[Federal Register Volume 65, Number 25 (Monday, February 7, 2000)]
[Proposed Rules]
[Pages 5791-5804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2550]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 65, No. 25 / Monday, February 7, 2000 / 
Proposed Rules

[[Page 5791]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 245

RIN 0584-AC25


National School Lunch Program and School Breakfast Program: 
Alternatives to Standard Application and Meal Counting Procedures

AGENCY:  Food and Nutrition Service, USDA.

ACTION:  Proposed rule.

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SUMMARY:  This proposed rule would amend the regulations governing the 
procedures for determining eligibility for free and reduced price meals 
in the National School Lunch Program and the School Breakfast Program. 
Existing regulations provide school food authorities with two 
alternatives to the standard requirements for the annual determinations 
of eligibility for free and reduced price school meals and daily meal 
counts by type, commonly termed ``Provision 1'' and ``Provision 2''. 
This proposed rule would allow for an extension of Provision 2 
procedures and provide for a new alternative, ``Provision 3''. For 
schools choosing to participate in one of the alternate application and 
meal counting procedures, this proposed rule would also codify the 
alternate counting and claiming provisions of Public Law 103-448 which 
have been implemented, and codify revisions to the counting and 
claiming provisions authorized by Public Laws 104-193 and 105-336. This 
proposed rule would streamline program operations for program 
administrators and participants. State agency and school food authority 
recordkeeping burdens are expected to decrease because the 
determinations of eligibility for free and reduced price meals would 
not be made as frequently. In addition, for those schools electing to 
participate, this proposed rule may increase participation in 
nutritious school meal programs, thereby helping students develop 
lifelong healthy eating habits. A primary reason for the increase in 
participation is that local schools would be offering meals at no 
charge to all enrolled students.

DATES:  To be assured of consideration, comments must be postmarked on 
or before April 7, 2000.

ADDRESSES:  Comments must be sent to: Robert M. Eadie, Chief, Policy 
and Program Development Branch, Child Nutrition Division, Food and 
Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, VA 22302 
or via E:Mail at <a href="/cdn-cgi/l/email-protection#1d5e53594d4f524d524e5c515d7b736e33686e797c337a726b"><span class="__cf_email__" data-cfemail="397a777d696b7669766a7875795f574a174c4a5d58175e564f">[email protected]</span></a>. All written submissions, as 
well as the Regulatory Impact Analysis, will be available for public 
inspection in Room 1007, 3101 Park Center Drive, Alexandria, Virginia 
during regular business hours (8:30 a.m. to 5 p.m.) Monday through 
Friday.

FOR FURTHER INFORMATION CONTACT:  Mary Jane Whitney or Todd Barrett at 
the above address, by telephone at 703-305-2620. Copies of the 
Regulatory Impact Analysis are available upon request.

SUPPLEMENTARY INFORMATION:

Background

    Generally, schools must collect applications on an annual basis 
from the households of enrolled children and make annual determinations 
of their eligibility for free or reduced price school meals. They must 
also count the number of free, reduced price, and paid meals at the 
point of service on a daily basis in order to claim Federal 
reimbursement. However, school food authorities may participate in 
alternatives to annual eligibility determinations and daily meal counts 
by type (free, reduced price and paid) which are intended to reduce 
some of this administrative burden. These alternatives are commonly 
referred to as Provision 1, Provision 2 and Provision 3. This proposed 
rule would make no changes to Provision 1, codify changes to Provision 
2 and codify the implementation of Provision 3. A brief description of 
each Provision as authorized by the National School Lunch Act (42 
U.S.C. 1759a) follows:

Provision 1

    Provision 1 reduces application burdens by allowing free 
eligibility to be certified for a 2 year period in schools where at 
least 80 percent of the children enrolled are eligible for free or 
reduced price meals.
    Notification of program availability and certification of children 
already certified eligible for free meals may be reduced to once every 
2 consecutive school years. All other households must be notified of 
program availability, provided a meal application, and allowed to apply 
for meal benefits each school year.
    All other program rules are unchanged. Provision 1 schools are not 
required to serve meals at no charge to all students. Schools must 
continue to record daily meal counts of meals served to children by 
type as the basis for calculating reimbursement claims.

Provision 2

    Provision 2 reduces application burdens and simplifies meal 
counting and claiming procedures by allowing a school to establish 
claiming percentages that apply for a 4-year period provided the school 
serves meals to participating children at no charge.
    During the first, or base, year the school takes applications, 
makes eligibility determinations, and records meal counts by type, just 
as it would under normal program rules, with the exception that all 
reimbursable meals are provided at no charge to the students. During 
the next 3 years, the school counts only the total number of 
reimbursable meals served each day. Reimbursement during these years is 
determined by applying the percentages of free, reduced price and paid 
meals during the corresponding month of the base year to the total meal 
count for the claiming month. After the base year, the school makes no 
new eligibility determinations (for as long as they remain operating 
under the Provision). The base year is included as part of the 4 years. 
At the end of each 4-year period, the State agency may approve an 
extension for 4 years if the income level, as adjusted for inflation, 
of the school's population has remained stable.
    Schools electing this alternative must pay the difference between 
Federal reimbursement and the cost of providing all meals at no charge. 
The statute requires that money to pay for this difference must be from 
sources other than Federal funds.

Provision 3

    Provision 3 reduces application burdens and meal counting and

[[Page 5792]]

claiming procedures by allowing a school to simply receive a comparable 
level of Federal cash and commodity assistance each year as it received 
in the base year, provided the school serves all meals at no charge. 
Provision 3 schools serve reimbursable meals to all participating 
children at no charge for a period of up to 4 years, or longer if an 
extension is granted.
    Provision 3 schools receive the level of Federal cash and commodity 
support paid to them for the last year in which they made eligibility 
determinations and meal counts by type under regular program rules; 
this is the base year. For each successive year that the school remains 
in Provision 3, the level of Federal cash and commodity support is 
adjusted to reflect changes in enrollment and inflation. After the base 
year, the school makes no new eligibility determinations for as long as 
it remains in the Provision. The base year is not included as part of 
the 4 years. At the end of each 4 year period, the State agency may 
approve 4-year extensions if the income level, as adjusted for 
inflation, of the school's population has remained stable.
    Schools electing this alternative must pay the difference between 
Federal reimbursement and the cost of providing all meals at no charge. 
The statute requires that money to pay for this difference must be from 
sources other than Federal funds. In order to make this procedure 
available promptly, Provision 3 was implemented via memorandum in 1995.

History of the Provisions and Changes Being Implemented

    No changes are being made to Provision 1. The changes being made to 
Provisions 2 and 3 are in response to statutory changes and the 
experience gained from operating the Provisions via policy memorandum.
    Under current regulations for Provision 2, schools that elect: (a) 
To serve reimbursable meals at no charge to all children for 3 
successive school years regardless of the household's ability to pay, 
and (b) to pay the difference between the meal service costs and the 
Federal reimbursement, from sources other than Federal funds, may 
conduct public notification and make eligibility determinations once 
every 3 school years. During the first year of the 3-year cycle (the 
base year), free and reduced price eligibility determinations are made 
and daily meal counts are taken according to the eligibility status of 
the child served, even though all meals are served at no charge. In the 
second and third year of the cycle, schools are not required to count 
meals by type. Instead, they submit claims based on the total number of 
meals served each month. The school's reimbursement amount is 
determined by applying the percentages of free, reduced price and paid 
meals served during the corresponding month of the first year to the 
total meal count for the claim month.
    Section 111 of Public Law 103-448, the Healthy Meals for Healthy 
Americans Act of 1994, enacted on November 2, 1994, amended section 
11(a)(1)(C) of the NSLA to allow an extension to the initial 3-year 
Provision 2 cycle by an additional 2 years if the school food authority 
established, through available and approved socioeconomic data, that 
the income level of the population of the school remained stable since 
free and reduced price applications were taken. These extensions were 
limited to those schools participating under Provision 2 on November 2, 
1994. Subsequently, section 704(a) of Public Law 104-193, the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996, enacted 
August 22, 1996, removed the November, 1994 limitation so that any 
Provision 2 school could extend the initial 3-year cycle an additional 
2 years with subsequent 5-year cycles provided the available and 
approved socioeconomic data established that the income level of the 
school's population has remained stable. At the end of the 3 year/2year 
cycle, and each subsequent 5-year cycle, the State agency could approve 
an extension of Provision 2 procedures if the school food authority 
established that the income level of the school's population remained 
stable when compared with the income level of the school's population 
during the base year.
    Section 103 of Public Law 105-336, the William F. Goodling Child 
Nutrition Reauthorization Act of 1998, enacted on October 31, 1998, 
amended section 11(a)(1)(C) and (D) of the NSLA to make the period of 
operation for Provision 2 consistent with that of Provision 3. The 
statute eliminated Provision 2's initial 3-year cycle, 2-year extension 
and subsequent 5-year extensions. As a result of Public Law 105-336, 
the initial cycle for operating Provision 2 is now 4 years. In 
addition, State agencies may grant extensions to operate Provision 2 
for an additional 4 years in those schools where the available and 
approved socioeconomic data identifies that the income level of the 
school's population has remained stable. Schools currently operating 
Provision 2 must finish their cycle under previous requirements and the 
new 4-year timeframe will be effective upon application for, and 
approval of, an extension.
    Public Law 103-448 added a new alternative, Provision 3, to section 
11(a)(1)(E) of the NSLA. Under Provision 3, schools elect to serve 
reimbursable meals at no charge to all children for a period of 4 
successive school years. Provision 3 schools receive the level of 
Federal cash and commodity assistance paid to them for the last year in 
which they made eligibility determinations, known as the base year, 
adjusted annually to reflect changes in enrollment and inflation. The 
implementation of Provision 3 does not affect a school food authority's 
receipt of bonus commodities. At the end of the 4-year cycle (not 
including the base year) and each subsequent 4-year cycle, the State 
agency may approve an extension of Provision 3 procedures if the school 
food authority can establish that the income level of the school's 
population remained consistent with the income level of the population 
of the school during the base year. The school food authority of a 
school implementing Provision 3 must use available and approved 
socioeconomic data and submit the data to their State agency for 
approval. (Approved data sources are discussed later in this preamble.)
    An analysis of this proposed rule identified that it would offer 
significant benefits for school food authorities and households. During 
non-base years, school food authorities of schools operating under 
Provisions 2 and 3 would experience a significant reduction of 
administrative burdens associated with making eligibility 
determinations, counting meals by type (free, reduced price and paid), 
operating a payment system for children eligible for reduced price and 
paid meals and conducting verification. Similarly, households with 
children enrolled in schools under Provision 2 or Provision 3 would not 
be required to submit paperwork documenting their eligibility.
    The analysis also finds that State agencies would experience some 
additional burden through this rule due to the responsibility of making 
extension determinations and reporting information on usage of 
Provision 2 and Provision 3 and possibly having to report information 
on extension determinations. The analysis asserts that once State 
agencies and school food authorities are accustomed with Provisions 2 
and 3, the extension determination burden on State agencies would be 
minimal and the reporting burdens would be noticeable, but not 
significant. However, the significant

