\[Federal Register: July 24, 1998 (Volume 63, Number 142)\]

\[Rules and Regulations\]

\[Page 39935-39998\]

From the Federal Register Online via GPO Access \[wais.access.gpo.gov\]

\[DOCID:fr24jy98-21\]

\[\[Page 39935\]\]

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Part II

Department of Health and Human Services

Administration For Children and Families

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45 CFR Parts 98 and 99

Child Care and Development Fund; Final Rule

\[\[Page 39936\]\]

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 98 and 99

RIN 0970-AB74

Child Care and Development Fund

AGENCY: Administration for Children and Families (ACF), HHS

ACTION: Final rule.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

SUMMARY: This final rule implements the child care provisions of the

Personal Responsibility and Work Opportunity Reconciliation Act

(PRWORA) of 1996 (Pub. L. 104-193) and incorporates technical

corrections to PRWORA made by the Balanced Budget Act of 1997 (Pub.L.

105-33). PRWORA appropriates new entitlement child care funds under

section 418 of the Social Security Act and requires that these new

Federal child care funds be subject to the Child Care and Development

Block Grant (CCDBG) Act. The CCDBG program which was created under the

original CCDBG Act is a discretionary fund program. PRWORA also

reauthorized the CCDBG Act. As PRWORA requires that these child care

funds be administered as a unified program, the Administration for

Children and Families has named the combined funds the Child Care and

Development Fund (CCDF). Parts 98 and 99 are the official regulations

for the Child Care and Development Fund.

EFFECTIVE DATE: August 24, 1998.

FOR FURTHER INFORMATION CONTACT: Barbara Binker, Director, Policy

Division, Child Care Bureau, Hubert Humphrey Building, Room 320F, 200

Independence Avenue, SW, Washington, DC 20201, telephone (202) 401-

5145\. Deaf and hearing-impaired individuals may call the Federal Dual

Party Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. Eastern

time.

SUPPLEMENTARY INFORMATION:

Background

Section 103(c) of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) repealed the child care programs

authorized under title IV-A of the Social Security Act\--AFDC Child

Care, Transitional Child Care and At-Risk Child Care. In addition,

PRWORA amended section 418 of the Social Security Act to provide new

entitlement Federal child care funds and transferred them to the Lead

Agency under the amended Child Care and Development Block Grant Act.

The funding under section 418 is now subject to the CCDBG Act. PRWORA

also amended the CCDBG Act.

The new statutory provisions, therefore, unified what was a

fragmented child care subsidy system. The combined and increased

funding becomes part of a holistic and streamlined system for child

care. The integrated entitlement and discretionary child care funding

has a single, unified purpose. The Department of Health and Human

Services has named the combined funds the Child Care and Development

Fund (CCDF), to reflect this integration of multiple funding sources.

The Department uses the CCDF terminology when corresponding with

grantees and the child care field.

Goals and Purpose of the Rule

The primary goals of this rule are to:

\--Amend the CCDBG regulations in light of the child care amendments

under title VI of PRWORA,

\--achieve a balance between program flexibility and accountability,

\--assure the health and safety of children in child care,

\--recognize that child care is a key support for work, as envisioned in

TANF, and

\--clarify, streamline, simplify, and unify the Federal child care

program.

The major regulatory decisions were made to assure States have

adequate information upon which to base their child care payments;

promote public involvement in the Plan process; strengthen health and

safety in child care by requiring children receiving CCDF subsidies to

be age-appropriately immunized; require coordination between child care

Lead Agencies and agencies administering TANF, health, education and

employment programs; streamline the CCDF application and Plan; and

provide clarifications based on experience operating both the CCDBG

program and the now-repealed title IV-A programs.

We received relatively few comments during the comment period\--only

some 160 organizations and individuals made approximately 500 comments,

many of which were duplicative. The content of the comments lead us to

believe that we achieved our goal of reaching balance among viewpoints.

We made only a few changes as a result of comments to adjust the

balance among goals. Of the substantive changes made, we require the

Lead Agency to make available to the public, in advance of the public

hearing, the plan it proposes to submit to the Secretary. We require

the Lead Agency to provide consumer education information to parents

and the general public about health and safety requirements and about

the full range of providers available to families. We clarified that an

independent audit of a Lead Agency shall be conducted by a State agency

that meets the generally accepted government auditing standards or by a

public accountant who meets the independence standards contained

therein. We added provisions regarding tribal consortia in Sec. 98.83.

We also added or revised provisions regarding tribal construction at

Sec. 98.84 including a requirement regarding the amount a tribe new to

the CCDF may spend on construction and a provision regarding treatment

of construction planning costs.

We made other changes to conform to the technical amendments to

PRWORA by Pub. L. 105-33, The Balanced Budget Act of 1997, primarily in

Sec. 98.70 and 98.71. Based on comments, we also made other minor

changes to clarify proposed language or codify policy contained in the

preamble of the proposed rule.

Statutory Authority

Section 658E of the Child Care and Development Block Grant Act of

1990 requires that the Secretary shall by rule establish the

information needed in the Block Grant Plan.

Regulatory Impact Analysis

This rule has been reviewed by the Office of Management and Budget

(OMB) pursuant to Executive Order 12866. Executive Order 12866 requires

that regulations be reviewed to ensure that they are consistent with

the priorities and principles set forth in the Executive Order. The

Department has determined that this rule is consistent with these

priorities and principles. An assessment of the costs and benefits of

available regulatory alternatives (including not regulating)

demonstrated that the approach taken is the most cost-effective and

least burdensome while still achieving the regulatory objectives.

For the most part, the regulations implement specific requirements

under PRWORA.

We are requiring that children be age-appropriately immunized in

order to receive services under the Child Care and Development Fund. As

most States already include immunizations in their child care standards

and provide religious and medical exemptions from immunizations, we do

not anticipate that this rule will have a significant negative impact

on either grantees or families, since grantees will not be required to

provide immunizations directly. The Vaccines for Children Program, an

important component of the Childhood Immunization Initiative (CII),

\[\[Page 39937\]\]

provides immunizations to eligible children, including those without

insurance coverage, those eligible for Medicaid, and American Indians

and Alaska Natives. In addition, every State receives grant funds for

immunization activities, including hiring nurses, expanding clinic

hours, assessing coverage levels, and conducting outreach. Immunization

levels of children 19-35 months of age are measured by the National

Immunization Survey, the most recent survey conducted throughout the

U.S. that provides comparable State vaccination coverage estimates.

The immunization provision was considered the most cost-effective

and least burdensome approach because: (1) It helps ensure that

vulnerable young children are age-appropriately immunized; (2)

immunization of such children is highly cost-effective; and (3) it

provides flexibility to grantees in determining how to implement the

provision.

Regulatory Flexibility Analysis

The Regulatory Flexibility Act (Pub. L. 96-354) requires the

Federal government to anticipate and reduce the impact of rules and

paperwork requirements on small businesses and other small entities.

The primary impact of this regulation is on State, tribal and

territorial governments. To a lesser extent the regulation could affect

individuals and small businesses. However, the number of small

businesses affected should be limited, and the expected economic impact

on these businesses would not be so significant that a full regulatory

flexibility analysis is indicated.

The rule contains a number of provisions that could result in some

decrease in the regulatory and economic burdens on providers that are

small businesses. Because States will be required to operate their

programs under a more consistent set of program rules, participating

providers will face a simpler and more streamlined set of Federal

regulatory requirements.

The providers who would potentially be most affected by this rule

are in-home providers. These providers are generally not operating as

small businesses, but as domestic employees; thus, any impact on them

need not be specifically addressed under this Act.

State, local and tribal governments already have authority to set

general regulatory requirements and health and safety standards for

child care providers. If States (or other grantees) believe that there

is a substantial need for additional requirements (to protect the well-

being of children in care), we expect them to act under this general

authority.

While States generally have immunization requirements for children

in child care, the proposed immunization provision might result in some

additional children being subject to immunization requirements or

stronger requirements for some children. However, States have

flexibility in deciding how immunization requirements are to be

implemented. Our rule does not dictate that States impose requirements

on providers; rather, States can choose to impose them on eligible

families. Thus, the immunization provision in this rule does not

necessarily affect small businesses. Further, where States do choose to

impose additional requirements on providers related to the immunization

provision, such requirements would be basically administrative in

nature (e.g., documentation); we expect the costs of immunization to be

covered through other funding sources. Thus, this provision would not

have a significant economic impact on providers.

For these reasons, we certify that this rule will not have a

significant economic effect on a substantial number of small entities,

and that a Regulatory Flexibility Analysis is not required.

Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995 requires

that a covered agency prepare a budgetary impact statement before

promulgating a rule that includes any Federal mandate that may result

in the expenditure by State, local, and Tribal governments, in the

aggregate, or by the private sector, of \$100 million or more in any one

year.

We have determined that this final rule will not impose a mandate

that will result in the expenditure by State, local, and Tribal

governments, in the aggregate, or by the private sector, of \$100

million or more in any one year. Accordingly, we have not prepared a

budgetary impact statement, specifically addressed the regulatory

alternatives considered, or prepared a plan for informing and advising

any significantly or uniquely impacted small governments.

Congressional Review of Regulations

This final rule is not a \`\`major\'\' rule as defined in Chapter 8 of

5 U.S.C.

Paperwork Reduction Act

Sections 98.16 and 98.81 contain the Lead Agency Plan information

requirements of the ACF-118 and ACF-118-A respectively. Sections 98.70

and 98.71 contain the information required by both the ACF-800 and ACF-

801 child care data collections. As required by the Paperwork Reduction

Act of 1995 (44 U.S.C. 3507(d)), the Administration for Children and

Families submitted these sections to the Office of Management and

Budget (OMB) for its review. The Pre-Prints, ACF-118 and ACF-118-A,

have been approved by OMB\--OMB Number 0970-0114, expires 5/31/2000. The

OMB also approved both data collection forms, the ACF-800 (OMB Number

0970-0150, expires 3/31/2000) and the ACF-801 (OMB Number 0970-0167,

expires 11/30/2000).

Title: State/Territorial Plan Pre-Print (ACF-118) and Tribal Plan

Pre-print (ACF-118-A) for the Child Care and Development Fund (Child

Care and Development Block Grant).

Description: These legislatively-mandated plans serve as the

agreement between the Lead Agency and the Federal Government as to how

CCDF programs will be administered in conformance with legislative

requirements, pertinent Federal regulations, and other applicable

instructions and guidelines issued by ACF. This information will be

used for Federal oversight of the Child Care and Development Fund.

Respondents: State governments and territories, Tribal

organizations.

Annual Burden Estimates

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Number of Average burden

Instrument Number of responses per hours per Total burden

respondents respondent response hours

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

ACF-118\...\...\...\...\...\...\...\...\...\...\...\...\..... 56 .5 30
840

ACF-118a\...\...\...\...\...\...\...\...\...\...\...\...\.... 243 .5 30
3,645

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Estimated Total Annual Burden Hours: 4,485.

\[\[Page 39938\]\]

Title: Child Care Annual Aggregate Report\--ACF-800.

Description: This legislatively mandated report collects program

and participant data on all children and families receiving direct CCDF

services. Aggregate data will be collected and will be used to

determine the scope, type, and methods of child care delivery, and to

provide a report to Congress.

Respondents: States, the District of Columbia, American Samoa,

Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin

Islands.

Annual Burden Estimates

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Number of Average burden

Instrument Number of responses per hours per Total burden

respondents respondent response hours

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

ACF-800\...\...\...\...\...\...\...\...\...\...\...\...\..... 56 1 40
2,240

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Estimated Total Annual Burden Hours: 2,240.

Title: Child Care Quarterly Case Level Report, ACF-801.

Description: This legislatively-mandated report collects program

and participant data on children and families receiving direct CCDF

services. Disaggregate data will be collected and will be used to

determine the participant and program characteristics as well as cost

and level of child care services. The data will be used to provide a

report to Congress. Form ACF 801 represents the data elements to be

collected and reported to ACF.

Respondents will be asked to sample the population of families

receiving benefits on a monthly basis and submit the three most current

monthly samples to ACF quarterly. States are allowed to submit the data

monthly if they choose to do so. Each monthly sample is drawn

independent of the other samples and retained for submission within a

quarterly report. ACF is not issuing specifications on how respondents

compile overall database(s) from which samples are drawn. ACF provided

respondents sampling specifications which specify a minimum sample size

of approximately 200 cases. States are allowed to submit their total

monthly population.

Respondents: States, the District of Columbia, American Samoa,

Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin

Islands.

Annual Burden Estimates

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Number of Average burden

Instrument Number of responses per hours per Total burden

respondents respondent response hours

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

ACF-801\...\...\...\...\...\...\...\...\...\...\...\...\..... 56 4 20
4,360

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Estimated Total Annual Burden Hours: 4,360.

The Administration for Children and Families considered comments by

the public on evaluating whether the proposed collections are necessary

for the proper performance of the functions of ACF, including whether

the information will have practical utility. Comments regarding

specific items are discussed in the preamble. The quality, usefulness

and clarity of the information to be collected will be enhanced by the

technical assistance provided and the regional meetings that ACF has

convened.

Amended Regulations, 45 CFR Part 98

We have chosen to present 45 CFR Part 98 as an amended whole. We

believe that the publication of the whole text of Part 98 will

facilitate understanding of the impact of the amendments on the

regulations that are retained. In addition, we made a number of other

minor editorial changes throughout the regulations to enhance clarity,

to reflect the change of program name from the Child Care and

Development Block Grant (CCDBG) to the Child Care and Development Fund

(CCDF), and to reflect the change from \`\`Grantee\'\' to \`\`Lead
Agency\'\'

for reasons explained in this preamble at Sec. 98.2.

We have made the following changes to the regulations.

Title/heading: Part 98.

Subparts\--A, E and F.

Sections\--98.1, 98.13, 98.15, 98.43, 98.45, 98.51, 98.52, 98.53,

98.61, 98.62, 98.63, 98.64, 98.65, 98.70, 98.71, and 98.81.

Definitions: Sec. 98.2 is now an alphabetical listing.

Removed: (e), (f), (n), (o), (s), (gg) and (nn).

Added: Child Care and Development Fund (CCDF), Construction,

Discretionary Fund, Facility, Major Renovation, Mandatory Funds,

Matching Funds, Modular unit, Real property, and Tribal Mandatory

Funds.

Assurances and Certifications: Sec. 98.15 has been reorganized to

reflect the statute intent that states \`\`assure\'\' they meet certain

requirements and \`\`certify\'\' that they meet others.

Tribes: We have consolidated tribal regulations from

Secs. 98.16(b), 98.17(b) and 98.60(g) into Subpart I.

The following distribution table summarizes what has been added,

removed, revised and redesignated.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Existing section Action New section

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Added\...\...\...\...\...\... 98.1(a)

98.1(a) and (b)\...\...\...\...\...\...\... Redesignated\...\...\.....
98.1(b) and (c).

98.1(b)(7)\...\...\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.1(b)(8)\...\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.1(c)(7).

98.2(a), (j), (q), (mm)\...\...\...\.... Revised\...\...\...\...\....
98.2\--Alphabetical.

98.10(b) and (e)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.10(b) and (e).

\[\[Page 39939\]\]

98.11(a) and (b)(8)\...\...\...\...\..... Revised\...\...\...\...\....
98.11(a) and (b)(8).

98.12(a) and (c)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.12(a) and (c).

Added\...\...\...\...\...\... Introductory.

98.13(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.13(a) and (b).

98.13(b) and (c)\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.13(a)(10)\...\...\...\...\...\...\...\... Redesignated\...\...\.....
98.13(c).

98.13(a)(11)\...\...\...\...\...\...\...\... Redesignated\...\...\.....
98.13(d).

98.14(a-c)\...\...\...\...\...\...\...\.....
Revised\...\...\...\...\.... 98.14(a-c).

98.15\...\...\...\...\...\...\...\...\...\.... See note
above\...\...\...
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.16(a)\...\...\...\...\...\...\...\...\.... Redesignated\...\...\.....
Introductory.

98.16(a)(1-12)\...\...\...\...\...\...\.... Revised\...\...\...\...\....
98.16(a-l).

98.16(a)(13-16)\...\...\...\...\...\...\... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

Added\...\...\...\...\...\... 98.16(m-q).

98.16(a)(17)\...\...\...\...\...\...\...\... Redesignated\...\...\.....
98.16(r).

98.17(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.17(a).

98.17(c)\...\...\...\...\...\...\...\...\.... Redesignated\...\...\.....
98.17(b).

98.20(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.20(a).

98.21\...\...\...\...\...\...\...\...\...\.... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

Added\...\...\...\...\...\... 98.30(c)(3).

98.30(c)(3-5)\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.30(c)(4-6).

98.30(d)\...\...\...\...\...\...\...\...\.... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.30(e-g)\...\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.30(d-f).

98.31\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.31.

98.32\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.32.

Added\...\...\...\...\...\... 98.32(c).

98.33\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.33.

98.40(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.40(a).

98.41(a)(1)\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.41(a)(1).

98.41(c) and (d)\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.41(e-g)\...\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.41(c-e).

98.42(d)\...\...\...\...\...\...\...\...\.... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.43(a) and (b)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.43(a) and (b).

Added\...\...\...\...\...\... 98.43(c).

98.43(c) and (d)\...\...\...\...\...\..... Redesignated\...\...\.....
98.43(d) and (e).

98.43(e) and (f)\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.45\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.45.

98.50(a) and (c)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.50(a) and (c).

98.50(d)\...\...\...\...\...\...\...\...\.... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

Added\...\...\...\...\...\... 98.50(d-f).

98.51(a) and (b)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.51(a).

98.51(c-f)\...\...\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.51(g)\...\...\...\...\...\...\...\...\.... Redesignated\...\...\.....
98.51(b).

Added\...\...\...\...\...\... 98.51(c).

98.52(a) and (b)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.52(a).

98.52(c)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.52(c).

98.53\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.53.

98.54(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.54(a).

Added\...\...\...\...\...\... 98.54(b)(3).

98.60(a), (d) and (f)\...\...\...\...\... Revised\...\...\...\...\....
98.60(a), (c) and (e).

98.60(b)\...\...\...\...\...\...\...\...\.... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

98.60(c-f)\...\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.60(b-e).

98.60(h)\...\...\...\...\...\...\...\...\.... Redesignated, Revised..
98.60(g).

98.60(i-j)\...\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.60(h-i).

98.61(a) and (b)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.61(a).

98.62(a-c)\...\...\...\...\...\...\...\..... Redesignated\...\...\.....
98.61(b-d).

Added\...\...\...\...\...\... 98.61(e).

Added\...\...\...\...\...\... 98.62(a) and (b).

98.63(a) and (b)\...\...\...\...\...\..... Redesignated, Revised..
98.64(b).

Added\...\...\...\...\...\... 98.63(a-c).

98.64(a-d)\...\...\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

Added\...\...\...\...\...\... 98.64(a), (c) and (d).

98.65(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.65(a).

Added\...\...\...\...\...\... 98.65(f) and (g).

98.67(c)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.67(c).

98.70\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.70.

98.71\...\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.71.

98.80 Introductory\...\...\...\...\...\... Revised\...\...\...\...\....
98.80.

98.80(b) and (f)\...\...\...\...\...\..... Revised\...\...\...\...\....
98.80(b) and (f).

98.81(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.81(a).

Added\...\...\...\...\...\... 98.81(b).

98.81(b)\...\...\...\...\...\...\...\...\.... Redesignated\...\...\.....
98.81(c).

98.82 Introductory\...\...\...\...\...\... Revised\...\...\...\...\....
98.82 Introductory.

98.83(c-f)\...\...\...\...\...\...\...\.....
Revised\...\...\...\...\.... 98.83(c-f).

98.83(g) and (h)\...\...\...\...\...\..... Removed.
\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....

\[\[Page 39940\]\]

98.83(i)\...\...\...\...\...\...\...\...\.... Redesignated, Revised..
98.83(g).

Added\...\...\...\...\...\... 98.83(h).

Added\...\...\...\...\...\... 98.84.

98.90(e)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.90(e).

98.92(a)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.92(a).

98.92(b)\...\...\...\...\...\...\...\...\.... Removed.

98.92(c)\...\...\...\...\...\...\...\...\....
Revised\...\...\...\...\.... 98.92(b).

98.92(d) and (e)\...\...\...\...\...\..... Redesignated\...\...\.....
98.92(c) and (d).

Added\...\...\...\...\...\... 98.92(e).

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Subpart A\--Goals, Purposes and Definitions

Goals and Purposes (Section 98.1)

This section of the regulations includes at Sec. 98.1(a) the goals

for the Child Care and Development Fund (CCDF) contained in section

658A of the amended CCDBG Act.

Comment: Two commenters suggested the goals include a requirement

for parental choice rather than the reference to a promotion of

parental choice.

Response: The goal at Sec. 98.1(a)(2) uses the language of section

658A of the amended CCDBG Act which is \`\`to promote parental
choice.\'\'

This goal is operationalized by other requirements. Lead Agencies which

opt to provide care through grants and contracts in the state child

care program are also required to provide certificates to parents

seeking child care. Additionally, Lead Agencies are to include in their

programs a broad range of child care providers, including center-based

care, family child care, in-home care, care provided by relatives and

sectarian child care providers.

Comment: Two commenters suggested goal one include a reference to

planning functions as well as program and policy functions.

Response: Goal one is stated in the statute as \`\`to allow each

State maximum flexibility in developing child care programs and

policies that best suit the needs of children and parents within such

State.\'\' Although we agree with the commenter on the importance of

planning, we believe the goal at Sec. 98.1(c)(4) of this regulation

already discusses planning for delivery of services. Furthermore, the

discussion at Sec. 98.14 reflects our belief in the importance of the

planning function in the administration of the CCDF within a State.

Comment: One commenter suggested goal five be altered to reflect

that health, safety, licensing and regulations standards are

established by state law and regulations.

Response: Goal five of the statute already states \`\`to assist

States in implementing the health, safety, licensing and registration

standards established in State regulations.\'\'

Comment: One commenter cited one of the stated purposes of the CCDF

is to increase quality of child care services. This commenter believed

this term should be defined through reference to specific standards of

quality, such as the National Association for the Education of Young

Children (NAEYC) accreditation standards.

Response: We have chosen to not define quality child care in these

regulations beyond the language found in section 658G of the Act.

Definitions (Section 98.2)

We adopted the following changes for this section: an updated

definition of the Child Care and Development Block Grant Act; an

amended definition of a child care certificate reflecting its use as a

required deposit for child care services; and an amended definition of

relative child care provider which includes great grandparents and

siblings (if living in a separate residence) as relative providers.

We substituted the term \`\`Child Care and Development Fund (CCDF)\'\'

for \`\`Block Grant\'\' and also defined the constituent parts of the
CCDF:

Mandatory Funds, Matching Funds, Discretionary Funds, and Tribal

Mandatory Funds.

In light of the new section 6580(c)(6) of the Act which allows

Tribes to use CCDF funds for construction and renovation of child care

facilities, we also adopted these terms: construction, facility, major

renovation, modular unit, and real property.

As proposed, we have replaced separate terms for \`\`Grantee\'\' and

\`\`Lead Agency\'\' with the single term \`\`Lead Agency.\'\' We did
this for a

number of reasons. First, there was not a meaningful difference between

those terms. Second, we wished to remove any ambiguity that could

result from the use of two different terms. Third, we wanted to

emphasize the streamlined administration of all child care programs in

a State that resulted from PRWORA. We believe that use of the term

\`\`Lead Agency\'\' conveyed that sense of unified and expanded

responsibility better than the term \`\`Grantee.\'\' Lastly, we wanted
to

avoid any confusion that could arise when the State uses subgrantees in

implementing the CCDF. We have replaced the specific term
\`\`Grantee,\'\'

as formerly defined, with \`\`Lead Agency\'\' throughout these
regulations,

although there remain some instances where the word \`\`grantee\'\'
appears

in its common usage. In these final regulations, we also corrected the

definition of Lead Agency to include all parts of the definition of

grantee which were inadvertently omitted in the proposed rule.

Comment: Some commenters on this section questioned definitions for

which no changes had been proposed. For example, commenters questioned

the distinction between a \`\`child care provider that receives

assistance\'\' and an \`\`eligible child care provider\'\' as well as
why the

definitions for various providers were based on the location of the

care provided (e.g., in-home care) rather than the nature of the care

(e.g., formal vs. informal), or was based on the number of providers

present (e.g., group home child care provider).

Response: Because no changes were proposed for the terms questioned

by the commenters, we refer them to the preamble discussion for those

terms in the final rule of August 4, 1992. We believe that explanation,

found at 57 FR 34359, adequately addresses their specific concerns. Our

position, like the definitions themselves, remains unchanged.

Comment: One commenter wanted us to clarify that minor remodeling,

within the limits set forth in the Act, does not fall under the

definition of major renovation.

Response: Section 98.54(b)(1) provides that States and others may

use CCDF funds for minor remodeling. But, rather than create a separate

definition for minor remodeling, State Lead Agencies may assume that an

improvement or upgrade to a facility which is not specified under the

definition of major renovation adopted in this rule may, by default, be

considered a minor renovation and,

\[\[Page 39941\]\]

therefore, is allowable under the Act. Lead Agencies are cautioned of

the distinctions at Sec. 98.54(b)(1) and Sec. 98.54(b)(2) between minor

renovations that are permissible for sectarian organizations and those

that are permissible for others.

Comment: Another commenter wanted us to define \`\`deposit\'\' as used

in the definition of child care certificate and suggested several

components of a definition.

Response: Our definition mirrors the language of the Act. We

believe that the phrase \`\`if \* \* \* required of other children\'\'
is

sufficiently limiting of the common usage of the word \`\`deposit\'\' as
to

make the other definitions suggested by the commenter unnecessary.

Comment: One commenter asked that we expand the definition of

certificate to include electronic transfers using an ATM machine, for

example, suggesting that recordkeeping could be simplified and payments

to providers made more promptly.

Response: It is not necessary to change the definition as

suggested. The definition already recognizes that a certificate need

not be a check, but could be an unspecified \`\`other disbursement\'\'.

Electronic transfers may be considered child care certificates if they

meet the requirements of Sec. 98.30(c), i.e., issued directly to the

parent, of a value commensurate with the subsidy value of other child

care services offered by the Lead Agency, etc.

Comment: A commenter asked that the definition of a certificate be

broadened to include a check issued in the name of both the parent and

the provider, regardless of whether it is sent directly to the parent

or provider.

Response: It is unclear why this change was suggested. A check (or

other disbursement) issued in the name of both the parent and the

provider would meet the existing definition. The critical element is

that parents can use such a disbursement with any child care provider

they choose. If the commenter is suggesting that the parent be limited

to only the named provider(s), which the parent may not have chosen,

then it is not a \`\`certificate\'\' within the meaning of the Act.

Comment: One commenter observed that we had not proposed a

definition of \`\`special needs child\'\'.

Response: The Lead Agency has complete flexibility to define this

term. It should be noted that the Lead Agency may define the term

differently for purposes of prioritizing under Sec. 98.44(b) from the

definition it uses for purposes of payment rates as discussed at

Sec. 98.43. The use of the term is unchanged since the 1992 rule and we

are unaware of the need to regulate a definition for \`\`special needs

child\'\' now.

Comment: One commenter thought that our definitions somehow limited

\`\`informal\'\' care to only that care provided in the child\'s own
home

(i.e., in-home care) and that this reduced needed Lead Agency

flexibility as well as limited a family\'s options.

Response: We assume that the commenter understood the regulations

to allow unregulated care only if it is provided in the child\'s own

home. There is no such restriction in these regulations, nor has there

been such a restriction in the past. Any child care that is legal in a

jurisdiction, including care that the jurisdiction chooses not to

regulate, is an option available under the Act, provided the

requirements designed to protect the health and safety of the child are

also met.

Comment: One commenter observed that the definition of relative is

too narrow and that it would exclude some relatives as defined in some

Native American cultures, for example, the \`\`hanai\'\' system in
Hawaii,

where family is informally \`\`adopted\'\' or related.

Response: Any relative who meets applicable state and local

requirements, if any, may provide care, not just those listed in our

definition. The definition is statutory and is provided solely for the

purpose of identifying those relatives who may be exempted\--but, only

if the Lead Agency chooses to exempt them\--from the health and safety

requirements at Sec. 98.41. The definition was not created to limit who

may provide care.

Comment: Finally, a commenter noted that a definition for \`\`tribal

organization\'\' was no longer included in this section.

Response: The PRWORA amendments broadened the definition of

\`\`tribal organization\'\' to include the following \`\`other

organizations\'\': (1) A Native Hawaiian organization; and (2) a private

nonprofit organization established for the purpose of serving youth who

are Indian or Native Hawaiian. However, the \`\`other organizations\'\'
may

only receive Discretionary Funds. Therefore, since not all tribal

\`\`organizations\'\' are eligible to receive both parts of the CCDF

(Discretionary Funds and Tribal Mandatory Funds), we initially decided

to omit this definition entirely from this section and specifically

define the new terms for \`\`other tribal organizations\'\' in the
Preamble

at Sec. 98.61(c). The definition for tribal organization has been

placed back in this section. This is the same definition used in the

prior final rule (57 FR 34415, August 4, 1992). Since the \`\`other

tribal organizations\'\' may only be funded with Discretionary Funds,

they are defined and discussed in the Preamble at Subpart G, Section

98.61(c).

Subpart B\--General Application Procedures

Lead Agency Responsibilities (Section 98.10)

The new statute did not change the responsibilities of the Lead

Agency. The amended statute at section 658D(b)(1)(A), however, expands

the CCDF Lead Agency\'s ability to administer the CCDF program through

other agencies. This change broadens the ability of the Lead Agency to

administer the CCDF program through governmental or non-governmental

entities, not just \`\`other State agencies\'\' as provided in the
original

CCDBG Act. These entities could include local governmental agencies and

private organizations. The new statute and the Conference Agreement

report (H.R. Rep. No. 725, 104th Cong., 2d Sess. (1996)) are silent

regarding whether the non-governmental agencies cited in this statutory

change must be non-profit organizations, so ACF has not regulated on

the characteristics of the agencies through which the Lead Agency may

administer the program.

Comment: One Lead Agency asked whether the ability to administer

the program through other non-governmental agencies meant that the

State child care advisory council could have a stronger role in setting

standards.

Response: The regulations have never limited Lead Agencies from

including others in the creation of child care policy or the setting of

State standards for child care. However, Sec. 98.11(b)(2) and (8)

provide that the Lead Agency shall continue to promulgate rules and

regulations governing the overall administration of the program and

that all agencies and contractors that determine individual eligibility

shall do so according to the rules established by the Lead Agency.

The change in the regulation is to allow entities other than the

Lead Agency to administer the day-to-day operation of the program.

Comment: Another Lead Agency asked us to delete the requirement at

Sec. 98.10(c) which requires consultation with local governments.

Barring that, they asked for definitions of \`\`appropriate

representative\'\' and \`\`local government\'\'.

Response: Congress created the requirement for the Lead Agency to

\`\`consult with appropriate representatives of units of general purpose

local government\'\' at section 658D of the Act, and hence it can not

\[\[Page 39942\]\]

be deleted. As States and localities differ greatly in their

governmental structures, we believe it is inappropriate to attempt to

offer all-encompassing definitions for these terms. A Lead Agency may

wish to consult its legal counsel if it is unable to determine whom it

should consult with to meet this statutory requirement.

Administration Under Contracts and Agreements (Section 98.11)

Under the latest statutory amendments, the Lead Agency remains the

single point of contact and retains overall responsibility for the

administration of the CCDF program. We have amended this section,

however, to reflect the statutory change discussed at Sec. 98.10

regarding the Lead Agency\'s additional flexibility to administer the

program through other governmental or non-governmental agencies.

Further, since we made revisions corresponding to the added

administrative flexibility granted to the Lead Agency, we also wanted

to align the wording of this section more closely with the statute

concerning the overall, lead responsibility of the Lead Agency. Thus,

we have re-worded the paragraphs in this section that suggested that

the Lead Agency \`\`shares\'\' administration of the program with other

entities, because the relationship between the Lead Agency and other

entities through which it administers the CCDF is not co-equal.

Comment: One commenter wanted us to delete the requirement at

Sec. 98.11(b)(2) requiring the Lead Agency to \`\`Promulgate all rules

and regulations governing overall administration of the Plan\'\'

contending that when the CCDF is administered through other entities it

should be up to the other agency to promulgate the rules for that part

which it is administering.

Response: We do not agree that this provision should be deleted.

The Lead Agency is ultimately responsible for the program irrespective

of who administers the day-to-day operations. And, it is the Lead

Agency against whom penalties will be assessed even if caused by

actions of a subgrantee. It is because we hold the Lead Agency

accountable that the provisions in Sec. 98.11 exist.

The requirement for the Lead Agency to promulgate rules does not

preclude subgrantees from suggesting, or even creating the policy and

procedures by which the program or a part of the program operates.

However, those policies and procedures must be issued under the

auspices (i.e., promulgated) of the Lead Agency to ensure that they

conform with the requirements of the Act and regulations, and the

program described by the Lead Agency in the Plan it submits to ACF.

Coordination and Consultation (Section 98.12)

Section 658D(b)(1)(D) of the Act requires the Lead Agency to

coordinate the provision of CCDF child care services with other

Federal, State, and local child care and early childhood development

programs. Coordination is crucial to the successful implementation of

child care programs and quality improvement activities. The regulation

at Sec. 98.12(a) also requires the Lead Agency to coordinate its child

care services with the specific entities required at Sec. 98.14(a) to

be involved in the CCDF Plan development process: Temporary Assistance

for Needy Families (TANF), public health, employment services, and

public education.

The statutory changes under PRWORA significantly heighten the need

for enhanced coordination between TANF and child care. TANF imposes

increased work requirements both regarding the number of TANF families

participating in work and the number of hours they must work. At the

same time, the guarantee of child care for families who are in work or

approved education and training and guaranteed Transitional Child Care

assistance were eliminated when PRWORA repealed the title IV-A child

care programs.

Moreover, PRWORA provides new child care funding. It gives the CCDF

Lead Agency administrative oversight over both the new funds and the

funds authorized under the amended Child Care and Development Block

Grant Act. The law requires that States dedicate 70 percent of these

new funds to the child care needs of families that receive assistance

under a State program under Part A of title IV of the Social Security

Act, families that attempt through work activities to transition from

such assistance, and families that are at risk of becoming eligible for

such assistance. Under the new law, Tribes also receive additional

child care funds and have the option to operate TANF programs. Tribes

that operated tribal programs under the now-repealed Job Opportunities

and Basic Skills Training (JOBS) program, may continue to operate work

programs under the newly created Native Employment Works program

(NEWP). Considered together, these changes present both an opportunity

and a challenge for Lead Agencies to serve the child care needs of TANF

families.

It is extremely important that children and their families are

linked to a system of continuous and accessible health care services.

An ongoing Departmental initiative encourages the linkage between child

care and health care. In May 1995, Secretary Shalala initiated the

Healthy Child Care America Campaign, which encourages States and

localities to forge linkages between the health and child care

communities. Recognizing the mutually beneficial roles, we require that

the Lead Agency, as part of its health and safety provisions, assure

that children in subsidized care be age-appropriately immunized. We

believe that children will benefit substantially from this enhanced

linkage between child care and health services.

Employment is the goal for most TANF families and employment

services are critical to the low-income working families served by the

CCDF. Therefore, it is only prudent that the Lead Agency coordinate

with those State agencies that are responsible for providing employment

and employment-related services. But child care is also emerging as an

important workforce development issue for the entire population. As

such, we believe that Lead Agencies should undertake policies that

support and encourage public-private partnerships that promote high

quality child care.

Linkages with education agencies are crucial to leverage additional

services and enhance child development. One important aspect of this

linkage is the role played by public schools as a critical on-site

resource for child care. Although PRWORA repealed section 658H of the

Child Care and Development Block Grant Act, which directly addressed

before- and after-school child care, in the budget for fiscal years

1997 and 1998 Congress nevertheless set aside \$19 million specifically

to use for before- and after-school child care activities and child

care resource and referral. We, therefore, believe that the repeal of

section 658H should not result in a lessening of coordination with

before- and after-school programs. We have included requirements to

coordinate with public education agencies, both for the purpose of

child care planning and development, as well as for more general

coordination initiatives.

Aside from requiring Lead Agency coordination with specific

entities discussed above, we also strongly encourage coordination with

other agencies with potential impact on child care, including: Head

Start collaborative offices, child support, child protective services

(especially when the Lead

\[\[Page 39943\]\]

Agency chooses to include children receiving protective services among

the families eligible for CCDF subsidies), transportation, National

Service, and housing.

The Head Start comprehensive model of health, parent involvement,

family support and education, when linked with child care, can provide

parents and children with quality comprehensive full day/full year

services. Promising models that fund Head Start-eligible children in

community-based child care provided in child care centers and homes are

emerging across the country. We encourage Lead Agencies to explore and

support such efforts.

Partnerships with National Service programs present promising

opportunities for collaborations that can expand and enhance child care

for both young children and school-aged children. National Service

programs have developed several effective and replicable models for

providing the tools and skills necessary to build the capacity and

sustainability of local child care programs, involving parents and

community volunteers in child care activities, and enlisting private

sector participation in meeting community needs, including child care.

The availability of transportation is key to enabling families to

access child care services and, ultimately, work. Coordination with

transportation agencies and planning groups can ensure that child care

facilities are located near major transportation nodes for easier

access and that systems of public transportation support travel

patterns of low-income workers. Alleviating transportation difficulties

for child care cuts down on travel time and stress, and allows parents

to focus on achieving self-sufficiency through work and education.

Child care and child support enforcement programs serve many of the

same families and have a shared mission\--to promote self-sufficiency of

families and the well-being of children. As a result, we encourage

collaborative outreach initiatives between these programs. For example,

child care programs can disseminate information to parents about

paternity establishment and child support enforcement. We also

encourage the two programs to coordinate on policy issues. For example,

the programs have a common interest in assuring that the State

guidelines used to calculate child support awards adequately consider

the cost of child care.

Coordinating with housing agencies is crucial for the millions of

TANF recipients and low-income workers who receive child care subsidies

and reside in public housing. Locating child care facilities in or near

public housing makes services more accessible, and can provide parents

with a more stable and familiar environment for their children\'s care.

Lead Agencies can work with public housing authorities to identify

opportunities where co-located housing and child care can serve as an

employment or entrepreneurial strategy, and a support service for

residents.

We also wish to highlight that the regulation at Sec. 98.12(c),

which requires States to coordinate, to the maximum extent feasible,

with any Indian Tribes that receive CCDF funds has new meaning in the

context of the changes made by PRWORA. As we have noted above, Tribes

are eligible to directly receive additional child care funding, and to

operate TANF as well as continue to operate work programs (NEWP)\--if

the Tribe operated a JOBS program in 1994. Nonetheless, the new law did

not amend section 6580(c)(5), which specifically provides tribal

children with dual eligibility for both tribal and State child care

programs funded under CCDF. A broad range of options for implementing

and designing programs is available to both States and Tribes. States

and Tribes, therefore, have a mutual responsibility to undertake

meaningful coordination in designing child care services for Indian

families.

Comment: A few commenters thought that our coordination requirement

was statutorily unfounded or unnecessary because it may fail to include

the most critical partnerships.

Response: It seems unlikely that a CCDF program could successfully

meet two of the goals of the Act\--providing child care to parents

trying to achieve independence from public assistance, and assisting

States in implementing State health, safety and licensing standards\--

without involving, at a minimum, the additional agencies added at

Sec. 98.14 in this rule. In fact, since the inception of the program,

we have been told by Lead Agencies and the public that coordination

with Federal, State, and local child care and early childhood

development programs, and the four additional agencies listed is

critical to the ongoing successful delivery of quality child care in a

State. This requirement recognizes that the coordinative process helps

maximize existing resources and avoid duplicative efforts which can

result in more positive outcomes for the families and children served

by all of the programs involved.

Comment: A number of commenters suggested other agencies with which

the Lead Agency should be required to coordinate, for example,

representatives of the American Academy of Pediatrics, the National

Association for the Education of Young Children, the State special

education preschool program administrator, the early intervention lead

agency, and the child welfare agency, among others.

Response: Many Lead Agencies already collaborate with some or all

of the agencies suggested and we encourage others to do so as well.

However, we do not believe it is prudent to expand the coordination

requirement at Sec. 98.14 to include those entities with whom many Lead

Agencies are already voluntarily collaborating. We kept our required

list to a critical core of agencies. This is not intended to diminish

the importance of other collaboration efforts. It would not be

reasonable to create an all-inclusive list of potential collaborative

agencies. We have confined the regulations to the core required

collaboration.

Comment: Several commenters asked if our intention was to limit

coordination only to governmental entities. In this regard, others

asked that the reference to the public education agency be expanded to

specifically include private and sectarian schools and early education

programs.

Response: Our requirement recognizes that the impact for the

greatest number of families is likely achieved by coordination at the

State level. The regulation attempts to maximize the coordination by

including those agencies whose activities impact most of the eligible

or potentially eligible families in a State. It is not our intention,

however, to limit coordination to only governmental entities. And, we

encourage Lead Agencies to coordinate with private and sectarian

schools and early education programs, especially since such

institutions and programs are already utilized by many families.

Comment: One commenter thought that use of the phrase \`\`at a

minimum\'\' in Sec. 98.14(a) weakens the intent of broader coordination

with additional entities.

Response: We agree and have reworded the regulation.

Applying for Funds (Section 98.13)

The requirements for Tribes applying for funds have been moved to

Subpart I and are discussed there. We have separated the tribal

requirements in order that the discussion of tribal requirements may be

more focused and coherent.

We simplified the application process for States and Territories in

order to reduce the administrative burdens of duplicative information

requests and to

\[\[Page 39944\]\]

provide budget information in the CCDF Plan, which is a public

document. Heretofore, the regulations required an annual

\`\`application,\'\' separate from the Plan. This separate application

indicated the amount of funds requested, broken down by proposed use

(e.g., direct services, administration, quality activities, etc.). A

Plan that describes the entire child care program in detail is also

required, but only once every two years. In the past, the Plan did not

provide a \`\`fiscal context\'\' for the program, since it does not
include

budgetary information.

In the past, the separate application requested extensive budget

information, largely due to the requirements related to the now-

discontinued 25 percent setaside of funds for quality and supply

building. Because we knew that the budget data was preliminary, we had

not required its inclusion in the Plan or made it subject to the

compliance process. More importantly, the budget information was not

subject to the public hearing process.

We believe that the Lead Agency, in setting the goals and

objectives of the program and in determining how to achieve them, must

consider the allocation of funds, as well as the program and

administrative activities that will be undertaken. We also believe that

public knowledge of how funds might be allocated among activities and

eligible populations is critical to the planning process. Therefore, we

are requiring the Lead Agency to include in its Plan an estimate of the

percent or amount of funds that it will allocate to direct services,

quality activities, and administration. These estimates are for the

public\'s consideration in the hearing process; they will not be used to

award funds. At Sec. 98.13(a) we have retained the requirement that the

Lead Agency apply for funds. The ACF-696 is the formal vehicle for

providing estimates to ACF for the purpose of awarding funds. We intend

to use the financial form ACF-696 to fulfill this requirement, so that

the need for a separate application is obviated.

The Plan estimates will be macro-level estimates. That is, the Plan

will reflect an estimated amount (or percentage) of funds that the Lead

Agency proposes to use for: all direct services, for all quality

activities and for administration. We will not ask that these estimates

be broken down into subcategories as we had in the separate

application.

Comment: One commenter objected to the use of estimates thinking

that the form for formally requesting funds from DHHS, which replaces

the application process, was at least two years from being utilized.

Response: That form, the ACF-696, was under OMB review when the

proposed rule was published and has since been approved and is already

in use.

Comment: Although our proposal to restructure the application

process received almost universal support, some commenters wanted

assurances that States would not be held accountable if estimates are

incorrect as a result of future policy or budget changes. Another

commenter wanted us to require that future Plans include a comparison

between the amounts estimated in prior Plans with the actual

expenditures for those periods.

Response: As we said in the proposed rule, we recognize that these

are estimates and, as such, will not be subject to compliance actions.

Similarly, approval of a Plan will not be withheld based on the Lead

Agency\'s allocation of funds among activities, unless the Plan

indicates that the requirements for administrative cost or quality

expenditures will be violated.

We considered the suggested requirement to compare past estimates

with actual expenditures for the same period but rejected it for a

number of reasons. First, such a requirement would call into question

our assertion that the estimates supplied in the Plan are, in fact,

estimates and that ACF will not take compliance actions based on them.

