Standards (HSPPS). This approach also reframes the use of
    the CLASS in Designation Renewal System with a growth mindset. The Head
    Start Act requires that information from the assessment of teacher-
    child interactions included in the Designation Renewal System be used
    to inform professional development plans that lead to improved teacher
    effectiveness. Furthermore, several areas of the HSPPS require grantees
    to have planned, intentional approaches to quality improvement in their
    programs. For example, Head Start programs are required to establish
    and implement a systematic approach to staff training and professional
    development, a coordinated strategy for intensive coaching, and
    program-wide coordinated approaches that ensure the training and
    professional development system effectively supports the delivery and
    continuous improvement of high-quality services (see Sec. Sec.
    1303.92(b), 1302.92(c), and 1302.101(b)). The addition of CLASS quality
    thresholds to the Designation Renewal System follows the same model of
    intentional support for targeted quality improvement.
        If a program falls below the quality threshold on any CLASS domain,
    OHS will support the program in determining and addressing the specific
    areas of teacher-child interactions that need the most support and
    improvement, aligned with the program's existing coordinated approach
    for training and professional development. More specifically, within a
    reasonable timeframe after a CLASS review in which a grantee scores
    below one or more of the quality thresholds, OHS will identify and
    connect grantees with resources that focus on the areas of teacher-
    child interactions in which the grantee most needs improvement. This
    may include National TTA Center suites, other professional development
    resources available on the ECLKC website, and/or connections with their
    regional TTA support. The grantee will not have to request this;
    rather, scores below the quality threshold will trigger action on the
    part of OHS. OHS plans to use existing CLASS data more effectively to
    inform decision-making around delivery of TTA. OHS will leverage
    existing systems to develop a streamlined way of identifying
    appropriate resources and make these connections for grantees, based on
    their CLASS scores. OHS may request a description of the program's
    efforts in grant applications or through monitoring reviews.
        OHS reminds programs that they have a wealth of resources available
    to support implementation of their coordinated approach to training and
    professional development. As part of their individual grant, every
    program has training and technical assistance funds that can be used at
    the program's discretion. A portion of these training and technical
    assistance dollars could be spent on activities that aim to improve
    teaching practices in the classroom and support effective teacher-child
    interactions. Grantees may use research-based resources available to
    them on the Early Childhood Learning and Knowledge Center (ECLKC)
    website. For instance, on the ECLKC website, grantees can find several
    materials that support the use of CLASS for professional development,
    such as the 15-minute in-service suites \13\ and the ELOF Effective
    Practice Guide \14\ that have been cross-walked with the dimensions and
    domains of the CLASS.\15\ In addition, through their regional office,
    grantees may request regional training and technical assistance
    support. Resources, including the Head Start Coaching Companion,\16\
    are also available to help support programs to implement intensive
    coaching, which research shows to be a critical component in
    professional development and an effective strategy for improving
    teacher practice.
    ---------------------------------------------------------------------------

        \13\ https://eclkc.ohs.acf.hhs.gov/professional-development/article/15-minute-service-suites.
        \14\ https://eclkc.ohs.acf.hhs.gov/school-readiness/effective-practice-guides/effective-practice-guides.
        \15\ https://eclkc.ohs.acf.hhs.gov/professional-development/article/crosswalk-15-minute-service-suites-class.
        \16\ https://eclkc.ohs.acf.hhs.gov/professional-development/article/head-start-coaching-companion.
    ---------------------------------------------------------------------------

        To make regulatory changes for the quality thresholds on CLASS, we
    amend Sec.  1304.11(c)(2) by removing the current provision that
    describes the ``lowest 10 percent'' criterion of the CLASS condition as
    previously stated, and we replace this provision with the following:

        ``If an agency is determined to have an average score below the
    quality threshold on any of the three CLASS: Pre-K domains across
    all classrooms observed, the Office of Head Start will support the
    program to strengthen its coordinated approach to training and
    professional development as required in Sec.  1302.92(b) and (c), to
    help promote improvement in teaching practices and teacher-child
    interactions. The quality threshold for each domain is as follows:
        (i) For the Emotional Support domain, the quality threshold is
    6;
        (ii) For the Classroom Organization domain, the quality
    threshold is 6;
        (iii) For the Instructional Support domain, the quality
    threshold is 3.''
    Methodological Issues With CLASS
        Comment: Many commenters who discussed CLASS expressed various
    concerns with methodological issues related to the CLASS. Some
    commenters raised concerns with the reliability and/or validity of
    CLASS scores. A few noted that there is measurement error inherent in
    any tool like the CLASS.
        Some commenters also raised concerns regarding the validity of
    CLASS use with culturally and linguistically diverse populations,

    [[Page 53199]]

    including American Indian/Alaska Native populations, Migrant and
    Seasonal Head Start programs, and classrooms with high proportions of
    dual language learners. These commenters noted that the CLASS does not
    adequately take into account cultural or linguistic differences with
    these populations and/or that there is not adequate research using the
    CLASS with diverse samples.
        Response: While we appreciate the comments related to
    methodological issues with use of the CLASS tool in the Designation
    Renewal System, we largely disagree with these assertions. We did not
    propose any changes in the NPRM related to CLASS methodology, and we do
    not make any changes in this final rule based on these comments.
    Section 641A(c)(2)(F) of the Act requires the Secretary to include as
    part of the Head Start monitoring review process ``a valid and reliable
    research-based observational instrument, implemented by qualified
    individuals with demonstrated reliability, that assesses classroom
    quality, including assessing multiple dimensions of teacher-child
    interactions that are linked to positive child development and later
    achievement.'' Section 641(c)(1)(D) of the Head Start Act requires that
    this tool be used as part of the Designation Renewal System. As
    discussed previously, the CLASS specifically meets these requirements
    and was suggested by Congress and numerous leading early childhood
    experts as the best instrument to meet these statutory requirements.
        Regarding its use in culturally and linguistically diverse
    classrooms, there is an ample body of research examining CLASS and its
    relationship to children's outcomes. This research largely demonstrates
    that children in classrooms with higher CLASS scores are more likely to
    have stronger outcomes across a variety of developmental domains,\17\
    and this includes research in classrooms with diverse populations.\18\
    Further, there is widespread agreement in the early childhood field
    that the aspects of teacher-child interactions that CLASS measures are
    important features for supporting young children's development.
    However, we will continue to examine the use of CLASS in culturally and
    linguistically diverse settings, including American Indian/Alaska
    Native programs.
    ---------------------------------------------------------------------------

        \17\ Burchinal, M., Vandergrift, N., Pianta, R., & Mashburn, R.
    (2010). Threshold analysis of association between child care quality
    and child outcomes for low-income children in pre-kindergarten
    programs. Early Childhood Research Quarterly, 25(2), 166-176.;
    Hatfield, B.E., Burchinal, M.R., Pianta, R.C., & Sideris, J. (2016).
    Thresholds in the association between quality of teacher-child
    interactions and preschool children's school readiness skills. Early
    Childhood Research Quarterly, 36, 561-571.; Perlman, M., Falenchuk,
    O., Fletcher, B., McMullen, E., Beyene, J., & Shah, P.S. (2016). A
    systematic review and meta-analysis of a measure of staff/child
    interaction quality (the Classroom Assessment Scoring System) in
    early childhood education and care settings and child outcomes. PLOS
    ONE 11(12). Retrieved from: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0167660#ack.
        \18\ Burchinal, M., Field, S., Lopez, M.L., Howes, C., & Pianta,
    R. (2012). Instruction in Spanish in pre-kindergarten classrooms and
    child outcomes for English language learners. Early Childhood
    Research Quarterly, 27(2), 188-198.; Downer, J.T., Lopez, M.L.,
    Grimm, K., Hamagami, A., Pianta, R.C., & Howes, C. (2011).
    Observations of teacher-child interactions in classrooms serving
    Latinos and dual language learners: Applicability of the Classroom
    Assessment Scoring System in diverse settings. Early Childhood
    Research Quarterly, 27(1), 21-32.
    ---------------------------------------------------------------------------

