[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Rules and Regulations]
[Pages 39936-39998]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19418]


      

[[Page 39935]]

_______________________________________________________________________

Part II





Department of Health and Human Services





_______________________________________________________________________



Administration For Children and Families



_______________________________________________________________________



45 CFR Parts 98 and 99



Child Care and Development Fund; Final Rule

Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Rules 
and Regulations

[[Page 39936]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 98 and 99

RIN 0970-AB74


Child Care and Development Fund

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule implements the child care provisions of the 
Personal Responsibility and Work Opportunity Reconciliation Act 
(PRWORA) of 1996 (Pub. L. 104-193) and incorporates technical 
corrections to PRWORA made by the Balanced Budget Act of 1997 (Pub.L. 
105-33). PRWORA appropriates new entitlement child care funds under 
section 418 of the Social Security Act and requires that these new 
Federal child care funds be subject to the Child Care and Development 
Block Grant (CCDBG) Act. The CCDBG program which was created under the 
original CCDBG Act is a discretionary fund program. PRWORA also 
reauthorized the CCDBG Act. As PRWORA requires that these child care 
funds be administered as a unified program, the Administration for 
Children and Families has named the combined funds the Child Care and 
Development Fund (CCDF). Parts 98 and 99 are the official regulations 
for the Child Care and Development Fund.

EFFECTIVE DATE: August 24, 1998.

FOR FURTHER INFORMATION CONTACT: Barbara Binker, Director, Policy 
Division, Child Care Bureau, Hubert Humphrey Building, Room 320F, 200 
Independence Avenue, SW, Washington, DC 20201, telephone (202) 401-
5145. Deaf and hearing-impaired individuals may call the Federal Dual 
Party Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. Eastern 
time.

SUPPLEMENTARY INFORMATION:

Background

    Section 103(c) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) repealed the child care programs 
authorized under title IV-A of the Social Security Act--AFDC Child 
Care, Transitional Child Care and At-Risk Child Care. In addition, 
PRWORA amended section 418 of the Social Security Act to provide new 
entitlement Federal child care funds and transferred them to the Lead 
Agency under the amended Child Care and Development Block Grant Act. 
The funding under section 418 is now subject to the CCDBG Act. PRWORA 
also amended the CCDBG Act.
    The new statutory provisions, therefore, unified what was a 
fragmented child care subsidy system. The combined and increased 
funding becomes part of a holistic and streamlined system for child 
care. The integrated entitlement and discretionary child care funding 
has a single, unified purpose. The Department of Health and Human 
Services has named the combined funds the Child Care and Development 
Fund (CCDF), to reflect this integration of multiple funding sources. 
The Department uses the CCDF terminology when corresponding with 
grantees and the child care field.

Goals and Purpose of the Rule

    The primary goals of this rule are to:
--Amend the CCDBG regulations in light of the child care amendments 
under title VI of PRWORA,
--achieve a balance between program flexibility and accountability,
--assure the health and safety of children in child care,
--recognize that child care is a key support for work, as envisioned in 
TANF, and
--clarify, streamline, simplify, and unify the Federal child care 
program.

    The major regulatory decisions were made to assure States have 
adequate information upon which to base their child care payments; 
promote public involvement in the Plan process; strengthen health and 
safety in child care by requiring children receiving CCDF subsidies to 
be age-appropriately immunized; require coordination between child care 
Lead Agencies and agencies administering TANF, health, education and 
employment programs; streamline the CCDF application and Plan; and 
provide clarifications based on experience operating both the CCDBG 
program and the now-repealed title IV-A programs.
    We received relatively few comments during the comment period--only 
some 160 organizations and individuals made approximately 500 comments, 
many of which were duplicative. The content of the comments lead us to 
believe that we achieved our goal of reaching balance among viewpoints. 
We made only a few changes as a result of comments to adjust the 
balance among goals. Of the substantive changes made, we require the 
Lead Agency to make available to the public, in advance of the public 
hearing, the plan it proposes to submit to the Secretary. We require 
the Lead Agency to provide consumer education information to parents 
and the general public about health and safety requirements and about 
the full range of providers available to families. We clarified that an 
independent audit of a Lead Agency shall be conducted by a State agency 
that meets the generally accepted government auditing standards or by a 
public accountant who meets the independence standards contained 
therein. We added provisions regarding tribal consortia in Sec. 98.83. 
We also added or revised provisions regarding tribal construction at 
Sec. 98.84 including a requirement regarding the amount a tribe new to 
the CCDF may spend on construction and a provision regarding treatment 
of construction planning costs.
    We made other changes to conform to the technical amendments to 
PRWORA by Pub. L. 105-33, The Balanced Budget Act of 1997, primarily in 
Sec. 98.70 and 98.71. Based on comments, we also made other minor 
changes to clarify proposed language or codify policy contained in the 
preamble of the proposed rule.

Statutory Authority

    Section 658E of the Child Care and Development Block Grant Act of 
1990 requires that the Secretary shall by rule establish the 
information needed in the Block Grant Plan.

Regulatory Impact Analysis

    This rule has been reviewed by the Office of Management and Budget 
(OMB) pursuant to Executive Order 12866. Executive Order 12866 requires 
that regulations be reviewed to ensure that they are consistent with 
the priorities and principles set forth in the Executive Order. The 
Department has determined that this rule is consistent with these 
priorities and principles. An assessment of the costs and benefits of 
available regulatory alternatives (including not regulating) 
demonstrated that the approach taken is the most cost-effective and 
least burdensome while still achieving the regulatory objectives.
    For the most part, the regulations implement specific requirements 
under PRWORA.
    We are requiring that children be age-appropriately immunized in 
order to receive services under the Child Care and Development Fund. As 
most States already include immunizations in their child care standards 
and provide religious and medical exemptions from immunizations, we do 
not anticipate that this rule will have a significant negative impact 
on either grantees or families, since grantees will not be required to 
provide immunizations directly. The Vaccines for Children Program, an 
important component of the Childhood Immunization Initiative (CII),

[[Page 39937]]

provides immunizations to eligible children, including those without 
insurance coverage, those eligible for Medicaid, and American Indians 
and Alaska Natives. In addition, every State receives grant funds for 
immunization activities, including hiring nurses, expanding clinic 
hours, assessing coverage levels, and conducting outreach. Immunization 
levels of children 19-35 months of age are measured by the National 
Immunization Survey, the most recent survey conducted throughout the 
U.S. that provides comparable State vaccination coverage estimates.
    The immunization provision was considered the most cost-effective 
and least burdensome approach because: (1) It helps ensure that 
vulnerable young children are age-appropriately immunized; (2) 
immunization of such children is highly cost-effective; and (3) it 
provides flexibility to grantees in determining how to implement the 
provision.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (Pub. L. 96-354) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses and other small entities. 
The primary impact of this regulation is on State, tribal and 
territorial governments. To a lesser extent the regulation could affect 
individuals and small businesses. However, the number of small 
businesses affected should be limited, and the expected economic impact 
on these businesses would not be so significant that a full regulatory 
flexibility analysis is indicated.
    The rule contains a number of provisions that could result in some 
decrease in the regulatory and economic burdens on providers that are 
small businesses. Because States will be required to operate their 
programs under a more consistent set of program rules, participating 
providers will face a simpler and more streamlined set of Federal 
regulatory requirements.
    The providers who would potentially be most affected by this rule 
are in-home providers. These providers are generally not operating as 
small businesses, but as domestic employees; thus, any impact on them 
need not be specifically addressed under this Act.
    State, local and tribal governments already have authority to set 
general regulatory requirements and health and safety standards for 
child care providers. If States (or other grantees) believe that there 
is a substantial need for additional requirements (to protect the well-
being of children in care), we expect them to act under this general 
authority.
    While States generally have immunization requirements for children 
in child care, the proposed immunization provision might result in some 
additional children being subject to immunization requirements or 
stronger requirements for some children. However, States have 
flexibility in deciding how immunization requirements are to be 
implemented. Our rule does not dictate that States impose requirements 
on providers; rather, States can choose to impose them on eligible 
families. Thus, the immunization provision in this rule does not 
necessarily affect small businesses. Further, where States do choose to 
impose additional requirements on providers related to the immunization 
provision, such requirements would be basically administrative in 
nature (e.g., documentation); we expect the costs of immunization to be 
covered through other funding sources. Thus, this provision would not 
have a significant economic impact on providers.
    For these reasons, we certify that this rule will not have a 
significant economic effect on a substantial number of small entities, 
and that a Regulatory Flexibility Analysis is not required.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that a covered agency prepare a budgetary impact statement before 
promulgating a rule that includes any Federal mandate that may result 
in the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector, of $100 million or more in any one 
year.
    We have determined that this final rule will not impose a mandate 
that will result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. Accordingly, we have not prepared a 
budgetary impact statement, specifically addressed the regulatory 
alternatives considered, or prepared a plan for informing and advising 
any significantly or uniquely impacted small governments.

Congressional Review of Regulations

    This final rule is not a ``major'' rule as defined in Chapter 8 of 
5 U.S.C.

Paperwork Reduction Act

    Sections 98.16 and 98.81 contain the Lead Agency Plan information 
requirements of the ACF-118 and ACF-118-A respectively. Sections 98.70 
and 98.71 contain the information required by both the ACF-800 and ACF-
801 child care data collections. As required by the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3507(d)), the Administration for Children and 
Families submitted these sections to the Office of Management and 
Budget (OMB) for its review. The Pre-Prints, ACF-118 and ACF-118-A, 
have been approved by OMB--OMB Number 0970-0114, expires 5/31/2000. The 
OMB also approved both data collection forms, the ACF-800 (OMB Number 
0970-0150, expires 3/31/2000) and the ACF-801 (OMB Number 0970-0167, 
expires 11/30/2000).
    Title: State/Territorial Plan Pre-Print (ACF-118) and Tribal Plan 
Pre-print (ACF-118-A) for the Child Care and Development Fund (Child 
Care and Development Block Grant).
    Description: These legislatively-mandated plans serve as the 
agreement between the Lead Agency and the Federal Government as to how 
CCDF programs will be administered in conformance with legislative 
requirements, pertinent Federal regulations, and other applicable 
instructions and guidelines issued by ACF. This information will be 
used for Federal oversight of the Child Care and Development Fund.
    Respondents: State governments and territories, Tribal 
organizations.

                                             Annual Burden Estimates                                            
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average burden                
                   Instrument                        Number of     responses per     hours per     Total burden 
                                                    respondents     respondent       response          hours    
----------------------------------------------------------------------------------------------------------------
ACF-118.........................................              56              .5              30             840
ACF-118a........................................             243              .5              30           3,645
----------------------------------------------------------------------------------------------------------------

    Estimated Total Annual Burden Hours: 4,485.

[[Page 39938]]

    Title: Child Care Annual Aggregate Report--ACF-800.
    Description: This legislatively mandated report collects program 
and participant data on all children and families receiving direct CCDF 
services. Aggregate data will be collected and will be used to 
determine the scope, type, and methods of child care delivery, and to 
provide a report to Congress.
    Respondents: States, the District of Columbia, American Samoa, 
Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin 
Islands.

                                             Annual Burden Estimates                                            
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average burden                
                   Instrument                        Number of     responses per     hours per     Total burden 
                                                    respondents     respondent       response          hours    
----------------------------------------------------------------------------------------------------------------
ACF-800.........................................              56               1              40           2,240
----------------------------------------------------------------------------------------------------------------

    Estimated Total Annual Burden Hours: 2,240.
    Title: Child Care Quarterly Case Level Report, ACF-801.
    Description: This legislatively-mandated report collects program 
and participant data on children and families receiving direct CCDF 
services. Disaggregate data will be collected and will be used to 
determine the participant and program characteristics as well as cost 
and level of child care services. The data will be used to provide a 
report to Congress. Form ACF 801 represents the data elements to be 
collected and reported to ACF.
    Respondents will be asked to sample the population of families 
receiving benefits on a monthly basis and submit the three most current 
monthly samples to ACF quarterly. States are allowed to submit the data 
monthly if they choose to do so. Each monthly sample is drawn 
independent of the other samples and retained for submission within a 
quarterly report. ACF is not issuing specifications on how respondents 
compile overall database(s) from which samples are drawn. ACF provided 
respondents sampling specifications which specify a minimum sample size 
of approximately 200 cases. States are allowed to submit their total 
monthly population.
    Respondents: States, the District of Columbia, American Samoa, 
Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin 
Islands.

                                             Annual Burden Estimates                                            
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average burden                
                   Instrument                        Number of     responses per     hours per     Total burden 
                                                    respondents     respondent       response          hours    
----------------------------------------------------------------------------------------------------------------
ACF-801.........................................              56               4              20           4,360
----------------------------------------------------------------------------------------------------------------

    Estimated Total Annual Burden Hours: 4,360.
    The Administration for Children and Families considered comments by 
the public on evaluating whether the proposed collections are necessary 
for the proper performance of the functions of ACF, including whether 
the information will have practical utility. Comments regarding 
specific items are discussed in the preamble. The quality, usefulness 
and clarity of the information to be collected will be enhanced by the 
technical assistance provided and the regional meetings that ACF has 
convened.

Amended Regulations, 45 CFR Part 98

    We have chosen to present 45 CFR Part 98 as an amended whole. We 
believe that the publication of the whole text of Part 98 will 
facilitate understanding of the impact of the amendments on the 
regulations that are retained. In addition, we made a number of other 
minor editorial changes throughout the regulations to enhance clarity, 
to reflect the change of program name from the Child Care and 
Development Block Grant (CCDBG) to the Child Care and Development Fund 
(CCDF), and to reflect the change from ``Grantee'' to ``Lead Agency'' 
for reasons explained in this preamble at Sec. 98.2.
    We have made the following changes to the regulations.
    Title/heading: Part 98.
    Subparts--A, E and F.
    Sections--98.1, 98.13, 98.15, 98.43, 98.45, 98.51, 98.52, 98.53, 
98.61, 98.62, 98.63, 98.64, 98.65, 98.70, 98.71, and 98.81.
    Definitions: Sec. 98.2 is now an alphabetical listing.
    Removed: (e), (f), (n), (o), (s), (gg) and (nn).
    Added: Child Care and Development Fund (CCDF), Construction, 
Discretionary Fund, Facility, Major Renovation, Mandatory Funds, 
Matching Funds, Modular unit, Real property, and Tribal Mandatory 
Funds.
    Assurances and Certifications: Sec. 98.15 has been reorganized to 
reflect the statute intent that states ``assure'' they meet certain 
requirements and ``certify'' that they meet others.
    Tribes: We have consolidated tribal regulations from 
Secs. 98.16(b), 98.17(b) and 98.60(g) into Subpart I.
    The following distribution table summarizes what has been added, 
removed, revised and redesignated.

----------------------------------------------------------------------------------------------------------------
          Existing section                     Action                             New section                   
----------------------------------------------------------------------------------------------------------------
                                      Added..................  98.1(a)                                          
98.1(a) and (b).....................  Redesignated...........  98.1(b) and (c).                                 
98.1(b)(7)..........................  Removed.                 .................................................
98.1(b)(8)..........................  Redesignated...........  98.1(c)(7).                                      
98.2(a), (j), (q), (mm).............  Revised................  98.2--Alphabetical.                              
98.10(b) and (e)....................  Revised................  98.10(b) and (e).                                

[[Page 39939]]

                                                                                                                
98.11(a) and (b)(8).................  Revised................  98.11(a) and (b)(8).                             
98.12(a) and (c)....................  Revised................  98.12(a) and (c).                                
                                      Added..................  Introductory.                                    
98.13(a)............................  Revised................  98.13(a) and (b).                                
98.13(b) and (c)....................  Removed.                 .................................................
98.13(a)(10)........................  Redesignated...........  98.13(c).                                        
98.13(a)(11)........................  Redesignated...........  98.13(d).                                        
98.14(a-c)..........................  Revised................  98.14(a-c).                                      
98.15...............................  See note above.........  .................................................
98.16(a)............................  Redesignated...........  Introductory.                                    
98.16(a)(1-12)......................  Revised................  98.16(a-l).                                      
98.16(a)(13-16).....................  Removed.                 .................................................
                                      Added..................  98.16(m-q).                                      
98.16(a)(17)........................  Redesignated...........  98.16(r).                                        
98.17(a)............................  Revised................  98.17(a).                                        
98.17(c)............................  Redesignated...........  98.17(b).                                        
98.20(a)............................  Revised................  98.20(a).                                        
98.21...............................  Removed.                 .................................................
                                      Added..................  98.30(c)(3).                                     
98.30(c)(3-5).......................  Redesignated...........  98.30(c)(4-6).                                   
98.30(d)............................  Removed.                 .................................................
98.30(e-g)..........................  Redesignated...........  98.30(d-f).                                      
98.31...............................  Revised................  98.31.                                           
98.32...............................  Revised................  98.32.                                           
                                      Added..................  98.32(c).                                        
98.33...............................  Revised................  98.33.                                           
98.40(a)............................  Revised................  98.40(a).                                        
98.41(a)(1).........................  Revised................  98.41(a)(1).                                     
98.41(c) and (d)....................  Removed.                 .................................................
98.41(e-g)..........................  Redesignated...........  98.41(c-e).                                      
98.42(d)............................  Removed.                 .................................................
98.43(a) and (b)....................  Revised................  98.43(a) and (b).                                
                                      Added..................  98.43(c).                                        
98.43(c) and (d)....................  Redesignated...........  98.43(d) and (e).                                
98.43(e) and (f)....................  Removed.                 .................................................
98.45...............................  Revised................  98.45.                                           
98.50(a) and (c)....................  Revised................  98.50(a) and (c).                                
98.50(d)............................  Removed.                 .................................................
                                      Added..................  98.50(d-f).                                      
98.51(a) and (b)....................  Revised................  98.51(a).                                        
98.51(c-f)..........................  Removed.                 .................................................
98.51(g)............................  Redesignated...........  98.51(b).                                        
                                      Added..................  98.51(c).                                        
98.52(a) and (b)....................  Revised................  98.52(a).                                        
98.52(c)............................  Revised................  98.52(c).                                        
98.53...............................  Revised................  98.53.                                           
98.54(a)............................  Revised................  98.54(a).                                        
                                      Added..................  98.54(b)(3).                                     
98.60(a), (d) and (f)...............  Revised................  98.60(a), (c) and (e).                           
98.60(b)............................  Removed.                 .................................................
98.60(c-f)..........................  Redesignated...........  98.60(b-e).                                      
98.60(h)............................  Redesignated, Revised..  98.60(g).                                        
98.60(i-j)..........................  Redesignated...........  98.60(h-i).                                      
98.61(a) and (b)....................  Revised................  98.61(a).                                        
98.62(a-c)..........................  Redesignated...........  98.61(b-d).                                      
                                      Added..................  98.61(e).                                        
                                      Added..................  98.62(a) and (b).                                
98.63(a) and (b)....................  Redesignated, Revised..  98.64(b).                                        
                                      Added..................  98.63(a-c).                                      
98.64(a-d)..........................  Removed.                 .................................................
                                      Added..................  98.64(a), (c) and (d).                           
98.65(a)............................  Revised................  98.65(a).                                        
                                      Added..................  98.65(f) and (g).                                
98.67(c)............................  Revised................  98.67(c).                                        
98.70...............................  Revised................  98.70.                                           
98.71...............................  Revised................  98.71.                                           
98.80 Introductory..................  Revised................  98.80.                                           
98.80(b) and (f)....................  Revised................  98.80(b) and (f).                                
98.81(a)............................  Revised................  98.81(a).                                        
                                      Added..................  98.81(b).                                        
98.81(b)............................  Redesignated...........  98.81(c).                                        
98.82 Introductory..................  Revised................  98.82 Introductory.                              
98.83(c-f)..........................  Revised................  98.83(c-f).                                      
98.83(g) and (h)....................  Removed.                 .................................................

[[Page 39940]]

                                                                                                                
98.83(i)............................  Redesignated, Revised..  98.83(g).                                        
                                      Added..................  98.83(h).                                        
                                      Added..................  98.84.                                           
98.90(e)............................  Revised................  98.90(e).                                        
98.92(a)............................  Revised................  98.92(a).                                        
98.92(b)............................  Removed.                                                                  
98.92(c)............................  Revised................  98.92(b).                                        
98.92(d) and (e)....................  Redesignated...........  98.92(c) and (d).                                
                                      Added..................  98.92(e).                                        
----------------------------------------------------------------------------------------------------------------

Subpart A--Goals, Purposes and Definitions

Goals and Purposes (Section 98.1)
    This section of the regulations includes at Sec. 98.1(a) the goals 
for the Child Care and Development Fund (CCDF) contained in section 
658A of the amended CCDBG Act.
    Comment: Two commenters suggested the goals include a requirement 
for parental choice rather than the reference to a promotion of 
parental choice.
    Response: The goal at Sec. 98.1(a)(2) uses the language of section 
658A of the amended CCDBG Act which is ``to promote parental choice.'' 
This goal is operationalized by other requirements. Lead Agencies which 
opt to provide care through grants and contracts in the state child 
care program are also required to provide certificates to parents 
seeking child care. Additionally, Lead Agencies are to include in their 
programs a broad range of child care providers, including center-based 
care, family child care, in-home care, care provided by relatives and 
sectarian child care providers.
    Comment: Two commenters suggested goal one include a reference to 
planning functions as well as program and policy functions.
    Response: Goal one is stated in the statute as ``to allow each 
State maximum flexibility in developing child care programs and 
policies that best suit the needs of children and parents within such 
State.'' Although we agree with the commenter on the importance of 
planning, we believe the goal at Sec. 98.1(c)(4) of this regulation 
already discusses planning for delivery of services. Furthermore, the 
discussion at Sec. 98.14 reflects our belief in the importance of the 
planning function in the administration of the CCDF within a State.
    Comment: One commenter suggested goal five be altered to reflect 
that health, safety, licensing and regulations standards are 
established by state law and regulations.
    Response: Goal five of the statute already states ``to assist 
States in implementing the health, safety, licensing and registration 
standards established in State regulations.''
    Comment: One commenter cited one of the stated purposes of the CCDF 
is to increase quality of child care services. This commenter believed 
this term should be defined through reference to specific standards of 
quality, such as the National Association for the Education of Young 
Children (NAEYC) accreditation standards.
    Response: We have chosen to not define quality child care in these 
regulations beyond the language found in section 658G of the Act.
Definitions (Section 98.2)
    We adopted the following changes for this section: an updated 
definition of the Child Care and Development Block Grant Act; an 
amended definition of a child care certificate reflecting its use as a 
required deposit for child care services; and an amended definition of 
relative child care provider which includes great grandparents and 
siblings (if living in a separate residence) as relative providers.
    We substituted the term ``Child Care and Development Fund (CCDF)'' 
for ``Block Grant'' and also defined the constituent parts of the CCDF: 
Mandatory Funds, Matching Funds, Discretionary Funds, and Tribal 
Mandatory Funds.
    In light of the new section 6580(c)(6) of the Act which allows 
Tribes to use CCDF funds for construction and renovation of child care 
facilities, we also adopted these terms: construction, facility, major 
renovation, modular unit, and real property.
    As proposed, we have replaced separate terms for ``Grantee'' and 
``Lead Agency'' with the single term ``Lead Agency.'' We did this for a 
number of reasons. First, there was not a meaningful difference between 
those terms. Second, we wished to remove any ambiguity that could 
result from the use of two different terms. Third, we wanted to 
emphasize the streamlined administration of all child care programs in 
a State that resulted from PRWORA. We believe that use of the term 
``Lead Agency'' conveyed that sense of unified and expanded 
responsibility better than the term ``Grantee.'' Lastly, we wanted to 
avoid any confusion that could arise when the State uses subgrantees in 
implementing the CCDF. We have replaced the specific term ``Grantee,'' 
as formerly defined, with ``Lead Agency'' throughout these regulations, 
although there remain some instances where the word ``grantee'' appears 
in its common usage. In these final regulations, we also corrected the 
definition of Lead Agency to include all parts of the definition of 
grantee which were inadvertently omitted in the proposed rule.
    Comment: Some commenters on this section questioned definitions for 
which no changes had been proposed. For example, commenters questioned 
the distinction between a ``child care provider that receives 
assistance'' and an ``eligible child care provider'' as well as why the 
definitions for various providers were based on the location of the 
care provided (e.g., in-home care) rather than the nature of the care 
(e.g., formal vs. informal), or was based on the number of providers 
present (e.g., group home child care provider).
    Response: Because no changes were proposed for the terms questioned 
by the commenters, we refer them to the preamble discussion for those 
terms in the final rule of August 4, 1992. We believe that explanation, 
found at 57 FR 34359, adequately addresses their specific concerns. Our 
position, like the definitions themselves, remains unchanged.
    Comment: One commenter wanted us to clarify that minor remodeling, 
within the limits set forth in the Act, does not fall under the 
definition of major renovation.
    Response: Section 98.54(b)(1) provides that States and others may 
use CCDF funds for minor remodeling. But, rather than create a separate 
definition for minor remodeling, State Lead Agencies may assume that an 
improvement or upgrade to a facility which is not specified under the 
definition of major renovation adopted in this rule may, by default, be 
considered a minor renovation and,

[[Page 39941]]

therefore, is allowable under the Act. Lead Agencies are cautioned of 
the distinctions at Sec. 98.54(b)(1) and Sec. 98.54(b)(2) between minor 
renovations that are permissible for sectarian organizations and those 
that are permissible for others.
    Comment: Another commenter wanted us to define ``deposit'' as used 
in the definition of child care certificate and suggested several 
components of a definition.
    Response: Our definition mirrors the language of the Act. We 
believe that the phrase ``if * * *  required of other children'' is 
sufficiently limiting of the common usage of the word ``deposit'' as to 
make the other definitions suggested by the commenter unnecessary.
    Comment: One commenter asked that we expand the definition of 
certificate to include electronic transfers using an ATM machine, for 
example, suggesting that recordkeeping could be simplified and payments 
to providers made more promptly.
    Response: It is not necessary to change the definition as 
suggested. The definition already recognizes that a certificate need 
not be a check, but could be an unspecified ``other disbursement''. 
Electronic transfers may be considered child care certificates if they 
meet the requirements of Sec. 98.30(c), i.e., issued directly to the 
parent, of a value commensurate with the subsidy value of other child 
care services offered by the Lead Agency, etc.
    Comment: A commenter asked that the definition of a certificate be 
broadened to include a check issued in the name of both the parent and 
the provider, regardless of whether it is sent directly to the parent 
or provider.
    Response: It is unclear why this change was suggested. A check (or 
other disbursement) issued in the name of both the parent and the 
provider would meet the existing definition. The critical element is 
that parents can use such a disbursement with any child care provider 
they choose. If the commenter is suggesting that the parent be limited 
to only the named provider(s), which the parent may not have chosen, 
then it is not a ``certificate'' within the meaning of the Act.
    Comment: One commenter observed that we had not proposed a 
definition of ``special needs child''.
    Response: The Lead Agency has complete flexibility to define this 
term. It should be noted that the Lead Agency may define the term 
differently for purposes of prioritizing under Sec. 98.44(b) from the 
definition it uses for purposes of payment rates as discussed at 
Sec. 98.43. The use of the term is unchanged since the 1992 rule and we 
are unaware of the need to regulate a definition for ``special needs 
child'' now.
    Comment: One commenter thought that our definitions somehow limited 
``informal'' care to only that care provided in the child's own home 
(i.e., in-home care) and that this reduced needed Lead Agency 
flexibility as well as limited a family's options.
    Response: We assume that the commenter understood the regulations 
to allow unregulated care only if it is provided in the child's own 
home. There is no such restriction in these regulations, nor has there 
been such a restriction in the past. Any child care that is legal in a 
jurisdiction, including care that the jurisdiction chooses not to 
regulate, is an option available under the Act, provided the 
requirements designed to protect the health and safety of the child are 
also met.
    Comment: One commenter observed that the definition of relative is 
too narrow and that it would exclude some relatives as defined in some 
Native American cultures, for example, the ``hanai'' system in Hawaii, 
where family is informally ``adopted'' or related.
    Response: Any relative who meets applicable state and local 
requirements, if any, may provide care, not just those listed in our 
definition. The definition is statutory and is provided solely for the 
purpose of identifying those relatives who may be exempted--but, only 
if the Lead Agency chooses to exempt them--from the health and safety 
requirements at Sec. 98.41. The definition was not created to limit who 
may provide care.
    Comment: Finally, a commenter noted that a definition for ``tribal 
organization'' was no longer included in this section.
    Response: The PRWORA amendments broadened the definition of 
``tribal organization'' to include the following ``other 
organizations'': (1) A Native Hawaiian organization; and (2) a private 
nonprofit organization established for the purpose of serving youth who 
are Indian or Native Hawaiian. However, the ``other organizations'' may 
only receive Discretionary Funds. Therefore, since not all tribal 
``organizations'' are eligible to receive both parts of the CCDF 
(Discretionary Funds and Tribal Mandatory Funds), we initially decided 
to omit this definition entirely from this section and specifically 
define the new terms for ``other tribal organizations'' in the Preamble 
at Sec. 98.61(c). The definition for tribal organization has been 
placed back in this section. This is the same definition used in the 
prior final rule (57 FR 34415, August 4, 1992). Since the ``other 
tribal organizations'' may only be funded with Discretionary Funds, 
they are defined and discussed in the Preamble at Subpart G, Section 
98.61(c).

Subpart B--General Application Procedures

Lead Agency Responsibilities (Section 98.10)
    The new statute did not change the responsibilities of the Lead 
Agency. The amended statute at section 658D(b)(1)(A), however, expands 
the CCDF Lead Agency's ability to administer the CCDF program through 
other agencies. This change broadens the ability of the Lead Agency to 
administer the CCDF program through governmental or non-governmental 
entities, not just ``other State agencies'' as provided in the original 
CCDBG Act. These entities could include local governmental agencies and 
private organizations. The new statute and the Conference Agreement 
report (H.R. Rep. No. 725, 104th Cong., 2d Sess. (1996)) are silent 
regarding whether the non-governmental agencies cited in this statutory 
change must be non-profit organizations, so ACF has not regulated on 
the characteristics of the agencies through which the Lead Agency may 
administer the program.
    Comment: One Lead Agency asked whether the ability to administer 
the program through other non-governmental agencies meant that the 
State child care advisory council could have a stronger role in setting 
standards.
    Response: The regulations have never limited Lead Agencies from 
including others in the creation of child care policy or the setting of 
State standards for child care. However, Sec. 98.11(b)(2) and (8) 
provide that the Lead Agency shall continue to promulgate rules and 
regulations governing the overall administration of the program and 
that all agencies and contractors that determine individual eligibility 
shall do so according to the rules established by the Lead Agency.
    The change in the regulation is to allow entities other than the 
Lead Agency to administer the day-to-day operation of the program.
    Comment: Another Lead Agency asked us to delete the requirement at 
Sec. 98.10(c) which requires consultation with local governments. 
Barring that, they asked for definitions of ``appropriate 
representative'' and ``local government''.
    Response: Congress created the requirement for the Lead Agency to 
``consult with appropriate representatives of units of general purpose 
local government'' at section 658D of the Act, and hence it can not

[[Page 39942]]

be deleted. As States and localities differ greatly in their 
governmental structures, we believe it is inappropriate to attempt to 
offer all-encompassing definitions for these terms. A Lead Agency may 
wish to consult its legal counsel if it is unable to determine whom it 
should consult with to meet this statutory requirement.
Administration Under Contracts and Agreements (Section 98.11)
    Under the latest statutory amendments, the Lead Agency remains the 
single point of contact and retains overall responsibility for the 
administration of the CCDF program. We have amended this section, 
however, to reflect the statutory change discussed at Sec. 98.10 
regarding the Lead Agency's additional flexibility to administer the 
program through other governmental or non-governmental agencies.
    Further, since we made revisions corresponding to the added 
administrative flexibility granted to the Lead Agency, we also wanted 
to align the wording of this section more closely with the statute 
concerning the overall, lead responsibility of the Lead Agency. Thus, 
we have re-worded the paragraphs in this section that suggested that 
the Lead Agency ``shares'' administration of the program with other 
entities, because the relationship between the Lead Agency and other 
entities through which it administers the CCDF is not co-equal.
    Comment: One commenter wanted us to delete the requirement at 
Sec. 98.11(b)(2) requiring the Lead Agency to ``Promulgate all rules 
and regulations governing overall administration of the Plan'' 
contending that when the CCDF is administered through other entities it 
should be up to the other agency to promulgate the rules for that part 
which it is administering.
    Response: We do not agree that this provision should be deleted. 
The Lead Agency is ultimately responsible for the program irrespective 
of who administers the day-to-day operations. And, it is the Lead 
Agency against whom penalties will be assessed even if caused by 
actions of a subgrantee. It is because we hold the Lead Agency 
accountable that the provisions in Sec. 98.11 exist.
    The requirement for the Lead Agency to promulgate rules does not 
preclude subgrantees from suggesting, or even creating the policy and 
procedures by which the program or a part of the program operates. 
However, those policies and procedures must be issued under the 
auspices (i.e., promulgated) of the Lead Agency to ensure that they 
conform with the requirements of the Act and regulations, and the 
program described by the Lead Agency in the Plan it submits to ACF.
Coordination and Consultation (Section 98.12)
    Section 658D(b)(1)(D) of the Act requires the Lead Agency to 
coordinate the provision of CCDF child care services with other 
Federal, State, and local child care and early childhood development 
programs. Coordination is crucial to the successful implementation of 
child care programs and quality improvement activities. The regulation 
at Sec. 98.12(a) also requires the Lead Agency to coordinate its child 
care services with the specific entities required at Sec. 98.14(a) to 
be involved in the CCDF Plan development process: Temporary Assistance 
for Needy Families (TANF), public health, employment services, and 
public education.
    The statutory changes under PRWORA significantly heighten the need 
for enhanced coordination between TANF and child care. TANF imposes 
increased work requirements both regarding the number of TANF families 
participating in work and the number of hours they must work. At the 
same time, the guarantee of child care for families who are in work or 
approved education and training and guaranteed Transitional Child Care 
assistance were eliminated when PRWORA repealed the title IV-A child 
care programs.
    Moreover, PRWORA provides new child care funding. It gives the CCDF 
Lead Agency administrative oversight over both the new funds and the 
funds authorized under the amended Child Care and Development Block 
Grant Act. The law requires that States dedicate 70 percent of these 
new funds to the child care needs of families that receive assistance 
under a State program under Part A of title IV of the Social Security 
Act, families that attempt through work activities to transition from 
such assistance, and families that are at risk of becoming eligible for 
such assistance. Under the new law, Tribes also receive additional 
child care funds and have the option to operate TANF programs. Tribes 
that operated tribal programs under the now-repealed Job Opportunities 
and Basic Skills Training (JOBS) program, may continue to operate work 
programs under the newly created Native Employment Works program 
(NEWP). Considered together, these changes present both an opportunity 
and a challenge for Lead Agencies to serve the child care needs of TANF 
families.
    It is extremely important that children and their families are 
linked to a system of continuous and accessible health care services. 
An ongoing Departmental initiative encourages the linkage between child 
care and health care. In May 1995, Secretary Shalala initiated the 
Healthy Child Care America Campaign, which encourages States and 
localities to forge linkages between the health and child care 
communities. Recognizing the mutually beneficial roles, we require that 
the Lead Agency, as part of its health and safety provisions, assure 
that children in subsidized care be age-appropriately immunized. We 
believe that children will benefit substantially from this enhanced 
linkage between child care and health services.
    Employment is the goal for most TANF families and employment 
services are critical to the low-income working families served by the 
CCDF. Therefore, it is only prudent that the Lead Agency coordinate 
with those State agencies that are responsible for providing employment 
and employment-related services. But child care is also emerging as an 
important workforce development issue for the entire population. As 
such, we believe that Lead Agencies should undertake policies that 
support and encourage public-private partnerships that promote high 
quality child care.
    Linkages with education agencies are crucial to leverage additional 
services and enhance child development. One important aspect of this 
linkage is the role played by public schools as a critical on-site 
resource for child care. Although PRWORA repealed section 658H of the 
Child Care and Development Block Grant Act, which directly addressed 
before- and after-school child care, in the budget for fiscal years 
1997 and 1998 Congress nevertheless set aside $19 million specifically 
to use for before- and after-school child care activities and child 
care resource and referral. We, therefore, believe that the repeal of 
section 658H should not result in a lessening of coordination with 
before- and after-school programs. We have included requirements to 
coordinate with public education agencies, both for the purpose of 
child care planning and development, as well as for more general 
coordination initiatives.
    Aside from requiring Lead Agency coordination with specific 
entities discussed above, we also strongly encourage coordination with 
other agencies with potential impact on child care, including: Head 
Start collaborative offices, child support, child protective services 
(especially when the Lead

[[Page 39943]]

Agency chooses to include children receiving protective services among 
the families eligible for CCDF subsidies), transportation, National 
Service, and housing.
    The Head Start comprehensive model of health, parent involvement, 
family support and education, when linked with child care, can provide 
parents and children with quality comprehensive full day/full year 
services. Promising models that fund Head Start-eligible children in 
community-based child care provided in child care centers and homes are 
emerging across the country. We encourage Lead Agencies to explore and 
support such efforts.
    Partnerships with National Service programs present promising 
opportunities for collaborations that can expand and enhance child care 
for both young children and school-aged children. National Service 
programs have developed several effective and replicable models for 
providing the tools and skills necessary to build the capacity and 
sustainability of local child care programs, involving parents and 
community volunteers in child care activities, and enlisting private 
sector participation in meeting community needs, including child care.
    The availability of transportation is key to enabling families to 
access child care services and, ultimately, work. Coordination with 
transportation agencies and planning groups can ensure that child care 
facilities are located near major transportation nodes for easier 
access and that systems of public transportation support travel 
patterns of low-income workers. Alleviating transportation difficulties 
for child care cuts down on travel time and stress, and allows parents 
to focus on achieving self-sufficiency through work and education.
    Child care and child support enforcement programs serve many of the 
same families and have a shared mission--to promote self-sufficiency of 
families and the well-being of children. As a result, we encourage 
collaborative outreach initiatives between these programs. For example, 
child care programs can disseminate information to parents about 
paternity establishment and child support enforcement. We also 
encourage the two programs to coordinate on policy issues. For example, 
the programs have a common interest in assuring that the State 
guidelines used to calculate child support awards adequately consider 
the cost of child care.
    Coordinating with housing agencies is crucial for the millions of 
TANF recipients and low-income workers who receive child care subsidies 
and reside in public housing. Locating child care facilities in or near 
public housing makes services more accessible, and can provide parents 
with a more stable and familiar environment for their children's care. 
Lead Agencies can work with public housing authorities to identify 
opportunities where co-located housing and child care can serve as an 
employment or entrepreneurial strategy, and a support service for 
residents.
    We also wish to highlight that the regulation at Sec. 98.12(c), 
which requires States to coordinate, to the maximum extent feasible, 
with any Indian Tribes that receive CCDF funds has new meaning in the 
context of the changes made by PRWORA. As we have noted above, Tribes 
are eligible to directly receive additional child care funding, and to 
operate TANF as well as continue to operate work programs (NEWP)--if 
the Tribe operated a JOBS program in 1994. Nonetheless, the new law did 
not amend section 6580(c)(5), which specifically provides tribal 
children with dual eligibility for both tribal and State child care 
programs funded under CCDF. A broad range of options for implementing 
and designing programs is available to both States and Tribes. States 
and Tribes, therefore, have a mutual responsibility to undertake 
meaningful coordination in designing child care services for Indian 
families.
    Comment: A few commenters thought that our coordination requirement 
was statutorily unfounded or unnecessary because it may fail to include 
the most critical partnerships.
    Response: It seems unlikely that a CCDF program could successfully 
meet two of the goals of the Act--providing child care to parents 
trying to achieve independence from public assistance, and assisting 
States in implementing State health, safety and licensing standards--
without involving, at a minimum, the additional agencies added at 
Sec. 98.14 in this rule. In fact, since the inception of the program, 
we have been told by Lead Agencies and the public that coordination 
with Federal, State, and local child care and early childhood 
development programs, and the four additional agencies listed is 
critical to the ongoing successful delivery of quality child care in a 
State. This requirement recognizes that the coordinative process helps 
maximize existing resources and avoid duplicative efforts which can 
result in more positive outcomes for the families and children served 
by all of the programs involved.
    Comment: A number of commenters suggested other agencies with which 
the Lead Agency should be required to coordinate, for example, 
representatives of the American Academy of Pediatrics, the National 
Association for the Education of Young Children, the State special 
education preschool program administrator, the early intervention lead 
agency, and the child welfare agency, among others.
    Response: Many Lead Agencies already collaborate with some or all 
of the agencies suggested and we encourage others to do so as well. 
However, we do not believe it is prudent to expand the coordination 
requirement at Sec. 98.14 to include those entities with whom many Lead 
Agencies are already voluntarily collaborating. We kept our required 
list to a critical core of agencies. This is not intended to diminish 
the importance of other collaboration efforts. It would not be 
reasonable to create an all-inclusive list of potential collaborative 
agencies. We have confined the regulations to the core required 
collaboration.
    Comment: Several commenters asked if our intention was to limit 
coordination only to governmental entities. In this regard, others 
asked that the reference to the public education agency be expanded to 
specifically include private and sectarian schools and early education 
programs.
    Response: Our requirement recognizes that the impact for the 
greatest number of families is likely achieved by coordination at the 
State level. The regulation attempts to maximize the coordination by 
including those agencies whose activities impact most of the eligible 
or potentially eligible families in a State. It is not our intention, 
however, to limit coordination to only governmental entities. And, we 
encourage Lead Agencies to coordinate with private and sectarian 
schools and early education programs, especially since such 
institutions and programs are already utilized by many families.
    Comment: One commenter thought that use of the phrase ``at a 
minimum'' in Sec. 98.14(a) weakens the intent of broader coordination 
with additional entities.
    Response: We agree and have reworded the regulation.
Applying for Funds (Section 98.13)
    The requirements for Tribes applying for funds have been moved to 
Subpart I and are discussed there. We have separated the tribal 
requirements in order that the discussion of tribal requirements may be 
more focused and coherent.
    We simplified the application process for States and Territories in 
order to reduce the administrative burdens of duplicative information 
requests and to

[[Page 39944]]

provide budget information in the CCDF Plan, which is a public 
document. Heretofore, the regulations required an annual 
``application,'' separate from the Plan. This separate application 
indicated the amount of funds requested, broken down by proposed use 
(e.g., direct services, administration, quality activities, etc.). A 
Plan that describes the entire child care program in detail is also 
required, but only once every two years. In the past, the Plan did not 
provide a ``fiscal context'' for the program, since it does not include 
budgetary information.
    In the past, the separate application requested extensive budget 
information, largely due to the requirements related to the now-
discontinued 25 percent setaside of funds for quality and supply 
building. Because we knew that the budget data was preliminary, we had 
not required its inclusion in the Plan or made it subject to the 
compliance process. More importantly, the budget information was not 
subject to the public hearing process.
    We believe that the Lead Agency, in setting the goals and 
objectives of the program and in determining how to achieve them, must 
consider the allocation of funds, as well as the program and 
administrative activities that will be undertaken. We also believe that 
public knowledge of how funds might be allocated among activities and 
eligible populations is critical to the planning process. Therefore, we 
are requiring the Lead Agency to include in its Plan an estimate of the 
percent or amount of funds that it will allocate to direct services, 
quality activities, and administration. These estimates are for the 
public's consideration in the hearing process; they will not be used to 
award funds. At Sec. 98.13(a) we have retained the requirement that the 
Lead Agency apply for funds. The ACF-696 is the formal vehicle for 
providing estimates to ACF for the purpose of awarding funds. We intend 
to use the financial form ACF-696 to fulfill this requirement, so that 
the need for a separate application is obviated.
    The Plan estimates will be macro-level estimates. That is, the Plan 
will reflect an estimated amount (or percentage) of funds that the Lead 
Agency proposes to use for: all direct services, for all quality 
activities and for administration. We will not ask that these estimates 
be broken down into subcategories as we had in the separate 
application.
    Comment: One commenter objected to the use of estimates thinking 
that the form for formally requesting funds from DHHS, which replaces 
the application process, was at least two years from being utilized.
    Response: That form, the ACF-696, was under OMB review when the 
proposed rule was published and has since been approved and is already 
in use.
    Comment: Although our proposal to restructure the application 
process received almost universal support, some commenters wanted 
assurances that States would not be held accountable if estimates are 
incorrect as a result of future policy or budget changes. Another 
commenter wanted us to require that future Plans include a comparison 
between the amounts estimated in prior Plans with the actual 
expenditures for those periods.
    Response: As we said in the proposed rule, we recognize that these 
are estimates and, as such, will not be subject to compliance actions. 
Similarly, approval of a Plan will not be withheld based on the Lead 
Agency's allocation of funds among activities, unless the Plan 
indicates that the requirements for administrative cost or quality 
expenditures will be violated.
    We considered the suggested requirement to compare past estimates 
with actual expenditures for the same period but rejected it for a 
number of reasons. First, such a requirement would call into question 
our assertion that the estimates supplied in the Plan are, in fact, 
estimates and that ACF will not take compliance actions based on them. 
Second, because expenditure periods for funds overlap Plan periods a 
full statement of actual expenditures would not be forthcoming until 
several years after the original estimate, when the persons responsible 
for the estimates may no longer be in a position to be ``accountable'' 
to the public for those estimates. Lastly, interested parties can 
always request that the Lead Agency make public its spending on various 
activities. In any event, the Lead Agency is already required to 
provide information on the actual use and distribution of funds to ACF, 
pursuant to section 658K of the Act.
    We continue to request the various certifications and assurances 
that are required by other statutes or regulations and that apply to 
all applicants for Federal financial assistance, specifically:
    <bullet> Pursuant to 45 CFR part 93, Standard Form LLL (SF-LLL), 
which assures that the funds will not be used for lobbying purposes. 
(Tribal applicants are not required to submit this form.)
    <bullet> Pursuant to 45 CFR 76.600, an assurance (including any 
required forms) that the grantee provides a drug-free workplace.
    <bullet> Pursuant to 45 CFR 76.500, certification that no 
principals have been debarred.
    <bullet> Assurances that the grantee will comply with the 
applicable provisions regarding nondiscrimination at 45 CFR part 80 
(implementing title VI of the Civil Rights Act of 1964, as amended), 45 
CFR part 84 (implementing section 504 of the Rehabilitation Act of 
1973, as amended), 45 CFR part 86 (implementing title IX of the 
Education Amendments of 1972, as amended) and 45 CFR part 91 
(implementing the Age Discrimination Act of 1975, as amended).
    Section 98.13 requires the Lead Agency, not the Chief Executive 
Officer, to supply the requested information. Since the Chief Executive 
Officer designates the Lead Agency, we feel that it is unnecessary for 
the Chief Executive Officer to thereafter apply for funding each year. 
This change gives grantees the flexibility to simplify the application 
process further.
    In summary, the CCDF application process for States and Territories 
consists of the two-year CCDF Plan as required in Sec. 98.17 and such 
other information as may be specified by the Secretary. For the second 
year of the Plan, the Lead Agency uses the ACF-696 to provide ACF with 
its estimates of funds needed quarterly--there is no longer a separate 
``application'' needed from States and Territories in the second year 
of the Plan period.
    Comment: One commenter objected to discontinuing the separate 
application because it contained information on the mix of certificates 
and grants/contracts which could be used to monitor a Lead Agency's 
compliance with Section 658(c)(2)(A) of the Act concerning the 
availability of certificates.
    Response: The regulations at Sec. 98.13 never required that the 
Lead Agency's application provide information on the use of 
certificates. In the past, policy Program Instructions requested such 
information to ensure that Lead Agencies met the statutory requirement 
to provide certificates. This was necessary because some Lead Agencies 
had never provided certificates prior to the CCDBG Act and the Act 
required all Lead Agencies to have a certificate program in place by 
October 1, 1992. ACF looked to the information in the application as a 
indication of the Lead Agency's compliance with this requirement.
    In the years since that deadline, certificates have become an 
integral part of every Lead Agency's program, in fact many State 
programs are totally