[[Page 5793]]

reduction in burdens by eliminating eligibility determinations, meal 
counts by type, verification and a payment system for reduced price and 
full price meals offsets the insignificant increase in burdens 
associated with extension determinations.
    The remainder of this preamble discusses the proposed changes to 
the regulations to reflect the extensions for Provision 2 schools and 
to codify the implementation of Provision 3.

Definitions

    Section 245.2(f-2), Operating day, would be added to the 
definitions to define an operating day as a day that reimbursable meals 
are offered to eligible students under the National School Lunch 
Program or School Breakfast Program.
    Section 245.2(j), Special assistance certification and 
reimbursement alternatives, would be amended to remove the reference to 
``two'' optional alternatives and replace it with ``three'' optional 
alternatives.

Provision 2

    Section 245.9(b), Provision 2, of this proposed rule would restate 
the existing regulatory language although a number of editorial changes 
would be made to parallel the new Provision 3, including the addition 
of a definition of ``Provision 2 base year''. The proposal would define 
the Provision 2 base year to mean the last year for which eligibility 
determinations were made and meal counts by type were taken or the year 
in which a school conducted a streamlined base year as outlined under 
Sec. 245.9(c)(2)(iii). Under a Provision 2 base year, schools would 
offer reimbursable meals to all students at no charge. The Provision 2 
base year would be included in the 4-year cycle. The Department would 
take this opportunity to provide Provision 2 schools with additional 
areas of flexibility as discussed below.
    Section 245.9(b)(1), Free meals, would clarify that schools 
participating under Provision 2 must serve reimbursable meals, as 
determined by a point of service observation, to all participating 
children at no charge.
    Section 245.9(b)(2), Cost differential, would restate the existing 
requirement that the school food authority of a school participating in 
Provision 2 must pay, with funds from non-Federal sources, the 
difference between the cost of serving meals at no charge to all 
participating children and Federal reimbursement.
    Section 245.9(b)(3), Meal counts, would set forth the meal counting 
methodology for Provision 2. Paragraph (b)(3)(i), Monthly percentages, 
would restate the existing meal count provision which converts the 
monthly meal counts, by type, in the first year into percentages which 
are then applied to the total counts for the corresponding months in 
the second, third and fourth consecutive years and in years for which 
extensions of Provision 2 have been granted. Paragraph (b)(3)(ii), 
Annual percentages, would add a new method of meal claiming based on 
annual percentages.
    Under the annual percentages option, the actual number of all meals 
served, by type, during the base year would be converted to an annual 
percentage for each type of meal. Schools that begin Provision 2 at a 
point in time other than the beginning of a school year would be 
required to complete the equivalent of a full school year to develop 
annual percentages. For example, a school implementing Provision 2 in 
January and continuing through June of one school year, would be 
required to take applications and obtain meal counts by type for 
September through December of the following school year in order to 
develop annual percentages for each meal type. These three percentages 
would then be multiplied by the total number of all meals served (free, 
reduced price and paid) in each month of the second, third and fourth 
consecutive school years, and in years for which extensions of 
Provision 2 have been granted, in order to calculate reimbursement 
claims for free, reduced price and paid meals each month.

Extension of Provision 2

    Under Sec. 245.9(c), Extension of Provision 2, of this proposed 
rule, State agencies may authorize a school food authority to continue 
under Provision 2 without taking new free and reduced price 
applications and daily meal counts by type. Schools approved for 
Provision 2 would continue to use the claiming percentages calculated 
during the most recent base year.
    State agencies would be allowed to grant such an extension of 
Provision 2 if the school food authority could establish through 
available and approved socioeconomic data that the income level of the 
school population, as adjusted for inflation, remained stable, declined 
or had only negligible improvement since free and reduced price 
applications and meal counts by type were taken in the most recent base 
year. (The terms ``negligible improvement'' and ``approved data 
sources'' are discussed later in this preamble.) State agencies would 
be responsible for reviewing all available and approved socioeconomic 
data submitted by school food authorities requesting an extension. 
Prior to granting or denying an extension, State agencies would be 
required to evaluate the data to determine whether it is reflective of 
the school's population, provides equivalent data for both the base 
year and the last year of the current cycle, and demonstrates that the 
income level of the school's population, as adjusted for inflation, 
remained stable, declined or had only negligible improvement.
    State agencies would not be allowed to approve an extension for 
those schools for which the available and approved socioeconomic data 
did not reflect the school's population, was not equivalent data for 
the base year and last year of the current cycle or indicated more than 
a negligible improvement in the income level of the school's population 
after adjusting for inflation. (The term ``negligible improvement'' is 
discussed later in this preamble.) Such schools would be required to: 
(1) Return to standard meal counting and claiming procedures; (2) 
establish a new Provision 2 base year by taking new free and reduced 
price applications, making new free and reduced price determinations 
and counting meals as described in Sec. 245.9(b); (3) establish a new 
Provision 2 base year by using the streamlined process as described in 
Sec. 245.9(c)(2)(iii); or, (4) establish a new Provision 3 base year or 
streamlined base year as described in Sec. 245.9(d) and (e)(2)(iii).
    Under the option presented in paragraph (c)(2)(ii), Establish a new 
base year, schools electing to continue to operate Provision 2 would be 
allowed to establish a new Provision 2 base year by taking new free and 
reduced price applications, making new eligibility determinations and 
taking meal counts, by type, for the first year of the new Provision 2 
cycle. These meal counts would be converted into claiming percentages 
pursuant to Sec. 245.9(b)(3). These percentages would then be used for 
the purpose of claiming reimbursement in the remaining years of the 4 
year cycle and any extensions.
    Alternately, paragraph (c)(2)(iii), Establish a streamlined base 
year, would permit a streamlined application process for schools with 
changed socioeconomic data that choose to continue to operate Provision 
2 or begin operating Provision 3. In lieu of taking new free and 
reduced price applications for the enrolled population, such schools 
could, in accordance with guidance established by FNS, determine 
program eligibility on the basis of household size and income for a 
statistically valid portion of the school's

[[Page 5794]]

enrollment as of October 31, or other date approved by the State 
agency, of the first year of the new cycle. Using the data obtained 
from the sample, enrollment based claiming percentages would be 
developed and applied to total daily meal counts of reimbursable meals 
at the point of service. These percentages represent the proportion of 
the school's population that are eligible for free, reduced price and 
paid meals. These enrollment based claiming percentages would then be 
used for each year of the new cycle and any extensions.
    Finally, paragraph (c)(2)(iv), Establish a Provision 3 base year, 
would permit schools with changed socioeconomic conditions to convert 
to Provision 3. Schools electing to convert to Provision 3 would be 
allowed to establish a Provision 3 base year by taking new free and 
reduced price applications, making new eligibility determinations and 
taking meal counts, by type, for the first year of the new Provision 3 
cycle by using the procedures outlined in Sec. 245.9(d) or by using the 
streamlined base year procedures set forth in Sec. 245.9(e)(2)(iii).

