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[Federal Register: April 2, 2010 (Volume 75, Number 63)]
[Rules and Regulations]               
[Page 16987-17002]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap10-16]                         


[[Page 16987]]

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Part IV





Department of Labor





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Employment and Training Administration



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20 CFR Part 618



Trade Adjustment Assistance; Merit Staffing of State Administration and 
Allocation of Training Funds to States; Final Rule


[[Page 16988]]


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DEPARTMENT OF LABOR

Employment and Training Administration

20 CFR Part 618

RIN 1205-AB56

 
Trade Adjustment Assistance; Merit Staffing of State 
Administration and Allocation of Training Funds to States

AGENCY: Employment and Training Administration, Labor.

ACTION: Final rule.

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SUMMARY: The Employment and Training Administration (ETA) of the 
Department of Labor (Department) issues this final rule to implement 
changes to the regulations for the Trade Adjustment Assistance for 
Workers (TAA) program under the Trade Act of 1974, as amended (Trade 
Act). This rule requires that personnel engaged in TAA-funded functions 
undertaken to carry out the worker adjustment assistance provisions 
must be State employees covered by a merit system of personnel 
administration. This rule also prescribes the system for allocating 
training funds to the States, as required by amendments to the Trade 
Act contained in the American Recovery and Reinvestment Act of 2009, 
commonly called the Recovery Act. The Recovery Act included provisions 
which reauthorized and significantly amended the TAA program.

DATES: Effective Date: This final rule is effective May 3, 2010.

FOR FURTHER INFORMATION CONTACT: Erin FitzGerald, Office of Trade 
Adjustment Assistance, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Room N-5428, Washington, DC 20210; telephone (202) 693-
3560 (this is not a toll-free number).
    Individuals with hearing or speech impairments may access the 
telephone number above via TTY by calling the toll-free Federal 
Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION: The Department issued a notice of proposed 
rulemaking (NPRM) proposing these TAA regulations on August 5, 2009. 
This final rule takes into consideration all comments received on the 
NPRM. This rule creates a new 20 CFR part 618.
    The preamble to this final rule is organized as follows:


I. Background--provides a brief description of the development of 
the rule.
II. Subpart-by-Subpart Review--summarizes and discusses comments on 
the TAA regulations.
III. Administrative Information--sets forth the applicable 
regulatory requirements.

I. Background

    The TAA program, authorized under Chapter 2 of Title II of the 
Trade Act (19 U.S.C. 2271 et seq.), provides adjustment assistance for 
workers whose jobs have been adversely affected by international trade. 
TAA assistance includes training, case management and reemployment 
services, income support, job search and relocation allowances, a wage 
supplement option for older workers, and eligibility for a health 
coverage tax credit. There are two steps for workers to obtain program 
benefits. A group of workers, or specified entities, must file with the 
Department and the State in which the jobs are located a petition for 
certification of eligibility to apply for TAA benefits and services. If 
the Department certifies the petition, based upon statutory criteria 
that test whether the group of workers was adversely affected by 
international trade, then the workers may individually apply with the 
Cooperating State Agency (CSA) for TAA benefits and services.
    The States administer the provision of benefits and services in the 
TAA program as agents of the United States. Each State does so through 
a State agency designated as the CSA in a Governor-Secretary Agreement 
between the State's Governor and the United States Secretary of Labor 
(Secretary), as required under section 239 of the Trade Act. The CSA 
may also include the State Workforce Agency (if different) and other 
State or local agencies that cooperate in the administration of the TAA 
program, as provided in the Governor-Secretary Agreement.
    The Trade and Globalization Adjustment Assistance Act of 2009 
(TGAAA), part of the Recovery Act (Pub. L. 111-5, Div. B, Title I, 
Subtitle I, 123 Stat. 115), reauthorized and substantially amended the 
TAA program by revising the certification criteria to expand the types 
of workers who may be certified and by expanding the program benefits 
available to workers who are covered by a certification (adversely-
affected workers or adversely-affected incumbent workers, referred to 
collectively in this notice as ``adversely-affected workers''). The 
TGAAA amendments generally apply to adversely-affected workers covered 
under petitions for certification filed on or after May 18, 2009, and 
before January 1, 2011. To incorporate into regulations the substantial 
changes to the TAA program, the Department is creating a new 20 CFR 
part 618, which will implement the TAA program regulations that will 
succeed the current TAA program regulations in 20 CFR part 617. This 
rulemaking is relatively narrow in scope; it addresses only the 
staffing of TAA-funded functions and the allocation of TAA training 
funds to the States. A later NPRM will propose the remainder of 20 CFR 
part 618.
    On August 5, 2009, the Department published an NPRM proposing two 
actions (74 FR 39198). The first was a requirement that, after a 
transition period, a State must engage only State government personnel 
to perform TAA-funded functions undertaken to carry out the worker 
adjustment assistance provisions of the Trade Act, and must apply to 
these personnel the standards for a merit system of personnel 
administration, in accordance with Office of Personnel Management (OPM) 
regulations at 5 CFR part 900, subpart F. These OPM regulations specify 
the merit system standards required for certain Federal grant programs. 
These standards have always been required for personnel administering 
Unemployment Insurance (UI) (section 303(a)(1) of the Social Security 
Act) and Wagner-Peyser Act--funded Employment Service (ES) programs in 
the States (20 CFR 652.215), and were required for personnel 
administering TAA from 1975 until 2005 under the Governor-Secretary 
Agreements.
    The merit system standards contained in the OPM regulations at 5 
CFR 900.603 are as follows:

    (a) Recruiting, selecting, and advancing employees on the basis 
of their relative ability, knowledge, and skills, including open 
consideration of qualified applicants for initial appointment.
    (b) Providing equitable and adequate compensation.
    (c) Training employees, as needed, to assure high quality 
performance.
    (d) Retaining employees on the basis of the adequacy of their 
performance, correcting inadequate performance, and separating 
employees whose inadequate performance cannot be corrected.
    (e) Assuring fair treatment of applicants and employees in all 
aspects of personnel administration without regard to political 
affiliation, race, color, national origin, sex, religious creed, age 
or handicap and with proper regard for their privacy and 
constitutional rights as citizens. This ``fair treatment'' principle 
includes compliance with the Federal equal employment opportunity 
and nondiscrimination laws.
    (f) Assuring that employees are protected against coercion for 
partisan political purposes and are prohibited from using their 
official authority for the purpose of interfering with or affecting 
the result of an election or a nomination for office.

    In the NPRM, the Department stated that the purpose of requiring 
the application of these merit principles to State administration of 
the TAA program is to promote consistency,

[[Page 16989]]

efficiency, accountability, and transparency.
    In addition to the merit staffing requirement, the second 
regulatory action proposed in the NPRM concerned the methodology by 
which the Department allocates training funds to the States. (The TGAAA 
uses the term ``apportion'' when discussing the dividing of training 
funds among the States. However, this final rule uses the term 
``allocation''' to avoid confusion, since customarily the Office of 
Management and Budget (OMB) ``apportions'' appropriated funds to the 
Department, which then ``allocates'' them to the States.) Before fiscal 
year (FY) 2004, the Department allocated training funds through a 
request process on a first-come, first-served basis; all distributions 
of TAA training funds were made in response to a State's request. This 
resulted in the Department distributing the majority of available TAA 
training funds early in the year, resulting in early exhaustion as TAA 
training funds are subject to a statutory maximum annual funding level, 
or ``cap.'' Later needs were addressed through National Emergency Grant 
funds, provided under Section 173 of the Workforce Investment Act of 
1998 (WIA) (29 U.S.C. 2918). However, this process proved to be 
inefficient, lengthy, and cumbersome, because it did not provide States 
with a predictable level of funding.
    Therefore, starting in fiscal year 2004, the Department issued 
annual guidance establishing a formula for distributing TAA training 
funds to the States. The Department initially allocated 75 percent of 
the year's training funds, and held the remaining 25 percent in 
reserve, for later use by high-need States. The formula included a 
``hold harmless'' feature, whereby the initial allocation to a State 
was at least 85 percent of the amount the State received in its initial 
allocation the prior fiscal year.
    The formula instituted in 2004 had some limitations. Most 
significant was the relative inability of the Department to shift TAA 
training funds in response to changing economic conditions. This 
shortcoming was due in part to the 85 percent hold harmless feature, 
and in part to the details of the formula itself. This shortcoming was 
compounded by the fact that, under the Department's annual 
appropriations acts, appropriated funds, including funds for TAA, must 
be obligated (and re-obligated) by the Department within the fiscal 
year in which the funds are appropriated; therefore, the Department has 
very limited authority to move money between States once the funds are 
distributed. The Department is allowed to reclaim unexpended training 
funds from a given State, with the State's agreement, and to re-
obligate such funds to other States, if the obligation is carried out 
within the same fiscal year the funds were appropriated. As a result, 
if a State is allocated FY 2009 training funds, those funds may be 
returned to the Department and provided to another State only during FY 
2009. After the end of the fiscal year, the Department has no authority 
to redistribute any unused funds. Since States have three fiscal years 
to expend the funds obligated in any fiscal year, it is often not 
apparent that a State does not need all of the funds obligated to it in 
the fiscal year in which the funds were allocated. Thus, TAA training 
funds that the Department obligates to States within a fiscal year but 
remain unexpended by the States after three years are returned directly 
to the U.S. Treasury.
    Section 1828(a) of the TGAAA amended section 236(a)(2) of the Trade 
Act to establish an annual training funding cap of $575 million, 
increased from $220 million annually, for fiscal years 2009 and 2010 
and $143,750,000 for the period October 1, 2010 through December 31, 
2010. The Conference Report on the Recovery Act makes clear that 
Congress increased the cap in part because the TGAAA amendments would 
result in more individuals being eligible for training benefits, and in 
part because in past times of high program participation, training 
funding was insufficient. H.R. Rep. No. 111-16, at 672 (2009) (Conf. 
Rep.).
    The amended section 236(a)(2) also established a methodology for 
distributing TAA training funds based on a formula to be determined by 
the Department. The Trade Act now provides that the initial 
distribution of training funds must equal 65 percent of the training 
funds appropriated and that the remaining 35 percent will be held in 
reserve. The Department's initial allocation formula must be based on 
four factors set forth in the statute.
    Section 236(f)(1) of the Trade Act (added by Section 1828(c) of the 
TGAAA) directs the Department to issue ``such regulations as may be 
necessary to carry out the [allocation] provisions'' on or before 
February 17, 2010. This final rule fulfills that statutory requirement.

