[Federal Register Volume 73, Number 24 (Tuesday, February 5, 2008)]
[Rules and Regulations]
[Pages 6772-6828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-455]



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Part II





Department of Health and Human Services





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Administration for Children and Families



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45 CFR Parts 261, 262, 263, and 265



Reauthorization of the Temporary Assistance for Needy Families (TANF) 
Program; Final Rule

Federal Register / Vol. 73, No. 24 / Tuesday, February 5, 2008 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 261, 262, 263, and 265

RIN 0970-AC27


Reauthorization of the Temporary Assistance for Needy Families 
(TANF) Program

AGENCY: Administration for Children and Families (ACF), Department of 
Health and Human Services (HHS).

ACTION: Final rule.

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SUMMARY: This final rule implements changes to the Temporary Assistance 
for Needy Families (TANF) program required by the Deficit Reduction Act 
of 2005 (DRA) (Pub. L. 109-171). The DRA reauthorized the TANF program 
through fiscal year (FY) 2010 with a renewed focus on work, program 
integrity, and strengthening families through healthy marriage 
promotion and responsible fatherhood. On June 29, 2006, ACF published 
an interim final rule implementing the required statutory changes with 
a 60-day comment period that ended on August 28, 2006. We have 
considered all comments received during this period and made necessary 
changes as reflected in this final rule.

EFFECTIVE DATE: October 1, 2008.

FOR FURTHER INFORMATION CONTACT: Robert Shelbourne, Director, Division 
of State TANF Policy, Office of Family Assistance, ACF, at (202) 401-
5150.

SUPPLEMENTARY INFORMATION: On June 29, 2006, the Administration for 
Children and Families published an interim final rule implementing key 
provisions of the Deficit Reduction Act of 2005. The DRA required 
States to implement certain work requirements effective October 1, 
2006, among which were including families with an adult receiving 
assistance in a separate State program funded with qualified State 
maintenance-of-effort expenditures (SSP-MOE) in the work participation 
rates and revising the base year of the caseload reduction credit from 
FY 1995 to FY 2005. The law also directed us to issue regulations to 
ensure consistent measurement of work participation rates, including 
defining work activities, determining the circumstances under which a 
parent who resides with a child who is a recipient of assistance should 
be required to participate in work activities, and requiring States to 
establish and maintain work participation verification procedures. 
Congress also explicitly permitted HHS to issue an interim final rule, 
implicitly recognizing that States may have to revise practices once 
final regulations were published. Under the interim final rule, States 
were able to begin planning and implementing necessary changes to their 
TANF programs and procedures under the new requirements. Under this 
final rule States are accountable for moving more families to self-
sufficiency and independence.

Comment Overview

    We provided a 60-day comment period, during which interested 
parties could submit comments in writing by mail or electronically. 
During this period, we also held five listening sessions across the 
country in which State and local officials, legislators and key 
associations representing them could provide oral comments that were 
officially recorded and considered in developing this final rule.
    We received 470 letters of comment on the interim final rule, 
representing State human service agencies, State legislators, national 
associations, advocacy and disability groups, community and faith-based 
organizations, Indian Tribes and Tribal organizations, educators, and 
the general public. Most commenters addressed several provisions of the 
interim final rule. Some comments favored the rule, for example: 
``Overall the regulations are very positive and set the correct tone 
that countable activities need to meet the new federal definitions and 
be verified.'' But, in general, most commenters had mixed views, 
supporting some provisions and opposing others. A significant number of 
commenters expressed concerns about statutory provisions of the DRA or 
of existing law, over which we have no regulatory discretion. Others 
expressed concerns about the policies reflected in the rule. In 
response to these comments, ACF is committed to working with states, 
particularly with regard to TANF adult recipients living with 
disabilities, to explore additional approaches and innovative efforts 
to promote and support their employment.
    As discussed in more detail throughout this preamble, the final 
rule includes a number of important changes to address these policy 
concerns. These include: Allowing time spent in a bachelor's degree 
program to count as vocational educational training; allowing up to an 
hour of unsupervised homework time for each hour of class time in all 
educational activities; expanding State flexibility by converting the 
six-week limit on job search and job readiness assistance to an hourly 
equivalent; adding the flexibility for a State to exclude a parent who 
is a recipient of Social Security Disability Insurance (SSDI) benefits 
from the definition of a work-eligible individual, as is the case with 
a recipient of Supplemental Security Income (SSI); clarifying that 
excused holidays are limited to 10 days in a year; and enhancing State 
flexibility by allowing a State to account for ``excused hours'' rather 
than an ``excused day.'' We have summarized the public comments and our 
response to them throughout sections III through VIII of this final 
rule.

Table of Contents

I. The Statutory Framework: TANF and the Deficit Reduction Act of 
2005
II. Regulatory Principles and Provisions
III. Cross-Cutting Issues
    A. Individuals With Disabilities
    B. Domestic Violence
    C. General Topics
    D. Tribal TANF
IV. Part 261--Ensuring That Recipients Work
V. Part 262--Accountability Provisions--General
VI. Part 263--Expenditures of State and Federal TANF Funds
VII. Part 265--Data Collection and Reporting Requirements
VIII. Paperwork Reduction Act of 1995
IX. Regulatory Flexibility Analysis
X. Regulatory Impact Analysis
XI. Unfunded Mandates Reform Act of 1995
XII. Congressional Review
XIII. Assessment of Federal Regulations and Policies on Families
XIV. Executive Order 13132

I. The Statutory Framework: TANF and the Deficit Reduction Act of 2005

    Enacted as part of the Personal Responsibility and Work Opportunity 
Reconciliation Act (PRWORA) of 1996 (Pub. L. 104-193), the TANF program 
is a Federal block grant to States designed to provide temporary 
assistance while moving recipients into work and self-sufficiency. 
States must help recipients find work and meet work participation rates 
and other critical program requirements to avoid financial penalties. 
States have broad flexibility to design and operate their TANF programs 
and to determine eligibility criteria and the benefits and services 
that families receive to achieve the four program purposes:
    (1) To provide assistance to needy families so that children may be 
cared for in their own homes or in the homes of relatives;
    (2) To end the dependence of needy parents on government benefits 
by promoting job preparation, work, and marriage;
    (3) To prevent and reduce the incidence of out-of-wedlock 
pregnancies and establish annual numerical goals for

[[Page 6773]]

preventing and reducing the incidence of these pregnancies; and
    (4) To encourage the formation and maintenance of two-parent 
families.
    PRWORA initially authorized TANF through September 30, 2002. 
Congress then funded TANF through a series of short-term extensions 
until the Deficit Reduction Act of 2005 reauthorized the program 
through FY 2010 with a renewed focus on work, program integrity, and 
strengthening families through marriage promotion and responsible 
fatherhood. Signed into law by President Bush on February 8, 2006, the 
DRA maintained State flexibility and many provisions of PRWORA, but 
included important changes to improve the effectiveness of the TANF 
program.
    Some comments on the interim final rule reflected a 
misunderstanding of the Deficit Reduction Act confusion over which 
original provisions of TANF Congress retained, which ones it changed, 
what Congress directed the Department to do by regulation, and how HHS 
exercised this regulatory authority in the interim final rule. This 
section explains these distinctions.
    The Deficit Reduction Act retained nearly all of the TANF 
provisions enacted in the original welfare reform law. For example, the 
law retained the requirement that 50 percent of all families with an 
adult participate in the 12 allowable work activities for specified 
hours each week and that 90 percent of two-parent families similarly 
participate for certain, specified hours. The hourly work participation 
requirements that adults must achieve to count in the State's work 
participation rates also did not change. This requires a single 
custodial parent with a child younger than six to participate for at 
least an average of 20 hours a week and for all others to participate 
for at least an average of 30 hours a week to count in the overall 
participation rate. Similarly, two-parent families must participate for 
at least an average of 35 hours a week (or an average of 55 hours a 
week if federally-funded child care is provided) to count in the two-
parent participation rate.
    The DRA maintained the penalty associated with failing to meet 
these work requirements. As a result, we made no changes to the 
regulatory process associated with a State's failure to meet the work 
participation rate requirement in the interim final or final rule.
    Further, the Deficit Reduction Act maintained provisions related to 
the TANF purposes, State plan requirements, use of grants, 
administrative provisions, prohibitions, appeals of adverse decisions, 
Tribal TANF, waivers, charitable choice, application of relevant 
Federal civil rights laws, and the limitation on Federal authority. Our 
charge from Congress was to regulate in accordance with the changes 
made by the Deficit Reduction Act, via an interim final rule if 
appropriate. Since none of these provisions changed in the statute, the 
associated regulatory provisions did not change in either the interim 
final or this final rule.
    Congress also made few changes in reauthorizing TANF funding. The 
law retained the $16.5 billion per year capped entitlement for State 
Family Assistance Grants and funding for the Contingency Fund. It 
extended the Supplemental grants for the 17 States with historic low 
grants per poor person and/or high population growth in the amount of 
$319 million through FY 2008. Mandatory child care funding was 
increased by $1 billion over five years. The law eliminated provisions 
for Federal loans, the High Performance Bonus and the Illegitimacy 
Reduction Bonus and replaced them with a $150 million-a-year research, 
demonstration, and technical assistance fund for competitive grants to 
strengthen family formation, promote healthy marriages, and support 
responsible fatherhood. The Deficit Reduction Act also expanded a 
State's ability to meet its maintenance-of-effort (MOE) requirement. A 
State may now count expenditures that provide certain non-assistance, 
pro-family activities to anyone, without regard to financial need or 
family composition, if the expenditure is reasonably calculated to 
prevent and reduce the incidence of out-of-wedlock births (TANF purpose 
three) or encourage the formation and maintenance of two-parent 
families (TANF purpose four).
    The new law did make several key statutory changes and also 
required HHS to promulgate rules in several areas. The statute added 
separate State program cases receiving assistance funded with qualified 
State maintenance-of-effort expenditures (SSP-MOE) to the calculation 
of the work participation rates. This is a new requirement of law, not 
within the discretion of our regulatory authority. Thus, regardless of 
how commenters viewed this statutory provision, we could not change it 
by regulation. The DRA continues to exclude any solely-State-funded 
(SSF) program, that is, one for which it does not claim the State 
expenditures as MOE under the TANF program. If a State established a 
SSF, such cases would not be included in the calculation of a State's 
work participation rates or subject to other program requirements.
    The Deficit Reduction Act also changed the base year of the 
calculation of the caseload reduction credit from FY 1995 to FY 2005. 
While the statutory work participation rates did not change, 
recalibrating the caseload reduction credit has the effect of 
increasing the work participation requirements. For most States, we 
estimate that in FY 2007 the overall work participation requirement 
will be between 40 and 50 percent, depending upon the amount of 
caseload reduction they had over the course of FY 2006 compared to the 
new baseline of FY 2005.
    Congress required HHS to do a number of things through regulation:
    <bullet> To define the meaning of each of the 12 countable work 
activities specified in PRWORA, primarily because a U.S. Government 
Accountability Office (GAO) study (GAO-05-821) reported that there was 
great variation in State definitions of work activities. As a result, 
State participation rates were not comparable. Of the activities, the 
underlying statute also specified which nine activities count toward 
meeting the first 20 hours of a 30-hour average weekly requirement; we 
refer to them as ``core activities.'' Any additional hours needed to 
meet the requirement can come from any of three ``non-core activities'' 
or from core activities. Under the statute, non-core activities may not 
count as core activities.
    <bullet> To clarify who is a work-eligible individual. In addition 
to families with an adult receiving TANF assistance, who were already a 
part of the work participation rates, the DRA required us to include 
such families receiving assistance under a separate State program and 
to specify the circumstances under which a parent who resides with a 
child who is a recipient of assistance should be included in the work 
participation rates.
    <bullet> To ensure that State internal control procedures result in 
accurate and consistent work participation information. Each State must 
establish and maintain work participation verification procedures that 
are based on regulations promulgated by the Secretary.
    <bullet> To establish a process for a new penalty in the event that 
a State fails to establish and maintain adequate procedures to verify 
reported work participation data.

II. Regulatory Principles and Provisions

    To address these new statutory provisions and requirements of the 
Deficit Reduction Act, the final rule:

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    1. Defines each of the 12 countable work activities. Defining work 
activities is necessary for consistent measurement and will ensure an 
equitable and level playing field for the States. Because the statute 
provides 12 distinct activities, we have tried to define them as 
mutually exclusive, while still leaving flexibility for States to 
address the critical needs of families.
    2. Defines the term ``work-eligible individual.'' Generally a 
``work-eligible individual'' is: (1) An adult (or minor child head-of-
household) receiving assistance under TANF or a separate State program; 
or (2) a non-recipient parent living with a child receiving assistance. 
The definition excludes the following non-recipient parents: a minor 
parent who is not the head-of-household, a non-citizen who is 
ineligible to receive assistance due to his or her immigration status, 
or, at State option on a case-by-case basis, a recipient of 
Supplemental Security Income (SSI) benefits. In addition, the term 
excludes some parents, whether they are recipients or not: a parent 
providing care for a disabled family member living in the home, if 
there is medical documentation to support the need for the parent to 
remain in the home to provide that care; and, at State option on a 
case-by-case basis, a parent who is a recipient of Social Security 
Disability Insurance (SSDI) benefits. We exclude these parents because 
they either cannot work legally or we believe it would be inappropriate 
to require them to work.
    3. Clarifies that a State may count only actual hours of 
participation. Under the original TANF rule, some States reported 
scheduled hours of participation, which created an inconsistency among 
States and reduced incentives to ensure that individuals actually 
participated for assigned hours. Under the final rule, we clarify that 
each State must report only actual hours of participation; 
nevertheless, for individuals in unpaid work activities, we permit 
States to count up to 10 days of holidays and an additional 80 hours 
excused absences. To reduce the documentation burden on both employers 
and workers, we also permit States to report projected hours of 
employment on the basis of prior, documented actual hours of work. 
Similarly, to reduce the documentation burden on both educational 
providers and participants in an educational activity, we also allow 
States to count up to one hour of unsupervised homework time for each 
hour of class time.
    4. Recalibrates the caseload reduction credit by updating the base 
year from FY 1995 to FY 2005. As under PRWORA, the credit excludes 
caseload changes due to changes in Federal law or State eligibility 
criteria since the base year.
    5. Requires each State to establish and maintain work participation 
verification procedures through a Work Verification Plan. Each State 
must: (1) Determine which work activities may count for participation 
rate purposes; (2) determine how to count and verify reported hours of 
work; and (3) identify who is a work-eligible individual. The State 
must also develop and use internal controls to ensure compliance with 
its procedures and submit them in a complete Work Verification Plan to 
the Secretary for approval.
    6. Establishes a new penalty for failure to comply with work 
verification procedures. The final rule specifies that if a State fails 
to establish or comply with its work participation verification 
procedures and fails to correct the compliance deficiency, we will 
impose a penalty of between one and five percent of the State Family 
Assistance Grant (SFAG). The rule outlines the criteria under which we 
will impose this penalty and explains how a State may claim reasonable 
cause or submit a corrective compliance plan to correct the violation 
and avoid the penalty.
    7. Allows additional pro-family expenditures to count toward a 
State's maintenance-of-effort (MOE) requirement. The final rule allows 
a State to count expenditures on certain pro-family activities without 
regard to financial need or family composition, if the expenditure is 
reasonably calculated to prevent and reduce the incidence of out-of-
wedlock births (TANF purpose three), or encourage the formation and 
maintenance of two-parent families (TANF purpose four), as long as they 
meet all applicable MOE requirements and limitations. States receiving 
Healthy Marriage or Responsible Fatherhood grants may count State 
expenditures for any required match toward the State's TANF MOE 
requirement, provided the expenditure also meets all applicable MOE 
requirements and limitations.
    Based on the consideration of all timely comments, this final rule 
reflects adopted changes to 45 CFR Parts 261, 262, 263, and 265 of the 
interim final rule of June 29, 2006. The comments and changes are 
discussed in the preamble. Changes to these parts appear in sections IV 
to VII of this document.
    As in the interim final rule, the term ``we'' is used throughout 
the regulatory text and preamble to mean the Secretary of the 
Department of Health and Human Services (HHS) or the following 
individuals or agencies acting on his behalf: the Assistant Secretary 
for Children and Families, the Regional Administrators for Children and 
Families, the Department of Health and Human Services, and the 
Administration for Children and Families. The term ``Act'' refers to 
the Social Security Act. We use the terms ``Deficit Reduction Act of 
2005,'' ``Deficit Reduction Act,'' ``DRA,'' or ``Pub. L. 109-171'' when 
we refer to the new law. States, the Territories, and the District of 
Columbia are all subject to the TANF requirements, but a reference to 
States means this entire group. Except as otherwise noted, we use the 
term ``TANF'' to refer to TANF and any SSP-MOE programs in a State.

III. Cross-Cutting Issues

    Many commenters raised general or cross-cutting issues about the 
overall impact of the interim final rule or the impact on specific 
populations. We address these issues in this section, followed by 
comments on each section of the interim final rule.

A. Individuals With Disabilities

    Comment: Many commenters maintained that the interim final rule 
would hamper State efforts to design programs appropriate for people 
with disabilities and discourage them from addressing their needs. 
Commenters expressed concern that States would be much less likely to 
invest the resources needed to provide the services that families with 
disabilities need if they are not able to count those families toward 
the work participation rates.
    Some commenters recommended that we broaden work activity 
definitions to accommodate the participation of people with 
disabilities. Others urged us to permit lower hourly standards as an 
accommodation. Otherwise, they recommended that we exclude clients with 
disabilities from the definition of a work-eligible individual.
    Response: We recognize that many individuals with disabilities are 
capable of participating in productive work activities and encourage 
States to explore these capabilities, rather than focusing on their 
limitations. In fact, in the preamble to the interim final rule, we 
encouraged States to provide self-sufficiency opportunities to 
individuals with disabilities and to engage them in appropriate work 
activities. We offered concrete examples, such as specialized work 
experience sites, that would provide and demonstrate the skills and 
experience needed to obtain employment. However, given the concern 
expressed by commenters on this critical issue, we intend to expand our 
technical assistance efforts in

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identifying and sharing effective models that have been developed by 
vocational rehabilitation agencies and the entire disability community.
    Under the TANF statute, the work participation rate calculations 
generally include all families with an adult receiving assistance. When 
Congress replaced the Aid to Families with Dependent Children (AFDC) 
program with TANF, it eliminated a number of statutory exemptions 
related to incapacity, temporary illness, and age. There was no 
suggestion in PRWORA that the activities or hours that count toward the 
work participation rate should vary for clients with disabilities. By 
limiting the maximum participation rate to 50 percent, Congress 
recognized that some individuals would not be able to satisfy the full 
requirements. However, we believe States should work with and provide 
services to individuals, whether they can participate for enough hours 
to count toward the work participation rates or not. Because families 
with adults receiving Federal assistance are subject to time limits, it 
is important for States to serve the entire caseload so that all 
recipients progress toward self-sufficiency. States should also provide 
needed accommodations that can help all individuals reach their full 
potential.
    We believe the regulation provides States with increased 
flexibility and incentives to work with people with disabilities. In 
the definition of ``work-eligible individual'' in Sec.  261.2, we give 
States the option of either including or excluding parents who receive 
SSI or SSDI benefits and whose children are TANF recipients. If the 
parent works enough to count in the rate, the State can include the 
family, but it is not disadvantaged if the parent receiving SSI or SSDI 
cannot work. In the final rule, we allow States to adjust prior 
reported data and to back out of the participation denominator any 
appropriate family with a work-eligible individual whose application 
for SSI or SSDI was approved retroactively, as long as the adjustment 
is within the allowable reporting time frame for the fiscal year. Also, 
we have reaffirmed in the final rule that a parent needed in the home 
to care for a disabled family member is also excluded from the 
participation rate.
    Comment: Many commenters suggested that the interim final rule 
makes it difficult for States to meet the work requirements and to 
comply with the Americans with Disabilities Act (ADA) of 1990 and 
Section 504 of the Rehabilitation Act of 1973.
    Response: We recognize and underscore that States must continue to 
comply with relevant civil rights laws, including the ADA and Section 
504 of the Rehabilitation Act of 1973 (Section 504). We believe that 
this final rule gives States several ways to count activities that they 
would be legally required to provide under the ADA and Section 504. It 
is also important to note that a State may be legally obligated to 
provide a reasonable accommodation/modification under the ADA and 
Section 504 even if it will not receive credit toward its Federal work 
activity requirements for the accommodation/modification. As identified 
in the preamble of the interim final rule, HHS developed and will 
develop additional technical assistance related to the application of 
civil rights laws in the TANF context. Existing tools may be found at 
the HHS Office for Civil Rights (OCR) Web site at http://www.hhs.gov/ocr/tanf. Among other help, the webpage includes guidance entitled 
``Prohibition Against Discrimination on the Basis of Disability in the 
Administration of TANF,'' which addresses the application of the ADA 
and Section 504 in the TANF context, the legal requirements of ensuring 
equal access, reasonable accommodations/modifications, 
nondiscriminatory operational methods, and includes a discussion of 
promising practices. Complaints alleging violations of these 
requirements are not infrequent. OCR currently has open TANF 
complaints, many of which allege that States are denying TANF 
applicants and beneficiaries with disabilities equal access and/or not 
providing reasonable accommodations/modifications. Such complaints are 
often resolved by a State agreeing to implement effective and 
comprehensive screening and assessment of TANF applicants and 
beneficiaries.
    We were also trying to make one other key point. It is 
discriminatory to deny a person with a disability the right to 
participate in or benefit from the aid, benefit, or service provided by 
a public entity. The benefits and services provided must be equal to 
those provided to others, and as effective in affording equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as those provided to others. 
Services, programs, and activities must be administered in the most 
integrated setting appropriate to the needs of qualified individuals 
with disabilities. Separate or different aids, benefits, or services 
are permitted, but only when necessary to ensure that they are as 
effective as those provided to others. Persons with disabilities must 
also have the option of declining to accept a particular accommodation. 
Thus, State agencies must offer people with disabilities an equal right 
to participate in programs instead of automatically exempting them from 
participation requirements.
    The Supreme Court, in School Board of Nassau County v. Arline 
noted, ``* * * society's accumulated myths and fears about disability 
and disease are as handicapping as are the physical limitations that 
flow from actual impairment.'' 480 U.S. 273, 284 (1987).
    Provisions of the ADA and the Rehabilitation Act prohibit exclusion 
and segregation of individuals with disabilities and the denial of 
equal opportunities enjoyed by others, based on, among other things, 
assumptions, patronizing attitudes, fears, and stereotypes about 
individuals with disabilities. Public agencies are required to ensure 
that their actions are based on facts applicable to individuals and not 
on assumptions as to what a class of individuals with disabilities can 
or cannot do.
    The ADA covers individuals who vary widely in the severity of their 
disability, degree of disadvantage, capabilities, and skills, and their 
appropriate path to self-sufficiency and independence must be assessed 
on an individual basis, just like everyone else. It is exactly for 
these reasons that Congress chose not to exclude individuals with 
disabilities from the participation requirements and the benefits and 
results that accrue to working individuals and families. We believe 
that potential danger lies in altered expectations and opportunities, 
in automatic exemptions, and in exclusions from integrated requirements 
and services designed to lead to self-sufficiency and independence. 
TANF agencies must provide programs in the most integrated setting 
appropriate to the needs of people with disabilities. Agencies should 
take steps to ensure that individuals with disabilities can participate 
in all programs and services for TANF clients, not just those programs 
and services that are designed solely for people with disabilities. In 
addition, TANF agencies must ensure equal access to programs and 
services for TANF clients. In ensuring equal access, it is critical 
that TANF agencies have comprehensive and effective screening and 
assessment tools in place.
    Clearly, a State must provide appropriate accommodations and 
services when necessary to afford an individual with a disability an 
equal opportunity to participate in, and enjoy the benefits of, the 
service, program, or activity, and the opportunity to request such 
accommodations and services.

[[Page 6776]]

States can and must make necessary accommodations in the number of 
hours and types of activities they require, if needed. But, 
accommodations that enable clients to work are clearly just as 
critical. States must ensure that individuals with disabilities are not 
excluded from services, programs and activities because buildings are 
inaccessible, and these include the buildings of contractors and 
providers. Agencies must also provide accommodations to individuals 
with disabilities, at no additional cost, where necessary to ensure 
effective communication with individuals with hearing, vision, or 
speech impairments. (Accommodations include but are not limited to such 
services or devices as qualified interpreters, assistive listening 
headsets, television captioning and decoders, telecommunications 
devices for the deaf [TDDs], videotext displays, readers, taped texts, 
materials in Braille, and large print materials.)
    Comment: One commenter suggested, ``Employment of individuals with 
mental illness should be a top priority for policy makers at all levels 
of government. Unfortunately, due to stigma, organizational, financial 
and other barriers, employment is often a low priority, if it is a 
priority at all. It's doubtful that the Interim Final Rules, as 
currently drafted, will result in greater work opportunities for people 
with psychiatric disabilities.''
    Response: We agree that employment of individuals with disabilities 
should be a priority, and this Administration has made it a priority 
for all executive agencies. President Bush, in announcing his ``New 
Freedom Initiative'' in 2001, stated, ``Every American should have the 
opportunity to participate fully in society and engage in productive 
work. Unfortunately, millions of Americans with disabilities are locked 
out of the workplace because they are denied the tools and access 
necessary for success.'' The number of recipients with disabilities who 
are currently working significantly understates both the capability and 
desire of people with disabilities to work. Under significant work 
participation requirements, States will need to expand preparatory and 
employment options for individuals with disabilities. We will continue 
to work closely with our colleagues in the Substance Abuse and Mental 
Health Services Administration, the Social Security Administration, and 
the disability community to enhance services to all people with 
disabilities.
    Comment: One commenter noted that the preamble to the interim final 
rule often encouraged States to engage individuals with disabilities 
but that the rule did not offer practical ways to assist States in 
doing so. The commenter urged us to ensure that the final rule includes 
better mechanisms to allow all TANF recipients with disabilities to 
meet work participation requirements.
    Response: We agree that TANF agencies need to find more effective 
ways to engage people with disabilities in their caseloads than many 
have used in the past. Increased efforts should be pursued in a number 
of areas. For some States, TANF agencies need to re-engage with State 
rehabilitation agencies to use their proven knowledge and expertise to 
address the barriers individuals with disabilities face and to help 
them enter the workplace. Much needs to be done to overcome negative 
stereotypes and misperceptions among the public. Job developers need to 
educate employers, since research shows that working individuals with 
disabilities are very effective employees. Agencies need to improve 
their marketing of the advantages and benefits of work to individuals 
with disabilities, while ensuring that benefits, such as medical 
coverage, are sustained.
    In the first 10 years of the TANF program, there has been 
inadequate attention to engaging individuals with disabilities in work; 
however, few States raised concerns to us about their ability to serve 
people with disabilities during this period. Oftentimes, individuals 
with disabilities face challenges in entering the workforce and pose 
challenges to State agencies trying to help them enter the workforce. 
Sometimes, a disability is debilitating enough that a person cannot 
work. Federal programs such as SSI and SSDI serve such people. But for 
many others, a disabling condition does not preclude the possibility 
and the rewards of work, even if it creates challenges.
    It is precisely for this reason that we have not categorically 
removed individuals with disabilities from the definition of work-
eligible individual. Individuals who happen to have disabilities should 
be afforded the same opportunities to engage in work--to find work-
related training, work experience, and employment--as those who do not 
have a disability. By keeping such individuals in the work 
participation rate, as they have been since the inception of TANF, 
States have an added incentive to address the needs of people with 
disabilities.
    We look forward to working with States in this area through our 
technical assistance efforts and anticipate disseminating information 
about promising approaches to helping individuals with disabilities and 
establishing linkages between organizations serving the needs of 
individuals with disabilities. ACF will use its Welfare Peer Technical 
Assistance Network to disseminate information on promising practices 
for serving individuals with disabilities. In addition, ACF will work 
with States to explore additional approaches and innovative efforts to 
promote and support the employment of TANF adult recipients living with 
mental, intellectual and physical disabilities.
    Comment: Many commenters urged us to permit ``deeming'' for 
individuals with disabilities. They recommended that we allow States to 
count recipients who participate in accordance with an employment plan 
that includes accommodations for disabilities as having met required 
hours to count in the participation rate. They stressed that this would 
give States an incentive to engage such individuals to their greatest 
ability. Similarly, they urged us to let States count recipients who 
miss scheduled hours of work participation because they were caring for 
a family member with a disability. They suggested that, in the same way 
that we permit ``deeming'' to respond to the requirements of the Fair 
Labor Standards Act, we should allow lesser hours of participation to 
count for the full required number of hours when needed to make 
accommodations required under the ADA.
    Response: We agree with the commenters' concerns that individuals 
with disabilities should have appropriate accommodations in their work 
assignments and believe this regulation provides States with more 
flexibility and incentives to work with people with disabilities than 
they have ever had previously. As we noted in response to earlier 
comments, the TANF work participation rates have always included people 
with disabilities. States can and must make necessary accommodations in 
the number of hours and types of activities they require of individuals 
with disabilities.
    As noted earlier, ACF is committed to working with States to 
explore additional approaches and innovative efforts to promote and 
support the employment of TANF recipients living with disabilities. As 
we work with States, we will begin to get a better understanding of the 
potential promises and logistical challenges of all such approaches.
    With respect to individuals caring for people with disabilities, 
the regulation makes two accommodations. First, the definition of a 
work-eligible individual excludes a parent caring for a disabled family 
member living in the home, as long as there is medical documentation

[[Page 6777]]

to support the need for that parent to remain in the home to care for 
the disabled family member. Second, the regulation gives States credit 
for excused absences for all work-eligible individuals in unpaid work 
activities. Thus, if a State excuses an individual who misses time 
because she must care for a disabled family member, the State could 
count those missed hours as actual participation, within the limits the 
regulation sets out. Please refer to Sec.  261.60 for further 
discussion of excused absences.