Provision 3

    Under Sec. 245.9(d), Provision 3, of this proposed rule, schools 
implementing Provision 3 would be required to serve reimbursable meals 
at no charge to all participating children in the school for up to 4 
successive school years. Schools would be required to continue serving 
complete meals that meet the requirements for reimbursement during the 
successive years. Provision 3 schools would receive Federal cash and 
commodity assistance at the same level as the school received in the 
base year, as adjusted annually for enrollment, inflation and, if 
applicable, operating days when the difference in operating days 
affects the number of meals. This proposed rule would define the term 
base year to mean the last year for which eligibility determinations 
were made and meal counts by type were taken or the year in which a 
school conducted a streamlined base year as outlined in 
Sec. 245.9(e)(2)(iii). The Provision 3 base year immediately precedes, 
and is not included in, the 4-year cycle. Reimbursable meals may be 
offered to all students at no charge or students eligible for reduced 
price and paid meals may be charged for meals during the Provision 3 
base year. School food authorities are encouraged to consider offering 
all meals at no charge during the base year in order to optimize 
participation and develop a level of cash and commodity assistance that 
may be more reflective of participation during successive years. This 
proposed rule would also require upward and downward adjustments to be 
made in those school years when the number of operating days in the 
current year differs from the number of operating days in the base year 
and the difference affects the number of meals. These adjustments are 
further discussed under Sec. 245.9(d)(4).
    To participate as a Provision 3 school, several conditions would 
apply. Paragraph (d) sets forth these operating conditions. Commenters 
are asked to pay particular attention to these operating conditions and 
address their feasibility in written comments to this rulemaking.
    Paragraph (d)(1), Free meals, would require participating schools 
to serve reimbursable meals, as determined by a point of service 
observations, to all participating children at no charge during non-
base years of operation.
    Paragraph (d)(2), Cost differential, would require the school food 
authority of a participating school to pay, with funds from non-Federal 
sources, the difference between the cost of serving meals at no charge 
to all participating children and the establishment of Federal 
reimbursement.
    Paragraph (d)(3), Meal counts, would require schools to take daily 
meal counts of reimbursable meals at the point of service during the 
non-base years of operation. Commenters should note that this provision 
would require total meal counts at the point of service, not meal 
counts by eligibility category.
    Unlike the standard meal counting system and Provision 2, these 
meal counts would not provide the basis for financial assistance under 
Provision 3. However, the Department believes that total meal counts at 
the point of service remain a good management tool. Obtaining meal 
counts would provide a system to evaluate whether there has been a 
decline in participation, compared to the base year, even though a 
school food authority would continue to receive the same level of 
reimbursement and commodities as their base year (adjusted for 
inflation, enrollment and operating days if the difference in operating 
days affects the number of meals). Such a decline in participation may 
be indicative of decreased meal quality and would require the State 
agency to consider providing technical assistance. For this reason, 
this proposed rule would require meal counts to be retained at the 
local level per Sec. 245.9(g).
    Records of such counts would be required to be maintained for the 
period of time specified under paragraph (g). The submission of the 
total daily meal counts on the school food authority's Claim for 
Reimbursement or through other means could be required by the State 
agency if the State agency believed that submission of such data would 
enhance program integrity. In addition, school food authorities must 
establish a system of oversight using the daily meal counts to ensure 
that participation has not declined significantly from base year. If 
participation declines significantly, the school food authority shall 
provide the school with technical assistance, adjust the level of 
financial assistance received through the State agency or return the 
school to standard application and meal counting procedures, as 
appropriate.
    The Department also recognizes that there may be situations in 
residential child care institutions (RCCIs) where meal counts would not 
be necessary for a system operating under Provision 3. For example, an 
RCCI may have a fixed number of children enrolled and be a closed 
campus with a pre-plate meal service. In such a case, the RCCI may not 
experience a change in enrollment or participation from year-to-year 
and would not need to obtain total daily meal counts. Therefore, the 
Department would provide State agencies the discretion to approve such 
sites for Provision 3 without the requirement to obtain a total daily 
meal count during ``non-base'' years of operation.
    Paragraph (d)(4), Annual adjustments, would require the State 
agency or school food authority to make annual adjustments for 
enrollment and inflation to the total Federal cash and commodity 
assistance received by a Provision 3 school in the base year. The 
annual adjustments for enrollment would be effected by comparing the 
school's current year enrollment as of October 31, to the school's base 
year enrollment as of October 31. The adjustments would reflect the 
changes in the number of children with access to the program(s). State 
agencies would be responsible for checking actual enrollment annually 
on October 31 of each year against the October 31 enrollment for the 
base year in order to determine any changes that must be made in 
reimbursement and the value of commodities for the school year. The 
State agency would be allowed to approve the use of data from an 
alternate date if it is determined to be a more accurate reflection of 
the school's enrollment or if it accommodates the reporting system in 
effect for that State agency. In addition, State agencies could, at 
their discretion, make additional adjustments to a participating 
school's enrollment more frequently than once per school year. If

[[Page 5795]]

more frequent enrollment adjustments were calculated, it would be 
required to be applied for both upward and downward adjustments. The 
adjustments to enrollment would begin with the month the enrollment 
data is collected and applied to any outstanding Claims for 
Reimbursement.
    The Department adjusts the rates of reimbursement for meals served 
in schools annually to reflect changes in inflation. Therefore, the 
adjustment for inflation for the Provision 3 school meals would 
automatically occur when the school food authority's adjusted meal 
counts would be processed through the State agency's claim payment 
system using updated reimbursement rates. The formula for calculating 
commodity assistance would remain unchanged.
    Paragraph (d)(4) also would require an adjustment for the number of 
operating days to the extent that the number of operating days in the 
current school year differs from the number of operating days in the 
base year and the difference affects the number of meals. Under this 
paragraph (d)(4), State agencies would be required to make an upward 
adjustment to the level of cash and commodity assistance for any ``non-
base'' school year in which the number of operating days is more than 
the number of operating days in the base year and the difference in 
operating days affects the number of meals. Similarly, paragraph (d)(4) 
would require State agencies to make a downward adjustment to the level 
of cash and commodity assistance for any ``non-base'' school year in 
which the number of operating days is less than the number of operating 
days in the base year and the difference affects the number of meals. 
No operating day adjustment would be required if the number of 
operating days in a non-base year is the same as the number of 
operating days in the base year. Under this proposed rule, operating 
days means those days that meals are offered to eligible children under 
the National School Lunch Program or School Breakfast Program.
    Paragraph (d)(4) would allow two methods for making adjustments to 
the base year level of assistance as a result of differences in the 
number of operating days between the base year and subsequent years 
when the difference in operating days affects the number of meals. In 
cases where the school food authority would be paid based on meal 
counts (i.e., base year meal counts adjusted by enrollment), State 
agency or local officials would multiply the average daily meals 
claimed, by type, for the current school year by the difference in the 
number of serving days between the base year and the current school 
year. The resulting adjustments would be reflected in the final Claim 
for Reimbursement submitted by the school food authority for the school 
year or on the respective monthly Claim for Reimbursement. When making 
monthly adjustments, each month's Claim for Reimbursement would be 
adjusted for changes in the number of operating days between the month 
being reported in the current year and the corresponding month of the 
base year. In cases where the school food authority would be paid the 
value of base year assistance, State agency or local officials would 
multiply the dollar amount otherwise payable (i.e., the base year level 
of assistance as adjusted by enrollment and inflation) by the ratio of 
the number of operating days in the current year to the number of 
operating days in the base year. Such adjustments could also be made on 
a monthly basis.
    Paragraph (d)(5), Reporting requirements, would require the State 
agency to submit to the Department on the monthly FNS-10, the Report of 
School Program Operations, the number of meals, by type, as an 
adjustment to base year meal counts (adjusted for enrollment and, if 
applicable, operating days) or the number of meals, by type, 
constructed to reflect the adjusted level of cash assistance.
    This proposed rule outlines two methods to effect payment of 
reimbursement for Provision 3 schools. The preferred method would be 
for State agencies or school food authorities to make adjustments to 
school food authorities base year meal counts on the monthly Claim for 
Reimbursement. Changes due to enrollment and/or operating days would be 
reflected in the adjusted meal counts and inflation would be 
automatically adjusted by the State agency's payment system using the 
annually updated reimbursement rates. A second option would be for 
State agencies to provide the same level of cash assistance as the base 
year, adjusted for enrollment, operating days and inflation.
    Under paragraph (e), Extension of Provision 3, of this proposed 
rule, the State agency could allow a school to continue under Provision 
3 for subsequent 4-year periods without taking new applications and 
daily meal counts by type. State agencies would be able to grant an 
extension of Provision 3 if the school food authority could establish, 
through available and approved socioeconomic data, that the income 
level, as adjusted for inflation, of the population of the school 
remained stable, declined, or had only negligible improvement since the 
most recent base year. The school food authority of a school 
implementing Provision 3 would be required to use available and 
approved socioeconomic data and submit the data to their State agency 
for approval. (Approved data sources are discussed later in this 
preamble). These schools would continue to receive reimbursement and 
commodity assistance at the same level as the school received in the 
base year, adjusted for changes in inflation, enrollment and, if 
applicable, operating days.
    State agencies would not be allowed to approve an extension for 
those schools in which the available and approved socioeconomic data 
does not reflect the school's population, was not equivalent data or 
the data indicated more than a negligible improvement in the income 
level of the school population, as adjusted for inflation. Such schools 
would be required to: (1) Return to standard meal counting and claiming 
procedures; (2) establish a new Provision 3 base year as described in 
Sec. 245.9(d); (3) establish a new Provision 3 base year by using the 
streamlined process as described in Sec. 245.9(e)(2)(iii); or, (4) 
establish a new Provision 2 base year or streamlined base year as 
described in Sec. 245.9(b) and (c)(2)(iii).
    Paragraph (e)(2)(iii), Establish a streamlined base year, would 
permit a streamlined application process for schools with changed 
socioeconomic data that choose to continue to operate under Provision 
3. In lieu of taking new free and reduced price applications for the 
enrolled population, such schools could, in accordance with guidance 
established by the Secretary, determine program eligibility on the 
basis of family size and income for a statistically valid portion of 
the school's enrollment as of October 31, or other date approved by the 
State agency. Using the data obtained from the sample, enrollment-based 
claiming percentages would be developed and applied to total daily meal 
counts of reimbursable meals at the point of service during the new 
base year. Schools choosing to implement the streamlined base year for 
Provision 3 would be required to offer meals at no charge to all 
participating students during the newly established base year. In the 
subsequent 4-year period, the school would continue to receive 
reimbursement and commodity assistance at the same level as the school 
received in the newly established streamlined base year, adjusted for 
changes in inflation, enrollment and, if applicable, operating days.
    Paragraph (e)(2)(iv), Establish a Provision 2 base year, would 
allow

[[Page 5796]]

schools which were not approved for an extension of Provision 3 to 
establish a Provision 2 base year or Provision 2 streamlined base year.

