[Federal Register: April 12, 1999 (Volume 64, Number 69)]
[Rules and Regulations]
[Page 17819-17868]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ap99-25]
[[pp. 17819-17868]] Temporary Assistance for Needy Families Program (TANF)
[[
Continued from page 17818]]
[[Page 17819]]
other excepted qualified aliens consist of veterans, members of the
military on active duty, and their spouses and unmarried dependent
children, as well as permanent residents who have earned forty
qualifying quarters. Like Federal TANF benefits, these groups are
eligible to receive State public benefits under TANF without the time
limit described above.
In light of sections 411 and 412 of PRWORA, we have concluded that,
if a State uses segregated State TANF funds or separate State program
funds to provide State or local public benefits, it may only claim for
MOE purposes the qualified expenditures made with respect to eligible
family members who are qualified aliens, nonimmigrants under the
Immigration and Nationality Act, aliens paroled into this country under
section 212(d)(5) of such Act for less than one year, and illegal
aliens if the State enacted a law after August 22, 1996, that
affirmatively provides for eligibility to receive specifically
authorized State or local public benefits.
A State may claim the expenditures for illegal aliens for MOE
purposes only if the law in question is broad enough to encompass TANF
eligibility. The only avenue for claiming expenditures for illegal
aliens in the definition of eligible families in section
409(a)(7)(B)(i)(IV) is under the criteria of families eligible for
assistance under TANF. Once a State affirms that illegal aliens are
eligible for TANF assistance, then the State may provide a State or
local public benefit as part of TANF or a separate State program. For
example, if the State's law only authorizes for child care to be
provided to illegal aliens through a non-TANF program (e.g., CCDF), it
could not claim any such expenditures as MOE. However, if its law
authorizes child care provided through TANF for illegal immigrants, it
may claim such expenditures as MOE. Or, if it provides such a service
to illegal aliens through a separate State program and not the TANF
program, but the illegal aliens are eligible for both, it may claim
those expenditures as MOE.
A State may claim qualified expenditures for the individuals
described in the prior two paragraphs for MOE purposes because these
are the aliens who are either eligible for TANF benefits or lawfully
present in this country and eligible for TANF assistance, but for the
application of title IV of PRWORA. If a State decides to restrict alien
eligibility for State public benefits, then it may only claim MOE for
qualified segregated TANF expenditures or qualified separate State
program expenditures made with respect to the excepted qualified aliens
mentioned in section 412.
Two limited circumstances exist in which it may be possible for a
State to help all aliens. These circumstances apply regardless of
funding source, i.e., whether a State uses Federal TANF, State TANF, or
separate State program funds. These circumstances derive from section
401(b) and (c) and section 411(b) and (c) of PRWORA, which describe
alien eligibility for Federal public benefits and State or local public
benefits, respectively.
First, both sections 401(b) and 411(b) of PRWORA affirm that States
may provide certain noncash Federal or State and local public benefits
to any alien. Such benefits are those necessary for the protection of
life or safety and include those specified by the Attorney General in a
notice dated August 23, 1996 (AG Order No. 2049-96, 61 FR 45985
available on line at /news/welfare/wr/
830fdreg.htm). In the notice, the Attorney General specified the kinds
of noncash government-funded community programs, services, or
assistance that are necessary for protection of life or safety and for
which all aliens continue to be eligible. However, for all aliens to be
eligible, sections 401(b)(1)(D) and 411(b)(4) both state that neither
the government-funded programs, services, or assistance provided, nor
the cost of such assistance, may be conditioned on the individual
recipient's income or resources. While such service may meet one of the
purposes of TANF and may be provided as part of TANF or a separate
State program, a State may claim toward MOE only qualified expenditures
with respect to eligible (needy) families. Therefore, to claim any
expenditures that meet the Attorney General's specifications for life
and safety, a State must have a sound methodology that enables it to
identify and claim only the portion of total qualified expenditures for
benefits that it has provided to eligible families.
Second, section 401(c) defines a Federal public benefit and section
411(c) defines a State or local public benefit. Both sections use the
same definition. The August 4, 1998, Federal Register notice that
identified TANF as a Federal public benefit expressly states that not
``all benefits or services provided by these programs are `Federal
public benefits' and require verification.'' Because sections 401(c)
and 411(c) use the same wording to define a public benefit, we believe
this statement may also apply to benefits provided with segregated
State TANF funds and separate State program funds. When a benefit is
not a Federal or State or local public benefit, a State is not
statutorily bound to restrict eligibility to certain aliens and can
provide that benefit to all aliens.
The August 4, 1998 Federal Register ``Notice with Comment Period''
includes some general discussion about discerning whether a benefit
should or should not be considered a Federal public benefit. We suggest
this same discussion may be valuable to States in interpreting, per
section 411(c), the specific services that a State would or would not
consider a State or local public benefit under TANF or through a
separate State or local program. If a particular benefit or service
under the State's TANF program or separate State or local program is
not a public benefit, then the State may claim qualified expenditures
with respect to any alien family member who is ``eligible for TANF
assistance.''
In addition we proposed that States may be able to count as MOE
expenditures, funds transferred to Tribal grantees to assist families
eligible under an approved Tribal TANF plan. However, if the
eligibility criteria under the Tribal TANF program are broader than
under the State's TANF plan, then all expenditures of State funds
within the Tribal TANF program might not count as MOE. Only
expenditures used to assist an ``eligible family'' under the State
program count. States must ensure that State funds are expended on
behalf of families eligible under the State's income and resource
standards.
(c) Types of Activities
Section 409(a)(7)(B)(i)(I)(aa)-(ee) specifies that State
expenditures on eligible families for the following types of assistance
are ``qualified expenditures'' for basic MOE purposes:
<bullet> Cash assistance (see subsequent discussion on this);
<bullet> Child care assistance (see the discussion at Sec. 263.3);
<bullet> Education activities designed to increase self-
sufficiency, job training, and work (note the specific exception at
Sec. 263.4);
<bullet> Any other use of funds allowable under section 404(a)(1)
(see subsequent discussion on this); and
<bullet> Associated administrative costs (subject to a 15-percent
cap, as discussed in Sec. 263.0 and subsequently).
It is important to remember that the activities mentioned above
count toward a State's basic MOE requirement if they are reasonably
calculated to accomplish a purpose of the program. This restriction
follows from the language at section 409(a)(7)(B)(I)(ee) of the Act
authorizing as MOE, ``any other
[[Page 17820]]
use of funds allowable under section 404(a)(1).'' Section 404(a)(1) of
the Act refers to activities that are reasonably calculated to meet a
purpose of the TANF program. The use of the word ``other'' infers that
the activities listed above (ee), i.e., (aa)-(dd) must also be
reasonably calculated to accomplish a purpose of the program. Hence,
not only must expenditures of funds pursuant to (ee) be reasonably
calculated to accomplish a TANF purpose, so must State expenditures
pursuant to (aa)-(dd): cash assistance, child care assistance,
educational activities, and administrative costs (discussed in detail
further on).
We mentioned in the NPRM that expenditures for ``assistance'' for
MOE purposes may take the form of cash, certificates, vouchers, or
other forms of disbursement, as determined by the State. MOE
expenditures may also be for ongoing, short-term, or nonrecurrent
benefits. The definition of assistance at Sec. 260.31 (Sec. 270.30 of
the NPRM) does not limit the nature of State-funded aid provided to
eligible families under TANF or separate State programs that can count
as MOE. The authorization as MOE of ``any other use of funds allowable
under section 404(a)(1)'' indicates that Congress intended all types of
benefits provided to families under TANF under section 404(a)(1) of the
Act should count as MOE. These can include ``nonassistance'' benefits
such as nonrecurrent, short-term benefits.
Thus, State expenditures with respect to eligible families for
activities such as pre-pregnancy family planning services, teen
parenting programs, youth and family counseling or support services,
job training or employment services, or forms of crisis assistance that
meet the purposes of the program under section 404(a)(1) may also count
toward meeting a State's MOE requirement. However, such expenditures
are subject to other limitations and restrictions under Secs. 263.5 and
263.6 (Secs. 273.5 and 273.6 of the NPRM).
In the NPRM, we also addressed additional limitations and
restrictions. We included some specific case situations that came to
our attention and invited comment on these and other examples of aid
for eligible families that States believed could qualify.
(1) Cash Assistance
This category includes cash payments, including electronic benefit
transfers, to meet basic needs; assistance with work-related
transportation costs; clothing allowances; and any child support
collected on behalf of an eligible child that the State passes through
to the eligible family.
The preamble in the proposed rule pointed out that section 5506(b)
of Pub. L. 105-33 amended section 409(a)(7)(B)(i)(I)(aa) of the Act to
specifically allow assigned child support collected by the State and
distributed to the family to count toward a State's basic MOE so long
as the amount is disregarded in determining the family's eligibility
for and amount of TANF assistance. However, we neglected to point out
that section 5506(b) also provided that the assigned child support
distributed to the family must come from the State's share of the
amount collected. The law specifically refers to the amount collected
and distributed to the family under section 457(a)(1)(B). Section
457(a)(1)(B) provides that the State may retain or distribute to the
family its share of the support amount so collected. Thus, more
accurately, section 409(a)(7)(B)(i)(I)(aa) expressly allows the State's
share of assigned child support amount collected on behalf of the
family and distributed to the family to count toward a State's basic
MOE, provided that the State disregards the amount sent to the family
in determining the family's eligibility and amount of TANF assistance.
We have clarified this point in the final rule.
Cash assistance also includes State expenditures on behalf of
eligible families as part of a State's refundable Earned Income Tax
Credit (EITC) program. Under a State EITC program, we determined that
only expenditures, i.e., the refundable portion of EITC payments
actually paid to eligible families, may count as MOE. Also, if the
State had an EITC program in FY 1995, it may count the total amount of
the refundable portion of the EITC actually paid to eligible families
only to the extent that this amount exceeds the total amount of the
refundable portion of the EITC actually paid in FY 1995 (see
Sec. 263.5).
(2) Any Other Use of Funds Allowable Under Section 404(a)(1)
Section 404(a)(1) provides that TANF funds may be used ``in any
manner that is reasonably calculated to accomplish the purpose of the
TANF program, including to provide low income households with
assistance in meeting home heating and cooling costs.'' In Sec. 260.20
(Sec. 270.20 of the NPRM), we list the statutory purposes of the TANF
program.
(3) Medical and Substance Abuse Services
The statute does not prohibit the expenditure of State MOE funds on
medical expenditures. Therefore, States may count expenditures of their
own funds to provide treatment services to individuals seeking to
overcome drug and/or alcohol abuse when these services assist in
accomplishing the purposes of the program. This policy would also
comport with both the Administration's support for drug rehabilitation
services and the congressional call for State flexibility in the
operation of welfare programs.
We reminded States that such expenditures must be consistent with
the purposes of the program and made to, or on behalf of, eligible
families. We also reminded States that section 408(a)(6) bars the use
of Federal TANF funds for medical services. Therefore, States using MOE
funds to provide medical treatment services may not commingle State and
Federal TANF funds. In addition, any State expenditures on medical
services that are used to obtain Federal matching funds under the
Medicaid program would not count as MOE. (Refer to the discussion under
Sec. 263.6.) Finally, State expenditures on medical and substance abuse
services may only count as MOE subject to the ``new spending''
limitations set forth in Sec. 263.5.