    Implementation of CLASS Observations in Head Start Programs
        Comment: Most commenters who discussed CLASS raised concerns
    related to OHS implementation procedures for conducting CLASS
    observations. We did not propose changes in the NPRM to OHS's
    procedures for conducting CLASS observations as part of Head Start
    monitoring and in fact such procedures are not governed by regulation.
    However, we summarize the comments here as we feel it is important to
    acknowledge and respond to these comments.
        Most commenters stated that teachers need more time in the
    classroom (e.g., 6 months) before they are observed with the CLASS for
    Head Start monitoring purposes, in order to better acclimate to the
    classroom environment. Some commenters said observers need mandatory
    cultural and linguistic awareness training and training in racial
    equity to improve the use of CLASS with diverse Head Start populations.
    Some said OHS needs to utilize more bilingual CLASS observers.
        Many commenters pointed out that OHS does two cycles of observation
    per classroom with the CLASS instrument and said OHS should instead
    conduct four cycles of observation, as described in the CLASS manual.
    Some commenters said OHS needs to ensure observers are following
    appropriate protocols for classroom observations, such as observing
    classrooms for the appropriate length of time and during appropriate
    times of the day (i.e., not at nap time). A few said observers should
    have regular re-training to maintain reliability and appropriate
    compliance with observation protocols. Relatedly, some commenters
    stated that external factors can impact observations and should be
    taken into account when considering grantee scores, such as the time of
    day or year of observations, teacher turnover and lack of qualified
    staff, low teacher wages, teacher stress, and challenging behaviors in
    the classroom. A few suggested that OHS collect CLASS observations via
    video to help with some of these concerns.
        A few commenters suggested that if initial CLASS scores were too
    low, OHS give programs the opportunity to improve their scores through
    follow-up observations. A few commenters requested that OHS be more
    transparent with CLASS data and share specific classroom scores and/or
    observer notes with programs, to help programs better target quality
    improvement efforts. A few others requested OHS establish a formal
    grievance process to challenge CLASS observations that a program feels
    was not carried out correctly.
        Response: We appreciate the comments related to the protocol and
    procedures for use of the CLASS tool in Head Start classrooms. We do
    not make any changes in this final rule related to these topics.
    However, we provide responses to each of these comments, in the order
    summarized in the prior section.
        We understand the desire to allow teachers to have time to
    acclimate to the classroom environment before CLASS observations are
    conducted by OHS. However, we believe strongly that it is critically
    important that children are exposed to high-quality teacher-child
    interactions for the entirety of their time in Head Start. Further, in
    order to ensure OHS can complete all CLASS observations scheduled
    within a given program year, OHS must be able to begin CLASS
    observations in the fall. Therefore, we do not agree that OHS should
    wait at least 6 months before observing a teacher with CLASS; for many
    children, this represents more than half or most of the program year,
    and we believe strongly that programs should ensure teacher-child
    interactions are of high-quality throughout the program year.
        We appreciate comments related to the need for cultural and
    linguistic awareness and racial equity training for CLASS reviewers. We
    are always looking for ways to improve reviewer training and are
    exploring whether this is something that should be implemented in the
    future. With respect to the need for more bilingual CLASS reviewers,
    OHS strives to recruit bilingual individuals who can serve as CLASS
    reviewers. Most of the bilingual CLASS reviewers OHS currently has are
    fluent in Spanish and English. It is challenging to find individuals
    who are

    [[Page 53200]]

    fluent in languages other than Spanish or English and have the training
    and experience to serve as reviewers. However, OHS continues to seek
    such individuals that could become part of the pool of qualified CLASS
    reviewers. In the event that OHS does not have a reviewer fluent in the
    primary language of instruction for a classroom, OHS does not conduct a
    CLASS review in that classroom.
        With regard to the number of observation cycles per classroom, in
    the initial design of the Designation Renewal System, ACF worked with
    the CLASS developers to help determine the most appropriate number of
    observations to conduct per classroom. Although the CLASS manual
    describes the recommended protocol as four cycles in each classroom,
    the CLASS developers at the University of Virginia (UVA) and other
    researchers with expertise in using the CLASS in Head Start settings
    advised ACF that four cycles with a single teacher, while appropriate
    for research, is not the best use of resources when ACF's objective is
    to get a picture of classroom quality at the grantee level. Instead,
    they recommended a protocol that involved fewer observation cycles per
    teacher, but that included more teachers.
        Further, data from the Head Start FACES study reinforced ACF's
    decision to conduct two rather than four CLASS observation cycles in
    each classroom. FACES data indicated that four CLASS observations were
    not consistently conducted of all grantees, even though that was the
    intention in the study design. Attempting to conduct four observations
    in every monitoring review when it could not be accomplished in FACES,
    and doing so on a scale much larger than the FACES study, likely would
    result in differential treatment of grantees since some grantees would
    likely get four observations and others would get fewer. Finally,
    results from the evaluation of early implementation of the Designation
    Renewal System found no differences in grantee-level CLASS scores when
    either four observation cycles or a fewer number of cycles were
    conducted in classrooms. In other words, findings from this evaluation
    suggest CLASS ratings are the same when classrooms are observed for
    either two cycles or four cycles with the CLASS tool.\19\ Therefore,
    given the importance of observing more classes, rather than fewer
    classes for a longer period of time, ACF chose to conduct two cycles of
    observation in each classroom within the sample for a given grantee.
    Overall, we believe the sampling and observation methods we use best
    meet the goal of finding a grantee-level score for each CLASS domain.
    ---------------------------------------------------------------------------

        \19\ Derrick-Mills, T., Burchinal, M., Peters, H.E., De Marco,
    A., Forestieri, N., Fyffe, S., Hanson, D., Heller, C., Pratt, E.,
    Sandstrom, H., Triplett, T., & Woods, T. (2016). Early
    Implementation of the Head Start Designation Renewal System: Volume
    I. OPRE Report #: 2016-75a. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
    ---------------------------------------------------------------------------

        Further, we also have a protocol that all CLASS reviewers must
    follow, which includes detailed information on the length of time to
    implement CLASS observations as part of monitoring, as well as what
    time of day and what types of classroom or learning activities are
    acceptable for an observation cycle. All CLASS reviewers must undergo
    rigorous training, including annual recertification of reliability.
    With respect to external factors that can impact observations (e.g.,
    teacher stress and turnover, challenging behaviors), we appreciate the
    realities of the challenges of teaching young children; however, the
    purpose of the CLASS tool is to get a picture of the kinds of
    interactions children are experiencing in the classroom on a regular
    basis. Regarding the suggestion to collect CLASS observations via
    videotape, this is an approach we have explored and may consider
    further in the future. We frequently review the policies and procedures
    we use to implement CLASS observations and consider where there can be
    improvements in the process.
        Any program that feels that their CLASS observation was not done
    fairly or appropriately should raise that concern with OHS. While there
    is not a formal appeals process established by the Act or regulation,
    programs regularly raise concerns with CLASS observations to OHS, and
    we investigate all of them. OHS will also share classroom level scores
    if requested. However, the methodology we use for CLASS data collection
    as part of monitoring is designed to get a grantee-level score; the
    score for any single classroom may be less useful for a program. We are
    aware of many programs that conduct their own separate CLASS
    observations for training and professional development purposes.
        Regarding the opportunity for a program to have a follow-up
    observation if CLASS scores are low, we disagree. The purpose of the
    CLASS observation is to capture a picture of the quality of teacher-
    child interactions in the program. If a grantee is designated for
    competition due to low CLASS scores, they then have the opportunity to
    demonstrate through the competitive process how they have or will
    improve their program. Further, for American Indian/Alaska Native Head
    Start programs, the Act provides a process for an initial review of
    Designation Renewal System conditions, a period of improvement, and
    then a follow-up review of these conditions, but explicitly does not
    provide such a process for all other programs.
    Research Base on CLASS
        Comment: Most commenters suggested that additional research is
    needed on CLASS, such as in the following areas: Relations between
    specific CLASS thresholds and child outcomes; use of CLASS in the
    Designation Renewal System; reliability and validity issues; use of
    CLASS with culturally and linguistically diverse populations or
    alternative measures to assess classroom quality for these populations;
    use of CLASS with children with disabilities; and lessons learned from
    programs who are ``positive outliers'' on CLASS. A few commenters
    specifically stated that research does not indicate that increased
    CLASS scores will lead to improved child outcomes, or requested more
    information on this topic. Conversely, a few commenters specifically
    stated that there is research evidence to support the association
    between CLASS scores and child outcomes.
        Response: We appreciate the comments received regarding the
    research base on CLASS and relations between measures of classroom
    quality and child outcomes. As previously discussed, there is a large
    body of research examining relations between the quality of teacher-
    child interactions as measured by the CLASS and children's outcomes.
    This research largely demonstrates children in classrooms with higher
    CLASS scores are more likely to have stronger outcomes across a variety
    of developmental domains.\20\ However, we agree more research could be
    beneficial to continue to examine these relations, as well as broader
    issues related to measurement of classroom quality in early childhood
    settings. ACF is currently funding a variety of research studies on
    related issues, including: (1) The impact of various features of
    classroom quality on child outcomes (Variations in Implementation of
    Quality Interventions (VIQI); study on-