[[Page 39945]]

certificate-based. We are satisfied that all Lead Agencies are in 
conformity with this provision of the Act. It should be noted that Lead 
Agencies are required to report to ACF the actual numbers of children 
receiving certificates per Sec. 98.71(b)(2).
Plan Process (Section 98.14)
    Section 658D(b) of the Act requires the Lead Agency in developing 
the Plan to: (1) Coordinate the provision of services with Federal, 
State and local child care and early childhood development programs; 
(2) consult with appropriate representatives of local governments; and 
(3) hold at least one hearing in the State with sufficient time and 
statewide notification to provide an opportunity for the public to 
comment on the provision of child care services.
    In amending the CCDBG Act to require that the Lead Agency provide 
``sufficient time and Statewide distribution'' of the notice of 
hearing, Congress established a higher standard for public comment than 
previously existed in the Act. Affording the public a meaningful 
opportunity to comment on the provision of child care services advances 
public participation, Lead Agency accountability and the overall goals 
of welfare reform. Accordingly, we have established a minimum 20-day 
notice-of-hearing requirement at Sec. 98.14(c). That is, the Lead 
Agency must allow a minimum of 20 days from the date of the statewide 
distribution of the notice of the hearing before holding the hearing. 
Many Lead Agencies have ongoing planning processes with broad community 
involvement that convene regularly during the year. We applaud such 
broad participatory approaches as they are especially responsive to 
changing needs and these approaches may fulfil the requirements of 
Sec. 98.14.
    Comment: Some commenters preferred the previous requirement for 
``adequate notice'' for public hearings and were unaware of problems or 
inadequacies of that process. Others argued for a longer notice period 
and a requirement for additional hearings in a State.
    Response: Congress clearly envisioned something different from the 
existing ``adequate notice'' process when it amended the Act to require 
``sufficient time and statewide distribution'' of the public hearing 
notice. We also have received reports that some Lead Agencies provide 
such short notice of hearings as to effectively preclude broad public 
participation.
    In the interest of State flexibility, we have established only a 
minimum amount of time--20 days--that the public should be notified of 
the hearing. However, we encourage Lead Agencies to consider providing 
longer lead times that would allow the public more time to prepare for 
hearings, especially when only a single hearing is held in the State. 
Although the Act requires the Lead Agency to hold only one public 
hearing, the Lead Agency may, of course, hold additional public 
hearings. Because of technological changes which might allow for public 
comment via the Internet or linking sites across a State via satellite, 
we have not regulated an additional number of hearings that must be 
held since Lead Agencies may find other approaches for public input 
that are equally effective and less costly than additional hearings.
    As stated in the proposed rule, we considered establishing 
regulations around the newly added statutory language that requires 
``statewide distribution of the notice of hearing.'' Clearly, the 
expanded Child Care and Development Fund potentially impacts a much 
wider segment of the population than may have been the case under the 
CCDBG. In light of the stronger statutory language about public 
hearings, we considered, for example, a regulation to require the Lead 
Agency to employ specific media in publicizing its hearing or to ensure 
that specific portions of the population be potentially exposed to the 
hearing notice.
    We rejected these and other alternatives as restricting State 
flexibility. Nevertheless, we remain concerned that some Lead Agencies 
may not respond to the heightened statutory requirement. We, therefore, 
require the Lead Agency to describe how it achieved statewide 
distribution of the notice of hearing in its description of the hearing 
process required in the Plan by Sec. 98.16(e). We received no comments 
on this proposal.
    Similarly, we have not established a specific requirement 
concerning written comments from the public as suggested by some 
commenters. We believe, however, that a meaningful public comment 
process must consider written comments from persons or organizations, 
especially those who are unable to attend a hearing.
    At Sec. 98.14(c)(2) we require that the public hearing be held 
before the Plan is submitted to ACF, but no earlier than nine months 
prior to the effective date of a Plan. We recognize that States may 
have established public comment mechanisms that coincide with their 
budgetary cycle but not within our usual time frames for public 
hearings and Plan submittal. Therefore, we wish to clarify our 
intention in this area.
    ACF does not believe that the public hearing is held for the 
purposes of ``approving'' the Plan as it will be submitted, but rather 
to solicit public comment and input into the services that will be 
provided through the CCDF. For this reason, we have created a flexible 
process that does not create an undue burden on Lead Agencies, yet 
insures that the statutorily required public input is obtained.
    The Plan that is submitted to ACF must reflect the program that 
will be conducted and must incorporate any changes to the program that 
the Lead Agency chooses to adopt as a result of the input received 
during the public hearing. We advise the Lead Agency to retain a copy 
of the draft Plan that it made available for public comment in 
fulfillment of this requirement. We also remind Lead Agencies that 
substantive changes in their programs, after their Plans are submitted 
to ACF, must be reflected by amending the Plan per Sec. 98.18(b).
    Comment: A few commenters suggested that the Lead Agency be 
required to specifically respond to comments raised at the public 
hearing or at least to those comments on the Plan that are submitted in 
writing, others suggested that the Lead Agency be required to provide a 
summary of all comments received on the Plan.
    Response: We decline to require Lead Agencies to summarize or 
respond to comments received during the public hearing process. The Act 
does not suggest such a requirement and it is unclear what would result 
from it. We also believe that this would be an especially resource-
intensive activity for the Lead Agency which would not necessarily 
further the goals of the Act.
    Comment: Some commenters objected to any regulation around public 
input stating that they had ongoing mechanisms for coordination or 
input, such as quarterly child care steering committee meetings, others 
felt that a State legislative or budget hearing would fulfill the 
requirement. Still others argued that the public hearings are poorly 
attended or not helpful.
    Response: At section 658D(b)(2) of the Act, Congress clearly ties 
together the hearing and the State Plan with the expectation that the 
public be afforded an opportunity to comment on the content of that 
Plan. The Act requires a hearing ``to provide the public an opportunity 
to comment on the provision of child care services under the State 
plan.''
    Ongoing mechanisms, such as those suggested by the commenters may, 
in fact, meet the requirements of the Act when they allow for the 
public to comment on the provision of services under the State Plan. 
Some legislative

[[Page 39946]]

oversight or budget hearings, in contrast, may not meet this statutory 
requirement if they do not allow for public comment (i.e., the public 
is not afforded an opportunity to comment as when only the State 
Administrator or legislators are allowed as witnesses). Similarly, a 
single state budget hearing held for the purpose of discussing the 
entire State budget may not afford any opportunity to specifically 
address child care services in the State, especially in the detail set 
forth in the Plan, as required by the Act. It is not the auspices under 
which the hearing is held that is important, but whether the hearing 
allows for the necessary public input required by the Act.
    Regarding attendance or participation at public hearings in the 
past, we believe that public hearings, designed for broad public 
participation and held with sufficient notification can nevertheless 
become meaningful forums for State child care policy discussions, 
especially in future years.
    Comment: A few commenters objected to the requirement that the 
hearing be held no earlier than 9 months prior to submission of the 
Plan to ACF as unnecessarily prescriptive.
    Response: We maintain that the requirement that hearings be held no 
earlier than 9 months before the Plan is submitted to ACF is a balanced 
approach which allows the Lead Agency to conduct its hearing up to a 
full year in advance of the effective date of the Plan. Allowing 
complete latitude in setting the date for the public hearing might make 
the hearing requirement less meaningful and creates a disconnect--the 
further from the effective date of the Plan that the hearing is held.
    Comment: A number of commenters argued that the child care Plan 
must be made available before the public hearing is held for there to 
be meaningful public input. They suggested various timeframes and 
formats for making Plans available.
    Response: We agree that meaningful public comment on the 
``provision of child care services under the State plan'' as required 
by the Act is hampered, if not impossible, without knowledge of the 
contents of that Plan. For example, the Act now requires the Lead 
Agency to provide ``detailed descriptions'' of various child care 
policies such as parental access, parental complaints, and payment 
rates among others. In order to meaningfully comment, the public must 
know what those policies are. We believe this can only be accomplished 
by providing the public with the Plan that the Lead Agency proposes to 
submit to ACF. Therefore, at Sec. 98.14(c)(3) we are requiring that the 
Lead Agency make the Plan available in advance of the required hearing.
    We decline to regulate on the timeframes or formats for making the 
Plan available to the public but remind Lead Agencies of their 
obligations under the Americans with Disabilities Act for accessibility 
of public information.
    Comment: One commenter asked for flexibility in the format of the 
Plan that is to be submitted to the public in advance of the hearing 
suggesting that various topics such as parent fees, eligibility and 
payments rates be presented, but not necessarily in the format of the 
preprint that ACF requires.
    Response: We agree that the Plan that is presented in advance of 
the public hearing need not be in the format of the preprint. However, 
as a practical matter, this may be the easiest format for the Lead 
Agency to use. That is because the Act requires comments on child care 
services under the ``State plan''--the requirements for which are 
outlined at Sec. 98.16. As long as all of the elements of the Plan as 
described at Sec. 98.16 are provided in advance of the hearing, then 
the requirement is satisfied. We note that many of the Plan elements, 
such as most of the newly statutorily-required ``detailed 
descriptions'' probably will not change from Plan to Plan, hence the 
preprint format may not be as burdensome as the commenter imagines.
    Comment: A number of commenters opposed having amendments to the 
Plan subject to the public hearing. They also objected to applying the 
hearing requirement to those Plans which were to become effective on 
October 1, 1997.
    Response: The proposed rule neither required nor suggested that 
Plan amendments are subject to a public hearing. As has been the policy 
since the inception of the program, this final rule also does not 
require a public hearing for amendments to approved CCDF Plans. 
Although an amendment to the Plan is not subject to the Federal 
regulatory hearing requirement, we recognize that State rules or Lead 
Agency practice may, nevertheless, require a hearing or public comment 
period or both.
    The preamble to the proposed rule provided that the new CCDF Plans 
due to ACF in 1997 were subject to the statutory requirements--not the 
proposed regulatory requirements--for a hearing i.e., at least one 
hearing with sufficient time and statewide distribution of the notice. 
Although that issue is now moot we wish to reiterate that both the 
public hearing and the coordination and consultation processes must be 
undertaken each time the entire Plan is required to be submitted. The 
regulations provide that the entire Plan is only required to be 
submitted at the beginning of each Plan biennium.
    As discussed above at Sec. 98.12, we believe that ongoing 
coordination and consultation processes are vital to the design of a 
successful program. Therefore, at Sec. 98.14(a) we have included a 
minimum list of State agencies with which the Lead Agency must 
coordinate the provision of services under the CCDF.
    The requirement to coordinate with specific agencies includes a 
provision that the Lead Agency describe the ``results'' of the 
coordination. In the proposed rule, we did not elaborate on this 
requirement as we thought it self-evident. Because we did not give 
context to this requirement, some commenters ascribed purposes or 
expectations that we did not intend. Therefore, we wish to elaborate on 
this part of the coordination requirement.
    Prior to this rule Lead Agencies were required to provide a 
``description'' of the coordination and collaborative processes they 
engaged in during the preparation of the State Plan. This description 
in the Plans, however, was frequently merely a list of agencies with 
which the Lead Agency had met. Often these descriptions did not change 
over long periods, or the dates of the meetings listed remained 
unchanged from Plan to Plan. The ``description'' gave the impression 
that there was little progress resulting from the coordinative efforts 
of the Lead Agencies--that little was happening. We knew this to be an 
inaccurate picture.
    The Plan is not just a public document describing the State's 
approach to child care for the purpose of its hearing process. It also 
serves as a guide for other Lead Agencies about promising practices, 
different approaches to common problems and can be an indicator of 
issues that others may face in the future. Because of the multiple uses 
of the State Plan, we wanted the ``description'' of the coordinative 
effort to more accurately reflect what we knew was the reality in the 
States. No other purpose is contemplated or intended in asking that the 
Plan reflect the ``results'' of the coordination activities.
    We recognize that coordination may not have quantifiable results, 
especially in the short term. Because coordination is an ongoing 
process, an explanation of the intended outcomes of a Lead Agency's 
current and planned coordination activities would be an appropriate 
``results''. Similarly, a compilation of the useful lessons learned 
from the coordination activities

[[Page 39947]]

would meet our intent in asking that the ``results'' be described in 
the State Plan.
    Additional comments relating to the coordination and consultation 
requirement and processes are addressed in the discussion at Sec. 98.12
Assurances and Certifications (Section 98.15)
    The PRWORA amendments made a number of changes to the assurances 
under the CCDBG. In several instances the term ``assure'' was replaced 
by the term ``certify.'' Also, as described below, the amendments 
changed the content of two of the former assurances and some assurances 
were eliminated.
    While ACF believes that there is no practical difference between an 
assurance or certification, when both are given in writing, we have 
grouped the assurances together at Sec. 98.15(a) and the certifications 
together at Sec. 98.15(b).
    Regarding specific substantive changes, the new section 
658E(c)(2)(D) of the Act replaces the former assurance regarding 
consumer education. The corresponding regulatory amendment at 
Sec. 98.15(b)(3) uses the statutory language requiring the Lead Agency 
to certify it ``will collect and disseminate to parents of eligible 
children and the general public, consumer education information that 
will promote informed child care choices.''
    The new section 658E(c)(2)(E) does not contain prior language 
requiring Lead Agencies to have in place a registration process for 
unregulated care providers that provided care to children receiving 
subsidized care under the CCDBG Act. We, therefore, removed the 
assurance formerly found at Sec. 98.15(i). We note, however, that the 
Lead Agency has the flexibility to continue to maintain a registration 
process for providers if it chooses. This process has enabled States to 
maintain an efficient payment system. In addition it has provided a 
means to transmit relevant information, such as health and safety 
requirements and training opportunities, to providers who might 
otherwise be difficult to reach.
    The Act also revises the requirement that providers meet all 
licensing and regulatory requirements applicable under State and local 
law. The revised requirement at Sec. 98.15(b)(4) mirrors the new 
statutory language that there be ``in effect licensing requirements 
applicable to child care services provided within the State.''
    For tribal programs, the amendments specifically provide that, ``in 
lieu of any licensing and regulatory requirements applicable under 
State and local law, the Secretary, in consultation with Indian tribes 
and tribal organizations, shall develop minimum child care standards 
(that appropriately reflect tribal needs and available resources) that 
shall be applicable to Indian tribes and tribal organizations receiving 
assistance under this subchapter'' (section 658E(c)(2)(E)(ii)). ACF is 
in the process of arranging those consultations.
    The PRWORA deleted requirements formerly found in the statute at 
section 658E(c)(2)(H), (I), and (J). These provisions, which related to 
reporting reductions in standards, reviewing State licensing and 
regulatory requirements, and non-supplantation were deleted.
    Finally, Sec. 98.15(a)(6) requires that States provide an assurance 
that they have not reduced their level of effort in full-day/full-year 
child care services if they use pre-Kindergarten (pre-K) expenditures 
to meet the MOE requirement. Comments relating to this assurance, and 
the use of pre-K in the CCDF in general, are discussed further at 
Sec. 98.53.
    Comment: One commenter suggested strengthening the certification at 
Sec. 98.15(b)(3) by requiring that the consumer education be provided 
through community-based organizations. The commenter also wanted us to 
clarify that such consumer education be made available to the general 
public throughout the State.
    Response: We agree that community-based organizations may, in fact, 
be the best way of providing consumer education as discussed at 
Sec. 98.33. However, in the interests of State flexibility, we decline 
to limit the Lead Agency's options so narrowly. We note that the 
certification already requires dissemination of consumer education 
materials ``to the general public'' and it is our expectation that such 
materials are widely made available and not limited just to families 
applying for or receiving CCDF subsidies.
    Comment: Another commenter asked that the certification at 
Sec. 98.15(b)(7) be clarified to define equal access as also meaning 
timely payment of the provider by the State. The commenter wanted a 
certification that payments to providers would be processed within a 
state-established timeframe, claiming that lengthy delays in payment 
made providers reluctant or unwilling to accept subsidized children, 
thereby effecting equal access.
    Response: We agree that the Lead Agency should establish timely 
payment processing standards for the reasons stated by the commenter. 
However, there is no statutory basis for requiring such standards and 
we decline to change the regulation.
    Comment: One commenter noted that Sec. 98.15(a)(5) contained an 
incorrect citation.
    Response: We have corrected the citation to read, ``pursuant to 
Sec. 98.30(f).''
Plan Provisions (Section 98.16)
    We have amended Sec. 98.16 to reflect changes in the Plan resulting 
from PRWORA. For example, we have deleted the language on registration 
and the calculation of base-year level-of-effort previously found at 
Sec. 98.16(a) (13), (14) and (16). We substituted for them the 
statutory requirements for the Lead Agency to provide detailed 
descriptions of its parental complaints process at Sec. 98.16(m) and 
its procedures for parental access at Sec. 98.16(n). Similarly, we have 
modified some language to reflect new statutory language. For example, 
Sec. 98.16(h) now discusses the additional purposes for which funds may 
be used, and Sec. 98.16(l) now requests the summary of facts upon which 
payment rates were determined, including the conduct of a market rate 
survey. Section 98.16(c) has been expanded to identify the entity 
designated to receive private donated funds pursuant to Sec. 98.53(f). 
We have also modified the language at Sec. 98.16(g)(2) to reflect 
broader flexibility concerning the use of in-home care. We received 
many comments on these provisions. Those comments are more 
appropriately discussed in the related sections that follow.
    We take this opportunity to correct the wording of Sec. 98.16(j), 
formerly Sec. 98.16(a)(10), concerning health and safety requirements. 
We have removed the word ``minimum'' here since the legislation 
contains no such qualification, nor do our regulations limit the 
flexibility to establish such requirements. We note that Sec. 98.41 
remains unaffected by this correction since that section did not 
include the use of the word ``minimum.''
    We have also required at Sec. 98.16(p) that the Lead Agency include 
in the CCDF Plan the definitions or criteria used to implement the 
exception to TANF work requirement penalties that applies when a single 
custodial parent with a child under age six has demonstrated an 
inability to locate needed child care. Among others, the definitions or 
criteria would include ``appropriate child care,'' and ``affordable 
child care arrangements.'' We elaborate on this requirement, and the 
many comments received about it, in the discussion of consumer 
education at Sec. 98.33.
    Finally, Sec. 98.16(q)(1) provides that the Lead Agency describe 
State efforts to ensure that pre-K programs, for which

[[Page 39948]]

any Federal matching funds are claimed, meet the needs of working 
parents. At Sec. 98.16(q)(2) we codified the provision found in the 
preamble of the proposed rule at Sec. 95.53. This section provides 
that, should the Lead Agency use public pre-K funds to meet more than 
10% of either the MOE or the Matching requirements, the Plan will 
reflect this. The Plan must also describe how the State will coordinate 
its pre-K and child care services to expand the availability of child 
care when the Lead Agency uses public pre-K funds to meet more than 10% 
of either the MOE or the Matching requirements. These requirements are 
discussed at Sec. 98.53.
    The Administration on Children will issue appropriate amendments to 
the State CCDF plan preprint (ACF-118) and the Tribal CCDF plan 
preprint (ACF-118A) in Program Instructions, which will also provide 
guidance on when Lead Agencies would be required to submit amendments. 
The Program Instructions will take into consideration appropriate lead 
times for implementation.
    Comment: One commenter objected to including TANF definitions in 
the State child care Plan because then the child care Plan would have 
to be amended every time TANF changed its definitions.
    Response: Including TANF definitions in the child care Plan is not 
burdensome because those TANF definitions are unlikely to change 
frequently over the two-year life of the Plan. In any event, changes to 
the TANF definitions would not appear to be a ``substantial change'' in 
the CCDF program. Hence, an amendment to the Plan would not be required 
as discussed in the preamble to the 1992 rule at 57 FR 34367. We repeat 
that the purpose of this provision is for public education about the 
requirements upon, and options available to, low-income working parents 
as discussed in the preamble at Sec. 98.33.
    Comment: Another commenter felt that States should not have to 
``justify'' limits on in-home care in the Plan. She suggested that a 
listing of the limits on in-home care and the policy reasons for those 
limits should be sufficient.
    Response: We agree. It was not our intent to make States justify 
the limits they place on in-home care. Rather, we want the Plan to 
reflect their basis for doing so, in order for the public and ACF to 
better understand the State's policy. We have accordingly changed the 
wording of the regulation. The preamble discussion at Sec. 98.30 
remains essentially the same as we did not use the word ``justify'' in 
that discussion of in-home care, from which the Plan requirement is 
derived.
    Comment: A commenter observed that the statute does not require 
that the Lead Agency itself maintain the records of substantiated 
parental complaints, but rather requires the State to maintain such 
records.
    Response: We agree and have changed the wording of Sec. 98.16(m) to 
reflect the requirement as discussed at Sec. 98.32.
Period Covered by Plan (Section 98.17)
    The statute was amended at section 658E(b) to eliminate the three-
year initial period for State Plans. The rule provides that all Lead 
Agencies for States, Territories, and Tribes must submit new Plans 
every two years beginning with the Plans for Federal Fiscal Years 1998 
and 1999.
    Comment: One commenter observed that two years is too short a 
period for meaningful comprehensive planning and that such a period may 
not coincide with State legislative sessions. The commenter asked for 
the ability to prepare longer range plans, such as 3 to 5 year plans, 
with provision for annual updates.
    Response: We agree that a longer plan period might better suit some 
Lead Agencies' planning cycles. However, this requirement is statutory.

Subpart C--Eligibility for Services

A Child's Eligibility for Child Care Services (Section 98.20)
    General eligibility. The amended statute at 658P(4)(B) expands the 
definition of ``eligible child'' to include families whose income does 
not exceed 85 percent of the State median income for a family of the 
same size. Therefore, Sec. 98.20(a)(2) reflects that change.
    We retained the State flexibility at Sec. 98.20(a)(1)(ii) regarding 
the option to serve dependent children age 13 and over who are 
physically or mentally incapacitated or under court supervision. States 
may elect to serve children age 13 or older who are physically or 
mentally incapacitated or under court supervision up to age 19, if they 
include the age limit in their CCDF Plan.
    Foster care and protective services. Grantees have the flexibility 
to include foster care in their definition of protective services in 
their CCDF Plan, pursuant to Sec. 98.16(f)(7), and thus provide child 
care services to children in foster care in the same manner in which 
they provide services to children in protective services.
    A child in a family that is receiving, or needs to receive, 
protective intervention is eligible for child care subsidies if he or 
she remains in his or her own home even if the parent is not working, 
in education or in training. In these instances, child care serves the 
child's needs as much or more than the parent's needs. Likewise, child 
care services may also be necessary when a child is placed in foster 
care. Therefore, if Lead Agencies do not include foster care in their 
definition of protective services, they must tie eligibility for CCDF 
child care of children in foster care to the status of the foster 
parent's work, education or training.
    Comment: One commenter suggested that the option to include foster 
care within the definition of protective services should be included in 
the regulatory section.
    Response: We agree. Therefore, we amended Sec. 98.20(a)(3)(ii) and 
Sec. 98.16(f)(7) to ensure that States carefully consider inclusion of 
this option when developing and implementing their CCDF Plan.
    Comment: Most commenters were pleased that children in foster care 
could be eligible for child care services since many States do not 
differentiate between foster care and child protective services. 
However, some commenters felt that we should include foster care in the 
regulatory definition of eligible child so that all children in foster 
care would be eligible.
    Response: The statute did not specifically provide for foster care 
as an eligibility criteria. As states have varying policies regarding 
services for children in foster care and protective services, we have 
not included foster care in the regulatory definition. Rather we will 
allow States flexibility in determining if, and how, they will serve 
children in foster care and protective services. Therefore, a State 
must indicate its intention of providing child care services to 
children in foster care--on the same basis as children in protective 
services--by including foster care in their definition of protective 
services in the CCDF Plan.
    Comment: Several commenters believed that the child's eligibility 
for child care services should not be based on the income of the foster 
parents.
    Response: States continue to have the flexibility to consider a 
child in foster care as a family of one, for purposes of determining 
income eligibility under Sec. 98.20, on a case-by-case basis.
    Respite care. We further clarified that respite child care is 
allowable for only brief, occasional periods in excess of the normal 
``less than 24 hour period'' in instances where parent(s) of children 
in protective services--including foster parents where the Lead Agency 
has defined families in protective services to

[[Page 39949]]

include foster care families--need relief from caretaking 
responsibilities. For example, a child care arrangement by someone 
other than the custodial parent for one weekend a month to give relief 
to the custodial parent(s) of children in protective services is 
acceptable. We believe that this kind of respite child care, if 
necessary for support to families with children in protective services, 
would be an acceptable use of CCDF funds.
    If a State or Tribe uses CCDF funds to provide respite child care 
service, i.e., for more than 24 consecutive hours, to families 
receiving protective services (including foster care families when 
defined as protective services families), the CCDF Plan must include a 
statement to that effect in the definition of protective services. We 
note this definition of ``respite child care'' may differ from how 
States or Tribes define it for other purposes (e.g., child welfare). 
Thus, respite child care must be specified in the Lead Agency's Plan if 
it is to be considered an allowable expenditure under CCDF.
    Comment: Several commenters felt that States should be required to 
provide respite care for children with disabilities.
    Response: Since respite care is provided to give parents time off 
from parenting, rather than care to allow the parent to participate in 
work or in education or training, the CCDF cannot be used for respite 
care for children with disabilities unless the child also needs or is 
receiving protective services.

Subpart D--Program Operations (Child Care Services)--Parental Rights 
and Responsibilities

Parental Choice (Section 98.30)
    Cash as a certificate. Since welfare reform has raised issues about 
methods of paying for child care, we wish to provide clarification with 
respect to child care certificates provided in the form of cash. In 
defining the term ``certificate,'' the statute at 658P(2) says, ``The 
term'' child care certificate' means a certificate (that may be a check 
or other disbursement) that is issued by a State or local government * 
* * directly to a parent who may use such certificate only as payment 
for child care services or as a deposit for child care services if such 
a deposit is required of other children being cared for by the 
provider.''
    With a certificate or two-party check, the Lead Agency can ensure 
that money is paid to a provider who meets applicable health and safety 
requirements. This is not the case when a Lead Agency provides cash to 
a parent. We strongly discourage a cash system, because providers must 
meet health and safety standards, and we believe that the use of cash 
can severely curtail the Lead Agency's ability to conform with this 
statutory requirement.
    If, nevertheless, a Lead Agency chooses to provide cash, it must be 
able to demonstrate that: (1) CCDF funds provided to parents are spent 
in conformity with the goals of the child care program as stated at 
section 658A of the Act, i.e., that the money is used for child care; 
and (2) that child care providers meet all applicable licensing and 
health and safety standards, as required by section 658E(c)(2) (E) and 
(F) of the Act. Lead Agencies, therefore, may wish to consider having 
parents who receive cash attest that the funds were used for child care 
and to identify the provider. Such a statement would help assure that 
the funds were expended as intended by the statute and lessen the 
possibilities for fraud. Finally, Lead Agencies are reminded that they 
must establish procedures to ensure that all providers, including those 
receiving cash payments from parents, meet applicable health and safety 
standards.
    Comment: One commenter was concerned that we ``strongly 
discourage'' the use of cash. She felt that this stifled State 
innovation in piloting new service delivery systems and ran counter to 
the purposes of PRWORA in instilling personal responsibility. In 
recognizing that providing cash can only be successful with intense 
parent and provider education, the commenter argued for State 
flexibility to experiment without sanctions from ACF.
    Response: We appreciate the commenter's thoughtful approach to the 
question of providing cash. Like the commenter, we believe that without 
appropriate safeguards, such as intense consumer education and the 
provisions discussed above, the provision of cash may not fulfill the 
goals of either PRWORA or the CCDBG Act. While we continue to 
discourage the use of cash, we recognize that the Lead Agency retains 
the flexibility to use it.
    Availability of certificates. We received an unexpectedly large 
number of comments on our proposed clarification concerning the 
availability of certificates; many with strongly argued positions. Some 
comments favored the clarification, but most opposed it.
    Even though we proposed no changes to the regulatory language at 
this Part, the comments revealed a fundamental belief that we were 
proposing to lessen the emphasis on parental choice. That is not the 
case. However, because of the depth of reaction around this topic, we 
have decided to withdraw the proposed clarification rather than try to 
explain it again in different words. Therefore, concerning the 
availability of certificates, the preamble to the 1992 Final Rule 
continues to apply and the regulatory language remains unchanged.
    In-home care. Child care administrators have faced a number of 
special challenges in monitoring the quality of care and the 
appropriateness of payments to in-home providers. For that reason, we 
give Lead Agencies complete latitude to impose conditions and 
restrictions on in-home care. We have revised Sec. 98.16(g)(2) to 
require that Lead Agencies, in their CCDF Plans, specify any 
limitations on in-home care and the reasons for those limitations.
    The Lead Agency must continue to allow parents to choose in-home 
child care. However, since this care is provided in the child's own 
home it has unique characteristics that deserve special attention. In-
home care is affected by interaction with other laws and regulations. 
For example, in-home providers are classified as domestic service 
workers under the Fair Labor Standards Act (FLSA) (29 U.S.C. Section 
206(a)) and are therefore covered under minimum wage. As employees, in-
home child care providers are also subject to tax requirements. In 
highlighting these special considerations, we also note that whenever 
the FLSA and other worker protections apply, ACF is committed to 
maintaining the integrity of these protections. A strong commitment to 
work, and therefore to worker protections, is critical to welfare 
reform.
    We are mindful that in-home care plays a valid and important role 
in meeting the needs of working parents, and that many participants in 
subsidized care programs rely on such care to meet their family needs. 
Access to care that meets the needs of individual families is 
critically important to parents and children, to schools and the 
workplace, and to other community institutions that interface with the 
family. While in-home care represents only a small proportion of all 
available care in most communities, it may be the best or only option 
for some families and may prove valuable, necessary and cost-effective 
when compared to other options. There are a number of situations in 
which in-home care may be the most practical solution to a family's 
child care needs. For example, the child's own home may be the only 
practical setting in rural areas or in areas where transportation is 
particularly difficult. Employees who work nights, swing shifts, 
rotating shifts,

[[Page 39950]]

weekends or other non-standard hours may experience considerable 
difficulty in locating and maintaining satisfactory center-based or 
family day care arrangements. Part-time employees often find it more 
difficult to make child care arrangements than do those who work full-
time. Similarly, families with more than one child or children of very 
different ages might be faced with multiple child care arrangements if 
in-home care were unavailable. Many families also believe that very 
young children are often best served in their own homes. Given the 
general scarcity of school-age child care in many communities, in-home 
care may enable some families to avoid latchkey situations before 
school, after school, and when school is not in session. For many 
families, in-home care by relatives also reflects important cultural 
values and may promote stability, cohesion and self-sufficiency in 
nuclear and extended families.
    We urge child care administrators to consider the capacity of local 
child care markets to meet existing demand and the role that in-home 
care may play in the ability of parents to manage work and family life. 
Although in-home care does not represent a large share of the national 
supply, it fills an important niche in the structure and functioning of 
local child care markets by extending the ability of parents to care 
for children within their own families, closing gaps in the supply of 
community facilities, and creating a bridge between adult care and 
self- or sibling-care as children near adolescence.
    Some Lead Agencies may choose to limit in-home care because of cost 
factors. For example, a State might determine that minimum wage 
requirements result in payments for in-home care serving only one or 
two children that are much higher than the payments for other 
categories of care. Therefore, the Lead Agency could elect to limit in-
home care to families in which three or more children require care. The 
payment to the in-home provider would then be similar to the payment 
for care of the three children in other settings. This ability to limit 
in-home care allows Lead Agencies to recognize the same cost restraints 
that families whose care is unsubsidized must face.
    However, since in-home care has proven to be an important resource, 
we expect Lead Agencies to consider family and community circumstances 
carefully before limiting its availability. For that reason, CCDF Plans 
must specify any limitations placed on in-home care and the reasons for 
those limitations.
    ACF recognizes that giving Lead Agencies complete latitude to 
impose conditions and restrictions on in-home care may affect parents' 
ability to make satisfactory child care arrangements and thus their 
ability to participate in work, education or training. We also 
recognize the challenges of implementing health and safety requirements 
in the child's own home, monitoring in-home providers, and complying 
with Federal wage and tax laws governing domestic workers.
    Comment: Several commenters thought we were interpreting the FLSA 
and, therefore, wanted the discussion about it deleted. Others wanted 
us to say that in-home child care providers were independent business 
contractors and not domestic employees.
    Response: We have not interpreted the FLSA: we have simply restated 
the FLSA's characterization of in-home child care providers as domestic 
service workers. ACF cannot determine that in-home child care providers 
are to be considered independent business contractors.
    Interpreting the FLSA, and other wage and tax laws, is the 
responsibility of other Federal agencies, such as the Department of 
Labor, the Department of the Treasury and the Social Security 
Administration, as noted by several of the commenters. While we have 
not regulated that the minimum wage must be paid to in-home providers, 
as some commenters thought, we would be extremely remiss in not 
alerting Lead Agencies to the existence and possible applicability of 
other laws. Nor can we ignore violations of those laws simply because 
their enforcement is the purview of another Federal agency.
    We continue to work with the responsible Federal agencies to help 
clarify issues around the use of in-home child care providers and will 
work with the other appropriate Federal agencies to provide guidance to 
Lead Agencies. We also recognize that there have been instances where 
the Federal or State agency responsible for determining the 
applicability of the FLSA and the minimum wage requirements have 
reached very different conclusions in seemingly similar cases. 
Therefore, we encourage Lead Agencies to work with the appropriate 
local representatives of the other Federal agencies to resolve or 
clarify the State-specific questions they may have regarding the 
applicability of other laws and regulations.
    Comment: One tribe wanted us to exempt tribes from paying the 
minimum wage to in-home providers.
    Response: As discussed above, ACF does not determine the 
applicability of the FLSA and cannot make exceptions to it.
    Comment: One commenter wanted us to define in-home child care 
providers as any legally-exempt provider who is otherwise not regulated 
but who is specially authorized to provide care in the child's home or 
in the provider's home.
    Response: It is unclear why it would be useful to define in-home 
care in this way. As discussed above, the unique characteristic of in-
home is its location, not the regulatory status of the care.
    Comment: One commenter wanted us to require that in-home providers 
meet health and safety requirements. Another commenter wanted us to 
state that Federal law does not require that CCDF subsidies be given to 
parents or providers known to be operating inconsistently with 
applicable laws and regulations. In this vein, the commenter suggested 
that we encourage Lead Agencies to require provider documentation of 
compliance with applicable laws, such as worker compensation, 
unemployment compensation, income tax withholding for employees.
    Response: In-home care must meet the requirements established by 
the Lead Agency for protecting the health and safety of children 
pursuant to Sec. 98.41. In-home care, as a category of care, is not 
exempt from health and safety standards. And, relatives who provide in-
home care are not exempt from health and safety requirements unless the 
Lead Agency specifically chooses to exempt them, as provided for at 
Sec. 98.41(a)(1)(ii)(A).
    The regulations at Sec. 98.54(a)(2) require that CCDF funds ``shall 
be expended in accordance with applicable State and local laws.'' 
Payments made to parents or providers who are not in compliance with 
applicable laws are subject to disallowance in accordance with 
Sec. 98.66.
    Comment: Several commenters stated that the Lead Agency should have 
the ability to define limits and regulate the use of in-home care as 
they see fit and that no further requirements, beyond the description 
of the limits, should be imposed.
    Response: This comment mirrors our policy. The Lead Agency has 
complete flexibility to define the limits and regulate the use of in-
home care. As a point of clarification, while the Lead Agency may 
impose limits on the use of in-home care, it cannot flatly prohibit the 
use of in-home care. In-home care remains an option that must be 
offered to parents, pursuant to Sec. 98.30(e), subject to the limits 
established by the Lead Agency.

[[Page 39951]]

Parental Access (Section 98.31)
    We have amended the regulations at Secs. 98.31 and 98.16(n) to 
reflect the new statutory requirement at section 658E(c)(2)(B) that 
Lead Agencies have in effect procedures to ensure unlimited parental 
access and to provide a detailed description of those procedures. We 
have also amended Sec. 98.15(b)(1) to reflect the statutory change to 
certify, rather than assure, that procedures are in effect to ensure 
unlimited access.
    Comment: One commenter asked that we clarify this requirement as it 
relates to parents who have limited contact or custody rights as a 
result of a court order. The commenter suggested that Lead Agency 
procedures may restrict access to only those persons identified in the 
provider's records as authorized to remove the child(ren) from the 
facility.
    Response: We agree that the Lead Agency should address these 
situations and should establish their procedures in light of court 
ordered restricted parental contact or custody. However, we do not 
believe that it is necessary to revise the wording of the regulation 
nor do we believe that Congress intended that we create such a detailed 
Federal requirement on the Lead Agency.
Parental Complaints (Section 98.32)
    We have added paragraph (c) to the regulations at Sec. 98.32 and 
amended Sec. 98.16 by adding paragraph (m) to reflect the new statutory 
requirements at 658E(c)(2)(C) on parental complaints. Under the 
changes, Lead Agencies must provide a detailed description of how a 
record of substantiated parental complaints is maintained and made 
available to the public on request. We have also amended the regulation 
at Sec. 98.15(b)(2) to reflect the requirement of the statute at 
658E(c)(2)(C) that a Lead Agency ``certify'' rather than ``assure'' 
that it will maintain a record of substantiated parental complaints.
    Comment: Some commenters questioned whether the Lead Agency had to 
maintain the record of substantiated complaints, since this function 
may occur at another part of State government.
    Response: We corrected the language of this section to reflect that 
it is the State, but not necessarily the Lead Agency, that must 
maintain the record of substantiated complaints and make information 
regarding such parental complaints available to the public on request. 
However, in the Plan, the Lead Agency must, nevertheless, provide the 
detailed description of how such a record is maintained and made 
available.
    Comment: One commenter, in supporting the requirement, recommended 
that any substantiated complaint, whether submitted by a parent or by 
someone else, be included.
    Response: We agree that informed parental decisions would be 
enhanced by making all complaints, irrespective of their source, 
available to the public. And, we encourage the Lead Agency to make all 
substantiated complaints available to the public on request. However, 
the Act requires only that a record of substantiated parental 
complaints must be maintained. Parental complaints may include 
substantiated complaints which originate with persons acting in loco 
parentis, for example a foster parent or other guardian, not just a 
biological or adoptive parent.
    Comment: Another commenter was concerned about the release of 
confidential, libelous and/or inappropriate material in the fulfillment 
of this requirement. The commenter voiced the expectation that we would 
ensure that the State created very structured procedures for 
maintaining and guaranteeing that only substantiated complaints are 
released to the public.
    Response: The requirement clearly states that only substantiated 
complaints are to be released. As we stated above, we do not believe 
that Congress intended for us to create detailed Federal requirements 
here. States have the flexibility to create their own procedures in 
this area, provided the required statutory outcome is achieved.
Consumer Education (Section 98.33)
    We have amended the regulation at Secs. 98.33 and 98.15(b)(3) to 
reflect the statutory requirement at section 658E(c)(2)(D) that the 
Lead Agency ``certify'' that it ``will collect and disseminate to 
parents of eligible children and the general public, consumer education 
information that will promote informed child care choices.'' It is 
important to emphasize that the use of the words ``collect and 
disseminate'' is more proactive and forceful than the former 
requirement that consumer education ``be made available'' to parents 
and the public. We also believe that by changing the wording, Congress 
wished to emphasize the importance of consumer education as a service 
to be provided by Lead Agencies. This emphasis is also stressed by the 
third goal of the CCDF, listed at section 658A(b) of the amended CCDBG 
statute, ``to encourage States to provide consumer education 
information to help parents make informed choices about child care.'' 
Moreover, the amendment to the reporting requirements at section 
658K(a)(2)(D)--reflected in the revised regulations at 
Sec. 98.71(b)(3)--requires Lead Agencies to report annually on the 
manner in which consumer education information was provided to parents 
and the number of parents that received such information.
    The statute previously specified the type of consumer education 
information that the Lead Agency had to provide: ``licensing and 
regulatory requirements, complaint procedures, and policies and 
practices relative to child care services within the State.'' The 
statute now is less prescriptive. Consumer education information is 
defined as that which ``will promote informed child care choices.'' 
Thus, the statute leaves it up to the Lead Agency to determine the type 
of information that will help the public and parents make informed 
child care choices.
    In the comments to the proposed rule, however, we received numerous 
comments advising us to strengthen the consumer education requirement. 
Two themes arose from the comments. One frequently voiced comment was 
that parents need to be informed that the full range of providers is 
available to them, especially when they receive certificates. Included 
in the full range of providers are sectarian and religious providers, 
and we take this opportunity to remind Lead Agencies that such 
providers must be available to parents. The second theme we heard was 
that parents need to be aware of the importance of health and safety 
standards, and the extent to which various categories of care or types 
of providers provide health and safety protections for children.
    Additionally, in a report issued in February 1998 by the Office of 
Inspector General of the Department of Health and Human Services, it 
was noted, ``Good consumer education is critical to making the child 
care market function properly. If parents are not able to make informed 
choices, their access to the market is limited. Further, if parents 
demand safe and quality care, providers are more likely to supply it.'' 
The study report, ``States' Child Care Certificate Programs: an Early 
Assessment of Vulnerabilities and Barriers'' (OEI-05-97-00320), which 
makes note of Congress' strengthening of the consumer education 
requirements in the CCDBG Act, has recommended that ACF take steps to 
help States improve their consumer education efforts.
    We weighed these comments and the new Inspector General report 
against comments we received which generally opposed any regulations at 
all on any of the provisions we proposed and those

[[Page 39952]]

that wanted consumer education provisions in addition to the two 
addressed above. We believe that informed parental choice--which is the 
reason for the consumer education provisions--is supported by the 
information suggested by these two comments. We have, therefore, 
reworded the regulation at Sec. 98.33(a). That section now specifies 
that Lead Agencies must certify that consumer education information 
given to parents so they can exercise their right to choose the type of 
care that best meets their needs must, at a minimum, include 
information about the full range of providers available and on health 
and safety requirements. States have discretion in developing the 
content of the consumer information materials in these two areas; the 
regulations only require that they be addressed.
    While Lead Agencies have flexibility in providing consumer 
education, ACF strongly encourages Lead Agencies to promote informed 
child care choices by offering information about: the various 
categories of care; the Lead Agency's certificate system; the rates for 
the various categories of care; the sliding fee scale; a checklist of 
what to look for in choosing quality care; providers with whom the Lead 
Agency has contracts for care; the licensing regulations that some 
providers must meet; the State's policy regarding substantiated 
complaints by parents that is available upon request as required by 
Sec. 98.32; and local resource and referral agencies that can assist 
parents in choosing appropriate child care.
    The best child care arrangements are developed in one-on-one 
consultation with trained or experienced counselors. Professional help 
with locating child care is time- and cost-efficient for both families 
and Lead Agencies. Thus, it may be in the Lead Agency's interest to 
invest in strategies such as co-location of child care resource and 
referral counselors in work development offices or agencies. Economists 
make the argument that good consumer information is critical to making 
the child care market function more like other markets. Moreover, 
experience has shown that printed materials alone may not always be a 
sufficient information source, particularly if parents have low 
literacy skills.
    Comment: Several commenters wanted us to require that consumer 
education specifically include information about the availability of 
sectarian providers and that parents may use certificates with 
religious providers.
    Response: It was partly in response to these comments that we 
expanded the requirement for consumer education to now include 
information about the full range of providers available to parents. As 
the ``full range of providers'' includes sectarian and religious 
providers, we do not believe it is necessary to specify them--or other 
types of providers--in regulation. Since certificates, by definition, 
may be used with any provider, including sectarian providers, it seems 
unnecessary to be more prescriptive.
    Exception to individual penalties in the TANF work requirement. 
Title I of the PRWORA amends Title IV-A of the Social Security Act and 
replaces the Aid to Dependent Children (AFDC) with a new block grant 
program entitled Temporary Assistance for Needy Families, or TANF. The 
new section 407(e)(2) addresses an exception to the work requirement in 
the TANF program and provides that a State may not reduce or terminate 
TANF assistance to a single custodial parent who refuses to work when 
she demonstrates an inability to obtain needed child care for a child 
under six, because of one or more of the following reasons:
    (1) Unavailability of appropriate child care within a reasonable 
distance from the individual's home or work site;
    (2) Unavailability or unsuitability of informal child care by a 
relative or under other arrangements;
    (3) Unavailability of appropriate and affordable formal child care 
arrangements.
    The TANF penalty exception underscores the pivotal role of child 
care in supporting work and also recognizes that the unavailability of 
appropriate, affordable child care can create unacceptable hardships on 
children and families. Since Congress provided that the new Mandatory 
and Matching child care funding be transferred to the Lead Agency under 
the CCDF and also provided that at least 70 percent of the new funding 
must be spent on families receiving temporary assistance, in transition 
from public assistance, or at risk of becoming eligible for public 
assistance, the Lead Agencies will be playing a critical role in 
providing the child care necessary to support the strong work 
provisions found in TANF. It is therefore critical that CCDF Lead 
Agencies help disseminate information about the TANF exception. 
Knowledge of this exception, at least on the part of parents who 
receive TANF, will be very important in promoting informed child care 
choices.
    Therefore, we require that Lead Agencies include information about 
it in the consumer education information they provide to TANF 
recipients. This responsibility entails informing parents that: (1) 
TANF benefits cannot be reduced or terminated for parents who meet the 
conditions as specified in the statute and as defined by the TANF 
agency; and (2) assistance received during the time an eligible parent 
receives the exception will count toward the time limit on Federal 
benefits stipulated by the statute at section 408(a)(7).
    In order for a Lead Agency to comply with this requirement, it will 
need to understand how the TANF agency defines and applies the terms of 
the statute to determine that the parent has a demonstrated inability 
to obtain needed child care. The elements that require definition 
consist of: ``appropriate child care,'' ``reasonable distance,'' 
``unsuitability of informal care,'' and ``affordable child care 
arrangements.''
    In our pre-regulatory consultations, some groups urged us not only 
to ensure that the CCDF agency disseminates information about the TANF 
penalty exception but to regulate the content of the definitions or 
criteria used to determine if a family is unable to obtain needed child 
care. The approach we have taken in this rule provides flexibility and 
strikes an appropriate balance between the roles of the CCDF and TANF 
agencies. We recognize the authority and flexibility of the TANF 
program to define the terms established by the statute. However, we 
strongly encourage TANF agencies to define ``appropriate care,'' at a 
minimum, as care that meets the health and safety standards of the CCDF 
program, specified at Sec. 98.41.
    We are requiring, under Sec. 98.12 of the regulations, that Lead 
Agencies coordinate with TANF programs to ensure, pursuant to 
Sec. 98.33(b), that TANF families with young children will be informed 
of their right not to be sanctioned if they meet the criteria set forth 
in the statute and Plan. As part of this coordination, at Sec. 98.16(p) 
we are requiring that the Lead Agency include in its Plan the 
definitions or criteria the TANF program has adopted in implementing 
this exception to the work requirement.
    The new section 409(a)(11) of the SSA specifies that if the TANF 
program sanctions parents who are eligible for this exception to the 
individual penalties associated with the TANF work requirements, it may 
incur a penalty of up to five percent of its grant. Therefore, 
coordination between the Lead Agency and the TANF program in this 
matter serves the best interests both of the recipients of TANF 
benefits and the service agencies themselves. ACF

[[Page 39953]]

issued proposed rules on the TANF penalty provisions on November 20, 
1997.
    Comment: We received few comments in support of our proposal to 
require Lead Agencies to provide information regarding the TANF penalty 
provisions. Most commenters observed that this was a TANF, not a child 
care issue, and that the notice was an administrative notice, not 
consumer education. Others suggested that, in singling out TANF 
families, this provision merely continues the stigma associated with 
welfare.
    Response: We respect the commenters' views. And, we have changed 
the requirement so that the information on the penalty provision need 
only be given to TANF families--not all families. We have also amended 
the regulation to recognize that other agencies, not necessarily the 
Lead Agency, may provide the information.
    In light of the pressures of work participation requirements on the 
TANF agency, and ultimately on TANF families, we believe that TANF 
families need strong reinforcement of their right to safe, affordable 
and appropriate care. Informed consumer education means that parents 
must not feel that they must accept any child care, especially care 
that they believe threatens the well-being of their child.
    Comment: Some commenters suggested that Lead Agencies should be 
required to provide consumer education only through child care resource 
and referral (CCR&R) agencies.
    Response: While CCR&Rs may be the best providers of consumer 
education information, there is no statutory basis for limiting State 
flexibility in this way.
    Comment: Several commenters objected to including the TANF penalty 
definitions or criteria in the CCDF Plan, arguing that these belonged 
more appropriately in the TANF Plan.
    Response: A State's definition of ``appropriate child care,'' 
``reasonable distance,'' etc., is germane to the provision of child 
care in a State. And, it is the overall provision of child care in a 
State that the CCDF Plan is intended to present to the public. Because 
there is no fixed format for a TANF plan, the definitions may not be 
included there and thus may not be part of the TANF 45 day notice 
process. Therefore, these definitions and criteria may not become 
publicly known. We do not believe that the requirement is either 
burdensome or excessive since the TANF agency must develop the criteria 
and definitions in order to implement that program.

