Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations 66637

regulations to allow VA to make lower

payments based on such negotiations.

DATES: Effective Date: November 7,

2000.

FOR FURTHER INFORMATION CONTACT:

Tony Guagliardo, Health Administration

Service, (10C3), Veterans Health

Administration, Department of Veterans

Affairs, 810 Vermont Avenue, NW.,

Washington, DC 20420, (202) 273–8307.

(This is not a toll-free number.)

SUPPLEMENTARY INFORMATION:

Administrative Procedure Act

This document allows VA to pay

hospitals and physicians the amount

that they on their own or through agents

have negotiated to receive from VA.

Accordingly, this document reflects

contract actions that are exempt from

the prior notice-and-comment and

delayed effective date provisions of 5

U.S.C. 553.

Unfunded Mandates

The Unfunded Mandates Reform Act

requires (in section 202) that agencies

prepare an assessment of anticipated

costs and benefits before developing any

rule that may result in an expenditure

by State, local, or tribal governments, in

the aggregate, or by the private sector of

$100 million or more in any given year.

This rule would have no consequential

effect on State, local, or tribal

governments.

Regulatory Flexibility Act

The Secretary hereby certifies that

this rule will not have a significant

economic impact on a substantial

number of small entities as they are

defined in the Regulatory Flexibility

Act, 5 U.S.C. 601–612. This rule would

affect only a small portion of the

business of the affected entities.

Accordingly, pursuant to 5 U.S.C.

605(b), this rule is exempt from the

initial and final regulatory flexibility

analysis requirements of §§ 603 and 604.

Catalog of Federal Domestic Assistance

Numbers

The Catalog of Federal domestic assistance

numbers for the programs affected by this

rule are 64.005, 64.007, 64.008, 64.009,

64.010, 64.011, 64.012, 64.013, 64.014,

64.015, 64.016, 64.018, 64.019, 64.022, and

64.025.

List of Subjects in 38 CFR Part 17

Administrative practice and

procedure, Alcohol abuse, Alcoholism,

Claims, Day care, Dental health, Drug

abuse, Foreign relations, Government

contracts, Grant programs health, Grant

programs-veterans, Health care, Health

facilities, Health professions, Health

records, Homeless, Medical and dental

schools, Medical devices, Medical

research, Mental health programs,

Nursing homes, Philippines, Reporting

and record-keeping requirements,

Scholarships and fellowships, Travel

and transportation expenses, Veterans.

Approved: October 31, 2000.

Hershel W. Gober,

Acting Secretary of Veterans Affairs.

For the reasons set out in the

preamble, 38 CFR part 17 is amended as

set forth below:

PART 17—MEDICAL

1. The authority citation for part 17

continues to read as follows:

Authority: 38 U.S.C. 501, 1721, unless

otherwise noted.

2. In § 17.55, a new paragraph (k) is

added; and the authority citation at the

end of the section is revised, to read as

follows:

§ 17.55 Payment for authorized public or

private hospital care.

* * * * *

(k) Notwithstanding other provisions

of this section, VA, for public or private

hospital care covered by this section,

will pay the lesser of the amount

determined under paragraphs (a)

through (j) of this section or the amount

negotiated with the hospital or its agent.

(Authority: 38 USC 513, 1703, 1728; § 233 of

P. L. 99–576)

3. Remove the undesignated center

heading immediately before § 17.56.

4. In § 17.56, a new paragraph (e) is

added to read as follows:

§ 17.56 Payment for non-VA physician

services associated with outpatient and

inpatient care provided at non-VA facilities.

* * * * *

(e) Notwithstanding other provisions

of this section, VA, for physician

services covered by this section, will

pay the lesser of the amount determined

under paragraphs (a) through (d) of this

section or the amount negotiated with

the physician or the physician’s agent.

(Authority: 38 U.S.C. 513, 38 U.S.C. 1703,

38 U.S.C. 1728)

5. Add an undesignated center

heading immediately before § 17.57 to

read as follows:

Use of Community Nursing Home

Care Facilities.

[FR Doc. 00–28472 Filed 11–06–00; 8:45 am]

BILLING CODE 8320–01–P

LEGAL SERVICES CORPORATION

45 CFR Part 1628

Recipient Fund Balances

AGENCY: Legal Services Corporation.

ACTION: Final rule.

SUMMARY: This final rule revises the

Corporation’s rule on recipient fund

balances to provide the Corporation

with more discretion to determine

whether to permit a recipient to

maintain a fund balance of up to 25%

of its LSC support for a particular

reporting period and to specify a limited

number of extraordinary and compelling

circumstances for which LSC has

discretion to permit a recipient to

maintain a fund balance in excess of

25% of its LSC support. The final rule

also adds additional requirements and

limitations applicable to waiver requests

and the use of excess fund balances.

Finally, the rule is restructured for

clarity and for consistency with other

Corporation regulations.

EFFECTIVE DATE: This final rule is

effective on December 7, 2000.

FOR FURTHER INFORMATION CONTACT:

Victor M. Fortuno, Vice President for

Legal Affairs, Legal Services

Corporation, 750 First Street, NE.—Suite

1000, Washington, DC 20002–4250;

202–336–8800.