Approved Data Sources

    Paragraphs (c)(1) and (e)(1) of Sec. 245.9 of this proposed rule 
would permit Provision 2 and Provision 3 school food authorities to use 
available and approved socioeconomic data to determine whether the 
income level of the school population, as adjusted for inflation, 
remained consistent with the income level of the population of the 
school in the last school year for which the school accepted 
applications (i.e., the base year).
    Pre-approved sources of socioeconomic data would include local data 
developed or collected by city or county zoning and economic planning 
offices or unemployment data for the area from which the school draws 
attendance which measures the stability of the income level of the 
school's population. Local food stamp data could also be used. Because 
schools may determine children eligible for free meals based on 
information obtained directly from the agency administering food stamps 
that the children are from households certified to receive food stamps 
(hereafter referred to as ``direct certification''), a school that had 
been using direct certification would be allowed to produce a current 
direct certification roster for the school. The percentage of enrolled 
students directly certified during the base year would be compared to 
the percentage of enrolled students currently eligible because of their 
participation in the Food Stamp Program to assess whether the income 
level of the school's population remained stable. (Since this method 
uses food stamp participation data, and food stamp eligibility 
standards account for inflation, this method would inherently adjust 
for inflation). Additional sources include Food Distribution Program on 
Indian Reservations data, statistical sampling of the school's 
population using the application or equivalent income measurement 
process and the Temporary Assistance for Needy Families data (provided 
that the eligibility standards were the same or more restrictive in the 
base year as the current year with allowance for inflation).
    If a school food authority of a participating school would like to 
establish the income level of the school's population using alternate 
sources of socioeconomic data, the use of such data sources would have 
to be approved by FNS. The school food authority of a participating 
school would submit a request to use alternate sources of socioeconomic 
data through their State agency to their FNS Regional Office for review 
and approval. School food authorities would be required to use 
socioeconomic data reflective of the area from which the school draws 
attendance or data reflective of the school's population. In selecting 
alternate sources of socioeconomic data, school food authorities would 
also need to consider: (a) Whether the data effectively measures the 
income level of the school's population and (b) whether equivalent data 
is available for both the base year and the current year. Generally, 
census data would only be acceptable if it provided information 
reflective of both the base year and the current year.
    Under this proposed rule, the local school food authority of a 
participating school would be responsible for collecting and evaluating 
the socioeconomic data to establish that the income level of the 
school's population remained stable, declined or had only negligible 
improvement. State agencies would be responsible for reviewing and 
approving or denying the socioeconomic data as submitted by school food 
authorities. FNS Regional Offices would be responsible for approving 
the use of alternate sources of socioeconomic data. For both pre-
approved and alternate sources of socioeconomic data, relative 
measurements (such as the percentage of families living below the 
Federal Poverty Level or median family income) would be considered a 
better measurement of the income composition of the area than absolute 
measures (such as the number of households living below the Federal 
Poverty Level). Under this proposed rule, the State agency's approval 
of an extension would allow a school to continue receiving 
reimbursement through one of the alternate meal counting procedures. 
Therefore, State agencies are reminded that, under this proposed rule, 
any improper payments resulting from a State agency's approval of 
extension requests would be subject to the recovery provisions of 
Sec. 210.19(c).
    Paragraphs (c)(1)(ii) and (e)(1)(ii) would establish that the 
income level of the school population would be considered to have had 
negligible improvement if there is a 5.0% or less improvement over the 
base year (after adjusting for inflation) in the level of the 
socioeconomic indicator which is used to establish the income level of 
the school's population. The Department believes that ``5.0% or less'' 
allows for minor fluctuations in data and at the same time ensures that 
any meaningful improvement in economic conditions would preclude a 
school from receiving an extension.
    For example, 74 percent of the school's population is certified to 
receive food stamps in the base year. Five percent of 74 percent is 
equal to 3.7 percentage points (.05  x  .74 = .037). Therefore, an 
extension may be granted if the percentage of the population currently 
certified to receive food stamps is no lower than 70.3% (.74 -.037 = 
.703 or 70.3%). Note that rounding rules do not apply. In this example, 
current food stamp eligibility standards account for inflation so 
separate inflationary adjustments would not need to be made.

The Free and Reduced Price Policy Statement

    Section 245.9(f), Policy statement requirement, of this proposed 
rule would require school food authorities to amend their Free and 
Reduced Price Policy Statement to include a list of all schools 
participating in Provision 1, Provision 2, and Provision 3 and, for 
each school, the initial year of implementing the provision, the years 
the cycle is expected to remain in effect, the year the provision must 
be reconsidered, and the available and approved socioeconomic data that 
will be used in the reconsideration. Additionally, the school food 
authority would be required to certify that the school(s) meet the 
criteria for participating in the special assistance provisions, as 
specified in Sec. 245.9, as appropriate.

Record Retention

    Section 245.9(g), Recordkeeping, of this proposed rule would 
require that school food authorities of schools participating under 
Provision 2 or Provision 3 retain records for the base year and 
succeeding years for specified time periods. The Department believes 
that it is imperative that accurate records be retained by the school 
food authority of a school implementing one of the provisions. 
Accordingly, paragraph (g) stipulates that the failure to maintain 
records would result in the State agency requiring the school to return 
to standard meal counting and claiming procedures because the level of 
federal reimbursement could not be justified. The failure to maintain 
records could also result in fiscal action. Be aware that base year 
records would need to be retained during the time Provision 2 or 
Provision 3 is in force, plus 3 years for audit or review purposes. 
Commenters should note that while base year records would be retained 
for

[[Page 5797]]

several years, other records such as free and reduced price 
applications and verification documentation, would not be generated 
during non-base years and, therefore, would provide some offset to the 
base year record retention.
    Paragraph (g)(1), Base year records, would require school food 
authorities of schools participating under Provision 2 or Provision 3 
to retain all records as listed in Sec. 210.15(b) and Sec. 220.7(e) 
which relate to the base year and support subsequent year earnings. In 
addition, enrollment data for the base year would have to be retained 
for schools under Provision 3. Such base year records would be required 
to be retained during the period the provision is in effect, including 
all extensions, plus 3 fiscal years after the submission of the last 
Claim for Reimbursement for the fiscal year which employed base year 
data. For example, a school may have established a Provision 2 base 
year in school year 1998-99, received two 4-year extensions, then 
returned to standard procedures school year 2010-11. If the school food 
authority of the Provision 2 school filed the final Claim for 
Reimbursement for fiscal year 2010 in November 2010, the Provision 2 
base year records would be required to be retained until November 2013 
(or longer if there are open audit issues).
    School food authorities that conduct a streamlined base year would 
be required to retain all records related to the statistical 
methodology and the determination of new claiming percentages. Such 
records would have to be retained during the period the provision is in 
effect, including all extensions, plus 3 fiscal years after the 
submission of the last Claim for Reimbursement for the fiscal year 
which employed streamlined base year data. In either case, if audit 
findings had not been resolved, base year and extension records would 
have to be retained beyond the 3-year period as long as required for 
the resolution of the issues raised by the audit.
    Paragraph (g)(2), Non-base year records, would require school food 
authorities of schools participating under Provision 2 or Provision 3 
to retain records of total daily meal counts of reimbursable meals, 
edit checks, on-site review documentation. In addition, school food 
authorities of schools participating under Provision 3 would be 
required to retain records of annual enrollment data which is used to 
adjust the level of assistance and the number of operating days for 
each Provision 3 school. Such records would have to be retained for 
three years after submission of the final Claim for Reimbursement for 
the fiscal year. School food authorities which receive an extension of 
a provision would be required to retain records of the available and 
approved socioeconomic data used to determine the income level of the 
school's population for the base year and year(s) in which extension(s) 
were made. State agencies would also be required to retain copies of 
all records of the available and approved socioeconomic data which was 
used to determine the income level of a school's population for any 
school granted an extension. Such records would be required to be 
retained during the period the provision was in effect, including all 
extensions, plus 3 fiscal years after the submission of the last Claim 
for Reimbursement for the fiscal year which employed base year data. If 
audit findings have not been resolved, records would have to be 
retained beyond the 3-year period as long as required for the 
resolution of the issues raised by the audit.
    The provisions of this proposed rule are intended to affect only 
those reporting or recordkeeping provisions associated with the 
implementation of Provision 2 or Provision 3. The reporting and 
recordkeeping requirements associated with the implementation of 7 CFR 
parts 210 and 220 which are unrelated to the implementation of 
Provisions 2 or 3 would remain unchanged.