Subpart E--Program Operations (Child Care Services)--Lead Agency and 
Provider Requirements

Compliance With Applicable State and Local Regulatory Requirements 
(Section 98.40)
    We have amended the regulations at Sec. 98.40(a) to reflect a 
change in Section 658E(c)(2)(E)(i) of the Act. The amendment requires 
Lead Agencies to certify that they have in effect licensing 
requirements applicable to child care services, and to provide a 
detailed description of those requirements and of how they are 
effectively enforced. This change is also reflected in Secs. 98.15 and 
98.16. The statute notes, however, that these licensing requirements 
need not be applied to specific types of providers of child care 
services.
    Because amendments to section 658P(5)(B) have eliminated the 
requirement for registration of unlicensed providers serving families 
receiving subsidized child care, we have deleted the former regulation 
Sec. 98.40(a)(2) requiring registration. This change, however, does not 
prevent Lead Agencies from continuing to register unlicensed or 
unregulated providers, and we encourage them to do so. Those Lead 
Agencies that choose not to have a registration process will be 
required to maintain a list of providers. We discuss this in more 
detail at Sec. 98.45.
Health and Safety Requirements (Section 98.41)
    Section 658E(c)(2)(F) of the Act requires a Lead Agency to certify 
that there are in effect within the State, under State and local law, 
requirements, designed to protect the health and safety of children, 
that are applicable to providers serving children receiving CCDF 
assistance. The applicable requirements set forth in the Act include 
``the prevention and control of infectious diseases (including 
immunizations).''
    Section 658E(c)(2)(F) further provides, however, that nothing in 
the health and safety requirements shall be construed to require the 
establishment of additional health and safety requirements for child 
care providers that are subject on the date of enactment of the Act, 
under State and local law, to health and safety requirements in the 
categories described in the Act. The regulations at Sec. 98.41(a) 
reflect the prohibition against establishing additional requirements if 
existing requirements comply with the Act.
    As proposed originally on May 11, 1994 (59 FR 24510) and again in 
1997 on July 23, 1997 (62 FR 39647), we amended the regulation at 
Sec. 98.41(a)(1) to require that States and Territories include as part 
of their health and safety provisions for the control and prevention of 
infectious diseases (by reference or otherwise) the latest 
recommendations for childhood immunizations of their respective State 
or territorial public health agency.
    Based on comments received on the most recent proposed rule, 
however, we modified the final rule at Sec. 98.41(a) to delete language 
that, unintentionally, could have caused some commenters to believe 
that ACF was exceeding the Act. Specifically, we deleted language that 
related to establishing immunization requirements. Based on another 
comment, we also revised the rule to clarify that immunizations are not 
the only focus of the statutory requirement on the prevention and 
control of infectious diseases.
    The immunization regulation at Sec. 98.41(a)(1) applies only to 
States and Territories. Consistent with the amended Act, which requires 
the Secretary to consult with Tribes and tribal organizations to 
develop minimum child care standards that are applicable to Tribes and 
tribal organizations that receive CCDF funds, we have not extended the 
immunization requirement to Tribes and tribal organizations due to the 
anticipated development of tribal health and safety standards.
    Until tribal health and safety standards are issued, however, Lead 
Agencies for Tribes and tribal organization must meet the three basic 
health and safety requirements specified in the Act and these amended 
regulations, including the basic regulation on the prevention and 
control of infectious diseases (including immunizations). They do not, 
however, have to meet the specific immunization requirement that 
applies to States and Territories under these final rules. We 
anticipate that tribal immunization requirements will be considered in 
the consultation on the development of the minimum child care standards 
with Indian Tribes and tribal organizations.
    While many State and territorial public health agencies adopt the 
recommendations of the Advisory Committee on Immunization Practices 
(ACIP) of the Centers for Disease Control and Prevention (CDC), we wish 
to emphasize that this amendment to the regulations does not impose 
Federal standards for immunization. Rather, it allows the individual 
State or Territory to apply its own immunization recommendations or 
standards to children receiving CCDF services. All States and 
Territories have recommendations or standards

[[Page 39954]]

regarding immunization of individual children.
    The immunization provision at Sec. 98.41(a)(1) is intended to 
ensure that States address the statutory provision on immunization as 
part of the statutorily-mandated CCDF health and safety standards.
    Currently 22 percent of children in the U.S. under the age of two 
are not age-appropriately immunized. Since a large percentage of 
children receiving child care assistance are under five years of age, 
we believe that the immunization requirement will have a positive 
impact in reducing the incidence of infectious diseases among preschool 
age children. Surveys of licensed child care facilities indicate that 
the majority of States require some proof of immunizations for children 
enrolled in licensed or regulated child care centers and family day 
care homes. However, individual States differ in their specific 
requirements and regulatory approaches, and requirements for the 
immunization of children in child care settings that are exempt from 
licensure or other regulatory provisions vary widely.
    Vaccines are the most cost-effective way to prevent childhood 
diseases. Nationally, approximately $13.00 is saved in direct medical 
costs for every dollar spent on the measles/mumps/rubella (MMR) 
vaccine, $29.00 is saved for every dollar spent on the diphtheria/
tetanus/pertussis (DTP) vaccine, and $6.00 is saved for every dollar 
spent on the oral polio vaccine (OPV).
    In requiring children to be age-appropriately immunized, we 
considered that parents may not always be able to access immunizations 
easily. However, a number of national initiatives are under way to 
promote immunizations for all children. In response to disturbing gaps 
in the immunization rates for young children in America, a 
comprehensive Childhood Immunization Initiative (CII) was developed. 
CII addresses five areas:

--Improving immunization services for needy families, especially in 
public health clinics;
--Reducing vaccine costs for lower-income and uninsured families, 
especially for vaccines provided in private physician offices;
--Building community networks to reach out to families and ensure that 
young children are vaccinated as needed;
--Improving systems for monitoring diseases and vaccinations; and
--Improving vaccines and vaccine use.

    The CDC and its partners in the public and private sectors are 
working to build a comprehensive vaccination delivery system. The goals 
of the CII are to ensure that at least 90 percent of all two-year-olds 
receive each of the initial and most critical doses, to reduce diseases 
preventable by childhood vaccination to zero, and put in place a system 
to sustain high immunization coverage. Since 1994, the National 
Immunization Survey (NIS) has been used to provide immunization 
coverage estimates for all 50 States and 28 large urban areas.
    As part of the efforts in the CII, immunization programs on the 
State and local level are collaborating with WIC programs (Special 
Supplemental Food Program for Women, Infants, and Children) to focus on 
children's immunization. For example, local WIC clinics check the 
immunization records of WIC participants, assist families to find a 
primary health care provider, and provide immunization information. On-
site immunization services are sometimes also provided at local WIC 
clinics.
    On September 30, 1996, the CDC awarded funds ranging from $130,000 
to $250,000, to education agencies in four States (New York, South 
Dakota, West Virginia, and Wisconsin) to deliver immunization services 
to preschool-aged children in health centers at elementary schools. 
Over the past four years, welfare reform waivers were granted to 18 
States to allow them to require parents to immunize their children as a 
condition of receiving assistance.
    Lead Agencies for the CCDF have the flexibility to determine the 
method they will use to implement the immunization component of these 
regulations. For example, they may require parents to provide proof of 
immunization as part of the initial eligibility determination and again 
at redetermination, or they may require child care providers to 
maintain proof of immunization for children enrolled in their care. 
Lead Agencies have the option to exempt the following groups:
    <bullet> Children who are cared for by relatives (defined as 
grandparents, great grandparents, siblings--if living in a separate 
residence--aunts and uncles);
    <bullet> Children who receive care in their own homes;
    <bullet> Children whose parents object on religious grounds; and
    <bullet> Children whose medical condition contraindicates 
immunization.
    While families are taking the necessary actions to comply with the 
immunization requirements, Lead Agencies shall establish a grace period 
during which children can continue to receive child care services--
unless, in keeping with the statutory provisions applicable to the 
CCDF, existing State or local law regarding immunizations required for 
the particular child care setting would not allow for such a period.
    Finally, we encourage all Lead Agencies to consider requirements 
that provide for documenting regular updates of a child's 
immunizations.
    Section 98.30(f)(2) and (3) prohibit any health and safety 
requirements from having the effect of limiting parental access or 
choice of providers, or of excluding a significant number of providers. 
We do not think these new immunization requirements will have such an 
effect. Rather, we are convinced that, when applied to all providers, 
they will have the effect of enhancing parental choice of providers, 
since all providers will have the same requirements. More importantly, 
however, the requirements will promote better health for children, 
their families, and the public.
    Pursuant to section 658P(5)(B) of the amended Act, we have added 
``great grandparents, and siblings (if such providers live in a 
separate residence)'' to the list of relatives who, at State option, 
may be exempted from the health and safety requirements at 
Sec. 98.41(e) and to the definition of ``eligible child care provider'' 
at Sec. 98.2.
    We received many comments on the revised health and safety 
provisions from all types of commenters who made a wide variety of 
observations. Several commenters, including three Lead Agencies, 
expressed their unqualified support for the immunization provision. A 
number of States who wrote to comment on other provisions in the 
proposed rule were silent regarding the proposal, as were a couple of 
State organizations. Other States expressed support of the principle of 
assuring that very young children are age-appropriately immunized. 
They, however, had various concerns about the proposed amendments to 
the rule concerning health and safety provisions as noted in the 
comments below. Some States and State organizations supported an 
alternate approach as noted below. A number of children's organizations 
supported the provision, but asked for it to be strengthened as noted 
below.
    Comment: Some commenters said that the proposed rule exceeded the 
authority granted to the Secretary under PRWORA and did not respect 
congressional intent regarding the Act. The commenters did not identify 
which statutory provisions they believed were exceeded. Additionally, 
however, they pointed to the proposed State options for exempting 
children receiving CCDF

[[Page 39955]]

services as evidence that ACF, not the State, was establishing a health 
and safety standard.
    Response: The statutory language regarding the establishment of 
health and safety requirements for children served by the CCDF 
essentially was unchanged by PRWORA. The statute clearly requires the 
State to establish health and safety standards in three areas. One of 
those areas, the control and prevention of infectious diseases, 
specifically includes immunizations in health and safety requirements 
for child care. We think that the commenters may have focused on the 
provision at 658E(c)(2)(F) that states, ``Nothing in this [provision] 
shall be construed to require the establishment of additional health 
and safety requirements for child care providers that are subject to 
health and safety requirements in the categories described [in the Act] 
on the date of enactment of this subchapter under State or local law.''
    The rule we adopted does not violate this caveat to the health and 
safety requirements of the Act. ACF is not requiring States to 
establish additional standards regarding immunization for children 
receiving CCDF services where those standards exist for all children 
(CCDF-subsidized or not) in a category of care. Rather, we are ensuring 
that States follow the statutorily-mandated requirement, which 
specifically includes immunizations. The statute requires immunizations 
in the case of all care available to children receiving CCDF services--
not just to those caregivers who are subject to existing State 
requirements regarding immunization of children in child care settings. 
The regulation clarifies that immunizations must be part of the health 
and safety standards for all providers.
    We revised the final rule to delete the phrase that might 
inadvertently have led some to conclude that the regulation exceeded 
the statute by seeming to require new State immunization standards. The 
provision now indicates that Lead Agencies shall assure that the 
State's existing immunization standards apply to all children receiving 
services under the CCDF.
    Further, the exemption options should not be considered as evidence 
that ACF is requiring specific health and safety standards. Rather, the 
options reflect recognition of the State's authority to determine the 
content of health and safety standards and to exempt statutorily 
specified relatives from the health and safety requirement generally.
    Comment: Several commenters suggested that ACF adopt an alternate 
approach to the immunization requirement. Specifically, they suggested 
that instead ACF adopt a provision requiring a State to describe in its 
CCDF Plan its efforts to increase immunization rates in relationship to 
their child care programs and with respect to outreach to children in 
informal care.
    Response: The alternative proposed does not serve the objective of 
assuring that the statutory provision is met.
    Comment: Several States opposed the CCDF rule regarding 
immunizations on the grounds that they already have requirements 
regarding immunizations in child care settings.
    Response: As explained in the response to the first comment in this 
section, where a State has rules for immunization of children in child 
care settings, these rules do not impose additional or different 
requirements. These rules apply in instances where a State has not 
established the statutorily required health and safety immunization 
requirements for a particular child care setting.
    Comment: Two commenters noted that the requirement for a grace 
period for families to have their children receiving CCDF services age-
appropriately immunized could conflict with existing State rules 
regarding children entering child care. They asked for the rule to take 
into account instances where States have existing immunization 
standards for child care settings that do not allow for a grace period.
    Response: In the 1994 proposed rule, when we only encouraged States 
to have a grace period and recommended that Head Start guidelines for 
an immunization grace period of 90 days be considered, we received a 
significant number of comments asking that we incorporate a grace 
period into the CCDF rule on immunization. In 1994, an overwhelming 
majority of comments opposed tying the immunization requirement to 
initial eligibility. The view was that requiring immunizations to be up 
to date before the child care could start would be a barrier to 
working. Commenters at that time voiced concern that many low-income 
parents might not immediately be able to acquire the necessary 
immunizations and could therefore lose access to crucial child care 
services.
    A significant number of commenters in 1994 recommended that we 
strengthen the language to require Grantees to establish a grace period 
as part of the immunization requirement. With welfare reform's stronger 
emphasis on work, we believe that the grace period is even more 
critical than we envisioned in 1994. We, therefore, retained the 
provision on the grace period. States should understand, however, that 
the provision at Section 658E(c)(3)(F), which is reflected at 
Sec. 98.41(a) of these regulations, would apply. That provision 
prohibits the establishment of new or additional standards if they 
exist for a particular child care setting. We believe that the complete 
regulation at Sec. 98.41(a) adequately conveys the principle, so that 
no special modification of the rule regarding the grace period is 
needed.
    Comment: Some States commented that the issue of immunizations is a 
much larger issue than just for children receiving CCDF subsidies. Some 
of these commenters observed that in care settings that States do not 
regulate there could be children who are not required to be immunized 
because they are not receiving CCDF services and not subject to other 
rules regarding immunization. One commenter specifically noted that the 
CCDF provision fragments efforts of States that are seeking to develop 
a comprehensive immunization plan.
    Response: The fact that the immunization issue is a bigger issue 
than just within the CCDF should not argue against using the CCDBG 
statutory requirements in order to assist with the need for very young 
children to be age-appropriately immunized. We do not believe that this 
rule will conflict with any other State initiative to immunize young 
children. We encourage all States to coordinate all child care and 
public health services in order to foster an importance linkage to 
fulfilling immunization needs.
    Comment: Some States commented that they saw difficulties in 
administering, tracking, or monitoring the immunization requirement. 
There were comments indicating that assumptions were being made that a 
cumbersome verification process would be required of Lead Agencies.
    Response: As we indicated in the preamble to the proposed rule and 
in the preamble above, we have not imposed implementation requirements 
for this provision. States have the flexibility to implement the 
provision in a manner that is not burdensome. Lead Agencies are not 
required to provide immunizations directly to children receiving child 
care services. Nor are Lead Agencies required to cover the cost of the 
vaccines.
    We anticipate that Lead Agencies would incur most of the 
administrative burden during the initial child care application process 
when follow-up is needed on children whose immunizations are not 
current. However, this burden should be greatly

[[Page 39956]]

reduced as a result of the Childhood Immunization Initiative. Under 
this initiative, States will receive funds that can be used to develop 
statewide information systems which remind parents when immunizations 
are due. Lead Agencies for the CCDF should work with their State 
immunization program to develop comprehensive immunization registries 
that will assist in the implementation of the child care immunization 
requirement.
    To help ease the burden during the initial application process, 
Lead Agencies could consider: incorporating tracking and follow-up into 
existing redetermination procedures; flagging the files of children who 
are not yet immunized and allowing parents to submit documentation by 
mail; or including proof-of-immunization information in the periodic 
report that providers are already required to submit to the Lead 
Agency. These processes could be considered for both regulated and 
unregulated providers.
    States may also find that providing parents with educational 
materials on the importance of immunization can play a key role in 
reducing administrative burdens. While many parents are aware that 
immunizations are needed by school age, they may not realize that 
children should receive most vaccines before their second birthday.
    Comment: One commenter stated that adding more specificity to only 
the immunization part of the CCDF health and safety standard on 
prevention and control of infectious diseases could send an unintended 
message that having immunization provisions alone would fulfill that 
statutory provision. The commenter suggested that to ensure a balance 
there should be more rules regarding the scope and structure of the 
statutory standard. Another commenter suggested that ACF require or 
encourage criminal background checks of providers of CCDF services.
    Response: We agree with the commenter that the statutory provision 
encompasses more than immunizations. The law says that the State's 
standards in this area shall include immunizations. The law would not 
be understood to consist only of the aspect of immunization in the 
prevention and control of infectious diseases. Not all diseases can be 
prevented by immunizations. However, there is a specific mention of 
immunization in that provision in the Act that in our experience has 
not been addressed by all States in implementing the provision, while 
other ``prevention and control'' issues were addressed in at least some 
minimal way in State Plans. Based on the comment, we reviewed the 
regulatory language and revised the regulation to make it less likely 
to be interpreted as the commenter did but did not further regulate the 
statutory language.
    With respect to criminal background checks, ACF considers such 
checks to fall under the building and physical premises safety standard 
in the statute. Unlike the statutory requirement on prevention and 
control of infectious diseases, which specifically mentions 
immunizations, the statute does not specify any particular component 
that would be part of the provision on building and physical premises 
safety. Therefore, we do not propose to further regulate that health 
and safety provision. We would agree with the commenter that it is 
appropriate to encourage States to adopt criminal background checks as 
part of their effort to meet CCDF health and safety standards.
    Comment: Some commenters stated that there should be no exemption 
option to requiring immunizations for children receiving relative and 
in-home care. Several recommended that the requirement be implemented 
without any possible exemptions.
    Response: The Act and regulations allow Lead Agencies the option to 
exempt grandparents, great grandparents, siblings (if the sibling lives 
in a residence other than the child's home), aunts and uncles from 
health and safety requirements. Although this exemption is allowable by 
statute, the statute does not require States to make the exemption; 
States may choose to require relative caregivers to meet the same 
immunization requirements as established for other providers.
    In allowing an exemption for in-home care, we considered that these 
children are not cared for in a communicable group setting but in the 
privacy of their own home, and therefore would be at a more limited 
risk of contracting diseases or spreading diseases than they would be 
if in a group care setting with children from different families. We 
therefore think the in-home exemption option is an appropriate 
reflection of the statutory scope of the health and safety requirement.
    Finally, the regulation reflects the basic exemption provisions 
(religious and medical reasons) that States apply to child care 
settings and school settings where States have set immunization 
standards. The regulation allows the State similar flexibility in 
implementing the statutorily-mandated CCDF health and safety 
requirements where it does not have existing immunization requirements 
for all children in a care setting. States have the flexibility to 
determine which of the optional exemptions to allow. However, they may 
not expand the exemptions beyond the categories outlined in the 
preamble and regulation.
    Comment: One commenter from an Indian Tribe said that when a child 
is in foster care, the foster care home should be considered the 
child's home for the purpose of the exemption option regarding in-home 
care.
    Response: We agree with the commenter. A foster care home would be 
considered the foster child's home for the purpose of the CCDF 
immunization exemption option regarding in-home care. The State may 
choose to include in-home care in a foster home in the exemption for 
in-home care, or it may choose to not include it. Tribes and tribal 
organizations are reminded that the rule on immunizations does not 
apply to tribal child care, however, since ACF is collaborating with 
Tribes to develop tribal-specific health and safety standards.
    Comment: One commenter said that ACF should require States to 
follow the immunization recommendations of the CDC, not the 
requirements of their own State health agency, with respect to these 
regulations.
    Response: As we stated in this section, while many State and 
territorial public health agencies adopt the recommendations of the 
Advisory Committee on Immunization Practices (ACIP) of the CDC, we wish 
to emphasize that this regulation does not impose Federal standards for 
immunization. Rather, it allows the individual State or Territory to 
apply its own immunization recommendations or standards to children 
receiving CCDF services.
    Comment: A few commenters said they thought that the immunization 
regulation does not reach children in ``informal care arrangements.'' 
One of them observed that black children would be disproportionately 
under-served by the requirement, because black families tend to use a 
disproportionate amount of informal care. One of the commenters said 
that the rule would not reach children where the provider does not 
receive direct payment.
    Response: With the exception of the four optional exceptions that 
the regulation gives States the flexibility to adopt independently of 
each other, the immunization component of the CCDF health and safety 
requirements must be followed. To the extent relative or in-home care 
is considered to be

[[Page 39957]]

``informal'' and a State exercises its option to exempt those settings 
from the immunization regulation, a child in those settings would not 
be required to be age-appropriately immunized under the CCDF. ACF 
strongly encourages States to take full advantage of the requirement to 
see to it that the immunization needs of very young children are met. 
Unless a State chooses to exempt care in one of the specified settings 
from CCDF immunization provisions, however, it must have a mechanism 
for carrying out the provision, no matter how its payment system is 
organized.
    Comment: A number of commenters stated with varying emphases their 
perception that the immunization rule places burdens on parents or 
providers and could be a deterrent to parents or providers using or 
participating in CCDF services.
    Response: As explained above, there is an array of resources and 
approaches available to States to ensure access to immunizations by 
parents as well as State flexibility to design a process for 
implementation of the rule that is not burdensome on providers. To meet 
the needs of individual States to design the most appropriate method of 
meeting the rule, ACF intentionally left flexibility in the regulation. 
We encourage States to ensure that the requirement is met in a manner 
that both fulfills the statute and the rule as well as places minimum 
burdens on families or the supply of all categories and types of care.
    Comment: Two commenters raised issues relating to the possible 
adverse side effects of immunizations. They requested that States 
exempt children receiving CCDF services from immunization after parents 
have received information about the risks and choose not to immunize 
their children.
    Response: All immunization providers are required to inform parents 
of potential side effects. Only a very minute fraction of children 
receiving immunizations experience harmful side effects attributable to 
immunizations, and the National Vaccine Injury Compensation Program 
(NVICP) is available to assist families whose children have been 
harmed. Information on the NVICP is available on 1-800-338-2382. On 
balance, families that do not appropriately immunize their children 
place them in greater harm than the immunizations do. Therefore, we do 
not agree with the recommendation to allow another exemption to the 
immunization regulation for children receiving CCDF services.
    Comment: A few commenters noted that for effective implementation 
of the rule, States should be required to provide information--to 
parents of CCDF-eligible children and to unregulated providers of 
services to children receiving CCDF subsidies--about both the necessity 
for immunizations and how to access free immunizations. One commenter 
offered the idea of mandating linkages between the child care subsidy 
system and public health clinics and other health professionals. One 
commenter asked that States be required to coordinate with their State 
public health agency.
    Response: We concur that effective implementation would require 
States to ensure parents and unregulated providers have access to the 
kind of information described by the commenter. In keeping with the 
overall objective of these revised rules to achieve a balance between 
flexibility and accountability, ACF believes that regulation on this 
point is not necessary. It is inherent for meeting the rule. Moreover, 
nearly all States participate in the Secretary's successful Healthy 
Child Care America campaign. This campaign has a goal of linking child 
care providers with the health community and is one of the many venues 
for coordination between the child care community and the health 
community.
    Additionally, this final rule includes two requirements that will 
enhance coordination and informational activities concerning 
immunization under the CCDF. First, with respect to State-level 
coordination, the final rule at Sec. 98.14(a) requires that CCDF Lead 
Agencies shall coordinate with the State agency responsible for public 
health, including the agency responsible for immunizations. Second, 
based on a large number of comments on consumer education, we adopted 
at Sec. 98.33 a specific requirement that the Lead Agency will collect 
and disseminate consumer education information that will promote 
informed child care choices, including information about health and 
safety. We consider immunization information to be an important part of 
such health and safety information.
    Further, developing partnerships between the child care and health 
community will help facilitate the immunization process and ensure that 
the health needs of children and families are being met. We encourage 
States to utilize existing service delivery systems and networks to 
assist parents in meeting immunization requirements.
    The President's Childhood Immunization Initiative recognizes the 
important role of States and local organizations in identifying their 
particular needs. In 1992, the Federal government began helping States 
design individually tailored Immunization Action Plans. Outreach 
consultants in each region assist States, local organizations, and 
health professionals in enhancing and expanding partnerships with 
public and private organizations. For more information on partnerships 
with State and local immunization programs, contact the State Health 
Department or the CDC's National Immunization Program, Program 
Operations Branch at 404-639-8215.
    Comment: One commenter said States should be required to certify 
that effective procedures are in place to ensure that child care 
providers comply with immunization requirements.
    Response: We believe that the regulation at Sec. 98.41(d) suffices. 
It requires Lead Agencies to certify that procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under the CCDF comply with all applicable health and safety 
standards described in Sec. 98.41(a). We think that the provision does 
not require modification to cover immunizations, to the extent that a 
Lead Agency, in implementing the immunization requirement at 
Sec. 98.41(a) places requirements on providers. We remind commenters 
that the immunization rule gives Lead Agencies implementation 
flexibility.
    Comment: One commenter stated that the categories of relatives who 
are exempt from CCDF health and safety standards should be left up to 
the Lead Agency.
    Response: Our response remains as stated in the Final Rule of 
August 4, 1992, that the intent of the statute was to give grantees the 
option to exempt certain relatives from the health and safety 
requirements that all other CCDF child care providers must meet. The 
amended statute extends this exemption to great grandparents and 
siblings (if living in a separate residence) and we have amended the 
regulations accordingly. There is no statutory authority to extend this 
exemption to other types or categories of providers.
Sliding Fee Scales (Section 98.42)
    For a further discussion of copayments, see Section 98.43.
Equal Access (Section 98.43)
    The Act requires Lead Agencies to certify that payment rates are 
sufficient to provide access to child care services for eligible 
families that are comparable to those provided to families that do not 
receive subsidies. Section 658E(c)(4)(A) requires the Lead Agency to 
provide a

[[Page 39958]]

summary of the facts relied on to determine that its payment rates are 
sufficient to ensure equal access.
    The regulation at Sec. 98.43(b) requires a Lead Agency to show that 
it considered the following three key elements in determining that its 
child care program provides equal access for eligible families to child 
care services:
    1. Choice of the full range of categories and types of providers, 
e.g., the categories of center-based, group, family, in-home care, and 
types of providers such as for-profit and non-profit providers, 
sectarian providers, and relative providers as already required by 
Sec. 98.30.
    2. Adequate payment rates, based on a local market survey conducted 
no earlier than two years prior to the effective date of the current 
Plan; and
    3. Affordable copayments.
    These elements must be addressed in the summary of facts submitted 
in a Lead Agency's biennial Plan, pursuant to Sec. 98.16(l).
    Comment: Some commenters felt that Lead Agencies should simply be 
required to summarize the facts they relied on in setting payment 
rates, without addressing the three key elements mentioned above.
    Response: Lead Agencies are free to include additional facts they 
used in determining rates that ensure equal access. As discussed below, 
we are convinced that a Lead Agency cannot establish rates that ensure 
equal access without reference to the three required elements.
    1. Full range of providers. All working parents, regardless of 
income, need the full range of categories of care and types of 
providers from which they may choose their child care services. This is 
because child care needs vary considerably according to the child's age 
and special needs, the parents' work schedule, provider proximity, 
cultural values and expectations. Therefore, we believe that the 
statutory requirement of equal access means that low-income working 
parents receiving CCDF-subsidized care must have a full range of the 
categories and types of providers from which to choose care that they 
believe best meets their needs and those of their children. This 
element helps secure the parental choice requirements at Sec. 98.30 
which already require that parents who receive certificates be afforded 
such variety.
    2. Adequate payment rates. PRWORA eliminated the requirement that, 
in establishing payment rates, the Lead Agency take into account 
variations in the cost of providing care in different categories of 
care, to different age groups, and to children with special needs. 
While eliminating the requirement for different payment rates for 
different categories of care, Congress added a requirement that Lead 
Agencies provide ``a summary of the facts relied on by the State to 
determine that such rates are sufficient to ensure such [equal] 
access.''
    The statute indicates that if families receiving child care 
subsidies under the CCDF are to have equal access to child care, the 
payment rates established by a Lead Agency should be comparable to 
those paid by families who are not eligible for subsidies. In other 
words, the payment rates should reflect the child care market. Although 
the requirement for specified rate categories has changed, the reality 
remains that the market reflects differences along several dimensions, 
and we do not believe that Congress expected Lead Agencies to establish 
a single payment rate for all types of child care and all children 
irrespective of age.
    The focus of PRWORA on work further highlights the need for CCDF 
Lead Agencies, which now are required by statute to administer the new 
Mandatory and Matching Funds, to establish payment rates that support 
work. Child care is often the major factor which determines whether 
families are able to work--and access to a variety of child care 
arrangements is necessary both to support today's increasingly diverse 
workforce and workplace demands, and to ensure that the healthy 
development of children is not compromised.
    The major variable in the charges for child care is the age of the 
child, especially the added expense of caring for infants and very 
young children. And, payments that do not realistically reflect the 
charges of caring for very young children will frustrate the ability of 
families to work. Under PRWORA, many more families with infants and 
pre-school-aged children will be required to participate in work 
activities for longer hours per week. In providing the exception to the 
individual penalties under TANF for single custodial parents with a 
child under age six who cannot obtain needed child care, Congress 
recognized the special difficulties of locating affordable care for 
young children.
    We anticipate that market rate surveys will also show variations in 
rates among categories of care, and we expect any significant 
variations to be reflected in the Lead Agency's payments.
    A system of child care payments that does not reflect the realities 
of the market makes it economically infeasible for many providers to 
serve low-income children--undermining the statutory and regulatory 
requirements of equal access and parental choice. Experience with the 
now repealed title IV-A child care programs and the CCDBG suggests that 
providers limited their enrollment of children with subsidies because 
the subsidy payments were too low. Similarly, failing to compensate 
providers timely or not reimbursing them for days when children are 
absent also causes providers to refuse care to children with subsidies.
    Section 98.43(c) prohibits different payment rates based on a 
family's eligibility status or circumstances. This provision means that 
the Lead Agency may not establish payments for TANF families that 
differ from the payments for child care for the working poor, or for 
families in education or training, for example. We believe that use of 
different payment rates, based on an eligibility status, precludes the 
statutorily-required equal access to child care for families receiving 
CCDF subsidies. Additionally, different payment rates would frustrate 
one of the main intents in amending the Act in 1996--to have a unified 
child care system with a single set of rules. This purpose would be 
undercut if different payment rates based on eligibility criterion were 
permitted.
    If payments for child care are to be sufficient to provide equal 
access to child care services in the open market, then the payments 
must be established in the context of market conditions. We are 
convinced that a survey of market rates is essentially the only 
methodologically sound way for Lead Agencies to ascertain whether the 
payment rates they establish provide equal access.
    A market survey must be conducted in the context of reasonably 
current market conditions to ensure that the payment rates continue to 
provide equal access. Therefore, the regulations at Secs. 98.43(b)(2) 
and 98.16(l) require a biennial market rate survey conducted no earlier 
than two years prior to the effective date of the currently approved 
Plan.
    Surveys should not be a burden to States, which were required to 
conduct market surveys in the past. States have had a number of years' 
experience with the survey process. States have complete flexibility to 
design such surveys; we have not proposed a survey methodology. We 
note, however, that surveys may not be appropriate for establishing 
payments for children with special needs due to their need for services 
on a highly individualized basis and the effect of the Americans with 
Disabilities Act on providers' charges.

[[Page 39959]]

    In establishing payment rates we suggest a benchmark for States to 
consider. Payments established at least at the 75th percentile of the 
market would be regarded as providing equal access. States have already 
recognized that rates set at the 75th percentile--the payment level 
formerly required in the title IV-A child care programs--provide equal 
access. Comparisons of past State CCDBG and IV-A child care plans 
revealed that the majority of States used the same payment rate--the 
75th percentile IV-A rate--for both program even though there was not a 
requirement to pay at the 75th percentile for CCDBG-funded care, only 
the requirement that CCDBG rates provide equal access. This same 
requirement continues unchanged in these regulations for the CCDF.
    Comment: We received many comments about the requirement for a 
market survey; more comments favored the requirement than opposed it. 
Most of those favoring it wanted an annual survey or additional 
requirements around the timing of the survey or implementation of the 
survey results.
    Response: While we concur with the commenters that it would be 
ideal to conduct surveys more frequently, we believe that a biennial 
survey balances several considerations: that the rates reasonably 
reflect the state of the market, that Lead Agencies have flexibility in 
designing and implementing the survey to establish rates, and that the 
administrative burden and expense of conducting the survey should be 
minimized. The Lead Agency may conduct a complete survey more 
frequently; it may also conduct targeted subsamples in specific areas 
as frequently as it deems necessary. However, we choose not to require 
more than a biennial survey.
    Comment: Those commenters who opposed the requirement maintained 
that ACF had no authority to require a survey; that the statute's only 
requirement is for ``the facts relied on by the State to determine'' 
that rates are sufficient to ensure equal access.
    Response: An executive branch agency charged with administering a 
statutory program has general authority to interpret the statutory 
provisions as needed in its administration of the program. As discussed 
above, we are convinced that a survey of market rates is the only 
methodologically sound way for Lead Agencies to ascertain whether the 
rates established are realistic, thus providing the statutorily 
required access.
    Comment: A number of those opposing the survey requirement said it 
stifled State initiative in setting rates. For example, one commenter 
said that relying on frequent reports from resource and referral 
agencies or the State licensing bureau of provider shortages and making 
quick adjustments to rates to develop more capacity in effected areas 
would be a better, more responsive alternative to biennial surveys. 
Another commenter suggested using computer modeling in lieu of a 
survey.
    Response: A survey, in that it reflects market realities, is an 
essential and critical factor--but not the only factor--that must be 
considered when the Lead Agency establishes rates. It is because survey 
findings are so central to understanding and gauging what level of 
payment might provide equal access that we have made the requirement.
    However, we are concerned that commenters may have assumed 
restrictions we did not intend, and have not created, in requiring a 
survey. And, we caution Lead Agencies, providers, and others against 
narrowly interpreting our survey requirement. For example, as 
suggested, up-to-the-minute vacancy data from CCR&Rs or licensing 
bureaus could be used in conjunction with market rate survey 
information to make quick and frequent adjustments to the payments to 
providers. In setting or adjusting rates, we remind Lead Agencies of 
the general principle that Federal subsidy funds can not pay more for 
services than is charged to the general public for the same service.
    Computer modeling or simulation still needs to be based on some 
parameters reflective of market realities if it is to produce rates 
that provide equal access. Although many commenters who opposed the 
survey requirement seemed to imply that the realities of the market 
could be ignored in setting rates that provide equal access, no 
plausible alternatives to the survey were offered.
    Nevertheless, we will remain open to alternative methodologies to 
surveys and revisit this regulation in light of advancing technologies. 
At this time, however, we believe that a survey is an essential part of 
the ``facts'' upon which payment rates are established.
    Comment: A few commenters observed that surveys may not produce 
rates where there are few, if any, providers of certain care, such as 
in non-traditional hours.
    Response: As discussed above, the survey is not the only 
determinant of rates, it is just one of the many ``facts'' to be 
considered. Clearly, States have the flexibility to establish rates for 
care that is needed.
    Comment: One commenter suggested that a standard index, such as the 
rate of inflation, be used to adjust rates gathered two, three, or four 
years in the past in lieu of a biennial survey.
    Response: Use of a standard index alone, such as the Consumer Price 
Index (CPI) or other measures of inflation, is not an accurate 
indicator of actual provider charges in the child care market. The use 
of broad indices, such as the CPI could vastly underestimate changes in 
the child care market. For example, in a large urban area the demand 
for child care may drive up child care charges faster than the broad 
inflation indices would suggest. While States are free to use such 
adjustments in conjunction with surveys, especially in years when a 
survey is not conducted, they should be used with an understanding of 
their limitations.
    Comment: One commenter observed that the 75th percentile is a term 
held over from days of IV-A child care (and as such was repealed by 
PRWORA). Another called the 75th percentile an arbitrary limit with no 
basis in fact or statute.
    Response: We have used the 75th percentile as a reference point 
against which the Lead Agency can judge if its payment rates afford 
equal access. It must be presumed that a rate that provides access to 
at least three-quarters of all care does, in fact, provide equal 
access. We have not, however, required that payments be set at the 75th 
percentile, hence, it cannot be characterized as an arbitrary limit.
    It should be noted, for example, that Lead Agencies have greater 
flexibility under these regulations to recognize and compensate higher 
quality child care facilities and providers, including those that have 
obtained nationally or locally recognized accreditation or special 
credentials, than they had under the title IV-A regulations that 
limited payments to the 75th percentile.
    Comment: A number of commenters wanted it clarified in the preamble 
that Lead Agencies can pay rates higher than the 75th percentile.
    Response: Lead Agencies may pay rates higher than the 75th 
percentile as we have not established the 75th percentile as the 
payment standard or limit. Rather, rates established at the 75th 
percentile would be considered to ensure equal access, although such 
rates may be too low to purchase some child care services, for example, 
where there are acute shortages during non-traditional hours.
    Comment: Several commenters urged ACF to require that payment rates 
reflect variations for different categories of care.
    Response: When establishing rates, we expect that the Lead Agency 
will take into account survey results

[[Page 39960]]

showing variations in charges for different categories of care. But, 
because there may be other facts that the Lead Agency considers, we 
believe such a prescriptive requirement would contradict the intent of 
the statute.
    Comment: A number of commenters wanted us to clarify whether 
providers can charge amounts above the payment rates established by the 
Lead Agency; and if so, how this might deny equal access.
    Similarly, a few commenters wanted a clarification of how a 
combination of low payment rates and high copayments can limit or deny 
equal access.
    Response: A payment rate which provides for equal access does not 
necessarily provide access to every provider, irrespective of the 
provider's charge. There is no statutory basis for preventing a family 
from choosing a particular provider whose charges exceed the Lead 
Agency's payment rate. Nor is there an obligation on the part of the 
Lead Agency to pay an amount that is higher than the rate it determined 
is sufficient to provide equal access. In cases such as these, some 
States have created a contractual requirement that the provider will 
not charge the family the difference between its usual charge and the 
Lead Agency's rate. By offering the provider speedy, assured payments, 
the Lead Agency has been able to convince the providers to accept this 
stipulation.
    The statute requires that the payment rate alone must ``be 
sufficient to provide equal access.'' We separately discuss the 
question of copayments below.
    Comment: One commenter said that market rates should reflect 
current market conditions on a sub-state basis, rather than on a 
statewide basis.
    Response: We believe that surveys will reflect appreciable sub-
state variations in rates, if any, which the State must then consider 
in establishing its rates.
    Comment: One commenter wanted it clarified that children with 
disabilities would not be adversely affected by a Lead Agency's payment 
rates.
    Response: Payments for child care services for children with 
disabilities must also provide for equal access.
    3. Affordable copayments. The third essential element of equal 
access is that any copayment or fee paid by the parent is affordable 
for the family and sliding fee scales should not be designed in a way 
that limits parental choice. We wish to emphasize that Lead Agencies 
have flexibility in establishing their sliding fee scales. However, in 
our view, copayment scales that require a low-income family to pay no 
more than ten percent of its income for child care, no matter how many 
children are in care, will help ensure equal access.
    Recent reports by the Census Bureau indicate that families with 
income below the poverty level pay a disproportionate share of their 
income--18 percent--for child care; whereas families above the poverty 
level pay only seven percent of their income for child care. The size 
of the fee paid by a low-income working parent can be crucial in 
determining whether she and her family become, and remain, self-
sufficient. When devising the fee scale Lead Agencies should try to 
ensure that small wage increases do not trigger large increases in 
copayments, lest continuation on the path to self-sufficiency be 
jeopardized for any family. The size of a fee increase is an especially 
important consideration because recent changes in the Food Stamp, 
housing assistance, Medicaid, SSI, and the Earned Income Credit 
programs may also affect the resources now available to a low-income 
working family.
    Recent studies have shown that some child care providers are 
unwilling to accept children from families that receive subsidies for 
child care because the rates are too low. Faced with such a situation, 
a parent must seek care from a relative or other provider who perhaps 
accepts the child unwillingly and is unable to provide quality child 
care. Fifty-five percent of low-income parents use informal care 
arrangements, whereas only 21% of non-poor families do. The options to 
low-income families in selecting child care are limited to a higher 
degree by financial constraints than are the options for families with 
higher income. If, in addition to low rates, the family must pay a high 
fee from an already limited income, the family can hardly be said to be 
on the way to total self-support. And in such a situation, a family 
cannot be said to have equal access to child care. The limited access 
to providers for these low-income families also tends to promote 
unevenness of care, and this is an additional hazard to the child's 
development.
    There is a relatively low supply of child care for infants, for 
children with disabilities and for children of parents who work during 
non-traditional hours. For families in these categories, a combination 
of low payments and high fees can limit the choice to an even greater 
extent, because they encourage parents to choose less expensive and 
lower quality child care, or even not to accept the subsidy at all.
    Sliding fee scales must continue to be based on family size and 
income, as Sec. 98.42(b) has not changed. We note that this regulation 
provides Lead Agencies with the flexibility to take additional elements 
into consideration when designing their fee scales, such as the number 
of children in care. However, as was stated in the preamble to the 
regulations published on August 4, 1992, basing fees on the cost or 
category of care is not allowed (57 FR 34380). Similarly, multiple fee 
scales based on factors such as a family's eligibility status would be 
precluded.
    Comment: A number of States indicated that there is no statutory 
basis for limiting the fee to ten percent of a family's income, or that 
such a limit is unnecessarily prescriptive.
    Response: We would agree with the comments if the regulations, in 
fact, established a limit on copayments. They do not.
    Lead agencies have the flexibility to set the copayment. We have 
suggested, not required, that a family's fee be no more than ten 
percent of its income. This benchmark is offered as a reference point 
for Lead Agencies to consider when designing fee structures for 
affordable care.
    Comment: A few commenters felt that ten percent should be the upper 
limit charged as a fee or observed that any fee, however low, can be a 
deterrent to self-sufficiency to families below the poverty level. 
Others thought that the reference to a ten percent copay seemed to 
conflict with the Lead Agency's right to waive the fee.
    Response: As indicated above, the ten percent of family income is 
offered as a benchmark, not a limit on the Lead Agency.
    A family is required by the statute at section 658E(c)(5) to share 
in the cost of subsidized child care, unless the Lead Agency waives the 
fee pursuant to Sec. 98.42(c) and Sec. 98.20(a)(3)(ii). Those sections 
allow copayments to be waived for those whose income is at or below the 
poverty level and for children in protective services on a case-by-case 
basis. The State has flexibility in deciding the amount of the fee 
charged and whether to waive the fee.
    Comment: One State commented that a State should be allowed to 
categorically waive the fee if a family receives TANF.
    Response: The fee can be waived, at a State's option, only if a 
TANF family's income is at or below the poverty level. If TANF 
families' incomes are always at or below poverty, then the State can 
categorically waive the fee. In contrast, fees may be waived for child 
care in protective services cases only on a case-by-case basis.