II. Subpart-by-Subpart Review of the Final Rule

    The Department issued a notice proposing these regulations on 
August 5, 2009, and received 42 comments. The Department read and 
carefully considered each comment in the process of developing this 
final rule; the substantive issues raised by the comments that are 
germane to the rule are responded to below. Most significantly, the 
NPRM proposed that a State not already in compliance with the merit 
staffing requirement must comply with this requirement with respect to 
the personnel responsible for employment and case management services 
under section 235 of the Trade by October 1, 2010. All other TAA 
administrative activities would have had to have been merit staffed by 
July 1, 2010. The Department has decided, in response to concerns 
raised in the comments, to now apply a single, later transition period 
for the merit staffing of both administration and employment and case 
management services with a compliance deadline of December 15, 2010.

Subpart H--Administration by Applicable State Agencies

    As proposed, Sec.  618.890, establishing the merit staffing 
requirement, contained four paragraphs. Paragraph (a) set forth the 
merit staffing requirement. Paragraph (b) detailed a transition period 
for States to come into compliance with this requirement. Paragraph (c) 
partially exempted from this merit staffing requirement those States 
whose employment service was exempted from the merit staffing 
requirement under Wagner-Peyser Act regulations. Paragraph (d) 
permitted a State to outsource TAA functions that are not inherently 
governmental, as defined in OMB Circular No. A-76 (Revised).
    All 42 submissions received in response to the NPRM included 
comments on the proposed merit staffing requirement. As explained 
below, in response to several comments, the Department revised Sec.  
618.890(b) to reflect the adoption of a single transition deadline of 
December 15, 2010, for merit staffing of both administrative activities 
and employment and case management services.

Merit-Based State Personnel (Sec.  618.890(a))

    Paragraph (a) provides that States must engage only State 
government personnel to perform TAA-funded functions undertaken to 
carry out the worker adjustment assistance provisions of the Trade Act, 
and must apply to such personnel the standards for a merit system of 
personnel administration applicable to personnel covered under 5 CFR 
part 900, subpart F. Section 618.890(a) restores the longstanding 
practice of requiring State merit staffed personnel to administer the 
TAA

[[Page 16990]]

program. From 1975 through 2005, the Governor-Secretary Agreements 
under which the States administer the TAA program as agents of the 
United States required that all administrative functions performed by 
the States in carrying out the TAA program be performed exclusively by 
staff subject to the merit system standards at 5 CFR 900.603. In 2005, 
the Governor-Secretary Agreements were modified to provide that TAA 
program staff need not be merit staffed, except that employees who 
perform functions under both the TAA program and the UI and/or ES 
programs must be merit staffed. However, in 2009, the Department 
provided advance notice in the Governor-Secretary Agreements that it 
would address merit staffing in rulemaking. This rule reinstates, and 
codifies in regulation, what had been the Department's longstanding 
practice of requiring merit staffing by the States in administering the 
TAA program.
    The Department presented several rationales in the NPRM for this 
requirement. The Department will address the comments made on each 
rationale.

Authority

    In the NPRM, the Department found authority to promulgate this rule 
in section 239 of the Trade Act. The Department received several 
comments on this issue.
    Some of the commenters questioning our authority asserted that 
requiring the use of merit staff runs counter to the clear intent of 
Congress in passing the TGAAA. A small number of these commenters 
simply pointed out their belief that the proposed rule runs counter to 
Congress' intent, while others argued that Congress' intent to exclude 
merit staffing is clear from the actions of the Conference Committee 
tasked with reconciling the House and Senate bills to reauthorize and 
amend the Trade Act. One commenter focused on the House-passed bill, 
the Senate bill introduced by Senator Max Baucus, and the actions of 
the Conference Committee as relevant legislative history. Another 
commenter cited the minority views of the House Committee Report from 
2007 (H.R. Rep. No. 110-414, pt. 1, at 119-120) as relevant legislative 
history. One commenter asserted that ``because Congress specifically 
considered and intentionally rejected [merit staffing] in passing the 
TGAAA,'' the Department does not now have the authority to promulgate 
such a rule. Another commenter argued that the actions of the 
Conference Committee ``precludes an interpretation of section 239 of 
the Trade Act that would grant the Department'' the authority to enact 
this rule. One commenter suggested that if Congress had intended that 
certain TAA functions be provided by State merit staff, it would have 
included that provision in the TGAAA.
    As an initial matter, the minority opinion in the House Committee 
Report is not indicative of Congressional intent. Regarding these 
commenters' broader arguments, the Department acknowledges that the 
TGAAA did not incorporate provisions that had been included in a bill 
passed by the House in the previous Congress during the previous 
Administration that would have statutorily mandated the use of merit 
staff in the TAA program, but the Conference Committee's failure to 
explain its actions precludes a finding that Congress clearly intended 
to prohibit the Department from enacting such a requirement through 
rulemaking. Courts have consistently stated as a general rule that 
Congressional intent cannot be clearly understood where actions taken 
by a committee in Congress, including the Conference Committee, are not 
explained. Because the Conference Report is silent on this matter, the 
legislative history cited by these commenters is insufficient to 
determine what Congress intended when it passed the TGAAA. Further 
weakening these commenters' assertions is the general rule that the 
opinion and understanding of a subsequent Congress is a poor indicator 
of what a previous Congress intended when it passed a specific 
provision of a bill. In the absence of any clear Congressional intent 
prohibiting it, the Department believes that promulgation of the merit 
staffing rule is within the discretionary authority delegated to it to 
interpret the Trade Act and administer the TAA program.
    The Federal court opinion in Michigan v. Herman, 81 F.Supp.2d 840 
(W.D. Mich. 1998), provides support for the Department's position. In 
that case the court upheld the Department's requirement that ES 
services be provided by merit staff under the Department's 
interpretation of the Wagner-Peyser Act. In its decision, the court 
noted that the Wagner-Peyser Act is silent on the issue, the 
legislative history is ambiguous on the matter, and that Congress' 
failure to alter the Department's longstanding interpretation of the 
Wagner-Peyser Act indicated that Congress intended to defer to the 
Department's interpretation of the Act. Michigan, 81 F.Supp.2d at 847-
848. As in Michigan, the Trade Act does not directly address merit 
staffing; the legislative history is ambiguous, and for 30 years 
Congress did not expressly repudiate the Department's longstanding 
interpretation of the Trade Act as requiring merit staffing in the face 
of silence in the statute and ambiguity in the legislative history; and 
Congress failed to alter the Department's State merit staffing 
requirement despite amending the Trade Act several times between 1975 
and 2005 when the Governor-Secretary Agreement expressly required merit 
staffing. Accordingly, only a clear, unambiguous statement from 
Congress would be sufficient to prohibit the Department from exercising 
its discretion and requiring merit staffing through rulemaking.
    A few commenters asserted that section 239 of the Trade Act does 
not provide the Department authority to require State use of merit 
staffing in implementing the TAA program. Some of these commenters 
generally asserted that the TGAAA does not require the use of merit 
staffing. As discussed above, the Department is acting within its 
discretion in requiring merit staffing. One of these commenters 
disagreed that sections 239(a)(4) (cooperation with the Secretary and 
other State and Federal agencies in providing payments and services), 
239(f) (advising and interviewing adversely-affected workers), and 
239(i) (control measures) of the Trade Act provided the authority for 
the Department to require merit staffing. This commenter asserted that 
Congress did not intend to provide authority to require merit staffing 
under section 239(a)(4), an assertion it supported by stating that 
``neither the statutory text itself nor the legislative history to 
section 239(a)(4)'' provide the authority cited by the Department. The 
commenter asserted that ``neither the statutory text itself nor the 
legislative history to section 239(f) says anything about merit 
staffing,'' and therefore the Department does not have the authority to 
issue such a rule. The commenter additionally asserted that section 
239(i) cannot be used to support this rule as this section was added 
``at the insistence of Senate negotiators opposed to the imposition of 
a [S]tate merit staffing requirement.''
    The Conference Report on section 239 is silent on the issue of 
merit staffing, while these provisions in section 239 provide the 
Department with broad authority to prescribe rules to govern the 
efficient administration of the TAA program. In the face of legislative 
silence, the Department believes that these provisions in section 239 
provide it with sufficient authority to ensure the effective 
administration of the TAA program in any manner that will meet the goal 
of efficient and effective

[[Page 16991]]

program administration. As explained throughout this preamble, the 
Department's promulgation of this rule is necessary for the most 
effective administration of the TAA program.
    Finally, one commenter faulted the Department's reliance on 
``Congress' decision to require the provision of TAA-funded employment 
and case management services to TAA-eligible workers as a justification 
for imposing'' the merit staffing requirement because ``the agreement 
on this portion of the TGAAA Act was directly linked'' to the 
compromise that included the dropping of the merit staffing provision 
from the House version of the bill. As with the assertions about 
sections 239(a)(4), (f), and (i), the commenter did not cite to any 
legislative history to support this contention, and the Department is 
aware of none.