Second, because expenditure periods for funds overlap Plan periods a

full statement of actual expenditures would not be forthcoming until

several years after the original estimate, when the persons responsible

for the estimates may no longer be in a position to be
\`\`accountable\'\'

to the public for those estimates. Lastly, interested parties can

always request that the Lead Agency make public its spending on various

activities. In any event, the Lead Agency is already required to

provide information on the actual use and distribution of funds to ACF,

pursuant to section 658K of the Act.

We continue to request the various certifications and assurances

that are required by other statutes or regulations and that apply to

all applicants for Federal financial assistance, specifically:

&lt;bullet&gt; Pursuant to 45 CFR part 93, Standard Form LLL (SF-LLL),

which assures that the funds will not be used for lobbying purposes.

(Tribal applicants are not required to submit this form.)

&lt;bullet&gt; Pursuant to 45 CFR 76.600, an assurance (including any

required forms) that the grantee provides a drug-free workplace.

&lt;bullet&gt; Pursuant to 45 CFR 76.500, certification that no

principals have been debarred.

&lt;bullet&gt; Assurances that the grantee will comply with the

applicable provisions regarding nondiscrimination at 45 CFR part 80

(implementing title VI of the Civil Rights Act of 1964, as amended), 45

CFR part 84 (implementing section 504 of the Rehabilitation Act of

1973, as amended), 45 CFR part 86 (implementing title IX of the

Education Amendments of 1972, as amended) and 45 CFR part 91

(implementing the Age Discrimination Act of 1975, as amended).

Section 98.13 requires the Lead Agency, not the Chief Executive

Officer, to supply the requested information. Since the Chief Executive

Officer designates the Lead Agency, we feel that it is unnecessary for

the Chief Executive Officer to thereafter apply for funding each year.

This change gives grantees the flexibility to simplify the application

process further.

In summary, the CCDF application process for States and Territories

consists of the two-year CCDF Plan as required in Sec. 98.17 and such

other information as may be specified by the Secretary. For the second

year of the Plan, the Lead Agency uses the ACF-696 to provide ACF with

its estimates of funds needed quarterly\--there is no longer a separate

\`\`application\'\' needed from States and Territories in the second
year

of the Plan period.

Comment: One commenter objected to discontinuing the separate

application because it contained information on the mix of certificates

and grants/contracts which could be used to monitor a Lead Agency\'s

compliance with Section 658(c)(2)(A) of the Act concerning the

availability of certificates.

Response: The regulations at Sec. 98.13 never required that the

Lead Agency\'s application provide information on the use of

certificates. In the past, policy Program Instructions requested such

information to ensure that Lead Agencies met the statutory requirement

to provide certificates. This was necessary because some Lead Agencies

had never provided certificates prior to the CCDBG Act and the Act

required all Lead Agencies to have a certificate program in place by

October 1, 1992. ACF looked to the information in the application as a

indication of the Lead Agency\'s compliance with this requirement.

In the years since that deadline, certificates have become an

integral part of every Lead Agency\'s program, in fact many State

programs are totally

\[\[Page 39945\]\]

certificate-based. We are satisfied that all Lead Agencies are in

conformity with this provision of the Act. It should be noted that Lead

Agencies are required to report to ACF the actual numbers of children

receiving certificates per Sec. 98.71(b)(2).

Plan Process (Section 98.14)

Section 658D(b) of the Act requires the Lead Agency in developing

the Plan to: (1) Coordinate the provision of services with Federal,

State and local child care and early childhood development programs;

\(2\) consult with appropriate representatives of local governments; and

\(3\) hold at least one hearing in the State with sufficient time and

statewide notification to provide an opportunity for the public to

comment on the provision of child care services.

In amending the CCDBG Act to require that the Lead Agency provide

\`\`sufficient time and Statewide distribution\'\' of the notice of

hearing, Congress established a higher standard for public comment than

previously existed in the Act. Affording the public a meaningful

opportunity to comment on the provision of child care services advances

public participation, Lead Agency accountability and the overall goals

of welfare reform. Accordingly, we have established a minimum 20-day

notice-of-hearing requirement at Sec. 98.14(c). That is, the Lead

Agency must allow a minimum of 20 days from the date of the statewide

distribution of the notice of the hearing before holding the hearing.

Many Lead Agencies have ongoing planning processes with broad community

involvement that convene regularly during the year. We applaud such

broad participatory approaches as they are especially responsive to

changing needs and these approaches may fulfil the requirements of

Sec. 98.14.

Comment: Some commenters preferred the previous requirement for

\`\`adequate notice\'\' for public hearings and were unaware of problems
or

inadequacies of that process. Others argued for a longer notice period

and a requirement for additional hearings in a State.

Response: Congress clearly envisioned something different from the

existing \`\`adequate notice\'\' process when it amended the Act to
require

\`\`sufficient time and statewide distribution\'\' of the public hearing

notice. We also have received reports that some Lead Agencies provide

such short notice of hearings as to effectively preclude broad public

participation.

In the interest of State flexibility, we have established only a

minimum amount of time\--20 days\--that the public should be notified of

the hearing. However, we encourage Lead Agencies to consider providing

longer lead times that would allow the public more time to prepare for

hearings, especially when only a single hearing is held in the State.

Although the Act requires the Lead Agency to hold only one public

hearing, the Lead Agency may, of course, hold additional public

hearings. Because of technological changes which might allow for public

comment via the Internet or linking sites across a State via satellite,

we have not regulated an additional number of hearings that must be

held since Lead Agencies may find other approaches for public input

that are equally effective and less costly than additional hearings.

As stated in the proposed rule, we considered establishing

regulations around the newly added statutory language that requires

\`\`statewide distribution of the notice of hearing.\'\' Clearly, the

expanded Child Care and Development Fund potentially impacts a much

wider segment of the population than may have been the case under the

CCDBG. In light of the stronger statutory language about public

hearings, we considered, for example, a regulation to require the Lead

Agency to employ specific media in publicizing its hearing or to ensure

that specific portions of the population be potentially exposed to the

hearing notice.

We rejected these and other alternatives as restricting State

flexibility. Nevertheless, we remain concerned that some Lead Agencies

may not respond to the heightened statutory requirement. We, therefore,

require the Lead Agency to describe how it achieved statewide

distribution of the notice of hearing in its description of the hearing

process required in the Plan by Sec. 98.16(e). We received no comments

on this proposal.

Similarly, we have not established a specific requirement

concerning written comments from the public as suggested by some

commenters. We believe, however, that a meaningful public comment

process must consider written comments from persons or organizations,

especially those who are unable to attend a hearing.

At Sec. 98.14(c)(2) we require that the public hearing be held

before the Plan is submitted to ACF, but no earlier than nine months

prior to the effective date of a Plan. We recognize that States may

have established public comment mechanisms that coincide with their

budgetary cycle but not within our usual time frames for public

hearings and Plan submittal. Therefore, we wish to clarify our

intention in this area.

ACF does not believe that the public hearing is held for the

purposes of \`\`approving\'\' the Plan as it will be submitted, but
rather

to solicit public comment and input into the services that will be

provided through the CCDF. For this reason, we have created a flexible

process that does not create an undue burden on Lead Agencies, yet

insures that the statutorily required public input is obtained.

The Plan that is submitted to ACF must reflect the program that

will be conducted and must incorporate any changes to the program that

the Lead Agency chooses to adopt as a result of the input received

during the public hearing. We advise the Lead Agency to retain a copy

of the draft Plan that it made available for public comment in

fulfillment of this requirement. We also remind Lead Agencies that

substantive changes in their programs, after their Plans are submitted

to ACF, must be reflected by amending the Plan per Sec. 98.18(b).

Comment: A few commenters suggested that the Lead Agency be

required to specifically respond to comments raised at the public

hearing or at least to those comments on the Plan that are submitted in

writing, others suggested that the Lead Agency be required to provide a

summary of all comments received on the Plan.

Response: We decline to require Lead Agencies to summarize or

respond to comments received during the public hearing process. The Act

does not suggest such a requirement and it is unclear what would result

from it. We also believe that this would be an especially resource-

intensive activity for the Lead Agency which would not necessarily

further the goals of the Act.

Comment: Some commenters objected to any regulation around public

input stating that they had ongoing mechanisms for coordination or

input, such as quarterly child care steering committee meetings, others

felt that a State legislative or budget hearing would fulfill the

requirement. Still others argued that the public hearings are poorly

attended or not helpful.

Response: At section 658D(b)(2) of the Act, Congress clearly ties

together the hearing and the State Plan with the expectation that the

public be afforded an opportunity to comment on the content of that

Plan. The Act requires a hearing \`\`to provide the public an
opportunity

to comment on the provision of child care services under the State

plan.\'\'

Ongoing mechanisms, such as those suggested by the commenters may,

in fact, meet the requirements of the Act when they allow for the

public to comment on the provision of services under the State Plan.

Some legislative

\[\[Page 39946\]\]

oversight or budget hearings, in contrast, may not meet this statutory

requirement if they do not allow for public comment (i.e., the public

is not afforded an opportunity to comment as when only the State

Administrator or legislators are allowed as witnesses). Similarly, a

single state budget hearing held for the purpose of discussing the

entire State budget may not afford any opportunity to specifically

address child care services in the State, especially in the detail set

forth in the Plan, as required by the Act. It is not the auspices under

which the hearing is held that is important, but whether the hearing

allows for the necessary public input required by the Act.

Regarding attendance or participation at public hearings in the

past, we believe that public hearings, designed for broad public

participation and held with sufficient notification can nevertheless

become meaningful forums for State child care policy discussions,

especially in future years.

Comment: A few commenters objected to the requirement that the

hearing be held no earlier than 9 months prior to submission of the

Plan to ACF as unnecessarily prescriptive.

Response: We maintain that the requirement that hearings be held no

earlier than 9 months before the Plan is submitted to ACF is a balanced

approach which allows the Lead Agency to conduct its hearing up to a

full year in advance of the effective date of the Plan. Allowing

complete latitude in setting the date for the public hearing might make

the hearing requirement less meaningful and creates a disconnect\--the

further from the effective date of the Plan that the hearing is held.

Comment: A number of commenters argued that the child care Plan

must be made available before the public hearing is held for there to

be meaningful public input. They suggested various timeframes and

formats for making Plans available.

Response: We agree that meaningful public comment on the

\`\`provision of child care services under the State plan\'\' as
required

by the Act is hampered, if not impossible, without knowledge of the

contents of that Plan. For example, the Act now requires the Lead

Agency to provide \`\`detailed descriptions\'\' of various child care

policies such as parental access, parental complaints, and payment

rates among others. In order to meaningfully comment, the public must

know what those policies are. We believe this can only be accomplished

by providing the public with the Plan that the Lead Agency proposes to

submit to ACF. Therefore, at Sec. 98.14(c)(3) we are requiring that the

Lead Agency make the Plan available in advance of the required hearing.

We decline to regulate on the timeframes or formats for making the

Plan available to the public but remind Lead Agencies of their

obligations under the Americans with Disabilities Act for accessibility

of public information.

Comment: One commenter asked for flexibility in the format of the

Plan that is to be submitted to the public in advance of the hearing

suggesting that various topics such as parent fees, eligibility and

payments rates be presented, but not necessarily in the format of the

preprint that ACF requires.

Response: We agree that the Plan that is presented in advance of

the public hearing need not be in the format of the preprint. However,

as a practical matter, this may be the easiest format for the Lead

Agency to use. That is because the Act requires comments on child care

services under the \`\`State plan\'\'\--the requirements for which are

outlined at Sec. 98.16. As long as all of the elements of the Plan as

described at Sec. 98.16 are provided in advance of the hearing, then

the requirement is satisfied. We note that many of the Plan elements,

such as most of the newly statutorily-required \`\`detailed

descriptions\'\' probably will not change from Plan to Plan, hence the

preprint format may not be as burdensome as the commenter imagines.

Comment: A number of commenters opposed having amendments to the

Plan subject to the public hearing. They also objected to applying the

hearing requirement to those Plans which were to become effective on

October 1, 1997.

Response: The proposed rule neither required nor suggested that

Plan amendments are subject to a public hearing. As has been the policy

since the inception of the program, this final rule also does not

require a public hearing for amendments to approved CCDF Plans.

Although an amendment to the Plan is not subject to the Federal

regulatory hearing requirement, we recognize that State rules or Lead

Agency practice may, nevertheless, require a hearing or public comment

period or both.

The preamble to the proposed rule provided that the new CCDF Plans

due to ACF in 1997 were subject to the statutory requirements\--not the

proposed regulatory requirements\--for a hearing i.e., at least one

hearing with sufficient time and statewide distribution of the notice.

Although that issue is now moot we wish to reiterate that both the

public hearing and the coordination and consultation processes must be

undertaken each time the entire Plan is required to be submitted. The

regulations provide that the entire Plan is only required to be

submitted at the beginning of each Plan biennium.

As discussed above at Sec. 98.12, we believe that ongoing

coordination and consultation processes are vital to the design of a

successful program. Therefore, at Sec. 98.14(a) we have included a

minimum list of State agencies with which the Lead Agency must

coordinate the provision of services under the CCDF.

The requirement to coordinate with specific agencies includes a

provision that the Lead Agency describe the \`\`results\'\' of the

coordination. In the proposed rule, we did not elaborate on this

requirement as we thought it self-evident. Because we did not give

context to this requirement, some commenters ascribed purposes or

expectations that we did not intend. Therefore, we wish to elaborate on

this part of the coordination requirement.

Prior to this rule Lead Agencies were required to provide a

\`\`description\'\' of the coordination and collaborative processes they

engaged in during the preparation of the State Plan. This description

in the Plans, however, was frequently merely a list of agencies with

which the Lead Agency had met. Often these descriptions did not change

over long periods, or the dates of the meetings listed remained

unchanged from Plan to Plan. The \`\`description\'\' gave the impression

that there was little progress resulting from the coordinative efforts

of the Lead Agencies\--that little was happening. We knew this to be an

inaccurate picture.

The Plan is not just a public document describing the State\'s

approach to child care for the purpose of its hearing process. It also

serves as a guide for other Lead Agencies about promising practices,

different approaches to common problems and can be an indicator of

issues that others may face in the future. Because of the multiple uses

of the State Plan, we wanted the \`\`description\'\' of the coordinative

effort to more accurately reflect what we knew was the reality in the

States. No other purpose is contemplated or intended in asking that the

Plan reflect the \`\`results\'\' of the coordination activities.

We recognize that coordination may not have quantifiable results,

especially in the short term. Because coordination is an ongoing

process, an explanation of the intended outcomes of a Lead Agency\'s

current and planned coordination activities would be an appropriate

\`\`results\'\'. Similarly, a compilation of the useful lessons learned

from the coordination activities

\[\[Page 39947\]\]

would meet our intent in asking that the \`\`results\'\' be described in

the State Plan.

Additional comments relating to the coordination and consultation

requirement and processes are addressed in the discussion at Sec. 98.12

Assurances and Certifications (Section 98.15)

The PRWORA amendments made a number of changes to the assurances

under the CCDBG. In several instances the term \`\`assure\'\' was
replaced

by the term \`\`certify.\'\' Also, as described below, the amendments

changed the content of two of the former assurances and some assurances

were eliminated.

While ACF believes that there is no practical difference between an

assurance or certification, when both are given in writing, we have

grouped the assurances together at Sec. 98.15(a) and the certifications

together at Sec. 98.15(b).

Regarding specific substantive changes, the new section

658E(c)(2)(D) of the Act replaces the former assurance regarding

consumer education. The corresponding regulatory amendment at

Sec. 98.15(b)(3) uses the statutory language requiring the Lead Agency

to certify it \`\`will collect and disseminate to parents of eligible

children and the general public, consumer education information that

will promote informed child care choices.\'\'

The new section 658E(c)(2)(E) does not contain prior language

requiring Lead Agencies to have in place a registration process for

unregulated care providers that provided care to children receiving

subsidized care under the CCDBG Act. We, therefore, removed the

assurance formerly found at Sec. 98.15(i). We note, however, that the

Lead Agency has the flexibility to continue to maintain a registration

process for providers if it chooses. This process has enabled States to

maintain an efficient payment system. In addition it has provided a

means to transmit relevant information, such as health and safety

requirements and training opportunities, to providers who might

otherwise be difficult to reach.

The Act also revises the requirement that providers meet all

licensing and regulatory requirements applicable under State and local

law. The revised requirement at Sec. 98.15(b)(4) mirrors the new

statutory language that there be \`\`in effect licensing requirements

applicable to child care services provided within the State.\'\'

For tribal programs, the amendments specifically provide that, \`\`in

lieu of any licensing and regulatory requirements applicable under

State and local law, the Secretary, in consultation with Indian tribes

and tribal organizations, shall develop minimum child care standards

(that appropriately reflect tribal needs and available resources) that

shall be applicable to Indian tribes and tribal organizations receiving

assistance under this subchapter\'\' (section 658E(c)(2)(E)(ii)). ACF is

in the process of arranging those consultations.

The PRWORA deleted requirements formerly found in the statute at

section 658E(c)(2)(H), (I), and (J). These provisions, which related to

reporting reductions in standards, reviewing State licensing and

regulatory requirements, and non-supplantation were deleted.

Finally, Sec. 98.15(a)(6) requires that States provide an assurance

that they have not reduced their level of effort in full-day/full-year

child care services if they use pre-Kindergarten (pre-K) expenditures

to meet the MOE requirement. Comments relating to this assurance, and

the use of pre-K in the CCDF in general, are discussed further at

Sec. 98.53.

Comment: One commenter suggested strengthening the certification at

Sec. 98.15(b)(3) by requiring that the consumer education be provided

through community-based organizations. The commenter also wanted us to

clarify that such consumer education be made available to the general

public throughout the State.

Response: We agree that community-based organizations may, in fact,

be the best way of providing consumer education as discussed at

Sec. 98.33. However, in the interests of State flexibility, we decline

to limit the Lead Agency\'s options so narrowly. We note that the

certification already requires dissemination of consumer education

materials \`\`to the general public\'\' and it is our expectation that
such

materials are widely made available and not limited just to families

applying for or receiving CCDF subsidies.

Comment: Another commenter asked that the certification at

Sec. 98.15(b)(7) be clarified to define equal access as also meaning

timely payment of the provider by the State. The commenter wanted a

certification that payments to providers would be processed within a

state-established timeframe, claiming that lengthy delays in payment

made providers reluctant or unwilling to accept subsidized children,

thereby effecting equal access.

Response: We agree that the Lead Agency should establish timely

payment processing standards for the reasons stated by the commenter.

However, there is no statutory basis for requiring such standards and

we decline to change the regulation.

Comment: One commenter noted that Sec. 98.15(a)(5) contained an

incorrect citation.

Response: We have corrected the citation to read, \`\`pursuant to

Sec. 98.30(f).\'\'

Plan Provisions (Section 98.16)

We have amended Sec. 98.16 to reflect changes in the Plan resulting

from PRWORA. For example, we have deleted the language on registration

and the calculation of base-year level-of-effort previously found at

Sec. 98.16(a) (13), (14) and (16). We substituted for them the

statutory requirements for the Lead Agency to provide detailed

descriptions of its parental complaints process at Sec. 98.16(m) and

its procedures for parental access at Sec. 98.16(n). Similarly, we have

modified some language to reflect new statutory language. For example,

Sec. 98.16(h) now discusses the additional purposes for which funds may

be used, and Sec. 98.16(l) now requests the summary of facts upon which

payment rates were determined, including the conduct of a market rate

survey. Section 98.16(c) has been expanded to identify the entity

designated to receive private donated funds pursuant to Sec. 98.53(f).

We have also modified the language at Sec. 98.16(g)(2) to reflect

broader flexibility concerning the use of in-home care. We received

many comments on these provisions. Those comments are more

appropriately discussed in the related sections that follow.

We take this opportunity to correct the wording of Sec. 98.16(j),

formerly Sec. 98.16(a)(10), concerning health and safety requirements.

We have removed the word \`\`minimum\'\' here since the legislation

contains no such qualification, nor do our regulations limit the

flexibility to establish such requirements. We note that Sec. 98.41

remains unaffected by this correction since that section did not

include the use of the word \`\`minimum.\'\'

We have also required at Sec. 98.16(p) that the Lead Agency include

in the CCDF Plan the definitions or criteria used to implement the

exception to TANF work requirement penalties that applies when a single

custodial parent with a child under age six has demonstrated an

inability to locate needed child care. Among others, the definitions or

criteria would include \`\`appropriate child care,\'\' and
\`\`affordable

child care arrangements.\'\' We elaborate on this requirement, and the

many comments received about it, in the discussion of consumer

education at Sec. 98.33.

Finally, Sec. 98.16(q)(1) provides that the Lead Agency describe

State efforts to ensure that pre-K programs, for which

\[\[Page 39948\]\]

any Federal matching funds are claimed, meet the needs of working

parents. At Sec. 98.16(q)(2) we codified the provision found in the

preamble of the proposed rule at Sec. 95.53. This section provides

that, should the Lead Agency use public pre-K funds to meet more than

10% of either the MOE or the Matching requirements, the Plan will

reflect this. The Plan must also describe how the State will coordinate

its pre-K and child care services to expand the availability of child

care when the Lead Agency uses public pre-K funds to meet more than 10%

of either the MOE or the Matching requirements. These requirements are

discussed at Sec. 98.53.

The Administration on Children will issue appropriate amendments to

the State CCDF plan preprint (ACF-118) and the Tribal CCDF plan

preprint (ACF-118A) in Program Instructions, which will also provide

guidance on when Lead Agencies would be required to submit amendments.

The Program Instructions will take into consideration appropriate lead

times for implementation.

Comment: One commenter objected to including TANF definitions in

the State child care Plan because then the child care Plan would have

to be amended every time TANF changed its definitions.

Response: Including TANF definitions in the child care Plan is not

burdensome because those TANF definitions are unlikely to change

frequently over the two-year life of the Plan. In any event, changes to

the TANF definitions would not appear to be a \`\`substantial change\'\'
in

the CCDF program. Hence, an amendment to the Plan would not be required

as discussed in the preamble to the 1992 rule at 57 FR 34367. We repeat

that the purpose of this provision is for public education about the

requirements upon, and options available to, low-income working parents

as discussed in the preamble at Sec. 98.33.

Comment: Another commenter felt that States should not have to

\`\`justify\'\' limits on in-home care in the Plan. She suggested that a

listing of the limits on in-home care and the policy reasons for those

limits should be sufficient.

Response: We agree. It was not our intent to make States justify

the limits they place on in-home care. Rather, we want the Plan to

reflect their basis for doing so, in order for the public and ACF to

better understand the State\'s policy. We have accordingly changed the

wording of the regulation. The preamble discussion at Sec. 98.30

remains essentially the same as we did not use the word \`\`justify\'\'
in

that discussion of in-home care, from which the Plan requirement is

derived.

Comment: A commenter observed that the statute does not require

that the Lead Agency itself maintain the records of substantiated

parental complaints, but rather requires the State to maintain such

records.

Response: We agree and have changed the wording of Sec. 98.16(m) to

reflect the requirement as discussed at Sec. 98.32.

Period Covered by Plan (Section 98.17)

The statute was amended at section 658E(b) to eliminate the three-

year initial period for State Plans. The rule provides that all Lead

Agencies for States, Territories, and Tribes must submit new Plans

every two years beginning with the Plans for Federal Fiscal Years 1998

and 1999.

Comment: One commenter observed that two years is too short a

period for meaningful comprehensive planning and that such a period may

not coincide with State legislative sessions. The commenter asked for

the ability to prepare longer range plans, such as 3 to 5 year plans,

with provision for annual updates.

Response: We agree that a longer plan period might better suit some

Lead Agencies\' planning cycles. However, this requirement is statutory.

Subpart C\--Eligibility for Services

A Child\'s Eligibility for Child Care Services (Section 98.20)

General eligibility. The amended statute at 658P(4)(B) expands the

definition of \`\`eligible child\'\' to include families whose income
does

not exceed 85 percent of the State median income for a family of the

same size. Therefore, Sec. 98.20(a)(2) reflects that change.

We retained the State flexibility at Sec. 98.20(a)(1)(ii) regarding

the option to serve dependent children age 13 and over who are

physically or mentally incapacitated or under court supervision. States

may elect to serve children age 13 or older who are physically or

mentally incapacitated or under court supervision up to age 19, if they

include the age limit in their CCDF Plan.

Foster care and protective services. Grantees have the flexibility

to include foster care in their definition of protective services in

their CCDF Plan, pursuant to Sec. 98.16(f)(7), and thus provide child

care services to children in foster care in the same manner in which

they provide services to children in protective services.

A child in a family that is receiving, or needs to receive,

protective intervention is eligible for child care subsidies if he or

she remains in his or her own home even if the parent is not working,

in education or in training. In these instances, child care serves the

child\'s needs as much or more than the parent\'s needs. Likewise, child

care services may also be necessary when a child is placed in foster

care. Therefore, if Lead Agencies do not include foster care in their

definition of protective services, they must tie eligibility for CCDF

child care of children in foster care to the status of the foster

parent\'s work, education or training.

Comment: One commenter suggested that the option to include foster

care within the definition of protective services should be included in

the regulatory section.

Response: We agree. Therefore, we amended Sec. 98.20(a)(3)(ii) and

Sec. 98.16(f)(7) to ensure that States carefully consider inclusion of

this option when developing and implementing their CCDF Plan.

Comment: Most commenters were pleased that children in foster care

could be eligible for child care services since many States do not

differentiate between foster care and child protective services.

However, some commenters felt that we should include foster care in the

regulatory definition of eligible child so that all children in foster

care would be eligible.

Response: The statute did not specifically provide for foster care

as an eligibility criteria. As states have varying policies regarding

services for children in foster care and protective services, we have

not included foster care in the regulatory definition. Rather we will

allow States flexibility in determining if, and how, they will serve

children in foster care and protective services. Therefore, a State

must indicate its intention of providing child care services to

children in foster care\--on the same basis as children in protective

services\--by including foster care in their definition of protective

services in the CCDF Plan.

Comment: Several commenters believed that the child\'s eligibility

for child care services should not be based on the income of the foster

parents.

Response: States continue to have the flexibility to consider a

child in foster care as a family of one, for purposes of determining

income eligibility under Sec. 98.20, on a case-by-case basis.

Respite care. We further clarified that respite child care is

allowable for only brief, occasional periods in excess of the normal

\`\`less than 24 hour period\'\' in instances where parent(s) of
children

in protective services\--including foster parents where the Lead Agency

has defined families in protective services to

\[\[Page 39949\]\]

include foster care families\--need relief from caretaking

responsibilities. For example, a child care arrangement by someone

other than the custodial parent for one weekend a month to give relief

to the custodial parent(s) of children in protective services is

acceptable. We believe that this kind of respite child care, if

necessary for support to families with children in protective services,

would be an acceptable use of CCDF funds.

If a State or Tribe uses CCDF funds to provide respite child care

service, i.e., for more than 24 consecutive hours, to families

receiving protective services (including foster care families when

defined as protective services families), the CCDF Plan must include a

statement to that effect in the definition of protective services. We

note this definition of \`\`respite child care\'\' may differ from how

States or Tribes define it for other purposes (e.g., child welfare).

Thus, respite child care must be specified in the Lead Agency\'s Plan if

it is to be considered an allowable expenditure under CCDF.

Comment: Several commenters felt that States should be required to

provide respite care for children with disabilities.

Response: Since respite care is provided to give parents time off

from parenting, rather than care to allow the parent to participate in

work or in education or training, the CCDF cannot be used for respite

care for children with disabilities unless the child also needs or is

receiving protective services.

Subpart D\--Program Operations (Child Care Services)\--Parental Rights

and Responsibilities

Parental Choice (Section 98.30)

Cash as a certificate. Since welfare reform has raised issues about

methods of paying for child care, we wish to provide clarification with

respect to child care certificates provided in the form of cash. In

defining the term \`\`certificate,\'\' the statute at 658P(2) says,
\`\`The

term\'\' child care certificate\' means a certificate (that may be a
check

or other disbursement) that is issued by a State or local government \*

\* \* directly to a parent who may use such certificate only as payment

for child care services or as a deposit for child care services if such

a deposit is required of other children being cared for by the

provider.\'\'

With a certificate or two-party check, the Lead Agency can ensure

that money is paid to a provider who meets applicable health and safety

requirements. This is not the case when a Lead Agency provides cash to

a parent. We strongly discourage a cash system, because providers must

meet health and safety standards, and we believe that the use of cash

can severely curtail the Lead Agency\'s ability to conform with this

statutory requirement.

If, nevertheless, a Lead Agency chooses to provide cash, it must be

able to demonstrate that: (1) CCDF funds provided to parents are spent

in conformity with the goals of the child care program as stated at

section 658A of the Act, i.e., that the money is used for child care;

and (2) that child care providers meet all applicable licensing and

health and safety standards, as required by section 658E(c)(2) (E) and

\(F\) of the Act. Lead Agencies, therefore, may wish to consider having

parents who receive cash attest that the funds were used for child care

and to identify the provider. Such a statement would help assure that

the funds were expended as intended by the statute and lessen the

possibilities for fraud. Finally, Lead Agencies are reminded that they

must establish procedures to ensure that all providers, including those

receiving cash payments from parents, meet applicable health and safety

standards.

Comment: One commenter was concerned that we \`\`strongly

discourage\'\' the use of cash. She felt that this stifled State

innovation in piloting new service delivery systems and ran counter to

the purposes of PRWORA in instilling personal responsibility. In

recognizing that providing cash can only be successful with intense

parent and provider education, the commenter argued for State

flexibility to experiment without sanctions from ACF.

Response: We appreciate the commenter\'s thoughtful approach to the

question of providing cash. Like the commenter, we believe that without

appropriate safeguards, such as intense consumer education and the

provisions discussed above, the provision of cash may not fulfill the

goals of either PRWORA or the CCDBG Act. While we continue to

discourage the use of cash, we recognize that the Lead Agency retains

the flexibility to use it.

Availability of certificates. We received an unexpectedly large

number of comments on our proposed clarification concerning the

availability of certificates; many with strongly argued positions. Some

comments favored the clarification, but most opposed it.

Even though we proposed no changes to the regulatory language at

this Part, the comments revealed a fundamental belief that we were

proposing to lessen the emphasis on parental choice. That is not the

case. However, because of the depth of reaction around this topic, we

have decided to withdraw the proposed clarification rather than try to

explain it again in different words. Therefore, concerning the

availability of certificates, the preamble to the 1992 Final Rule

continues to apply and the regulatory language remains unchanged.

In-home care. Child care administrators have faced a number of

special challenges in monitoring the quality of care and the

appropriateness of payments to in-home providers. For that reason, we

give Lead Agencies complete latitude to impose conditions and

restrictions on in-home care. We have revised Sec. 98.16(g)(2) to

require that Lead Agencies, in their CCDF Plans, specify any

limitations on in-home care and the reasons for those limitations.

The Lead Agency must continue to allow parents to choose in-home

child care. However, since this care is provided in the child\'s own

home it has unique characteristics that deserve special attention. In-

home care is affected by interaction with other laws and regulations.

For example, in-home providers are classified as domestic service

workers under the Fair Labor Standards Act (FLSA) (29 U.S.C. Section

206(a)) and are therefore covered under minimum wage. As employees, in-

home child care providers are also subject to tax requirements. In

highlighting these special considerations, we also note that whenever

the FLSA and other worker protections apply, ACF is committed to

maintaining the integrity of these protections. A strong commitment to

work, and therefore to worker protections, is critical to welfare

reform.

We are mindful that in-home care plays a valid and important role

in meeting the needs of working parents, and that many participants in

subsidized care programs rely on such care to meet their family needs.

Access to care that meets the needs of individual families is

critically important to parents and children, to schools and the

workplace, and to other community institutions that interface with the

family. While in-home care represents only a small proportion of all

available care in most communities, it may be the best or only option

for some families and may prove valuable, necessary and cost-effective

when compared to other options. There are a number of situations in

which in-home care may be the most practical solution to a family\'s

child care needs. For example, the child\'s own home may be the only

practical setting in rural areas or in areas where transportation is

particularly difficult. Employees who work nights, swing shifts,

rotating shifts,

\[\[Page 39950\]\]

weekends or other non-standard hours may experience considerable

difficulty in locating and maintaining satisfactory center-based or

family day care arrangements. Part-time employees often find it more

difficult to make child care arrangements than do those who work full-

time. Similarly, families with more than one child or children of very

different ages might be faced with multiple child care arrangements if

in-home care were unavailable. Many families also believe that very

young children are often best served in their own homes. Given the

general scarcity of school-age child care in many communities, in-home

care may enable some families to avoid latchkey situations before

school, after school, and when school is not in session. For many

families, in-home care by relatives also reflects important cultural

values and may promote stability, cohesion and self-sufficiency in

nuclear and extended families.

We urge child care administrators to consider the capacity of local

child care markets to meet existing demand and the role that in-home

care may play in the ability of parents to manage work and family life.

Although in-home care does not represent a large share of the national

supply, it fills an important niche in the structure and functioning of

local child care markets by extending the ability of parents to care

for children within their own families, closing gaps in the supply of

community facilities, and creating a bridge between adult care and

self- or sibling-care as children near adolescence.

Some Lead Agencies may choose to limit in-home care because of cost

factors. For example, a State might determine that minimum wage

requirements result in payments for in-home care serving only one or

two children that are much higher than the payments for other

categories of care. Therefore, the Lead Agency could elect to limit in-

home care to families in which three or more children require care. The

payment to the in-home provider would then be similar to the payment

for care of the three children in other settings. This ability to limit

in-home care allows Lead Agencies to recognize the same cost restraints

that families whose care is unsubsidized must face.

However, since in-home care has proven to be an important resource,

we expect Lead Agencies to consider family and community circumstances

carefully before limiting its availability. For that reason, CCDF Plans

must specify any limitations placed on in-home care and the reasons for

those limitations.

ACF recognizes that giving Lead Agencies complete latitude to

impose conditions and restrictions on in-home care may affect parents\'

ability to make satisfactory child care arrangements and thus their

ability to participate in work, education or training. We also

recognize the challenges of implementing health and safety requirements

in the child\'s own home, monitoring in-home providers, and complying

with Federal wage and tax laws governing domestic workers.

Comment: Several commenters thought we were interpreting the FLSA

and, therefore, wanted the discussion about it deleted. Others wanted

us to say that in-home child care providers were independent business

contractors and not domestic employees.

Response: We have not interpreted the FLSA: we have simply restated

the FLSA\'s characterization of in-home child care providers as domestic

service workers. ACF cannot determine that in-home child care providers

are to be considered independent business contractors.

Interpreting the FLSA, and other wage and tax laws, is the

responsibility of other Federal agencies, such as the Department of

Labor, the Department of the Treasury and the Social Security

Administration, as noted by several of the commenters. While we have

not regulated that the minimum wage must be paid to in-home providers,

as some commenters thought, we would be extremely remiss in not

alerting Lead Agencies to the existence and possible applicability of

other laws. Nor can we ignore violations of those laws simply because

their enforcement is the purview of another Federal agency.

We continue to work with the responsible Federal agencies to help

clarify issues around the use of in-home child care providers and will

work with the other appropriate Federal agencies to provide guidance to

Lead Agencies. We also recognize that there have been instances where

the Federal or State agency responsible for determining the

applicability of the FLSA and the minimum wage requirements have

reached very different conclusions in seemingly similar cases.

Therefore, we encourage Lead Agencies to work with the appropriate

local representatives of the other Federal agencies to resolve or

clarify the State-specific questions they may have regarding the

applicability of other laws and regulations.

Comment: One tribe wanted us to exempt tribes from paying the

minimum wage to in-home providers.

Response: As discussed above, ACF does not determine the

applicability of the FLSA and cannot make exceptions to it.

Comment: One commenter wanted us to define in-home child care

providers as any legally-exempt provider who is otherwise not regulated

but who is specially authorized to provide care in the child\'s home or

in the provider\'s home.

Response: It is unclear why it would be useful to define in-home

care in this way. As discussed above, the unique characteristic of in-

home is its location, not the regulatory status of the care.

Comment: One commenter wanted us to require that in-home providers

meet health and safety requirements. Another commenter wanted us to

state that Federal law does not require that CCDF subsidies be given to

parents or providers known to be operating inconsistently with

applicable laws and regulations. In this vein, the commenter suggested

that we encourage Lead Agencies to require provider documentation of

compliance with applicable laws, such as worker compensation,

unemployment compensation, income tax withholding for employees.

Response: In-home care must meet the requirements established by

the Lead Agency for protecting the health and safety of children

pursuant to Sec. 98.41. In-home care, as a category of care, is not

exempt from health and safety standards. And, relatives who provide in-

home care are not exempt from health and safety requirements unless the

Lead Agency specifically chooses to exempt them, as provided for at

Sec. 98.41(a)(1)(ii)(A).

The regulations at Sec. 98.54(a)(2) require that CCDF funds \`\`shall

be expended in accordance with applicable State and local laws.\'\'

Payments made to parents or providers who are not in compliance with

applicable laws are subject to disallowance in accordance with

Sec. 98.66.

Comment: Several commenters stated that the Lead Agency should have

the ability to define limits and regulate the use of in-home care as

they see fit and that no further requirements, beyond the description

of the limits, should be imposed.

Response: This comment mirrors our policy. The Lead Agency has

complete flexibility to define the limits and regulate the use of in-

home care. As a point of clarification, while the Lead Agency may

impose limits on the use of in-home care, it cannot flatly prohibit the

use of in-home care. In-home care remains an option that must be

offered to parents, pursuant to Sec. 98.30(e), subject to the limits

established by the Lead Agency.

\[\[Page 39951\]\]

Parental Access (Section 98.31)

We have amended the regulations at Secs. 98.31 and 98.16(n) to

reflect the new statutory requirement at section 658E(c)(2)(B) that

Lead Agencies have in effect procedures to ensure unlimited parental

access and to provide a detailed description of those procedures. We

have also amended Sec. 98.15(b)(1) to reflect the statutory change to

certify, rather than assure, that procedures are in effect to ensure

unlimited access.

Comment: One commenter asked that we clarify this requirement as it

relates to parents who have limited contact or custody rights as a

result of a court order. The commenter suggested that Lead Agency

procedures may restrict access to only those persons identified in the

provider\'s records as authorized to remove the child(ren) from the

facility.

Response: We agree that the Lead Agency should address these

situations and should establish their procedures in light of court

ordered restricted parental contact or custody. However, we do not

believe that it is necessary to revise the wording of the regulation

nor do we believe that Congress intended that we create such a detailed

Federal requirement on the Lead Agency.

Parental Complaints (Section 98.32)

We have added paragraph (c) to the regulations at Sec. 98.32 and

amended Sec. 98.16 by adding paragraph (m) to reflect the new statutory

requirements at 658E(c)(2)(C) on parental complaints. Under the

changes, Lead Agencies must provide a detailed description of how a

record of substantiated parental complaints is maintained and made

available to the public on request. We have also amended the regulation

at Sec. 98.15(b)(2) to reflect the requirement of the statute at

658E(c)(2)(C) that a Lead Agency \`\`certify\'\' rather than
\`\`assure\'\'

that it will maintain a record of substantiated parental complaints.

Comment: Some commenters questioned whether the Lead Agency had to

maintain the record of substantiated complaints, since this function

may occur at another part of State government.

Response: We corrected the language of this section to reflect that

it is the State, but not necessarily the Lead Agency, that must

maintain the record of substantiated complaints and make information

regarding such parental complaints available to the public on request.

However, in the Plan, the Lead Agency must, nevertheless, provide the

detailed description of how such a record is maintained and made

available.

Comment: One commenter, in supporting the requirement, recommended

that any substantiated complaint, whether submitted by a parent or by

someone else, be included.

Response: We agree that informed parental decisions would be

enhanced by making all complaints, irrespective of their source,

available to the public. And, we encourage the Lead Agency to make all

substantiated complaints available to the public on request. However,

the Act requires only that a record of substantiated parental

complaints must be maintained. Parental complaints may include

substantiated complaints which originate with persons acting in loco

parentis, for example a foster parent or other guardian, not just a

biological or adoptive parent.

Comment: Another commenter was concerned about the release of

confidential, libelous and/or inappropriate material in the fulfillment

of this requirement. The commenter voiced the expectation that we would

ensure that the State created very structured procedures for

maintaining and guaranteeing that only substantiated complaints are

released to the public.

Response: The requirement clearly states that only substantiated

complaints are to be released. As we stated above, we do not believe

that Congress intended for us to create detailed Federal requirements

here. States have the flexibility to create their own procedures in

this area, provided the required statutory outcome is achieved.

Consumer Education (Section 98.33)

We have amended the regulation at Secs. 98.33 and 98.15(b)(3) to

reflect the statutory requirement at section 658E(c)(2)(D) that the

Lead Agency \`\`certify\'\' that it \`\`will collect and disseminate to

parents of eligible children and the general public, consumer education

information that will promote informed child care choices.\'\' It is

important to emphasize that the use of the words \`\`collect and

disseminate\'\' is more proactive and forceful than the former

requirement that consumer education \`\`be made available\'\' to parents

and the public. We also believe that by changing the wording, Congress

wished to emphasize the importance of consumer education as a service

to be provided by Lead Agencies. This emphasis is also stressed by the

third goal of the CCDF, listed at section 658A(b) of the amended CCDBG

statute, \`\`to encourage States to provide consumer education

information to help parents make informed choices about child care.\'\'

Moreover, the amendment to the reporting requirements at section

658K(a)(2)(D)\--reflected in the revised regulations at

Sec. 98.71(b)(3)\--requires Lead Agencies to report annually on the

manner in which consumer education information was provided to parents

and the number of parents that received such information.

The statute previously specified the type of consumer education

information that the Lead Agency had to provide: \`\`licensing and

regulatory requirements, complaint procedures, and policies and

practices relative to child care services within the State.\'\' The

statute now is less prescriptive. Consumer education information is

defined as that which \`\`will promote informed child care choices.\'\'

Thus, the statute leaves it up to the Lead Agency to determine the type

of information that will help the public and parents make informed

child care choices.

In the comments to the proposed rule, however, we received numerous

comments advising us to strengthen the consumer education requirement.

Two themes arose from the comments. One frequently voiced comment was

that parents need to be informed that the full range of providers is

available to them, especially when they receive certificates. Included

in the full range of providers are sectarian and religious providers,

and we take this opportunity to remind Lead Agencies that such

providers must be available to parents. The second theme we heard was

that parents need to be aware of the importance of health and safety

standards, and the extent to which various categories of care or types

of providers provide health and safety protections for children.

Additionally, in a report issued in February 1998 by the Office of

Inspector General of the Department of Health and Human Services, it

was noted, \`\`Good consumer education is critical to making the child

care market function properly. If parents are not able to make informed

choices, their access to the market is limited. Further, if parents

demand safe and quality care, providers are more likely to supply
it.\'\'

The study report, \`\`States\' Child Care Certificate Programs: an Early

Assessment of Vulnerabilities and Barriers\'\' (OEI-05-97-00320), which

makes note of Congress\' strengthening of the consumer education

requirements in the CCDBG Act, has recommended that ACF take steps to

help States improve their consumer education efforts.

We weighed these comments and the new Inspector General report

against comments we received which generally opposed any regulations at

all on any of the provisions we proposed and those

\[\[Page 39952\]\]

that wanted consumer education provisions in addition to the two

addressed above. We believe that informed parental choice\--which is the

reason for the consumer education provisions\--is supported by the

information suggested by these two comments. We have, therefore,

reworded the regulation at Sec. 98.33(a). That section now specifies

that Lead Agencies must certify that consumer education information

given to parents so they can exercise their right to choose the type of

care that best meets their needs must, at a minimum, include

information about the full range of providers available and on health

and safety requirements. States have discretion in developing the

content of the consumer information materials in these two areas; the

regulations only require that they be addressed.

While Lead Agencies have flexibility in providing consumer

education, ACF strongly encourages Lead Agencies to promote informed

child care choices by offering information about: the various

categories of care; the Lead Agency\'s certificate system; the rates for

the various categories of care; the sliding fee scale; a checklist of

what to look for in choosing quality care; providers with whom the Lead

Agency has contracts for care; the licensing regulations that some

providers must meet; the State\'s policy regarding substantiated

complaints by parents that is available upon request as required by

Sec. 98.32; and local resource and referral agencies that can assist

parents in choosing appropriate child care.

The best child care arrangements are developed in one-on-one

consultation with trained or experienced counselors. Professional help

with locating child care is time- and cost-efficient for both families

and Lead Agencies. Thus, it may be in the Lead Agency\'s interest to

invest in strategies such as co-location of child care resource and

referral counselors in work development offices or agencies. Economists

make the argument that good consumer information is critical to making

the child care market function more like other markets. Moreover,

experience has shown that printed materials alone may not always be a

sufficient information source, particularly if parents have low

literacy skills.