B. Domestic Violence

    Comment: Some commenters asserted that the interim final rule 
conflicted with the Family Violence Option (FVO). One commenter noted, 
``The regulations are also silent on how domestic violence services are 
allowed and how domestic violence cases are treated.'' Another 
commenter asserted, ``Women need time to effectively remove the 
barriers that have prevented them from obtaining quality employment.'' 
Another suggested that ``the limited time allowed in job search and job 
readiness for barrier removal activities is inflexible and should not 
apply to family violence victims.''
    Response: Existing provisions in the law address work participation 
rate issues for States dealing with victims of domestic violence. A 
State that elects the Family Violence Option under Section 402(a)(7) of 
the Social Security Act must screen and identify victims of domestic 
violence, refer such individuals to services and, if needed, waive 
participation and other program requirements for as long as necessary 
to escape domestic violence. The rules at Part 260, Subpart B allow 
States to grant good cause domestic violence waivers to victims of 
domestic violence that waive various program requirements, including 
work requirements. States have broad flexibility in determining which 
program requirements to waive and for how long. Although these 
recipients remain in the work participation rate calculation, there may 
be some activities that meet one of the work activity definitions that 
would make them countable toward the participation rate. If a State 
fails to meet a work participation rate, we will determine that it had 
reasonable cause if the State can demonstrate that it failed to meet 
the rate due to granting federally recognized good cause domestic 
violence waivers. In this circumstance, we would recalculate the work 
participation rate taking out any families in which individuals 
received a federally recognized good cause domestic violence waiver of 
work participation requirements.
    We believe the 1999 TANF final rule regarding the treatment of 
victims of domestic violence ensures services and waivers for victims 
and provides adequate ``reasonable cause'' reduction or elimination of 
penalties for States. Consequently, we did not propose revision to Part 
260, Subpart B in the interim final rule; therefore, general concerns 
related to rules on victims of domestic violence are outside the scope 
of this rulemaking.

C. General Topics

    <bullet> Alternative Measures of Performance
    Comment: Several commenters suggested shifting the focus of 
participation from process to outcome measures. One commenter found 
that the existing participation rates were too limited for purposes of 
assessing State performance measuring comparability across States. The 
commenter suggested that we use alternative measures of program 
success, including measures related to poverty, the employment rates of 
current and former recipients, and the completion rates for applicants 
and recipients enrolled in education and training programs. One 
commenter recommended continuing the High Performance Bonus outcome 
measures, even though bonuses are no longer available under the DRA. 
Another commenter urged work participation credit for those families 
who get jobs and work their way off welfare.
    Response: We do not have the regulatory discretion to replace the 
existing work participation rate requirements with alternative, 
performance-based measures. Nevertheless, we do continue to track 
several of the outcome measures from the high performance bonus.
    <bullet> Negative Consequences and Challenging Standards of 
Participation
    Comment: Several commenters suggested that the interim final rule 
makes it more difficult for States to design effective programs to move 
families from welfare to work. Some commenters predicted that States 
may adopt punitive approaches to reduce the denominator for the work 
participation rate.
    Some commenters suggested that we do not appreciate the need for 
flexibility and the difficulty of meeting a 50-percent overall 
participation rate. As an example, one commenter thought that we failed 
to recognize ``the reality that reaching a 50 percent participation 
rate is difficult in large part because of the many legitimate reasons 
why a recipient may not meet the full hourly participation requirements 
in any particular month, including illness, temporary gaps between work 
components, and family emergencies such as trying to forestall an 
eviction, the need to find new housing, the need to care for an ill 
relative who may not live with the recipient, or the need to attend to 
a domestic violence issue.'' One commenter said that the rules ``would 
steadily diminish state flexibility through the imposition of rigid 
federal mandates.'' Another stated, ``The new regulations have 
eliminated the states' ability to be flexible in determining what they 
may assess for countable work activities when in reality the needs of 
the particular participants and states vary vastly.''
    Response: We do appreciate the difficulty in engaging a large and 
varied client population in countable work activities for enough hours 
to meet the work participation rate. Instilling the work habits and 
providing the supports that different families need to engage in work 
is a challenge that all States must strive to achieve. We have given 
serious consideration to the commenters' concerns and would like to 
point out certain aspects of statute as well as others of the TANF rule 
that help States achieve the work participation rate. There are several 
categories of individuals that continue to be excluded from the 
calculation of the work participation rate under the new law. One of 
the largest is the State option to disregard, on a case-by-case basis, 
single-custodial-parent families caring for a child under the age of 
one year. A State may also disregard a family subject to a work-related 
sanction for up to three months in the preceding 12 months. In 
addition, the interim final rule allowed States to exclude from the 
definition of ``work-eligible individual'' parents caring for a 
disabled family member living in the home. Our excused absence policy 
addresses concerns related to hours missed due to short-term illnesses 
or emergencies. Finally, States have a special reasonable cause 
provision if they miss the work participation rate because they serve a 
large number of families dealing with domestic violence issues.
    Also, we would like to emphasize that when States cannot count the 
participation of some individuals in certain activities because they do 
not meet one of the work activity definitions or because the hours of 
participation are not sufficient, the States should still serve these 
individuals. The requirements and expectations for each family should 
be set by the State taking into consideration the needs of the family, 
obligations under the ADA and

[[Page 6778]]

Section 504 of the Rehabilitation Act of 1973, and program goals. Thus, 
in any individual case, a State may require fewer hours of an adult 
than needed to count toward the Federal participation rate and that 
family will not help the State meet its work participation rate. 
Similarly, a State may, and many do, require more hours of an adult 
than needed to count the family in the participation rate. Moreover, 
States continue to have the flexibility to allow families to engage in 
broader and different activities from those that count for the Federal 
participation rate.
    We are convinced that States can and will meet these challenges, 
thus dramatically improving the lives of families. We also believe that 
the standards must be challenging to ensure that the maximum number of 
recipients move toward self-sufficiency. This conviction is based on 
the well-documented results and achievements made by States in response 
to PRWORA. We believe the DRA provides the appropriate steps and 
direction for the next phase of welfare reform.
    We are confident that, under the new rule, States that operate 
effective and efficient welfare-to-work programs will be able to 
satisfy their work participation rate standards and enhance the 
services to clients at the same time.
    <bullet> Partial Credit
    Comment: Several commenters suggested that we should give States 
partial or pro rata credit for individuals who are engaged in work 
activities for some hours, but not enough to be included in the work 
participation rate calculation. One commenter pointed out that this 
would avoid the current ``all-or-nothing'' standard and would permit 
some individuals who have limitations to be credited with 
participating. Another maintained that partial credit is not 
prohibited, even if the rules do not specifically allow it.
    Response: Neither PRWORA nor the DRA provided for counting partial 
participation of a case in meeting the work participation rates; either 
the adult meets the requirements for being ``engaged in work'' and the 
family counts in the rate or the adult does not meet the hours 
requirement and the State does not get credit for that family in the 
participation rate. We remind readers that the regulations at 
Sec. Sec.  261.22(d)(1) and 261.24(d)(1) do provide the flexibility of 
counting a partial month of assistance as a month of participation if a 
work-eligible individual is engaged in work for the minimum average 
number of hours in each full week that the family receives assistance 
in that month. Please refer to the regulatory text of those sections 
and to the preamble discussion in the original TANF rule at 64 FR 
17771. In addition, the excused absence policy described in Sec.  
261.60(b) allows a State to receive credit for short-term excused 
absences and allows some families that would otherwise fall short of 
the minimum hourly requirements to count in the participation rate.
    <bullet> Increased Costs
    Comment: Some commenters suggested that the new regulations would 
require States to increase participation in work activities, which 
would raise program costs. This, in turn, they thought, would force 
States to curtail services because TANF is a fixed block grant.
    Response: The dramatic decline in welfare caseloads since the 1996 
welfare reform has produced savings that far exceed any additional 
costs from new work requirements. More specifically, TANF funding, 
measured on a per TANF family basis, was $9,100 in 1996 (inflation-
adjusted) compared to $15,977 in 2007 (projected), an increase of 
$6,877 per family, or 76 percent. While we recognize that States have 
dramatically extended work services and support benefits to low-income 
working families, and pre-kindergarten care and education to children 
that are not receiving ``assistance,'' we believe that States have 
sufficient resources to allocate among priority programs while 
implementing these new requirements.
    <bullet> Child Care Needs
    Comment: Some commenters thought that there was not enough child 
care funding to pay for the added costs associated with implementing 
the work requirements under the Deficit Reduction Act of 2005, 
particularly for child care for non-recipient parents.
    Response: Since 1996, Federal child care funding through the Child 
Care and Development Fund (CCDF) has more than doubled--from $2.2 
billion in FY 1996 to $4.8 billion in FY 2005. HHS data on Federal and 
State child care spending in just three programs--TANF, CCDF, and the 
Social Services Block Grant (SSBG)--show that spending increased by 
nearly 225 percent between FY 1996 and FY 2005, from $3.6 billion to 
$11.5 billion. The Deficit Reduction Act increases Federal child care 
funding in the CCDF from $4.8 billion to $5 billion, effective FY 2006. 
In addition to increasing child care funding, the Deficit Reduction Act 
fully funds TANF at $16.5 billion per year for five years. With 
significantly lower caseloads than in 1996, we believe that States 
should have adequate funding to provide needed child care under the 
Deficit Reduction Act requirements.
    <bullet> Monitoring
    Comment: Several commenters suggested that the rule imposes rigid 
monitoring and reporting requirements. Some expressed concern that 
frequent demands for proof of participation could overburden providers 
or cause families to lose assistance.
    Response: We believe that the rule simply clarifies what has always 
been the expectation of law, of the original TANF rule, and of the 
requirements of 45 CFR part 92: That a State should report only actual 
participation that it has adequately documented and verified. As a 
result of numerous single audit findings questioning the validity of 
participation rates, we decided to clarify this expectation in the rule 
so that States may avoid potential penalties. In addition, for the four 
activities involving paid employment, which historically have 
represented the bulk of State work participation, we have substantially 
reduced the burden on clients, employers, and States by allowing the 
reporting of projected actual hours of participation for up to six 
months based on current, documented hours of work.
    <bullet> Consultation
    Comment: One commenter stated that we did not consult Tribes about 
the interim final rule and that Tribes were expressly discouraged from 
providing input because the rule was directed at States and was not 
intended to impact Tribal TANF programs directly.
    Response: The rulemaking process included a period for public 
comment on the interim final rule. Tribes as well as other 
organizations and individuals were free to express their opinions and 
to offer advice on the rule. Several Tribes and Tribal Organizations 
took the opportunity to submit comments, which we have addressed in the 
preamble to this final rule. Further, ACF representatives actively 
participated in a National Summit on State and Tribal TANF in July 
2006, at which State and Tribal representatives discussed the 
provisions of the DRA and the interim final rule in detail and 
expressed comments. The National Alliance of Tribal TANF, one of the 
Summit sponsors, summarized these comments and formally submitted them 
to us. They are also addressed in this preamble.

D. Tribal TANF

    Comment: One commenter observed that Tribal TANF programs could be 
adversely affected by States that fail to meet the work participation 
rates because the funds that States transfer are critical to the 
operation of Tribal TANF programs. This commenter also

[[Page 6779]]

expressed concern that funding and regulatory changes to State TANF 
programs will negatively affect various Tribal programs.
    Response: State MOE funding plays an important role for Tribal TANF 
programs. We will continue to encourage States to support the Tribal 
TANF grantees with MOE funding; however, the decision to provide MOE 
funding rests solely with the States. States may also impose conditions 
on Tribal TANF programs on the use of State MOE funds. Primarily, the 
Federal role regarding State MOE is to ensure that States expend the 
required amount of funds in compliance with requirements. (For a more 
detailed discussion of Federal policy on MOE funds provided to Tribal 
TANF programs, please see our Policy Announcement, TANF-ACF-PA-00-4 
dated November 27, 2000.)
    We do not think it is likely that State TANF agencies will reduce 
MOE funding for Tribal TANF programs. If a State does fail a work 
participation rate, it must meet an 80 percent MOE requirement. States 
that meet the work participation rates need only spend at the 75 
percent MOE level. Any State that may potentially fail either the 
overall or two-parent participation rate needs to ensure that it has 
expended 80 percent of its historic level of spending, a five 
percentage point increase for many States. In addition to the need to 
expend additional MOE funds, we have heard no State indicate that it is 
contemplating any reductions in providing funding to Tribal TANF 
programs.
    Comment: A few commenters expressed concern that restrictions 
imposed by this regulation could create an influx of Tribal clients 
moving to areas in which Tribal TANF programs exist, thereby increasing 
the costs to these programs. Because Tribal funding is based on 1994 
caseload data, Tribes have substantially limited ability to renegotiate 
effectively for increased funding.
    Response: We understand the commenters' concerns; however, we have 
seen no evidence that this rule will prompt Tribal members to move into 
areas served by a Tribal TANF program or that such a potential influx 
would exceed the 1994 caseload level. In fact, if States effectively 
implement the DRA provisions, we expect further caseload declines.
    Comment: One commenter expressed opposition to any attempt to 
extend these regulations to the Tribal TANF program regulations.
    Response: As we noted in the preamble to the interim final rule, 
the regulatory changes promulgated in response to the enactment of the 
DRA only apply to States, the District of Columbia, and the Territories 
of Guam, Puerto Rico, the Virgin Islands, and American Samoa. We are 
not planning to amend the Tribal TANF program regulations at 45 CFR 
part 286 to comport with these DRA 2005 final rules.

IV. Part 261--Ensuring That Recipients Work

Section 261.2 What Definitions Apply to This Part?

    This section of the regulation defines work activities and work-
eligible individuals. Section 407(d) of the Social Security Act 
specifies 12 separate and distinct activities. Under the original TANF 
rule, we chose not to define these work activities to provide maximum 
program design flexibility to States. We simply listed the 12 work 
activities in 45 CFR 261.30 in the order they appear in the Act. As GAO 
found, this led to disparities in State definitions of work activities 
that resulted in inconsistent work participation measurement and 
undermined the principle of equitable treatment. In particular, States 
with narrow definitions were at a disadvantage in meeting the 
participation requirements compared to States with broader definitions. 
In addition, the GAO report (GAO-05-821) raised concerns that some 
States integrated activities to avoid various statutory limitations on 
some TANF work activities, such as the six-week time limit on counting 
hours spent in job search and job readiness assistance.
    The Deficit Reduction Act of 2005 required HHS to promulgate 
regulations to ensure consistent measurement of work participation 
rates. The law specifically required us to determine whether an 
activity of a recipient of assistance may be treated as a work 
activity. Thus, in the interim final rule, we defined each of the 
countable work activities to promote consistency in the measurement of 
work participation rates and to maintain the integrity of the work 
participation rates. By defining work activities, we ensure that all 
States are judged on the same basis that is, that there is a level 
playing field.
    Our definitions follow the order of the list of work activities in 
section 407(d) of the Social Security Act. For ease of reference, we 
refer to the nine work activities that count for the first 20 hours of 
required work or the corresponding 30-hour requirement for two-parent 
families (or 50-hour requirement for two-parent families receiving 
federally subsidized child care) as ``core'' activities and the three 
activities that can only count as participation after the core 
requirement is met as ``non-core'' activities.
    We were guided by four basic principles in developing the work 
activity definitions in this final rule.
    First, we attempted to define each work activity in a common sense 
way. If a particular activity was not explicitly listed in the statute, 
we attempted to see if it could fit under one of the 12 activities 
listed in law. For example, treatment, counseling, and rehabilitation 
activities, in our judgment, fit best under job search and job 
readiness assistance, when such activity prepares an individual for 
work. However, we could not add wholesale categories of work activities 
to the 12 listed in the law. Our task was to specify whether and where 
certain activities fit within these already existing statutory 
categories.
    Second, we defined each activity to focus on work and help move 
families to self-sufficiency. Work activities should help individuals 
develop the skills necessary to become job ready and go to work. We do 
not want families to exhaust their time-limited benefits and discover 
that they are not prepared to support themselves.
    Third, we tried, as far as possible, to make the definitions 
mutually exclusive of one another. Since Congress created 12 distinct 
activities, we wanted to bring meaning to them as distinct activities.
    Fourth, we made supervision an explicit part of each definition. 
For programs to be successful, it is important that the case manager or 
provider knows what each person is supposed to be doing and that he or 
she is accountable on a timely basis for ensuring that the client 
actually performs such assigned tasks.
Comments and Responses on Cross-Cutting Issues for Work Definitions
    We received many comments on this section of the interim final 
rule. Some comments applied to multiple activities or applied generally 
to defining the activities at all. We respond to those cross-cutting 
comments in this section and have grouped the comments and our 
responses by topic for the ease of the reader. We respond to comments 
that focus more narrowly on a specific definition in the discussion of 
each activity below.
General Topics
    Comment: Some commenters wrote that the work activity definitions 
in the interim final rule narrowed the range of what States can count 
toward their work

[[Page 6780]]

participation rates and recommended giving States more flexibility in 
defining work activities. One commenter recommended allowing States to 
develop their own definitions.
    Response: The DRA directed HHS to define work activities to achieve 
greater consistency among States. For some States, the new definitions 
may narrow countable activities, but we believe they actually expand 
them in other States. For example, under the original rule, some States 
counted substance abuse and mental health treatment as community 
service or as job search and job readiness assistance. Some States did 
not count these activities at all, even if a substantial number of 
individuals participated in such treatment. Our new definitions make 
substance abuse treatment, mental health treatment, or rehabilitation 
activities an explicit part of job search and job readiness assistance. 
This will allow all States to count individuals participating in these 
activities and thus could actually increase work participation rates in 
these States. In general, we believe the work activity definitions 
specified in the interim final rule were reasonable and consistent with 
the goals of the TANF program, and thus we have retained them, with 
appropriate modification, in the final rule. As a practical matter, we 
do not believe that these definitions have a restrictive effect on what 
most States currently count because the dominant activity in most 
States has traditionally been unsubsidized employment, an activity 
whose definition most commenters did not find restrictive.
    Comment: Several commenters expressed the view that the emphasis on 
mutually exclusive activities restricts State flexibility in developing 
cost-effective programs by making it more difficult for them to 
``blend'' program activities. The commenters recommended that we make 
the definitions more ``flexible'' and permit program approaches that 
integrate and combine activities under one work activity definition.
    Response: Programs that combine work with training or other 
services have shown promise in helping TANF recipients make the 
transition to the labor force and move toward self-sufficiency. We 
believe that the final rule gives States the flexibility to operate 
programs of blended activities. Section 407(d) of the Act specifies 12 
separate and distinct activities. Thus, we have tried to define each 
activity to have a specific and distinct meaning, but it was not always 
possible to make them mutually exclusive. In fact, some types of 
activities can be categorized under more than one work activity 
definition. For example, many of the training activities counted under 
vocational educational training can also count under job skills 
training directly related to employment and education directly related 
to employment. The former is a core work activity that is limited to 12 
months in a lifetime, whereas the latter are non-core activities that 
can only count once the core activity requirement has been met.
    Comment: Some commenters maintained that the most effective 
welfare-to-work programs included a variety of employment and education 
and training activities. In their opinion, mutually exclusive 
definitions would discourage States from combining work activities. 
Moreover, they maintained that doing so would require separate tracking 
of each activity and impose an added administrative burden. In 
addition, because some activities, such as job search and job readiness 
assistance and vocational educational training, have statutory 
limitations on their duration, the commenters thought that States might 
be reluctant to include these activities in a broader program that 
blends activities because it would limit the long-term use of those 
activities. Commenters urged us to allow States to combine activities 
and report all participation under one activity. Several commenters 
suggested that States should be allowed to count an individual 
participating in more than one activity in the activity that makes up 
the majority of the hours of participation. For example, many of these 
commenters recommended that we allow States to count a limited number 
of hours of job search or training as part of another activity, such as 
work experience, if the other activity represents the majority of the 
hours of participation.
    Response: We strongly support State programs that combine 
activities and believe that our definitions fit well with such blended 
programs. It is important that States report the hours of participation 
for each work activity in the appropriate category to ensure that the 
data are comparable across States. If an individual has exhausted the 
time allowed to count an activity, it does not prevent a State from 
continuing to combine it with other activities; it only affects what a 
State can report toward the participation rates. We note that a policy 
that allows some activities to count within others based on standards 
such as what constitutes a ``significant majority'' of hours would 
still require States to track the hours of each activity separately to 
determine which activity is the primary activity. Thus, combining the 
activities would not achieve the suggested administrative 
simplification.
    Comment: Many commenters expressed general support for education 
activities or for the ability to count a wider array of educational 
activities. Several commenters asserted that the regulations will limit 
access to education and training, and were concerned that this would 
hinder client access to higher paying jobs and undermine their efforts 
to become self-sufficient. For those with limited basic skills and 
language difficulties, some commenters proposed expanding the 
definitions of various core activities to increase opportunities of 
countable participation. Commenters also suggested that we expand the 
definition of vocational educational training to include education 
directed at achieving a baccalaureate or advanced degree.
    Response: We appreciate the value of education and training for all 
individuals. Some recipients need to develop skills to become 
employable; others benefit from education and training in order to 
advance in the workplace. While we cannot add educational categories to 
the explicit 12 activities listed in the TANF statute, we believe that 
our definitions permit considerable flexibility to provide a range of 
education and training services to TANF families. Under vocational 
educational training, we permit a variety of postsecondary education 
activities, including associate degree programs, instructional 
certificate programs, industry skill certifications, and other course 
work. In addition, the definition of job skills training directly 
related to employment permits virtually all vocational educational 
training activities to count under that component as well. States may 
choose this activity for those individuals who have exhausted their 12-
month limit on vocational educational training or to conserve these 
months for those who have sufficient additional participation in other 
core work activities. Remedial education and ESL can count under 
vocational educational training, if they are a necessary and regular 
part of the work activity, and also can count under education directly 
related to employment. States have considerable flexibility to mix and 
match work activities so that they can count a wide range of 
activities. Although the interim final rule did not permit States to 
count participation in baccalaureate or advanced degree programs in 
vocational educational training, we have been persuaded by commenters 
to allow such participation and have changed the definition 
accordingly.

[[Page 6781]]

    Comment: Some commenters thought that the new work activity 
definitions ``do not allow for the singular economic, cultural, and 
geographic circumstances'' that characterize some States. For example, 
they pointed out that the rural nature of some communities makes it 
difficult to serve some work-eligible individuals, both because the 
range of activities may be limited and also because various 
documentation and supervision standards are hard to apply.
    Response: We are sympathetic to concerns related to serving remote 
areas and areas where employment opportunities are limited due to high 
unemployment or other conditions. However, the statute does not make 
any allowance for such factors in the calculation of work participation 
rates, except that it limits the maximum overall rate to 50 percent. 
Under one of TANF's predecessor programs, the Job Opportunities and 
Basic Skills Training (JOBS) program, States could exempt individuals 
living in remote areas, but Congress chose not to continue this 
exemption when it enacted TANF in 1996. The law does provide penalty 
relief, though, if a State can demonstrate that high unemployment or 
regional recession caused or contributed to its failure to meet the 
work participation rates. Readers should refer to Sec. Sec.  261.51(d) 
and 262.5 of this chapter for more information on penalty relief.
    Comment: Some commenters suggested that the work activity 
definitions exceeded our legal authority. One commenter noted, ``Many 
states have used more expansive definitions over the past 10 years, and 
HHS has never suggested that they were in violation of the statute.'' 
Another commenter asserted that there is ``no statutory basis to impose 
a mutually exclusive list of definitions to what Congress said should 
be viewed as a whole.'' Some commenters contended that specific 
regulatory provisions were not consistent with the statute.
    Response: The Deficit Reduction Act of 2005 specifically required 
us to determine ``whether an activity * * * may be treated as a work 
activity. * * *'' We believe the interim final rule was consistent with 
Congressional and statutory intent. We did not intend to suggest that 
States were in violation of the prior statute and rules. Rather, 
Congress saw a need for uniform definitions and the rule provides them.
    Comment: Some commenters wrote that aspects of our definitions were 
not necessary because they were not required by the statute, for 
example, the limitation that only supervised homework can count.
    Response: The statute is generally silent on what we should include 
in most definitions. In defining the work activities, we found it 
necessary to specify what can count as part of an activity and the 
conditions that must be met to ensure that actual participation in the 
activity occurs and thus keep definitions consistent across States.
    Comment: One commenter urged us to count as part of a work activity 
the time it takes to travel to and from the work or training site. The 
commenter thought this was particularly important in rural areas that 
are isolated and lack public transportation.
    Response: Travel time to and from work sites does not count toward 
the participation rates. We chose not to count commuting time to and 
from a work site because commuting is not ``engaging'' in the activity 
for which the State gets credit and because this approach is analogous 
to the work world, since most employees receive no pay for the time it 
takes them to commute to their jobs. However, we do allow a State to 
count the time an individual spends in job search and job readiness 
assistance traveling between multiple interviews. Please refer to the 
preamble discussion of that work activity for more detail in this area.
Daily Supervision
    Comment: Several commenters asked for clarification regarding the 
daily supervision requirement for unpaid work activities. Several 
commenters objected to the requirement that job search and job 
readiness assistance include daily supervision because they said it is 
a costly and time-consuming requirement. These commenters generally 
noted that the time and resources spent on daily supervision should be 
focused on providing direct services to help families move toward self-
sufficiency. Several commenters suggested that we limit the requirement 
so that ``someone with responsibility for oversight of the individual's 
participation had contact with the recipient, and that the supervision 
does not have to be done by the TANF agency itself or an employment 
services contractor.'' Some commenters recommended eliminating the 
requirement altogether.
    Response: We agree with many of these points and would like to 
clarify this requirement. Daily supervision means that a responsible 
party has daily responsibility for oversight of the individual's 
participation, not necessarily daily, in-person contact with the 
participant. The goal of such supervision is to ensure that individuals 
are participating and making progress in their assigned activities. A 
work site sponsor, classroom instructor, contracted service provider, 
community-based provider, job search instructor, treatment provider, or 
even a TANF agency employee could fulfill that role. In addition, the 
supervision need not involve in-person contact, but can be by telephone 
or electronic contact where those methods are suitable.
    Daily supervision as described above is a central part of the final 
rule. It ensures that individuals who participate in work activities 
make progress in their assigned activities. Supervision is part of 
everyday life in paid employment, despite the cost and time involved, 
because it provides value. We should expect no less for all TANF work 
activities.
    Comment: One commenter asked for clarification regarding whether 
``supervision is only required on days when an individual is scheduled 
to participate,'' noting that it would not make sense to require 
supervision on the other days.
    Response: We agree and have clarified the final rule to indicate 
that supervision is only required for days when an individual is 
scheduled to participate.
Distance Learning Activities
    Comment: Several commenters asked whether time spent in distance 
learning programs could count toward the work participation rates. They 
noted that this was particularly important in rural areas and that some 
programs keep track of the time individuals spend on a computer in ways 
that participants cannot change.
    Response: We agree that distance learning is an important way for 
some families to gain the skills needed to move toward self-
sufficiency. We will count time spent in distance learning to the 
extent that such programs otherwise meet the work activity definitions 
and include supervision. A State should explain in its Work 
Verification Plan how it will provide supervision and monitor hours of 
participation in distance learning.
Good or Satisfactory Progress
    Under the definitions in the interim final rule, two of the TANF 
work activities involving education required that participants make 
``good or satisfactory progress'' in order for their hours of 
participation to count: Education directly related to employment and 
satisfactory attendance at secondary school or in a course of study 
leading to a certificate of general equivalence (GED). The preamble to 
the

[[Page 6782]]

interim final rule explained that this includes a standard of progress 
developed by the educational institution or program in which the 
individual was enrolled. It also said that good or satisfactory 
progress should be judged by both a qualitative measure of progress, 
such as grade point average, as well as a quantitative measure, such as 
a time frame within which a participant is expected to complete such 
education. We expressed interest in receiving comments that describe 
other possible criteria or definitions for what constitutes making 
``good or satisfactory progress.''
    Comment: Several commenters observed that the preamble to the 
interim final rule described ``good or satisfactory progress'' somewhat 
differently for the two activities to which it applied. In the case of 
``education directly related to employment'' we wrote that the standard 
could be developed by either the education institutions or the program. 
For ``satisfactory attendance at secondary school,'' we allowed the 
State or the educational institution/program to set the standard. The 
commenters asked for clarification of this policy and recommended a 
wide variety of approaches for setting ``good or satisfactory 
progress'' standards. Some commenters urged us to leave the standards 
to educational institutions and programs, while others recommended that 
States establish them. A number of commenters also proposed giving 
States the flexibility to choose to establish either or both 
qualitative and quantitative measures.
    Several commenters cautioned that the criteria for ``good or 
satisfactory progress'' should not discourage placing individuals with 
barriers in education, noting that they may require more time and help 
in meeting such standards. They suggested that the standards should 
include appropriate accommodations for individuals with disabilities. 
Other commenters recommended that we eliminate the requirement of 
``good or satisfactory progress'' because many individuals with 
learning disabilities are often not identified by State agencies and 
fall through the cracks.
    Some commenters recommended creating good cause exceptions for 
those facing unusual or unexpected circumstances that prevented them 
from making progress as expected. Good cause exceptions, they 
maintained, would prevent States from being penalized when individuals 
participate for the required number of hours but are unable to progress 
due to various circumstances. Another commenter asked us to clarify 
that States would not be retroactively denied credit toward the 
participation rate because a client participated for the required hours 
but failed to make adequate progress.
    One commenter noted that the interim final rule did not specify the 
frequency with which ``good or satisfactory progress'' should be 
verified and commented that some measures of progress, such as grade 
point average, may not be available until the end of a quarter or 
semester. The commenter also explained that some educational programs, 
such as Adult Basic Education, may not have testing that produces 
grades to calculate a grade point average. The commenter recommended 
that States use ``subjective performance evaluations provided by the 
instructor to demonstrate progress * * * that simply indicate if 
academic performance was unsatisfactory or satisfactory.''
    Response: The commenters raised many compelling points. We believe 
that the easiest way to accommodate these concerns is simply to delete 
the requirement for ``good or satisfactory progress'' from the 
definitions of education directly related to employment and 
satisfactory attendance at secondary school or in a course of study 
leading to a GED. Although we believe such standards are valuable and 
should be part of any educational activity, based on the input from 
commenters, we have determined that the appropriate standards can vary 
based on too many circumstances to mandate their inclusion in these two 
activities. Educational institutions are generally in the best position 
to establish standards of progress, but they may not make separate 
determinations of progress based on the circumstances of individuals, a 
role a caseworker might best perform. Therefore, the final rule gives 
States flexibility in deciding whether to set standards of ``good or 
satisfactory progress'' and, if they do, to develop the standards that 
are best suited for their clients.
Assessment
    Comment: Several commenters recommended that the definition of 
various work activities include the assessment of participants' skills.
    Response: Our work activity definitions permit assessment of an 
individual's suitability for a particular work activity.