Principal-Agent Relationship

    In the NPRM, the Department discussed the principal-agent 
relationship, under which the Department directs the State 
administration of the TAA program, as support for the use of State 
merit staff to administer the TAA program. The Department explained 
that implementing the TAA program requires States to make 
determinations concerning the Federally-funded services and benefits to 
which adversely-affected workers are entitled.
    The Department received a small number of comments on this 
discussion. One of the commenters agreed that the Department has 
``broad authority to ensure that the TAA program functions in a proper 
and efficient manner,'' including through implementation of a State 
merit staffing requirement for use of TAA funds, since States act as 
agents of the United States. Another commenter suggested that the 
principal-agent provisions have long been part of the Trade Act, so the 
Department may not use that longstanding relationship as a basis for 
implementing a new merit staffing requirement at this time. This 
commenter also asserted that the Department failed to identify any way 
in which the current method of providing services using non-merit staff 
has undermined the principal-agent relationship.
    The principal-agent relationship, present in all Federal UC 
programs, invests the Department, as principal, with broad discretion 
to interpret the statute and to prescribe the operational and 
administrative details of the TAA program. This differs from the 
grantor-grantee relationship, found in programs like WIA, in which 
substantial operational and administrative discretion reposes in the 
grantee. The Department's broad discretion as the principal provides it 
ample authority to prescribe administrative rules, including a merit 
staffing requirement. The fact that the principal-agent relationship is 
longstanding does not limit the role of the principal, just as it did 
not limit that role in 2005.
    The TGAAA created additional entitlements to benefits within that 
relationship. The TGAAA created a requirement to provide employment and 
case management services to TAA-certified workers, almost tripled the 
training funding authorization to provide longer-term training to an 
expanded pool of certified workers, increased by 26 the number of weeks 
of income support for workers within a 91-week period, added the 
reemployment trade adjustment assistance (RTAA) benefit for older 
workers, enhanced other benefits and services, and expanded group 
eligibility. The Department anticipates the total funding for these 
features to virtually double, and of course these new features add 
complexity and additional challenges in administering the program. It 
is, therefore, appropriate at this time for the Department to 
reconsider the minimum requirements to which States, on behalf of the 
Department and the United States, must adhere in order to effectively 
administer the TAA program.
    Further, the Department disagrees with the commenter's assertion 
that in order to promulgate this rule the Department must show how the 
past use of non-merit staff has undermined the principal-agent 
relationship. The principal-agent relationship, which existed before 
this rulemaking and was reinforced in the provisions of all of the 
Governor-Secretary Agreements on TAA program administration, provides 
the Department the authority to direct States as to the manner of 
administering the TAA program. The Department's authority as principal 
is reinforced by its authority to interpret and apply the statute as 
the agency designated by Congress to administer the TAA program.

Complex Entitlement Program

    In the NPRM, the Department stated that the TAA program is a 
complex entitlement program, similar to the UI program which is also 
administered by State merit staff. The Department also noted that the 
TAA and UI programs are integrally related. For example, the TAA 
program's trade readjustment allowance (TRA) is a UI benefit payable 
after exhaustion of other forms of UI and is subject to many of the 
same or similar requirements and procedures that apply to State UI 
programs.
    The Department received several comments agreeing that the integral 
relationship between the TAA program and UI programs would benefit from 
the requirement that TAA program funds be administered by State merit 
staff. Some of these commenters cited the need for State merit staff 
especially because, in their experience, personnel who determine 
eligibility for TRA benefits must thoroughly understand UI eligibility 
requirements and program complexities.
    A small number of commenters disagreed. One of these commenters 
asserted that WIA programs have equally complex requirements, yet those 
programs are often effectively administered by non-merit staff. Another 
of these commenters stated that the TAA program ``is more closely 
aligned with the [WIA]-funded rapid response and dislocated worker 
programs,'' because both of these programs ``address the training and 
reemployment needs of workers affected by a dislocation event * * *,'' 
and therefore, the administration of the program should be designed to 
more closely coordinate with WIA, which can be done most effectively at 
the local level under the existing system. Similarly, another commenter 
averred that the responsibilities of TAA staff more closely resemble 
WIA staff activities than those of UI and ES program staff.
    The Department recognizes that there are similarities between WIA 
and TAA, and requires coordination between the two programs. However, 
the structure of the TAA program, by operating within a principal-agent 
relationship, reflects greater Federal authority and responsibility 
than is present in the grantor-grantee relationship under which WIA 
operates. Unlike TAA, WIA participants are not entitled by law to 
program benefits, and any eligibility for UI payments that a WIA 
participant may have is not affected by determinations of eligibility 
to receive WIA services. In the TAA program, TRA eligibility is an 
extension of UI eligibility that takes into account State and Federal 
eligibility criteria. Maintaining eligibility for TRA requires 
continuing eligibility determinations, taking into account factors such 
as enrollment in training, length of training, employment decisions, 
and earnings. By adding employment and case management services as a 
required benefit of the program, Congress recognized that the proper 
provision of these services, including quality case management, is 
essential to the adjustment of adversely-

[[Page 16992]]

affected workers. For example, if a TAA case manager is not familiar 
with the requirements for enrollment in training in order to receive 
TRA, or does not possess a full understanding of the rules setting the 
amount of income an adversely-affected worker may earn while still 
receiving TRA, an adversely-affected worker may be incorrectly 
determined ineligible for TRA. By losing eligibility for TRA, the 
worker may lose eligibility for the health coverage tax credit, and 
find it difficult to continue training. As one commenter noted, 
``meeting these complicated requirements requires a very specialized, 
highly-trained workforce with expertise that cannot be easily 
outsourced or transferred to other organizations.''
    A few commenters encouraged the Department to let each State choose 
its own staffing strategy. According to these comments, the Department 
is imposing a ``one size fits all'' approach by requiring State merit 
staffing. The Department is promulgating this requirement because it 
has determined that nationwide consistency in the TAA program is of 
paramount importance. The Department has also determined that the State 
merit staffing requirement will promote program efficiency, 
accountability and transparency.
    The important point is that adversely-affected workers now are 
entitled to receive a range of tailored services under the TAA program. 
The Department recognizes that many adversely-affected workers receive 
services under other programs for which they are also eligible, such as 
WIA, which are not delivered by State merit-staffed personnel. In 
contrast, since TAA is a complex entitlement program that requires 
States to make substantive determinations of benefit entitlement, as 
agents of the United States, the Department is requiring State merit-
staffed administration of the TAA-funded services to which adversely-
affected workers are entitled. However, while the Department expects 
the primary delivery of case management services for TAA participants 
will be through TAA-funded State merit staff, non-merit staff funded by 
partner programs may provide those services when, for example, TAA 
funds have been exhausted, when demand for services exceeds TAA-funded 
staff capacity to deliver those services, or when specific services 
have already been provided under another Federal program. In fact, 
section 235 of the Trade Act requires the Secretary to make employment 
and case management services available to adversely-affected workers 
directly or through agreements with the States and section 235a makes 
provides funding for States to provide those services. Section 
239(g)(5) of the Trade Act specifically requires States acting under 
such agreements to provide such services through other Federal programs 
in the event that allocated TAA funding for employment and case 
management services is insufficient to make these required services 
available to all adversely-affected workers in a State.

Relationship With WIA

    Many commenters argued for the continuation of a structure 
involving co-enrollment and integration with WIA services. These 
commenters remarked that their State's integrated service delivery 
system is highly efficient, responsive, and consistent; has good 
coverage throughout the State; has worked well for many years; and 
provides the full range of ``wrap-around'' services and in-depth 
assessments. One commenter stated that a merit staff requirement is 
diametrically opposed to the Department's stated goal of program 
integration. One commenter added that having the WIA and TAA programs 
administered by two different entities and staff would result in a 
potential loss of co-enrollment opportunities. One commenter supported 
State practices that respect the principles of local governance, 
community-based service delivery, and system-wide accountability.
    Some of these commenters noted that 27 States and Puerto Rico have 
opted to allow a variety of State and local government employees and 
contractors to provide services to TAA participants. These commenters 
noted that this has allowed for a high degree of integration of the 
services provided through TAA and the One-Stop delivery system. Along 
the same line, other commenters suggested that local workforce areas 
are better poised to assist participants with training choices and 
reemployment services than State merit staff because of awareness of 
demand occupations, local resources, and the local economic climate. 
One commenter added that in some local areas, non-merit staff currently 
providing TAA benefits show higher job retention rates and higher 
salaries than merit staff. Several commenters mentioned the requirement 
to provide case management, and expressed concern that the proposed 
rule would require States to establish redundant, costly, and 
disruptive public structures because the States would be prohibited 
from using existing local workplace resources.
    The use of merit staff in the TAA program has not previously 
impeded, and will not in the future impede, the provision of services 
to adversely-affected workers in the centers of the One-Stop delivery 
system (One-Stop centers) established under WIA. The TAA program will 
continue to be a One-Stop partner, as are other merit-staffed programs, 
including UI and the ES, which are integrally related to TAA. As the 
Governor-Secretary Agreement provides, the States will continue to use 
One-Stop centers as the main point of participant intake and delivery 
of TAA benefits and services.
    Consistent with Trade Act section 239(g)(5), there is nothing in 
this rule prohibiting the delivery, in appropriate circumstances, of 
employment and case management services to adversely-affected workers 
by staff funded by WIA or other Federal programs through co-enrollment. 
As a partner in the One-Stop delivery system, the TAA program will 
continue to coordinate with the other partners in the system to ensure 
adversely-affected workers are provided access to a broad array of 
comprehensive services. In light of the current mix of merit staffed 
and non-merit staffed One-Stop partners already participating in the 
One-Stop delivery system, the restoration of the TAA merit-staffing 
requirement will not preclude effective coordination and integration 
within that system.
    Under the amendments, the TAA program for the first time will be 
able to devote TAA funding to the provision of employment and case 
management services. These services were previously not allowable uses 
of funds under the TAA program. To the extent that adversely-affected 
workers received these services, they received them through other 
programs, generally WIA or the ES. Now, dedicated TAA funds will allow 
the TAA program to ensure that these services are provided to 
adversely-affected workers in a high-quality and in-depth manner. 
However, the WIA, ES and other resources and structures that were used 
to provide these services to adversely-affected workers in the past are 
not being eliminated or dismantled. They will continue to be available 
to provide services to the dislocated workers and adults who continue 
to be eligible for those programs, including adversely-affected 
workers, and the provision of these benefits should continue to be 
coordinated with the TAA program facilitated through the One-Stop 
delivery system established under WIA.
    Adversely-affected workers currently receive many services in 
addition to case management and employment services, including 
supportive services and other wrap-around services, which

[[Page 16993]]

are funded and provided under other programs for which adversely-
affected workers also qualify. The Department will continue to 
encourage the provision of services to adversely-affected workers by 
such other programs in order to supplement TAA-funded services. In 
fact, section 239(g)(5) of the Trade Act specifically requires States 
to provide employment and case management services through other 
Federal programs, in the event that allocated TAA funding for 
employment and case management services is insufficient to make these 
required services available to all adversely-affected workers in a 
State. Moreover, the Governor-Secretary Agreements require coordination 
of the TAA program with activities carried out under WIA to help ensure 
that a comprehensive array of services is available to adversely-
affected workers. The operating instructions to implement the TGAAA 
amendments (TEGL No. 22-08) also affirmed the desirability of co-
enrollment of adversely-affected workers in WIA and other programs to 
ensure comprehensive services are available. The commenters have not 
explained how the merit-staffing requirement precludes co-enrollment in 
other programs or effective coordination by TAA with the other 
programs, including both merit staffed and non-merit staffed programs, 
which also are partners in the One-Stop delivery system under WIA. In 
sum, this rule does not undermine the feasibility or importance of the 
co-enrollment of adversely-affected workers in WIA and other Federal 
programs.