[[Page 39961]]

    Comment: One commenter thought the preamble should define 
``affordable.''
    Response: As in 1992, we decline to establish a regulatory standard 
for ``affordability.'' However, as discussed above, we feel that a fee 
that is no more than 10 percent of a family's income would generally be 
considered to be an affordable copayment.
    We decided, again, not to prescribe a definition for ``affordable'' 
because we felt that any definition would unnecessarily undermine a 
Lead Agency's ability to establish service priorities, be 
administratively difficult to monitor and enforce, and preclude the 
variation that is inherent in the nature of block grants.
    Comment: Several commenters asked that the Lead Agency have the 
authority to categorically waive the fee for protective services and 
foster care, and not just on a case-by-case basis.
    Response: We do not believe that it is consistent with the intent 
of the statute to categorically waive the fee for protective services 
or foster care cases. However, we recognize that the nature of 
protective service cases can be different, and that in an individual 
case it might further the purpose of the statute to increase the 
availability of child care. Therefore, Sec. 98.20(a)(3)(ii) gives Lead 
Agencies the authority to waive income eligibility and fees for 
children in protective custody on a case-by-case basis, or after 
consultation with an appropriate protective services worker.
    As discussed in the preamble to the regulations published on August 
4, 1992, there is a basic distinction between protective services cases 
and foster care cases. However, as discussed in the preamble to 
Sec. 98.20 in the 1992 regulations, Lead Agencies have the flexibility 
to treat foster care cases as a family of one and thus effectively 
reduce or eliminate the fee in most foster care cases (57 FR 34369), 
but not categorically.
    Comment: Several commenters believed there is a contradiction 
between the ten percent benchmark and the regulation that gives Lead 
Agencies the flexibility to waive copayments on a case-by-case basis 
for families at or below the poverty level or for children in 
protective services.
    Response: These policies are not contradictory, nor are we implying 
that a fee of ten percent of a family's income is appropriate for every 
very low-income family, since such a fee might effectively prevent many 
low-income families from taking advantage of the child care subsidy. We 
view ten percent as the appropriate upper limit for co-payments; and as 
stipulated in the regulations, a Lead Agency can waive the co-payment 
for families at or below the poverty level (Sec. 98.42(c)), or for 
children in protective services (Sec. 98.20(a)(3)(ii)).
Priority for Child Care Services (Section 98.44)
    Although we proposed no changes to this section, we received a 
number of comments regarding serving children with disabilities which 
indicated a need to provide some clarification about priority for 
children with ``special needs.''
    As we stated in the 1992 preamble, for the purpose of prioritizing 
services, States have the flexibility to define children with ``special 
needs'' in the CCDF Plan. ``Special needs'' can mean groups other than 
children with physical or mental disabilities. States can and do 
prioritize services for children of teen parents, homeless children and 
other groups by providing definitions in the CCDF Plan. Refer to 57 FR 
34382 for a detailed discussion of the three contexts in which the term 
``special needs'' is used in these regulations.
List of Providers (Section 98.45)
    Any Lead Agency not having a registration process must maintain a 
list of the names and addresses of all unregulated providers. It is 
essential that Lead Agencies have some simple, standardized system to 
record the names and addresses of unlicensed providers in order to pay 
them and to provide them with pertinent information about health and 
safety regulations and training.
    The regulations no longer specifically require Lead Agencies to 
have a registration process for providers not licensed or regulated 
under State or local law before paying them for child care services. 
However, Lead Agencies should note that they may continue such a 
system, and we strongly encourage them to do so.
    Comment: A number of commenters opposed requiring States to 
maintain a list of providers and felt States should be given options.
    Response: We know that States have developed various processes for 
registering unregulated providers and that maintaining a list of these 
providers is essential to effectively managing their child care 
program. We do not expect States to set up a separate list if their 
current system provides the means to identify and communicate with 
unregulated providers.
    Comment: Other commenters wanted the regulation strengthened to 
require the State to make the list of providers available to all 
parents as a means of providing them with more possibilities for care.
    Response: Many unregulated providers are providing care for friends 
or relatives, and may not be providing child care services to the 
public. Some unregulated providers who are in the child care business, 
but exempt from State licensing, may want their names included on a 
list given to families. However, others may not. These are State and 
local government decisions. We will not regulate further regarding the 
list of providers.

Subpart F--Use of Block Grant Funds

Child Care Services (Section 98.50)
    The 70 percent requirement. Section 418(b)(2) of the PRWORA 
specifically requires the State to ensure that not less than 70 percent 
of the funds received by the State under this section of the statute 
are used to provide child care assistance to families who are receiving 
assistance under a State program under Part A of title IV of the Social 
Security Act, families who are attempting through work activities to 
transition off of such assistance program and families that are at risk 
of becoming dependent on such assistance program. By statute, the 70 
percent requirement applies only to the Mandatory and Matching Funds. 
Further, the amended statute at 658E(c)(2)(H) requires the State to 
demonstrate in its CCDF Plan the manner in which the State will meet 
the specific child care needs of these families. These statutory 
provisions are found in these regulations at Sec. 98.50(e) and (f).
    Comment: Several commenters noted that in the Plan provisions we 
ask the Lead Agency to ``describe'' how it will meet the child care 
needs of the families specified at Sec. 98.50(e), whereas at 
Sec. 98.50(f) we require the Lead Agency to ``specify'' how they will 
meet those needs.
    Response: We do not believe the terms are inconsistent. The statute 
asks that States ``demonstrate the manner in which the State will meet 
the specific child care needs'' of those families. We believe that a 
description would provide States the opportunity to present specific 
information which would demonstrate how they are serving this 
population.
    Serving other low-income working families. Section 658E(c)(3)(D) 
directs the State to ensure that a ``substantial portion'' of the 
amounts available (after a State has complied with the 70 percent 
requirement discussed above) is used to provide assistance to low-

[[Page 39962]]

income working families other than those who are receiving assistance, 
transitioning off assistance or at risk of becoming dependent on 
assistance under Part A of title IV of the Social Security Act. The 
amounts in question include the remaining Mandatory and Matching Funds 
(provided under Section 418) as well as the Discretionary Funds.
    Since the income level for eligible families is increased in the 
statute to 85 percent of the State median income, it is clear that 
Congress intended for child care assistance to be available to more 
low-income working families than were previously eligible. We believe, 
however, that families whose income is less than 85 percent of the 
State median income may well be at risk of becoming dependent on 
assistance. Thus the two populations overlap.
    The regulation at Sec. 98.50(e) provides the statutory description 
of the families who are to be served under the 70 percent provision. In 
addition Sec. 98.50(f) requires the State, pursuant to the statute, to 
describe in its Plan how the State will meet the needs of these 
families. We believe, based on our consultations, that the 
circumstances of low-income working families (whose income is below 85 
percent of the State median income) are generally no different than the 
families specifically mentioned in these regulations and thus would 
expect that they would be treated similarly. If a State elects to have 
a specific description of at-risk families, it could, for example, be 
included when defining very low income or in providing additional 
terminology related to conditions of eligibility or priority in the 
CCDF Plan.
    Comment: Some commenters related the ``substantial portion'' 
requirement to the 70% requirement and are concerned that there is very 
little funding for low-income working families.
    Response: As noted above, the 70% requirement applies only to the 
Mandatory and Matching Funds. States must then use a ``substantial 
portion'' of any remaining Mandatory and Matching funds as well as a 
``substantial portion'' of Discretionary funds to serve families whose 
incomes are below 85% of SMI.
    Comment: Several commenters noted that Sec. 98.50(d) was 
inconsistent with Sec. 98.52(a) in that it addressed funds that were 
awarded rather than expended.
    Response: We have corrected Sec. 98.50(d) to be consistent with our 
intent that the administrative costs be based on amounts expended. 
Refer to Administrative Costs (Sec. 98.52) for a more detailed 
discussion of this issue.
Activities to Improve the Quality of Child Care (Section 98.51)
    Not less than four percent. Section 658G of the CCDBG Act directs 
that a State that receives CCDF funds shall use not less than four 
percent of the amount of such funds for activities that are designed to 
provide comprehensive consumer education to parents and the public, 
activities to increase parental choice, and activities designed to 
improve the quality of child care and availability of child care (such 
as resource and referral services). We refer to this requirement 
collectively as ``Activities to Improve the Quality of Child Care.'' 
Section 98.51(a) provides that the not less than four percent 
requirement for quality applies to the aggregate amount of expenditures 
(i.e., Discretionary, Mandatory, and both the Federal and State share 
of Matching funds); it need not be applied individually to each of the 
component funds. Section 98.51(a) also provides that the four percent 
requirement applies to the funds expended, rather than the total of 
funds that are available but not used. Lead Agencies, however, have the 
flexibility to spend more than four percent on quality activities. 
Section 98.51(c) provides that the quality expenditure requirement does 
not apply to the maintenance-of-effort expenditures required by 
Sec. 98.53(c) in order to claim from the Matching Fund.
    The regulations at Sec. 98.51(a)(1) are based on the broad 
statutory language, while Sec. 98.51(a)(2) keeps, as examples, the 
options for specific activities formerly contained in the Act. Resource 
and referral programs, grants or loans to assist in meeting state and 
local standards, monitoring of compliance with licensing and regulatory 
requirements, training, and compensation are allowable quality 
activities under this minimum four percent requirement. We will 
continue to collect, in the Plan, descriptions of activities to improve 
the quality of child care services. We encourage Lead Agencies to 
evaluate the success of their efforts to improve quality and we will 
disseminate promising practices.
    Comment: Some commenters wanted us to remove from 
Sec. 98.51(a)(2)(i) the words ``operating directly'' as they felt that 
resource and referral can be done most effectively at the community 
level rather than by state government.
    Response: We agree that local resource and referral activities are 
important to child care services. However, by removing the words 
``operating directly,'' we would be reducing the options available to 
the State. Therefore we have retained the wording in the regulation in 
order to ensure State flexibility in delivering those services.
Administrative Costs (Section 98.52)
    Section 658E(c)(3)(C) of the amended Act limits the amount of funds 
available for the administrative costs of the CCDF program to ``not 
more than five percent of the aggregate amount of funds available to 
the State.'' Section 98.52(a) provides that the five percent limitation 
on administrative costs applies to the funds expended, rather than to 
the total of funds that are available but not granted or used. Thus, 
Lead Agencies may not use five percent of the total funds available to 
them for administrative costs unless they use all the available funds 
including Matching Funds.
    This provision also makes clear that the five percent limitation 
applies to the total Child Care and Development Fund. The five percent 
limitation need not be applied individually to each of the component 
funds--the Discretionary, Mandatory, and Matching (including the State 
share) Funds. We believe this flexibility will streamline the overall 
administration of the Fund. The limitation does not apply to the 
maintenance-of-effort expenditures required by Sec. 98.53(c) in order 
to claim from the Matching Fund.
    Section 98.52(a) lists administrative activities and is derived 
from the prior regulations as modified by the PRWORA amendments and the 
Conference Agreement (H.R. Rep. 104-725 at 411). While the statute does 
not define administrative costs, it does preclude ``the costs of 
providing direct services'' from any definition of administrative 
costs.
    The Conference Agreement specifies that the following activities 
``should not be considered administrative costs'':
    (1) Eligibility determination and redetermination;
    (2) Preparation and participation in judicial hearings;
    (3) Child care placement;
    (4) The recruitment, licensing, inspection, reviews and supervision 
of child care placements;
    (5) Rate setting;
    (6) Resource and referral services;
    (7) Training [of child care staff]; and
    (8) The establishment and maintenance of computerized child care 
information systems.
    The regulation's list of administrative activities at Sec. 98.52(a) 
omits the following three activities that were listed as administrative 
costs in the 1992 CCDBG rule: determining eligibility, establishing and 
operating a certificate program, and developing

[[Page 39963]]

systems. ``Establishing and operating a certificate program'' was not 
specifically listed by Congress as a non-administrative cost. However, 
we omitted this activity because the components of a certificate 
program would not be considered to be administrative costs under the 
Conference Agreement exclusions. For example, certificate programs must 
determine and redetermine eligibility, provide the public with 
information about the program, develop and maintain computer systems, 
place children, offer resource and referral services, etc.--all items 
which the Conference Agreement lists as not administrative costs. All 
costs, then, of these three activities: determining eligibility, 
establishing and operating a certificate program, and developing 
systems, are now considered non-administrative costs.
    While these regulations reflect the Conference Agreement language, 
we are nevertheless concerned that States will misinterpret the intent 
of the change and re-direct a disproportionate amount of expenditures 
on these redesignated activities rather than on direct services to 
children. We wish to emphasize that services to children is the purpose 
for which the CCDF was created. Therefore, we would not expect a large 
increase in costs to activities that are not direct services to 
children. We will closely monitor such expenditures to determine if 
States are overspending for such activities at the expense of services. 
As one method of monitoring, the required CCDF financial reporting 
form, the ACF-696, separately collects the amounts that are expended on 
determining eligibility, establishing and operating a certificate 
program, and developing systems. If we determine that there are 
problems, we reserve the right to re-visit the policy and regulate in 
the future.
    Lastly, we clarify in Sec. 98.52(c) that the non-Federal 
expenditures required of the State in order to meet its maintenance-of-
effort threshold for receiving matching funds are not subject to the 
five percent limitation on administrative costs. Nevertheless, audits 
of State reports of maintenance-of-effort expenditures should indicate 
that administrative expenditures included in those MOE amounts are 
reasonable, necessary for carrying out the services provided, and 
consistent with other provisions of law.
    Comment: Many commenters objected to applying the five percent 
administrative limitation to the amounts expended, rather than to the 
amounts allocated to the State, saying that administrative costs might 
be incurred in one year for expenditures that occur in another.
    Response: We have clarified Sec. 98.52(a) to reflect that the limit 
applies to the amounts expended from the total allocated, not to the 
amounts expended in a single fiscal year. We understand that it might 
be necessary to use more funds for administration during the initial 
start-up of an activity, or that the period when administrative costs 
are incurred may not coincide with when the funds are actually 
liquidated. And, the provision was not intended to limit Lead Agency 
flexibility in the short term.
    The choice of the word ``expend'' in the regulation, rather than 
``available'' as in the statute or ``allocated'' as in the comment, is 
meant to address only one situation. Section 98.52(a) is meant to 
ensure that when a State that does not expend--within the applicable 
timeframes provided for at Sec. 98.60--the full amounts allocated to 
it, the State does not receive a windfall in administrative cost 
allowances. For example, two States are each allocated a total of $100 
million in the CCDF. At the end of the expenditure periods, State A has 
spent $50 million while State B has expended all $100 million. It would 
be unfair to allow both States to receive $5 million in administrative 
allowances since State B's program (in terms of dollars expended) is 
twice the size of State A's.
    Comment: Some felt that the tone of this section was threatening. 
They objected to the suggestion of further regulations in this area if 
Lead Agency reports indicate disproportionate expenditures on the 
activities that had been redesignated as non-administrative costs, 
i.e., determining eligibility, establishing and operating a certificate 
program, and developing systems.
    Response: We did not intend to threaten Lead Agencies. The preamble 
discussion is intended to reflect our obligations to taxpayers for 
prudent management of the resources Congress has allotted for the 
purpose of providing child care services.
    Comment: One commenter observed that there was no definition of 
``implementation'' in Sec. 98.52(a)(1) and was concerned that some 
might make judgments about when implementation began or ended.
    Response: Implementation in this context refers to the ongoing 
conduct or execution of the program and does not imply a fixed period 
or a process with a beginning and/or ending date. It would be 
incorrect, for example, for an auditor to determine that implementation 
of an activity had ended.
    Comment: One commenter, noting that the regulations clearly provide 
that the 5% administrative cap did not apply to State MOE, stated that 
the preamble then clouded the issue by suggesting that ACF would 
monitor MOE reports in relation to administrative expenditures.
    Response: In the preamble to the proposed rule, we did not propose 
specifically to monitor MOE expenditures. Rather, we did express the 
expectation that audits of the CCDF program should indicate that 
administrative expenditures contained in MOE amounts would be 
reasonable, necessary for carrying out the services provided, and 
consistent with other provisions of law.
    Administrative costs for Tribes. We have specifically noted at 
Sec. 98.52(b) that the five percent cap on administrative costs does 
not apply to Tribes, and tribal organizations; it applies only to the 
entities defined as ``States.'' Tribes, however, are subject to the 
requirements at Sec. 98.83(g) regarding limits on administrative 
expenditures.
Matching Fund Requirements (Section 98.53)
    Terminology and general requirements. In this section we have used 
the phrase ``expenditures in the State'' to encompass not only local 
expenditures on child care but also private, donated funds that meet 
the requirements at Sec. 98.53(e)(2), as explained below. Whenever the 
term ``State funds,'' ``State expenditures'' or ``non-Federal 
expenditures'' is used it should be understood to include State, local 
or permissible private donated funds that meet these requirements and 
are expended for allowable child care purposes. And, the language of 
Sec. 98.53(e) reflects this.
    Section 418(a)(2)(C) of the Social Security Act creates a two-part 
matching requirement. First, a State must expend an amount that at 
least equals its allowable expenditures for the title IV-A child care 
programs during 1994 or 1995, whichever is greater. We refer to this 
amount as the ``maintenance-of-effort'' (MOE) threshold.
    Changes to PRWORA contained in P.L. 105-33 provide that for fiscal 
years 1998 and after, a State's expenditures in excess of its MOE 
threshold, up to a maximum determined by the statute, are matched at 
the applicable year's Federal medical assistance percentage (FMAP) 
rate. (For FY 1997, state expenditures were matched at the 1995 FMAP 
rate.) The total amount that can be matched rises each year and is 
equal to the sum appropriated for that year, less the amounts of the 
Mandatory Fund, the tribal allocation and the allocation for

[[Page 39964]]

technical assistance. The maximum to be matched for each State is its 
share of that total based upon the proportion of the State's children 
under age 13 to the national total of children under age 13, based on 
the best data available to the Secretary for the second preceding year.
    Section 98.53(c) lists the requirements that States must meet if 
they wish to claim Federal Matching Funds. In summary, this section 
requires that the State obligate all of its Mandatory Funds by the end 
of the fiscal year (FY) they are granted. Mandatory Funds need not be 
obligated before Matching Funds are claimed, provided that all 
Mandatory Funds will be obligated by the end of that FY. Second, they 
must expend State-only dollars in an amount that equals the State's MOE 
threshold described at Sec. 98.53(c)(1). And third, they must obligate 
the Federal and State share of the Matching Fund by the end of the FY.
    Comment: Some commenters thought that there was a point beyond 
which Matching funds would no longer be available to them and wanted us 
to clarify that as long as the State meets the statutory requirements 
that the Matching funds would be available throughout the fiscal year.
    Response: Matching funds are available throughout the fiscal year, 
and disbursements to the State are based on the ACF-696s submitted by 
the Lead Agency. Those non-Federal expenditures (exceeding the MOE 
threshold) for which the State wishes to claim monies from the Matching 
Fund must be obligated before the end of the fiscal year.
    State expenditures allowable for MOE and Federal Matching funds. 
State expenditures on any activity or service that meets the goals of 
the CCDBG Act and that is described in the approved CCDF Plan, if 
appropriate, may be used to meet the MOE requirement or may be claimed 
for Federal Matching funds (Sec. 98.53(b) and (c)(2)). For MOE, these 
regulations offer greater flexibility than we offered in our interim 
guidance provided in our Program Instruction, ACYF-PI-CC-96-17, dated 
October 30, 1996. However, as provided at Sec. 98.53(d), the same 
expenditure still may not be counted for both MOE and match purposes.
    Under these regulations, States will have flexibility to define 
child care services, so long as those services meet the requirements of 
the statute. For example, State expenditures for child care for those 
populations previously served by the title IV-A or CCDBG child care 
programs would be eligible for Federal match. Similarly, State 
investments in child care through the use of State funds to expand Head 
Start programs or to otherwise enhance the quality or comprehensiveness 
of full-day/full-year child care would also be eligible for Federal 
Matching funds since these activities meet the goals of the Act.
    Sections 98.53(e) and (f) contain additional qualifications on what 
constitutes an expenditure in the State for purposes of this Part. 
These qualifications are the same that generally apply to Federal 
programs that provide for matching State expenditures, with two 
important clarifications.
    First, Sec. 98.53(e)(1)(i) allows a public agency, other than the 
Lead Agency, to certify its expenditures as eligible for Federal match. 
This provision allows States, for example, to use pre-K expenditures to 
meet the MOE requirement (when the regulatory provisions for use of 
pre-K funds are met) and/or receive Federal Matching funds. The second 
clarification, at Sec. 98.53(f), concerns the treatment of private 
donated funds. It provides greater flexibility than previously offered 
as interim guidance under ACF Program Instruction, ACYF-PI-CC-96-17, 
dated October 30, 1996.
    Regarding the MOE requirements, the same State expenditure may be 
used to meet both the CCDF and TANF MOE requirements provided the 
expenditure meets the requirements of both programs. However, the 
amount of State CCDF MOE expenditures that may count for TANF MOE 
purposes is limited to the amount of the State's share of expenditures 
for the programs described at section 418(a)(1)(A) of the Social 
Security Act (i.e., the now repealed title IV-A child care programs) 
for FY 1994 or FY 1995, whichever is greater.) Section 
409(a)(7)(B)(iv)(IV) specifically provides that State expenditures used 
to meet the CCDF MOE requirement--and/or for which CCDF Matching funds 
were received--may be included in meeting the TANF MOE requirement up 
to the amount set at section 418(a). Any additional State expenditures 
for child care in excess of the amount of the CCDF MOE requirement, and 
for which CCDF Matching funds are not claimed, may also be counted in 
meeting the TANF MOE requirement when the expenditures meet the 
requirements of TANF.
    In addition, pursuant to section 409(a)(7)(B)(iv)(I) of PRWORA, 
State expenditures for child care may not be included as part of the 
State MOE for TANF if the funds originated with the Federal government. 
Hence, Federal funds transferred from TANF to the CCDF would not count 
towards the TANF MOE. Further, those funds could not be used to receive 
CCDF Matching funds under the general rule Federal funds may not be 
used as a match without statutory authority.
    Comment: Several commenters objected to the prohibition on using 
in-kind expenditures for State match, contending that this runs counter 
to the regulations for the pre-TANF title IV-A programs on which much 
of the CCDF funding is now based.
    Response: The pre-TANF title IV-A programs did not allow for the 
unlimited use of in-kind match as the comments suggest. Only a small 
part of the total JOBS funding (that part equal to the State's WIN or 
WIN Demonstration allotment for fiscal year 1987) could be matched with 
in-kind contributions. The match rate for these funds was 90%; meaning 
the State's share was only 10%. The Social Security Act, at section 
403(l)(1)(B), specifically provided for in-kind contributions in this 
limited instance only.
    There is no indication that Congress contemplated the use of in-
kind match, either in the CCDBG Act or the child care provisions in 
PRWORA. In fact, in specifying that the Secretary shall reimburse 
expenditures, the provision precludes the claiming of in-kind match.
    Comment: One commenter asked whether State expenditures for 
Kindergarten services could be counted in meeting the MOE requirement 
or claimed for match.
    Response: Compulsory State education services cannot be used to 
meet the MOE requirement or to claim matching funds. Non-compulsory 
services are subject to the limits at Sec. 98.53(h).
    Comment: One commenter asked for clarification of the relationship 
between child care expenditures used to meet the TANF MOE requirement 
and used to claim CCDF matching funds. The commenter observed that 
Section 409(a)(7)(B)(iv) of the Act precluded using the same State 
expenditure for claiming CCDF Matching funds and for meeting the TANF 
MOE requirement.
    Response: That section in the Act was amended by the Balanced 
Budget Act of 1997 to allow certain State expenditures to be used to 
claim CCDF Matching funds and be used to meet the TANF MOE requirement. 
We updated the above discussion to reflect those changes. Use of the 
same expenditure for both purposes is subject to certain qualifications 
discussed above.
    Use of a private agency to receive donated funds. Historically, 
private

[[Page 39965]]

donations to State-level programs have been very limited; locally 
controlled donations have been somewhat more prevalent. Frequently 
cited reasons for this lack of public support for seemingly worthwhile 
programs have included suspicion of government, in general, especially 
government outside the immediate community, coupled with regulations 
that appeared to limit the State's ability to assure the donor that the 
donated funds will be used in a specific area or for the donor's 
intended purpose.
    At a time when child care programs face increased demands, and 
State budgets face constraints, we have reexamined prior ACF policies 
on donated funds. We have tried to respond to the issues that we were 
told have inhibited private donations in the past by including in the 
definition of State expenditures donated funds that meet the 
qualifications at Sec. 98.53(e)(2), even though such funds are not 
under direct State control. The regulations at Sec. 98.53(f) provide 
that private donated funds need not be transferred to or under the 
administrative control of the Lead Agency to be eligible for Federal 
match. Instead they may be donated to the entity designated by the 
State to receive donated funds. Both the Lead Agency and the entity 
designated by the State to receive donated funds must, however, certify 
that the donated funds are available and eligible for Federal match. In 
addition to this dual certification requirement, we want to ensure Lead 
Agency accountability for funds that may not be under its direct 
control. Therefore, the fiscal reporting form, the ACF 696, requires 
that the Lead Agency separately report the amount of private donated 
funds it uses as match. And finally, Lead Agencies should be aware that 
private donated funds used as match are also subject to the audit 
requirements at Sec. 98.65.
    This rule will allow Lead Agencies to cooperate more closely with 
various organizations, foundations, and associations that already 
support high quality child care and related activities. It will also 
allow the Lead Agency to leverage private funds in order to serve more 
families, while working within State and Federal budget restrictions.
    We also take this opportunity to clarify the regulation at 
Sec. 98.53(e)(2)(i) which requires that private funds be donated 
without restriction on their use for a specified individual, 
organization, facility or institution. Under this clarification a donor 
could designate a specific geographic location for the receipt of 
funds. Such a geographic specification can be broad, such as within the 
limits of a specific city, or extremely narrow, such as a single 
neighborhood. Such geographic specification is possible whenever funds 
are donated, whether the funds are donated to the Lead Agency or to an 
entity specially designated to receive private donations.
    Lead Agencies will be asked to identify the entity that is 
designated to receive private donated funds and the purposes for which 
those donated funds are expended in their Plan, pursuant to 
Sec. 98.16(c)(2).
    Comment: Several commenters wanted us to limit the use of pre-K and 
or donated funds to only those States that had used such funding prior 
to FY 1997.
    Response: It is not clear why the commenters proposed such a 
limitation. The regulation is designed to give Lead Agencies additional 
flexibility in maximizing child care funding while ensuring ongoing 
commitments to existing programs. We see no benefit to limiting the use 
of pre-K or donated funds as suggested.
    Comment: The same commenters wanted us to require that States 
submit quarterly reports listing the entities receiving donated funds 
and the uses of those funds.
    Response: We have required that the Lead Agency identify in its 
Plan the single entity designated to receive donated funds and the 
allowable child care services for which the funds will be used. We 
believe that additional requirements, such as those proposed would be 
burdensome for the Lead Agency and serve no useful purpose in light of 
the policy that provides for a single entity to receive donated funds.
    Comment: Several commenters suggested that individual programs or 
providers would be accepting donated funds.
    Response: We want to clarify that the regulation provides for the 
designation of a single entity in each State to receive donated funds. 
We settled on this for a number of reasons. First, it would be 
burdensome for the Lead Agency to have to deal with hundreds of 
individual providers or programs all claiming to have receive donated 
funds which are allowable. Since the Lead Agency is ultimately 
responsible for the allowability of the donated funds we did not want 
to create such a burden on them. More importantly, we did not want to 
create a mechanism wherein individual programs, providers or 
jurisdictions might be forced to compete with each other for donated 
funds. Nor did we want to create a situation wherein the Lead Agency 
might tie the availability of certificates, grants or contracts to a 
jurisdiction, provider or program's ability to attract donated funds. 
We believe that allowing for the designation of only a single entity to 
receive donated funds, at least initially, is a reasonable policy 
choice.
    Claims for pre-K expenditures for MOE and match purposes. Many 
States fund pre-K programs for young children. These are important 
early childhood services that contribute to school readiness. 
Expenditures for State-funded public pre-K services to children from 
families who meet the CCDF eligibility criteria (as outlined in the 
Plan) may meet the requirements for allowable child care services 
expenditures for MOE and match purposes. The pre-K program must meet 
each of the following four conditions:
    <bullet> Attendance in the pre-K program must not be mandatory.
    <bullet> The pre-K program must meet applicable standards of State, 
local or tribal law.
    <bullet> The pre-K program must allow parental access.
    <bullet> The pre-K program must not be Federally funded (unless 
funded with ``exempt'' Federal funds for matching purposes), and its 
State funding may not be used as basis for claiming other Federal 
funding.
    In addition, pre-K expenditures claimed may be only for those 
families who are at or below 85 percent of the State median income 
(SMI) (or lower SMI established as the CCDF eligibility criterion by 
the Lead Agency) and who meet other State eligibility criteria.
    During our consultations we heard the full range of issues around 
allowing States to use their pre-K expenditures to meet the matching 
and MOE requirements of the CCDF. We came away from those consultations 
with some reservations about the use of pre-K expenditures, but we also 
came away with increased respect for the importance of these programs.
    A chief concern to working parents is that many pre-K services are 
only part-day and or part-year and such programs may not serve the 
family's real needs. Some have expressed concerns that an excessively 
broad approach to counting pre-K expenditures might result in a real 
reduction in full-day child care services to potentially eligible 
working families. The potential exists for a State with a sufficiently 
large pre-K program to divert all state funds away from other child 
care programs and fulfill its MOE and Matching requirements solely 
through pre-K expenditures. On the other hand, allowing pre-K 
expenditures to be counted toward MOE or match could provide a critical 
incentive for States to more closely link their pre-K and child care 
systems. This could

[[Page 39966]]

result in a coordinated system that would better meet the needs of 
working families for full-day/full-year services that prepare children 
to enter school ready to learn. We struggled with these issues and 
considered various alternative approaches to counting pre-K 
expenditures in the CCDF.
    In the end, we decided on a policy that attempts to balance 
concerns about the use of pre-K expenditures in meeting CCDF 
requirements. At Sec. 98.53(h)(3) and (4) we have addressed our 
concerns about balance by establishing a maximum amount of State 
expenditures for pre-K services that can be claimed for match or MOE. 
Expenditures for pre-K programs may constitute no more than 20% of the 
State's expenditures which are matched. Similarly, expenditures for 
pre-K programs may constitute no more than 20% of the State's 
expenditures counted in fulfilling the MOE requirement. However, if a 
State intends to fulfill more than 10% of either its MOE or matching 
requirements with pre-K expenditures, its CCDF Plan must reflect that 
intent. Additionally, if a State intends to fulfill more than 10% of 
either the MOE or matching requirement with pre-K expenditures, the 
CCDF Plan must describe how the State will coordinate its pre-K and 
child care services to expand the availability of child care. We 
established the 20% limits because they approximate the proportion of 
pre-school age children nationwide currently receiving services under 
the CCDBG. (This level also approximates the average monthly proportion 
of pre-school age children of JOBS participants who received child care 
assistance in the past.)
    States may count only those pre-K expenditures that meet the 
criteria as allowable child care services explained above (i.e., 
attendance is not mandatory, the program meets applicable standards, 
allows parental access, serves CCDF eligible families as provided in 
the Plan, etc.). The Lead Agency is required to separately report on 
the ACF-696 the amount of pre-K expenditures it claims as match or uses 
to meet the MOE requirement.
    In addition, for MOE purposes, Sec. 98.53(h)(1) provides that 
States cannot reduce their level of effort in full-day/full-year child 
care services if they use pre-K expenditures to meet the MOE 
requirement. And, States are required to provide an assurance of this, 
pursuant to Sec. 98.15(a)(6). This requirement reflects the fact that 
although the statute eliminated the non-supplantation requirement 
formerly found at section 658E(c)(2)(J) of the CCDBG Act, another non-
supplantation requirement was created by section 418(a)(2)(C) of the 
Social Security Act. That non-supplantation requirement--the MOE 
requirement--requires States to continue to spend at least the same 
amount on child care services that they spent on the repealed title IV-
A child care programs, in order to receive the new Matching Fund. Such 
a provision would be meaningless if States used MOE expenditures for 
services that were not responsive to the real child care needs of 
working families that the CCDF was intended to assist, i.e., the State 
``buys out'' with pre-K expenditures the full-day/full-year child care 
services it previously provided under title IV-A. In the interest of 
State flexibility we have not otherwise regulated on the types of 
services that may be counted in meeting the MOE requirement and, as 
discussed below, have eased the burden on the State in calculating the 
amount of pre-K expenditures that may be used to meet the MOE and 
matching requirements.
    In contrast, there is not a similar requirement if pre-K 
expenditures are claimed for match. Since the Matching Fund is ``new 
money'' it is not subject to the same requirements that expenditures 
used to meet a non-supplantation (MOE) requirement must meet. However, 
Secs. 98.16(q) and 98.53(h)(2) require that States describe in their 
CCDF Plan any efforts they will undertake to ensure that pre-K programs 
meet the needs of working parents if pre-K expenditures are claimed for 
match. Our different treatment of pre-K expenditures in the MOE and 
matching requirements, then, reflects a balance between the principles 
of non-supplantation and state flexibility.
    Furthermore, ACF will permit States to use a different method for 
calculating the amount of pre-K services claimed for both MOE and 
matching purposes than was required under the former title IV-A child 
care programs. Under the now repealed title IV-A child care programs, 
ACF required States wishing to claim Federal match for their pre-K 
expenditures to base their claim on the number of title IV-A-eligible 
(or potentially eligible) children who actually participated in the 
pre-K program. As many school districts did not have the information to 
identify whether pre-K participants were members of IV-A-eligible 
families, it was difficult for States to claim Federal matching funds 
for these programs. In fact, only a handful of States claimed Federal 
Match under title IV-A for their pre-K expenditures. In our 
consultations we were asked to loosen this child-by-child approach to 
counting pre-K expenditures.
    In the interest of easing administrative burdens on the Lead 
Agency, we have adopted the following policy toward calculating pre-K 
expenditures for purposes of claiming MOE and Matching funds. For pre-K 
expenditures to be claimed, States must ensure that children receiving 
pre-K services meet the eligibility requirements established in the 
CCDF Plan. In cases where States do not have child specific 
information, however, they must develop a sound methodology for 
estimating the percentage of children served in the pre-K program who 
are also CCDF-eligible. Expenditure claims must reflect these 
estimates.
    Although the methodology should be documented, we will not require 
that the methodology be submitted to ACF for prior review or approval. 
In documenting their methodology, Lead Agencies are reminded of the 
requirement at Sec. 98.67(c), which provides that fiscal control and 
accounting procedures must be sufficient to permit the tracing of funds 
to a level of expenditure adequate to establish that such funds have 
not been used in violation of the Act or regulations.
    Comment: Some commenters argued against any restriction on the 
amount of pre-K that could be used to satisfy the MOE requirement 
saying that States may lower or end investments in pre-K because of the 
limit. Others agreed with the 20% cap, while still others wanted a 
lower cap or the exclusion of pre-K from meeting the MOE requirement.
    Response: We anticipated these reactions and specifically requested 
comments on the pre-K limit in the proposed rule. However, none of the 
commenters who argued for unrestricted use of pre-K addressed our 
concerns about ``buying-out'' existing child care services with pre-K 
programs. The argument that a State may limit pre-K is not convincing 
since States usually fund pre-K for a variety of programmatic reasons--
not because it may be an allowable match for another program.
    This regulation still gives States more flexibility than in the 
past and opens new sources of match not heretofore available. 
Accordingly, as a matter of balance, we have retained a reasonable 
limit on using State pre-K expenditures to meet the MOE requirement.
    Comment: Some commenters objected to linking the use of pre-K to 
meet the MOE requirement with maintaining expenditures on full-day/
full-year child care services. They felt that the increase in TANF 
recipients accepting part-time employment will affect the need for full 
day/full year care.

[[Page 39967]]

    Response: We do not believe that true economic self-sufficiency is 
readily achievable through part-time employment. While part-time 
employment of families may have increased at the outset of TANF, the 
operation of time limits on those same families will require increased 
hours of employment just to maintain income levels when their TANF 
benefits cease. We believe, then, that it is prudent to retain this 
requirement at this time.
    Comment: A commenter asked if we intended to limit pre-K programs 
to families at or below 85% of the State's median income (SMI).
    Response: We did not intend to limit State's ability to provide 
pre-K to all families, regardless of their income. However, only 
expenditures for those services provided to families at or below 85% of 
the SMI (i.e., whatever limit the Lead Agency establishes as the 
eligibility criteria for CCDF-funded child care) may be counted in 
meeting the CCDF MOE requirement or to receive Matching funds. We have 
revised the discussion above to make this point more clearly.
    Family fees and the matching fund. Section 98.53(g)(2) clarifies 
that family contributions to the cost of care as required by Sec. 98.42 
are not considered eligible State expenditures under this subpart. This 
policy is based on the fact that family fees are not State 
expenditures.
Restrictions on Use of Funds (Section 98.54)
    Section 103(c) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA) repealed the three title IV-A child 
care programs--the AFDC child care program, the Transitional Child Care 
program and the At-Risk Child Care program. However, in appropriating 
new child care funds under section 418 of the Social Security Act, the 
PRWORA provides that these funds must be spent in accordance with the 
provisions of the Child Care and Development Block Grant Act as 
amended. This requirement is incorporated into Sec. 98.54(a). This 
section also provides that TANF funds that are transferred to the Lead 
Agency under the provision of the new section 404(d) of the Social 
Security Act are treated as Discretionary Funds for the purposes of 
Sec. 98.60.
    Other Federal funds expended for child care, unless transferred to 
the Lead Agency, are not required to be spent in accordance with the 
amended CCDBG Act. This means, for example, that child care provided 
with title XX funds or TANF funds that are not transferred to the Lead 
Agency might be subject to different requirements. However, ACF 
cautions States about the administrative and policy problems associated 
with operating a variety of Federally-funded child care programs, e.g., 
one program subject to CCDBG requirements and others not. The 
amendments to the CCDBG Act contained in the PRWORA are intended to 
create a single child care program with consistent standards and 
requirements and to counteract the fragmentation and conflicting 
requirements that had arisen under prior law.
    We have also added a new section at Sec. 98.54(b)(3) which 
clarifies the special provisions on use of funds for construction that 
apply to Tribes and tribal organizations under the PRWORA amendments.
    Comment: One commenter felt that allowing expenditures for minor 
remodeling for non-sectarian providers, while limiting such 
expenditures for sectarian providers to only those instances where 
remodeling was needed to meet health and safety requirements, would 
increase the workload of the Lead Agency, in that it will be necessary 
to track the nature of an organization requesting funds for minor 
remodeling.
    Response: We did not propose any change in this regulation which 
has been in effect since 1992. The regulation implements section 
658F(b) which does require that Lead Agencies distinguish between 
sectarian and non-sectarian providers in providing CCDF funds for minor 
remodeling. Nevertheless, we are unaware that this provision has been 
burdensome on Lead Agencies.

Subpart G--Financial Management

Availability of Funds (Section 98.60)
    Section 418 of the Social Security Act, which was added by PRWORA, 
requires that all Federal child care funds appropriated therein be 
spent in accordance with the provisions of the amended Child Care and 
Development Block Grant. In consolidating the Federal child care 
programs under a single set of eligibility requirements, Congress 
nevertheless instituted three funding sources. We have chosen to refer 
to the combined funding as the Child Care and Development Fund--CCDF. 
This term recognizes the different sources of Federal monies flowing 
into child care but the common purposes for which they may be expended.
    Section 418 of the Social Security Act appropriates Federal funds 
for the 50 States, the District of Columbia and Indian Tribes in the 
form of formula grants which we refer to as the Mandatory Fund. A 
specified amount of Federal funds is also made available under a 
different formula to the 50 States and the District of Columbia to 
match their allowable child care expenditures. We refer to this amount 
as the Matching Fund. Section 658B of the Child Care and Development 
Block Grant (CCDBG) Act authorizes funds to States, Tribes and 
Territories according to a third formula. We refer to the funds 
authorized under the CCDBG Act as Discretionary Funds. The formulas for 
allocating each of the Funds and requirements unique to each Fund are 
discussed at Secs. 98.61, 98.62 and 98.63.
    Both the Mandatory and Discretionary Funds are 100 percent Federal 
Funds--no match is required to use these Funds. Section 418(a)(2)(C) of 
the Social Security Act, however, makes the availability of Matching 
Funds contingent on a State's child care expenditures.
    We have deleted the regulation formerly at Sec. 98.60(g) concerning 
start-up planning costs associated with the initial implementation of 
the CCDBG and have redesignated the remaining regulations. All of the 
States began operating a CCDBG program in FY 1991, therefore the 
regulation at Sec. 98.60(g) is obsolete since the time frames for 
obligating and expending start-up funds have passed. We recognize that 
there still may be Tribes that wish to begin a CCDF program and for 
which the question of start-up funds still applies. Accordingly, we 
have addressed the availability of funds for planning purposes for new 
Tribal Lead Agencies at Sec. 98.83(h) in subpart I.
    We have also clarified the wording of Sec. 98.60(f) to indicate 
that 31 CFR part 205 applies only to State Lead Agencies.
    Obligation period/liquidation periods. The following table shows 
the obligation and liquidation periods for the various Funds and the 
maintenance-of-effort (MOE) requirements.

------------------------------------------------------------------------
                                                         AND, must be   
           These funds             Must be OBLIGATED   LIQUIDATED by the
                                   by the end of the      end of the    
------------------------------------------------------------------------
Discretionary...................  2nd FY............  3rd FY.           
Mandatory (State)...............  1st FY--only if     NA, no limit.     
                                   Matching is                          
                                   requested.                           
Mandatory (Tribes)..............  2nd FY............  3rd FY.           