SUPPLEMENTARY INFORMATION: On

September 11, 1998, the Operations and

Regulations Committee (‘‘Committee’’)

of the Legal Services Corporation

(‘‘LSC’’ or ‘‘the Corporation’’) Board of

Directors (‘‘Board’’) met to consider

proposed revisions to the Corporation’s

rule governing recipient fund balances,

45 CFR part 1628. The Committee

adopted a proposed rule that was

published in the Federal Register for

public comment at 63 FR 56591

(October 22, 1998). Nineteen comments

were received and considered by the

Corporation.

Following the close of the comment

period, the Committee met on February

21, 1999, to review the public comment

on the proposed rule. No action was

taken on the proposed rule at that time

as the Committee was advised by the

Corporation’s staff that additional time

was needed to consider fully a number

of issues raised by the public comment

and to formulate informed

recommendations for the Committee’s

consideration in adopting a final rule.

The Committee was briefed by staff on

two issues raised by one commenter

which challenged the legal sufficiency

of the proposed rulemaking and the

legal authority for the Corporation to

permit any carryover of fund balances

66638 Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations

by recipients. The commenter’s legal

sufficiency claim was mistakenly based

on the Administrative Procedures Act, a

law which does not apply to LSC

rulemaking, and a similarly erroneous

allegation that the public record failed

to include certain ‘‘factual information’’

on which LSC relied—or, in the eyes of

the commenter, should have relied—in

developing the proposed rule. As

explained to the Committee, the

preamble to the proposed rule properly

incorporated by reference information

which was already a matter of public

record and readily made these materials

and any other factual information

available to the public upon request.

The commenter further asserted that the

Corporation’s proposed fund balance

provisions were contrary to federal law,

specifically relying on the Office of

Management and Budget Circular A–

110, Uniform Administrative

Requirements for Grants and

Agreements with Institutions of Higher

Education, Hospitals and Other NonProfit Organizations (OMB Circular A–

110). Contrary to the commenter’s

assertion, OMB Circular A–110

expressly authorizes the recipients to

carry forward unobligated balances to

subsequent funding periods. OMB

Circular A–110, § _.25(e)(3), 58 FR

62992, 62999 (November 29, 1993).

On June 11, 1999, the Committee

again met to consider public comments

on the proposed rule. The Committee

adopted a number of revisions to the

rule, but deferred action on the final

rule pending additional staff research

into the policies and practices of other

agencies awarding federal grants and

contracts with regard to extraordinary

and compelling circumstances for the

carryover of an excess fund balance. The

Committee took under consideration the

need to permit a fund balance in excess

of its 25% limitation in extraordinary

cases, where a recipient received a large,

lump-sum infusion of funds, for

example, from the sale of real property,

insurance proceeds, or a court-awarded

judgment. Where such funds are derived

from the past expenditure of LSC funds,

they may, because of the amount or

timing of their receipt, cause a fund

balance in excess of 25% of the

recipient’s total LSC support for that

year. In particular, the Committee

sought additional information from staff

on the policies adopted by federal

agencies with regard to grantee fund

balances and whether fund balances in

excess of 25% of a grantee’s annual

federal support are ever permitted, and,

if so, under what circumstances.

On November 19, 1999, the

Committee met to consider the staff’s

report on the outstanding issues raised

at its last meeting and to again receive

public comment. The Committee was

advised that in 1993, OMB Circular A–

110, the governing authority for most

federal grants to non-profit

organizations, was amended to expand

the authority of discretionary grantees to

undertake certain types of

administrative actions without prior

agency approval, including the ability to

carry forward unobligated fund balances

into a subsequent funding period (58 FR

62992, November 29, 1993). Having

reviewed the regulations and policies

issued by more than twenty federal

agencies under the amended OMB

guidelines, LSC staff advised the

Committee that the Corporation’s

proposed fund balance policies were

more strict than those adopted by most

federal agencies. Few federal agencies

employ a cap on the amount of funds

that may be carried over by a grantee,

with or without prior agency approval.

Most agencies require notification of

fund balances, and some reserve the

discretion to disallow the carryover or

to offset it against future grant funds

under particular circumstances, such as

when it exceeded 25% of the grant

award, or the grantee was at high risk of

failure to comply with statutory

requirements. Staff also provided the

Committee with a breakout of the fund

balances reported by recipients for fiscal

year 1997, the most recent, complete

data available. After considering the

staff report and taking other public

comment on the rule, the Committee

made a number of additional revisions

to the rule and voted to recommend to

the Board that the rule as revised be

adopted as a final rule. On November

20, 1999, the Board did adopt as final

the rule as revised and reported by the

Committee.

This final rule is intended to provide

the Corporation with more discretion to

determine whether to permit a recipient

to maintain a fund balance of up to 25%

of its LSC support for a particular period

and sets forth the requirements and

limitations applicable to waiver requests

and the uses of fund balances. The final

rule also authorizes the Corporation to

exercise its discretion to waive the 25%

cap on excess fund balances in three

specific circumstances when

extraordinary and compelling reasons

exist for such a waiver. Finally, the rule

is restructured for clarity and

consistency with other LSC regulations.

A section-by-section analysis is

provided below.

Section-by-Section Analysis

Section 1628.1 Purpose

The final rule adopts the revisions to

this section as proposed. Those

revisions deleted or moved parts of the

section because they were not

statements of the purpose of the rule. As

revised, the purpose of the rule is stated

as setting forth the Corporation’s

policies and procedures for recipient

fund balances. The final rule retains the

underlying intent of the current rule

which is to ensure the timely

expenditure of LSC funds for the

effective and economical provision of

high quality legal assistance to eligible

clients.