State Merit System Advantages

    In the NPRM, the Department described various desirable features of 
State merit personnel systems. The Department stated that State merit 
staff employees are directly accountable to State government entities. 
Also, the Department noted that the standards for State merit staff 
performance and their determinations on the use of public funds require 
that decisions be made in the best interest of the public and of the 
population to be served.
    The Department received several comments on this topic. Some 
commenters extolled the benefits of using State merit staff for the TAA 
program. One commenter expressed the opinion that it would be 
preferable to have TAA eligibility determinations made by public agency 
merit staff that are hired according to objective personnel standards 
and are insulated from political and other pressures. Another commenter 
claimed that if State merit staffing is required, then citizens and 
elected officials could more easily locate the entity to hold 
accountable for TAA program issues.
    In contrast, several commenters argued that non-merit staffing 
models are equally effective. These commenters argued that their 
experience with local TAA staff is that they have provided quality 
service to adversely-affected workers. For example, one commenter noted 
that local staff have correctly applied eligibility criteria and have 
effectively performed their TAA duties. One commenter noted that 
agreements between the States and local entities can, and have, 
addressed some of the features attributed to State merit staff such as 
strict government standards on the use of personal information. This 
commenter also remarked that the State is always responsible for 
administering TAA, regardless of how the program is staffed.
    Other commenters contended that local staff who have been providing 
TAA services in recent years have become knowledgeable about the 
program and have gained valuable experience that benefits adversely-
affected workers. These commenters cautioned that losing that 
background and expertise would harm the TAA program.
    There are unique advantages to using the State merit personnel 
system for staffing the TAA program. State merit staff employees are 
hired into and operate within a publicly accountable organization with 
a State-wide perspective and are responsible to the general public. 
Some features of the State merit staffing model that add value to the 
TAA program are the objective nature of public personnel systems; the 
strict government standards governing the use of personal information; 
and that State agencies already address such issues as the impartial 
treatment of applicants to and beneficiaries of public programs, and 
operating with high standards of public transparency.
    Further, the direct employer-employee relationship between State 
merit staff and the State agency (or agencies) responsible for delivery 
of TAA services makes it easier for adversely-affected workers to hold 
their State government accountable for the services to which they are 
entitled. Although it is certainly possible to hold local and/or non-
merit staff and their employers accountable, the attenuated lines of 
authority between State agencies, local entities, contactors, etc., 
creates a more amorphous web of relationships that can make it more 
difficult for adversely-affected workers to locate the source of TAA 
program responsibility.
    The Department does not question that there are local staff who 
have effectively served the TAA program, and understands that some 
local staff have attained knowledge and experience. Indeed, this rule 
does nothing to disturb the local delivery of TAA services. State 
personnel may and do perform TAA functions at the local level. Further, 
States may hire persons who are knowledgeable about and experienced in 
delivering TAA services consistent with State merit standards. This 
rule simply requires that personnel engaged in TAA-funded functions, 
except as specified in Sec.  618.890, must be employees covered by the 
State merit system of personnel administration, permitting non-merit 
staff to be converted to State employment, if accomplished in 
accordance with the merit principles.

Consistency, Efficiency, Accountability and Transparency

    In the NPRM, the Department explained that its purpose in requiring 
State merit staffing of TAA-funded functions ``is to promote 
consistency, efficiency, accountability, and transparency in the 
administration of the TAA program.'' 74 FR 39199, Aug. 5, 2009. The 
Department received several comments about this purpose. Several of 
these agreed that requiring State merit staff personnel to administer 
the TAA program would ensure better consistency, efficiency, 
transparency, and accountability. Some of these commenters focused on 
the disadvantages of and inconsistencies in local implementation of the 
program.
    One commenter expressed the belief that the proposed rule would 
help prevent a proliferation of different management practices and 
structures that make accountability and equal access more difficult to 
achieve. In addition, this commenter stated that One-Stop centers vary 
considerably with respect to size, capacity, and type of operator, and 
there is variation in services and quality depending on location. One 
commenter warned that the priorities of other local programs can 
sometimes take precedence over the TAA program. Another commenter 
observed that ``the diversified WIA structure results in a degree of 
impenetrability for service recipients and policy makers,'' and 
asserted that requiring State merit employees to perform TAA-funded 
functions would ensure that citizens and elected officials are able to 
``place accountability where it belongs.'' One commenter noted that 
staff turnover combined with inconsistency of service from one local 
workforce board area to another is not

[[Page 16994]]

conducive to an efficient operation of the TAA program.
    One commenter provided a detailed argument supporting the idea that 
Federal benefit entitlement programs must be carried out by State 
employees who are free from political pressures and the for-profit 
motives of private-sector contractors. According to this commenter, the 
TAA program should be operated at the State level by personnel who have 
been recruited, selected, compensated, and evaluated according to a 
merit system of personnel administration. This commenter asserted that 
local One-Stop centers have divergent policies, which sometimes result 
in significant variances in the treatment received by persons who have 
worked at the same workplace, depending on where they live. Moreover, 
the commenter explained that the speed and consistency by which workers 
are determined to be eligible for benefits and may actually begin 
receiving benefits can differ from worker to worker in the same One-
Stop center. Another commenter described a situation where workers were 
denied eligibility for TAA benefits in a One-Stop center, but the 
workers travelled to another One-Stop center in a different area and 
were declared eligible for TAA benefits.
    A commenter also expressed the opinion that State merit staff 
administration of the program would provide the flexibility to respond 
to layoffs regardless of where they occur in the State, and that well-
trained ``State-level'' staff will bring stability and continuity to 
the provision of services. This commenter contended that the civil 
service system ensures hiring and promotions are based on competence, 
rather than nepotism, political connections, or favoritism. In 
addition, the commenter explained that public administration provides 
important due process protections for benefit recipients who might be 
subject to discrimination by private contractors who are subject to 
standards different from State merit staff.
    Some commenters, however, disagreed with the Department's assertion 
that State merit staff would promote consistency, efficiency, 
transparency, and accountability in the TAA program. These commenters 
generally agreed that the TAA program should strive for consistency, 
efficiency, accountability, and transparency, but asserted that these 
goals were already being achieved through the locally-administered 
approach used in their jurisdiction.
    For example, one commenter maintained that consistency can be 
accomplished by focusing on applying policies and procedures rather 
than on who delivers the service. Another commenter contended that 
State-wide training and monitoring of local staff can help to produce 
consistency. Another commenter suggested that technical assistance is a 
tool that can support consistency.
    Other commenters stated that local delivery of TAA services is 
efficient. A few of these commenters argued that the local staff model 
is more flexible and can more nimbly respond to layoff events and 
training opportunities than a larger bureaucracy. Some of these 
commenters contended that it would be inefficient and potentially 
confusing to have merit staff TAA case managers because some recipients 
of TAA services also have WIA case managers. According to one 
commenter, TAA and other Federal programs have been effectively 
administered at the local level by professionals who have earned the 
trust of constituents.
    A few commenters maintained that performance measures, oversight, 
and monitoring are tools through which local delivery entities may be 
held accountable. Another commenter averred that accountability is 
ensured by the separation of program administration and operations, 
regardless of whether State staff is merit-based.
    Similarly, some commenters stated that local delivery options are 
transparent. A few commenters contended that strict government 
standards on the use of personal information and transparency have been 
addressed in data sharing agreements between the commenters' State and 
local areas. One commenter asserted that transparency is the product of 
frequent and thorough monitoring, and one commenter suggested that a 
merit staffing requirement be used as a corrective-action recourse 
based upon a finding of deficiencies in State performance. Another 
commenter stated that an adversely-affected worker should receive 
services required to return to work, no matter where he or she enters 
the system, and service administration should not be differentiated by 
whether or not the adversely-affected worker first makes contact with a 
merit staff employee.
    It is clear that in many areas using local delivery options, 
significant effort has been expended to achieve the goals of 
consistency, efficiency, accountability and transparency. The 
Department remains committed to the local delivery of services, which 
is in fact how services in the Department's workforce programs--
including State-administered programs such as TAA--are delivered. The 
merit staffing requirement ensures that the services provided locally 
to adversely-affected workers will be administered uniformly within 
States and across States. Accordingly, commenters should not be 
concerned that this rule will force a ``dismantling'' of a local 
service delivery system. In fact, the new funding stream provided under 
the TGAAA for case management and employment services allows resources 
under WIA and the ES that were previously used for that purpose for 
adversely-affected workers to be used to provide services to the many 
other dislocated workers and adults eligible for those programs who are 
not eligible to apply for TAA. TAA services will continue to be 
provided through the local One-Stop delivery system established under 
WIA.
    The Department agrees with the comment that adversely-affected 
workers should receive services that will help them return to work even 
if their first contact in the system is not with a merit staff 
employee. As a result, co-enrollment of workers in both WIA and TAA 
programs will continue to be encouraged, as discussed more fully above.
    The different approaches to consistency, efficiency, accountability 
and transparency described by the various commenters illustrate that 
the States are employing a patchwork approach that could lead to 
inconsistent service delivery. The Department believes that consistency 
in the application of eligibility criteria and the treatment of workers 
nationally is imperative. Consistency should be the overarching design 
of the service delivery system for services delivered with TAA funds, 
rather than a corrective action approach that could be used if 
performance goals are missed. Consistency is best achieved by 
administering the TAA program through merit staff who are hired, 
trained, and employed by one or two State agencies under the same merit 
system, operate under the same personnel rules, and are accountable to 
the same State agency or agencies. Non-merit staff personnel employed 
outside of the State agency, often by either local agencies or private 
entities, are subject to varying procedures and work rules, and 
different, and potentially conflicting, obligations to their actual 
employers. This structure is more likely to produce an inconsistent 
application of the eligibility criteria for the various TAA benefits 
and services.

