[Federal Register Volume 88, Number 189 (Monday, October 2, 2023)]
[Proposed Rules]
[Pages 67697-67720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21169]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 205, 260, 261, and 263

RIN 0970-AC97


Strengthening Temporary Assistance for Needy Families (TANF) as a 
Safety Net and Work Program

AGENCY: Office of Family Assistance (OFA); Administration for Children 
and Families (ACF); Department of Health and Human Services (HHS).

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: ACF proposes to amend the Temporary Assistance for Needy 
Families (TANF) program regulations to strengthen the safety net and 
reduce administrative burden. This NPRM encompasses a package of 
reforms to ensure TANF programs are designed and funds are used in 
accordance with the statute. In addition, the package includes 
provisions that are more technical in nature and are designed to reduce 
administrative burden and increase program effectiveness.

DATES: In order to be considered, the Department must receive written 
comments on this NPRM on or before December 1, 2023.

ADDRESSES: ACF encourages the public to submit comments electronically 
to ensure they are received in a timely manner. You may submit 
comments, identified by [docket number] and/or Regulatory Information 
Number (RIN) 0970-AC99, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

[[Page 67698]]

     Email comments to: [email protected].
     Instructions: All submissions received must include the 
agency name and docket number ([docket number]) or RIN (0970-AC79) for 
this rulemaking. All comments received will be posted without change to 
https://www.regulations.gov, including any personal information 
provided.

FOR FURTHER INFORMATION CONTACT: The Office of Family Assistance, ACF, 
at [email protected] or 202-401-9275. Deaf and hard of hearing 
individuals may call 202-401-9275 through their chosen relay service or 
711 between 8 a.m. and 7 p.m. Eastern Time.

SUPPLEMENTARY INFORMATION:

List of Proposals

    This NPRM would: (1) establish a ceiling on the term ``needy''; (2) 
clarify when an expenditure is ``reasonably calculated to accomplish a 
TANF purpose''; (3) exclude as an allowable TANF maintenance-of-effort 
(MOE) expenditures cash donations from non-governmental third parties 
and the value of third-party in-kind contributions; (4) ensure that 
excused holidays match the number of federal holidays, following the 
recognition of Juneteenth as a federal holiday; (5) develop new 
criteria to allow states to use alternative Income and Eligibility 
Verification System (IEVS) measures; (6) clarify the ``significant 
progress'' criteria following a work participation rate corrective 
compliance plan; (7) clarify the existing regulatory text about the 
allowability of costs associated with disseminating program 
information.

Background

    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996 created TANF, repealing the Aid to Families with Dependent 
Children (AFDC) and related programs. The TANF program provides a fixed 
block grant of about $16.5 billion to states, territories (Guam, the 
Virgin Islands, and Puerto Rico), and the District of Columbia. 
Additionally, federally recognized American Indian tribes and Alaska 
Native organizations may elect to operate their own TANF programs.\1\ 
TANF's annual funding has never been adjusted for inflation in its 27-
year history and is now worth almost 50 percent less than when the 
program was created.
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    \1\ Proposed changes to the TANF regulations are limited to the 
state regulations at this time. This NPRM does not propose any 
changes to the tribal TANF regulations. Prior to any changes in 
tribal TANF regulations, we will engage in tribal consultation.
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    The TANF statute at 42 U.S.C. 601(a) and 604(a)(1) provides that 
TANF grants must be used in any manner reasonably calculated to 
accomplish one or more of the following four purposes:
    (1) provide assistance to needy families so that children may be 
cared for in their own homes or in the homes of relatives;
    (2) end the dependence of needy parents on government benefits by 
promoting job preparation, work, and marriage;
    (3) prevent and reduce the incidence of out-of-wedlock pregnancies 
and establish annual numerical goals for preventing and reducing the 
incidence of these pregnancies; and
    (4) encourage the formation and maintenance of two-parent families.
    Within this statutory framework, state TANF programs provide a 
range of benefits and services that can serve as a critical support to 
families experiencing economic hardships, including the provision of 
cash assistance, employment and training assistance, and related 
services. Pursuant to 42 U.S.C. 604(a)(2), a state may also use its 
TANF grant for expenditures that were authorized under the prior AFDC, 
Job Opportunities and Basic Skills Training (JOBS), or Emergency 
Assistance (EA) programs as reflected in a state's plan on certain 
dates specified in the statute.
    To avoid incurring a penalty under 42 U.S.C. 609(a)(7), a state 
must meet a MOE requirement each fiscal year, that is, expenditure of 
state funds in TANF or a separate state program for certain benefits 
and services. As established in 42 U.S.C. 609(a)(7), each state must 
expend funds that meet a TANF purpose for eligible families in an 
amount equal to at least 80 percent of state spending in FY 1994 for 
AFDC programs related to cash assistance, emergency assistance, job 
training, and child care. This required amount falls to 75 percent if 
the state meets its TANF work participation requirement for the fiscal 
year.
    Work participation rates measure the degree to which a state 
engages families receiving assistance funded by TANF or MOE in work 
activities specified under federal law. A state faces financial penalty 
for a fiscal year if it does not meet both an overall work 
participation rate of 50 percent and a two-parent work participation 
rate of 90 percent in each case, minus any caseload reduction credit. 
42 U.S.C. 609(a)(3). A state's caseload reduction credit for a fiscal 
year equals the percentage point decline (for reasons other than 
changes in eligibility rules) in its average monthly caseload between 
FY 2005 (the current base year) and a comparison year. The Fiscal 
Responsibility Act of 2023 recalibrates the base year for caseload 
reduction from FY 2005 to FY 2015, starting in FY 2026. In addition, 
the ``excess MOE'' provision in TANF regulations allows a state to 
increase its caseload reduction credit, and thus lower its work 
participation rate target further, by spending more MOE funds than is 
required.
    While states must adhere to the work participation rate and other 
federal requirements, such as a 60-month lifetime limit on an adult 
receiving federally funded assistance, states otherwise have 
flexibility in designing their TANF programs. Each state decides on the 
type and amount of assistance payments, the range of other services to 
be provided, and the rules for determining who is eligible for benefits 
within certain federal statutory parameters.

Statutory Authority

    This proposed regulation is issued under Title IV of the Social 
Security Act, 42 U.S.C. 601 et seq. As explained in the preamble to the 
1999 TANF final rule, the Secretary of Health and Human Services has 
authority to regulate in areas where the statute specifies and where 
Congress has charged the Department of Health and Human Services (HHS 
or the Department) with enforcing penalties. 64 FR 17725, April 
12,1999.
    Note that here and below we use the term ``we'' in the regulatory 
text and preamble. The term ``we'' is synonymous with the Secretary of 
the Department of Health and Human Services or any of the following 
individuals or agencies acting on his behalf: the Assistant Secretary 
for Children and Families, the Department, and the Administration for 
Children and Families.
    The first two proposals, both related to allowable spending, would 
clarify the criteria the Department will use when applying the misuse 
of funds penalty in 42 U.S.C. 609(a)(1). These proposals would help 
ensure that states expend TANF funds in accordance with the provisions 
of Title IV-A. The statute at 42 U.S.C. 609(a)(1) requires the 
Department to assess a misuse of funds penalty when TANF funds have 
``been used in violation of this part.'' As noted in the 1999 preamble, 
we have an obligation to set out, in regulations, the criteria we will 
use in carrying out our express authority to enforce certain TANF 
provisions by assessing penalties in cases where TANF funds were spent

[[Page 67699]]

for unallowable activities. 64 FR 17725, April 12,1999. Essentially, we 
have the authority and the responsibility to provide notice to grantees 
of when an expenditure constitutes a misuse of funds made in violation 
of Title IV-A. We note that this rulemaking is consistent with 42 
U.S.C. 617 which provides, in relevant part, that the Department may 
regulate ``where expressly provided in this part.''
    In the preamble to the original TANF final rule (64 FR 17720 et 
seq., April 12, 1999), we indicated that we would regulate in a manner 
that did not impinge on a state's ability to design an effective and 
responsive program. At the same time, we expressed our commitment to 
ensuring that states are accountable for meeting TANF requirements and 
indicated that we would gather information on how states were 
responding to the added flexibility under TANF. We stated that we would 
consider proposing appropriate legislative or regulatory remedies if we 
found that states were using their flexibility to avoid TANF 
requirements or otherwise undermine the statutory goals of the program. 
A review of state spending patterns suggests that it is the appropriate 
time to regulate in relation to allowable spending to ensure that the 
statutory goals of the program are being met.
    Under the law, a state participating in TANF must describe in its 
state plan how it will conduct a TANF program ``that provides 
assistance to needy families with (or expecting) children and provides 
parents with job preparation, work, and support services to enable them 
to leave the program and become self-sufficient.'' 42 U.S.C. 
602(a)(1)(A)(i). More than 27 years after the establishment of TANF, 
state programs have shifted away from a focus on direct cash and 
employment assistance. Although states are permitted under the statute 
to determine how much funding to expend on cash assistance, we remind 
states that there is a large body of research that shows that cash 
assistance is a critically important tool for reducing family and child 
poverty.\2\ Studies have found that when families receive TANF and are 
more financially secure, they are less likely to be involved in the 
child welfare system.\3\ In FY 2021, combined federal TANF and MOE 
expenditures and transfers totaled $30.3 billion. Despite the evidence 
that cash assistance reduces child and family poverty, of that amount, 
less than 23 percent was used for cash assistance, compared to 71 
percent in FY 1997. In 2020, for every 100 families in poverty, only 21 
received cash assistance from TANF, a reduction from 68 families when 
TANF was enacted in 1996.\4\ In 2019, TANF cash assistance served just 
21.3 percent of eligible families across the country, compared to 1997 
when TANF cash assistance served almost 70 percent of estimated 
eligible families.\5\
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    \2\ D. Thomson, R. Ryberg, K. Harper, J. Fuller, K. Paschall, J. 
Franklin, & L. Guzman, (2022). Lessons From a Historic Decline in 
Child Poverty. Child Trends; M.A. Curran, (2022). Research Roundup 
of the Expanded Child Tax Credit: One Year On. In Poverty and Social 
Policy Report (Vol. 6, Issue 9).
    \3\ D.A. Weiner, C. Anderson, & K. Thomas. (2021). System 
transformation to support child and family well-being: The central 
role of economic and concrete supports. Chicago, IL: Chapin Hall at 
the University of Chicago.
    \4\ Aditi Shrivastava and Gina Azito Thompson, ``TANF Cash 
Assistance Should Reach Millions More Families to Lessen Hardship,'' 
Center on Budget and Policy Priorities, February 18, 2022, available 
at: https://www.cbpp.org/research/income-security/tanf-cash-assistance-should-reach-millions-more-families-to-lessen.
    \5\ U.S. Department of Health and Human Services, Office of the 
Assistant Secretary for Planning and Evaluation, Welfare Indicators 
and Risk Factors, 21st Report to Congress, April 26, 2022, p. A-12, 
available at: https://aspe.hhs.gov/sites/default/files/documents/08b81f08f8a96ec7ad7e76554a28efd1/welfare-indicators-rtc.pdf.
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    States are also underinvesting in work, education, and training for 
parents with low incomes as well as critical work supports. We remind 
states that TANF funds directed to child care can serve as an essential 
work support to families that helps lift these families out of poverty, 
expose children to high-quality services during a rapid period of 
development, and reduce incidences of involvement in the child welfare 
system.\6\
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    \6\ childtrends.org/publications/alignment-between-early-childhood-and-child-welfare-systems-benefits-children-and-families.
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    The TANF statute provides that states can transfer up to 30 percent 
of their federal TANF block grant funds to the Child Care and 
Development Fund (CCDF), and they can also spend their federal TANF 
funds and MOE funds directly on child care. In FY 2021, states 
transferred approximately $1.16 billion to CCDF. Additionally, states 
spent $3.75 billion of TANF and MOE funds directly on child care, but 
approximately half of states chose not to transfer any TANF funds to 
CCDF. TANF funds transferred to CCDF are subject to CCDF rules--
including health and safety requirements. TANF funds transferred to 
CCDF are also subject to reporting requirements that illustrate the 
impact of child care funding and allow the public greater visibility 
into the average subsidy that a family receives, the number of children 
served, and whether states are reaching particularly vulnerable 
populations of children, including children with disabilities. A 
state's expenditure on child care is meaningful as it addresses a cost 
that is particularly high for needy families. As illustrated by recent 
research from the President's Council of Economic Advisers, child care 
costs represent 23 percent of annual expenses for families earning less 
than $34,000, and 31 percent of annual expenses for families earning 
under $25,000.\7\ However, when states use TANF and MOE funds directly 
on child care it allows for a substantial amount of federal funding to 
be spent on child care without any requirement that the children 
receiving services are in settings that meet basic health or safety 
standards, potentially putting children at risk. It is also unclear how 
many children are served with these funds, or where they are served. To 
the extent that states interested in expending TANF funds on child care 
did so through transfers to CCDF, it would yield benefits to families 
that receive higher quality care and improve public awareness of how 
those funds are spent. The President's Executive Order on Increasing 
Access to High-Quality Care and Supporting Caregivers encourages the 
use of TANF funds for high-quality child care as a critical work 
support for needy families.\8\
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    \7\ https://www.whitehouse.gov/cea/written-materials/2023/07/18/improving-access-affordability-and-quality-in-the-early-care-and-education-ece-market/.
    \8\ https://www.federalregister.gov/documents/2023/04/21/2023-08659/increasing-access-to-high-quality-care-and-supporting-caregivers.
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    Instead of a focus on cash assistance, work, and critical work 
supports like child care, states are spending TANF and MOE funds on a 
wide range of benefits and services, including some with tenuous 
connections to a TANF purpose and, in some instances, providing 
supports for families with incomes up to 400 percent of the federal 
poverty guidelines.
    To ensure states are spending their funds in accordance with the 
purposes of TANF, the Department is proposing two changes to clarify 
allowable expenditures. The first proposed change would establish a 
federal limit on how states may define the term ``needy'' and the 
second seeks to clarify how the term ``reasonably calculated to 
accomplish a TANF purpose'' applies. These changes would also establish 
criteria for assessing what is and is not an allowable use of funds, 
and therefore, are within the Department's regulatory authority to 
enforce the misuse of funds penalty provision at 42 U.S.C. 609(a)(1).
    The Department is introducing a third proposed change that would 
exclude as

[[Page 67700]]

allowable TANF MOE expenditures cash donations from non-governmental 
third parties and the value of third-party in-kind contributions under 
TANF. The Department has authority to regulate what counts as MOE, 
consistent with the statutory framework, in order to enforce the MOE 
penalty at 42 U.S.C. 609(a)(7) and to determine how MOE expenditures 
factor into the caseload reduction credit pursuant to 42 U.S.C. 
607(b)(3)(A). This proposed change would ensure that states themselves 
are investing in TANF programs and maintaining their own financial 
commitment to needy families, as intended by Congress, all while 
maintaining state flexibility.
    The fourth proposed change would add an eleventh holiday to the 
number of holidays that can count toward the work participation rate 
for work-eligible individuals in unpaid work activities, realigning the 
provision with the federal holidays since the recognition of Juneteenth 
as a federal holiday.
    The last three proposals would reduce administrative burden, 
provide clarity, and increase program effectiveness in the TANF 
program. In the fifth proposal, the Department seeks to develop new 
criteria to allow states to use alternative Income and Eligibility 
Verification System (IEVS) measures. Section 1137(a)(2) of the Social 
Security Act allows for the Department to regulate with respect to the 
need for alternative verification sources in certain circumstances; 
this proposal would amend the existing regulation at 45 CFR 205.55(d).
    The sixth proposed change would clarify the ``significant 
progress'' criteria following a work participation rate corrective 
compliance plan to permit a reduction in the amount of a penalty if a 
state that had failed both the overall and two-parent work 
participation rates for a year corrected its overall rate but not the 
two-parent rate. This proposal falls under the Department's authority 
to regulate where the Department is charged with enforcing certain TANF 
provisions (42 U.S.C. 609(a)(3)), and thus fits within the statutory 
authority granted to the Secretary to regulate state conduct in the 
TANF program.
    The seventh proposed change would clarify existing regulatory text 
about the allowability of costs associated with providing program 
information. The regulation at 45 CFR 263.0 (b)(1)(i) currently 
provides that ``providing program information to clients'' is a program 
cost and not an administrative cost. We propose to delete that language 
from (b)(1)(i) and create a new subsection (iii) that clarifies the 
point that administrative costs exclude the costs of disseminating 
program information. For example, the cost of providing information 
pamphlets or brochures about how to reduce out-of-wedlock pregnancies 
is allowable under purpose three, and the cost of providing information 
about community resources to needy families or needy parents, pursuant 
to purposes one and two, respectively, is allowable, whether or not the 
described community resources themselves are funded by TANF.
    The TANF statute sets an administrative cap of 15 percent. 42 
U.S.C. 604(b). It provides that a ``State to which a grant is made 
under section 403 shall not expend more than 15 percent of the grant 
for administrative purposes.'' 42 U.S.C. 604(b). Section 263.0 
implements the cap by making clear which categories of expenditures are 
program costs that do not count towards the cap, and which qualify as 
administrative costs and thus count towards the cap. Failure to comply 
with the administrative cap could lead to a misuse of funds penalty, 
therefore this proposal falls under the Department's authority to 
regulate where the Department is charged with enforcing certain TANF 
provisions (42 U.S.C. 609(a)(3)), and thus fits within the statutory 
authority granted to the Secretary to regulate state conduct in the 
TANF program.
    Taken together, the seven proposed changes would strengthen TANF's 
safety net function, ease administrative burdens, and ultimately, 
improve TANF's ability to serve as a critical support to families 
experiencing economic hardship to achieve economic mobility.