(4) Juvenile Justice
State funds used to pay the costs of benefits or services provided
to children in the juvenile justice system and previously matched under
the EA program do not count toward MOE. More specifically, as juvenile
justice services do not meet any of the purposes of the TANF program,
they are not an allowable use of funds under section 404(a)(1).
While some States may expend their Federal TANF funds for this
purpose, under section 404(a)(2), the definition of ``qualified State
expenditures,'' for MOE purposes, does not include the reference to
section 404(a)(2). Therefore, we have concluded that Congress did not
intend to automatically qualify all previously authorized IV-A
expenditures as MOE. States that expend Federal TANF funds for this
purpose, under section 404(a)(2), must not commingle State funds with
Federal TANF funds if they wish the State funds to count as MOE.
(5) State ``Rainy Day'' Funds
Some States inquired whether State funds allocated or set aside
during a fiscal year as a ``rainy day'' fund, to act as a hedge against
any economic downturn, could count as MOE. While we understand State
intent, these allocations or set-asides are not expenditures. States
must actually expend funds on behalf of eligible
[[Page 17821]]
families during the fiscal year for the money to count toward the
State's MOE for that fiscal year. (However, under section 404(e),
States may reserve Federal TANF funds from any fiscal year for use in
any other fiscal year.)
(6) Administrative Costs
Administrative expenditures may count toward a State's MOE, but
only to the extent that they do not exceed 15 percent of the total
amount of qualified State expenditures for the fiscal year. This
limitation is the same as the limit for Federal TANF administrative
expenditures. Therefore, we proposed that the State apply the same
definition of administrative costs for MOE purposes as for Federal TANF
funds.
Section 404(b)(2) states that expenditures of Federal TANF funds
with respect to information technology and computerization needed for
tracking or monitoring activities are not subject to the 15-percent
TANF limit. We are providing the same flexibility with respect to the
administrative cost cap on MOE expenditures. Thus, the rules do not
include information technology and computerization expenditures under
the administrative cost cap; they allow such expenditures to count
toward meeting a State's MOE requirement, without being limited by the
15-percent cap on administrative expenditures.
Comments and Responses
Summary
We received numerous comments on Sec. 273.2 of the proposed rule.
Many of the comments focused on the definition of eligible family. One
commenter praised our broad interpretation of the term ``eligible
family.'' Others indicated that it may not be broad enough. Numerous
commenters requested clarification of the definition.
We also received comments regarding some of the examples of
qualified expenditures mentioned in the proposed rule as well as a few
comments on other examples of aid for eligible families that commenters
believe could qualify. Although we received only a few specific
comments regarding the 15-percent cap on administrative MOE
expenditures, we received a substantial number of comments on various
aspects of the proposed definition of administrative costs. Since this
definition applies to the State as well as the Federal cap on
administrative expenditures, we refer you to the beginning of this
subpart, at Sec. 263.0, for a fuller discussion of the various issues
raised and conclusions reached regarding the final definition of
administrative costs.
Finally, a couple of the comments concerned the cash management
principles governing the draw-down of Federal TANF funds because the
draw-down of Federal TANF funds is tied to MOE expenditures.
After carefully considering the comments, we made some
clarifications and a few changes to the final rule. We will address the
comments following the order of the NPRM preamble.
(a) Qualified State Expenditures
Comment: One commenter noted that States have raised a number of
questions regarding application of the Cash Management Improvement Act
(CMIA) to the TANF program and MOE funds. The commenter recommended
incorporating the guidance currently being developed jointly by the
Financial Management Service (FMS) of the U.S. Department of Treasury
and ACF in the final rule, as appropriate.
Another commenter recommended clarifying the final rule to specify
that States may draw down Federal TANF funds without being required to
show that they met their MOE requirement by the end of the year. The
commenter wrote that our rules impose a de facto match requirement that
is burdensome on States and could cause cash flow problems.
Response: The guidance the commenter is referring to has not yet
been completed. We intend to release it as a separate issuance once it
is completed. In the meantime, CMIA Policy Statement Number 19, dated
June 1, 1997, and issued by FMS provides general cash management
guidelines for States in drawing down their Federal TANF funds.
Federal TANF funds are subject to the Cash Management Improvement
Act and the grant regulations at 45 CFR 92.20(b)(7). These rules
restrict the draw-down of Federal funds. The CMIA Policy Statement
Number 19 requires that States must expend a proportionate share of MOE
funds for any period the State draws down Federal TANF funds. Thus, we
have not made the recommended clarification.
The MOE requirement is not a de facto match requirement. However,
it is similar to a matching requirement in one respect. It is a cost-
sharing requirement, as Congress recognized that State financial
participation is essential for the success of welfare reform.
To allow a State to expend Federal TANF funds first, then later
spend State funds to fulfill the basic MOE requirement, would convey to
the State a benefit (interest income) that was not authorized by the
legislation establishing TANF. PRWORA did not provide for the TANF
block grant allocations plus interest. The recommended action would
also be in violation of 31 U.S.C. 6503(c)(1), which governs
intergovernmental financing and the U.S. Treasury-State (cash
management) Agreements signed by each State and Territory.
Although States must meet their basic MOE level for a fiscal year
by the end of that fiscal year, the guidance in CMIA Policy Statement
Number 19 does not restrict a State's ability to draw down its full
TANF grant. Once a State meets its basic MOE requirement, the State may
draw down its remaining TANF funds without contributing additional MOE
funds. However, the draw-down of Federal TANF funds must be for
immediate cash needs. Under no circumstances may a State draw down
funds that are not needed for a specific program expenditure.
(b) Eligible Families
In addition to comments as discussed below, we corrected an
incomplete citation in Sec. 273.2(c) of the NPRM. This paragraph
addressed the circumstances under which expenditures on families that
had exceeded the Federal time limit would count as MOE. It should have
cited paragraphs (b)(1), (b)(2), and (b)(3)--thus indicating that the
families receiving assistance had eligible alien status, included a
child living with an adult relative, and were needy under the financial
criteria in the TANF plan. However, it failed to include the reference
for this third provision. In the final rule, we corrected this
language.
Comment: A few commenters argued that we should leave the
definition of ``eligible family'' to each State. One commenter said
that the proposed definition attempts to usurp the State's authority to
define eligible family; another indicated that Congress was silent on
this topic.
Response: We do not agree that Congress was silent on the topic of
``eligible families.'' In fact, this issue is addressed in the
Conference Report (H.R. Rep. No. 725. 104th Cong., 2d sess., at 56, p.
296). In pertinent part, the conferees agreed that ``qualified
expenditures that count toward the * * * spending requirement are all
State-funded expenditures under all State programs that provide any of
the following assistance to families eligible for family assistance
benefits (TANF). * * *'' More importantly, section 409(a)(7)(B)(i)(I)
of Act provides that qualified expenditures count if made with respect
to eligible families. Section
[[Page 17822]]
409(a)(7)(B)(iv) defines eligible families in pertinent part as
``families eligible for assistance under the State program funded under
this part,'' i.e., under TANF.
Because we must enforce a penalty if a State fails to meet the
basic MOE requirement, we must specify the standards for that penalty.
The term ``eligible families'' is a critical part of those standards.
In this way, States may know which expenditures may count and avert a
penalty.
Comment: Several commenters expressed concern that the proposed
rule does not allow expenditures to be counted toward the basic MOE
requirement if made for lawfully residing aliens who are not included
in the definition of ``qualified alien,'' such as certain persons
residing under color of law (PRUCOL). The commenters pointed out that
section 5506(d) of the Balanced Budget Act of 1997 (Pub. L. 105-33)
amended the welfare reform law to allow States to count towards MOE
funds spent on ``families of aliens lawfully present in the United
States that would be eligible for such assistance but for the
application of title IV.''
Response: We agree that the Balanced Budget Act made this change
and mentioned it in the preamble to the NPRM. Also, the proposed
regulation recognized that MOE expenditures could be used to help
certain eligible nonqualified alien family members (nonimmigrants under
the Immigration and Nationality Act and aliens paroled into the U.S.
for less than one year). However, as previously mentioned, we did not
accurately analyze the significance of this statutory language
(defining ``eligible families'' for MOE claiming purposes relative to
the extant provisions of title IV of PRWORA). Refer to the earlier
extensive discussion regarding the noncitizens for whom the State may
claim MOE expenditures.
Comment: Several commenters questioned the proposed rule at
Sec. 273.2(b)(2), which required that a child live with a custodial
parent or other adult caretaker relative. One commenter noted that the
Balanced Budget Act of 1997 eliminated the relationship requirement
under 408(a)(1) of the Act. The commenters believed the statutory
definition of eligible families under section 409(a)(7)(B)(i)(IV) and
even the proposed rule permitted them to assist children who do not
live with a custodial parent or other adult caretaker relative (e.g.,
children in foster care and juvenile justice situations). For example,
expenditures associated with helping a child who lives in an
alternative living arrangement had been permissible under the former
Emergency Assistance program and therefore should count toward the
basic MOE requirement. Another commenter believed the proposed rules
were too narrow and recommended modifying the rules to permit qualified
State expenditures for such children to count toward the basic MOE
requirement.
Response: We do not agree that the Balanced Budget Act did away
with the relationship requirement. We do not believe that Congress
intended to eliminate the relationship requirement for either State MOE
dollars or Federal TANF funds. Section 5505(a) of the Balanced Budget
Act of 1997 expressly indicates that section 408(a)(1) was amended to
eliminate redundant language. Previously, both sections 408(a)(10) (the
home residence requirement) and 408(a)(1) (the minor child requirement)
explicitly stated that Federal TANF funds could only be expended on a
family that includes a child residing with a parent or other caretaker
relative. The Balanced Budget Act removed the redundant phrase from
408(a)(1) and added a cross-reference to 408(a)(10), where the phrase
remains intact.
Section 409(a)(7)(B)(i)(IV) defines eligible families, in pertinent
part, as ``families eligible for assistance under the State program
funded under this part.'' The State program funded under this part is
the TANF program, whether funded with the Federal grant and/or State
funds. The criteria with respect to TANF assistance include the
provisions under section 408, and specifically the provision just
discussed under 408(a)(1). Under section 408(a)(1), no family is
eligible for TANF assistance unless the family includes a minor child
who resides with the parent or other caretaker relative. Therefore, we
believe there is a direct correlation between sections 408(a)(1) and
409(a)(7)(B)(i)(IV).
We conclude that the intent of section 409(a)(7)(B)(i)(IV) is that
the family include a child residing with a parent or other caretaker
relative. A State may still choose to aid the ``child-only'' cases that
exclude the adult(s) from the case. Nevertheless, that child must be
residing with a parent or other caretaker relative. Qualified State
expenditures under all programs (TANF or separate State programs) may
count toward basic MOE if made with respect to eligible families who
meet the above criteria and are for one of the categories of activities
listed under 409(a)(7)(B)(i)(I). As we indicated in the proposed rule,
not all expenditures for services that had been previously authorized
under the former AFDC, EA, or JOBS programs qualify for MOE purposes.