    [[Page 53201]]

    going through 2021 \21\); (2) use of CLASS with diverse populations;
    and (3) alternative measures of quality for infant and toddler
    classrooms (the Quality of Caregiver-Child Interactions for Infants and
    Toddlers (Q-CIITT); there is a final report on this measure as well as
    accompanying professional development tools; the contractor is
    currently disseminating the tool through trainings for early childhood
    programs).\22\ We also welcome additional research on these complex
    issues.
    ---------------------------------------------------------------------------

        \20\ Burchinal et al. (2010); Hatfield et al. (2016); Perlman et
    al. (2016).
        \21\ See this link for additional information on the VIQI study:
    https://www.acf.hhs.gov/opre/resource/coming-soon-viqi-2016-2018.
        \22\ See these links for more information and resources on the
    Q-CIITT: https://www.acf.hhs.gov/opre/research/project/development-of-a-measure-of-the-quality-of-caregiver; https://www.acf.hhs.gov/opre/research/project/professional-development-tools-to-improve-the-quality-of-infant-toddler-care-q-cciit-pd-tools.
    ---------------------------------------------------------------------------

    Other Miscellaneous Comments on CLASS
        Comment: A few commenters noted that CLASS is used in many state
    quality rating and improvement systems (QRIS), but not in a high-stakes
    manner in those systems. A few also noted that many of the areas
    measured by the CLASS are not areas supported by public school
    leadership, which makes it challenging for Head Start classrooms
    located in public schools. A few commenters noted that the underlying
    assumptions of the CLASS are based on a more ``traditional'' approach
    to early learning with ``high quantity'' teacher feedback, which may
    disadvantage alternative approaches and teaching styles such as
    Montessori and Reggio Emilia. A few commenters said the cost of
    competition due to low CLASS scores is not a good use of resources.
        Response: We disagree with the assertion that CLASS is used in a
    high-stakes manner in the Designation Renewal System. Meeting the CLASS
    condition only places a grantee into competition where they then have
    the opportunity to demonstrate how they have or will improve their
    program. Unlike termination, competition is not an adverse action. In
    fact, the majority of incumbent grantees win back their grant in full
    or part. We appreciate the comments regarding challenges for programs
    in public school settings or for programs that use an alternative
    teaching approach such as Montessori or Reggio Emilia. However, as
    summarized previously, in order for children to receive a high-quality
    early education experience, we strongly believe that the kinds of
    teacher-child interactions the CLASS measures should be occurring in
    Head Start classrooms on a regular basis throughout the program year.
    Finally, we disagree with the assertion that the cost of competition is
    not a good use of resources. As discussed previously, findings from the
    ACF-funded evaluation of the Designation Renewal System indicate that
    inclusion of CLASS in this system incentivizes Head Start programs to
    focus on improving teacher-child interactions as part of their overall
    quality improvement efforts.\23\ We believe this is a key area for
    quality improvement efforts, given the importance of a high-quality
    classroom environment for facilitating positive outcomes for children.
    ---------------------------------------------------------------------------

        \23\ Derrick-Mills, T., Burchinal, M., Peters, H.E., De Marco,
    A., Forestieri, N., Fyffe, S., Hanson, D., Heller, C., Pratt, E.,
    Sandstrom, H., Triplett, T., & Woods, T. (2016). Early
    Implementation of the Head Start Designation Renewal System: Volume
    I. OPRE Report #: 2016-75a. Washington, DC: Office of Planning,
    Research and Evaluation, Administration for Children and Families,
    U.S. Department of Health and Human Services.
    ---------------------------------------------------------------------------

    iv. 1304.11(d) Revocation Condition
        We also amend paragraph (d) in this section to make a technical
    change that does not alter the substance of the provision. We remove
    the word ``shall'' in the second sentence of the paragraph and replace
    it with the word ``will.'' ``Shall'' is outdated regulatory language.
    v. 1304.11(e) Suspension Condition
        Under this paragraph, any grantee that has been suspended from the
    Head Start program must compete for funding. When we implemented
    designation renewal, grantees had the opportunity to appeal certain
    administrative decisions, including suspensions. However, we eliminated
    the appeal process in 2016, when we published the Head Start Program
    Performance Standards final rule. When we removed the process for
    appeals, we did not remove references to the process in this paragraph.
    So, in the NPRM, we proposed to remove those references to keep our
    performance standards streamlined and up to date. We did not receive
    any comments or suggestions on the technical changes we proposed.
    Therefore, we amend this paragraph, as we proposed in the NPRM, by
    removing the phrase ``there is a pending appeal and'' in the second
    sentence. In the third sentence of paragraph (e), after the word
    ``cause,'' we add the phrase ``and the suspension remains in place,''
    and remove the phrase, ``regardless of appeal status.'' We also remove
    the incorrect cross-reference to ``1304.16,'' and replace it with
    ``1304.15.''
    vi. 1304.11(g) Fiscal Condition
        This paragraph establishes the fiscal condition for designation
    renewal. Head Start programs are required to have annual audits, and
    the Head Start reauthorization requires that information from a
    grantee's annual audit be considered in the Designation Renewal System.
    The current fiscal condition uses information from those audits only to
    identify grantees with such serious fiscal problems that they may be
    near bankruptcy and fails to identify additional grantees with very
    serious financial concerns. Although the current condition uses one of
    the most serious audit findings, we believe this already available rich
    and broad fiscal audit data could be better used to determine
    competition status.
        The current condition of going concern audit finding is a very
    serious fiscal finding indicating threat of liquidation of an
    organization; however, this finding may not effectively capture
    problems in the financial management of the Head Start grant. We revise
    the fiscal condition to better utilize existing requirements and Head
    Start related audit data more effectively for improvement of grantees'
    fiscal systems and management. The revised condition aims to require
    competition before a grantees' fiscal condition becomes so dire that it
    potentially impacts the program's viability.
        The NPRM provided additional background and rationale for adding an
    addition to the fiscal condition. In the NPRM, we proposed to amend the
    fiscal condition at Sec.  1304.11(g) in the following way:
        (1) Revise the timeframe for the going concern condition from
    within the previous 12 months to any time during the 5-year grant
    period.
        (2) Add a second criterion to the fiscal condition that would
    require grantees to compete for continued funding if they had audit
    findings associated explicitly with their Head Start funds in two or
    more audit reports filed during the first, second, or third years of
    their current grant period.
        In this final rule, we:
        (1) Revise the timeframe for the going concern condition from
    within the previous 12 months to anytime during the current Head Start
    project period.
        (2) Add a second criterion to the fiscal condition but clarify
    which specific audit findings associated explicitly with any funding
    from the Office of Head Start for a grantee's fiscal years within the
    project period would require a grantee to compete for continued
    funding. It is important to note that Head Start funds include Head
    Start,

    [[Page 53202]]