[[Page 39968]]

                                                                        
Matching........................  1st FY............  2nd FY.           
MOE.............................  1st FY, and         NA, must be       
                                   expended in that    liquidated in 1st
                                   FY.                 FY.              
------------------------------------------------------------------------

    The PRWORA amended the CCDBG Act to require States and Territories 
to obligate their Discretionary allotments in the fiscal year in which 
they are received, or in the succeeding fiscal year. These amendments 
return the statutory language to its status before the Juvenile Justice 
and Delinquency Prevention Amendments of 1992 (Pub. L. 102-586). Since 
the final regulations which would have incorporated the changes from 
the Juvenile Justice and Delinquency Prevention Amendments of 1992 were 
never published, no change is needed in the regulatory language.
    The FY 1997 Health and Human Services appropriation (Pub. L. 104-
208) changed the date that the CCDF Discretionary Funds will become 
available from September 30 of the fiscal year in which the funds are 
appropriated to October 1 of the following fiscal year. As a result, 
when existing regulatory language is applied, States and Territories 
have two full fiscal years to obligate their CCDF Discretionary Funds, 
instead of the year and a day which resulted under earlier 
appropriations. States and Territories continue to have until the end 
of the third fiscal year to liquidate these funds.
    Section 418(b)(1) of the Social Security Act provides that the 
Mandatory Fund is available without fiscal year limitation. However, 
section 418(a)(2)(C) of the Social Security Act, which describes the 
conditions for receiving Matching Funds, indicates they are paid to a 
State for expenditures that exceed the State's Mandatory grant and MOE 
level, and are only available on an annual basis. Moreover, section 
418(a)(2)(D) of the Social Security Act requires that Matching Funds 
that are not used in the fiscal year be made available for 
redistribution in the following fiscal year. Therefore, a State wishing 
to claim Matching Funds must obligate its Mandatory Funds before the 
end of the fiscal year for which the Mandatory Funds are awarded. 
States not wishing to claim Federal Matching Funds have no obligation 
or liquidation deadline for their Mandatory Funds.
    Also, the amount of a State's MOE requirement must be obligated and 
liquidated before the end of the fiscal year for which Matching Funds 
are awarded. Non-Federal expenditures (exceeding the MOE threshold) for 
which the State wishes to claim monies from the Matching Fund must also 
be obligated before the end of the fiscal year for which they are 
awarded.
    The same obligation and liquidation periods that apply to the State 
Discretionary Funds apply to the tribal funds. While the FY 1997 
appropriation changed the date Discretionary Funds become available, 
under the revision Tribes will continue to have two full years to 
obligate the child care funds they receive. Further, under these 
regulations, Tribes will receive an additional year to liquidate these 
Funds. Retaining the previous regulations would have had the 
consequence of providing three full years to obligate and liquidate 
tribal child care grants.
    The amendments to the Discretionary Fund under PRWORA for the first 
time provide that tribal funds are subject to reallotment. The two-year 
approach to obligation will encourage Tribes to plan for the timely 
commitment of funds and, at the same time, make uncommitted funds 
available on a timely basis to those Tribes that are in need of 
additional child care monies.
    Section 98.60(d)(3) lists the obligation and liquidation periods 
for States that receive Matching Funds. In order to accommodate the 
redistribution required by section 418(a)(2)(D) of the Social Security 
Act, the regulation requires that Matching Funds must be obligated in 
the fiscal year in which they are granted and liquidated within two 
years.
    Returned Funds. As a result of the changes made by PRWORA and the 
change in the date of availability of the CCDF Discretionary Funds made 
by the FY 1997 HHS appropriation, Sec. 98.60(g) requires that funds 
returned to the Lead Agency after the end of the applicable obligation 
period must be returned to the Federal government. Under this 
provision, however, and as previous regulations permitted, funds 
returned during the obligation period may be re-obligated for 
activities specified in the Plan, provided they are obligated by the 
end of the obligation period. This provision was inadvertently deleted 
in the proposed rule but has been added back in the final rule at 
section 98.61(g)(1). The re-obligation of funds will not result in any 
extension of the obligation period.
    The 1992 regulations allowed States to follow State or local law or 
procedures regarding funds returned after the end of the obligation 
period. The provision was applicable only to what now are the 
Discretionary Funds part of the CCDF. It recognized that although 
section 685J(c) of the Act provided for a two-year obligation period 
for those funds, the Departments of Labor, Health and Human Services 
and Related Agencies Appropriations Act, 1991 (Pub. Law 101-517) 
provided that FY 1991 funds became available on September 7, 1991. The 
impact of that appropriation was that CCDBG funds (now called 
Discretionary Funds) were available for obligation only for barely over 
a year, instead of for two full years. The now-superseded provision 
regarding returned funds reflected ACF's desire that States not be put 
in the position of having to make premature decisions regarding 
obligations in a new program due to a truncated obligation period. 
Also, our reasoning for the former provision included the consideration 
that, even though the Act contained a reallotment provision for these 
funds, there appeared to be little likelihood that the States would 
return them for redistribution since they were 100 percent Federal 
funds.
    The FY 1992 HHS appropriation (Pub. Law 102-170) moved the 
availability of CCDBG funds to the last day of the fiscal year, and the 
CCDBG funds continued to be paid on the last day of the fiscal year in 
subsequent years, until the Departments of Labor, Health and Human 
Services and Related Agencies Appropriations Act, 1997 (Pub. Law 104-
208) again changed the date of the availability of these funds. The 
1997 appropriation provides that, starting with the FY 1998 
Discretionary Funds, Discretionary Funds will be made available on the 
first day of each fiscal year. The result of this change is that there 
now will be two full years to obligate Discretionary Funds.
    Further, the regulations at the former Sec. 98.60(h) would have 
been inappropriate to the new Mandatory and Matching Funds provided 
under PRWORA. The law, at section 418 of the Social Security Act, 
requires redistribution of the Matching Funds to other States, if the 
State to which they were granted does not use them in the fiscal year 
in which they are granted. Also, the Secretary must determine the 
amount of Matching Funds available for redistribution by the end of the 
first quarter of the fiscal year following the

[[Page 39969]]

year the grant was awarded. The law links use of Matching Funds to use 
of the Mandatory Funds--and, as provided in the regulations at 
Sec. 98.60, Mandatory Funds must be obligated in the year in which they 
are granted if a State requests Matching Funds. Unlike the 
Discretionary and Mandatory Funds, the Matching Funds are not 100 
percent Federal funds, and there seems to be a greater possibility that 
some of these funds would be returned for redistribution. Thus, the 
former returned funds regulations would not have been workable for 
these funds, and were changed.
    Comment: Although not addressed in the proposed regulations, many 
commenters objected to our policy of allocating Discretionary and 
Mandatory Funds on a quarterly basis, rather than as a single grant at 
the beginning of the fiscal year. They felt that such a policy should 
be applicable to matching grant programs only, not to entitlements to 
the States, such as the Discretionary and Mandatory Funds.
    Response: The Office of Management and Budget has determined that 
each of the individual CCDF funds are to be apportioned to the States 
quarterly. We note that other non-matching grant programs, such as 
title XX, are also subject to such quarterly apportionments.
    Comment: Some commenters suggested that we allow unlimited 
obligation and expenditure periods for Tribal Mandatory funds, citing 
the unlimited periods for State Mandatory funds (if the State does not 
use Matching funds).
    Response: We have kept the proposed obligation and liquidation time 
frames for Tribal Mandatory funds. Although there is a statutory 
exception for State Mandatory funds to the normal one-year obligation 
period (unless the State uses Matching funds), Tribal Mandatory funds 
are not analogous to State Mandatory funds and have no such statutory 
exception. Furthermore, in the past, a significant number of Tribes 
have returned funds to the Federal Treasury. Therefore, we believe that 
the required obligation/liquidation time frames are reasonable and 
necessary to ensure that funds are used in a timely manner.
    Comment: Several commenters wanted us to revise 
Sec. 98.60(d)(5)(ii) to allow Interagency agreements and or contracts 
between government entities at the same level to constitute 
obligations.
    Response: We had not proposed any change to this regulation which 
has been in effect since 1992. This issue is addressed in the preamble 
to the 1992 regulations at 57 FR 34395 and that discussion reflects our 
continued position.
    As a practical matter, funds that are transferred to another part 
of State government, either at the same level, or at a lower level, 
simply do not reflect the same real fiscal commitment of funds to the 
CCDF program as occurs when funds are transferred to a third party.
    Comment: One commenter observed that Sec. 98.60(d)(6)--regarding 
obligating funds using a certificate--is problematic because the amount 
of funds that may be actually used by the family cannot be known with 
certainty as the family may use fewer hours of care than was indicated 
on the certificate. The commenter wanted to eliminate the requirement 
to include the amount of funds on the certificate.
    Response: This provision is unchanged from the 1992 final rule and 
this situation was addressed in the preamble at 57 FR 34395. Without an 
amount it is unclear how the commenter would determine how much was 
obligated.
    Stating an amount on the certificate fulfills the obligation 
requirement, yet, as explained in the 1992 preamble, the Lead Agency 
can nevertheless make adjustments to reflect the actual use of funds, 
reobligating if within the obligation period, to ensure the liquidation 
of funds within the prescribed period.
    Comment: One commenter, understanding the necessity to recover 
fraudulently received payments, suggested that Sec. 98.60(i) reflect a 
minimum threshold under which recovery would not be necessary. For 
example, if the administrative expense of recovery exceeded the amount 
fraudulently received.
    Response: As we stated in the 1992 preamble at 57 FR 34397, any 
payments not made in accordance with the Act, regulation or approved 
State Plan may not be charged to the program and will be disallowed 
pursuant to Sec. 98.66. Should a State choose not to pursue fraudulent 
payments because to do so may not be cost-effective, the amount of that 
fraudulent payment may not be charged to the CCDF.
Allotments From the Discretionary Fund (Section 98.61)
    The allotment formulas for the Discretionary Fund are unchanged 
from the original formulas for the CCDBG and are discussed in the 1992 
preamble at 57 FR 34397.
    In response to an amendment to section 658P(14) of the CCDBG Act, 
we have added a provision allowing for Discretionary Fund grants to a 
Native Hawaiian Organization and to a private nonprofit organization 
established for the purpose of serving Indian or Native Hawaiian youth. 
This provision is discussed below.
    Data sources for tribal allotments. The CCDBG Act requires the 
Secretary to obtain the most recent data and information necessary, 
from each appropriate Federal agency, to determine State funding 
allotments. There is no similar statutory requirement for determining 
tribal allotments.
    In past years, ACF used two separate data sources to calculate 
tribal child counts: the Bureau of Indian Affairs' (BIA) Indian Service 
Population and Labor Force Estimates Report, published biennially, and 
the 1990 Census (for Alaska-specific data). These data sources are 
addressed in the CCDBG Final Rule (45 CFR 98 and 99, published August 
1992).
    In the proposed rule, ACF discussed a new self-certification 
process for tribal child counts used to calculate tribal allotments 
under the Child Care and Development Fund. This approach affords Tribes 
the opportunity to select a data source, or utilize a method for 
counting tribal children, which most accurately reflects its child 
population.
    In addition, the child count data will be available with minimal 
lag time and will more accurately reflect the natural fluctuations in 
child population. With data sources used and discussed in the 1992 
CCDBG Final Rule, it can take 2 to 3 years for changes in population 
(such as reaching a child population of 50) to be reflected.
    Finally, this approach supports the President's April 29, 1994, 
mandate to Federal agencies reaffirming the government-to-government 
relationship between Tribes and the Federal government and directing 
agencies to design solutions and tailor Federal programs, in 
appropriate circumstances, to address specific or unique needs of 
tribal communities.
    Beginning with funding available in FY 1998, ACF implemented a new 
self-certification method for tribal child counts. In the proposed 
rule, we stated that self-certified counts for FY 1998 would continue 
to include children under age 16, consistent with the age category in 
the BIA Report. Furthermore, we proposed that for funds available in FY 
1999, tribal child count declarations would include only children under 
age 13, in accordance with the CCDBG statute, thereby allowing a one-
year transitional period for Tribal Lead Agencies to plan for a self-
certified child count of children under age 13.

[[Page 39970]]

    We have slightly modified this approach in this regulation to 
continue to permit self-certification of tribal child counts to include 
children under age 16 for funds which become available in FY 1999. 
While we fully embrace self-certification of tribal child counts, based 
on the practical experience in implementing this approach for FY 1998 
tribal grant awards we believe that more time is necessary for some 
tribal grantees to plan for counting children under age 13.
    This additional time is particularly important since Tribes will no 
longer be able to use the data in the BIA Report, and there is no 
frequently published national data source which provides counts of 
children under age 13 for all current or potential CCDF tribal 
grantees. However, despite the extension of the transition period, we 
still plan to require self-certification of children under age 13 
beginning in FY 2000.
    Each year ACF will issue instructions for Tribes to follow in 
submitting their self-certified child counts. Each tribal grantee and 
each Tribe participating in a consortium will be required to submit a 
child count declaration signed by the governing body of the Tribe or an 
individual authorized to act on behalf of the applicant Tribe or 
organization.
    Grants to a Native Hawaiian organization and a private nonprofit 
organization serving Indian or Native Hawaiian youth. Section 658P(14) 
of the amended CCDBG Act adds the following second definition to the 
term ``tribal organization'' which are potentially eligible for 
Discretionary Funds:

    ``Other organizations--Such term includes a Native Hawaiian 
Organization, as defined in section 4009(4) of the Augustus F. 
Hawkins-Robert T. Stafford Elementary and Secondary School 
Improvement Amendments of 1988 and a private nonprofit organization 
established for the purpose of serving youth who are Indians or 
Native Hawaiians.''

    Section 4009(4) of the Augustus F. Hawkins-Robert T. Stafford 
Elementary and Secondary School Improvement Amendments of 1988 defines 
a Native Hawaiian Organization as:

    ``A private nonprofit organization that serves the interests of 
Native Hawaiians, and is recognized by the Governor of Hawaii for 
the purpose of planning, conducting, or administering programs (or 
parts of programs) for the benefit of Native Hawaiians.''

    No other changes were made in the Act with respect to Native 
Hawaiians or Native Hawaiian Organizations (NHOs) or private nonprofit 
organizations (PNOs) established for the purpose of serving youth who 
are Indians or Native Hawaiians; nor is the Conference Agreement 
instructive as to Congressional intent. However, given the statutory 
language, we provide at Sec. 98.61(e) that only a single NHO and a 
single PNO will be funded.
    Several options were considered for allocating funds in accordance 
with this expanded definition of tribal organization. We considered, 
for example, treating NHOs and PNOs in the same manner for allocation 
purposes as other tribal organizations (i.e., a base amount plus a per 
child amount, or only a per child amount).
    Based on an analysis of the statute, however, we believe the 
Congress intended for an NHO and a PNO to be treated differently from 
Indian Tribes and tribal organizations which are eligible to receive 
CCDF funding. CCDF funds are awarded on a formula basis to all eligible 
Tribes and consortia. However, only a single NHO and a single PNO are 
to be awarded grants. Determination of those entities requires a 
discretionary grant process rather than the formula basis used for 
Indian Tribes and tribal consortia.
    Eligible NHOs and PNOs, as well as the States, are reminded that 
under Sec. 98.80(d), Indian children continue to have dual eligibility 
to receive services funded by CCDF. Indian children and Native Hawaiian 
children will continue to be eligible for services provided under a 
grant awarded to a NHO or PNO and from the State of Hawaii (or other 
State in the case of a PNO awarded to a grantee not located in Hawaii).
    Therefore, through a grant award to a NHO and a PNO, additional 
child care services (from the Discretionary Fund) are available to 
children who are currently eligible to be served under a State CCDF 
program. A more detailed explanation of dual eligibility is provided in 
the Preamble at Subpart I.
    For these reasons, up to $2 million is reserved from the total 
amount reserved for Tribes under the Discretionary Fund for two grants 
each fiscal year. We believe that such an amount is substantial enough 
to meaningfully serve populations that may have been under-served in 
the past, without jeopardizing existing tribal programs.
Allotments From the Mandatory Fund (Section 98.62)
    Section 418(a) of the Social Security Act creates a capped 
entitlement for the 50 States and the District of Columbia. The amounts 
allotted to each State and the District are based on the Federal share 
of expenditures for child care under prior programs under title IV-A of 
the Social Security Act (i.e., the AFDC/JOBS, Transitional and At-Risk 
Child Care programs) in FY 1994, FY 1995, or the average of FY 1992-
1994, whichever is greatest. Before funds are allocated to the 
individual States, one-quarter of one percent of the total is reserved 
for the provision of technical assistance and up to two percent is 
reserved for grants to Tribes.
    For Indian Tribes and tribal organizations we have chosen to 
allocate Mandatory Funds solely according to the number of Indian 
children in each Tribe's service area. That is, unlike the 
Discretionary Fund, there is no base amount provided to Tribes under 
the Mandatory Fund.
    We chose this approach in response to tribal arguments for 
increased funding for direct services. We agree that tribal child care 
programs would especially benefit from additional service funds, and we 
did not wish to divert any new funds into non-service activities. 
Tribes have the flexibility to expend their base amount on 
administration or direct services, including quality activities. 
However, we are concerned that many large consortia already receive 
substantial sums of base amount monies. According to the program 
reports from those consortia, it appears that these large base amounts 
often do not translate into direct child care services for tribal 
children. We do not believe that tribal children would benefit from 
augmenting the existing base amount in lieu of direct child care 
services.
    Lastly, we listed the 13 entities in Alaska that are eligible to 
receive Mandatory Funds pursuant to the amended section 419(4)(B) of 
the Social Security Act. We listed those eligible entities in this 
section of the regulation rather than have two different definitions of 
Tribes at Sec. 98.2.
Allotments From the Matching Fund (Section 98.63)
    As provided in the statute, allotments to each of the 50 States and 
the District of Columbia are based on the formula used to distribute 
funds under the now-repealed At-Risk child care program. The Matching 
Fund consists of the amount remaining from a fiscal year's 
appropriation under section 418(a)(3) of the Social Security Act after 
reserving amounts for technical assistance and for Tribes and awarding 
Mandatory Funds.
Reallotment and Redistribution of Funds (Section 98.64)
    The provisions for reallotment and redistribution of Discretionary 
funds remain essentially unchanged from the 1992 regulations. The 
reallotment/redistribution process is described at 57 FR 34401, August 
4, 1992. However, the

[[Page 39971]]

OMB-approved form ACF-696 now asks the State to indicate if it wants 
any Discretionary Funds that might be reallotted. Discretionary Funds 
will be reallotted only to those States that request them. Therefore, 
the provision formerly at Sec. 98.64(b)(2)(iv) that returned to the 
Federal government any reallotted funds that a State ``does not 
accept'' is deleted as unnecessary.
    Section 418(a)(2)(D) of the Social Security Act, which was amended 
after the proposed rule was published in July 1997, now provides for 
the redistribution of Federal Matching Funds which are allotted to a 
State, but not used. This new provision is now added to the regulations 
at Sec. 98.64(c)(2). We have adopted the statutory term 
``redistribute'' when discussing the Matching Fund in the regulation. 
However, we believe that the term is comparable to the ``reallotment'' 
of the Discretionary Funds and have therefore adopted a comparable 
process. For example, at Sec. 98.64(c)(3) we have applied the language 
from the reallotment process at Sec. 98.64(b)(2) to describe the same 
limits on the amounts of unobligated Matching grants that will be 
redistributed to other States that currently apply to the Discretionary 
Fund. That is, no redistribution will be made to States if the total to 
be redistributed is less than $25,000. Nor will any grant be made to an 
individual State if it would be less than $500. As provided in the 
statute, redistribution of the Matching Funds will be based on a 
formula similar to that used for the original allotments to the 50 
States and the District of Columbia.
    Section 98.64(c)(1) provides that Matching Funds allotted to a 
State, but not obligated by the end of that fiscal year, be 
redistributed to the other States which did obligate all of the 
Matching Funds allocated to them. Unused Matching Funds, then, would be 
made available only to those States which demonstrated their ability to 
use the entire amount already granted to them. According to the 
statute, such States must request the redistributed funds; the Funds 
will not automatically be redistributed to all qualifying States. We 
considered redistributing unused Matching Funds among each of the 50 
States and the District of Columbia, including the States that returned 
the money being reallotted. We rejected that approach since it raised 
the possibility that States which were unable to use all of their funds 
in one year would again be unable to use them in the following year. 
This would result in funds reverting to the Federal Treasury rather 
than being used to assist families.
    Sections 98.64(c)(3) and (4) provide that States use the regular 
financial reporting form, ACF-696, instead of a separate notification 
from the State. These provisions allow for a simplified process by 
which States can both notify us of any unobligated Matching Funds 
available for redistribution and request redistributed Matching Funds.
    Section 98.64(c)(6) reflects the statutory language that 
redistributed Matching Funds are to be considered as part of the grant 
for the fiscal year in which the redistribution occurs, not as a part 
of the grant for the year in which the funds were first awarded. This 
is in contrast to reallotment of Discretionary Funds; for Discretionary 
Funds the obligation period is based on the award year and is not 
extended.
    An amendment to section 658O of the Act provides for the 
reallotment of tribal Discretionary Funds. That amendment, at 
658O(e)(4), requires the Secretary to reallot any portion of a tribal 
grant that she determines ``is not being used in a manner consistent 
with the provision of [the Act].''
    Although the statutory language seems to suggest that the Secretary 
may make a determination which is separate and apart from the usual 
audit practice on the manner of use of funds by Tribes, there is no 
discussion in the Conference Agreement to indicate such an 
interpretation. Furthermore, we believe that Congress would have been 
more explicit if it desired the Secretary to create a separate audit or 
investigatory process. Therefore, Sec. 98.64(d) provides for a 
reallotment process that parallels the State process. That is, we will 
determine the amounts to be reallotted based upon reports submitted by 
the Tribes, pursuant to paragraph (d)(1) of this section. Each Tribe 
must submit a report to the Secretary indicating either the amount of 
funds from the previous year's grant it will be unable to obligate 
timely pursuant to Sec. 98.64(d), or that it will obligate all funds in 
a timely manner. The reports must be submitted each year by a deadline 
established by the Secretary. Unless notified otherwise, this deadline 
will be April 1, and the reports may be in the form of a letter. We 
chose the April 1st deadline to allow the Secretary the necessary time 
to reallot the funds and to allow Tribes the necessary time to obligate 
such funds on a timely basis. While the proposed rule included the 
April 1 deadline in the regulatory language itself, we decided in the 
final regulation to leave flexibility to accommodate any changes that 
might be necessary as we implement the reallotment procedures.
    We will reallot funds that Tribes indicate are available for 
reallotment to the other Tribes, in proportion to their original 
allotment, if the total amount available for reallotment is $25,000 or 
more. If the total amount is less than $25,000, we will not reallot 
these funds; instead, they will revert to the Federal Treasury. It is 
administratively impractical for the Department to issue small awards. 
Likewise, the Secretary will not award any reallotted funds to a Tribe 
if its individual grant award is less than $500, as it is 
administratively impractical to do so.
    If a Tribe does not submit a reallotment report by the deadline for 
report submittal, we will determine that the Lead Agency does not have 
any funds available for purposes of the reallotment. If a report is 
postmarked after the deadline established by the Secretary (April 1, 
unless notified otherwise), we will not reallot the amount of funds 
reported to be available for reallotment; instead, such funds will 
revert to the Federal Treasury. As previously discussed, late reports 
do not allow the Secretary sufficient time to reallot the funds nor do 
they allow the Tribes sufficient time to obligate such funds timely as 
required by Sec. 98.64(d). We anticipate the Secretary will reallot 
funds made available for reallotment within a month of the deadline for 
receipt of reallotment reports. Reallotted funds must meet the same 
programmatic and financial requirements as funds made available to 
Tribes in their initial allotments.
    The statute, and hence the regulations, remain unchanged regarding 
the reallotment of Discretionary Funds to the Territories. That is, 
there is no reallotment of Territorial Discretionary Funds.
    Comment: A number of commenters questioned why the regulation did 
not specifically reflect the statute regarding the timing of the 
determination and redistribution of returned Matching funds.
    Response: Section 418(a)(2)(D) of the Social Security Act provides 
that the Secretary shall make a determination ``not later than the end 
of the first quarter of the subsequent fiscal year'' whether Matching 
funds are available for redistribution. And, that any redistribution 
``shall be made as close as practicable to the date'' on which that 
determination is made.
    Because this is a requirement on the Secretary, we did not believe 
it is necessary to include it in the regulation. We will follow the 
timeframes provided for in the Act.
    Comment: One commenter suggested that the obligation and 
liquidation periods for reallotted Matching Funds should start from the 
time the funds are

[[Page 39972]]

reallotted, not at the beginning of the fiscal year in which the 
reallotment takes place.
    Response: The requirement is statutory and the statute does not 
provide for extending the program period of reallotted Matching Funds.
    Comment: Another commenter asked how States will know that Matching 
funds are available for redistribution, and noted that the regulation 
fails to state when a request for redistributed Matching funds is to be 
made by the State.
    Response: We did not want to create a cumbersome, time-consuming 
process for redistributing Matching funds. Therefore, we did not 
propose the separate step of notifying States of the availability of 
redistributed funds. Rather, the required quarterly ACF-696 referred to 
in the regulation asks if the State wishes to request redistributed 
Matching funds, should any become available. This request is to be 
completed in the quarter preceding the final quarter in a fiscal year, 
as described in the instructions to the ACF-696 published as Program 
Instruction ACYF-CC-PI-05, dated September 26, 1997. We believe that 
this process will best expedite the redistribution of Matching Funds, 
should any become available. This process should also allow us to meet 
the time requirements in the Act on redistribution, thereby maximizing 
the amount of time that remains in the fiscal year for the State to 
obligate the redistributed Matching funds.
    Comment: One commenter suggested that instead of redistributing 
returned State Discretionary funds to other States, those funds should 
be reallotted to the Tribes in the State that returns them.
    Response: As discussed in the preamble to the 1992 rule at 57 FR 
34401, Tribes are not eligible to receive State funds made available 
for reallotment.
    Comment: Several commenters objected to the proposed dollar 
thresholds required for reallotment to Tribes. In the proposed rule, we 
used the same thresholds for Tribes as for States--$25,000 for the 
total amount available for reallotment and $500 for an individual grant 
award. Commenters argued that the thresholds for Tribes should be 
lower, given the smaller size of tribal grant awards.
    Response: Based on these comments, we considered lowering the 
dollar threshold for Tribes in the final regulation. However, after 
discussing the administrative burden of small grants with ACF fiscal 
staff we decided to keep the $25,000 and $500 thresholds because it is 
administratively impractical for the Department to issue and track 
grant awards for smaller amounts.
Audits and Financial Reporting (Section 98.65)
    Commenters were almost universally opposed to our proposed 
regulatory interpretation of the amended section 658K of the Act. They 
pointed out that our interpretation of ``an entity that is independent 
of the State'' was inconsistent with section 7501(a)(8) of the Single 
Audit Act Amendments of 1996. That section defines an independent 
auditor as an ``external State or local government auditor who meets 
the independence standards included in generally accepted government 
auditing standards.'' We have, therefore, amended the regulation to 
reflect that State auditors who meet the generally accepted auditing 
standards issued by the Comptroller General, including public 
accountants who meet such independence standards, may perform the 
required audits. We also corrected certain references, such as 
replacing the reference to OMB Circular A-128 with a reference to OMB 
Circular A-133, which was issued to replace A-128 after our proposed 
rule was published.

Subpart H--Program Reporting Requirements

Reporting Requirements (Section 98.70)
    Section 658K(a) of the amended Act requires each State receiving 
Child Care and Development Fund funding to submit two reports: monthly 
case-level data for families (reported quarterly) and annual aggregate 
data. Territories are considered States for reporting purposes. The 
first annual aggregate report was required to be submitted by December 
31, 1997, and annually thereafter.
    Comment: Several commenters requested a delay in the submission of 
the first case record report (ACF-801) due to the changes made by the 
technical amendments to the law. They also requested that States be 
allowed to submit data monthly rather than quarterly.
    Response: ACF recognizes these requests as justifiable. Therefore, 
as indicated at Sec. 98.70, we extended the due date for the first 
quarterly submission (ACF-801) from February 15, 1998 to August 30, 
1998. We also allow States to submit data monthly rather than 
quarterly. If they choose to submit data monthly, the first reported 
month, April 1998, is due 90 days later by July 30, 1998, with 
following reports every 30 days thereafter.
    Section 658L of the Act requires the Secretary to prepare a report 
to Congress every two years summarizing the data and information 
required at section 658K of the Act and Sec. 98.71 of the regulation.
    Section 658O(c)(2)(C) of the Act specifies that Tribes will report 
on programs and activities under CCDF. We require Tribes to submit 
annual aggregate data appropriate to tribal programs as they have 
previously in the CCDBG program.
    Principles for data reporting. The amended Act significantly 
revised the reporting requirements for all child care services. As a 
result, ACF developed principles to guide the implementation of 
reporting requirements. ACF, in concert with the Lead Agencies, will:
    1. Meet the statutory mandate for data reporting;
    2. Streamline data collection and reporting procedures from the 
previous four programs into a single integrated program;
    3. Build on data collection systems from the former four child care 
programs;
    4. Apply flexibility in phasing in the implementation of the data 
collection requirements;
    5. Apply flexibility in meeting data needs outside the Federal 
requirements;
    6. Provide technical assistance to Lead Agencies in the design of 
new or revised data collection systems and reporting processes, 
encouraging linkages to TANF information systems and to other relevant 
Federal reporting systems;
    7. Provide sampling specifications to Lead Agencies as part of the 
data collection process;
    8. Provide technical assistance to Lead Agencies in the design and 
use of data for the development of program performance measures; and
    9. Commit to making the data useful for Lead Agencies.
Content of the Reports (Section 98.71)
    For States and territories. Consistent with the requirements of 
section 658K of the amended Act, we require States to collect monthly 
samples of case-level family data which are reported to ACF quarterly, 
or monthly if the State chooses to do so. To provide for adequate time 
for the approval process for sampling plans, we require at 
Sec. 98.70(a)(3) that States submit their sampling plan to ACF for 
approval 60 days prior to the submission of the first report. States 
are not precluded from submitting case-level data for the entire 
population of families served under the

[[Page 39973]]

CCDF. Specific aggregate information is required in the annual report.
    Cost of Care. Although the statute requires that cost of care 
information be provided in both the case-level and aggregate reports 
(658K(a)(1)(B)(ix) and 658K(a)(2)(B)), we will collect this information 
through the case-level report only and we will compile the information 
into the aggregate. This will eliminate duplicative reporting for the 
annual aggregate report.
    Section 658K(a)(2)(C) requires that the number of payments made 
through various methods by types of providers be reported annually. 
Most States pay providers monthly; a few pay more frequently. If the 
statutory language is narrowly interpreted, States would be required to 
report as many as 12-24 payments or more for each subsidized child 
throughout the year. Because this information would be of limited 
value, we are regulating at Sec. 98.71(b)(2) that the Lead Agency's 
report reflect the number of children served by payment method and 
primary type of provider during the final month of the report period 
only (or for the last month of service for those children leaving the 
program before the end of the report period). Changes in payment method 
or primary provider type over the report period should be ignored and 
only the last arrangement reported.
    Comment: Several commenters requested that ACF include information 
about child care provider auspice or sponsorship in the reporting 
requirements, noting that the definitions section of these regulations 
(Sec. 98.2) refers to the type of provider as non-profit, sectarian, 
and relative providers and that the statute uses the word ``types''.
    Response: Section 658K of the CCDBG Act as amended by the PRWORA 
specifically designates the child care data items which Congress 
mandated. In Section 658K(a)(1)(B)(vii), the statute states that 
quarterly case-level data should be collected on the ``type of child 
care in which the child was enrolled (such as family child care, home 
care, or center-based care).'' Additionally, Section 658K(a)(2)(A) of 
the amended statute requires Lead Agencies to report aggregate 
information about the number of child care providers that received 
funding ``as separately identified based on the types of providers 
listed in section 658P(5).'' Section 658P(5) specifically mentions 
center-based, group home, family child care, and relative care.
    Although these statutory references seem to conflict with the term 
``types of providers'' listed in Sec. 98.2 of the rule, ACF has decided 
that it is not inherently inconsistent to use a different statutory 
definition for reporting purposes. Congress entertained much discussion 
around reporting requirements. Their strong need for specific child 
care data can be inferred from their resolve to include specific 
reporting elements in the statute. Additionally, even though recent 
technical amendments slightly revised the reporting requirements, no 
specific direction was given in the technical amendments to collect 
information based on sponsorship.
    During the time reporting procedures have been under development, 
ACF has consulted with program administrators and system/information 
management specialists at the State level, as well as the American 
Public Welfare Association and the National Association of Child Care 
Resource and Referral Agencies. We have learned that most State 
information systems are built on payment systems, rather than provider 
identification systems, such as licensing programs might maintain. 
Requiring the collection of auspice or sponsorship information would 
represent a significant information collection burden for States which 
is not specifically authorized by the statute.
    Program sponsorship is a difficult element to collect. However, we 
do recognize the interest of some organizations to learn about 
different sponsoring agents and toward that end we will include 
sponsorship as an optional data reporting element when these are 
developed in the future.
    Comment: Several commenters requested that ACF not collect Social 
Security Number (SSN) as a case identifier. One commenter in particular 
argued that the collection of Social Security numbers may have a 
chilling effect on immigrant families wishing to apply for child care 
services.
    Response: ACF is requiring the collection of SSN as a case 
identifier because it is necessary for gathering the aggregate data 
needed for research tied to TANF, employment and other child-related 
programs. Legal immigrants who work are entitled to receive child care 
subsidies. Therefore, requesting them to provide SSN is not a 
deterrent. Illegal immigrants are prevented from working by law and 
would not need subsidized child care.
    Comment: A commenter objected to the collection of average hours of 
care per month and suggested that we allow States that collect the data 
weekly to be able to report weekly averages.
    Response: The technical amendments to the law require the change in 
reporting the hours of care from weekly to monthly. Uniform reporting 
requirements dictate that data be reported by all States in the same 
manner to avoid confusion in data analysis. Therefore, all States 
should report monthly hours. States that collect the data weekly should 
transform the data into monthly data. We will provide technical 
assistance in how to perform this calculation.
    Comment: Several commenters objected to the collection of ``reasons 
for care'' item because it is not in the law and puts an additional 
burden on the States.
    Response: The ``Reason for Care'' data element has previously been 
collected in the old CCDBG and JOBS/AFDC child care programs and the 
collection of this data does not represent a new burden for the States. 
ACF will continue to collect ``reasons for care,'' i.e. working, 
training/education, or protective services because it best informs 
State and Federal planning and policy efforts. In addition, since the 
State has the option of not requiring income data for children in 
protective services, these cases need to be identified to determine if 
the missing data is appropriate. We will provide technical assistance 
to States experiencing difficulties with this data element.
    Comment: One commenter recommended using the Census Bureau 
standards for reporting race.
    Response: We have changed our race definitions to comply with the 
new OMB guidelines (Federal Register of 10/30/97) for Census Bureau 
reporting of race. Under these new guidelines, we will divide the child 
race element into two questions:

Child Ethnicity
    1. Hispanic or Latino
    2. Not Hispanic or Latino

      and

Child Race
    1. American Indian or Alaska Native
    2. Asian
    3. Black or African American
    4. Native Hawaiian or Other Pacific Islander
    5. White

On the second question, respondents will be allowed to report more than 
one category.
    Information concerning child care disregards is required by the 
statute at 658K(a)(2)(C); however, disregards, if used, would be 
provided under the TANF programs, not child care programs. As a result, 
information on the use of the disregard will be collected through TANF 
reporting procedures, since TANF agencies can collect this information 
more reliably.
    Comment: One commenter was concerned that child care disregard 
information would not be collected by

[[Page 39974]]

TANF since it is not required by statute. They also were concerned that 
some States may elect to spend a lot of TANF funds on child care 
without transferring the funds to CCDF.
    Response: We have coordinated data collection efforts with the TANF 
program. The proposed TANF regulations require information about the 
child care disregard, as well as child care information for families 
that receive child care through TANF funding.
    Comment: Several commenters requested that ACF collect some 
additional items that are not required by the statute but are important 
for understanding the program and improvement of program management. 
The suggested elements included items such as disability status and 
number of weeks of care each month.
    Response: Requiring the collection of such items is important, but 
represents a significant increase in the reporting burden on the 
States. ACF has decided against adding these items as required elements 
to avoid requiring an additional burden on the States. However, because 
we recognize the importance of such items, we will consider these and 
other important items, as we develop optional data reporting elements, 
with input from the States, in the future.
    To have a complete picture of child care services in the States, 
quarterly case-level data and annual aggregate information will be 
collected on all funds of the Child Care and Development Fund, 
including Discretionary Funds (which include any funds transferred from 
the TANF Block Grant), Mandatory Funds, and Federal and State Matching 
Funds, as well as funds used for Maintenance-of-Effort (MOE). For 
States that choose to pool CCDF funds with non-CCDF funds (e.g. title 
XX, or State or local funds not part of the CCDF MOE or Match) we will 
allow reporting and/or sampling on all children served by the pooled 
funds, but will require States to indicate percentages of CCDF and non-
CCDF funds in the pool of funds. Detailed instructions on how to 
construct sampling frames for States with pooled funds will be included 
in the sampling specifications developed by ACF. Technical assistance 
will be provided to States regarding collecting data across funding 
streams.
    Additionally, States have indicated a desire to compare data which 
are not a part of the mandatory reporting requirements. To meet this 
need and to make the available child care data more useful to State 
planning efforts, the Department will collaborate with States regarding 
a set of standardized optional data elements. The reporting of these 
data elements will not be required of any grantee.
    We have provided additional information to Lead Agencies concerning 
specific reporting requirements, approved data definitions, reporting 
formats, sampling specifications for the quarterly case-level report, 
and the submission process in ACYF-PI-CC-97-08, dated November 25, 1997 
and in ACYF-PI-CC-98-01, dated January 25, 1998. In this final rule, 
for ease of reference, we conformed the regulatory language at 
Secs. 98.71(a)(1), (6), (7), and (10) to mirror the data collection 
elements of the ACF-801, Child Care Quarterly Case Record (OMB Number 
0970-0167).
    For Tribes. Tribes are neither required to submit the aggregate 
annual report nor the new case-level quarterly report as States are. 
Instead, Tribes will continue annually to submit the ACF-700 which is 
currently in use. They will include information on all children served 
under the Discretionary and Tribal Mandatory funds. As of fiscal year 
2000, Tribes will no longer be required to submit the second page of 
the ACF-700 (fiscal programmatic data for CCDBG funds). Fiscal 
information for Tribes will be collected on a separate tribal financial 
reporting form.