Section 1628.2 Definitions

The proposed rule clarified and

updated the meaning of three of the

current terms to make them consistent

with other changes in LSC regulations,

and retained a fourth term without

change.

In the final rule, ‘‘excess fund

balance’’ has been added as a defined

term for clarity. ‘‘Excess fund balance’’

is defined to mean the amount of a

recipient’s LSC fund balance that

exceeds the amount the recipient is

authorized to retain under the

regulation.

As proposed, the term ‘‘LSC support’’

was defined as the sum of three

amounts: (1) The recipient’s LSC

carryover funds from the prior fiscal

year; (2) the amount of the recipient’s

LSC grant for the year in question; and

(3) any LSC derivative income earned by

the recipient during the year in

question. In the final rule, the

Corporation has deleted a recipient’s

prior year carryover funds from the

definition of LSC support. As pointed

out during the comment period,

including carryover funds in LSC

support could artificially inflate the

amount of funds permitted to be carried

over under the percentage ceilings used

in the rule. As this result was not

intended by the Corporation, the

reference to the prior year’s carryover

funds has been deleted and the

remaining components of the definition

of ‘‘LSC support’’ renumbered

accordingly. The language was further

amended to make clear the fiscal year

being referenced and that one-time and

special purpose grants were not to be

included in the definition of ‘‘LSC

support’’ as either financial assistance

or derivative income. The rules

governing fund balances for one-time

and special purpose grants are

discussed in more detail in § 1628.3(g)

below.

Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations 66639

The final rule replaces the defined

term ‘‘fund balance amount’’ with ‘‘fund

balance’’ for ease of use and clarity.

Other minor language changes were also

incorporated for clarity. The final

definition makes clear that a ‘‘fund

balance’’ is the amount by which LSC

support, together with the prior year’s

carryover amount of LSC Funds,

exceeds the recipient’s expenditures of

LSC Funds, including capital

acquisitions, as these amounts are

reported in the recipient’s annual audit.

Some commenters recommended doing

away with the term ‘‘fund balance’’

altogether as that term is inconsistent

with generally accepted accounting

principles set forth in the Statement of

Financial Accounting Standards (FASB)

No. 117, Financial Statements for Notfor-Profit Organizations. The current

FASB Statement No. 117 speaks in

terms of three categories of ‘‘net assets’’

rather than fund accounting. This issue

was addressed by the Corporation in

1997 when it republished its

Accounting Guide for LSC Recipients

(August, 1997) following the FASB

Statement No. 117 change. To permit

the separate reporting of LSC revenue

and expenditures, while at the same

time adhering to Statement No. 117,

Section 2–4 of LSC’s Accounting Guide

requires separate reporting, preferably

through a supplemental schedule to be

attached to audited financial statements

prepared in accordance with FASB

Statement No. 117. The supplemental

schedule details the receipt and

expenditure of LSC funds and permits

the calculation of the LSC ‘‘fund

balance.’’ Therefore, the final rule

retains the term ‘‘fund balance.’’

The final rule retains the meaning of

the term ‘‘fund balance percentage’’ but

has revised the language to be consistent

with its use as a defined term. The fund

balance percentage is the percentage

ratio of the LSC fund balance to the

recipient’s LSC support.

The final rule adopts without change

the proposed definition of ‘‘recipient,’’

which was updated to reflect the current

law limiting grants for financial

assistance to those authorized by

§ 1006(a)(1)(A) of the LSC Act and to be

consistent with the meaning of the term

as defined elsewhere in the regulations.

Section 1628.3 Policy

The proposed rule restructured this

section to consolidate statements of

general policy on recipient fund

balances in this section and to move

provisions that dealt more with

procedure to other sections of the rule.

Paragraph (a) states the Corporation’s

long-standing policy that recipients

may, without any prior LSC approval,

retain a fund balance of up to 10% of

their LSC support. While this policy has

not changed from the current rule, the

Corporation received significant

comment urging that the ceiling on fund

balances be raised. A number of

commenters argued that their own

accountants or auditors recommended

higher fund balance retention in the

interests of sound financial management

for nonprofit corporations. The

commenters, however, differed on the

appropriate level for such fund

balances, with recommendations

ranging as low as one month’s operating

expenses to three or six months of

expenses, or even higher. The majority

of the recipients that commented

suggested increasing the fund balance

which could be retained without

specific LSC approval to between 15%

and 25% of LSC support. Several

commenters noted that their other

funders generally did not permit their

funds to be included in fund balances,

making the inclusion of LSC funds for

this purpose more critical for the

recipient’s stability as an ongoing

enterprise and to ease the transition for

the recipient should it lose some or all

of its LSC funding.

The Corporation has retained the 10%

ceiling on the level of fund balances that

recipients may carryover without

specific LSC approval. The Corporation

was not convinced by the comments

that a higher level was either necessary

or appropriate at this time. The primary

purpose of LSC funding is to enable the

recipient to provide a maximum of high

quality legal assistance to eligible

clients, rather than to underwrite the

long term fiscal stability of the recipient.

There is an inherent tension between

the purpose of the grant funds and the

non-expenditure of these funds solely to

underwrite the entity’s viability as an

ongoing enterprise. Nothing in the

comments persuades the Corporation

that an amount in excess of the current

10% ceiling is necessary.

In 1980, the GAO was critical of fund

balances between 20% and 31% of a

recipient’s annual grant. While OMB

introduced more flexibility into grantee

administration of its federal funding

through its amendments to Circular A–

110, there is no empirical evidence that

the GAO criticisms of fund balances for

LSC recipients are any less valid today.