    Early Head Start, Early Head Start--Child Care Partnerships grant
    funding or any other supplemental funding provided by the Office of
    Head Start.
        We received comments, including letters with many signatories,
    related to various aspects of the proposed condition itself and how we
    would implement it. Additional commenters addressed general concerns
    about auditors and audit processes and some requested special
    consideration for specific types of grantees. To make our discussion
    easier to follow, we organize the comments, our responses, and
    regulatory text changes (if applicable) as follows: (1) Going Concern
    Criterion Timeframe; (2) Additional Audit Findings Criterion; and (3)
    Other Comments about Audits and Fiscal Condition.
    Going Concern Criterion Timeframe
        Comment: Most commenters stated we should maintain the current
    timeframe for the going concern determination, only considering the
    previous 12 months rather than the full length of the project period as
    proposed in the NPRM.
        These commenters argued that OHS should only consider the most
    recent audit data. Further, commenters stated that if a grantee had a
    going concern finding early in the project period, they could recover
    their fiscal viability within the 5-year project period. The argument
    is that if a grantee has corrected the going concern finding, they
    should not be required to compete.
        Response: We disagree that keeping the 12-month timeframe for going
    concern findings is the appropriate policy. We believe the finding that
    a grantee is at risk of failing to continue as a going concern is so
    serious it warrants competition regardless of when, during the grant
    period, the condition is identified. This finding means an organization
    risks ceasing to exist as a viable entity in the near future. While
    commenters assert organizations can recover from this situation, the
    fact that the situation occurred any time warrants competition. For
    that reason, we maintain the timeframe we proposed in the NPRM and
    consider going concern findings anytime during the project period to
    identify a grantee for competition.
        Therefore, we revise the regulatory text to reflect this policy and
    also update the language in the following way. We revise paragraph (g)
    and add new paragraphs (g)(1) and (g)(2). New paragraph (g) outlines
    the two fiscal criteria and reads as follows, ``An agency meets one of
    two fiscal criteria, if the agency:.'' Existing paragraph (g) is
    redesignated as (g)(1) and is revised by removing unnecessary and
    repetitive language and by changing the timeframe for considering a
    finding of going concern. Specifically, we remove the phrase ``an
    agency has been determined,'' because it is now part of the revised
    introductory language in (g). We also remove the phrase ``within the
    twelve months preceding the responsible HHS official's review under
    1304.15'' and replace it with ``within the current project period.''
    Additional Audit Findings Criterion
        Comment: Most commenters expressed concern that the proposal to use
    additional audit findings in the second fiscal criterion is vague and
    could be subjective. These commenters requested clarification about
    which audit findings will determine designation renewal decisions.
    Concerns about inconsistency of findings in their severity and in their
    identification by individual auditors were mentioned by these comments.
    Commenters asserted that some audit findings may not be serious enough
    to warrant competition and feared that we may compete grantees with
    low-level findings.
        Response: We agree and have made the condition more specific about
    exactly which additional audit findings will require competition. We
    limit the findings considered for competition to only findings of
    material weakness and questioned costs related to any funding from the
    Office of Head Start, Additionally, the condition only requires
    competition if there are a total of two or more of either of these
    types of findings across the two most recent audit reports. Each of
    these findings is significant and raises concerns about a grantee's
    management of its federal funding dedicated to the Head Start program.
    Further, two or more findings of material weakness or questioned costs
    indicates a pattern of fiscal challenges that warrant competition.
        The findings of material weakness and questioned costs represent
    serious concerns about an organization's internal controls or
    reasonable fiscal management. An independent auditor evaluates an
    entity based on a set of several elements related to management of
    financial systems and prudent fiscal decision making, or internal
    controls. Internal controls, as defined in accounting and auditing, is
    a process for assuring an organization's objectives in operational
    effectiveness and efficiency, reliable financial reporting, and
    compliance with laws, regulations, and policies.
        The finding of material weakness indicates that it is likely that
    the entity's leadership may not have accurate or sufficient information
    to understand the entity's financial status well enough to make
    reasonable decisions about the management of the organization. Material
    weakness is defined as a deficiency, or combination of deficiencies, in
    an internal control, such that there is a reasonable possibility that a
    material misstatement of the entity's financial statements will not be
    prevented, or detected, or corrected on a timely basis. This means that
    there is the likelihood that financial information is not accurate or
    sufficient for decision makers to make reasonable financial decisions.
        A questioned costs finding in an audit report raises concerns about
    fiscal management and potential risks to federal Head Start funding. An
    auditor notes a finding of questioned costs because they observe an
    issue that indicates a violation or possible violation of a statute,
    regulation, or the terms and conditions of a Federal award. A
    questioned cost finding could also mean the costs, at the time of the
    audit, are not supported by adequate documentation; or the costs
    incurred appear unreasonable and do not reflect the actions a prudent
    person would take in the circumstances.
        As stated earlier, fiscal challenges may result in operational
    challenges that create reduced program quality and stability of
    services to children and families. We believe findings of material
    weakness and questioned costs are significant, transparent, and
    specific findings to appropriately identify grantees for competition.
        Comment: Commenters expressed concern that we would not be able to
    track findings to a Head Start grant, especially if an organization
    receives multiple federal grants. These commenters stated concerns we
    would require an agency to compete for a fiscal problem that was
    actually a fiscal problem in another federal grant.
        Response: In response to comments that fiscal challenges with
    respect to other federal programs could cause an audit finding in Head
    Start, we will only look at audit findings specifically related to Head
    Start, Early Head Start, Early Head Start--Child Care Partnerships
    grant funding or any other supplemental funding provided by the Office
    of Head Start, identified on the federal audit report. This will ensure
    that the identified audit findings that require a Head Start grantee to
    compete directly affect Head Start grant funds and highlights potential
    risk to Head Start funds that must be addressed.

    [[Page 53203]]

    Therefore, with the exception of a going concern audit finding, Head
    Start grantees will not be required to compete due to findings in other
    funding sources and the organization's overall fiscal management.
        Comment: Some commenters raised concerns that there is confusion
    and inconsistency regarding timing of audits and audit reports between
    grantees. Many commenters noted challenges caused by differences in
    their agency's fiscal year, project year, and the nine months allowed
    to file audit reports after their fiscal year. For example, for some
    grantees, audit reports in the first year of the current project period
    may cover a fiscal year that was in the previous 5-year project period.
    Therefore, for some grantees, there may be a period of two years in the
    current project grant period before an audit report from the first year
    of the project period is filed. Other commenters suggested that the
    timing will not allow grantees to know and correct findings before the
    next audit and could cause repeat findings or confusion.
        Response: We agree with commenters' concerns that lack of alignment
    in grantees' fiscal years, project years, and the audit report filing
    period could cause implementation problems and greater clarity is
    needed. In order to address these timing challenges, we revise the
    criterion to focus on the number of findings and clarify that an audit
    must represent a financial period within the grantee's current project
    period. We believe this approach focuses on grantees with a pattern of
    findings, multiple or repeat audit findings, related to Head Start
    funds. In addition, this approach provides greater consistency across
    grantees regardless of timing of their project period and fiscal years.
    Furthermore, focusing on the findings rather than the timing of the
    audits is consistent with other DRS conditions in which findings are
    considered over the entire project period.
        Comment: Many commenters said only repeat or identical findings in
    consecutive audits should trigger competition. Some of these commenters
    specifically believed grantees should have the ability to correct
    findings before they are required to compete. They recommended we not
    require competition for those grantees who have corrected their
    findings and did not have the same finding in the next audit report.
    One commenter suggested we rely on very serious findings rather than on
    repeat findings to trigger competition.
        Response: We disagree with the suggestion only repeat findings
    should be considered. Therefore, we do not make changes in this final
    rule to address repeat audit findings. The second audit criterion in
    the final rule requires competition for grantees with two or more audit
    findings. In response to the comment that very serious findings rather
    than repeat findings be used to trigger competition, OHS believes that
    multiple findings related to Head Start funds during the project period
    indicates a pattern of fiscal concern. Furthermore, audit findings of
    material weakness and questioned costs represent serious findings. We
    do not require the same or repeat findings, but we also believe that
    the findings we have chosen are serious and indicate red flags for a
    program's management of their Head Start grant.
        Regarding comments about grantees' ability to correct findings
    before being required to compete, all grantees are required to correct
    audit findings. This rule does not contemplate the audit resolution, it
    only focuses on the existence of the findings. A total of two or more
    findings related to Head Start funds during the project period
    identifies a pattern of financial concern whether the findings are
    unique or repeated. We believe audit findings identified in the final
    rule, material weakness and questioned costs, are significant enough
    that the virtue of just having these findings would warrant
    competition. This is similar to the treatment of deficiencies for
    designation renewal purposes. The existence of the findings, regardless
    of its correction, determines whether a grantee will compete.
        Based on the reasons previously described, we amend the regulatory
    language as follows. We amend paragraph (g) by adding paragraph (g)(2),
    which includes a new criterion that reads: ``Has a total of two or more
    audit findings of material weakness or questioned costs associated with
    its Head Start funds in audit reports submitted to the Federal Audit
    Clearinghouse (in accordance with section 647 of the Act) for a
    financial period within the current project period.''
    Other Comments About Audits and the DRS Fiscal Condition
    General Issues With Auditors and Audit Process
        Comment: Commenters said there were challenges with the audit
    process and inconsistency between auditors, which would make it unfair
    that some grantees would have to compete and others with similar
    findings characterized differently by an auditor would not be required
    to compete. Commenters stated audits are not uniform and some auditors
    use outdated guidance.
        Response: While we appreciate commenters' concerns, we believe
    there is general consistency across federal audits. Each grantee
    chooses its own auditor and so has control over the quality of their
    audits. Furthermore, each grantee is required to have a member on its
    Board with a background in fiscal management or accounting to guide the
    grantee in fiscal matters, including audits. While individual
    differences between auditors exist, every auditor conducting single
    audits of a Head Start program is required to follow established
    regulations and Generally Accepted Governmental Accounting Standards.
    All auditors are required to use the federal audit instructions and the
    most current Compliance Supplement to ensure uniformity.
        In response to commenters' concerns that auditors are using
    outdated information, we note that in 2014, the Office of Management
    and Budget issued the Uniform Administrative Requirements, Cost
    Principles, and Audit Requirements for Federal Awards (Uniform
    Guidance). This guidance replaced the long-standing A-133 circular.
    This regulation overhauled federal audit rules and procedures and
    required all federal departments to issue implementing regulations to
    conform to it. HHS issued implementing regulations for the Uniform
    Guidance in 45 CFR part 75 Uniform Administrative Requirements, Cost
    Principles, and Audit Requirements for HHS Awards. The Head Start
    Program Performance Standards published in 2016 made clear these rules
    applied to Head Start.
        Given the factors described here, we do not believe the challenges
    suggested by commenters prohibit us from fairly and consistently
    implementing the new fiscal criterion. Finally, we believe the
    consistency is even stronger for the serious audit findings of going
    concern, material weakness and questioned costs, which we will use for
    designation renewal determinations as further described in a previous
    section.
    Special Considerations for Tribal Grantees
        Comment: A large tribal organization stated that tribal audits
    should account for the unique fiscal reporting implications of the
    tribal grantee--tribal nation relationship. The commenters stated that
    in some cases, the Head Start program does not get information related
    to the audit reports, and it is not