Subpart I--Indian Tribes

    This Part addresses requirements and procedures for Indian Tribes 
and tribal organizations applying for or receiving CCDF funds. In light 
of unique tribal circumstances, Subpart I balances flexibility for 
Tribes with the need to ensure accountability and quality child care 
for children.
    Subpart I specifies the extent to which general regulatory 
requirements apply to Tribes. In accordance with Sec. 98.80(a), a Tribe 
shall be subject to all regulatory requirements in Parts 98 and 99, 
unless otherwise indicated. Subpart I lists general regulatory 
requirements that apply to Tribes. It also identifies requirements that 
do not apply to Tribes.
    Most programmatic issues that apply to Tribes are consolidated in 
Subpart I. However, financial management issues that apply to Tribes, 
including the allotment formulas and underlying data sources, are 
addressed separately in Subpart G--Financial Management.
    Tribes have the option to consolidate their CCDF funds under a plan 
authorized by the Indian Employment, Training and Related Services 
Demonstration Act of 1992 (Pub.L. 102-477). This law permits tribal 
governments to integrate a number of their federally funded employment, 
training, and related services programs into a single, coordinated 
comprehensive program.
    Senate Committee Report language for that Act prohibits the 
creation of new regulations for tribal programs operating under the 
102-477 initiative (S. Rep. No. 188, 102 Cong. 2d Sess. (1992)), 
therefore ACF is not promulgating any additional regulations for the 
Indian Employment, Training and Related Services application and plan 
process. ACF does publish annual program instructions providing 
directions for Tribes wishing to consolidate CCDF funds under an Indian 
Employment, Training and Related Services plan. The Department of the 
Interior has lead responsibility for administration of P.L. 102-477 
programs.
General Procedures and Requirements (Section 98.80)
    Demonstrations from Consortia. The regulation at Sec. 98.80(c)(1) 
provides that a consortium must adequately demonstrate that each 
participating Tribe authorizes the consortium to receive CCDF funds on 
its behalf. This demonstration is required once every two years through 
the two-year tribal CCDF Plan. It is the responsibility of each 
consortium to inform ACF, through an amendment to its Plan, of any 
changes in membership during the Plan period.
    Consortia can demonstrate members' agreement to participate in a 
number of ways. A resolution is acceptable. We will also accept an 
agreement signed by the tribal leader or evidence that a tribal leader 
participated in a vote adopting a consortium agreement.
    Comment: Several commenters recommended a one-time or ``standing'' 
resolution from each consortium member which will remain in effect 
until rescinded.
    Response: The purpose of the demonstration is to show that the 
member has authorized the consortium to act on its behalf. We have not 
changed this requirement because it is a measure designed to provide 
accountability to the individual members. We recognize the challenges 
of obtaining demonstrations, particularly in rural areas in Alaska due 
to seasonal work activities, but as a standing requirement Tribes 
should now be aware in advance that it will be needed and we will 
remind grantees about the demonstration requirement well before the 
Plan due date.
    Special requirements for Alaska Native grantees. By statute 
(section 419 of the Social Security Act), only specified Alaska Native 
entities may

[[Page 39975]]

receive Tribal Mandatory Funds. The Metlakatla Indian Community of the 
Annette Islands Reserve and the 12 Alaska Native Regional Nonprofit 
Corporations are eligible to receive Tribal Mandatory Funds. The law 
provides that Discretionary Funds, however, will continue to be 
available to all the eligible Alaska Native entities that could apply 
under old CCDBG rules.
    For purposes of Discretionary funding, Alaska Native Regional 
Nonprofit Corporations, which are eligible to apply on behalf of their 
constituent villages, will need to demonstrate agreement from each 
constituent village.
    In the absence of such demonstration of agreement from a 
constituent village, the Corporation will not receive the per-child 
amount or the base amount associated with that village. This changes 
the policy stated in the preamble to the final rule issued August 4, 
1992 (57 FR 34406). The former policy permitted Alaska Native Regional 
Nonprofit Corporations to receive the per-child amount (but not the 
base amount) for a constituent village in the absence of a demonstrated 
agreement from the village that the Corporation was applying for 
funding on its behalf. Since all other tribal consortia are required to 
demonstrate agreement from their member Tribes in order to receive 
Discretionary funding, this change makes the funding requirements 
consistent for all consortia grantees.
    For purposes of Tribal Mandatory Funds, since the statute 
specifically cited the 12 Alaska Native Regional Nonprofit Corporations 
as eligible entities, demonstrations are not required by member 
villages for these entities to be funded.
    Since the law provides that only designated Alaska Native entities 
may receive the Tribal Mandatory Funds, there is a difference between 
which Alaska Native entities can be direct grantees for the two tribal 
parts of the CCDF. Our analysis indicates, however, that each of the 
Alaska tribal entities that are eligible to receive Discretionary Funds 
is served by one of the 12 Alaska Native Regional Nonprofit 
Corporations that by law can be direct grantees for the Tribal 
Mandatory Funds. In instances where there are different Alaska Native 
grantees for the two parts of the fund, we strongly encourage grantees 
to work together to ensure a coordinated tribal child care system in 
Alaska.
    Dual eligibility. Under Sec. 98.80(d), Indian children continue to 
have dual eligibility to receive child care services funded by CCDF. 
Section 6580(c)(5) of the Act mandates that, for child care services 
funded by CCDF, the eligibility of Indian children for a tribal program 
does not affect their eligibility for a State program. To receive 
services under a program, the child must still meet the other specific 
eligibility criteria of that program.
    This provision was in the original Act, and it was not affected by 
the recent PRWORA amendments. Regulations at Sec. 98.20(b)(1) continue 
to provide that Lead Agencies may establish eligibility requirements, 
in addition to Federal eligibility requirements, so long as they do not 
``discriminate against children on the basis of race, national origin, 
ethnic background, sex, religious affiliation, or disability.'' As a 
result, States cannot have a blanket policy of refusing to provide 
child care services to Indian children.
    At the same time, tribal CCDF programs are a valuable source of 
child care for Indian children, including children whose families 
receive TANF assistance. In particular, a Tribe that operates its own 
TANF or work program (or both) will have an important role in promoting 
self-sufficiency for its low-income families, including the provision 
of adequate child care. However, Indian children have dual eligibility 
for CCDF child care services regardless of whether a Tribe operates its 
own TANF or work program. Therefore, we encourage States and Tribes to 
work closely together in planning for child care services. Coordination 
of child care resources will be needed to meet the child care needs of 
eligible Indian families.
    Eligibility. Under Sec. 98.80(f), Tribal Lead Agencies continue to 
have the option of using either the State's median income or the tribal 
median income in determining eligibility for services. In determining 
eligibility for services pursuant to Sec. 98.20(a)(2), a tribal program 
may use either: (1) up to 85 percent of the State median income for a 
family of the same size; or (2) up to 85 percent of the median income 
for a family of the same size residing in the area served by the tribal 
grantee.
Application and Plan Procedures (Section 98.81)
    Section 98.81 contains application and Plan requirements for Tribes 
and tribal consortia. In accordance with Sec. 98.81(a), Tribes must 
apply for funds pursuant to Sec. 98.13, except that the requirement at 
Sec. 98.13(b)(2) does not apply.
    A Tribal Lead Agency must submit a CCDF Plan, as described at 
Sec. 98.16, with the additions and exceptions described in 
Sec. 98.81(b).
    Section 98.81(b)(2) requires definitions of ``Indian child'' and 
``Indian reservation or tribal service area'' for purposes of 
determining eligibility.
    Section 98.81(b)(4) requires information necessary for determining 
the number of children for fund allocation purposes and grant 
eligibility requirements (i.e., the requirement that a Tribe must have 
at least 50 children under 13 years of age in order to directly apply 
for funding). The preamble discussion to Subpart G summarizes the data 
sources used to determine tribal allotments.
    Other changes in Plan provisions are more fully discussed in 
related sections under Subpart I.
    Comment: In the proposed rule we had included a new requirement 
that Tribes include a tribal resolution or similar demonstration which 
identifies the Tribal Lead Agency. A tribal leader responded to the 
proposed new requirement by stating that since he signs the Plan 
materials, a resolution identifying the Tribal Lead Agency should not 
be required.
    Response: We understand that some tribal grantees may be required 
to include a resolution accompanying their Plan in order to comply with 
their own tribal regulations and/or procedures. However, as the 
commenter pointed out, since a grantee must identify the Tribal Lead 
Agency in its Plan, a resolution is not necessary. We agree with this 
comment and have eliminated this proposed requirement in the final 
rule.
    Comment: Commenters asked if the financial reporting form could 
serve as the CCDF application for Tribes.
    Response: Although the financial form ACF-696 and the CCDF Plan 
will serve as the application for States and territories, at this time 
Tribes are required to report financial information on the SF-269 form 
and do not use the ACF-696. ACF is developing a CCDF financial form 
specifically for Tribes. When this form is finalized it, along with the 
CCDF plan, will serve as the application for Tribes. However, since 
this form has not yet been developed, for years when the CCDF biennial 
Plan is due, the Plan itself will serve as the application. However, in 
non-Plan years, ACF will issue a Program Instruction which describes 
basic information that must be provided on an annual basis, including 
the self-certified child count, to apply for funds.
Coordination (Section 98.82)
    Tribal Lead Agencies must meet the coordination requirements at 
Secs. 98.12 and 98.14 and the planning requirements at Sec. 98.14--
including the

[[Page 39976]]

public hearing requirement at Sec. 98.14(c). A Tribe must distribute 
notice of the hearing throughout its service area (rather than 
statewide).
    Prior to the publication of new regulations, Tribal Lead Agencies 
were not required to coordinate with agencies responsible for health 
education, employment services or workforce development, and the State 
or tribal TANF agency, specified at Sec. 98.14(a)(1). Although it was 
not a specific requirement in the Plan, during the pre-regulatory 
period ACF encouraged Tribal Lead Agencies to coordinate with these 
agencies.
    We recognize that the agencies with which each Tribal Lead Agency 
coordinates may differ according to its own unique circumstances. We 
also recognize that child care is an essential part of a Tribe's self-
sufficiency and workforce development efforts. In addition, the quality 
of child care benefits greatly from close coordination with the public 
health and education communities.
    Therefore, in recognition of these important program linkages, in 
the final regulation Tribal Lead Agencies are required to meet the 
requirements at Sec. 98.14(a)(1) to coordinate CCDF activities with 
tribal agencies responsible for health education, employment services 
or workforce development, and a Tribe's TANF agency, if the Tribe is 
administering its own TANF program.
    Comment: A few commenters indicated that they were not operating 
their own TANF programs and inquired whether there was a specific 
mandate for coordination with State TANF agencies.
    Response: Tribal Lead Agencies which are not administering their 
own TANF programs are not required, but are strongly encouraged to 
coordinate their program activities with the State TANF agency.
Requirements for Tribal Programs (Section 98.83)
    In recognition of the unique social and economic circumstances of 
many tribal communities, Tribal Lead Agencies are exempt from a number 
of the CCDF requirements which apply to State Lead Agencies.
    Administrative costs. Based on input from several tribal 
organizations and tribal representatives, and as proposed, we are 
providing greater flexibility for Tribal Lead Agencies by exempting 
them from the five percent administrative cost cap at Sec. 98.52(a). 
Therefore, instead of enforcing the statutory five percent State 
administrative cost limit, a 15 percent administrative limit for Tribal 
Lead Agencies was recommended by several tribal organizations during 
the course of our pre-drafting consultations to account for the varying 
infrastructural capabilities of many Indian Tribes. Tribal Lead 
Agencies may not expend more than 15 percent of the aggregate CCDF 
funds for administrative activities (including amounts used for 
construction and renovation in accordance with section Sec. 98.84, but 
not including the base amount provided under section Sec. 98.83(e)).
    Section 98.52(a) provides a list of administrative activities which 
are subject to the 15 percent cost limitation. The preamble discussion 
of Sec. 98.52(a) provides an additional discussion of related 
activities which are not considered administrative activities for 
purposes of the 15 percent cost cap.
    Through the list of activities which are not considered 
administrative costs, the exemption from the five percent State 
administrative cost cap, and the base amount under the Discretionary 
Fund, we believe Tribal Lead Agencies will have sufficient flexibility 
in determining their administrative and/or indirect costs to run 
effective CCDF programs.
    We recognize that many Federal programs permit Indian Tribes and 
tribal organizations to include an indirect costs rate in their grant 
awards. Indirect costs are administrative costs that cannot be easily 
charged to a specific program. Among other things, these generally 
include: the cost of accounting services, personnel services, and 
general administration of the organization. Since the cost of these 
items cannot be easily assigned to a program that a grantee is 
operating, the indirect cost rate is applied to the grantee's direct 
costs to determine the amount the grantee will be able to recover from 
the program for the grantee's total indirect costs.
    An indirect cost rate is arrived at through negotiation between an 
Indian Tribe or tribal organization and the appropriate Federal agency. 
Agreements vary from Tribe to Tribe. For example, some agreements may 
apply the indirect cost rate to salaries and wages only; others may 
apply the indirect cost rate to salaries, wages, and fringe benefits 
only.
    Indirect costs, as determined by an indirect cost agreement or cost 
allocation plan pursuant to Sec. 98.55, are identified at 
Sec. 98.52(a)(6) as an allowable administrative expense for tribal 
grantees. Tribal Lead Agencies are reminded that regardless of their 
negotiated indirect cost rates, administrative costs may not exceed the 
15 percent cost limitation at Sec. 98.83(g).
    Comment: A few commenters stated that a 15 percent administrative 
cost limit was too restrictive.
    Response: The 15 percent limit is designed to provide Tribes 
greater flexibility than States which must meet a five percent 
administrative cost limit which was mandated by statute. The preamble 
discussion of Sec. 98.52(a) provides an additional discussion of 
related activities which are not considered administrative activities 
for purposes of the 15 percent cost cap. Through these additional 
activities, the exemption from the five percent State administrative 
cost cap, and the base amount under the Discretionary Fund, we believe 
Tribal Lead Agencies will have sufficient flexibility in determining 
their administrative and/or indirect costs to run effective CCDF 
programs.
    Comment: Several commenters requested that we adopt the following 
percentages: 63.75 for direct child care services; and 36.25 for child 
care services, activities to improve the availability and quality of 
child care, and/or administrative costs.
    Response: Prior to the passage of PRWORA, the 63.75/36.25 
percentages applied to exempt Tribal Lead Agencies. While this policy 
previously applied only to exempt Tribes, following the passage of 
PRWORA we extended it to apply to all Tribes during an interim period 
since the law was silent on administrative costs for Tribes. In a 
September 19, 1996 letter inviting Tribes to apply for Tribal Mandatory 
Funds and in ACF Program Instructions ACYF-PI-CC-97-03 and ACYF-PI-CC-
97-04 we clearly indicated that this was an interim policy and that we 
intended to regulate on this issue. For the reasons given in this 
preamble, we have not retained the policy.
    Comment: We received a comment asking why the administrative cost 
limit for Tribes at proposed Sec. 98.83(g) applied to CCDF funds that 
were ``provided'' while the administrative cost limit for States at 
Sec. 98.52 applied to CCDF funds that were ``expended''.
    Response: We revised the administrative cost limit for Tribes at 
Sec. 98.83(g) from the language in the proposed rule to more closely 
parallel the administrative cost limit for States at Sec. 98.52. The 
revised Sec. 98.83(g) requires that not more than 15 percent of the 
aggregate CCDF funds expended by the Tribal Lead Agency from each 
fiscal year's allotment (including amounts used for construction and 
renovation in accordance with Sec. 98.84, but not including the base 
amount provided under Sec. 98.83(e)) shall be expended for

[[Page 39977]]

administrative costs. We are using ``expended'' rather than 
``provided'' to prevent a Tribal Lead Agency that does not expend its 
full allocation from receiving a windfall in administrative cost 
allowances. The revised language also clarifies that the administrative 
cost limit applies to the amounts expended from the total allocated, 
not to the amounts expended in a single fiscal year.
    Exempt Tribes. We realize that many smaller tribal grantees do not 
have the infrastructure in place to support certain requirements. As a 
result, we are exempting Lead Agencies of smaller Tribes and tribal 
organizations (with total CCDF allocations less than an amount 
established by the Secretary) from certain requirements specified at 
Sec. 98.83(f). Exempt tribal grantees are not required to comply with 
the four percent quality requirement at Sec. 98.51(a) or to run a 
certificate program. Non-exempt tribal grantees are required to comply 
with these requirements.
    The dollar threshold for determining which Tribes are exempt is 
established by the Secretary. Until Tribes are notified otherwise, the 
threshold is set at $500,000. In other words, Tribal Lead Agencies with 
total CCDF allocations less than $500,000 in a fiscal year will be 
considered exempt (any unobligated or unliquidated funds from prior 
fiscal years are not included in determining exempt/non-exempt status). 
Tribal Lead Agencies with allocations equal to or greater than $500,000 
are non-exempt.
    In the proposed rule, we proposed that the threshold would be set 
to include as non-exempt all Tribes which were non-exempt prior to 
PRWORA. However, due to increased appropriations, this approach would 
have greatly increased the number of non-exempt Tribes. As an 
alternative, we have chosen a reasonable dollar threshold ($500,000) 
that, while more than the dollar amount that was mentioned in the 
proposed rule ($460,000), would still move some Tribes to a non-exempt 
category.
    The increased number of non-exempt Tribes reflects the increased 
child care funding provided directly to Tribes under PRWORA. Since the 
exemption was originally intended to recognize the difficulty of 
meeting all requirements with a small grant amount, we believe it is 
reasonable for a Tribe with a grant of $500,000 or higher to meet the 
four percent quality and certificate program requirements.
    Comment: We received comments requesting the elimination of the 
exempt/non-exempt distinction. These commenters encouraged us to 
provide Tribal Lead Agencies with increased flexibility by making all 
Tribes exempt.
    Response: We are keeping the exempt/non-exempt distinction since we 
believe grantees with large grant allocations should be subject to the 
four percent minimum quality and certificate program requirements. 
While we appreciate the need for Lead Agency flexibility, the need for 
quality child care and parental choice for Indian children is 
paramount.
    Particularly given the increased allocation of funds for child care 
programs under the CCDF, we believe it is vitally important that the 
tribal grantees with larger grants establish or maintain certificate 
programs so that the families they serve may select from a range of 
providers: center-based; group home; family child care; in-home or 
other providers. Many of the larger tribal grantees already operate 
certificate programs. Likewise, the four percent minimum quality 
provision will help to ensure that Tribal Lead Agencies make the 
necessary investments for quality. We believe the Tribal Lead Agencies 
with larger grants can play a leadership role in providing parental 
choice and providing quality care.
    Furthermore, in FY 1998, a few States received CCDF grant awards 
which were smaller than the largest tribal grant award. These State 
Lead Agencies, regardless of size, must comply with all the CCDF 
requirements including the four percent minimum quality provision and 
the requirement to run a certificate program. As a result, we believe 
it is appropriate to require Tribes with larger grants to meet these 
requirements.
    Comment: One commenter requested clarification on funding amounts 
required for quality activities.
    Response: While we strongly encourage exempt Tribal Lead Agencies 
to expend CCDF funds on quality activities, they are not required to 
meet this provision. For non-exempt Tribal Lead Agencies subject to the 
quality expenditure requirement at Sec. 98.51(a), not less than four 
percent of the ``aggregate funds expended'' by the Lead Agency shall be 
expended for quality activities. For purposes of this requirement, the 
``aggregate funds expended'' by the Tribal Lead Agency includes amounts 
used for construction and renovation in accordance with Sec. 98.84 but 
does not include the base amount provided under Sec. 98.83(e).
    Comment: Several commenters recommended that Tribes should not be 
subject to Sec. 98.43(b)(2) which requires a market rate survey as one 
of the three elements in determining equal access. The commenters 
stated that more flexible methodologies should be permitted for tribal 
grantees. For example, one commenter's Tribe currently establishes 
payment rates based on their State's market rate survey because their 
tribal service area is included in this market rate survey.
    Response: In the final regulation, we have not exempted Tribal Lead 
Agencies from the requirement at Sec. 98.43(b)(2) that their payment 
rates be based on a market rate survey. However, a Tribal Lead Agency 
may base its payment rates on the State's market rate survey rather 
than conducting its own survey if their service area is included in the 
State's survey. As noted at Sec. 98.16(l), Tribal Lead Agencies must 
adequately describe the method used to ensure equal access.
    While we are providing more flexibility for Tribal Lead Agencies 
regarding market rate surveys, we strongly encourage tribal CCDF 
grantees to survey their local providers in order to establish a 
payment rate which is an accurate reflection of the child care market 
on their reservation or tribal service area.
    70 percent requirement. Section 418(b)(2) of the Social Security 
Act provides that States ensure that not less than 70 percent of the 
total amount of the State Mandatory and Matching funds received in a 
fiscal year be used to provide child care assistance to families 
receiving assistance under a State program under Part A of title IV of 
the Social Security Act, families who are attempting through work 
activities to transition from such assistance, and families at risk of 
becoming dependent on such assistance. The provision at section 
418(b)(2) does not apply to Tribal Lead Agencies. Nonetheless, Tribes 
have a responsibility to ensure that their child care services provide 
a balance in meeting the needs of families listed in section 418(b)(2) 
and the child care needs of the working poor.
    Since Tribes may apply for both Tribal Mandatory Funds and 
Discretionary Funds, they are receiving increased CCDF grant awards--
compared to amounts received prior to PRWORA--to provide direct child 
care services. Also, as we pointed out in our discussion on dual 
eligibility of tribal children, Tribes now have the option under title 
IV of the Social Security Act to operate their own TANF programs. 
Additionally, Tribes that operated a tribal Job Opportunities and Basic 
Skills Training (JOBS) program in 1994 may choose to continue a tribal 
work program. Whatever the mixture of child care, TANF, and work 
services a Tribe chooses to administer, child care services should be 
designed to ensure that all eligible families receive a fair

[[Page 39978]]

share of services within the tribal service area.
    Base amount. A base amount is included in tribal grant awards under 
the Discretionary Fund. As referenced at Sec. 98.83(e), the base amount 
of any tribal grant is not subject to the administrative costs 
limitation at Sec. 98.83(g) or the quality expenditure requirement at 
Sec. 98.51(a).
    The base amount for each tribal grant may be used for any activity 
consistent with the purposes of the CCDF, including the administrative 
costs of implementing a child care program. For examples of 
administrative costs, refer to Sec. 98.52(a).
    Lead agency. Tribal grantees, like States, must designate a Lead 
Agency to administer the CCDF. If a tribal grantee applies for both 
Tribal Mandatory Funds and Discretionary funds, the programs must be 
integrated and administered by the same Lead Agency.
    Consortia. If a Tribe participating in a consortium arrangement 
elects to receive only part of the CCDF (e.g., Discretionary Funds), it 
may not join a different consortium to receive the other part of the 
CCDF (Tribal Mandatory Funds), or apply as a direct grantee to receive 
the other part of the fund. In order to receive CCDF program services, 
individual tribal consortium members must remain with the consortium 
they have selected for the fiscal year in which they are receiving any 
part of CCDF funds. However, an Alaska Native village that must receive 
Tribal Mandatory Funds indirectly through an Alaska Native Regional 
Nonprofit Corporation may still apply directly for Discretionary Funds.
    Section 98.83(c)(1) requires that a tribal consortium include in 
its two-year CCDF Plan a brief description of the direct child care 
services being provided for each of its participating Tribes. We 
included this provision for three reasons: (1) It helps ensure that 
services are being delivered to the member Tribes; (2) since in some 
cases consortia receive sizeable base amounts, it will provide 
documentation of the actual services being delivered to member Tribes 
through consortia arrangements; and (3) it provides the opportunity for 
public comment, as part of the public hearing process required by 
Sec. 98.14(c), on the services provided to member Tribes.
    Comment: One commenter was interested in how ACF would treat an 
individual consortium member that decided to drop out of its authorized 
CCDF consortium arrangement prior to the end of the fiscal year.
    Response: We strongly encourage Tribes to closely evaluate their 
child care needs and eligibility for CCDF services before choosing to 
enter into a consortium arrangement. If a situation arises where a 
Tribe decides it must relinquish its membership in a consortium prior 
to the end of the fiscal year, the CCDF funds which were awarded to the 
consortium on behalf of the departing member Tribe will remain with the 
tribal consortium. The consortium may use these funds to provide direct 
child care services to other consortium members for the duration of the 
fiscal year. The final regulations codify this policy at 
Sec. 98.83(c)(4).
    Child care standards. Section 658E(c)(2)(E)(ii) of the Act requires 
the development of minimum child care standards for Indian Tribes and 
tribal organizations. Based on input from tribal leaders and tribal 
child care administrators, we are developing a process for Tribes to 
establish minimum child care standards that appropriately reflect 
tribal needs and available resources. Until the minimum standards are 
developed, Tribes must have in effect tribal and/or State licensing 
requirements applicable to child care services pursuant to Sec. 98.40. 
Tribes must also have in place requirements designed to protect the 
health and safety of children in accordance with Sec. 98.41 of the 
regulations, including, but not limited to: (1) The prevention and 
control of infectious diseases (including immunization); (2) building 
and physical premises safety; and (3) minimum health and safety 
training appropriate to the provider setting.
    Comment: We received comments about the process for developing the 
minimum child care standards, and about the need for flexibility under 
the standards in light of unique tribal needs and resources.
    Response: The Child Care Bureau invited tribal leaders to consult 
with ACF officials on this issue in special focus groups at the Tribal 
Child Care Conference in April 1997. In addition, on March 26, 1997, a 
``Request for Comments on the Development of Minimum Tribal Child Care 
Standards'' was published in the Federal Register. We are continuing to 
consult with tribal officials regarding the development of these 
standards. Regarding the need for flexibility, we recognize unique 
tribal circumstances and the fact that many Tribes have already 
developed their own standards. We are committed to an approach that 
considers both the need for flexibility as well as the statutory 
mandate to develop minimum standards.
    Planning costs for initial plan. Section 98.83(h) provides that 
CCDF funds are available for costs incurred by a Tribal Lead Agency 
only after the funds are made available by Congress for Federal 
obligation unless costs are incurred for planning activities related to 
the submission of an initial CCDF Plan. Federal obligation of funds for 
planning costs is subject to the actual availability of the 
appropriation.
Construction and Renovation (Section 98.84)
    Upon requesting and receiving approval from the Secretary of the 
Department of Health and Human Services, a Tribal Lead Agency may use 
amounts from its CCDF allocation for construction and major renovation 
of child care facilities (pursuant to section 6580(c)(6) of the Act and 
regulations at Sec. 98.84(a)).
    Under the final rule, these payments could cover costs of 
amortizing the principal and paying interest on loans for construction 
and major renovation. As was also recognized in the Head Start 
procedures for construction and renovation, which allow use of funds to 
pay for principal and interest on loans, loans are an essential part of 
many construction and renovation projects.
    The regulation at Sec. 98.84(b) reflects the statutory requirement 
that, to be approved by the Secretary, a request to use CCDF funds for 
construction or major renovation must be made in accordance with 
uniform procedures developed by the Secretary. These uniform procedures 
were provided to Tribal Lead Agencies via program instructions ACYF-CC-
PI-05, issued August 18, 1997, and ACYF-PI-CC-97-06 issued November 4, 
1997. The Administration for Children and Families' Regional Offices 
have responsibility for approval of construction/renovation 
applications.
    By statute (and Sec. 98.84(b)), such requests must demonstrate 
that: (1) Adequate facilities are not otherwise available to enable the 
Tribal Lead Agency to carry out child care programs; (2) the lack of 
such facilities will inhibit the operation of child care programs in 
the future; and (3) the use of funds for construction or major 
renovation will not result in a decrease in the level of child care 
services provided by the Tribal Lead Agency as compared to the level of 
services provided by the Tribal Lead Agency in the preceding fiscal 
year. In light of the requirement that a Tribe cannot reduce the level 
of child care services, a Tribal Lead Agency should plan in advance for 
anticipated construction and renovation costs.
    Section 98.84(c) allows Tribal Lead Agencies to use CCDF funds for 
reasonable and necessary planning costs

[[Page 39979]]

associated with assessing the need for construction or renovation or 
for preparing a request, in accordance with the uniform procedures 
established by program instruction, to spend CCDF funds on construction 
or major renovation. This section of the rule also addresses the use of 
CCDF funds to pay for the costs of an architect, engineer, or other 
consultant.
    The regulation at Sec. 98.84(d) requires Tribal Lead Agencies which 
receive approval from the Secretary to use CCDF funds for construction 
or major renovation to comply with specified requirements in 45 CFR 
Part 92 and any additional requirements established by program 
instruction. Title 45 CFR Part 92 does not generally apply to the Child 
Care and Development Fund. However, we made specified sections which 
deal with the special circumstances of construction and renovation 
applicable for those purposes.
    The ACF has an interest in property that is constructed or 
renovated with CCDF funds. This interest takes the form of restrictions 
on use and disposition of the property. The Federal interest also is 
manifested in the requirement that ACF receive a share of the proceeds 
from any sale of property. These requirements regarding Federal share 
and the use and disposition of property are found at 45 CFR 92.31(b) 
and (c).
    Title requirements at 45 CFR 92.31(a) provide that title to a 
facility constructed or renovated with CCDF funds vests with the 
grantee upon acquisition.
    Title 45 CFR 92.22 concerns cost principles and allowable cost 
requirements. Consistent with these cost principles, reasonable fees 
and costs associated with and necessary to the construction or 
renovation of a facility are payable with CCDF funds, but require 
prior, written approval from ACF.
    Title 45 CFR 92.25 governs program income. Program income derived 
from real property constructed or renovated with CCDF funds must be 
deducted from the total allowable costs of the budget period in which 
it was produced.
    All facility construction and renovation transactions must comply 
with the procurement procedures in 45 CFR 92.36, and must be conducted 
in a manner to provide, to the maximum extent practicable, open and 
free competition.
    Tribal Lead Agencies must also comply with any additional 
requirements established by program instruction. These requirements may 
include, but are not limited to, requirements concerning: the recording 
of a Notice of Federal Interest in property; rights and 
responsibilities in the event of a grantee's default on a mortgage; 
insurance and maintenance; submission of plans, specifications, 
inspection reports, and other legal documents; and modular units.
    The definition of ``facility'' at Sec. 98.2 allows Tribal Lead 
Agencies to use CCDF funds for the construction or renovation of 
modular units as well as real property.
    The definitions of ``facility,'' ``construction,'' and ``major 
renovation'' are the same definitions used in Head Start construction 
and renovation procedures. While a Tribal Lead Agency must request 
approval from the Secretary before spending CCDF funds on construction 
or major renovation, approval is not necessary for minor renovation 
pursuant to section 658F(b) of the Act and regulations at 
Sec. 98.84(f). For Tribal Lead Agencies, minor renovation includes all 
renovation other than major renovation or construction.
    Section 98.84(e) requires that, in lieu of obligation and 
liquidation requirements at Sec. 98.60(e), Tribal Lead Agencies must 
liquidate CCDF funds used for construction or major renovation by the 
end of the second fiscal year following the fiscal year for which the 
grant is awarded. This gives Tribal Lead Agencies three years to 
liquidate funds approved by the Secretary for use on construction or 
major renovation with no separate obligation period. This separate 
obligation/liquidation requirement should allow sufficient time for 
construction and renovation projects.
    Amounts used for construction and major renovation are not 
considered administrative costs for the purpose of the 15 percent 
administrative cost limit under Sec. 98.83(g). We do not believe that 
Congress intended for us to unnecessarily limit a Tribal Lead Agency's 
ability to use CCDF funds on construction and renovation projects which 
meet the requirements necessary for Secretarial approval.
    The ACF will transfer funds to be used for construction and major 
renovation to a separate grant award to be used specifically for 
construction or renovation activities. This approach is necessary to 
track the exact amount of funds spent on construction or renovation.
    Finally, the new statutory provision allowing tribal construction 
with CCDF funds provides an opportunity for tribal grantees to leverage 
resources for quality facilities and services by coordinating with 
their Tribe's Head Start program.
    Comment: We received comments objecting to the proposal at 
Sec. 98.84(c) that would have prohibited a Tribal Lead Agency from 
using CCDF funds to pay for the costs of an architect, engineer, or 
other consultant until after the Lead Agency's construction/renovation 
application was approved by the Secretary. The commenters argued that 
the application procedures require construction/renovation plans and 
specifications as part of an application, and, unless Tribes are 
allowed to use CCDF funds, many Tribes would be unable to pay for the 
costs of architects, engineers, or consultants necessary to develop 
these plans and specifications.
    Response: We eliminated the prohibition against the use of CCDF 
funds to pay for consultants prior to application approval. As revised, 
Sec. 98.84(c) allows a Tribal Lead Agency to use CCDF funds to pay for 
the costs of an architect, engineer, or other consultant for a project 
that is subsequently approved by the Secretary. If the project later 
fails to gain Secretarial approval, the Tribal Lead Agency must pay for 
the architectural, engineering or consultant costs using non-CCDF 
funds. This approach allows Tribes access to the expertise necessary to 
prepare an application and launch a construction/renovation project. At 
the same time, it protects the Federal government from paying for 
consultant costs on a project that is not approvable. This revised 
policy is consistent with program instruction ACYF-CC-PI-05, issued 
August 18, 1997. We strongly encourage Tribes to involve ACF Regional 
Office staff early in the development of their construction/renovation 
applications.
    Comment: We received questions regarding how the requirement at 
Sec. 98.84(b)(3) would apply to new grantees. Under this provision (as 
well as the Act), use of funds for construction and renovation cannot 
result in a decrease in the Tribe's level of child care services 
compared to the preceding fiscal year. However, a new tribal grantee 
has no existing level of services to maintain.
    Response: Since Sec. 98.84(b)(3) does not apply to a new grantee 
(i.e., one that did not receive CCDF funds the preceding fiscal year), 
we added Sec. 98.84(g) to address the amount of CCDF funds that a new 
grantee can use for construction or renovation. This section allows a 
new tribal grantee to spend no more than an amount equivalent to its 
Tribal Mandatory allocation on construction/renovation. A new tribal 
grantee must spend an amount equivalent to its Discretionary allocation 
on activities other than construction or renovation (i.e., direct 
services, quality activities, or administrative costs).

[[Page 39980]]

    The CCDF program is primarily designed to provide direct child care 
services. Authority for construction and renovation was added as an 
amendment under the PRWORA. The statutory provision that prohibits a 
decrease in the level of child care services clearly indicates that 
Congress intended for construction and renovation activities only to be 
in addition to direct services. Limiting the amount of CCDF funds that 
a new tribal grantee may spend on construction or renovation to the 
amount of the Tribal Mandatory allocation is consistent with 
Congressional intent.
    Comment: One commenter objected to the definition for major 
renovation. Section 98.2 defines ``major renovation'' as: (1) 
Structural changes to the foundation, roof, floor, exterior or load-
bearing walls of a facility, or the extension of a facility to increase 
its floor area; or (2) extensive alteration of a facility such as to 
significantly change its function and purpose, even if such renovation 
does not include any structural change. The commenter objected to the 
second part of this definition, arguing that some projects may change 
the function and purpose of a facility (e.g., from a community center 
to a child care center) but only involve small, non-structural 
renovations that should not require an application seeking Secretarial 
approval.
    Response: We did not revise the definition--which has also been 
used by the Head Start program. Projects that involve extensive 
alteration that change the function and purpose of the facility are 
potentially large and expensive and should therefore be subject to 
Secretarial approval. However, in order for a project that does not 
involve structural change to be considered major renovation under the 
definition at Sec. 98.2, it must involve both: (1) Extensive 
alteration, and (2) a change in the function and purpose of the 
facility. Therefore, if a renovation project is not extensive (and does 
not involve structural change), the project would not be considered 
major renovation even if it changes the function and purpose of the 
facility.
    Comment: We received a question as to whether non-exempt Tribal 
Lead Agencies could count construction and renovation costs as quality 
expenditures for purposes of meeting the four percent minimum quality 
requirement at Sec. 98.51(a).
    Response: Construction and renovation costs cannot be counted as 
quality expenditures for purposes of the four percent minimum quality 
requirement. Quality activities such as those described at 
Sec. 98.51(a)(2) (resource and referral, provider loans, monitoring, 
training and technical assistance) are essential to the well-being of 
children in child care. The size of grant awards received by non-exempt 
Tribal Lead Agencies is sufficient to allow these Tribes to meet the 
four percent minimum quality requirement through activities other than 
construction or renovation.
    Comment: We received a question regarding whether the costs of 
items such as parking lots, playground equipment, furniture, and 
kitchen equipment are considered to be construction/renovation costs?
    Response: The regulations at Sec. 98.2 define ``construction'' and 
``major renovation'' for purposes of determining what activities are 
allowable under the CCDF and when prior approval from the Secretary is 
necessary.
    However, these definitions do not directly address the question of 
what costs should be considered as part of the construction and 
renovation project. This question is relevant in at least three 
circumstances: (1) When ensuring that construction and renovation costs 
will not result in a decrease in the level of child care services in 
accordance with Sec. 98.84(b)(3); (2) when providing an estimate of 
construction and renovation costs as required by the uniform procedures 
established by program instruction; and (3) when determining which 
costs should come from the separate grant award for construction and 
renovation.
    For these three purposes, Sec. 98.84(h) provides that a 
construction and renovation project that requires and receives the 
approval of the Secretary must include as construction and renovation 
costs the following: (1) Planning costs as allowed at Sec. 98.84(c); 
(2) labor, materials and services necessary for the functioning of the 
facility; and (3) initial equipment, as discussed below, for the 
facility. All such costs must be identified in the Tribal Lead Agency's 
construction or renovation application to the Secretary and, to the 
extent that CCDF funds are used, must be paid for using the separate 
grant award for construction and renovation.
    Under this framework, the cost of the construction or renovation 
project includes items which are not part of the actual facility 
itself, but which are necessary for the functioning of the facility 
(such as a parking lot or fence) when the item is part of a larger 
construction or renovation project that requires and receives approval 
by the Secretary.
    Equipment, as used above, means items which are tangible, 
nonexpendable personal property having a useful life of more than five 
years. The intent of the five-year threshold is to include as 
construction and renovation costs only equipment that remains useful 
for an extended period of time, such as playground equipment, 
furniture, and kitchen equipment. Current operating expenses or items 
that are consumed in use (such as food, paper, books, toys or 
disposable housekeeping items) are not considered construction or 
renovation costs.
    This relatively broad definition of construction and renovation 
costs emphasizes the importance of considering all costs when planning 
construction and renovation projects. The alternative approach, to 
exclude items such as playgrounds, parking lots and equipment from 
construction and renovation costs, would have underestimated the true 
costs of constructing or renovating a child care facility. A new or 
newly renovated facility requires the proper equipment to be 
operational. Furthermore, a facility must be constructed or renovated 
in a manner that ensures the health and safety of children in care, 
consistent with Sec. 98.41(a)(2) of the regulations.
    Equipment and other costs are only considered part of the 
construction or renovation costs, however, if they are included as part 
of a larger construction or renovation project that requires and 
receives approval by the Secretary. Costs of allowable activities 
(e.g., purchase of equipment necessary to bring a facility into 
compliance with health and safety standards) that are not part of a 
larger construction or renovation project as defined at Sec. 98.2 
should be considered quality improvement costs--not construction or 
renovation costs.

Subpart J--Monitoring, Non-compliance and Complaints

Penalties and Sanctions (Section 98.92)
    We have amended paragraphs (1) and (2) of Sec. 98.92(a), because 
the statutory amendments changed the penalty for a Lead Agency found to 
have failed to substantially comply with the statute, the regulations, 
or its own Plan. We also have deleted the former Sec. 98.92(b) as 
redundant due to the statutory amendments. Section 658I(b)(2)(A)(ii) of 
the Act gives the Secretary the option to disallow improperly expended 
funds or to deduct an amount equal to or less than an improperly 
expended amount from the administrative portion of the Lead Agency's 
allotment for the following fiscal year. The Secretary can also impose 
a penalty that is a combination of these two options.

[[Page 39981]]

    As proposed, we also added a new regulation at paragraph (b)(2) to 
establish a penalty on the Lead Agency for: (1) a failure to implement 
any part of the CCDF program in accordance with the Act or regulations 
or its Plan; or (2) a violation of the Act or regulations. Such penalty 
would be invoked when a failure or violation by the Lead Agency does 
not result in a clearly identifiable amount of improperly expended 
funds. For example, the failure to provide the reports required under 
subpart H or the inappropriate limitation of access to a particular 
type of provider in violation of the parental choice provisions of 
Subpart D do not result in a clearly identifiable amount of improperly 
expended funds. Hence, the penalties at paragraph (a) could not be 
applied. However, our stewardship of the program since its creation 
indicates the need for a more effective means of ensuring conformity 
with the statute and regulations than is offered by the existing 
regulations. Section 658I(b)(2)(B) of the CCDBG Act provides for an 
``additional sanction'' if the Secretary finds there has been non-
compliance with the Plan or any requirement of the program.
    Because a failure or violation which would cause the penalty under 
Sec. 98.92(b)(2) to be imposed may not have an amount of improperly 
expended funds associated with it, we needed to determine what amount 
of penalty should be imposed. We considered the range of TANF penalties 
found at section 409 of the Social Security Act and decided to use the 
TANF penalty provisions for failure to report at section 409(a)(2) as 
that was most analogous to the potential CCDF non-compliance. 
Accordingly, Sec. 98.92(b)(2) provides that a penalty equal to four 
percent of the annual Discretionary allotment will be withheld no 
earlier than the second full quarter following the quarter in which the 
Lead Agency was notified of the potential penalty.
    The TANF penalties include provisions for good cause and corrective 
action, and we have included similar provisions in Sec. 98.92(b)(2). We 
believe that both provisions are good policy as the goal of the new 
provision is to achieve compliance with CCDF requirements, not 
punishment. If there is sufficient reason for not complying, or if the 
Lead Agency will comply without a penalty, the purpose is met without 
the imposition of a penalty. The penalty will not be applied if the 
Lead Agency corrects the failure or violation before the penalty is to 
be applied or if it submits a plan for corrective action that is 
accepted by the Secretary. Waiting at least one full quarter before 
applying the penalty provides sufficient time to remedy the situations 
which we envision would cause the penalty to be invoked. The Lead 
Agency may, during that time, show cause to the Secretary why the 
amount of the penalty, if imposed, should be reduced.
    The paragraphs formerly located at Sec. 98.92(d) and (e) are 
relocated at Sec. 98.92(c) and (d), respectively. We have added a new 
Sec. 98.92(e) providing that it is at the Secretary's sole discretion 
to choose the penalty to be imposed.
    Comment: While a few comments supported the need for the new 
penalty at Sec. 98.92(b)(2), most opposed it stating that there is no 
basis for it in the PRWORA statute.
    Response: As we stated in the preamble, the statutory basis for the 
penalty at Sec. 98.92(b)(2) is section 658I(b)(2)(B) of the original 
CCDBG Act which provides for an ``additional sanction'' if the 
Secretary finds there has been non-compliance with the Plan or any 
requirement of the program. Our experience since the beginning of the 
program indicated the need for such an additional sanction.
    Comment: Many of the same commenters objected to the use of the 
phrase ``failed to properly implement'' in the regulation, saying that 
it made the entire process subjective with only the Secretary deciding 
what was ``proper''.
    Response: We agree that the use of the word ``proper'' gave the 
appearance of a subjective process, and we have eliminated it. It is 
not the intent of the regulation to second-guess how Lead Agencies 
implement the program, especially in light of the enormous flexibility 
they have. Rather, this regulation is specifically designed for those 
clear-cut instances wherein the Act, regulations, or Plan have not been 
followed, but for which there is not an amount of funds that are 
``misspent'' as a result.
    Comment: One commenter objected to the provision which allows the 
Secretary not to apply the penalty if the Lead Agency corrects the 
failure or violation or submits an acceptable plan for corrective 
action. The commenter wanted the penalty to be applied in all cases.
    Response: As our goal is compliance with the requirements and not 
punishment, we believe it is good policy to forgive a penalty if the 
Lead Agency corrects the non-compliance without a penalty through 
corrective action. We also believe that Lead Agencies should be able to 
demonstrate that special circumstances, such as natural disasters or 
other circumstances beyond their control, prevent compliance and thus 
the penalty should be reduced. We believe that such instances will be 
rare.

List of Subjects

45 CFR Part 98

    Child care, Grant program--social programs, Parental choice, 
Reporting and record keeping requirements.

45 CFR Part 99

    Administrative practice and procedure, Child care, Grant program--
social programs.

(Catalog of Federal Domestic Assistance Programs: 93.575, Child Care 
and Development Block Grant; 93.596, Child Care Mandatory and 
Matching Funds)

    Dated: March 16, 1998.
Olivia A. Golden,
Assistant Secretary for Children and Families.

    Approved: June 10, 1998.
Donna E. Shalala,
Secretary, Department of Health and Human Services.

    For the reasons set forth in the preamble, Parts 98 and 99 of 
Subtitle A of Title 45 of the Code of Federal Regulations are amended 
as follows:
    1. Part 98 is revised as follows:

PART 98--CHILD CARE AND DEVELOPMENT FUND

Subpart A--Goals, Purposes and Definitions

Sec.
98.1  Goals and purposes.
98.2  Definitions.
98.3  Effect on State law.

Subpart B--General Application Procedures

98.10  Lead Agency responsibilities.
98.11  Administration under contracts and agreements.
98.12  Coordination and consultation.
98.13  Applying for funds.
98.14  Plan process.
98.15  Assurances and certifications.
98.16  Plan provisions.
98.17  Period covered by plan.
98.18  Approval and disapproval of plans and plan amendments.

Subpart C--Eligibility for Services

98.20  A child's eligibility for child care services.

Subpart D--Program Operations (Child Care Services)--Parental Rights 
and Responsibilities

98.30  Parental choice.
98.31  Parental access.
98.32  Parental complaints.
98.33  Consumer education.
98.34  Parental rights and responsibilities.

[[Page 39982]]

Subpart E--Program Operations (Child Care Services)--Lead Agency and 
Provider Requirements

98.40  Compliance with applicable State and local regulatory 
requirements.
98.41  Health and safety requirements.
98.42  Sliding fee scales.
98.43  Equal access.
98.44  Priority for child care services.
98.45  List of providers.
98.46  Nondiscrimination in admissions on the basis of religion.
98.47  Nondiscrimination in employment on the basis of religion.

Subpart F--Use of Child Care and Development Funds

98.50  Child care services.
98.51  Activities to improve the quality of child care.
98.52  Administrative costs.
98.53  Matching Fund requirements.
98.54  Restrictions on the use of funds.
98.55  Cost allocation.

Subpart G--Financial Management

98.60  Availability of funds.
98.61  Allotments from the discretionary fund.
98.62  Allotments from the mandatory fund.
98.63  Allotments from the matching fund.
98.64  Reallotment and redistribution of funds.
98.65  Audits and financial reporting
98.66  Disallowance procedures.
98.67  Fiscal requirements.

Subpart H--Program Reporting Requirements

98.70  Reporting requirements.
98.71  Content of reports.

Subpart I--Indian Tribes

98.80  General procedures and requirements.
98.81  Application and Plan procedures.
98.82  Coordination.
98.83  Requirements for tribal programs.
98.84  Construction and renovation of child care facilities.

Subpart J--Monitoring, Non-Compliance and Complaints

98.90  Monitoring.
98.91  Non-compliance.
98.92  Penalties and sanctions.
98.93  Complaints.

    Authority: 42 U.S.C. 618, 9858.

Subpart A--Goals, Purposes and Definitions


Sec. 98.1  Goals and purposes.

    (a) The goals of the CCDF are to:
    (1) Allow each State maximum flexibility in developing child care 
programs and policies that best suit the needs of children and parents 
within the State;
    (2) Promote parental choice to empower working parents to make 
their own decisions on the child care that best suits their family's 
needs;
    (3) Encourage States to provide consumer education information to 
help parents make informed choices about child care;
    (4) Assist States to provide child care to parents trying to 
achieve independence from public assistance; and
    (5) Assist States in implementing the health, safety, licensing, 
and registration standards established in State regulations.
    (b) The purpose of the CCDF is to increase the availability, 
affordability, and quality of child care services. The program offers 
Federal funding to States, Territories, Indian Tribes, and tribal 
organizations in order to:
    (1) Provide low-income families with the financial resources to 
find and afford quality child care for their children;
    (2) Enhance the quality and increase the supply of child care for 
all families, including those who receive no direct assistance under 
the CCDF;
    (3) Provide parents with a broad range of options in addressing 
their child care needs;
    (4) Strengthen the role of the family;
    (5) Improve the quality of, and coordination among, child care 
programs and early childhood development programs; and
    (6) Increase the availability of early childhood development and 
before- and after-school care services.
    (c) The purpose of these regulations is to provide the basis for 
administration of the Fund. These regulations provide that Lead 
Agencies:
    (1) Maximize parental choice through the use of certificates and 
through grants and contracts;
    (2) Include in their programs a broad range of child care 
providers, including center-based care, family child care, in-home 
care, care provided by relatives and sectarian child care providers;
    (3) Provide quality child care that meets applicable requirements;
    (4) Coordinate planning and delivery of services at all levels;
    (5) Design flexible programs that provide for the changing needs of 
recipient families;
    (6) Administer the CCDF responsibly to ensure that statutory 
requirements are met and that adequate information regarding the use of 
public funds is provided; and
    (7) Design programs that provide uninterrupted service to families 
and providers, to the extent statutorily possible.


Sec. 98.2  Definitions.