[[Page 16995]]

    Similarly, placing administrative responsibility with the merit-
staffed personnel of one or two State agencies promotes efficiency and 
makes it easier to hold the State agencies accountable. For example, 
layoff events may trigger TAA certifications covering large numbers of 
workers who seek TAA at the same time. A State agency may quickly move 
funding and personnel to areas in the State where TAA services are most 
needed to advise these adversely-affected workers as soon as 
practicable of the TAA program benefits and services and the procedures 
and deadlines for applying for such benefits and services, as required 
by the Governor-Secretary Agreement. In contrast, funds allocated to 
local workforce boards and contractors are generally restricted to 
serve a specified area which impedes a State's ability to move funds as 
needs change. Focusing TAA administration in one or two State agencies 
also reduces the number of entities responsible across a State, thereby 
making it easier for the public to know who administers the program and 
promoting accountability and transparency.
    On a related point, one commenter asserted that this rule will 
``likely inhibit the ability of [S]tates to comply with section 
239(f)'' requiring the coordination of services because it will lead to 
``duplicative staffing and increased inefficiency'' in States currently 
using non-merit staff to provide services to both WIA and TAA 
participants. The Department disagrees that this rule will lead to 
duplicative staffing and inefficiencies in administering the program. 
As discussed throughout this preamble, the TAA program continues to be 
a required partner in the One-Stop delivery system, and co-enrollment 
with WIA is still encouraged. In the absence of any evidence suggesting 
otherwise, the Department reasonably believes that requiring States to 
use merit staffing will improve the administration of the TAA program.
    State personnel serving under a merit system are non-partisan 
public officials who are directly accountable to elected officials. The 
standards for their performance and their determinations on the use of 
public funds require that decisions be made in the best interest of the 
public and of the population to be served. The use of a State merit 
system is further intended to ensure that the administrative personnel 
meet objective professional qualifications, provide fair treatment to 
participants, comply with strict government standards on the use of 
personal information, and perform in a setting where decisions are made 
in accordance with high standards of public transparency. These 
features of a State merit system are appropriate to apply to State 
administration of the TAA program.
    A few commenters questioned whether the Department has any data 
supporting the assertion that State merit staff is inherently better 
qualified to deliver TAA services than other providers. The Department 
is acting on the experience it has gained in overseeing the State 
administration of the TAA program under a merit staffing system that 
had been in place for approximately 30 years of the TAA program's 35-
year existence. In addition, UI, a program similar to TAA and one that 
actually works in conjunction with TAA, is efficiently administered by 
State merit staff. ES also is efficiently administered by State merit 
staff and works in conjunction with TAA. Based on this experience and 
the similarities to other programs successfully staffed by State merit 
personnel, the Department believes a return to a State merit based 
system will help to promote consistency, efficiency, accountability, 
and transparency in the administration of the TAA program.

Costs

    Various comments addressed the cost of the State merit staffing 
requirement. One commenter noted that, given the number of TAA 
petitions that are pending, requiring State merit staffing of TAA-
funded functions would mean ``the [S]tate would need significantly more 
* * * merit staff [S]tatewide at an additional annual cost of at least 
$10 Million.'' Other commenters opined more generally that the merit 
staffing requirement could result in a ``substantial'' cost increase. 
One commenter stated simply that it will be ``more'' costly for case 
management services to be provided by State merit staff. Another 
commenter stated that there would be ``financial burdens attached to 
staffing and additional staffing needs.'' One commenter suggested that 
this rule would result in ``a system backlog'' because of an 
insufficient number of State merit staff. Finally, one commenter argued 
that the TAA funds provided by the Department will not be adequate to 
address ``long term costs'' of State personnel such as pension 
payments.
    The TAA allocation provided to the States by the Department covers 
the costs of the program. TAA allocations include funding for 
employment and case management services and administrative costs. Under 
the TGAAA, significantly more funding is available for the TAA program. 
The training cap for the program has increased from $220 million to 
$575 million, and an additional amount equal to 15 percent of the 
allocation to each State for training will be allocated to the State 
for TAA administration and employment and case management services, as 
well as an additional $350,000 to each State specifically for 
employment and case management services. This will result in States 
having a considerably greater sum available for administration than 
under the lower training cap. And in fact, none of the commenters 
provided any empirical data to support the contention that the funding 
would be insufficient for this purpose.
    The final rule requires States to use merit staff to perform TAA-
funded functions. Such staff may be staff new to TAA, or they may be 
staff who have been providing TAA services in the past, including non-
merit staff who are converted to State employment. Each State will 
comply with this rule's merit staffing requirement with the Federal 
funds allocated to that State for TAA administration and case 
management and employment services. In that way, any costs incurred in 
implementing this requirement will be funded by the TAA program. 
Commenters provided with no data that suggests that States cannot 
comply with this rule with the available funds, and the Department is 
aware of no such data. The Department is available to provide 
assistance to any State with questions about what costs are allowable 
charges to TAA funds.

Transition Period (Sec.  618.890(b))

    As proposed, Sec.  618.890(b) provided that States must comply with 
the merit staffing requirement by October 1, 2010 for employment and 
case management services under section 235 of the Trade Act, and by 
July 1, 2010 for all other TAA administrative activities that are 
required to be merit staffed. The Department received several comments 
on this provision. One commenter stated that the proposed transition 
period is reasonable and provides sufficient time for States to plan 
implementation. One commenter generally stated that the transition 
period would delay, not reduce, the costs and disruptions to States. 
Other commenters stated that the aggressive transition period for 
implementing the merit staff requirements would make it impossible for 
a State to hire and train an adequate number of qualified staff before 
the implementation date. One of these commenters specifically asserted 
that, assuming that this final rule publishes in mid-February 2010, the 
four and one-half month time frame to implement merit staffing for TAA

[[Page 16996]]

administrative functions by July 1 is ``very aggressive.'' This 
commenter argued that being unprepared at the implementation date would 
lead to a loss of consistency and effectiveness of the program. A 
couple of commenters noted that their States are currently subject to 
hiring restrictions that could impact the ability to hire and train 
staff by the implementation deadline. One of these commenters also 
noted that the rule would require States to move the delivery of 
employment and case management services to merit staff a mere three 
months before the TGAAA amendments expire.
    The Department recognizes the concern raised by several commenters 
that, at least for their States, the transition period proposed in the 
NPRM was too short. Accordingly, the Department has decided to extend 
the transition period to allow States more time to effect this change. 
The deadline for implementing the merit staffing requirement for both 
employment and case management services and administrative services now 
is December 15, 2010. Thus, paragraph (b) of Sec.  618.890 is revised 
to provide a new transition deadline of December 15, 2010.
    As for the comments regarding State hiring freezes, the positions 
subject to the merit staffing requirement are Federally funded 
positions that should not be subject to State-imposed hiring freezes 
because merit staff are hired using those Federal funds provided. 
Unemployment Insurance Program Letter (UIPL) No. 18-09, titled 
``Application of State-Wide Personnel Actions, including Hiring 
Freezes, to the Unemployment Insurance Program'' addresses precisely 
this issue. It provides that any State-wide personnel action that does 
not take into account the needs of the State UI program is not a 
``method of administration'' under section 303(a)(1) of the Social 
Security Act for assuring the proper and prompt payment of UI. This 
principle, and thus the UIPL, applies equally to the TAA program under 
20 CFR 617.50(f), requiring ``[f]ull payment of TAA when due * * * with 
the greatest promptness that is administratively feasible.'' Also, 
consistent with Federal UI programs, States are required, through their 
agreements to administer the program as agents of the Department, to 
use the TAA funds provided by the Department consistent with the rules 
and regulations in effect for the program--including this rule. 
Therefore, if a State does not have merit staff it must hire merit 
staff using the funds allocated by the Federal Government.
    The transition deadline falls 15 days before the expiration of the 
TGAAA amendments. The transition period was developed taking into 
account the need for a reasonable amount of time for implementation, 
weighed against the need to ensure program consistency, efficiency, 
accountability, and transparency as quickly as possible. The regulatory 
provision requiring merit staffing is not dependent on the program 
changes made by the TGAAA, or the expiration date it provided for those 
changes. The Department's legal authority and rationales for requiring 
State merit staffing for TAA-funded functions are based on the 
Department's responsibility for assuring that the TAA program is 
properly and efficiently administered. While the additional complexity 
and new entitlement created by the TGAAA provide additional support for 
the decision to require State merit staffing, the requirement does not 
depend solely on the TGAAA. We note that the President's FY 2011 Budget 
supports extension of the TGAAA provisions.
    In the NPRM, the Department proposed to title part 618 ``Trade 
Adjustment Assistance under the Trade Act of 1974 For Workers Certified 
under Petitions Filed After May 17, 2009.'' However, in response to the 
comment concerning the TGAAA's sunset provision, and to avoid any 
confusion that the merit staffing requirement applies only with respect 
to workers certified under petitions filed after May 17 2009, the 
Department changes the title to ``Trade Adjustment Assistance under the 
Trade Act of 1974, As Amended.'' This change clarifies that part 618 
will contain all the regulations for administering the program operated 
under the Trade Act, not just the regulations implementing amendments 
specific to the TGAAA--and that the merit staffing requirement applies 
with respect to all workers regardless of the date of the petition 
under which they were certified.
    As mentioned above, there are different eligibility criteria for 
and different services available to adversely-affected workers, 
depending on the date on which their petition was filed. Workers 
covered by petitions filed before May 18, 2009 are subject to the 
requirements relating to benefits and services that were contained in 
the Trade Act prior to the TGAAA, while workers covered by petitions 
filed on or after May 18, 2009 are subject to the requirements added 
under the TGAAA. Such variances add to program complexity, as also 
noted above. However, the requirement of merit staffing transcends 
these programmatic distinctions. Once a State has converted to merit 
staff as required by this rule, those staff members serve all workers, 
regardless of the date a petition was filed.
    The revised title of part 618 also more accurately describes these 
regulations. Although certain provisions of the TGAAA only relate to 
petitions filed on or after May 18, 2009, not all provisions of the law 
relate to that filing date. Different provisions have different 
effective dates, including the provisions relating to the formula for 
distribution of the training funds, which went into effect on October 
1, 2009. Therefore, ``Trade Adjustment Assistance under the Trade Act 
of 1974, As Amended'' is a more appropriate title.