    [[Page 53204]]

    clear how OHS would identify findings specific to Head Start.
        Response: We respect the sovereignty of the tribal nations that
    administer American Indian/Alaska Native Head Start programs. Tribal
    programs are required, like all other federal grantees, to submit
    annual audits to the Federal Audit Clearinghouse. The only unique
    requirement for tribal grantees is that tribes have an option to not
    make the audit reports public. Otherwise, there are not specific
    requirements for tribal grantees. A majority of Head Start programs are
    run by large agencies that receive multiple federal grants, so we will
    only consider findings specifically associated with Head Start funds in
    the added fiscal criterion for designation renewal determinations.
    Technical Assistance Versus Competition
        Comment: Some commenters stated that OHS should not require
    competition based on audit findings, but should use audit findings as a
    trigger for additional technical assistance.
        Response: We believe the limited types of audit findings that will
    be considered as part of the designation renewal determination are
    serious enough to trigger competition. Furthermore, we provide
    continuous and ongoing technical assistance to grantees on fiscal
    management through our extensive training and technical assistance
    system. The National Center on Program Management and Fiscal Operations
    has developed many resources and trainings for programs on fiscal
    management and provides grantees with opportunities to work with expert
    fiscal consultants through the Fiscal Consulting Initiative. Training
    and technical assistance will continue, and grantees with multiple
    serious audit findings will be required to compete for continued Head
    Start funding.
    Audit Condition Appeal
        Comment: Most commenters stated they thought the audit condition
    should have an appeal process due to the challenges with audits they
    mentioned. They suggested we establish a process by which grantees
    could challenge audit findings and report on unfair audit practices
    that erroneously caused the grantee to be identified with findings that
    lead to competition.
        Response: We do not agree an appeals process for the audit
    condition is necessary. Therefore, we do not add such a provision to
    the final rule. Congress did not require an appeals process in the
    establishment of the Designation Renewal System rule in the 2007
    Reauthorization for any of the conditions that would require a program
    to be designated for competition. Furthermore, each Head Start grantee
    chooses its own auditor and therefore grantees work through the audit
    process with their selected auditor.

    2. Section 1304.12 Grantee Reporting Requirements Concerning Certain
    Conditions

        This section requires a grantee to notify OHS if it loses its state
    or local license to operate a center; files for bankruptcy; has been
    debarred from receiving state or federal funding; or has been found to
    be at risk of failing to continue functioning as a going concern.
        We did not propose any policy changes to this section in the NPRM.
    However, we did propose to remove dates that are no longer relevant,
    and made minor word changes that did not change any meaning. We did not
    receive any comments from the public on what we proposed in the NPRM.
    Therefore, in this final rule, we amend Sec.  1304.12 by removing
    paragraph (a) in its entirety. In paragraph (b), we remove the phrase
    ``Head Start agencies'' and replace it with the phrase ``A Head Start
    agency,'' and we add the word ``of'' after ``occurrence'' as an
    additional technical fix to the regulatory text. We also remove the
    phrase ``following December 9, 2011.'' Because paragraph (a) is
    removed, paragraph (b) becomes the sole paragraph in this section and,
    therefore, becomes the introductory text. Finally, we redesignate
    paragraphs (b)(1) through (4) as paragraphs (a), (b), (c), and (d)
    respectively.

    3. Section 1304.15 Designation Request, Review, and Notification
    Process

        This section describes the process for designation renewal and
    explains how a grantee will be notified of its designation renewal
    status.
        In the NPRM, we proposed to simplify, clarify, and update this
    section by removing outdated language that refers to the transition to
    5-year grants and the process before and after the transition. The
    language is no longer relevant as all grantees have transitioned
    through designation renewal to 5-year grants. We also proposed to
    revise language to make it clear that only data from the grantee's
    current grant period will be reviewed for designation determinations.
    In addition, we no longer send communication to grantees via certified
    mail, so we proposed to remove that language as well.
        We did not receive any comments from the public on what we proposed
    in the NPRM. We made all of the changes proposed in the NPRM and
    additional small technical fixes to make this section consistent with
    other sections in this Part. Specifically, we amend paragraph (a) with
    a technical fix by replacing the word ``Grantees'' with the phrase, ``A
    grantee.'' As proposed in the NPRM, we remove paragraph (a)(1)
    entirely. In existing paragraph (a)(2), we remove the phrase ``After
    the transition period,'' at the beginning of the first sentence because
    it is out of date. Next, we remove the word, ``each'' and replace it
    with ``A.'' We also remove ``their'' and replace it with the word
    ``its'' to make the sentence grammatically correct, and we remove the
    word ``shall'' and replace it with the word ``must.'' The word ``must''
    connotes the same meaning as ``shall.'' ``Shall'' is outdated
    regulatory language. Finally, we redesignate paragraph (a)(2) as
    paragraph (a).
        In paragraph (b), we make an additional technical fix to remove the
    phrase ``agency's program'' and replace it with ``agency.'' We also add
    the phrase ``during the current project period,'' at the end of the
    sentence since all grantees are now on five-year project periods and
    only data from the current project period will be reviewed. We remove
    the colon ``:'' and replace it with a period ``.''. We also remove
    paragraphs (b)(1), (2), and (3) in their entirety because they are out
    of date.
        We amend paragraph (c) by removing the colon ``:'' after ``Sec.
    1304.14''and replacing it with a comma ``,''. At the end of paragraph
    (c), we add the phrase ``at least 12 months before the expiration date
    of a Head Start or Early Head Start agency's current grant stating:''.
    We also remove paragraphs (c)(1), (c)(2), and (c)(3) entirely because
    they mention the transition period. Consequently, we redesignate
    paragraph (c)(3)(i) as paragraph (c)(1) and paragraph (c)(3)(ii) as
    paragraph (c)(2).
        Finally, in paragraph (c)(2), we remove the reference to
    ``(c)(3)(i),'' and replace it with ``(c)(1).''

    Section 1305.2 Terms

        Section 1305.2 defines certain terms in the performance standards.
    We realized we accidentally omitted a definition for ``denial of
    refunding,'' when we published the Head Start Program Performance
    Standards final rule in 2016. Therefore, in the NPRM, we proposed to
    add the following definition:

        Denial of Refunding means the refusal of a funding agency to
    fund an application for a continuation of a Head Start program for a
    subsequent program year when the decision is based on a
    determination that the grantee has improperly conducted its program,
    or is incapable of doing so properly in the future,

    [[Page 53205]]

    or otherwise is in violation of applicable law, regulations, or
    other policies.