Section-by-Section Discussion of the Proposed Regulatory Provisions

    1. Establish a ceiling on the term ``needy'' so that it may not 
exceed a family income of 200 percent of the federal poverty 
guidelines.
    We propose that, for purposes of allowable TANF expenditures and 
misuse of funds penalties, state definitions of ``needy'' may not 
exceed 200 percent of the federal poverty guidelines, i.e., for 
example, an annual income of $49,720 for a family of three in the 48 
contiguous states and the District of Columbia using the federal 
poverty guidelines for 2023.\9\ The federal poverty guidelines are 
often used for administrative purposes in federal programs and are 
issued each year in the Federal Register by HHS under the authority of 
42 U.S.C. 9902(2) (See 74 FR 3424, January 19, 2023). We propose this 
provision to help ensure that TANF funds are being used to provide 
services to families that are in fact needy, as contemplated by the 
TANF statute. Census data from 2021 indicate that 35.0 percent of 
children, or 25.5 million children, live at or below 200 percent of 
poverty in the United States.\10\
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    \9\ Readers should note the difference between the federal 
poverty guidelines produced by HHS and the poverty thresholds 
produced by the Census Bureau. In this NPRM, we use ``the federal 
poverty guidelines'' which is the version of the federal poverty 
measure issued each year in the Federal Register by HHS under the 
authority of 42 U.S.C. 9902(2). The federal poverty guidelines are a 
simplification of the poverty thresholds. The poverty thresholds are 
issued by the Census Bureau and used mainly for statistical 
purposes. The federal poverty guidelines are often used for 
administrative purposes in federal programs, although they are most 
commonly referred to as ``federal poverty level,'' ``federal poverty 
line,'' or ``FPL.'' See https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines for more detail on the federal 
poverty guidelines.
    \10\ Census Bureau poverty estimates are based on the federal 
poverty thresholds, published by the Census Bureau each year. The 
Census Bureau poverty thresholds are mainly used for statistical 
purposes and are a different measure than the federal poverty 
guidelines.
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    The TANF statute at 42 U.S.C. 601(a)(1) & (2) specifies that 
expenditures under TANF purpose one may only be made for ``needy'' 
families and TANF purpose two may only be made for ``needy'' parents. 
Generally, MOE must also be spent for ``needy families.'' Accordingly, 
the term ``needy'' is crucial in determining allowable TANF 
expenditures under the first two purposes of TANF and expenditures 
countable toward state MOE requirements. Current regulations do not 
define the term ``needy'', which means there is presently no federally 
specified income limit for use of TANF funds under TANF purposes one 
and two as well as for most MOE expenditures.
    This proposed rule would amend Sec.  260.30 to add a definition of 
``needy.'' This change would require that state definitions of 
``needy'' with respect to all federal TANF and state MOE expenditures 
that are subject to a required needs standard must be limited to 
individuals in families with incomes at or below 200 percent of the 
federal poverty guidelines.\11\ A state may use a definition of needy 
that is at any level at or below 200 percent of the federal poverty 
guidelines, but a state definition of ``needy'' could not exceed 200 
percent of the federal poverty guidelines under this proposed change. 
The state may continue to establish different standards of need for 
different services limited to ``needy'' families, but all must

[[Page 67701]]

be at or below the 200 percent of the federal poverty guidelines. While 
the Department does not have the authority to regulate for a minimum 
standard, we encourage states to set guidelines that do not limit the 
breadth of eligibility within the proposed 200 percent of federal 
poverty guidelines. The proposed change would not impact the need for 
income verification and therefore the Department does not expect it to 
create significant additional administrative burden. The Department 
solicits comment on strategies for minimizing administrative burdens in 
the implementation of this proposed ceiling on the term ``needy.''
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    \11\ See https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines for more detail on the federal poverty 
guidelines.
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    We believe that limiting the definition of need to 200 percent of 
the federal poverty guidelines is consistent with the intent of 
Congress in establishing TANF. We are mindful that, in TANF, Congress 
sought to provide increased state flexibility in relation to the prior 
AFDC program. At the time that TANF was enacted in 1996, the median 
gross income limit for a family of three in the AFDC Program was 
$1,079--about equal to 100 percent of the federal poverty guidelines in 
1996.\12\ Only two states had a gross income limit exceeding 200 
percent of the federal poverty guidelines and the great majority of 
state standards of need were below 150 percent of the federal poverty 
guidelines. The actual median benefit amount for a family of three with 
no other countable income was also $389 (36 percent of the federal 
poverty guidelines).\13\ Accordingly, setting a definition of ``needy'' 
at 200 percent of the federal poverty guidelines sets a reasonable 
boundary, but still allows for state flexibility far in excess of state 
practices in the former AFDC program.
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    \12\ The AFDC gross income limit equaled 185 percent of a 
state's standard of need.
    \13\ See table 8-12 of the 1996 Green Book https://aspe.hhs.gov/sites/default/files/migrated_legacy_files//155481/08tanf.txt.
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    The Department notes that the proposed 200-percent limit is 
consistent with the statutory requirement that TANF funds transferred 
to the Social Services Block Grant ``shall be used only for children or 
their families whose income is less than 200 percent of the income 
official poverty line. . . .'' 42 U.S.C. 604(d)(3)(B). Congress did not 
set a similar limit on TANF funds not transferred to the Social 
Services Block Grant; however, the Department notes that the statute 
referenced ``needy families'' and, at the time TANF was enacted, as 
noted above, AFDC standards of need in states were much lower than 200 
percent of poverty. States would have the flexibility to set standards 
lower than 200 percent under this proposal and could also choose to set 
a standard based on a percentage of state median income, as long as the 
limit corresponded with an amount that was at or below the 200-percent 
of the federal poverty guidelines standard.
    There is currently no regulatory definition of ``needy'' because 
rather than defining the term ``needy'', the 1999 TANF final rule 
deferred to state reasonable definitions of the term. This approach 
centered on state flexibility. The drafters also acknowledged the 
possibility that we might revisit that decision if we identified 
situations in which state actions undermined the goals of the program. 
64 FR 17725-26, April 12, 1999. Over the last 25 years, all states have 
maintained initial eligibility income limits for cash assistance below 
200 percent of the federal poverty guidelines; however, we have 
observed that some states have used the flexibility to allow higher-
income families to be eligible for programs where a needs standard is 
required, going beyond the bounds of a reasonable definition of 
``needy''.
    Many states have used TANF or MOE funds for services other than 
cash assistance under purpose one and two for families at 300 or 400 
percent of the federal poverty guidelines, or even higher. In at least 
40 states, ACF identified programs with income limits of over 200 
percent of the federal poverty guidelines. There were several different 
types of programs, including pre-kindergarten, child welfare, tax 
credits, employment, housing, and emergency assistance. Examples 
include child welfare services for families up to 500 percent of the 
federal poverty guidelines and pre-kindergarten for families at 300 
percent of the federal poverty guidelines. All these services are 
generally allowable uses of TANF and MOE funds under purposes one and 
two; our concern is not the services for which the funds are used, but 
rather that TANF funds are being expended for programs that are not 
targeted to needy families as intended by Congress. It is important to 
understand that an income limit as high as 400 percent of the federal 
poverty guidelines allows TANF-funded services under TANF purposes one 
and two to go to families earning roughly $92,000 per year for a family 
of three. We recognize that families within 400 percent of the federal 
poverty guidelines may also face hardship, and that programs that offer 
this support are important investments in child well-being. However, 
the Department is proposing a ceiling on the term ``needy'' to ensure 
that TANF funds are expended in accordance with the statutory 
requirements and to maintain program integrity.
    Given the state spending described above, we are proposing this 
rule because we think states are going beyond the bounds of a 
reasonable definition of ``needy.'' This proposal would provide clarity 
on how the Department would assess when an expenditure warranted a 
misuse of funds penalty, 42 U.S.C. 609(a)(1), because states have 
expended funds on individuals or families that are not needy within a 
reasonable definition of the statutory term. As the Department 
concluded in the 1999 TANF final rule, the Secretary has authority to 
regulate in areas where the statute specifies and where Congress has 
charged the Department with enforcing penalties, 64 FR 17725, April 12, 
1999.
    The preamble to the regulations explained how the Department 
interpreted its authority and constraints on its authority under 42 
U.S.C. 617:

    Under the new section 417 of the Act, the Federal government may 
not regulate State conduct or enforce any TANF provision except to 
the extent expressly provided by law. This limitation on Federal 
authority is consistent with the principle of State flexibility and 
the general State and congressional interest in shifting more 
responsibility for program policy and procedures to the States. We 
interpreted this provision to allow us to regulate in two different 
kinds of situations: (1) Where Congress has explicitly directed the 
Secretary to regulate (for example, under the caseload reduction 
provisions, described below); and (2) where Congress has charged the 
Department of Health and Human Services (HHS) with enforcing 
penalties, even if there is no explicit mention of regulation. In 
this latter case, we believe we have an obligation to States to set 
out, in regulations, the criteria we will use in carrying out our 
express authority to enforce certain TANF provisions by assessing 
penalties.

64 FR 17720, 17725, April 12, 1999.

    As noted earlier, this proposed rule is in line with the limitation 
in 42 U.S.C. 617, because we believe we have an obligation to set out, 
in regulations, the criteria we will use in carrying out our misuse of 
funds penalty authority when TANF funds ``have been used in violation 
of this part,'' meaning where TANF funds are spent for unallowable 
activities. Id.
    The Department considered alternatives to this proposal, including 
determining a standard of need that varies according to the state's 
cost of living, or an index of the average state median income, as well 
as other possible limits on the term ``needy'', such as limiting the 
term to families below 130 percent of the federal poverty guidelines. 
As previously noted, we are

[[Page 67702]]

mindful that, in TANF, Congress sought to provide increased state 
flexibility in relation to the prior AFDC program, where the median 
gross income limit was about equal to 100 percent of the federal 
poverty guidelines at that time. Additionally, we noted that a limit at 
200 percent of the federal poverty guidelines limit is consistent with 
the statutory requirement regarding TANF funds transferred to the 
Social Services Block Grant. Research has shown that parents with 
incomes below 200 percent of the federal poverty guidelines are more 
than twice as likely as higher income parents to report at least one 
form of material hardship, such as those related to housing, food, or 
medical needs.\14\ We welcome comments on the proposed limit of 200 
percent of the federal poverty guidelines, which aligns with this 
research.
---------------------------------------------------------------------------

    \14\ Michael Karpman, Dulce Gonzalez, Stephen Zuckerman, and 
Gina Adams, What Explains the Widespread Material Hardship among 
Low-Income Families with Children? Urban Institute, December 2018.
---------------------------------------------------------------------------

    2. Determining when an expenditure is ``reasonably calculated to 
accomplish a TANF purpose''.
    This proposed rule would amend 45 CFR 263.11 to add a new 
subsection (c) that sets forth the reasonable person standard for 
assessing whether an expenditure is ``reasonably calculated to 
accomplish the purpose of this part'' 42 U.S.C. 604(a)(1). The proposed 
regulation defines it to mean expenditures that a reasonable person 
would consider to be within one or more of the enumerated four purposes 
of the TANF program.
    Section 604(a) provides the general rules for how TANF grant funds 
are expended. Entitled ``Use of grants,'' it provides in subsection 
(a)(1) that ``[s]ubject to this part,'' a state may use the grant ``in 
any manner that is reasonably calculated to accomplish the purpose of 
this part, including to provide low income households with assistance 
in meeting home heating and cooling costs . . .''. Section 601(a), 
entitled ``Purpose'' provides that ``[t]he purpose of this part is to 
increase the flexibility of States in operating a program designed to'' 
accomplish one or more of the four enumerated statutory purposes: (1) 
provide assistance to needy families so that children may be cared for 
in their homes or in the homes of relatives; (2) end the dependence of 
needy parents on government benefits by promoting job preparation, 
work, and marriage; (3) prevent and reduce the incidence of out-of-
wedlock pregnancies and establish annual numerical goals for preventing 
and reducing the incidence of these pregnancies; and (4) encourage the 
formation and maintenance of two-parent families. This regulation 
proposes a standard the Department will apply in determining whether it 
considers an expenditure to be ``reasonably calculated to accomplish 
the purpose of this part.''
    This proposal sets forth the standard the Department will apply to 
determine whether expenditures are not reasonably calculated under 
section 604(a)(1) and thus warrant a penalty under the misuse of funds 
penalty authority in section 609(a)(1). As the Department explained in 
promulgating the 1999 TANF final rule, the Secretary has authority to 
regulate in areas where the statute specifies and where Congress has 
charged the Department with enforcing penalties.
    In the original TANF final rule (64 FR 17720, April 12, 1999), the 
Department did not regulate in relation to section 604(a)(1). As we 
noted then, we ``endeavored to regulate in a manner that does not 
impinge on a State's ability to design an effective and responsive 
program.'' Id. at 17725. We noted that, in the absence of regulation, 
we would defer to a state's reasonable interpretation of statutory 
provisions:

    To the extent that we have not addressed a provision in this 
final regulation, States may expend their Federal TANF funds under 
their own reasonable interpretations of the statutory language, and 
that is the standard that will apply in determining penalty 
liability.

64 FR 17841, April 12, 1999.

    At the same time, the 1999 final rule preamble pointed to instances 
in which the Department had concluded that certain expenditures could 
not be reasonably calculated to accomplish the purpose of TANF. At the 
time the Department issued the regulations, there was particular 
interest in and concern about the possible use of TANF for foster care 
maintenance, other out-of-home costs, and use of TANF for juvenile 
justice expenditures. We expressed in the 1999 final rule preamble 
that, while certain costs might be permissible under TANF's grandfather 
clause, such costs are not otherwise allowable under TANF:

    With regard to foster care or other out-of-home maintenance 
payments, we would note that such costs are not allowable TANF costs 
under section 404(a)(1) of the Act since they are not reasonably 
calculated to further a TANF purpose . . .
    There are additional costs related to foster care or out-of-home 
maintenance payments that may be allowable and referred to, in 
short-hand, as foster care. For example, there are costs for family 
preservation activities, such as counseling, home visits, and 
parenting training, that would be allowable TANF costs because they 
are reasonably calculated to enable a child to be cared for in his 
or her own home.

64 FR 17762, April 12, 1999.

    Subsequently, the preamble explained:

    However, expenditures for residential care as well as assessment 
or rehabilitative services, including services provided to children 
in the juvenile justice system, do not meet any of the purposes of 
the TANF program and would not count toward basic MOE. The principal 
purpose [] for placement is to protect the child or to protect 
society because of the child's behavior, not to care for the child 
in his or her own home (purpose 1). Since the focus is to address 
the child's needs, expenditures to care for the child in these 
living situations does not end the dependence of needy parents on 
government benefits by promoting job preparation, work and marriage 
(purpose 2). The remaining two purposes do not even remotely relate 
to this situation.