Section 261.2(b) Unsubsidized Employment

    In the interim final rule, we defined unsubsidized employment as 
full-or part-time employment in the public or private sector that is 
not subsidized by TANF or any other public program. We did not change 
the definition in the final rule. We have responded to comments 
concerning self-employment activities in the discussion of Sec.  
261.60(c).
    Comment: Commenters found our definition of unsubsidized employment 
to be appropriate.
    Response: We agree and have retained the same definition in the 
final rule.

Sections 261.2(c) and (d) Subsidized Private Sector Employment and 
Subsidized Public Sector Employment

    In the interim final rule, we defined both subsidized private 
sector employment and subsidized public sector employment as employment 
for which the employer receives a subsidy from TANF or other public 
funds to offset some or all of the wages and costs of employing a 
recipient. We described three possible subsidized employment program 
approaches: (1) To use TANF funds that would otherwise be paid as 
assistance to reimburse some or all of an employer's costs; (2) to rely 
on a third party as the employer of record during the trial employment 
period, like a temporary staffing agency; and (3) to develop 
``supported work'' programs for individuals with disabilities.
    In the final rule, we made a minor wording change to the 
definitions of each of these activities, substituting the word 
``individual'' for ``recipient.'' We made this change both for 
consistency with other definitions and to make clear that these 
activities are allowable for any work-eligible individual.
    Comment: Several commenters asked whether participation in various 
supportive activities, such as substance abuse treatment, mental health 
treatment, and rehabilitation activities could count as subsidized 
private sector or public sector employment. These and other activities 
are often integrated as part of a supported work program, transitional 
jobs program, or other subsidized employment activity.
    Response: Hours of participation in various supportive activities 
can count if they are integrated parts of subsidized employment. This 
means that, in order to count, the individuals must be paid for all of 
the hours they participate in such activities. For example, some 
transitional jobs programs are structured to include direct work and 10 
to 15 hours of barrier removal or other activities, including mental 
health and substance abuse treatment, job search, and training. 
Participants are paid wages for all hours of participation. Otherwise, 
if the individuals are not paid while participating in these

[[Page 6783]]

activities, the participation should be reported as a blend of 
subsidized employment and another appropriate activity. Most likely 
this would be job search and job readiness assistance, but could be 
another activity.
    Comment: Several commenters noted that some individuals assigned to 
subsidized employment soon have earnings that are sufficient to make 
them ineligible for assistance. They asked whether such individuals 
could continue to count in the numerator of the participation rate.
    Response: Although we understand the commenters' concern, the work 
participation rate calculations include only families with a ``work-
eligible individual.'' (Please refer to the discussion of Sec.  
261.2(n) for more detailed information about the definition of ``work-
eligible individual.'') If a State wants to count a family 
participating in subsidized employment that is ineligible for a regular 
assistance payment, it could create and pay an alternative assistance 
grant. The State could then count the family toward the rate. Of 
course, since the family retains assistance, this would not generate a 
caseload reduction credit, as might be the case otherwise.
    Comment: Several commenters asked whether employers would be 
required to hire and retain individuals engaged in subsidized 
employment once the subsidy period ended. The preamble guidance to the 
interim final rule stated, ``At the end of the subsidy period, the 
employer is expected to retain the participant as a regular employee 
without receiving a subsidy.'' Some commenters explained that many 
transitional jobs programs place participants in short-term subsidized 
employment to provide experience, training, and guidance that enable 
that individual to obtain unsubsidized employment elsewhere, even 
though it may not result in a permanent position with the same 
employer. Other commenters recommended that we limit the expectation of 
continued employment to private sector employers to avoid creating a 
``revolving door'' of subsidized employees.
    Response: The preamble language in this regard was a suggestion, 
not a requirement. We continue to caution that States should not allow 
employers to recycle TANF recipients in subsidized employment slots 
simply to reduce their competitive labor costs. The positions should 
lead to ongoing, stable employment or prepare individuals for such 
employment.
    Comment: Several commenters asked whether they must limit the 
duration of subsidized employment positions. They noted that the 
preamble to the interim final rule suggested ``that States generally 
limit the duration of subsidized employment programs to six to twelve 
months.''
    Response: The limited duration is a recommendation, not a 
requirement. Longer placements may be appropriate, for example, in 
supported employment of individuals with disabilities or for other 
participants based on their individual circumstances, economic 
conditions, or other factors.
    Comment: One commenter noted, ``Congress listed public and private 
sector subsidized employment as separate work activities; therefore it 
is reasonable to have different expectations depending on the sector of 
the employer.'' In particular, the commenter suggested that it may be 
appropriate to limit the duration of the employment subsidy to private 
sector employers ``where there is an expectation of continued 
employment with that employer,'' but that such limits should not be 
placed on public sector (and non-profit) employment.
    Response: We agree that durational limits help ensure that the 
primary benefit of the subsidy is to the employee, but do not see the 
need to apply different standards to the private and public sectors. We 
leave it to States to determine such limits regardless of whether they 
apply to private sector or public sector employment.
    Comment: One commenter recommended that States describe in their 
Work Verification Plans how a subsidized employment program will lead 
to unsubsidized employment ``where there is an expectation of continued 
employment with the same employer, and how the program will avoid 
displacement of current workers.''
    Response: We agree that the ultimate goal of subsidized employment 
is to move the individual to unsubsidized employment and off welfare. 
However, the purpose of the Work Verification Plan is to ensure that 
States report participation data that is consistent with the law and 
regulations and that States adequately verify the accuracy of that 
participation data. The Work Verification Plan does require States to 
describe how their services and programs meet the definition of a work 
activity.
    There is a statutory prohibition on displacement for all work 
activities in section 407(f) of the Act and the existing regulatory 
provision at Sec.  261.70. Thus, we do not believe the Work 
Verification Plan needs to include this information.
    Comment: One commenter recommended that HHS ``design the payment 
structure'' to reflect the range of services offered under subsidized 
employment.
    Response: We believe the details of program design should be left 
to the States because the circumstances of individuals and the 
effectiveness of program activities may vary based on a number of 
factors.

Section 261.2(e) Work Experience

    In the interim final rule, we defined work experience (including 
work associated with the refurbishing of publicly assisted housing) if 
sufficient private sector employment is not available, as a work 
activity performed in return for welfare that provides an individual 
with an opportunity to acquire the general skills, training, knowledge, 
and work habits necessary to obtain employment. We reminded readers 
that work experience participants continue to receive their TANF grants 
and that they do not receive wages or compensation by virtue of 
participating in the activity. Nonetheless, they may be considered 
employees for the purpose of the Fair Labor Standards Act (FLSA), which 
means that they must be compensated at no less than the higher of the 
Federal or State minimum wage.
    Comment: Several commenters suggested that work experience could 
sometimes be considered a ``paid'' activity. Others thought that the 
definition should exclude the phrase ``performed in return for 
welfare.''
    Response: We considered these views carefully but chose to retain 
the definition of work experience we published in the interim final 
rule, keeping it as an unpaid activity to distinguish it from the four 
``paid'' activities that already exist. In our view, the purpose of 
work experience is to gain the skills needed to acquire a paid 
position. States that have work experience programs that involve the 
payment of wages should reclassify them as subsidized employment or on-
the-job training. The fact that there may be an employer-employee 
relationship in a work experience assignment, triggering the minimum 
wage requirements of the FLSA, does not make the work activity 
``paid.'' Rather, the individual is receiving compensation from the 
family's TANF grant in lieu of wages.
    Comment: Several commenters asked us to clarify that not all work 
experience activities are subject to the FLSA. One commenter asked for 
clarification on who the employer is with respect to work experience 
positions--the State or the work site sponsor (if other than the 
State). The commenter was unsure

[[Page 6784]]

because the State provides worker's compensation.
    Response: It is the responsibility of the Department of Labor to 
determine whether or not the FLSA applies to an activity and who the 
employer is. We recommend that readers direct any questions regarding 
the FLSA to the Wage and Hour Division of the U.S. Department of Labor 
at 1-866-4-USWAGE, TTY 1-877-889-5627 or the following Web site: http://www.dol.gov/esa/whd/flsa/index.htm.
    Comment: Several commenters asked whether the definition of work 
experience precludes a State from counting a participant who combines 
unsubsidized employment with work experience because the statutory 
language limits work experience to situations where ``sufficient 
private sector employment is not available.'' In addition, the interim 
final rule defined the purpose of work experience as improving the 
employability ``of those who cannot find unsubsidized employment.''
    Response: The statutory language does not prevent States from using 
work experience for those who are in paid employment. We recognize that 
there may be circumstances in which an individual's employment is not 
sufficient to meet the work activity requirement and a State may place 
such an individual in another work activity. In this circumstance, work 
experience could be appropriate because sufficient employment may not 
be available for ``full-time'' work. Although we cannot strike the 
statutory phrase, ``if sufficient private sector employment is not 
available,'' we are clarifying that ``sufficient'' means enough for 
full-time employment.
    Comment: Several commenters recommended that the definition of work 
experience (and community service) include ``background checks and 
assessment of participants'' skills as they related to a job site and 
required by a specific work experience slot.''
    Response: Our definition permits background checks and the on-site 
assessment of an individual's suitability for a particular work 
experience slot. States must assess each recipient of assistance over 
18 years of age or who has not finished high school (or the 
equivalent).
    Comment: Some commenters suggested that we consider training, 
education, and vocational educational training to be part of work 
experience. They noted that the preamble discussion of community 
service programs in the interim final rule offered a rationale for 
providing training within that activity, citing the example of an 
individual assigned to clerical support who needs to attend a computer 
training class. They suggested that a similar provision should apply to 
work experience and that we should expand it to include other forms of 
educational or vocational educational training activities.
    Response: States may wish to supplement work experience with 
training, but we do not believe that formal training, education, and 
vocational educational training programs should be considered part of 
work experience. Work experience is defined as work performed in return 
for welfare and is intended to provide an individual with an 
opportunity to acquire the general skills, knowledge, and work habits 
necessary to obtain employment. We make an exception in community 
service because that activity involves a service that is of direct 
benefit for the community and limited training may count if it is an 
integral part of the activity. We have deleted the reference to 
``training'' in the definition of ``work experience'' to clarify this 
point, as that reference referred to training in general workplace 
skills, not to formal instruction that can be provided through other 
TANF work activities.
    Comment: Several commenters asked whether short periods of job 
search and job readiness assistance or vocational educational training 
could be embedded and counted within work experience. These commenters 
suggested that such programs are more effective than work experience 
alone and that not permitting such embedded activities to count would 
discourage States from combining work experience with activities 
designed to move TANF recipients into unsubsidized jobs. Other 
commenters contended that ESL should be included as part of work 
experience because the ability to speak English is a prerequisite for 
employment.
    Response: As we have noted before, we fully support State efforts 
to integrate and combine work activities. Reporting hours of work 
separately for the different activities should not impede a State's 
ability to offer integrated services or encourage individuals to 
combine activities. We attempted to define activities so that they are 
mutually exclusive because the law provides 12 distinct activities, so 
in general, including activities that meet one of the other work 
activity definitions would be inappropriate, particularly in the case 
of activities with established limitations in statute, i.e., job search 
and job readiness assistance and vocational educational training. ESL 
is an educational activity that can count under vocational educational 
training, if it is a necessary and regular part of the work activity, 
and also can count under education directly related to employment. 
However, we note that States can count short absences from various 
activities to participate in, for example, a job search activity under 
the excused absence policy (described in Sec.  261.60(b) of this 
chapter). In addition, as we describe in the section on job search and 
job readiness assistance, we give States greater flexibility to count 
sporadic hours of participation in job search and job readiness 
assistance without triggering a full week in that activity that would 
otherwise count against its durational limits.
    Comment: One commenter recommended that we require States to 
``consider TANF workers as employees of the state, eligible therefore 
for all state employee benefits and covered by all worker protection 
statutes.''
    Response: The DRA did not change the worker protections or employee 
benefits available to work activity participants, so the final rule 
does not make any changes to existing policy in this regard. The 
original TANF rule clarified that, notwithstanding specific language 
limiting the scope of the TANF rules, TANF programs are subject to 
Federal employment and non-discrimination laws. These protections 
continue to apply under the final rule. Since there is no statutory 
basis for a requirement such as the commenter suggested, we do not 
believe we have the authority to require TANF workers to be considered 
employees of the State. State law generally governs whether an 
individual must be considered an employee or may be considered an 
employee for purposes of State employee benefits. Also, the worker 
protection statutes themselves define the situations that they cover, 
many of which apply to individuals participating in TANF work 
activities.
    Comment: One commenter asked for clarification that work experience 
positions could be created with private sector employers. The commenter 
stated that this would expand the number of placement opportunities and 
the chances for individuals to transition into unsubsidized employment.
    Response: Work experience positions may be created with public 
sector, private sector, community-based, faith-based, or nonprofit 
employers or work site sponsors.

Section 261.2(f) On-the-Job Training

    In the interim final rule, we defined on-the-job training (OJT) as 
training in the public or private sector that is given to a paid 
employee while he or she is

[[Page 6785]]

engaged in productive work and that provides knowledge and skills 
essential to the full and adequate performance of the job. In the 
preamble to the interim final rule we invited comments on whether the 
definition of OJT should be broadened ``beyond paid employment to 
include other aspects of training.''
    Comment: Several commenters suggested that we expand the definition 
to include unpaid training, such as occupational training, basic skills 
remediation, and English language instruction, as well as pre-
employment skill upgrading. Several commenters noted that many 
employers provide both on-site and off-site training to employees. The 
commenters maintained that including unpaid training positions would 
help ensure that recipients receive needed work skills and would 
simplify reporting. Other commenters recommended including unpaid 
internships or externships, arguing that participants would have an 
opportunity to learn in a work setting that could lead to employment 
opportunities.
    Response: We considered all of these suggestions carefully in 
writing the final rule. Ultimately, we chose not to expand OJT to 
include unpaid training activities. We made this decision because, 
first, we could not reconcile the notion of unpaid training with being 
``on-the-job,'' and second, such unpaid training can count under a 
variety of other work activities, including vocational educational 
training and job skills training directly related to employment. We 
think this is the most common-sense way to bring meaning to the 12 
distinct work components. Regarding the location of training, we would 
like to emphasize that paid training, whether provided off-site or at 
the work site, fits the definition of OJT.
    Comment: Several commenters recommended expanding the definition of 
OJT to include training for prospective employees in addition to paid 
employees.
    Response: We have not included training for prospective employees 
under OJT because they are not yet ``on-the-job.'' Instead, such 
training could count under other work activities, including vocational 
educational training or job skills training directly related to 
employment, depending on the nature of the training.
    Comment: Several commenters recommended including barrier-removal 
activities in OJT if integrated into the program.
    Response: We fully support the use of barrier-removal activities 
for individuals who need these services. States may generally include 
such services as part of a job search and job readiness assistance 
activity. Also, such activities can count as unsubsidized or subsidized 
employment if the individual is paid during the time of participation 
in such activities.
    Comment: Several commenters asked whether an employer was expected 
to hire an OJT participant, based on the statement in the preamble: 
``Upon satisfactory completion of the training, we expect the employer 
to retain the participant as a regular employee. * * *''
    Response: The preamble language was a suggestion, not a 
requirement. As with subsidized employment, we expect employers to 
provide training, guidance, and direction to help employees obtain 
unsubsidized employment, whether with the employer providing the 
training or with another employer. As long as the position is designed 
to lead to unsubsidized employment, the activity would meet the primary 
goal of the program.

Section 261.2(g) Job Search and Job Readiness Assistance

    In the interim final rule, we defined job search and job readiness 
assistance as the act of seeking or obtaining employment, preparation 
to seek or obtain employment, including life skills training, and 
substance abuse treatment, mental health treatment, or rehabilitation 
activities for those who are otherwise employable. Such treatment or 
therapy must be determined to be necessary and certified by a qualified 
medical or mental health professional. We retained the general 
framework of the definition in the final rule, but deleted the 
requirement that an individual be ``otherwise employable'' because the 
term was confusing and raised concerns that it could potentially deny 
treatment to those who have a disability or face multiple barriers to 
employment. We also deleted the term ``certified'' because it too 
created some confusion. The final rule requires that there must be a 
documented need for treatment or therapy determined necessary by a 
qualified medical, substance abuse, or mental health professional.
    The preamble to this section of the interim final rule also defined 
a ``week'' for purposes of counting no more than six weeks per fiscal 
year (or 12 weeks, for qualifying States) of job search and job 
readiness assistance, no more than four of which may be consecutive. We 
explained that the most commonly understood and simplest way to answer 
this question was to use the ordinary definition of a week: seven 
consecutive days, regardless of which day participation starts. We 
received many comments on this provision. Most commenters contended 
that six weeks was not enough time to help individuals with barriers to 
employment. Many others urged us to consider an hourly equivalent to 
these limitations to increase State flexibility.
    In order to respond adequately to the comments we received, we 
determined that it was necessary to include Sec.  261.34, which 
specifies the limitations on counting job search and job readiness 
assistance, in this final rule, despite the fact that it was not in the 
interim final rule. Based on these comments, we have adopted an hourly 
equivalent for purposes of the six-week (or 12-week) limit, giving 
States more flexibility to provide job search and job readiness 
assistance services, especially when such services are only needed for 
a few hours per week. We describe the policies on these limitations in 
more detail in the discussion of Sec.  261.34, but also respond to 
comments on this topic here.
    For the ease of the reader, we have grouped the comments and our 
responses by topic within this section.
Treatment of Barrier Removal Activities
    Comment: Many commenters welcomed the inclusion of substance abuse 
treatment, mental health treatment, and rehabilitation activities as 
countable activities. However, many commenters also expressed concerns 
about limiting these specific activities to the category of job search 
and job readiness assistance alone, an activity that can count for only 
six weeks in a fiscal year (or 12 weeks, for qualifying States). They 
said that these barriers to work are prevalent among the TANF 
population and that States need more time to address them than the 
durational limits allow. A number of commenters recommended that we 
allow these activities to count under community service, job skills 
training directly related to employment, or education directly related 
to employment.
    Response: Under the final rule, we generally limit the counting of 
substance abuse treatment, mental health treatment, and rehabilitation 
activities to the job search and job readiness assistance activity. In 
defining work activities, we tried to determine whether such services 
appropriately fit in any work component. The statute does not 
specifically name substance abuse treatment, mental health treatment, 
and rehabilitation activities as work activities or even otherwise 
refer to these services. Because these are activities designed to make 
somebody work-ready, we count them as job

[[Page 6786]]

readiness activities. We realize this means that counting participation 
in these activities is limited to six weeks (or 12 weeks, for 
qualifying States) in the preceding 12-month period, of which no more 
than four weeks may be consecutive, but this was the only category 
where it made sense to include them. However, if a portion of substance 
abuse treatment, mental health treatment, or rehabilitation service 
meets a common-sense definition of another work activity, then the 
hours of participation in that activity may count under the appropriate 
work category, such as work experience. In addition, if hours in 
unsubsidized, subsidized private sector, and subsidized public sector 
employment include treatment or rehabilitation services, a State may 
count those paid hours under that work category.
    Because counting participation in job search and job readiness 
assistance is time-limited by statute, we caution States to assess 
carefully the use of treatment, counseling, and rehabilitation 
activities so that they count participation in these activities only 
when they are needed to prepare recipients for work.
    Comment: Several commenters objected to the requirement that a 
qualified medical or mental health professional must determine when 
treatment or therapy is necessary. One commenter maintained that it 
could discourage some individuals from acknowledging the presence of 
such barriers and delay or prevent the State from addressing them. In 
addition, the commenter thought that the certification process would 
pose an administrative burden for the States.
    Response: Substance abuse treatment, mental health treatment, and 
rehabilitation activities are important activities that can help 
individuals overcome serious barriers to employment. We eliminated the 
requirement for a ``certification'' but we believe that States must 
document the need for such treatment or therapy by a qualified medical, 
substance abuse, or mental health professional to ensure that a proper 
diagnosis is made and an effective remedy is prescribed.
Otherwise Employable
    Comment: Several commenters recommended that substance abuse 
treatment, mental health treatment, and rehabilitation activities 
should not be limited to those who are ``otherwise employable.'' They 
suggested that such a limitation may be a violation of the Americans 
with Disabilities Act of 1990 (ADA) and Section 504 of the 
Rehabilitation Act of 1973 because States could use it to deny such 
treatment to those who have a disability or face multiple barriers to 
employment. The commenters noted that such individuals may need a broad 
range of services beyond job search and job readiness, such as 
subsidized employment or vocational educational rehabilitation, before 
they are employable. One commenter suggested that individuals who are 
not ``otherwise employable'' should be excluded from the definition of 
a ``work-eligible individual.'' Some commenters also claimed that the 
determination of who would be employable and who would not would create 
an added administrative burden. Finally, they noted that job search and 
job readiness assistance is already limited to six weeks per fiscal 
year and that this language was more restrictive than needed and could 
discourage States from providing these kinds of services to individuals 
facing barriers to work.
    Response: We think the commenters raised reasonable concerns. We 
never intended the phrase ``otherwise employable'' to exclude 
individuals who need more than one form of service or training before 
they could become employed from counting via participation in mental 
health or substance abuse treatment or rehabilitation activities. Our 
intention was to ensure that the necessary services that work-ready 
individuals may require were delivered in a logical and sequential 
fashion. Too frequently, an applicant or new recipient is automatically 
assigned to job search and job readiness assistance, regardless of the 
needs identified in the client's initial assessment or in the 
individual responsibility plan. Because the counting of this activity 
is time-limited by statute, we wanted to ensure that such services were 
available and appropriately provided at the time they would do the most 
good in preparing for and finding work for participants. However, we 
agree that this phrase may be confusing or could be misconstrued. Thus, 
we have deleted it from the final rule; however, we still encourage 
States to develop and deliver services based on the individual needs of 
clients, rather than in automatic sequential steps.
Domestic Violence Activities
    Comment: Some commenters recommended that we expand the definition 
of job search and job readiness assistance to include participation in 
domestic violence resolution activities. One commenter suggested that 
we should classify such activities as ``rehabilitation activities.'' 
The commenter noted that victims of domestic violence often require job 
readiness activities akin to rehabilitation activities to transition to 
self-sufficiency, citing the following examples of domestic violence 
resolution activities: ``having to relocate due to the violence, apply 
for court orders of protection, attend court hearings, address 
children's needs for trauma counseling or other supports, attend 
counseling and support groups at a domestic violence program, meet with 
case managers at domestic violence programs, etc.'' One commenter 
explained that these were important activities that were apparently 
consciously omitted from the interim final rule. Another recommended 
allowing a certified domestic violence professional to certify the need 
for such activities. A number of commenters indicated that counting 
domestic violence resolution activities would address a problem noted 
in the preamble to the interim final rule, notably the concern that 
``States have been less effective in placing clients with multiple 
barriers in work, including * * * those subject to domestic violence.'' 
They contended that the limitations of job search and job readiness 
assistance ``exacerbate the difficulty victims have in participating 
and advancing towards financial stability.''
    Response: We fully support the efforts of States to identify 
victims of domestic violence and to assist them in accessing 
appropriate services to abate ongoing violence, to recover from 
physical and emotional trauma, and to help children cope with the 
effects of domestic violence. In the original TANF rule, all of Part 
260, Subpart B was devoted to the special provisions for victims of 
domestic violence. Those rules are unchanged and continue to offer the 
same protections they have since their promulgation. The interim final 
rule did not make modifications to that part of the regulation, in part 
because it was outside the scope of our interim final rule authority, 
but also because we stand by those protections. We continue to 
encourage States to adopt the Family Violence Option (FVO), to 
implement comprehensive strategies to identify and serve domestic 
violence victims, and to grant federally recognized good cause domestic 
violence waivers where victims need them.
    Many domestic violence resolution activities should already meet 
the definition of job search and job readiness assistance because they 
accomplish the very goal of that work component: To help individuals go 
to work. Any domestic violence service that directly relates to 
preparing for

[[Page 6787]]

employment could be considered a job readiness activity. A State should 
describe the activities it will offer in its Work Verification Plan and 
explain how it prepares someone for employment. If the State provides 
domestic violence services as ``rehabilitation activities,'' they 
should be included in a service plan developed by a trained individual 
and must be designed to lead to work. We note that few States counted 
domestic violence resolution activities under the original rules, 
despite the flexibility they had to do so.
    In addition, as we noted in the cross-cutting issues section of 
this preamble, existing provisions in the law address work 
participation rate issues for States dealing with victims of domestic 
violence. In particular, section 402(a)(7) of the Social Security Act 
and the rules at Part 260, Subpart B allow States to grant good cause 
domestic violence waivers to victims of domestic violence. States have 
broad flexibility to determine which program requirements to waive and 
for how long. Although these families remain in the work participation 
rate calculation, there may be some activities that meet one of the 
work activity definitions that would make them countable toward the 
participation rate. If a State fails to meet a work participation rate, 
we will determine that it had reasonable cause if the State can 
demonstrate that its failure was due to granting federally recognized 
good cause domestic violence waivers. As a matter of course, when we 
determine the amount of a penalty for failure to meet the work 
participation rate requirements, we recalculate the work participation 
rate taking out any families in which individuals received a federally 
recognized good cause domestic violence waiver of work requirements. 
This may result in no penalty or a reduction in the penalty associated 
with failure to meet the work participation rate. Please refer to Sec.  
261.51 for more information about the formula for calculating the work 
participation rate penalty.
    Comment: One commenter asserted that the interim final rule 
conflicted with the Family Violence Option in Federal law, which 
provides for waivers of requirements that would place victims of 
domestic violence at increased risk. The commenter added, ``As those 
situations are going to have to be determined on a case-by-case basis, 
the limited time for barrier removal activities is inflexible and 
should not apply to barrier removal for family violence victims.''
    Response: As the commenter noted, a State that elects the FVO must 
screen and identify victims of domestic violence, refer such 
individuals to services and, if needed, waive participation and other 
program requirements for as long as necessary to escape domestic 
violence. However, in providing this option to States, Congress did not 
remove such families from the denominator of the participation rate 
during the period of the domestic violence waiver. We believe the 
original rules concerning victims of domestic violence explained above 
ensure services and waivers for victims and provide necessary 
``reasonable cause'' reduction or elimination of penalties for States.
Other Activities
    Comment: Some commenters recommended expanding the definition of 
job readiness to include activities such as English as a Second 
Language (ESL) and remedial education--activities that the preamble to 
the interim final rule indicated would not be countable. Other 
commenters suggested new activities, such as behavioral health services 
and parenting skills training.
    Response: As we indicated in the preamble to the interim final 
rule, only programs that involve seeking and preparing for work can 
meet the definition of job search and job readiness assistance. 
Although some of the activities commenters recommended are valuable and 
may be medically appropriate, they do not constitute work or direct 
preparation for work. Some activities meet the definition of one of the 
other 11 work activities. For example, ESL would more closely fit the 
definition of education directly related to employment and should be 
counted under that activity.
    Comment: One commenter expressed appreciation for ``the ability to 
count the time spent in a substance abuse treatment facility or halfway 
house doing work activities such as preparing meals, housecleaning, or 
scheduling group activities.'' The commenter suggested extending this 
to ``persons living in supported residential facilities for both mental 
health and domestic violence reasons.''
    Response: We do not distinguish between countable work activities 
based on whether an individual lives in a residential facility or not. 
As long as the activity fits within an approved definition, it can 
count for participation rate purposes.
    Comment: Several commenters indicated that six weeks may not be 
long enough for a homeless person to find a job, implying that looking 
for housing might be a job readiness activity.
    Response: We appreciate the added challenges that homeless 
individuals face in entering and participating in the workforce. We 
encourage States to develop strategies that best meet the needs of 
their various client populations, including the homeless. Although a 
person with stable housing may have an easier time finding a job and 
performing well on the job, the act of looking for a home is not an 
employment activity. A job search and job readiness assistance activity 
must have a direct connection to improving employability or finding 
employment.
    Comment: One commenter suggested that we allow travel time required 
to complete job search activities to count. Travel is an integral part 
of job search, the commenter explained, as clients go from one 
interview to another, especially in large metropolitan or rural areas.
    Response: A State may count travel time between interviews as part 
of a job search and job readiness assistance activity, but not the 
travel time to the first job search interview or the time spent 
returning home after the last one. We make this distinction so that it 
is consistent with the treatment of other work activities and analogous 
to the work world, since most employees receive no pay for the time it 
takes them to commute to and from their jobs.
Using Job Interviews as Proxy for Hours
    Comment: Several commenters urged allowing States to use a job 
application as a proxy for a standard set of hours of participation, 
e.g., completing one application or going on one interview would 
constitute two hours of participation. They contended that this 
approach is easier to administer and more consistent with existing 
State practice.
    Response: While we sympathize with the commenters'' desire to 
minimize administrative burdens, we believe the most effective welfare-
to-work programs incorporate close supervision and careful monitoring. 
This allows program administrators to track actual hours. Thus, we 
explicitly require States to report the actual hours of participation 
for each work activity. The rule does not allow a State to report 
estimated hours of participation based on the number of job search 
contacts an individual makes.
Four-, Six-, and 12-Week Limits
    Comment: Several commenters suggested eliminating the six-week and 
other durational limits on job search and job readiness assistance 
because six weeks is not sufficient to address the