Availability of Documentation

    Under redesignated Sec. 245.9(h), Availability of documentation, of 
this proposed rule, school food authorities would be required to make 
documentation available for purposes of monitoring and audit, upon 
request. In addition, upon request from FNS, school food authorities 
under Provision 2 or Provision 3 or a State agency would be required to 
submit to FNS all data and documentation used in granting extensions. 
FNS intends to review such data to evaluate the procedures for granting 
extensions.

Return to Standard Procedures

    Under redesignated Sec. 245.9(i), Return to standard meal counting 
and claiming, of this proposed rule, the words ``in the following 
year'' would be removed and the words ``at any time'' would be added in 
their place to permit schools to return to standard notification and 
application procedures in the current year if standard procedures 
better suit the school's program needs.

Puerto Rico and Virgin Islands

    Redesignated Sec. 245.9(j), Puerto Rico and Virgin Islands, of this 
proposed rule would be amended to include Provision 3 by adding a 
reference to paragraphs (c), (d) and (e), as applicable.

Statistical Sampling

    Section 245.9(k), Statistical income measurements, of this proposed 
rule would provide the minimum requirements for statistical validity 
for income measurements used under this section. In order to be 
considered statistically valid, such measurements must meet five 
standards. First, the sample frame, or pool of students from which the 
sample of students will be selected, must be limited to enrolled 
students who have access to the school meals program. Second, students 
must be randomly selected from the sample frame. Third, the response 
rate to the survey shall be at least 80 percent. This means that all 
information necessary to compute household income as a percentage of 
the poverty level shall be collected from at least 80 percent of the 
students in the sample. Fourth, the number of households that complete 
the survey shall be sufficiently large so that it can be asserted with 
95 percent confidence that the true percentage of students who are: (1) 
Enrolled in the school; (2) have access to the school meals program; 
and (3) are eligible for free meals is within plus or minus 2.5 
percentage points of the point estimate determined from the sample. For 
example, if a sample's point estimate of the percentage of students who 
are: (1) Enrolled in the school; (2) have access to the school meals 
program; and (3) are eligible for free meals is 85 percent and the 95 
percent confidence interval ranges from 84.2 percent to 86.5 percent, 
then it can be asserted with 95 percent confidence that the interval 
84.2 percent to 86.5 percent contains the true percentage of students 
eligible for free meals. Fifth, to minimize statistical bias, data from 
all households that complete the survey instrument must be used when 
calculating enrollment based claiming percentages. For example, if 92% 
of randomly selected students responded to the survey, the school could 
not discard a selection of 12% of the respondents to bring the response 
rate to the minimally acceptable rate of 80%.

Action by State Agencies and FNSROs

    Section 245.11, Action by State agencies and FNSROs, paragraph (h) 
of this proposed rule would require the State agency to take action to 
ensure the proper implementation of Provisions 1, 2, and 3. State 
agencies would be required to remind schools through written 
notification, sent on or before February 15 of the fourth year of a 
school's cycle, that the school must

[[Page 5798]]

return to standard procedures unless they exercise the option to 
request an extension. The Department is proposing that the notice be 
sent by February 15 to allow school food authorities sufficient time to 
gather appropriate data to request an extension or prepare for 
returning to standard procedures, a new provision or a streamlined base 
year.
    Under this proposed rule, if a State agency determined at any time 
that the school or school food authority did not maintain records for a 
participating school, the State agency would require the school to 
return to standard application and meal counting procedures.
    In addition, a State agency would be required to take action if it 
determined at any time that: (1) The school or school food authority 
did not correctly implement Provision 1, Provision 2 or Provision 3; 
(2) meal quality declined because of the implementation of the 
provision; (3) participation in the program declined over time; (4) 
eligibility determinations were incorrectly made; or (5) meal counts 
were incorrectly taken or incorrectly applied. State agency actions 
could include technical assistance, adjustments to the level of 
financial assistance for the current school year, or requiring that the 
school return to standard application and meal counting procedures, as 
appropriate.
    Paragraph (h)(4), State agency recordkeeping, would require State 
agencies to retain records of the following information annually for 
the month of October and, upon request, submit to FNS:
    1. The number of schools using Provision 2 and Provision 3 for 
NSLP;
    2. The number of schools using Provision 2 and Provision 3 for SBP 
only;
    3. The number of extensions granted to schools using Provision 2 or 
Provision 3 during the previous school year;
    4. The number of extensions granted during the previous year on the 
basis of Food Stamp/FDPIR data;
    5. The number of extensions granted during the previous year on the 
basis of Temporary Assistance for Needy Families (TANF) data;
    6. The number of extensions granted during the previous year on the 
basis of local data collected by the city or county zoning and economic 
planning office;
    7. The number of extensions granted during the previous year on the 
basis of applications collected from enrolled students;
    8. The number of extensions granted during the previous year on the 
basis of statistically valid surveys of enrolled students; and
    9. The number of extensions granted during the previous year on the 
basis of alternate data as approved by the State agency's respective 
FNS Regional Office.

Executive Order 12866

    This proposed rule has been determined to be significant and was 
reviewed by the Office of Management and Budget (OMB) under Executive 
Order 12866.

Public Law 104-4

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Food and Nutrition Service generally prepares a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local, 
or tribal governments, in the aggregate, or to the private sector, of 
$100 million or more in any one year. When such a statement is needed 
for a rule, section 205 of the UMRA generally requires the Food and 
Nutrition Service to identify and consider a reasonable number of 
regulatory alternatives and adopt the least costly, more cost-effective 
or least burdensome alternative that achieves the objectives of the 
rule.
    This proposed rule contains no Federal mandates (under regulatory 
provisions of Title II of the UMRA) for State, local, and tribal 
governments or the private sector of $100 million or more in any one 
year. Thus, this proposed rule is not subject to the requirements of 
sections 202 and 205 of the UMRA.

Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The 
Under Secretary for Food, Nutrition, and Consumer Services has 
certified that this proposed rule would not have a significant economic 
impact on a substantial number of small entities. This proposed rule 
would reduce school food authority administrative burdens, streamline 
program operations and enhance access to the programs by needy 
children. The Department of Agriculture (the Department or USDA) does 
not anticipate any significant fiscal impact would result from 
implementation of this proposed rulemaking.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This proposed rule, when finalized, would have 
preemptive effect with respect to any State or local laws, regulations 
or policies which conflict with its provisions or which would otherwise 
impede its full implementation. This proposed rule would not have 
retroactive effect unless so specified in the DATES section of the 
final rule preamble. Prior to any judicial challenge to the provisions 
of this rule or the application of the provisions, all applicable 
administrative procedures must be exhausted. In the National School 
Lunch Program and the School Breakfast Program, the administrative 
procedures are set forth under the following regulations (1) School 
food authority appeals of State agency findings as a result of an 
administrative review must follow State agency hearing procedures as 
established pursuant to 7 CFR 210.18(q) and 220.14(e); (2) School food 
authority appeals of FNS findings as a result of an administrative 
review must follow FNS hearing procedures as established pursuant to 7 
CFR 210.30(d)(3) and 220.14(g); and (3) State agency appeals of State 
Administrative Expense fund sanctions (7 CFR 235.11(b)) must follow the 
FNS administrative review process as established pursuant to 7 CFR 
235.11(f).

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, this notice 
invites the general public and other agencies to comment on proposed 
information collection.
    Written comments on this proposed information collection must be 
received on or before April 7, 2000.
    Comments concerning the information collection aspects of this 
proposed rule should be sent to the Office of Information and 
Regulatory Affairs, OMB, Room 10235, New Executive Office Building, 
Washington, DC 20503, Attention: Desk Officer for the Food and 
Nutrition Service. A copy of these comments may also be sent to Mr. 
Robert Eadie at the address listed in the ADDRESS section of this 
preamble. Commenters are asked to separate their comments on the 
information collection requirements from their comments on the 
remainder of the proposed rule.
    OMB is required to make a decision concerning the collection of 
information contained in this proposed regulation between 30 to 60 days 
after the publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having full

[[Page 5799]]

consideration if OMB receives it within 30 days of publication. This 
does not affect the deadline for the public to comment to the 
Department on the proposed regulation.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (b) the 
accuracy of the agency's estimate of the burden of the collection of 
information, including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    The title, description, and respondent description of the 
information collections are shown below with an estimate of the annual 
reporting and recordkeeping burdens. Included in the estimate is the 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. The chart below identifies only the 
burden hours associated with those sections of 7 CFR part 245, 
Determining Eligibility for Free and Reduced Price Meals and Free Milk 
in Schools, that are proposed to be amended under this rule, 
Alternatives to Standard Application and Meal Counting Procedures. 
These burden hours represent proposed changes to the current reporting 
and recordkeeping requirements and incorporate additional proposed 
requirements.