Exemptions for States With Employment Service Operation Exemptions 
(Sec.  618.890(c))

    Section 618.890(c) partially exempts from the TAA State merit 
staffing requirement those States that have received an exemption from 
the ES merit staffing requirements under the Wagner-Peyser Act. These 
States are Colorado, Massachusetts, and Michigan. The Department has 
concluded that allowing this limited exemption will prevent 
complications and confusion in these three States, thereby allowing the 
efficient administration of the TAA program. The paragraph (c) 
exemption does not apply to the administration of TRA, and also it 
applies in each of these States only in the same scope that the ES 
merit staffing exemption applies.
    The Department received several comments on the issue of these 
exemptions. Several of these commenters expressed general support for 
permitting the States of Colorado, Massachusetts, and Michigan to 
continue to use non-State and non-merit personnel to administer the TAA 
program. One commenter argued that the challenges of implementing the 
merit staffing requirement are as great for its State, which is not 
exempted under paragraph (c), as they would be for the exempted States. 
One commenter stated that the Department does not possess the legal 
authority under TAA to relieve any State from the requirement of merit 
staffing. Another commenter urged the Department to add a particular 
State to the exemption; similarly, a small number of commenters 
suggested that the Department allow waivers from the merit staffing 
requirement.
    The legal authority to exempt States under paragraph (c) is based 
on the Department's authority to interpret the Trade Act and administer 
the TAA program, as explained more fully above.

[[Page 16997]]

The Department granted the ES exemptions as demonstrations under the 
Wagner-Peyser Act, and decided that no additional demonstrations or 
exemptions would be granted. See 20 CFR 652.215. The Department has 
considered the issue of additional TAA exemptions, but has decided 
that, because of the importance of merit staffing, declining to permit 
additional exemptions (or waivers) will better serve workers under the 
TAA program. And, whereas the ES exemptions would result in 
inconsistent service delivery to adversely-affected workers if the 
three exempt States were required to implement the TAA merit staffing 
requirement, it is fully consistent and reasonable for States with ES 
State merit staff to comply with this rule.
    The Department makes no change to this paragraph as proposed.

Exceptions for Non-Inherently Governmental Functions (Sec.  618.890(d))

    Proposed paragraph (d) provided that the merit staffing requirement 
would not prohibit a State from outsourcing TAA functions that are not 
inherently governmental, as defined by OMB Circular No. A-76 (Revised). 
The Department received no comments opposing this paragraph, but is 
changing this provision very slightly by adding ``any supplemental OMB 
guidance or superseding authority, and in DOL guidance.'' This addition 
acknowledges that the definition of ``inherently governmental'' in OMB 
Circular No. A-76 (Revised) could be expanded upon in subsequent 
guidance or superseded by subsequent authority and that DOL may issue 
an authoritative interpretation of OMB guidance for purposes of the TAA 
program.

Subpart I--Allocation of Training Funds to States

    In the NPRM, the Department proposed subpart I to implement the 
funding provisions of the TGAAA. In addition to increasing the funds 
available under the training cap, the TGAAA prescribed a formula for 
allocating training funds to the States. As required by the TGAAA and 
proposed in Sec.  618.910, the initial allocation of training funds is 
determined by the application of four factors: (1) The trend in the 
number of workers covered by certifications of eligibility during the 
most recent four consecutive calendar quarters for which data is 
available; (2) the trend in the number of workers participating in 
training during the most recent four consecutive calendar quarters for 
which data is available; (3) the number of workers estimated to be 
participating in training during the fiscal year; and (4) the amount of 
funding estimated to be necessary to provide approved training during 
the fiscal year. At present, the Department will assign each of these 
factors an equal weight. However, proposed Sec.  618.910(f)(4) provided 
that the Department may, after December 31, 2010, change the weighting 
of these factors after an opportunity for public comment.
    For each of the four factors, the Department will determine the 
national total and each State's percentage of the national total. Based 
on a State's percentage of each of these factors, the Department will 
determine the percentage that the State will receive of the amount 
available for initial allocations, and will adjust that percentage to 
account for the hold harmless provision. The total initial allocations 
to the States will total 65 percent of the training funds appropriated, 
as mandated by section 236(a)(2)(C) of the Trade Act, as amended by the 
TGAAA.
    The formula will still include a ``hold harmless'' feature, but at 
a much lower level than the Department has been using to date. Although 
the initial allocation to a State had been at least 85 percent of the 
amount the State received in its initial allocation the prior fiscal 
year, the statute now requires that a State's initial allocation be at 
least 25 percent of the amount the State received in its initial 
allocation the prior fiscal year.
    The Department's practice has been that, if the formula would 
result in an initial allocation of less than $100,000 to a State, then 
that State's allocation was reallocated to the other States. Where a 
State had an initial allocation of less than $100,000, it could request 
reserve funds in order to obtain the limited TAA funding that the State 
required. The NPRM proposed to codify that practice in regulations.
    The TGAAA amended the Trade Act to require the Department to make 
the initial distribution to States ``as soon as practicable after the 
beginning of each fiscal year,'' and to require that 90 percent of a 
fiscal year's training funds be distributed to the States by July 15 of 
that fiscal year. As stated above, the initial allocations will equal 
65 percent of the funds available for training. In accordance with the 
amendments, the Department will also provide to States which receive 
training funds, either through an initial allocation or through a 
request for reserve funds, an additional 15 percent for TAA 
administration and employment and case management services, as well as 
an additional $350,000 to each State specifically for employment and 
case management services.
    The 35 percent of the total training funds held in reserve is 
higher than the previous 25 percent reserve. Subject to the requirement 
in section 236(a)(2)(B)(ii) of the Act that 90 percent of the funds be 
distributed by July 15 of the fiscal year, these reserve funds will, as 
in the past, be available to be distributed to States on an as-needed 
basis to provide funding to States experiencing high activity levels 
that cannot be addressed with the funds received in the initial 
allocation.
    The Department received several comments on the proposed rules 
governing the allocation of training funds to States. The majority of 
the comments were generally supportive of the allocation methodology, 
calling it ``much improved over the current practice,'' because it 
``faithfully executes the language of the TAA law'' and because ``the 
proposed funding distribution would bring funding levels to a more 
equitable level * * * [and] will allow for a more accurate distribution 
of funds.'' One commenter noted that the allocation portion of the rule 
``will look at each [S]tate's recent TAA use, and will better allocate 
funding among [S]tates based on current realities, instead of using 
more stale data,'' concluding that ``[s]uch open-mindedness and ability 
to adapt will make for a better program.'' The Department will address 
the comments by topic below.

Annual Training Cap (Sec.  618.900)

    This section implements section 236(a)(2)(A) of the Trade Act which 
caps the amount of TAA training funds available in each fiscal year. 
The Department received no comments on, and makes no change to, this 
section as proposed.

Distribution of the Initial Allocation of Training Funds (Sec.  
618.910)

    This section implements the initial distribution of TAA training 
funds requirements in section 236(a)(2)(B) and section 236(a)(C)(ii) of 
the Trade Act. The Department received no comments on paragraphs (a) 
(initial allocation), (b) (timing of the distribution of the initial 
allocation), (d) (minimum initial allocation), or (e) (process of 
determining initial allocation) of this section.
    The Department received one comment on paragraph (c) of Sec.  
618.910, implementing amended section 236(a)(2)(C)(iii) of the Trade 
Act. That section is the hold harmless provision, providing that the 
amount of the initial distribution to a State will not be less

[[Page 16998]]

than 25 percent of the State's prior year initial distribution. 
Paragraph (c) adopts the minimum hold harmless, 25 percent, permitted 
by the Trade Act. This commenter argued that reducing the hold harmless 
to 25 percent (from the 85 percent the Department previously used) 
``may create significant fluctuations in yearly allocations to 
States.'' The commenter noted that these fluctuations will extend to 
administrative funds as States' administrative allocations are a 
percentage of their total training allocations. The commenter suggested 
that instead, the Department set the hold harmless provision at 50 
percent of the prior year's allocation.
    The Department recognizes that the 25 percent hold harmless may 
result in a State receiving an initial allocation that is significantly 
lower than the State's initial allocation in the previous year. And, 
the commenter is correct that States' administrative allocations will 
fluctuate in sync with their initial training allocations. However, 
these fluctuations would occur because of an attendant fluctuation 
among the States' need for TAA training funds. It was Congress's clear 
intent that the hold harmless percentage be set at 25 percent. See 
Conf. Rep. at 672-73 (``[t]he provision addresses these problems by 
lowering the ``hold harmless'' provision to 25 percent''). However, the 
Department will monitor the effects of the ``hold harmless'' and, if 
warranted, will modify it. Further, Sec.  618.920 will permit a State 
to receive reserve funds should the initial allocation be insufficient 
to meet the State's training needs.
    The Department received two comments on paragraph (f) of Sec.  
618.910 implementing section 236(a)(2)(C)(ii) of the Trade Act. That 
section establishes four factors that the Department must use in 
determining the amount of each State's initial allocation, and permits 
the Department to add ``such other factors as [it] considers 
appropriate. * * *'' Paragraph (4) explains the steps the Department 
will follow in determining the initial allocation of training funds.
    The first comment on paragraph (f) was on paragraph (1)(iv), which 
describes the fourth initial allocation factor: the amount of funding 
estimated to be necessary to provide approved training during the 
fiscal year. This commenter expressed concern that the fourth factor 
fails to address job search and relocation expenditures, and that funds 
for those expenditures are not allocated elsewhere. To the extent that 
this commenter has suggested variance from the fourth statutory factor, 
the Department is without discretion to change the factor prescribed in 
the Trade Act. To the extent that the commenter is discussing job 
search and relocation funding, the comment is outside the scope of this 
rulemaking but the process is described in TEGL No. 9-09. The 
allocation addressed in this rule is limited to TAA training funds.
    The second comment requested that the Department consider ``such 
other factors as National Emergency Grants, demographics of the 
affected workforce, technology requirements (such as new reporting and 
new IT system functionality), petition certification volume, and funds 
allocated under WIA.'' While additional factors to determine the 
initial allocation may be helpful at a later date, and are within the 
Department's discretion to adopt, for now, the Department will maintain 
only the four factors specified in the statute and laid out in the 
proposed rule. The Department needs to acquire experience with the four 
statutory factors before deciding whether to add other factors, and may 
seek public comment on potential additional factors in the future.
    The Department makes no change to this section as proposed.