64 FR 17823, April 12, 1999.

    In 2015, the Department reminded states that, ``[a]ny federal TANF 
expenditures for juvenile justice services . . . will be considered a 
misuse of TANF funds and subject to penalty action.'' \15\ While we 
noted in the 1999 final rule preamble that states have flexibility to 
design their TANF programs, we also expressed our commitment to 
ensuring that states were accountable for meeting TANF requirements and 
indicated that we would gather information on how states were 
responding to the added flexibility under TANF, 64 FR 17725, April 12, 
1999. We wrote that ``we reserved the right to revisit some issues, 
either through legislative or regulatory proposals, if we identified 
situations where State actions were not furthering the objectives of 
the Act'', Id. As discussed in detail below, a review of state spending 
patterns suggests that it is the appropriate time to regulate allowable 
spending to ensure that states are expending critical TANF funds on 
expenditures that are reasonably calculated to accomplish one or more 
of the TANF purposes.
---------------------------------------------------------------------------

    \15\ https://www.acf.hhs.gov/ofa/policy-guidance/tanf-acf-pi-2015-02-prohibition-use-federal-tanf-and-state-moe-funds-juvenile.
---------------------------------------------------------------------------

    As noted earlier, we believe this rulemaking is in line with the 
limitation in 42 U.S.C. 617 because the Department has authority and 
the obligation to assess misuse of funds penalties. Accordingly, we 
believe we have an obligation to set out, in regulations, the standard 
we will use in carrying out our misuse of funds penalty authority when 
TANF funds ``have been used in violation of this part'', meaning where 
TANF expenditures are not

[[Page 67703]]

reasonably calculated to meet one or more of the TANF purposes, Id. We 
also view this proposal as providing notice to states of how we intend 
to interpret the reasonably calculated provision and are not 
articulating a standard beyond that provided for in the statute.
    We are mindful that the TANF statute sought to ``increase the 
flexibility of states. . .'' and we believe the proposed approach below 
is fully consistent with the statute. 42 U.S.C. 601(a) (2023). In 
enacting TANF, Congress was not seeking to and did not provide states 
with unlimited flexibility, but rather sought to increase the 
flexibility of states in relation to the program that TANF replaced, 
the AFDC Program. In the AFDC program, there were detailed and complex 
federal eligibility rules,\16\ highly specific definitions of countable 
income and specified exclusions and disregards,\17\ a detailed federal 
definition of countable resources,\18\ detailed federal rules governing 
the sanction process,\19\ and detailed rules governing multiple other 
aspects of program operations.\20\ In the years prior to TANF 
enactment, states had repeatedly sought federal waivers in relation to 
these rules and could only attain waivers subject to very specific 
requirements.\21\ TANF was intended to increase state flexibility in 
relation to this AFDC baseline; however, increased flexibility must 
still accord with the statutory requirements.\22\ It should not be 
understood to negate them.
---------------------------------------------------------------------------

    \16\ See 42 U.S.C. 602(a)(7), (13), (18) (1995).
    \17\ See 42 U.S.C. 602(a)(7), (17), (31), (36) (1995).
    \18\ See 42 U.S.C. 602(a)(7) (1995).
    \19\ See 42 U.S.C. 602(a)(19)(G) (1995).
    \20\ See, e.g., 42 U.S.C. 602(a)(9)-(16), (19), (22)-(26), (33), 
(37) (1995).
    \21\ See House Committee on Ways and Means, Green Book: 
Background Material and Data on Programs within the Jurisdiction of 
the Committee on Ways and Means, 104-14 Sec.  8 at 434 (1996).
    \22\ See id., App. L at 1338.
---------------------------------------------------------------------------

    It has become clear that, in some instances, states have indeed 
undercut statutory requirements by using TANF and MOE funds to pay for 
activities with, at best, tenuous connections to any TANF purpose. This 
is particularly a problem for expenditures claimed under purposes three 
and four, where the statute does not limit benefits and services to 
needy families or needy parents. As described below, these expenditures 
include over $1 billion spent on college scholarships (including for 
middle- and high-income individuals without children) that states have 
asserted are allowable because they are reasonably calculated to 
accomplish the purpose of preventing and reducing out of wedlock 
pregnancies. Similarly, close to $1 billion is being spent on general 
youth services that are not targeted to vulnerable youth, but that 
states are asserting accomplish the purpose of preventing and reducing 
out-of-wedlock pregnancies. Additionally, a portion of the close to $2 
billion spent on covering costs in state child welfare systems is being 
justified as providing assistance to needy families, but those 
expenditures appear to be covering ordinary operating costs of state 
child welfare systems and not targeted services to meet the goal of 
preventing children from entering into foster care by providing 
assistance to families so that children may remain in their homes as 
articulated in purpose one. While services described may provide 
important social supports, we believe that in many cases those services 
would not be interpreted as a reasonable activity to meet a TANF 
purpose.
    As a result, the Department has concluded that it is necessary to 
articulate a general standard for determining whether an expenditure is 
reasonably calculated to accomplish a TANF purpose. In accordance with 
the ``reasonably calculated'' language of the statute, we propose in 
this rule to describe the applicable standard as a ``reasonable 
person'' test. This is the same standard that our regulations have 
employed since 1999 for determining whether a misuse of funds is 
intentional. The discussion below concerning the ``reasonable person'' 
test would apply when determining intentional misuse of funds, even 
though we are not proposing any modification to that regulatory 
provision. In addition, this process would apply to all expenditures 
made after the effective date of the rule, which we propose be no 
earlier than the start of the fiscal year following finalization. We 
understand states may need some time to make sure that all their state 
TANF expenditures meet the reasonable person standard and solicit 
comment on what readers would consider to be a reasonable 
implementation period.
    In many instances, the analysis will be entirely straightforward 
because certain expenditures clearly fall within the plain language of 
the statutory purpose. For example, cash assistance for needy families, 
employment services for needy parents, and teen pregnancy prevention 
programs clearly fall within the express statutory language of TANF 
purposes one, two, and three, respectively. However, in other 
instances, a question may arise as to whether an expenditure is 
reasonably calculated to accomplish a purpose of TANF. Such a question 
could arise in a variety of ways, including: in a state plan or plan 
amendment review; in responding to a state's question about use of TANF 
funds; in resolving an audit; in an external report related to state 
TANF program expenditures; or from information gleaned in site visits. 
In such cases, including when resolving state audit findings, the 
Department will ask for additional information before assessing a 
penalty for misuse of funds, 42 U.S.C. 609(a)(1). We will consider, as 
appropriate, factors including: (1) evidence that the expenditure 
actually accomplished a TANF purpose; (2) evidence that prior 
expenditures by the state or another entity for the same or a 
substantially similar program or activity actually accomplished a TANF 
purpose; (3) academic or other research indicating that the expenditure 
could reasonably be expected to accomplish a TANF purpose; (4) whether 
the actual or expected contribution of the expenditure to accomplishing 
a TANF purpose is reasonable in light of the extent of that 
expenditure; and (5) the quality of the reasoning (as outlined below) 
underlying the state's explanation that the expenditure accomplished or 
could be expected to accomplish a TANF purpose. In addition, where a 
program is multifaceted or includes several different types of 
services, we would examine the extent to which the state uses the 
Office of Management and Budget cost principles to allocate costs of 
different components of a service or benefit to appropriate funding 
sources and ensures that only the portions of a program, benefit, or 
service that the state demonstrates are reasonably calculated to 
accomplish a TANF purpose are allocated to TANF. Sec.  263.14.
    As with any situation in which one must determine whether a 
particular action is reasonable, the analysis will necessarily be fact-
specific. Therefore, a state's explanation should clearly describe such 
facts as the precise service or benefit it intends to fund, the 
population eligible to receive the service or benefit, any other 
eligibility criteria or circumstances that would restrict provision of 
the benefit or service, the amount the state intends to expend, under 
which purpose it is claiming the expenditure, and what its rationale is 
for concluding that the expenditure is reasonably calculated to meet 
the purpose. In weighing the information that a state provides to 
support an expenditure as reasonably calculated to accomplish a TANF 
purpose, we would assess the quality of that evidence, including 
whether the state's justification for the expenditure is

[[Page 67704]]

sound, well-supported, and draws a strong, logical connection to the 
TANF purpose. Our process would evaluate whether the state's 
explanation addresses relevant and appropriate factors given the nature 
of the service or benefit it intends to fund.
    As we noted above, ``evidence'' refers to supporting materials that 
substantiate a state's assertion that an activity is reasonably 
calculated to accomplish a TANF purpose. There are several forms of 
evidence that a state might provide to support its justification for a 
TANF expenditure. One of them is evidence from research, and the 
strongest case will be made with the best available research. Evidence 
will be strongest if it is based on the following types of research, 
listed in descending order of rigor: (1) the activity has been 
evaluated using a rigorous evaluation design (such as randomized 
controlled or high-quality quasi-experimental trials) and has 
demonstrated favorable impacts on the outcome(s) of interest; (2) a 
body of research has demonstrated a favorable association between the 
activity and the outcome(s) of interest sufficient that a reasonable 
person would consider the expenditure reasonably calculated to 
accomplish a TANF purpose; or (3) qualitative or descriptive research 
suggests the activity favorably affects the outcome(s) of interest 
sufficiently that a reasonable person would consider the expenditure 
reasonably calculated to accomplish a TANF purpose. Research evidence 
could come from an existing systematic review, an existing 
clearinghouse, a catalog of evidence-based research or evaluation of 
emerging or substantially similar programs.
    While such evidence will most clearly establish that an expenditure 
is reasonable, programmatic evidence could be sufficient for a 
reasonable person to find that an activity is reasonably calculated to 
accomplish a TANF purpose. This can be done through an analysis using 
performance and administrative data comprised of information on 
activities, services delivered, and outcomes achieved that a program 
collects on an ongoing basis to measure progress toward goals or to 
inform operations and service delivery. Programmatic evidence should 
include an analysis of this data that demonstrates that the activity 
accomplishes a TANF purpose. The analysis could substantiate that an 
activity meets the ``reasonable person'' standard.
    Readers should note that we have provided a proposal of the 
framework we would use to determine if an expenditure were reasonably 
calculated to accomplish a TANF purpose. We offer a number of examples 
below, and anticipate that, for many expenditures, it will be entirely 
clear whether the expenditure is or is not reasonably calculated to 
accomplish a TANF purpose. The TANF program does not include a state 
plan approval process; rather it has only a process for determining 
that a plan is complete in providing information required by statute. 
TANF also does not have an expenditure preapproval process. Still, we 
appreciate that, in planning program expenditures, states will value 
clarity as to whether particular expenditures may be considered 
reasonably calculated to accomplish a TANF purpose. Thus, from an 
implementation standpoint, if a state had concerns about whether an 
expenditure was reasonably calculated to accomplish a TANF purpose, it 
could, though need not, request the Department's views before 
proceeding. We welcome comments on additional factors we might consider 
in the process of determining whether an expenditure is reasonable.
    With this proposed standard in mind, the Department provides more 
information below about how to determine whether an expenditure is 
reasonably calculated under the reasonable person standard. We note 
that we do not consider the examples to be an exhaustive list. The 
Department welcomes comments on these determinations, examples, and 
potential impacts on financial management and reporting, as well as 
service delivery and program operations.
    TANF purpose one. The first purpose of TANF is ``to assist needy 
families so that children may be cared for in their own homes or in the 
homes of relatives.'' Based on the reasonable person standard, 
recurring cash assistance payments to families and many non-recurrent, 
short-term benefits that help families meet basic needs are plainly 
reasonably calculated to assist needy families so that children can 
stay in their own homes or in the homes of relatives. A reasonable 
person would realize that, for a child to remain safe in the home, 
their basic needs must be met. We remind readers that the term 
``assistance'' in purpose one is not limited to the definition in 45 
CFR 260.31 but subsumes the range of ways in which a state may use TANF 
funds to help needy families. 45 CFR 260.31(c)(2). Ensuring that 
families experiencing financial hardship are connected to economic 
supports such as TANF cash assistance is an effective prevention 
strategy to allow children to stay in their homes or in the homes of 
relatives and divert families from entering the child welfare system. 
Additionally, the Department thinks that, under the reasonable person 
standard, certain prevention and reunification strategies associated 
with child welfare systems are plainly reasonably calculated to achieve 
TANF purpose one. These include parenting skills classes, family 
reunification efforts, supports for parents preparing for 
reunification, and providing concrete and economic supports to prevent 
removal from home. All of these activities are part of the essential 
services states provide to ensure children can remain or return safely 
to their own homes or the homes of relatives.
    Where the connection to TANF purpose one is not as straightforward, 
a child welfare service can be reviewed using the reasonable person 
standard factors outlined above to help determine whether it meets that 
purpose. For example, some states use TANF or MOE funds to pay for 
respite care services for parents or other relatives. Those states 
might provide evidence from the Child Welfare Information Gateway, 
where peer-reviewed studies of similarly designed programs have found 
that respite care allows for children to remain permanently in their 
homes. They might also be able to provide administrative data to show 
that they have seen respite care services provide the short-term 
supports necessary to allow children to remain in their own homes or in 
the homes of relatives compared with the absence of these services. 
With this information, the Department could determine that the use of 
respite care services is reasonably calculated to meet TANF purpose 
one. In another example, a state may want to use TANF funds to provide 
diversion and alternative response activities. The state could provide 
information from academic studies or administrative data that these 
activities help keep children in their own homes or in the homes of 
relatives and are therefore reasonably calculated to meet TANF purpose 
one.
    Other child welfare activities for children and families do not 
have as close a connection to, reunification, permanency, or services 
to prevent child maltreatment. These types of activities, such as child 
protection investigations, would likely not be allowable under purpose 
one in the framework outlined in the proposed rule. By their very 
nature, child protection investigations are intended to learn whether a 
child has been harmed or is at risk of being harmed and should be 
removed from the home, rather than to provide assistance so that 
children can remain in their own homes or in the