                                                          Estimated Annual Recordkeeping Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Annual number        Annual        Average burden    Annual burden
                                                                    Section 7 CFR    of respondents     frequency        per response         hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
              SFAs develop notice to parents containing eligibility criteria and maintain documentation. Not required for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................     245.5(a)(1)            20,780                1               .25             5,195
Proposed.........................................................     245.9(b-e)             20,280                1               .25             5,070
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  SFA recordkeeping requirements for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................  ...............                0                0              0                    0
Proposed.........................................................     245.9(h)                  500                1              4                2,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   SFAs amend Free and Reduced Price Policy statement
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................     245.9(c)                  121                1               .10                12
Proposed.........................................................     245.9(f)                  500                1               .50               250
--------------------------------------------------------------------------------------------------------------------------------------------------------
             SFAs develop and distribute a public release with information similar to letter to parents. Not required for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................     245.5(a)(2)            20,780                1               .25             5,195
Proposed.........................................................     245.9(b-e)             20,280                1               .25             5,070
--------------------------------------------------------------------------------------------------------------------------------------------------------
             SFAs develop and distribute supplies of form to be used by households to apply for benefits. Not required for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................     245.6(a)               20,780                1              1               20,780
Proposed.........................................................     245.9(b-e)             20,280                1              1               20,280
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   SA recordkeeping requirements for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................  ...............                0                0              0                    0
Proposed.........................................................     245.9(g)                   54                1             12                  648
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        SAs maintain information on schools participating and extensions granted
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................  ...............                0                0              0                    0
Proposed.........................................................     245.11(h)                  54                1              3                  162
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 Schools distribute applications forms to households. Not required for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................     245.6                 101,000                1               .25            25,250
Proposed.........................................................     245.9                  97,000                1               .25            24,250
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Schools review applications and make eligibility determinations. Not required for Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing.........................................................     245.6(b)              101,000               41               .052          215,332
Proposed.........................................................     245.9                  97,000               41               .052          206,804
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Existing Recordkeeping for Part 245....................  ...............  ...............  ...............  .................          369,782
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Proposed...............................................  ...............  ...............  ...............  .................          362,552
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Difference...................................................  ...............  ...............  ...............  .................           -7,230
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
* SA--State agency; SFA--school food authority.


[[Page 5800]]


                                                            Estimated Annual Reporting Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Annual number        Annual       Average burden    Annual burden
                                                                     Section 7 CFR    of respondents     frequency       per response         hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              SFAs submit to SAs data and documentation used in granting extensions under Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing..........................................................  ...............                0                0              0                   0
Proposed..........................................................     245.9(h)                  500                1               .25              125
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              SAs submit to FNS data and documentation used in granting extensions under Provision 2 and 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing..........................................................  ...............                0                0              0                   0
Proposed..........................................................     245.11 (h)(4)              54                1              4                 216
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Existing Reporting for Part 245.........................  ...............  ...............  ...............  ................          658,367
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Proposed................................................  ...............  ...............  ...............  ................          658,708
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Difference....................................................  ...............  ...............  ...............  ................            +341
--------------------------------------------------------------------------------------------------------------------------------------------------------
* SA--State agency; SFA--school food authority.

    Title: 7 CFR Part 245, Determining Eligibility for Free and Reduced 
Price Meals and Free Milk in Schools.
    OMB Number: 0584-0026.
    Expiration Date: 09/30/2001.
    Type of Request: Revision of existing collection
    Abstract: This proposed rule would amend the regulations governing 
the procedures for determining eligibility for free and reduced price 
meals in the National School Lunch Program and the School Breakfast 
Program. This proposal would allow for an extension of Provision 2 
procedures for an additional 4 years and provide for a new alternative, 
``Provision 3''. Under Provision 3, schools serve reimbursable meals at 
no charge to all children for 4 consecutive years. State agencies and 
school food authorities would be required to maintain specific 
documents that were used to determine the eligibility of a school to 
serve free meals to all children participating in the school nutrition 
programs, and also would be required to submit such data to FNS upon 
request. For schools choosing to participate in one of the alternate 
application and meal counting procedures, this proposed rule would also 
codify the alternate counting and claiming provisions of Public Law 
103-448 which have been implemented, and codify revisions to the 
counting and claiming provisions authorized by Public Laws 104-193 and 
105-336. State agencies and school food authorities recordkeeping 
burdens would initially increase but after the ``base year'' the burden 
hours are expected to decrease because the determinations of 
eligibility for free and reduced price meals would not be made as 
frequently. Reporting hours would also increase marginally due to the 
requirement to track participation in these provisions.

Executive Order 12372

    The National School Lunch Program and the School Breakfast Program, 
which are listed in the Catalog of Federal Domestic Assistance under 
Nos. 10.555 and 10.556, respectively, are subject to the provisions of 
Executive Order 12372, which requires intergovernmental consultation 
with State and local officials. (See 7 CFR part 3015, subpart V, and 
final rule related notice published at 48 FR 29114, June 24, 1983.)

List of Subjects in 7 CFR Part 245

    Food assistance programs, Grant programs-education, Civil rights, 
Food and Nutrition Service, Grant Programs-health, Infants and 
children, Milk, Reporting and recordkeeping requirements, School 
breakfast and lunch programs.
    Accordingly, 7 CFR Part 245 is proposed to be amended as follows:

PART 245--DETERMINING ELIGIBILITY FOR FREE AND REDUCED PRICE MEALS 
AND FREE MILK IN SCHOOLS

    1. The authority citation is revised to read as follows:

    Authority: 42 U.S.C. 1752, 1758, 1759a, 1772, 1773, and 1779.

    2. In Sec. 245.2:
    a. Paragraph (f-2) is added; and
    b. Paragraph (j) is amended by removing the word ``two'' and 
adding, in its place, the word ``three''.
    The addition reads as follows:


Sec. 245.2  Definitions.

* * * * *
    (f-2) Operating day means a day that reimbursable meals are offered 
to eligible students under the National School Lunch Program or School 
Breakfast Program.
* * * * *
    3. In Sec. 245.9:
    a. A heading is added to paragraph (a) to read ``Provision 1.'';
    b. Paragraphs (b)-(g) are revised and paragraphs (h)-(k) are added.
    The revisions and additions read as follows:


Sec. 245.9  Special assistance certification and reimbursement 
alternatives.

* * * * *
    (b) Provision 2. A school food authority may certify children for 
free and reduced price meals for up to 4 consecutive school years if a 
school serves meals at no charge to all enrolled children in that 
school; provided that public notification and eligibility 
determinations shall be in accordance with Sec. 245.5 and Sec. 245.3, 
respectively, during the base year. For purposes of this paragraph (b), 
the term base year means the last year for which eligibility 
determinations were made and meal counts by type were taken or the year 
in which a school conducted a streamlined base year as authorized under 
paragraph (c)(2)(iii) of this section. Schools shall offer reimbursable 
meals to all students at no charge during the Provision 2 base year. 
The Provision 2 base year is the first year, and is included in the 4-
year cycle. The following requirements apply:
    (1) Free meals. Participating schools shall serve reimbursable 
meals, as determined by a point of service observation, to all 
participating children at no charge.
    (2) Cost differential. The school food authority of a school 
participating in Provision 2 shall pay, with funds from non-Federal 
sources, the difference between the cost of serving lunches

[[Page 5801]]