    For the purpose of this part and part 99:
    The Act refers to the Child Care and Development Block Grant Act of 
1990, section 5082 of the Omnibus Budget Reconciliation Act of 1990, 
Pub. L. 101-508, as amended and codified at 42 U.S.C. 9858 et seq.
    ACF means the Administration for Children and Families;
    Application is a request for funding that includes the information 
required at Sec. 98.13;
    Assistant Secretary means the Assistant Secretary for Children and 
Families, Department of Health and Human Services;
    Caregiver means an individual who provides child care services 
directly to an eligible child on a person-to-person basis;
    Categories of care means center-based child care, group home child 
care, family child care and in-home care;
    Center-based child care provider means a provider licensed or 
otherwise authorized to provide child care services for fewer than 24 
hours per day per child in a non-residential setting, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
    Child care certificate means a certificate (that may be a check, or 
other disbursement) that is issued by a grantee directly to a parent 
who may use such certificate only as payment for child care services or 
as a deposit for child care services if such a deposit is required of 
other children being cared for by the provider, pursuant to Sec. 98.30. 
Nothing in this part shall preclude the use of such certificate for 
sectarian child care services if freely chosen by the parent. For the 
purposes of this part, a child care certificate is assistance to the 
parent, not assistance to the provider;
    Child Care and Development Fund (CCDF) means the child care 
programs conducted under the provisions of the Child Care and 
Development Block Grant Act, as amended. The Fund consists of 
Discretionary Funds authorized under section 658B of the amended Act, 
and Mandatory and Matching Funds appropriated under section 418 of the 
Social Security Act;
    Child care provider that receives assistance means a child care 
provider that receives Federal funds under the CCDF pursuant to grants, 
contracts, or loans, but does not include a child care provider to whom 
Federal funds under the CCDF are directed only through the operation of 
a certificate program;
    Child care services, for the purposes of Sec. 98.50, means the care 
given to an eligible child by an eligible child care provider;
    Construction means the erection of a facility that does not 
currently exist;
    The Department means the Department of Health and Human Services;

[[Page 39983]]

    Discretionary funds means the funds authorized under section 658B 
of the Child Care and Development Block Grant Act. The Discretionary 
funds were formerly referred to as the Child Care and Development Block 
Grant;
    Eligible child means an individual who meets the requirements of 
Sec. 98.20;
    Eligible child care provider means:
    (1) A center-based child care provider, a group home child care 
provider, a family child care provider, an in-home child care provider, 
or other provider of child care services for compensation that--
    (i) Is licensed, regulated, or registered under applicable State or 
local law as described in Sec. 98.40; and
    (ii) Satisfies State and local requirements, including those 
referred to in Sec. 98.41 applicable to the child care services it 
provides; or
    (2) A child care provider who is 18 years of age or older who 
provides child care services only to eligible children who are, by 
marriage, blood relationship, or court decree, the grandchild, great 
grandchild, sibling (if such provider lives in separate residence), 
niece, or nephew of such provider, and complies with any applicable 
requirements that govern child care provided by the relative involved;
    Facility means real property or modular unit appropriate for use by 
a grantee to carry out a child care program;
    Family child care provider means one individual who provides child 
care services for fewer than 24 hours per day per child, as the sole 
caregiver, in a private residence other than the child's residence, 
unless care in excess of 24 hours is due to the nature of the 
parent(s)' work;
    Group home child care provider means two or more individuals who 
provide child care services for fewer than 24 hours per day per child, 
in a private residence other than the child's residence, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
    Indian Tribe means any Indian Tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. Sec. 1601 et 
seq.) that is recognized as eligible for the special programs and 
services provided by the United States to Indians because of their 
status as Indians;
    In-home child care provider means an individual who provides child 
care services in the child's own home;
    Lead Agency means the State, territorial or tribal entity 
designated under Secs. 98.10 and 98.16(a) to which a grant is awarded 
and that is accountable for the use of the funds provided. The Lead 
Agency is the entire legal entity even if only a particular component 
of the entity is designated in the grant award document.
    Licensing or regulatory requirements means requirements necessary 
for a provider to legally provide child care services in a State or 
locality, including registration requirements established under State, 
local or tribal law;
    Liquidation period means the applicable time period during which a 
fiscal year's grant shall be liquidated pursuant to the requirements at 
Sec. 98.60.;
    Major renovation means: (1) structural changes to the foundation, 
roof, floor, exterior or load-bearing walls of a facility, or the 
extension of a facility to increase its floor area; or (2) extensive 
alteration of a facility such as to significantly change its function 
and purpose, even if such renovation does not include any structural 
change;
    Mandatory funds means the general entitlement child care funds 
described at section 418(a)(1) of the Social Security Act;
    Matching funds means the remainder of the general entitlement child 
care funds that are described at section 418(a)(2) of the Social 
Security Act;
    Modular unit means a portable structure made at another location 
and moved to a site for use by a grantee to carry out a child care 
program;
    Obligation period means the applicable time period during which a 
fiscal year's grant shall be obligated pursuant to Sec. 98.60;
    Parent means a parent by blood, marriage or adoption and also means 
a legal guardian, or other person standing in loco parentis;
    The Plan means the Plan for the implementation of programs under 
the CCDF;
    Program period means the time period for using a fiscal year's 
grant and does not extend beyond the last day to liquidate funds;
    Programs refers generically to all activities under the CCDF, 
including child care services and other activities pursuant to 
Sec. 98.50 as well as quality and availability activities pursuant to 
Sec. 98.51;
    Provider means the entity providing child care services;
    The regulation refers to the actual regulatory text contained in 
parts 98 and 99 of this chapter;
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment;
    Secretary means the Secretary of the Department of Health and Human 
Services;
    Sectarian organization or sectarian child care provider means 
religious organizations or religious providers generally. The terms 
embrace any organization or provider that engages in religious conduct 
or activity or that seeks to maintain a religious identity in some or 
all of its functions. There is no requirement that a sectarian 
organization or provider be managed by clergy or have any particular 
degree of religious management, control, or content;
    Sectarian purposes and activities means any religious purpose or 
activity, including but not limited to religious worship or 
instruction;
    Services for which assistance is provided means all child care 
services funded under the CCDF, either as assistance directly to child 
care providers through grants, contracts, or loans, or indirectly as 
assistance to parents through child care certificates;
    Sliding fee scale means a system of cost sharing by a family based 
on income and size of the family, in accordance with Sec. 98.42;
    State means any of the States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
and includes Tribes unless otherwise specified;
    Tribal mandatory funds means the child care funds set aside at 
section 418(a)(4) of the Social Security Act. The funds consist of 
between one and two percent of the aggregate Mandatory and Matching 
child care funds reserved by the Secretary in each fiscal year for 
payments to Indian Tribes and tribal organizations;
    Tribal organization means the recognized governing body of any 
Indian Tribe, or any legally established organization of Indians, 
including a consortium, which is controlled, sanctioned, or chartered 
by such governing body or which is democratically elected by the adult 
members of the Indian community to be served by such organization and 
which includes the maximum participation of Indians in all phases of 
its activities: Provided, that in any case where a contract is let or 
grant is made to an organization to perform services benefiting more 
than one Indian Tribe, the approval of each such Indian Tribe shall be 
a prerequisite to the letting or making of such contract or grant; and

[[Page 39984]]

    Types of providers means the different classes of providers under 
each category of care. For the purposes of the CCDF, types of providers 
include non-profit providers, for-profit providers, sectarian providers 
and relatives who provide care.


Sec. 98.3  Effect on State law.

    (a) Nothing in the Act or this part shall be construed to supersede 
or modify any provision of a State constitution or State law that 
prohibits the expenditure of public funds in or by sectarian 
organizations, except that no provision of a State constitution or 
State law shall be construed to prohibit the expenditure in or by 
sectarian institutions of any Federal funds provided under this part.
    (b) If a State law or constitution would prevent CCDF funds from 
being expended for the purposes provided in the Act, without 
limitation, then States shall segregate State and Federal funds.

Subpart B--General Application Procedures


Sec. 98.10  Lead Agency responsibilities.

    The Lead Agency, as designated by the chief executive officer of 
the State (or by the appropriate Tribal leader or applicant), shall:
    (a) Administer the CCDF program, directly or through other 
governmental or non-governmental agencies, in accordance with 
Sec. 98.11;
    (b) Apply for funding under this part, pursuant to Sec. 98.13;
    (c) Consult with appropriate representatives of local government in 
developing a Plan to be submitted to the Secretary pursuant to 
Sec. 98.14(b);
    (d) Hold at least one public hearing in accordance with 
Sec. 98.14(c); and
    (e) Coordinate CCDF services pursuant to Sec. 98.12.


Sec. 98.11  Administration under contracts and agreements.

    (a) The Lead Agency has broad authority to administer the program 
through other governmental or non-governmental agencies. In addition, 
the Lead Agency can use other public or private local agencies to 
implement the program; however:
    (1) The Lead Agency shall retain overall responsibility for the 
administration of the program, as defined in paragraph (b) of this 
section;
    (2) The Lead Agency shall serve as the single point of contact for 
issues involving the administration of the grantee's CCDF program; and
    (3) Administrative and implementation responsibilities undertaken 
by agencies other than the Lead Agency shall be governed by written 
agreements that specify the mutual roles and responsibilities of the 
Lead Agency and the other agencies in meeting the requirements of this 
part.
    (b) In retaining overall responsibility for the administration of 
the program, the Lead Agency shall:
    (1) Determine the basic usage and priorities for the expenditure of 
CCDF funds;
    (2) Promulgate all rules and regulations governing overall 
administration of the Plan;
    (3) Submit all reports required by the Secretary;
    (4) Ensure that the program complies with the approved Plan and all 
Federal requirements;
    (5) Oversee the expenditure of funds by subgrantees and 
contractors;
    (6) Monitor programs and services;
    (7) Fulfill the responsibilities of any subgrantee in any: 
disallowance under subpart G; complaint or compliance action under 
subpart J; or hearing or appeal action under part 99 of this chapter; 
and
    (8) Ensure that all State and local or non-governmental agencies 
through which the State administers the program, including agencies and 
contractors that determine individual eligibility, operate according to 
the rules established for the program.


Sec. 98.12  Coordination and consultation.

    The Lead Agency shall:
    (a) Coordinate the provision of services for which assistance is 
provided under this part with the agencies listed in Sec. 98.14(a).
    (b) Consult, in accordance with Sec. 98.14(b), with representatives 
of general purpose local government during the development of the Plan; 
and
    (c) Coordinate, to the maximum extent feasible, with any Indian 
Tribes in the State receiving CCDF funds in accordance with subpart I 
of this part.


Sec. 98.13  Applying for Funds.

    The Lead Agency of a State or Territory shall apply for Child Care 
and Development funds by providing the following:
    (a) The amount of funds requested at such time and in such manner 
as prescribed by the Secretary.
    (b) The following assurances or certifications:
    (1) An assurance that the Lead Agency will comply with the 
requirements of the Act and this part;
    (2) A lobbying certification that assures that the funds will not 
be used for the purpose of influencing pursuant to 45 CFR part 93, and, 
if necessary, a Standard Form LLL (SF-LLL) that discloses lobbying 
payments;
    (3) An assurance that the Lead Agency provides a drug-free 
workplace pursuant to 45 CFR 76.600, or a statement that such an 
assurance has already been submitted for all HHS grants;
    (4) A certification that no principals have been debarred pursuant 
to 45 CFR 76.500;
    (5) Assurances that the Lead Agency will comply with the applicable 
provisions regarding nondiscrimination at 45 CFR part 80 (implementing 
title VI of the Civil Rights Act of 1964, as amended), 45 CFR part 84 
(implementing section 504 of the Rehabilitation Act of 1973, as 
amended), 45 CFR part 86 (implementing title IX of the Education 
Amendments of 1972, as amended) and 45 CFR part 91 (implementing the 
Age Discrimination Act of 1975, as amended), and;
    (6) Assurances that the Lead Agency will comply with the applicable 
provisions of Public Law 103-277, Part C--Environmental Tobacco Smoke, 
also known as the Pro-Children Act of 1994, regarding prohibitions on 
smoking.
    (c) The Child Care and Development Fund Plan, at times and in such 
manner as required in Sec. 98.17; and
    (d) Such other information as specified by the Secretary.


Sec. 98.14  Plan process.

    In the development of each Plan, as required pursuant to 
Sec. 98.17, the Lead Agency shall:
    (a)(1) Coordinate the provision of services funded under this Part 
with other Federal, State, and local child care and early childhood 
development programs, including such programs for the benefit of Indian 
children. The Lead Agency shall also coordinate with the State, and if 
applicable, tribal agencies responsible for:
    (A) Public health, including the agency responsible for 
immunizations;
    (B) Employment services/workforce development;
    (C) Public education; and
    (D) Providing Temporary Assistance for Needy Families.
    (2) Provide a description of the results of the coordination with 
each of these agencies in the CCDF Plan.
    (b) Consult with appropriate representatives of local governments;
    (c)(1) Hold at least one hearing in the State, after at least 20 
days of statewide public notice, to provide to the public an 
opportunity to comment on the provision of child care services under 
the Plan.
    (2) The hearing required by paragraph (c)(1) shall be held before 
the Plan is submitted to ACF, but no earlier than nine months before 
the Plan becomes effective.

[[Page 39985]]

    (3) In advance of the hearing required by this section, the Lead 
Agency shall make available to the public the content of the Plan as 
described in Sec. 98.16 that it proposes to submit to the Secretary.


Sec. 98.15  Assurances and certifications.

    (a) The Lead Agency shall include the following assurances in its 
CCDF Plan:
    (1) Upon approval, it will have in effect a program that complies 
with the provisions of the CCDF Plan, and that is administered in 
accordance with the Child Care and Development Block Grant Act of 1990, 
as amended, section 418 of the Social Security Act, and all other 
applicable Federal laws and regulations;
    (2) The parent(s) of each eligible child within the area served by 
the Lead Agency who receives or is offered child care services for 
which financial assistance is provided is given the option either:
    (i) To enroll such child with a child care provider that has a 
grant or contract for the provision of the service; or
    (ii) To receive a child care certificate as defined in Sec. 98.2;
    (3) In cases in which the parent(s), pursuant to Sec. 98.30, elects 
to enroll their child with a provider that has a grant or contract with 
the Lead Agency, the child will be enrolled with the eligible provider 
selected by the parent to the maximum extent practicable;
    (4) In accordance with Sec. 98.30, the child care certificate 
offered to parents shall be of a value commensurate with the subsidy 
value of child care services provided under a grant or contract;
    (5) With respect to State and local regulatory requirements (or 
tribal regulatory requirements), health and safety requirements, 
payment rates, and registration requirements, State or local (or 
tribal) rules, procedures or other requirements promulgated for the 
purpose of the CCDF will not significantly restrict parental choice 
from among categories of care or types of providers, pursuant to 
Sec. 98.30(f).
    (6) That if expenditures for pre-Kindergarten services are used to 
meet the maintenance-of-effort requirement, the State has not reduced 
its level of effort in full-day/full-year child care services, pursuant 
to Sec. 98.53(h)(1).
    (b) The Lead Agency shall include the following certifications in 
its CCDF Plan:
    (1) In accordance with Sec. 98.31, it has procedures in place to 
ensure that providers of child care services for which assistance is 
provided under the CCDF, afford parents unlimited access to their 
children and to the providers caring for their children, during the 
normal hours of operations and whenever such children are in the care 
of such providers;
    (2) As required by Sec. 98.32, the State maintains a record of 
substantiated parental complaints and makes information regarding such 
complaints available to the public on request;
    (3) It will collect and disseminate to parents of eligible children 
and the general public, consumer education information that will 
promote informed child care choices, as required by Sec. 98.33;
    (4) There are in effect licensing requirements applicable to child 
care services provided within the State (or area served by Tribal Lead 
Agency), pursuant to Sec. 98.40;
    (5) There are in effect within the State (or other area served by 
the Lead Agency), under State or local (or tribal) law, requirements 
designed to protect the health and safety of children that are 
applicable to child care providers that provide services for which 
assistance is made available under the CCDF, pursuant to Sec. 98.41;
    (6) In accordance with Sec. 98.41, procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under the CCDF comply with all applicable State or local (or 
tribal) health and safety requirements; and
    (7) Payment rates for the provision of child care services, in 
accordance with Sec. 98.43, are sufficient to ensure equal access for 
eligible children to comparable child care services in the State or 
sub-State area that are provided to children whose parents are not 
eligible to receive assistance under this program or under any other 
Federal or State child care assistance programs.


Sec. 98.16  Plan provisions.

    A CCDF Plan shall contain the following:
    (a) Specification of the Lead Agency whose duties and 
responsibilities are delineated in Sec. 98.10;
    (b) The assurances and certifications listed under Sec. 98.15;
    (c)(1) A description of how the CCDF program will be administered 
and implemented, if the Lead Agency does not directly administer and 
implement the program;
    (2) Identification of the entity designated to receive private 
donated funds and the purposes for which such funds will be expended, 
pursuant to Sec. 98.53(f);
    (d) A description of the coordination and consultation processes 
involved in the development of the Plan, including a description of 
public-private partnership activities that promote business involvement 
in meeting child care needs pursuant to Sec. 98.14(a) and (b);
    (e) A description of the public hearing process, pursuant to 
Sec. 98.14(c);
    (f) Definitions of the following terms for purposes of determining 
eligibility, pursuant to Secs. 98.20(a) and 98.44:
    (1) Special needs child;
    (2) Physical or mental incapacity (if applicable);
    (3) Attending (a job training or educational program);
    (4) Job training and educational program;
    (5) Residing with;
    (6) Working;
    (7) Protective services (if applicable), including whether children 
in foster care are considered in protective services for purposes of 
child care eligibility; and whether respite care is provided to 
custodial parents of children in protective services.
    (8) Very low income; and
    (9) in loco parentis.
    (g) For child care services pursuant to Sec. 98.50:
    (1) A description of such services and activities;
    (2) Any limits established for the provision of in-home care and 
the reasons for such limits pursuant to Sec. 98.30(e)(1)(iv);
    (3) A list of political subdivisions in which such services and 
activities are offered, if such services and activities are not 
available throughout the entire service area;
    (4) A description of how the Lead Agency will meet the needs of 
certain families specified at Sec. 98.50(e).
    (5) Any additional eligibility criteria, priority rules and 
definitions established pursuant to Sec. 98.20(b);
    (h) A description of the activities to provide comprehensive 
consumer education, to increase parental choice, and to improve the 
quality and availability of child care, pursuant to Sec. 98.51;
    (i) A description of the sliding fee scale(s) (including any 
factors other than income and family size used in establishing the fee 
scale(s)) that provide(s) for cost sharing by the families that receive 
child care services for which assistance is provided under the CCDF, 
pursuant to Sec. 98.42;
    (j) A description of the health and safety requirements, applicable 
to all providers of child care services for which assistance is 
provided under the CCDF, in effect pursuant to Sec. 98.41;
    (k) A description of the child care certificate payment system(s), 
including the form or forms of the child care certificate, pursuant to 
Sec. 98.30(c);
    (l) Payment rates and a summary of the facts, including a biennial 
local

[[Page 39986]]

market rate survey, relied upon to determine that the rates provided 
are sufficient to ensure equal access pursuant to Sec. 98.43;
    (m) A detailed description of how the State maintains a record of 
substantiated parental complaints and how it makes information 
regarding those complaints available to the public on request, pursuant 
to Sec. 98.32;
    (n) A detailed description of the procedures in effect for 
affording parents unlimited access to their children whenever their 
children are in the care of the provider, pursuant to Sec. 98.31;
    (o) A detailed description of the licensing requirements applicable 
to child care services provided, and a description of how such 
licensing requirements are effectively enforced, pursuant to 
Sec. 98.40;
    (p) Pursuant to Sec. 98.33(b), the definitions or criteria used to 
implement the exception, provided in section 407(e)(2) of the Social 
Security Act, to individual penalties in the TANF work requirement 
applicable to a single custodial parent caring for a child under age 
six;
    (q)(1) When any Matching funds under Sec. 98.53(b) are claimed, a 
description of the efforts to ensure that pre-Kindergarten programs 
meet the needs of working parents;
    (2) When State pre-Kindergarten expenditures are used to meet more 
than 10% of the amount required at Sec. 98.53(c)(1), or for more than 
10% of the funds available at Sec. 98.53(b), or both, a description of 
how the State will coordinate its pre-Kindergarten and child care 
services to expand the availability of child care; and
    (r) Such other information as specified by the Secretary.


Sec. 98.17  Period covered by Plan.

    (a) For States, Territories, and Indian Tribes the Plan shall cover 
a period of two years.
    (b) The Lead Agency shall submit a new Plan prior to the expiration 
of the time period specified in paragraph (a) of this section, at such 
time as required by the Secretary in written instructions.


Sec. 98.18  Approval and disapproval of Plans and Plan amendments.

    (a) Plan approval. The Assistant Secretary will approve a Plan that 
satisfies the requirements of the Act and this part. Plans will be 
approved not later than the 90th day following the date on which the 
Plan submittal is received, unless a written agreement to extend that 
period has been secured.
    (b) Plan amendments. Approved Plans shall be amended whenever a 
substantial change in the program occurs. A Plan amendment shall be 
submitted within 60 days of the effective date of the change. Plan 
amendments will be approved not later than the 90th day following the 
date on which the amendment is received, unless a written agreement to 
extend that period has been secured.
    (c) Appeal of disapproval of a Plan or Plan amendment.
    (1) An applicant or Lead Agency dissatisfied with a determination 
of the Assistant Secretary pursuant to paragraphs (a) or (b) of this 
section with respect to any Plan or amendment may, within 60 days after 
the date of receipt of notification of such determination, file a 
petition with the Assistant Secretary asking for reconsideration of the 
issue of whether such Plan or amendment conforms to the requirements 
for approval under the Act and pertinent Federal regulations.
    (2) Within 30 days after receipt of such petition, the Assistant 
Secretary shall notify the applicant or Lead Agency of the time and 
place at which the hearing for the purpose of reconsidering such issue 
will be held.
    (3) Such hearing shall be held not less than 30 days, nor more than 
90 days, after the notification is furnished to the applicant or Lead 
Agency, unless the Assistant Secretary and the applicant or Lead Agency 
agree in writing on another time.
    (4) Action pursuant to an initial determination by the Assistant 
Secretary described in paragraphs (a) and (b) of this section that a 
Plan or amendment is not approvable shall not be stayed pending the 
reconsideration, but in the event that the Assistant Secretary 
subsequently determines that the original decision was incorrect, the 
Assistant Secretary shall certify restitution forthwith in a lump sum 
of any funds incorrectly withheld or otherwise denied. The hearing 
procedures are described in part 99 of this chapter.

Subpart C--Eligibility for Services


Sec. 98.20  A child's eligibility for child care services.

    (a) In order to be eligible for services under Sec. 98.50, a child 
shall:
    (1)(i) Be under 13 years of age; or,
    (ii) At the option of the Lead Agency, be under age 19 and 
physically or mentally incapable of caring for himself or herself, or 
under court supervision;
    (2) Reside with a family whose income does not exceed 85 percent of 
the State's median income for a family of the same size; and
    (3)(i) Reside with a parent or parents (as defined in Sec. 98.2) 
who are working or attending a job training or educational program; or
    (ii) Receive, or need to receive, protective services and reside 
with a parent or parents (as defined in Sec. 98.2) other than the 
parent(s) described in paragraph (a)(3)(i) of this section.
    (A) At grantee option, the requirements in paragraph (a)(2) of this 
section and in Sec. 98.42 may be waived for families eligible for child 
care pursuant to this paragraph, if determined to be necessary on a 
case-by-case basis by, or in consultation with, an appropriate 
protective services worker.
    (B) At grantee option, the provisions in (A) apply to children in 
foster care when defined in the Plan, pursuant to Sec. 98.16(f)(7).
    (b) Pursuant to Sec. 98.16(g)(5), a grantee or other administering 
agency may establish eligibility conditions or priority rules in 
addition to those specified in this section and Sec. 98.44 so long as 
they do not:
    (1) Discriminate against children on the basis of race, national 
origin, ethnic background, sex, religious affiliation, or disability;
    (2) Limit parental rights provided under Subpart D; or
    (3) Violate the provisions of this section, Sec. 98.44, or the 
Plan. In particular, such conditions or priority rules may not be based 
on a parent's preference for a category of care or type of provider. In 
addition, such additional conditions or rules may not be based on a 
parent's choice of a child care certificate.

Subpart D--Program Operations (Child Care Services)--Parental 
Rights and Responsibilities


Sec. 98.30  Parental choice.

    (a) The parent or parents of an eligible child who receives or is 
offered child care services shall be offered a choice:
    (1) To enroll the child with an eligible child care provider that 
has a grant or contract for the provision of such services, if such 
services are available; or
    (2) To receive a child care certificate as defined in Sec. 98.2.
    Such choice shall be offered any time that child care services are 
made available to a parent.
    (b) When a parent elects to enroll the child with a provider that 
has a grant or contract for the provision of child care services, the 
child will be enrolled with the provider selected by the parent to the 
maximum extent practicable.
    (c) In cases in which a parent elects to use a child care 
certificate, such certificate:

[[Page 39987]]

    (1) Will be issued directly to the parent;
    (2) Shall be of a value commensurate with the subsidy value of the 
child care services provided under paragraph (a)(1) of this section;
    (3) May be used as a deposit for child care services if such a 
deposit is required of other children being cared for by the provider;
    (4) May be used for child care services provided by a sectarian 
organization or agency, including those that engage in religious 
activities, if those services are chosen by the parent;
    (5) May be expended by providers for any sectarian purpose or 
activity that is part of the child care services, including sectarian 
worship or instruction;
    (6) Shall not be considered a grant or contract to a provider but 
shall be considered assistance to the parent.
    (d) Child care certificates shall be made available to any parents 
offered child care services.
    (e)(1) For child care services, certificates under paragraph (a)(2) 
of this section shall permit parents to choose from a variety of child 
care categories, including:
    (i) Center-based child care;
    (ii) Group home child care;
    (iii) Family child care; and
    (iv) In-home child care, with limitations, if any, imposed by the 
Lead Agency and described in its Plan at Sec. 98.16(g)(2).
    Under each of the above categories, care by a sectarian provider 
may not be limited or excluded.
    (2) Lead Agencies shall provide information regarding the range of 
provider options under paragraph (e)(1) of this section, including care 
by sectarian providers and relatives, to families offered child care 
services.
    (f) With respect to State and local regulatory requirements under 
Sec. 98.40, health and safety requirements under Sec. 98.41, and 
payment rates under Sec. 98.43, CCDF funds will not be available to a 
Lead Agency if State or local rules, procedures or other requirements 
promulgated for purposes of the CCDF significantly restrict parental 
choice by:
    (1) Expressly or effectively excluding:
    (i) Any category of care or type of provider, as defined in 
Sec. 98.2; or
    (ii) Any type of provider within a category of care; or
    (2) Having the effect of limiting parental access to or choice from 
among such categories of care or types of providers, as defined in 
Sec. 98.2; or
    (3) Excluding a significant number of providers in any category of 
care or of any type as defined in Sec. 98.2.


Sec. 98.31  Parental access.

    The Lead Agency shall have in effect procedures to ensure that 
providers of child care services for which assistance is provided 
afford parents unlimited access to their children, and to the providers 
caring for their children, during normal hours of provider operation 
and whenever the children are in the care of the provider. The Lead 
Agency shall provide a detailed description of such procedures.


Sec. 98.32  Parental complaints.

    The State shall:
    (a) Maintain a record of substantiated parental complaints;
    (b) Make information regarding such parental complaints available 
to the public on request; and
    (c) The Lead Agency shall provide a detailed description of how 
such record is maintained and is made available.


Sec. 98.33  Consumer education.

    The Lead Agency shall:
    (a) Certify that it will collect and disseminate to parents and the 
general public consumer education information that will promote 
informed child care choices including, at a minimum, information about
    (1) the full range of providers available, and
    (2) health and safety requirements;
    (b) Inform parents who receive TANF benefits about the requirement 
at section 407(e)(2) of the Social Security Act that the TANF agency 
make an exception to the individual penalties associated with the work 
requirement for any single custodial parent who has a demonstrated 
inability to obtain needed child care for a child under six years of 
age. The information may be provided directly by the Lead Agency, or, 
pursuant to Sec. 98.11, other entities, and shall include:
    (1) The procedures the TANF agency uses to determine if the parent 
has a demonstrated inability to obtain needed child care;
    (2) The criteria or definitions applied by the TANF agency to 
determine whether the parent has a demonstrated inability to obtain 
needed child care, including:
    (i) ``Appropriate child care'';
    (ii) ``Reasonable distance'';
    (iii) ``Unsuitability of informal child care'';
    (iv) ``Affordable child care arrangements'';
    (3) The clarification that assistance received during the time an 
eligible parent receives the exception referred to in paragraph (b) of 
this section will count toward the time limit on Federal benefits 
required at section 408(a)(7) of the Social Security Act.
    (c) Include in the biennial Plan the definitions or criteria the 
TANF agency uses in implementing the exception to the work requirement 
specified in paragraph (b) of this section.


Sec. 98.34  Parental rights and responsibilities.

    Nothing under this part shall be construed or applied in any manner 
to infringe on or usurp the moral and legal rights and responsibilities 
of parents or legal guardians.

Subpart E--Program Operations (Child Care Services)--Lead Agency 
and Provider Requirements


Sec. 98.40  Compliance with applicable State and local regulatory 
requirements.

    (a) Lead Agencies shall:
    (1) Certify that they have in effect licensing requirements 
applicable to child care services provided within the area served by 
the Lead Agency;
    (2) Provide a detailed description of the requirements under 
paragraph (a)(1) of this section and of how they are effectively 
enforced.
    (b)(1) This section does not prohibit a Lead Agency from imposing 
more stringent standards and licensing or regulatory requirements on 
child care providers of services for which assistance is provided under 
the CCDF than the standards or requirements imposed on other child care 
providers.
    (2) Any such additional requirements shall be consistent with the 
safeguards for parental choice in Sec. 98.30(f).


Sec. 98.41  Health and safety requirements.

    (a) Although the Act specifically states it does not require the 
establishment of any new or additional requirements if existing 
requirements comply with the requirements of the statute, each Lead 
Agency shall certify that there are in effect, within the State (or 
other area served by the Lead Agency), under State, local or tribal 
law, requirements designed to protect the health and safety of children 
that are applicable to child care providers of services for which 
assistance is provided under this part. Such requirements shall 
include:
    (1) The prevention and control of infectious diseases (including 
immunizations). With respect to immunizations, the following provisions 
apply:
    (i) As part of their health and safety provisions in this area, 
States and Territories shall assure that children receiving services 
under the CCDF are age-appropriately immunized. Those health and safety 
provisions shall incorporate (by reference or otherwise) the latest 
recommendation for

[[Page 39988]]

childhood immunizations of the respective State or territorial public 
health agency.
    (ii) Notwithstanding paragraph (a)(1)(i) of this section, Lead 
Agencies may exempt:
    (A) Children who are cared for by relatives (defined as 
grandparents, great grandparents, siblings (if living in a separate 
residence), aunts, and uncles);
    (B) Children who receive care in their own homes;
    (C) Children whose parents object to immunization on religious 
grounds; and
    (D) Children whose medical condition contraindicates immunization;
    (iii) Lead Agencies shall establish a grace period in which 
children can receive services while families are taking the necessary 
actions to comply with the immunization requirements;
    (2) Building and physical premises safety; and
    (3) Minimum health and safety training appropriate to the provider 
setting.
    (b) Lead Agencies may not set health and safety standards and 
requirements under paragraph (a) of this section that are inconsistent 
with the parental choice safeguards in Sec. 98.30(f).
    (c) The requirements in paragraph (a) of this section shall apply 
to all providers of child care services for which assistance is 
provided under this part, within the area served by the Lead Agency, 
except the relatives specified in paragraph (e) of this section.
    (d) Each Lead Agency shall certify that procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under this part, within the area served by the Lead Agency, 
comply with all applicable State, local, or tribal health and safety 
requirements described in paragraph (a) of this section.
    (e) For the purposes of this section, the term ``child care 
providers'' does not include grandparents, great grandparents, siblings 
(if such providers live in a separate residence), aunts, or uncles, 
pursuant to Sec. 98.2.


Sec. 98.42  Sliding fee scales.

    (a) Lead Agencies shall establish, and periodically revise, by 
rule, a sliding fee scale(s) that provides for cost sharing by families 
that receive CCDF child care services.
    (b) A sliding fee scale(s) shall be based on income and the size of 
the family and may be based on other factors as appropriate.
    (c) Lead Agencies may waive contributions from families whose 
incomes are at or below the poverty level for a family of the same 
size.


Sec. 98.43  Equal access.

    (a) The Lead Agency shall certify that the payment rates for the 
provision of child care services under this part are sufficient to 
ensure equal access, for eligible families in the area served by the 
Lead Agency, to child care services comparable to those provided to 
families not eligible to receive CCDF assistance or child care 
assistance under any other Federal, State, or tribal programs.
    (b) The Lead Agency shall provide a summary of the facts relied on 
to determine that its payment rates ensure equal access. At a minimum, 
the summary shall include facts showing:
    (1) How a choice of the full range of providers, e.g., center, 
group, family, and in-home care, is made available;
    (2) How payment rates are adequate based on a local market rate 
survey conducted no earlier than two years prior to the effective date 
of the currently approved Plan;
    (3) How copayments based on a sliding fee scale are affordable, as 
stipulated at Sec. 98.42.
    (c) A Lead Agency may not establish different payment rates based 
on a family's eligibility status or circumstances.
    (d) Payment rates under paragraph (a) of this section shall be 
consistent with the parental choice requirements in Sec. 98.30.
    (e) Nothing in this section shall be construed to create a private 
right of action.


Sec. 98.44  Priority for child care services.

    Lead Agencies shall give priority for services provided under 
Sec. 98.50(a) to:
    (a) Children of families with very low family income (considering 
family size); and
    (b) Children with special needs.


Sec. 98.45  List of Providers.

    If a Lead Agency does not have a registration process for child 
care providers who are unlicensed or unregulated under State, local, or 
tribal law, it is required to maintain a list of the names and 
addresses of unlicensed or unregulated providers of child care services 
for which assistance is provided under this part.


Sec. 98.46  Nondiscrimination in admissions on the basis of religion.

    (a) Child care providers (other than family child care providers, 
as defined in Sec. 98.2) that receive assistance through grants and 
contracts under the CCDF shall not discriminate in admissions against 
any child on the basis of religion.
    (b) Paragraph (a) of this section does not prohibit a child care 
provider from selecting children for child care slots that are not 
funded directly (i.e., through grants or contracts to providers) with 
assistance provided under the CCDF because such children or their 
family members participate on a regular basis in other activities of 
the organization that owns or operates such provider.
    (c) Notwithstanding paragraph (b) of this section, if 80 percent or 
more of the operating budget of a child care provider comes from 
Federal or State funds, including direct or indirect assistance under 
the CCDF, the Lead Agency shall assure that before any further CCDF 
assistance is given to the provider,
    (1) The grant or contract relating to the assistance, or
    (2) The admission policies of the provider specifically provide 
that no person with responsibilities in the operation of the child care 
program, project, or activity will discriminate, on the basis of 
religion, in the admission of any child.


Sec. 98.47  Nondiscrimination in employment on the basis of religion.

    (a) In general, except as provided in paragraph (b) of this 
section, nothing in this part modifies or affects the provision of any 
other applicable Federal law and regulation relating to discrimination 
in employment on the basis of religion.
    (1) Child care providers that receive assistance through grants or 
contracts under the CCDF shall not discriminate, on the basis of 
religion, in the employment of caregivers as defined in Sec. 98.2.
    (2) If two or more prospective employees are qualified for any 
position with a child care provider, this section shall not prohibit 
the provider from employing a prospective employee who is already 
participating on a regular basis in other activities of the 
organization that owns or operates the provider.
    (3) Paragraphs (a)(1) and (2) of this section shall not apply to 
employees of child care providers if such employees were employed with 
the provider on November 5, 1990.
    (b) Notwithstanding paragraph (a) of this section, a sectarian 
organization may require that employees adhere to the religious tenets 
and teachings of such organization and to rules forbidding the use of 
drugs or alcohol.
    (c) Notwithstanding paragraph (b) of this section, if 80 percent or 
more of the operating budget of a child care provider comes from 
Federal and State funds, including direct and indirect assistance under 
the CCDF, the Lead

[[Page 39989]]

Agency shall assure that, before any further CCDF assistance is given 
to the provider,
    (1) The grant or contract relating to the assistance, or
    (2) The employment policies of the provider specifically provide 
that no person with responsibilities in the operation of the child care 
program will discriminate, on the basis of religion, in the employment 
of any individual as a caregiver, as defined in Sec. 98.2.

Subpart F--Use of Child Care and Development Funds


Sec. 98.50  Child care services.

    (a) Of the funds remaining after applying the provisions of 
paragraphs (c), (d) and (e) of this section the Lead Agency shall spend 
a substantial portion to provide child care services to low-income 
working families.
    (b) Child care services shall be provided:
    (1) To eligible children, as described in Sec. 98.20;
    (2) Using a sliding fee scale, as described in Sec. 98.42;
    (3) Using funding methods provided for in Sec. 98.30; and
    (4) Based on the priorities in Sec. 98.44.
    (c) Of the aggregate amount of funds expended (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no less than 
four percent shall be used for activities to improve the quality of 
child care as described at Sec. 98.51.
    (d) Of the aggregate amount of funds expended (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no more than 
five percent may be used for administrative activities as described at 
Sec. 98.52.
    (e) Not less than 70 percent of the Mandatory and Matching Funds 
shall be used to meet the child care needs of families who:
    (1) Are receiving assistance under a State program under Part A of 
title IV of the Social Security Act,
    (2) Are attempting through work activities to transition off such 
assistance program, and
    (3) Are at risk of becoming dependent on such assistance program.
    (f) Pursuant to Sec. 98.16(g)(4), the Plan shall specify how the 
State will meet the child care needs of families described in paragraph 
(e) of this section.


Sec. 98.51  Activities to improve the quality of child care.

    (a) No less than four percent of the aggregate funds expended by 
the Lead Agency for a fiscal year, and including the amounts expended 
in the State pursuant to Sec. 98.53(b), shall be expended for quality 
activities.
    (1) These activities may include but are not limited to:
    (i) Activities designed to provide comprehensive consumer education 
to parents and the public;
    (ii) Activities that increase parental choice; and
    (iii) Activities designed to improve the quality and availability 
of child care, including, but not limited to those described in 
paragraph (2) of this section.
    (2) Activities to improve the quality of child care services may 
include, but are not limited to:
    (i) Operating directly or providing financial assistance to 
organizations (including private non-profit organizations, public 
organizations, and units of general purpose local government) for the 
development, establishment, expansion, operation, and coordination of 
resource and referral programs specifically related to child care;
    (ii) Making grants or providing loans to child care providers to 
assist such providers in meeting applicable State, local, and tribal 
child care standards, including applicable health and safety 
requirements, pursuant to Secs. 98.40 and 98.41;
    (iii) Improving the monitoring of compliance with, and enforcement 
of, applicable State, local, and tribal requirements pursuant to 
Secs. 98.40 and 98.41;
    (iv) Providing training and technical assistance in areas 
appropriate to the provision of child care services, such as training 
in health and safety, nutrition, first aid, the recognition of 
communicable diseases, child abuse detection and prevention, and care 
of children with special needs;
    (v) Improving salaries and other compensation (such as fringe 
benefits) for full-and part-time staff who provide child care services 
for which assistance is provided under this part; and
    (vi) Any other activities that are consistent with the intent of 
this section.
    (b) Pursuant to Sec. 98.16(h), the Lead Agency shall describe in 
its Plan the activities it will fund under this section.
    (c) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the 
maintenance-of-effort amount) are not subject to the requirement at 
paragraph (a) of this section.


Sec. 98.52  Administrative costs.

    (a) Not more than five percent of the aggregate funds expended by 
the Lead Agency from each fiscal year's allotment, including the 
amounts expended in the State pursuant to Sec. 98.53(b), shall be 
expended for administrative activities. These activities may include 
but are not limited to:
    (1) Salaries and related costs of the staff of the Lead Agency or 
other agencies engaged in the administration and implementation of the 
program pursuant to Sec. 98.11. Program administration and 
implementation include the following types of activities:
    (i) Planning, developing, and designing the Child Care and 
Development Fund program;
    (ii) Providing local officials and the public with information 
about the program, including the conduct of public hearings;
    (iii) Preparing the application and Plan;
    (iv) Developing agreements with administering agencies in order to 
carry out program activities;
    (v) Monitoring program activities for compliance with program 
requirements;
    (vi) Preparing reports and other documents related to the program 
for submission to the Secretary;
    (vii) Maintaining substantiated complaint files in accordance with 
the requirements of Sec. 98.32;
    (viii) Coordinating the provision of Child Care and Development 
Fund services with other Federal, State, and local child care, early 
childhood development programs, and before-and after-school care 
programs;
    (ix) Coordinating the resolution of audit and monitoring findings;
    (x) Evaluating program results; and
    (xi) Managing or supervising persons with responsibilities 
described in paragraphs (a)(1)(i) through (x) of this section;
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services, including such services as accounting 
services, performed by grantees or subgrantees or under agreements with 
third parties;
    (4) Audit services as required at Sec. 98.65;
    (5) Other costs for goods and services required for the 
administration of the program, including rental or purchase of 
equipment, utilities, and office supplies; and
    (6) Indirect costs as determined by an indirect cost agreement or 
cost allocation plan pursuant to Sec. 98.55.
    (b) The five percent limitation at paragraph (a) of this section 
applies only to the States and Territories. The amount of the 
limitation at paragraph (a) of this section does not apply to Tribes or 
tribal organizations.
    (c) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the 
maintenance-of-effort amount) are not subject to the five percent 
limitation at paragraph (a) of this section.

[[Page 39990]]

Sec. 98.53  Matching fund requirements.

    (a) Federal matching funds are available for expenditures in a 
State based upon the formula specified at Sec. 98.63(a).
    (b) Expenditures in a State under paragraph (a) of this section 
will be matched at the Federal medical assistance rate for the 
applicable fiscal year for allowable activities, as described in the 
approved State Plan, that meet the goals and purposes of the Act.
    (c) In order to receive Federal matching funds for a fiscal year 
under paragraph (a) of this section:
    (1) States shall also expend an amount of non-Federal funds for 
child care activities in the State that is at least equal to the 
State's share of expenditures for fiscal year 1994 or 1995 (whichever 
is greater) under sections 402(g) and (i) of the Social Security Act as 
these sections were in effect before October 1, 1995; and
    (2) The expenditures shall be for allowable services or activities, 
as described in the approved State Plan if appropriate, that meet the 
goals and purposes of the Act.
    (3) All Mandatory Funds are obligated in accordance with 
Sec. 98.60(d)(2)(i).
    (d) The same expenditure may not be used to meet the requirements 
under both paragraphs (b) and (c) of this section in a fiscal year.
    (e) An expenditure in the State for purposes of this subpart may 
be:
    (1) Public funds when the funds are:
    (i) Appropriated directly to the Lead Agency specified at 
Sec. 98.10, or transferred from another public agency to that Lead 
Agency and under its administrative control, or certified by the 
contributing public agency as representing expenditures eligible for 
Federal match;
    (ii) Not used to match other Federal funds; and
    (iii) Not Federal funds, or are Federal funds authorized by Federal 
law to be used to match other Federal funds; or
    (2) Donated from private sources when the donated funds:
    (i) Are donated without any restriction that would require their 
use for a specific individual, organization, facility or institution;
    (ii) Do not revert to the donor's facility or use; and
    (iii) Are not used to match other Federal funds;
    (iv) Shall be certified both by the donor and by the Lead Agency as 
available and representing expenditures eligible for Federal match; and
    (v) Shall be subject to the audit requirements in Sec. 98.65 of 
these regulations.
    (f) Donated funds need not be transferred to or under the 
administrative control of the Lead Agency in order to qualify as an 
expenditure eligible to receive Federal match under this subsection. 
They may be given to the entity designated by the State to receive 
donated funds pursuant to Sec. 98.16(c)(2).
    (g) The following are not counted as an eligible State expenditure 
under this Part:
    (1) In-kind contributions; and
    (2) Family contributions to the cost of care as required by 
Sec. 98.42.
    (h) Public pre-kindergarten (pre-K) expenditures:
    (1) May be used to meet the maintenance-of-effort requirement only 
if the State has not reduced its expenditures for full-day/full-year 
child care services; and
    (2) May be eligible for Federal match if the State includes in its 
Plan, as provided in Sec. 98.16(q), a description of the efforts it 
will undertake to ensure that pre-K programs meet the needs of working 
parents.
    (3) In any fiscal year, a State may use public pre-K funds for up 
to 20% of the funds serving as maintenance-of-effort under this 
subsection. In any fiscal year, a State may use other public pre-K 
funds for up to 20% of the expenditures serving as the State's matching 
funds under this subsection.
    (4) If applicable, the CCDF Plan shall reflect the State's intent 
to use public pre-K funds in excess of 10%, but not for more than 20%, 
of either its maintenance-of-effort or State matching funds in a fiscal 
year. Also, the Plan shall describe how the State will coordinate its 
pre-K and child care services to expand the availability of child care.
    (i) Matching funds are subject to the obligation and liquidation 
requirements at Sec. 98.60(d)(3).


Sec. 98.54  Restrictions on the use of funds.

    (a) General. (1) Funds authorized under section 418 of the Social 
Security Act and section 658B of the Child Care and Development Block 
Grant Act, and all funds transferred to the Lead Agency pursuant to 
section 404(d) of the Social Security Act, shall be expended consistent 
with these regulations. Funds transferred pursuant to section 404(d) of 
the Social Security Act shall be treated as Discretionary Funds;
    (2) Funds shall be expended in accordance with applicable State and 
local laws, except as superseded by Sec. 98.3.
    (b) Construction. (1) For State and local agencies and nonsectarian 
agencies or organizations, no funds shall be expended for the purchase 
or improvement of land, or for the purchase, construction, or permanent 
improvement of any building or facility. However, funds may be expended 
for minor remodeling, and for upgrading child care facilities to assure 
that providers meet State and local child care standards, including 
applicable health and safety requirements.
    (2) For sectarian agencies or organizations, the prohibitions in 
paragraph (b)(1) of this section apply; however, funds may be expended 
for minor remodeling only if necessary to bring the facility into 
compliance with the health and safety requirements established pursuant 
to Sec. 98.41.
    (3) Tribes and tribal organizations are subject to the requirements 
at Sec. 98.84 regarding construction and renovation.
    (c) Tuition. Funds may not be expended for students enrolled in 
grades 1 through 12 for:
    (1) Any service provided to such students during the regular school 
day;
    (2) Any service for which such students receive academic credit 
toward graduation; or
    (3) Any instructional services that supplant or duplicate the 
academic program of any public or private school.
    (d) Sectarian purposes and activities. Funds provided under grants 
or contracts to providers may not be expended for any sectarian purpose 
or activity, including sectarian worship or instruction. Pursuant to 
Sec. 98.2, assistance provided to parents through certificates is not a 
grant or contract. Funds provided through child care certificates may 
be expended for sectarian purposes or activities, including sectarian 
worship or instruction when provided as part of the child care 
services.
    (e) The CCDF may not be used as the non-Federal share for other 
Federal grant programs.


Sec. 98.55  Cost allocation.

    (a) The Lead Agency and subgrantees shall keep on file cost 
allocation plans or indirect cost agreements, as appropriate, that have 
been amended to include costs allocated to the CCDF.
    (b) Subgrantees that do not already have a negotiated indirect rate 
with the Federal government should prepare and keep on file cost 
allocation plans or indirect cost agreements, as appropriate.
    (c) Approval of the cost allocation plans or indirect cost 
agreements is not specifically required by these regulations, but these 
plans and agreements are subject to review.

[[Page 39991]]

Subpart G--Financial Management


Sec. 98.60  Availability of funds.