Comment: Several commenters wanted us to require that consumer

education specifically include information about the availability of

sectarian providers and that parents may use certificates with

religious providers.

Response: It was partly in response to these comments that we

expanded the requirement for consumer education to now include

information about the full range of providers available to parents. As

the \`\`full range of providers\'\' includes sectarian and religious

providers, we do not believe it is necessary to specify them\--or other

types of providers\--in regulation. Since certificates, by definition,

may be used with any provider, including sectarian providers, it seems

unnecessary to be more prescriptive.

Exception to individual penalties in the TANF work requirement.

Title I of the PRWORA amends Title IV-A of the Social Security Act and

replaces the Aid to Dependent Children (AFDC) with a new block grant

program entitled Temporary Assistance for Needy Families, or TANF. The

new section 407(e)(2) addresses an exception to the work requirement in

the TANF program and provides that a State may not reduce or terminate

TANF assistance to a single custodial parent who refuses to work when

she demonstrates an inability to obtain needed child care for a child

under six, because of one or more of the following reasons:

\(1\) Unavailability of appropriate child care within a reasonable

distance from the individual\'s home or work site;

\(2\) Unavailability or unsuitability of informal child care by a

relative or under other arrangements;

\(3\) Unavailability of appropriate and affordable formal child care

arrangements.

The TANF penalty exception underscores the pivotal role of child

care in supporting work and also recognizes that the unavailability of

appropriate, affordable child care can create unacceptable hardships on

children and families. Since Congress provided that the new Mandatory

and Matching child care funding be transferred to the Lead Agency under

the CCDF and also provided that at least 70 percent of the new funding

must be spent on families receiving temporary assistance, in transition

from public assistance, or at risk of becoming eligible for public

assistance, the Lead Agencies will be playing a critical role in

providing the child care necessary to support the strong work

provisions found in TANF. It is therefore critical that CCDF Lead

Agencies help disseminate information about the TANF exception.

Knowledge of this exception, at least on the part of parents who

receive TANF, will be very important in promoting informed child care

choices.

Therefore, we require that Lead Agencies include information about

it in the consumer education information they provide to TANF

recipients. This responsibility entails informing parents that: (1)

TANF benefits cannot be reduced or terminated for parents who meet the

conditions as specified in the statute and as defined by the TANF

agency; and (2) assistance received during the time an eligible parent

receives the exception will count toward the time limit on Federal

benefits stipulated by the statute at section 408(a)(7).

In order for a Lead Agency to comply with this requirement, it will

need to understand how the TANF agency defines and applies the terms of

the statute to determine that the parent has a demonstrated inability

to obtain needed child care. The elements that require definition

consist of: \`\`appropriate child care,\'\' \`\`reasonable distance,\'\'

\`\`unsuitability of informal care,\'\' and \`\`affordable child care

arrangements.\'\'

In our pre-regulatory consultations, some groups urged us not only

to ensure that the CCDF agency disseminates information about the TANF

penalty exception but to regulate the content of the definitions or

criteria used to determine if a family is unable to obtain needed child

care. The approach we have taken in this rule provides flexibility and

strikes an appropriate balance between the roles of the CCDF and TANF

agencies. We recognize the authority and flexibility of the TANF

program to define the terms established by the statute. However, we

strongly encourage TANF agencies to define \`\`appropriate care,\'\' at
a

minimum, as care that meets the health and safety standards of the CCDF

program, specified at Sec. 98.41.

We are requiring, under Sec. 98.12 of the regulations, that Lead

Agencies coordinate with TANF programs to ensure, pursuant to

Sec. 98.33(b), that TANF families with young children will be informed

of their right not to be sanctioned if they meet the criteria set forth

in the statute and Plan. As part of this coordination, at Sec. 98.16(p)

we are requiring that the Lead Agency include in its Plan the

definitions or criteria the TANF program has adopted in implementing

this exception to the work requirement.

The new section 409(a)(11) of the SSA specifies that if the TANF

program sanctions parents who are eligible for this exception to the

individual penalties associated with the TANF work requirements, it may

incur a penalty of up to five percent of its grant. Therefore,

coordination between the Lead Agency and the TANF program in this

matter serves the best interests both of the recipients of TANF

benefits and the service agencies themselves. ACF

\[\[Page 39953\]\]

issued proposed rules on the TANF penalty provisions on November 20,

1997\.

Comment: We received few comments in support of our proposal to

require Lead Agencies to provide information regarding the TANF penalty

provisions. Most commenters observed that this was a TANF, not a child

care issue, and that the notice was an administrative notice, not

consumer education. Others suggested that, in singling out TANF

families, this provision merely continues the stigma associated with

welfare.

Response: We respect the commenters\' views. And, we have changed

the requirement so that the information on the penalty provision need

only be given to TANF families\--not all families. We have also amended

the regulation to recognize that other agencies, not necessarily the

Lead Agency, may provide the information.

In light of the pressures of work participation requirements on the

TANF agency, and ultimately on TANF families, we believe that TANF

families need strong reinforcement of their right to safe, affordable

and appropriate care. Informed consumer education means that parents

must not feel that they must accept any child care, especially care

that they believe threatens the well-being of their child.

Comment: Some commenters suggested that Lead Agencies should be

required to provide consumer education only through child care resource

and referral (CCR&amp;R) agencies.

Response: While CCR&amp;Rs may be the best providers of consumer

education information, there is no statutory basis for limiting State

flexibility in this way.

Comment: Several commenters objected to including the TANF penalty

definitions or criteria in the CCDF Plan, arguing that these belonged

more appropriately in the TANF Plan.

Response: A State\'s definition of \`\`appropriate child care,\'\'

\`\`reasonable distance,\'\' etc., is germane to the provision of child

care in a State. And, it is the overall provision of child care in a

State that the CCDF Plan is intended to present to the public. Because

there is no fixed format for a TANF plan, the definitions may not be

included there and thus may not be part of the TANF 45 day notice

process. Therefore, these definitions and criteria may not become

publicly known. We do not believe that the requirement is either

burdensome or excessive since the TANF agency must develop the criteria

and definitions in order to implement that program.

Subpart E\--Program Operations (Child Care Services)\--Lead Agency and

Provider Requirements

Compliance With Applicable State and Local Regulatory Requirements

(Section 98.40)

We have amended the regulations at Sec. 98.40(a) to reflect a

change in Section 658E(c)(2)(E)(i) of the Act. The amendment requires

Lead Agencies to certify that they have in effect licensing

requirements applicable to child care services, and to provide a

detailed description of those requirements and of how they are

effectively enforced. This change is also reflected in Secs. 98.15 and

98.16. The statute notes, however, that these licensing requirements

need not be applied to specific types of providers of child care

services.

Because amendments to section 658P(5)(B) have eliminated the

requirement for registration of unlicensed providers serving families

receiving subsidized child care, we have deleted the former regulation

Sec. 98.40(a)(2) requiring registration. This change, however, does not

prevent Lead Agencies from continuing to register unlicensed or

unregulated providers, and we encourage them to do so. Those Lead

Agencies that choose not to have a registration process will be

required to maintain a list of providers. We discuss this in more

detail at Sec. 98.45.

Health and Safety Requirements (Section 98.41)

Section 658E(c)(2)(F) of the Act requires a Lead Agency to certify

that there are in effect within the State, under State and local law,

requirements, designed to protect the health and safety of children,

that are applicable to providers serving children receiving CCDF

assistance. The applicable requirements set forth in the Act include

\`\`the prevention and control of infectious diseases (including

immunizations).\'\'

Section 658E(c)(2)(F) further provides, however, that nothing in

the health and safety requirements shall be construed to require the

establishment of additional health and safety requirements for child

care providers that are subject on the date of enactment of the Act,

under State and local law, to health and safety requirements in the

categories described in the Act. The regulations at Sec. 98.41(a)

reflect the prohibition against establishing additional requirements if

existing requirements comply with the Act.

As proposed originally on May 11, 1994 (59 FR 24510) and again in

1997 on July 23, 1997 (62 FR 39647), we amended the regulation at

Sec. 98.41(a)(1) to require that States and Territories include as part

of their health and safety provisions for the control and prevention of

infectious diseases (by reference or otherwise) the latest

recommendations for childhood immunizations of their respective State

or territorial public health agency.

Based on comments received on the most recent proposed rule,

however, we modified the final rule at Sec. 98.41(a) to delete language

that, unintentionally, could have caused some commenters to believe

that ACF was exceeding the Act. Specifically, we deleted language that

related to establishing immunization requirements. Based on another

comment, we also revised the rule to clarify that immunizations are not

the only focus of the statutory requirement on the prevention and

control of infectious diseases.

The immunization regulation at Sec. 98.41(a)(1) applies only to

States and Territories. Consistent with the amended Act, which requires

the Secretary to consult with Tribes and tribal organizations to

develop minimum child care standards that are applicable to Tribes and

tribal organizations that receive CCDF funds, we have not extended the

immunization requirement to Tribes and tribal organizations due to the

anticipated development of tribal health and safety standards.

Until tribal health and safety standards are issued, however, Lead

Agencies for Tribes and tribal organization must meet the three basic

health and safety requirements specified in the Act and these amended

regulations, including the basic regulation on the prevention and

control of infectious diseases (including immunizations). They do not,

however, have to meet the specific immunization requirement that

applies to States and Territories under these final rules. We

anticipate that tribal immunization requirements will be considered in

the consultation on the development of the minimum child care standards

with Indian Tribes and tribal organizations.

While many State and territorial public health agencies adopt the

recommendations of the Advisory Committee on Immunization Practices

(ACIP) of the Centers for Disease Control and Prevention (CDC), we wish

to emphasize that this amendment to the regulations does not impose

Federal standards for immunization. Rather, it allows the individual

State or Territory to apply its own immunization recommendations or

standards to children receiving CCDF services. All States and

Territories have recommendations or standards

\[\[Page 39954\]\]

regarding immunization of individual children.

The immunization provision at Sec. 98.41(a)(1) is intended to

ensure that States address the statutory provision on immunization as

part of the statutorily-mandated CCDF health and safety standards.

Currently 22 percent of children in the U.S. under the age of two

are not age-appropriately immunized. Since a large percentage of

children receiving child care assistance are under five years of age,

we believe that the immunization requirement will have a positive

impact in reducing the incidence of infectious diseases among preschool

age children. Surveys of licensed child care facilities indicate that

the majority of States require some proof of immunizations for children

enrolled in licensed or regulated child care centers and family day

care homes. However, individual States differ in their specific

requirements and regulatory approaches, and requirements for the

immunization of children in child care settings that are exempt from

licensure or other regulatory provisions vary widely.

Vaccines are the most cost-effective way to prevent childhood

diseases. Nationally, approximately \$13.00 is saved in direct medical

costs for every dollar spent on the measles/mumps/rubella (MMR)

vaccine, \$29.00 is saved for every dollar spent on the diphtheria/

tetanus/pertussis (DTP) vaccine, and \$6.00 is saved for every dollar

spent on the oral polio vaccine (OPV).

In requiring children to be age-appropriately immunized, we

considered that parents may not always be able to access immunizations

easily. However, a number of national initiatives are under way to

promote immunizations for all children. In response to disturbing gaps

in the immunization rates for young children in America, a

comprehensive Childhood Immunization Initiative (CII) was developed.

CII addresses five areas:

\--Improving immunization services for needy families, especially in

public health clinics;

\--Reducing vaccine costs for lower-income and uninsured families,

especially for vaccines provided in private physician offices;

\--Building community networks to reach out to families and ensure that

young children are vaccinated as needed;

\--Improving systems for monitoring diseases and vaccinations; and

\--Improving vaccines and vaccine use.

The CDC and its partners in the public and private sectors are

working to build a comprehensive vaccination delivery system. The goals

of the CII are to ensure that at least 90 percent of all two-year-olds

receive each of the initial and most critical doses, to reduce diseases

preventable by childhood vaccination to zero, and put in place a system

to sustain high immunization coverage. Since 1994, the National

Immunization Survey (NIS) has been used to provide immunization

coverage estimates for all 50 States and 28 large urban areas.

As part of the efforts in the CII, immunization programs on the

State and local level are collaborating with WIC programs (Special

Supplemental Food Program for Women, Infants, and Children) to focus on

children\'s immunization. For example, local WIC clinics check the

immunization records of WIC participants, assist families to find a

primary health care provider, and provide immunization information. On-

site immunization services are sometimes also provided at local WIC

clinics.

On September 30, 1996, the CDC awarded funds ranging from \$130,000

to \$250,000, to education agencies in four States (New York, South

Dakota, West Virginia, and Wisconsin) to deliver immunization services

to preschool-aged children in health centers at elementary schools.

Over the past four years, welfare reform waivers were granted to 18

States to allow them to require parents to immunize their children as a

condition of receiving assistance.

Lead Agencies for the CCDF have the flexibility to determine the

method they will use to implement the immunization component of these

regulations. For example, they may require parents to provide proof of

immunization as part of the initial eligibility determination and again

at redetermination, or they may require child care providers to

maintain proof of immunization for children enrolled in their care.

Lead Agencies have the option to exempt the following groups:

&lt;bullet&gt; Children who are cared for by relatives (defined as

grandparents, great grandparents, siblings\--if living in a separate

residence\--aunts and uncles);

&lt;bullet&gt; Children who receive care in their own homes;

&lt;bullet&gt; Children whose parents object on religious grounds; and

&lt;bullet&gt; Children whose medical condition contraindicates

immunization.

While families are taking the necessary actions to comply with the

immunization requirements, Lead Agencies shall establish a grace period

during which children can continue to receive child care services\--

unless, in keeping with the statutory provisions applicable to the

CCDF, existing State or local law regarding immunizations required for

the particular child care setting would not allow for such a period.

Finally, we encourage all Lead Agencies to consider requirements

that provide for documenting regular updates of a child\'s

immunizations.

Section 98.30(f)(2) and (3) prohibit any health and safety

requirements from having the effect of limiting parental access or

choice of providers, or of excluding a significant number of providers.

We do not think these new immunization requirements will have such an

effect. Rather, we are convinced that, when applied to all providers,

they will have the effect of enhancing parental choice of providers,

since all providers will have the same requirements. More importantly,

however, the requirements will promote better health for children,

their families, and the public.

Pursuant to section 658P(5)(B) of the amended Act, we have added

\`\`great grandparents, and siblings (if such providers live in a

separate residence)\'\' to the list of relatives who, at State option,

may be exempted from the health and safety requirements at

Sec. 98.41(e) and to the definition of \`\`eligible child care
provider\'\'

at Sec. 98.2.

We received many comments on the revised health and safety

provisions from all types of commenters who made a wide variety of

observations. Several commenters, including three Lead Agencies,

expressed their unqualified support for the immunization provision. A

number of States who wrote to comment on other provisions in the

proposed rule were silent regarding the proposal, as were a couple of

State organizations. Other States expressed support of the principle of

assuring that very young children are age-appropriately immunized.

They, however, had various concerns about the proposed amendments to

the rule concerning health and safety provisions as noted in the

comments below. Some States and State organizations supported an

alternate approach as noted below. A number of children\'s organizations

supported the provision, but asked for it to be strengthened as noted

below.

Comment: Some commenters said that the proposed rule exceeded the

authority granted to the Secretary under PRWORA and did not respect

congressional intent regarding the Act. The commenters did not identify

which statutory provisions they believed were exceeded. Additionally,

however, they pointed to the proposed State options for exempting

children receiving CCDF

\[\[Page 39955\]\]

services as evidence that ACF, not the State, was establishing a health

and safety standard.

Response: The statutory language regarding the establishment of

health and safety requirements for children served by the CCDF

essentially was unchanged by PRWORA. The statute clearly requires the

State to establish health and safety standards in three areas. One of

those areas, the control and prevention of infectious diseases,

specifically includes immunizations in health and safety requirements

for child care. We think that the commenters may have focused on the

provision at 658E(c)(2)(F) that states, \`\`Nothing in this
\[provision\]

shall be construed to require the establishment of additional health

and safety requirements for child care providers that are subject to

health and safety requirements in the categories described \[in the
Act\]

on the date of enactment of this subchapter under State or local
law.\'\'

The rule we adopted does not violate this caveat to the health and

safety requirements of the Act. ACF is not requiring States to

establish additional standards regarding immunization for children

receiving CCDF services where those standards exist for all children

(CCDF-subsidized or not) in a category of care. Rather, we are ensuring

that States follow the statutorily-mandated requirement, which

specifically includes immunizations. The statute requires immunizations

in the case of all care available to children receiving CCDF services\--

not just to those caregivers who are subject to existing State

requirements regarding immunization of children in child care settings.

The regulation clarifies that immunizations must be part of the health

and safety standards for all providers.

We revised the final rule to delete the phrase that might

inadvertently have led some to conclude that the regulation exceeded

the statute by seeming to require new State immunization standards. The

provision now indicates that Lead Agencies shall assure that the

State\'s existing immunization standards apply to all children receiving

services under the CCDF.

Further, the exemption options should not be considered as evidence

that ACF is requiring specific health and safety standards. Rather, the

options reflect recognition of the State\'s authority to determine the

content of health and safety standards and to exempt statutorily

specified relatives from the health and safety requirement generally.

Comment: Several commenters suggested that ACF adopt an alternate

approach to the immunization requirement. Specifically, they suggested

that instead ACF adopt a provision requiring a State to describe in its

CCDF Plan its efforts to increase immunization rates in relationship to

their child care programs and with respect to outreach to children in

informal care.

Response: The alternative proposed does not serve the objective of

assuring that the statutory provision is met.

Comment: Several States opposed the CCDF rule regarding

immunizations on the grounds that they already have requirements

regarding immunizations in child care settings.

Response: As explained in the response to the first comment in this

section, where a State has rules for immunization of children in child

care settings, these rules do not impose additional or different

requirements. These rules apply in instances where a State has not

established the statutorily required health and safety immunization

requirements for a particular child care setting.

Comment: Two commenters noted that the requirement for a grace

period for families to have their children receiving CCDF services age-

appropriately immunized could conflict with existing State rules

regarding children entering child care. They asked for the rule to take

into account instances where States have existing immunization

standards for child care settings that do not allow for a grace period.

Response: In the 1994 proposed rule, when we only encouraged States

to have a grace period and recommended that Head Start guidelines for

an immunization grace period of 90 days be considered, we received a

significant number of comments asking that we incorporate a grace

period into the CCDF rule on immunization. In 1994, an overwhelming

majority of comments opposed tying the immunization requirement to

initial eligibility. The view was that requiring immunizations to be up

to date before the child care could start would be a barrier to

working. Commenters at that time voiced concern that many low-income

parents might not immediately be able to acquire the necessary

immunizations and could therefore lose access to crucial child care

services.

A significant number of commenters in 1994 recommended that we

strengthen the language to require Grantees to establish a grace period

as part of the immunization requirement. With welfare reform\'s stronger

emphasis on work, we believe that the grace period is even more

critical than we envisioned in 1994. We, therefore, retained the

provision on the grace period. States should understand, however, that

the provision at Section 658E(c)(3)(F), which is reflected at

Sec. 98.41(a) of these regulations, would apply. That provision

prohibits the establishment of new or additional standards if they

exist for a particular child care setting. We believe that the complete

regulation at Sec. 98.41(a) adequately conveys the principle, so that

no special modification of the rule regarding the grace period is

needed.

Comment: Some States commented that the issue of immunizations is a

much larger issue than just for children receiving CCDF subsidies. Some

of these commenters observed that in care settings that States do not

regulate there could be children who are not required to be immunized

because they are not receiving CCDF services and not subject to other

rules regarding immunization. One commenter specifically noted that the

CCDF provision fragments efforts of States that are seeking to develop

a comprehensive immunization plan.

Response: The fact that the immunization issue is a bigger issue

than just within the CCDF should not argue against using the CCDBG

statutory requirements in order to assist with the need for very young

children to be age-appropriately immunized. We do not believe that this

rule will conflict with any other State initiative to immunize young

children. We encourage all States to coordinate all child care and

public health services in order to foster an importance linkage to

fulfilling immunization needs.

Comment: Some States commented that they saw difficulties in

administering, tracking, or monitoring the immunization requirement.

There were comments indicating that assumptions were being made that a

cumbersome verification process would be required of Lead Agencies.

Response: As we indicated in the preamble to the proposed rule and

in the preamble above, we have not imposed implementation requirements

for this provision. States have the flexibility to implement the

provision in a manner that is not burdensome. Lead Agencies are not

required to provide immunizations directly to children receiving child

care services. Nor are Lead Agencies required to cover the cost of the

vaccines.

We anticipate that Lead Agencies would incur most of the

administrative burden during the initial child care application process

when follow-up is needed on children whose immunizations are not

current. However, this burden should be greatly

\[\[Page 39956\]\]

reduced as a result of the Childhood Immunization Initiative. Under

this initiative, States will receive funds that can be used to develop

statewide information systems which remind parents when immunizations

are due. Lead Agencies for the CCDF should work with their State

immunization program to develop comprehensive immunization registries

that will assist in the implementation of the child care immunization

requirement.

To help ease the burden during the initial application process,

Lead Agencies could consider: incorporating tracking and follow-up into

existing redetermination procedures; flagging the files of children who

are not yet immunized and allowing parents to submit documentation by

mail; or including proof-of-immunization information in the periodic

report that providers are already required to submit to the Lead

Agency. These processes could be considered for both regulated and

unregulated providers.

States may also find that providing parents with educational

materials on the importance of immunization can play a key role in

reducing administrative burdens. While many parents are aware that

immunizations are needed by school age, they may not realize that

children should receive most vaccines before their second birthday.

Comment: One commenter stated that adding more specificity to only

the immunization part of the CCDF health and safety standard on

prevention and control of infectious diseases could send an unintended

message that having immunization provisions alone would fulfill that

statutory provision. The commenter suggested that to ensure a balance

there should be more rules regarding the scope and structure of the

statutory standard. Another commenter suggested that ACF require or

encourage criminal background checks of providers of CCDF services.

Response: We agree with the commenter that the statutory provision

encompasses more than immunizations. The law says that the State\'s

standards in this area shall include immunizations. The law would not

be understood to consist only of the aspect of immunization in the

prevention and control of infectious diseases. Not all diseases can be

prevented by immunizations. However, there is a specific mention of

immunization in that provision in the Act that in our experience has

not been addressed by all States in implementing the provision, while

other \`\`prevention and control\'\' issues were addressed in at least
some

minimal way in State Plans. Based on the comment, we reviewed the

regulatory language and revised the regulation to make it less likely

to be interpreted as the commenter did but did not further regulate the

statutory language.

With respect to criminal background checks, ACF considers such

checks to fall under the building and physical premises safety standard

in the statute. Unlike the statutory requirement on prevention and

control of infectious diseases, which specifically mentions

immunizations, the statute does not specify any particular component

that would be part of the provision on building and physical premises

safety. Therefore, we do not propose to further regulate that health

and safety provision. We would agree with the commenter that it is

appropriate to encourage States to adopt criminal background checks as

part of their effort to meet CCDF health and safety standards.

Comment: Some commenters stated that there should be no exemption

option to requiring immunizations for children receiving relative and

in-home care. Several recommended that the requirement be implemented

without any possible exemptions.

Response: The Act and regulations allow Lead Agencies the option to

exempt grandparents, great grandparents, siblings (if the sibling lives

in a residence other than the child\'s home), aunts and uncles from

health and safety requirements. Although this exemption is allowable by

statute, the statute does not require States to make the exemption;

States may choose to require relative caregivers to meet the same

immunization requirements as established for other providers.

In allowing an exemption for in-home care, we considered that these

children are not cared for in a communicable group setting but in the

privacy of their own home, and therefore would be at a more limited

risk of contracting diseases or spreading diseases than they would be

if in a group care setting with children from different families. We

therefore think the in-home exemption option is an appropriate

reflection of the statutory scope of the health and safety requirement.

Finally, the regulation reflects the basic exemption provisions

(religious and medical reasons) that States apply to child care

settings and school settings where States have set immunization

standards. The regulation allows the State similar flexibility in

implementing the statutorily-mandated CCDF health and safety

requirements where it does not have existing immunization requirements

for all children in a care setting. States have the flexibility to

determine which of the optional exemptions to allow. However, they may

not expand the exemptions beyond the categories outlined in the

preamble and regulation.

Comment: One commenter from an Indian Tribe said that when a child

is in foster care, the foster care home should be considered the

child\'s home for the purpose of the exemption option regarding in-home

care.

Response: We agree with the commenter. A foster care home would be

considered the foster child\'s home for the purpose of the CCDF

immunization exemption option regarding in-home care. The State may

choose to include in-home care in a foster home in the exemption for

in-home care, or it may choose to not include it. Tribes and tribal

organizations are reminded that the rule on immunizations does not

apply to tribal child care, however, since ACF is collaborating with

Tribes to develop tribal-specific health and safety standards.

Comment: One commenter said that ACF should require States to

follow the immunization recommendations of the CDC, not the

requirements of their own State health agency, with respect to these

regulations.

Response: As we stated in this section, while many State and

territorial public health agencies adopt the recommendations of the

Advisory Committee on Immunization Practices (ACIP) of the CDC, we wish

to emphasize that this regulation does not impose Federal standards for

immunization. Rather, it allows the individual State or Territory to

apply its own immunization recommendations or standards to children

receiving CCDF services.

Comment: A few commenters said they thought that the immunization

regulation does not reach children in \`\`informal care
arrangements.\'\'

One of them observed that black children would be disproportionately

under-served by the requirement, because black families tend to use a

disproportionate amount of informal care. One of the commenters said

that the rule would not reach children where the provider does not

receive direct payment.

Response: With the exception of the four optional exceptions that

the regulation gives States the flexibility to adopt independently of

each other, the immunization component of the CCDF health and safety

requirements must be followed. To the extent relative or in-home care

is considered to be

\[\[Page 39957\]\]

\`\`informal\'\' and a State exercises its option to exempt those
settings

from the immunization regulation, a child in those settings would not

be required to be age-appropriately immunized under the CCDF. ACF

strongly encourages States to take full advantage of the requirement to

see to it that the immunization needs of very young children are met.

Unless a State chooses to exempt care in one of the specified settings

from CCDF immunization provisions, however, it must have a mechanism

for carrying out the provision, no matter how its payment system is

organized.

Comment: A number of commenters stated with varying emphases their

perception that the immunization rule places burdens on parents or

providers and could be a deterrent to parents or providers using or

participating in CCDF services.

Response: As explained above, there is an array of resources and

approaches available to States to ensure access to immunizations by

parents as well as State flexibility to design a process for

implementation of the rule that is not burdensome on providers. To meet

the needs of individual States to design the most appropriate method of

meeting the rule, ACF intentionally left flexibility in the regulation.

We encourage States to ensure that the requirement is met in a manner

that both fulfills the statute and the rule as well as places minimum

burdens on families or the supply of all categories and types of care.

Comment: Two commenters raised issues relating to the possible

adverse side effects of immunizations. They requested that States

exempt children receiving CCDF services from immunization after parents

have received information about the risks and choose not to immunize

their children.

Response: All immunization providers are required to inform parents

of potential side effects. Only a very minute fraction of children

receiving immunizations experience harmful side effects attributable to

immunizations, and the National Vaccine Injury Compensation Program

(NVICP) is available to assist families whose children have been

harmed. Information on the NVICP is available on 1-800-338-2382. On

balance, families that do not appropriately immunize their children

place them in greater harm than the immunizations do. Therefore, we do

not agree with the recommendation to allow another exemption to the

immunization regulation for children receiving CCDF services.

Comment: A few commenters noted that for effective implementation

of the rule, States should be required to provide information\--to

parents of CCDF-eligible children and to unregulated providers of

services to children receiving CCDF subsidies\--about both the necessity

for immunizations and how to access free immunizations. One commenter

offered the idea of mandating linkages between the child care subsidy

system and public health clinics and other health professionals. One

commenter asked that States be required to coordinate with their State

public health agency.

Response: We concur that effective implementation would require

States to ensure parents and unregulated providers have access to the

kind of information described by the commenter. In keeping with the

overall objective of these revised rules to achieve a balance between

flexibility and accountability, ACF believes that regulation on this

point is not necessary. It is inherent for meeting the rule. Moreover,

nearly all States participate in the Secretary\'s successful Healthy

Child Care America campaign. This campaign has a goal of linking child

care providers with the health community and is one of the many venues

for coordination between the child care community and the health

community.

Additionally, this final rule includes two requirements that will

enhance coordination and informational activities concerning

immunization under the CCDF. First, with respect to State-level

coordination, the final rule at Sec. 98.14(a) requires that CCDF Lead

Agencies shall coordinate with the State agency responsible for public

health, including the agency responsible for immunizations. Second,

based on a large number of comments on consumer education, we adopted

at Sec. 98.33 a specific requirement that the Lead Agency will collect

and disseminate consumer education information that will promote

informed child care choices, including information about health and

safety. We consider immunization information to be an important part of

such health and safety information.

Further, developing partnerships between the child care and health

community will help facilitate the immunization process and ensure that

the health needs of children and families are being met. We encourage

States to utilize existing service delivery systems and networks to

assist parents in meeting immunization requirements.

The President\'s Childhood Immunization Initiative recognizes the

important role of States and local organizations in identifying their

particular needs. In 1992, the Federal government began helping States

design individually tailored Immunization Action Plans. Outreach

consultants in each region assist States, local organizations, and

health professionals in enhancing and expanding partnerships with

public and private organizations. For more information on partnerships

with State and local immunization programs, contact the State Health

Department or the CDC\'s National Immunization Program, Program

Operations Branch at 404-639-8215.

Comment: One commenter said States should be required to certify

that effective procedures are in place to ensure that child care

providers comply with immunization requirements.

Response: We believe that the regulation at Sec. 98.41(d) suffices.

It requires Lead Agencies to certify that procedures are in effect to

ensure that child care providers of services for which assistance is

provided under the CCDF comply with all applicable health and safety

standards described in Sec. 98.41(a). We think that the provision does

not require modification to cover immunizations, to the extent that a

Lead Agency, in implementing the immunization requirement at

Sec. 98.41(a) places requirements on providers. We remind commenters

that the immunization rule gives Lead Agencies implementation

flexibility.

Comment: One commenter stated that the categories of relatives who

are exempt from CCDF health and safety standards should be left up to

the Lead Agency.

Response: Our response remains as stated in the Final Rule of

August 4, 1992, that the intent of the statute was to give grantees the

option to exempt certain relatives from the health and safety

requirements that all other CCDF child care providers must meet. The

amended statute extends this exemption to great grandparents and

siblings (if living in a separate residence) and we have amended the

regulations accordingly. There is no statutory authority to extend this

exemption to other types or categories of providers.

Sliding Fee Scales (Section 98.42)

For a further discussion of copayments, see Section 98.43.

Equal Access (Section 98.43)

The Act requires Lead Agencies to certify that payment rates are

sufficient to provide access to child care services for eligible

families that are comparable to those provided to families that do not

receive subsidies. Section 658E(c)(4)(A) requires the Lead Agency to

provide a

\[\[Page 39958\]\]

summary of the facts relied on to determine that its payment rates are

sufficient to ensure equal access.

The regulation at Sec. 98.43(b) requires a Lead Agency to show that

it considered the following three key elements in determining that its

child care program provides equal access for eligible families to child

care services:

1\. Choice of the full range of categories and types of providers,

e.g., the categories of center-based, group, family, in-home care, and

types of providers such as for-profit and non-profit providers,

sectarian providers, and relative providers as already required by

Sec. 98.30.

2\. Adequate payment rates, based on a local market survey conducted

no earlier than two years prior to the effective date of the current

Plan; and

3\. Affordable copayments.

These elements must be addressed in the summary of facts submitted

in a Lead Agency\'s biennial Plan, pursuant to Sec. 98.16(l).

Comment: Some commenters felt that Lead Agencies should simply be

required to summarize the facts they relied on in setting payment

rates, without addressing the three key elements mentioned above.

Response: Lead Agencies are free to include additional facts they

used in determining rates that ensure equal access. As discussed below,

we are convinced that a Lead Agency cannot establish rates that ensure

equal access without reference to the three required elements.

1\. Full range of providers. All working parents, regardless of

income, need the full range of categories of care and types of

providers from which they may choose their child care services. This is

because child care needs vary considerably according to the child\'s age

and special needs, the parents\' work schedule, provider proximity,

cultural values and expectations. Therefore, we believe that the

statutory requirement of equal access means that low-income working

parents receiving CCDF-subsidized care must have a full range of the

categories and types of providers from which to choose care that they

believe best meets their needs and those of their children. This

element helps secure the parental choice requirements at Sec. 98.30

which already require that parents who receive certificates be afforded

such variety.

2\. Adequate payment rates. PRWORA eliminated the requirement that,

in establishing payment rates, the Lead Agency take into account

variations in the cost of providing care in different categories of

care, to different age groups, and to children with special needs.

While eliminating the requirement for different payment rates for

different categories of care, Congress added a requirement that Lead

Agencies provide \`\`a summary of the facts relied on by the State to

determine that such rates are sufficient to ensure such \[equal\]

access.\'\'

The statute indicates that if families receiving child care

subsidies under the CCDF are to have equal access to child care, the

payment rates established by a Lead Agency should be comparable to

those paid by families who are not eligible for subsidies. In other

words, the payment rates should reflect the child care market. Although

the requirement for specified rate categories has changed, the reality

remains that the market reflects differences along several dimensions,

and we do not believe that Congress expected Lead Agencies to establish

a single payment rate for all types of child care and all children

irrespective of age.

The focus of PRWORA on work further highlights the need for CCDF

Lead Agencies, which now are required by statute to administer the new

Mandatory and Matching Funds, to establish payment rates that support

work. Child care is often the major factor which determines whether

families are able to work\--and access to a variety of child care

arrangements is necessary both to support today\'s increasingly diverse

workforce and workplace demands, and to ensure that the healthy

development of children is not compromised.

The major variable in the charges for child care is the age of the

child, especially the added expense of caring for infants and very

young children. And, payments that do not realistically reflect the

charges of caring for very young children will frustrate the ability of

families to work. Under PRWORA, many more families with infants and

pre-school-aged children will be required to participate in work

activities for longer hours per week. In providing the exception to the

individual penalties under TANF for single custodial parents with a

child under age six who cannot obtain needed child care, Congress

recognized the special difficulties of locating affordable care for

young children.

We anticipate that market rate surveys will also show variations in

rates among categories of care, and we expect any significant

variations to be reflected in the Lead Agency\'s payments.

A system of child care payments that does not reflect the realities

of the market makes it economically infeasible for many providers to

serve low-income children\--undermining the statutory and regulatory

requirements of equal access and parental choice. Experience with the

now repealed title IV-A child care programs and the CCDBG suggests that

providers limited their enrollment of children with subsidies because

the subsidy payments were too low. Similarly, failing to compensate

providers timely or not reimbursing them for days when children are

absent also causes providers to refuse care to children with subsidies.

Section 98.43(c) prohibits different payment rates based on a

family\'s eligibility status or circumstances. This provision means that

the Lead Agency may not establish payments for TANF families that

differ from the payments for child care for the working poor, or for

families in education or training, for example. We believe that use of

different payment rates, based on an eligibility status, precludes the

statutorily-required equal access to child care for families receiving

CCDF subsidies. Additionally, different payment rates would frustrate

one of the main intents in amending the Act in 1996\--to have a unified

child care system with a single set of rules. This purpose would be

undercut if different payment rates based on eligibility criterion were

permitted.

If payments for child care are to be sufficient to provide equal

access to child care services in the open market, then the payments

must be established in the context of market conditions. We are

convinced that a survey of market rates is essentially the only

methodologically sound way for Lead Agencies to ascertain whether the

payment rates they establish provide equal access.

A market survey must be conducted in the context of reasonably

current market conditions to ensure that the payment rates continue to

provide equal access. Therefore, the regulations at Secs. 98.43(b)(2)

and 98.16(l) require a biennial market rate survey conducted no earlier

than two years prior to the effective date of the currently approved

Plan.

Surveys should not be a burden to States, which were required to

conduct market surveys in the past. States have had a number of years\'

experience with the survey process. States have complete flexibility to

design such surveys; we have not proposed a survey methodology. We

note, however, that surveys may not be appropriate for establishing

payments for children with special needs due to their need for services

on a highly individualized basis and the effect of the Americans with

Disabilities Act on providers\' charges.

\[\[Page 39959\]\]

In establishing payment rates we suggest a benchmark for States to

consider. Payments established at least at the 75th percentile of the

market would be regarded as providing equal access. States have already

recognized that rates set at the 75th percentile\--the payment level

formerly required in the title IV-A child care programs\--provide equal

access. Comparisons of past State CCDBG and IV-A child care plans

revealed that the majority of States used the same payment rate\--the

75th percentile IV-A rate\--for both program even though there was not a

requirement to pay at the 75th percentile for CCDBG-funded care, only

the requirement that CCDBG rates provide equal access. This same

requirement continues unchanged in these regulations for the CCDF.

Comment: We received many comments about the requirement for a

market survey; more comments favored the requirement than opposed it.

Most of those favoring it wanted an annual survey or additional

requirements around the timing of the survey or implementation of the

survey results.

Response: While we concur with the commenters that it would be

ideal to conduct surveys more frequently, we believe that a biennial

survey balances several considerations: that the rates reasonably

reflect the state of the market, that Lead Agencies have flexibility in

designing and implementing the survey to establish rates, and that the

administrative burden and expense of conducting the survey should be

minimized. The Lead Agency may conduct a complete survey more

frequently; it may also conduct targeted subsamples in specific areas

as frequently as it deems necessary. However, we choose not to require

more than a biennial survey.

Comment: Those commenters who opposed the requirement maintained

that ACF had no authority to require a survey; that the statute\'s only

requirement is for \`\`the facts relied on by the State to determine\'\'

that rates are sufficient to ensure equal access.

Response: An executive branch agency charged with administering a

statutory program has general authority to interpret the statutory

provisions as needed in its administration of the program. As discussed

above, we are convinced that a survey of market rates is the only

methodologically sound way for Lead Agencies to ascertain whether the

rates established are realistic, thus providing the statutorily

required access.

Comment: A number of those opposing the survey requirement said it

stifled State initiative in setting rates. For example, one commenter

said that relying on frequent reports from resource and referral

agencies or the State licensing bureau of provider shortages and making

quick adjustments to rates to develop more capacity in effected areas

would be a better, more responsive alternative to biennial surveys.

Another commenter suggested using computer modeling in lieu of a

survey.

Response: A survey, in that it reflects market realities, is an

essential and critical factor\--but not the only factor\--that must be

considered when the Lead Agency establishes rates. It is because survey

findings are so central to understanding and gauging what level of

payment might provide equal access that we have made the requirement.

However, we are concerned that commenters may have assumed

restrictions we did not intend, and have not created, in requiring a

survey. And, we caution Lead Agencies, providers, and others against

narrowly interpreting our survey requirement. For example, as

suggested, up-to-the-minute vacancy data from CCR&amp;Rs or licensing

bureaus could be used in conjunction with market rate survey

information to make quick and frequent adjustments to the payments to

providers. In setting or adjusting rates, we remind Lead Agencies of

the general principle that Federal subsidy funds can not pay more for

services than is charged to the general public for the same service.

Computer modeling or simulation still needs to be based on some

parameters reflective of market realities if it is to produce rates

that provide equal access. Although many commenters who opposed the

survey requirement seemed to imply that the realities of the market

could be ignored in setting rates that provide equal access, no

plausible alternatives to the survey were offered.

Nevertheless, we will remain open to alternative methodologies to

surveys and revisit this regulation in light of advancing technologies.

At this time, however, we believe that a survey is an essential part of

the \`\`facts\'\' upon which payment rates are established.

Comment: A few commenters observed that surveys may not produce

rates where there are few, if any, providers of certain care, such as

in non-traditional hours.

Response: As discussed above, the survey is not the only

determinant of rates, it is just one of the many \`\`facts\'\' to be

considered. Clearly, States have the flexibility to establish rates for

care that is needed.

Comment: One commenter suggested that a standard index, such as the

rate of inflation, be used to adjust rates gathered two, three, or four

years in the past in lieu of a biennial survey.

Response: Use of a standard index alone, such as the Consumer Price

Index (CPI) or other measures of inflation, is not an accurate

indicator of actual provider charges in the child care market. The use

of broad indices, such as the CPI could vastly underestimate changes in

the child care market. For example, in a large urban area the demand

for child care may drive up child care charges faster than the broad

inflation indices would suggest. While States are free to use such

adjustments in conjunction with surveys, especially in years when a

survey is not conducted, they should be used with an understanding of

their limitations.

Comment: One commenter observed that the 75th percentile is a term

held over from days of IV-A child care (and as such was repealed by

PRWORA). Another called the 75th percentile an arbitrary limit with no

basis in fact or statute.

Response: We have used the 75th percentile as a reference point

against which the Lead Agency can judge if its payment rates afford

equal access. It must be presumed that a rate that provides access to

at least three-quarters of all care does, in fact, provide equal

access. We have not, however, required that payments be set at the 75th

percentile, hence, it cannot be characterized as an arbitrary limit.

It should be noted, for example, that Lead Agencies have greater

flexibility under these regulations to recognize and compensate higher

quality child care facilities and providers, including those that have

obtained nationally or locally recognized accreditation or special

credentials, than they had under the title IV-A regulations that

limited payments to the 75th percentile.

Comment: A number of commenters wanted it clarified in the preamble

that Lead Agencies can pay rates higher than the 75th percentile.

Response: Lead Agencies may pay rates higher than the 75th

percentile as we have not established the 75th percentile as the

payment standard or limit. Rather, rates established at the 75th

percentile would be considered to ensure equal access, although such

rates may be too low to purchase some child care services, for example,

where there are acute shortages during non-traditional hours.

Comment: Several commenters urged ACF to require that payment rates

reflect variations for different categories of care.

Response: When establishing rates, we expect that the Lead Agency

will take into account survey results

\[\[Page 39960\]\]

showing variations in charges for different categories of care. But,

because there may be other facts that the Lead Agency considers, we

believe such a prescriptive requirement would contradict the intent of

the statute.

Comment: A number of commenters wanted us to clarify whether

providers can charge amounts above the payment rates established by the

Lead Agency; and if so, how this might deny equal access.

Similarly, a few commenters wanted a clarification of how a

combination of low payment rates and high copayments can limit or deny

equal access.

Response: A payment rate which provides for equal access does not

necessarily provide access to every provider, irrespective of the

provider\'s charge. There is no statutory basis for preventing a family

from choosing a particular provider whose charges exceed the Lead

Agency\'s payment rate. Nor is there an obligation on the part of the

Lead Agency to pay an amount that is higher than the rate it determined

is sufficient to provide equal access. In cases such as these, some

States have created a contractual requirement that the provider will

not charge the family the difference between its usual charge and the

Lead Agency\'s rate. By offering the provider speedy, assured payments,

the Lead Agency has been able to convince the providers to accept this

stipulation.

The statute requires that the payment rate alone must \`\`be

sufficient to provide equal access.\'\' We separately discuss the

question of copayments below.

Comment: One commenter said that market rates should reflect

current market conditions on a sub-state basis, rather than on a

statewide basis.

Response: We believe that surveys will reflect appreciable sub-

state variations in rates, if any, which the State must then consider

in establishing its rates.

Comment: One commenter wanted it clarified that children with

disabilities would not be adversely affected by a Lead Agency\'s payment

rates.

Response: Payments for child care services for children with

disabilities must also provide for equal access.

3\. Affordable copayments. The third essential element of equal

access is that any copayment or fee paid by the parent is affordable

for the family and sliding fee scales should not be designed in a way

that limits parental choice. We wish to emphasize that Lead Agencies

have flexibility in establishing their sliding fee scales. However, in

our view, copayment scales that require a low-income family to pay no

more than ten percent of its income for child care, no matter how many

children are in care, will help ensure equal access.

Recent reports by the Census Bureau indicate that families with

income below the poverty level pay a disproportionate share of their

income\--18 percent\--for child care; whereas families above the poverty

level pay only seven percent of their income for child care. The size

of the fee paid by a low-income working parent can be crucial in

determining whether she and her family become, and remain, self-

sufficient. When devising the fee scale Lead Agencies should try to

ensure that small wage increases do not trigger large increases in

copayments, lest continuation on the path to self-sufficiency be

jeopardized for any family. The size of a fee increase is an especially

important consideration because recent changes in the Food Stamp,

housing assistance, Medicaid, SSI, and the Earned Income Credit

programs may also affect the resources now available to a low-income

working family.