and/or breakfasts at no charge to all participating children and 
Federal reimbursement.
    (3) Meal counts. During the base year, even though meals are served 
to participating students at no charge, schools shall take daily meal 
counts of reimbursable meals by type (free, reduced price, and paid) at 
the point of service. During the non-base years, participating schools 
shall take total daily meal counts (not by type) of reimbursable meals 
at the point of service. For the purpose of calculating reimbursement 
claims in the non-base years, school food authorities shall establish 
monthly or annual percentages, as follows:
    (i) Monthly percentages. The monthly meal counts of the actual 
number of meals served by type (free, reduced price, and paid) during 
the base year shall be converted to monthly percentages for each meal 
type. These percentages shall be derived by dividing the monthly total 
number of meals served of one meal type (e.g., free meals) by the total 
number of meals served in the same month for all meal types (free, 
reduced price and paid meals). The percentages for the reduced price 
meal and paid meal types shall be calculated exactly as the above 
example for free meals. These three percentages calculated at the end 
of each month of the first school year, shall be multiplied by the 
corresponding monthly meal count total of all reimbursable meals served 
in the second, third and fourth consecutive school years, and 
applicable extensions, in order to calculate reimbursement claims for 
free, reduced price and paid meals each month: or,
    (ii) Annual percentages. The actual number of all meals served by 
type (free, reduced price, and paid) during the base year shall be 
converted to an annual percentage for each meal type. Annual 
percentages shall be based on a full school year, or equivalent number 
of months. Each percentage is derived by dividing the annual total 
number of meals served of one meal type (e.g., free meals) by the total 
number of meals served for all meal types (i.e., free, reduced price 
and paid). The percentages for the reduced price meal and paid meal 
types are calculated using the same method as the above example for 
free meals. These three percentages shall be multiplied by the monthly 
meal count total of all reimbursable meals served in each month of the 
second, third and fourth consecutive school years, and applicable 
extensions, in order to calculate reimbursement claims for free, 
reduced price and paid meals each month.
    (c) Extension of Provision 2. At the end of the initial cycle, and 
each subsequent 4-year cycle, the State agency may allow a school to 
continue under Provision 2 for another 4 years using the claiming 
percentages calculated during the most recent base year if the school 
food authority can establish, through available and approved 
socioeconomic data, that the income level of the school's population, 
as adjusted for inflation, has remained stable, declined or has had 
only negligible improvement since the base year.
    (1) Extension criteria. School food authorities must submit to the 
State agency available and approved socioeconomic data to establish 
whether the income level of a school's population, as adjusted for 
inflation, remained constant with the income level of the most recent 
base year.
    (i) Available and approved sources of socioeconomic data. Pre-
approved sources of socioeconomic data which may be used by school food 
authorities to establish the income level of the school's population 
are: Local data collected by the city or county zoning and economic 
planning office; unemployment data; local Food Stamp certification data 
including direct certification; Food Distribution Program on Indian 
Reservations data; statistical sampling of the school's population 
using the application or equivalent income measurement process; and, 
Temporary Assistance for Needy Families data (provided that the 
eligibility standards were the same or more restrictive in the base 
year as the current year with allowance for inflation). In order to 
grant an extension using pre-approved socioeconomic data sources, State 
agencies must review and evaluate the socioeconomic data submitted by 
the school food authority to ensure that it is reflective of the 
school's population, provides equivalent data for both the base year 
and the last year of the current cycle, and demonstrates that the 
income level of the school's population, as adjusted for inflation, has 
remained stable, declined or had only negligible improvement. If the 
school food authority wants to establish the income level of the 
school's population using alternate sources of socioeconomic data, the 
use of such data must be approved by FNS. Data from alternate sources 
must be reflective of the school's population, be equivalent data for 
both the base year and the last year of the current cycle, and 
effectively measure whether the income level of the school's 
population, as adjusted for inflation, has remained stable, declined or 
had only negligible improvement.
    (ii) Negligible improvement. The change in the income level of the 
school's population shall be considered negligible if there is a 5.0% 
or less improvement, after adjusting for inflation, over the base year 
in the level of the socioeconomic indicator which is used to establish 
the income level of the school's population.
    (2) Extension not approved. The State agency shall not approve an 
extension of Provision 2 procedures in those schools for which the 
available and approved socioeconomic data does not reflect the school's 
population, is not equivalent data for the base year and the last year 
of the current cycle, or shows over 5.0% improvement, after adjusting 
for inflation, in the income level of the school's population. Such 
schools shall:
    (i) Return to standard meal counting and claiming. Return to 
standard meal counting and claiming procedures;
    (ii) Establish a new base year. Establish a new Provision 2 base 
year by taking new free and reduced price applications, making new free 
and reduced price eligibility determinations, and taking point of 
service counts of free, reduced price and paid meals for the first year 
of the new cycle. For these schools, the new Provision 2 cycle will be 
4 years. Schools electing to establish a Provision 2 base year shall 
follow procedures contained in paragraph (b) of this section;
    (iii) Establish a streamlined base year. In accordance with 
guidance established by FNS, establish a new Provision 2 base year by 
determining program eligibility on the basis of household size and 
income for a statistically valid portion of the school's enrollment as 
of October 31, or other date approved by the State agency. The 
statistically valid measurement of the school's enrollment must be 
obtained during the first year of the new cycle. Using the data 
obtained, enrollment-based claiming percentages representing a 
proportion of the school's population eligible for free, reduced price 
and paid benefits shall be developed and applied to total daily meal 
counts of reimbursable meals at the point of service. For schools 
electing to participate in Provision 2, these percentages shall be used 
for claiming reimbursement for each year of the new cycle and any 
extensions; or
    (iv) Establish a Provision 3 base year. Schools may convert to 
Provision 3 using the procedures contained in paragraphs (e)(2)(ii) or 
(e)(2)(iii) of this section.
    (d) Provision 3. A school food authority of a school which serves 
all

[[Page 5802]]

enrolled children in that school reimbursable meals at no charge during 
any period for up to 4 consecutive school years may elect to receive 
Federal cash reimbursement and commodity assistance at the same level 
as the total Federal cash and commodity assistance received by the 
school during the last year that eligibility determinations for free 
and reduced price meals were made and meals were counted by type--free, 
reduced price and paid--at the point of service. Such cash 
reimbursement and commodity assistance shall be adjusted for each of 
the 4 consecutive school years pursuant to paragraph (d)(4) of this 
section. For purposes of this paragraph (d), the term base year means 
the last year for which eligibility determinations were made and meal 
counts by type were taken or the year in which a school conducted a 
streamlined base year as authorized under paragraph (e)(2)(iii) of this 
section. Reimbursable meals may be offered to all students at no charge 
or students eligible for reduced price and paid meal benefits may be 
charged for meals during the Provision 3 base year. The Provision 3 
base year immediately precedes, and is not included in, the 4-year 
cycle. This alternative shall be known as Provision 3, and the 
following requirements shall apply:
    (1) Free meals. Participating schools shall serve reimbursable 
meals, as determined by a point of service observation, to all 
participating children at no charge during non-base years of operation.
    (2) Cost differential. The school food authority of a participating 
school shall pay, with funds from non-Federal sources, the difference 
between the cost of serving meals at no charge to all participating 
children and Federal reimbursement.
    (3) Meal counts. Participating schools shall take daily meal counts 
of reimbursable meals served to participating children at the point of 
service during the non-base years. Such meal counts shall be retained 
at the local level in accordance with paragraph (g) of this section. 
State agencies may require the submission of the meal counts on the 
school food authority's Claim for Reimbursement or through other means. 
In addition, school food authorities must establish a system of 
oversight using the daily meal counts to ensure that participation has 
not declined significantly from the base year. If participation 
declines significantly, the school food authority shall provide the 
school with technical assistance, adjust the level of financial 
assistance received through the State agency or return the school to 
standard application and meal counting procedures, as appropriate. In 
residential child care institutions (RCCIs), the State agency may 
approve implementation of Provision 3 without the requirement to obtain 
daily meal counts of reimbursable meals at the point of service if:
    (i) the State agency determines that enrollment, participation and 
meal counts do not vary; and
    (ii) there is an approved mechanism in place to ensure that 
students will receive reimbursable meals.
    (4) Annual adjustments. The State agency or school food authority 
shall make annual adjustments for enrollment and inflation to the total 
Federal cash and commodity assistance received by a Provision 3 school 
in the base year. The adjustments shall be made for increases and 
decreases in enrollment of children with access to the program(s). The 
annual adjustment for enrollment shall be based on the school's base 
year enrollment as of October 31 compared to the school's current year 
enrollment as of October 31. Another date within the base year may be 
used if it is approved by the State agency, and provides a more 
accurate reflection of the school's enrollment or accommodates the 
reporting system in effect in that State. If another date is used for 
the base year, the current year date must correspond to the base year 
date of comparison. State agencies may, at their discretion, make 
additional adjustments to a participating school's enrollment more 
frequently than once per school year. If more frequent enrollment is 
calculated, it must be applied for both upward and downward 
adjustments. The annual adjustment for inflation shall be effected 
through the application of the current year rates of reimbursement. To 
the extent that the number of operating days in the current school year 
differs from the number of operating days in the base year, and the 
difference affects the number of meals, a prorata adjustment shall also 
be made to the base year level of assistance, as adjusted by enrollment 
and inflation. Upward and downward adjustments to the number of 
operating days shall be made. Such adjustment shall be effected by 
either:
    (i) Multiplying the average daily meal count by type (free, reduced 
price and paid) by the difference in the number of operating days 
between the base year and the current year and subtract that number of 
meals from the Claim for Reimbursement. In developing the average daily 
meal count by type for the current school year, schools shall use the 
base year data adjusted by enrollment; or,
    (ii) Multiplying the dollar amount otherwise payable (i.e., the 
base year level of assistance, as adjusted by enrollment and inflation) 
by the ratio of the number of operating days in the current year to the 
number of operating days in the base year.
    (5) Reporting requirements. The State agency shall submit to the 
Department on the monthly FNS-10, Report of School Programs Operations, 
the number of meals, by type, as an adjustment to base year meal 
counts; or, the number of meals, by type, constructed to reflect the 
adjusted levels of cash assistance. State agencies may employ either 
method to effect payment of reimbursement for Provision 3 schools.
    (e) Extension of Provision 3. The State agency may allow a school 
to continue under Provision 3 for subsequent 4-year cycles without 
taking new free and reduced price applications and meal counts by type. 
State agencies may grant an extension of Provision 3 if the school food 
authority can establish through available and approved socioeconomic 
data that the income level of the school's population, as adjusted for 
inflation, has remained stable, declined, or has had only negligible 
improvement since the most recent base year.
    (1) Extension criteria. School food authorities must submit to the 
State agency available and approved socioeconomic data to establish 
whether the income level of the school's population, as adjusted for 
inflation, remained constant with the income level of the most recent 
base year.
    (i) Available and approved sources of socioeconomic data. Pre-
approved sources of socioeconomic data which may be used by school food 
authorities to establish the income level of the school's population 
are: local data collected by the city or county zoning and economic 
planning office; unemployment data; local Food Stamp certification data 
including direct certification; Food Distribution Program on Indian 
Reservations data; statistical sampling of the school's population 
using the application process; and, Temporary Assistance for Needy 
Families data (provided that the eligibility standards were the same or 
more restrictive in the base year as the current year with allowance 
for inflation). In order to grant an extension using pre-approved 
socioeconomic data sources, State agencies must review and evaluate the 
socioeconomic data submitted by the school food authority to ensure 
that it is reflective of the school's population, provides equivalent 
data for both the base year and the last year of the current cycle,