In particular, there are services (e.g., juvenile justice situations)
that do not meet any of the purposes of the TANF program. Rather, such
former EA services generally fall under section 404(a)(2), not
404(a)(1). Therefore, the expenditures do not qualify.
Comment: A few commenters requested that we revise the language at
Sec. 273.2(b)(2) of the proposed rule to permit the provision of
assistance to minors who are temporarily absent from the home, similar
to the time periods given in section 408(a)(10)(A).
Response: As we explained above, an ``eligible family'' is defined,
in part, as one in which there is a child residing with a parent or
other caretaker relative. Thus, the child's home is that of the parent
or other caretaker relative. However, as with TANF, under section
408(a)(10), we expected that States would establish policies that
define a reasonable period of temporary absence of the minor from the
home for MOE purposes. Otherwise, qualified expenditures to provide
services or assistance to the child once he or she left the home would
no longer count toward basic MOE.
During the temporary period, the child is considered to be residing
with the parent or other caretaker relative. Therefore, State may
continue to help the eligible family through expenditures that are
reasonably calculated to accomplish a purpose of the program, including
some expenditures for the temporarily absent child (except as noted
later in this discussion). As we previously mentioned, all qualified
expenditures must be reasonably calculated to accomplish a purpose of
the program.
For example, family preservation services, such as parenting
training or counseling, and some forms of transitional assistance,
could help ensure that parents may care for their children in their own
home (purpose 1). In contrast, it is unlikely that expenditures on
child care services would be reasonably calculated to accomplish that
purpose (or any of the other TANF purposes) if the only child in the
eligible family is temporarily absent from the home.
Sometimes the child is temporarily absent from the home because he
or she has been placed in the care of a correctional facility, juvenile
residential facility, group home, protective care, foster care, other
facility or other nonrelative care arrangement. Since the child is
deemed to be residing with his or her parent or other caretaker
relative during the temporary period, expenditures reasonably designed
to
[[Page 17823]]
accomplish the purpose of the program, including continuation of cash
assistance, would count toward MOE. 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.
It is important to note that this interpretation does not preclude
a State from providing foster care or other protective care assistance
for the child. However, these expenditures do not count toward the
State's basic MOE requirement because they are not reasonably
calculated to accomplish a purpose of the program.
It would be reasonable for States to use the time frames given
under section 408(a)(10) to define ``temporary'' and to develop a
corresponding MOE policy. (Section 408(a)(10) automatically applies
when a State uses commingled State funds to provide TANF assistance.)
The child must return to the home by the end of the temporary period
established by the State. Otherwise, the child no longer resides with
the parent or other caretaker relative. If the child is the only
eligible minor in the eligible family, then services or assistance for
the eligible family would no longer count toward the basic MOE
requirement, if the child does not return after the temporary absence.
We do not believe it is reasonable to determine that a child is
temporarily absent from the home if the child has been adjudicated or
otherwise determined to require placement out of the home for longer
than the State's established temporary period. In these situations, the
absence is for a significant period, and expenditures for the child do
not count as qualified once the child has left the home. Further, the
child is not deemed to be residing with his or her parent or other
caretaker relative. If the child is the only child in the family, then
qualified expenditures to provide services or assistance to the family
would no longer count toward basic MOE once the child left the home.
Comment: The NPRM indicated that a State is free to define who is a
member of a family for TANF and MOE purposes and can choose to assist
other family members such as noncustodial parents. Several commenters
requested clarification regarding the effect of including the
noncustodial parent or others as a member of the eligible family (e.g.,
applicability of sanctions). The commenters asked whether
``assistance'' provided to a noncustodial parent counts against the
family for purposes of the time limit; whether a State can provide
assistance or services to a noncustodial parent without providing
assistance to the rest of the family; and whether a State must include
the noncustodial parent as a family member. One advocacy group also
asked whether a State could provide assistance to other relatives not
living in the home; define a family to include more distant relatives
not in the home; or even include nonrelatives not living in the home. A
community organization felt that the potential addition of noncustodial
parents or others not historically included within the family should
not be totally discretionary with the State. The commenter recommended
regulatory restrictions such as not providing assistance to a
noncustodial parent when the custodial parent is not assisted. Another
community organization requested that we spell out the full
ramifications of States providing assistance outside the traditional
``AFDC household'' so that States will be aware of the consequences of
their decisions.
Response: A number of commenters appeared to have interpreted our
statement that States could include the noncustodial parent as part of
the family to mean that any persons outside of the home may be a member
of the eligible family. However, we did not intend for other relatives
or nonrelatives not living in the home to be included as members of the
eligible family. Only if a child is eligible in the home in which such
other individuals live may the State choose to include them as part of
that eligible family.
At minimum, an eligible family must consist of a minor child who
resides with a parent or other caretaker relative (or consist of a
pregnant individual). Beyond this minimum configuration, States may add
other household members to comprise the eligible family. Thus, we
expected that a State would configure a family from the individuals
living in the home.
The only exception to this rule is the noncustodial parent. As the
child's parent, a State may choose to include the noncustodial parent
as a member of the child's eligible family. It also may choose not to.
Further, a State may choose the circumstances under which a
noncustodial parent would be a member of the child's eligible family.
We leave this to State discretion and have included a minimal
definition of noncustodial parent at Sec. 260.30.
However, it is important to remember that an adult may receive TANF
assistance only as part of a TANF family. This means that an adult,
including a noncustodial parent, cannot apply for or receive TANF
assistance independent of the child and custodial parent or caretaker
relative, if applicable. Once the State determines the family is
eligible, it is up to the State to determine the most appropriate
assistance and nonassistance benefits to provide to family members.
Similarly, expenditures for adults only count for basic MOE
purposes if the adult is part of a TANF or TANF-eligible family (i.e.,
a family that would be eligible for TANF assistance, but whose family
members are not necessarily receiving it). And, as with TANF, the State
determines the appropriate benefits to provide the eligible family.
As a member of the child's eligible family, a State could provide a
noncustodial parent with benefits or services that could further the
family's ability to attain economic self-support and self-sufficiency.
Congress clearly supported this notion. For example, in section 101 of
PRWORA, Congress stated that promotion of responsible fatherhood and
motherhood is integral to the well-being of children. In section 407(h)
of the Act, Congress expressed support for requiring noncustodial,
nonsupporting parents under the age of 18 to fulfill community work
obligations and attend appropriate parenting or money management
classes after school. A provision in section 466(a) of the Act permits
a State to issue an order, or to request that a court issue an order,
requiring an individual owing past-due child support to participate in
work activities, as defined in section 407(d) of the Act.
In our NPRM discussion of individual regulatory provisions, we also
suggested that States examine the various sections of this rule where
the term family is used. We understood that States needed to realize
the other effects, in terms of the TANF requirements, of adding other
persons to the eligible family. Applicability of any or all the TANF
requirements depends on whether a family member is receiving TANF
``assistance'' as defined in Sec. 260.31.
Applicability of a TANF requirement also depends on the person(s)
[[Page 17824]]
mentioned in a particular requirement. The TANF requirements use
various terms, such as ``adult or minor child head-of-household,''
``adult,'' ``teen parent,'' ``family member,'' ``individual,'' ``parent
or other caretaker relative,'' or ``single custodial parent'' when
referring to family members. The effect of a requirement may vary
depending on the status of the person(s) receiving assistance. Each
requirement must be examined to determine the effect of the status of
family members on its applicability or on the amount of assistance paid
(e.g., in sanction cases).
For example, the calculation of the work participation rates under
section 407(b) of the Act consists of the number of families receiving
assistance under the State program funded under this part that include
an adult or a minor child head-of-household who engaged in work for the
month (the numerator), divided by the number of families receiving TANF
assistance during the month that include an adult or a minor head-of-
household minus the number of families that are subject to a penalty
for refusing to work in that month--except if a family has been
sanctioned for more three of the last 12 months (the denominator). For
this requirement, once a TANF eligible family includes an adult who
receives some form of TANF ``assistance,'' the family is included in
the calculation of the work participation rate, and the adult may be
required to participate in work activities. An ``adult'' eligible
family member receiving TANF assistance could be the custodial parent
or other adult caretaker relative, a noncustodial parent, or any other
adult household member as determined by the State.
Furthermore, section 407(e) of the Act requires the State to reduce
or terminate the family's TANF assistance if an individual in the
family refuses to engage in required work. ``Individual'' eligible
family members could include the noncustodial parent or other members
of the eligible family. Yet, the child care exception applies only if
the individual refusing is a single custodial parent caring for a child
under age six.
Applicability of a requirement can also depend on the context of
the funding. The term ``under the State program funded under this
part'' used in the above provisions, as well as the terms ``under the
program'' and ``under the program funded under this part,'' all mean
the State's TANF program, whether funded with Federal or State funds.
Applicability of a TANF provision also depends on whether the State
funds under the TANF program to provide assistance to the family member
are commingled with, or segregated from, Federal grant funds. We
mentioned earlier in this discussion that a State could expend State
funds for MOE purposes in different ways. In terms of the TANF program,
State expenditures may be commingled with, or segregated from, Federal
grant funds. Provisions in the statute that use any of the above-
mentioned terms apply to Federal or State-funded (whether commingled or
segregated) assistance received under the TANF program, as depicted in
the above examples.
In addition, under section 408(a)(3) and title IV-D of the Act, a
family may not receive TANF assistance unless an assignment of support
rights has been executed on the child's behalf. The assignment would
also include the right to spousal support in the case of a custodial
parent who receives TANF assistance. However, as discussed in the
preamble to Sec. 260.31, if the noncustodial parent also receives TANF
assistance as a family member, the assistance provided to the
noncustodial parent will not be considered ``assistance'' for purposes
of the collection and distribution of assigned child support under
title IV-D of the Act.
Provisions that only use the term ``grant'' or ``amounts
attributable to funds provided by the Federal government'' (e.g., the
five-year time limit, and expenditures for medical services) refer only
to assistance provided using Federal TANF funds. They do not apply to
State-funded TANF assistance unless the assistance comes from
commingled funds. If a family member receives assistance from
commingled State funds, then rules that would otherwise only pertain to
the use of Federal grant funds apply.
However, as discussed at Sec. 264.1, after further analysis, we
have interpreted the five-year limit to only apply when the adult
family member is the head-of-household or the spouse of the head-of-
household and receiving assistance. Thus, if the noncustodial parent
(i.e., the parent living in another household) receives TANF assistance
as an eligible family member, that receipt impacts the family's
lifetime limit only if he or she is the spouse of the head-of-
household. We believe this situation will occur rarely, if ever. The
months that any other adult eligible family member who is not the head-
of-household or the spouse of the head-of-household receives TANF
assistance would not count toward the family's lifetime limit.
A State may also aid eligible family members by providing various
services under the TANF program that do not constitute ``assistance.''