Reserve Fund Distribution (Sec.  618.920)

    This section addresses the distribution of the funds that remain in 
reserve after the initial allocations to the States. As required by 
section 236(a)(2)(C)(i) of the Trade Act, this section provides that 
the remaining 35 percent of the total annual training funds will be 
held in reserve for later distribution in response to requests by 
States that can show need for additional training funds. The Department 
received one comment in favor of the reserve fund distribution.
    The Department makes no change to this section as proposed.

Second Distribution (Sec.  618.930)

    This section provides that at least 90 percent of the total 
training funds for a fiscal year will be distributed to the States by 
July 15 of that fiscal year, as required by section 236(a)(2)(B)(ii) of 
the Trade Act. The Department received no comments on this issue, and 
makes no change to this section as proposed.

Insufficient Funds (Sec.  618.940)

    This section provides that if, in a given fiscal year, the 
Secretary estimates that the amount of funds necessary to pay for 
approved training will exceed the legislative cap, and therefore there 
will be insufficient funds to meet the needs of all States for the 
year, the Department will decide how the funds remaining in reserve at 
that time will be allocated among the States, as provided by section 
236(a)(2)(E) of the Trade Act. The Department received no comments on 
this issue, and makes no change to this section as proposed.

Technical Corrections

    The Department is making two technical corrections to the rule. The 
first correction is in the title of Subpart I as it appeared in the 
table of contents in the NPRM. In the table of contents, the NPRM 
indicated that subpart I would be titled, ``Apportionment of Training 
Funds to States.'' However, as explained above, the Department is using 
the word ``allocation'' to describe the distribution of training funds 
to the States. Accordingly, the table of contents in this final rule 
correctly reads, ``Allocation of Training Funds to States.''
    The second correction is to the title of Sec.  618.890(d). In the 
NPRM, the paragraph was titled, ``Exemptions for Non-inherently 
Governmental Functions.'' The Department is correcting the title to the 
more technically accurate, ``Exceptions for Non-inherently Governmental 
Functions.''

III. Administrative Information

Regulatory Flexibility Analysis, Executive Order 13272, Small Business 
Regulatory Enforcement Fairness Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. Chapter 6, requires 
the Department to evaluate the economic impact of this final rule on 
small entities. The RFA defines small entities to include small 
businesses, small organizations, including not-for-profit 
organizations, and small governmental jurisdictions. The Department 
must determine whether the final rule imposes a significant economic 
impact on a substantial number of such small entities. The Department 
concludes that this rule directly regulates only States and does not 
directly regulate any small entities; any regulatory effect on small 
entities would be indirect. Accordingly, the Department has determined 
this rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the RFA.
    The Department has also determined that this final rule is not a 
``major rule'' for purposes of the Small Business Regulatory 
Enforcement Fairness Act of 1996, as amended (SBREFA), Public Law 104-
121, 110 Stat. 847. SBREFA requires agencies to take certain actions 
when a ``major rule'' is promulgated. SBREFA defines a ``major rule'' 
as one that will have an annual effect on the economy of $100 million 
or more; that

[[Page 16999]]

will result in a major increase in costs or prices for, among others, 
State or local government agencies; or that will significantly and 
adversely affect the business climate.
    This final rule will not result in a major increase in costs or 
prices for States or local government agencies. In this instance the 
States, acting as agents of the Federal Government, are administering 
TAA benefits and services to adversely-affected workers while the 
Federal Government provides appropriated funds to States to operate the 
program. Nor will this rule significantly and adversely affect the 
business climate. The opposite is true: the TAA program provides funds 
to train adversely-affected workers for employment in positions that 
are in economic demand, thereby assisting in meeting businesses' needs. 
Finally, the final rule will not have an annual effect on the economy 
of $100 million or more.
    For the foregoing reasons, the Department determines that the final 
rule is not a ``major rule'' for SBREFA purposes.

Executive Order 12866

    Executive Order 12866 requires that for each ``significant 
regulatory action'' by the Department, the Department conduct an 
assessment of the regulatory action and provide OMB with the regulation 
and the requisite assessment prior to publishing the regulation. A 
significant regulatory action is defined to include an action that will 
have an annual effect on the economy of $100 million or more, as well 
as an action that raises a novel legal or policy issue. As discussed in 
the SBREFA analysis, this final rule will not have an annual effect on 
the economy of $100 million or more. However, the rule does raise novel 
policy issues about the allocation of TAA training funds. Therefore, 
the Department submitted this final rule to OMB for review under 
Executive Order 12866.

Paperwork Reduction Act

    The purposes of the Paperwork Reduction Act of 1995 (PRA), 44 
U.S.C. 3501 et seq., include minimizing the paperwork burden on 
affected entities. The PRA requires certain actions before an agency 
can adopt or revise a collection of information, including publishing a 
summary of the collection of information and a brief description of the 
need for and proposed use of the information. This final rule does not 
require the collection of any new information. The data collection 
relevant to this rule, related to the Reserve Funding Request Form 
(ETA-9117), is currently approved by OMB under control number 1205-0275 
(expires February 28, 2013).
    Because this final rule does not require the collection of any new 
information nor revises an existing collection of information, the PRA 
is not implicated.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995, this 
final rule does not include any Federal mandate that may result in 
increased expenditure by State, local, and Tribal governments in the 
aggregate of more than $100 million, or increased expenditures by the 
private sector of more than $100 million. State governments administer 
TAA as agents of the United States and are provided appropriated 
Federal funds for all TAA expenses.

Executive Order 13132

    Executive Order 13132 at section 6 requires Federal agencies to 
consult with State entities when a regulation or policy may have a 
substantial direct effect on the States or the relationship between the 
National Government and the States, or the distribution of power and 
responsibilities among the various levels of government, within the 
meaning of the Executive Order. Section 3(b) of the Executive Order 
further provides that Federal agencies must implement regulations that 
have a substantial direct effect only if statutory authority permits 
the regulation and it is of national significance. Further, section 
239(f) of the Trade Act requires consultation with the States in the 
coordination of the administration of the provisions for employment 
services, training, and supplemental assistance under sections 235 and 
236 of the Trade Act and under title I of the WIA.
    As the Department explained in the NPRM, 74 FR 39206, because a 
merit staffing requirement may fall within the requirements of Section 
3(b), and because of the consultation requirement in section 239(f) of 
the Trade Act, the Department has consulted on a variety of issues 
arising from the TGAAA amendments. These consultations have been with 
the States both directly and through communication with the National 
Association of State Workforce Agencies, the National Association of 
Workforce Boards, and the National Governors Association, during the 
formation of the Governor-Secretary Agreements between the States and 
the Department. Additionally, the Department has consulted with the 
public at large through this rulemaking's notice and comment process.
    In the NPRM, the Department recognized that there may be some costs 
to the States that have to convert some TAA-related staff to their 
merit staffing system. The Department received a small number of 
comments on this matter. These commenters thought that the Department 
should have gathered data on and better assessed the costs to States 
before proposing the merit staffing requirement.
    The Department provides States with appropriated Federal funds for 
TAA employment and case management services, including staff, and for 
administration of the TAA program. These Federal funds are intended to 
cover the costs of the TAA program. And in fact, under the TGAAA, TAA 
funds (including funds for administration) have increased 
significantly. The Department expects that the amount of State dollars 
that will be required to fund this conversion to State merit staffing 
is insubstantial. None of the commenters provided any data to the 
contrary. As noted above, the TAA program operated successfully for 
years with merit staffing required in the Governor-Secretary 
Agreements, and with less funding, so there is no reason to believe 
that the costs will be substantial or will exceed the available amounts 
of administrative funds. Nevertheless, the Department is willing to 
work with those States that have to convert some of their TAA-related 
staff to their merit staffing system to ensure that these States are 
utilizing Federal funds to the fullest extent possible within allowable 
cost categories. In the end, though, States are responsible for 
staffing the TAA program in their State at a level commensurate with 
their Federal funding allocation.

Executive Order 13045

    Executive Order 13045 concerns the protection of children from 
environmental health risks and safety risks. This final rule has no 
impact on safety or health risks to children.

Executive Order 13175

    Executive Order 13175 addresses the unique relationship between the 
Federal Government and Indian Tribal governments. The order requires 
Federal agencies to take certain actions when regulations have ``Tribal 
implications.'' Required actions include consulting with Tribal 
governments before promulgating a regulation with Tribal implications 
and preparing a Tribal impact statement. The order defines regulations 
as having Tribal implications when they have substantial direct effects 
on one or more Indian Tribes, on the relationship between the

[[Page 17000]]

Federal Government and Indian Tribes, or on the distribution of power 
and responsibilities between the Federal Government and Indian Tribes.
    This final rule addresses how the Department will allocate to the 
States training funds under the Trade Act, and requires that personnel 
engaged in TAA-funded functions undertaken to carry out the worker 
adjustment assistance provisions must be State employees covered by the 
merit system of personnel administration. Accordingly, the Department 
concludes that this final rule does not have Tribal implications.

Environmental Impact Assessment

    The Department has reviewed this final rule in accordance with the 
requirements of the National Environmental Policy Act (NEPA) of 1969 
(42 U.S.C. 4321 et seq.), the regulations of the Council on 
Environmental Quality (40 CFR part 1500), and the Department's NEPA 
procedures (29 CFR part 11). The final rule will not have a significant 
impact on the quality of the human environment, and, thus, the 
Department has not prepared an environmental assessment or an 
environmental impact statement.

Assessment of Federal Regulations and Policies on Families

    Section 654 of the Treasury and General Government Appropriations 
Act, enacted as part of the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 Stat. 
2681), requires the Department to assess the impact of this final rule 
on family well-being. A rule that is determined to have a negative 
effect on families must be supported with an adequate rationale.
    The Department has assessed this final rule and determines that it 
will not have a negative effect on families.

Executive Order 12630

    This final rule is not subject to Executive Order 12630, 
Governmental Actions and Interference with Constitutionally Protected 
Property Rights, because it does not involve implementation of a policy 
with takings implications.

Executive Order 12988

    This final rule has been drafted and reviewed in accordance with 
Executive Order 12988, Civil Justice Reform, and will not unduly burden 
the Federal court system. The final rule has been written to minimize 
litigation and provide a clear legal standard for affected conduct, and 
has been reviewed carefully to eliminate drafting errors and 
ambiguities.

Executive Order 13211

    This final rule is not subject to Executive Order 13211, because it 
will not have a significant adverse effect on the supply, distribution, 
or use of energy.