        Given we did not receive any comments or suggestions from the
    public, we amend Sec.  1305.2 by adding the definition as proposed.
        Effective Dates: In the NPRM, we proposed that the improvements
    made to the Designation Renewal System become effective the fiscal year
    immediately following the publication of a final rule, but not less
    than 30 days after the publication date.
        We did not receive any comments or suggestions from the public
    regarding this effective date. We simplify the effective date to be
    October 27, 2020.

    VI. Regulatory Process Matters

    Regulatory Flexibility Act

        The Regulatory Flexibility Act (RFA), see 5 U.S.C. 605(b) as
    amended by the Small Business Regulatory Enforcement Fairness Act,
    requires federal agencies to determine, to the extent feasible, a
    rule's impact on small entities, explore regulatory options for
    reducing any significant impact on a substantial number of such
    entities, and explain their regulatory approach. The term ``small
    entities,'' as defined in the RFA, comprises small businesses, not-for-
    profit organizations that are independently owned and operated and are
    not dominant in their fields, and governmental jurisdictions with
    populations of less than 50,000. Under this definition, some Head Start
    grantees may be small entities. We consider a rule to have a
    significant impact on a substantial number of small entities if it has
    at least a three percent impact on revenue on at least five percent of
    small entities. However, the Secretary certifies, under 5 U.S.C.
    605(b), as enacted by the Regulatory Flexibility Act (Pub. L. 96-354),
    that this rule will not have a significant impact on a substantial
    number of small entities. We expect there to be fewer grantees in
    competition due to the changes in this final rule and we also do not
    expect increased costs for grantees to meet the revised conditions;
    therefore, we do not expect there to be a significant impact on a
    substantial number of small entities.
        In the proposed rule, we requested comments on whether any member
    of the public believed their business, organization, or governmental
    jurisdiction qualifies as a small entity and that the actions proposed
    in the notice of proposed rulemaking would have a significant economic
    impact on it. We did not receive any comments from the public on this
    issue.

    Unfunded Mandates Reform Act

        The Unfunded Mandates Reform Act of 1995 (UMRA), see 2 U.S.C. 1501
    et seq., was enacted to avoid imposing unfunded federal mandates on
    state, local, and tribal governments, or on the private sector. Section
    202 of UMRA requires that agencies assess anticipated costs and
    benefits before issuing any rule whose mandates require spending in any
    one year of $100 million in 1995 dollars, updated annually for
    inflation. In 2019, that threshold is approximately $154 million. This
    rule does not contain mandates that will impose spending costs on
    state, local, or tribal governments in the aggregate, or on the private
    sector, in excess of the threshold.

    Treasury and General Government Appropriations Act of 1999

        Section 654 of the Treasury and General Government Appropriations
    Act of 1999 requires federal agencies to determine whether a policy or
    regulation may negatively affect family well-being. If the agency
    determines a policy or regulation negatively affects family well-being,
    then the agency must prepare an impact assessment addressing seven
    criteria specified in the law. We believe it is not necessary to
    prepare a family policymaking assessment, see Public Law 105-277,
    because the action we take in this final rule will not have any impact
    on the autonomy or integrity of the family as an institution. In the
    proposed rule, we requested public comment on whether this action would
    have a negative effect on family well-being, and we did not receive any
    comments on this issue.

    Federalism Assessment Executive Order 13132

        Executive Order 13132 requires federal agencies to consult with
    state and local government officials if they develop regulatory
    policies with federalism implications. Federalism is rooted in the
    belief that issues that are not national in scope or significance are
    most appropriately addressed by the level of government close to the
    people. This rule will not have substantial direct impact on the
    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. Therefore, in accordance with section 6
    of Executive Order 13132, it is determined that this action does not
    have sufficient federalism implications to warrant the preparation of a
    federalism summary impact statement.

    Congressional Review

        The Congressional Review Act (CRA) allows Congress to review
    ``major'' rules issued by federal agencies before the rules take
    effect, see 5 U.S.C. 802(a). The CRA defines a major rule as one that
    has resulted or is likely to result in (1) an annual effect on the
    economy of $100 million or more; (2) a major increase in costs or
    prices for consumers, individual industries, federal, state, or local
    government agencies, or geographic regions; or (3) significant adverse
    effects on competition, employment, investment, productivity, or
    innovation, or on the ability of United States-based enterprises to
    compete with foreign-based enterprises in domestic and export markets,
    see 5 U.S.C. Chapter 8. The Office of Information and Regulatory
    Affairs has designated this rule as major.

    Paperwork Reduction Act of 1995

        The Paperwork Reduction Act of 1995, Public Law 104-13, minimizes
    government-imposed burden on the public. In keeping with the notion
    that government information is a valuable asset, it also is intended to
    improve the practical utility, quality, and clarity of information
    collected, maintained, and disclosed.
        The Paperwork Reduction Act defines ``information'' as any
    statement or estimate of fact or opinion, regardless of form or format,
    whether numerical, graphic, or narrative form, and whether oral or
    maintained on paper, electronic, or other media (5 CFR 1320.3(h)). This
    includes requests for information to be sent to the government, such as
    forms, written reports and surveys, recordkeeping requirements, and
    third-party or public disclosures (5 CFR 1320.3(c)). This final rule
    changes the burden of an existing information collection currently
    approved with Office of Management and Budget Control Number 0970-0148
    under the Paperwork Reduction Act. This information collection is
    entitled the Head Start Program Performance Standards and does not
    contain any standardized instruments to promote flexibility for local
    programs.
        Although no comments were received in response to the Paperwork
    Reduction Act section of the proposed rule, comments were received on
    other changes that were incorporated into the final rule. The changes
    to the burden table reflect those of the final rule.

    [[Page 53206]]

    ----------------------------------------------------------------------------------------------------------------
                                                                                      Average annual
                                                                                        burden per     Total annual
                      Requirement                     Annual number of respondents      respondent     burden hours
                                                                                          (hours)
    ----------------------------------------------------------------------------------------------------------------
    Sec.   1304.13: Agencies required to compete    75 Grants.......................              60           4,500
     will have to complete an application for each
     grant competed.
    Sec.   1304.15(a): Each Head Start or Early     400 Grants......................            0.25             100
     Head Start agency wishing to be renewed for 5
     years without competition shall request that
     status from ACF.
    ----------------------------------------------------------------------------------------------------------------

    Description of Information Collection and Associated Burden

        When a Head Start grant meets any of the conditions outlined in
    Sec.  1304.11, the grantee is designated for competition and must
    submit an application during competition to be considered for continued
    funding as required under Sec.  1304.13. The burden to submit an
    application is estimated at 60 hours for an estimated 75 grants each
    year. These projections are based on data available on CLASS,
    deficiencies, and audits from prior years.
        Head Start grantees are required by Sec.  1304.15(a) to submit a
    letter requesting renewal for a new non-competitive continuation grant,
    and the estimated burden to submit a letter is 15 minutes for 400
    grants. The non-competitive renewal request consists of filling in a
    template letter and sending it through the OHS system, so the burden is
    small. This calculation assumes in any given year, about one-fifth of
    all 2,000 grants, or 400 grants, are nearing the end of their current
    project period and, therefore, a designation under the Designation
    Renewal System will be made for these grants.

    Regulatory Planning and Review Executive Order 12866, Executive Order
    13563, and Executive Order 13771

        Executive Orders 12866 and 13563 direct agencies to assess all
    costs and benefits of available regulatory alternatives and, if
    regulation is necessary, to select regulatory approaches that maximize
    net benefits (including potential economic, environmental, public
    health and safety effects, distributive impacts, and equity). Executive
    Order 13563 is supplemental to and reaffirms the principles,
    structures, and definitions governing regulatory review as established
    in Executive Order 12866, emphasizing the importance of quantifying
    both costs and benefits, of reducing costs, of harmonizing rules, and
    of promoting flexibility. Section 3(f) of Executive Order 12866 defines
    a ``significant regulatory action'' as an action that is likely to
    result in a rule: (1) Having an annual effect on the economy of $100
    million or more in any 1 year, or adversely and materially affecting a
    sector of the economy, productivity, competition, jobs, the
    environment, public health or safety, or State, local, or Tribal
    governments or communities (also referred to as ``economically
    significant''); (2) creating a serious inconsistency or otherwise
    interfering with an action taken or planned by another agency; (3)
    materially altering the budgetary impacts of entitlement grants, user
    fees, or loan programs or the rights and obligations of recipients
    thereof; or (4) raising novel legal or policy issues arising out of
    legal mandates, the President's priorities, or the principles set forth
    in the Executive Order. A regulatory impact analysis must be prepared
    for major rules with economically significant effects ($100 million or
    more in any 1 year), and an ``economically significant'' regulatory
    action is subject to review by the Office of Management and Budget.
        Executive Order 13771, entitled ``Reducing Regulation and
    Controlling Regulatory Costs,'' was issued on January 30, 2017 (82 FR
    9339, February 3, 2017) and requires that the costs associated with
    significant new regulations ``shall, to the extent permitted by law, be
    offset by the elimination of existing costs associated with at least
    two prior regulations.'' This rulemaking is not expected to be subject
    to the requirements of Executive Order 13771 because it would result in
    no more than de minimis costs.