[[Page 6788]]

barriers faced by some recipients. Some commenters suggested limiting 
such extensions to those with short-term disabilities that need more 
than six weeks of treatment.
    Response: The six-week and other durational limitations are 
statutory and cannot be changed through regulation.
    Comment: Several commenters recommended not counting participation 
in job search and job readiness activities against the various 
durational limits under certain circumstances, including situations in 
which the participant does not have enough hours to count in the work 
participation rate or has enough hours to count in the rate without 
counting the hours in job search and job readiness assistance. Some 
commenters noted that States could simply fail to report such hours so 
as to avoid triggering the durational limits or report them under the 
category ``Other Work Activities'' on the TANF and SSP-MOE Data 
Reports, which reflects the hours of participation but does not apply 
them in determining the work participation rates or the durational 
limits. The commenters noted, however, that this would understate their 
true level of participation and could be construed as violating the 
``complete and accurate'' data reporting standard. Instead, they 
recommended allowing States to submit this information, but not to 
count participation if it were not needed to meet the work 
participation rate.
    Response: We understand the commenters'' concerns regarding the 
durational limits on job search and job readiness assistance, but these 
limits are set forth in the statute and we do not have the legal 
authority to ignore hours of participation reported under this 
activity. We strongly encourage States to report hours of job search 
and job readiness assistance that they do not wish to count toward the 
participation rate (and thus count against the various limits that 
apply to that activity) under the category ``Other Work Activities'' on 
their data reports, rather than to fail to report them at all because 
using the ``Other'' category gives better information on the overall 
engagement levels of individuals, even though those hours do not 
contribute to State achievement in the work participation rates. 
However, we do not consider either using the category ``Other Work 
Activities'' or failing to report such hours at all as a violation of 
the requirement for complete and accurate data.
Converting Weeks to Hours for the Six-Week (or 12-Week) Limit
    Comment: Several commenters contended that the definition of a week 
in the interim final rule was too rigid. It specified that even one 
hour of participation in job search and job readiness assistance 
triggered a week for the six-week (or 12-week) limit on the activity. 
They suggested defining a week in terms of countable hours for job 
search and job readiness assistance, that is, an hourly equivalent of 
six weeks. For example, one commenter recommended that we define six 
weeks as 120 hours for a single custodial parent with a child under six 
years of age and 180 hours for all other work-eligible individuals. 
This recommendation was based on the fact that such families need an 
average of 20 and 30 hours, respectively, to count toward the overall 
work participation rate. The commenters asserted that an hourly 
conversion would give States more flexibility to structure work 
activities to meet the needs of the participants.
    Response: In defining work activities and related terms, we had to 
balance legitimate practical concerns with statutory language. The 
statute limits job search and job readiness assistance to six weeks 
(or, under certain conditions, 12 weeks), with no more than four 
consecutive weeks. These limitations were specifically included, in 
large part because, under the former JOBS program, unstructured and 
ongoing job search was the primary or only activity for many 
participants. We share the commenters'' interest in increasing State 
flexibility and have redefined a ``week'' of job search and job 
readiness assistance for the six-week (or 12-week) limit based on the 
average number of hours required for an individual's family to count in 
the overall work participation rate. For this purpose, one week equals 
20 hours for a work-eligible individual who is a single custodial 
parent with a child under six years of age and equals 30 hours for all 
other work-eligible individuals. Thus, six weeks of job search and job 
readiness assistance equates to 120 hours for the first group and 180 
hours for all others. For those months in which a State can count 12 
weeks of this activity, these limits are 240 hours and 360 hours, 
respectively. To ensure consistency with other provisions in this rule, 
we have modified the requirements under Sec.  261.34 to make these 
limits apply to the preceding 12-month period, rather than each fiscal 
year. For example, the statute allows States to disregard from the work 
participation rate calculation families that have been subject to a 
work-related sanction for up to three months in ``the preceding 12-
month period.'' Similarly, this same time frame is used for the 
``excused absence'' policy.
    Defining a week in this way allows States to provide job search and 
job readiness assistance activities incrementally and stretched over an 
entire year or in six actual weeks, depending upon how the State 
chooses to structure its particular work program for an individual. 
Defining a week in this manner is consistent with Congressional intent 
because it provides an overall cap on the amount of job search and job 
readiness assistance that States can count as work participation, while 
still giving States the ability to provide recipients with meaningful 
job search and job readiness assistance activities.
Counting Sporadic/Episodic Periods of Job Search and Job Readiness 
Assistance
    Comment: Some commenters objected to counting limited periods of 
participation in job search and job readiness assistance as a full week 
of participation in the activity. They contended that this would 
discourage States from engaging individuals in this activity or sending 
them on job interviews. They suggested giving States flexibility to 
integrate short periods of participation in this activity with other 
countable activities. They noted that even a single hour of job search 
reported in a week would ``constitute a full week for purposes of the 
limitation [on counting job search and job readiness assistance].'' 
They maintained, ``The statutory time limit on these activities was 
designed to prevent clients from being left to languish indefinitely in 
unproductive job search, not to create barriers to helping recipients 
move into unsubsidized employment after participating in other 
services.'' Several commenters suggested alternative methods of 
counting job search and job readiness assistance. One commenter 
recommended excluding ``weeks in which less than half of the hours of 
countable participation are from job search and job readiness 
assistance.'' Some commenters used terms like ``significant majority'' 
to refer to the hours needed to constitute the primary activity.
    Response: We understand the concern that an individual 
participating for one hour in job search and job readiness assistance 
could use up an entire week of this limited activity. By defining six 
weeks as 120 hours for a single custodial parent of a child under age 
six or 180 hours for all other work-eligible

[[Page 6789]]

individuals (and 12 weeks as 240 hours or 360 hours, respectively) 
States can now engage individuals for limited periods of time without 
using a entire week for purposes of the six-or 12-week limit. This 
approach provides sufficient flexibility for States to structure their 
job search and job readiness assistance activities and obviates the 
need for alternative methods, such as excluding weeks in which a 
minority of hours of participation come from job search and job 
readiness assistance activities. Moreover, States continue to have the 
flexibility to conserve these weeks by reporting sporadic hours under 
``Other Work Activities'' on the TANF Data and SSP-MOE Data Reports 
(though these hours would not count toward the participation rates) or 
to count such hours under our excused absence policy as part of another 
countable activity. Please refer to Sec.  261.60 for more detail about 
excused absences.
Flexibility in Counting Hours of Participation
    Comment: Several commenters suggested giving States the flexibility 
to count hours of participation in job search and job readiness 
assistance as a non-core activity without triggering any of the 
durational limitations on this activity, if the individual meets the 
core hours participation requirement through some other activity. The 
commenters explained that this would not undermine the core activity 
requirement, but would allow some individuals to benefit from 
additional time spent in a job search and job readiness assistance 
activity. Also, several commenters suggested that, if we use an hourly 
equivalent, then any hours that exceed the 20 or 30 hours per week 
required to meet the participation rate should not count against the 
hourly limitation on this activity.
    Response: We do not have the statutory authority to disregard hours 
of participation in job search and job readiness assistance if the 
hours are counted toward the calculation of the work participation 
rate. Moreover, ``core activity'' is simply a term we use to indicate 
that hours of participation in that activity can count toward the first 
20 hours of participation; an activity does not become ``non-core'' 
once an individual meets the core requirement and durational limits do 
not cease to apply to them. Of course, once a family meets the minimum 
hours required to count in the work participation rate, a State may 
assign an individual to whatever activity it chooses, including job 
search and job readiness assistance. However, any hours reported under 
this activity count toward the six-week limit. We encourage States to 
report hours of participation that they do not wish to have counted 
against the durational limits under the category ``Other Work 
Activities'' on their TANF Data and SSP-MOE Data Reports, which 
reflects the hours of participation but does not apply them in 
determining the work participation rates. This would also apply to 
hours that are beyond the TANF statutory requirements to count toward 
the participation rates. In fact, under the final rule, a State should 
report only those hours of job search and job readiness assistance that 
are needed to meet the work requirements, because reporting ``extra'' 
hours would not help a State meet the rate and would draw down the 
time-limited hours for the six-week (or 12-week) limit. In contrast, 
under the interim final rule, it did not matter whether a State 
reported one hour or 40 hours for an individual--either would trigger a 
week toward the durational limits. We have written the rule this way to 
give States the most flexibility possible while maintaining the spirit 
of the law.
    We would also like to point out that States have the additional 
flexibility to count short absences from various activities to 
participate in a job search activity under the excused absence policy 
(described in Sec.  261.60(b) of this chapter).
Defining Four Consecutive Weeks
    Comment: As with the six-week (or 12-week) limit, some commenters 
suggested converting the four-week limit to an hourly equivalent.
    Response: In the final rule, we have modified this definition. For 
the six-week (or 12-week) limit on counting participation in job search 
and job readiness assistance, we define a week as 20 hours for a work-
eligible individual who is a single custodial parent of a child under 
six years of age and as 30 hours for all other work-eligible 
individuals. However, for the limit of no more than four consecutive 
weeks of job search and job readiness assistance we have retained the 
definition in the interim final rule: seven consecutive days. In other 
words, any hours of participation in job search and job readiness 
assistance during the course of a seven-day period triggers a week for 
the four-week limit. Once an individual has four consecutive weeks of 
participation, that individual's participation in job search and job 
readiness assistance may not count for one week, i.e., seven 
consecutive days.
    In order to bring meaning to the statutory language, we had to 
interpret ``four consecutive weeks'' in this manner. Under the hourly 
conversion the rule permits for the total limitation on job search and 
job readiness assistance, a State could meet this limit while counting 
hours over the course of multiple calendar weeks. However, because the 
four-week limit is specifically a ``consecutive'' week restriction, we 
think an hourly conversion in this instance would not meet the very 
clear bounds set by Congress. If we used an hourly accrual system here, 
it might take many calendar weeks to reach 80 or 120 hours and they 
would in no way be ``consecutive.'' Thus, we think it is reasonable to 
use the more rigorous definition of a week in this context to meet the 
legislative requirement but incorporate overall flexibility in counting 
job search and job readiness assistance hours.
    We would also like to address the concern that the limit of 
counting no more than four consecutive weeks of participation in this 
activity would lead States to disrupt treatment regimens for 
individuals who need short periods of substance abuse treatment, mental 
health treatment, or rehabilitation activities each week. We stress 
that this limitation applies to what a State may count for 
participation purposes, not on what an individual can or should do; 
thus, the law does not require an individual to take a week's break 
from an activity, but does constrain what the State may report for that 
week. The requirements and expectations for each family should be set 
by the State taking into consideration the needs of the family, 
obligations under the ADA and Section 504 of the Rehabilitation Act of 
1973, and program goals, as opposed to what counts for participation 
rate purposes. While we cannot remove this statutory limit, we suggest 
that States have several options in how to treat such situations. We 
urge States to consider these options carefully to take full advantage 
of the flexibility in the law and our final rule in this area. If an 
individual has sufficient hours from other activities or other weeks in 
the month, the State will be able to count that individual's family in 
the participation rate without worrying about the fifth consecutive 
week in treatment. A State could consider using the excused absence 
policy, which, under the final rule is also available as an hourly 
equivalent, to accommodate short periods of treatment. In addition, 
given that the overall work participation rate is never more than 50 
percent of the caseload and likely less, we do not anticipate a 
significant impact on the ability of States to meet the work

[[Page 6790]]

participation rate because of the four consecutive weeks limitation.
Three or Four Days as a Week of Participation
    Comment: Several commenters contended that the statute requires 
that participation in job search and job readiness assistance should 
not be considered a week unless it is for more than four days in a 
seven-day period. One commenter explained that section 407(c)(A)(2)(ii) 
allows a State to count, not more than once per individual, 
participation in job search and job readiness activities ``for 3 or 4 
days during a week'' as having participated for the week. The commenter 
contended that the ``clear implication'' of this was that an individual 
would have to participate for more than four days during a seven-day 
period to count as a week.
    Response: There are several possible interpretations of the 
statute's reference to a week. In the interim final rule, we defined a 
week as seven consecutive days. We disagree with the commenter's 
interpretation that the statute requires all other weeks of job search 
and job readiness to consist of more than four days of participation in 
the activity. However, these comments led us to reexamine the meaning 
of a week under the various limitations of this activity, including the 
``3 or 4 day'' provision. We have concluded that this provision allows 
a State to apply the average hours that an individual participates 
during three or four days to the remaining days in the week. In this 
context, we consider a week to be five days rather than seven, because 
the standard work week is a five-day week. We used a seven-day standard 
in other contexts to account for the fact that typical week includes 
five working days and two weekend days.
    To illustrate this policy, consider the following example. If an 
individual participated an average of five hours per day in job search 
and job readiness assistance for three days in a week, a State could 
assume that such individual participated the same five hours the 
remaining two days of that week and thus, a State could assume and 
count total participation of 25 hours in this activity for that week. 
In our example, this would also use up 25 hours of the client's hourly 
limitation under the six-week limit for job search and job readiness 
assistance.
Qualifying for 12 Weeks
    Comment: Several commenters asked for clarification regarding how a 
State can qualify to count up to 12 weeks of participation in job 
search and job readiness assistance per fiscal year due to high 
unemployment or by qualifying as a ``needy State.'' Several commenters 
suggested that HHS clarify that a State that qualifies in one month 
qualifies for the extended counting of job search and job readiness 
assistance for the entire year.
    Response: A State with an unemployment rate that is at least 50 
percent greater than the national rate or that qualifies as a ``needy 
State'' may count up to 12 weeks of participation in job search and job 
readiness assistance in the preceding 12-month period. Prior to 
publication of this final rule, the regulation applied the 6- or 12-
week limit on a fiscal year basis, but under this final rule we now use 
the preceding 12-month period as the basis for this durational limit to 
make it more consistent with the treatment of other work participation 
rate related provisions. Program Instruction TANF-ACF-PI-2006-04 
explains the criteria to qualify for 12 weeks, how a State finds out if 
it does, and in which months it can count extended participation in job 
search and job readiness assistance. The Program Instruction is 
available at: http://www.acf.hhs.gov/programs/ofa/pi-ofa/pi200604.htm.
    Comment: One commenter asked for clarification regarding whether a 
State actually had to access the Contingency Fund before counting up to 
12 weeks of participation in job search and job readiness assistance.
    Response: No, a State does not have to receive contingency funds to 
count 12 weeks of participation. If a State qualifies to receive 
contingency funds for a month, it may also count 12 weeks of job search 
and job readiness assistance for that month. Please refer to Program 
Instruction TANF-ACF-PI-2006-04 available at: http://www.acf.hhs.gov/programs/ofa/pi-ofa/pi200604.htm.

Section 261.2(h) Community Service Programs

    In the interim final rule, we defined community service programs as 
structured programs in which TANF recipients perform work for the 
direct benefit of the community under the auspices of public or 
nonprofit organizations. We limited community service programs to 
projects that serve a useful community purpose and those that are 
designed to improve the employability of recipients. These two criteria 
were and continue to be important because we do not want someone to 
reach the time limit and discover that the family is no longer eligible 
for a cash benefit under the TANF program but the adult is no more 
employable than when he or she started in community service.
    We made a technical change to the wording of the definition in the 
final rule to clarify that all work-eligible individuals can count for 
participation in this activity. The language in the interim final rule 
limited it to TANF recipients only.
    Comment: The preamble of the interim final rule described the 
purpose of community service as improving the employability ``of 
recipients not otherwise able to obtain employment.'' Several 
commenters asked whether this precluded a State from counting a 
participant who combined paid employment with community service.
    Response: The preamble was not meant to preclude States from using 
community service for those who are employed. We recognize that there 
may be circumstances in which an individual's employment is not 
sufficient to count for participation and a State would need to place 
such an individual in another work activity to count the family for 
that month. In such a circumstance, community service could be 
appropriate because sufficient employment may not be available for 
full-time work.
    Comment: One commenter asked us to clarify that the term 
``program'' does not preclude self-initiated community service 
activities.
    Response: Self-initiated community service activities can count as 
long as they are approved by the State, described in the Work 
Verification Plan, and meet the two key elements of the definition, 
i.e., that they provide a direct benefit to the community and improve 
the employability of the participant.
    Comment: Several commenters recommended that we expand the 
definition of community service to include barrier removal activities 
such as substance abuse treatment, mental health treatment, 
rehabilitation activities, and domestic violence counseling and related 
services. Otherwise, they insisted, States will discontinue providing 
these services. These commenters contended that counting these 
activities under job search and job readiness assistance is too 
restrictive and does not permit States to provide these services in a 
meaningful way.
    Response: Community service activities must meet the two key 
elements of the activity's definition, i.e., that they provide a direct 
benefit to the community and improve the employability of the 
participant. Generally, they would not include activities that 
primarily benefit a family or the individual participant, such as

[[Page 6791]]

substance abuse treatment, mental health and rehabilitation activities, 
and family violence counseling. While these activities are important 
and beneficial, they are not primarily directed to benefiting the 
greater community. Moreover, we believe that States can provide 
treatment services in meaningful ways under our rules. We refer readers 
to the preamble discussion of the definition of job search and job 
readiness assistance.
    Comment: One commenter recommended that we count a range of non-
traditional work activities as community service in remote areas with 
high unemployment. This would include traditional subsistence hunting 
and fishing activities, as well as other culturally relevant 
activities. The commenter explained that hunting and fishing affect the 
community because, they emphasize, ``a significant element of cultural 
and spiritual values that emphasize collective efforts in harvesting 
and sharing of the harvest throughout the community.'' The commenter 
also noted that these activities ``promote self-sufficiency by reducing 
reliance on non-traditional foods that are imported at high cost. * * 
*'' The commenter added that these and other activities ``strengthen 
and reinforce cultural and community values that, in the long term, 
benefit individuals and families.''
    Response: Various non-traditional activities may count if they meet 
the definition of one of TANF's 12 activities. It is possible, for 
example, that some of the activities described would meet the 
definition of community service programs, if the items produced are 
shared by the community and collected as part of a structured and 
supervised activity. Although we sympathize with the commenter about 
difficulties presented by high unemployment and remoteness, we do not 
have the authority to add new activities. And, as we explained earlier 
in the preamble, the statute does not make any allowance for such 
factors, except that it limits the maximum overall work participation 
rate to 50 percent. Whereas TANF's predecessor program, AFDC, allowed 
States to exempt individuals living in remote areas, the TANF law did 
not continue this exemption.
    Comment: Several commenters asked us to clarify whether or not all 
community service activities are subject to the FLSA.
    Response: The determination of whether or not the FLSA applies to 
an activity is a decision for the Department of Labor. We recommend 
that readers direct any questions regarding the FLSA to the Wage and 
Hour Division of the U.S. Department of Labor at 1-866-4-USWAGE, TTY 1-
877-889-5627 or the following Web site: http://www.dol.gov/esa/whd/flsa/index.htm.
    Comment: Several commenters maintained that ``caring for a disabled 
family member'' should be considered community service, if it includes 
activities designed to improve the employability of participants. They 
contended that, in some cases, caring for a disabled family member 
could prepare individuals for jobs or ``home health care certification 
or nursing credits through partnerships with community colleges.'' In 
such circumstances, the commenter recommended that we allow States to 
count the individual in the numerator and the denominator. This, they 
suggested, would make the policy similar to the treatment of parents 
receiving Supplemental Security Income (SSI) benefits in our definition 
of a work-eligible individual. Another commenter added that counting 
parents caring for a disabled family member as community service 
reduces public costs by keeping some individuals out of a nursing home.
    Response: Caring for a disabled family member cannot count as a 
community service program, even if it improves the employability of the 
caregiver, because the activity does not provide a direct benefit to 
the community. However, to the extent that the activity is part of a 
certification or degree program, it could likely count under another 
activity, such as vocational educational training or job skills 
training directly related to employment. We have no data on whether 
counting caring for a disabled family member as a community service 
activity would reduce some public costs, but we note that the policy in 
the final rule allowing a State to exclude families in which a parent 
is caring for a disabled family member from the denominator of the work 
participation rate calculation would likely have a similar effect on 
public costs.
    Comment: One commenter questioned the requirement that community 
service must involve work for the direct benefit of the community. The 
commenter added, ``No other TANF activity has such a requirement.'' The 
commenter disagreed with our interpretation that the term ``program'' 
following the listing of community service in the statute meant that 
the activity should involve structure and supervision.
    Response: We adopted what we believe is a common-sense definition 
that limits community service programs to projects that serve a useful 
community purpose. We agree that no other TANF activity has such a 
requirement, but that is because the primary purpose of the other 
activities is to help individuals move toward self-sufficiency. 
Although that is also an objective of this activity, we give meaning to 
the term ``community service.'' The DRA directed the Secretary of 
Health and Human Services to define work activities, suggesting that, 
while Congress did not have a specific definition in mind, it deferred 
to the Department's judgment. Moreover, we believe all 12 TANF 
activities should have structure and supervision, regardless of whether 
the term ``program'' is used in the name of the activity.
    Comment: Several commenters questioned the need for community 
service to improve the employability of participants. One commenter 
found that the interim final rule's definitions of work experience and 
community service are substantially similar and violate the principle 
of ``mutually exclusive'' activities. The commenter recommended making 
a distinction between these activities by removing the requirement that 
community service be designed to promote employability.
    Response: Under our definitions, the principal distinction between 
work experience and community service programs is that the latter 
activity must serve a useful community purpose. We believe that 
participation in a community service program should improve the 
employability of recipients to prevent an individual from reaching the 
time limit without becoming more employable than when he or she started 
in that program. We have therefore retained this feature of the 
definition in the final rule.
    Comment: One commenter objected to the ``daily supervision'' 
requirement for TANF work activities with respect to community service, 
arguing that some community service activities are ``intrinsically 
difficult to supervise,'' such as Big Brother/Big Sister programs or 
visiting the elderly.
    Response: In response to comments, we have revised the regulatory 
language relating to daily supervision in the final rule. As described 
in the preamble to Sec.  261.2, ``Daily supervision means that a 
responsible party has daily responsibility for oversight of the 
individual's participation, not necessarily daily, in-person contact 
with the participant.'' Thus, many organized community service programs 
could meet this criterion. However, all community service programs must 
be structured programs that provide a direct benefit to the community 
and improve the employability of the participant. It is unclear whether 
the

[[Page 6792]]

programs the commenter describes meet all of these criteria.
    Comment: One commenter said, ``Very few community service sites are 
equipped to handle either large numbers of volunteers for the 20 or 30 
hours required for a primary activity or in our rural areas, to provide 
the supervision.''
    Response: Many community service providers have programs that meet 
our definition of community service for the number of hours required to 
satisfy the work participation requirements. If an individual's hours 
fall short of the minimum hours needed, a State should be prepared to 
find time in another activity to make up the shortfall. This is not 
different from past TANF policy.

Section 261.2(i) Vocational Educational Training

    In the interim final rule, we defined vocational educational 
training (not to exceed 12 months with respect to any individual) as 
organized educational programs that are directly related to the 
preparation of individuals for employment in current or emerging 
occupations requiring training other than a baccalaureate or advanced 
degree.
Postsecondary Education
    Comment: Several commenters recommended expanding the definition of 
vocational educational training to include postsecondary education. One 
commenter asked that we specify that an associate degree program is a 
countable vocational activity.
    Response: The definition of vocational educational training in the 
interim final rule already permitted a wide range of postsecondary 
educational activities, including programs that consist of both 
academic and vocational for-credit course work. Completion of these 
programs can provide an associate of arts (AA), associate of science 
(AS), or associate of applied science (AAS) degree in fields defined as 
vocational. Common fields of study include: business, computer and 
information science, health-related professions, communication 
technologies, personal services, protective services, construction, 
automotive technology, and transportation. Associate degree programs 
can take two or more years to complete. Because they generally combine 
coursework with actual work, some portion could count as vocational 
educational training, while some could count as on-the-job training (if 
paid) or work experience (if unpaid). The only type of postsecondary 
education that was excluded in the interim final rule was education 
directed at receiving a baccalaureate or advanced degree, which the 
final rule permits.
    Baccalaureate Degrees
    Comment: Several commenters objected to the definition of 
vocational educational training because it specifically excluded 
education directed at receiving a baccalaureate or advanced degree. 
They recommended striking the phrase ``requiring training other than a 
baccalaureate or advanced degree.'' They explained that people with 
baccalaureate degrees, on average, earn significantly more than those 
with a high school diploma. In addition, they noted that the number of 
individuals likely to be enrolled in such programs would be small and 
States should therefore have the flexibility to determine whether or 
not to count them. Others suggested that we make an exception to the 
restriction on counting participation in a baccalaureate or advanced 
degree program where the client is 12 months away from completing such 
a degree because the earnings gain from completing the degree would 
increase the chances of permanently leaving welfare.
    Response: We agree with the commenters and have expanded the 
definition of vocational educational training. In the interim final 
rule, we searched for other Federal definitions, especially in the U.S. 
Department of Education, of vocational education and related terms. In 
particular, we examined the regulatory definition of vocational 
education governing the Carl D. Perkins Vocational and Applied 
Technology Act (34 CFR 400.4(b)). That definition provided for a range 
of educational and training programs preparing individuals for 
employment ``in current or emerging occupations requiring other than a 
baccalaureate or advanced degree.'' However, since the publication of 
the interim final rule, this terminology has changed. The Carl D. 
Perkins Career and Technical Education Improvement Act of 2006 (Pub. L. 
109-270) was signed into law on August 12, 2006. The new law changed 
the definition of ``vocational education,'' now called ``career and 
technical education,'' to eliminate the restriction against 
participation in a baccalaureate, master's or doctoral degree program.
    In view of these changes and the comments we received, we are 
expanding the definition of vocational educational training to include 
organized educational programs that lead to a baccalaureate or advanced 
degree. We continue to caution that, given the statutory 12-month 
limitation on participation in vocational education, States can only 
count one year of participation in vocational educational training for 
any individual toward the work participation rate. Education leading to 
a baccalaureate or advanced degree also counts under job skills 
training directly related to employment (a non-core activity), as long 
as it is directly related to a specific job or occupation.
    Comment: Several commenters thought that the preamble to the 
interim final rule was inaccurate when it stated, ``the TANF program 
was not intended to be a college scholarship program for postsecondary 
education.'' The commenters noted that TANF provided broad flexibility 
in use of TANF funds, including funds for higher education.
    Response: We agree that expenditures for higher education are 
allowable uses of funds, even under the interim final rule. In 
addition, under the final rule, participation in a baccalaureate or 
advanced degree program can count toward the work participation rate.
Remedial/ESL
    Comment: Several commenters expressed support for the inclusion of 
basic skills education as a component of vocational educational 
training. However, some expressed concern because the preamble 
indicated that it would count only if it were of ``limited duration.'' 
These commenters noted that participation in vocational educational 
training is, by definition, of limited duration--12 months in a 
lifetime. They also noted that some programs combine basic skills 
education and vocational training for the entire duration of the 
program. They recommended eliminating the restriction related to the 
duration of this component.
    Response: We agree that there may be circumstances in which some 
individuals require basic skills education as an ongoing and regular 
part of the vocational educational training activity. As a result of 
these comments, we have reconsidered our stance on the ``limited 
duration'' requirement set forth in the preamble to the interim final 
rule. Therefore, basic skills education may count as vocational 
educational training as long as it is a necessary or regular part of 
the vocational educational training. Each State should describe in its 
Work Verification Plan how it integrates basic skills education into 
its definition of vocational educational training and how it will 
ensure that vocational training remains the primary focus of the 
program.
    Comment: Some commenters asked for clarification regarding whether 
ESL could be integrated into vocational educational training in the 
same way that ``basic skills'' training can be. They