Nor have the commenters demonstrated

any compelling need for higher fund

balances. Additionally, large fund

balances could create the potential for

misuse of such funds. In 1997, the last

year for which complete records were

available, recipients carried over $17.9

million in LSC funding, compared to

$49.6 million in non-LSC funding. The

data further reflect that most recipients

report carry over of funds and that, of

those that do, the majority carried over

significantly more non-LSC funds than

LSC funds. These data tend to refute the

argument of the commenters that LSC

funds are necessary for an adequate

fund balance because of the general lack

of non-LSC funds available for this

purpose. Nor does the Corporation

adhere to the principle underlying these

claims, that LSC funds should be used

to underwrite a recipient’s financial

stability when other funders will not do

so. Especially with the advent of

competitive grants, LSC would prefer to

have its grants go to client service rather

than to reserve funds for grant transition

activities and needs. Where such needs

exist, LSC can provide the necessary

funding.

Paragraph (b) permits recipients to

request a waiver from LSC to retain a

fund balance of up to 25% of their LSC

support. Such waivers are granted at the

discretion of LSC and require a showing

of special circumstances to justify the

waiver. As discussed above, several

commenters sought a fund balance

ceiling of 25% or higher to be

automatic, rather than by waiver.

However, the Corporation disagreed

with these comments and has retained

the ceiling of 10% for fund balances

which can be retained without prior

LSC approval, and up to 25% only upon

a waiver request to LSC, supported by

a showing of special circumstance.

Consistent with the proposed

rulemaking, however, LSC has relaxed

somewhat the showing required to

obtain a waiver for a fund balance of up

to 25% of a recipient’s LSC support. The

particular standards are discussed

below in § 1628.4.

In the final rule, the Corporation has

added a new paragraph (c) which

permits a recipient to request a waiver

to retain a fund balance in excess of

25% of their LSC support in

extraordinary and compelling

circumstances. The rule further limits

‘‘extraordinary and compelling

circumstances’’ by specifying only three

possible sources for such funds: (1) An

insurance reimbursement; (2) the sale of

real property; and (3) the receipt of

monies from a lawsuit in which the

recipient was a party.

Although the Corporation did not find

it necessary or appropriate to raise the

ceilings in effect for routine fund

balance carryovers or waivers, it was

swayed by the comments concerning

unusual and compelling circumstances

which could arise that may justify

retention of a fund balance in excess of

25% of a recipient’s LSC support. In

general these circumstances arise when

66640 Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations

there is a sudden and unexpected

infusion of funds which are derived

from prior LSC grant funds but are not

part of the current year’s funding. By

their nature, these funds may be

substantial in amount. Instances

discussed included the settlement of an

insurance claim resulting in the

payment to the recipient of a large

insurance reimbursement; the receipt of

a substantial amount as proceeds from

the sale of real property; or, the receipt

of an award based on a judgment or

settlement in a lawsuit to which the

recipient was a party. In these cases,

because of the timing of the receipt of

the funds or the amount of such funds

or both, it may be more prudent to

permit the recipient to carryover the

funding into the next fiscal year, even

if the amount of the carryover will

exceed 25%, than to require the

recipient to spend the funds in the fiscal

year received. The recipient can better

plan and find the best use for the funds,

rather than being forced into a hasty

expenditure simply to avoid the

limitation on the carryover of fund

balances and the resultant surrender of

the excess fund balances to the

Corporation.

The Committee considered using a

standard of ‘‘extraordinary and

compelling’’ for these waivers with the

three specific circumstances discussed

as examples. However, it was felt that

more guidance was required to avoid

erosion of the standard. Therefore, the

Board ultimately decided to limit the

permissible circumstances for these

extraordinary waivers to the three

conditions which have in the past been

known to give rise to the sudden

infusion of large sums, and hence may

precipitate the need for a waiver. By

limiting the circumstances justifying

such waivers, the Corporation intends to

provide notice to recipients of the

limited types of circumstance in which

extraordinary excess fund balances will

be tolerated, thereby avoiding any

misunderstanding, abuse, or erosion of

the standard.

In the final rule, proposed paragraph

(c) is relettered as (d) and otherwise

retains the policy that the granting of

any waiver request is at the discretion

of the Corporation. The final rule makes

explicit that the discretion to grant a

waiver applies to both requests for

waivers of up to 25% of a recipient’s

LSC support and for waivers in excess

of 25%. In addition, the final rule refers

to the criteria in § 1628.4(d) which

governs the Corporation’s exercise of its

waiver discretion.

In the final rule, proposed paragraph

(d) is relettered as (e) and continues to

state that, absent a waiver, a fund

balance in excess of 10% of LSC support

is to be repaid to the Corporation. In

addition, the final rule continues the

policy requiring repayment to LSC of

any amount in excess of the amount

permitted under a waiver granted by the

Corporation. As suggested during the

comment period, the two sentences

describing the alternative means of

repayment have been moved to the

section on procedures (see § 1628.4(c)).

In the final rule, proposed paragraph

(e) is relettered as (f), but is otherwise

unchanged. It continues to clarify LSC

policy that the recovery of excess fund

balances does not constitute a

termination of funds under Part 1606 of

the Corporation’s regulations.