[[Page 67705]]

homes of relatives. The Department appreciates that, in some cases, the 
outcome of the investigation will be a determination that the child can 
remain in the home with specified prevention services to the family. 
Those services could be allowable under the first purpose of TANF, but 
not the investigation itself.
    TANF purpose two. The second purpose of TANF is to ``end the 
dependence of needy parents on government benefits by promoting job 
preparation, work, and marriage.'' There are a range of services that, 
under the reasonable person standard, are plainly reasonably calculated 
to accomplish this purpose, such as workforce development services that 
help needy parents find and keep jobs, as well as work supports such as 
child care or other services and supports that allow needy parents to 
look for and maintain employment. The connection between the examples 
enumerated and ending the dependence of needy parents on government 
benefits is clear through the direct link between searching for a job 
and securing the job, enhancing skills and credentials, and increasing 
earnings, and enrolling children in child care so a parent may work. 
Such services could include tuition assistance and other education and 
training supports specifically for needy parents. It could also include 
many early education programs that are necessary services for families 
with low incomes to care for children while parents look for and 
maintain employment. A reasonable person could conclude that providing 
these services would help parents with low incomes work, and therefore 
end their dependence on government benefits. The Department values the 
critical importance of quality early childhood education--including 
child care and preschool--for all families, but for it to be allowable 
under TANF purpose two, it must be a support for work for needy 
parents.
    States have used or may want to use TANF or MOE funds to pay for 
other education and training activities that are not as 
straightforwardly connected to TANF purpose two. In these instances, 
the Department would review the benefit or service using the reasonable 
person framework outlined above. For example, a state might want to 
provide education and training for childless individuals or to parents 
regardless of income. The Department believes that it is unlikely there 
could be sufficient evidence or logical coherence to show that 
education and training for individuals who are not parents could be 
reasonably calculated to end the dependence of needy parents. To the 
extent that is the case, such spending would not be allowed under TANF 
purpose two under this proposed rule. Similarly, we think it unlikely 
that states could provide evidence that education and training received 
without regard to income level could be reasonably calculated to end 
the dependence of needy parents. As a result, expenditures for these 
activities are unlikely to be allowed under TANF purpose two under this 
proposed rule.
    TANF purpose three. The third purpose of TANF is to ``prevent and 
reduce the incidence of out-of-wedlock pregnancies and establish annual 
numerical goals for preventing and reducing the incidence of these 
pregnancies.'' The Department believes that certain activities are 
plainly reasonably calculated to prevent and reduce out-of-wedlock 
pregnancies. These include programs that provide comprehensive sex 
education, family planning services, pregnancy prevention programs, and 
community mobilization services for at risk youth that increase access 
to pregnancy prevention programs for teens.
    However, jurisdictions have sought to claim other expenditures 
under TANF purpose three where the connection to preventing and 
reducing out-of-wedlock pregnancies appears to be far more tenuous or 
even non-existent. College scholarship programs for adults without 
children likely do not meet the reasonable person standard under 
purpose three. Since this expenditure does not fall clearly within the 
plain language of the statutory purpose, the Department would use the 
factors under our proposed standard to review the expenditure. This 
would include reviewing the evidence and documentation provided by the 
state. Without evidence that the expenditure actually accomplishes the 
TANF purpose, that prior expenditures by the state or another entity 
for the same or a substantially similar program or activity actually 
accomplished the TANF purpose, or that there is academic or other 
research indicating that the expenditure could reasonably be expected 
to accomplish the TANF purpose, the expenditure is unlikely to meet the 
reasonable person standard we propose and therefore would likely not be 
allowable under this proposal.
    Similarly, programs that only or primarily provide pregnancy 
counseling to women only after they become pregnant likely do not meet 
the reasonable person standard because the connection to preventing and 
reducing out-of-wedlock pregnancies is tenuous or non-existent, and 
therefore do not accomplish purpose three. States that provide funding 
for these types of programs, including through entities sometimes known 
as crisis pregnancy centers or pregnancy resource centers, must be able 
to show that the expenditure actually accomplishes the TANF purpose, 
that prior expenditures by the state or another entity for the same or 
a substantially similar program or activity actually accomplished the 
TANF purpose, or that there is academic or other research indicating 
that the expenditure could reasonably be expected to accomplish the 
TANF purpose. If pregnancy prevention programming is a part of an 
ongoing program, such as year round after-school programming, only 
those costs associated with delivery of pregnancy prevention should be 
cost allocated and non-TANF funds used to fund other activities.
    TANF purpose four. The fourth purpose of TANF is to ``encourage the 
formation and maintenance of two-parent families.'' The Department 
believes that certain activities fall clearly within the plain language 
of the statutory purpose to promote two-parent families. These 
activities include marriage education, marriage and relationship skills 
programs, parent and co-parent skills workshops, and public awareness 
campaigns on the value of marriage and responsible fatherhood.
    In FY 2021, 27 states reported a total of $925.0 million in federal 
TANF and MOE expenditures on ``Services for Children and Youth.'' A 
wide variety of services and programs may fall in this category, 
including afterschool and mentoring or academic tutoring programs. 
States often assert that programs like these meet purposes three and 
four. The Department recognizes and appreciates the value of such 
services, but under the statute and the implementing reasonable person 
standard, many of them likely are not reasonably calculated to achieve 
purpose four. The Department is unaware of evidence from academic 
research or program design or outcomes documentation that shows these 
activities accomplished or could be expected to accomplish the purpose 
of encouraging the formation and maintenance of two-parent families. 
For example, if a state were to assert that spending on after-school 
programs is reasonably calculated to promote the formation and 
maintenance of two-parent families, the state would need to provide 
evidence to justify such a service under the reasonable person 
standard. Even then, if this programming were a small portion of the 
overall activities in the program, the state would need to cost 
allocate. Only

[[Page 67706]]

the programming that is reasonably calculated to meet purpose four or 
met another TANF purpose could be funded with TANF.
    Authorized Solely Under Prior Law. The Department reiterates that 
there are some expenditures that are allowable under the TANF program 
even though they do not meet any of the four purposes enumerated in 42 
U.S.C. 604(a)(1). Those are expenditures ``authorized solely under 
prior law,'' which are allowed pursuant to section 42 U.S.C. 604(a)(2). 
That provision permits a state to use TANF--but not MOE--funds in any 
manner that it was authorized to use funds under the prior Title IV-A 
(AFDC) or IV-F (Job Opportunities and Basic Skills Training programs) 
on September 30, 1995, or at state option, August 21, 1996. For 
example, foster care payments to non-relative caregivers do not count 
as a purpose one expenditure because they are not reasonably calculated 
to provide assistance so that children may be cared for in their own 
homes or in the homes of relatives. This is, because, by definition, 
they provide support to non-relatives caring for children who have been 
removed from their homes. However, if a state was explicitly authorized 
to provide such support under prior law, meaning that its AFDC, EA, or 
JOBS plan in effect on September 30, 1995 (or, at state option, August 
21, 1996), included the benefit or service, then the state may use 
TANF, but not MOE, to support the activity. We refer to these as 
services that are authorized ``solely'' under prior law, because that 
is the only way a state may fund them under TANF, as they are not 
otherwise reasonably calculated to accomplish a TANF purpose.
    For all other TANF and MOE-funded activities, we invite readers to 
provide comments on our proposed standard of ``reasonably calculated to 
accomplish the TANF purpose'' and offer any alternative approaches for 
operationalizing the standard.
    3. Exclude third-party, non-governmental spending as allowable MOE.
    This proposed rule would amend Sec.  263.2(e) to exclude, as an 
allowable TANF MOE expenditure, cash donations and the value of in-kind 
contributions from non-governmental third parties.
    Each state must meet a maintenance-of-effort (MOE) requirement 
under TANF. To avoid a TANF penalty for a fiscal year, a state must 
have ``qualified state expenditures'' of at least 80 percent of the 
amount the state spent on a specified set of programs in FY 1994, 
before TANF was enacted, or 75 percent if the state satisfies its 
federal work participation requirement for the fiscal year. The statute 
specifies that the ``qualified state expenditures'' a state may count 
toward its MOE requirement in a given fiscal year are ``the total 
expenditures by the state during the fiscal year'' that meet one or 
more of the purposes of TANF and serve eligible families. 42 U.S.C. 
609(a)(7)(B)(i).
    Congress established the level of historic state expenditures based 
on spending in FY 1994 for a set of programs that existed before TANF 
and were eliminated at the time that Congress enacted the TANF block 
grant. The MOE levels were set based on non-federal state spending in 
FY 1994 for programs authorized under the former Titles IV-A and IV-F 
of the Social Security Act, specifically the AFDC benefits and 
administrative costs, the Emergency Assistance Program, the Job 
Opportunities and Basic Skills Training Program, and a set of child 
care programs that had been funded under Title IV-A. In shifting from 
the former structure of federal matching funds for state expenditures 
to a block grant framework, Congress made the decision to require 
states to continue to make expenditures for programs and activities 
meeting TANF purposes at a level not less than 80 percent of the level 
at which they had been spending in FY 1994 for this set of programs (or 
75 percent if the state meets its work participation requirement for 
the year). Congress established this requirement without an inflation 
adjustor. When adjusting for inflation (based on 2022 data), states are 
actually required to spend approximately 50 percent of what they spent 
in FY 1994.
    Under the statutory framework, if a state does not meet its 
required MOE level for a fiscal year, it is subject to financial 
penalty in the amount it falls short of its required MOE. The proposed 
change would further clarify the criteria for the agency to assess this 
penalty. The intent of this provision is to ensure that states maintain 
a certain level of financial commitment to the TANF program and 
participate financially along with the federal government. Financial 
involvement by states is necessary for the success of the TANF program 
as envisioned by Congress. Under the current rule, in addition to state 
funds, a state is permitted to count toward the MOE requirement certain 
in-kind or cash expenditures by non-governmental third parties, so long 
as these expenditures meet a TANF purpose and other requirements. In 
this NPRM, we propose to eliminate the ability of states to count cash 
donations and in-kind contributions from non-governmental third parties 
towards MOE. The NPRM distinguishes between governmental spending and 
that of non-governmental third parties. Governmental spending, meaning 
spending directly by state, counties, and local government agencies 
only, would continue to be allowable under the amended rule. For 
example, if a state uses funds from its workforce department to fund 
TANF work programs, the state workforce department is a ``governmental 
third party'' and therefore allowable. State and local government 
entities also frequently combine funding, which would also still be 
allowable under this proposed rule.
    The Department issued policy guidance in 2004 (TANF-ACF-PA-2004-01) 
implementing a policy that allowed states to claim third-party spending 
and contributions as countable towards a state's MOE requirement. The 
guidance noted that the statute did not explicitly provide that in-kind 
or cash expenditures by sources in the state other than the state or 
local government may count toward the state's TANF MOE requirement. 
Further, it noted that the 1999 TANF final rule had not directly 
addressed the issue, but that states could look to the cost sharing 
principles in 45 CFR part 92 (currently 45 CFR part 75), which 
generally apply to TANF. Those cost sharing principles present a range 
of ways for a state to satisfy cost sharing requirements, including 
expenditures for allowable costs or cash donations by non-federal third 
parties and the value of third-party in-kind contributions. The 2004 
guidance concluded that third-party in-kind or cash expenditures could 
count toward a state's MOE requirement, as long as the spending was 
used for an allowable purpose.
    In our interim final rule, promulgated after the Deficit Reduction 
Act of 2005 (DRA), we codified the policy by amending Sec.  263.2(e) to 
provide that ``[e]xpenditures for benefits or services listed under 
paragraph (a) of this section may include allowable costs borne by 
others in the State (e.g., local government), including cash donations 
from non-Federal third parties (e.g., a non-profit organization) and 
the value of third party in-kind contributions'' if certain 
requirements were met. 71 FR 37454, 37470, June 29, 2006. We did not 
receive any comments concerning the third-party provision. The final 
rule was issued on February 5, 2008 (73 FR 6772, February 5, 2008).
    After reviewing how states have implemented this provision, and 
carefully considering the effects that third-party, non-governmental

[[Page 67707]]

contributions have had over the last 15 years, discussed below, we are 
proposing to revise this provision so that third-party, non-government 
MOE contributions of any kind cannot count towards a state's MOE 
requirement. The Department believes that our proposed regulation is 
the best interpretation of 42 U.S.C. 609(a)(7)(B)(iv). The statute at 
42 U.S.C. 609(a)(7)(A) provides that the Secretary shall impose a 
penalty if a state fails to make ``qualified State expenditures'' equal 
to at least 80 percent of the amount it spent on welfare programs in FY 
1994. ``Qualified State expenditures,'' meaning those countable as MOE, 
are defined as ``the total expenditures by the State during the fiscal 
year, under all State programs, [in certain categories] with respect to 
eligible families.'' 42 U.S.C. 609(a)(7)(B)(i) (emphasis added). Thus, 
the statutory language is clearly in reference to expenditures by the 
state, not subsuming expenditures by non-governmental organizations in 
the state.
    Under current rules, states may count non-governmental expenditures 
by non-profit organizations, corporations, or other private parties as 
contributions to state MOE. While these expenditures represent efforts 
made to serve low-income families in a state, they do not reflect the 
effort made by a state. In other words, they constitute expenditures 
that other organizations make, and a state reports them as MOE as if 
the state itself had made the expenditure. The Department proposes 
revising the MOE requirement to prohibit a state from counting third-
party, non-governmental spending as its own, and to ensure that states 
themselves are investing in programs that meet TANF purposes, as was 
the original intent of the statute.
    In addition to our having concluded that the revision is most 
consistent with the statutory language and intent of Congress, the 
Department also believes it is justified as a matter of policy. Since 
third-party MOE became permissible, experience has shown that counting 
non-governmental spending as MOE may reduce the overall level of 
services available to low-income families in a state. Most commonly, 
these third parties are non-governmental entities already providing 
food assistance, youth services, family preservation services, or 
housing assistance. The state then counts these existing third-party 
expenditures as TANF MOE while reducing its own spending--in essence, 
substituting private, third-party spending on low-income families that 
would occur regardless of being counted as state expenditures on MOE, 
for state spending. For example, if a state's basic MOE requirement 
were $100 million and it counted $25 million in spending from food 
banks as MOE, the state could then reduce its own financial commitment 
from $100 million to $75 million. Consequently, the state could spend 
$25 million less of its general revenue funds on purposes designed to 
benefit families with low incomes.
    States do not report on the source of MOE so the Department cannot 
determine how much of its MOE requirement each state is fulfilling 
using third-party, non-governmental spending. However, according to a 
2016 GAO report, 16 states reported counting third-party, non-
governmental expenditures toward their required spending level in FY 
2015.\23\ These are the most recent data available. Twenty-nine states 
reported counting third-party, non-governmental expenditures as state 
MOE spending at least once from fiscal years 2007 through 2015. Eleven 
states reported that third-party, non-governmental expenditures 
accounted for over 10 percent of their TANF MOE spending in their most 
recent year of counting third-party expenditures. This percentage 
reached as high as 60 percent in one state, which counted $99 million 
from third-party, non-governmental dollars to meet its $173 million 
obligation. Two other states derived over 30 percent of their MOE funds 
from third-party, non-governmental sources. In short, some states are 
claiming a significant amount of money as MOE--amounts that do not 
reflect their own spending on services for low-income families.
---------------------------------------------------------------------------

    \23\ GAO, Temporary Assistance for Needy Families: Update on 
States Counting Third-Party Expenditures toward Maintenance of 
Effort Requirements, February 2016.
---------------------------------------------------------------------------

    This 2016 GAO report also indicated that some of these states 
asserted that they would be likely to cut services in other areas to 
reach the basic MOE requirement if third-party, non-governmental 
dollars could no longer count as MOE. Likewise, some states claimed 
that they would face penalties or lose partnerships if this provision 
were implemented. Based on our experience administering the program, we 
do not expect that these consequences will come to pass, given the few 
states that currently use this flexibility and the total amount of 
funds presently at issue. We do not believe there is reason for concern 
that states would need to cut expenditures for other groups to maintain 
low-income spending at a level sufficient to meet the MOE requirement, 
which adjusted for inflation, is less than 40 percent of what the state 
was spending in FY 1994. Indeed, a state would be more likely to spend 
additional funds on low-income families to make up for the MOE 
shortfall if this proposal were to take effect. Moreover, we are not 
aware of any reason that being unable to count non-governmental 
expenditures toward MOE requirements should in any way impair or 
jeopardize partnerships with non-governmental organizations. We invite 
state agencies and the public to provide information that will shed 
light on the extent of the use of third-party, non-governmental 
expenditures to count as MOE.
    By proposing to eliminate this provision, our goal is to restore 
the maintenance-of-effort requirement in a manner consistent with the 
statutory language and purpose. We invite comment on the effects that 
this proposed change would have on state programs, budgets, and 
partnerships.
    4. Ensure that excused holidays match the number of federal 
holidays, following the recognition of Juneteenth as a federal holiday.
    The Department introduced the idea of counting excused absences and 
holidays toward the TANF work participation rate in the interim final 
rule that implemented the legislative changes from the DRA (71 FR 
37454, 37466, June 29, 2006). The interim final rule explained that 
states could count paid employment hours toward the work participation 
rate by using the hours for which the individual was paid, which 
therefore allowed paid holidays to count. The Department recognized 
that individuals in unpaid allowable work activities might also be 
absent due to a holiday, and therefore the interim final rule allowed 
states to count ``reasonable short-term, excused absences for hours 
missed due to holidays.'' Although the interim final rule did not 
specify a number of holidays that could count toward the work 
participation rate, the final rule set the number of holidays at 10 (73 
FR 6826, February 5, 2008). In the preamble to that final rule, we 
noted, ``We deliberated at length about the appropriate number [of 
holidays], considering the number granted on average by private 
companies, the average number of State paid holidays, and the number of 
Federal holidays. Ultimately, we chose to limit it to 10 to be 
consistent with the number of Federal holidays.'' (73 FR 6809, February 
5, 2008). On June 17, 2021, President Biden signed into law the 
Juneteenth National Independence Day Act, which established June 19 as 
an eleventh legal, public holiday.
    Under our authority to issue regulations on how to count and verify