[[Page 6793]]

explained that ESL may be a prerequisite for employment and that it is 
especially important due to the increase in the number of immigrants. 
As with basic skills training, they contended that there should be no 
limit on counting participation in this activity, as long as the 
individual has not exhausted the 12 months that this activity can count 
in total.
    Response: As we noted in the response above with respect to basic 
skills education, ESL can also be integrated within a vocational 
educational training activity as long as it is a necessary or regular 
part of the vocational educational training. The State need not 
demonstrate that the training is of limited duration as long as it 
integral to the vocational education, not a stand-alone program. Each 
State should describe in its Work Verification Plan how it integrates 
ESL or other language instruction into its definition of vocational 
educational training and how it will ensure that vocational training 
remains the primary focus of the program. For example, a vocational 
educational training provider could provide a statement indicating that 
a participant in an otherwise approved vocational educational training 
activity requires such instruction to participate in the program and 
that such instruction is integrated into the activity.
    Comment: Some commenters suggested that we allow States to adopt a 
range of approaches to providing vocational educational training 
programs, including programs that ``frontload'' these activities for 
those who are not ready for the vocationally-oriented training. They 
pointed out that after a few months of intensive instruction, 
participants can improve their basic skills to take full advantage of a 
vocational educational training program. Thus, they recommended that we 
consider these activities to qualify if they are part of a sequence of 
activities leading to a vocational educational training activity, even 
if the initial period of participation involves no vocationally-
oriented training.
    Response: We do not believe that a sequenced approach fits within a 
definition of vocational educational training. Although basic skills 
education and English language instruction may help prepare individuals 
for vocational educational training, the programs must be provided in 
combination with vocational instruction. Otherwise, the definition of 
this activity would essentially permit any stand-alone educational 
activities to count in this category. Stand-alone educational 
activities may count as either education directly related to employment 
or job skills training directly related to employment.
    Comment: Some commenters suggested amending the definition of 
vocational educational training to include adult basic education and 
ESL even if they do not prepare individuals for a specific job. They 
asserted that such basic skills are needed to compete in the workplace 
and are crucial for making an individual more employable. For example, 
one commenter urged us to count English language instruction as 
vocational educational training when an individual needs such 
instruction to succeed in the workplace. Some commenters indicated that 
this was especially important for refugees, noting that it is very 
difficult for refugees who do not speak English to become employed.
    Response: We understand the commenters' concerns, but we do not 
believe it would be appropriate to expand the definition of vocational 
educational training to allow these stand-alone activities. They may 
count as either education directly related to employment or job skills 
training directly related to employment. We believe that Congress 
intended these activities to count as non-core activities. When 
Congress created TANF, it listed 12 allowable work activities. Of 
these, nine were what we refer to as ``core activities'' that count 
toward meeting the first 20 hours of a 30-hour average weekly 
requirement. The only educational activity among these was vocational 
educational training. Since neither Congress nor the U.S. Department of 
Education included basic education and ESL as part of its definition of 
vocational education, we believe it is clear that these activities must 
be part of one of the three non-core educational activities.
    Comment: One commenter suggested that we consider pursuit of a high 
school diploma, such as GED testing, to be vocational educational 
training. The commenter noted that such participation is consistent 
with the definition of the activity in the interim final rule, which 
defined this activity as ``organized educational programs that are 
directly related to the preparation of individuals for employment in 
current and emerging occupations * * *.''
    Response: We do not agree that such education should count as 
vocational educational training. Even when vocational education is 
provided in high school, minor parents attending high school in a 
vocational education track count as participating in ``satisfactory 
attendance in secondary school or in a course of study leading to a 
certificate of general equivalence.'' This avoids triggering the 12-
month lifetime limit on participation in vocational educational 
training. For older adults, pursuit of a high school degree or GED 
would more appropriately be classified as education directly related to 
employment.
    Comment: Several commenters asked whether vocational rehabilitation 
activities were considered ``vocational educational training.''
    Response: We would consider vocational rehabilitation activities 
that are organized educational programs directly related to preparing 
individuals for employment in current or emerging occupations to be 
vocational educational training. Any vocational rehabilitation 
activities that do not meet these criteria might meet the definition 
for job search and job readiness assistance or job skills training 
directly related to employment and should count under those activities, 
as appropriate.
Other Training
    In the preamble to the interim final rule, we asked for comments on 
how States currently implement their vocational educational training 
programs and whether we should broaden the definition we used in the 
interim final rule. We noted that the current definition of vocational 
educational training ``could overlap with other TANF work activities 
that provide training, including on-the-job training and job skills 
training.''
    Comment: One commenter cautioned us not to narrow the definition of 
vocational educational training just to distinguish it from on-the-job 
training or job skills training. The commenter pointed out, ``it is 
easy to imagine the same training being provided under vocational 
educational training as that provided by an employer through on-the-job 
training or job skills training directly related to employment, 
particularly for lower-skilled TANF participants.''
    Response: We agree and have not narrowed the definition. The 
allowable overlap among various work activities can help States 
structure their programs to maximize learning opportunities for 
participants. In particular, many forms of vocational educational 
training may take two or more years to complete, beyond the 12-month 
lifetime limit under the program. By carefully structuring 
participation, States can count participation under several of the 
existing work activities. For example, obtaining a degree to become a 
licensed practical nurse usually takes about two years to complete and 
usually involves a combination of classroom instruction and clinical 
activities. Clinical training

[[Page 6794]]

in a hospital or other setting could count as work experience or 
community service because if, in the course of their training, 
individuals are providing a service to the community through a hospital 
or an elderly center, such participation would meet the definition of 
those activities. If participants are paid, they might count under 
unsubsidized employment or on-the-job training. Once they have met the 
core activity requirement through these activities, additional 
classroom instruction could be reported under job skills training 
directly related to employment.
Specific Occupation
    Comment: Several commenters did not believe we should limit the 
definition of vocational educational training to ``activities that give 
individuals the knowledge and skills to perform a specific occupation--
as opposed to more generally preparing them to become more employable 
in a range of occupations.'' The commenters contended that basic and 
remedial education should count as vocational educational training.
    Response: Basic and remedial education clearly fall under the 
category of education directly related to employment, and so cannot 
serve as a stand-alone activity under vocational educational training. 
However, as we explained in the preamble to the interim final rule, 
such education can count as part of vocational educational training as 
an embedded activity as long as it is a necessary and regular part of 
the program.
    Comment: Several commenters contended that the description of 
vocational educational training in the preamble to the interim final 
rule unnecessarily limited it to specific occupations. They maintained 
that this was not good policy and that it was not consistent with the 
TANF statute, noting that some activities in the statute included the 
phrase ``directly related to employment,'' but that vocational 
educational training was not one of them. They urged that, on this 
basis, we expand the definition to include training and education 
activities that were not related to a specific occupation, but that 
improve employability more generally.
    Response: Our definition of vocational educational training was 
originally based on the Department of Education's description of the 
term. This definition clearly related the term to educational programs 
directly related to employment in ``current or emerging occupations.'' 
However, this does not mean that the activity is limited to a specific 
job, but rather to a broadly defined job category.
12-Month Limit
    Comment: One commenter suggested that time spent in vocational 
educational training should only count against the 12-month limit 
``when hours in this activity, either alone or in combination with 
hours from other activities, enable a recipient to meet the work rates. 
If an individual does not have the overall necessary hours to meet the 
rate, time spent in this activity should not count against the 12-month 
limit.''
    Response: The statute places a lifetime 12-month limit on 
participation in vocational educational training. As with durational 
limits for job search and job readiness assistance, we do not have the 
statutory authority to disregard hours of participation reported in 
this category from counting against the lifetime 12-month limit. We 
encourage States to include hours of work participation in this 
category that do not count toward the work participation rates under 
the category ``Other Work Activities'' on their TANF and SSP-MOE Data 
Reports or to count such hours under our excused absence policy as part 
of another countable activity. Please refer to Sec.  261.60 for further 
discussion of excused absences.
Deeming
    Comment: Several commenters suggested that individuals who attend 
vocational educational training programs be ``deemed'' to meet the work 
rate as long as they are full-time students and are making satisfactory 
progress. One commenter also suggested options for dealing with less 
than full-time participation, including a proportional counting 
methodology.
    Response: The interim final rule made explicit a long-standing 
``actual hours'' standard and we retain that policy in the final rule. 
We do not deem full participation simply because someone is a full-time 
student and makes good or satisfactory progress. However, the final 
rule allows States to count up to one hour of unsupervised homework for 
each hour of classroom time. Thus, as a practical matter, many 
individuals who attend school full-time would, in fact, satisfy the 
work participation standards.

Section 261.2(j) Job Skills Training Directly Related to Employment

    In the interim final rule, we defined job skills training directly 
related to employment as training or education for job skills required 
by an employer to provide an individual with the ability to obtain 
employment or to advance or adapt to the changing demands of the 
workplace. Job skills training can include customized training to meet 
the needs of a specific employer or it can be general training that 
prepares an individual for employment. This can include literacy 
instruction or language instruction when such instruction is explicitly 
focused on skills needed for employment or combined in a unified whole 
with job training.
    Comment: Several commenters suggested that the interim final rule 
defined this activity too narrowly by excluding ``barrier removal 
activities such as substance abuse counseling and treatment, mental 
health services, and other rehabilitative activities.'' The commenters 
asserted that these activities should be considered like other training 
activities because they are needed to prepare an individual for 
employment. One commenter contended that because barrier removal 
activities were not explicitly excluded from the definition of job 
skills training directly related to employment, it is within our 
authority to interpret this activity to include them.
    Response: As we indicated in the preamble to the interim final 
rule, we tried to look for appropriate categories for each activity. We 
explained that it would not be appropriate to include barrier removal 
activities, such as substance abuse counseling and treatment, mental 
health services, and other rehabilitative activities under the category 
of job skills training directly related to employment. Under our 
definitions, barrier removal activities are job readiness activities, 
not job skills training directly related to employment. States continue 
to enjoy flexibility to serve individuals, but in some cases are 
limited in what they can count. We encourage States to work with 
individuals with multiple barriers, but they should keep in mind that 
the definition of job skills training focuses on education or training 
that is designed specifically to help individuals move into employment.

Section 261.2(k) Education Directly Related to Employment, in the Case 
of a Recipient Who Has Not Received a High School Diploma or a 
Certificate of High School Equivalency

    In the interim final rule, we defined education directly related to 
employment, in the case of a recipient who has not received a high 
school diploma or a certificate of high school equivalency, as 
education related to a specific occupation, job, or job offer. This 
definition included courses designed to provide the knowledge and 
skills for specific occupations or work

[[Page 6795]]

settings, but may also include adult basic education and ESL. Where 
required as a prerequisite for employment by employers or occupations, 
this activity may also include education leading to a GED or high 
school equivalency diploma.
    We made a minor change to the wording of this definition in the 
final rule, adding the words ``work-eligible'' before ``individual.'' 
We made this change both for consistency with other definitions and to 
make clear that this activity is allowable for any work-eligible 
individual. Although the statutory name of the activity refers to a 
``recipient'' who has not received a high school diploma or certificate 
of equivalency, we think that a work-eligible individual who is not a 
recipient of assistance could also participate in this activity and 
have those hours count for participation rate purposes.
    Comment: One commenter noted that the situation of immigrants and 
refugees who hold a high school diploma from overseas but do not have 
an American high school diploma or GED should warrant an exception to 
the requirement that individuals not have these credentials as a 
prerequisite for participating in the activity. The commenter 
explained, ``These individuals may lack the skills and credentials 
employers require from native high school graduates.'' The commenter 
urged a clarification that such individuals could participate in this 
activity and that such participation include English language 
instruction.
    Response: The statute limits participation in this activity to 
individuals who have not received a high school diploma or a 
certificate of high school equivalency. We recognize that some 
individuals may have received a high school diploma from other 
countries that may not be directly comparable with an American high 
school diploma. Moreover, it would be difficult for TANF agencies to 
verify whether or not individuals have or have not obtained degrees or 
credentials from overseas. We therefore give States the flexibility to 
determine on a case-by-case basis whether such individuals qualify for 
this activity. A State that uses this option should describe in its 
Work Verification Plan how it will make such a determination.
    Comment: One commenter recommended that we allow States to deem 
individuals who make ``good or satisfactory progress'' as having met 
``the minimum hours of independent study recommended by the educational 
program.'' Those with unsatisfactory performance would receive credit 
for only the verified and documented hours of classroom time.
    Response: States must report actual hours of participation. We have 
eliminated the requirement for ``good or satisfactory progress'' as 
part of the Federal definition of this work activity. We encourage 
States to monitor progress using both qualitative and quantitative 
measures, but do not impose a specific standard. Please refer to the 
cross-cutting issues related to the definitions at the beginning of 
this section of the preamble for further discussion of this issue.
    Comment: Several commenters recommended allowing this activity to 
count for high school graduates or those with a certificate of high 
school equivalency, but who score low on reading or math assessments.
    Response: We do not have the statutory authority to expand the 
scope of this activity to include those with a high school degree or a 
certificate of high school equivalency.

Section 261.2(l) Satisfactory School Attendance at a Secondary School 
or in a Course of Study Leading to a Certificate of General 
Equivalence, in the Case of a Recipient Who Has Not Completed Secondary 
School or Received Such a Certificate

    In the interim final rule, we defined this activity to mean regular 
attendance, in accordance with the requirements of the secondary school 
or course of study, at a secondary school or in a course of study 
leading to a certificate of general equivalence, in the case of a 
recipient who has not completed secondary school or received such a 
certificate. The former is aimed primarily at minor parents still in 
high school, whereas the latter could apply to recipients of any age. 
Unlike ``education directly related to employment,'' this activity is 
not restricted to those for whom obtaining a GED is a prerequisite for 
employment. However, it may not include other educational activities, 
such as adult basic education or language instruction unless they are 
linked to attending a secondary school or a GED program.
    As in education directly related to employment, we made a minor 
change to the wording of this definition in the final rule, replacing 
``recipient'' with ``work-eligible individual.'' We made this change 
both for consistency with other definitions and to make clear that this 
activity is allowable for any work-eligible individual. Again, although 
the statutory name of the activity refers to a ``recipient'' who has 
not received a high school diploma or certificate of general 
equivalence, we think that a work-eligible individual who is not a 
recipient of assistance could also participate in this activity and 
have those hours count for participation rate purposes.
    Comment: One commenter noted that with respect to ``good or 
satisfactory progress'' for this activity to count, the standard 
``must'' include both a qualitative and quantitative measure of 
progress.
    Response: We have eliminated the requirement for ``good or 
satisfactory progress'' as part of the Federal definition of this work 
activity. We encourage States to monitor progress using both 
qualitative and quantitative measures, but do not impose a specific 
standard. Please refer to the cross-cutting issues related to the 
definitions at the beginning of this section of the preamble for 
further discussion of this issue.

Section 261.2(m) Providing Child Care Services to an Individual Who Is 
Participating in a Community Service Program

    In the interim final rule, we defined providing child care services 
to an individual who is participating in a community service program as 
providing child care to enable another TANF recipient to participate in 
a community service program. In the final rule, we have clarified that 
this is an unpaid activity and must be a structured program designed to 
improve the employability of individuals who participate in it. 
Alternatively, if an individual receives payment for providing child 
care, the State should report that individual's hours as unsubsidized 
employment.
    Comment: One commenter recommended counting providing child care 
for a TANF recipient in community service as extending to two-parent 
families in which one parent stays home with the children while the 
other participates in community service. The commenter stated that 
children that have more time with their parents, especially during 
their early years, have better outcomes. This would also reduce public 
costs for child care and other services.
    Response: We agree that parental time with children is extremely 
important. However, in a two-parent family, one parent cannot count as 
participating by providing child care for his or her own child while 
the other parent participates in community service because the activity 
neither involves supervision nor helps the parent providing child care 
prepare for employment.
    Comment: Several commenters noted that it would be difficult to 
apply a daily supervision standard for an

[[Page 6796]]

individual who is participating as a child care provider for a TANF 
recipient in community service. Some of the commenters recommended 
counting this activity as self-employment and allowing States to 
develop methods for projecting a typical number of hours per week.
    Response: We have clarified in the final rule that this activity is 
both unpaid and structured to improve an individual's employability. 
The degree of supervision and methods for reporting hours would depend 
on how the State structures this activity. Because it is an unpaid 
activity, projecting hours would not be appropriate.
    Comment: One commenter recommended expanding the definition of the 
activity to include providing child care not only to a TANF recipient 
in community service, but also to someone in a MOE-funded program.
    Response: We agree with the commenter that this activity should 
include providing child care for a recipient of TANF or SSP-MOE 
assistance in community service.

Section 261.2(n) Work-Eligible Individual

    The DRA required us to include families receiving assistance under 
a separate State program (SSP) in the work participation rates if the 
funding for those programs is counted towards the State's maintenance-
of-effort (MOE) requirement, and to specify the circumstances under 
which a parent living with a child receiving assistance should be 
included in the work participation rates.
    In the interim final rule, we used the new term work-eligible 
individual to describe anyone whose participation in work activities is 
required in the calculation of the work participation rate. We drew the 
term from the heading to the statutory provision requiring us to 
include families receiving assistance under a SSP-MOE program and to 
specify the circumstances under which a parent residing with a child 
recipient of assistance should be included in the work participation 
rates.
    We have made modifications to the definition of a work-eligible 
individual, but we have not changed our general approach to who is 
included in the final rule. We continue to define a work-eligible 
individual as either: (1) An adult (or minor child head-of-household) 
receiving assistance under TANF or a separate State program; or (2) a 
non-recipient parent living with a child receiving assistance. There 
continue to be exclusions that apply specifically to the non-recipient 
parents and others that apply more broadly to the definition.
    As under the interim final rule, a non-recipient parent living with 
a child receiving assistance is not a work-eligible individual if the 
parent is: A minor parent who is not a head-of-household; a non-citizen 
who is ineligible to receive assistance due to his or her immigration 
status; or, at State option on a case-by-case basis, a recipient of 
Supplemental Security Income (SSI) benefits. We deleted the phrase ``or 
spouse of the head-of-household'' in the minor parent exclusion of the 
interim final rule because such individuals are not required to 
participate when they do receive assistance. Thus, only a minor parent 
who is the head of household is required to be included in the 
participation rate, whether she is receiving assistance or is a non-
recipient. We have also added a case-by-case exclusion for recipients 
of Aid to the Aged, Blind, or Disabled under Title XVI of the Social 
Security Act, which, in the Territories of Puerto Rico, Guam, and the 
Virgin Islands, is analogous to SSI. 42 U.S.C. 1381 note et seq.
    More broadly, the definition excludes a parent, whether or not a 
recipient of assistance, who is caring for a disabled family member 
living in the home. The State must provide medical documentation to 
support the need for the parent to remain in the home to care for the 
disabled family member. We have eliminated the interim final rule 
provision that permitted a parent to be excluded only if the disabled 
family member did not attend school on a full-time basis. We have also 
added a State option to exclude on a case-by-case basis a parent who is 
a recipient of Social Security Disability Insurance (SSDI) benefits. As 
with a parent caring for a child with a disability, the SSDI exclusion 
applies regardless of whether the parent receives TANF or not.
    As in the interim final rule, we do not consider an adult in a 
family served under an approved Tribal TANF program using State MOE 
funding to be a work-eligible individual, unless the State includes the 
family in calculating work participation rates, as permitted under 
Sec.  261.25.
    Unless excluded for one of the reasons outlined above, the term 
work-eligible individual includes all non-recipient parents living with 
a child receiving assistance and all adult recipients of assistance.
    We received many comments suggesting that we exclude additional 
groups of individuals from the definition of a work-eligible 
individual. We considered each of these suggestions carefully as we 
developed the final rule. We appreciate the concerns the commenters 
raised, both about a State's ability to engage certain groups of 
individuals and about the appropriateness of encouraging States to 
engage other individuals in work by including them in the work 
participation calculation. We address these concerns below.
    Comment: Some commenters asked us to clarify that non-parental 
caretakers in child-only cases continue to be excluded from the work 
participation rate calculation. One commenter recommended excluding all 
non-parental caretakers, even those ``who were sufficiently needy that 
they qualified for TANF.'' The commenter asserted that not excluding 
them could discourage non-parental caretakers from taking custody of 
children.
    Response: Child-only cases in which a parent does not reside with 
the child, such as when a grandparent cares for the grandchildren, do 
not include work-eligible individuals. In such cases, the grandparents 
or other non-parental caretakers are not recipients of assistance 
themselves and thus do not meet the first part of the work-eligible 
individual definition. Neither do they meet the second part of the 
definition because they are not non-recipient parents living with 
recipient children. If a grandparent or other caretaker does receive 
assistance, then that adult would be a work-eligible individual; we do 
not have the authority to exclude non-parental caretaker relatives 
receiving assistance from the work participation rate calculation. The 
DRA limited our authority to determine whether a parent living with a 
child receiving assistance should be included or excluded from the work 
participation rate. Cases where a caretaker relative receives 
assistance have been included in the work participation rate since the 
inception of TANF and continue to be under the final rule.
    Comment: Some commenters wanted us to exclude fugitive felons and 
parole violators from the definition of work-eligible individual; 
others contended that convicted drug felons and those ineligible 
because of past fraud should not be work-eligible individuals. They 
maintained that States are prohibited from using TANF dollars or 
counting State MOE dollars for serving these felons and thus it is 
unfair to require their inclusion in the work participation rate 
calculation.
    Response: Similar to a parent that incurs a work sanction, a case 
in which a parent is a fugitive felon, parole violator, or a drug felon 
is subject to a reduced grant by virtue of the behavior

[[Page 6797]]

of that parent. We think it would be inappropriate to treat such cases 
differently from parents who abide by the law. More importantly, we 
strongly believe that it is in the best interest of the children in 
such families if States engage the parents in work activities, helping 
them off welfare and out of poverty. Thus, we have not made the 
suggested changes.
    We would also like to clarify a State's limitations and flexibility 
with regard to funding fugitive felons, drug felons, and individuals 
convicted of fraudulently misrepresenting residence. Fugitive felons 
and parole violators may not, by statute, receive federally funded 
``assistance,'' as defined at 45 CFR 260.31. An individual who is 
convicted of fraudulently misrepresenting his or her place of residence 
in order to receive assistance simultaneously from two or more States 
may not, by statute, receive federally funded ``assistance'' for ten 
years after his or her conviction. That includes ``assistance'' paid 
with pure Federal funds or with commingled State and Federal funds. 
That individual may receive ``assistance'' using segregated State TANF 
funds or separate State program funds. He or she may also receive non-
assistance benefits, i.e., benefits that are outside the regulatory 
definition of ``assistance,'' such as non-recurrent benefits that do 
not extend beyond four months or supportive services for the employed. 
An individual convicted of a drug felony may not, by statute, receive 
TANF-funded ``assistance,'' regardless of whether the funds are all 
Federal, commingled Federal and State, or segregated State funds, 
unless the State opts out of or limits the duration of the prohibition 
by passing a State law; however, that individual may receive 
``assistance'' using separate State program MOE funds and may receive 
TANF-funded non-assistance benefits. Thus, while restrictions apply, 
there are opportunities to use TANF or certain MOE funds to support the 
family and engage the individuals in work.
    We remind readers that the law does not prohibit spending Federal 
or State funds on an individual who commits ``an intentional program 
violation.'' States may choose to impose such penalties against 
individuals who commit program fraud, or for other reasons, but they 
are not prohibited from spending Federal funds on these cases.
    Comment: A couple of commenters urged us to exclude for a limited 
time period from the definition of work-eligible individual refugees 
and certain other legal immigrants who cannot speak English, have 
little education, and low levels of literacy. The commenters explained 
that it may take time to improve their English proficiency to a level 
that enables them to participate fully in the labor market.
    Response: We have not excluded refugees from the definition of 
work-eligible individual. TANF recipients who happen to be refugees 
should be treated like other TANF recipients. States should determine 
the most appropriate activities, which may be English language skills 
or a combination of language training and other services, and then 
engage the clients in those activities to the greatest extent possible. 
We refer readers to the discussion of vocational educational training, 
which clarifies that we have modified the definition of that activity 
to permit ESL to count for the entire 12 months that the activity may 
count under the law, as long as the language training is a necessary or 
regular part of the vocational educational training.
    Comment: A few commenters urged us to exclude from the definition 
of ``work-eligible'' all parents who are not in the assistance unit. 
Some asserted that not doing so creates an incentive to impose full-
family sanctions and ignores the impact such policies have on children.
    Response: We did not exclude all parents who are not in the 
assistance unit because Congress specifically directed HHS to specify 
the circumstances under which a parent residing with a child who is a 
recipient of assistance should be included in the work participation 
rates. Since parents who were themselves recipients of assistance were 
already part of the rates (other than those subject to either of two 
special statutory exclusions), it was apparent that Congress intended 
us to look at families in which the parent did not receive TANF 
assistance but the child did. In addition, as we explained in the 
preamble to the interim final rule, we considered in turn each type of 
family in which a parent resides with a child recipient of assistance 
to determine whether it was appropriate to include that group of 
families in the calculation of the work participation rates. We believe 
that our definition appropriately focuses on those parents who can 
benefit from work activities and whose participation will help move the 
family into employment and out of poverty.
    We appreciate the commenters' concern about the well-being of 
families in which the adult is subject to a sanction. We note that 
States have other options when a family refuses to comply with work 
requirements. A State that does not wish to use a full-family sanction 
need not do so.
    We repeat that not all ``work-eligible individuals'' are required 
to engage in work for a specified number of hours. The State still 
determines what each individual must do in accordance with its laws and 
policies. The definition of a work-eligible individual defines the 
denominator, and is a guideline of who should be engaged in work 
activities. We believe that our definition creates reasonable 
expectations of States. But, Congress established an overall work 
participation rate of 50 percent. This leaves room for a State to 
decide if an individual should be excused from work requirements, 
whether because of a disability, lack of access to transportation, the 
need for other services, or some other reason, regardless of whether 
they are in the assistance unit or not.
    Comment: Some commenters asserted specifically that adults whose 
needs are removed from the assistance unit due to a sanction should not 
be considered work-eligible individuals, because the family's grant has 
already been reduced and it is difficult to get such adults to comply 
with the work requirements.
    Response: To ensure consistent treatment, we believe it is 
appropriate to include all of the sanctioned parents of child-only 
cases in the definition of ``work-eligible individual.'' A State may 
either reduce the grant by a fixed percentage or fixed dollar amount or 
remove the needs of the adult; only the latter approach results in a 
child-only case. In the interim final rule, we clarified specifically 
why we included as work-eligible individuals sanctioned cases in which 
the adult's needs are removed from the case due to a work-related 
sanction, but the child continues to receive assistance. The effect on 
a family's grant of removing a parent's needs from the assistance unit 
is similar to the effect of a fixed percentage or dollar amount 
sanction. Yet, under the original TANF rule, these cases without an 
adult were excluded from the calculation of work participation rates as 
child-only cases. Cases in which the grants were reduced by a fixed 
percentage or dollar amount due to a work-related sanction were, by 
law, excluded for a maximum of only three months in a 12-month period. 
The final rule treats all cases with a work-related sanction in the 
same manner.
    Comment: Some commenters recommended excluding the non-recipient 
parents of children who continue receiving assistance after their 
parents have received 60 months of Federal assistance. One commenter 
explained that States cannot require

[[Page 6798]]

such parents to participate and, as a result, including them would 
lower work participation rates. Another stated that, because the State 
can no longer assist the parent with TANF funds, it is unfair to impose 
a work requirement.
    Response: The final rule continues to include as work-eligible 
individuals parents that are no longer included in the assistance unit 
because they have exhausted their time-limited benefits, but for whom 
the State has chosen to extend benefits on behalf of their children. We 
made this decision for several reasons. First and foremost, it provides 
an incentive for States to work with every case right from the 
beginning. Then, clients can preserve as much of their time-limited 
benefit as possible. Second, we are very concerned about the negative 
consequences for children living in families with reduced benefits for 
long periods. The adults in families whose needs have been removed from 
the grant are the most likely to be ignored. They face long-term 
poverty and other negative consequences because States are no longer 
helping them acquire work skills and find employment. Third, we do not 
believe the only alternative to including such families in the work 
participation rate is to impose a full-family sanction and ignore the 
family completely. One alternative for those who reached the Federal 
time limit is to use the law's flexibility to provide Federal 
assistance to up to 20 percent of the caseload via a hardship 
extension. If a family still needs help after 60 months, then the 
hardship extension is the Federal safety net designed for that very 
purpose. Finally, we included parents that have reached the time limit 
because we think it is the best way to make the participation rates 
consistent across States, one of our charges under the law.
    We also remind readers that States have considerable flexibility in 
deciding which families to assist with Federal versus State funds, even 
when it comes to families reaching the 60-month time limit. The time 
limit applies only to families receiving Federal or commingled funds, 
not to all funds. A State could use either segregated or separate State 
funds to assist families that have received 60 months of Federal 
assistance.
    Comment: A couple of commenters maintained that the definition of 
work-eligible individuals should not include persons served in a 
separate State program funded with MOE dollars who would not be 
eligible for TANF, including non-qualified non-citizens. Some 
commenters suggested that States should decide whether or not to 
include as work-eligible individuals non-citizens receiving SSP 
assistance so as not to penalize a State for humanitarian efforts.
    Response: We appreciate the concerns that the commenters expressed 
for State flexibility in deciding which families to assist through 
separate State programs. However, we include these non-qualified 
individuals because the participation rates are based on all adults who 
receive assistance, either in the TANF program or in a SSP. Since these 
non-qualified non-citizens receive assistance, they are included by the 
statute. As with other non-recipient parents included as work-eligible 
individuals, we believe that the children in such families will be 
better off if States engage the parents in work activities, helping 
them increase their incomes and move off welfare.
    Comment: A number of commenters suggested we give States the option 
to exclude an individual served under SSDI or under a State-funded 
disability program from the definition of work-eligible individual. The 
commenters reasoned that our rationale for including SSI recipients on 
a case-by-case basis applied equally well to non-recipient parents 
served by these other disability programs.
    Response: We agree with the arguments the commenters made with 
respect to SSDI recipients. Unlike SSI recipients, SSDI recipients 
often are also TANF recipients; therefore, we have modified the rule to 
allow a State to exclude on a case-by-case basis a parent who is 
recipient of SSDI from the definition of work-eligible individual.
    We did not find the commenters' arguments as persuasive with 
respect to State disability programs. Because State disability 
determinations and eligibility could vary so widely from one 
jurisdiction to the next, we think that making this exclusion would not 
meet our mandate to make the work participation rates more consistent. 
Rather, we think it more appropriate to rely on a Federal standard of 
disability for the purpose of excluding parents from the definition of 
work-eligible individual.
    Comment: Many commenters urged us to exclude from the definition 
cases in which a parent's SSI or SSDI application is pending a decision 
(including the appeal of an adverse decision). Some suggested that we 
should exclude applicants who meet the disability standard. They argue 
that parents whose disabilities are sufficiently grave to qualify them 
for SSI or SSDI but do not yet receive it would have as much difficulty 
working as someone whose application has been approved. Commenters also 
urged us to exclude individuals who would qualify for SSI or SSDI but 
for the durational requirements of those programs, i.e., that the 
physical or mental impairment can be expected to result in death or has 
lasted or can be expected to last for a continuous period of at least 
12 months.
    Response: We appreciate that individuals with disabilities may have 
limitations in their ability to work. When the limitations are severe 
enough, an individual may qualify for and receive SSI or SSDI. However, 
applying for either program is no guarantee that the Social Security 
Administration (SSA) will find that the applicant meets its definition 
of disability and will approve the application. In fact, the majority 
of initial applicants are denied benefits. The SSI and SSDI approval 
process involves not just a simple determination that an individual 
suffers from a disability on an approved list, but also a determination 
that the individual cannot engage in any substantial gainful activity. 
We believe that a Federal standard of disability is appropriate to 
ensure consistency in excluding parents from the definition of work-
eligible individual. Since SSI and SSDI applicants have not yet met 
that standard, the regulation does not exclude them from the definition 
of work-eligible individual. However, as we explain later, States may 
retroactively exclude adults in these families from the TANF Data and 
SSP-MOE Data Reports once they are approved for SSI or SSDI benefits 
and thus are no longer considered to be work-eligible individuals. This 
partly addresses the concerns raised by the commenters.
    We do want to clarify the status of TANF parents who ``meet the SSI 
or SSDI criteria for severity.'' In some cases, SSA makes a presumptive 
disability determination for SSI or SSDI benefits, based on the nature 
of an applicant's impairment and other considerations. In such a case, 
SSA pays expedited benefits while the applicant awaits a final 
decision. These individuals are in fact receiving SSI or SSDI benefits 
and thus the State would have the option to include or exclude them 
from the definition of work-eligible individual. If subsequently, SSA 
denies the application, the individual would no longer be receiving SSI 
or SSDI benefits and thus would qualify as a work-eligible individual.
    Parents in TANF cases who do not qualify for SSI or SSDI due to the 
durational requirements are not excluded from the definition of work-
eligible individual because they do not receive benefits under those 
programs. It is not appropriate to exclude them, due