Finally, the final rule reletters

paragraph (f) as (g) and retains the

substance of the proposed rule to make

clear that one-time and special purpose

grants awarded by the Corporation are

not subject to the fund balance rules in

this part, are not part of the calculation

of fund balances pursuant to this rule,

but are to be separately accounted for

and reported. The rule also continues

LSC’s policy that unexpended funds

from one-time and special purpose

grants must be returned to the

Corporation at the end of the grant term

unless the Corporation has approved the

expenditure of those funds in writing.

The Corporation Office of Compliance

and Enforcement is planning to update

the LSC Accounting Guide to reflect the

revisions to the rule, including

treatment of one-time and special

purpose grants as provided for in this

provision.

Section 1628.4 Procedure

This section sets out the procedures

applicable to recipient fund balances. It

has been revised to provide the basis on

which the Corporation will exercise its

discretion to grant a waiver of an excess

fund balance and the requirements

which are intended to ensure careful

oversight by the Corporation of a

recipient’s fund balances. The

procedures apply to both waivers of the

10% ceiling for a fund balance of up to

25% of a recipient’s LSC support and

waivers of the 25% ceiling in

extraordinary and compelling

circumstances. The final rule

consolidates the procedural

requirements in the current rule in this

section and updates those requirements

as necessary.

Paragraph (a) of the final rule sets out

the timeframe for recipients whose fund

balance exceeds the 10% ceiling to

request a waiver from the Corporation

and the required content of such waiver

requests. The final rule provides a

recipient with 30 days from the

submission of the recipient’s annual

financial audit in which to request a

waiver. By tying the waiver request to

the submission date for the recipient’s

annual financial audit, the Corporation

intends to place recipients on notice of

a fixed date for such requests. As used

in this paragraph, the submission date

for the recipient’s annual financial audit

is the date on which such audit is due

to be submitted to the Corporation,

which is currently specified in the LSC

Audit Guide as 120 days from the close

of the grantee’s fiscal year.

Several comments urged that the rule

provide for advance or preliminary

approvals. According to the comments,

advance approval would permit better

fiscal planning and would allow the

expenditure of fund balances earlier in

the following fiscal year. Although these

concerns have merit, approval is by

definition based on the amount of fund

balance indicated in the recipient’s

audit, and that audit is not available

until after the end of the fiscal year.

This rule does not preclude the

recipient’s request for a Corporation

action on a waiver prior to the close of

the fiscal year, it simply does not

require the Corporation to provide for

advance approval. The Corporation

already has a practice of providing

informal guidance to recipients who

inquire early about their anticipated

fund balances. This practice will

continue to be available to recipients,

but need not be required by regulation.

Paragraph (a) of the final rule

incorporates the content of waiver

requests which was specified in

paragraph (c) of the proposed rule. The

final rule continues to require that

waiver requests specify: (1) The fund

balance as reported in the recipient’s

annual audit; (2) the reason for the

excess fund balance; (3) the recipient’s

plans for use of the excess fund balance;

(4) the fund balance, if any, that the

recipient projects for the current fiscal

year; and (5) the circumstances

justifying retention of the excess fund

balance. The Corporation revised item

(3) to delete the proposed reference to

a Technology Investment Plan and other

specific requirements related to

information technology systems. The

Corporation decided there was

insufficient support for singling out

information technology systems for

special treatment under its fund balance

rules. The need to acquire or update the

hardware or software related to a

recipient’s information technology

systems is simply one example of

equipment or property acquisition for

which an excess fund balance may be

used. Other stylistic and clarifying

language changes have been made,

Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations 66641

including expanding the reference to

circumstances in item (5) to include

both the special circumstances required

to justify the retention of an excess fund

balance of up to 25% of the recipient’s

LSC support and the extraordinary and

compelling circumstances specified in

§ 1628.3(c) necessary to justify retention

of a fund balance in excess of 25% of

the recipient’s LSC support.

The Corporation proposed in

paragraph (b) of this section to identify

its obligations to consider the recipient’s

final audit, fund balance statements,

and waiver requests, if any, and to

provide timely written notice to the

recipient of any fund balance amount to

be recovered and the method of

recovery. In the final rule, the scope of

paragraph (b) was narrowed to focus on

the Corporation’s obligation to respond

in a timely fashion to a recipient’s

request for a waiver or to notify the

recipient that the excess fund balance

must be repaid to the Corporation. In

addition, the final rule requires that the

Corporation respond within 45 days of

its receipt of a waiver request. The 45

day period for the Corporation’s

decision and response to a waiver

request was deemed reasonable and

necessary because of the likelihood that

multiple requests would be submitted at

about the same time each year. In this

regard, the written response to a waiver

request or notice of demand for

repayment of the excess fund balance

may be provided by the Corporation by

physical delivery, such as regular mail,

or electronically, such as e-mail, when

feasible. Either method is likewise

acceptable for the submission of waiver

requests.

The final rule contains a new

paragraph (c) which consolidates the

information previously located in

paragraph (b) (discussed above)

concerning the timeliness of repayment

notices and in the policy section (see

§ 1628.3(e), supra) concerning the

methods of repayment. The final rule

continues to require written notice of

repayment of an excess fund balance at

least 30 days prior to the date when

repayment is due. Furthermore, the final

rule continues to authorize the

Corporation to decide, after consultation

with the recipient, on the method of

repayment. Two repayment methods are

contemplated: a lump sum payment or

a pro rated deduction from the

recipient’s monthly grant payments

spread over a specified number of

months. Irrespective of the recovery

method used, however, the recipient

should generally expect the recovery to

be complete within the term of the

current grant.