[[Page 67708]]

reported hours of work, this proposal would realign the TANF rules with 
respect to holidays to the number of federal holidays. 42 U.S.C. 
607(i)(1). It would revise Sec.  261.60(b) to ensure that the maximum 
number of holidays permitted to count in the work participation rate 
for unpaid work activities in the fiscal year matches the number of 
federal holidays as established in 5 U.S.C. 6103. For example, with the 
inclusion of Juneteenth, the number of federal holidays increased to 
11, and therefore under our proposal a state could allow up to 11 
holidays to count toward the work participation rate for individuals in 
unpaid allowable work activities. The proposal would not alter the 
calculation for individuals participating in paid work activities, 
which includes the hours for which an individual was paid, including 
paid holidays and sick leave, and which can be based on projected 
actual hours of employment for up to six months, with documentation.
    As under current rules, each state must designate in its work 
verification plan the days that it wishes to count as holidays for 
those in unpaid activities. The Department encourages states to honor 
our newest public holiday by granting Juneteenth itself as an excused 
day for TANF participants in unpaid activities.
    5. Develop new criteria to allow states to use alternative Income 
and Eligibility Verification System (IEVS) measures.
    This proposed rule would amend Sec.  205.55(d) to allow states to 
use alternative Income and Eligibility Verification System (IEVS) data 
sources. IEVS is a set of data matches that each state must complete to 
confirm the initial and ongoing eligibility of a family for TANF-funded 
benefits. Section 1137 of the Social Security Act (42 U.S.C. 1320b-7) 
requires a state to participate in IEVS and to match TANF applicant and 
recipient data with the following information through IEVS:
    1. Employer quarterly reports of income and unemployment insurance 
benefits from the State Wage Information Collections Agency (SWICA);
    2. IRS earned income maintained by the Social Security 
Administration;
    3. Immigration status data maintained by the Immigration and 
Naturalization Service; and
    4. Unearned income from the IRS.
    Currently, under Sec.  205.55(d), a state may request approval from 
the Department to use an alternate source or sources of income and 
eligibility information to meet any of the IEVS data matching 
requirements. The state must demonstrate that the alternate source is 
as timely, complete, and useful as the data provided by the original 
source. When considering applications, we have noticed that this 
standard is very difficult to meet, particularly with respect to 
requests for alternatives to the IRS unearned income data. This is 
largely because the IRS's data represent the most complete set of 
national information on unearned income, making other sources 
inherently less complete. Unearned income data are captured through the 
IRS 1099 form series; there are currently over 15 different 1099 forms, 
each dependent upon the type of unearned income being reported. Other 
data sources are not able to capture every distinct type of unearned 
income. States have repeatedly noted that some of the required IEVS 
matches, and especially the match with unearned income data from the 
IRS, are administratively burdensome and neither cost effective nor 
programmatically useful. They explain that the costs of maintaining the 
security procedures required for the IRS match are very high, as they 
include specific staff training and background protocols, as well as 
establishing a ``secure room.'' One state indicated that its 
conservative estimate for these requirements cost over $100,000 
annually. At the same time, states have noted the minimal programmatic 
usefulness of the match with IRS unearned income data, because the 
majority of recipients of TANF-funded benefits have modest resources 
and because the data are based on the previous year's tax returns and 
thus do not clearly reflect the applicant's or participant's current 
status. We propose to modify the criteria for alternative sources of 
IEVS data matches so that they are more reasonable and factor in cost 
effectiveness. Specifically, we propose to allow a state to request to 
use an alternative data source that is as cost effective rather than as 
complete as the original source. We would continue to require any 
alternate data source to be both as timely and useful as the original 
source. This action would reduce administrative burden on states by 
allowing them the flexibility to find more cost-effective data matches 
and perform the ones that are most likely to benefit their programs. 
This proposal is consistent with the IEVS statute, which provides that 
certain ``wage, income and other information'' from certain sources 
``shall be requested and utilized to the extent that such information 
may be useful in verifying eligibility for, and the amount of benefits 
available . . . as determined by the Secretary of Health and Human 
Services. . . .'' Sec.  1320b-7(a)(2). The Department welcomes comments 
on the current administrative burdens, including cost and time 
estimates, and usefulness of the required IEVS matches as well as the 
benefits that might be gained from using more cost-effective alternate 
data sources.
    6. Clarify the ``significant progress'' criteria following a work 
participation rate corrective compliance plan.
    Each state must meet two minimum work participation rates under 
TANF for a fiscal year, an overall or ``all families'' work 
participation rate and a two-parent work participation rate, or face a 
financial penalty. The law provides for a single penalty for failing to 
meet the work participation requirement, even though there are two 
separate participation rates, i.e., two ways to trigger the penalty. 
Until FY 2007, virtually all work participation rate penalties came 
from failures to meet the two-parent rate alone, but with the changes 
made by the DRA, some states began to fail the overall rate or both 
rates. Many states that receive a penalty notice enter into a 
corrective compliance plan (CCP) to correct the failure and avoid a 
financial penalty. In accordance with Sec.  262.6(i), a state that 
enters into a CCP because it is subject to a penalty must completely 
correct the violation within the plan period to avoid the penalty. If 
it does not, Sec.  262.6(j)(1) permits a reduction in the penalty if a 
state did not achieve full compliance pursuant to its CCP goals but 
made ``significant progress'' towards correcting the violation.
    We propose to modify Sec.  261.53(b) to clarify the means of 
qualifying for ``significant progress'' when a state that has failed 
its work participation rate also fails to correct the violation fully 
in a corrective compliance plan because it has corrected one rate but 
not both. Specifically, it would more directly address a situation 
where a state that failed both the overall and two-parents rates for a 
year and subsequently meets the overall rate (but not the two-parent 
rate) as part of its corrective compliance plan to qualify for a 
reduced penalty. It also clarifies the description of the existing 
formula for calculating significant progress. This modification is 
within the Secretary's authority to ``assess some or all of the penalty 
. . . if the State does not, in a timely manner, correct or discontinue 
as appropriate, the violation. . . .'' 42 U.S.C. 609(c)(3).
    We are proposing to recalculate a state's penalty as if the state 
had failed only the two-parent work requirement in the penalty year. 
Two-parent penalties are based on a state's two-parent caseload 
percentage, which

[[Page 67709]]

typically equals 10 percent or less of the total caseload. Our proposal 
would reduce administrative burden and substantially reduce some 
potential penalties, making them commensurate with the degree of a 
state's remaining noncompliance.
    7. Clarify the existing regulatory text about the allowability of 
costs associated with disseminating program information.
    The seventh proposed change would clarify existing regulatory text 
about the allowability of costs associated with providing program 
information. The regulation at 45 CFR 263.0(b)(1)(i) currently provides 
that ``providing program information to clients'' is a program cost and 
not an administrative cost. We propose to delete that language from 
(b)(1)(i) and create a new subsection (iii) that clarifies the point 
that administrative costs exclude the costs of disseminating program 
information. For example, the cost of providing information pamphlets 
or brochures about how to reduce out-of-wedlock pregnancies is 
allowable under purpose three, and the cost of providing information 
about community resources to needy families or needy parents, pursuant 
to purposes one and two, respectively, is allowable, whether or not the 
described community resources themselves are funded by TANF.
    The TANF statute sets an administrative cap of 15 percent. 42 
U.S.C. 604(b). It provides that a ``State to which a grant is made 
under section 403 shall not expend more than 15 percent of the grant 
for administrative purposes.'' 42 U.S.C. 604(b). Section 263.0 
implements the cap by making clear which categories of expenditures are 
program costs that do not count towards the cap, and which qualify as 
administrative costs and thus count towards the cap. Failure to comply 
with the administrative cap could lead to a misuse of funds penalty, 
therefore this proposal falls under the Department's authority to 
regulate where the Department is charged with enforcing certain TANF 
provisions (42 U.S.C. 609(a)(3)), and thus fits within the statutory 
authority granted to the Secretary to regulate state conduct in the 
TANF program.

Severability

    To the extent that any portion of the requirements arising from the 
rule once it becomes final is declared invalid by a court, HHS intends 
for all other parts of the final rule that are capable of operating in 
the absence of the specific portion that has been invalidated to remain 
in effect.

Regulatory Impact Analysis

Introduction

    We have examined the impacts of the proposed rule under Executive 
Order 12866, Executive Order 13563, Executive Order 14094, the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 
13563 direct us to assess all benefits, costs, and transfers of 
available regulatory alternatives and, when regulation is necessary, to 
select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity). This analysis identifies 
economic impacts that exceed the threshold for significance under 
Section 3(f)(1) of Executive Order 12866, as amended by Executive Order 
14094.
    The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires 
us to prepare a written statement, which includes estimates of 
anticipated impacts, before proposing ``any rule that includes any 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 or more (adjusted annually for inflation) in any one 
year.'' The current threshold after adjustment for inflation is $177 
million, using the most current (2022) Implicit Price Deflator for the 
Gross Domestic Product. This proposed rule would not likely result in 
unfunded expenditures that meet or exceed this amount.

Statement of Need

    As described above, the Department has determined that it is 
necessary to take regulatory action to strengthen the effectiveness of 
TANF as the safety net and work program originally intended by 
Congress. It is critical to implement these reforms at the federal 
level in order to maintain consistent policies across states that align 
with congressional intent, while still providing flexibility for states 
to design programs that meet the specific needs of their populations.
    In addition, the package includes provisions that are more 
technical in nature and are designed to reduce administrative burden 
and increase program effectiveness. The Department has determined it is 
necessary to make these changes at the federal level, again to ensure 
consistency and fairness across states, and to improve the functioning 
of government.

Summary of Impacts

    This analysis finds that the proposed rule would result in a range 
of transfers of between $1.087 billion and $2.494 billion. The largest 
impacts from the proposed rules relate to provisions that: establish a 
ceiling on the term ``needy;'' determine when an expenditure is 
``reasonably calculated to accomplish a TANF purpose;'' and exclude 
third-party, non-governmental spending as allowable MOE. These impacts 
would be constant in every year, beginning in the first fiscal year 
after the proposed rule is finalized (if it is finalized). Thus, we 
adopt a one-year time horizon for these impacts, which also do not 
depend on the choice of discount rate. Figure A below reports these 
impacts reported in current dollars. This analysis also discusses 
several policy alternatives to the proposed rule that ACF considered. 
ACF invites comments on all estimates contained in this analysis.

                                       Figure A--Summary of Annual Impacts
----------------------------------------------------------------------------------------------------------------
                                                           Estimates                           Units
                  Category                   -------------------------------------------------------------------
                                                     Low              High                  Year dollar
----------------------------------------------------------------------------------------------------------------
                                               Transfers--Federal
----------------------------------------------------------------------------------------------------------------
All Provisions--Federal Annualized Monetized             598.1            1127.4  2023.
 ($millions/year).
                                             -------------------------------------------------------------------
From/To.....................................  From: State uses of federal funds   To: State uses of federal
                                                                                   funds.
                                             -------------------------------------------------------------------
Provision--Reasonably Calculated............             598.1            1127.4  2023.
                                             -------------------------------------------------------------------

[[Page 67710]]

 
From/To.....................................  From: State uses of federal TANF    To: State uses of federal TANF
                                              funds on expenditures that are not   funds on expenditures that
                                              reasonably calculated to meet a      are reasonably calculated to
                                              TANF purpose                         meet a TANF purpose.
----------------------------------------------------------------------------------------------------------------
                                      Transfers--Other Annualized Monetized
----------------------------------------------------------------------------------------------------------------
All Provisions--Other Annualized Monetized               488.7            1366.7  2023.
 ($millions/year).
                                             -------------------------------------------------------------------
From/To.....................................  From: State funds                   To: State funds.
                                             -------------------------------------------------------------------
Provision--200%.............................             146.2             584.9  2023.
                                             -------------------------------------------------------------------
From/To.....................................  From: State funds on expenditures   To: State funds on
                                              for families above 200 percent of    expenditures for families at
                                              the federal poverty guidelines       or below 200 percent of the
                                                                                   federal poverty guidelines.
                                             -------------------------------------------------------------------
Provision--Reasonably Calculated............             196.8             636.1  2023.
                                             -------------------------------------------------------------------
From/To.....................................  From: State funds on expenditures   To: State funds on
                                              that are not reasonably calculated   expenditures that are
                                              to meet a TANF purpose               reasonably calculated to meet
                                                                                   a TANF purpose.
                                             -------------------------------------------------------------------
Provision--Third Party Non-Governmental MOE.             145.7             145.7  2023.
                                             -------------------------------------------------------------------
From/To.....................................  From: State funds outside of TANF   To: State funds used for TANF
                                                                                   MOE.
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Administrative costs for ACF and                             .371                 2023.
 jurisdictions ($millions/year).
                                             -------------------------------------------------------------------
From/To.....................................  From: employee productive time.     To: employee productive time
                                                                                   on activities related to rule
                                                                                   implementation.
----------------------------------------------------------------------------------------------------------------

Estimating the Quantified Impacts of the Proposed Rule

    We have used the best tools available to estimate the transfers 
associated with this proposed rule, relying on the financial and 
programmatic data states report on the ACF-196R (the TANF financial 
data report) and ACF-204 (the Annual MOE) forms. The utility and the 
limitations of these forms are outlined below. We have focused our 
analysis on the first two proposals related to allowable spending and 
the third proposal related to third-party non-governmental MOE, as the 
financial data reporting allows us to make some estimates of program 
impacts that may result from these proposed changes. This regulatory 
impact analysis focuses on activities funded through the TANF program. 
However, the direct impact within the program does not fully account 
for services that would continue to be provided in jurisdictions 
through other funding sources. We seek public comment on these 
estimates. When deciding whether or not to include a particular program 
or funding stream in the estimate, the Department made assumptions that 
are not official determinations of whether programs or services would 
be impacted by the proposed rule.

Data Sources for Identifying Impacts

    ACF-196R: States are required to report cumulative transfers, 
expenditures, and unliquidated obligations made with federal TANF and 
MOE funds on the ACF-196R, submitted quarterly. ACF publishes this data 
for each fiscal year, and we apply FY 2021 data in this analysis.\24\
---------------------------------------------------------------------------

    \24\ U.S. Department of Health and Human Services, U.S. 
Administration for Children and Families, Office of Family 
Assistance, FY 2021 TANF and MOE Financial Data, December 16, 2022, 
available at: https://www.acf.hhs.gov/ofa/news/ofa-releases-fy-2021-
tanf-and-moe-financial-
data#:~:text=In%20FY%202021%2C%20combined%20federal,education%2C%20an
d%20training%20activities%3B%20and.
---------------------------------------------------------------------------

    On the ACF-196R, there are 29 categories of transfers, 
expenditures, and unliquidated obligations. Some categories have 
subcategories that provide additional specificity on how funds were 
used. For example, category 9 ``Work, Education, and Training 
Activities'' is broken up into three smaller subcategories, 
``Subsidized Employment,'' ``Education and Training,'' and ``Additional 
Work Activities.'' Others are quite broad, such as category 17, 
``Services for Children and Youth.'' Even when the subcategories exist, 
there may be several types of programs or services captured in one 
category, serving different populations. It is not possible to 
determine, for example, what percentage of spending in the ``Refundable 
Earned Income Tax Credits'' is spent on families above 200 percent of 
the federal poverty guidelines. One strength of this data source is 
that states report federal and MOE spending separately, so we can 
determine how much spending in the reported categories is federal funds 
and how much is state MOE.
    ACF-204: Annual Report on State-Maintenance-of-Effort Programs. 
States must submit this report for each fiscal year and include 
information for each benefit or service program for which the state has 
claimed MOE expenditures for the fiscal year. There is wide variation 
across states in the quality and detail of these reports.

[[Page 67711]]

    The ACF-204 provides more detail in qualitative and quantitative 
information about some state MOE programs than the ACF-196R; however, 
it only encompasses information about MOE spending and is therefore an 
incomplete picture of spending. We cannot use the ACF-204 to identify 
the universe of expenditures that may be impacted by the proposed rule, 
as federal programs will not be included, and some states may have 
excluded significant portions of their MOE programs. The form can, 
however, provide some additional context and examples for types of 
programs that may be impacted.