    (a) The CCDF is available, subject to the availability of 
appropriations, in accordance with the apportionment of funds from the 
Office of Management and Budget as follows:
    (1) Discretionary Funds are available to States, Territories, and 
Tribes,
    (2) Mandatory and Matching Funds are available to States;
    (3) Tribal Mandatory Funds are available to Tribes.
    (b) Subject to the availability of appropriations, in accordance 
with the apportionment of funds from the Office of Management and 
Budget, the Secretary:
    (1) May withhold no more than one-quarter of one percent of the 
CCDF funds made available for a fiscal year for the provision of 
technical assistance; and
    (2) Will award the remaining CCDF funds to grantees that have an 
approved application and Plan.
    (c) The Secretary may make payments in installments, and in advance 
or by way of reimbursement, with necessary adjustments due to 
overpayments or underpayments.
    (d) The following obligation and liquidation provisions apply to 
States and Territories:
    (1) Discretionary Fund allotments shall be obligated in the fiscal 
year in which funds are awarded or in the succeeding fiscal year. 
Unliquidated obligations as of the end of the succeeding fiscal year 
shall be liquidated within one year.
    (2)(i) Mandatory Funds for States requesting Matching Funds per 
Sec. 98.53 shall be obligated in the fiscal year in which the funds are 
granted and are available until expended.
    (ii) Mandatory Funds for States that do not request Matching Funds 
are available until expended.
    (3) Both the Federal and non-Federal share of the Matching Fund 
shall be obligated in the fiscal year in which the funds are granted 
and liquidated no later than the end of the succeeding fiscal year.
    (4) Except for paragraph (d)(5) of this section, determination of 
whether funds have been obligated and liquidated will be based on:
    (i) State or local law; or,
    (ii) If there is no applicable State or local law, the regulation 
at 45 CFR 92.3, Obligations and Outlays (expenditures).
    (5) Obligations may include subgrants or contracts that require the 
payment of funds to a third party (e.g., subgrantee or contractor). 
However, the following are not considered third party subgrantees or 
contractors:
    (i) A local office of the Lead Agency;
    (ii) Another entity at the same level of government as the Lead 
Agency; or
    (iii) A local office of another entity at the same level of 
government as the Lead Agency.
    (6) For purposes of the CCDF, funds for child care services 
provided through a child care certificate will be considered obligated 
when a child care certificate is issued to a family in writing that 
indicates:
    (i) The amount of funds that will be paid to a child care provider 
or family, and
    (ii) The specific length of time covered by the certificate, which 
is limited to the date established for redetermination of the family's 
eligibility, but shall be no later than the end of the liquidation 
period.
    (7) Any funds not obligated during the obligation period specified 
in paragraph (d) of this section will revert to the Federal government. 
Any funds not liquidated by the end of the applicable liquidation 
period specified in paragraph (d) of this section will also revert to 
the Federal government.
    (e) The following obligation and liquidation provisions apply to 
Tribal Discretionary and Tribal Mandatory Funds:
    (1) Tribal grantees shall obligate all funds by the end of the 
fiscal year following the fiscal year for which the grant is awarded. 
Any funds not obligated during this period will revert to the Federal 
government.
    (2) Obligations that remain unliquidated at the end of the 
succeeding fiscal year shall be liquidated within the next fiscal year. 
Any tribal funds that remain unliquidated by the end of this period 
will also revert to the Federal government.
    (f) Cash advances shall be limited to the minimum amounts needed 
and shall be timed to be in accord with the actual, immediate cash 
requirements of the State Lead Agency, its subgrantee or contractor in 
carrying out the purpose of the program in accordance with 31 CFR part 
205.
    (g) Funds that are returned (e.g., loan repayments, funds 
deobligated by cancellation of a child care certificate, unused 
subgrantee funds) as well as program income (e.g., contributions made 
by families directly to the Lead Agency or subgrantee for the cost of 
care where the Lead Agency or subgrantee has made a full payment to the 
child care provider) shall,
    (1) if received by the Lead Agency during the applicable obligation 
period, described in paragraphs (d) and (e) of this section, be used 
for activities specified in the Lead Agency's approved plan and must be 
obligated by the end of the obligation period; or
    (2) if received after the end of the applicable obligation period 
described at paragraphs (d) and (e) of this section, be returned to the 
Federal government.
    (h) Repayment of loans, pursuant to Sec. 98.51(a)(2)(ii), may be 
made in cash or in services provided in-kind. Payment provided in-kind 
shall be based on fair market value. All loans shall be fully repaid.
    (i) Lead Agencies shall recover child care payments that are the 
result of fraud. These payments shall be recovered from the party 
responsible for committing the fraud.


Sec. 98.61  Allotments from the Discretionary Fund.

    (a) To the 50 States, the District of Columbia, and the 
Commonwealth of Puerto Rico an amount equal to the funds appropriated 
for the Child Care and Development Block Grant, less amounts reserved 
for technical assistance and amounts reserved for the Territories and 
Tribes, pursuant to Sec. 98.60(b) and paragraphs (b) and (c) of this 
section, shall be allotted based upon the formula specified in section 
658O(b) of the Act.
    (b) For the U.S. Territories of Guam, American Samoa, the Virgin 
Islands of the United States, and the Commonwealth of the Northern 
Mariana Islands an amount up to one-half of one percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
    (1) Funds shall be allotted to these Territories based upon the 
following factors:
    (i) A Young Child factor--the ratio of the number of children in 
the Territory under five years of age to the number of such children in 
all Territories; and
    (ii) An Allotment Proportion factor--determined by dividing the per 
capita income of all individuals in all the Territories by the per 
capita income of all individuals in the Territory.
    (A) Per capita income shall be:
    (1) Equal to the average of the annual per capita incomes for the 
most recent period of three consecutive years for which satisfactory 
data are available at the time such determination is made; and
    (2) Determined every two years.
    (B) Per capita income determined, pursuant to paragraph 
(b)(1)(ii)(A) of this section, will be applied in establishing the 
allotment for the fiscal year for which it is determined and for the 
following fiscal year.
    (C) If the Allotment Proportion factor determined at paragraph 
(b)(1)(ii) of this section:

[[Page 39992]]

    (1) Exceeds 1.2, then the Allotment Proportion factor of the 
Territory shall be considered to be 1.2; or
    (2) Is less than 0.8, then the Allotment Proportion factor of the 
Territory shall be considered to be 0.8.
    (2) The formula used in calculating a Territory's allotment is as 
follows:
[GRAPHIC] [TIFF OMITTED] TR24JY98.000

    (ii) For purposes of the formula specified at paragraph (b)(2)(i) 
of this section, the term ``YCF<INF>t</INF>'' means the Territory's 
Young Child factor as defined at paragraph (b)(1)(i) of this section.
    (iii) For purposes of the formula specified at paragraph (b)(2)(i) 
of this section, the term ``APF<INF>t</INF>'' means the Territory's 
Allotment Proportion factor as defined at paragraph (b)(1)(ii) of this 
section.
    (c) For Indian Tribes and tribal organizations, including any 
Alaskan Native Village or regional or village corporation as defined in 
or established pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601 et seq) an amount up to two percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
    (1) Except as specified in paragraph (c)(2) of this section, grants 
to individual tribal grantees will be equal to the sum of:
    (i) A base amount as set by the Secretary; and
    (ii) An additional amount per Indian child under age 13 (or such 
similar age as determined by the Secretary from the best available 
data), which is determined by dividing the amount of funds available, 
less amounts set aside for eligible Tribes, pursuant to paragraph 
(c)(1)(i) of this section, by the number of all Indian children living 
on or near tribal reservations or other appropriate area served by the 
tribal grantee, pursuant to Sec. 98.80(e).
    (2) Grants to Tribes with fewer than 50 Indian children that apply 
as part of a consortium, pursuant to Sec. 98.80(b)(1), are equal to the 
sum of:
    (i) A portion of the base amount, pursuant to paragraph (c)(1)(i) 
of this section, that bears the same ratio as the number of Indian 
children in the Tribe living on or near the reservation, or other 
appropriate area served by the tribal grantee, pursuant to 
Sec. 98.80(e), does to 50; and
    (ii) An additional amount per Indian child, pursuant to paragraph 
(c)(1)(ii) of this section.
    (3) Tribal consortia will receive grants that are equal to the sum 
of the individual grants of their members.
    (d) All funds reserved for Territories at paragraph (b) of this 
section will be allotted to Territories, and all funds reserved for 
Tribes at paragraph (c) of this section will be allotted to tribal 
grantees. Any funds that are returned by the Territories after they 
have been allotted will revert to the Federal government.
    (e) For other organizations, up to $2,000,000 may be reserved from 
the tribal funds reserved at paragraph (c) of this section. From this 
amount the Secretary may award a grant to a Native Hawaiian 
Organization, as defined in section 4009(4) of the Augustus F. Hawkins-
Robert T. Stafford Elementary and Secondary School Improvement 
Amendments of 1988 (20 U.S.C. 4909(4)) and to a private non-profit 
organization established for the purpose of serving youth who are 
Indians or Native Hawaiians. The Secretary will establish selection 
criteria and procedures for the award of grants under this subsection 
by notice in the Federal Register.


Sec. 98.62  Allotments from the Mandatory Fund.

    (a) Each of the 50 States and the District of Columbia will be 
allocated from the funds appropriated under section 418(a)(3) of the 
Social Security Act, less the amounts reserved for technical assistance 
pursuant to Sec. 98.60(b)(1) and the amount reserved for Tribes 
pursuant to paragraph (b) of this section, an amount of funds equal to 
the greater of:
    (1) the Federal share of its child care expenditures under 
subsections (g) and (i) of section 402 of the Social Security Act (as 
in effect before October 1, 1995) for fiscal year 1994 or 1995 
(whichever is greater); or
    (2) the average of the Federal share of its child care expenditures 
under the subsections referred to in subparagraph (a)(1) of this 
section for fiscal years 1992 through 1994.
    (b) For Indian Tribes and tribal organizations up to 2 percent of 
the amount appropriated under section 418(a)(3) of the Social Security 
Act shall be allocated according to the formula at paragraph (c) of 
this section. In Alaska, only the following 13 entities shall receive 
allocations under this subpart, in accordance with the formula at 
paragraph (c) of this section:
    (1) The Metlakatla Indian Community of the Annette Islands Reserve:
    (2) Arctic Slope Native Association;
    (3) Kawerak, Inc.;
    (4) Maniilaq Association;
    (5) Association of Village Council Presidents;
    (6) Tanana Chiefs Conference;
    (7) Cook Inlet Tribal Council;
    (8) Bristol Bay Native Association;
    (9) Aleutian and Pribilof Islands Association;
    (10) Chugachmuit;
    (11) Tlingit and Haida Central Council;
    (12) Kodiak Area Native Association; and
    (13) Copper River Native Association.
    (c)(1) Grants to individual Tribes with 50 or more Indian children, 
and to Tribes with fewer than 50 Indian children that apply as part of 
a consortium pursuant to Sec. 98.80(b)(1), will be equal to an amount 
per Indian child under age 13 (or such similar age as determined by the 
Secretary from the best available data), which is determined by 
dividing the amount of funds available, by the number of Indian 
children in each Tribe's service area pursuant to Sec. 98.80(e).
    (2) Tribal consortia will receive grants that are equal to the sum 
of the individual grants of their members.


Sec. 98.63  Allotments from the Matching Fund.

    (a) To each of the 50 States and the District of Columbia there is 
allocated an amount equal to its share of the total available under 
section 418(a)(3) of the Social Security Act. That amount is based on 
the same ratio as the number of children under age 13 residing in the 
State bears to the national total of children under age 13. The number 
of children under 13 is derived from the best data available to the 
Secretary for the second preceding fiscal year.
    (b) For purposes of this subsection, the amounts available under 
section 418(a)(3) of the Social Security Act excludes the amounts 
reserved and allocated under Sec. 98.60(b)(1) for technical assistance 
and under Sec. 98.62(a) and (b) for the Mandatory Fund.
    (c) Amounts under this subsection are available pursuant to the 
requirements at Sec. 98.53(c).


Sec. 98.64  Reallotment and redistribution of funds.

    (a) According to the provisions of this section State and Tribal 
Discretionary Funds are subject to reallotment, and State Matching 
Funds are subject to redistribution. State funds are reallotted or 
redistributed only to States as defined for the original allocation. 
Tribal funds are reallotted only to Tribes. Funds granted to the 
Territories are not subject to reallotment. Any funds granted to the 
Territories that are returned after they

[[Page 39993]]

have been allotted will revert to the Federal government.
    (b) Any portion of a State's Discretionary Fund allotment that is 
not required to carry out its Plan, in the period for which the 
allotment is made available, shall be reallotted to other States in 
proportion to the original allotments. For purposes of this paragraph 
the term ``State'' means the 50 States, the District of Columbia, and 
the Commonwealth of Puerto Rico. The other Territories and the Tribes 
may not receive reallotted State Discretionary Funds.
    (1) Each year, the State shall report to the Secretary either the 
dollar amount from the previous year's grant that it will be unable to 
obligate by the end of the obligation period or that all funds will be 
obligated during such time. Such report shall be postmarked by April 
1st.
    (2) Based upon the reallotment reports submitted by States, the 
Secretary will reallot funds.
    (i) If the total amount available for reallotment is $25,000 or 
more, funds will be reallotted to States in proportion to each State's 
allotment for the applicable fiscal year's funds, pursuant to 
Sec. 98.61(a).
    (ii) If the amount available for reallotment is less than $25,000, 
the Secretary will not reallot any funds, and such funds will revert to 
the Federal government.
    (iii) If an individual reallotment amount to a State is less than 
$500, the Secretary will not issue the award, and such funds will 
revert to the Federal government.
    (3) If a State does not submit a reallotment report by the deadline 
for report submittal, either:
    (i) The Secretary will determine that the State does not have any 
funds available for reallotment; or
    (ii) In the case of a report postmarked after April 1st, any funds 
reported to be available for reallotment shall revert to the Federal 
government.
    (4) States receiving reallotted funds shall obligate and expend 
these funds in accordance with Sec. 98.60. The reallotment of funds 
does not extend the obligation period or the program period for 
expenditure of such funds.
    (c)(1) Any portion of the Matching Fund granted to a State that is 
not obligated in the period for which the grant is made shall be 
redistributed. Funds, if any, will be redistributed on the request of, 
and only to, those other States that have met the requirements of 
Sec. 98.53(c) in the period for which the grant was first made. For 
purposes of this paragraph the term ``State'' means the 50 States and 
the District of Columbia. Territorial and tribal grantees may not 
receive redistributed Matching Funds.
    (2) Matching Funds allotted to a State under Sec. 98.63(a), but not 
granted, shall also be redistributed in the manner described in 
paragraph (1) of this section.
    (3) The amount of Matching Funds granted to a State that will be 
made available for redistribution will be based on the State's 
financial report to ACF for the Child Care and Development Fund (ACF-
696) and is subject to the monetary limits at paragraph (b)(2) of this 
section.
    (4) A State eligible to receive redistributed Matching Funds shall 
also use the ACF-696 to request its share of the redistributed funds, 
if any.
    (5) A State's share of redistributed Matching Funds is based on the 
same ratio as the number of children under 13 residing in the State to 
the number of children residing in all States eligible to receive and 
that request the redistributed Matching Funds.
    (6) Redistributed funds are considered part of the grant for the 
fiscal year in which the redistribution occurs.
    (d) Any portion of a Tribe's allotment of Discretionary Funds that 
is not required to carry out its Plan, in the period for which the 
allotment is made available, shall be reallotted to other tribal 
grantees in proportion to their original allotments. States and 
Territories may not receive reallotted tribal funds.
    (1) Each year, the Tribe shall report to the Secretary either the 
dollar amount from the previous year's grant that it will be unable to 
obligate by the end of the obligation period or that all funds will be 
obligated during such time. Such report shall be postmarked by a 
deadline established by the Secretary.
    (2) Based upon the reallotment reports submitted by Tribes, the 
Secretary will reallot Tribal Discretionary Funds among the other 
Tribes.
    (i) If the total amount available for reallotment is $25,000 or 
more, funds will be reallotted to other tribal grantees in proportion 
to each Tribe's original allotment for the applicable fiscal year 
pursuant to Sec. 98.62(c).
    (ii) If the total amount available for reallotment is less than 
$25,000, the Secretary will not reallot any funds, and such funds will 
revert to the Federal government.
    (iii) If an individual reallotment amount to an applicant Tribe is 
less than $500, the Secretary will not issue the award, and such funds 
will revert to the Federal government.
    (3) If a Tribe does not submit a reallotment report by the deadline 
for report submittal, either:
    (i) The Secretary will determine that Tribe does not have any funds 
available for reallotment; or
    (ii) In the case of a report received after the deadline 
established by the Secretary, any funds reported to be available for 
reallotment shall revert to the Federal government.
    (4) Tribes receiving reallotted funds shall obligate and expend 
these funds in accordance with Sec. 98.60. The reallotment of funds 
does not extend the obligation period or the program period for 
expenditure of such funds.


Sec. 98.65  Audits and financial reporting.

    (a) Each Lead Agency shall have an audit conducted after the close 
of each program period in accordance with OMB Circular A-133 and the 
Single Audit Act Amendments of 1996.
    (b) Lead Agencies are responsible for ensuring that subgrantees are 
audited in accordance with appropriate audit requirements.
    (c) Not later than 30 days after the completion of the audit, Lead 
Agencies shall submit a copy of their audit report to the legislature 
of the State or, if applicable, to the Tribal Council(s). Lead Agencies 
shall also submit a copy of their audit report to the HHS Inspector 
General for Audit Services, as well as to their cognizant agency, if 
applicable.
    (d) Any amounts determined through an audit not to have been 
expended in accordance with these statutory or regulatory provisions, 
or with the Plan, and that are subsequently disallowed by the 
Department shall be repaid to the Federal government, or the Secretary 
will offset such amounts against any other CCDF funds to which the Lead 
Agency is or may be entitled.
    (e) Lead Agencies shall provide access to appropriate books, 
documents, papers and records to allow the Secretary to verify that 
CCDF funds have been expended in accordance with the statutory and 
regulatory requirements of the program, and with the Plan.
    (f) The audit required in paragraph (a) of this section shall be 
conducted by an agency that is independent of the State, Territory or 
Tribe as defined by generally accepted government auditing standards 
issued by the Comptroller General, or a public accountant who meets 
such independent standards.
    (g) The Secretary shall require financial reports as necessary.


Sec. 98.66  Disallowance procedures.

    (a) Any expenditures not made in accordance with the Act, the 
implementing regulations, or the approved Plan, will be subject to 
disallowance.

[[Page 39994]]

    (b) If the Department, as the result of an audit or a review, finds 
that expenditures should be disallowed, the Department will notify the 
Lead Agency of this decision in writing.
    (c)(1) If the Lead Agency agrees with the finding that amounts were 
not expended in accordance with the Act, these regulations, or the 
Plan, the Lead Agency shall fulfill the provisions of the disallowance 
notice and repay any amounts improperly expended; or
    (2) The Lead Agency may appeal the finding:
    (i) By requesting reconsideration from the Assistant Secretary, 
pursuant to paragraph (f) of this section; or
    (ii) By following the procedure in paragraph (d) of this section.
    (d) A Lead Agency may appeal the disallowance decision to the 
Departmental Appeals Board in accordance with 45 CFR part 16.
    (e) The Lead Agency may appeal a disallowance of costs that the 
Department has determined to be unallowable under an award. A grantee 
may not appeal the determination of award amounts or disposition of 
unobligated balances.
    (f) The Lead Agency's request for reconsideration in (c)(2)(i) of 
this section shall be postmarked no later than 30 days after the 
receipt of the disallowance notice. A Lead Agency may request an 
extension within the 30-day time frame. The request for 
reconsideration, pursuant to (c)(2)(i) of this section, need not follow 
any prescribed form, but it shall contain:
    (1) The amount of the disallowance;
    (2) The Lead Agency's reasons for believing that the disallowance 
was improper; and
    (3) A copy of the disallowance decision issued pursuant to 
paragraph (b) of this section.
    (g)(1) Upon receipt of a request for reconsideration, pursuant to 
(c)(2)(i) of this section, the Assistant Secretary or the Assistant 
Secretary's designee will inform the Lead Agency that the request is 
under review.
    (2) The Assistant Secretary or the designee will review any 
material submitted by the Lead Agency and any other necessary 
materials.
    (3) If the reconsideration decision is adverse to the Lead Agency's 
position, the response will include a notification of the Lead Agency's 
right to appeal to the Departmental Appeals Board, pursuant to 
paragraph (d) of this section.
    (h) If a Lead Agency refuses to repay amounts after a final 
decision has been made, the amounts will be offset against future 
payments to the Lead Agency.
    (i) The appeals process in this section is not applicable if the 
disallowance is part of a compliance review, pursuant to Sec. 98.90, 
the findings of which have been appealed by the Lead Agency.
    (j) Disallowances under the CCDF program are subject to interest 
regulations at 45 CFR part 30. Interest will begin to accrue from the 
date of notification.


Sec. 98.67  Fiscal requirements.

    (a) Lead Agencies shall expend and account for CCDF funds in 
accordance with their own laws and procedures for expending and 
accounting for their own funds.
    (b) Unless otherwise specified in this part, contracts that entail 
the expenditure of CCDF funds shall comply with the laws and procedures 
generally applicable to expenditures by the contracting agency of its 
own funds.
    (c) Fiscal control and accounting procedures shall be sufficient to 
permit:
    (1) Preparation of reports required by the Secretary under this 
subpart and under subpart H; and
    (2) The tracing of funds to a level of expenditure adequate to 
establish that such funds have not been used in violation of the 
provisions of this part.

Subpart H--Program Reporting Requirements


Sec. 98.70  Reporting requirements.

    (a) Quarterly Case-level Report--
    (1) State and territorial Lead Agencies that receive assistance 
under the CCDF shall prepare and submit to the Department, in a manner 
specified by the Secretary, a quarterly case-level report of monthly 
family case-level data. Data shall be collected monthly and submitted 
quarterly. States may submit the data monthly if they choose to do so.
    (2) The information shall be reported for the three-month federal 
fiscal period preceding the required report. The first report shall be 
submitted no later than August 31, 1998, and quarterly thereafter. The 
first report shall include data from the third quarter of FFY 1998 
(April 1998 through June 1998). States and Territorial Lead Agencies 
which choose to submit case-level data monthly must submit their report 
for April 1998 no later than July 30, 1998. Following reports must be 
submitted every thirty days thereafter.
    (3) State and territorial Lead Agencies choosing to submit data 
based on a sample shall submit a sampling plan to ACF for approval 60 
days prior to the submission of the first quarterly report. States are 
not prohibited from submitting case-level data for the entire 
population receiving CCDF services.
    (4) Quarterly family case-level reports to the Secretary shall 
include the information listed in Sec. 98.71(a).
    (b) Annual Report--
    (1) State and territorial Lead Agencies that receive assistance 
under CCDF shall prepare and submit to the Secretary an annual report. 
The report shall be submitted, in a manner specified by the Secretary, 
by December 31 of each year and shall cover the most recent federal 
fiscal year (October through September).
    (2) The first annual aggregate report shall be submitted no later 
than December 31, 1997, and every twelve months thereafter.
    (3) Biennial reports to Congress by the Secretary shall include the 
information listed in Sec. 98.71(b).
    (c) Tribal Annual Report--
    (1) Tribal Lead Agencies that receive assistance under CCDF shall 
prepare and submit to the Secretary an annual aggregate report.
    (2) The report shall be submitted in the manner specified by the 
Secretary by December 31 of each year and shall cover services for 
children and families served with CCDF funds during the preceding 
Federal Fiscal Year.
    (3) Biennial reports to Congress by the Secretary shall include the 
information listed in Sec. 98.71(c).


Sec. 98.71  Content of reports.

    (a) At a minimum, a State or territorial Lead Agency's quarterly 
case-level report to the Secretary, as required in Sec. 98.70, shall 
include the following information on services provided under CCDF grant 
funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and Maintenance-of-Effort (MOE) Funds:
    (1) The total monthly family income for determining eligibility;
    (2) County of residence;
    (3) Gender and month/year of birth of children;
    (4) Ethnicity and race of children;
    (5) Whether the head of the family is a single parent;
    (6) The sources of family income, from employment (including self-
employment), cash or other assistance under the Temporary Assistance 
for Needy Families program under Part A of title IV of the Social 
Security Act, cash or other assistance under a State program for which 
State spending is counted toward the maintenance of effort requirement 
under section 409(a)(7) of the Social Security Act, housing assistance, 
assistance under the Food Stamp Act of 1977; and other assistance 
programs;
    (7) The month/year child care assistance to the family started;

[[Page 39995]]

    (8) The type(s) of child care in which the child was enrolled (such 
as family child care, in-home care, or center-based child care);
    (9) Whether the child care provider involved was a relative;
    (10) The total monthly child care copayment by the family;
    (11) The total expected dollar amount per month to be received by 
the provider for each child;
    (12) The total hours per month of such care;
    (13) Social Security Number of the head of the family unit 
receiving child care assistance;
    (14) Reasons for receiving care; and
    (15) Any additional information that the Secretary shall require.
    (b) At a minimum, a State or territorial Lead Agency's annual 
aggregate report to the Secretary, as required in Sec. 98.70(b), shall 
include the following information on services provided through all CCDF 
grant funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and MOE Funds:
    (1) The number of child care providers that received funding under 
CCDF as separately identified based on the types of providers listed in 
section 658P(5) of the amended Child Care and Development Block Grant 
Act;
    (2) The number of children served by payments through certificates 
or vouchers, contracts or grants, and cash under public benefit 
programs, listed by the primary type of child care services provided 
during the last month of the report period (or the last month of 
service for those children leaving the program before the end of the 
report period);
    (3) The manner in which consumer education information was provided 
to parents and the number of parents to whom such information was 
provided;
    (4) The total number (without duplication) of children and families 
served under CCDF; and
    (5) Any additional information that the Secretary shall require.
    (c) At a minimum, a Tribal Lead Agency's annual report to the 
Secretary, as required in Sec. 98.70(c), shall include the following 
information on services provided through all CCDF tribal grant awards:
    (1) Unduplicated number of families and children receiving 
services;
    (2) Children served by age;
    (3) Children served by reason for care;
    (4) Children served by payment method (certificate/voucher or 
contract/grants);
    (5) Average number of hours of care provided per week;
    (6) Average hourly amount paid for care;
    (7) Children served by level of family income; and
    (8) Children served by type of child care providers.

Subpart I--Indian Tribes


Sec. 98.80  General procedures and requirements.

    An Indian Tribe or tribal organization (as described in Subpart G 
of these regulations) may be awarded grants to plan and carry out 
programs for the purpose of increasing the availability, affordability, 
and quality of child care and childhood development programs subject to 
the following conditions:
    (a) An Indian Tribe applying for or receiving CCDF funds shall be 
subject to all the requirements under this part, unless otherwise 
indicated.
    (b) An Indian Tribe applying for or receiving CCDF funds shall:
    (1) Have at least 50 children under 13 years of age (or such 
similar age, as determined by the Secretary from the best available 
data) in order to be eligible to operate a CCDF program. This 
limitation does not preclude an Indian Tribe with fewer than 50 
children under 13 years of age from participating in a consortium that 
receives CCDF funds; and
    (2) Demonstrate its current service delivery capability, including 
skills, personnel, resources, community support, and other necessary 
components to satisfactorily carry out the proposed program.
    (c) A consortium representing more than one Indian Tribe may be 
eligible to receive CCDF funds on behalf of a particular Tribe if:
    (1) The consortium adequately demonstrates that each participating 
Tribe authorizes the consortium to receive CCDF funds on behalf of each 
Tribe or tribal organization in the consortium; and
    (2) The consortium consists of Tribes that each meet the 
eligibility requirements for the CCDF program as defined in this part, 
or that would otherwise meet the eligibility requirements if the Tribe 
or tribal organization had at least 50 children under 13 years of age; 
and
    (3) All the participating consortium members are in geographic 
proximity to one another (including operation in a multi-State area) or 
have an existing consortium arrangement; and
    (4) The consortium demonstrates that it has the managerial, 
technical and administrative staff with the ability to administer 
government funds, manage a CCDF program and comply with the provisions 
of the Act and of this part.
    (d) The awarding of a grant under this section shall not affect the 
eligibility of any Indian child to receive CCDF services provided by 
the State or States in which the Indian Tribe is located.
    (e) For purposes of the CCDF, the determination of the number of 
children in the Tribe, pursuant to paragraph (b)(1) of this section, 
shall include Indian children living on or near reservations, with the 
exception of Tribes in Alaska, California and Oklahoma.
    (f) In determining eligibility for services pursuant to 
Sec. 98.20(a)(2), a tribal program may use either:
    (1) 85 percent of the State median income for a family of the same 
size; or
    (2) 85 percent of the median income for a family of the same size 
residing in the area served by the Tribal Lead Agency.


Sec. 98.81  Application and Plan procedures.

    (a) In order to receive CCDF funds, a Tribal Lead Agency shall 
apply for funds pursuant to Sec. 98.13, except that the requirement at 
Sec. 98.13(b)(2) does not apply.
    (b) A Tribal Lead Agency shall submit a CCDF Plan, as described at 
Sec. 98.16, with the following additions and exceptions:
    (1) The Plan shall include the basis for determining family 
eligibility pursuant to Sec. 98.80(f).
    (2) For purposes of determining eligibility, the following terms 
shall also be defined:
    (i) Indian child; and
    (ii) Indian reservation or tribal service area.
    (3) The Tribal Lead Agency shall also assure that:
    (i) The applicant shall coordinate, to the maximum extent feasible, 
with the Lead Agency in the State in which the applicant shall carry 
out CCDF programs or activities, pursuant to Sec. 98.82; and
    (ii) In the case of an applicant located in a State other than 
Alaska, California, or Oklahoma, CCDF programs and activities shall be 
carried out on an Indian reservation for the benefit of Indian 
children, pursuant to Sec. 98.83(b).
    (4) The Plan shall include any information, as prescribed by the 
Secretary, necessary for determining the number of children in 
accordance with Secs. 98.61(c), 98.62(c), and 98.80(b)(1).
    (5) Plans for those Tribes specified at Sec. 98.83(f) (i.e., Tribes 
with small grants) are not subject to the requirements in 
Sec. 98.16(g)(2) or Sec. 98.16(k) unless the Tribe chooses to include 
such services, and, therefore, the associated requirements, in its 
program.

[[Page 39996]]

    (6) The Plan is not subject to requirements in Sec. 98.16(f)(8) or 
Sec. 98.16(g)(4).
    (7) In its initial Plan, an Indian Tribe shall describe its current 
service delivery capability pursuant to Sec. 98.80(b)(2).
    (8) A consortium shall also provide the following:
    (i) A list of participating or constituent members, including 
demonstrations from these members pursuant to Sec. 98.80(c)(1);
    (ii) A description of how the consortium is coordinating services 
on behalf of its members, pursuant to Sec. 98.83(c)(1); and
    (iii) As part of its initial Plan, the additional information 
required at Sec. 98.80(c)(4).
    (c) When initially applying under paragraph (a) of this section, a 
Tribal Lead Agency shall include a Plan that meets the provisions of 
this part and shall be for a two-year period, pursuant to 
Sec. 98.17(a).


Sec. 98.82  Coordination.

    Tribal applicants shall coordinate as required by Secs. 98.12 and 
98.14 and:
    (a) To the maximum extent feasible, with the Lead Agency in the 
State or States in which the applicant will carry out the CCDF program; 
and
    (b) With other Federal, State, local, and tribal child care and 
childhood development programs.


Sec. 98.83  Requirements for tribal programs.

    (a) The grantee shall designate an agency, department, or unit to 
act as the Tribal Lead Agency to administer the CCDF program.
    (b) With the exception of Alaska, California, and Oklahoma, 
programs and activities shall be carried out on an Indian reservation 
for the benefit of Indian children.
    (c) In the case of a tribal grantee that is a consortium:
    (1) A brief description of the direct child care services funded by 
CCDF for each of their participating Tribes shall be provided by the 
consortium in their two-year CCDF Plan; and
    (2) Variations in CCDF programs or requirements and in child care 
licensing, regulatory and health and safety requirements shall be 
specified in written agreements between the consortium and the Tribe.
    (3) If a Tribe elects to participate in a consortium arrangement to 
receive one part of the CCDF (e.g., Discretionary Funds), it may not 
join another consortium or apply as a direct grantee to receive the 
other part of the CCDF (e.g. Tribal Mandatory Funds).
    (4) If a Tribe relinquishes its membership in a consortium at any 
time during the fiscal year, CCDF funds awarded on behalf of the member 
Tribe will remain with the tribal consortium to provide direct child 
care services to other consortium members for that fiscal year.
    (d) Tribal Lead Agencies shall not be subject to the requirements 
at Secs. 98.41(a)(1)(i), 98.44(a), 98.50(e), 98.52(a), 98.53 and 98.63.
    (e) The base amount of any tribal grant is not subject to the 
administrative cost limitation at paragraph (g) of this section or the 
quality expenditure requirement at Sec. 98.51(a). The base amount may 
be expended for any costs consistent with the purposes and requirements 
of the CCDF.
    (f) Tribal Lead Agencies whose total CCDF allotment pursuant to 
Secs. 98.61(c) and 98.62(b) is less than an amount established by the 
Secretary shall not be subject to the following requirements:
    (1) The assurance at Sec. 98.15(a)(2);
    (2) The requirement for certificates at Sec. 98.30(a) and (d); and
    (3) The requirements for quality expenditures at Sec. 98.51(a).
    (g) Not more than 15 percent of the aggregate CCDF funds expended 
by the Tribal Lead Agency from each fiscal year's (including amounts 
used for construction and renovation in accordance with Sec. 98.84, but 
not including the base amount provided under Sec. 98.83(e)) shall be 
expended for administrative activities. Amounts used for construction 
and major renovation in accordance with Sec. 98.84 are not considered 
administrative costs.
    (h)(1) CCDF funds are available for costs incurred by the Tribal 
Lead Agency only after the funds are made available by Congress for 
Federal obligation unless costs are incurred for planning activities 
related to the submission of an initial CCDF Plan.
    (2) Federal obligation of funds for planning costs, pursuant to 
paragraph (h)(1) of this section is subject to the actual availability 
of the appropriation.


Sec. 98.84  Construction and renovation of child care facilities.

    (a) Upon requesting and receiving approval from the Secretary, 
Tribal Lead Agencies may use amounts provided under Secs. 98.61(c) and 
98.62(b) to make payments for construction or major renovation of child 
care facilities (including paying the cost of amortizing the principal 
and paying interest on loans).
    (b) To be approved by the Secretary, a request shall be made in 
accordance with uniform procedures established by program instruction 
and, in addition, shall demonstrate that:
    (1) Adequate facilities are not otherwise available to enable the 
Tribal Lead Agency to carry out child care programs;
    (2) The lack of such facilities will inhibit the operation of child 
care programs in the future; and
    (3) The use of funds for construction or major renovation will not 
result in a decrease in the level of child care services provided by 
the Tribal Lead Agency as compared to the level of services provided by 
the Tribal Lead Agency in the preceding fiscal year.
    (c)(1) Tribal Lead Agency may use CCDF funds for reasonable and 
necessary planning costs associated with assessing the need for 
construction or renovation or for preparing a request, in accordance 
with the uniform procedures established by program instruction, to 
spend CCDF funds on construction or major renovation.
    (2) A Tribal Lead Agency may only use CCDF funds to pay for the 
costs of an architect, engineer, or other consultant for a project that 
is subsequently approved by the Secretary. If the project later fails 
to gain the Secretary's approval, the Tribal Lead Agency must pay for 
the architectural, engineering or consultant costs using non-CCDF 
funds.
    (d) Tribal Lead Agencies that receive approval from the Secretary 
to use CCDF funds for construction or major renovation shall comply 
with the following:
    (1) Federal share requirements and use of property requirements at 
45 CFR 92.31;
    (2) Transfer and disposition of property requirements at 45 CFR 
92.31(c);
    (3) Title requirements at 45 CFR 92.31(a);
    (4) Cost principles and allowable cost requirements at 45 CFR 
92.22;
    (5) Program income requirements at 45 CFR 92.25;
    (6) Procurement procedures at 45 CFR 92.36; and;
    (7) Any additional requirements established by program instruction, 
including requirements concerning:
    (i) The recording of a Notice of Federal Interest in the property;
    (ii) Rights and responsibilities in the event of a grantee's 
default on a mortgage;
    (iii) Insurance and maintenance;
    (iv) Submission of plans, specifications, inspection reports, and 
other legal documents; and
    (v) Modular units.
    (e) In lieu of obligation and liquidation requirements at 
Sec. 98.60(e), Tribal Lead Agencies shall liquidate CCDF funds used for 
construction or major renovation by the end of the second fiscal year 
following the fiscal year for which the grant is awarded.

[[Page 39997]]

    (f) Tribal Lead Agencies may expend funds, without requesting 
approval pursuant to paragraph (a) of this section, for minor 
renovation.
    (g) A new tribal grantee (i.e., one that did not receive CCDF funds 
the preceding fiscal year) may spend no more than an amount equivalent 
to its Tribal Mandatory allocation on construction and renovation. A 
new tribal grantee must spend an amount equivalent to its Discretionary 
allocation on activities other than construction or renovation (i.e., 
direct services, quality activities, or administrative costs).
    (h) A construction or renovation project that requires and receives 
approval by the Secretary must include as part of the construction and 
renovation costs:
    (1) planning costs as allowed at Sec. 98.84(c);
    (2) labor, materials and services necessary for the functioning of 
the facility; and
    (3) initial equipment for the facility. Equipment means items which 
are tangible, nonexpendable personal property having a useful life of 
more than five years.

Subpart J--Monitoring, Non-compliance and Complaints


Sec. 98.90  Monitoring.

    (a) The Secretary will monitor programs funded under the CCDF for 
compliance with:
    (1) The Act;
    (2) The provisions of this part; and
    (3) The provisions and requirements set forth in the CCDF Plan 
approved under Sec. 98.18;
    (b) If a review or investigation reveals evidence that the Lead 
Agency, or an entity providing services under contract or agreement 
with the Lead Agency, has failed to substantially comply with the Plan 
or with one or more provisions of the Act or implementing regulations, 
the Secretary will issue a preliminary notice to the Lead Agency of 
possible non-compliance. The Secretary shall consider comments received 
from the Lead Agency within 60 days (or such longer period as may be 
agreed upon between the Lead Agency and the Secretary).
    (c) Pursuant to an investigation conducted under paragraph (a) of 
this section, a Lead Agency shall make appropriate books, documents, 
papers, manuals, instructions, and records available to the Secretary, 
or any duly authorized representatives, for examination or copying on 
or off the premises of the appropriate entity, including subgrantees 
and contractors, upon reasonable request.
    (d)(1) Lead Agencies and subgrantees shall retain all CCDF records, 
as specified in paragraph (c) of this section, and any other records of 
Lead Agencies and subgrantees that are needed to substantiate 
compliance with CCDF requirements, for the period of time specified in 
paragraph (e) of this section.
    (2) Lead Agencies and subgrantees shall provide through an 
appropriate provision in their contracts that their contractors will 
retain and permit access to any books, documents, papers, and records 
of the contractor that are directly pertinent to that specific 
contract.
    (e) Length of retention period. (1) Except as provided in paragraph 
(e)(2) of this section, records specified in paragraph (c) of this 
section shall be retained for three years from the day the Lead Agency 
or subgrantee submits the Financial Reports required by the Secretary, 
pursuant to Sec. 98.65(g), for the program period.
    (2) If any litigation, claim, negotiation, audit, disallowance 
action, or other action involving the records has been started before 
the expiration of the three-year retention period, the records shall be 
retained until completion of the action and resolution of all issues 
that arise from it, or until the end of the regular three-year period, 
whichever is later.


Sec. 98.91  Non-compliance.

    (a) If after reasonable notice to a Lead Agency, pursuant to 
Sec. 98.90 or Sec. 98.93, a final determination is made that:
    (1) There has been a failure by the Lead Agency, or by an entity 
providing services under contract or agreement with the Lead Agency, to 
comply substantially with any provision or requirement set forth in the 
Plan approved under Sec. 98.16; or
    (2) If in the operation of any program for which funding is 
provided under the CCDF, there is a failure by the Lead Agency, or by 
an entity providing services under contract or agreement with the Lead 
Agency, to comply substantially with any provision of the Act or this 
part, the Secretary will provide to the Lead Agency a written notice of 
a finding of non-compliance. This notice will be issued within 60 days 
of the preliminary notification in Sec. 98.90(b), or within 60 days of 
the receipt of additional comments from the Lead Agency, whichever is 
later, and will provide the opportunity for a hearing, pursuant to part 
99.
    (b) The notice in paragraph (a) of this section will include all 
relevant findings, as well as any penalties or sanctions to be applied, 
pursuant to Sec. 98.92.
    (c) Issues subject to review at the hearing include the finding of 
non-compliance, as well as any penalties or sanctions to be imposed 
pursuant to Sec. 98.92.


Sec. 98.92  Penalties and sanctions.

    (a) Upon a final determination that the Lead Agency has failed to 
substantially comply with the Act, the implementing regulations, or the 
Plan, one of the following penalties will be applied:
    (1) The Secretary will disallow the improperly expended funds;
    (2) An amount equal to or less than the improperly expended funds 
will be deducted from the administrative portion of the State allotment 
for the following fiscal year; or
    (3) A combination of the above options will be applied.
    (b) In addition to imposing the penalties described in paragraph 
(a) of this section, the Secretary may impose other appropriate 
sanctions, including:
    (1) Disqualification of the Lead Agency from the receipt of further 
funding under the CCDF; or
    (2)(i) A penalty of not more than four percent of the funds 
allotted under Sec. 98.61 (i.e., the Discretionary Funds) for a Fiscal 
Year shall be withheld if the Secretary determines that the Lead Agency 
has failed to implement a provision of the Act, these regulations, or 
the Plan required under Sec. 98.16;
    (ii) This penalty will be withheld no earlier than the second full 
quarter following the quarter in which the Lead Agency was notified of 
the proposed penalty;
    (iii) This penalty will not be applied if the Lead Agency corrects 
the failure or violation before the penalty is to be applied or if it 
submits a plan for corrective action that is acceptable to the 
Secretary; or
    (iv) The Lead Agency may show cause to the Secretary why the amount 
of the penalty, if applied, should be reduced.
    (c) If a Lead Agency is subject to additional sanctions as provided 
under paragraph (b) of this section, specific identification of any 
additional sanctions being imposed will be provided in the notice 
provided pursuant to Sec. 98.91.
    (d) Nothing in this section, or in Sec. 98.90 or Sec. 98.91, will 
preclude the Lead Agency and the Department from informally resolving a 
possible compliance issue without following all of the steps described 
in Secs. 98.90, 98.91 and 98.92. Penalties and/or sanctions, as 
described in paragraphs (a) and (b) of this section, may nevertheless 
be

[[Page 39998]]

applied, even though the issue is resolved informally.
    (e) It is at the Secretary's sole discretion to choose the penalty 
to be imposed under paragraphs (a) and (b) of this section.


Sec. 98.93  Complaints.

    (a) This section applies to any complaint (other than a complaint 
alleging violation of the nondiscrimination provisions) that a Lead 
Agency has failed to use its allotment in accordance with the terms of 
the Act, the implementing regulations, or the Plan. The Secretary is 
not required to consider a complaint unless it is submitted as required 
by this section. Complaints with respect to discrimination should be 
referred to the Office of Civil Rights of the Department.
    (b) Complaints with respect to the CCDF shall be submitted in 
writing to the Assistant Secretary for Children and Families, 370 
L'Enfant Promenade, S.W., Washington, D.C. 20447. The complaint shall 
identify the provision of the Plan, the Act, or this part that was 
allegedly violated, specify the basis for alleging the violation(s), 
and include all relevant information known to the person submitting it.
    (c) The Department shall promptly furnish a copy of any complaint 
to the affected Lead Agency. Any comments received from the Lead Agency 
within 60 days (or such longer period as may be agreed upon between the 
Lead Agency and Department) shall be considered by the Department in 
responding to the complaint. The Department will conduct an 
investigation of complaints, where appropriate.
    (d) The Department will provide a written response to complaints 
within 180 days after receipt. If a final resolution cannot be provided 
at that time, the response will state the reasons why additional time 
is necessary.
    (e) Complaints that are not satisfactorily resolved through 
communication with the Lead Agency will be pursued through the process 
described in Sec. 98.90.

PART 99--PROCEDURE FOR HEARINGS FOR THE CHILD CARE AND DEVELOPMENT 
FUND

    2. The heading of part 99 is revised to read as set forth above:
    3. The authority citation for part 99 is revised to read as 
follows:

    Authority: 42 U.S.C. 618, 9858.

    4. In part 99 make the following changes:
    a. Remove the words ``Child Care and Development Block Grant'' and 
add in their place, wherever they appear, the words ``Child Care and 
Development Fund.''
    b. Remove the word ``Grantees'' and add in its place, wherever it 
appears, the words ``Lead Agencies.''
    c. Remove the word ``Grantee'' and add in its place, wherever it 
appears, the words ``Lead Agency.''
    d. Remove the words ``Block Grant Plan'' and add in their place, 
wherever they appear, the words ``CCDF Plan.''

[FR Doc. 98-19418 Filed 7-23-98; 8:45 am]
BILLING CODE 4184-01-P