Recent studies have shown that some child care providers are

unwilling to accept children from families that receive subsidies for

child care because the rates are too low. Faced with such a situation,

a parent must seek care from a relative or other provider who perhaps

accepts the child unwillingly and is unable to provide quality child

care. Fifty-five percent of low-income parents use informal care

arrangements, whereas only 21% of non-poor families do. The options to

low-income families in selecting child care are limited to a higher

degree by financial constraints than are the options for families with

higher income. If, in addition to low rates, the family must pay a high

fee from an already limited income, the family can hardly be said to be

on the way to total self-support. And in such a situation, a family

cannot be said to have equal access to child care. The limited access

to providers for these low-income families also tends to promote

unevenness of care, and this is an additional hazard to the child\'s

development.

There is a relatively low supply of child care for infants, for

children with disabilities and for children of parents who work during

non-traditional hours. For families in these categories, a combination

of low payments and high fees can limit the choice to an even greater

extent, because they encourage parents to choose less expensive and

lower quality child care, or even not to accept the subsidy at all.

Sliding fee scales must continue to be based on family size and

income, as Sec. 98.42(b) has not changed. We note that this regulation

provides Lead Agencies with the flexibility to take additional elements

into consideration when designing their fee scales, such as the number

of children in care. However, as was stated in the preamble to the

regulations published on August 4, 1992, basing fees on the cost or

category of care is not allowed (57 FR 34380). Similarly, multiple fee

scales based on factors such as a family\'s eligibility status would be

precluded.

Comment: A number of States indicated that there is no statutory

basis for limiting the fee to ten percent of a family\'s income, or that

such a limit is unnecessarily prescriptive.

Response: We would agree with the comments if the regulations, in

fact, established a limit on copayments. They do not.

Lead agencies have the flexibility to set the copayment. We have

suggested, not required, that a family\'s fee be no more than ten

percent of its income. This benchmark is offered as a reference point

for Lead Agencies to consider when designing fee structures for

affordable care.

Comment: A few commenters felt that ten percent should be the upper

limit charged as a fee or observed that any fee, however low, can be a

deterrent to self-sufficiency to families below the poverty level.

Others thought that the reference to a ten percent copay seemed to

conflict with the Lead Agency\'s right to waive the fee.

Response: As indicated above, the ten percent of family income is

offered as a benchmark, not a limit on the Lead Agency.

A family is required by the statute at section 658E(c)(5) to share

in the cost of subsidized child care, unless the Lead Agency waives the

fee pursuant to Sec. 98.42(c) and Sec. 98.20(a)(3)(ii). Those sections

allow copayments to be waived for those whose income is at or below the

poverty level and for children in protective services on a case-by-case

basis. The State has flexibility in deciding the amount of the fee

charged and whether to waive the fee.

Comment: One State commented that a State should be allowed to

categorically waive the fee if a family receives TANF.

Response: The fee can be waived, at a State\'s option, only if a

TANF family\'s income is at or below the poverty level. If TANF

families\' incomes are always at or below poverty, then the State can

categorically waive the fee. In contrast, fees may be waived for child

care in protective services cases only on a case-by-case basis.

\[\[Page 39961\]\]

Comment: One commenter thought the preamble should define

\`\`affordable.\'\'

Response: As in 1992, we decline to establish a regulatory standard

for \`\`affordability.\'\' However, as discussed above, we feel that a
fee

that is no more than 10 percent of a family\'s income would generally be

considered to be an affordable copayment.

We decided, again, not to prescribe a definition for \`\`affordable\'\'

because we felt that any definition would unnecessarily undermine a

Lead Agency\'s ability to establish service priorities, be

administratively difficult to monitor and enforce, and preclude the

variation that is inherent in the nature of block grants.

Comment: Several commenters asked that the Lead Agency have the

authority to categorically waive the fee for protective services and

foster care, and not just on a case-by-case basis.

Response: We do not believe that it is consistent with the intent

of the statute to categorically waive the fee for protective services

or foster care cases. However, we recognize that the nature of

protective service cases can be different, and that in an individual

case it might further the purpose of the statute to increase the

availability of child care. Therefore, Sec. 98.20(a)(3)(ii) gives Lead

Agencies the authority to waive income eligibility and fees for

children in protective custody on a case-by-case basis, or after

consultation with an appropriate protective services worker.

As discussed in the preamble to the regulations published on August

4, 1992, there is a basic distinction between protective services cases

and foster care cases. However, as discussed in the preamble to

Sec. 98.20 in the 1992 regulations, Lead Agencies have the flexibility

to treat foster care cases as a family of one and thus effectively

reduce or eliminate the fee in most foster care cases (57 FR 34369),

but not categorically.

Comment: Several commenters believed there is a contradiction

between the ten percent benchmark and the regulation that gives Lead

Agencies the flexibility to waive copayments on a case-by-case basis

for families at or below the poverty level or for children in

protective services.

Response: These policies are not contradictory, nor are we implying

that a fee of ten percent of a family\'s income is appropriate for every

very low-income family, since such a fee might effectively prevent many

low-income families from taking advantage of the child care subsidy. We

view ten percent as the appropriate upper limit for co-payments; and as

stipulated in the regulations, a Lead Agency can waive the co-payment

for families at or below the poverty level (Sec. 98.42(c)), or for

children in protective services (Sec. 98.20(a)(3)(ii)).

Priority for Child Care Services (Section 98.44)

Although we proposed no changes to this section, we received a

number of comments regarding serving children with disabilities which

indicated a need to provide some clarification about priority for

children with \`\`special needs.\'\'

As we stated in the 1992 preamble, for the purpose of prioritizing

services, States have the flexibility to define children with
\`\`special

needs\'\' in the CCDF Plan. \`\`Special needs\'\' can mean groups other
than

children with physical or mental disabilities. States can and do

prioritize services for children of teen parents, homeless children and

other groups by providing definitions in the CCDF Plan. Refer to 57 FR

34382 for a detailed discussion of the three contexts in which the term

\`\`special needs\'\' is used in these regulations.

List of Providers (Section 98.45)

Any Lead Agency not having a registration process must maintain a

list of the names and addresses of all unregulated providers. It is

essential that Lead Agencies have some simple, standardized system to

record the names and addresses of unlicensed providers in order to pay

them and to provide them with pertinent information about health and

safety regulations and training.

The regulations no longer specifically require Lead Agencies to

have a registration process for providers not licensed or regulated

under State or local law before paying them for child care services.

However, Lead Agencies should note that they may continue such a

system, and we strongly encourage them to do so.

Comment: A number of commenters opposed requiring States to

maintain a list of providers and felt States should be given options.

Response: We know that States have developed various processes for

registering unregulated providers and that maintaining a list of these

providers is essential to effectively managing their child care

program. We do not expect States to set up a separate list if their

current system provides the means to identify and communicate with

unregulated providers.

Comment: Other commenters wanted the regulation strengthened to

require the State to make the list of providers available to all

parents as a means of providing them with more possibilities for care.

Response: Many unregulated providers are providing care for friends

or relatives, and may not be providing child care services to the

public. Some unregulated providers who are in the child care business,

but exempt from State licensing, may want their names included on a

list given to families. However, others may not. These are State and

local government decisions. We will not regulate further regarding the

list of providers.

Subpart F\--Use of Block Grant Funds

Child Care Services (Section 98.50)

The 70 percent requirement. Section 418(b)(2) of the PRWORA

specifically requires the State to ensure that not less than 70 percent

of the funds received by the State under this section of the statute

are used to provide child care assistance to families who are receiving

assistance under a State program under Part A of title IV of the Social

Security Act, families who are attempting through work activities to

transition off of such assistance program and families that are at risk

of becoming dependent on such assistance program. By statute, the 70

percent requirement applies only to the Mandatory and Matching Funds.

Further, the amended statute at 658E(c)(2)(H) requires the State to

demonstrate in its CCDF Plan the manner in which the State will meet

the specific child care needs of these families. These statutory

provisions are found in these regulations at Sec. 98.50(e) and (f).

Comment: Several commenters noted that in the Plan provisions we

ask the Lead Agency to \`\`describe\'\' how it will meet the child care

needs of the families specified at Sec. 98.50(e), whereas at

Sec. 98.50(f) we require the Lead Agency to \`\`specify\'\' how they
will

meet those needs.

Response: We do not believe the terms are inconsistent. The statute

asks that States \`\`demonstrate the manner in which the State will meet

the specific child care needs\'\' of those families. We believe that a

description would provide States the opportunity to present specific

information which would demonstrate how they are serving this

population.

Serving other low-income working families. Section 658E(c)(3)(D)

directs the State to ensure that a \`\`substantial portion\'\' of the

amounts available (after a State has complied with the 70 percent

requirement discussed above) is used to provide assistance to low-

\[\[Page 39962\]\]

income working families other than those who are receiving assistance,

transitioning off assistance or at risk of becoming dependent on

assistance under Part A of title IV of the Social Security Act. The

amounts in question include the remaining Mandatory and Matching Funds

(provided under Section 418) as well as the Discretionary Funds.

Since the income level for eligible families is increased in the

statute to 85 percent of the State median income, it is clear that

Congress intended for child care assistance to be available to more

low-income working families than were previously eligible. We believe,

however, that families whose income is less than 85 percent of the

State median income may well be at risk of becoming dependent on

assistance. Thus the two populations overlap.

The regulation at Sec. 98.50(e) provides the statutory description

of the families who are to be served under the 70 percent provision. In

addition Sec. 98.50(f) requires the State, pursuant to the statute, to

describe in its Plan how the State will meet the needs of these

families. We believe, based on our consultations, that the

circumstances of low-income working families (whose income is below 85

percent of the State median income) are generally no different than the

families specifically mentioned in these regulations and thus would

expect that they would be treated similarly. If a State elects to have

a specific description of at-risk families, it could, for example, be

included when defining very low income or in providing additional

terminology related to conditions of eligibility or priority in the

CCDF Plan.

Comment: Some commenters related the \`\`substantial portion\'\'

requirement to the 70% requirement and are concerned that there is very

little funding for low-income working families.

Response: As noted above, the 70% requirement applies only to the

Mandatory and Matching Funds. States must then use a \`\`substantial

portion\'\' of any remaining Mandatory and Matching funds as well as a

\`\`substantial portion\'\' of Discretionary funds to serve families
whose

incomes are below 85% of SMI.

Comment: Several commenters noted that Sec. 98.50(d) was

inconsistent with Sec. 98.52(a) in that it addressed funds that were

awarded rather than expended.

Response: We have corrected Sec. 98.50(d) to be consistent with our

intent that the administrative costs be based on amounts expended.

Refer to Administrative Costs (Sec. 98.52) for a more detailed

discussion of this issue.

Activities to Improve the Quality of Child Care (Section 98.51)

Not less than four percent. Section 658G of the CCDBG Act directs

that a State that receives CCDF funds shall use not less than four

percent of the amount of such funds for activities that are designed to

provide comprehensive consumer education to parents and the public,

activities to increase parental choice, and activities designed to

improve the quality of child care and availability of child care (such

as resource and referral services). We refer to this requirement

collectively as \`\`Activities to Improve the Quality of Child Care.\'\'

Section 98.51(a) provides that the not less than four percent

requirement for quality applies to the aggregate amount of expenditures

(i.e., Discretionary, Mandatory, and both the Federal and State share

of Matching funds); it need not be applied individually to each of the

component funds. Section 98.51(a) also provides that the four percent

requirement applies to the funds expended, rather than the total of

funds that are available but not used. Lead Agencies, however, have the

flexibility to spend more than four percent on quality activities.

Section 98.51(c) provides that the quality expenditure requirement does

not apply to the maintenance-of-effort expenditures required by

Sec. 98.53(c) in order to claim from the Matching Fund.

The regulations at Sec. 98.51(a)(1) are based on the broad

statutory language, while Sec. 98.51(a)(2) keeps, as examples, the

options for specific activities formerly contained in the Act. Resource

and referral programs, grants or loans to assist in meeting state and

local standards, monitoring of compliance with licensing and regulatory

requirements, training, and compensation are allowable quality

activities under this minimum four percent requirement. We will

continue to collect, in the Plan, descriptions of activities to improve

the quality of child care services. We encourage Lead Agencies to

evaluate the success of their efforts to improve quality and we will

disseminate promising practices.

Comment: Some commenters wanted us to remove from

Sec. 98.51(a)(2)(i) the words \`\`operating directly\'\' as they felt
that

resource and referral can be done most effectively at the community

level rather than by state government.

Response: We agree that local resource and referral activities are

important to child care services. However, by removing the words

\`\`operating directly,\'\' we would be reducing the options available
to

the State. Therefore we have retained the wording in the regulation in

order to ensure State flexibility in delivering those services.

Administrative Costs (Section 98.52)

Section 658E(c)(3)(C) of the amended Act limits the amount of funds

available for the administrative costs of the CCDF program to \`\`not

more than five percent of the aggregate amount of funds available to

the State.\'\' Section 98.52(a) provides that the five percent
limitation

on administrative costs applies to the funds expended, rather than to

the total of funds that are available but not granted or used. Thus,

Lead Agencies may not use five percent of the total funds available to

them for administrative costs unless they use all the available funds

including Matching Funds.

This provision also makes clear that the five percent limitation

applies to the total Child Care and Development Fund. The five percent

limitation need not be applied individually to each of the component

funds\--the Discretionary, Mandatory, and Matching (including the State

share) Funds. We believe this flexibility will streamline the overall

administration of the Fund. The limitation does not apply to the

maintenance-of-effort expenditures required by Sec. 98.53(c) in order

to claim from the Matching Fund.

Section 98.52(a) lists administrative activities and is derived

from the prior regulations as modified by the PRWORA amendments and the

Conference Agreement (H.R. Rep. 104-725 at 411). While the statute does

not define administrative costs, it does preclude \`\`the costs of

providing direct services\'\' from any definition of administrative

costs.

The Conference Agreement specifies that the following activities

\`\`should not be considered administrative costs\'\':

\(1\) Eligibility determination and redetermination;

\(2\) Preparation and participation in judicial hearings;

\(3\) Child care placement;

\(4\) The recruitment, licensing, inspection, reviews and supervision

of child care placements;

\(5\) Rate setting;

\(6\) Resource and referral services;

\(7\) Training \[of child care staff\]; and

\(8\) The establishment and maintenance of computerized child care

information systems.

The regulation\'s list of administrative activities at Sec. 98.52(a)

omits the following three activities that were listed as administrative

costs in the 1992 CCDBG rule: determining eligibility, establishing and

operating a certificate program, and developing

\[\[Page 39963\]\]

systems. \`\`Establishing and operating a certificate program\'\' was
not

specifically listed by Congress as a non-administrative cost. However,

we omitted this activity because the components of a certificate

program would not be considered to be administrative costs under the

Conference Agreement exclusions. For example, certificate programs must

determine and redetermine eligibility, provide the public with

information about the program, develop and maintain computer systems,

place children, offer resource and referral services, etc.\--all items

which the Conference Agreement lists as not administrative costs. All

costs, then, of these three activities: determining eligibility,

establishing and operating a certificate program, and developing

systems, are now considered non-administrative costs.

While these regulations reflect the Conference Agreement language,

we are nevertheless concerned that States will misinterpret the intent

of the change and re-direct a disproportionate amount of expenditures

on these redesignated activities rather than on direct services to

children. We wish to emphasize that services to children is the purpose

for which the CCDF was created. Therefore, we would not expect a large

increase in costs to activities that are not direct services to

children. We will closely monitor such expenditures to determine if

States are overspending for such activities at the expense of services.

As one method of monitoring, the required CCDF financial reporting

form, the ACF-696, separately collects the amounts that are expended on

determining eligibility, establishing and operating a certificate

program, and developing systems. If we determine that there are

problems, we reserve the right to re-visit the policy and regulate in

the future.

Lastly, we clarify in Sec. 98.52(c) that the non-Federal

expenditures required of the State in order to meet its maintenance-of-

effort threshold for receiving matching funds are not subject to the

five percent limitation on administrative costs. Nevertheless, audits

of State reports of maintenance-of-effort expenditures should indicate

that administrative expenditures included in those MOE amounts are

reasonable, necessary for carrying out the services provided, and

consistent with other provisions of law.

Comment: Many commenters objected to applying the five percent

administrative limitation to the amounts expended, rather than to the

amounts allocated to the State, saying that administrative costs might

be incurred in one year for expenditures that occur in another.

Response: We have clarified Sec. 98.52(a) to reflect that the limit

applies to the amounts expended from the total allocated, not to the

amounts expended in a single fiscal year. We understand that it might

be necessary to use more funds for administration during the initial

start-up of an activity, or that the period when administrative costs

are incurred may not coincide with when the funds are actually

liquidated. And, the provision was not intended to limit Lead Agency

flexibility in the short term.

The choice of the word \`\`expend\'\' in the regulation, rather than

\`\`available\'\' as in the statute or \`\`allocated\'\' as in the
comment, is

meant to address only one situation. Section 98.52(a) is meant to

ensure that when a State that does not expend\--within the applicable

timeframes provided for at Sec. 98.60\--the full amounts allocated to

it, the State does not receive a windfall in administrative cost

allowances. For example, two States are each allocated a total of \$100

million in the CCDF. At the end of the expenditure periods, State A has

spent \$50 million while State B has expended all \$100 million. It
would

be unfair to allow both States to receive \$5 million in administrative

allowances since State B\'s program (in terms of dollars expended) is

twice the size of State A\'s.

Comment: Some felt that the tone of this section was threatening.

They objected to the suggestion of further regulations in this area if

Lead Agency reports indicate disproportionate expenditures on the

activities that had been redesignated as non-administrative costs,

i.e., determining eligibility, establishing and operating a certificate

program, and developing systems.

Response: We did not intend to threaten Lead Agencies. The preamble

discussion is intended to reflect our obligations to taxpayers for

prudent management of the resources Congress has allotted for the

purpose of providing child care services.

Comment: One commenter observed that there was no definition of

\`\`implementation\'\' in Sec. 98.52(a)(1) and was concerned that some

might make judgments about when implementation began or ended.

Response: Implementation in this context refers to the ongoing

conduct or execution of the program and does not imply a fixed period

or a process with a beginning and/or ending date. It would be

incorrect, for example, for an auditor to determine that implementation

of an activity had ended.

Comment: One commenter, noting that the regulations clearly provide

that the 5% administrative cap did not apply to State MOE, stated that

the preamble then clouded the issue by suggesting that ACF would

monitor MOE reports in relation to administrative expenditures.

Response: In the preamble to the proposed rule, we did not propose

specifically to monitor MOE expenditures. Rather, we did express the

expectation that audits of the CCDF program should indicate that

administrative expenditures contained in MOE amounts would be

reasonable, necessary for carrying out the services provided, and

consistent with other provisions of law.

Administrative costs for Tribes. We have specifically noted at

Sec. 98.52(b) that the five percent cap on administrative costs does

not apply to Tribes, and tribal organizations; it applies only to the

entities defined as \`\`States.\'\' Tribes, however, are subject to the

requirements at Sec. 98.83(g) regarding limits on administrative

expenditures.

Matching Fund Requirements (Section 98.53)

Terminology and general requirements. In this section we have used

the phrase \`\`expenditures in the State\'\' to encompass not only local

expenditures on child care but also private, donated funds that meet

the requirements at Sec. 98.53(e)(2), as explained below. Whenever the

term \`\`State funds,\'\' \`\`State expenditures\'\' or \`\`non-Federal

expenditures\'\' is used it should be understood to include State, local

or permissible private donated funds that meet these requirements and

are expended for allowable child care purposes. And, the language of

Sec. 98.53(e) reflects this.

Section 418(a)(2)(C) of the Social Security Act creates a two-part

matching requirement. First, a State must expend an amount that at

least equals its allowable expenditures for the title IV-A child care

programs during 1994 or 1995, whichever is greater. We refer to this

amount as the \`\`maintenance-of-effort\'\' (MOE) threshold.

Changes to PRWORA contained in P.L. 105-33 provide that for fiscal

years 1998 and after, a State\'s expenditures in excess of its MOE

threshold, up to a maximum determined by the statute, are matched at

the applicable year\'s Federal medical assistance percentage (FMAP)

rate. (For FY 1997, state expenditures were matched at the 1995 FMAP

rate.) The total amount that can be matched rises each year and is

equal to the sum appropriated for that year, less the amounts of the

Mandatory Fund, the tribal allocation and the allocation for

\[\[Page 39964\]\]

technical assistance. The maximum to be matched for each State is its

share of that total based upon the proportion of the State\'s children

under age 13 to the national total of children under age 13, based on

the best data available to the Secretary for the second preceding year.

Section 98.53(c) lists the requirements that States must meet if

they wish to claim Federal Matching Funds. In summary, this section

requires that the State obligate all of its Mandatory Funds by the end

of the fiscal year (FY) they are granted. Mandatory Funds need not be

obligated before Matching Funds are claimed, provided that all

Mandatory Funds will be obligated by the end of that FY. Second, they

must expend State-only dollars in an amount that equals the State\'s MOE

threshold described at Sec. 98.53(c)(1). And third, they must obligate

the Federal and State share of the Matching Fund by the end of the FY.

Comment: Some commenters thought that there was a point beyond

which Matching funds would no longer be available to them and wanted us

to clarify that as long as the State meets the statutory requirements

that the Matching funds would be available throughout the fiscal year.

Response: Matching funds are available throughout the fiscal year,

and disbursements to the State are based on the ACF-696s submitted by

the Lead Agency. Those non-Federal expenditures (exceeding the MOE

threshold) for which the State wishes to claim monies from the Matching

Fund must be obligated before the end of the fiscal year.

State expenditures allowable for MOE and Federal Matching funds.

State expenditures on any activity or service that meets the goals of

the CCDBG Act and that is described in the approved CCDF Plan, if

appropriate, may be used to meet the MOE requirement or may be claimed

for Federal Matching funds (Sec. 98.53(b) and (c)(2)). For MOE, these

regulations offer greater flexibility than we offered in our interim

guidance provided in our Program Instruction, ACYF-PI-CC-96-17, dated

October 30, 1996. However, as provided at Sec. 98.53(d), the same

expenditure still may not be counted for both MOE and match purposes.

Under these regulations, States will have flexibility to define

child care services, so long as those services meet the requirements of

the statute. For example, State expenditures for child care for those

populations previously served by the title IV-A or CCDBG child care

programs would be eligible for Federal match. Similarly, State

investments in child care through the use of State funds to expand Head

Start programs or to otherwise enhance the quality or comprehensiveness

of full-day/full-year child care would also be eligible for Federal

Matching funds since these activities meet the goals of the Act.

Sections 98.53(e) and (f) contain additional qualifications on what

constitutes an expenditure in the State for purposes of this Part.

These qualifications are the same that generally apply to Federal

programs that provide for matching State expenditures, with two

important clarifications.

First, Sec. 98.53(e)(1)(i) allows a public agency, other than the

Lead Agency, to certify its expenditures as eligible for Federal match.

This provision allows States, for example, to use pre-K expenditures to

meet the MOE requirement (when the regulatory provisions for use of

pre-K funds are met) and/or receive Federal Matching funds. The second

clarification, at Sec. 98.53(f), concerns the treatment of private

donated funds. It provides greater flexibility than previously offered

as interim guidance under ACF Program Instruction, ACYF-PI-CC-96-17,

dated October 30, 1996.

Regarding the MOE requirements, the same State expenditure may be

used to meet both the CCDF and TANF MOE requirements provided the

expenditure meets the requirements of both programs. However, the

amount of State CCDF MOE expenditures that may count for TANF MOE

purposes is limited to the amount of the State\'s share of expenditures

for the programs described at section 418(a)(1)(A) of the Social

Security Act (i.e., the now repealed title IV-A child care programs)

for FY 1994 or FY 1995, whichever is greater.) Section

409(a)(7)(B)(iv)(IV) specifically provides that State expenditures used

to meet the CCDF MOE requirement\--and/or for which CCDF Matching funds

were received\--may be included in meeting the TANF MOE requirement up

to the amount set at section 418(a). Any additional State expenditures

for child care in excess of the amount of the CCDF MOE requirement, and

for which CCDF Matching funds are not claimed, may also be counted in

meeting the TANF MOE requirement when the expenditures meet the

requirements of TANF.

In addition, pursuant to section 409(a)(7)(B)(iv)(I) of PRWORA,

State expenditures for child care may not be included as part of the

State MOE for TANF if the funds originated with the Federal government.

Hence, Federal funds transferred from TANF to the CCDF would not count

towards the TANF MOE. Further, those funds could not be used to receive

CCDF Matching funds under the general rule Federal funds may not be

used as a match without statutory authority.

Comment: Several commenters objected to the prohibition on using

in-kind expenditures for State match, contending that this runs counter

to the regulations for the pre-TANF title IV-A programs on which much

of the CCDF funding is now based.

Response: The pre-TANF title IV-A programs did not allow for the

unlimited use of in-kind match as the comments suggest. Only a small

part of the total JOBS funding (that part equal to the State\'s WIN or

WIN Demonstration allotment for fiscal year 1987) could be matched with

in-kind contributions. The match rate for these funds was 90%; meaning

the State\'s share was only 10%. The Social Security Act, at section

403(l)(1)(B), specifically provided for in-kind contributions in this

limited instance only.

There is no indication that Congress contemplated the use of in-

kind match, either in the CCDBG Act or the child care provisions in

PRWORA. In fact, in specifying that the Secretary shall reimburse

expenditures, the provision precludes the claiming of in-kind match.

Comment: One commenter asked whether State expenditures for

Kindergarten services could be counted in meeting the MOE requirement

or claimed for match.

Response: Compulsory State education services cannot be used to

meet the MOE requirement or to claim matching funds. Non-compulsory

services are subject to the limits at Sec. 98.53(h).

Comment: One commenter asked for clarification of the relationship

between child care expenditures used to meet the TANF MOE requirement

and used to claim CCDF matching funds. The commenter observed that

Section 409(a)(7)(B)(iv) of the Act precluded using the same State

expenditure for claiming CCDF Matching funds and for meeting the TANF

MOE requirement.

Response: That section in the Act was amended by the Balanced

Budget Act of 1997 to allow certain State expenditures to be used to

claim CCDF Matching funds and be used to meet the TANF MOE requirement.

We updated the above discussion to reflect those changes. Use of the

same expenditure for both purposes is subject to certain qualifications

discussed above.

Use of a private agency to receive donated funds. Historically,

private

\[\[Page 39965\]\]

donations to State-level programs have been very limited; locally

controlled donations have been somewhat more prevalent. Frequently

cited reasons for this lack of public support for seemingly worthwhile

programs have included suspicion of government, in general, especially

government outside the immediate community, coupled with regulations

that appeared to limit the State\'s ability to assure the donor that the

donated funds will be used in a specific area or for the donor\'s

intended purpose.

At a time when child care programs face increased demands, and

State budgets face constraints, we have reexamined prior ACF policies

on donated funds. We have tried to respond to the issues that we were

told have inhibited private donations in the past by including in the

definition of State expenditures donated funds that meet the

qualifications at Sec. 98.53(e)(2), even though such funds are not

under direct State control. The regulations at Sec. 98.53(f) provide

that private donated funds need not be transferred to or under the

administrative control of the Lead Agency to be eligible for Federal

match. Instead they may be donated to the entity designated by the

State to receive donated funds. Both the Lead Agency and the entity

designated by the State to receive donated funds must, however, certify

that the donated funds are available and eligible for Federal match. In

addition to this dual certification requirement, we want to ensure Lead

Agency accountability for funds that may not be under its direct

control. Therefore, the fiscal reporting form, the ACF 696, requires

that the Lead Agency separately report the amount of private donated

funds it uses as match. And finally, Lead Agencies should be aware that

private donated funds used as match are also subject to the audit

requirements at Sec. 98.65.

This rule will allow Lead Agencies to cooperate more closely with

various organizations, foundations, and associations that already

support high quality child care and related activities. It will also

allow the Lead Agency to leverage private funds in order to serve more

families, while working within State and Federal budget restrictions.

We also take this opportunity to clarify the regulation at

Sec. 98.53(e)(2)(i) which requires that private funds be donated

without restriction on their use for a specified individual,

organization, facility or institution. Under this clarification a donor

could designate a specific geographic location for the receipt of

funds. Such a geographic specification can be broad, such as within the

limits of a specific city, or extremely narrow, such as a single

neighborhood. Such geographic specification is possible whenever funds

are donated, whether the funds are donated to the Lead Agency or to an

entity specially designated to receive private donations.

Lead Agencies will be asked to identify the entity that is

designated to receive private donated funds and the purposes for which

those donated funds are expended in their Plan, pursuant to

Sec. 98.16(c)(2).

Comment: Several commenters wanted us to limit the use of pre-K and

or donated funds to only those States that had used such funding prior

to FY 1997.

Response: It is not clear why the commenters proposed such a

limitation. The regulation is designed to give Lead Agencies additional

flexibility in maximizing child care funding while ensuring ongoing

commitments to existing programs. We see no benefit to limiting the use

of pre-K or donated funds as suggested.

Comment: The same commenters wanted us to require that States

submit quarterly reports listing the entities receiving donated funds

and the uses of those funds.

Response: We have required that the Lead Agency identify in its

Plan the single entity designated to receive donated funds and the

allowable child care services for which the funds will be used. We

believe that additional requirements, such as those proposed would be

burdensome for the Lead Agency and serve no useful purpose in light of

the policy that provides for a single entity to receive donated funds.

Comment: Several commenters suggested that individual programs or

providers would be accepting donated funds.

Response: We want to clarify that the regulation provides for the

designation of a single entity in each State to receive donated funds.

We settled on this for a number of reasons. First, it would be

burdensome for the Lead Agency to have to deal with hundreds of

individual providers or programs all claiming to have receive donated

funds which are allowable. Since the Lead Agency is ultimately

responsible for the allowability of the donated funds we did not want

to create such a burden on them. More importantly, we did not want to

create a mechanism wherein individual programs, providers or

jurisdictions might be forced to compete with each other for donated

funds. Nor did we want to create a situation wherein the Lead Agency

might tie the availability of certificates, grants or contracts to a

jurisdiction, provider or program\'s ability to attract donated funds.

We believe that allowing for the designation of only a single entity to

receive donated funds, at least initially, is a reasonable policy

choice.

Claims for pre-K expenditures for MOE and match purposes. Many

States fund pre-K programs for young children. These are important

early childhood services that contribute to school readiness.

Expenditures for State-funded public pre-K services to children from

families who meet the CCDF eligibility criteria (as outlined in the

Plan) may meet the requirements for allowable child care services

expenditures for MOE and match purposes. The pre-K program must meet

each of the following four conditions:

&lt;bullet&gt; Attendance in the pre-K program must not be mandatory.

&lt;bullet&gt; The pre-K program must meet applicable standards of
State,

local or tribal law.

&lt;bullet&gt; The pre-K program must allow parental access.

&lt;bullet&gt; The pre-K program must not be Federally funded (unless

funded with \`\`exempt\'\' Federal funds for matching purposes), and its

State funding may not be used as basis for claiming other Federal

funding.

In addition, pre-K expenditures claimed may be only for those

families who are at or below 85 percent of the State median income

(SMI) (or lower SMI established as the CCDF eligibility criterion by

the Lead Agency) and who meet other State eligibility criteria.

During our consultations we heard the full range of issues around

allowing States to use their pre-K expenditures to meet the matching

and MOE requirements of the CCDF. We came away from those consultations

with some reservations about the use of pre-K expenditures, but we also

came away with increased respect for the importance of these programs.

A chief concern to working parents is that many pre-K services are

only part-day and or part-year and such programs may not serve the

family\'s real needs. Some have expressed concerns that an excessively

broad approach to counting pre-K expenditures might result in a real

reduction in full-day child care services to potentially eligible

working families. The potential exists for a State with a sufficiently

large pre-K program to divert all state funds away from other child

care programs and fulfill its MOE and Matching requirements solely

through pre-K expenditures. On the other hand, allowing pre-K

expenditures to be counted toward MOE or match could provide a critical

incentive for States to more closely link their pre-K and child care

systems. This could

\[\[Page 39966\]\]

result in a coordinated system that would better meet the needs of

working families for full-day/full-year services that prepare children

to enter school ready to learn. We struggled with these issues and

considered various alternative approaches to counting pre-K

expenditures in the CCDF.

In the end, we decided on a policy that attempts to balance

concerns about the use of pre-K expenditures in meeting CCDF

requirements. At Sec. 98.53(h)(3) and (4) we have addressed our

concerns about balance by establishing a maximum amount of State

expenditures for pre-K services that can be claimed for match or MOE.

Expenditures for pre-K programs may constitute no more than 20% of the

State\'s expenditures which are matched. Similarly, expenditures for

pre-K programs may constitute no more than 20% of the State\'s

expenditures counted in fulfilling the MOE requirement. However, if a

State intends to fulfill more than 10% of either its MOE or matching

requirements with pre-K expenditures, its CCDF Plan must reflect that

intent. Additionally, if a State intends to fulfill more than 10% of

either the MOE or matching requirement with pre-K expenditures, the

CCDF Plan must describe how the State will coordinate its pre-K and

child care services to expand the availability of child care. We

established the 20% limits because they approximate the proportion of

pre-school age children nationwide currently receiving services under

the CCDBG. (This level also approximates the average monthly proportion

of pre-school age children of JOBS participants who received child care

assistance in the past.)

States may count only those pre-K expenditures that meet the

criteria as allowable child care services explained above (i.e.,

attendance is not mandatory, the program meets applicable standards,

allows parental access, serves CCDF eligible families as provided in

the Plan, etc.). The Lead Agency is required to separately report on

the ACF-696 the amount of pre-K expenditures it claims as match or uses

to meet the MOE requirement.

In addition, for MOE purposes, Sec. 98.53(h)(1) provides that

States cannot reduce their level of effort in full-day/full-year child

care services if they use pre-K expenditures to meet the MOE

requirement. And, States are required to provide an assurance of this,

pursuant to Sec. 98.15(a)(6). This requirement reflects the fact that

although the statute eliminated the non-supplantation requirement

formerly found at section 658E(c)(2)(J) of the CCDBG Act, another non-

supplantation requirement was created by section 418(a)(2)(C) of the

Social Security Act. That non-supplantation requirement\--the MOE

requirement\--requires States to continue to spend at least the same

amount on child care services that they spent on the repealed title IV-

A child care programs, in order to receive the new Matching Fund. Such

a provision would be meaningless if States used MOE expenditures for

services that were not responsive to the real child care needs of

working families that the CCDF was intended to assist, i.e., the State

\`\`buys out\'\' with pre-K expenditures the full-day/full-year child
care

services it previously provided under title IV-A. In the interest of

State flexibility we have not otherwise regulated on the types of

services that may be counted in meeting the MOE requirement and, as

discussed below, have eased the burden on the State in calculating the

amount of pre-K expenditures that may be used to meet the MOE and

matching requirements.

In contrast, there is not a similar requirement if pre-K

expenditures are claimed for match. Since the Matching Fund is \`\`new

money\'\' it is not subject to the same requirements that expenditures

used to meet a non-supplantation (MOE) requirement must meet. However,

Secs. 98.16(q) and 98.53(h)(2) require that States describe in their

CCDF Plan any efforts they will undertake to ensure that pre-K programs

meet the needs of working parents if pre-K expenditures are claimed for

match. Our different treatment of pre-K expenditures in the MOE and

matching requirements, then, reflects a balance between the principles

of non-supplantation and state flexibility.

Furthermore, ACF will permit States to use a different method for

calculating the amount of pre-K services claimed for both MOE and

matching purposes than was required under the former title IV-A child

care programs. Under the now repealed title IV-A child care programs,

ACF required States wishing to claim Federal match for their pre-K

expenditures to base their claim on the number of title IV-A-eligible

(or potentially eligible) children who actually participated in the

pre-K program. As many school districts did not have the information to

identify whether pre-K participants were members of IV-A-eligible

families, it was difficult for States to claim Federal matching funds

for these programs. In fact, only a handful of States claimed Federal

Match under title IV-A for their pre-K expenditures. In our

consultations we were asked to loosen this child-by-child approach to

counting pre-K expenditures.

In the interest of easing administrative burdens on the Lead

Agency, we have adopted the following policy toward calculating pre-K

expenditures for purposes of claiming MOE and Matching funds. For pre-K

expenditures to be claimed, States must ensure that children receiving

pre-K services meet the eligibility requirements established in the

CCDF Plan. In cases where States do not have child specific

information, however, they must develop a sound methodology for

estimating the percentage of children served in the pre-K program who

are also CCDF-eligible. Expenditure claims must reflect these

estimates.

Although the methodology should be documented, we will not require

that the methodology be submitted to ACF for prior review or approval.

In documenting their methodology, Lead Agencies are reminded of the

requirement at Sec. 98.67(c), which provides that fiscal control and

accounting procedures must be sufficient to permit the tracing of funds

to a level of expenditure adequate to establish that such funds have

not been used in violation of the Act or regulations.

Comment: Some commenters argued against any restriction on the

amount of pre-K that could be used to satisfy the MOE requirement

saying that States may lower or end investments in pre-K because of the

limit. Others agreed with the 20% cap, while still others wanted a

lower cap or the exclusion of pre-K from meeting the MOE requirement.

Response: We anticipated these reactions and specifically requested

comments on the pre-K limit in the proposed rule. However, none of the

commenters who argued for unrestricted use of pre-K addressed our

concerns about \`\`buying-out\'\' existing child care services with
pre-K

programs. The argument that a State may limit pre-K is not convincing

since States usually fund pre-K for a variety of programmatic reasons\--

not because it may be an allowable match for another program.

This regulation still gives States more flexibility than in the

past and opens new sources of match not heretofore available.

Accordingly, as a matter of balance, we have retained a reasonable

limit on using State pre-K expenditures to meet the MOE requirement.

Comment: Some commenters objected to linking the use of pre-K to

meet the MOE requirement with maintaining expenditures on full-day/

full-year child care services. They felt that the increase in TANF

recipients accepting part-time employment will affect the need for full

day/full year care.

\[\[Page 39967\]\]

Response: We do not believe that true economic self-sufficiency is

readily achievable through part-time employment. While part-time

employment of families may have increased at the outset of TANF, the

operation of time limits on those same families will require increased

hours of employment just to maintain income levels when their TANF

benefits cease. We believe, then, that it is prudent to retain this

requirement at this time.

Comment: A commenter asked if we intended to limit pre-K programs

to families at or below 85% of the State\'s median income (SMI).

Response: We did not intend to limit State\'s ability to provide

pre-K to all families, regardless of their income. However, only

expenditures for those services provided to families at or below 85% of

the SMI (i.e., whatever limit the Lead Agency establishes as the

eligibility criteria for CCDF-funded child care) may be counted in

meeting the CCDF MOE requirement or to receive Matching funds. We have

revised the discussion above to make this point more clearly.

Family fees and the matching fund. Section 98.53(g)(2) clarifies

that family contributions to the cost of care as required by Sec. 98.42

are not considered eligible State expenditures under this subpart. This

policy is based on the fact that family fees are not State

expenditures.

Restrictions on Use of Funds (Section 98.54)

Section 103(c) of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) repealed the three title IV-A child

care programs\--the AFDC child care program, the Transitional Child Care

program and the At-Risk Child Care program. However, in appropriating

new child care funds under section 418 of the Social Security Act, the

PRWORA provides that these funds must be spent in accordance with the

provisions of the Child Care and Development Block Grant Act as

amended. This requirement is incorporated into Sec. 98.54(a). This

section also provides that TANF funds that are transferred to the Lead

Agency under the provision of the new section 404(d) of the Social

Security Act are treated as Discretionary Funds for the purposes of

Sec. 98.60.

Other Federal funds expended for child care, unless transferred to

the Lead Agency, are not required to be spent in accordance with the

amended CCDBG Act. This means, for example, that child care provided

with title XX funds or TANF funds that are not transferred to the Lead

Agency might be subject to different requirements. However, ACF

cautions States about the administrative and policy problems associated

with operating a variety of Federally-funded child care programs, e.g.,

one program subject to CCDBG requirements and others not. The

amendments to the CCDBG Act contained in the PRWORA are intended to

create a single child care program with consistent standards and

requirements and to counteract the fragmentation and conflicting

requirements that had arisen under prior law.

We have also added a new section at Sec. 98.54(b)(3) which

clarifies the special provisions on use of funds for construction that

apply to Tribes and tribal organizations under the PRWORA amendments.

Comment: One commenter felt that allowing expenditures for minor

remodeling for non-sectarian providers, while limiting such

expenditures for sectarian providers to only those instances where

remodeling was needed to meet health and safety requirements, would

increase the workload of the Lead Agency, in that it will be necessary

to track the nature of an organization requesting funds for minor

remodeling.

Response: We did not propose any change in this regulation which

has been in effect since 1992. The regulation implements section

658F(b) which does require that Lead Agencies distinguish between

sectarian and non-sectarian providers in providing CCDF funds for minor

remodeling. Nevertheless, we are unaware that this provision has been

burdensome on Lead Agencies.

Subpart G\--Financial Management

Availability of Funds (Section 98.60)

Section 418 of the Social Security Act, which was added by PRWORA,

requires that all Federal child care funds appropriated therein be

spent in accordance with the provisions of the amended Child Care and

Development Block Grant. In consolidating the Federal child care

programs under a single set of eligibility requirements, Congress

nevertheless instituted three funding sources. We have chosen to refer

to the combined funding as the Child Care and Development Fund\--CCDF.

This term recognizes the different sources of Federal monies flowing

into child care but the common purposes for which they may be expended.

Section 418 of the Social Security Act appropriates Federal funds

for the 50 States, the District of Columbia and Indian Tribes in the

form of formula grants which we refer to as the Mandatory Fund. A

specified amount of Federal funds is also made available under a

different formula to the 50 States and the District of Columbia to

match their allowable child care expenditures. We refer to this amount

as the Matching Fund. Section 658B of the Child Care and Development

Block Grant (CCDBG) Act authorizes funds to States, Tribes and

Territories according to a third formula. We refer to the funds

authorized under the CCDBG Act as Discretionary Funds. The formulas for

allocating each of the Funds and requirements unique to each Fund are

discussed at Secs. 98.61, 98.62 and 98.63.

Both the Mandatory and Discretionary Funds are 100 percent Federal

Funds\--no match is required to use these Funds. Section 418(a)(2)(C) of

the Social Security Act, however, makes the availability of Matching

Funds contingent on a State\'s child care expenditures.

We have deleted the regulation formerly at Sec. 98.60(g) concerning

start-up planning costs associated with the initial implementation of

the CCDBG and have redesignated the remaining regulations. All of the

States began operating a CCDBG program in FY 1991, therefore the

regulation at Sec. 98.60(g) is obsolete since the time frames for

obligating and expending start-up funds have passed. We recognize that

there still may be Tribes that wish to begin a CCDF program and for

which the question of start-up funds still applies. Accordingly, we

have addressed the availability of funds for planning purposes for new

Tribal Lead Agencies at Sec. 98.83(h) in subpart I.

We have also clarified the wording of Sec. 98.60(f) to indicate

that 31 CFR part 205 applies only to State Lead Agencies.

Obligation period/liquidation periods. The following table shows

the obligation and liquidation periods for the various Funds and the

maintenance-of-effort (MOE) requirements.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

AND, must be

These funds Must be OBLIGATED LIQUIDATED by the

by the end of the end of the

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Discretionary\...\...\...\...\...\.... 2nd FY\...\...\...\... 3rd FY.

Mandatory (State)\...\...\...\...\... 1st FY\--only if NA, no limit.

Matching is

requested.

Mandatory (Tribes)\...\...\...\..... 2nd FY\...\...\...\... 3rd FY.

\[\[Page 39968\]\]

Matching\...\...\...\...\...\...\...\... 1st FY\...\...\...\... 2nd FY.

MOE\...\...\...\...\...\...\...\...\..... 1st FY, and NA, must be

expended in that liquidated in 1st

FY. FY.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

The PRWORA amended the CCDBG Act to require States and Territories

to obligate their Discretionary allotments in the fiscal year in which

they are received, or in the succeeding fiscal year. These amendments

return the statutory language to its status before the Juvenile Justice

and Delinquency Prevention Amendments of 1992 (Pub. L. 102-586). Since

the final regulations which would have incorporated the changes from

the Juvenile Justice and Delinquency Prevention Amendments of 1992 were

never published, no change is needed in the regulatory language.