    VII. Regulatory Impact Analysis

    Estimated Impact of Designation Renewal System Changes on the Public

        This regulatory action is necessary to improve a governmental
    process: The process to identify grantees that are lower performing in
    the important dimensions of quality that Congress requires we consider
    under the Designation Renewal System. As a result of public comment, we
    consider revisions to the conditions in the Designation Renewal System
    from those proposed in the NPRM in this regulatory impact analysis.
        We revise the prior deficiency, CLASS, and fiscal condition of the
    Designation Renewal System in this new rule. We estimate that about 20%
    of grants meet the deficiency condition under the prior rule which will
    decrease to 7% in this new rule, about 13% of grants meet the CLASS
    condition under the prior rule which will decrease to 9% in this new
    rule, and nearly no grants meet the fiscal condition under the prior
    rule which will increase to 6% in this new rule. There are a few grants
    that meet multiple conditions, but altogether, we estimate that roughly
    one-third of grants are required to compete in the prior rule and this
    will decrease to about one-fifth of grants.
        With grants potentially affected by this rule totaling $10.4
    billion per year, then this estimated net decrease in the portion of
    grant activity subject to competition would translate to $1.35 billion.
    Historically, 71 percent of re-competing grantees have received their
    full service area back and an additional 7 percent have received part
    of their service area back, so we estimate that the effect of this rule
    is to reallocate approximately $297 to $392 million (= 22% x $1.35
    billion to 29% x $1.35 billion) from new potential grantees to existing
    grantees, with this amount being reached in the fifth year after rule
    finalization after a roughly linear increase in the preceding years.
    However, this rule raises the competitive threshold for the
    Instructional Support domain from 2.3 to 2.5 for CLASS reviews
    conducted on or after August 1, 2025. This approach intends to allow
    grantees to make necessary quality improvements and gradually move to
    higher quality; the establishment of the quality threshold aligns and
    supports this approach. The estimates provided above will be impacted
    by any changes to the distribution of CLASS scores, especially in the
    Instructional Support domain. Although the following is not expected,
    if scores in the Instructional Support domain do not increase by the
    time the 2.5 threshold goes into effect, then there would be an
    estimated increase of competition ranging between 4 to 6%

    [[Page 53207]]

    resulting in a lower reallocation of funds from the prior rule than
    projected above. This range of estimates may understate the rule's
    transfer impact because it reflects only the estimated net decrease in
    competition, rather than the mix of some regulatory provisions
    increasing competition and some reducing it. The possibility of the
    rule changing the 71 to 78 percent success rate of re-competing
    grantees introduces further uncertainty into the estimates.
        The quantifiable costs of implementation of these rules for the
    subset of grantees that would be required to compete in any year is
    well under $1 million. The cost grantees designated for competition
    will bear in completing a competitive application is estimated at
    $3,097 per grantee. It assumes 60 hours per application at a cost of
    $51.62 per hour in staff time (we multiply the $25.81 hourly wage by
    two to account for fringe benefits). Applications would likely be
    completed by a combination of the Head Start Assistant Director and
    other managers in the program (i.e., Child Development Manager or
    Family and Community Partnership Manager). The average hourly wage for
    these positions is based on the U.S. Bureau of Labor Statistics Job
    Code 11-9031. The total estimated cost for grantees to complete
    competitive applications would be $247,760 per year (400 grantees would
    compete across five years which is an average of 80 grantees per year
    at $3,097 each). This cost of competition decreases in this new rule
    since fewer grantees would be required to compete.
        A non-quantified opportunity cost for this new rule is fewer
    opportunities for entities that are not existing Head Start grantees to
    be able to compete and potentially grow as an early childhood provider
    in their community. However, we believe there is an added benefit of
    existing grantees being able to focus on the cost of quality
    improvement rather than the cost of competition, especially considering
    there were several competitions where the incumbent agency was the only
    applicant.
        Although not possible to quantify, this new rule has the added
    benefit of removing the stress caused by the lowest 10 percent
    criterion of the CLASS condition. Grantees will no longer have to wait
    several months to learn if they are designated for competition due to
    this moving target. Additionally, changes to the deficiency condition
    in this new rule will have the added benefit of reducing the fear
    expressed by grantees that one mishap of an individual could require
    their entire program to compete.
        This new rule establishes quality thresholds for the CLASS domain
    and grantees that fall below them are designated for quality
    improvement. For any grantee with a score below a quality threshold,
    OHS will provide support for quality improvement and help ensure the
    grantee's coordinated approach to training and professional development
    is supporting improvements in the learning environment. The overall
    Head Start budget includes about $250 million for training and
    technical assistance, of which about half goes directly to grantees. A
    number of grantees already spend some portion of their Head Start
    technical assistance dollars on activities related to CLASS; in
    addition, we make available several materials related to supporting
    positive teacher-child interactions to grantees on the Early Childhood
    Learning and Knowledge Center website.
        The cost of quality improvement activities in CLASS leverages these
    existing resources. The key difference is that OHS and grantees will
    shift these existing resources to focus on particular domains of CLASS
    needing improvement for each grantee. Although there is a cost to fewer
    resources going to domains where a grantee already excels while other
    resources go to domains needing improvement, the added benefit of this
    cost is more data-driven and effective use of existing resources.
        Although there is an overall estimated decrease of competition, we
    estimate more grantees will compete due to the fiscal condition, which
    will result in an additional cost for those subset of grantees. An
    anticipated benefit of this cost is competing grantees before known
    fiscal challenges escalate to a crisis point, which could prevent
    potential termination or relinquishment of the grant. A disruption in
    services to children and families may occur if a Head Start grantee is
    terminated or relinquishes the grant but OHS will take all actions
    necessary to attempt to prevent a disruption in services.
    Tribal Consultation Statement
        OHS conducts an average of five Tribal Consultations each year for
    those tribes operating Head Start and Early Head Start. The
    consultations are held in four geographic areas across the country:
    Southwest, Northwest, Midwest (Northern and Southern), and Eastern. The
    consultations are often held in conjunction with other tribal meetings
    or conferences, to ensure the opportunity for most of the 150 tribes
    that operate Head Start and Early Head Start programs are be able to
    attend and voice their concerns about issues regarding service
    delivery. We complete a report after each consultation, and then we
    compile a final report that summarizes the consultations and submit the
    report to the Secretary at the end of the year.
        We received comments from tribes on the NPRM. Most of the comments
    focused on the CLASS condition, Head Start's tribal consultation
    process, and suggestions for special considerations during the audit
    process. We considered those comments, responded to them, and used them
    to develop this final rule.

    List of Subjects

    45 CFR Part 1304

        Audit, Classroom Assessment Scoring System (CLASS), Competition,
    Designation Renewal System, Education of disadvantaged, Fiscal, Grant
    programs, Head Start, Monitoring, Social programs.

    45 CFR Part 1305

        Administrative practice and procedure.

        Dated: August 10, 2020.
    Lynn A. Johnson,
    Assistant Secretary for Children and Families.
        Approved: August 10, 2020.
    Alex M. Azar, II,
    Secretary.

        For the reasons discussed in the preamble, we amend 45 CFR parts
    1304 and 1305, as follows:

    PART 1304--FEDERAL ADMINISTRATIVE PROCEDURES

    0
    1. The authority citation for part 1304 continues to read as:

        Authority:  42 U.S.C. 9801 et seq.

    0
    2. Revise Sec.  1304.11 to read as follows:

    Sec.  1304.11  Basis for determining whether a Head Start agency will
    be subject to an open competition.