If so, the TANF requirements explained above do not apply. Services
that are not assistance (e.g., counseling, job readiness, employment
placement or post-employment services) may be provided to any eligible
family member, e.g., the noncustodial parent.
For basic MOE purposes, expenditures must be with respect to an
individual who is a member of an eligible family. An eligible family
member may also receive ``nonassistance'' or ``assistance'' through a
separate State program. The requirements applicable to ``assistance''
received under the TANF program do not apply to separate State programs
or to ``nonassistance'' provided to members of an eligible family.
Comment: The definition of eligible families prohibits States from
counting for MOE purposes expenditures made for pregnancy prevention
services to childless individuals.
Response: Such expenditures would count toward meeting the basic
MOE requirement only if the childless individual is a member of an
eligible family, e.g., an eligible teen family member. Section
409(a)(7)(B)(i)(I) expressly provides that only qualified expenditures
made with respect to members of eligible families count. Thus, we have
not changed the final rule. However, Federal TANF funds may be used for
this purpose to provide ``nonassistance'' per section 401(a)(3) of the
Act.
Comment: Numerous commenters requested clarification of
Sec. 273.2(b)(3) of the NPRM which required that an eligible family
must be financially eligible according to the TANF income and resource
standards established by the State under its TANF plan. The commenters
indicated that a uniform or single income/resource standard is
inappropriate as it would restrict States' ability to provide families
with services such as transitional assistance, e.g., child care,
transportation, ongoing case management, education and training, or
diversion services for families who need one-time or short-term help to
prevent the need for traditional TANF cash assistance. A few commenters
noted that a State's child care program may have its own income and
resource limits. Another commenter indicated that the lack of
flexibility may prevent certain transfers to tribal TANF programs from
counting toward basic MOE. Therefore, commenters asked us to clarify
the rules to allow for different standards of need for different types
of services. They wanted a definition broad enough to cover families
such as those who are transitioning off TANF, those who are at risk of
receiving TANF, and those served through separate State
[[Page 17825]]
programs. Finally, another commenter asked us to de-link MOE and TANF
eligibility.
Response: The proposed rule at Sec. 273.2(b)(3) provided that an
eligible family must be financially eligible according to the TANF
income and resource standards established by the State under its TANF
plan. It appears that commenters interpreted our use of the plural
term, ``standards,'' to mean that the elements used to determine
financial eligibility (income and resources) constituted a single set
of criteria for all the services that a State would provide. This was
not our intention. We used the term ``standards'' in the event a State
wanted to have multiple financial requirements based on the different
services that it wished to provide or the scope of families it wished
to aid.
States have the flexibility to decide the particular income and
resource requirements that they will use to determine whether a family
is financially eligible to receive a service, a package of services, or
all of the services provided with State basic MOE funds. Thus, both
income and resource requirements may vary, as determined by the State.
For example, a State could establish different financial criteria for
families no longer receiving TANF cash assistance in order that family
members may receive transitional services. Or, a State may want to
establish standards for providing short-term or nonrecurrent assistance
to families in order to prevent the need for ongoing TANF assistance.
Section 409(a)(7)(B)(IV) of the Act indicates that an eligible
family is a family who is or would be eligible (as provided in this
section) for assistance under the State program funded under this part.
The State's TANF program is the State program funded under this part.
Thus, there is a statutory link between MOE and the State's TANF
program. However, that link merely requires that an eligible family is
or would be eligible for TANF assistance. It does not require that
eligible family members must necessarily receive TANF cash assistance
or any other benefit or services through the TANF program. Section
407(a)(7)(B)(i)(I) of the Act permits the State to help eligible family
members through activities in ``all programs,'' i.e., TANF and separate
State programs.
Comment: Some commenters mentioned that States should be able to
use basic MOE funds to create programs with definitions of need that
may not assess income and assets at all. They argued that section
409(a)(7) allows a State to claim basic MOE spending with respect to
eligible families for any use of funds that are reasonably calculated
to accomplish the purpose of the TANF program. Providing assistance to
needy families is mentioned in only two of the four purposes of the
program under section 401(a) of the Act. Thus, the term ``eligible
families'' should include a broader population of families, not just
those who are needy families. Two commenters, including one national
organization, also noted that the TANF purposes do not require that
spending has to be made to, or on behalf of, an eligible family. For
example, preventing and reducing the incidence of out-of-wedlock
pregnancies and encouraging the formation and maintenance of two-parent
families could involve the development of materials, pamphlets,
videotapes, and counseling activities directed at teen pregnancy
prevention and other pregnancy prevention initiatives. Such
expenditures benefit all TANF eligible families but do not necessarily
benefit any one family in particular.
Response: As we explained in the above response, the statute
defines MOE expenditures as those made ``with respect to eligible
families.'' Thus, it clearly links MOE expenditures to eligible
families. An eligible family is a family who is or would be eligible
for assistance under the State's TANF program. A family may not receive
``assistance'' under the State's TANF program unless the family is
needy. We interpreted the term ``needy'' for TANF and MOE purposes to
mean financial deprivation, i.e., lacking adequate income and
resources. We continue to believe this is the most appropriate
interpretation and decline to expand the scope of the definition of
needy. Hence, for basic MOE purposes, eligible families are those who
are financially eligible according to the State's applicable income and
resource criteria.
States may establish different income and resource criteria to
cover the scope of needy eligible families they wish to serve or the
various services or activities they want to provide. States are free to
design programs involving MOE activities, including those mentioned by
the commenter, to reach as broad a population as they choose. However,
only that part of the total expenditures made on behalf of eligible
families who meet the State's applicable financial eligibility criteria
counts toward a State's basic MOE.
We would like to point out that Federal TANF funds may also be used
to pay for ``nonassistance'' activities (such as those described above)
that meet the purposes of the program as given in section 401(a)(1)-(4)
of the Act and Sec. 260.20. Federal TANF funds may also be used for
activities that benefit non-needy families in some cases, e.g.,
activities that meet the purpose of either section 401(a)(3) or (a)(4)
of the Act. In this respect, there may be more flexibility in the
expenditures that are allowable uses of Federal funds than those that
are allowable for MOE purposes. This is because federally funded
services or benefits do not necessitate a determination of financial
eligibility (need) if they do not meet the definition of assistance.
Thus, States may use Federal TANF funds (in accordance with section 404
of the Act) to provide ``nonassistance'' services or benefits to
eligible individuals who meet the State's other, nonfinancial,
objective criteria for the delivery of such benefits.
Comment: Some commenters asked whether a State must make use of
resource standards, noting that there is no statutory requirement to do
so. Other commenters noted that the definition of ``needy'' may or may
not include an asset test. For various benefits, a State may just
establish income criteria to determine the families who are eligible
for the benefit. One national organization also indicated that some
States are considering eliminating resource standards.
Response: Title IV-A of the Act setting forth the TANF program does
not address income or resource requirements (except under section
408(f) with respect to deeming an alien's sponsor's income and
resources). Rather, it uses the term ``needy.'' Although we interpreted
``needy'' to mean financial deprivation, i.e., lacking adequate income
and resources, we also recognize that some State programs may just
involve an income test. Therefore, we are not requiring States to have
resource requirements. We have clarified this point in the final rule
under Sec. 263.2(b)(3) by stating that a family must be financially
eligible according to the appropriate TANF income and resource (when
applicable) requirements established by the State and contained in its
TANF plan. (We discuss eligibility criteria in the TANF plan further in
response to other comments in this section.) In this way, States not
only decide the scope of families they want to serve, but also the
families most in need of particular programs or services.
Comment: One commenter noted that, with respect to resources, a
State's standard may address cash assets only. Two commenters indicated
concern that an asset limit that does not allow a family to own a
serviceable and reliable vehicle to get to work or services is
[[Page 17826]]
extremely counterproductive to moving people to work.
Response: It is the State's responsibility to specify income and/or
resource limits. States define resources and determine which resources
are considered, e.g., whether both liquid and nonliquid resources must
be considered and the dollar limit(s) for each type of resource. For
example, many States have already eased restrictions that prevented
AFDC recipients from owning cars. Some States are increasing the
excluded value or discounting entirely the value of a motor vehicle in
determining TANF eligibility. We agree that such actions can promote
job preparation and work.
Comment: A few commenters, including two advocacy groups,
recommended that we establish a ceiling on the income standards used by
a State to ensure that basic MOE expenditures are appropriately
targeted to help families most in need.
Response: The proposed rules were silent on this issue. However, we
do not think it is appropriate for us to establish a ceiling in the
final rule. TANF leaves this responsibility to the States. We hope that
States will establish reasonable income standards to ensure that
expenditures are targeted to families most in need.
While Congress did not explicitly provide for an income cap under
TANF, we believe that Congress was very interested in the ways States
are targeting their resources to help families most in need find work
and move toward self-sufficiency. For example, section 404(d)(3)(B) of
the Act requires that TANF funds transferred to title XX programs must
be used only for programs and services to children or their families
whose income is less than 200 percent of the income official poverty
line (as defined by the Office of Management and Budget) applicable to
a family of the size involved. Thus, we re-emphasize our hope that
States will target their resources in ways that help needy families and
support the goals of the program.
In Sec. 265.9(c), we discuss the required information on MOE
programs that States must submit annually. For example, States must
report the eligibility criteria for the families served under each MOE
program/activity. This information will help us to know the scope of
families served in the various MOE programs. At some future date,
depending on how MOE programs evolve, we may want to look at addressing
MOE-related issues through legislative or regulatory proposals.
Comment: Two commenters asked what the applicable standard is for
purposes of basic MOE calculations if a State applies different income
standards to different forms of assistance.
Response: For purposes of counting MOE expenditures, qualified
expenditures under all State or local programs consist of expenditures
claimed with respect to eligible families (or eligible family members)
who met the financial criteria (income and resource requirements, when
applicable) corresponding to the particular activity (i.e., service or
assistance provided) as described in the State plan.
It is also important to note that the TANF compliance supplement
issued by OMB for auditors will include the basic MOE requirement. In
addition, States may be subject to other audits or reviews from time to
time. Therefore, States must be able to support their MOE expenditures
with adequate documentation.
Comment: One commenter recommended that we replace the term
``eligible families'' with ``TANF-related families'' to give States
flexibility to help families become self-sufficient. Another commenter
recommended that we define ``eligible families'' to include persons
eligible for any benefit that could be made to a family with TANF funds
in the State program, i.e., any expenditure that could be made under
section 404(a)(1) or (2) of the Act with respect to a family. Thus, a
State could use its own funds to pay for benefits that it would
otherwise have paid with Federal TANF grant funds.
Response: ``Eligible families'' is the term used in the statute.
Therefore, we believe this is the appropriate term to use in the rules.
As we explained earlier, States are free to establish different income
and resource (when applicable) criteria to match the scope of families
it wishes to serve and type of services it wants to provide. In the
TANF program and in separate State programs, States have the
flexibility to offer a range of services that they think will help
eligible families attain and maintain self-sufficiency. However, for
basic MOE purposes, States cannot necessarily use their own funds in
the same ways as Federal TANF funds. To count toward basic MOE,
expenditures of State funds must be made with respect to eligible
families. The expenditures, whether under or separate from the TANF
program, must provide the family or family members with services that
``qualify,'' i.e., fit any of the activities listed under section
409(a)(7)(B)(i)(I) of the Act. This provision would not include
expenditures under section 404(a)(2) of the Act. (We address
expenditures under section 404(a)(2) later in this discussion.)