The FY 1997 Health and Human Services appropriation (Pub. L. 104-

208\) changed the date that the CCDF Discretionary Funds will become

available from September 30 of the fiscal year in which the funds are

appropriated to October 1 of the following fiscal year. As a result,

when existing regulatory language is applied, States and Territories

have two full fiscal years to obligate their CCDF Discretionary Funds,

instead of the year and a day which resulted under earlier

appropriations. States and Territories continue to have until the end

of the third fiscal year to liquidate these funds.

Section 418(b)(1) of the Social Security Act provides that the

Mandatory Fund is available without fiscal year limitation. However,

section 418(a)(2)(C) of the Social Security Act, which describes the

conditions for receiving Matching Funds, indicates they are paid to a

State for expenditures that exceed the State\'s Mandatory grant and MOE

level, and are only available on an annual basis. Moreover, section

418(a)(2)(D) of the Social Security Act requires that Matching Funds

that are not used in the fiscal year be made available for

redistribution in the following fiscal year. Therefore, a State wishing

to claim Matching Funds must obligate its Mandatory Funds before the

end of the fiscal year for which the Mandatory Funds are awarded.

States not wishing to claim Federal Matching Funds have no obligation

or liquidation deadline for their Mandatory Funds.

Also, the amount of a State\'s MOE requirement must be obligated and

liquidated before the end of the fiscal year for which Matching Funds

are awarded. Non-Federal expenditures (exceeding the MOE threshold) for

which the State wishes to claim monies from the Matching Fund must also

be obligated before the end of the fiscal year for which they are

awarded.

The same obligation and liquidation periods that apply to the State

Discretionary Funds apply to the tribal funds. While the FY 1997

appropriation changed the date Discretionary Funds become available,

under the revision Tribes will continue to have two full years to

obligate the child care funds they receive. Further, under these

regulations, Tribes will receive an additional year to liquidate these

Funds. Retaining the previous regulations would have had the

consequence of providing three full years to obligate and liquidate

tribal child care grants.

The amendments to the Discretionary Fund under PRWORA for the first

time provide that tribal funds are subject to reallotment. The two-year

approach to obligation will encourage Tribes to plan for the timely

commitment of funds and, at the same time, make uncommitted funds

available on a timely basis to those Tribes that are in need of

additional child care monies.

Section 98.60(d)(3) lists the obligation and liquidation periods

for States that receive Matching Funds. In order to accommodate the

redistribution required by section 418(a)(2)(D) of the Social Security

Act, the regulation requires that Matching Funds must be obligated in

the fiscal year in which they are granted and liquidated within two

years.

Returned Funds. As a result of the changes made by PRWORA and the

change in the date of availability of the CCDF Discretionary Funds made

by the FY 1997 HHS appropriation, Sec. 98.60(g) requires that funds

returned to the Lead Agency after the end of the applicable obligation

period must be returned to the Federal government. Under this

provision, however, and as previous regulations permitted, funds

returned during the obligation period may be re-obligated for

activities specified in the Plan, provided they are obligated by the

end of the obligation period. This provision was inadvertently deleted

in the proposed rule but has been added back in the final rule at

section 98.61(g)(1). The re-obligation of funds will not result in any

extension of the obligation period.

The 1992 regulations allowed States to follow State or local law or

procedures regarding funds returned after the end of the obligation

period. The provision was applicable only to what now are the

Discretionary Funds part of the CCDF. It recognized that although

section 685J(c) of the Act provided for a two-year obligation period

for those funds, the Departments of Labor, Health and Human Services

and Related Agencies Appropriations Act, 1991 (Pub. Law 101-517)

provided that FY 1991 funds became available on September 7, 1991. The

impact of that appropriation was that CCDBG funds (now called

Discretionary Funds) were available for obligation only for barely over

a year, instead of for two full years. The now-superseded provision

regarding returned funds reflected ACF\'s desire that States not be put

in the position of having to make premature decisions regarding

obligations in a new program due to a truncated obligation period.

Also, our reasoning for the former provision included the consideration

that, even though the Act contained a reallotment provision for these

funds, there appeared to be little likelihood that the States would

return them for redistribution since they were 100 percent Federal

funds.

The FY 1992 HHS appropriation (Pub. Law 102-170) moved the

availability of CCDBG funds to the last day of the fiscal year, and the

CCDBG funds continued to be paid on the last day of the fiscal year in

subsequent years, until the Departments of Labor, Health and Human

Services and Related Agencies Appropriations Act, 1997 (Pub. Law 104-

208\) again changed the date of the availability of these funds. The

1997 appropriation provides that, starting with the FY 1998

Discretionary Funds, Discretionary Funds will be made available on the

first day of each fiscal year. The result of this change is that there

now will be two full years to obligate Discretionary Funds.

Further, the regulations at the former Sec. 98.60(h) would have

been inappropriate to the new Mandatory and Matching Funds provided

under PRWORA. The law, at section 418 of the Social Security Act,

requires redistribution of the Matching Funds to other States, if the

State to which they were granted does not use them in the fiscal year

in which they are granted. Also, the Secretary must determine the

amount of Matching Funds available for redistribution by the end of the

first quarter of the fiscal year following the

\[\[Page 39969\]\]

year the grant was awarded. The law links use of Matching Funds to use

of the Mandatory Funds\--and, as provided in the regulations at

Sec. 98.60, Mandatory Funds must be obligated in the year in which they

are granted if a State requests Matching Funds. Unlike the

Discretionary and Mandatory Funds, the Matching Funds are not 100

percent Federal funds, and there seems to be a greater possibility that

some of these funds would be returned for redistribution. Thus, the

former returned funds regulations would not have been workable for

these funds, and were changed.

Comment: Although not addressed in the proposed regulations, many

commenters objected to our policy of allocating Discretionary and

Mandatory Funds on a quarterly basis, rather than as a single grant at

the beginning of the fiscal year. They felt that such a policy should

be applicable to matching grant programs only, not to entitlements to

the States, such as the Discretionary and Mandatory Funds.

Response: The Office of Management and Budget has determined that

each of the individual CCDF funds are to be apportioned to the States

quarterly. We note that other non-matching grant programs, such as

title XX, are also subject to such quarterly apportionments.

Comment: Some commenters suggested that we allow unlimited

obligation and expenditure periods for Tribal Mandatory funds, citing

the unlimited periods for State Mandatory funds (if the State does not

use Matching funds).

Response: We have kept the proposed obligation and liquidation time

frames for Tribal Mandatory funds. Although there is a statutory

exception for State Mandatory funds to the normal one-year obligation

period (unless the State uses Matching funds), Tribal Mandatory funds

are not analogous to State Mandatory funds and have no such statutory

exception. Furthermore, in the past, a significant number of Tribes

have returned funds to the Federal Treasury. Therefore, we believe that

the required obligation/liquidation time frames are reasonable and

necessary to ensure that funds are used in a timely manner.

Comment: Several commenters wanted us to revise

Sec. 98.60(d)(5)(ii) to allow Interagency agreements and or contracts

between government entities at the same level to constitute

obligations.

Response: We had not proposed any change to this regulation which

has been in effect since 1992. This issue is addressed in the preamble

to the 1992 regulations at 57 FR 34395 and that discussion reflects our

continued position.

As a practical matter, funds that are transferred to another part

of State government, either at the same level, or at a lower level,

simply do not reflect the same real fiscal commitment of funds to the

CCDF program as occurs when funds are transferred to a third party.

Comment: One commenter observed that Sec. 98.60(d)(6)\--regarding

obligating funds using a certificate\--is problematic because the amount

of funds that may be actually used by the family cannot be known with

certainty as the family may use fewer hours of care than was indicated

on the certificate. The commenter wanted to eliminate the requirement

to include the amount of funds on the certificate.

Response: This provision is unchanged from the 1992 final rule and

this situation was addressed in the preamble at 57 FR 34395. Without an

amount it is unclear how the commenter would determine how much was

obligated.

Stating an amount on the certificate fulfills the obligation

requirement, yet, as explained in the 1992 preamble, the Lead Agency

can nevertheless make adjustments to reflect the actual use of funds,

reobligating if within the obligation period, to ensure the liquidation

of funds within the prescribed period.

Comment: One commenter, understanding the necessity to recover

fraudulently received payments, suggested that Sec. 98.60(i) reflect a

minimum threshold under which recovery would not be necessary. For

example, if the administrative expense of recovery exceeded the amount

fraudulently received.

Response: As we stated in the 1992 preamble at 57 FR 34397, any

payments not made in accordance with the Act, regulation or approved

State Plan may not be charged to the program and will be disallowed

pursuant to Sec. 98.66. Should a State choose not to pursue fraudulent

payments because to do so may not be cost-effective, the amount of that

fraudulent payment may not be charged to the CCDF.

Allotments From the Discretionary Fund (Section 98.61)

The allotment formulas for the Discretionary Fund are unchanged

from the original formulas for the CCDBG and are discussed in the 1992

preamble at 57 FR 34397.

In response to an amendment to section 658P(14) of the CCDBG Act,

we have added a provision allowing for Discretionary Fund grants to a

Native Hawaiian Organization and to a private nonprofit organization

established for the purpose of serving Indian or Native Hawaiian youth.

This provision is discussed below.

Data sources for tribal allotments. The CCDBG Act requires the

Secretary to obtain the most recent data and information necessary,

from each appropriate Federal agency, to determine State funding

allotments. There is no similar statutory requirement for determining

tribal allotments.

In past years, ACF used two separate data sources to calculate

tribal child counts: the Bureau of Indian Affairs\' (BIA) Indian Service

Population and Labor Force Estimates Report, published biennially, and

the 1990 Census (for Alaska-specific data). These data sources are

addressed in the CCDBG Final Rule (45 CFR 98 and 99, published August

1992).

In the proposed rule, ACF discussed a new self-certification

process for tribal child counts used to calculate tribal allotments

under the Child Care and Development Fund. This approach affords Tribes

the opportunity to select a data source, or utilize a method for

counting tribal children, which most accurately reflects its child

population.

In addition, the child count data will be available with minimal

lag time and will more accurately reflect the natural fluctuations in

child population. With data sources used and discussed in the 1992

CCDBG Final Rule, it can take 2 to 3 years for changes in population

(such as reaching a child population of 50) to be reflected.

Finally, this approach supports the President\'s April 29, 1994,

mandate to Federal agencies reaffirming the government-to-government

relationship between Tribes and the Federal government and directing

agencies to design solutions and tailor Federal programs, in

appropriate circumstances, to address specific or unique needs of

tribal communities.

Beginning with funding available in FY 1998, ACF implemented a new

self-certification method for tribal child counts. In the proposed

rule, we stated that self-certified counts for FY 1998 would continue

to include children under age 16, consistent with the age category in

the BIA Report. Furthermore, we proposed that for funds available in FY

1999, tribal child count declarations would include only children under

age 13, in accordance with the CCDBG statute, thereby allowing a one-

year transitional period for Tribal Lead Agencies to plan for a self-

certified child count of children under age 13.

\[\[Page 39970\]\]

We have slightly modified this approach in this regulation to

continue to permit self-certification of tribal child counts to include

children under age 16 for funds which become available in FY 1999.

While we fully embrace self-certification of tribal child counts, based

on the practical experience in implementing this approach for FY 1998

tribal grant awards we believe that more time is necessary for some

tribal grantees to plan for counting children under age 13.

This additional time is particularly important since Tribes will no

longer be able to use the data in the BIA Report, and there is no

frequently published national data source which provides counts of

children under age 13 for all current or potential CCDF tribal

grantees. However, despite the extension of the transition period, we

still plan to require self-certification of children under age 13

beginning in FY 2000.

Each year ACF will issue instructions for Tribes to follow in

submitting their self-certified child counts. Each tribal grantee and

each Tribe participating in a consortium will be required to submit a

child count declaration signed by the governing body of the Tribe or an

individual authorized to act on behalf of the applicant Tribe or

organization.

Grants to a Native Hawaiian organization and a private nonprofit

organization serving Indian or Native Hawaiian youth. Section 658P(14)

of the amended CCDBG Act adds the following second definition to the

term \`\`tribal organization\'\' which are potentially eligible for

Discretionary Funds:

\`\`Other organizations\--Such term includes a Native Hawaiian

Organization, as defined in section 4009(4) of the Augustus F.

Hawkins-Robert T. Stafford Elementary and Secondary School

Improvement Amendments of 1988 and a private nonprofit organization

established for the purpose of serving youth who are Indians or

Native Hawaiians.\'\'

Section 4009(4) of the Augustus F. Hawkins-Robert T. Stafford

Elementary and Secondary School Improvement Amendments of 1988 defines

a Native Hawaiian Organization as:

\`\`A private nonprofit organization that serves the interests of

Native Hawaiians, and is recognized by the Governor of Hawaii for

the purpose of planning, conducting, or administering programs (or

parts of programs) for the benefit of Native Hawaiians.\'\'

No other changes were made in the Act with respect to Native

Hawaiians or Native Hawaiian Organizations (NHOs) or private nonprofit

organizations (PNOs) established for the purpose of serving youth who

are Indians or Native Hawaiians; nor is the Conference Agreement

instructive as to Congressional intent. However, given the statutory

language, we provide at Sec. 98.61(e) that only a single NHO and a

single PNO will be funded.

Several options were considered for allocating funds in accordance

with this expanded definition of tribal organization. We considered,

for example, treating NHOs and PNOs in the same manner for allocation

purposes as other tribal organizations (i.e., a base amount plus a per

child amount, or only a per child amount).

Based on an analysis of the statute, however, we believe the

Congress intended for an NHO and a PNO to be treated differently from

Indian Tribes and tribal organizations which are eligible to receive

CCDF funding. CCDF funds are awarded on a formula basis to all eligible

Tribes and consortia. However, only a single NHO and a single PNO are

to be awarded grants. Determination of those entities requires a

discretionary grant process rather than the formula basis used for

Indian Tribes and tribal consortia.

Eligible NHOs and PNOs, as well as the States, are reminded that

under Sec. 98.80(d), Indian children continue to have dual eligibility

to receive services funded by CCDF. Indian children and Native Hawaiian

children will continue to be eligible for services provided under a

grant awarded to a NHO or PNO and from the State of Hawaii (or other

State in the case of a PNO awarded to a grantee not located in Hawaii).

Therefore, through a grant award to a NHO and a PNO, additional

child care services (from the Discretionary Fund) are available to

children who are currently eligible to be served under a State CCDF

program. A more detailed explanation of dual eligibility is provided in

the Preamble at Subpart I.

For these reasons, up to \$2 million is reserved from the total

amount reserved for Tribes under the Discretionary Fund for two grants

each fiscal year. We believe that such an amount is substantial enough

to meaningfully serve populations that may have been under-served in

the past, without jeopardizing existing tribal programs.

Allotments From the Mandatory Fund (Section 98.62)

Section 418(a) of the Social Security Act creates a capped

entitlement for the 50 States and the District of Columbia. The amounts

allotted to each State and the District are based on the Federal share

of expenditures for child care under prior programs under title IV-A of

the Social Security Act (i.e., the AFDC/JOBS, Transitional and At-Risk

Child Care programs) in FY 1994, FY 1995, or the average of FY 1992-

1994, whichever is greatest. Before funds are allocated to the

individual States, one-quarter of one percent of the total is reserved

for the provision of technical assistance and up to two percent is

reserved for grants to Tribes.

For Indian Tribes and tribal organizations we have chosen to

allocate Mandatory Funds solely according to the number of Indian

children in each Tribe\'s service area. That is, unlike the

Discretionary Fund, there is no base amount provided to Tribes under

the Mandatory Fund.

We chose this approach in response to tribal arguments for

increased funding for direct services. We agree that tribal child care

programs would especially benefit from additional service funds, and we

did not wish to divert any new funds into non-service activities.

Tribes have the flexibility to expend their base amount on

administration or direct services, including quality activities.

However, we are concerned that many large consortia already receive

substantial sums of base amount monies. According to the program

reports from those consortia, it appears that these large base amounts

often do not translate into direct child care services for tribal

children. We do not believe that tribal children would benefit from

augmenting the existing base amount in lieu of direct child care

services.

Lastly, we listed the 13 entities in Alaska that are eligible to

receive Mandatory Funds pursuant to the amended section 419(4)(B) of

the Social Security Act. We listed those eligible entities in this

section of the regulation rather than have two different definitions of

Tribes at Sec. 98.2.

Allotments From the Matching Fund (Section 98.63)

As provided in the statute, allotments to each of the 50 States and

the District of Columbia are based on the formula used to distribute

funds under the now-repealed At-Risk child care program. The Matching

Fund consists of the amount remaining from a fiscal year\'s

appropriation under section 418(a)(3) of the Social Security Act after

reserving amounts for technical assistance and for Tribes and awarding

Mandatory Funds.

Reallotment and Redistribution of Funds (Section 98.64)

The provisions for reallotment and redistribution of Discretionary

funds remain essentially unchanged from the 1992 regulations. The

reallotment/redistribution process is described at 57 FR 34401, August

4, 1992. However, the

\[\[Page 39971\]\]

OMB-approved form ACF-696 now asks the State to indicate if it wants

any Discretionary Funds that might be reallotted. Discretionary Funds

will be reallotted only to those States that request them. Therefore,

the provision formerly at Sec. 98.64(b)(2)(iv) that returned to the

Federal government any reallotted funds that a State \`\`does not

accept\'\' is deleted as unnecessary.

Section 418(a)(2)(D) of the Social Security Act, which was amended

after the proposed rule was published in July 1997, now provides for

the redistribution of Federal Matching Funds which are allotted to a

State, but not used. This new provision is now added to the regulations

at Sec. 98.64(c)(2). We have adopted the statutory term

\`\`redistribute\'\' when discussing the Matching Fund in the
regulation.

However, we believe that the term is comparable to the
\`\`reallotment\'\'

of the Discretionary Funds and have therefore adopted a comparable

process. For example, at Sec. 98.64(c)(3) we have applied the language

from the reallotment process at Sec. 98.64(b)(2) to describe the same

limits on the amounts of unobligated Matching grants that will be

redistributed to other States that currently apply to the Discretionary

Fund. That is, no redistribution will be made to States if the total to

be redistributed is less than \$25,000. Nor will any grant be made to an

individual State if it would be less than \$500. As provided in the

statute, redistribution of the Matching Funds will be based on a

formula similar to that used for the original allotments to the 50

States and the District of Columbia.

Section 98.64(c)(1) provides that Matching Funds allotted to a

State, but not obligated by the end of that fiscal year, be

redistributed to the other States which did obligate all of the

Matching Funds allocated to them. Unused Matching Funds, then, would be

made available only to those States which demonstrated their ability to

use the entire amount already granted to them. According to the

statute, such States must request the redistributed funds; the Funds

will not automatically be redistributed to all qualifying States. We

considered redistributing unused Matching Funds among each of the 50

States and the District of Columbia, including the States that returned

the money being reallotted. We rejected that approach since it raised

the possibility that States which were unable to use all of their funds

in one year would again be unable to use them in the following year.

This would result in funds reverting to the Federal Treasury rather

than being used to assist families.

Sections 98.64(c)(3) and (4) provide that States use the regular

financial reporting form, ACF-696, instead of a separate notification

from the State. These provisions allow for a simplified process by

which States can both notify us of any unobligated Matching Funds

available for redistribution and request redistributed Matching Funds.

Section 98.64(c)(6) reflects the statutory language that

redistributed Matching Funds are to be considered as part of the grant

for the fiscal year in which the redistribution occurs, not as a part

of the grant for the year in which the funds were first awarded. This

is in contrast to reallotment of Discretionary Funds; for Discretionary

Funds the obligation period is based on the award year and is not

extended.

An amendment to section 658O of the Act provides for the

reallotment of tribal Discretionary Funds. That amendment, at

658O(e)(4), requires the Secretary to reallot any portion of a tribal

grant that she determines \`\`is not being used in a manner consistent

with the provision of \[the Act\].\'\'

Although the statutory language seems to suggest that the Secretary

may make a determination which is separate and apart from the usual

audit practice on the manner of use of funds by Tribes, there is no

discussion in the Conference Agreement to indicate such an

interpretation. Furthermore, we believe that Congress would have been

more explicit if it desired the Secretary to create a separate audit or

investigatory process. Therefore, Sec. 98.64(d) provides for a

reallotment process that parallels the State process. That is, we will

determine the amounts to be reallotted based upon reports submitted by

the Tribes, pursuant to paragraph (d)(1) of this section. Each Tribe

must submit a report to the Secretary indicating either the amount of

funds from the previous year\'s grant it will be unable to obligate

timely pursuant to Sec. 98.64(d), or that it will obligate all funds in

a timely manner. The reports must be submitted each year by a deadline

established by the Secretary. Unless notified otherwise, this deadline

will be April 1, and the reports may be in the form of a letter. We

chose the April 1st deadline to allow the Secretary the necessary time

to reallot the funds and to allow Tribes the necessary time to obligate

such funds on a timely basis. While the proposed rule included the

April 1 deadline in the regulatory language itself, we decided in the

final regulation to leave flexibility to accommodate any changes that

might be necessary as we implement the reallotment procedures.

We will reallot funds that Tribes indicate are available for

reallotment to the other Tribes, in proportion to their original

allotment, if the total amount available for reallotment is \$25,000 or

more. If the total amount is less than \$25,000, we will not reallot

these funds; instead, they will revert to the Federal Treasury. It is

administratively impractical for the Department to issue small awards.

Likewise, the Secretary will not award any reallotted funds to a Tribe

if its individual grant award is less than \$500, as it is

administratively impractical to do so.

If a Tribe does not submit a reallotment report by the deadline for

report submittal, we will determine that the Lead Agency does not have

any funds available for purposes of the reallotment. If a report is

postmarked after the deadline established by the Secretary (April 1,

unless notified otherwise), we will not reallot the amount of funds

reported to be available for reallotment; instead, such funds will

revert to the Federal Treasury. As previously discussed, late reports

do not allow the Secretary sufficient time to reallot the funds nor do

they allow the Tribes sufficient time to obligate such funds timely as

required by Sec. 98.64(d). We anticipate the Secretary will reallot

funds made available for reallotment within a month of the deadline for

receipt of reallotment reports. Reallotted funds must meet the same

programmatic and financial requirements as funds made available to

Tribes in their initial allotments.

The statute, and hence the regulations, remain unchanged regarding

the reallotment of Discretionary Funds to the Territories. That is,

there is no reallotment of Territorial Discretionary Funds.

Comment: A number of commenters questioned why the regulation did

not specifically reflect the statute regarding the timing of the

determination and redistribution of returned Matching funds.

Response: Section 418(a)(2)(D) of the Social Security Act provides

that the Secretary shall make a determination \`\`not later than the end

of the first quarter of the subsequent fiscal year\'\' whether Matching

funds are available for redistribution. And, that any redistribution

\`\`shall be made as close as practicable to the date\'\' on which that

determination is made.

Because this is a requirement on the Secretary, we did not believe

it is necessary to include it in the regulation. We will follow the

timeframes provided for in the Act.

Comment: One commenter suggested that the obligation and

liquidation periods for reallotted Matching Funds should start from the

time the funds are

\[\[Page 39972\]\]

reallotted, not at the beginning of the fiscal year in which the

reallotment takes place.

Response: The requirement is statutory and the statute does not

provide for extending the program period of reallotted Matching Funds.

Comment: Another commenter asked how States will know that Matching

funds are available for redistribution, and noted that the regulation

fails to state when a request for redistributed Matching funds is to be

made by the State.

Response: We did not want to create a cumbersome, time-consuming

process for redistributing Matching funds. Therefore, we did not

propose the separate step of notifying States of the availability of

redistributed funds. Rather, the required quarterly ACF-696 referred to

in the regulation asks if the State wishes to request redistributed

Matching funds, should any become available. This request is to be

completed in the quarter preceding the final quarter in a fiscal year,

as described in the instructions to the ACF-696 published as Program

Instruction ACYF-CC-PI-05, dated September 26, 1997. We believe that

this process will best expedite the redistribution of Matching Funds,

should any become available. This process should also allow us to meet

the time requirements in the Act on redistribution, thereby maximizing

the amount of time that remains in the fiscal year for the State to

obligate the redistributed Matching funds.

Comment: One commenter suggested that instead of redistributing

returned State Discretionary funds to other States, those funds should

be reallotted to the Tribes in the State that returns them.

Response: As discussed in the preamble to the 1992 rule at 57 FR

34401, Tribes are not eligible to receive State funds made available

for reallotment.

Comment: Several commenters objected to the proposed dollar

thresholds required for reallotment to Tribes. In the proposed rule, we

used the same thresholds for Tribes as for States\--\$25,000 for the

total amount available for reallotment and \$500 for an individual grant

award. Commenters argued that the thresholds for Tribes should be

lower, given the smaller size of tribal grant awards.

Response: Based on these comments, we considered lowering the

dollar threshold for Tribes in the final regulation. However, after

discussing the administrative burden of small grants with ACF fiscal

staff we decided to keep the \$25,000 and \$500 thresholds because it is

administratively impractical for the Department to issue and track

grant awards for smaller amounts.

Audits and Financial Reporting (Section 98.65)

Commenters were almost universally opposed to our proposed

regulatory interpretation of the amended section 658K of the Act. They

pointed out that our interpretation of \`\`an entity that is independent

of the State\'\' was inconsistent with section 7501(a)(8) of the Single

Audit Act Amendments of 1996. That section defines an independent

auditor as an \`\`external State or local government auditor who meets

the independence standards included in generally accepted government

auditing standards.\'\' We have, therefore, amended the regulation to

reflect that State auditors who meet the generally accepted auditing

standards issued by the Comptroller General, including public

accountants who meet such independence standards, may perform the

required audits. We also corrected certain references, such as

replacing the reference to OMB Circular A-128 with a reference to OMB

Circular A-133, which was issued to replace A-128 after our proposed

rule was published.

Subpart H\--Program Reporting Requirements

Reporting Requirements (Section 98.70)

Section 658K(a) of the amended Act requires each State receiving

Child Care and Development Fund funding to submit two reports: monthly

case-level data for families (reported quarterly) and annual aggregate

data. Territories are considered States for reporting purposes. The

first annual aggregate report was required to be submitted by December

31, 1997, and annually thereafter.

Comment: Several commenters requested a delay in the submission of

the first case record report (ACF-801) due to the changes made by the

technical amendments to the law. They also requested that States be

allowed to submit data monthly rather than quarterly.

Response: ACF recognizes these requests as justifiable. Therefore,

as indicated at Sec. 98.70, we extended the due date for the first

quarterly submission (ACF-801) from February 15, 1998 to August 30,

1998\. We also allow States to submit data monthly rather than

quarterly. If they choose to submit data monthly, the first reported

month, April 1998, is due 90 days later by July 30, 1998, with

following reports every 30 days thereafter.

Section 658L of the Act requires the Secretary to prepare a report

to Congress every two years summarizing the data and information

required at section 658K of the Act and Sec. 98.71 of the regulation.

Section 658O(c)(2)(C) of the Act specifies that Tribes will report

on programs and activities under CCDF. We require Tribes to submit

annual aggregate data appropriate to tribal programs as they have

previously in the CCDBG program.

Principles for data reporting. The amended Act significantly

revised the reporting requirements for all child care services. As a

result, ACF developed principles to guide the implementation of

reporting requirements. ACF, in concert with the Lead Agencies, will:

1\. Meet the statutory mandate for data reporting;

2\. Streamline data collection and reporting procedures from the

previous four programs into a single integrated program;

3\. Build on data collection systems from the former four child care

programs;

4\. Apply flexibility in phasing in the implementation of the data

collection requirements;

5\. Apply flexibility in meeting data needs outside the Federal

requirements;

6\. Provide technical assistance to Lead Agencies in the design of

new or revised data collection systems and reporting processes,

encouraging linkages to TANF information systems and to other relevant

Federal reporting systems;

7\. Provide sampling specifications to Lead Agencies as part of the

data collection process;

8\. Provide technical assistance to Lead Agencies in the design and

use of data for the development of program performance measures; and

9\. Commit to making the data useful for Lead Agencies.

Content of the Reports (Section 98.71)

For States and territories. Consistent with the requirements of

section 658K of the amended Act, we require States to collect monthly

samples of case-level family data which are reported to ACF quarterly,

or monthly if the State chooses to do so. To provide for adequate time

for the approval process for sampling plans, we require at

Sec. 98.70(a)(3) that States submit their sampling plan to ACF for

approval 60 days prior to the submission of the first report. States

are not precluded from submitting case-level data for the entire

population of families served under the

\[\[Page 39973\]\]

CCDF. Specific aggregate information is required in the annual report.

Cost of Care. Although the statute requires that cost of care

information be provided in both the case-level and aggregate reports

(658K(a)(1)(B)(ix) and 658K(a)(2)(B)), we will collect this information

through the case-level report only and we will compile the information

into the aggregate. This will eliminate duplicative reporting for the

annual aggregate report.

Section 658K(a)(2)(C) requires that the number of payments made

through various methods by types of providers be reported annually.

Most States pay providers monthly; a few pay more frequently. If the

statutory language is narrowly interpreted, States would be required to

report as many as 12-24 payments or more for each subsidized child

throughout the year. Because this information would be of limited

value, we are regulating at Sec. 98.71(b)(2) that the Lead Agency\'s

report reflect the number of children served by payment method and

primary type of provider during the final month of the report period

only (or for the last month of service for those children leaving the

program before the end of the report period). Changes in payment method

or primary provider type over the report period should be ignored and

only the last arrangement reported.

Comment: Several commenters requested that ACF include information

about child care provider auspice or sponsorship in the reporting

requirements, noting that the definitions section of these regulations

(Sec. 98.2) refers to the type of provider as non-profit, sectarian,

and relative providers and that the statute uses the word \`\`types\'\'.

Response: Section 658K of the CCDBG Act as amended by the PRWORA

specifically designates the child care data items which Congress

mandated. In Section 658K(a)(1)(B)(vii), the statute states that

quarterly case-level data should be collected on the \`\`type of child

care in which the child was enrolled (such as family child care, home

care, or center-based care).\'\' Additionally, Section 658K(a)(2)(A) of

the amended statute requires Lead Agencies to report aggregate

information about the number of child care providers that received

funding \`\`as separately identified based on the types of providers

listed in section 658P(5).\'\' Section 658P(5) specifically mentions

center-based, group home, family child care, and relative care.

Although these statutory references seem to conflict with the term

\`\`types of providers\'\' listed in Sec. 98.2 of the rule, ACF has
decided

that it is not inherently inconsistent to use a different statutory

definition for reporting purposes. Congress entertained much discussion

around reporting requirements. Their strong need for specific child

care data can be inferred from their resolve to include specific

reporting elements in the statute. Additionally, even though recent

technical amendments slightly revised the reporting requirements, no

specific direction was given in the technical amendments to collect

information based on sponsorship.

During the time reporting procedures have been under development,

ACF has consulted with program administrators and system/information

management specialists at the State level, as well as the American

Public Welfare Association and the National Association of Child Care

Resource and Referral Agencies. We have learned that most State

information systems are built on payment systems, rather than provider

identification systems, such as licensing programs might maintain.

Requiring the collection of auspice or sponsorship information would

represent a significant information collection burden for States which

is not specifically authorized by the statute.

Program sponsorship is a difficult element to collect. However, we

do recognize the interest of some organizations to learn about

different sponsoring agents and toward that end we will include

sponsorship as an optional data reporting element when these are

developed in the future.

Comment: Several commenters requested that ACF not collect Social

Security Number (SSN) as a case identifier. One commenter in particular

argued that the collection of Social Security numbers may have a

chilling effect on immigrant families wishing to apply for child care

services.

Response: ACF is requiring the collection of SSN as a case

identifier because it is necessary for gathering the aggregate data

needed for research tied to TANF, employment and other child-related

programs. Legal immigrants who work are entitled to receive child care

subsidies. Therefore, requesting them to provide SSN is not a

deterrent. Illegal immigrants are prevented from working by law and

would not need subsidized child care.

Comment: A commenter objected to the collection of average hours of

care per month and suggested that we allow States that collect the data

weekly to be able to report weekly averages.

Response: The technical amendments to the law require the change in

reporting the hours of care from weekly to monthly. Uniform reporting

requirements dictate that data be reported by all States in the same

manner to avoid confusion in data analysis. Therefore, all States

should report monthly hours. States that collect the data weekly should

transform the data into monthly data. We will provide technical

assistance in how to perform this calculation.

Comment: Several commenters objected to the collection of \`\`reasons

for care\'\' item because it is not in the law and puts an additional

burden on the States.

Response: The \`\`Reason for Care\'\' data element has previously been

collected in the old CCDBG and JOBS/AFDC child care programs and the

collection of this data does not represent a new burden for the States.

ACF will continue to collect \`\`reasons for care,\'\' i.e. working,

training/education, or protective services because it best informs

State and Federal planning and policy efforts. In addition, since the

State has the option of not requiring income data for children in

protective services, these cases need to be identified to determine if

the missing data is appropriate. We will provide technical assistance

to States experiencing difficulties with this data element.

Comment: One commenter recommended using the Census Bureau

standards for reporting race.

Response: We have changed our race definitions to comply with the

new OMB guidelines (Federal Register of 10/30/97) for Census Bureau

reporting of race. Under these new guidelines, we will divide the child

race element into two questions:

Child Ethnicity

1\. Hispanic or Latino

2\. Not Hispanic or Latino

and

Child Race

1\. American Indian or Alaska Native

2\. Asian

3\. Black or African American

4\. Native Hawaiian or Other Pacific Islander

5\. White

On the second question, respondents will be allowed to report more than

one category.

Information concerning child care disregards is required by the

statute at 658K(a)(2)(C); however, disregards, if used, would be

provided under the TANF programs, not child care programs. As a result,

information on the use of the disregard will be collected through TANF

reporting procedures, since TANF agencies can collect this information

more reliably.

Comment: One commenter was concerned that child care disregard

information would not be collected by

\[\[Page 39974\]\]

TANF since it is not required by statute. They also were concerned that

some States may elect to spend a lot of TANF funds on child care

without transferring the funds to CCDF.

Response: We have coordinated data collection efforts with the TANF

program. The proposed TANF regulations require information about the

child care disregard, as well as child care information for families

that receive child care through TANF funding.

Comment: Several commenters requested that ACF collect some

additional items that are not required by the statute but are important

for understanding the program and improvement of program management.

The suggested elements included items such as disability status and

number of weeks of care each month.

Response: Requiring the collection of such items is important, but

represents a significant increase in the reporting burden on the

States. ACF has decided against adding these items as required elements

to avoid requiring an additional burden on the States. However, because

we recognize the importance of such items, we will consider these and

other important items, as we develop optional data reporting elements,

with input from the States, in the future.

To have a complete picture of child care services in the States,

quarterly case-level data and annual aggregate information will be

collected on all funds of the Child Care and Development Fund,

including Discretionary Funds (which include any funds transferred from

the TANF Block Grant), Mandatory Funds, and Federal and State Matching

Funds, as well as funds used for Maintenance-of-Effort (MOE). For

States that choose to pool CCDF funds with non-CCDF funds (e.g. title

XX, or State or local funds not part of the CCDF MOE or Match) we will

allow reporting and/or sampling on all children served by the pooled

funds, but will require States to indicate percentages of CCDF and non-

CCDF funds in the pool of funds. Detailed instructions on how to

construct sampling frames for States with pooled funds will be included

in the sampling specifications developed by ACF. Technical assistance

will be provided to States regarding collecting data across funding

streams.

Additionally, States have indicated a desire to compare data which

are not a part of the mandatory reporting requirements. To meet this

need and to make the available child care data more useful to State

planning efforts, the Department will collaborate with States regarding

a set of standardized optional data elements. The reporting of these

data elements will not be required of any grantee.

We have provided additional information to Lead Agencies concerning

specific reporting requirements, approved data definitions, reporting

formats, sampling specifications for the quarterly case-level report,

and the submission process in ACYF-PI-CC-97-08, dated November 25, 1997

and in ACYF-PI-CC-98-01, dated January 25, 1998. In this final rule,

for ease of reference, we conformed the regulatory language at

Secs. 98.71(a)(1), (6), (7), and (10) to mirror the data collection

elements of the ACF-801, Child Care Quarterly Case Record (OMB Number

0970-0167).

For Tribes. Tribes are neither required to submit the aggregate

annual report nor the new case-level quarterly report as States are.

Instead, Tribes will continue annually to submit the ACF-700 which is

currently in use. They will include information on all children served

under the Discretionary and Tribal Mandatory funds. As of fiscal year

2000, Tribes will no longer be required to submit the second page of

the ACF-700 (fiscal programmatic data for CCDBG funds). Fiscal

information for Tribes will be collected on a separate tribal financial

reporting form.

Subpart I\--Indian Tribes

This Part addresses requirements and procedures for Indian Tribes

and tribal organizations applying for or receiving CCDF funds. In light

of unique tribal circumstances, Subpart I balances flexibility for

Tribes with the need to ensure accountability and quality child care

for children.

Subpart I specifies the extent to which general regulatory

requirements apply to Tribes. In accordance with Sec. 98.80(a), a Tribe

shall be subject to all regulatory requirements in Parts 98 and 99,

unless otherwise indicated. Subpart I lists general regulatory

requirements that apply to Tribes. It also identifies requirements that

do not apply to Tribes.

Most programmatic issues that apply to Tribes are consolidated in

Subpart I. However, financial management issues that apply to Tribes,

including the allotment formulas and underlying data sources, are

addressed separately in Subpart G\--Financial Management.

Tribes have the option to consolidate their CCDF funds under a plan

authorized by the Indian Employment, Training and Related Services

Demonstration Act of 1992 (Pub.L. 102-477). This law permits tribal

governments to integrate a number of their federally funded employment,

training, and related services programs into a single, coordinated

comprehensive program.

Senate Committee Report language for that Act prohibits the

creation of new regulations for tribal programs operating under the

102-477 initiative (S. Rep. No. 188, 102 Cong. 2d Sess. (1992)),

therefore ACF is not promulgating any additional regulations for the

Indian Employment, Training and Related Services application and plan

process. ACF does publish annual program instructions providing

directions for Tribes wishing to consolidate CCDF funds under an Indian

Employment, Training and Related Services plan. The Department of the

Interior has lead responsibility for administration of P.L. 102-477

programs.

General Procedures and Requirements (Section 98.80)

Demonstrations from Consortia. The regulation at Sec. 98.80(c)(1)

provides that a consortium must adequately demonstrate that each

participating Tribe authorizes the consortium to receive CCDF funds on

its behalf. This demonstration is required once every two years through

the two-year tribal CCDF Plan. It is the responsibility of each

consortium to inform ACF, through an amendment to its Plan, of any

changes in membership during the Plan period.

Consortia can demonstrate members\' agreement to participate in a

number of ways. A resolution is acceptable. We will also accept an

agreement signed by the tribal leader or evidence that a tribal leader

participated in a vote adopting a consortium agreement.

Comment: Several commenters recommended a one-time or \`\`standing\'\'

resolution from each consortium member which will remain in effect

until rescinded.

Response: The purpose of the demonstration is to show that the

member has authorized the consortium to act on its behalf. We have not

changed this requirement because it is a measure designed to provide

accountability to the individual members. We recognize the challenges

of obtaining demonstrations, particularly in rural areas in Alaska due

to seasonal work activities, but as a standing requirement Tribes

should now be aware in advance that it will be needed and we will

remind grantees about the demonstration requirement well before the

Plan due date.

Special requirements for Alaska Native grantees. By statute

(section 419 of the Social Security Act), only specified Alaska Native

entities may

\[\[Page 39975\]\]

receive Tribal Mandatory Funds. The Metlakatla Indian Community of the

Annette Islands Reserve and the 12 Alaska Native Regional Nonprofit

Corporations are eligible to receive Tribal Mandatory Funds. The law

provides that Discretionary Funds, however, will continue to be

available to all the eligible Alaska Native entities that could apply

under old CCDBG rules.

For purposes of Discretionary funding, Alaska Native Regional

Nonprofit Corporations, which are eligible to apply on behalf of their

constituent villages, will need to demonstrate agreement from each

constituent village.

In the absence of such demonstration of agreement from a

constituent village, the Corporation will not receive the per-child

amount or the base amount associated with that village. This changes

the policy stated in the preamble to the final rule issued August 4,

1992 (57 FR 34406). The former policy permitted Alaska Native Regional

Nonprofit Corporations to receive the per-child amount (but not the

base amount) for a constituent village in the absence of a demonstrated

agreement from the village that the Corporation was applying for

funding on its behalf. Since all other tribal consortia are required to

demonstrate agreement from their member Tribes in order to receive

Discretionary funding, this change makes the funding requirements

consistent for all consortia grantees.

For purposes of Tribal Mandatory Funds, since the statute

specifically cited the 12 Alaska Native Regional Nonprofit Corporations

as eligible entities, demonstrations are not required by member

villages for these entities to be funded.

Since the law provides that only designated Alaska Native entities

may receive the Tribal Mandatory Funds, there is a difference between

which Alaska Native entities can be direct grantees for the two tribal

parts of the CCDF. Our analysis indicates, however, that each of the

Alaska tribal entities that are eligible to receive Discretionary Funds

is served by one of the 12 Alaska Native Regional Nonprofit

Corporations that by law can be direct grantees for the Tribal

Mandatory Funds. In instances where there are different Alaska Native

grantees for the two parts of the fund, we strongly encourage grantees

to work together to ensure a coordinated tribal child care system in

Alaska.

Dual eligibility. Under Sec. 98.80(d), Indian children continue to

have dual eligibility to receive child care services funded by CCDF.

Section 6580(c)(5) of the Act mandates that, for child care services

funded by CCDF, the eligibility of Indian children for a tribal program

does not affect their eligibility for a State program. To receive

services under a program, the child must still meet the other specific

eligibility criteria of that program.

This provision was in the original Act, and it was not affected by

the recent PRWORA amendments. Regulations at Sec. 98.20(b)(1) continue

to provide that Lead Agencies may establish eligibility requirements,

in addition to Federal eligibility requirements, so long as they do not

\`\`discriminate against children on the basis of race, national origin,

ethnic background, sex, religious affiliation, or disability.\'\' As a

result, States cannot have a blanket policy of refusing to provide

child care services to Indian children.

At the same time, tribal CCDF programs are a valuable source of

child care for Indian children, including children whose families

receive TANF assistance. In particular, a Tribe that operates its own

TANF or work program (or both) will have an important role in promoting

self-sufficiency for its low-income families, including the provision

of adequate child care. However, Indian children have dual eligibility

for CCDF child care services regardless of whether a Tribe operates its

own TANF or work program. Therefore, we encourage States and Tribes to

work closely together in planning for child care services. Coordination

of child care resources will be needed to meet the child care needs of

eligible Indian families.

Eligibility. Under Sec. 98.80(f), Tribal Lead Agencies continue to

have the option of using either the State\'s median income or the tribal

median income in determining eligibility for services. In determining

eligibility for services pursuant to Sec. 98.20(a)(2), a tribal program

may use either: (1) up to 85 percent of the State median income for a

family of the same size; or (2) up to 85 percent of the median income

for a family of the same size residing in the area served by the tribal

grantee.

Application and Plan Procedures (Section 98.81)

Section 98.81 contains application and Plan requirements for Tribes

and tribal consortia. In accordance with Sec. 98.81(a), Tribes must

apply for funds pursuant to Sec. 98.13, except that the requirement at

Sec. 98.13(b)(2) does not apply.

A Tribal Lead Agency must submit a CCDF Plan, as described at

Sec. 98.16, with the additions and exceptions described in

Sec. 98.81(b).

Section 98.81(b)(2) requires definitions of \`\`Indian child\'\' and

\`\`Indian reservation or tribal service area\'\' for purposes of

determining eligibility.

Section 98.81(b)(4) requires information necessary for determining

the number of children for fund allocation purposes and grant

eligibility requirements (i.e., the requirement that a Tribe must have

at least 50 children under 13 years of age in order to directly apply

for funding). The preamble discussion to Subpart G summarizes the data

sources used to determine tribal allotments.

Other changes in Plan provisions are more fully discussed in

related sections under Subpart I.

Comment: In the proposed rule we had included a new requirement

that Tribes include a tribal resolution or similar demonstration which

identifies the Tribal Lead Agency. A tribal leader responded to the

proposed new requirement by stating that since he signs the Plan

materials, a resolution identifying the Tribal Lead Agency should not

be required.

Response: We understand that some tribal grantees may be required

to include a resolution accompanying their Plan in order to comply with

their own tribal regulations and/or procedures. However, as the

commenter pointed out, since a grantee must identify the Tribal Lead

Agency in its Plan, a resolution is not necessary. We agree with this

comment and have eliminated this proposed requirement in the final

rule.

Comment: Commenters asked if the financial reporting form could

serve as the CCDF application for Tribes.