Implementation Timeline

    The Department proposes that each provision would go into effect in 
the fiscal year following the publication of the final rule. The intent 
of the proposed implementation timeline is to provide states with 
appropriate time to understand the provisions, develop responses, and 
shift funding if necessary to be in compliance and avoid potential 
penalties. The Department seeks comment on the appropriateness of the 
proposed timeline.

Impact Estimates for Each Proposed Provision

    1. Establish a ceiling on the term ``needy'' so that it may not 
exceed a family income of 200 percent of the federal poverty 
guidelines.
    This proposed rule would require each state's definition of needy 
applied to all federal TANF and state MOE expenditures that are subject 
to a federally required needs standard to be limited to individuals in 
families with incomes at or below 200 percent of the federal poverty 
guidelines. A state is able to use definitions of ``needy'' that are at 
any level at or below 200 percent of the federal poverty guidelines but 
state definitions of ``needy'' could not exceed 200 percent of the 
federal poverty guidelines under this proposed change.\25\
---------------------------------------------------------------------------

    \25\ The federal poverty guidelines are published annually by 
the U.S. Department of Health and Human Services. See Annual Update 
of the HHS Poverty Guidelines, 74 FR 3424, January 19, 2023, 
available at: https://www.federalregister.gov/documents/2023/01/19/2023-00885/annual-update-of-the-hhs-poverty-guidelines.
---------------------------------------------------------------------------

    If states maintained their current behavior following the 
implementation of this rule, state spending on families over 200 
percent of the federal poverty guidelines would no longer be countable 
as MOE. A state could fail to reach its MOE requirements and incur a 
penalty. This would create an incentive for new behavior from states to 
transfer MOE spending from families above 200 percent of the federal 
poverty guidelines to families at or below that limit.
    To determine the impacts on spending of this provision, ACF 
reviewed ACF-204 reports and TANF state plans for FY 2021 and 
identified programs that had eligibility that included families over 
200 percent of the federal poverty guidelines. This approach is limited 
by the wide variation in quality of reports across states, and it was 
not possible to have a comprehensive view of all states. TANF state 
plans have information about both federal and MOE TANF programs, but 
not expenditure amounts. The ACF-204 reports are limited to MOE 
spending but provide both program eligibility information and 
expenditure amounts. As a result, we were able to estimate the number 
of states with either federal or MOE spending on programs that have 
needs or eligibility standards of over 200 percent of the federal 
poverty guidelines. But because the ACF-204 reports are limited to MOE, 
we were only able to estimate expenditure amounts for MOE spending.
    In at least 40 states and the District of Columbia, ACF identified 
programs, either federal or MOE-funded, with income limits of over 200 
percent of the federal poverty guidelines. There were several different 
types of programs, including pre-kindergarten, child welfare, tax 
credits, employment, housing, and emergency assistance. In some 
programs, limits were 80 percent of the state median income, while 
others had limits based on the federal poverty guidelines (e.g., 300 
percent). There was not enough detail in the ACF-204 reports or TANF 
state plans to determine for every reported program if the eligibility 
standards were above 200 percent of the federal poverty guidelines. ACF 
expects that there may be an undercount in the number of impacted 
programs or states.
    In addition to a short description of each MOE program type, states 
also reported the amount of state MOE expenditures for each program on 
the ACF-204. In 22 states and the District of Columbia, ACF identified 
programs funded with MOE that had needs or eligibility standards of 
over 200 percent of the federal poverty guidelines. We estimate that 
total state MOE expenditures on identified programs with eligibility of 
over 200 percent of the federal poverty guidelines was $2.92 billion in 
FY 2021. Because federal spending is not included, this will be an 
underestimate.
    Of that $2.92 billion, only a percentage would have been spent on 
families with incomes above 200 percent of the federal poverty 
guidelines. There may be great variation across states and programs in 
the proportion of funds that are spent on families with higher incomes. 
ACF estimates that the range of funds spent on families above 200 
percent of the federal poverty guidelines was between 5-20 percent, 
which is $146.2 million to $584.9 million (see Figure B). With the 
proposed rule, the impacted amount would be transferred to programs and 
services for families with incomes below 200 percent of the federal 
poverty guidelines.

 Figure B--Programs With Eligibility Over 200 Percent of the Federal Poverty Guidelines and Estimates of Percent
                                                of Impacted Funds
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                        Expenditures on programs     Funds spent on families above 200% of the
                                         with eligibility above         federal poverty guidelines if X% of
                                         200% of the federal           expenditures are above 200% (millions)
                                         poverty guidelines.
----------------------------------------------------------------------------------------------------------------
                                                                                     5%                      20%
$ millions............................  2,924....................                 146.2                    584.9
----------------------------------------------------------------------------------------------------------------


[[Page 67712]]

State Responses

    No change: If states did not change their behavior in response to 
this rule, an amount between $146.2 million and $584.9 million in 
spending would be determined to be unallowable. If a state used federal 
TANF funds on unallowable spending, it would be assessed a penalty for 
misuse of funds. The penalty would be equal to the amount of funds 
misused, which would be a reduction in the subsequent year's block 
grant. The state would be required to make up that reduction in the 
year following the imposition of the penalty with state funds that do 
not count as MOE. If it used state funds, it could not count those as 
MOE. If a state does not meet its required MOE level for a fiscal year, 
it is subject to financial penalty in the amount it falls short of its 
required MOE. Therefore if the state were no longer able to meet its 
MOE requirement following the proposed change, it would be assessed a 
penalty. The penalty would be equal to the amount that the state fell 
short of its MOE requirement, which would be a reduction in the 
subsequent year's block grant. The state would be required to make up 
that reduction with state spending that does not count as MOE.
    Shift spending from services for families with incomes over 200 
percent of the federal poverty guidelines to services for families with 
incomes at or below 200 percent of the federal poverty guidelines.
    To avoid a penalty, states would shift the $146.2 to $584.9 million 
in spending for families with incomes over 200 percent of the federal 
poverty guidelines to services for families with incomes at or below 
200 percent of the federal poverty guidelines. This would represent a 
transfer focusing on supports for the families that need TANF services 
the most.
    2. Determining when an expenditure is ``reasonably calculated to 
accomplish a TANF purpose''.
    States are able to spend federal TANF and MOE funds on activities 
that are ``reasonably calculated to accomplish'' one or more of TANF's 
four purposes: (1) to assist needy families so that children may be 
cared for in their own homes; (2) to end dependence of needy parents on 
government benefits by promoting job preparation, work and marriage; 
(3) to prevent and reduce the incidence of out-of-wedlock pregnancies; 
and (4) to encourage the formation and maintenance of two-parent 
families. The proposed rule would amend 45 CFR 263.11 to add a new 
subsection (c) that sets forth the reasonable person standard for 
assessing whether an expenditure is ``reasonably calculated to 
accomplish the purpose of this part'' 42 U.S.C. 604(a)(1). The proposed 
regulation defines it to mean expenditures that a reasonable person 
would consider to be within one or more of the enumerated four purposes 
of the TANF program.
    With the proposed rule, spending that does not meet the reasonable 
person standard will not be allowable. We expect that some of the 
current TANF and MOE spending, if continued after the implementation of 
this rule, would not meet this standard. When considering the impacts 
on spending of this provision, ACF identified the major ACF-196R 
expenditure areas where spending may be impacted: pre-kindergarten and 
Head Start, services for children and youth, child welfare, and college 
scholarships. Much of the spending claimed in these categories would 
continue to be allowable under the proposed rule if states demonstrate 
that it meets the reasonable person standard. However, for some 
expenditures, states will not be able do this, and that spending would 
not be allowable. The Department made assumptions about a percentage 
range of spending in a given expenditure category or subcategory that 
would no longer be allowable under the proposed rule in order to 
estimate impacts. The Department then considered the cumulative impact 
across categories to identify the possible responses of states and 
estimate economic impact. The Department welcomes comments on these 
estimates, described below.
Pre-Kindergarten and Head Start
    ACF expects that a proportion of current spending reported under 
the ``Pre-Kindergarten and Head Start'' category on the ACF-196R under 
purposes three and four would not meet the proposed criteria of meeting 
the reasonable person standard. States with spending on pre-
kindergarten and Head Start may be able to claim them as being directly 
related to purpose two, by demonstrating that the services provide a 
needed support so that parents may prepare for or go to work. Some 
states may already be claiming pre-kindergarten and Head Start MOE as 
purpose two, and others may be able to shift their spending from other 
purposes to purpose two. This may lead states to change how they claim 
this spending. If they are currently claiming spending under purpose 
three or four, they might shift to claiming under purpose two if they 
can demonstrate that the service helps parents prepare for, obtain, or 
maintain work. This would not represent a change in spending, but a 
change in categorization. The Department expects that a substantial 
portion of pre-kindergarten or Head Start spending may be allowable 
under purpose two. If states do categorize pre-kindergarten or Head 
Start spending under purpose two, they would be required to meet the 
200 percent of the federal poverty guidelines standard of ``needy'' as 
proposed in the NPRM. If states are currently spending TANF funds on 
pre-kindergarten or Head Start for families over 200 percent of the 
federal poverty guidelines, they would need to shift or narrow that 
spending to families at or under 200 percent of the federal poverty 
guidelines.
    In FY 2021, 28 states reported spending $2.9 billion on ``Early 
Care and Education-Pre-Kindergarten/Head Start'' (see Figure C). A 
reasonable estimate for the proportion of funds that would no longer be 
allowable may be 10-50 percent (see Figure D). We selected this range 
because of our expectation that a substantial portion of pre-
kindergarten and Head Start spending will be allowable under purpose 
two, while making the range broad to capture the uncertainty due to 
lack of detailed data. The Department expects that this would not be 
uniformly distributed across states, however we do not have detailed 
data to estimate accurately which states would be most impacted.

----------------------------------------------------------------------------------------------------------------
                                                       FY 2021 spending on Pre-K and Head Start ($ millions)
                                                  --------------------------------------------------------------
                                                     Combined Federal
                                                         and MOE              Federal                MOE
----------------------------------------------------------------------------------------------------------------
U.S. Total.......................................            $2,929.3                $70.9             $2,858.5
----------------------------------------------------------------------------------------------------------------


[[Page 67713]]


 Figure D--Estimated Amount of Pre-Kindergarten and Head Start that Will
    No Longer Be Allowable if 10-50% Is Not Allowable ($ in millions)
------------------------------------------------------------------------
                                                       Non-allowable
                                                    estimate range  ($
                                                         millions)
                                                 -----------------------
                                                      10%         50%
------------------------------------------------------------------------
U.S. Total......................................     $292.9    $1,464.7
------------------------------------------------------------------------

Services for Children and Youth
    In FY 2021, 28 states reported a total of $925.0 million in federal 
TANF and MOE expenditures on ``Services for Children and Youth.'' A 
wide variety of services and programs may fall in this category, 
including after-school programs and mentoring or tutoring programs. The 
Department expects that many of these programs would not meet the 
reasonable person standard, though programs focused on preventing teen 
pregnancy and non-marital childbearing would likely be allowable. 
Because of data availability, the Department is presenting a wide range 
of estimates for the amount of spending in this category that would no 
longer be allowable under the proposed rule, from 10-50 percent. We 
welcome comments on the accuracy of this estimate. If 10 to 50 percent 
of the FY 2021 expenditures were no longer allowable, that would 
represent $92.5 to $462.5 million.

    Figure E--Expenditures on Services for Children and Youth in FY 2021 and Estimated Non-Allowable Spending
                                                  [$ millions]
----------------------------------------------------------------------------------------------------------------
                                                                               Non-allowable estimate range
                  Number of States                      FY2021 Spending  ---------------------------------------
                                                          (millions)              10%                 50%
----------------------------------------------------------------------------------------------------------------
28..................................................             $925.0               $92.5              $462.5
----------------------------------------------------------------------------------------------------------------

Child Welfare
    In FY 2021, states spent approximately $1.9 billion in federal TANF 
and MOE funds on ``Child Welfare Services.'' This category includes the 
three subcategories ``20.a Family Support/Family Preservation/
Reunification Services,'' ``20.b Adoption Services,'' and ``20. C 
Additional Child Welfare Services'' (see Figure F). The Department 
expects that most or all spending in 20.a and 20.b would still be 
allowable under the proposed rule, which is approximately 51 percent of 
the FY 2021 Child Welfare Services spending. The Department expects 
that some of the spending in 20.c ``Additional Child Welfare 
Services,'' such as expenditures on child protective services 
investigations, would not meet the reasonable person standard and will 
therefore not be allowable.

  Figure F--FY 2021 ACF-196 Child Welfare Services Spending by Category
------------------------------------------------------------------------
                                                      % of child welfare
     Child welfare services        FY 2021 spending    services spending
           categories                 (millions)          FY 2021 (%)
------------------------------------------------------------------------
Family Support/Family                         899.2                  47
 Preservation/Family
 Reunification Services.........
Adoption Services...............               32.1                   2
Additional Child Welfare                      967.2                  51
 Services.......................
                                 ---------------------------------------
    Total.......................            1,898.5   ..................
------------------------------------------------------------------------

    States do not report enough detail on child welfare expenditures to 
determine conclusively the amount of spending that would no longer be 
allowable. Therefore, the Department estimates that 10 to 50 percent of 
the current ``Additional Child Welfare Services'' spending would not be 
allowable. The impact of this would vary across states. In FY 2021, 23 
states reported spending ``Additional Child Welfare Services'' funds on 
the ACF-196R. If 10 to 50 percent of this spending were no longer 
allowable, that would be $96.7 to $483.6 million, or 5 to 25 percent of 
FY 2021 ``Child Welfare Services'' spending (see Figure G).

----------------------------------------------------------------------------------------------------------------
                                                                               Non-allowable estimate range
                  Number of states                     FY 2021 spending  ---------------------------------------
                                                         ($ millions)             10%                 50%
----------------------------------------------------------------------------------------------------------------
23..................................................             $967.2               $96.7              $483.6
----------------------------------------------------------------------------------------------------------------

College Scholarships
    Education and training for parents with low incomes is a critical 
element of the TANF program's capacity to increase opportunities for 
family economic mobility. However, the Department is aware of instances 
of TANF funds being used for college scholarships for adults without 
children. Under the proposed rule, college scholarships for adults 
without children would not meet the reasonable person standard.\26\
---------------------------------------------------------------------------

    \26\ The Department notes that it is possible that tuition 
assistance and other education and training supports may meet TANF 
purpose two, as long as the services specifically support the 
economic advancement of parents with low incomes.
---------------------------------------------------------------------------

    To estimate spending on college scholarships, ACF examined spending 
reported on the ACF-196R under ``Education and Training'' or ``non-EITC 
refundable tax credit.'' Depending on

[[Page 67714]]

the structure of their programs, states report college scholarship 
spending in these categories. ACF identified the expenditures of eight 
states with known spending on college scholarships for adults without 
children in FY 2021 in the appropriate ACF-196R category (see Figure 
H). We then examined the ACF-204 reports for these states with known 
spending on college scholarships for adults without children and were 
often able to identify amounts that were more precise than obtained 
from including the entire ACF-196R category. ACF estimates that these 
states spent $1.14 billion on college scholarships in FY 2021. This may 
exclude states with smaller amounts of college scholarship spending 
that we are unaware of due to current reporting limitations. It also 
likely overstates the college scholarship expenditures in identified 
states, as the ACF-196R categories include activities other than 
college scholarships. For example, in at least one state, the category 
includes a variety of other tax credits, and the amount of college 
tuition tax credits is not identified separately. Additionally, a 
portion of college scholarship spending may go to parents with children 
at or under 200 percent of the federal poverty guidelines, and 
therefore might be allowable under purpose two after rule enactment. 
Given limitations in the data that ACF can collect, we believe that a 
range from 85 to 115 percent of $1.14 billion, that is, from $970.7 
million to 1.31 billion, is a reasonable estimate for non-allowable 
spending. Because we looked at states with known college scholarship 
spending on adults without children, and then were able to identify 
specific college scholarship expenditures in these states, we believe 
that the percentage of this spending that will be non-allowable is 
high, providing the basis for the 85 percent lower estimate. There is 
still some uncertainty, especially in states where the expenditure was 
a ``non-EITC refundable tax credit,'' as we do not have data on the 
amount of this spending that is specifically on college scholarships. 
The upper estimate accounts for states that may have college 
scholarship spending on adults without children that we are unaware of 
from current reporting.