Paragraph (d) of the proposed rule

stated that excess fund balances could

not be expended by the recipient prior

to approval by the Corporation of a

waiver request. This paragraph has been

deleted from the final rule as

unnecessary and redundant. It remains

the policy of the Corporation that a

recipient needs to obtain LSC’s approval

of a waiver request before it may expend

any excess fund balances.

In the final rule, proposed paragraph

(e) is relettered as paragraph (d) and

continues to identify the standards

governing the Corporation’s decision to

grant a waiver request. The overarching

standard continues to be that recipients

provide high quality legal assistance to

clients in an effective and economical

manner. While prohibiting excess fund

balances promotes this purpose,

regulated use of carryover funds under

certain circumstances is also consistent

with this purpose. Based on changing

needs and the Corporation’s experience

with fund balances since 1984, the

standards enumerated in paragraph (d)

are intended to reflect both generally

and specifically the circumstances

under which the Corporation may grant

a fund balance waiver.

The first standard under paragraph (d)

garnered the most comment. The

Corporation had proposed relaxing the

standard from ‘‘emergencies, or unusual

or unexpected occurrences, or

extraordinary circumstances’’ to

‘‘emergencies, unusual or unexpected

occurrences, or circumstances’’ which

give rise to an excess fund balance.

Commenters generally approved the

broader discretion available to the

Corporation under the proposed

standard. According to the commenters,

justifiable reasons for waiving the 10%

ceiling on fund balance retention exist

which do not rise to the current

standard of ‘‘extraordinary

circumstances.’’ One commenter,

however, critiqued the proposed

standard as too lax and feared it may

result in a de facto increase in the

ceiling on fund balances from 10% to

25%.

In the final rule, the standard has

been changed to refer to the

‘‘circumstances giving rise to the

existence of a fund balance in excess of

10% of LSC support set out in

§ 1628.3(b) or (c).’’ Thus, the final

standard incorporates by reference the

need for ‘‘special circumstances’’ to

justify a waiver to retain an excess fund

balance of up to 25% of a recipient’s

LSC support and ‘‘extraordinary and

compelling circumstances’’ as specified

in § 1628.3(c) to justify a waiver for a

fund balance in excess of 25% of a

recipient’s LSC support. For waivers of

up to 25% of LSC support, the

Corporation has more flexibility and

discretion than under the current

standard to grant a waiver, while at the

same time requiring a showing of a

special circumstance to avoid such

waivers from becoming the norm.

Moreover, to obtain a waiver in excess

of 25% of LSC support, the recipient

must demonstrate that one of the three

circumstances specified in § 1628.3(c)

gave rise to the excess fund balance in

order to show extraordinary and

compelling circumstances to justify a

waiver. Thus, the ability of a recipient

to obtain a waiver to retain a fund

balance in excess of 25% of its LSC

support is narrowly circumscribed.

Moreover, the circumstances giving

rise to the excess fund balance remain

but one of four factors to be considered

by the Corporation in granting or

denying a waiver request. The final rule

retains without change two factors from

the current rule: the special needs of

clients and the recipient’s financial

management record. The final factor

combines subparagraphs (3) and (4) of

the proposed rule into a single

subparagraph (3) in the final rule. As

revised, subparagraph (3) in the final

rule retains authority for the

Corporation to consider the recipient’s

need for a cash reserve for payments to

private attorneys participating in the

recipient’s private attorney involvement

(‘‘PAI’’) program and adds language

authorizing the consideration of the

recipient’s need to acquire equipment or

property or for other expenditures

which are reasonable and necessary for

the performance of the LSC grant. The

additional language, in part, replaces

the proposed rule’s subparagraph (4)

which separately stated as a factor the

recipient’s need for a cash reserve to

replace or update information

technology systems. Only a few

comments addressed the technology

issue and a review of past fund balance

requests and prior approval requests

under Part 1630 (Cost standards and

procedures) indicated no need for a

specific regulatory factor related solely

to information technology systems. The

language in the final rule is expected to

provide the Corporation with sufficient

discretion and flexibility to deal with a

variety of requests for waivers, not

merely those related to information

technology systems. For example, a cash

reserve in a coming fiscal year may be

needed to acquire new property or to

acquire equipment that may make the

program more accessible to

handicapped clients, or for additional

staff necessary to handle an anticipated

influx of clients due to changes in

66642 Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations

medical, housing or other benefits

adversely impacting on the client

community.

In the final rule, the proposed new

paragraph (f) is re-lettered as paragraph

(e), and its substantive provisions for

tighter controls on the use of fund

balances by recipients are retained

without change. Thus, the Corporation’s

written approval of waiver request will

specify the time period within which

the excess fund balance must be

expended and the uses for which the

funds may be expended. In specifying

the time period for the expenditure of

any excess fund balances, the

Corporation’s written approval will

indicate whether the expenditure may

be permitted beyond the end of the

current fiscal year.

The final rule retains as paragraph (f)

the current and proposed requirements

for the separate reporting of any excess

fund balance retained by a recipient for

expenditure pursuant to an approved

waiver request. Revisions to this

paragraph clarify that approved excess

fund balances should be reported

separately by natural line item in the

current fiscal year’s audited financial

statements. ‘‘Natural line item’’ or

‘‘natural expense classification’’ is a

term of art in the accounting field which

means the itemizing of expenses

according to the kinds of economic

benefits received by incurring the

expense. Examples of natural line items

or natural expense classifications

include salaries and wages, employee

benefits, supplies, rent, and utilities.