Response: Although the financial form ACF-696 and the CCDF Plan

will serve as the application for States and territories, at this time

Tribes are required to report financial information on the SF-269 form

and do not use the ACF-696. ACF is developing a CCDF financial form

specifically for Tribes. When this form is finalized it, along with the

CCDF plan, will serve as the application for Tribes. However, since

this form has not yet been developed, for years when the CCDF biennial

Plan is due, the Plan itself will serve as the application. However, in

non-Plan years, ACF will issue a Program Instruction which describes

basic information that must be provided on an annual basis, including

the self-certified child count, to apply for funds.

Coordination (Section 98.82)

Tribal Lead Agencies must meet the coordination requirements at

Secs. 98.12 and 98.14 and the planning requirements at Sec. 98.14\--

including the

\[\[Page 39976\]\]

public hearing requirement at Sec. 98.14(c). A Tribe must distribute

notice of the hearing throughout its service area (rather than

statewide).

Prior to the publication of new regulations, Tribal Lead Agencies

were not required to coordinate with agencies responsible for health

education, employment services or workforce development, and the State

or tribal TANF agency, specified at Sec. 98.14(a)(1). Although it was

not a specific requirement in the Plan, during the pre-regulatory

period ACF encouraged Tribal Lead Agencies to coordinate with these

agencies.

We recognize that the agencies with which each Tribal Lead Agency

coordinates may differ according to its own unique circumstances. We

also recognize that child care is an essential part of a Tribe\'s self-

sufficiency and workforce development efforts. In addition, the quality

of child care benefits greatly from close coordination with the public

health and education communities.

Therefore, in recognition of these important program linkages, in

the final regulation Tribal Lead Agencies are required to meet the

requirements at Sec. 98.14(a)(1) to coordinate CCDF activities with

tribal agencies responsible for health education, employment services

or workforce development, and a Tribe\'s TANF agency, if the Tribe is

administering its own TANF program.

Comment: A few commenters indicated that they were not operating

their own TANF programs and inquired whether there was a specific

mandate for coordination with State TANF agencies.

Response: Tribal Lead Agencies which are not administering their

own TANF programs are not required, but are strongly encouraged to

coordinate their program activities with the State TANF agency.

Requirements for Tribal Programs (Section 98.83)

In recognition of the unique social and economic circumstances of

many tribal communities, Tribal Lead Agencies are exempt from a number

of the CCDF requirements which apply to State Lead Agencies.

Administrative costs. Based on input from several tribal

organizations and tribal representatives, and as proposed, we are

providing greater flexibility for Tribal Lead Agencies by exempting

them from the five percent administrative cost cap at Sec. 98.52(a).

Therefore, instead of enforcing the statutory five percent State

administrative cost limit, a 15 percent administrative limit for Tribal

Lead Agencies was recommended by several tribal organizations during

the course of our pre-drafting consultations to account for the varying

infrastructural capabilities of many Indian Tribes. Tribal Lead

Agencies may not expend more than 15 percent of the aggregate CCDF

funds for administrative activities (including amounts used for

construction and renovation in accordance with section Sec. 98.84, but

not including the base amount provided under section Sec. 98.83(e)).

Section 98.52(a) provides a list of administrative activities which

are subject to the 15 percent cost limitation. The preamble discussion

of Sec. 98.52(a) provides an additional discussion of related

activities which are not considered administrative activities for

purposes of the 15 percent cost cap.

Through the list of activities which are not considered

administrative costs, the exemption from the five percent State

administrative cost cap, and the base amount under the Discretionary

Fund, we believe Tribal Lead Agencies will have sufficient flexibility

in determining their administrative and/or indirect costs to run

effective CCDF programs.

We recognize that many Federal programs permit Indian Tribes and

tribal organizations to include an indirect costs rate in their grant

awards. Indirect costs are administrative costs that cannot be easily

charged to a specific program. Among other things, these generally

include: the cost of accounting services, personnel services, and

general administration of the organization. Since the cost of these

items cannot be easily assigned to a program that a grantee is

operating, the indirect cost rate is applied to the grantee\'s direct

costs to determine the amount the grantee will be able to recover from

the program for the grantee\'s total indirect costs.

An indirect cost rate is arrived at through negotiation between an

Indian Tribe or tribal organization and the appropriate Federal agency.

Agreements vary from Tribe to Tribe. For example, some agreements may

apply the indirect cost rate to salaries and wages only; others may

apply the indirect cost rate to salaries, wages, and fringe benefits

only.

Indirect costs, as determined by an indirect cost agreement or cost

allocation plan pursuant to Sec. 98.55, are identified at

Sec. 98.52(a)(6) as an allowable administrative expense for tribal

grantees. Tribal Lead Agencies are reminded that regardless of their

negotiated indirect cost rates, administrative costs may not exceed the

15 percent cost limitation at Sec. 98.83(g).

Comment: A few commenters stated that a 15 percent administrative

cost limit was too restrictive.

Response: The 15 percent limit is designed to provide Tribes

greater flexibility than States which must meet a five percent

administrative cost limit which was mandated by statute. The preamble

discussion of Sec. 98.52(a) provides an additional discussion of

related activities which are not considered administrative activities

for purposes of the 15 percent cost cap. Through these additional

activities, the exemption from the five percent State administrative

cost cap, and the base amount under the Discretionary Fund, we believe

Tribal Lead Agencies will have sufficient flexibility in determining

their administrative and/or indirect costs to run effective CCDF

programs.

Comment: Several commenters requested that we adopt the following

percentages: 63.75 for direct child care services; and 36.25 for child

care services, activities to improve the availability and quality of

child care, and/or administrative costs.

Response: Prior to the passage of PRWORA, the 63.75/36.25

percentages applied to exempt Tribal Lead Agencies. While this policy

previously applied only to exempt Tribes, following the passage of

PRWORA we extended it to apply to all Tribes during an interim period

since the law was silent on administrative costs for Tribes. In a

September 19, 1996 letter inviting Tribes to apply for Tribal Mandatory

Funds and in ACF Program Instructions ACYF-PI-CC-97-03 and ACYF-PI-CC-

97-04 we clearly indicated that this was an interim policy and that we

intended to regulate on this issue. For the reasons given in this

preamble, we have not retained the policy.

Comment: We received a comment asking why the administrative cost

limit for Tribes at proposed Sec. 98.83(g) applied to CCDF funds that

were \`\`provided\'\' while the administrative cost limit for States at

Sec. 98.52 applied to CCDF funds that were \`\`expended\'\'.

Response: We revised the administrative cost limit for Tribes at

Sec. 98.83(g) from the language in the proposed rule to more closely

parallel the administrative cost limit for States at Sec. 98.52. The

revised Sec. 98.83(g) requires that not more than 15 percent of the

aggregate CCDF funds expended by the Tribal Lead Agency from each

fiscal year\'s allotment (including amounts used for construction and

renovation in accordance with Sec. 98.84, but not including the base

amount provided under Sec. 98.83(e)) shall be expended for

\[\[Page 39977\]\]

administrative costs. We are using \`\`expended\'\' rather than

\`\`provided\'\' to prevent a Tribal Lead Agency that does not expend
its

full allocation from receiving a windfall in administrative cost

allowances. The revised language also clarifies that the administrative

cost limit applies to the amounts expended from the total allocated,

not to the amounts expended in a single fiscal year.

Exempt Tribes. We realize that many smaller tribal grantees do not

have the infrastructure in place to support certain requirements. As a

result, we are exempting Lead Agencies of smaller Tribes and tribal

organizations (with total CCDF allocations less than an amount

established by the Secretary) from certain requirements specified at

Sec. 98.83(f). Exempt tribal grantees are not required to comply with

the four percent quality requirement at Sec. 98.51(a) or to run a

certificate program. Non-exempt tribal grantees are required to comply

with these requirements.

The dollar threshold for determining which Tribes are exempt is

established by the Secretary. Until Tribes are notified otherwise, the

threshold is set at \$500,000. In other words, Tribal Lead Agencies with

total CCDF allocations less than \$500,000 in a fiscal year will be

considered exempt (any unobligated or unliquidated funds from prior

fiscal years are not included in determining exempt/non-exempt status).

Tribal Lead Agencies with allocations equal to or greater than \$500,000

are non-exempt.

In the proposed rule, we proposed that the threshold would be set

to include as non-exempt all Tribes which were non-exempt prior to

PRWORA. However, due to increased appropriations, this approach would

have greatly increased the number of non-exempt Tribes. As an

alternative, we have chosen a reasonable dollar threshold (\$500,000)

that, while more than the dollar amount that was mentioned in the

proposed rule (\$460,000), would still move some Tribes to a non-exempt

category.

The increased number of non-exempt Tribes reflects the increased

child care funding provided directly to Tribes under PRWORA. Since the

exemption was originally intended to recognize the difficulty of

meeting all requirements with a small grant amount, we believe it is

reasonable for a Tribe with a grant of \$500,000 or higher to meet the

four percent quality and certificate program requirements.

Comment: We received comments requesting the elimination of the

exempt/non-exempt distinction. These commenters encouraged us to

provide Tribal Lead Agencies with increased flexibility by making all

Tribes exempt.

Response: We are keeping the exempt/non-exempt distinction since we

believe grantees with large grant allocations should be subject to the

four percent minimum quality and certificate program requirements.

While we appreciate the need for Lead Agency flexibility, the need for

quality child care and parental choice for Indian children is

paramount.

Particularly given the increased allocation of funds for child care

programs under the CCDF, we believe it is vitally important that the

tribal grantees with larger grants establish or maintain certificate

programs so that the families they serve may select from a range of

providers: center-based; group home; family child care; in-home or

other providers. Many of the larger tribal grantees already operate

certificate programs. Likewise, the four percent minimum quality

provision will help to ensure that Tribal Lead Agencies make the

necessary investments for quality. We believe the Tribal Lead Agencies

with larger grants can play a leadership role in providing parental

choice and providing quality care.

Furthermore, in FY 1998, a few States received CCDF grant awards

which were smaller than the largest tribal grant award. These State

Lead Agencies, regardless of size, must comply with all the CCDF

requirements including the four percent minimum quality provision and

the requirement to run a certificate program. As a result, we believe

it is appropriate to require Tribes with larger grants to meet these

requirements.

Comment: One commenter requested clarification on funding amounts

required for quality activities.

Response: While we strongly encourage exempt Tribal Lead Agencies

to expend CCDF funds on quality activities, they are not required to

meet this provision. For non-exempt Tribal Lead Agencies subject to the

quality expenditure requirement at Sec. 98.51(a), not less than four

percent of the \`\`aggregate funds expended\'\' by the Lead Agency shall
be

expended for quality activities. For purposes of this requirement, the

\`\`aggregate funds expended\'\' by the Tribal Lead Agency includes
amounts

used for construction and renovation in accordance with Sec. 98.84 but

does not include the base amount provided under Sec. 98.83(e).

Comment: Several commenters recommended that Tribes should not be

subject to Sec. 98.43(b)(2) which requires a market rate survey as one

of the three elements in determining equal access. The commenters

stated that more flexible methodologies should be permitted for tribal

grantees. For example, one commenter\'s Tribe currently establishes

payment rates based on their State\'s market rate survey because their

tribal service area is included in this market rate survey.

Response: In the final regulation, we have not exempted Tribal Lead

Agencies from the requirement at Sec. 98.43(b)(2) that their payment

rates be based on a market rate survey. However, a Tribal Lead Agency

may base its payment rates on the State\'s market rate survey rather

than conducting its own survey if their service area is included in the

State\'s survey. As noted at Sec. 98.16(l), Tribal Lead Agencies must

adequately describe the method used to ensure equal access.

While we are providing more flexibility for Tribal Lead Agencies

regarding market rate surveys, we strongly encourage tribal CCDF

grantees to survey their local providers in order to establish a

payment rate which is an accurate reflection of the child care market

on their reservation or tribal service area.

70 percent requirement. Section 418(b)(2) of the Social Security

Act provides that States ensure that not less than 70 percent of the

total amount of the State Mandatory and Matching funds received in a

fiscal year be used to provide child care assistance to families

receiving assistance under a State program under Part A of title IV of

the Social Security Act, families who are attempting through work

activities to transition from such assistance, and families at risk of

becoming dependent on such assistance. The provision at section

418(b)(2) does not apply to Tribal Lead Agencies. Nonetheless, Tribes

have a responsibility to ensure that their child care services provide

a balance in meeting the needs of families listed in section 418(b)(2)

and the child care needs of the working poor.

Since Tribes may apply for both Tribal Mandatory Funds and

Discretionary Funds, they are receiving increased CCDF grant awards\--

compared to amounts received prior to PRWORA\--to provide direct child

care services. Also, as we pointed out in our discussion on dual

eligibility of tribal children, Tribes now have the option under title

IV of the Social Security Act to operate their own TANF programs.

Additionally, Tribes that operated a tribal Job Opportunities and Basic

Skills Training (JOBS) program in 1994 may choose to continue a tribal

work program. Whatever the mixture of child care, TANF, and work

services a Tribe chooses to administer, child care services should be

designed to ensure that all eligible families receive a fair

\[\[Page 39978\]\]

share of services within the tribal service area.

Base amount. A base amount is included in tribal grant awards under

the Discretionary Fund. As referenced at Sec. 98.83(e), the base amount

of any tribal grant is not subject to the administrative costs

limitation at Sec. 98.83(g) or the quality expenditure requirement at

Sec. 98.51(a).

The base amount for each tribal grant may be used for any activity

consistent with the purposes of the CCDF, including the administrative

costs of implementing a child care program. For examples of

administrative costs, refer to Sec. 98.52(a).

Lead agency. Tribal grantees, like States, must designate a Lead

Agency to administer the CCDF. If a tribal grantee applies for both

Tribal Mandatory Funds and Discretionary funds, the programs must be

integrated and administered by the same Lead Agency.

Consortia. If a Tribe participating in a consortium arrangement

elects to receive only part of the CCDF (e.g., Discretionary Funds), it

may not join a different consortium to receive the other part of the

CCDF (Tribal Mandatory Funds), or apply as a direct grantee to receive

the other part of the fund. In order to receive CCDF program services,

individual tribal consortium members must remain with the consortium

they have selected for the fiscal year in which they are receiving any

part of CCDF funds. However, an Alaska Native village that must receive

Tribal Mandatory Funds indirectly through an Alaska Native Regional

Nonprofit Corporation may still apply directly for Discretionary Funds.

Section 98.83(c)(1) requires that a tribal consortium include in

its two-year CCDF Plan a brief description of the direct child care

services being provided for each of its participating Tribes. We

included this provision for three reasons: (1) It helps ensure that

services are being delivered to the member Tribes; (2) since in some

cases consortia receive sizeable base amounts, it will provide

documentation of the actual services being delivered to member Tribes

through consortia arrangements; and (3) it provides the opportunity for

public comment, as part of the public hearing process required by

Sec. 98.14(c), on the services provided to member Tribes.

Comment: One commenter was interested in how ACF would treat an

individual consortium member that decided to drop out of its authorized

CCDF consortium arrangement prior to the end of the fiscal year.

Response: We strongly encourage Tribes to closely evaluate their

child care needs and eligibility for CCDF services before choosing to

enter into a consortium arrangement. If a situation arises where a

Tribe decides it must relinquish its membership in a consortium prior

to the end of the fiscal year, the CCDF funds which were awarded to the

consortium on behalf of the departing member Tribe will remain with the

tribal consortium. The consortium may use these funds to provide direct

child care services to other consortium members for the duration of the

fiscal year. The final regulations codify this policy at

Sec. 98.83(c)(4).

Child care standards. Section 658E(c)(2)(E)(ii) of the Act requires

the development of minimum child care standards for Indian Tribes and

tribal organizations. Based on input from tribal leaders and tribal

child care administrators, we are developing a process for Tribes to

establish minimum child care standards that appropriately reflect

tribal needs and available resources. Until the minimum standards are

developed, Tribes must have in effect tribal and/or State licensing

requirements applicable to child care services pursuant to Sec. 98.40.

Tribes must also have in place requirements designed to protect the

health and safety of children in accordance with Sec. 98.41 of the

regulations, including, but not limited to: (1) The prevention and

control of infectious diseases (including immunization); (2) building

and physical premises safety; and (3) minimum health and safety

training appropriate to the provider setting.

Comment: We received comments about the process for developing the

minimum child care standards, and about the need for flexibility under

the standards in light of unique tribal needs and resources.

Response: The Child Care Bureau invited tribal leaders to consult

with ACF officials on this issue in special focus groups at the Tribal

Child Care Conference in April 1997. In addition, on March 26, 1997, a

\`\`Request for Comments on the Development of Minimum Tribal Child Care

Standards\'\' was published in the Federal Register. We are continuing
to

consult with tribal officials regarding the development of these

standards. Regarding the need for flexibility, we recognize unique

tribal circumstances and the fact that many Tribes have already

developed their own standards. We are committed to an approach that

considers both the need for flexibility as well as the statutory

mandate to develop minimum standards.

Planning costs for initial plan. Section 98.83(h) provides that

CCDF funds are available for costs incurred by a Tribal Lead Agency

only after the funds are made available by Congress for Federal

obligation unless costs are incurred for planning activities related to

the submission of an initial CCDF Plan. Federal obligation of funds for

planning costs is subject to the actual availability of the

appropriation.

Construction and Renovation (Section 98.84)

Upon requesting and receiving approval from the Secretary of the

Department of Health and Human Services, a Tribal Lead Agency may use

amounts from its CCDF allocation for construction and major renovation

of child care facilities (pursuant to section 6580(c)(6) of the Act and

regulations at Sec. 98.84(a)).

Under the final rule, these payments could cover costs of

amortizing the principal and paying interest on loans for construction

and major renovation. As was also recognized in the Head Start

procedures for construction and renovation, which allow use of funds to

pay for principal and interest on loans, loans are an essential part of

many construction and renovation projects.

The regulation at Sec. 98.84(b) reflects the statutory requirement

that, to be approved by the Secretary, a request to use CCDF funds for

construction or major renovation must be made in accordance with

uniform procedures developed by the Secretary. These uniform procedures

were provided to Tribal Lead Agencies via program instructions ACYF-CC-

PI-05, issued August 18, 1997, and ACYF-PI-CC-97-06 issued November 4,

1997\. The Administration for Children and Families\' Regional Offices

have responsibility for approval of construction/renovation

applications.

By statute (and Sec. 98.84(b)), such requests must demonstrate

that: (1) Adequate facilities are not otherwise available to enable the

Tribal Lead Agency to carry out child care programs; (2) the lack of

such facilities will inhibit the operation of child care programs in

the future; and (3) the use of funds for construction or major

renovation will not result in a decrease in the level of child care

services provided by the Tribal Lead Agency as compared to the level of

services provided by the Tribal Lead Agency in the preceding fiscal

year. In light of the requirement that a Tribe cannot reduce the level

of child care services, a Tribal Lead Agency should plan in advance for

anticipated construction and renovation costs.

Section 98.84(c) allows Tribal Lead Agencies to use CCDF funds for

reasonable and necessary planning costs

\[\[Page 39979\]\]

associated with assessing the need for construction or renovation or

for preparing a request, in accordance with the uniform procedures

established by program instruction, to spend CCDF funds on construction

or major renovation. This section of the rule also addresses the use of

CCDF funds to pay for the costs of an architect, engineer, or other

consultant.

The regulation at Sec. 98.84(d) requires Tribal Lead Agencies which

receive approval from the Secretary to use CCDF funds for construction

or major renovation to comply with specified requirements in 45 CFR

Part 92 and any additional requirements established by program

instruction. Title 45 CFR Part 92 does not generally apply to the Child

Care and Development Fund. However, we made specified sections which

deal with the special circumstances of construction and renovation

applicable for those purposes.

The ACF has an interest in property that is constructed or

renovated with CCDF funds. This interest takes the form of restrictions

on use and disposition of the property. The Federal interest also is

manifested in the requirement that ACF receive a share of the proceeds

from any sale of property. These requirements regarding Federal share

and the use and disposition of property are found at 45 CFR 92.31(b)

and (c).

Title requirements at 45 CFR 92.31(a) provide that title to a

facility constructed or renovated with CCDF funds vests with the

grantee upon acquisition.

Title 45 CFR 92.22 concerns cost principles and allowable cost

requirements. Consistent with these cost principles, reasonable fees

and costs associated with and necessary to the construction or

renovation of a facility are payable with CCDF funds, but require

prior, written approval from ACF.

Title 45 CFR 92.25 governs program income. Program income derived

from real property constructed or renovated with CCDF funds must be

deducted from the total allowable costs of the budget period in which

it was produced.

All facility construction and renovation transactions must comply

with the procurement procedures in 45 CFR 92.36, and must be conducted

in a manner to provide, to the maximum extent practicable, open and

free competition.

Tribal Lead Agencies must also comply with any additional

requirements established by program instruction. These requirements may

include, but are not limited to, requirements concerning: the recording

of a Notice of Federal Interest in property; rights and

responsibilities in the event of a grantee\'s default on a mortgage;

insurance and maintenance; submission of plans, specifications,

inspection reports, and other legal documents; and modular units.

The definition of \`\`facility\'\' at Sec. 98.2 allows Tribal Lead

Agencies to use CCDF funds for the construction or renovation of

modular units as well as real property.

The definitions of \`\`facility,\'\' \`\`construction,\'\' and \`\`major

renovation\'\' are the same definitions used in Head Start construction

and renovation procedures. While a Tribal Lead Agency must request

approval from the Secretary before spending CCDF funds on construction

or major renovation, approval is not necessary for minor renovation

pursuant to section 658F(b) of the Act and regulations at

Sec. 98.84(f). For Tribal Lead Agencies, minor renovation includes all

renovation other than major renovation or construction.

Section 98.84(e) requires that, in lieu of obligation and

liquidation requirements at Sec. 98.60(e), Tribal Lead Agencies must

liquidate CCDF funds used for construction or major renovation by the

end of the second fiscal year following the fiscal year for which the

grant is awarded. This gives Tribal Lead Agencies three years to

liquidate funds approved by the Secretary for use on construction or

major renovation with no separate obligation period. This separate

obligation/liquidation requirement should allow sufficient time for

construction and renovation projects.

Amounts used for construction and major renovation are not

considered administrative costs for the purpose of the 15 percent

administrative cost limit under Sec. 98.83(g). We do not believe that

Congress intended for us to unnecessarily limit a Tribal Lead Agency\'s

ability to use CCDF funds on construction and renovation projects which

meet the requirements necessary for Secretarial approval.

The ACF will transfer funds to be used for construction and major

renovation to a separate grant award to be used specifically for

construction or renovation activities. This approach is necessary to

track the exact amount of funds spent on construction or renovation.

Finally, the new statutory provision allowing tribal construction

with CCDF funds provides an opportunity for tribal grantees to leverage

resources for quality facilities and services by coordinating with

their Tribe\'s Head Start program.

Comment: We received comments objecting to the proposal at

Sec. 98.84(c) that would have prohibited a Tribal Lead Agency from

using CCDF funds to pay for the costs of an architect, engineer, or

other consultant until after the Lead Agency\'s construction/renovation

application was approved by the Secretary. The commenters argued that

the application procedures require construction/renovation plans and

specifications as part of an application, and, unless Tribes are

allowed to use CCDF funds, many Tribes would be unable to pay for the

costs of architects, engineers, or consultants necessary to develop

these plans and specifications.

Response: We eliminated the prohibition against the use of CCDF

funds to pay for consultants prior to application approval. As revised,

Sec. 98.84(c) allows a Tribal Lead Agency to use CCDF funds to pay for

the costs of an architect, engineer, or other consultant for a project

that is subsequently approved by the Secretary. If the project later

fails to gain Secretarial approval, the Tribal Lead Agency must pay for

the architectural, engineering or consultant costs using non-CCDF

funds. This approach allows Tribes access to the expertise necessary to

prepare an application and launch a construction/renovation project. At

the same time, it protects the Federal government from paying for

consultant costs on a project that is not approvable. This revised

policy is consistent with program instruction ACYF-CC-PI-05, issued

August 18, 1997. We strongly encourage Tribes to involve ACF Regional

Office staff early in the development of their construction/renovation

applications.

Comment: We received questions regarding how the requirement at

Sec. 98.84(b)(3) would apply to new grantees. Under this provision (as

well as the Act), use of funds for construction and renovation cannot

result in a decrease in the Tribe\'s level of child care services

compared to the preceding fiscal year. However, a new tribal grantee

has no existing level of services to maintain.

Response: Since Sec. 98.84(b)(3) does not apply to a new grantee

(i.e., one that did not receive CCDF funds the preceding fiscal year),

we added Sec. 98.84(g) to address the amount of CCDF funds that a new

grantee can use for construction or renovation. This section allows a

new tribal grantee to spend no more than an amount equivalent to its

Tribal Mandatory allocation on construction/renovation. A new tribal

grantee must spend an amount equivalent to its Discretionary allocation

on activities other than construction or renovation (i.e., direct

services, quality activities, or administrative costs).

\[\[Page 39980\]\]

The CCDF program is primarily designed to provide direct child care

services. Authority for construction and renovation was added as an

amendment under the PRWORA. The statutory provision that prohibits a

decrease in the level of child care services clearly indicates that

Congress intended for construction and renovation activities only to be

in addition to direct services. Limiting the amount of CCDF funds that

a new tribal grantee may spend on construction or renovation to the

amount of the Tribal Mandatory allocation is consistent with

Congressional intent.

Comment: One commenter objected to the definition for major

renovation. Section 98.2 defines \`\`major renovation\'\' as: (1)

Structural changes to the foundation, roof, floor, exterior or load-

bearing walls of a facility, or the extension of a facility to increase

its floor area; or (2) extensive alteration of a facility such as to

significantly change its function and purpose, even if such renovation

does not include any structural change. The commenter objected to the

second part of this definition, arguing that some projects may change

the function and purpose of a facility (e.g., from a community center

to a child care center) but only involve small, non-structural

renovations that should not require an application seeking Secretarial

approval.

Response: We did not revise the definition\--which has also been

used by the Head Start program. Projects that involve extensive

alteration that change the function and purpose of the facility are

potentially large and expensive and should therefore be subject to

Secretarial approval. However, in order for a project that does not

involve structural change to be considered major renovation under the

definition at Sec. 98.2, it must involve both: (1) Extensive

alteration, and (2) a change in the function and purpose of the

facility. Therefore, if a renovation project is not extensive (and does

not involve structural change), the project would not be considered

major renovation even if it changes the function and purpose of the

facility.

Comment: We received a question as to whether non-exempt Tribal

Lead Agencies could count construction and renovation costs as quality

expenditures for purposes of meeting the four percent minimum quality

requirement at Sec. 98.51(a).

Response: Construction and renovation costs cannot be counted as

quality expenditures for purposes of the four percent minimum quality

requirement. Quality activities such as those described at

Sec. 98.51(a)(2) (resource and referral, provider loans, monitoring,

training and technical assistance) are essential to the well-being of

children in child care. The size of grant awards received by non-exempt

Tribal Lead Agencies is sufficient to allow these Tribes to meet the

four percent minimum quality requirement through activities other than

construction or renovation.

Comment: We received a question regarding whether the costs of

items such as parking lots, playground equipment, furniture, and

kitchen equipment are considered to be construction/renovation costs?

Response: The regulations at Sec. 98.2 define \`\`construction\'\' and

\`\`major renovation\'\' for purposes of determining what activities are

allowable under the CCDF and when prior approval from the Secretary is

necessary.

However, these definitions do not directly address the question of

what costs should be considered as part of the construction and

renovation project. This question is relevant in at least three

circumstances: (1) When ensuring that construction and renovation costs

will not result in a decrease in the level of child care services in

accordance with Sec. 98.84(b)(3); (2) when providing an estimate of

construction and renovation costs as required by the uniform procedures

established by program instruction; and (3) when determining which

costs should come from the separate grant award for construction and

renovation.

For these three purposes, Sec. 98.84(h) provides that a

construction and renovation project that requires and receives the

approval of the Secretary must include as construction and renovation

costs the following: (1) Planning costs as allowed at Sec. 98.84(c);

\(2\) labor, materials and services necessary for the functioning of the

facility; and (3) initial equipment, as discussed below, for the

facility. All such costs must be identified in the Tribal Lead Agency\'s

construction or renovation application to the Secretary and, to the

extent that CCDF funds are used, must be paid for using the separate

grant award for construction and renovation.

Under this framework, the cost of the construction or renovation

project includes items which are not part of the actual facility

itself, but which are necessary for the functioning of the facility

(such as a parking lot or fence) when the item is part of a larger

construction or renovation project that requires and receives approval

by the Secretary.

Equipment, as used above, means items which are tangible,

nonexpendable personal property having a useful life of more than five

years. The intent of the five-year threshold is to include as

construction and renovation costs only equipment that remains useful

for an extended period of time, such as playground equipment,

furniture, and kitchen equipment. Current operating expenses or items

that are consumed in use (such as food, paper, books, toys or

disposable housekeeping items) are not considered construction or

renovation costs.

This relatively broad definition of construction and renovation

costs emphasizes the importance of considering all costs when planning

construction and renovation projects. The alternative approach, to

exclude items such as playgrounds, parking lots and equipment from

construction and renovation costs, would have underestimated the true

costs of constructing or renovating a child care facility. A new or

newly renovated facility requires the proper equipment to be

operational. Furthermore, a facility must be constructed or renovated

in a manner that ensures the health and safety of children in care,

consistent with Sec. 98.41(a)(2) of the regulations.

Equipment and other costs are only considered part of the

construction or renovation costs, however, if they are included as part

of a larger construction or renovation project that requires and

receives approval by the Secretary. Costs of allowable activities

(e.g., purchase of equipment necessary to bring a facility into

compliance with health and safety standards) that are not part of a

larger construction or renovation project as defined at Sec. 98.2

should be considered quality improvement costs\--not construction or

renovation costs.

Subpart J\--Monitoring, Non-compliance and Complaints

Penalties and Sanctions (Section 98.92)

We have amended paragraphs (1) and (2) of Sec. 98.92(a), because

the statutory amendments changed the penalty for a Lead Agency found to

have failed to substantially comply with the statute, the regulations,

or its own Plan. We also have deleted the former Sec. 98.92(b) as

redundant due to the statutory amendments. Section 658I(b)(2)(A)(ii) of

the Act gives the Secretary the option to disallow improperly expended

funds or to deduct an amount equal to or less than an improperly

expended amount from the administrative portion of the Lead Agency\'s

allotment for the following fiscal year. The Secretary can also impose

a penalty that is a combination of these two options.

\[\[Page 39981\]\]

As proposed, we also added a new regulation at paragraph (b)(2) to

establish a penalty on the Lead Agency for: (1) a failure to implement

any part of the CCDF program in accordance with the Act or regulations

or its Plan; or (2) a violation of the Act or regulations. Such penalty

would be invoked when a failure or violation by the Lead Agency does

not result in a clearly identifiable amount of improperly expended

funds. For example, the failure to provide the reports required under

subpart H or the inappropriate limitation of access to a particular

type of provider in violation of the parental choice provisions of

Subpart D do not result in a clearly identifiable amount of improperly

expended funds. Hence, the penalties at paragraph (a) could not be

applied. However, our stewardship of the program since its creation

indicates the need for a more effective means of ensuring conformity

with the statute and regulations than is offered by the existing

regulations. Section 658I(b)(2)(B) of the CCDBG Act provides for an

\`\`additional sanction\'\' if the Secretary finds there has been non-

compliance with the Plan or any requirement of the program.

Because a failure or violation which would cause the penalty under

Sec. 98.92(b)(2) to be imposed may not have an amount of improperly

expended funds associated with it, we needed to determine what amount

of penalty should be imposed. We considered the range of TANF penalties

found at section 409 of the Social Security Act and decided to use the

TANF penalty provisions for failure to report at section 409(a)(2) as

that was most analogous to the potential CCDF non-compliance.

Accordingly, Sec. 98.92(b)(2) provides that a penalty equal to four

percent of the annual Discretionary allotment will be withheld no

earlier than the second full quarter following the quarter in which the

Lead Agency was notified of the potential penalty.

The TANF penalties include provisions for good cause and corrective

action, and we have included similar provisions in Sec. 98.92(b)(2). We

believe that both provisions are good policy as the goal of the new

provision is to achieve compliance with CCDF requirements, not

punishment. If there is sufficient reason for not complying, or if the

Lead Agency will comply without a penalty, the purpose is met without

the imposition of a penalty. The penalty will not be applied if the

Lead Agency corrects the failure or violation before the penalty is to

be applied or if it submits a plan for corrective action that is

accepted by the Secretary. Waiting at least one full quarter before

applying the penalty provides sufficient time to remedy the situations

which we envision would cause the penalty to be invoked. The Lead

Agency may, during that time, show cause to the Secretary why the

amount of the penalty, if imposed, should be reduced.

The paragraphs formerly located at Sec. 98.92(d) and (e) are

relocated at Sec. 98.92(c) and (d), respectively. We have added a new

Sec. 98.92(e) providing that it is at the Secretary\'s sole discretion

to choose the penalty to be imposed.

Comment: While a few comments supported the need for the new

penalty at Sec. 98.92(b)(2), most opposed it stating that there is no

basis for it in the PRWORA statute.

Response: As we stated in the preamble, the statutory basis for the

penalty at Sec. 98.92(b)(2) is section 658I(b)(2)(B) of the original

CCDBG Act which provides for an \`\`additional sanction\'\' if the

Secretary finds there has been non-compliance with the Plan or any

requirement of the program. Our experience since the beginning of the

program indicated the need for such an additional sanction.

Comment: Many of the same commenters objected to the use of the

phrase \`\`failed to properly implement\'\' in the regulation, saying
that

it made the entire process subjective with only the Secretary deciding

what was \`\`proper\'\'.

Response: We agree that the use of the word \`\`proper\'\' gave the

appearance of a subjective process, and we have eliminated it. It is

not the intent of the regulation to second-guess how Lead Agencies

implement the program, especially in light of the enormous flexibility

they have. Rather, this regulation is specifically designed for those

clear-cut instances wherein the Act, regulations, or Plan have not been

followed, but for which there is not an amount of funds that are

\`\`misspent\'\' as a result.

Comment: One commenter objected to the provision which allows the

Secretary not to apply the penalty if the Lead Agency corrects the

failure or violation or submits an acceptable plan for corrective

action. The commenter wanted the penalty to be applied in all cases.

Response: As our goal is compliance with the requirements and not

punishment, we believe it is good policy to forgive a penalty if the

Lead Agency corrects the non-compliance without a penalty through

corrective action. We also believe that Lead Agencies should be able to

demonstrate that special circumstances, such as natural disasters or

other circumstances beyond their control, prevent compliance and thus

the penalty should be reduced. We believe that such instances will be

rare.

List of Subjects

45 CFR Part 98

Child care, Grant program\--social programs, Parental choice,

Reporting and record keeping requirements.

45 CFR Part 99

Administrative practice and procedure, Child care, Grant program\--

social programs.

(Catalog of Federal Domestic Assistance Programs: 93.575, Child Care

and Development Block Grant; 93.596, Child Care Mandatory and

Matching Funds)

Dated: March 16, 1998.

Olivia A. Golden,

Assistant Secretary for Children and Families.

Approved: June 10, 1998.

Donna E. Shalala,

Secretary, Department of Health and Human Services.

For the reasons set forth in the preamble, Parts 98 and 99 of

Subtitle A of Title 45 of the Code of Federal Regulations are amended

as follows:

1\. Part 98 is revised as follows:

PART 98\--CHILD CARE AND DEVELOPMENT FUND

Subpart A\--Goals, Purposes and Definitions

Sec.

98.1 Goals and purposes.

98.2 Definitions.

98.3 Effect on State law.

Subpart B\--General Application Procedures

98.10 Lead Agency responsibilities.

98.11 Administration under contracts and agreements.

98.12 Coordination and consultation.

98.13 Applying for funds.

98.14 Plan process.

98.15 Assurances and certifications.

98.16 Plan provisions.

98.17 Period covered by plan.

98.18 Approval and disapproval of plans and plan amendments.

Subpart C\--Eligibility for Services

98.20 A child\'s eligibility for child care services.

Subpart D\--Program Operations (Child Care Services)\--Parental Rights

and Responsibilities

98.30 Parental choice.

98.31 Parental access.

98.32 Parental complaints.

98.33 Consumer education.

98.34 Parental rights and responsibilities.

\[\[Page 39982\]\]

Subpart E\--Program Operations (Child Care Services)\--Lead Agency and

Provider Requirements

98.40 Compliance with applicable State and local regulatory

requirements.

98.41 Health and safety requirements.

98.42 Sliding fee scales.

98.43 Equal access.

98.44 Priority for child care services.

98.45 List of providers.

98.46 Nondiscrimination in admissions on the basis of religion.

98.47 Nondiscrimination in employment on the basis of religion.

Subpart F\--Use of Child Care and Development Funds

98.50 Child care services.

98.51 Activities to improve the quality of child care.

98.52 Administrative costs.

98.53 Matching Fund requirements.

98.54 Restrictions on the use of funds.

98.55 Cost allocation.

Subpart G\--Financial Management

98.60 Availability of funds.

98.61 Allotments from the discretionary fund.

98.62 Allotments from the mandatory fund.

98.63 Allotments from the matching fund.

98.64 Reallotment and redistribution of funds.

98.65 Audits and financial reporting

98.66 Disallowance procedures.

98.67 Fiscal requirements.

Subpart H\--Program Reporting Requirements

98.70 Reporting requirements.

98.71 Content of reports.

Subpart I\--Indian Tribes

98.80 General procedures and requirements.

98.81 Application and Plan procedures.

98.82 Coordination.

98.83 Requirements for tribal programs.

98.84 Construction and renovation of child care facilities.

Subpart J\--Monitoring, Non-Compliance and Complaints

98.90 Monitoring.

98.91 Non-compliance.

98.92 Penalties and sanctions.

98.93 Complaints.

Authority: 42 U.S.C. 618, 9858.

Subpart A\--Goals, Purposes and Definitions

Sec. 98.1 Goals and purposes.

\(a\) The goals of the CCDF are to:

\(1\) Allow each State maximum flexibility in developing child care

programs and policies that best suit the needs of children and parents

within the State;

\(2\) Promote parental choice to empower working parents to make

their own decisions on the child care that best suits their family\'s

needs;

\(3\) Encourage States to provide consumer education information to

help parents make informed choices about child care;

\(4\) Assist States to provide child care to parents trying to

achieve independence from public assistance; and

\(5\) Assist States in implementing the health, safety, licensing,

and registration standards established in State regulations.

\(b\) The purpose of the CCDF is to increase the availability,

affordability, and quality of child care services. The program offers

Federal funding to States, Territories, Indian Tribes, and tribal

organizations in order to:

\(1\) Provide low-income families with the financial resources to

find and afford quality child care for their children;

\(2\) Enhance the quality and increase the supply of child care for

all families, including those who receive no direct assistance under

the CCDF;

\(3\) Provide parents with a broad range of options in addressing

their child care needs;

\(4\) Strengthen the role of the family;

\(5\) Improve the quality of, and coordination among, child care

programs and early childhood development programs; and

\(6\) Increase the availability of early childhood development and

before- and after-school care services.

\(c\) The purpose of these regulations is to provide the basis for

administration of the Fund. These regulations provide that Lead

Agencies:

\(1\) Maximize parental choice through the use of certificates and

through grants and contracts;

\(2\) Include in their programs a broad range of child care

providers, including center-based care, family child care, in-home

care, care provided by relatives and sectarian child care providers;

\(3\) Provide quality child care that meets applicable requirements;

\(4\) Coordinate planning and delivery of services at all levels;

\(5\) Design flexible programs that provide for the changing needs of

recipient families;

\(6\) Administer the CCDF responsibly to ensure that statutory

requirements are met and that adequate information regarding the use of

public funds is provided; and

\(7\) Design programs that provide uninterrupted service to families

and providers, to the extent statutorily possible.

Sec. 98.2 Definitions.

For the purpose of this part and part 99:

The Act refers to the Child Care and Development Block Grant Act of

1990, section 5082 of the Omnibus Budget Reconciliation Act of 1990,

Pub. L. 101-508, as amended and codified at 42 U.S.C. 9858 et seq.

ACF means the Administration for Children and Families;

Application is a request for funding that includes the information

required at Sec. 98.13;

Assistant Secretary means the Assistant Secretary for Children and

Families, Department of Health and Human Services;

Caregiver means an individual who provides child care services

directly to an eligible child on a person-to-person basis;

Categories of care means center-based child care, group home child

care, family child care and in-home care;

Center-based child care provider means a provider licensed or

otherwise authorized to provide child care services for fewer than 24

hours per day per child in a non-residential setting, unless care in

excess of 24 hours is due to the nature of the parent(s)\' work;

Child care certificate means a certificate (that may be a check, or

other disbursement) that is issued by a grantee directly to a parent

who may use such certificate only as payment for child care services or

as a deposit for child care services if such a deposit is required of

other children being cared for by the provider, pursuant to Sec. 98.30.

Nothing in this part shall preclude the use of such certificate for

sectarian child care services if freely chosen by the parent. For the

purposes of this part, a child care certificate is assistance to the

parent, not assistance to the provider;

Child Care and Development Fund (CCDF) means the child care

programs conducted under the provisions of the Child Care and

Development Block Grant Act, as amended. The Fund consists of

Discretionary Funds authorized under section 658B of the amended Act,

and Mandatory and Matching Funds appropriated under section 418 of the

Social Security Act;

Child care provider that receives assistance means a child care

provider that receives Federal funds under the CCDF pursuant to grants,

contracts, or loans, but does not include a child care provider to whom

Federal funds under the CCDF are directed only through the operation of

a certificate program;

Child care services, for the purposes of Sec. 98.50, means the care

given to an eligible child by an eligible child care provider;

Construction means the erection of a facility that does not

currently exist;

The Department means the Department of Health and Human Services;

\[\[Page 39983\]\]

Discretionary funds means the funds authorized under section 658B

of the Child Care and Development Block Grant Act. The Discretionary

funds were formerly referred to as the Child Care and Development Block

Grant;

Eligible child means an individual who meets the requirements of

Sec. 98.20;

Eligible child care provider means:

\(1\) A center-based child care provider, a group home child care

provider, a family child care provider, an in-home child care provider,

or other provider of child care services for compensation that\--

\(i\) Is licensed, regulated, or registered under applicable State or

local law as described in Sec. 98.40; and

\(ii\) Satisfies State and local requirements, including those

referred to in Sec. 98.41 applicable to the child care services it

provides; or

\(2\) A child care provider who is 18 years of age or older who

provides child care services only to eligible children who are, by

marriage, blood relationship, or court decree, the grandchild, great

grandchild, sibling (if such provider lives in separate residence),

niece, or nephew of such provider, and complies with any applicable

requirements that govern child care provided by the relative involved;

Facility means real property or modular unit appropriate for use by

a grantee to carry out a child care program;

Family child care provider means one individual who provides child

care services for fewer than 24 hours per day per child, as the sole

caregiver, in a private residence other than the child\'s residence,

unless care in excess of 24 hours is due to the nature of the

parent(s)\' work;

Group home child care provider means two or more individuals who

provide child care services for fewer than 24 hours per day per child,

in a private residence other than the child\'s residence, unless care in

excess of 24 hours is due to the nature of the parent(s)\' work;

Indian Tribe means any Indian Tribe, band, nation, or other

organized group or community, including any Alaska Native village or

regional or village corporation as defined in or established pursuant

to the Alaska Native Claims Settlement Act (43 U.S.C. Sec. 1601 et

seq.) that is recognized as eligible for the special programs and

services provided by the United States to Indians because of their

status as Indians;

In-home child care provider means an individual who provides child

care services in the child\'s own home;

Lead Agency means the State, territorial or tribal entity

designated under Secs. 98.10 and 98.16(a) to which a grant is awarded

and that is accountable for the use of the funds provided. The Lead

Agency is the entire legal entity even if only a particular component

of the entity is designated in the grant award document.