[[Page 6799]]

to the temporary nature of their disabilities. For example, States 
should prepare an individual who is recovering from an accident or 
heart attack for work, examples several commenters cited as temporary 
disabilities. The participation rate that Congress established provides 
ample room for States to exempt individuals with temporary illnesses or 
incapacities from participating in work activities. Indeed, under 
TANF's predecessor program, JOBS, States could exempt individuals who 
were ill or temporarily incapacitated, but the 1996 TANF law did not 
include these exemptions.
    Comment: Many commenters asked us to permit States to exclude 
applicants for SSI or SSDI from the definition of work-eligible 
individual retroactively back to the date of their applications once 
those applications are approved. They explained that the SSI/SSDI 
disability determination process can be lengthy and, once a 
determination is made, benefits are paid retroactively for earlier 
months.
    Response: We agree with many of the comments and, within limits, 
have amended the rule to allow States to revise work participation 
data--including information on which individuals are or are not work-
eligible--after initially reporting it. Quarterly TANF and SSP-MOE Data 
Reports are due within 45 days of the end of the quarter. States are 
free to, and often do, revise data relating to previous quarters within 
the fiscal year. Because a State is not liable for a reporting penalty 
until the end of the quarter after the end of a fiscal year, a State 
may, until December 31, submit its final data for the previous fiscal 
year. Thus, a State that learns that a former work-eligible individual 
has been approved for SSI or SSDI and for whom prior State TANF or SSP-
MOE benefits are reimbursed may revise its data for that individual by 
December 31 for the months in the preceding fiscal year in which the 
individual received benefits under one of those programs. If the 
individual's application for SSI or SSDI predates the beginning of the 
previous fiscal year, the State could not revise data back to the date 
of application because only data from the previous fiscal year may be 
revised by December 31. Please refer to Sec.  265.7(b) for further 
discussion of the timing for revising work participation and caseload 
data and to Sec. Sec.  265.4 and 265.8 for more information on when 
quarterly reports are due and when penalties apply.
    Comment: Some commenters recommended giving States longer than 
until December 31 to amend TANF and SSP-MOE Data Reports for 
determining work-eligible individual status due to the lengthy approval 
process for disability benefits. One commenter suggested that we give 
States until the point at which we finalize the participation rate 
calculations for a fiscal year. Another suggested March 31, six months 
after the end of the fiscal year, as an appropriate deadline.
    Response: While it is true that disability determinations can be 
lengthy, we have clarified that the deadline for retransmitting data is 
December 31 because after that date, States are liable for data 
reporting penalties.
    Comment: One commenter urged us to exclude recipients of the 
programs offered by ``209(b) States'' from the definition of work-
eligible individual in the same way we do SSI recipients. The commenter 
contended that those programs have criteria that are stricter than SSI 
and thus should also be excluded.
    Response: The designation ``209(b) State'' refers to a mechanism by 
which the State determines eligibility for Medicaid, not eligibility 
for SSI or any other disability program. Most States, known as ``1634 
States,'' provide automatic Medicaid coverage for recipients of SSI, 
but they have the option of continuing to apply standards that predated 
the SSI program and are more restrictive than those of the SSI program. 
Those States are called ``209(b) States,'' a reference to a provision 
in the 1972 law that created the SSI program. While such a State may 
have more restrictive criteria for Medicaid, this provision does not 
affect eligibility for SSI in the State and thus has no bearing on our 
definition of work-eligible individual.
    Comment: One commenter urged us to clarify that supported work for 
individuals with disabilities (as discussed in the preamble concerning 
subsidized employment) is a countable activity for work-eligible 
individuals receiving SSI or SSDI whom the State opts to include in the 
work participation rate.
    Response: Any activity that can count toward the work participation 
rate for other work-eligible individuals can also count for SSI and 
SSDI recipients whom the State opts to include, including those 
participating in a supported work program for individuals with 
disabilities. Except where the statute explicitly imposes a restriction 
(e.g., for certain educational activities), we do not limit countable 
activities to any subset of work-eligible individuals.
    Comment: One commenter thought the way we structured the definition 
of work-eligible individual with respect to SSI recipients was 
inequitable because it subjects individuals to the requirements of both 
TANF and SSI. The commenter maintained that by including SSI recipients 
within the definition of a work-eligible individual and allowing States 
to exclude them on a case-by-case basis we created an inequity. The 
commenter urged us to exclude all such individuals as a class and allow 
States to include them on a case-by-case basis.
    Response: We think the commenter misunderstood the purpose of this 
provision. First, the definition of work-eligible individual only 
includes a SSI recipient when a State opts to include such an 
individual. A State must make a choice in each case and report data on 
the case accordingly. Because there is a child receiving assistance, a 
TANF case exists and the State must report data on that family, 
including information on the work status of the adult or adults in the 
family. No case is automatically included; the State reports the data 
to us for each case. Second, the rule does not subject individuals to 
the requirements of both SSI and TANF. Presumably, a State would not 
choose to include a SSI recipient as a work-eligible individual unless 
that individual had sufficient hours of work to allow the family to 
count in the numerator of the participation rate. Moreover, this option 
does not subject the SSI recipient to additional rules of the TANF 
program. The family is already subject to the applicable rules of TANF, 
because a child is receiving assistance. The SSI parent has no further 
work obligation because the State chooses to use the hours that 
individual works in the participation rate calculation.
    Comment: Some commenters recommended that we exclude from the 
definition of work-eligible individual those ``who are refugees, 
asylees, or legal permanent residents who may qualify for TANF or MOE-
funded assistance but are ineligible for SSI based on their immigration 
status.''
    Response: While some refugees and asylees are in fact eligible to 
receive SSI under current law, we do not believe the recommendation to 
exclude parents ineligible for SSI due to their immigration status is 
practical. Because these parents are ineligible for SSI, the Social 
Security Administration will not process their disability 
determinations. We, therefore, cannot ascertain whether or not they 
would have met the appropriate disability standards and qualified for 
SSI.
    Comment: One commenter urged us to provide the same exclusion for 
recipients of Title XVI benefits (Aid to

[[Page 6800]]

the Aged, Blind or Disabled in the Territories) as we do for SSI 
recipients.
    Response: We agree with the commenter and have modified the rule 
accordingly.
    Comment: A couple of commenters thought our approach to individuals 
with disabilities and the definition of a work-eligible individual did 
not make sense. They pointed out that we exclude a parent caring for a 
disabled family member living in the home but not the disabled family 
member that needs full time care.
    Response: The exclusion for a parent caring for a disabled family 
member living in the home primarily affects cases in which a parent 
cares for a disabled child. Obviously, a disabled child would not be 
subject to work requirements. While in some cases the disabled family 
member may be a second parent, we did not want to broaden the 
exclusions from the work participation rates beyond those that already 
exist in the statute.
    Comment: One commenter objected to the way the work-eligible 
individual definition addressed two-parent families in which one parent 
has a disability. The commenter pointed out that if the State finds 
that a parent has a disability but the individual does not yet receive 
SSI or SSDI, the family would not be part of the two-parent 
participation rate but would be included in the overall rate. If there 
is medical documentation to support it, the parent without a disability 
will be exempted from the work-eligible category because she is needed 
in the home to care for a disabled family member. However, the family 
would still be in the work participation rate because the parent with a 
disability would still be a work-eligible individual obligated to 
engage in work for 30 hours per week to count for participation.
    Response: We believe the final rule addresses most of the 
commenter's concerns. This is a confusing area because one provision 
relates to disability in general and is a State determination, and 
another relates specifically to qualifying for SSI or SSDI, a Federal 
determination. If a State finds that one parent in a two-parent family 
has a disability then, by statute, the family comes out of the two-
parent work participation rate. If the parent that the State found to 
have a disability does not receive SSI or SSDI, then he or she would 
continue to be a work-eligible individual, just as a single parent 
waiting for SSI or SSDI determination would be, and the family would 
continue to be part of the overall rate. In all other respects, the 
two-parent family is treated the same way as the single-parent family 
for determining whether the parents are work-eligible individuals. If 
both parents receive either SSI or SSDI, then both would be excluded 
from the definition of a work-eligible individual. As we noted above, 
within limits States may retroactively revise their data when 
individuals meet SSI or SSDI criteria.
    Comment: Several commenters recommended that we exclude parents on 
TANF who are caregivers of family members with disabilities, regardless 
of whether the family member with a disability lives in the same home 
as the parent. The commenters explained that the burden of providing 
care for family members living elsewhere may be just as great or 
greater.
    Response: The purpose of the TANF program is to enable parents or 
relatives to care for children ``living in the home'' and to take 
necessary steps to become self-sufficient. While we appreciate the 
burden that having a family member outside the home that needs care 
places on a family, the TANF program is not designed to provide such 
care. Parents of TANF families face significant challenges to care for 
everyone in their immediate household, and to prepare for or maintain 
employment that will allow them to provide for their family. Given 
these critical responsibilities and the time-limited nature of TANF 
assistance, we do not agree that parents should be excluded from the 
definition of a work-eligible individual in order to provide care for 
someone outside the home.
    Comment: Some commenters also suggested that we exclude from the 
definition of work-eligible individual extended family members such as 
aunts, uncles, and grandparents who were both receiving assistance and 
caring for a disabled family member.
    Response: We are sympathetic to the situation of non-parental 
relatives who are both receiving assistance and caring for a disabled 
family member. The statute (section 407(i)(1)(A)(i)(IV) of the Act) 
only gives us the authority to determine ``the circumstances under 
which a parent who resides with a child who is a recipient of 
assistance should be included in the work participation rates''; thus, 
a non-parental relative who receives assistance must be a work-eligible 
individual. Since we do not have the authority to exclude non-parents 
from the participation rate, this provision only excludes parents 
caring for a disabled family member living in the home. A relative 
would only be a work-eligible individual if he or she received TANF 
assistance (the first part of the work-eligible individual definition) 
or were a parent of another child recipient of assistance (the second 
part of the definition).
    Comment: Many commenters took issue with the fact that the 
exclusion under the interim final rule for parents caring for a 
disabled family member living in the home applied only when the family 
member with a disability did not attend school full-time. Some said 
that parents with children with disabilities in school should be 
treated the same as other TANF participants who must care for a 
disabled family member not in school. They pointed out that children 
with severe disabilities often cannot attend school regularly due to 
medical care needs, even if they are enrolled full time. Others noted 
that after-school care and care during school holidays (especially the 
summer) is difficult to find for children with disabilities, even if 
they attend school on a full-time basis. Some asked us to modify the 
exclusion so that a parent would not be ``work-eligible'' if the 
child's disability-related needs prevent the parent from working. 
Another proposed that we give the State the option to include the hours 
of such a parent in the work participation rate on a case-by-case 
basis, based on criteria it set out in its Work Verification Plan. Some 
asked for clarification regarding whether the exclusion applied to 
children with disabilities who are full-time students but must be 
tutored at home or are home-schooled.
    Response: We appreciate the difficulties of caring for a disabled 
family member, even when he or she is enrolled in school full time. The 
commenters raised many compelling arguments about the need for a 
parent's care even when a family member with a disability goes to 
school full time. Based on these comments, we have expanded the 
exclusion to apply when a family member's disability requires care-
giving that prevents the parent from working, whether or not the family 
member is enrolled or attending school. Please refer to Sec.  
261.2(n)(2)(i). Our intent had been to ensure that only parents who 
would be unavailable during working hours because they were caring for 
family members would be excluded from the definition. To that end, we 
have also revised the medical documentation requirement, which is now 
included in the regulation itself (also at Sec.  261.2(n)(2)(i)). 
Medical documentation must show that a parent caring for a disabled 
family member cannot engage in work because he or she is needed in the 
home to provide that care. Thus, under the final rule, any parent 
caring for a disabled family member will not be considered ``work-
eligible'' as long as there is

[[Page 6801]]

documentation to show that it is medically necessary for the parent to 
provide the care and, as a result, cannot engage in work. We believe 
the policy in the final rule will be both simpler to administer and 
more equitable.
    The rule does not permit parents who have such medical 
documentation to be included in the participation rate calculation on a 
case-by-case basis if they are working. If a medical professional has 
documented that the parent needs to be in the home to care for a 
disabled family member, then we believe it is inappropriate for these 
parents to be working. Thus, there is no need for a case-by-case 
option. Clearly, if the medical status of the disabled family member or 
the living arrangements of the family changes, the State should then 
report the parent as a work-eligible individual and engage the parent 
in work. States should regularly reassess the status of excluded 
parents who are caring for disabled family members. Closely monitoring 
family situations will enable parents, who are no longer needed in the 
home, to gain the skills and work experience that leads to 
independence.
    We would like to stress that this exclusion for a parent caring for 
a disabled family member does not absolve the State of its 
responsibility to help TANF recipients find appropriate child care, 
including care for children with disabilities. We recognize that the 
special care that some children with disabilities need may be less 
available and may be more expensive. States should take these 
considerations into account as they develop and budget for their child 
care programs. A State may not exclude a child who has a disability 
from available child care, if doing so would prevent the parent from 
gaining needed skills, finding work, and moving the family out of 
dependency.
    Comment: One commenter recommended that the definition of work-
eligible individual allow for the exclusion of individuals who are 
unable to participate in activities for the required number of hours 
due to a disability.
    Response: The regulation does not exclude such individuals from the 
definition of work-eligible. We refer readers to the discussion of 
individuals with disabilities in the cross-cutting issues section that 
appears earlier in this preamble.

Subpart B--What Are the Provisions Addressing State Accountability?

    PRWORA required States to meet two separate work participation 
rates--the overall rate that has been 50 percent since FY 2002 and the 
two-parent rate of 90 percent since FY 1999. A State that fails to meet 
the required participation rates is subject to a monetary penalty. The 
Deficit Reduction Act of 2005 retained the 50-percent participation 
requirement overall and the 90-percent requirement for two-parent 
families, but included families in separate State programs in the 
calculation of the respective work participation rates.
    In the interim final rule, we modified the provisions of this 
subpart to reflect the new statutory requirements to include separate 
State program families, as well as the requirement to determine when to 
include non-recipient parents residing with children who receive TANF 
assistance in the calculation of the work participation rates. We did 
so using the new definition of ``work-eligible individual'' discussed 
in detail in the preamble to Sec.  261.2(n) of this part.

Section 261.20 How will we hold a State accountable for achieving the 
work objectives of TANF?

    Under the interim final rule, as under the original TANF rule, this 
summary section outlined how we held a State accountable for meeting 
work requirements. We did not receive comments on this section and have 
made no changes to it in the final rule.

Section 261.21 What overall work rate must a State meet?

    This section of the interim final rule incorporated in regulatory 
text the statutory requirement for a State to achieve an overall work 
participation rate of 50 percent, minus any caseload reduction credit 
to which it is entitled. We did not receive comments on this section 
and have made no changes to it in the final rule.

Section 261.22 How will we determine a State's overall work rate?

    The Deficit Reduction Act of 2005 modified the work participation 
rate calculation to include families with an adult or minor child head-
of-household in SSP-MOE programs and required us to determine the 
circumstances under which a family in which a parent residing with a 
child receiving TANF should be included in the calculation. The interim 
final rule modified the prior language in this section to reflect the 
new calculation and adopted the use of the term ``work-eligible 
individual'' for that purpose. It also continued the policy established 
under prior rules of allowing a State to count a family that received 
assistance for only a partial month in the work participation rate if a 
work-eligible individual is engaged in work for the minimum average 
number of hours in each full week that the family receives assistance.
    We corrected one typographical error but made no other changes to 
the regulatory text of this section.
    Comment: One commenter asked for clarification regarding whether 
the addition of families in separate State programs was effective in FY 
2006 or FY 2007.
    Response: Families receiving assistance through a separate State 
program are added effective FY 2007. While the interim final rule as a 
whole took effect with its publication on June 29, 2006, all the 
provisions relating to the work participation rate--including the 
revised caseload reduction credit, the new work definitions, and the 
revisions to which cases are part of the calculation itself--take 
effect in FY 2007 (October 1, 2006), the first fiscal year that begins 
after the law and regulations came into existence.
    Comment: One commenter asked us to exclude families residing in 
Alaska Native villages from the work participation rate calculation, 
due to ``the state's unique circumstances and the challenges inherent 
in serving needy families in Alaska's most remote and economically 
depressed communities.''
    Response: The law does disregard from the 60-month time limit on 
the receipt of Federal assistance any months that an adult receives 
assistance while living in Indian country or in an Alaska Native 
Village where at least 50 percent of the adults are not employed. We do 
not have the authority under the statute to make a similar exclusion 
from the work participation rate calculation.
    Comment: One commenter asked us to exclude from the denominator 
families ``during their first 30 days of eligibility.'' The commenter 
noted that it takes several weeks to process an application, as well as 
additional time to learn program requirements and develop a work plan. 
``It is unrealistic to expect that this process can be completed 
quickly enough for new participants to engage in sufficient hours of 
work activities during their initial 30 days to meet the work 
participation rate.'' Another commenter stated that the rule does not 
provide a State option to count participation for families that receive 
an initial partial month of assistance.
    Response: As we noted in the preamble to the original TANF final 
rule, ``* * * we cannot simply decide that some period of time for 
which an individual receives assistance--such as time prior to 
assignment in a work activity or a partial month of assistance--should 
not be considered a

[[Page 6802]]

period of assistance and therefore exclude the individual's family from 
the participation rate for that month. On the contrary, if a family 
receives assistance for any portion of a month, then we must include 
the family in the denominator of the participation rate for that month. 
* * *'' (See 64 FR 17774.) However, Sec. Sec.  261.22(d) and 261.24(d) 
do provide the flexibility to count a partial month of assistance as a 
month of participation if a work-eligible individual is engaged in work 
for the minimum average number of hours in each full week that the 
family receives assistance in that month.
    Comment: One commenter suggested that, if a State opts to count in 
the work participation rate a family in which a parent receives SSI (or 
SSDI), we should allow the State to exclude the family from the 
denominator of the rate, counting it only in the numerator.
    Response: We do not think we should include any family in the 
numerator that we do not also include in the denominator. To do so 
would skew the participation rate. The State has the flexibility to 
decide on a case-by-case basis whether to include it or exclude it, but 
any case that the State wants to count in the numerator must also be in 
the denominator.
    Comment: A couple of commenters asked about the meaning of Sec.  
261.22(b)(2), which permits a State to exclude from the work 
participation rate calculation for up to three months in a 12-month 
period a case that is subject to a penalty for refusing to work. 
Specifically, the commenters wanted clarification on whether ``subject 
to a penalty'' means the State has reduced or terminated a family's 
grant or whether it could refer to a family that the State has notified 
of its intent to penalize but whose benefits it has not yet reduced or 
terminated. After notification, the commenters pointed out that due 
process or conciliation period requirements in the State often cause a 
lag of one or two months before the State actually reduces or 
terminates the family's grant. The commenters explained that, if we use 
the former interpretation, as we have when asked by States for policy 
clarification, then States that impose a full-family sanction ``receive 
little practical value from this provision'' compared to States that 
impose a penalty by reducing a family's grant.
    Response: This rule does not change our long-standing 
interpretation of when a family is ``subject to a penalty.'' During a 
conciliation or notice period, before the State actually reduces or 
terminates the family's grant, a family is not ``subject to a 
penalty.'' Before that time, the family is at risk of a penalty but not 
subject to it. We think this is the most reasonable interpretation of 
the statute. In the original TANF rule, we included the following 
language at Sec.  261.22(b)(3): ``If a family has been sanctioned for 
more than three of the last 12 months, we will not exclude it from the 
participation rate calculation.'' (Emphasis added.) Further, in the 
interim final rule, we reiterated this concept in Sec.  261.22(b)(2) as 
well, specifying that ``if a family with a work-eligible individual has 
been penalized for refusal to participate in work activities for more 
than three of the last 12 months, we will not exclude it from the 
participation rate calculation.'' (Emphasis added.) In both instances, 
this language makes clear that the State must actually have imposed the 
penalty before we exclude the family from the participation rate 
calculation.
    We have applied this interpretation since the beginning of TANF 
because it encourages a State to take action to resolve the problem 
that led to the sanction in the first place. If we were to consider a 
family ``subject to a penalty'' when the State had merely notified the 
family of the possibility that it would reduce or terminate benefits, 
it could benefit from disregarding the family from the participation 
rate regardless of whether it provides services to address barriers to 
employment or works to resolve a dispute.
    With respect to the effect of our interpretation of this provision 
on a State that chooses to impose a full-family sanction instead of 
reducing the family's benefits, our interpretation treats the period 
before actual imposition of a sanction in the same way for all States, 
regardless of whether a State's policy choice is for a full or partial 
sanction. If a State chooses a full-family sanction, then the family is 
removed from the work participation calculation indefinitely and as a 
result benefits from an indefinitely smaller denominator.
    Comment: One commenter asked for clarification on ``whether the 
`other sanctioned' individuals who now will be considered work-eligible 
participants will have the same exclusion from the count for three 
months out of twelve as those sanctioned for participation failure.''
    Response: If the family of a work-eligible individual is subject to 
a penalty for refusing to work, the State may exclude that family from 
the work participation calculation for that month as long as the family 
has not been penalized for more than three of the last 12 months. If 
the family's sanction is for a different cause, such as failure to 
cooperate with child support enforcement, then the case stays in the 
work participation rate.
    Comment: We received a comment concerning Sec. Sec.  261.22(c)(1) 
and (c)(2). The first section provides a State with the option not to 
require a single custodial parent of a child under age one to engage in 
work and the second allows it to disregard such a family from the work 
participation rate. The commenter noted, ``The preamble to the final 
TANF regulations in the April 12, 1999 Federal Register indicates that 
these two provisions are not dependent on each other, but rather, a 
state can exclude such a case from the work participation rate 
calculation without having to exclude it from engaging in work 
activities.'' The commenter urged us to include the same clarification 
in this preamble to avoid any confusion.
    Response: The commenter is correct that the preamble to the 
original TANF rule clarified that point. We wrote, ``Based on the 
comments and after reexamining the statutory provision, we agree that 
we need not link the State's option not to require a single custodial 
parent of a child under 1 to work to the exclusion of such parents from 
the rate calculations. The State can make separate decisions about 
exempting and excluding a family from its rate. The statute describes a 
certain individual, that is, `a single custodial parent caring for a 
child who has not attained 12 months of age' and then separately 
indicates that `such an individual' may be disregarded in calculating 
the participation rates. We have rewritten the regulation to allow 
disregard of a family with such an individual, since the rates actually 
measure families and not individuals.'' The overall framework of this 
provision did not change in this rule, including the distinct natures 
of these two points.

Section 261.23 What two-parent work rate must a State meet?

    This section of the interim final rule incorporated in regulatory 
text the statutory requirement for a State to achieve a two-parent work 
participation rate of 90 percent, minus any caseload reduction credit 
to which it is entitled. We did not receive comments on this section 
and have made no changes to it in the final rule.

Section 261.24 How will we determine a State's two-parent work rate?

    This section of the rule is analogous to Sec.  261.22 but applies 
to the two-parent rather than the overall work participation rate. The 
interim final rule modified the calculation of the two-parent rate to 
include families served in

[[Page 6803]]

SSP-MOE programs. The Deficit Reduction Act, as we noted before, 
required us to determine the circumstances under which a family in 
which a parent living with a child receiving TANF should be included in 
the work participation rates, which we did in the definition of ``work-
eligible individual'' in Sec.  261.2(n). The interim final rule 
provided a minimum definition of a two-parent family for the two-parent 
work participation rate calculation.
    We made no changes to this section in the final rule.
    Comment: One commenter asked for clarification regarding whether 
the addition of two-parent families in separate State programs was 
effective in FY 2006 or FY 2007.
    Response: Two-parent families receiving assistance through a 
separate State program are added effective FY 2007. While the interim 
final rule as a whole took effect with its publication on June 29, 
2006, all the provisions relating to the work participation rate 
including the revised caseload reduction credit, the new work 
definitions, and the revisions to which cases are part of the 
calculation itself take effect in FY 2007 (October 1, 2006), the first 
fiscal year that begins after the law and regulations came into 
existence.
    Comment: One commenter stated that when a two-parent family is 
included in the overall participation rate it is counted as if it were 
two separate households, rather than as a single family or household 
and thought that was unfair, because ``all the benefits in being a 
married or stable two-parent family are lost.''
    Response: The overall participation rate includes each family once. 
A two-parent family counts in the overall rate in the same way that any 
other family does: based on the hours of participation of one work-
eligible individual. If the second parent has hours of participation, 
those count only toward the two-parent participation rate, which, by 
statute, can combine the hours of both parents.

Section 261.25 Do we count Tribal families in calculating the work 
participation rate?

    We would like to clarify existing policy with respect to counting 
Tribal families in the State TANF work participation rate. During our 
listening tour sessions around the country, it came to our attention 
that some readers may not fully understand the requirements of this 
section of the rule.
    In the preamble to the original TANF regulation, we explained that 
a State has the option to include or exclude families receiving 
assistance under a Tribal TANF or Tribal Native Employment Works (NEW) 
program from the denominator of the State TANF participation rates. But 
to count any family in the numerator of the State's participation rate 
for a month, the family must meet the standards for counting a family 
in the State rate, both with respect to hours of participation and 
countable activities. We went on to stress that this was true 
regardless of whether the family received assistance under a State TANF 
program, a Tribal TANF program, or a Tribal NEW program.
    This standard continues to apply under the final TANF rule. To 
count toward a State's participation rate, the family must meet the 
standards of that rate. Therefore, if a Tribe offers activities that 
meet the definition of countable State work activities and engages 
individuals for the requisite hours to meet the State rate, the State 
may choose on a case-by-case basis to include such families in the 
calculation of the State's participation rate. However, if the Tribal 
program defines and includes countable activities that do not meet the 
work activity or work-eligible individual definitions of this final 
rule, such activities may not count toward the State's participation 
rate. Of course, any family that the State wishes to count in the 
numerator must also be included in the denominator.
    We received few comments on this section and have not changed the 
regulatory text from the interim final rule.
    Comment: A couple of commenters took issue with the phrase ``at 
State option'' in this section of the rule, arguing that the State 
cannot opt to include Tribal TANF families without the consent of the 
Tribe. The commenters thought that the wording ignored Tribal 
sovereignty and they urged us to change it.
    Response: This regulatory wording comes from section 407(b)(4) of 
the Act and remains unchanged from the original TANF rule. While the 
law and regulations give States the option to include Tribal TANF or 
Tribal NEW participants in the State work participation rates, Tribal 
sovereignty is not at issue because States will need to confer with 
Tribes to know whether individuals are participating in activities and 
meeting standards that comport with the requirements of the State's 
work participation rate. This provision does not give States control 
over Tribal programs or governments. A State cannot opt to include 
families unless they are already participating in accordance with State 
TANF participation standards. If the Tribe's program does not meet that 
standard, the State simply would not be able to opt to include those 
families.
    Comment: One commenter pointed out that the Federal regulations 
governing Tribal TANF and NEW programs allow flexibility in defining 
work activities and the hours of participation. State TANF programs 
working with Tribal populations not covered by the Tribal TANF or NEW 
programs do not have the same flexibility. The commenter thought this 
was inequitable and urged us to grant States the same flexibility when 
providing services to American Indians living on reservations.
    Response: We do not have the authority to implement the commenter's 
suggestion. The difference between State and Tribal TANF work 
participation requirements is statutory. Section 412(c) of the Social 
Security Act allows Tribal TANF programs to negotiate work activities 
and hours of participation, whereas section 407 of the Act, which 
specifies State work requirements, does not permit such flexibility.

Subpart C--What Are the Work Activities and How Do They Count?

    The interim final rule did not change the structure of this subpart 
but did make some important additions to Sec. Sec.  261.31 and 261.32. 
In particular, the rule added provisions to allow States to ``deem'' 
participation in core hours when the minimum wage laws of the Fair 
Labor Standards Act (FLSA) preclude an individual that works the 
maximum allowed from participating for all of the required core hours. 
The final rule maintains this basic policy of the interim final rule 
but we have modified the regulatory text in response to comments.

Section 261.31 How many hours must a work-eligible individual 
participate for the family to count in the numerator of the overall 
rate?