    Figure H--Estimates of FY 2021 Spending in Categories That Include College Scholarships and Non-Allowable
                                                 Estimate Range
                                                  [$ millions]
----------------------------------------------------------------------------------------------------------------
                                                   FY 2021 spending on       Non-allowable estimate range ($
                                                         college                        millions)
                                                     scholarships ($   -----------------------------------------
                                                        millions)               85%                  115%
----------------------------------------------------------------------------------------------------------------
U.S. Total.......................................             1,142.0                970.7              1,313.3
----------------------------------------------------------------------------------------------------------------

State Responses

    To identify possible state responses to this provision, we looked 
at the cumulative impact of spending in the four categories described 
above, and at federal and MOE spending separately, because states incur 
different types of penalties depending on the type of spending. Figure 
I summarizes the amount of spending in each category, broken out by 
federal and MOE. In FY 2021, states spent $1.5 billion in federal funds 
on pre-kindergarten and Head Start, services for children and youth, 
additional child welfare services, and college scholarships. States 
claimed $4.5 billion in maintenance-of-effort spending on those 
categories. As discussed previously, we expect that a portion of this 
spending would be non-allowable under the reasonably calculated 
provision.

                     Figure I--Amount of FY 2021 Spending on Potentially Impacted Categories
                                                  [$ millions]
----------------------------------------------------------------------------------------------------------------
                                                                  Amount of spending: FY 2021 (millions)
                   Spending category                    --------------------------------------------------------
                                                              Federal              MOE               Total
----------------------------------------------------------------------------------------------------------------
Pre-Kindergarten/Head Start............................              $70.9           $2,858.5           $2,929.3
Services for Children and Youth........................              211.9              713.1              925.0
Child Welfare Services--Additional Child Welfare                     589.8              377.4              967.2
 Services..............................................
College Scholarships...................................              601.0              541.0            1,142.0
                                                        --------------------------------------------------------
    Total Spending.....................................            1,473.5            4,490.0            5,963.5
----------------------------------------------------------------------------------------------------------------

    Response: No change in behavior.
Federal TANF Spending
    In FY 2021, 37 states had federal spending in these categories that 
we expect may be impacted under the reasonably calculated provision. 
Taking into account the estimated percentage range of non-allowable 
spending in each category described previously, we estimate that 
between $598.1 and $1.13 billion of the total $1.47 billion in federal 
spending in these categories would be non-allowable (see Figure J.) 
Therefore, if states did not change their behavior in the year 
following the enactment of the proposed rule, 37 states would spend 
between $598.1 and $1.14 billion total in federal TANF funds on 
services that are non- allowable. In the following fiscal year, the 
audit process would identify the non-allowable spending, and states 
would incur a penalty for misuse of funds in the year following the 
audit. With this penalty, the federal block grant award is reduced by 
the amount of TANF funds misused. States are required to replace these 
federal funds with state funds. This would be a transfer of between 
$598.1 and $1.127 billion in state funds from other uses to TANF. The 
states would incur the

[[Page 67715]]

penalty in the year following audit findings of the non-allowable 
spending. We expect that the possibly of a penalty would serve as an 
incentive for states to transfer federal TANF funds from non-allowable 
spending to allowable uses.

                                                          Figure J--Impact on Federal Spending
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Estimate of non-allowable spending under
                                                                                                                    reasonably calculated provision
                      Federal                          Number of states with federal spending in categories                    (millions)
                                                     possibly impacted under reasonably calculated provision  ------------------------------------------
                                                                                                                  Low estimate         High estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          37              $598.1               $1,127.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

MOE Spending

    To meet the basic MOE requirement, states must claim state 
expenditures each fiscal year of at least 80 percent of a historic 
State expenditure level for ``qualified State expenditures.'' If a 
state meets the minimum work participation rate requirements for all 
families and two-parent families, they only need to spend at least 75 
percent of the historic amount. For the purpose of this analysis, we 
assume that all states have an 80 percent MOE requirement, because 
states do not know which level they are required to meet until after 
the fiscal year is over.
    In FY 2021, 38 states claimed MOE spending in at least one of the 
four categories we analyzed as possibly being impacted under the 
reasonably calculated provision, totaling $4.49 billion. Taking into 
account the estimate range of non-allowable spending within each 
category described previously, we estimate that between $854.7 million 
and $2.60 billion of this spending would be non-allowable under the 
proposed provision.
    Under the proposed reasonably calculated provision, if states were 
to make no changes to their behavior, they would spend between $854.7 
million and $2.60 billion that is non-allowable as MOE. When reviewing 
state spending, the Department would not ``count'' this spending as 
MOE. A state with non-allowable spending would have its MOE level 
reduced by the amount of non-allowable spending.
    This reduction in MOE will have different impacts on states 
depending on their levels of MOE spending. For example, a state may 
have a $100 million MOE requirement, and claim $120 million in MOE 
spending. If $15 million of that spending is non-allowable, the state's 
MOE level would be reduced to $105 million. The state would still meet 
the MOE requirement. Many states claim ``excess MOE,'' meaning they 
claim more MOE spending than needed to meet their basic requirement. 
So, the Department expects after the rule's enactment, most states will 
still have enough MOE spending to meet their basic requirement and 
therefore will not be impacted if they do not change their MOE spending 
behavior.
    However, some states may not be able to meet the MOE requirement 
after subtracting non-allowable spending. For example, if a state has a 
$100 million MOE requirement, claims $120 million in MOE spending, but 
$40 million is non-allowable, their MOE spending will be reduced to $80 
million. They would not meet their basic MOE requirement and would be 
assessed a penalty for failing to meet the TANF MOE requirement. In the 
next fiscal year, their federal TANF grant would be reduced by the 
amount of the shortfall, $20 million. The state then would need to 
``replace'' those funds by spending an additional $20 million in state 
funds. This would be a transfer of state funds from their status quo 
use to MOE.
    We applied the estimated percentage range of non-allowable spending 
in each category to state spending in FY 2021, subtracting each state's 
estimated amount of non-allowable spending from its reported MOE 
spending. We identified states where this reduction would result in 
their failure to have enough MOE to meet the 80% MOE requirement, 
performing this analysis for the low and high ends of the estimated 
non-allowable spending range.
    Of the 38 states who claimed MOE spending in one or more of the 
four analyzed categories, we estimate that between five and nine states 
would fail to meet the MOE requirement under the reasonably calculated 
provision. The amount of MOE shortfall would be between $196.8 and 
$636.1 million (Figure K). If states did not change their behavior, 
these five to nine states would be penalized for failing to meet the 
TANF MOE requirement. They would need to transfer between $196.8 and 
$636.1 million in state funds to TANF MOE. We expect that this would 
incentivize impacted states to change behavior to avoid a penalty.

                                                            Figure K--Impact on MOE Spending
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Estimated additional number of states   Amount of shortfall (millions)
                                                                                 that fail to meet 80% MOE requirement ---------------------------------
                                      Number of states with MOE spending in      under reasonably calculated provision
               MOE                     categories possibly impacted under                          *
                                         reasonably calculated provision       ----------------------------------------   Low estimate    High estimate
                                                                                   Low estimate        High estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           38                   5                   9           $196.8           $636.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Response: Shift non-allowable spending in pre-kindergarten and Head 
Start, services for children and youth, and additional child welfare 
services to activities that meets the reasonable person standard.
    States that reported federal TANF spending in these categories 
could shift the subset of non-allowable federal spending to other 
programs or services that are directly related to a TANF purpose. For 
pre-kindergarten and Head Start spending, states may be able to 
recategorize the non-allowable spending claimed under purpose three as 
purpose two. We estimate that the total transfer for federal TANF 
spending would be between $598.1 million and $1.13 billion.
    States that claimed MOE spending in these categories could shift 
spending that is non-allowable under the reasonably calculated 
provision to other programs or services that are directly

[[Page 67716]]

related to a TANF purpose. As discussed previously, we expect that this 
change in behavior will be incentivized in states where they cannot 
meet their basic MOE requirement if the non-allowable spending is 
excluded from their MOE. This is the case in five to nine states, and 
the estimated transfer in state funds to allowable TANF MOE uses is 
between $196.8 and $636.1 million.

Caveats

    Our estimates only include four spending categories, which we 
selected because we believe they represent the majority of non-
allowable spending. With the implementation of the rule, we may 
identify non-allowable spending in other categories, which could change 
the number of impacted states and amount of non-allowable spending.
    Our analysis assumes that the percentage of spending on the four 
categories that is non-allowable is consistent across states. We expect 
that this is not the case, and that depending on the services provided, 
some states may have proportionally more non-allowable spending than 
others. We try to compensate for this by having fairly broad ranges in 
our estimates.
    3. Exclude third-party, non-governmental spending as allowable MOE.
    Currently, states are able to count spending by third-party, non-
governmental entities toward their MOE and Contingency Fund spending 
requirements. This third-party, non-governmental spending often occurs 
in programs outside of the TANF program but for services and benefits 
that meet TANF allowable purposes. States do not report data to ACF 
about the source of their MOE; we have based our analysis on 
information from a GAO study published in 2016, the only published data 
available for analysis.\27\ We used the percentage of MOE spending that 
was third-party, non-governmental MOE spending in the GAO study to 
estimate spending for FY 2021, and we estimate that five states used 
third-party, non-governmental MOE to meet some of their MOE requirement 
in FY 2021. The total amount of third-party, non-governmental MOE 
spending in those five states was an estimated $145.7 million.
---------------------------------------------------------------------------

    \27\ U.S. Governmental Accountability Office, Temporary 
Assistance for Needy Families: Update on States Counting Third-Party 
Expenditures toward Maintenance of Effort Requirements, February 
2016, available at: https://www.gao.gov/assets/gao-16-315.pdf.
---------------------------------------------------------------------------

    If these states did not change their behavior following the 
implementation of a final rule that adopts the provision on third-
party, non-governmental MOE as proposed, they would each fall short of 
meeting the basic MOE requirement by the amount of third-party, non-
governmental expenditures that counted toward basic MOE. Each would be 
assessed a penalty that reduced the TANF grant by the amount of the 
shortfall. They would have to expend additional state funds beyond 
their MOE requirement, which do not count as MOE, in the year after we 
impose the penalty, to replace the reduction of the federal grant. This 
would represent a transfer of state funds to the TANF program from 
other state spending. Assuming that all five states failed to expend 
additional MOE in the first year of implementation to substitute for 
any of their third-party, non-governmental MOE, a total of $145.7 
million of TANF spending would be transferred from the states to the 
federal government.
    We have limited information about third-party non-governmental 
expenditures, and we cannot accurately estimate how much a state may 
fall short of its basic MOE requirement in a given year. However, for a 
state that would need to increase state MOE spending to comply with its 
basic MOE requirement after changes in this regulation take effect, the 
impact of falling short and having a penalty would be twice as great as 
increasing MOE spending and avoiding a penalty. Therefore, we 
anticipate that states will have an incentive to shift state spending 
to avoid a penalty. States would transfer spending toward their TANF 
programs or identify additional state governmental spending that meets 
one or more of the purposes of TANF and qualifies as MOE.
    Under this proposed rule, we do not expect that the third-party, 
non-governmental expenditures on TANF-eligible individuals would 
decrease, because these are typically funds that these organizations 
spend, regardless of the state's ability to count them toward the TANF 
MOE requirement. It is possible that governmental spending on TANF-
eligible individuals would stay the same (by identifying additional 
existing governmental MOE) or increasing MOE spending in other areas. 
There is great variation in the types of programs that can be 
considered TANF-related spending (e.g., basic assistance, child care, 
work supports) and there may be high returns to society for spending on 
these types of programs. When faced with a need to increase MOE 
spending, states will have a variety of beneficial types of activities 
they can choose to fund, and we expect that they would choose those 
that are in greatest need or provide the highest return on the 
expenditure, given local conditions. Therefore, an equally efficient or 
improved utilization of resources is expected.
    4. Ensure that excused holidays match the number of federal 
holidays, following the recognition of Juneteenth as a federal holiday.
    This proposal would realign the TANF rules with respect to holidays 
to the number of federal holidays. It would revise Sec.  261.60(b) to 
increase from 10 to 11 the maximum number of holidays permitted to 
count in the work participation rate for unpaid work activities in the 
fiscal year. The proposal would not alter the calculation for 
individuals participating in paid work activities, which includes the 
hours for which an individual was paid, including paid holidays and 
sick leave, and which can be based on projected actual hours of 
employment for up to six months, with documentation. There is 
negligible anticipated fiscal impact of this provision.
    5. Develop new criteria to allow states to use alternative Income 
and Eligibility Verification System (IEVS) measures.
    IEVS is a set of data matches that each state must complete to 
confirm the initial and ongoing eligibility of a family for TANF-funded 
benefits. State TANF programs are required to participate in IEVS and 
must match TANF applicant and recipient data with four types of 
information through IEVS. The Department is proposing to change the 
criteria for alternate sources of income and eligibility information, 
which would provide flexibility to states to find more effective data 
matches and perform the ones that are likely to benefit their programs 
the most. States will have the option of continuing the status quo IEVS 
measures or of using the proposed flexibility to use alternative 
measures. For states that choose to use this flexibility, there will be 
upfront costs of staff time to develop new criteria and submit them for 
approval, along with costs of ongoing monitoring and compliance. The 
main benefit will likely be the cost effectiveness of alternative 
sources of data matching. We have not quantified these impacts. Because 
they have the option of maintaining the status quo, we expect that 
states will only invest upfront and ongoing resources if this cost to 
them is outweighed by the benefits of the flexibility. The Department 
expects a reduction in administrative burden for states that opt to 
take up this provision and welcomes comments from states about the 
impact of this provision on administrative burden or other costs and 
benefits.

[[Page 67717]]

    6. Clarify the ``significant progress'' criteria following a work 
participation rate corrective compliance plan.
    This proposal would add a clearer means of qualifying for 
``significant progress'' when a state that has failed its work 
participation rate also fails to correct the violation fully in a 
corrective compliance plan. Specifically, it would permit a state that 
failed both the overall and two-parents rates for a year and 
subsequently meets the overall rate (but not the two-parent rate) as 
part of its corrective compliance plan to qualify for a reduced 
penalty. The Department considers this proposal necessary to improve 
governmental processes and expects a reduction in potential financial 
penalties by making penalties commensurate with the degree of the 
state's remaining noncompliance.
    7. Clarify the existing regulatory text about the allowability of 
costs associated with disseminating program information.
    The seventh proposed change would clarify existing regulatory text 
about the allowability of costs associated with providing program 
information. We propose to clarify the point that administrative costs 
exclude the costs of disseminating program information. The Department 
considers this necessary to provide clarification because the TANF 
statute sets an administrative cap of fifteen percent and failure to 
comply with the administrative cap could lead to a misuse of funds 
penalty. We do not expect that this will have a fiscal impact because 
it is only clarifying our longstanding statutory interpretation.