        A Head Start or Early Head Start agency will be required to compete
    for its next five years of funding whenever the responsible HHS
    official determines that one or more of the following seven conditions
    existed during the relevant time period under Sec.  1304.15:
        (a) An agency has two or more deficiencies across reviews conducted
    under section 641A(c)(1)(A), (C), or (D) of the Act during the relevant
    time period under Sec.  1304.15.
        (b) An agency has not, based on a review conducted under section
    641A(c)(1)(A), (C), or (D) of the Act during the relevant time period
    under Sec.  1304.15:
        (1) Established program goals for improving the school readiness of

    [[Page 53208]]

    children participating in its program in accordance with the
    requirements of section 641A(g)(2) of the Act and demonstrated that
    such goals:
        (i) Appropriately reflect the ages of children, birth to five,
    participating in the program;
        (ii) Align with the Head Start Early Learning Outcomes Framework:
    Ages Birth to Five, state early learning guidelines, and the
    requirements and expectations of the schools, to the extent that they
    apply to the ages of children, birth to five, participating in the
    program and at a minimum address the domains of language and literacy
    development, cognition and general knowledge, approaches toward
    learning, physical well-being and motor development, and social and
    emotional development;
        (iii) Were established in consultation with the parents of children
    participating in the program.
        (2) Taken steps to achieve the school readiness goals described
    under paragraph (b)(1) of this section demonstrated by:
        (i) Aggregating and analyzing aggregate child-level assessment data
    at least three times per year (except for programs operating less than
    90 days, which will be required to do so at least twice within their
    operating program period) and using that data in combination with other
    program data to determine grantees' progress toward meeting its goals,
    to inform parents and the community of results, and to direct
    continuous improvement related to curriculum, instruction, professional
    development, program design and other program decisions; and
        (ii) Analyzing individual ongoing, child-level assessment data for
    all children birth to age five participating in the program and using
    that data in combination with input from parents and families to
    determine each child's status and progress with regard to, at a
    minimum, language and literacy development, cognition and general
    knowledge, approaches toward learning, physical well-being and motor
    development, and social and emotional development, and to individualize
    the experiences, instructional strategies, and services to best support
    each child.
        (c) An agency has been determined during the relevant time period
    covered by the responsible HHS official's review under Sec.  1304.15:
        (1) To have an average score across all classrooms observed that is
    below the following competitive thresholds on any of the three CLASS:
    Pre-K domains from the most recent CLASS: Pre-K observation:
        (i) For the Emotional Support domain, the competitive threshold is
    5;
        (ii) For the Classroom Organization domain, the competitive
    threshold is 5;
        (iii) For the Instructional Support domain, the competitive
    threshold is 2.3 through July 31, 2025, and 2.5 on and after August 1,
    2025.
        (2) If an agency is determined to have an average score across all
    classrooms observed below the quality threshold on any of the three
    CLASS: Pre-K domains, the Office of Head Start will support the program
    to strengthen its coordinated approach to training and professional
    development as required in Sec.  1302.92(b) and (c), to help promote
    improvement in teaching practices and teacher-child interactions. The
    quality threshold for each domain is as follows:
        (i) For the Emotional Support domain, the quality threshold is 6;
        (ii) For the Classroom Organization domain, the quality threshold
    is 6;
        (iii) For the Instructional Support domain, the quality threshold
    is 3.
        (d) An agency has had a revocation of its license to operate a Head
    Start or Early Head Start center or program by a state or local
    licensing agency during the relevant time period under Sec.  1304.15,
    and the revocation has not been overturned or withdrawn before a
    competition for funding for the next five-year period is announced. A
    pending challenge to the license revocation or restoration of the
    license after correction of the violation will not affect application
    of this requirement after the competition for funding for the next
    five-year period has been announced.
        (e) An agency has been suspended from the Head Start or Early Head
    Start program by ACF during the relevant time period covered by the
    responsible HHS official's review under Sec.  1304.15 and the
    suspension has not been overturned or withdrawn. If the agency did not
    have an opportunity to show cause as to why the suspension should not
    have been imposed or why the suspension should have been lifted if it
    had already been imposed under part 1304, the agency will not be
    required to compete based on this condition. If an agency has received
    an opportunity to show cause and the suspension remains in place, the
    condition will be implemented.
        (f) An agency has been debarred from receiving federal or state
    funds from any federal or state department or agency or has been
    disqualified from the Child and Adult Care Food Program (CACFP) any
    time during the relevant time period covered by the responsible HHS
    official's review under Sec.  1304.15 but has not yet been terminated
    or denied refunding by ACF. (A debarred agency will only be eligible to
    compete for Head Start funding if it receives a waiver described in 2
    CFR 180.135.)
        (g) An agency meets one of two fiscal criteria, if the agency:
        (1) Is at risk of failing to continue functioning as a going
    concern within the current project period. The final determination is
    made by the responsible HHS official based on a review of the findings
    and opinions of an audit conducted in accordance with section 647 of
    the Act; an audit, review or investigation by a state agency; a review
    by the National External Audit Review (NEAR) Center; or an audit,
    investigation or inspection by the Department of Health and Human
    Services Office of Inspector General; or
        (2) Has a total of two or more audit findings of material weakness
    or questioned costs associated with its Head Start funds in audit
    reports submitted to the Federal Audit Clearinghouse (in accordance
    with section 647 of the Act) for a financial period within the current
    project period.

    0
    3. Revise Sec.  1304.12 to read as follows:

    Sec.  1304.12  Grantee reporting requirements concerning certain
    conditions.

        A Head Start agency must report in writing to the responsible HHS
    official within 10 working days of occurrence of any of the following
    events:
        (a) The agency has had a revocation of a license to operate a
    center by a state or local licensing entity.
        (b) The agency has filed for bankruptcy or agreed to a
    reorganization plan as part of a bankruptcy settlement.
        (c) The agency has been debarred from receiving federal or state
    funds from any federal or state department or agency or has been
    disqualified from the Child and Adult Care Food Program (CACFP).
        (d) The agency has received an audit, audit review, investigation
    or inspection report from the agency's auditor, a state agency, or the
    cognizant federal audit agency containing a determination that the
    agency is at risk of ceasing to be a going concern.

    0
    4. Revise Sec.  1304.15 to read as follows:

    Sec.  1304.15  Designation request, review and notification process.

        (a) A grantee must apply to be considered for Designation Renewal.
    A Head Start or Early Head Start agency wishing to be considered to
    have its designation as a Head Start or Early Head Start agency renewed
    for another five year period without competition must request that
    status from ACF at least 12 months before the end of their

    [[Page 53209]]

    five year grant period or by such time as required by the Secretary.
        (b) ACF will review the relevant data to determine if one or more
    of the conditions under Sec.  1304.11 were met by the Head Start and
    Early Head Start agency during the current project period.
        (c) ACF will give notice to grantees on Designation Renewal System
    status, except as provided in Sec.  1304.14, at least 12 months before
    the expiration date of a Head Start or Early Head Start agency's
    current grant, stating:
        (1) The Head Start or Early Head Start agency will be required to
    compete for funding for an additional five-year period because ACF
    finds that one or more conditions under Sec.  1304.11 were met by the
    agency's program during the relevant time period described in paragraph
    (b) of this section, identifying the conditions ACF found, and
    summarizing the basis for the finding; or
        (2) That such agency has been determined on a preliminary basis to
    be eligible for renewed funding for five years without competition
    because ACF finds that none of the conditions under Sec.  1304.11 have
    been met during the relevant time period described in paragraph (b) of
    this section. If prior to the award of that grant, ACF determines that
    the grantee has met one of the conditions under Sec.  1304.11 during
    the relevant time period described in paragraph (b) of this section,
    this determination will change and the grantee will receive notice
    under paragraph (c)(1) of this section that it will be required to
    compete for funding for an additional five-year period.

    PART 1305--DEFINITIONS

    0
    5. The authority citation for part 1305 continues to read as follows:

        Authority:  42 U.S.C. 9801 et seq.

    0
    6. Amend Sec.  1305.2 by adding, in alphabetical order, the definition
    ``Denial of Refunding'' to read as follows:

    Sec.  1305.2  Terms.

    * * * * *
        Denial of Refunding means the refusal of a funding agency to fund
    an application for a continuation of a Head Start program for a
    subsequent program year when the decision is based on a determination
    that the grantee has improperly conducted its program, or is incapable
    of doing so properly in the future, or otherwise is in violation of
    applicable law, regulations, or other policies.
    * * * * *
    [FR Doc. 2020-17746 Filed 8-27-20; 8:45 am]
    BILLING CODE 4184-01-P