See the American Institute of Certified

Public Accountants Audit and

Accounting Guide for Not-for-Profit

Organizations, June 1, 1996 edition,

Glossary, at 367.

Finally, in the final rule, a new

paragraph (g) has been added. Paragraph

(g) requires recipients to inform the

Corporation of and seek its guidance

with respect to changes in the

conditions on the timing or purposes for

the expenditure of excess fund balances

as set out in the Corporation’s written

approval of a waiver request. The new

paragraph is intended to place

recipients on notice of their obligation

to inform LSC of changes in

circumstances which make compliance

with the terms and conditions of their

waiver difficult or impossible, for

example, uncontrollable delays in

settling on the purchase of new

property, sudden and unexpected

market changes that may alter the

economics of a planned purchase, or

newly emergent priorities for which the

expenditure should be redirected. The

Corporation will then provide the

recipient with guidance on whether the

change in the purpose of the

expenditure or the need for more time

for the expenditure, or both, warrants a

change in the conditions for the waiver.

Failure of a recipient to notify the

Corporation and obtain approval for

changes in its waiver conditions could

result in any nonconforming

expenditures being treated as a

questioned cost by the Corporation

under Part 1630.

Section 1628.5 Fund Balance Deficits

The final rule retains with only minor

technical or clarifying changes the

provisions of the current rules

governing recipient deficits. Deficits

continue to be discouraged and use of

LSC funds to liquidate a deficit requires

prior Corporation approval. Absent

prior approval, LSC funds used for this

purpose will result in a questioned cost.

Only a few conforming language

changes have been made to this section.

List of Subjects in 45 CFR Part 1628

Administrative practice and

procedures, Legal services

For reasons set forth in the preamble,

LSC revises 45 CFR Part 1628 to read as

follows:

PART 1628—RECIPIENT FUND

BALANCES

Sec.

1628.1 Purpose.

1628.2 Definitions.

1628.3 Policy.

1628.4 Procedures.

1628.5 Fund balance deficits.

Authority: 42 U.S.C. 2996e(b)(1)(A), 2996f

(a)(3).

§ 1628.1 Purpose

The purpose of this part is to set out

the Corporation’s policies and

procedures applicable to recipient fund

balances. The Corporation’s fund

balance policies are intended to ensure

the timely expenditure of LSC funds for

the effective and economical provision

of high quality legal assistance to

eligible clients.

§ 1628.2 Definitions.

(a) Excess fund balance means a

recipient’s LSC fund balance that

exceeds the amount a recipient is

permitted to retain under this part.

(b) LSC support means the sum of:

(1) The amount of financial assistance

awarded by the Corporation to the

recipient for the fiscal year included in

the recipient’s annual audited financial

statement, not including one-time and

special purpose grants; and

(2) Any LSC derivative income, as

defined in § 1630.2(c), earned by the

recipient for the fiscal year included in

the recipient’s annual audited financial

statement, not including derivative

income from one-time and special

purpose grants.

(c) The LSC fund balance is the excess

of LSC support plus the prior year

carryover amount over expenditures of

LSC funds (including capital

acquisitions), as each is reported in the

recipient’s annual financial statements.

(d) The fund balance percentage is

the amount of the LSC fund balance

expressed as a percentage of the

recipient’s LSC support.

(e) Recipient, as used in this part,

means any grantee or contractor

receiving financial assistance from the

Corporation under section 1006(a)(1)(A)

of the LSC Act.

§ 1628.3 Policy.

(a) Recipients are permitted to retain

from one fiscal year to the next LSC

fund balances up to 10% of their LSC

support.

(b) Recipients may request a waiver to

retain a fund balance up to a maximum

of 25% of their LSC support for special

circumstances.

(c) Recipients may request a waiver to

retain a fund balance in excess of 25%

of a recipient’s LSC support only for the

following extraordinary and compelling

circumstances when the recipient

receives an insurance reimbursement,

the proceeds from the sale of real

property, or a payment from a lawsuit

in which the recipient was a party.

(d) A waiver pursuant to paragraph (b)

or (c) of this section may be granted at

the discretion of the Corporation

pursuant to the criteria set out in

§ 1628.4(d).

(e) In the absence of a waiver, a fund

balance in excess of 10% of LSC support

shall be repaid to the Corporation. If a

waiver of the 10% ceiling is granted,

any fund balance in excess of the

amount permitted to be retained shall be

repaid to the Corporation.

(f) A recovery of an excess fund

balance pursuant to this part does not

constitute a termination under 45 CFR

part 1606. See § 1606.2(c)(2)(ii).

(g) One-time and special purpose

grants awarded by the Corporation are

not subject to the fund balance policy

set forth in this part. Revenue and

expenses relating to such grants shall be

reflected separately in the audit report

submitted to the Corporation. This may

be done by establishing a separate fund

or by providing a separate supplemental

schedule of revenue and expenses

related to such grants as a part of the

audit report. No funds provided under

a one-time or special purpose grant may

be expended subsequent to the

expiration date of the grant without the

Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Rules and Regulations 66643

prior written approval of the

Corporation. Absent approval from the

Corporation, all unexpended funds

under such grants shall be returned to

the Corporation.

§ 1628.4 Procedures.