    We received many comments relating both directly and indirectly to 
this subpart of the regulations.
    Dozens of readers offered comments about individuals with 
disabilities, urging us to provide relief in the hours they must engage 
in work activities and generally to structure the regulations to 
encourage States to work with the people with disabilities. We refer 
readers to the cross-cutting issues section of this preamble for an 
overarching discussion of how the regulations address the needs of 
individuals with disabilities. We

[[Page 6804]]

respond to specific issues related to hours of participation for people 
with disabilities in that cross-cutting section as well. We have 
grouped the comments and our responses by topic for the ease of the 
reader.
    We received numerous comments about the provisions in the interim 
final rule that permit a State to ``deem'' participation when an 
individual is restricted by the minimum wage laws from engaging in 
sufficient hours to meet the core hours requirements of the 
participation rates.
    The interim final rule allowed States to ``deem core hours'' for 
TANF families with a work-eligible individual participating in work 
experience or community service who works the maximum number of hours 
permitted under the minimum wage requirements of the Fair Labor 
Standards Act (FLSA), but still falls short of the core hours 
requirement. The final rule continues this general policy. As in the 
interim final rule, it limits deeming to States that combine TANF (or 
SSP-MOE) and food stamp benefit amounts when calculating maximum hours. 
A State can achieve this by adopting the mini-Simplified Food Stamp 
Program (mini-SFSP), an option that simply permits States to count the 
value of food stamps in determining maximum hours. In accordance with 
the FLSA and the applicable regulations at 29 CFR 531.29-531.32 and 
guidance issued by the Department of Labor (DOL) this can include 
facilities such as child care and transportation subsidies but might 
include other subsidies. We recommend that any questions regarding the 
FLSA should be directed to Office of the Assistant Secretary for 
Policy, Office of Compliance Assistance Policy. Their Web site is: 
http://www.dol.gov/compliance.
Food Stamp Issues
    Comment: Several commenters raised questions about what is involved 
to implement a food stamp workfare program and questioned why it is 
necessary.
    Response: To ``deem core hours,'' the preamble of the TANF interim 
final rule required States to adopt a food stamp workfare program and 
conform TANF and Food Stamp Program (FSP) exemption policies under the 
SFSP. Since then, we have been informed by the Food and Nutrition 
Service (FNS) at the U.S. Department of Agriculture that neither of 
these is necessary. A mini-SFSP alone allows a State to count the value 
of food stamps with the TANF (or SSP-MOE) benefit in determining the 
maximum number of hours permitted under the FLSA. The TANF work 
experience or community service program then automatically serves in 
place of the food stamp workfare program.
    Comment: Several commenters asked about the preamble guidance that 
said the SFSP ``must be structured to match food stamp exemptions to 
those of the TANF program so that work requirements could be applied to 
as many work-eligible individuals as possible.'' One commenter 
suggested that we ``clarify that states do not need to make parents of 
young children mandatory Food Stamp Employment and Training (FSET) 
participants in order to include food stamp benefits in the calculation 
of countable hours and qualify them for the deeming provision.'' The 
commenter noted that the FSP exempts parents with children under six 
years of age from mandatory participation and that changing the food 
stamp exemptions to match those of the TANF program would require 
States to impose food stamp sanctions on such parents when they do not 
comply with TANF's work requirements.
    Response: Since the publication of the interim final rule, the FNS 
has explained that a State can create a mini-SFSP that will allow it to 
count the value of food stamps toward this FLSA calculation but that it 
does not need to conform the exemption for the age of youngest child 
between food stamps and TANF or expand the use of food stamp sanctions. 
For additional information see the Food and Nutrition Service's Web 
site at: http://www.fns.usda.gov/fsp/whats_new.htm. Under the heading, 
``What's New,'' item 25 for Fiscal Year 2006 provides a sample letter 
for States to request a mini-SFSP and additional questions and answers 
on implementing the mini-SFSP.
    Comment: Several commenters asked whether the SFSP is required.
    Response: Yes, a State must implement at least a mini-SFSP in order 
to combine food stamp and TANF (or SSP-MOE) benefits for the purpose of 
calculating maximum hours. ACF intended to allow States to qualify for 
deeming only if they combine food stamp and TANF benefits. The State 
should notify FNS of its desire to implement a mini-SFSP that replaces 
the FSP work obligation rules with TANF rules. A State that has not 
implemented a mini-SFSP cannot deem core hours for participation rate 
purposes, but must still combine TANF with allowable facilities, in 
accordance with applicable DOL guidance and regulations in order to 
maximize the number of work hours permitted under the FLSA. Allowable 
facilities usually include child care and transportation subsidies, but 
might include other subsidies. We recommend that any questions 
regarding the FLSA should be directed to Office of the Assistant 
Secretary for Policy, Office of Compliance Assistance Policy. Their Web 
site is: http://www.dol.gov/compliance.
    Comment: Some commenters objected to the requirement to include 
food stamp benefits in the calculation of the number of hours needed to 
satisfy the work participation rate. They asserted that this undermined 
State flexibility and created inequities because some families would 
have to work off a food stamp grant, while others would not, because of 
variations in circumstances, such as the receipt of child support and 
family size. Some contended that including food stamp benefits in the 
requirement was punitive.
    Response: We considered the comments carefully but have retained 
the requirement to include food stamp benefits in order to deem core 
hours of participation. The main effect of the commenters' 
recommendation would be to reduce the number of hours that a State 
could require an individual to participate in work activities while 
still counting in the work participation rate. We believe that 
participation in work activities is crucial for families to move from 
dependence on public support to increased self-sufficiency. Further 
reducing the hours required is contrary to the goals of the TANF 
program. We do not believe that the policy generates inequities, 
because the number of hours that a family must participate to count in 
the work participation rate is directly based on the value of the 
combined benefits, up to a maximum. If a family has a reduced work 
obligation because of deeming, it is because that family receives less 
support from the government than a family with a higher work 
obligation--just as someone who works fewer hours in paid employment 
earns less than someone who works more hours at the same wage.
    The new policy is not intended to be punitive. Rather, it gives 
States the opportunity to count a family in the participation rate with 
fewer hours of real participation than the State would otherwise need. 
We adopted the policy so that a State would not have to place an 
individual in another core activity once that individual worked the 
maximum hours possible under the FLSA rules. This makes it more likely, 
not less likely, that a person would meet the participation rates.
    Comment: Several commenters asked whether the SFSP provisions apply 
to

[[Page 6805]]

families receiving assistance through a separate State program.
    Response: FNS does not distinguish between TANF and SSP-MOE 
programs; therefore, the mini-SFSP provisions can apply to a SSP. As 
long as a State combines a family's SSP-MOE grant with its food stamp 
allotment, we will permit deeming in a SSP in the same way as we do 
TANF.
Fair Labor Standards Act (FLSA) Issues
    Comment: One commenter asked ACF to approach the Department of 
Labor (DOL) to specify the benefits package a State can use in the FLSA 
calculation and requested that the list of such benefits include child 
care and transportation costs. Another commenter recommended that we 
include other Federal benefit programs, such as subsidized housing 
assistance and Medicaid.
    Response: The determination of whether or not the FLSA applies to 
an activity and which benefits must be used in the minimum wage 
calculation are matters that must be resolved by each State with the 
Department of Labor. The final rule does not require the inclusion of 
these benefits for the purpose of deeming core hours. We chose not to 
require States to include these benefits because doing so would further 
complicate the calculation of deemed core hours. We recommend that any 
broader questions regarding the FLSA should be directed to the Office 
of the Assistant Secretary for Policy, Office of Compliance Assistance 
Policy. Their Web site is: http://www.dol.gov/compliance.
FLSA Deeming Issues
    Comment: Several commenters recommended that we expand the deeming 
policy from satisfying the core work activity requirement to the entire 
work requirement. The commenters were concerned that even if some 
individuals were deemed to meet the 20-hour requirement, they would not 
be able to find other activities to meet the remaining 10 hours needed 
to satisfy the average weekly participation requirements. Some 
commenters asserted that requiring additional participation in non-core 
activities would create logistical and transportation problems for TANF 
administrators and families alike. They also noted that it may be 
difficult to find programs that offer additional activities for an 
average of just 10 hours per week.
    Response: We adopted the deeming policy so that States would be 
able to count participants toward the core activity requirement if they 
participated in a work experience or community service activity as much 
as permitted under the FLSA rules. Work experience and community 
service programs are often reserved for individuals who have difficulty 
participating in TANF's other core work activities. In the absence of 
the deeming policy, work experience and community service participants 
who were prevented by the FLSA from meeting the core hours requirement 
and could not find paid employment would have to participate in 
vocational educational training or job search and job readiness 
assistance to count them in the rate. But, oftentimes States are 
reluctant to engage individuals in these activities when they need only 
a few hours to count because they are subject to durational limits. We 
chose not to expand deeming to the required non-core hours because many 
of these participants can benefit from one of TANF's non-core 
activities, primarily either job skills training directly related to 
employment or education directly related to employment. A State would 
not have to engage a client in only 10 hours per week of the non-core 
activity. If a program and an individual's needs call for more hours, 
the State could still place the individual in that program.
    We would also like to point out that allowing States to deem does 
not impose any new or additional logistical or transportation problems. 
On the contrary, the new deeming policy provides additional flexibility 
and in doing so significantly reduces logistical and transportation 
problems. For example, a family with a 20-hour requirement that the 
State deems under this provision will count with just one activity. 
Under prior rules, the State would have had to find that family another 
core activity.
    Comment: One commenter asked whether the deeming policy could apply 
in Puerto Rico because it does not participate in the Food Stamp 
Program and thus cannot adopt a SFSP.
    Response: The final rule permits deeming in States that have 
adopted the SFSP. Puerto Rico operates the Nutrition Assistance Program 
which is funded by a block grant in lieu of the Food Stamp Program. 
This block grant provides sufficient flexibility so that the value of 
food stamps, or their equivalent, could count without the need for the 
SFSP. Therefore, Puerto Rico may deem core hours, when necessary, as 
long as it counts the value of Nutritional Assistance Program benefits 
in determining the individual's work obligation.
    Comment: One commenter asked if our reference to the 30 or 50 hours 
for two-parent families was a mistake in drafting the regulation.
    Response: The reference to the 30 or 50 hours is not a mistake. 
Under the statute, the core hours requirement for the two-parent rate 
is 30 or 50 hours, depending on whether or not the family receives 
federally subsidized child care.
Child Support Collections and the FLSA Minimum Wage
    Comment: Several commenters suggested that we remind States that 
the TANF assistance benefit used in the FLSA calculation must be the 
net amount of assistance provided after subtracting from the benefit 
the amount of any current child support collection retained by the 
State and Federal governments to offset the cost of providing that 
assistance.
    Response: We agree. In determining the maximum number of hours of 
work experience and/or community service that may be required of a 
recipient to meet the minimum wage requirements of the FLSA, States 
should calculate the amount of assistance net of any child support 
collections received in the month and retained to reimburse the State 
or Federal government for the current month's assistance payment.
    Under the community work experience provisions of the former JOBS 
program, the portion of child support collection, if any, used to 
reimburse the amount of AFDC was explicitly excluded by law. Section 
482(f)(1)(B)(i) of the Social Security Act outlining the minimum wage 
formula specified that ``* * * (and the portion of a recipient's aid 
for which the State is reimbursed by a child support collection shall 
not be taken into account in determining the number of hours that such 
individual may be required to work).''
    This prior provision of law is no longer in effect, but we believe 
that States should use the amount of assistance, net of the retained 
child support collection so that they do not require a parent to ``work 
off'' assistance amounts that the non-custodial parent has repaid. We 
are not specifying the operational procedure that States must follow to 
determine the benefit amount, net of retained child support. Under the 
prior law, States generally used one of two approaches. Under 
retrospective budgeting, States used the income less child support 
collections received in the budget month to determine the benefit 
amount used to calculate the work experience obligation for the payment 
month. Under prospective budgeting, States used the ``best estimate'' 
of income less child support collections for the month, based on prior 
experience. This works better in wage

[[Page 6806]]

withholding cases where regular child support collections may be 
predicted.
    The Deficit Reduction Act of 2005 created incentives to States to 
send more child support collected on behalf of families on TANF to the 
families themselves in both current and former assistance cases. 
Beginning October 1, 2009, or as early as October 1, 2008, at State 
option, a State may elect to pay the family a portion of the assigned 
support obligation. The State will not be required to pay to the 
Federal Government the Federal share of the ``excepted portion'' of 
such collections if the State pays the excepted portion to the family 
and disregards it in determining TANF assistance. The ``excepted 
portion'' may not exceed $100 per month, or in the case of a family 
that includes two or more children, $200 per month.
    Under this new DRA provision, the State should not deduct the State 
and Federal portions of assigned support collections that it ``passes-
through'' to the family in calculating the ``net'' payment to the 
family that can be counted in determining the number of hours an 
individual can be required to work. For example, if a family with two 
children receives $500 in TANF and the State collects assigned child 
support in the amount of $250 and elects to ``pass-through'' $150 to 
the family, the ``net'' payment that can be counted for FLSA purposes 
would be $400. See OCSE-AT-07-05 for further information concerning 
pass-through payments in former as well as current assistance cases. 
The State could also, of course, claim its share of the pass-through 
toward its MOE requirement.
Other ``Deeming'' Issues
    Comment: Several commenters proposed expanding the ``deeming'' 
concept to work-eligible individuals who work the maximum number of 
hours allowed by a doctor to receive full credit for their 
participation. Other commenters recommended that we allow States to 
deem individuals who are working ``as many hours as their medically 
documented reasonable accommodation plans allow as meeting the federal 
work requirement.'' Another commenter suggested that States be 
``allowed to count recipients who participate in work activities for 
the number of hours required under an employment plan that includes 
accommodations for disabilities (or accommodations based on a 
recipient's need to care for a family member with a disability) as 
having met the federally required number of hours of participation.'' 
The commenter went on to note that this approach is consistent with the 
treatment of families in work experience or community service who were 
working ``less than the minimum number of hours to satisfy the 
participation rates.'' The commenters asserted that these options would 
encourage States to do more to engage these individuals.
    Response: We extended the deeming option to participants in work 
experience and community service because the FLSA provisions may 
actually prevent a State from meeting the ``core'' work requirement 
using these two activities. We did not extend the deeming option to 
other groups because we believe that Congress, in setting the maximum 
50 percent participation rate, recognized that some families might not 
be able to work the full hours required. We encourage States to 
continue to work with these families to help move them to work and 
self-sufficiency. Our final rule does allow States to exclude 
recipients of Federal disability programs and those caring for a 
disabled family member from the definition of work-eligible individual. 
For more discussion of how the rules affect individuals with 
disabilities, readers should refer to the cross-cutting issues section 
at the beginning of this preamble.

Section 261.32 How many hours must a work-eligible individual 
participate for the family to count in the numerator of the two-parent 
rate?

    We did not receive any comments that were directed strictly at this 
section of the regulations; however, the comments that we addressed in 
the previous section, Sec.  261.31 of this subpart, often applied 
equally to this section. We refer readers to the discussion there and 
to the preamble about the definition of work-eligible individual in 
Sec.  261.2 of this subpart for further discussion of counting two-
parent families toward the two-parent participation rate.

Section 261.34 Are there any limitations in counting job search and job 
readiness assistance toward the participation rates?

    In the interim final rule, we did not make any changes to the 
various limitations in counting job search and job readiness 
assistance. Indeed, we did not include this section of the TANF rules 
in the interim final rule at all. After reviewing the comments we 
received, we have concluded that it is necessary to include this 
section in order to clarify how States should apply the various limits 
on counting job search and job readiness assistance.
    In the final rule, we define a week for each of the limits in this 
section. For the six-week (or 12-week) limit on participation in job 
search and job readiness assistance, we define one week as 20 hours for 
a work-eligible individual who is a single custodial parent with a 
child under six years of age and as 30 hours for all other work-
eligible individuals. Thus, six weeks of job search and job readiness 
assistance equates to 120 hours for the first group and 180 hours for 
all others. For those months in which a State can count 12 weeks of 
this activity, these limits are 240 hours and 360 hours, respectively.
    To make this section more consistent with other work participation 
rate provisions, we modified the six-week (or 12-week) limit to apply 
to ``the preceding 12-month period,'' rather than to a fiscal year. We 
also define ``four consecutive weeks'' and clarified the provision that 
allows an individual who participates in job search and job readiness 
assistance for ``3 or 4 days during a week'' to count ``as a week of 
participation in the activity.''

Subpart D--How Will We Determine Caseload Reduction Credit for Minimum 
Participation Rates?

    PRWORA created a caseload reduction credit that reduces the 
required work participation rate that a State must meet for a fiscal 
year by the percentage that a State reduces its overall caseload in the 
prior fiscal year compared to its caseload under the Title IV-A State 
plan in effect in FY 1995. The calculation excludes reductions due to 
Federal law or to State changes in eligibility criteria. The Deficit 
Reduction Act of 2005 recalibrates the credit by changing the base year 
to FY 2005.
    We received only a handful of comments relating to subpart D. We 
made one change to the regulatory text in Sec.  261.42 and we also 
clarified our policy with respect to excluding ``excess MOE'' in Sec.  
261.43. We explain both of these below.

Section 261.40 Is there a way for a State to reduce the work 
participation rates?

    Comment: A few commenters questioned the effective date of the 
regulations governing the caseload reduction credit with the 
recalibrated base year. They asked us to clarify that the original base 
year of FY 1995 applies to the FY 2006 credits and that the new base 
year of FY 2005 applies to the FY 2007 credits.
    Response: The commenters are correct that we will not use the new 
base year of FY 2005 until we calculate the FY 2007 caseload reduction 
credits. For that year's credits, we will compare FY 2005 to FY 2006 to 
determine the

[[Page 6807]]

caseload reduction credit to which States are entitled. The FY 2005 
base will apply from that point forward. While the interim final rule 
as a whole took effect with its publication on June 29, 2006, all the 
provisions relating to the work participation rates--including the 
revised caseload reduction credit, the new work definitions, and the 
revisions to which cases are part of the calculation itself--take 
effect in FY 2007 (beginning October 1, 2006), the first fiscal year 
that begins after the law and regulations came into existence.
    Comment: One commenter suggested that we allow the caseload 
reduction credit to apply in ``real time,'' as opposed to applying it 
``backward-looking'' as it currently does. The commenter contended that 
rewarding a State for ``present reductions'' would give it an incentive 
to keep working to reduce the caseload rather than ``resting on past 
laurels.''
    Response: The statute establishes the structure of the caseload 
reduction credit and thus is beyond our authority to change. We think 
that Congress chose to update the base year of the calculation for 
precisely the reason that the commenter noted, finding it no longer 
appropriate to reward a State in its participation rate for caseload 
declines it achieved many years earlier.

Section 261.41 How will we determine the caseload reduction credit?

    This section of the interim final rule specified the method that we 
use for calculating the caseload reduction credit. In the final rule, 
we corrected two typographical errors in paragraph (c) that erroneously 
referred to ``the FY 2005 comparison-year'' caseload when they should 
have read ``the FY 2005 base-year'' caseload.
    Comment: One commenter requested clarification of the data a State 
should report to establish the FY 2005 base-year caseload for two-
parent families in which one parent receives TANF and the other does 
not. The commenter stated, ``The interim final rule defines a non-
recipient parent living with a child receiving assistance as a work-
eligible individual. Under this definition, single-parent households 
with non-recipient second parents will be included in the two-parent 
caseload.'' The commenter suggested that the FY 2005 baseline include 
these two-parent cases to ensure caseloads are comparable when 
calculating caseload reduction credit.
    Response: The commenter raises a valid point. Under this rule, the 
minimum definition of a two-parent family has changed. Since the old 
definition applied to FY 2005, a State submitting a caseload reduction 
report based on the two-parent caseload would have caseload data based 
on the old definition for FY 2005 and the new one for the comparison-
year caseload. We have changed the rule at Sec.  261.40(d) to provide 
for adjusting data in this kind of situation. To correct such an 
inconsistency, a State may adjust its FY 2005 two-parent caseload data 
as part of its caseload reduction report. A State that wishes to make 
such an adjustment should explain in its report how it arrived at the 
adjusted number. Please refer to the instructions to form ACF-202, the 
Caseload Reduction Report, for further information.

Section 261.42 Which reductions count in determining the caseload 
reduction credit?

    Comment: A couple of commenters noted that we deleted part of this 
section that listed types of eligibility changes a State might make and 
for which it cannot receive a caseload reduction credit. One thought 
this deletion was inadvertent; another believed that the language 
remains relevant as States consider new program designs. All commenters 
urged us to restore the language.
    Response: We have restored the language in the final rule. We had 
removed the text in the interim final rule because it was strictly 
illustrative and we thought States had enough experience with the 
caseload reduction credit to know the types of changes in eligibility 
criteria that they need to include on the caseload reduction report. We 
also did not want to suggest that the list in the original rule was 
exhaustive; States must report all changes in eligibility between the 
base year and the comparison year. However, since commenters found the 
language particularly useful, we restored the language with the 
clarification that the list is not comprehensive.
    Comment: One commenter urged us to permit eligibility changes that 
increase the caseload to count for credit above and beyond offsetting 
the effect of changes that decrease the caseload. The commenter 
reasoned that, since we had established the offset by regulation, 
rather than implementing a statutory provision, we have authority to 
expand it in this way. Further, the commenter suggested that failing to 
do so would be fundamentally unfair.
    Response: It is our longstanding policy to permit caseload 
expansions from eligibility changes to offset changes that decrease the 
caseload. We originally established this policy to allow the caseload 
reduction credit to reflect a more accurate picture of the change in 
the caseload. However, we have never allowed caseload increases to do 
more than offset decreases, in other words, to credit a State for 
greater caseload reduction than it actually experienced. The interim 
final rule incorporated that policy in Sec.  261.42(a)(3) and the final 
rule retains that provision.

Section 261.43 What is the definition of a ``case receiving 
assistance'' in calculating the caseload reduction credit?

    When we published the interim final rule, this section remained 
largely unchanged from the original TANF rules. Subsection (a) explains 
that we calculate the caseload reduction credit using cases that 
receive assistance, either TANF or SSP-MOE assistance. In the final 
rule we have made minor wording changes to this subsection to remove 
extraneous language and thereby improve the clarity and understanding 
of exactly which cases are included in the calculation. We have made no 
substantive change in the definition of cases used in the calculation.
    Subsection (b) allows a State to exclude from the caseload 
reduction credit calculation cases on which the State has spent 
``excess MOE,'' that is, MOE in excess of the amount it needs to meet 
its MOE requirement. If a State applies this provision, for the 
comparison-year caseload we would use the sum of the State average 
monthly TANF and SSP-MOE assistance caseloads, minus cases whose 
receipt of assistance is attributable solely to MOE funds in excess of 
the State's 80- or 75-percent MOE requirement. Since the publication of 
the interim final rule, this ``excess MOE'' provision has drawn 
considerable attention. In our listening sessions across the country, 
it was a topic of considerable discussion and also elicited formal 
comments on the interim final rule. Prior to issuing these rules, only 
one State had ever made use of it since its inception in the original 
TANF regulation.
    Because of this new interest in the excess MOE provision, we 
thought it would be helpful to specify the methodology for calculating 
excess MOE and have revised this subsection to incorporate the 
specifics of this calculation. If a State wishes to have us take its 
excess MOE spending into account in the caseload reduction credit 
calculation, it needs to follow this methodology as part of its 
Caseload Reduction Report (form ACF-202).
    One problem in calculating excess MOE is that a given dollar of MOE 
spending cannot track to a given case.

[[Page 6808]]

Since the caseload reduction credit considers only cases receiving 
``assistance'' and not all cases, it is nonetheless important to 
develop an approach for determining the share of State spending on 
assistance that is in excess of its MOE requirement. Some methodologies 
would over-represent the amount of spending on ``assistance'' that was 
indeed excess MOE. For example, a methodology that assumed that all 
spending on two-parent families came from excess MOE would, in effect, 
artificially manipulate the credit, especially the two-parent credit. 
Therefore, we think that the only fair and reasonable approach is to 
consider average costs per case when determining how many cases were 
funded with excess MOE and thus should be excluded from the caseload 
reduction credit calculation. In fact, the only method we have approved 
prior to this final rule used average costs per case.
    Our method divides the total TANF (Federal and State) and SSP-MOE 
spending on assistance for the comparison year by the State's average 
monthly assistance caseload (combined TANF and SSP-MOE) for the 
comparison year to arrive at an average annual assistance cost per case 
for the fiscal year. The method then computes total spending on 
assistance as a percentage of total spending. We use total spending 
because spending with Federal and State MOE funds on assistance are 
largely interchangeable. If we based the calculation solely on MOE 
funds, the size of the credit would vary not based on the amount of 
excess State MOE spending, but rather on the distribution of assistance 
spending between State MOE and Federal funds. We then subtract the 
required 80 percent of historic State expenditures (80-percent MOE 
requirement) from the State's actual MOE expenditures and multiply the 
remaining ``excess MOE'' by the percentage of spending on assistance. 
Finally, we divide this excess MOE spending on assistance by the 
average annual assistance spending per case to determine how many cases 
were funded with excess MOE. If the excess MOE calculation is for a 
separate two-parent caseload reduction credit, we multiply the number 
of assistance cases funded with excess MOE by the average monthly 
percentage of two-parent cases in the State's total (TANF plus SSP-MOE) 
average monthly caseload. All financial figures in the methodology must 
agree with data reported on the State's ACF-196 TANF Financial Report 
and all caseload data must agree with information reported on the ACF-
199 TANF Data Report and ACF-209 SSP-MOE Data Report.
    The following example illustrates our methodology. In this example 
we are calculating a FY 2007 caseload reduction credit, which will 
reduce the State's FY 2007 required participation rate, and thus the 
comparison year is FY 2006. Assume that the State's total MOE for FY 
2006 equals $100 million and its Federal spending in FY 2006 equals 
$175 million for a combined total of $275 million. Of this amount, 
total spending on assistance (combined Federal and State) equals $110 
million. This means spending on assistance equals 40 percent of total 
spending ($110 million divided by $275 million). The State's combined 
TANF and SSP-MOE average monthly caseload, as reported on the TANF Data 
and SSP-MOE Data Reports for FY 2006, equals 20,000. Therefore, the 
average spending on assistance per case equals $5,500 ($110 million 
divided by 20,000). The State's 80-percent MOE requirement equals $80 
million, so it spent $20 million above that level. Of that ``excess 
MOE,'' we attribute that $8 million, or 40 percent, to assistance 
spending. Finally, we divide that $8 million by the average assistance 
spending of $5,500 per case to conclude that 1,455 of 20,000 average 
monthly cases were funded with excess MOE and should be subtracted from 
the FY 2006 caseload in the caseload reduction credit calculation.
    We require the use of 80 percent MOE rather than 75 percent because 
the statutory requirement is for 80 percent MOE spending unless a State 
meets the work participation requirements for the year. If a State 
meets both participation rates for the comparison year, and thus its 
required MOE drops to 75 percent, it may revise its caseload reduction 
credit to reflect the lower required MOE level. It is possible that we 
will already have that information for the comparison when we calculate 
the caseload reduction credit; if so and the State met both rates, we 
will use 75 percent at that time.
    We have revised the Caseload Reduction Report (form ACF-202) to 
include a new worksheet and made some other changes to the form to 
assist a State in claiming excess MOE as part of the caseload reduction 
credit.
    Comment: Several commenters noted that we retained the provision 
that allows a State that spends MOE funds in excess of its required 
level to report for the caseload reduction credit only the pro rata 
share of cases receiving assistance that is required to meet the basic 
MOE requirements. The commenters urged us to retain the provision in 
the final rule.
    Response: The final rule does retain the provision allowing a State 
to receive caseload reduction credit for excess MOE spending. During 
our listening tour for the interim final rule, we expressed doubts 
about this provision and suggested that we might not retain it. Our 
concerns were and remain that: (1) The provision has not proved 
effective in encouraging States to spend additional MOE funds, as most 
States spend only to the level required; and (2) the interaction 
between this provision and the new flexibility in the DRA concerning 
the types of expenditures that can count for MOE, particularly that a 
State can spend MOE on non-needy families, could result in large, 
artificial caseload reduction credits.
    We do want to clarify that, if a State uses this provision and 
receives caseload reduction credit for excess MOE spending, it may not 
subsequently revise its reported financial data to reduce the level of 
State MOE expenditures for which it received such credit and replace 
those expenditures with Federal ones. It would be inherently unfair to 
credit a State for expenditures of State funds that it later reports 
did not come from State funds.

Section 261.44 When must a State report the required data on the 
caseload reduction credit?

    Comment: One commenter asked us to put back language that the 
interim final rule deleted stating that we would issue the caseload 
reduction credits by March 31 of the fiscal year to which the credit 
applied. The commenter stated, ``We understand that negotiations 
sometimes result in the notification to an individual state being 
delayed past this date, but think it is important that states have the 
general expectation that the information be received by March 31.''
    Response: We did not make the change in the final rule that the 
commenter recommended. We deleted the March 31 date that was part of 
the original TANF rule because, after many years of experience with the 
caseload reduction credit, we did not find that it served a useful 
purpose. Moreover, there is no statutory basis for this or any other 
specific issuance date. Nevertheless, we will continue to endeavor to 
issue the credits within the fiscal year to which they apply.

Subpart F--How Do We Ensure the Accuracy of Work Participation 
Information?

    The Deficit Reduction Act of 2005 requires HHS to issue rules that 
ensure

[[Page 6809]]

the consistent measurement of work participation rates, including 
information with respect to: (1) Determining whether the activities of 
a recipient of assistance may be treated as a work activity; (2) 
establishing uniform methods for reporting hours of work of a recipient 
of assistance; (3) identifying the types of documentation needed by the 
State to verify reported hours of work; and (4) specifying the 
circumstances under which a parent who resides with a child who is a 
recipient of assistance should be included in the work participation 
rates.
    We received many comments about this subpart. Several readers 
offered general comments about the increased burden that the interim 
final rule placed on administrators and clients, particularly with 
respect to reporting actual hours and documenting participation in work 
activities. Others provided specific comments and suggestions, which we 
address below.

Section 261.60 What hours of participation may a State report for a 
work-eligible individual?