Plain Language

    The Department drafted this rule in plain language.

List of Subjects in 20 CFR Part 618

    Administrative practice and procedure, Grant programs--Labor, 
Reporting and recordkeeping requirements, Trade adjustment assistance.

0
For the reasons discussed in the preamble, and under authority of 19 
U.S.C. 2320, the Department of Labor adds 20 CFR part 618 to read as 
follows:

PART 618--TRADE ADJUSTMENT ASSISTANCE UNDER THE TRADE ACT OF 1974, 
AS AMENDED

Subpart A-G [Reserved]
Subpart H--Administration by Applicable State Agencies
Sec.
618.890 Merit staffing.
Subpart I--Allocation of Training Funds to States
618.900 Annual training cap.
618.910 Distribution of initial allocation of training funds.
618.920 Reserve fund distributions.
618.930 Second distribution.
618.940 Insufficient funds.

Subpart A-G [Reserved]

Subpart H--Administration by Applicable State Agencies

    Authority: 19 U.S.C. 2320; Secretary's Order No. 03-2009, 74 FR 
2279, Jan. 14, 2009.


Sec.  618.890  Merit staffing

    (a) Merit-based State personnel. The State must, subject to the 
transition period in paragraph (b) of this section, engage only State 
government personnel to perform Trade Adjustment Assistance (TAA)-
funded functions undertaken to carry out the worker adjustment 
assistance provisions of the Trade Act of 1974, as amended, and must 
apply to such personnel the standards for a merit system of personnel 
administration applicable to personnel covered under 5 CFR part 900, 
subpart F.
    (b) Transition period. A State not already in compliance with the 
merit system requirement of paragraph (a) of this section must comply 
by December 15, 2010.
    (c) Exemptions for States with employment service operation 
exemptions. A State whose employment service received an exemption from 
merit staffing requirements from the Secretary of Labor (Secretary) 
under the Wagner-Peyser Act will retain an exemption from the 
requirements of paragraph (a) of this section. The exemption does not 
apply to the State's administration of trade readjustment allowances 
which remain subject to the requirements of paragraph (a) of this 
section. To the extent that a State with an authorized ES exemption 
provides TAA-funded services using staff not funded under the Wagner-
Peyser Act, the exemption in this paragraph does not apply, and they 
remain subject to the requirements of paragraph (a) of this section.
    (d) Exceptions for non-inherently governmental functions. The 
requirements of paragraph (a) of this section do not prohibit a State 
from outsourcing functions that are not inherently governmental, as 
defined in Office of Management and Budget (OMB) Circular No. A-76 
(Revised), in any supplemental OMB guidance or superseding authority, 
and in DOL guidance.

Subpart I--Allocation of Training Funds to States

    Authority: 19 U.S.C. 2320; 19 U.S.C. 2296(g); Secretary's Order 
No. 03-2009, 74 FR 2279, Jan. 14, 2009.


Sec.  618.900  Annual training cap.

    The total amount of payments that may be made for the costs of 
training will not exceed the cap established under section 236(a)(2)(A) 
of the Trade Act.
    (a) For each of the fiscal years 2009 and 2010, this cap is 
$575,000,000; and
    (b) For the period beginning October 1, 2010, and ending December 
31, 2010, this cap is $143,750,000.


Sec.  618.910  Distribution of initial allocation of training funds.

    (a) Initial allocation. The initial allocation for a fiscal year 
will total 65 percent of the training funds available for that fiscal 
year. The Department of Labor (Department) will announce the amount of 
each State's initial allocation of funds in accordance with the 
requirements of this section at the beginning of each fiscal year. The 
Department will determine this initial allocation on the basis of the 
full amount of the training cap for that year, even if the full amount 
has not been

[[Page 17001]]

appropriated to the Department at that time.
    (b) Timing of the distribution of the initial allocation. The 
Department will, as soon as practical after the beginning of each 
fiscal year, distribute the initial allocation announced under 
paragraph (a) of this section. However, the Department will not 
distribute the full amount of the initial allocation until it receives 
the entire fiscal year's appropriation of training funds. If the full 
year's appropriated amount of training funds is less than the training 
cap, then the Department will distribute 65 percent of the amount 
appropriated.
    (c) Hold harmless provision. Except as provided in paragraph (d) of 
this section, in no case will the amount of the initial allocation to a 
State in a fiscal year be less than 25 percent of the initial 
allocation to that State in the preceding fiscal year.
    (d) Minimum initial allocation. If a State has an adjusted initial 
allocation of less than $100,000, as calculated in accordance with 
paragraph (e)(2) of this section, that State will not receive any 
initial allocation, and the funds that otherwise would have been 
allocated to that State instead will be allocated among the other 
States in accordance with this section. A State that does not receive 
an initial distribution may apply under Sec.  618.920(b) for reserve 
funds to obtain the training funding that it requires.
    (e) Process of determining initial allocation. (1) The Department 
will first apply the factors described in paragraph (f) of this section 
to determine an unadjusted initial allocation for each State.
    (2) The Department will then apply the hold harmless provision of 
paragraph (c) of this section to the unadjusted initial allocation, as 
follows:
    (i) A State whose unadjusted initial allocation is less than its 
hold harmless amount but is $100,000 or more, will have its initial 
allocation adjusted up to its hold harmless amount. If a State's 
unadjusted allocation is less than $100,000, the State will receive no 
initial allocation, in accordance with paragraph (d) of this section. 
Those funds will be shared among other States as provided in paragraph 
(e)(3) of this section.
    (ii) A State whose unadjusted initial allocation is no less than 
its hold harmless threshold will receive its hold harmless amount and 
will also receive an adjustment equal to the State's share of the 
remaining initial allocation funds, as provided in paragraph (e)(3) of 
this section.
    (3) The initial allocation funds remaining after the adjusted 
initial allocations are made to those States receiving only their hold 
harmless amounts, as described in paragraph (e)(2)(i) of this section, 
will be distributed among the States with unadjusted initial 
allocations that were no less than their hold harmless amounts, as 
described in paragraph (e)(2)(ii) of this section (the remaining 
States). The distribution of the remaining initial allocation funds 
among the remaining States will be made by reapplying the calculation 
in paragraph (f) of this section. This recalculation will disregard 
States receiving only their hold harmless amount under paragraph 
(e)(2)(i) of this section, so that the combined percentages of the 
remaining States total 100 percent.
    (f) Initial allocation factors. (1) In determining how to make the 
initial allocation of training funds, the Department will apply, as 
provided in paragraph (f)(3) of this section, the following factors 
with respect to each State:
    (i) The trend in the number of workers covered by certifications of 
eligibility during the most recent four consecutive calendar quarters 
for which data are available. The trend will be established by 
assigning a greater weight to the most recent quarters, giving those 
quarters a larger share of the factor;
    (ii) The trend in the number of workers participating in training 
during the most recent four consecutive calendar quarters for which 
data are available. The trend will be established by assigning a 
greater weight to the most recent quarters, giving those quarters a 
larger share of the factor;
    (iii) The number of workers estimated to be participating in 
training during the fiscal year. The estimate will be calculated by 
dividing the weighted average number of training participants for the 
State determined in paragraph (f)(1)(ii) of this section by the sum of 
the weighted averages for all States and multiplying the resulting 
ratio by the projected national average of training participants for 
the fiscal year, using the estimates underlying the Department's most 
recent budget submission or update; and
    (iv) The amount of funding estimated to be necessary to provide 
approved training to such workers during the fiscal year. The estimate 
will be calculated by multiplying the estimated number of participants 
in paragraph (f)(1)(iii) of this section by the average training cost 
for the State. The average training cost will be calculated by dividing 
total training expenditures for the most recent four quarters by the 
average number of training participants for the same time period.
    (2) The Department may use such other factors that it considers 
appropriate.
    (3) The Department will assign each of the factors listed in 
paragraphs (f)(1)(i) through (f)(1)(iv) of this section an equal 
weight. For each of these weighted factors, the Department will 
determine the national total and each State's percentage of the 
national total. Based on a State's percentage of each of these weighted 
factors, the Department will determine the percentage that the State 
will receive of the amount available for initial allocations. The 
percentages of initial allocation amounts calculated for all States 
combined will total 100 percent of initial allocation funds.
    (4) The Department may, by administrative guidance published for 
comment, change the weights provided in paragraphs (f)(1) and (f)(3) of 
this section, or add additional factors. No such changes or additions 
will take effect before December 31, 2010.


Sec.  618.920  Reserve fund distributions.

    (a) The remaining 35 percent of the training funds for a fiscal 
year will be held by the Department as a reserve. Reserve funds will be 
used, as needed, for additional distributions during the remainder of 
the fiscal year and for those States that do not receive an initial 
distribution. States may not receive reserve funds for TAA 
administration or employment and case management services without a 
request for training funds.
    (b) A State requesting reserve funds must demonstrate that at least 
50 percent of its training funds have been expended, or that it needs 
more funds to meet unusual and unexpected events. A State requesting 
reserve funds also must provide a documented estimate of expected 
funding needs through the end of the fiscal year. That estimate must be 
based on an analysis that includes at least the following:
    (1) The average cost of training in the State;
    (2) The expected number of participants in training through the end 
of the fiscal year; and
    (3) The remaining funds the State has available for training.


Sec.  618.930  Second distribution.

    The Department will distribute at least 90 percent of the total 
training funds for a fiscal year to the States no later than July 15 of 
that fiscal year. The Department will first fund all acceptable 
requests for reserve funds filed before June 1. If there are any funds 
remaining

[[Page 17002]]

to be distributed after these reserve fund requests are satisfied, 
those funds will be distributed to those States that received an 
initial allocation in an amount greater than their hold harmless 
amount, using the methodology described in Sec.  618.910.


Sec.  618.940  Insufficient funds.

    If, during a fiscal year, the Department estimates that the amount 
of funds necessary to pay the costs of approved training will exceed 
the training cap under Sec.  618.900, the Department will decide how 
the amount of available training funds that have not been distributed 
at the time of the estimate will be allocated among the States for the 
remainder of the fiscal year. That decision will be communicated 
through administrative notice.

    Signed at Washington, DC, this 22nd day of March 2010.
Jane Oates,
Assistant Secretary, Employment and Training Administration.
[FR Doc. 2010-6697 Filed 4-1-10; 8:45 am]
BILLING CODE 4510-FN-P
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