Administrative Costs

Costs to ACF

    We identify a one-time cost to ACF's Office of Family Assistance to 
revise the Compliance Supplement for the Office of Management and 
Budget's Uniform Administrative requirements, Cost principles, and 
Audit Requirements Regulations. For the purposes of this analysis, we 
assume these tasks would be performed by federal employees on the 
General Schedule payscale at grade 14, step 5, in the locality pay area 
covering ACF headquarters in Washington, DC, earning an hourly wage of 
$71.88.\28\ Assuming benefits and indirect costs of labor equal 100 
percent of the hourly wage, the corresponding fully loaded cost of 
labor for these employees is $157.48 per hour. We anticipate that it 
will take two employees, each working 80 hours, to revise these 
documents, or 160 hours in total. Thus, we estimate that ACF would 
incur $23,001.60 in costs under the proposed rule. This estimate 
represents an opportunity cost, monetized as the value of the 
employee's productive time, rather than additional federal spending.
---------------------------------------------------------------------------

    \28\ U.S. Office of Personnel Management. 2023 General Schedule 
(GS) Locality Pay Tables: Washington-Baltimore-Arlington, DC-MD-VA-
WV-PA. https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2023/DCB_h.pdf.
---------------------------------------------------------------------------

Costs to States and Other Jurisdictions Administering TANF Programs

    We identify a one-time cost to agencies that administer TANF 
programs to read and understand the proposed rule. Given the length of 
the preamble (approximately 21,600 words) and average reading speeds 
about 225 words per minute,\29\ we estimate that it would take each 
individual about 1.6 hours to read and understand the proposed 
rule.\30\ We assume that, in each jurisdiction, one lawyer and one 
auditor would spend time absorbing this information. We adopt an 
average pre-tax hourly wage for lawyers of $78.74 per hour,\31\ and a 
corresponding fully loaded cost of labor of $157.48 per hour; for 
auditors, we adopt a pre-tax hourly wage of $41.70 per hour,\32\ and a 
corresponding fully loaded cost of labor of $83.40 per hour. For this 
impact, we calculate costs of $385.41 per jurisdiction,\33\ and total 
costs of $20,812.03 across all jurisdictions.\34\
---------------------------------------------------------------------------

    \29\ U.S. Department of Health and Human Services, Office of the 
Assistant Secretary for Planning and Evaluation. 2016. Guidelines 
for Regulatory Impact Analysis. https://aspe.hhs.gov/reports/guidelines-regulatory-impact-analysis. 225 is a midpoint estimate of 
the ``average adult reading speed (approximately 200 to 250 words 
per minute)'' (page 26).
    \30\ 1.6 hours = 21,600 words / 225 words per minute / 60 
minutes per hour.
    \31\ U.S. Bureau of Labor Statistics. Occupational Employment 
and Wages, May 2022: 23-1011 Lawyers. https://www.bls.gov/oes/current/oes231011.htm. Accessed August 16, 2023.
    \32\ U.S. Bureau of Labor Statistics. Occupational Employment 
and Wages, May 2022: 13-2011 Accountants and Auditors. https://www.bls.gov/oes/current/oes132011.htm. Accessed August 16, 2023.
    \33\ $385.41 = 1.6 hours * ($157.48 per hour + $83.40 per hour).
    \34\ $20,812.03 = 54 jurisdictions * $385.41 per jurisdiction.
---------------------------------------------------------------------------

    We also identify a cost to agencies that administer TANF programs 
to determine whether they are in compliance with the regulatory 
requirements of the proposed rule. We model this impact as one program 
administrator and one budget officer per jurisdiction each spending 3 
work days on this effort, or 48 total working hours per jurisdiction. 
To monetize this impact, we adopt an average pre-tax hourly wage for 
managers of $63.08 per hour, and a corresponding fully loaded wage of 
$126.16. For this impact, we calculate costs of $6,055.68, and total 
costs of $327,006.72 across all jurisdictions.
    In total, we identify $23,001.60 in costs to ACF, $347,818.75 in 
costs to jurisdictions administering TANF programs, and $370,820.35 in 
incremental administrative costs attributable to the proposed rule. We 
request comment on these cost estimates, including to identify any 
additional sources of costs of this proposed rule.
Analysis of Regulatory Alternatives
    In developing this proposed rule, the Department carefully 
considered the alternative of maintaining the status quo. If the 
Department does not act, states will be able to continue funding 
services that do not align with congressional intent. Additionally, 
there will be valuable missed opportunities to increase administrative 
efficiency and to support states in designing and implementing 
effective work programs that provide positive benefits to participants 
and society.
    In addition to maintaining the status quo, we considered other 
alternatives to the proposals in the NPRM.
    Alternative 1: Establish a ceiling on the term ``needy'' so that it 
may equal but may not exceed a family income of 130 percent of the 
federal poverty guidelines. We considered several possible approaches 
to establishing a ceiling on the term ``needy.'' In particular, we 
considered proposing setting the limit at or below 130 percent of the 
federal poverty guidelines. We examined the ACF-204 forms submitted by 
states in 2021 in order to identify programs funded with MOE that had 
needs or eligibility standards of over 130 percent of the federal 
poverty guidelines. We estimate that the range of funds spent on 
families above 130 percent of the federal poverty guidelines is between 
$483.8 million and $3.285 billion. Under this alternative, the impacted 
amount would be transferred to programs and services for families with 
incomes at or below 130 percent of the federal poverty guidelines. We 
note that because of data limitations, our analysis only includes 
expenditures claimed as MOE. Therefore our estimate likely 
underrepresents the magnitude of the impact.
    The Department also reviewed general eligibility limits for several 
other major federal programs that serve families with very low incomes, 
as shown in Figure L.

[[Page 67718]]



    Figure L--Simplified Income Eligibility Limits for Other Federal
                                Programs
------------------------------------------------------------------------
             Program                     Income eligibility limit
------------------------------------------------------------------------
Medicaid........................  At or below 138% of the federal
                                   poverty guidelines in Medicaid-
                                   expansion states, lower in non-
                                   expansion states.
SNAP............................  At or below 130% of the federal
                                   poverty guidelines; up to 200% for
                                   states with broad-based categorical
                                   eligibility for those receiving a
                                   TANF-funded benefit.
LIHEAP..........................  At or below 150% of the federal
                                   poverty guidelines or at or below 60%
                                   State Median Income.
Head Start......................  At or below 100% of the federal
                                   poverty guidelines, or households
                                   receiving SNAP and other public
                                   assistance.
National School Lunch Program...  At or below 130% of the federal
                                   poverty guidelines eligible for free
                                   meals; between 104% and 185% eligible
                                   for reduced price meals.
Title IV-E Foster Care..........  Eligible for Aid to Families with
                                   Dependent Children (AFDC) under the
                                   state plan in effect July 16, 1996.
Social Services Block Grant.....  At or below 200% of the federal
                                   poverty guidelines.
------------------------------------------------------------------------

    Because of the wide variety of services funded by TANF, the 
Department is aware that states may have strategically designed 
services so that TANF programs can enhance and complement other federal 
programs while still serving needy families. By setting a ceiling above 
the limit of many other programs, the Department allows for state 
flexibility while also aligning closely with another grant that also 
funds a variety of services for needy families, the Social Services 
Block Grant.
    Alternative 2: Establish a ceiling on the term ``needy'' so that it 
may equal but may not exceed a family income of 300 percent of the 
federal poverty guidelines. In addition to a lower needy standard 
limit, the Department also considered establish a higher ceiling on the 
term ``needy'' at 300 percent of the federal poverty guidelines. We 
examined the ACF-204 forms submitted by states in 2021 and identified 
$826.9 million in expenditures claimed as MOE in programs that have 
needs standards above 300 percent of the federal poverty guidelines. We 
estimate that between $41.3 million and $165.4 million of these 
expenditures are for families above 300 percent of the federal poverty 
guidelines. Under this alternative, the impacted amount would be 
transferred to programs and services for families with incomes at or 
below 300 percent of the federal poverty guidelines. We note that 
because of data limitations, our analysis only includes expenditures 
claimed as MOE. Therefore our estimate likely underrepresents the 
magnitude of the impact.
    For context, for a family of three in 2021, this would be an annual 
income of $65,880. The monthly average would be $5,490, which is 1.5 
times greater than the highest state eligibility limit for ongoing 
eligibility for cash assistance in 2021. Given that 300 percent greatly 
exceeds the highest income limit for cash assistance initial 
eligibility, and that it is substantially higher than other federal 
program income eligibility limits (see Figure L), the Department 
rejected a 300-percent limit, as it did not appear to be aligned with 
congressional intent for programs that serve needy families.
    Alternative 3: Establish a phase-in schedule for the provisions of 
the proposed rule: provisions four through seven would have effective 
dates in the fiscal year of the finalization of the proposed rule; 
provisions one through three would have an effective date at the start 
of the fiscal year following publication. Under this alternative, with 
the finalization of the proposed rule, provisions four through seven, 
related to work and administrative efficiencies, would be effective 
immediately. For the first three provisions regarding allowable 
spending and third-party, non-governmental MOE, there would be an 
effective data in the fiscal year following the finalization of the 
rule. By establishing different effective dates, states would have 
necessary time to identify strategies and make changes to be in 
compliance with the allowable spending and third-party MOE provisions, 
which could be a complex process in some states. It would also not 
delay the implementation of provisions four through seven, which 
provide some changes that states have requested and strengthen TANF 
work programs. However, it is likely that provisions four through six 
will require changes to state administrative systems. Additionally, 
because of uncertainty in timing of the effective date, the Department 
is concerned about the burden on states if the rule is finalized late 
in a fiscal year. Therefore, the Department rejected this alternative 
in favor of a single effective date for all provisions at the start of 
the fiscal year following finalization.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires Agencies 
to analyze the impact of rulemaking on small entities and consider 
alternatives that would minimize any significant impacts on a 
substantial number of small entities. For purposes of the RFA, states 
and individuals are not considered small entities. As the rule directly 
and primarily impacts states and indirectly impacts individuals, it has 
been determined, and the Secretary proposed to certify certifies, that 
this proposed rule would not have a significant impact on a substantial 
number of small entities.

Paperwork Reduction Act

    Under the Paperwork Reduction Act (44 U.S.C. 3501 et seq., as 
amended) (PRA), all Departments are required to submit to OMB for 
review and approval any reporting or recordkeeping requirements 
inherent in a proposed or final rule. As required by this Act, we will 
submit any proposed revised data collection requirements to OMB for 
review and approval

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 closest to the 
people. While the Department has not identified this rule to have 
federalism implications as defined in the Executive Order, consistent 
with Executive Order 13132, the Department specifically solicits and 
welcomes comments from state and local government officials on this 
proposed rule.

Assessment of Federal Regulation and Policies on Families

    Section 654 of the Treasury and General Government Appropriations 
Act of 2000 (Pub. L. 106-58) requires federal agencies to determine 
whether a policy or regulation may affect family well-being. If the 
agency's determination is affirmative, then the agency must prepare an 
impact

[[Page 67719]]

assessment addressing seven criteria specified in the law. This 
proposed regulation would not have a negative impact on family well-
being as defined in the law.
    Jeff Hild, Acting Assistant Secretary of the Administration for 
Children and Families, approved this document on September, 20, 2023.

List of Subjects

45 CFR Part 205

    Computer technology, Grant programs--social programs, Public 
assistance programsReporting and recordkeeping requirements, Wages.
    Reporting and recordkeeping requirements, Wages.

45 CFR Part 260

    Administrative practice and procedure, Grant programs--social 
programs, Public assistance programs.

45 CFR Part 261

    Administrative practice and procedure, Employment, Grant programs--
social programs, Public assistance programs, Reporting and record 
keeping requirements.

45 CFR Part 263

    Administrative practice and procedure, Grant programs--social 
programs, Public assistance programs, Reporting and record keeping 
requirements.

    Dated: September 22, 2023.
Xavier Becerra,
Secretary.

    For the reasons set forth in the preamble, we propose to amend 45 
CFR Subtitle B, Chapter II, as follows:

PART 205--GENERAL ADMINISTRATION--PUBLIC ASSISTANCE PROGRAMS

0
1. The authority citation for part 205 continues to read as follows:

    Authority: 42 U.S.C. 602, 603, 606, 607, 1302, 1306(a), and 
1320b-7: 42 U.S.C. 1973gg-5.

0
2. In Sec.  205.55, revise paragraph (d) to read as follows:


Sec.  205.55  Requirements for requesting and furnishing eligibility 
and income information.

* * * * *
    (d) The Secretary may, based upon application from a State, permit 
a State to obtain and use income and eligibility information from an 
alternate source or sources in order to meet any requirement of 
paragraph (a) of this section. The State agency must demonstrate to the 
Secretary that the alternate source or sources is as timely and useful, 
and either as complete or as cost effective for verifying eligibility 
and benefit amounts as the data source required in paragraph (a) of 
this section. The Secretary will consult with the Secretary of 
Agriculture and the Secretary of Labor prior to approval of a request, 
as appropriate. The State must continue to meet the requirements of 
this section unless the Secretary has approved the request.
* * * * *

PART 260--GENERAL TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) 
PROVISIONS

0
3. The authority citation for part 260 continues to read as follows:

    Authority:  42 U.S.C. 601, 601 note, 603, 604, 606, 607, 608, 
609, 610, 611, 619, and 1308.

0
4. Amend Sec.  260.30 by adding the definition ``Needy'' to read as 
follows:


Sec.  260.30  What definitions apply under the TANF regulations?

* * * * *
    Needy means state established standards of financial need may not 
exceed a family income of 200 percent of the federal poverty 
guidelines.
* * * * *

PART 261--ENSURING THAT RECIPIENTS WORK

0
5. The authority citation for part 261 continues to read as follows:

    Authority:  42 U.S.C. 601, 602, 607, and 609; Pub. L. 109-171.

0
6. In Sec.  261.53, revise paragraph (b) to read as follows:


Sec.  261.53  May a State correct the problem before incurring a 
penalty?

* * * * *
    (b) To qualify for a penalty reduction under Sec.  262.6(j)(1) of 
this chapter, based on significant progress towards correcting a 
violation, a State must either:
    (1) Reduce the difference between the participation rate it 
achieved in the fiscal year for which it is subject to a penalty and 
the rate applicable for the fiscal year in which the corrective 
compliance plan ends (adjusted for any caseload reduction credit 
determined pursuant to subpart D of this part) by at least 50 percent; 
or
    (2) Have met the overall work participation rate during the 
corrective compliance plan period but did not meet both the overall and 
two-parent work participation rates in the same fiscal year during the 
corrective compliance plan period, if the State failed both the overall 
and two-parent work participation rates in the fiscal year for which it 
is subject to a penalty.
0
7. In Sec.  261.60, amend paragraph (b) by revising the second, third, 
and fourth sentences to read as follows:


Sec.  261.60  What hours of participation may a State report for a 
work-eligible individual?

* * * * *
    (b) * * * For participation in unpaid work activities, it may 
include excused absences for hours missed due to a maximum number of 
holidays equal to the number of federal holidays in a fiscal year, as 
established in 5 U.S.C. 6103, in the preceding 12-month period and up 
to 80 hours of additional excused absences in the preceding 12-month 
period, no more than 16 of which may occur in a month, for each work-
eligible individual. Each State must designate the days that it wishes 
to count as holidays for those in unpaid activities in its Work 
Verification Plan. In order to count an excused absence as actual hours 
of participation, the individual must have been scheduled to 
participate in a countable work activity for the period of the absence 
that the State reports as participation. * * *
* * * * *

PART 263--EXPENDITURES OF STATE AND FEDERAL TANF FUNDS

0
8. The authority citation for part 263 continues to read as follows:

    Authority: 42 U.S.C. 604, 607, 609, and 862a; Pub. L. 109-171.

0
9. Amend Sec.  263.0, by revising (b)(1)(i) and adding (b)(1)(iii) to 
read as follows:


Sec.  263.0  What definitions apply to this part?

* * * * *
    (b) * * *
    (1) * * *
    (i) For example, it excludes costs of providing diversion benefits 
and services, screening and assessments, development of employability 
plans, work activities, post-employment services, work supports, and 
case management. It also excludes costs for contracts devoted entirely 
to such activities.
* * * * *
    (iii) It excludes costs of disseminating program information, such 
as information about program services, information about TANF purposes, 
or other information that furthers a TANF purpose.
* * * * *
0
10. Revise Sec.  263.2(e) to read as follows:

[[Page 67720]]

Sec.  263.2  What kinds of State expenditures count toward meeting a 
State's basic MOE expenditure requirement?

* * * * *
    (e) Expenditures for benefits or services listed under paragraph 
(a) of this section are limited to allowable costs borne by State or 
local governments only and may not include cash donations from non-
governmental third parties (e.g., a non-profit organization) and may 
not include the value of third-party in-kind contributions from non-
governmental third parties.
* * * * *
0
11. Amend Sec.  263.11 by adding paragraph (c) to read as follows:


Sec.  263.11  What uses of Federal TANF funds are improper?

* * * * *
    (c) If an expenditure is identified that does not appear to HHS to 
be reasonably calculated to accomplish a purpose of TANF (as specified 
at Sec.  260.20 of this chapter), the State must show that it used 
these funds for a purpose or purposes that a reasonable person would 
consider to be within one or more of the four purposes of the TANF 
program (as specified at Sec.  260.20 of this chapter).

[FR Doc. 2023-21169 Filed 9-29-23; 4:15 pm]
BILLING CODE 4184-36-P