(a) Within 30 days of the submission

to LSC of its annual audited financial

statements, a recipient may request a

waiver of the 10% ceiling on LSC fund

balances. The request shall specify:

(1) The LSC fund balance as reported

in the recipient’s annual audited

financial statements;

(2) The reason(s) the excess fund

balance resulted;

(3) The recipient’s plan for

disposition of the excess fund balance

during the current fiscal year;

(4) The amount of fund balance

projected to be carried forward at the

close of the recipient’s current fiscal

year; and

(5) The special circumstances

justifying the retention of the excess

fund balance up to 25%, or the

extraordinary and compelling

circumstances set out in § 1628.3(c)

justifying a fund balance in excess of

25%.

(b) Within 45 days of receipt of the

recipient’s waiver request submitted

pursuant to paragraph (a) of this section,

the Corporation shall provide a written

response to the request and a written

notice to the recipient of any fund

balance due and payable to the

Corporation as well as the method for

repayment.

(c) In the event that repayment is

required, the Corporation shall give

written notice 30 days prior to the

effective date for repayment. Repayment

shall be in a lump sum or by pro rata

deductions from the recipient’s grant

checks for a specific number of months.

The Corporation shall determine which

of the specified methods of repayment

is reasonable and appropriate in each

case after consultation with the

recipient.

(d) The decision of the Corporation

regarding the granting of a waiver shall

be guided by the statutory mandate

requiring the recipient to provide high

quality legal services in an effective and

economical manner. In addition, the

Corporation shall consider the following

factors:

(1) Emergencies, unusual or

unexpected occurrences, or the

circumstances giving rise to the

existence of a fund balance in excess of

10% of LSC support set out in

§ 1628.3(b) or (c);

(2) the special needs of clients;

(3) The need to retain a cash reserve

for payments to private attorneys

participating in the recipient’s private

attorney involvement (PAI) program; for

acquisition of equipment or property; or

for other expenditures which are

reasonable and necessary for the

performance of the LSC grant; and

(4) The recipient’s financial

management record.

(e) The Corporation’s written approval

of a request for a waiver shall require

that the recipient use the funds it is

permitted to retain within the time

period set out in the approval and for

the purposes approved by the

Corporation.

(f) Excess fund balances approved by

the Corporation for expenditure by a

recipient shall be separately reported by

natural line item in the current fiscal

year’s audited financial statements. This

may be done by establishing a separate

fund or by providing a separate

supplemental schedule as part of the

audit report.

(g) The recipient shall promptly

inform and seek guidance from the

Corporation when it determines a need

for any changes to the conditions on

timing or purposes set out in the

Corporation’s written approval of a

recipient’s request for a waiver.

§ 1628.5 Fund balance deficits.

(a) Sound financial management

practices such as those set out in

Chapter 3 of the Corporation’s

Accounting Guide for LSC Recipients

should preclude deficit spending. Use of

current year LSC grant funds to

liquidate deficit balances in the LSC

fund from a preceding period requires

the prior written approval of the

Corporation.

(b) Within 30 days of the submission

of the recipient’s annual audit, the

recipient may apply to the Corporation

for approval of the expenses associated

with the liquidation of the deficit

balance in the LSC fund.

(c) In the absence of approval by the

Corporation, expenditures of current

year LSC grant funds to liquidate a

deficit from a prior year shall be

identified as questioned costs under 45

CFR part 1630.

(d) The recipient’s request must

specify the same information relative to

the deficit LSC fund balance as that set

forth in § 1628.4(a)(1) and (2).

Additionally, the recipient must

develop and submit a plan approved by

its governing body describing the

measures which will be implemented to

prevent a recurrence of a deficit balance

in the LSC fund. The Corporation

reserves the right to require changes in

the submitted plan.

(e) The decision of the Corporation

regarding acceptance of these deficitrelated costs shall be guided by the

statutory mandate requiring the

recipient to provide high quality legal

services performed in an effective and

economical manner. Special

consideration will be given for

emergencies, unusual occurrences, or

other special circumstances giving rise

to a deficit balance.

Dated: October 31, 2000.

Victor M. Fortuno,

Vice President for Legal Affairs.

[FR Doc. 00–28473 Filed 11–06–00; 8:45 am]

BILLING CODE 7050–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Parts 73 and 76

[MM Docket No. 83–484; FCC 00–386]

Repeal or Modification of the Personal

Attack and Political Editorial Rules

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: This document concerns

repeal of the personal attack and

political editorial rules for broadcast

licensees and cable system operators.

This order repeals the broadcast and

cable personal attack and political

editorial rules. The order also vacates

the Commission’s earlier Order and

Request to Update Record which had

suspended for 60 days the personal

attack and political editorial rules. The

U.S. District Court of Appeals, D.C.

Circuit, by order of October 11, 2000

directed the Commission to repeal the

rules, noting that the Commission may

institute a new rulemaking proceeding

to determine whether, consistent with

constitutional constraints, the public

interest requires the personal attack and

political editorial rules.

DATES: This rule is effective October 26,

2000.

ADDRESSES: Federal Communications

Commission, 445 Twelfth Street, SW.,

Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:

Cyndi Thomas, Policy and Rules

Division, Mass Media Bureau, at (202)

418–2600.

SUPPLEMENTARY INFORMATION: This is a

summary of the Order in MM Docket

No. 83–484, FCC 00–386, adopted

October 26, 2000; released October 26,

2000. The full text of this decision is

available for inspection and copying

during regular business hours in the

FCC Reference Center, 445 Twelfth

Street, SW., Room CY–A257,