Comment: A few commenters asked whether States needed to include
the income and resource requirements in the State's TANF plan. One of
the commenters recommended that State plans clearly define and
delineate all their programs so that there is a clear understanding of
who is eligible, what services and benefits are available, and the TANF
requirements and other provisions that apply to recipients of
assistance. In addition, States should notify recipients in TANF
programs (funded with either Federal or State funds) regarding their
options and responsibilities, and the consequences of their choices.
They also believed we should require States to develop MOE plans in
advance of making expenditures and that States should file such plans
with HHS and publish them in the State.
Response: We agree with the comments that it is appropriate for
States to specify in their TANF plans the financial eligibility
criteria (income and resources, when applicable) associated with all
State or local programs for which MOE expenditures are claimed
(including State funds that are commingled, segregated or separated
from Federal TANF funds). Section 402(a)(1(A)(i) of the Act requires
that the TANF plan outline how the State intends to provide assistance
to needy families with (or expecting) children, and provide parents
with job preparation, work, and support services to enable them to
leave the program and become self-sufficient. Section 402(a)(1)(B)(iii)
requires that the TANF plan indicate the objective criteria for
delivery of benefits, the determination of eligibility, fair and
equitable treatment, and opportunity for appeal of adverse actions.
Neither section makes any distinction between Federal or State-funded
assistance, service, or benefits. Since States can use either Federal
or State funds to provide assistance, services, or benefits, we believe
that the State's TANF plan is the appropriate place to indicate this
information for both TANF and MOE expenditures.
If there is more than one activity within a program and the
financial eligibility criteria differ per activity, the State must also
indicate each different set of criteria in the TANF plan. For example,
a State uses State funds in its transitional services program that
consists of transportation and child care benefits. If the financial
eligibility criteria are different for the two benefits, the State must
indicate the financial eligibility criteria for each benefit.
[[Page 17827]]
In addition, although we do not require it, we believe that the
plan is the most appropriate place for States to provide a brief
description of each MOE program benefit provided to eligible families
or eligible family members, as well as any other particular eligibility
criteria tied to receiving the specific benefit (e.g., must be
participating in the State's work experience component to receive a
particular benefit). In Sec. 265.9(c), we discuss the required
information that States must submit annually. One of the required items
includes naming each of the State's MOE programs and describing the
major activities provided to eligible families under each such MOE
program. To the extent this information is in the State's TANF plan,
the annual reporting requirement may be met by referencing the plan.
In summary, the following information must be in the State's plan
in order for us to deem the plan submission complete: (1) The financial
eligibility criteria with respect to eligible families that are
associated with the State's TANF program and all State or local MOE
programs; and (2) a brief description of the corresponding program
benefit provided to eligible families or eligible family members, if
the State has used MOE funds (either commingled or segregated) to
provide the benefit. It would also be helpful for States to include a
brief description of the corresponding program benefit provided through
separate State MOE funds. However, the information is not required in
order to deem the State's plan submission complete.
We maintain a copy of each State's TANF plan, as well as any
updates to the plan. As the Balanced Budget Act clarified, States need
to update their plans, as appropriate, to reflect new or revised
financial or programmatic requirements as a result of changes in State
law or State policies. The plan is an important vehicle for ensuring
public awareness of the various ways States are helping eligible
families attain and maintain self-sufficiency.
Comment: A few commenters believed we should hold States
accountable for complying with their plans for services and benefits
under TANF (funded with either Federal or State funds) and penalize
them if they fail to do so.
Response: The basic MOE penalty applies if a State fails to meet
the basic MOE annual spending requirement with respect to eligible
families as provided in this subpart. However, neither that penalty nor
any other penalty provides authority for us to penalize a State for
failure to carry out any part of its TANF plan.
We believe that States are committed to expending their funds in
ways that best assist eligible families attain work and self-
sufficiency. States have a very real stake in the success of welfare
reform. States also recognize that they are ultimately accountable for
their expenditure claims. States are audited annually or biennially and
compliance with the basic MOE provisions is part of the audit.
Following publication of the rules, we will update the compliance
supplement to give auditors detailed information about how to assess
State reports on their MOE expenditures.
As part of their review, we will refer them to the information
supplied in the TANF Financial Report and the supplemental information
on MOE programs and MOE expenditures provided annually under
Sec. 265.9(c). This supplemental material provides information about
the scope of eligible families served with MOE funds and the ways in
which States expend their MOE funds to help eligible families.
In the compliance supplement, we will suggest auditing procedures
that include reviews of all the MOE reports and an examination of
issues such as the following: (1) Were all MOE expenditures reported
for the fiscal year actually made during that fiscal year; (2) has the
State adequately documented that reported MOE expenditures went to
eligible families; (3) were the methodologies the State used to
estimate the portion of program expenditures going to eligible families
sound; (4) were all the reported expenditures consistent with the
purposes of TANF; (5) were any expenditures made in violation of the
prohibitions in Sec. 263.6; (6) where applicable, did all expenditures
meet the ``new spending test'' (e.g., for every such program, did the
State properly identify whether the program existed in 1995 and only
count expenditures above the total State expenditures in 1995); (7)
were administrative costs within the 15-percent cap; and (8) were the
expenditures consistent with the cost principles set forth in OMB
Circular A-87.
We will use the results of the audits, together with our own
analysis of the TANF Financial Report and the annual report, to
identify situations where a State might be liable for an MOE penalty.
For example, the fourth quarter TANF Financial Report would identify
any State that reported MOE expenditures below the minimum 80-percent
(or 75-percent) standard for the year. Either the TANF Financial Report
or the annual report might identify types of expenditures that could be
inconsistent with one or more of the requirements for ``qualified State
expenditures.'' We might also undertake additional State reviews based
on complaints that arise or requests from Congress.
Comment: A few commenters expressed concern regarding the
eligibility determination process for different types of services or
assistance. The commenters contend that the method of determining
eligibility could vary depending on the service. For example, the
method for determining a family's eligibility for diversion services
may be more abbreviated than the process used to determine eligibility
for ongoing TANF cash assistance. One commenter recommended that the
regulations require an application for all State-funded benefits and
verification that the family is actually eligible before any basic MOE
expenditures may count.
Response: States decide the method(s) for determining whether the
family consists of at least one child living with a parent or other
caretaker relative and is financially eligible according to the
appropriate income and resource (when applicable) criteria established
by the State. As we mentioned in the above response, section
402(a)(1)(B)(ii) requires States to indicate in their plan the
objective criteria for the delivery of benefits and the determination
of eligibility. Nothing in this provision precludes a State from having
different methods of determining eligibility for different types of
services. However, we would note that 45 CFR 92.42 requires States to
keep records to document claims and that States should, therefore, have
and keep adequate records on eligibility.
Nevertheless, we remind States to pay attention to the TANF
provisions that apply with respect to State-funded TANF assistance
(i.e., to the use of commingled or segregated funds). States risk
potential penalties if they violate certain TANF provisions. For
example, section 408(a)(4) imposes a penalty on a State if the State's
TANF program fails to participate in the Income and Eligibility
Verification System (IEVS). The IEVS provision helps to improve the
accuracy of eligibility determinations for applicants and recipients of
TANF assistance.
States have an inherent interest in ensuring the integrity of their
expenditures. Should a State learn of any material deficiency in its
method for determining eligibility, we anticipate that the State would
rectify it immediately, so that funds for services
[[Page 17828]]
are properly benefitting members of eligible families.
(c) Types of Activities
Comment: Several commenters recommended rewording Sec. 273.2(d) of
the proposed rule to avoid confusion regarding the applicability of
``assistance'' as defined under Sec. 260.31 for basic MOE purposes.
Commenters noted that States have the flexibility to count expenditures
with respect to eligible families whether or not the expenditures meet
the definition of assistance.
Response: As we explained earlier in this discussion, we believe
that States may help eligible family members through an array of
services that fall within the broad categories of activities listed in
section 409(a)(7(B)(i)(I), including services that would not fall
within the definition of assistance at Sec. 260.31, such as
nonrecurrent, short-term assistance. To clarify this point, we have
reworded Sec. 263.2(d) of the final rule and included similar language
at Sec. 260.31(c)(1).
(1) Cash Assistance
Comment: A few commenters requested clarification of the amount of
State Earned Income Tax Credit (EITC) that can count toward the basic
MOE requirement. One commenter noted that a State's EITC expenditures
should count toward the basic MOE requirement even if none of the
credit was ``actually sent'' to an eligible family member. For example,
some States have ``nonrefundable'' EITC programs. Under a
``nonrefundable program,'' the EITC serves to reduce the family's State
income tax bill. However, the State does not pay the family any EITC
remaining if the credit amount is larger than a family's State income
tax bill. Another commenter asked whether we intended the entire cash
payment actually received by the eligible family to count toward basic
MOE, even if a portion of the payment consists of a State income tax
refund.
Response: We have addressed this issue extensively in the preamble
for the new Sec. 260.33. An EITC program can help to relieve the State
income tax liability for working poor families by decreasing the
family's State income tax liability. The family's tax liability is the
amount of taxes owed prior to any adjustment for credits or payments.
EITC can also supplement a family's income--if the credit amount
exceeds the family's State income tax liability and the State pays the
family the remainder (i.e., it refunds the credit amount remaining).
Such a refund is equivalent to cash assistance and may count as a
qualified expenditure because it is reasonably calculated to meet a
purpose of the TANF program.
State income taxes represent revenue to the State. Credits that
offset a family's State income tax obligation provide tax relief to the
family while reducing the State's revenue. A reduction in taxes, or
revenue foregone, is not an expenditure. Therefore, only the EITC
amount that exceeds a family's State income tax liability prior to
application of the EITC is an expenditure. It may count for basic MOE
purposes if the excess amount is actually paid out (refunded) to the
eligible individual. Section 409(a)(7) of the Act stipulates that only
``expenditures'' with respect to eligible families that provide a
benefit or service that is reasonably calculated to meet a purpose of
the TANF program count toward a State's basic MOE. Thus, if a State
does not disburse or pay out any excess EITC remaining, there is no
expenditure.
States must determine the amount of any excess EITC paid to a
family in a fiscal year by reconciling the family's State income tax
obligation for the year against the total EITC amount for which the
family qualifies. Any excess EITC amount actually paid to the family
may count toward the State's basic MOE. In this regard, any EITC that a
worker receives in advance through his or her paycheck may only serve
to offset the family's tax liability. Advance EITC would have to be
reconciled at the end of the year, in the same manner as the lump-sum
EITC credit, to determine the portion, if any, that exceeded the tax
liability.