Licensing or regulatory requirements means requirements necessary

for a provider to legally provide child care services in a State or

locality, including registration requirements established under State,

local or tribal law;

Liquidation period means the applicable time period during which a

fiscal year\'s grant shall be liquidated pursuant to the requirements at

Sec. 98.60.;

Major renovation means: (1) structural changes to the foundation,

roof, floor, exterior or load-bearing walls of a facility, or the

extension of a facility to increase its floor area; or (2) extensive

alteration of a facility such as to significantly change its function

and purpose, even if such renovation does not include any structural

change;

Mandatory funds means the general entitlement child care funds

described at section 418(a)(1) of the Social Security Act;

Matching funds means the remainder of the general entitlement child

care funds that are described at section 418(a)(2) of the Social

Security Act;

Modular unit means a portable structure made at another location

and moved to a site for use by a grantee to carry out a child care

program;

Obligation period means the applicable time period during which a

fiscal year\'s grant shall be obligated pursuant to Sec. 98.60;

Parent means a parent by blood, marriage or adoption and also means

a legal guardian, or other person standing in loco parentis;

The Plan means the Plan for the implementation of programs under

the CCDF;

Program period means the time period for using a fiscal year\'s

grant and does not extend beyond the last day to liquidate funds;

Programs refers generically to all activities under the CCDF,

including child care services and other activities pursuant to

Sec. 98.50 as well as quality and availability activities pursuant to

Sec. 98.51;

Provider means the entity providing child care services;

The regulation refers to the actual regulatory text contained in

parts 98 and 99 of this chapter;

Real property means land, including land improvements, structures

and appurtenances thereto, excluding movable machinery and equipment;

Secretary means the Secretary of the Department of Health and Human

Services;

Sectarian organization or sectarian child care provider means

religious organizations or religious providers generally. The terms

embrace any organization or provider that engages in religious conduct

or activity or that seeks to maintain a religious identity in some or

all of its functions. There is no requirement that a sectarian

organization or provider be managed by clergy or have any particular

degree of religious management, control, or content;

Sectarian purposes and activities means any religious purpose or

activity, including but not limited to religious worship or

instruction;

Services for which assistance is provided means all child care

services funded under the CCDF, either as assistance directly to child

care providers through grants, contracts, or loans, or indirectly as

assistance to parents through child care certificates;

Sliding fee scale means a system of cost sharing by a family based

on income and size of the family, in accordance with Sec. 98.42;

State means any of the States, the District of Columbia, the

Commonwealth of Puerto Rico, the Virgin Islands of the United States,

Guam, American Samoa, the Commonwealth of the Northern Mariana Islands,

and includes Tribes unless otherwise specified;

Tribal mandatory funds means the child care funds set aside at

section 418(a)(4) of the Social Security Act. The funds consist of

between one and two percent of the aggregate Mandatory and Matching

child care funds reserved by the Secretary in each fiscal year for

payments to Indian Tribes and tribal organizations;

Tribal organization means the recognized governing body of any

Indian Tribe, or any legally established organization of Indians,

including a consortium, which is controlled, sanctioned, or chartered

by such governing body or which is democratically elected by the adult

members of the Indian community to be served by such organization and

which includes the maximum participation of Indians in all phases of

its activities: Provided, that in any case where a contract is let or

grant is made to an organization to perform services benefiting more

than one Indian Tribe, the approval of each such Indian Tribe shall be

a prerequisite to the letting or making of such contract or grant; and

\[\[Page 39984\]\]

Types of providers means the different classes of providers under

each category of care. For the purposes of the CCDF, types of providers

include non-profit providers, for-profit providers, sectarian providers

and relatives who provide care.

Sec. 98.3 Effect on State law.

\(a\) Nothing in the Act or this part shall be construed to supersede

or modify any provision of a State constitution or State law that

prohibits the expenditure of public funds in or by sectarian

organizations, except that no provision of a State constitution or

State law shall be construed to prohibit the expenditure in or by

sectarian institutions of any Federal funds provided under this part.

\(b\) If a State law or constitution would prevent CCDF funds from

being expended for the purposes provided in the Act, without

limitation, then States shall segregate State and Federal funds.

Subpart B\--General Application Procedures

Sec. 98.10 Lead Agency responsibilities.

The Lead Agency, as designated by the chief executive officer of

the State (or by the appropriate Tribal leader or applicant), shall:

\(a\) Administer the CCDF program, directly or through other

governmental or non-governmental agencies, in accordance with

Sec. 98.11;

\(b\) Apply for funding under this part, pursuant to Sec. 98.13;

\(c\) Consult with appropriate representatives of local government in

developing a Plan to be submitted to the Secretary pursuant to

Sec. 98.14(b);

\(d\) Hold at least one public hearing in accordance with

Sec. 98.14(c); and

\(e\) Coordinate CCDF services pursuant to Sec. 98.12.

Sec. 98.11 Administration under contracts and agreements.

\(a\) The Lead Agency has broad authority to administer the program

through other governmental or non-governmental agencies. In addition,

the Lead Agency can use other public or private local agencies to

implement the program; however:

\(1\) The Lead Agency shall retain overall responsibility for the

administration of the program, as defined in paragraph (b) of this

section;

\(2\) The Lead Agency shall serve as the single point of contact for

issues involving the administration of the grantee\'s CCDF program; and

\(3\) Administrative and implementation responsibilities undertaken

by agencies other than the Lead Agency shall be governed by written

agreements that specify the mutual roles and responsibilities of the

Lead Agency and the other agencies in meeting the requirements of this

part.

\(b\) In retaining overall responsibility for the administration of

the program, the Lead Agency shall:

\(1\) Determine the basic usage and priorities for the expenditure of

CCDF funds;

\(2\) Promulgate all rules and regulations governing overall

administration of the Plan;

\(3\) Submit all reports required by the Secretary;

\(4\) Ensure that the program complies with the approved Plan and all

Federal requirements;

\(5\) Oversee the expenditure of funds by subgrantees and

contractors;

\(6\) Monitor programs and services;

\(7\) Fulfill the responsibilities of any subgrantee in any:

disallowance under subpart G; complaint or compliance action under

subpart J; or hearing or appeal action under part 99 of this chapter;

and

\(8\) Ensure that all State and local or non-governmental agencies

through which the State administers the program, including agencies and

contractors that determine individual eligibility, operate according to

the rules established for the program.

Sec. 98.12 Coordination and consultation.

The Lead Agency shall:

\(a\) Coordinate the provision of services for which assistance is

provided under this part with the agencies listed in Sec. 98.14(a).

\(b\) Consult, in accordance with Sec. 98.14(b), with representatives

of general purpose local government during the development of the Plan;

and

\(c\) Coordinate, to the maximum extent feasible, with any Indian

Tribes in the State receiving CCDF funds in accordance with subpart I

of this part.

Sec. 98.13 Applying for Funds.

The Lead Agency of a State or Territory shall apply for Child Care

and Development funds by providing the following:

\(a\) The amount of funds requested at such time and in such manner

as prescribed by the Secretary.

\(b\) The following assurances or certifications:

\(1\) An assurance that the Lead Agency will comply with the

requirements of the Act and this part;

\(2\) A lobbying certification that assures that the funds will not

be used for the purpose of influencing pursuant to 45 CFR part 93, and,

if necessary, a Standard Form LLL (SF-LLL) that discloses lobbying

payments;

\(3\) An assurance that the Lead Agency provides a drug-free

workplace pursuant to 45 CFR 76.600, or a statement that such an

assurance has already been submitted for all HHS grants;

\(4\) A certification that no principals have been debarred pursuant

to 45 CFR 76.500;

\(5\) Assurances that the Lead Agency will comply with the applicable

provisions regarding nondiscrimination at 45 CFR part 80 (implementing

title VI of the Civil Rights Act of 1964, as amended), 45 CFR part 84

(implementing section 504 of the Rehabilitation Act of 1973, as

amended), 45 CFR part 86 (implementing title IX of the Education

Amendments of 1972, as amended) and 45 CFR part 91 (implementing the

Age Discrimination Act of 1975, as amended), and;

\(6\) Assurances that the Lead Agency will comply with the applicable

provisions of Public Law 103-277, Part C\--Environmental Tobacco Smoke,

also known as the Pro-Children Act of 1994, regarding prohibitions on

smoking.

\(c\) The Child Care and Development Fund Plan, at times and in such

manner as required in Sec. 98.17; and

\(d\) Such other information as specified by the Secretary.

Sec. 98.14 Plan process.

In the development of each Plan, as required pursuant to

Sec. 98.17, the Lead Agency shall:

(a)(1) Coordinate the provision of services funded under this Part

with other Federal, State, and local child care and early childhood

development programs, including such programs for the benefit of Indian

children. The Lead Agency shall also coordinate with the State, and if

applicable, tribal agencies responsible for:

\(A\) Public health, including the agency responsible for

immunizations;

\(B\) Employment services/workforce development;

\(C\) Public education; and

\(D\) Providing Temporary Assistance for Needy Families.

\(2\) Provide a description of the results of the coordination with

each of these agencies in the CCDF Plan.

\(b\) Consult with appropriate representatives of local governments;

(c)(1) Hold at least one hearing in the State, after at least 20

days of statewide public notice, to provide to the public an

opportunity to comment on the provision of child care services under

the Plan.

\(2\) The hearing required by paragraph (c)(1) shall be held before

the Plan is submitted to ACF, but no earlier than nine months before

the Plan becomes effective.

\[\[Page 39985\]\]

\(3\) In advance of the hearing required by this section, the Lead

Agency shall make available to the public the content of the Plan as

described in Sec. 98.16 that it proposes to submit to the Secretary.

Sec. 98.15 Assurances and certifications.

\(a\) The Lead Agency shall include the following assurances in its

CCDF Plan:

\(1\) Upon approval, it will have in effect a program that complies

with the provisions of the CCDF Plan, and that is administered in

accordance with the Child Care and Development Block Grant Act of 1990,

as amended, section 418 of the Social Security Act, and all other

applicable Federal laws and regulations;

\(2\) The parent(s) of each eligible child within the area served by

the Lead Agency who receives or is offered child care services for

which financial assistance is provided is given the option either:

\(i\) To enroll such child with a child care provider that has a

grant or contract for the provision of the service; or

\(ii\) To receive a child care certificate as defined in Sec. 98.2;

\(3\) In cases in which the parent(s), pursuant to Sec. 98.30, elects

to enroll their child with a provider that has a grant or contract with

the Lead Agency, the child will be enrolled with the eligible provider

selected by the parent to the maximum extent practicable;

\(4\) In accordance with Sec. 98.30, the child care certificate

offered to parents shall be of a value commensurate with the subsidy

value of child care services provided under a grant or contract;

\(5\) With respect to State and local regulatory requirements (or

tribal regulatory requirements), health and safety requirements,

payment rates, and registration requirements, State or local (or

tribal) rules, procedures or other requirements promulgated for the

purpose of the CCDF will not significantly restrict parental choice

from among categories of care or types of providers, pursuant to

Sec. 98.30(f).

\(6\) That if expenditures for pre-Kindergarten services are used to

meet the maintenance-of-effort requirement, the State has not reduced

its level of effort in full-day/full-year child care services, pursuant

to Sec. 98.53(h)(1).

\(b\) The Lead Agency shall include the following certifications in

its CCDF Plan:

\(1\) In accordance with Sec. 98.31, it has procedures in place to

ensure that providers of child care services for which assistance is

provided under the CCDF, afford parents unlimited access to their

children and to the providers caring for their children, during the

normal hours of operations and whenever such children are in the care

of such providers;

\(2\) As required by Sec. 98.32, the State maintains a record of

substantiated parental complaints and makes information regarding such

complaints available to the public on request;

\(3\) It will collect and disseminate to parents of eligible children

and the general public, consumer education information that will

promote informed child care choices, as required by Sec. 98.33;

\(4\) There are in effect licensing requirements applicable to child

care services provided within the State (or area served by Tribal Lead

Agency), pursuant to Sec. 98.40;

\(5\) There are in effect within the State (or other area served by

the Lead Agency), under State or local (or tribal) law, requirements

designed to protect the health and safety of children that are

applicable to child care providers that provide services for which

assistance is made available under the CCDF, pursuant to Sec. 98.41;

\(6\) In accordance with Sec. 98.41, procedures are in effect to

ensure that child care providers of services for which assistance is

provided under the CCDF comply with all applicable State or local (or

tribal) health and safety requirements; and

\(7\) Payment rates for the provision of child care services, in

accordance with Sec. 98.43, are sufficient to ensure equal access for

eligible children to comparable child care services in the State or

sub-State area that are provided to children whose parents are not

eligible to receive assistance under this program or under any other

Federal or State child care assistance programs.

Sec. 98.16 Plan provisions.

A CCDF Plan shall contain the following:

\(a\) Specification of the Lead Agency whose duties and

responsibilities are delineated in Sec. 98.10;

\(b\) The assurances and certifications listed under Sec. 98.15;

(c)(1) A description of how the CCDF program will be administered

and implemented, if the Lead Agency does not directly administer and

implement the program;

\(2\) Identification of the entity designated to receive private

donated funds and the purposes for which such funds will be expended,

pursuant to Sec. 98.53(f);

\(d\) A description of the coordination and consultation processes

involved in the development of the Plan, including a description of

public-private partnership activities that promote business involvement

in meeting child care needs pursuant to Sec. 98.14(a) and (b);

\(e\) A description of the public hearing process, pursuant to

Sec. 98.14(c);

\(f\) Definitions of the following terms for purposes of determining

eligibility, pursuant to Secs. 98.20(a) and 98.44:

\(1\) Special needs child;

\(2\) Physical or mental incapacity (if applicable);

\(3\) Attending (a job training or educational program);

\(4\) Job training and educational program;

\(5\) Residing with;

\(6\) Working;

\(7\) Protective services (if applicable), including whether children

in foster care are considered in protective services for purposes of

child care eligibility; and whether respite care is provided to

custodial parents of children in protective services.

\(8\) Very low income; and

\(9\) in loco parentis.

\(g\) For child care services pursuant to Sec. 98.50:

\(1\) A description of such services and activities;

\(2\) Any limits established for the provision of in-home care and

the reasons for such limits pursuant to Sec. 98.30(e)(1)(iv);

\(3\) A list of political subdivisions in which such services and

activities are offered, if such services and activities are not

available throughout the entire service area;

\(4\) A description of how the Lead Agency will meet the needs of

certain families specified at Sec. 98.50(e).

\(5\) Any additional eligibility criteria, priority rules and

definitions established pursuant to Sec. 98.20(b);

\(h\) A description of the activities to provide comprehensive

consumer education, to increase parental choice, and to improve the

quality and availability of child care, pursuant to Sec. 98.51;

\(i\) A description of the sliding fee scale(s) (including any

factors other than income and family size used in establishing the fee

scale(s)) that provide(s) for cost sharing by the families that receive

child care services for which assistance is provided under the CCDF,

pursuant to Sec. 98.42;

\(j\) A description of the health and safety requirements, applicable

to all providers of child care services for which assistance is

provided under the CCDF, in effect pursuant to Sec. 98.41;

\(k\) A description of the child care certificate payment system(s),

including the form or forms of the child care certificate, pursuant to

Sec. 98.30(c);

\(l\) Payment rates and a summary of the facts, including a biennial

local

\[\[Page 39986\]\]

market rate survey, relied upon to determine that the rates provided

are sufficient to ensure equal access pursuant to Sec. 98.43;

\(m\) A detailed description of how the State maintains a record of

substantiated parental complaints and how it makes information

regarding those complaints available to the public on request, pursuant

to Sec. 98.32;

\(n\) A detailed description of the procedures in effect for

affording parents unlimited access to their children whenever their

children are in the care of the provider, pursuant to Sec. 98.31;

\(o\) A detailed description of the licensing requirements applicable

to child care services provided, and a description of how such

licensing requirements are effectively enforced, pursuant to

Sec. 98.40;

\(p\) Pursuant to Sec. 98.33(b), the definitions or criteria used to

implement the exception, provided in section 407(e)(2) of the Social

Security Act, to individual penalties in the TANF work requirement

applicable to a single custodial parent caring for a child under age

six;

(q)(1) When any Matching funds under Sec. 98.53(b) are claimed, a

description of the efforts to ensure that pre-Kindergarten programs

meet the needs of working parents;

\(2\) When State pre-Kindergarten expenditures are used to meet more

than 10% of the amount required at Sec. 98.53(c)(1), or for more than

10% of the funds available at Sec. 98.53(b), or both, a description of

how the State will coordinate its pre-Kindergarten and child care

services to expand the availability of child care; and

\(r\) Such other information as specified by the Secretary.

Sec. 98.17 Period covered by Plan.

\(a\) For States, Territories, and Indian Tribes the Plan shall cover

a period of two years.

\(b\) The Lead Agency shall submit a new Plan prior to the expiration

of the time period specified in paragraph (a) of this section, at such

time as required by the Secretary in written instructions.

Sec. 98.18 Approval and disapproval of Plans and Plan amendments.

\(a\) Plan approval. The Assistant Secretary will approve a Plan that

satisfies the requirements of the Act and this part. Plans will be

approved not later than the 90th day following the date on which the

Plan submittal is received, unless a written agreement to extend that

period has been secured.

\(b\) Plan amendments. Approved Plans shall be amended whenever a

substantial change in the program occurs. A Plan amendment shall be

submitted within 60 days of the effective date of the change. Plan

amendments will be approved not later than the 90th day following the

date on which the amendment is received, unless a written agreement to

extend that period has been secured.

\(c\) Appeal of disapproval of a Plan or Plan amendment.

\(1\) An applicant or Lead Agency dissatisfied with a determination

of the Assistant Secretary pursuant to paragraphs (a) or (b) of this

section with respect to any Plan or amendment may, within 60 days after

the date of receipt of notification of such determination, file a

petition with the Assistant Secretary asking for reconsideration of the

issue of whether such Plan or amendment conforms to the requirements

for approval under the Act and pertinent Federal regulations.

\(2\) Within 30 days after receipt of such petition, the Assistant

Secretary shall notify the applicant or Lead Agency of the time and

place at which the hearing for the purpose of reconsidering such issue

will be held.

\(3\) Such hearing shall be held not less than 30 days, nor more than

90 days, after the notification is furnished to the applicant or Lead

Agency, unless the Assistant Secretary and the applicant or Lead Agency

agree in writing on another time.

\(4\) Action pursuant to an initial determination by the Assistant

Secretary described in paragraphs (a) and (b) of this section that a

Plan or amendment is not approvable shall not be stayed pending the

reconsideration, but in the event that the Assistant Secretary

subsequently determines that the original decision was incorrect, the

Assistant Secretary shall certify restitution forthwith in a lump sum

of any funds incorrectly withheld or otherwise denied. The hearing

procedures are described in part 99 of this chapter.

Subpart C\--Eligibility for Services

Sec. 98.20 A child\'s eligibility for child care services.

\(a\) In order to be eligible for services under Sec. 98.50, a child

shall:

(1)(i) Be under 13 years of age; or,

\(ii\) At the option of the Lead Agency, be under age 19 and

physically or mentally incapable of caring for himself or herself, or

under court supervision;

\(2\) Reside with a family whose income does not exceed 85 percent of

the State\'s median income for a family of the same size; and

(3)(i) Reside with a parent or parents (as defined in Sec. 98.2)

who are working or attending a job training or educational program; or

\(ii\) Receive, or need to receive, protective services and reside

with a parent or parents (as defined in Sec. 98.2) other than the

parent(s) described in paragraph (a)(3)(i) of this section.

\(A\) At grantee option, the requirements in paragraph (a)(2) of this

section and in Sec. 98.42 may be waived for families eligible for child

care pursuant to this paragraph, if determined to be necessary on a

case-by-case basis by, or in consultation with, an appropriate

protective services worker.

\(B\) At grantee option, the provisions in (A) apply to children in

foster care when defined in the Plan, pursuant to Sec. 98.16(f)(7).

\(b\) Pursuant to Sec. 98.16(g)(5), a grantee or other administering

agency may establish eligibility conditions or priority rules in

addition to those specified in this section and Sec. 98.44 so long as

they do not:

\(1\) Discriminate against children on the basis of race, national

origin, ethnic background, sex, religious affiliation, or disability;

\(2\) Limit parental rights provided under Subpart D; or

\(3\) Violate the provisions of this section, Sec. 98.44, or the

Plan. In particular, such conditions or priority rules may not be based

on a parent\'s preference for a category of care or type of provider. In

addition, such additional conditions or rules may not be based on a

parent\'s choice of a child care certificate.

Subpart D\--Program Operations (Child Care Services)\--Parental

Rights and Responsibilities

Sec. 98.30 Parental choice.

\(a\) The parent or parents of an eligible child who receives or is

offered child care services shall be offered a choice:

\(1\) To enroll the child with an eligible child care provider that

has a grant or contract for the provision of such services, if such

services are available; or

\(2\) To receive a child care certificate as defined in Sec. 98.2.

Such choice shall be offered any time that child care services are

made available to a parent.

\(b\) When a parent elects to enroll the child with a provider that

has a grant or contract for the provision of child care services, the

child will be enrolled with the provider selected by the parent to the

maximum extent practicable.

\(c\) In cases in which a parent elects to use a child care

certificate, such certificate:

\[\[Page 39987\]\]

\(1\) Will be issued directly to the parent;

\(2\) Shall be of a value commensurate with the subsidy value of the

child care services provided under paragraph (a)(1) of this section;

\(3\) May be used as a deposit for child care services if such a

deposit is required of other children being cared for by the provider;

\(4\) May be used for child care services provided by a sectarian

organization or agency, including those that engage in religious

activities, if those services are chosen by the parent;

\(5\) May be expended by providers for any sectarian purpose or

activity that is part of the child care services, including sectarian

worship or instruction;

\(6\) Shall not be considered a grant or contract to a provider but

shall be considered assistance to the parent.

\(d\) Child care certificates shall be made available to any parents

offered child care services.

(e)(1) For child care services, certificates under paragraph (a)(2)

of this section shall permit parents to choose from a variety of child

care categories, including:

\(i\) Center-based child care;

\(ii\) Group home child care;

\(iii\) Family child care; and

\(iv\) In-home child care, with limitations, if any, imposed by the

Lead Agency and described in its Plan at Sec. 98.16(g)(2).

Under each of the above categories, care by a sectarian provider

may not be limited or excluded.

\(2\) Lead Agencies shall provide information regarding the range of

provider options under paragraph (e)(1) of this section, including care

by sectarian providers and relatives, to families offered child care

services.

\(f\) With respect to State and local regulatory requirements under

Sec. 98.40, health and safety requirements under Sec. 98.41, and

payment rates under Sec. 98.43, CCDF funds will not be available to a

Lead Agency if State or local rules, procedures or other requirements

promulgated for purposes of the CCDF significantly restrict parental

choice by:

\(1\) Expressly or effectively excluding:

\(i\) Any category of care or type of provider, as defined in

Sec. 98.2; or

\(ii\) Any type of provider within a category of care; or

\(2\) Having the effect of limiting parental access to or choice from

among such categories of care or types of providers, as defined in

Sec. 98.2; or

\(3\) Excluding a significant number of providers in any category of

care or of any type as defined in Sec. 98.2.

Sec. 98.31 Parental access.

The Lead Agency shall have in effect procedures to ensure that

providers of child care services for which assistance is provided

afford parents unlimited access to their children, and to the providers

caring for their children, during normal hours of provider operation

and whenever the children are in the care of the provider. The Lead

Agency shall provide a detailed description of such procedures.

Sec. 98.32 Parental complaints.

The State shall:

\(a\) Maintain a record of substantiated parental complaints;

\(b\) Make information regarding such parental complaints available

to the public on request; and

\(c\) The Lead Agency shall provide a detailed description of how

such record is maintained and is made available.

Sec. 98.33 Consumer education.

The Lead Agency shall:

\(a\) Certify that it will collect and disseminate to parents and the

general public consumer education information that will promote

informed child care choices including, at a minimum, information about

\(1\) the full range of providers available, and

\(2\) health and safety requirements;

\(b\) Inform parents who receive TANF benefits about the requirement

at section 407(e)(2) of the Social Security Act that the TANF agency

make an exception to the individual penalties associated with the work

requirement for any single custodial parent who has a demonstrated

inability to obtain needed child care for a child under six years of

age. The information may be provided directly by the Lead Agency, or,

pursuant to Sec. 98.11, other entities, and shall include:

\(1\) The procedures the TANF agency uses to determine if the parent

has a demonstrated inability to obtain needed child care;

\(2\) The criteria or definitions applied by the TANF agency to

determine whether the parent has a demonstrated inability to obtain

needed child care, including:

\(i\) \`\`Appropriate child care\'\';

\(ii\) \`\`Reasonable distance\'\';

\(iii\) \`\`Unsuitability of informal child care\'\';

\(iv\) \`\`Affordable child care arrangements\'\';

\(3\) The clarification that assistance received during the time an

eligible parent receives the exception referred to in paragraph (b) of

this section will count toward the time limit on Federal benefits

required at section 408(a)(7) of the Social Security Act.

\(c\) Include in the biennial Plan the definitions or criteria the

TANF agency uses in implementing the exception to the work requirement

specified in paragraph (b) of this section.

Sec. 98.34 Parental rights and responsibilities.

Nothing under this part shall be construed or applied in any manner

to infringe on or usurp the moral and legal rights and responsibilities

of parents or legal guardians.

Subpart E\--Program Operations (Child Care Services)\--Lead Agency

and Provider Requirements

Sec. 98.40 Compliance with applicable State and local regulatory

requirements.

\(a\) Lead Agencies shall:

\(1\) Certify that they have in effect licensing requirements

applicable to child care services provided within the area served by

the Lead Agency;

\(2\) Provide a detailed description of the requirements under

paragraph (a)(1) of this section and of how they are effectively

enforced.

(b)(1) This section does not prohibit a Lead Agency from imposing

more stringent standards and licensing or regulatory requirements on

child care providers of services for which assistance is provided under

the CCDF than the standards or requirements imposed on other child care

providers.

\(2\) Any such additional requirements shall be consistent with the

safeguards for parental choice in Sec. 98.30(f).

Sec. 98.41 Health and safety requirements.

\(a\) Although the Act specifically states it does not require the

establishment of any new or additional requirements if existing

requirements comply with the requirements of the statute, each Lead

Agency shall certify that there are in effect, within the State (or

other area served by the Lead Agency), under State, local or tribal

law, requirements designed to protect the health and safety of children

that are applicable to child care providers of services for which

assistance is provided under this part. Such requirements shall

include:

\(1\) The prevention and control of infectious diseases (including

immunizations). With respect to immunizations, the following provisions

apply:

\(i\) As part of their health and safety provisions in this area,

States and Territories shall assure that children receiving services

under the CCDF are age-appropriately immunized. Those health and safety

provisions shall incorporate (by reference or otherwise) the latest

recommendation for

\[\[Page 39988\]\]

childhood immunizations of the respective State or territorial public

health agency.

\(ii\) Notwithstanding paragraph (a)(1)(i) of this section, Lead

Agencies may exempt:

\(A\) Children who are cared for by relatives (defined as

grandparents, great grandparents, siblings (if living in a separate

residence), aunts, and uncles);

\(B\) Children who receive care in their own homes;

\(C\) Children whose parents object to immunization on religious

grounds; and

\(D\) Children whose medical condition contraindicates immunization;

\(iii\) Lead Agencies shall establish a grace period in which

children can receive services while families are taking the necessary

actions to comply with the immunization requirements;

\(2\) Building and physical premises safety; and

\(3\) Minimum health and safety training appropriate to the provider

setting.

\(b\) Lead Agencies may not set health and safety standards and

requirements under paragraph (a) of this section that are inconsistent

with the parental choice safeguards in Sec. 98.30(f).

\(c\) The requirements in paragraph (a) of this section shall apply

to all providers of child care services for which assistance is

provided under this part, within the area served by the Lead Agency,

except the relatives specified in paragraph (e) of this section.

\(d\) Each Lead Agency shall certify that procedures are in effect to

ensure that child care providers of services for which assistance is

provided under this part, within the area served by the Lead Agency,

comply with all applicable State, local, or tribal health and safety

requirements described in paragraph (a) of this section.

\(e\) For the purposes of this section, the term \`\`child care

providers\'\' does not include grandparents, great grandparents,
siblings

(if such providers live in a separate residence), aunts, or uncles,

pursuant to Sec. 98.2.

Sec. 98.42 Sliding fee scales.

\(a\) Lead Agencies shall establish, and periodically revise, by

rule, a sliding fee scale(s) that provides for cost sharing by families

that receive CCDF child care services.

\(b\) A sliding fee scale(s) shall be based on income and the size of

the family and may be based on other factors as appropriate.

\(c\) Lead Agencies may waive contributions from families whose

incomes are at or below the poverty level for a family of the same

size.

Sec. 98.43 Equal access.

\(a\) The Lead Agency shall certify that the payment rates for the

provision of child care services under this part are sufficient to

ensure equal access, for eligible families in the area served by the

Lead Agency, to child care services comparable to those provided to

families not eligible to receive CCDF assistance or child care

assistance under any other Federal, State, or tribal programs.

\(b\) The Lead Agency shall provide a summary of the facts relied on

to determine that its payment rates ensure equal access. At a minimum,

the summary shall include facts showing:

\(1\) How a choice of the full range of providers, e.g., center,

group, family, and in-home care, is made available;

\(2\) How payment rates are adequate based on a local market rate

survey conducted no earlier than two years prior to the effective date

of the currently approved Plan;

\(3\) How copayments based on a sliding fee scale are affordable, as

stipulated at Sec. 98.42.

\(c\) A Lead Agency may not establish different payment rates based

on a family\'s eligibility status or circumstances.

\(d\) Payment rates under paragraph (a) of this section shall be

consistent with the parental choice requirements in Sec. 98.30.

\(e\) Nothing in this section shall be construed to create a private

right of action.

Sec. 98.44 Priority for child care services.

Lead Agencies shall give priority for services provided under

Sec. 98.50(a) to:

\(a\) Children of families with very low family income (considering

family size); and

\(b\) Children with special needs.

Sec. 98.45 List of Providers.

If a Lead Agency does not have a registration process for child

care providers who are unlicensed or unregulated under State, local, or

tribal law, it is required to maintain a list of the names and

addresses of unlicensed or unregulated providers of child care services

for which assistance is provided under this part.

Sec. 98.46 Nondiscrimination in admissions on the basis of religion.

\(a\) Child care providers (other than family child care providers,

as defined in Sec. 98.2) that receive assistance through grants and

contracts under the CCDF shall not discriminate in admissions against

any child on the basis of religion.

\(b\) Paragraph (a) of this section does not prohibit a child care

provider from selecting children for child care slots that are not

funded directly (i.e., through grants or contracts to providers) with

assistance provided under the CCDF because such children or their

family members participate on a regular basis in other activities of

the organization that owns or operates such provider.

\(c\) Notwithstanding paragraph (b) of this section, if 80 percent or

more of the operating budget of a child care provider comes from

Federal or State funds, including direct or indirect assistance under

the CCDF, the Lead Agency shall assure that before any further CCDF

assistance is given to the provider,

\(1\) The grant or contract relating to the assistance, or

\(2\) The admission policies of the provider specifically provide

that no person with responsibilities in the operation of the child care

program, project, or activity will discriminate, on the basis of

religion, in the admission of any child.

Sec. 98.47 Nondiscrimination in employment on the basis of religion.

\(a\) In general, except as provided in paragraph (b) of this

section, nothing in this part modifies or affects the provision of any

other applicable Federal law and regulation relating to discrimination

in employment on the basis of religion.

\(1\) Child care providers that receive assistance through grants or

contracts under the CCDF shall not discriminate, on the basis of

religion, in the employment of caregivers as defined in Sec. 98.2.

\(2\) If two or more prospective employees are qualified for any

position with a child care provider, this section shall not prohibit

the provider from employing a prospective employee who is already

participating on a regular basis in other activities of the

organization that owns or operates the provider.

\(3\) Paragraphs (a)(1) and (2) of this section shall not apply to

employees of child care providers if such employees were employed with

the provider on November 5, 1990.

\(b\) Notwithstanding paragraph (a) of this section, a sectarian

organization may require that employees adhere to the religious tenets

and teachings of such organization and to rules forbidding the use of

drugs or alcohol.

\(c\) Notwithstanding paragraph (b) of this section, if 80 percent or

more of the operating budget of a child care provider comes from

Federal and State funds, including direct and indirect assistance under

the CCDF, the Lead

\[\[Page 39989\]\]

Agency shall assure that, before any further CCDF assistance is given

to the provider,

\(1\) The grant or contract relating to the assistance, or

\(2\) The employment policies of the provider specifically provide

that no person with responsibilities in the operation of the child care

program will discriminate, on the basis of religion, in the employment

of any individual as a caregiver, as defined in Sec. 98.2.

Subpart F\--Use of Child Care and Development Funds

Sec. 98.50 Child care services.

\(a\) Of the funds remaining after applying the provisions of

paragraphs (c), (d) and (e) of this section the Lead Agency shall spend

a substantial portion to provide child care services to low-income

working families.

\(b\) Child care services shall be provided:

\(1\) To eligible children, as described in Sec. 98.20;

\(2\) Using a sliding fee scale, as described in Sec. 98.42;

\(3\) Using funding methods provided for in Sec. 98.30; and

\(4\) Based on the priorities in Sec. 98.44.

\(c\) Of the aggregate amount of funds expended (i.e., Discretionary,

Mandatory, and Federal and State share of Matching Funds), no less than

four percent shall be used for activities to improve the quality of

child care as described at Sec. 98.51.

\(d\) Of the aggregate amount of funds expended (i.e., Discretionary,

Mandatory, and Federal and State share of Matching Funds), no more than

five percent may be used for administrative activities as described at

Sec. 98.52.

\(e\) Not less than 70 percent of the Mandatory and Matching Funds

shall be used to meet the child care needs of families who:

\(1\) Are receiving assistance under a State program under Part A of

title IV of the Social Security Act,

\(2\) Are attempting through work activities to transition off such

assistance program, and

\(3\) Are at risk of becoming dependent on such assistance program.

\(f\) Pursuant to Sec. 98.16(g)(4), the Plan shall specify how the

State will meet the child care needs of families described in paragraph

\(e\) of this section.

Sec. 98.51 Activities to improve the quality of child care.

\(a\) No less than four percent of the aggregate funds expended by

the Lead Agency for a fiscal year, and including the amounts expended

in the State pursuant to Sec. 98.53(b), shall be expended for quality

activities.

\(1\) These activities may include but are not limited to:

\(i\) Activities designed to provide comprehensive consumer education

to parents and the public;

\(ii\) Activities that increase parental choice; and

\(iii\) Activities designed to improve the quality and availability

of child care, including, but not limited to those described in

paragraph (2) of this section.

\(2\) Activities to improve the quality of child care services may

include, but are not limited to:

\(i\) Operating directly or providing financial assistance to

organizations (including private non-profit organizations, public

organizations, and units of general purpose local government) for the

development, establishment, expansion, operation, and coordination of

resource and referral programs specifically related to child care;

\(ii\) Making grants or providing loans to child care providers to

assist such providers in meeting applicable State, local, and tribal

child care standards, including applicable health and safety

requirements, pursuant to Secs. 98.40 and 98.41;

\(iii\) Improving the monitoring of compliance with, and enforcement

of, applicable State, local, and tribal requirements pursuant to

Secs. 98.40 and 98.41;

\(iv\) Providing training and technical assistance in areas

appropriate to the provision of child care services, such as training

in health and safety, nutrition, first aid, the recognition of

communicable diseases, child abuse detection and prevention, and care

of children with special needs;

\(v\) Improving salaries and other compensation (such as fringe

benefits) for full-and part-time staff who provide child care services

for which assistance is provided under this part; and

\(vi\) Any other activities that are consistent with the intent of

this section.

\(b\) Pursuant to Sec. 98.16(h), the Lead Agency shall describe in

its Plan the activities it will fund under this section.

\(c\) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the

maintenance-of-effort amount) are not subject to the requirement at

paragraph (a) of this section.

Sec. 98.52 Administrative costs.

\(a\) Not more than five percent of the aggregate funds expended by

the Lead Agency from each fiscal year\'s allotment, including the

amounts expended in the State pursuant to Sec. 98.53(b), shall be

expended for administrative activities. These activities may include

but are not limited to:

\(1\) Salaries and related costs of the staff of the Lead Agency or

other agencies engaged in the administration and implementation of the

program pursuant to Sec. 98.11. Program administration and

implementation include the following types of activities:

\(i\) Planning, developing, and designing the Child Care and

Development Fund program;

\(ii\) Providing local officials and the public with information

about the program, including the conduct of public hearings;

\(iii\) Preparing the application and Plan;

\(iv\) Developing agreements with administering agencies in order to

carry out program activities;

\(v\) Monitoring program activities for compliance with program

requirements;

\(vi\) Preparing reports and other documents related to the program

for submission to the Secretary;

\(vii\) Maintaining substantiated complaint files in accordance with

the requirements of Sec. 98.32;

\(viii\) Coordinating the provision of Child Care and Development

Fund services with other Federal, State, and local child care, early

childhood development programs, and before-and after-school care

programs;

\(ix\) Coordinating the resolution of audit and monitoring findings;

\(x\) Evaluating program results; and

\(xi\) Managing or supervising persons with responsibilities

described in paragraphs (a)(1)(i) through (x) of this section;

\(2\) Travel costs incurred for official business in carrying out the

program;

\(3\) Administrative services, including such services as accounting

services, performed by grantees or subgrantees or under agreements with

third parties;

\(4\) Audit services as required at Sec. 98.65;

\(5\) Other costs for goods and services required for the

administration of the program, including rental or purchase of

equipment, utilities, and office supplies; and

\(6\) Indirect costs as determined by an indirect cost agreement or

cost allocation plan pursuant to Sec. 98.55.

\(b\) The five percent limitation at paragraph (a) of this section

applies only to the States and Territories. The amount of the

limitation at paragraph (a) of this section does not apply to Tribes or

tribal organizations.

\(c\) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the

maintenance-of-effort amount) are not subject to the five percent

limitation at paragraph (a) of this section.

\[\[Page 39990\]\]

Sec. 98.53 Matching fund requirements.

\(a\) Federal matching funds are available for expenditures in a

State based upon the formula specified at Sec. 98.63(a).

\(b\) Expenditures in a State under paragraph (a) of this section

will be matched at the Federal medical assistance rate for the

applicable fiscal year for allowable activities, as described in the

approved State Plan, that meet the goals and purposes of the Act.

\(c\) In order to receive Federal matching funds for a fiscal year

under paragraph (a) of this section:

\(1\) States shall also expend an amount of non-Federal funds for

child care activities in the State that is at least equal to the

State\'s share of expenditures for fiscal year 1994 or 1995 (whichever

is greater) under sections 402(g) and (i) of the Social Security Act as

these sections were in effect before October 1, 1995; and

\(2\) The expenditures shall be for allowable services or activities,

as described in the approved State Plan if appropriate, that meet the

goals and purposes of the Act.

\(3\) All Mandatory Funds are obligated in accordance with

Sec. 98.60(d)(2)(i).

\(d\) The same expenditure may not be used to meet the requirements

under both paragraphs (b) and (c) of this section in a fiscal year.

\(e\) An expenditure in the State for purposes of this subpart may

be:

\(1\) Public funds when the funds are:

\(i\) Appropriated directly to the Lead Agency specified at

Sec. 98.10, or transferred from another public agency to that Lead

Agency and under its administrative control, or certified by the

contributing public agency as representing expenditures eligible for

Federal match;

\(ii\) Not used to match other Federal funds; and

\(iii\) Not Federal funds, or are Federal funds authorized by Federal

law to be used to match other Federal funds; or

\(2\) Donated from private sources when the donated funds:

\(i\) Are donated without any restriction that would require their

use for a specific individual, organization, facility or institution;

\(ii\) Do not revert to the donor\'s facility or use; and

\(iii\) Are not used to match other Federal funds;

\(iv\) Shall be certified both by the donor and by the Lead Agency as

available and representing expenditures eligible for Federal match; and

\(v\) Shall be subject to the audit requirements in Sec. 98.65 of

these regulations.

\(f\) Donated funds need not be transferred to or under the

administrative control of the Lead Agency in order to qualify as an

expenditure eligible to receive Federal match under this subsection.

They may be given to the entity designated by the State to receive

donated funds pursuant to Sec. 98.16(c)(2).

\(g\) The following are not counted as an eligible State expenditure

under this Part:

\(1\) In-kind contributions; and

\(2\) Family contributions to the cost of care as required by

Sec. 98.42.

\(h\) Public pre-kindergarten (pre-K) expenditures:

\(1\) May be used to meet the maintenance-of-effort requirement only

if the State has not reduced its expenditures for full-day/full-year

child care services; and

\(2\) May be eligible for Federal match if the State includes in its

Plan, as provided in Sec. 98.16(q), a description of the efforts it

will undertake to ensure that pre-K programs meet the needs of working

parents.

\(3\) In any fiscal year, a State may use public pre-K funds for up

to 20% of the funds serving as maintenance-of-effort under this

subsection. In any fiscal year, a State may use other public pre-K

funds for up to 20% of the expenditures serving as the State\'s matching

funds under this subsection.

\(4\) If applicable, the CCDF Plan shall reflect the State\'s intent

to use public pre-K funds in excess of 10%, but not for more than 20%,

of either its maintenance-of-effort or State matching funds in a fiscal

year. Also, the Plan shall describe how the State will coordinate its

pre-K and child care services to expand the availability of child care.

\(i\) Matching funds are subject to the obligation and liquidation

requirements at Sec. 98.60(d)(3).

Sec. 98.54 Restrictions on the use of funds.

\(a\) General. (1) Funds authorized under section 418 of the Social

Security Act and section 658B of the Child Care and Development Block

Grant Act, and all funds transferred to the Lead Agency pursuant to

section 404(d) of the Social Security Act, shall be expended consistent

with these regulations. Funds transferred pursuant to section 404(d) of

the Social Security Act shall be treated as Discretionary Funds;

\(2\) Funds shall be expended in accordance with applicable State and

local laws, except as superseded by Sec. 98.3.

\(b\) Construction. (1) For State and local agencies and nonsectarian

agencies or organizations, no funds shall be expended for the purchase

or improvement of land, or for the purchase, construction, or permanent

improvement of any building or facility. However, funds may be expended

for minor remodeling, and for upgrading child care facilities to assure

that providers meet State and local child care standards, including

applicable health and safety requirements.

\(2\) For sectarian agencies or organizations, the prohibitions in

paragraph (b)(1) of this section apply; however, funds may be expended

for minor remodeling only if necessary to bring the facility into

compliance with the health and safety requirements established pursuant

to Sec. 98.41.

\(3\) Tribes and tribal organizations are subject to the requirements

at Sec. 98.84 regarding construction and renovation.

\(c\) Tuition. Funds may not be expended for students enrolled in

grades 1 through 12 for:

\(1\) Any service provided to such students during the regular school

day;

\(2\) Any service for which such students receive academic credit

toward graduation; or

\(3\) Any instructional services that supplant or duplicate the

academic program of any public or private school.

\(d\) Sectarian purposes and activities. Funds provided under grants

or contracts to providers may not be expended for any sectarian purpose

or activity, including sectarian worship or instruction. Pursuant to

Sec. 98.2, assistance provided to parents through certificates is not a

grant or contract. Funds provided through child care certificates may

be expended for sectarian purposes or activities, including sectarian

worship or instruction when provided as part of the child care

services.

\(e\) The CCDF may not be used as the non-Federal share for other

Federal grant programs.

Sec. 98.55 Cost allocation.

\(a\) The Lead Agency and subgrantees shall keep on file cost

allocation plans or indirect cost agreements, as appropriate, that have

been amended to include costs allocated to the CCDF.

\(b\) Subgrantees that do not already have a negotiated indirect rate

with the Federal government should prepare and keep on file cost

allocation plans or indirect cost agreements, as appropriate.

\(c\) Approval of the cost allocation plans or indirect cost

agreements is not specifically required by these regulations, but these

plans and agreements are subject to review.

\[\[Page 39991\]\]

Subpart G\--Financial Management

Sec. 98.60 Availability of funds.

\(a\) The CCDF is available, subject to the availability of

appropriations, in accordance with the apportionment of funds from the

Office of Management and Budget as follows:

\(1\) Discretionary Funds are available to States, Territories, and

Tribes,

\(2\) Mandatory and Matching Funds are available to States;

\(3\) Tribal Mandatory Funds are available to Tribes.

\(b\) Subject to the availability of appropriations, in accordance

with the apportionment of funds from the Office of Management and

Budget, the Secretary:

\(1\) May withhold no more than one-quarter of one percent of the

CCDF funds made available for a fiscal year for the provision of

technical assistance; and

\(2\) Will award the remaining CCDF funds to grantees that have an

approved application and Plan.

\(c\) The Secretary may make payments in installments, and in advance

or by way of reimbursement, with necessary adjustments due to

overpayments or underpayments.

\(d\) The following obligation and liquidation provisions apply to

States and Territories:

\(1\) Discretionary Fund allotments shall be obligated in the fiscal

year in which funds are awarded or in the succeeding fiscal year.

Unliquidated obligations as of the end of the succeeding fiscal year

shall be liquidated within one year.