[[Page 5803]]

and demonstrates that the income level of the school's population, as 
adjusted for inflation, has remained stable, declined or had only 
negligible improvement. If the school food authority wants to establish 
the income level of the school's population using alternate sources of 
data, the use of such data must be approved by FNS. Data from alternate 
sources must be reflective of the school's population, be equivalent 
data for both the base year and the last year of the current cycle, and 
effectively measure whether the income level of the school's 
population, as adjusted for inflation, has remained stable, declined or 
had only negligible improvement.
    (ii) Negligible improvement. The change in the income level of the 
school population shall be considered negligible if there is a 5.0% or 
less improvement, after adjusting for inflation, over the base year in 
the level of the socioeconomic indicator which is used to establish the 
income level of the school's population.
    (2) Extension not approved. Schools for which the available and 
approved socioeconomic data does not reflect the school's population, 
is not equivalent data for the base year and the last year of the 
current cycle, or shows over 5.0% improvement after adjusting for 
inflation, shall not be approved for an extension. Such schools shall:
    (i) Return to standard meal counting and claiming. Return to 
standard meal counting and claiming procedures;
    (ii) Establish a new base year. Establish a new Provision 3 base 
year by taking new free and reduced price applications, making new free 
and reduced price eligibility determinations, and taking point of 
service counts of free, reduced price and paid meals for the first year 
of the new cycle. Schools electing to establish a Provision 3 base year 
shall follow procedures contained in paragraph (d) of this section;
    (iii) Establish a streamlined base year. In accordance with 
guidance established by FNS, establish a new Provision 3 base year by 
providing free meals to all participating children and determining 
program eligibility on the basis of household size and income for a 
statistically valid portion of the school's enrollment as of October 
31, or other date approved by the State agency. The statistically valid 
measurement of the schools enrollment shall be obtained during the base 
year of the new cycle. Using the data obtained, enrollment based 
claiming percentages, representing a proportion of the school's 
population eligible for free, reduced price and paid benefits, shall be 
developed and applied to total daily counts of reimbursable meals at 
the point of service during the base year. For schools electing to 
participate in Provision 3, the streamlined base year level of 
assistance shall be adjusted for enrollment, inflation and, if 
applicable, operating days for each subsequent year of the new cycle 
and any extensions; or
    (iv) Establish a Provision 2 base year. Schools may convert to 
Provision 2 using the procedures contained in paragraphs (c)(2)(ii) or 
(c)(2)(iii) of this section.
    (f) Policy statement requirement. A school food authority of a 
Provision 1, 2, or 3 school shall amend its Free and Reduced Price 
Policy Statement, specified in Sec. 245.10, to include a list of all 
schools participating in Provision 1, 2, or 3, and for each school, the 
initial year of implementing the provision, the years the cycle is 
expected to remain in effect, the year the provision must be 
reconsidered, and the available and approved socioeconomic data that 
will be used in the reconsideration. The school food authority shall 
also certify that the school(s) meet the criteria for participating in 
the special assistance provisions, as specified in paragraphs (a), (b), 
(c), (d) or (e) of this section, as appropriate.
    (g) Recordkeeping. School food authorities of schools implementing 
Provision 2 and Provision 3 shall retain records related to the 
implementation of the provision. Failure to maintain sufficient records 
shall result in the State agency requiring the school to return to 
standard meal counting and claiming procedures and/or fiscal action.
    (1) Base year records. A school food authority shall ensure that 
records as specified in Sec. 210.15(b) and Sec. 220.7(e) of this 
chapter which support subsequent year earnings are retained for the 
base year for schools under Provision 2 and Provision 3. In addition, 
records of enrollment data for the base year shall be retained for 
schools under Provision 3. Such base year records shall be retained 
during the period the provision is in effect, including all extensions, 
plus 3 fiscal years after the submission of the last Claim for 
Reimbursement which employed the base year data. School food 
authorities that conduct a streamlined base year shall retain all 
records related to the statistical methodology and the determination of 
claiming percentages. Such records shall be retained during the period 
the provision is in effect, including all extensions, plus 3 fiscal 
years after the submission of the last Claim for Reimbursement which 
employed the streamlined base year data. In either case, if audit 
findings have not been resolved, base year records shall be retained 
beyond the 3-year period as long as required for the resolution of the 
issues raised by the audit.
    (2) Non-base year records. A school food authority shall ensure 
that non-base year records pertaining to total daily meal count 
information, edit checks and on-site review documentation are retained 
for schools under Provision 2 and Provision 3. In addition, a school 
food authority shall ensure that non-base year records pertaining to 
annual enrollment data and the number of operating days, which are used 
to adjust the level of assistance, are retained for schools under 
Provision 3. Such records shall be retained for three years after 
submission of the final Claim for Reimbursement for the fiscal year. 
School food authorities that are granted an extension of a provision 
shall retain records of the available and approved socioeconomic data 
which is used to determine the income level of the school's population 
for the base year and year(s) in which extension(s) are made. In 
addition, State agencies must also retain records of the available and 
approved socioeconomic data which is used to determine the income level 
of the school's population for the base year and year(s) in which 
extensions are made. Such records shall be retained at both the school 
food authority level and at the State agency during the period the 
provision is in effect, including all extensions, plus 3 fiscal years 
after the submission of the last Claim for Reimbursement which employed 
base year data. If audit findings have not been resolved, records shall 
be retained beyond the 3-year period as long as required for the 
resolution of the issues raised by the audit.
    (h) Availability of documentation. Upon request, the school food 
authority shall make documentation including enrollment data, 
participation data, available and approved socioeconomic data that was 
used to grant the extension, if applicable, or other data available at 
any reasonable time for monitoring and audit purposes. In addition, 
upon request from FNS, school food authorities under Provision 2 or 
Provision 3, or State agencies shall submit to FNS all data and 
documentation used in granting extensions including documentation as 
specified in paragraphs (g) and (h) of this section.
    (i) Return to standard meal counting and claiming. A school food 
authority may return a school to standard notification, certification 
and counting procedures at any time if standard procedures better suit 
the school's program needs. The school food

[[Page 5804]]

authority will then notify the State agency.
    (j) Puerto Rico and Virgin Islands. Puerto Rico and the Virgin 
Islands, where a statistical survey procedure is permitted in lieu of 
eligibility determinations for each child, may either maintain their 
standard procedures in accordance with Sec. 245.4 or may opt for 
Provision 2 or Provision 3 provided the eligibility requirements as set 
forth in paragraphs (a), (b), (c), (d) and (e) as applicable, of this 
section are met.
    (k) Statistical income measurements. Statistical income 
measurements that are used under this part shall meet the following 
standards:
    (1) The sample frame shall be limited to enrolled students who have 
access to the school meals program,
    (2) A sample of enrolled students shall be randomly selected from 
the sample frame,
    (3) The response rate to the survey shall be at least 80 percent,
    (4) The number of households that complete the survey shall be 
sufficiently large so that it can be asserted with 95 percent 
confidence that the true percentage of students who are enrolled in the 
school, have access to the school meals program, and are eligible for 
free meals is within plus or minus 2.5 percentage points of the point 
estimate determined from the sample, and,
    (5) To minimize statistical bias, data from all households that 
complete the survey must be used when calculating the enrollment based 
claiming percentages for Sec. 245.9(c)(2)(iii) and 
Sec. 245.9(e)(2)(iii) of this section.
    4. In Sec. 245.11, a new paragraph (h) is added to read as follows:


Sec. 245.11  Action by State agencies and FNSROs.

* * * * *
    (h) The State agency shall take action to ensure the proper 
implementation of Provisions 1, 2, and 3. Such action shall include:
    (1) Notification. Notifying school food authorities of schools 
implementing Provision 2 and/or 3 that they must return to standard 
application and meal counting procedures or apply for an extension 
under Provision 2 or 3. Such notification must be in writing, and be 
sent no later than February 15 of the fourth year of a school's current 
cycle;
    (2) Return to standard procedures. Returning the school to standard 
application and meal counting procedures if the State agency determines 
that records were not maintained; and,
    (3) Technical assistance. Securing technical assistance, 
adjustments to the level of financial assistance for the current school 
year, and returning the school to standard application and meal 
counting procedures, as appropriate, if a State agency determines at 
any time that:
    (i) The school or school food authority has not correctly 
implemented Provision 1, Provision 2 or Provision 3;
    (ii) Meal quality has declined because of the implementation of the 
provision;
    (iii) Participation in the program has declined over time;
    (iv) Eligibility determinations were incorrectly made; or
    (v) Meal counts were incorrectly taken or incorrectly applied.
    (4) State agency recordkeeping. State agencies shall retain the 
following information annually for the month of October and, upon 
request, submit to FNS:
    (i) The number of schools using Provision 2 and Provision 3 for 
NSLP;
    (ii) The number of schools using Provision 2 and Provision 3 for 
SBP only;
    (iii) The number of extensions granted to schools using Provision 2 
or Provision 3 during the previous school year;
    (iv) The number of extensions granted during the previous year on 
the basis of Food Stamp/FDPIR data;
    (v) The number of extensions granted during the previous year on 
the basis of Temporary Assistance for Needy Families (TANF) data;
    (vi) The number of extensions granted during the previous year on 
the basis of local data collected by a city or county zoning and/or 
economic planning office;
    (vii) The number of extensions granted during the previous year on 
the basis of applications collected from enrolled students;
    (viii) The number of extensions granted during the previous year on 
the basis of statistically valid surveys of enrolled students; and
    (ix) the number of extensions granted during the previous year on 
the basis of alternate data as approved by the State agency's 
respective FNS Regional Office.

    Dated: January 28, 2000.
Shirley R. Watkins,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 00-2550 Filed 2-4-00; 8:45 am]
BILLING CODE 3410-30-P


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