For example, a wage earner qualifies for a $200 earned income tax
credit. His or her family has a $75 State income tax liability for the
tax year. When reconciling at the end of the year, the first $75 of the
credit is used to reduce the eligible family's State income tax
liability to zero. This part of the calculation represents revenue
foregone to the State and does not constitute an expenditure. If the
State also elects to refund (pay out) the remaining $125 in EITC, then
the $125 actually sent to the eligible family is a qualified
expenditure and counts toward the State's basic MOE.
The same principles apply in the case of a worker who is otherwise
due a State income tax refund. For example, suppose the wage earner
qualifies for an earned income tax credit of $200. Assume further that
the family has a $75 State income tax liability. Yet, through
withholding, the wage earner paid a total of $150 in State income taxes
throughout the year. After reconciliation at the end of the income tax
year, the State owes the worker $150 from withheld State income taxes
and $125 in excess EITC. If the State pays out the EITC owed and sends
it to the family as part of a refund check in the amount of $275, only
the EITC portion, or $125, counts toward the State's basic MOE.
Comment: One commenter asked to what extent other tax credits such
as a dependent care credit, credit to purchase a car seat or health
insurance, tax forgiveness credit, sales tax credit, and property tax
credit count toward a State's basic MOE requirement. The commenter also
asked to what extent, if any, other tax relief provisions such as
personal or dependent exemptions or the standard or other forms of
deductions count toward a State's basic MOE requirement.
Response: Tax provisions that only serve to provide a family with
relief from State taxes, such as income taxes, property taxes, or sales
taxes, represent a loss of revenue to the State, not expenditures to
provide a benefit or service to eligible families. For example,
exemptions and deductions are generally subtracted from total taxable
income, serving only to reduce the amount of income subject to income
tax. Therefore, such exemptions and deductions would not constitute an
expenditure for the purposes of section 409(a)(7) of the Act.
Similarly, tax credits that rebate, refund, or return to a family a
portion of the State's tax revenue (e.g., property, sales, or income
taxes paid by families to the State) would not count toward the State's
basic MOE requirement. Such credits serve only to offset a particular
tax (e.g., a State property tax credit that refunds a portion of
property taxes paid). A reduction in tax burden is not an expenditure.
There has been no direct outlay of State funds to provide a service or
benefit to eligible families.
However, credits that go beyond tax relief and are paid to the
eligible family would count toward a State's basic MOE requirement if
the expenditure is reasonably calculated to meet a purpose of the TANF
program. For example, like the earned income credit, a child care or
dependent care credit is subtracted from the family's income tax
obligation. The portion of the credit that exceeds the income tax
liability and is paid to the family may count toward the State's basic
MOE requirement. Should the family qualify for more than one refundable
credit (e.g., an earned income credit and a dependent care credit),
then the amount by which the total combined value of the allowable
credits exceeds the family's State income tax liability may count for
basic MOE purposes.
[[Page 17829]]
It is important to note that while States may describe elements of
their tax provisions, such as exemptions or deductions, as
``expenditures,'' the provision may not actually be an expenditure.
Similarly, States may differ in their methods of providing certain
credits. For example, a sales tax or property tax credit may be claimed
through the State's income tax system or through a separate process.
Neither of these factors is material to determining whether some or all
of the value of a credit, exemption, or deduction can count for basic
MOE purposes. Accordingly, we urge States to carefully examine any tax
initiative to determine whether it only serves to provide tax relief.
If so, the money does not count for MOE purposes, even if a portion of
the tax revenue is refunded or rebated to the eligible family as ``cash
assistance.'' However, actual expenditures such as some refundable tax
credits may count for MOE purposes if the portion of the credit that
exceeds the family's income tax liability is sent to the eligible
family and the refund is reasonably calculated to accomplish a purpose
of the program. Should a State wish to consult with us on these
matters, we are available for technical assistance.
Comment: Several commenters noted that lack of transportation to
training, job interviews, jobs, child care, or other services that
accomplish the purpose of the program represents one of the most
significant barriers to individuals attaining and maintaining
employment. There are frequently no public or private transportation
services in rural areas, so the traditional approach of tokens or
vouchers is inadequate. Transportation is also problematic in urban
areas due to the mismatch of job and transit destination sites and
traditional commuter services times and routes.
Commenters generally recommended that we give States sufficient
flexibility to respond to individual travel needs by allowing a broad
range of activities as MOE. Examples of suggested allowable
transportation activities included brokerage and coordination pilot
programs, initiation of services that increase access for TANF
recipients to new development or redevelopment employment sites,
subsidization of new transit services either directly or in combination
with other Federal or State sources, sharing in the cost of extending
existing public transportation services, and developing necessary
transportation infrastructure. One commenter added that we should tie
transportation development costs for basic MOE to coordination
mechanisms among human services agencies, State departments of
transportation, and private transportation providers.
One national organization commented that, if public transit
providers must use the cost allocation method, our rules would be
unduly restrictive and could impede the ability of States to provide
cost-effective services. The commenter suggested classifying such
services as contracted services for TANF clients to be paid for by TANF
agencies, with any non-TANF riders considered incidental. Another
commenter recommended adding a section under this subpart to address
when transportation-related expenditures count for basic MOE purposes.
Two commenters referred to the WtW program by suggesting that
qualified transportation expenditures for basic MOE purposes should
include transportation services provided through the State's WtW
program and by clarifying that States could use TANF funds to support
transportation services consistent with the WtW block grant program.
Response: We agree that transportation is a critical element in
helping eligible individuals find and keep jobs. President Clinton
recognized the importance of this issue in his 1998 State of the Union
address. To help individuals on welfare get to work, he proposed an
Access to Jobs initiative in the transportation reauthorization bill.
Congress approved this proposal as the Job Access and Reverse Commute
grant program in the Transportation Equity Act for the 21st Century
(TEA-21), enacted in June 1998.
On May 4, 1998, we issued written guidance jointly with the
Departments of Transportation and Labor on some of the ways in which
States could use TANF and WtW funds to break down the transportation
barriers for eligible individuals (Temporary Assistance for Needy
Families Program Policy Announcement TANF-ACF-PA-98-2). Most of the
examples could also serve as examples for the use of basic MOE funds.
We updated this guidance to incorporate the provisions of TEA-21 in
TANF-ACF-PA-98-5, dated December 23, 1998. We anticipate issuing
additional guidance on the use of funds shortly after publication.
We do not think that it is necessary to add specific regulations to
address transportation expenditures.
Transportation expenditures with respect to eligible families count
as basic MOE if they meet all the requirements under section 409(a)(7)
of the Act and this subpart. For example, under section
409(a)(7)(B)(i)(I)(aa) of the Act, transportation expenditures count if
they are a form of cash assistance that is reasonably calculated to
accomplish a purpose of the program (e.g., reimbursement for mileage,
gas, public transit fare, auto repairs/insurance, or a basic cash
allowance for transportation needs to go to or from work or training).
Also, under section 409(a)(7)(B)(i)(I)(ee) of the Act, other types of
transportation expenditures count if they reasonably accomplish a
purpose of the TANF program, such as promoting job preparation and
work. A broad range of transportation activities are possible within
this category. We included some examples of such activities in the
joint guidance cited above. However, we remind States that applicable
TANF rules apply to State-funded transportation assistance (as defined
in Sec. 260.31) provided under the TANF program. (We discussed the
implications of State-funded assistance in an earlier response.)
We also remind States that only qualified transportation
expenditures with respect to eligible families count toward the basic
MOE requirement. Congress clearly did not intend to include
expenditures for the public at large. Thus, it is improper to claim as
basic MOE general expenditures required to carry out other
responsibilities of a State or local government and benefitting the
public at large. However, a State could contract with a public or
private transit agency for transportation services for eligible family
members. Under such a contracting arrangement, a transit company could
serve noneligible individuals so long as the State does not claim as
State MOE the funds used to pay for, or subsidize, use by these
noneligible individuals.
A State could also claim as MOE those start-up, program, and
administrative costs that are attributable to eligible family members
under a State or local transportation initiative (e.g., to broker
transportation services) that is consistent with TANF goals, but
targeted to a larger low-income population or more broadly to a low-
income area.
States must allocate costs when State or local programs or agencies
share costs, e.g., the TANF agency shares the use of vans or buses with
a senior citizen program or shares in the purchase of transportation
services.
We know that many States and locales have already made tremendous
strides toward breaking down the transportation barriers faced by
eligible family members. However, we also know that Federal TANF and
State MOE funds are insufficient to overcome all transportation
deficiencies. The recently
[[Page 17830]]
passed Job Access and Reverse Commute grant programs will give States
additional flexibility in developing and providing transportation
services.
The Job Access program provides competitive grants to assist States
and localities in developing flexible transportation services to
connect welfare recipients and other low-income persons to jobs and
other employment-related services. The Reverse Commute grant program is
for projects that will provide transportation services to suburban
employment centers from urban, rural, and other suburban locations for
all populations. The Mass Transit Account of the Highway Trust Fund and
the General Fund finance both programs. However, the amount of the
Federal grant under either program may not exceed 50 percent of the
total project's cost. The balance must be met locally. Thus, a 50/50
Federal/local match is required under both programs.
In this regard, we remind States of the prohibition under section
409(a)(7)(B)(iv)(IV) of the Act and Sec. 263.6(c) of this subpart
stipulating that any State funds expended as a condition of receiving
Federal funds under other programs do not count toward the State's
basic MOE. Thus, any State funds used to meet the cost-sharing
requirements of the Job Access and Reverse Commute grants program do
not count for basic MOE purposes. However, in this case, Federal TANF
funds may be used to satisfy non-Federal match requirements of another
program (within specified monetary limits).
In addition, section 409(a)(7)(B)(iv)(III) of the Act and the
regulatory text at Sec. 263.6(e) of this subpart expressly provide that
State funds expended to meet the WtW matching requirements do not count
toward a State's basic MOE. Thus, States may not double-count
expenditures to provide transportation services for individuals
participating in an allowable WtW employment activity.
The statute is equally clear regarding expenditures for supportive
services, such as transportation, to help eligible family members who
are WtW participants. Section 403(a)(5)(C)(i)(VI) of the Act provides
that a State may use WtW funds to provide supportive services to
eligible participants only ``if such services are not otherwise
available.'' A State could use basic MOE funds to provide
transportation services consistent with the WtW block grant program
because the WtW and TANF programs share the same purposes. But, as
explained above, the expenditures do not count for basic MOE purposes
if the State also used these expenditures toward the required WtW match
under section 403(a)(5) of the Act.
(2) Any Other Use of Funds Allowable Under Section 404(a)(1)
Comment: One commenter recommends that we allow States to claim
expenditures toward basic MOE that were formerly allowable under a
State's AFDC-EA program. Another commenter specifically asked whether
services paid under a housing assistance program qualify for basic MOE
purposes. The housing assistance component provides payment for rent,
security deposit, and utilities to prevent and/or end homelessness or
near homelessness. A third commenter asked whether expenditures for
micro-entrepreneurship development services qualify for basic MOE
purposes. The commenter believes this approach fosters employment
opportunities in rural areas through self-employment options.