(2)(i) Mandatory Funds for States requesting Matching Funds per

Sec. 98.53 shall be obligated in the fiscal year in which the funds are

granted and are available until expended.

\(ii\) Mandatory Funds for States that do not request Matching Funds

are available until expended.

\(3\) Both the Federal and non-Federal share of the Matching Fund

shall be obligated in the fiscal year in which the funds are granted

and liquidated no later than the end of the succeeding fiscal year.

\(4\) Except for paragraph (d)(5) of this section, determination of

whether funds have been obligated and liquidated will be based on:

\(i\) State or local law; or,

\(ii\) If there is no applicable State or local law, the regulation

at 45 CFR 92.3, Obligations and Outlays (expenditures).

\(5\) Obligations may include subgrants or contracts that require the

payment of funds to a third party (e.g., subgrantee or contractor).

However, the following are not considered third party subgrantees or

contractors:

\(i\) A local office of the Lead Agency;

\(ii\) Another entity at the same level of government as the Lead

Agency; or

\(iii\) A local office of another entity at the same level of

government as the Lead Agency.

\(6\) For purposes of the CCDF, funds for child care services

provided through a child care certificate will be considered obligated

when a child care certificate is issued to a family in writing that

indicates:

\(i\) The amount of funds that will be paid to a child care provider

or family, and

\(ii\) The specific length of time covered by the certificate, which

is limited to the date established for redetermination of the family\'s

eligibility, but shall be no later than the end of the liquidation

period.

\(7\) Any funds not obligated during the obligation period specified

in paragraph (d) of this section will revert to the Federal government.

Any funds not liquidated by the end of the applicable liquidation

period specified in paragraph (d) of this section will also revert to

the Federal government.

\(e\) The following obligation and liquidation provisions apply to

Tribal Discretionary and Tribal Mandatory Funds:

\(1\) Tribal grantees shall obligate all funds by the end of the

fiscal year following the fiscal year for which the grant is awarded.

Any funds not obligated during this period will revert to the Federal

government.

\(2\) Obligations that remain unliquidated at the end of the

succeeding fiscal year shall be liquidated within the next fiscal year.

Any tribal funds that remain unliquidated by the end of this period

will also revert to the Federal government.

\(f\) Cash advances shall be limited to the minimum amounts needed

and shall be timed to be in accord with the actual, immediate cash

requirements of the State Lead Agency, its subgrantee or contractor in

carrying out the purpose of the program in accordance with 31 CFR part

205\.

\(g\) Funds that are returned (e.g., loan repayments, funds

deobligated by cancellation of a child care certificate, unused

subgrantee funds) as well as program income (e.g., contributions made

by families directly to the Lead Agency or subgrantee for the cost of

care where the Lead Agency or subgrantee has made a full payment to the

child care provider) shall,

\(1\) if received by the Lead Agency during the applicable obligation

period, described in paragraphs (d) and (e) of this section, be used

for activities specified in the Lead Agency\'s approved plan and must be

obligated by the end of the obligation period; or

\(2\) if received after the end of the applicable obligation period

described at paragraphs (d) and (e) of this section, be returned to the

Federal government.

\(h\) Repayment of loans, pursuant to Sec. 98.51(a)(2)(ii), may be

made in cash or in services provided in-kind. Payment provided in-kind

shall be based on fair market value. All loans shall be fully repaid.

\(i\) Lead Agencies shall recover child care payments that are the

result of fraud. These payments shall be recovered from the party

responsible for committing the fraud.

Sec. 98.61 Allotments from the Discretionary Fund.

\(a\) To the 50 States, the District of Columbia, and the

Commonwealth of Puerto Rico an amount equal to the funds appropriated

for the Child Care and Development Block Grant, less amounts reserved

for technical assistance and amounts reserved for the Territories and

Tribes, pursuant to Sec. 98.60(b) and paragraphs (b) and (c) of this

section, shall be allotted based upon the formula specified in section

658O(b) of the Act.

\(b\) For the U.S. Territories of Guam, American Samoa, the Virgin

Islands of the United States, and the Commonwealth of the Northern

Mariana Islands an amount up to one-half of one percent of the amount

appropriated for the Child Care and Development Block Grant shall be

reserved.

\(1\) Funds shall be allotted to these Territories based upon the

following factors:

\(i\) A Young Child factor\--the ratio of the number of children in

the Territory under five years of age to the number of such children in

all Territories; and

\(ii\) An Allotment Proportion factor\--determined by dividing the per

capita income of all individuals in all the Territories by the per

capita income of all individuals in the Territory.

\(A\) Per capita income shall be:

\(1\) Equal to the average of the annual per capita incomes for the

most recent period of three consecutive years for which satisfactory

data are available at the time such determination is made; and

\(2\) Determined every two years.

\(B\) Per capita income determined, pursuant to paragraph

(b)(1)(ii)(A) of this section, will be applied in establishing the

allotment for the fiscal year for which it is determined and for the

following fiscal year.

\(C\) If the Allotment Proportion factor determined at paragraph

(b)(1)(ii) of this section:

\[\[Page 39992\]\]

\(1\) Exceeds 1.2, then the Allotment Proportion factor of the

Territory shall be considered to be 1.2; or

\(2\) Is less than 0.8, then the Allotment Proportion factor of the

Territory shall be considered to be 0.8.

\(2\) The formula used in calculating a Territory\'s allotment is as

follows:

\[GRAPHIC\] \[TIFF OMITTED\] TR24JY98.000

\(ii\) For purposes of the formula specified at paragraph (b)(2)(i)

of this section, the term \`\`YCF&lt;INF&gt;t&lt;/INF&gt;\'\' means the
Territory\'s

Young Child factor as defined at paragraph (b)(1)(i) of this section.

\(iii\) For purposes of the formula specified at paragraph (b)(2)(i)

of this section, the term \`\`APF&lt;INF&gt;t&lt;/INF&gt;\'\' means the
Territory\'s

Allotment Proportion factor as defined at paragraph (b)(1)(ii) of this

section.

\(c\) For Indian Tribes and tribal organizations, including any

Alaskan Native Village or regional or village corporation as defined in

or established pursuant to the Alaska Native Claims Settlement Act (43

U.S.C. 1601 et seq) an amount up to two percent of the amount

appropriated for the Child Care and Development Block Grant shall be

reserved.

\(1\) Except as specified in paragraph (c)(2) of this section, grants

to individual tribal grantees will be equal to the sum of:

\(i\) A base amount as set by the Secretary; and

\(ii\) An additional amount per Indian child under age 13 (or such

similar age as determined by the Secretary from the best available

data), which is determined by dividing the amount of funds available,

less amounts set aside for eligible Tribes, pursuant to paragraph

(c)(1)(i) of this section, by the number of all Indian children living

on or near tribal reservations or other appropriate area served by the

tribal grantee, pursuant to Sec. 98.80(e).

\(2\) Grants to Tribes with fewer than 50 Indian children that apply

as part of a consortium, pursuant to Sec. 98.80(b)(1), are equal to the

sum of:

\(i\) A portion of the base amount, pursuant to paragraph (c)(1)(i)

of this section, that bears the same ratio as the number of Indian

children in the Tribe living on or near the reservation, or other

appropriate area served by the tribal grantee, pursuant to

Sec. 98.80(e), does to 50; and

\(ii\) An additional amount per Indian child, pursuant to paragraph

(c)(1)(ii) of this section.

\(3\) Tribal consortia will receive grants that are equal to the sum

of the individual grants of their members.

\(d\) All funds reserved for Territories at paragraph (b) of this

section will be allotted to Territories, and all funds reserved for

Tribes at paragraph (c) of this section will be allotted to tribal

grantees. Any funds that are returned by the Territories after they

have been allotted will revert to the Federal government.

\(e\) For other organizations, up to \$2,000,000 may be reserved from

the tribal funds reserved at paragraph (c) of this section. From this

amount the Secretary may award a grant to a Native Hawaiian

Organization, as defined in section 4009(4) of the Augustus F. Hawkins-

Robert T. Stafford Elementary and Secondary School Improvement

Amendments of 1988 (20 U.S.C. 4909(4)) and to a private non-profit

organization established for the purpose of serving youth who are

Indians or Native Hawaiians. The Secretary will establish selection

criteria and procedures for the award of grants under this subsection

by notice in the Federal Register.

Sec. 98.62 Allotments from the Mandatory Fund.

\(a\) Each of the 50 States and the District of Columbia will be

allocated from the funds appropriated under section 418(a)(3) of the

Social Security Act, less the amounts reserved for technical assistance

pursuant to Sec. 98.60(b)(1) and the amount reserved for Tribes

pursuant to paragraph (b) of this section, an amount of funds equal to

the greater of:

\(1\) the Federal share of its child care expenditures under

subsections (g) and (i) of section 402 of the Social Security Act (as

in effect before October 1, 1995) for fiscal year 1994 or 1995

(whichever is greater); or

\(2\) the average of the Federal share of its child care expenditures

under the subsections referred to in subparagraph (a)(1) of this

section for fiscal years 1992 through 1994.

\(b\) For Indian Tribes and tribal organizations up to 2 percent of

the amount appropriated under section 418(a)(3) of the Social Security

Act shall be allocated according to the formula at paragraph (c) of

this section. In Alaska, only the following 13 entities shall receive

allocations under this subpart, in accordance with the formula at

paragraph (c) of this section:

\(1\) The Metlakatla Indian Community of the Annette Islands Reserve:

\(2\) Arctic Slope Native Association;

\(3\) Kawerak, Inc.;

\(4\) Maniilaq Association;

\(5\) Association of Village Council Presidents;

\(6\) Tanana Chiefs Conference;

\(7\) Cook Inlet Tribal Council;

\(8\) Bristol Bay Native Association;

\(9\) Aleutian and Pribilof Islands Association;

\(10\) Chugachmuit;

\(11\) Tlingit and Haida Central Council;

\(12\) Kodiak Area Native Association; and

\(13\) Copper River Native Association.

(c)(1) Grants to individual Tribes with 50 or more Indian children,

and to Tribes with fewer than 50 Indian children that apply as part of

a consortium pursuant to Sec. 98.80(b)(1), will be equal to an amount

per Indian child under age 13 (or such similar age as determined by the

Secretary from the best available data), which is determined by

dividing the amount of funds available, by the number of Indian

children in each Tribe\'s service area pursuant to Sec. 98.80(e).

\(2\) Tribal consortia will receive grants that are equal to the sum

of the individual grants of their members.

Sec. 98.63 Allotments from the Matching Fund.

\(a\) To each of the 50 States and the District of Columbia there is

allocated an amount equal to its share of the total available under

section 418(a)(3) of the Social Security Act. That amount is based on

the same ratio as the number of children under age 13 residing in the

State bears to the national total of children under age 13. The number

of children under 13 is derived from the best data available to the

Secretary for the second preceding fiscal year.

\(b\) For purposes of this subsection, the amounts available under

section 418(a)(3) of the Social Security Act excludes the amounts

reserved and allocated under Sec. 98.60(b)(1) for technical assistance

and under Sec. 98.62(a) and (b) for the Mandatory Fund.

\(c\) Amounts under this subsection are available pursuant to the

requirements at Sec. 98.53(c).

Sec. 98.64 Reallotment and redistribution of funds.

\(a\) According to the provisions of this section State and Tribal

Discretionary Funds are subject to reallotment, and State Matching

Funds are subject to redistribution. State funds are reallotted or

redistributed only to States as defined for the original allocation.

Tribal funds are reallotted only to Tribes. Funds granted to the

Territories are not subject to reallotment. Any funds granted to the

Territories that are returned after they

\[\[Page 39993\]\]

have been allotted will revert to the Federal government.

\(b\) Any portion of a State\'s Discretionary Fund allotment that is

not required to carry out its Plan, in the period for which the

allotment is made available, shall be reallotted to other States in

proportion to the original allotments. For purposes of this paragraph

the term \`\`State\'\' means the 50 States, the District of Columbia,
and

the Commonwealth of Puerto Rico. The other Territories and the Tribes

may not receive reallotted State Discretionary Funds.

\(1\) Each year, the State shall report to the Secretary either the

dollar amount from the previous year\'s grant that it will be unable to

obligate by the end of the obligation period or that all funds will be

obligated during such time. Such report shall be postmarked by April

1st.

\(2\) Based upon the reallotment reports submitted by States, the

Secretary will reallot funds.

\(i\) If the total amount available for reallotment is \$25,000 or

more, funds will be reallotted to States in proportion to each State\'s

allotment for the applicable fiscal year\'s funds, pursuant to

Sec. 98.61(a).

\(ii\) If the amount available for reallotment is less than \$25,000,

the Secretary will not reallot any funds, and such funds will revert to

the Federal government.

\(iii\) If an individual reallotment amount to a State is less than

\$500, the Secretary will not issue the award, and such funds will

revert to the Federal government.

\(3\) If a State does not submit a reallotment report by the deadline

for report submittal, either:

\(i\) The Secretary will determine that the State does not have any

funds available for reallotment; or

\(ii\) In the case of a report postmarked after April 1st, any funds

reported to be available for reallotment shall revert to the Federal

government.

\(4\) States receiving reallotted funds shall obligate and expend

these funds in accordance with Sec. 98.60. The reallotment of funds

does not extend the obligation period or the program period for

expenditure of such funds.

(c)(1) Any portion of the Matching Fund granted to a State that is

not obligated in the period for which the grant is made shall be

redistributed. Funds, if any, will be redistributed on the request of,

and only to, those other States that have met the requirements of

Sec. 98.53(c) in the period for which the grant was first made. For

purposes of this paragraph the term \`\`State\'\' means the 50 States
and

the District of Columbia. Territorial and tribal grantees may not

receive redistributed Matching Funds.

\(2\) Matching Funds allotted to a State under Sec. 98.63(a), but not

granted, shall also be redistributed in the manner described in

paragraph (1) of this section.

\(3\) The amount of Matching Funds granted to a State that will be

made available for redistribution will be based on the State\'s

financial report to ACF for the Child Care and Development Fund (ACF-

696\) and is subject to the monetary limits at paragraph (b)(2) of this

section.

\(4\) A State eligible to receive redistributed Matching Funds shall

also use the ACF-696 to request its share of the redistributed funds,

if any.

\(5\) A State\'s share of redistributed Matching Funds is based on the

same ratio as the number of children under 13 residing in the State to

the number of children residing in all States eligible to receive and

that request the redistributed Matching Funds.

\(6\) Redistributed funds are considered part of the grant for the

fiscal year in which the redistribution occurs.

\(d\) Any portion of a Tribe\'s allotment of Discretionary Funds that

is not required to carry out its Plan, in the period for which the

allotment is made available, shall be reallotted to other tribal

grantees in proportion to their original allotments. States and

Territories may not receive reallotted tribal funds.

\(1\) Each year, the Tribe shall report to the Secretary either the

dollar amount from the previous year\'s grant that it will be unable to

obligate by the end of the obligation period or that all funds will be

obligated during such time. Such report shall be postmarked by a

deadline established by the Secretary.

\(2\) Based upon the reallotment reports submitted by Tribes, the

Secretary will reallot Tribal Discretionary Funds among the other

Tribes.

\(i\) If the total amount available for reallotment is \$25,000 or

more, funds will be reallotted to other tribal grantees in proportion

to each Tribe\'s original allotment for the applicable fiscal year

pursuant to Sec. 98.62(c).

\(ii\) If the total amount available for reallotment is less than

\$25,000, the Secretary will not reallot any funds, and such funds will

revert to the Federal government.

\(iii\) If an individual reallotment amount to an applicant Tribe is

less than \$500, the Secretary will not issue the award, and such funds

will revert to the Federal government.

\(3\) If a Tribe does not submit a reallotment report by the deadline

for report submittal, either:

\(i\) The Secretary will determine that Tribe does not have any funds

available for reallotment; or

\(ii\) In the case of a report received after the deadline

established by the Secretary, any funds reported to be available for

reallotment shall revert to the Federal government.

\(4\) Tribes receiving reallotted funds shall obligate and expend

these funds in accordance with Sec. 98.60. The reallotment of funds

does not extend the obligation period or the program period for

expenditure of such funds.

Sec. 98.65 Audits and financial reporting.

\(a\) Each Lead Agency shall have an audit conducted after the close

of each program period in accordance with OMB Circular A-133 and the

Single Audit Act Amendments of 1996.

\(b\) Lead Agencies are responsible for ensuring that subgrantees are

audited in accordance with appropriate audit requirements.

\(c\) Not later than 30 days after the completion of the audit, Lead

Agencies shall submit a copy of their audit report to the legislature

of the State or, if applicable, to the Tribal Council(s). Lead Agencies

shall also submit a copy of their audit report to the HHS Inspector

General for Audit Services, as well as to their cognizant agency, if

applicable.

\(d\) Any amounts determined through an audit not to have been

expended in accordance with these statutory or regulatory provisions,

or with the Plan, and that are subsequently disallowed by the

Department shall be repaid to the Federal government, or the Secretary

will offset such amounts against any other CCDF funds to which the Lead

Agency is or may be entitled.

\(e\) Lead Agencies shall provide access to appropriate books,

documents, papers and records to allow the Secretary to verify that

CCDF funds have been expended in accordance with the statutory and

regulatory requirements of the program, and with the Plan.

\(f\) The audit required in paragraph (a) of this section shall be

conducted by an agency that is independent of the State, Territory or

Tribe as defined by generally accepted government auditing standards

issued by the Comptroller General, or a public accountant who meets

such independent standards.

\(g\) The Secretary shall require financial reports as necessary.

Sec. 98.66 Disallowance procedures.

\(a\) Any expenditures not made in accordance with the Act, the

implementing regulations, or the approved Plan, will be subject to

disallowance.

\[\[Page 39994\]\]

\(b\) If the Department, as the result of an audit or a review, finds

that expenditures should be disallowed, the Department will notify the

Lead Agency of this decision in writing.

(c)(1) If the Lead Agency agrees with the finding that amounts were

not expended in accordance with the Act, these regulations, or the

Plan, the Lead Agency shall fulfill the provisions of the disallowance

notice and repay any amounts improperly expended; or

\(2\) The Lead Agency may appeal the finding:

\(i\) By requesting reconsideration from the Assistant Secretary,

pursuant to paragraph (f) of this section; or

\(ii\) By following the procedure in paragraph (d) of this section.

\(d\) A Lead Agency may appeal the disallowance decision to the

Departmental Appeals Board in accordance with 45 CFR part 16.

\(e\) The Lead Agency may appeal a disallowance of costs that the

Department has determined to be unallowable under an award. A grantee

may not appeal the determination of award amounts or disposition of

unobligated balances.

\(f\) The Lead Agency\'s request for reconsideration in (c)(2)(i) of

this section shall be postmarked no later than 30 days after the

receipt of the disallowance notice. A Lead Agency may request an

extension within the 30-day time frame. The request for

reconsideration, pursuant to (c)(2)(i) of this section, need not follow

any prescribed form, but it shall contain:

\(1\) The amount of the disallowance;

\(2\) The Lead Agency\'s reasons for believing that the disallowance

was improper; and

\(3\) A copy of the disallowance decision issued pursuant to

paragraph (b) of this section.

(g)(1) Upon receipt of a request for reconsideration, pursuant to

(c)(2)(i) of this section, the Assistant Secretary or the Assistant

Secretary\'s designee will inform the Lead Agency that the request is

under review.

\(2\) The Assistant Secretary or the designee will review any

material submitted by the Lead Agency and any other necessary

materials.

\(3\) If the reconsideration decision is adverse to the Lead Agency\'s

position, the response will include a notification of the Lead Agency\'s

right to appeal to the Departmental Appeals Board, pursuant to

paragraph (d) of this section.

\(h\) If a Lead Agency refuses to repay amounts after a final

decision has been made, the amounts will be offset against future

payments to the Lead Agency.

\(i\) The appeals process in this section is not applicable if the

disallowance is part of a compliance review, pursuant to Sec. 98.90,

the findings of which have been appealed by the Lead Agency.

\(j\) Disallowances under the CCDF program are subject to interest

regulations at 45 CFR part 30. Interest will begin to accrue from the

date of notification.

Sec. 98.67 Fiscal requirements.

\(a\) Lead Agencies shall expend and account for CCDF funds in

accordance with their own laws and procedures for expending and

accounting for their own funds.

\(b\) Unless otherwise specified in this part, contracts that entail

the expenditure of CCDF funds shall comply with the laws and procedures

generally applicable to expenditures by the contracting agency of its

own funds.

\(c\) Fiscal control and accounting procedures shall be sufficient to

permit:

\(1\) Preparation of reports required by the Secretary under this

subpart and under subpart H; and

\(2\) The tracing of funds to a level of expenditure adequate to

establish that such funds have not been used in violation of the

provisions of this part.

Subpart H\--Program Reporting Requirements

Sec. 98.70 Reporting requirements.

\(a\) Quarterly Case-level Report\--

\(1\) State and territorial Lead Agencies that receive assistance

under the CCDF shall prepare and submit to the Department, in a manner

specified by the Secretary, a quarterly case-level report of monthly

family case-level data. Data shall be collected monthly and submitted

quarterly. States may submit the data monthly if they choose to do so.

\(2\) The information shall be reported for the three-month federal

fiscal period preceding the required report. The first report shall be

submitted no later than August 31, 1998, and quarterly thereafter. The

first report shall include data from the third quarter of FFY 1998

(April 1998 through June 1998). States and Territorial Lead Agencies

which choose to submit case-level data monthly must submit their report

for April 1998 no later than July 30, 1998. Following reports must be

submitted every thirty days thereafter.

\(3\) State and territorial Lead Agencies choosing to submit data

based on a sample shall submit a sampling plan to ACF for approval 60

days prior to the submission of the first quarterly report. States are

not prohibited from submitting case-level data for the entire

population receiving CCDF services.

\(4\) Quarterly family case-level reports to the Secretary shall

include the information listed in Sec. 98.71(a).

\(b\) Annual Report\--

\(1\) State and territorial Lead Agencies that receive assistance

under CCDF shall prepare and submit to the Secretary an annual report.

The report shall be submitted, in a manner specified by the Secretary,

by December 31 of each year and shall cover the most recent federal

fiscal year (October through September).

\(2\) The first annual aggregate report shall be submitted no later

than December 31, 1997, and every twelve months thereafter.

\(3\) Biennial reports to Congress by the Secretary shall include the

information listed in Sec. 98.71(b).

\(c\) Tribal Annual Report\--

\(1\) Tribal Lead Agencies that receive assistance under CCDF shall

prepare and submit to the Secretary an annual aggregate report.

\(2\) The report shall be submitted in the manner specified by the

Secretary by December 31 of each year and shall cover services for

children and families served with CCDF funds during the preceding

Federal Fiscal Year.

\(3\) Biennial reports to Congress by the Secretary shall include the

information listed in Sec. 98.71(c).

Sec. 98.71 Content of reports.

\(a\) At a minimum, a State or territorial Lead Agency\'s quarterly

case-level report to the Secretary, as required in Sec. 98.70, shall

include the following information on services provided under CCDF grant

funds, including Federal Discretionary (which includes any funds

transferred from the TANF Block Grant), Mandatory, and Matching Funds;

and State Matching and Maintenance-of-Effort (MOE) Funds:

\(1\) The total monthly family income for determining eligibility;

\(2\) County of residence;

\(3\) Gender and month/year of birth of children;

\(4\) Ethnicity and race of children;

\(5\) Whether the head of the family is a single parent;

\(6\) The sources of family income, from employment (including self-

employment), cash or other assistance under the Temporary Assistance

for Needy Families program under Part A of title IV of the Social

Security Act, cash or other assistance under a State program for which

State spending is counted toward the maintenance of effort requirement

under section 409(a)(7) of the Social Security Act, housing assistance,

assistance under the Food Stamp Act of 1977; and other assistance

programs;

\(7\) The month/year child care assistance to the family started;

\[\[Page 39995\]\]

\(8\) The type(s) of child care in which the child was enrolled (such

as family child care, in-home care, or center-based child care);

\(9\) Whether the child care provider involved was a relative;

\(10\) The total monthly child care copayment by the family;

\(11\) The total expected dollar amount per month to be received by

the provider for each child;

\(12\) The total hours per month of such care;

\(13\) Social Security Number of the head of the family unit

receiving child care assistance;

\(14\) Reasons for receiving care; and

\(15\) Any additional information that the Secretary shall require.

\(b\) At a minimum, a State or territorial Lead Agency\'s annual

aggregate report to the Secretary, as required in Sec. 98.70(b), shall

include the following information on services provided through all CCDF

grant funds, including Federal Discretionary (which includes any funds

transferred from the TANF Block Grant), Mandatory, and Matching Funds;

and State Matching and MOE Funds:

\(1\) The number of child care providers that received funding under

CCDF as separately identified based on the types of providers listed in

section 658P(5) of the amended Child Care and Development Block Grant

Act;

\(2\) The number of children served by payments through certificates

or vouchers, contracts or grants, and cash under public benefit

programs, listed by the primary type of child care services provided

during the last month of the report period (or the last month of

service for those children leaving the program before the end of the

report period);

\(3\) The manner in which consumer education information was provided

to parents and the number of parents to whom such information was

provided;

\(4\) The total number (without duplication) of children and families

served under CCDF; and

\(5\) Any additional information that the Secretary shall require.

\(c\) At a minimum, a Tribal Lead Agency\'s annual report to the

Secretary, as required in Sec. 98.70(c), shall include the following

information on services provided through all CCDF tribal grant awards:

\(1\) Unduplicated number of families and children receiving

services;

\(2\) Children served by age;

\(3\) Children served by reason for care;

\(4\) Children served by payment method (certificate/voucher or

contract/grants);

\(5\) Average number of hours of care provided per week;

\(6\) Average hourly amount paid for care;

\(7\) Children served by level of family income; and

\(8\) Children served by type of child care providers.

Subpart I\--Indian Tribes

Sec. 98.80 General procedures and requirements.

An Indian Tribe or tribal organization (as described in Subpart G

of these regulations) may be awarded grants to plan and carry out

programs for the purpose of increasing the availability, affordability,

and quality of child care and childhood development programs subject to

the following conditions:

\(a\) An Indian Tribe applying for or receiving CCDF funds shall be

subject to all the requirements under this part, unless otherwise

indicated.

\(b\) An Indian Tribe applying for or receiving CCDF funds shall:

\(1\) Have at least 50 children under 13 years of age (or such

similar age, as determined by the Secretary from the best available

data) in order to be eligible to operate a CCDF program. This

limitation does not preclude an Indian Tribe with fewer than 50

children under 13 years of age from participating in a consortium that

receives CCDF funds; and

\(2\) Demonstrate its current service delivery capability, including

skills, personnel, resources, community support, and other necessary

components to satisfactorily carry out the proposed program.

\(c\) A consortium representing more than one Indian Tribe may be

eligible to receive CCDF funds on behalf of a particular Tribe if:

\(1\) The consortium adequately demonstrates that each participating

Tribe authorizes the consortium to receive CCDF funds on behalf of each

Tribe or tribal organization in the consortium; and

\(2\) The consortium consists of Tribes that each meet the

eligibility requirements for the CCDF program as defined in this part,

or that would otherwise meet the eligibility requirements if the Tribe

or tribal organization had at least 50 children under 13 years of age;

and

\(3\) All the participating consortium members are in geographic

proximity to one another (including operation in a multi-State area) or

have an existing consortium arrangement; and

\(4\) The consortium demonstrates that it has the managerial,

technical and administrative staff with the ability to administer

government funds, manage a CCDF program and comply with the provisions

of the Act and of this part.

\(d\) The awarding of a grant under this section shall not affect the

eligibility of any Indian child to receive CCDF services provided by

the State or States in which the Indian Tribe is located.

\(e\) For purposes of the CCDF, the determination of the number of

children in the Tribe, pursuant to paragraph (b)(1) of this section,

shall include Indian children living on or near reservations, with the

exception of Tribes in Alaska, California and Oklahoma.

\(f\) In determining eligibility for services pursuant to

Sec. 98.20(a)(2), a tribal program may use either:

\(1\) 85 percent of the State median income for a family of the same

size; or

\(2\) 85 percent of the median income for a family of the same size

residing in the area served by the Tribal Lead Agency.

Sec. 98.81 Application and Plan procedures.

\(a\) In order to receive CCDF funds, a Tribal Lead Agency shall

apply for funds pursuant to Sec. 98.13, except that the requirement at

Sec. 98.13(b)(2) does not apply.

\(b\) A Tribal Lead Agency shall submit a CCDF Plan, as described at

Sec. 98.16, with the following additions and exceptions:

\(1\) The Plan shall include the basis for determining family

eligibility pursuant to Sec. 98.80(f).

\(2\) For purposes of determining eligibility, the following terms

shall also be defined:

\(i\) Indian child; and

\(ii\) Indian reservation or tribal service area.

\(3\) The Tribal Lead Agency shall also assure that:

\(i\) The applicant shall coordinate, to the maximum extent feasible,

with the Lead Agency in the State in which the applicant shall carry

out CCDF programs or activities, pursuant to Sec. 98.82; and

\(ii\) In the case of an applicant located in a State other than

Alaska, California, or Oklahoma, CCDF programs and activities shall be

carried out on an Indian reservation for the benefit of Indian

children, pursuant to Sec. 98.83(b).

\(4\) The Plan shall include any information, as prescribed by the

Secretary, necessary for determining the number of children in

accordance with Secs. 98.61(c), 98.62(c), and 98.80(b)(1).

\(5\) Plans for those Tribes specified at Sec. 98.83(f) (i.e., Tribes

with small grants) are not subject to the requirements in

Sec. 98.16(g)(2) or Sec. 98.16(k) unless the Tribe chooses to include

such services, and, therefore, the associated requirements, in its

program.

\[\[Page 39996\]\]

\(6\) The Plan is not subject to requirements in Sec. 98.16(f)(8) or

Sec. 98.16(g)(4).

\(7\) In its initial Plan, an Indian Tribe shall describe its current

service delivery capability pursuant to Sec. 98.80(b)(2).

\(8\) A consortium shall also provide the following:

\(i\) A list of participating or constituent members, including

demonstrations from these members pursuant to Sec. 98.80(c)(1);

\(ii\) A description of how the consortium is coordinating services

on behalf of its members, pursuant to Sec. 98.83(c)(1); and

\(iii\) As part of its initial Plan, the additional information

required at Sec. 98.80(c)(4).

\(c\) When initially applying under paragraph (a) of this section, a

Tribal Lead Agency shall include a Plan that meets the provisions of

this part and shall be for a two-year period, pursuant to

Sec. 98.17(a).

Sec. 98.82 Coordination.

Tribal applicants shall coordinate as required by Secs. 98.12 and

98.14 and:

\(a\) To the maximum extent feasible, with the Lead Agency in the

State or States in which the applicant will carry out the CCDF program;

and

\(b\) With other Federal, State, local, and tribal child care and

childhood development programs.

Sec. 98.83 Requirements for tribal programs.

\(a\) The grantee shall designate an agency, department, or unit to

act as the Tribal Lead Agency to administer the CCDF program.

\(b\) With the exception of Alaska, California, and Oklahoma,

programs and activities shall be carried out on an Indian reservation

for the benefit of Indian children.

\(c\) In the case of a tribal grantee that is a consortium:

\(1\) A brief description of the direct child care services funded by

CCDF for each of their participating Tribes shall be provided by the

consortium in their two-year CCDF Plan; and

\(2\) Variations in CCDF programs or requirements and in child care

licensing, regulatory and health and safety requirements shall be

specified in written agreements between the consortium and the Tribe.

\(3\) If a Tribe elects to participate in a consortium arrangement to

receive one part of the CCDF (e.g., Discretionary Funds), it may not

join another consortium or apply as a direct grantee to receive the

other part of the CCDF (e.g. Tribal Mandatory Funds).

\(4\) If a Tribe relinquishes its membership in a consortium at any

time during the fiscal year, CCDF funds awarded on behalf of the member

Tribe will remain with the tribal consortium to provide direct child

care services to other consortium members for that fiscal year.

\(d\) Tribal Lead Agencies shall not be subject to the requirements

at Secs. 98.41(a)(1)(i), 98.44(a), 98.50(e), 98.52(a), 98.53 and 98.63.

\(e\) The base amount of any tribal grant is not subject to the

administrative cost limitation at paragraph (g) of this section or the

quality expenditure requirement at Sec. 98.51(a). The base amount may

be expended for any costs consistent with the purposes and requirements

of the CCDF.

\(f\) Tribal Lead Agencies whose total CCDF allotment pursuant to

Secs. 98.61(c) and 98.62(b) is less than an amount established by the

Secretary shall not be subject to the following requirements:

\(1\) The assurance at Sec. 98.15(a)(2);

\(2\) The requirement for certificates at Sec. 98.30(a) and (d); and

\(3\) The requirements for quality expenditures at Sec. 98.51(a).

\(g\) Not more than 15 percent of the aggregate CCDF funds expended

by the Tribal Lead Agency from each fiscal year\'s (including amounts

used for construction and renovation in accordance with Sec. 98.84, but

not including the base amount provided under Sec. 98.83(e)) shall be

expended for administrative activities. Amounts used for construction

and major renovation in accordance with Sec. 98.84 are not considered

administrative costs.

(h)(1) CCDF funds are available for costs incurred by the Tribal

Lead Agency only after the funds are made available by Congress for

Federal obligation unless costs are incurred for planning activities

related to the submission of an initial CCDF Plan.

\(2\) Federal obligation of funds for planning costs, pursuant to

paragraph (h)(1) of this section is subject to the actual availability

of the appropriation.

Sec. 98.84 Construction and renovation of child care facilities.

\(a\) Upon requesting and receiving approval from the Secretary,

Tribal Lead Agencies may use amounts provided under Secs. 98.61(c) and

98.62(b) to make payments for construction or major renovation of child

care facilities (including paying the cost of amortizing the principal

and paying interest on loans).

\(b\) To be approved by the Secretary, a request shall be made in

accordance with uniform procedures established by program instruction

and, in addition, shall demonstrate that:

\(1\) Adequate facilities are not otherwise available to enable the

Tribal Lead Agency to carry out child care programs;

\(2\) The lack of such facilities will inhibit the operation of child

care programs in the future; and

\(3\) The use of funds for construction or major renovation will not

result in a decrease in the level of child care services provided by

the Tribal Lead Agency as compared to the level of services provided by

the Tribal Lead Agency in the preceding fiscal year.

(c)(1) Tribal Lead Agency may use CCDF funds for reasonable and

necessary planning costs associated with assessing the need for

construction or renovation or for preparing a request, in accordance

with the uniform procedures established by program instruction, to

spend CCDF funds on construction or major renovation.

\(2\) A Tribal Lead Agency may only use CCDF funds to pay for the

costs of an architect, engineer, or other consultant for a project that

is subsequently approved by the Secretary. If the project later fails

to gain the Secretary\'s approval, the Tribal Lead Agency must pay for

the architectural, engineering or consultant costs using non-CCDF

funds.

\(d\) Tribal Lead Agencies that receive approval from the Secretary

to use CCDF funds for construction or major renovation shall comply

with the following:

\(1\) Federal share requirements and use of property requirements at

45 CFR 92.31;

\(2\) Transfer and disposition of property requirements at 45 CFR

92.31(c);

\(3\) Title requirements at 45 CFR 92.31(a);

\(4\) Cost principles and allowable cost requirements at 45 CFR

92.22;

\(5\) Program income requirements at 45 CFR 92.25;

\(6\) Procurement procedures at 45 CFR 92.36; and;

\(7\) Any additional requirements established by program instruction,

including requirements concerning:

\(i\) The recording of a Notice of Federal Interest in the property;

\(ii\) Rights and responsibilities in the event of a grantee\'s

default on a mortgage;

\(iii\) Insurance and maintenance;

\(iv\) Submission of plans, specifications, inspection reports, and

other legal documents; and

\(v\) Modular units.

\(e\) In lieu of obligation and liquidation requirements at

Sec. 98.60(e), Tribal Lead Agencies shall liquidate CCDF funds used for

construction or major renovation by the end of the second fiscal year

following the fiscal year for which the grant is awarded.

\[\[Page 39997\]\]

\(f\) Tribal Lead Agencies may expend funds, without requesting

approval pursuant to paragraph (a) of this section, for minor

renovation.

\(g\) A new tribal grantee (i.e., one that did not receive CCDF funds

the preceding fiscal year) may spend no more than an amount equivalent

to its Tribal Mandatory allocation on construction and renovation. A

new tribal grantee must spend an amount equivalent to its Discretionary

allocation on activities other than construction or renovation (i.e.,

direct services, quality activities, or administrative costs).

\(h\) A construction or renovation project that requires and receives

approval by the Secretary must include as part of the construction and

renovation costs:

\(1\) planning costs as allowed at Sec. 98.84(c);

\(2\) labor, materials and services necessary for the functioning of

the facility; and

\(3\) initial equipment for the facility. Equipment means items which

are tangible, nonexpendable personal property having a useful life of

more than five years.

Subpart J\--Monitoring, Non-compliance and Complaints

Sec. 98.90 Monitoring.

\(a\) The Secretary will monitor programs funded under the CCDF for

compliance with:

\(1\) The Act;

\(2\) The provisions of this part; and

\(3\) The provisions and requirements set forth in the CCDF Plan

approved under Sec. 98.18;

\(b\) If a review or investigation reveals evidence that the Lead

Agency, or an entity providing services under contract or agreement

with the Lead Agency, has failed to substantially comply with the Plan

or with one or more provisions of the Act or implementing regulations,

the Secretary will issue a preliminary notice to the Lead Agency of

possible non-compliance. The Secretary shall consider comments received

from the Lead Agency within 60 days (or such longer period as may be

agreed upon between the Lead Agency and the Secretary).

\(c\) Pursuant to an investigation conducted under paragraph (a) of

this section, a Lead Agency shall make appropriate books, documents,

papers, manuals, instructions, and records available to the Secretary,

or any duly authorized representatives, for examination or copying on

or off the premises of the appropriate entity, including subgrantees

and contractors, upon reasonable request.

(d)(1) Lead Agencies and subgrantees shall retain all CCDF records,

as specified in paragraph (c) of this section, and any other records of

Lead Agencies and subgrantees that are needed to substantiate

compliance with CCDF requirements, for the period of time specified in

paragraph (e) of this section.

\(2\) Lead Agencies and subgrantees shall provide through an

appropriate provision in their contracts that their contractors will

retain and permit access to any books, documents, papers, and records

of the contractor that are directly pertinent to that specific

contract.

\(e\) Length of retention period. (1) Except as provided in paragraph

(e)(2) of this section, records specified in paragraph (c) of this

section shall be retained for three years from the day the Lead Agency

or subgrantee submits the Financial Reports required by the Secretary,

pursuant to Sec. 98.65(g), for the program period.

\(2\) If any litigation, claim, negotiation, audit, disallowance

action, or other action involving the records has been started before

the expiration of the three-year retention period, the records shall be

retained until completion of the action and resolution of all issues

that arise from it, or until the end of the regular three-year period,

whichever is later.

Sec. 98.91 Non-compliance.

\(a\) If after reasonable notice to a Lead Agency, pursuant to

Sec. 98.90 or Sec. 98.93, a final determination is made that:

\(1\) There has been a failure by the Lead Agency, or by an entity

providing services under contract or agreement with the Lead Agency, to

comply substantially with any provision or requirement set forth in the

Plan approved under Sec. 98.16; or

\(2\) If in the operation of any program for which funding is

provided under the CCDF, there is a failure by the Lead Agency, or by

an entity providing services under contract or agreement with the Lead

Agency, to comply substantially with any provision of the Act or this

part, the Secretary will provide to the Lead Agency a written notice of

a finding of non-compliance. This notice will be issued within 60 days

of the preliminary notification in Sec. 98.90(b), or within 60 days of

the receipt of additional comments from the Lead Agency, whichever is

later, and will provide the opportunity for a hearing, pursuant to part

99\.

\(b\) The notice in paragraph (a) of this section will include all

relevant findings, as well as any penalties or sanctions to be applied,

pursuant to Sec. 98.92.

\(c\) Issues subject to review at the hearing include the finding of

non-compliance, as well as any penalties or sanctions to be imposed

pursuant to Sec. 98.92.

Sec. 98.92 Penalties and sanctions.

\(a\) Upon a final determination that the Lead Agency has failed to

substantially comply with the Act, the implementing regulations, or the

Plan, one of the following penalties will be applied:

\(1\) The Secretary will disallow the improperly expended funds;

\(2\) An amount equal to or less than the improperly expended funds

will be deducted from the administrative portion of the State allotment

for the following fiscal year; or

\(3\) A combination of the above options will be applied.

\(b\) In addition to imposing the penalties described in paragraph

\(a\) of this section, the Secretary may impose other appropriate

sanctions, including:

\(1\) Disqualification of the Lead Agency from the receipt of further

funding under the CCDF; or

(2)(i) A penalty of not more than four percent of the funds

allotted under Sec. 98.61 (i.e., the Discretionary Funds) for a Fiscal

Year shall be withheld if the Secretary determines that the Lead Agency

has failed to implement a provision of the Act, these regulations, or

the Plan required under Sec. 98.16;

\(ii\) This penalty will be withheld no earlier than the second full

quarter following the quarter in which the Lead Agency was notified of

the proposed penalty;

\(iii\) This penalty will not be applied if the Lead Agency corrects

the failure or violation before the penalty is to be applied or if it

submits a plan for corrective action that is acceptable to the

Secretary; or

\(iv\) The Lead Agency may show cause to the Secretary why the amount

of the penalty, if applied, should be reduced.

\(c\) If a Lead Agency is subject to additional sanctions as provided

under paragraph (b) of this section, specific identification of any

additional sanctions being imposed will be provided in the notice

provided pursuant to Sec. 98.91.

\(d\) Nothing in this section, or in Sec. 98.90 or Sec. 98.91, will

preclude the Lead Agency and the Department from informally resolving a

possible compliance issue without following all of the steps described

in Secs. 98.90, 98.91 and 98.92. Penalties and/or sanctions, as

described in paragraphs (a) and (b) of this section, may nevertheless

be

\[\[Page 39998\]\]

applied, even though the issue is resolved informally.

\(e\) It is at the Secretary\'s sole discretion to choose the penalty

to be imposed under paragraphs (a) and (b) of this section.

Sec. 98.93 Complaints.

\(a\) This section applies to any complaint (other than a complaint

alleging violation of the nondiscrimination provisions) that a Lead

Agency has failed to use its allotment in accordance with the terms of

the Act, the implementing regulations, or the Plan. The Secretary is

not required to consider a complaint unless it is submitted as required

by this section. Complaints with respect to discrimination should be

referred to the Office of Civil Rights of the Department.

\(b\) Complaints with respect to the CCDF shall be submitted in

writing to the Assistant Secretary for Children and Families, 370

L\'Enfant Promenade, S.W., Washington, D.C. 20447. The complaint shall

identify the provision of the Plan, the Act, or this part that was

allegedly violated, specify the basis for alleging the violation(s),

and include all relevant information known to the person submitting it.

\(c\) The Department shall promptly furnish a copy of any complaint

to the affected Lead Agency. Any comments received from the Lead Agency

within 60 days (or such longer period as may be agreed upon between the

Lead Agency and Department) shall be considered by the Department in

responding to the complaint. The Department will conduct an

investigation of complaints, where appropriate.

\(d\) The Department will provide a written response to complaints

within 180 days after receipt. If a final resolution cannot be provided

at that time, the response will state the reasons why additional time

is necessary.

\(e\) Complaints that are not satisfactorily resolved through

communication with the Lead Agency will be pursued through the process

described in Sec. 98.90.

PART 99\--PROCEDURE FOR HEARINGS FOR THE CHILD CARE AND DEVELOPMENT

FUND

2\. The heading of part 99 is revised to read as set forth above:

3\. The authority citation for part 99 is revised to read as

follows:

Authority: 42 U.S.C. 618, 9858.

4\. In part 99 make the following changes:

a\. Remove the words \`\`Child Care and Development Block Grant\'\' and

add in their place, wherever they appear, the words \`\`Child Care and

Development Fund.\'\'

b\. Remove the word \`\`Grantees\'\' and add in its place, wherever it

appears, the words \`\`Lead Agencies.\'\'

c\. Remove the word \`\`Grantee\'\' and add in its place, wherever it

appears, the words \`\`Lead Agency.\'\'

d\. Remove the words \`\`Block Grant Plan\'\' and add in their place,

wherever they appear, the words \`\`CCDF Plan.\'\'

\[FR Doc. 98-19418 Filed 7-23-98; 8:45 am\]

BILLING CODE 4184-01-P