Response: Section 409(a)(7)(B)(i)(I)(ee) of the Act permits any
activity with respect to eligible families that is reasonably
calculated to accomplish the purpose of the TANF program to count for
basic MOE purposes. For example, one purpose of the program is to
provide assistance to needy families so that children may be cared for
in their own homes or in the homes of relatives. Thus, some (but not
all) emergency assistance and services with respect to eligible
families, which had been previously provided by a State under its AFDC-
EA program, would meet this purpose and could count for basic MOE
purposes. We believe that emergency housing assistance services could
meet this purpose as well. However, only the expenditures made with
respect to eligible families count for basic MOE purposes. (Refer to
Sec. 263.5 for discussion of the ``new spending'' limitation on certain
MOE program expenditures.)
Another purpose of the program is to end the dependence of needy
parents on government by promoting job preparation, work, and marriage.
Micro-entrepreneurship services promote job preparation and work. In
this regard, a State may also deposit State funds into the eligible
family member's Individual Development Account (IDA) to help with
business capitalization. The funds count once toward the basic MOE
requirement--in the fiscal year in which the State deposits the money
into the eligible family member's IDA. The State could not use the IDA
balance carried forward to the next fiscal year to meet the basic MOE
requirement for the next fiscal year.
(3) Medical and Substance Abuse Services
Comment: A number of commenters supported our clarification in the
preamble to allow States to use State funds to provide drug and alcohol
treatment services to eligible family members when these services
assist in accomplishing a purpose of the program. Nearly all the
commenters requested that we add the clarification to the final
regulation.
One commenter found the need to separate medical from nonmedical
substance abuse treatment services problematic and unrealistic as both
types of services are lacking in rural areas. The commenter also noted
that child care and transportation costs related to these services
should also count toward a State's basic MOE. Another commenter
suggested that we provide guidance in the preamble to differentiate
medical from nonmedical alcohol and drug treatment services.
Two other commenters felt that medical services in connection with
gaining and retaining unsubsidized employment (e.g., pre-employment
services that include physical examinations) should count toward the
basic MOE.
Response: We agree that allowing expenditures with respect to an
eligible family member for nonmedical substance abuse treatment is an
important clarification and have added it to the final regulation.
We did not intend to imply that substance abuse treatment must be
exclusively nonmedical in nature for the nonmedical services to count
for basic MOE purposes. We recognize that drug and alcohol abuse
treatment services may include medical as well as nonmedical
activities. However, if States wish to use commingled State TANF funds
for substance abuse treatment services, they have the responsibility to
develop policies that distinguish between expenditures for the
provision of medical services and nonmedical services. The policies
must reflect a reasonable interpretation of the statutory language.
Section 408(a)(6) of the Act expressly excludes the use of Federal
TANF funds to provide medical services except for pre-pregnancy family
planning activities. The same prohibition applies to any commingled
State funds expended to treat an eligible family member for drug and
alcohol abuse. Commingled State funds used to provide nonmedical
services, such as substance abuse services, to an eligible family
member would count toward basic MOE if the service is reasonably
[[Page 17831]]
calculated to accomplish a purpose of the program, e.g., help the
individual prepare for work, find, or keep a job.
The prohibition on medical expenditures does not apply to
segregated State TANF funds or separated State funds. Therefore, States
may count medical expenditures with respect to eligible family members
toward the basic MOE provided these expenditures are consistent with
the purposes of the program and are not matched by the Medicaid program
or otherwise prohibited under section 409(a)(7)(B)(iv) of the Act or
Sec. 263.6(b) and (c) of this subpart.
We again remind States that the drug and alcohol abuse treatment
services with respect to eligible families must be consistent with the
purposes of the program to count toward the State's basic MOE
requirement. If so, then by extension, expenditures for other
supportive services such as transportation and child care that
facilitate the eligible family member's ability to access and complete
substance abuse treatment may also count for basic MOE purposes, if the
MOE requirements are met. (Refer to Sec. 263.3 for discussion of the
limitation on certain child care expenditures.)
We agree that pre-employment services is an example of a qualified
activity because it accomplishes a purpose of the program. Therefore,
by extension, the associated medical expenditures would count toward
basic MOE if the State uses segregated or separated funds to pay for
the services.
(4) Juvenile Justice
Comment: We received several comments regarding our discussion of
juvenile justice expenditures. Most of the commenters opposed our
conclusion that juvenile justice expenditures do not count for basic
MOE purposes because the expenditures do not meet any of the purposes
of the TANF program. However, the commenters did not specifically
explain how the purposes are met.
Response: As we explained in detail earlier in our discussion,
juvenile justice expenditures do not count for basic MOE purposes. The
principal purpose of a child's placement in the juvenile justice system
is 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 serve to 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. Thus, it is not an allowable use of funds under section
404(a)(1) of the Act.
In some States, Federal TANF funds may support juvenile justice
programs pursuant to section 404(a)(2) of the Act. However, the basic
MOE requirement under section 409(a)(7) of the Act expressly does not
count expenditures for services or activities that only fall under
section 404(a)(2). Thus, it does not cover benefits and services for a
child removed from his or her home and receiving care in a correctional
facility or juvenile residential facility. States that were previously
authorized to cover the costs of children in the juvenile justice
system under their formerly approved AFDC-Emergency Assistance plans
would need to use Federal TANF funds for this purpose.
Clearly, expenditures on eligible families for services that are
reasonably calculated to accomplish the purpose of the program do
qualify for basic MOE purposes. For example, a State may wish to
provide family preservation services so that an eligible child family
member may be cared for in his or her own home (purpose 1). Such
assistance could include family or individual counseling services or
parenting training to improve family functioning, referrals to outside
service providers who could help an ``at risk'' child or family
function better, and associated assessment and case management
activities.
(5) State ``Rainy Day'' Funds
Comment: One commenter noted that States have a long history of
creating rainy day funds or special reserves to cover contingency
needs. States recognize the need to be fiscally prudent in the
anticipation of caseload increases, natural disasters, economic
declines, and increasing participation rates. But the commenter
believed the language in the proposed rule limits State flexibility to
use State funds for this purpose.
Response: Section 409(a)(7)(A) and (B) of the Act stipulate that
only qualified expenditures made with respect to eligible families
count toward a State's basic MOE. Placing funds in a reserve or rainy
day fund does not represent an expenditure. While we agree that it may
be fiscally prudent to create a rainy day fund or a reserve, the money
in the fund does not count for basic MOE purposes until the fiscal year
in which the State actually expends funds on behalf of eligible
families in ways that meet the requirements of section 409(a)(7) of the
Act and this subpart.
(6) Administrative Costs
Comment: Several commenters raised questions about how the
administrative cost cap was applied to MOE and separate State programs.
A few did not want a cap on the administrative costs of separate State
programs, believing that the PRWORA does not authorize us to cap those
administrative costs. Three commenters took exception to the
application of the 15-percent administrative cost cap to separate State
programs. The three commenters believe that such ``separate State
programs'' should be excluded from coverage of the definition.
Response: We believe these comments are a result of confusion about
the proposed regulatory language. The MOE administrative cost cap is
not a limit on the administrative costs of separate State programs.
Rather, it is a limit on the amount of administrative costs that can
count as MOE. Section 409(a)(7)(B)(i)(I)(dd) clearly limits the amount
of administrative costs that can count as basic MOE. We have revised
the regulatory language at Sec. 263.2(a)(5) to clarify the distinction.
We also noted an error in the proposed TANF reporting form and the
accompanying instructions that may have added to the confusion. The
instructions provided separate columns for reporting of expenditures
from MOE funds, one for State TANF expenditures and one for separate
State programs. It then indicated how administrative costs would be
determined ``for each of these columns.'' This language suggested that
there were two separate caps, when that is not the case. We have
corrected the instructions for the form.
Comment: Two commenters indicated that administrative spending for
the TANF program would probably never involve a specific payment to, or
on behalf of, a specific eligible family. Yet this is a qualified
expenditure. Therefore, the commenter thought all types of spending
should qualify toward the basic MOE.
Response: The different treatment of administrative costs is based
on statutory distinctions. According to section 409(a)(7)(B)(i)(I)(dd)
of the Act, administrative expenses under all programs means
``[A]dministrative costs in connection with the matters described in
items (aa), (bb), (cc), and (ee).'' Therefore, the statute includes as
MOE, administrative expenses if the expenditure relates to carrying out
another qualified activity that helps eligible families.
Comment: One commenter observed that the definition of
administrative costs under Sec. 273.0(b) of the proposed
[[Page 17832]]
regulation applies to State MOE expenditures since the use of State MOE
funds have the same administrative cost cap as Federal TANF funds.
Response: The commenter correctly noted that the definition of
administrative costs applies whether State funds or Federal TANF funds
are used to pay these costs.
Comment: Two commenters supported our proposal to exempt State
expenditures used toward information technology and computerization
needed for tracking or monitoring as required by title IV-A. One
commenter noted that while section 409(a)(7)(B)(i)(I)(dd) of the Act
does not clearly state that this exemption applies, nevertheless,
States are facing massive systems needs as a result of welfare reform.
In addition, the exception for technology and computerization should
include costs for contracts to develop new programs; staff needed to
install and maintain additional systems; staff collating, in-putting
and analyzing required tracking and monitoring data; training costs for
new hardware and software; and preparing the reports and other
documents related to the tracking and monitoring mandates.
Response: We have retained our proposal that the same exception
given under section 404(b)(2) with respect to costs related to
information technology and computerization needed for tracking and
monitoring apply to State-funded administrative costs in connection
with qualified expenditures.
We addressed the treatment of computer-related costs in the
discussion of the definition of administrative costs at Sec. 263.0.
Refer to that section for a full discussion of issues raised regarding
information technology and computerization needed for tracking or
monitoring. Basically, this discussion affirms that certain systems
costs may be excluded in determining whether a State is within or
exceeded the 15-percent limitation placed on administrative
expenditures. It also provides guidance about the scope of that
exclusion.
Comment: One commenter said that the cap on administrative costs
does not apply to additional State dollars that a State must expend if
assessed a penalty.
Response: The commenter is correct. Section 409(a)(12) of the Act
requires a State to expend additional State funds under its TANF
program to replace any loss of Federal grant funds due to a penalty.
The 15-percent limit under section 404(b) applies only to Federal TANF
funds, and, thus, does not apply to the State replacement funds under
section 409(a)(12). Further, as the statute precludes the use of
replacement funds to meet the MOE requirement, they are not subject to
the MOE rules, including the MOE cap on administrative expenditures.
However, they must otherwise be allowable expenditures under the
State's TANF program.
Section 263.3--When Do Child Care Expenditures Count? (Sec. 273.3 of
the NPRM)
Overview
In the NPRM preamble we explained that there were certain
restrictions on the child care expenditures that could count for basic
MOE purposes. First, only child care expenditures used to assist
eligible families under the State's TANF criteria count toward the
State's basic MOE. Under Sec. 263.2 (formerly Sec. 273.2), we indicated
that eligible families mean families that have a child living with a
parent or other adult caretaker relative (or consisting of a pregnant
woman) and are financially needy per the appropriate TANF income and
resource standards (when applicable) established by the State under its
TANF plan. Thus, not all State expenditures to provide child care
services would necessarily qualify for basic MOE purposes, particularly
if the eligibility criteria for the child care services are broader
than the State's TANF criteria, e.g., under the Child Care Development
Fund (CCDF).
Second, section 409(a)(7)(B)(iv) of the Act establishes four
general restrictions on State expenditures. (These restrictions are
listed in Sec. 263.6.) Two of the restrictions, at subsections
409(a)(7)(B)(iv)(IV) and 409(a)(7)(B)(iv)(I), apply to child care
expenditures.
Subsection 409(a)(7)(B)(iv)(IV) generally excludes any State funds
expended as a condition of receiving Federal funds under other Federal
programs from counting toward a State's basic MOE. Thus, Congress
prohibited ``double-counting.'' However, this subsection also provides
an exception to this restriction for child care expenditures (i.e., the
State's CCDF MOE and the State's share of matching funds). State child
care expenditures used to meet the child care MOE requirement or to
receive Federal matching funds under the CCDF may also count toward
meeting the State's basic MOE requirement if the expenditures are made
on behalf of members of an eligible family.
The amount of State child care expenditures that may count for
basic MOE purposes is limited to the State's share of expenditures in
FY 1994 or FY 1995, whichever is greater, for the former title IV-A
child care programs, i.e., the AFDC/JOBS child care, transitional child
care, and At-Risk Child Care programs. This capped amount is the same
amount as the State's child care MOE amount, for purposes of qualifying
for child care matching funds.
If a State has additional State child care expenditures, i.e.,
expenditures that have not been used toward meeting the child care MOE
requirement or to receive Federal matching funds under CCDF, these
expenditures may count toward the State's basic MOE, provided the
expenditures meet all other requirements and limitations set forth in
subpart A of this part. Subsection IV does not limit the amount of such
additional child care expenditures that may count for basic MOE
purposes.
Subsection 409(a)(7)(B)(iv)(I) excludes any expenditures that come
from amounts made available by the Federal government. Therefore,
Federal TANF funds transferred from the TANF program to the Child Care
and Development Block Grant (also known as the Discretionary Fund of
the CCDF) would not count toward MOE. Neither would Federal TANF funds
directly received under CCDF (or any other program that allows for
child care).
Comments and Responses
We received a number of comments on this section. Some commenters
found the information regarding expenditures that could count helpful,
especially since States are making significant investments in child
care. Others thought that the preamble was confusing because it did not
clearly distinguish between child care expenditures that are subject to
a dollar limit (and therefore would not count in the entirety toward
the basic MOE) and those that can count without limit. A few commenters
recommended that the final regulations at Sec. 263.3(a) (formerly
Sec. 273.3(a)) clearly explain which child care expenditures count
rather than merely cross-referencing the statutory provision.
Several commenters expressed concern that the definition of
``eligible family'' deters States from counting child care expenditures
under the State's child care program for transitional and at-risk
families. We address this and other comments in the discussion below.
Comment: Some commenters noted that the wording in this section
does not clearly explain which expenditures do and do not count toward
the State's basic MOE requirement. The commenters thought that we
should add a clarification to the final regulations.
[[Page 17833]]
Response: States may receive an allocated amount of Federal
matching funds under the matching fund component of the CCDF. To
receive its share of these matching funds, the State must meet a
maintenance-of-effort (MOE) requirement. The child care MOE requirement
is a specific dollar amount that we calculated for each State based on
their FY 1994 or FY 1995 State child care expenditures under the title
IV-A child programs. Thus, under the CCDF matching fund, States must
expend State-only dollars that equal their child care MOE level and may
claim Federal matching funds (up to the allocated amount) for State
funds expended beyond the child care MOE level to provide CCDF-funded
child care services. A State may also count these State-funded child
care expenditures toward the State's basic (TANF) MOE as long as the
expenditures also meet the requirements under section 409(a)(7) of the
Act and this subpart. However, the amount that may be counted for basic
MOE purposes is limited to State's child care MOE amount. States should
note that while the basic MOE limit for double-counting child care
expenditures is the same amount as the child care MOE amount, this does
not mean that the State may use only child care MOE expenditures. For
example, if a State's annual child care MOE requirement is $5 million,
then the State may only count up to $5 million of its CCDF matching
fund expenditures toward its annual basic MOE requirement. The State
could claim the $5 million in child care expenditures from either
expenditures used to meet the State's child care MOE requirement or
expenditures used to receive CCDF Federal matching funds.
It is not unusual for a State to expend in excess of the funds
needed to draw down CCDF funds to provide child care services. There is
no dollar limit on counting toward basic MOE State expenditures to
provide child care assistance that have not been used to meet the CCDF
matching fund requirements. We have clarified this policy in the
regulatory text. At the same time, we remind States of the ``new
spending'' provision at Sec. 263.5 that limits the amount of basic MOE
expenditures that may count in certain pre-existing basic MOE programs,
including certain child care programs.
For pre-existing child care programs (current State or local
programs also operating in FY 1995) that were not AFDC-related
programs, States may only claim ``new spending'' toward the basic MOE
requirement--namely, qualified State expenditures in the current year
with respect to eligible families that exceed what the State spent on
that program in FY 1995. The AFDC-related child care programs included
the AFDC, At-Risk, and transitional child care programs. The ``new
spending'' provision does not apply to expenditures for child care
services that would have been an allowable expenditure under these
former title IV-A child care programs.
Hence, in terms of a child care program subject to the ``new
spending'' provision, three requirements apply for the expenditure to
count as basic MOE. First, only the ``new'' expenditures, those in
excess of the FY 1995 program expenditures, potentially count. Second,
if the expenditures have been used to meet the child care MOE
requirement or to receive CCDF matching funds, the maximum amount of
excess expenditures that can be double-counted is limited to the
State's child care MOE amount. For those expenditures that have not
been used to meet the child care MOE requirement or to receive CCDF
matching funds, the excess may count as basic MOE, up to the actual
amount of expenditures made outside of the CCDF matching fund
requirement. Finally, if none of the expenditures in the child care
program have been used to meet the child care MOE requirement or to
receive CCDF matching funds, the total amount of the excess can be
counted toward basic MOE.
Comment: Several commenters expressed concern that State
expenditures to provide child care services to families transitioning
off TANF assistance or at risk of becoming dependent on TANF assistance
do not count for basic MOE purposes because of the restricted
definition of eligible families. One commenter suggested that we amend
the regulation to recognize State programs geared to enabling low-
income families to maintain their jobs through the provision of child
care. The commenters contend that we should consider any family who is
financially needy according to the State's child care eligibility
criteria an eligible family for basic MOE purposes. Therefore, any
State spending on its child care program would count toward a State's
basic MOE requirement.
Several other commenters concurred, writing that all of the State's
child care expenditures under the now repealed title IV-A child care
programs, which included expenditures for working families to
transition off the TANF assistance program or at risk of needing TANF
assistance, should count toward the basic MOE requirement, up to each
State's child care MOE amount. They noted that there is no statutory
requirement that an eligible family must actually receive TANF cash
assistance for child care expenditures to count for basic MOE purposes.
Response: We refer you to the extensive discussion regarding the
definition of eligible family under Sec. 263.2 of this subpart. There,
we reaffirm that an eligible family must consist of child living with
his or her parent or other caretaker relative (or consist of a pregnant
woman). The family must also be financially needy according to the
appropriate income and resource (when applicable) criteria established
by the State and contained in its TANF plan. However, we also mention
that we never intended that States be locked into a single income and
resource standard, such as the one a State uses to determine whether a
family is financially eligible to receive TANF cash assistance. States
are free to establish different income and resource (when applicable)
criteria based on the range of families that it wishes to serve or type
of services it wants to provide. We also recognize that eligible family
members do not necessarily have to receive TANF cash assistance or any
other benefit or services through the TANF program.
Thus, the rules would not preclude States from providing child care
benefits to help families who are transitioning off of TANF assistance
or at risk of needing TANF assistance or other low-income families. Nor
would they prevent a State from using the financial eligibility limits
for child care services and activities applicable to the use of CCDF
funds or the financial eligibility criteria applicable to a State's own
separately funded child care program.
Comment: One commenter noted that the NPRM gives the impression
that we consider child care important for children up to the age of
six, but not for children age six or older. The commenter recommends
rulemaking on this issue.
Response: We believe the commenter was referring to the proposed
rule at Sec. 271.15, which provided that a State could not reduce or
terminate assistance to a single custodial parent caring for a child
under age six for refusing to engage in required work, if the parent
demonstrates an inability to obtain needed child care. This provision,
found in Sec. 261.15 of the final rule, reflects the statutory
provision at 407(e)(2), which expressly limits the sanction exception
to a single custodial parent caring for a child under age six.
This provision does not represent our perspective regarding the
importance of child care for children age six and over. We recognize
that child care is a critical
[[Page 17834]]
supportive service for families moving from welfare to work. However,
our authority to regulate in this area is limited to the State penalty
provision associated with this child care exception at Sec. 261.51 of
the final rule.
Comment: One commenter indicated that the State agency may not know
if it needs to utilize any child care MOE expenditures to satisfy the
basic MOE requirement until the final quarter of the fiscal year.
Response: The commenter may be reacting to the requirement to
report expenditures quarterly. Although the report is quarterly, the
expenditures reported are cumulative. The basic MOE spending
requirement is an annual requirement. Thus, the reported expenditures
could have occurred in the quarter represented by the report or any
prior quarter in the fiscal year.
A State may choose to apply the child care expenditures that it
made to meet the CCDF matching fund requirement toward satisfying its
basic MOE requirement (up to the dollar limit). It is not a
requirement. The State may apply such expenditures toward its basic MOE
requirement anytime during the fiscal year.
The commenter may also be pointing out a potential issue for States
that depend upon expenditures in other State and local programs for
meeting the basic MOE requirement. To the extent such other programs
are not under the control of the TANF agency, the TANF agency will need
to maintain strong communications with the other agencies operating
these programs in order to track and report expenditures, as well as to
ensure that the State will be in compliance with the basic MOE
requirement at the end of the year.
Section 263.4--When Do Educational Expenditures Count? (Sec. 273.4 of
the NPRM)
Overview
Only expenditures on educational services or activities that a
State targets to eligible families to increase self-sufficiency, job
training, and work may count toward a State's MOE. The statute excludes
educational services or activities that are generally available,
including through the public education system. As the conferees
explained in H.R. Rep. No. 725, 104th Cong., 2d sess., p. 277, States
may not count as MOE ``any expenditure for public education in the
State other than expenditures for services or assistance to a member of
an eligible family that is not generally available to other persons.''
Expenditures on special services that are targeted to ``eligible
families'' and are not generally available to other residents of the
State may count. These could include contracted educational services or
activities that provide special classes or expand the capacity of
existing programs, for example, to provide: targeted services for teen
parents in high schools or other settings; training in English as a
second language for eligible immigrants; remedial education to achieve
basic literacy; courses for high school equivalency (GED) certificates;
or pre-employment or job-readiness activities.
We also note that expenditures on supportive services, such as
transportation, to assist a member of an eligible family in accessing
educational activities may also count toward a State's MOE, either as
cash assistance 
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