    The interim final rule made explicit in regulation our long-
standing policy of counting only actual hours of participation and not 
scheduled hours. It required that each State have in place a system for 
determining whether the hours it reports for the participation rates 
correspond to hours in which work-eligible individuals actually 
participate in work activities. The final rule continues this same 
actual hours standard.
    In conjunction with the actual hours policy, the interim final rule 
also introduced to the regulations the concept of giving States credit 
for excused absences for TANF participation in unpaid activities. Under 
the interim final rule, a State could define and count reasonable 
short-term, excused absences for days missed due to holidays and a 
maximum of 10 additional days of excused absences in any 12-month 
period, no more than two of which may occur in a month. To count an 
excused absence as actual hours of participation, the individual must 
have been scheduled to participate in a countable work activity for the 
period of the absence that the State reports as participation.
    In the final rule, we have clarified the holidays policy, limiting 
it to 10 days in a year. Because we did not specify in the interim 
final rule the number of holidays, States proposed counting widely 
varied holidays in their Work Verification Plans, some proposing 
impossibly long lists of the days they would excuse and count toward 
the participation rates. We realized that we had not provided adequate 
guidance in the regulation and that, as written in the interim final 
rule, the holidays policy would not meet the spirit of our mandate to 
make work participation rate calculations consistent across States. We 
deliberated at length about the appropriate number, considering the 
number granted on average by private companies, the average number of 
State paid holidays, and the number of Federal holidays. Ultimately, we 
chose to limit it to 10 to be consistent with the number of Federal 
holidays. Each State must designate the days that it wishes to count as 
holidays for those in unpaid activities in its Work Verification Plan. 
It may designate no more than 10 such days. The State is free to excuse 
an individual on other days for religious or other reasons, but it may 
not count other days for participation rate purposes as holidays. It 
may also exercise the additional excused absences policy.
    During our listening tour and in written comments many people 
expressed misgivings about the way we structured credit for additional 
excused absences. Many urged us to permit a State to implement an 
hourly equivalent to the 10 days, since individuals sometimes need to 
be excused for only a portion of a day. Others thought that the number 
of additional excused days was insufficient and objected to the 
restriction on counting no more than two per month.
    In writing the final rule, we struck a balance between our 
responsibility to ensure State accountability for the work 
participation rates in the law and giving States participation credit 
for occasional absences due to circumstances beyond an individual's 
control. We were persuaded by the comments that excused hours makes 
more sense than excused days because some situations require an 
individual to be absent for only part of a day. The final rule permits 
a State to count up to 80 hours of additional excused absences in a 
year for each work-eligible individual. It may not report more than 16 
of these hours in any month. As in the interim final rule, the State 
must describe its excused absence policy (including holidays) in its 
Work Verification Plan.
    Readers should note that we have modified the title of this section 
for clarity of comprehension. We think it should now be more readily 
apparent that this section addresses the hours that can count for 
participation, while Sec.  261.61 speaks to documentation requirements 
to support hours of participation, and Sec.  261.62 specifies how 
States should verify the hours that they report and document.
    In keeping with this clarification, this section of the final rule 
incorporates the provision permitting a State to report projected hours 
of employment for up to six months on the basis of current, documented 
actual hours of work. In the interim final rule, this provision 
appeared in Sec.  261.61. We have made no change to the text of the 
provision but moved it to this section because it fit better under the 
rubric of reporting hours than it did under documenting hours.
    This section of the interim final rule also specified the hours 
that a State could count for self-employed individuals. The final rule 
does not change this provision.
    Finally, the interim final rule limited the counting of homework 
and study time for individuals participating in vocational educational 
training or any other educational work activity to supervised settings. 
The final rule allows a State to count unsupervised homework time, 
subject to certain limitations.
Reporting Hours of Each Activity Separately
    Comment: In conjunction with comments we received about our effort 
to draft mutually exclusive definitions of work activities, a number of 
commenters objected to the requirement to report actual hours for each 
activity separately. They maintained that separate tracking would 
discourage States from combining work activities and would impose an 
added administrative burden. They urged us to allow States to combine 
activities and report all participation under one activity. For 
example, one commenter suggested that we allow States to count an 
individual's hours from several activities in the activity that 
``constitutes the majority of the hours of participation.''
    Response: We strongly support State programs that combine 
activities. Having States report hours for each work activity in the 
appropriate category will help ensure that the data are comparable 
across States. Reporting participation by activity is required by 
section 411 of the Social Security Act and does not prevent a State 
from creating integrated programs. Moreover, a policy that allows some 
activities to count within others based on standards such as what 
constitutes a ``significant majority'' of hours would still require 
States to track the hours of each activity separately to determine 
which activity is the primary activity. Thus, combining the activities 
for purposes of reporting hours of participation would not

[[Page 6810]]

achieve the suggested administrative simplification.
    The main effect of these recommendations would be to allow States 
to bypass statutory limitations on counting participation in certain 
activities, most notably the six-week limit on job search and job 
readiness assistance and the lifetime 12-month limit on vocational 
educational training, or to count educational activities during core 
hours.
Actual Hours versus Scheduled Hours
    Comment: Some commenters recommended we allow States to report 
scheduled hours. One commenter thought that we should allow school 
districts to count scheduled hours with excused absences for good cause 
because it would ``benefit the client and these districts.'' Another 
maintained that requiring a State to develop a ``system for reporting/
counting of actual hours instead of scheduled hours is an unfunded 
mandate.'' Another commenter wrote that it will ``require a significant 
investment of program resources in activities and systems to measure 
the number of actual hours of participation.''
    Response: Our current policy simply extends the previous policy. 
Under TANF, States have always been required to report actual hours and 
not scheduled hours. Although the regulations did not explicitly state 
it, the instructions to the TANF Data Report (Form ACF-199, transmitted 
via Program Instruction TANF-ACF-PI-99-3, dated October 27, 1999) 
state, ``For each work activity in which an adult or minor child head-
of-household participates, States are to collect actual hours of 
participation for each week in the report month. * * *'' Thus, States 
should already have had systems in place to capture and report actual 
hours of participation.
Holidays and Additional Excused Absences
    Comment: Some commenters thought that 10 days per year (a maximum 
of two days per month) of excused absences beyond holidays was not 
sufficient to accommodate the needs of TANF recipients. One commenter 
thought that our policy was ``not a commonly accepted or reasonable 
standard.'' Commenters asserted that low-income, single parents often 
needed extra time to deal with court or agency mandated appointments, 
school appointments, meetings with child protective caseworkers, and 
caring for sick children, as well as to attend to personal needs that 
arise. Several commenters wrote that it is ``unreasonable to require 
caregivers to ignore emergencies or fail to take handicapped children 
to the doctor during work hours when the doctor is available so that 
the State can get credit for their participation in a work 
requirement.'' Some recommended specific standards to replace the 
excused absence policy described in the interim final rule (e.g., up to 
120 hours per year, with a maximum of 30 hours per month, or 2 days per 
month but 24 days per year), while others suggested we allow unlimited 
excused absences as long as States can ``verify the reason for excused 
absence'' and it is in their approved Work Verification Plans.
    Some commenters argued that there should be exceptions to the 
excused absence policy for specified reasons. They recommended that we 
grant extensions for various reasons, such as job interviews, meetings 
required by other governmental agencies (e.g., child welfare, child 
support, schools, courts, or other assistance programs), and illness, 
either of the participant or the participant's child. They suggested 
that we count these absences toward participation without limit and not 
as part of the regular excused absence allotment because such 
appointments are beyond the control of the individual and, in some 
cases, it is not possible to make up the hours for some activities 
because they do not fit a provider's schedule. A number of commenters 
suggested that we use the providers'' definition of holidays and other 
excused absences for individuals in education and training programs, as 
long as they make satisfactory progress.
    Response: The TANF work participation rate has always been based on 
actual hours. Congress did not include an excused absence policy, in 
part because the hourly standard has always been well below the 
customary 40-hour work week; it is 20 hours per week for a single-
parent family with a child under six years of age. As a result, most 
individuals already had a built-in excused absence policy of 10 to 20 
hours per week. This gives States the flexibility to work around hours 
that a client misses and to allow the individual to make them up where 
feasible. Notably, it also means that TANF clients have more time to 
address the kinds of issues the commenters raised than many non-TANF, 
low-income, working parents.
    The interim final rule expanded this statutory flexibility by 
including holidays and up to 10 additional days per year (no more than 
two days per month) of excused absences to count as participation, a 
first in the history of the TANF program. Now, under the final rule, we 
have expanded flexibility further to excuse up to 10 holidays and up to 
80 additional hours of excused absences in a year, not more than 16 of 
which can be reported in a month.
    Equally important, we remind readers that there is a distinction 
between the allowances a State or service provider may choose to make 
for an individual and the participation allowances we are granting to 
States in excused absences. The State determines how many hours an 
individual must engage in work and what it considers a good cause 
excuse for missing those hours. The law and regulations determine what 
a State gets credit for in the work participation rate. We established 
the limits on excused absences based on a reasonable standard derived 
from common employment practices. Nevertheless, those limits on 
counting for participation do not preclude States from excusing 
additional absences without penalty to the individual.
    Comment: Some commenters thought that our excused absence policy 
conflicted with ``the intent and spirit of the Family Violence Option 
(FVO) by punishing individuals who have experienced domestic 
violence.''
    Response: For the first time under TANF, we have given States 
participation credit for allowing clients to address emergencies. 
Rather than conflicting with the FVO, the excused absence policy 
provides another avenue, in addition to granting program waivers, for 
States to respond to needs of victims of domestic violence.
    Comment: Many commenters recommended that the regulations count as 
excused absences hours missed due to the disability of an adult TANF 
recipient or due to caring for a family member with a disability. For 
example one commenter stated, ``Disabilities and responsibility for 
caring for a disabled person clearly result in an overall greater 
frequency of absences from work activities than would otherwise be 
necessary.'' One commenter noted that the standard excused absence 
policy on which the interim final rule is based makes exceptions for 
disability-related absences. The commenter explained that ``employers 
are actually required by the federal Family Medical Leave Act to allow 
individuals to take up to three months of leave if related to the 
employee's health or the employee's need to care for an ill family 
member.'' The commenter recommended that we allow States ``to count all 
excused absences related to verified medical purposes.''
    Response: We have addressed the commenters'' concerns about the 
need for excused absences due to caring for a child with a disability 
by excluding

[[Page 6811]]

such individuals from the definition of work-eligible individual. 
Please refer to the preamble discussion of Sec.  261.2(n) for more 
detail about the definition of a work-eligible individual.
    With respect to the Family and Medical Leave Act, States must 
comply with its mandate that ``eligible employees'' are entitled to 12 
weeks of unpaid leave during any 12 month period for reasons of 
childbirth, adoption, in order to care for an ailing family member, or 
a serious health condition that impedes the employee from performing 
her job. 29 U.S.C. Sec.  2612(a)(1). The term ``eligible employee'' is 
defined at 29 U.S.C. Sec.  2611(2). The State's responsibility to 
comply with the FMLA does not expand the hours of excused absence for 
which the State can get credit under the TANF work participation rate. 
We anticipate that a State would give a good cause exception from any 
State work requirement to an individual who is entitled to leave under 
the FMLA during such a period of leave, but the family would still be 
included in the calculation of the participation rate. For further 
information regarding how to comply with the FMLA, we refer readers to 
the Department of Labor and the applicable statutes and regulations.
    Comment: Several commenters stated that our excused absence policy 
would ``reduce State credit'' toward meeting the work participation 
rates. Another asserted that our policy would ``not only hurt States'' 
efforts to meet the work rates, but will mean that the work 
participation rates themselves give policymakers and the public an 
inaccurate picture of the extent to which recipients are actively 
engaged in work activities.''
    Response: We would like to stress again that allowing States to 
count excused absences in the participation rates does not hurt State 
efforts to meet the work participation rates or ``reduce State 
credit''; it does exactly the opposite. This is a policy of expanded 
credit, where prior rules did not count excused absences. We appreciate 
that some readers think we should have expanded credit even further, 
but we crafted an excused absence policy we think is reasonable and 
derived from common employment practices.
    Comment: Many commenters recommended changing the standard from a 
daily one to an hourly one. They argued that this would more closely 
approximate typical employment policies where those who miss work 
typically take off some number of hours rather than a full day. They 
thought that a policy of daily excused absences would reduce incentives 
for individuals to participate in work activities before or after 
required appointments because such participation would not affect their 
countable hours of participation. Most commenters recommended 
converting our 10-day excused absence policy for purposes of the 
participation rate to 80 hours of excused absences in any 12-month 
period, no more than 16 of which they could use in a month. One 
commenter emphasized that a day should be ``fixed at 8 hours, 
regardless of the number of hours a participant is required to 
participate.'' Otherwise, a single day's absence could consume more 
than one day's worth of excused absences.
    Response: We agree that excusing hours rather than days gives 
greater flexibility and more closely approximates a work experience. As 
we noted above, we considered several approaches for converting days to 
hours. The final rule permits up to 80 hours of excused absences for a 
work-eligible individual in a 12-month period, no more than 16 of which 
may be reported in a month.
    Comment: Some commenters objected to the two-day per month limit on 
counting excused absences. One commenter argued that this did not 
reflect employment practices in the real world and that States should 
be allowed to count individuals for as many excused absences as needed 
in a given month, up to the total allowed for the year.
    Response: We realize that some employers may permit employees to 
take more than two excused absence days (or the hourly equivalent) per 
month. However, most employers also require employees to accrue these 
days (or hours). It may take a full year for an employee to earn the 
equivalent of 10 days of leave, so, as a practical matter, the amount 
of leave many new employees are entitled to is restricted as well. More 
important, however, is that this policy applies only to what States can 
count, not to what they can allow for individual participants as a 
matter of policy. Also, since most TANF recipients face participation 
requirements of either 20 or 30 hours per week, there is room to make 
up the missed hours, which would not be so easy for someone working 
full-time.
    Comment: Several commenters suggested that we extend the excused 
absence policy to individuals participating in paid as well as unpaid 
activities. They noted that many low-income workers do not receive paid 
leave for holidays or other absences. In addition, they argued that 
this holds many of those who are working to a higher standard than 
those in unpaid activities.
    Response: We considered extending the excused absence policy to 
give States credit for individuals in paid employment, but ultimately 
decided to retain the policy in our interim final rule. As a practical 
matter, the State would already be getting credit for the client's 
hours of work, including excused absences, whether paid or not, because 
a State can project the hours of participation for individuals in paid 
employment for up to six months (based on documented, actual hours).
    Comment: One commenter asked for clarification regarding the 
activity under which it should count excused absences it grants to 
allow an individual to search for a job. The commenter asked whether 
such an excused absence should count as job search and job readiness 
assistance or as part of the activity from which the individual was 
excused.
    Response: States should report hours of excused absences as hours 
of participation in the activity from which the individual was excused. 
For example, if an individual were participating in a community service 
program but needed to be excused for two hours to go to a job 
interview, the State should report those excused hours as hours of 
community service, not as hours of job search and job readiness 
assistance.
    Comment: Several commenters expressed concern over the fact that 
some excused absences may not be verified until after the State submits 
its participation data. They recommended allowing States to correct 
attendance records retroactively to reflect excused absences up until 
the date on which the data report becomes final.
    Response: Because a State is not liable for a reporting penalty 
until the end of the quarter after the end of a fiscal year, a State 
has until December 31 to submit its final data for the previous fiscal 
year.
Projecting Hours of Employment
    Comment: One commenter recommended allowing States to project hours 
in certain non-employment activities for up to three months ``based on 
a history of successful participation.'' The commenter stated that this 
would reduce stigma and the burden of attendance sheets.
    Response: We have allowed projected reporting of actual hours of 
participation in paid work activities because an employer has both a 
fiscal interest and a stewardship responsibility to ensure that 
employees work for the hours of pay. A similar situation does not exist 
in the other

[[Page 6812]]

activities; therefore, we have not adopted this suggestion.
Self-Employment Hours
    Comment: Several commenters proposed allowing States to project 
employment hours for up to six months for individuals who are self-
employed. They argued that these approaches recognize the inherent 
challenges of verifying the hours of self-employment.
    Response: The option to project hours of participation for a 
maximum of six months does apply to self-employment. Self-employment is 
a form of unsubsidized employment and therefore may be projected for up 
to six months based on prior, documented hours of actual employment.
    Comment: Some commenters expressed concern because the regulations 
limit the hours a State can count for self-employed recipients to the 
number derived by dividing the individual's self-employment income 
(gross income less business expenses) by the Federal minimum wage. They 
explained that some types of self-employment take time before income is 
generated. Another commenter noted that some types of self-employment 
are affected by seasonal factors, so that income is only generated in 
some months, even though the work is ongoing. They recommended various 
approaches that would take into account hours needed to prepare for 
employment and sporadic work schedules, including criteria based on 
self-attestation, earnings, and preparation time.
    Response: We think the best approach for calculating hours of self-
employment is to rely on the net income (gross income minus business 
expenses) of the individual. We adopted this method because States 
already calculate net income when determining the eligibility of the 
self-employed for TANF benefits and thus our approach minimizes the 
administrative burden on States. We do not believe it is necessary to 
modify the rule to address these suggestions. The regulation allows a 
State to ``propose an alternative method of determining self-employment 
in its Work Verification Plan.'' This description should indicate how 
the State plans to monitor and supervise this activity to ensure that 
it reports actual hours and that the self-employment progresses to the 
point where the individual can effectively earn more than the minimum 
wage. We will not approve alternative plans that provide for an 
individual's self-reporting of participation without additional 
verification. We believe the rule's provision for approximating hours 
using the Federal minimum wage is a reasonable approach and minimizes 
administrative burdens.
    Comment: One commenter suggested that the calculation of hours for 
self-employment be based on the higher of the applicable Federal or 
State minimum wage.
    Response: The final rule retains the calculation based on the 
Federal minimum wage. We consciously chose the Federal minimum wage 
because it allows States with higher State minimum wages to count more 
hours of employment than if the calculation were based on the higher of 
the two. This also provides consistency in the treatment of self-
employment hours across States.
Homework Time
    Comment: Several commenters suggested that limiting homework or 
study time to supervised settings does not reflect the way educational 
programs work. They noted that most adult education and training 
programs require significant out-of-class homework and study time, but, 
unlike secondary school where supervised ``study halls'' are common, 
many postsecondary programs do not have supervised study settings. They 
explained that students who do not finish their homework cannot make 
satisfactory progress and successfully complete their courses of study; 
thus, they maintained, a supervised homework policy is not necessary. 
In addition, they thought that requiring formal study periods creates 
administrative burdens on educational institutions and increases 
program costs related to providing supervision and child care for 
parents who must stay longer in study sessions rather than completing 
the work at home. Finally, commenters contended that singling TANF 
recipients out for special study sessions might increase stigma by 
identifying them as welfare recipients. Some commenters did not like 
the implication of the preamble language, saying that it suggested that 
TANF participants in educational activities cannot be trusted to 
complete homework assignments and to study the material as needed to 
succeed in the training or educational program.
    Several commenters emphasized the administrative value of having an 
easy way to determine the number of hours of participation that can 
count for homework. They noted that most educational programs have a 
``rule of thumb'' for the number of homework hours associated with each 
class hour and suggested that State education agencies can assist TANF 
programs in assessing the appropriate number of homework or study 
hours. Commenters proposed a wide range of ratios of class time to 
homework time, generally ranging from a half hour to two hours of 
homework time for every hour of class time.
    Some commenters expressed concern that the daily supervision 
requirement for unpaid work activities would mean that program 
administrators or some other responsible third-party would have to 
monitor homework on a daily basis.
    Response: We agree with many of these comments. In Sec.  261.60(e) 
of the final rule, we have expanded State flexibility in counting 
homework time. The rule now permits a State to count supervised 
homework time and up to one hour of unsupervised homework time for each 
hour of class time. Total homework time counted for participation 
cannot exceed the hours required or advised by a particular educational 
program. It was never our intent in the interim final rule to have an 
individual participate in more hours of supervised homework than the 
program actually requires, but the rule was not explicit on this point. 
Where the State opts to count homework time, it must document what the 
homework or study expectations of the program are to ensure it does not 
exceed those hours.

Section 261.61 How must a State document a work-eligible individual's 
hours of participation?

    This section of the interim final rule described the documentation 
standards that a State must meet for its work participation data. In 
particular, it included an explicit requirement that a State verify 
through documentation in the case file all hours of participation that 
it reports. It also specified the types of documentation we expected a 
State to require for each activity. The preamble to the interim final 
rule stated that a State may not report data to us on the basis of 
``exception reporting'' where it assumes that clients participate in 
all scheduled hours unless it receives a report to the contrary from a 
service provider.
    The interim final rule also permitted States to report projected 
actual hours of unsubsidized or subsidized employment or OJT for up to 
six months at a time on the basis of prior, documented actual hours of 
work. Although this section did not address the frequency of 
documentation for other activities, the preamble to Sec.  261.62 of 
this subpart explained that we expected a State's Work Verification 
Plan to describe the documentation it uses to monitor participation and 
ensure that it reports actual hours of participation. We explained that 
we were establishing a

[[Page 6813]]

range of documentation guidelines that vary by type of activity. We 
expected job search and job readiness assistance to be documented daily 
and other unpaid work activities to be documented no less than every 
two weeks.
    In the final rule we have reiterated our position that all hours of 
participation must be reported affirmatively and supported by 
documentation in the case file, but we no longer require daily 
documentation of job search and job readiness assistance or biweekly 
documentation of other unpaid work activities. All paid activities must 
include written documentation of hours of employment. Wage stubs and 
other employer-produced documents are the best sources of verifiable 
documentation of paid hours. All unpaid activities should rely on 
written, signed documents to support hours of participation. Generally, 
documents verifying actual hours of participation should include: the 
participant's name; actual hours of participation; the name of the work 
site supervisor, educational provider, or other service provider; and 
the name and phone number of the person verifying hours.
    We also moved the provision permitting projection of hours that was 
formerly at Sec.  261.61(c) to Sec.  261.60(c) because it fit better 
under the rubric of reporting hours than it did under documenting 
hours. However, we have incorporated in this section a provision 
specifying the documentation standards when a State projects hours of 
employment. We have also explained that the documentation for homework 
must include a statement about the amount of homework or study time 
advised by the particular educational program. Finally, we reorganized 
the section for clarity.
Documenting All Hours of Participation
    Comment: Several commenters objected to the interim final rule's 
prohibition on the use of ``exception reporting.'' They explained that 
this is not the same as reporting scheduled hours and noted that many 
States have contracts with providers that include exception reporting 
and that such reporting ``reduces the administrative burden of 
reporting while maintaining accountability.''
    Response: We continue to believe that a State should affirmatively 
determine that an individual participates in an activity in order to 
count such participation toward the work participation rates. Exception 
reporting systems may operate effectively in automated or well-
documented reporting situations; however, we prohibited their use on 
the basis of concerns raised by single audits. Without an adequate 
system of recordkeeping or documentation, it is impossible to determine 
whether reports are appropriately filed when a client fails to show up 
or meet the day's participation requirements.
Documenting Paid Employment
    Comment: Most commenters supported the interim final rule's 
provision allowing States to project actual hours of employment for up 
to six months based on current, documented actual hours of unsubsidized 
employment, subsidized employment, and OJT. Most commenters appreciated 
that this significantly reduced the burden on employers and recipients 
and was less stigmatizing for recipients. One commenter noted that the 
description of this provision at Sec.  261.61(b) seemed to limit this 
policy to ``unsubsidized employment,'' rather than all forms of paid 
employment.
    Response: We have retained this provision in the final rule and 
clarified that the documentation requirements described apply to all 
forms of paid employment, whether unsubsidized or not.
Documenting Unpaid Activities
    Comment: Some commenters said that the rules impose rigid 
monitoring and burdensome reporting requirements for individuals in 
unpaid activities. One commenter asserted, ``Frequent demands for proof 
of participation subject families to loss of assistance.'' Another 
commenter explained, ``The goal of these requirements is to ensure that 
the data reported about work participation is accurate, not to create 
administrative burdens on recipients that create barriers to 
participation and aid receipt for families.''
    Response: We believe the final rule provides a reasonable balance 
between the need for accurate information and the burden inherent in 
documenting hours of participation. For example, under the final rule, 
we allow States to count an hour of unsupervised homework time for each 
hour of class time, thereby reducing the reporting and monitoring 
requirements for those individuals in various educational activities. 
Moreover, while the rule does require States to document participation 
through methods beyond client self-reporting, these have been 
requirements all along. We appreciate that such procedures may pose 
challenges in some situations, but they serve to substantiate actual 
hours of participation and protect the State in the event of an audit.
    Comment: Many commenters opposed the daily and two-week 
documentation requirements. They noted that the statute requires States 
to report information on a monthly basis and recommended that 
documentation requirements conform to the same monthly time frame. They 
suggested that the standards of documenting participation ``daily'' and 
``every two weeks'' in the interim final rule were ``too prescriptive 
and will be onerous for activity providers and local TANF program 
administrators.'' They observed, ``Increasing reporting requirements 
will force providers to dedicate additional resources to data tracking, 
often at the risk of depleting resources from another program function 
such as case management. The more time staff must spend compiling data, 
the less time they have to assist clients.'' In addition, several 
commenters asked for clarification regarding the specifics of what must 
be in the case file, including whether each file must include a hard 
copy of all individual attendance records. The commenters recommended 
allowing States to ``create a central or electronic file that would 
meet the purpose of documenting attendance.''
    Response: We agree with the commenters and have changed our policy 
accordingly. The documentation must be available in the case file to 
support all the actual hours of participation it claims in the monthly 
work participation data it reports. A State should describe in its Work 
Verification Plan the documentation it uses to monitor participation 
and ensure that it reports actual hours of participation. This may 
include electronic records.
    Comment: One commenter asked us to ``clarify that, while job search 
and job readiness participation must be supervised and recorded daily, 
the documentation of participation does not need to be submitted to the 
State agency more frequently than monthly.''
    Response: We agree with this comment. While supervision of 
participation must occur on a daily basis, States report monthly 
participation data for job search and job readiness assistance with all 
other participation data and the documentation in the case file must 
support what the State reports.
    Comment: Several commenters asked us to clarify the types of 
documentation needed to substantiate homework time.
    Response: The final rule allows a State to count up to one hour of 
unsupervised homework for each hour

[[Page 6814]]

of class time, if the educational program calls for such homework time. 
The only documentation that is required for unsupervised homework time 
is a statement from the educational program indicating the amount of 
homework required. For supervised homework, we require this same 
documentation along with a time sheet or record of attendance signed by 
the individual supervising the activity.
    Comment: One commenter urged us to use the same verification 
standards for self-employment as we allow for other forms of 
employment. Another commenter noted that States have developed a 
variety of mechanisms for monitoring self-employment and that ``all or 
nearly all of these mechanisms rely on various types of self-reporting 
by the participant.'' The commenter asserted that ``the issue is not 
self-reporting, but rather the type of self-reporting documentation and 
level of detailed required,'' expressing concern that additional 
verification requirements would impose a significant administrative 
burden on States.
    Response: We believe a different standard is warranted because 
self-employment is not analogous to other forms of employment. With 
self-employment, there is no pay stub, no supervisor, and no employer 
whose interests are distinct from the employee. It is because self-
employment differs so dramatically from other forms of employment that 
we required States to explain in their Work Verification Plans how they 
will document hours of work and preclude the use of self-reporting.

Section 261.62 What must a State do to verify the accuracy of its work 
participation information?

    The interim final rule described the requirements for a Work 
Verification Plan. Although some commenters expressed concern about the 
burden associated with meeting these requirements and the timeframe for 
doing so, we did not change the final rule. We explained that States 
should already have verification, documentation, and internal control 
procedures in place to support the work participation data they report 
and that the new requirements should not pose a significant 
administrative burden.
    Comment: We received several comments concerning the burden the 
Work Verification Plan and the underlying documentation and 
verification requirements placed on States.
    Response: States should already have verification, documentation, 
and internal control procedures in place to support the work 
participation data they report. The Work Verification Plan requirements 
reflect the Congressional mandate in the DRA that States report to us 
in a Work Verification Plan what those procedures are. This should not 
represent an undue burden for States.
    Comment: One commenter recommended that we avoid recreating a 
quality control system as we ensure State compliance with the work 
verification requirements of the DRA. The commenter expressed concern 
that such a system could focus State efforts more on reducing 
documentation errors than on helping recipients enter the workforce.
    Response: One goal of TANF is to enable recipients to prepare for 
and enter employment leading to self-sufficiency. Documentation and 
verification requirements should never detract from that goal. However, 
accurate documentation is key to determining whether States are meeting 
this goal. We think we have structured a rule that minimizes the burden 
of documentation while meeting our responsibility to be good stewards 
of Federal funds and programs.
    Comment: One commenter urged us to correct regulatory language that 
requires States to describe how they determine the number of countable 
hours of self-employment under each countable work activity. The 
commenter noted that this appeared to be a drafting error, since self-
employment cannot count under all the activities.
    Response: The commenter is correct and we have modified the rule 
accordingly. States must only describe how they determine self-
employment hours under unsubsidized employment. Nevertheless, the Work 
Verification Plan must describe how the State determines countable 
hours for each activity.
    Comment: One commenter noted there was ``Insufficient time for 
states to retool and meet new requirements by October 1, 2006. New 
documentation, monitoring, and reporting requirements place heavy 
burdens on caseworkers, providers, and our state's computer tracking 
system. States were informed of the interim rules and new requirements 
on June 29, 2006.''
    Response: For many States, the Work Verification Plan that was due 
on October 1, 2006, was a description of longstanding documentation, 
verification, and internal control systems and did not require new 
procedures. We do not have the authority to modify the statutory 
deadline for States to submit the Work Verification Plan; however, we 
have delayed imposition of a penalty for failure to maintain adequate 
documentation, verification, or internal controls until FY 2008.
    Comment: Several commenters suggested that States use information 
contained in the National Directory of New Hires (NDNH) not only for 
the purpose of tracking work participation rates, but also for 
additional purposes. For example, one commenter suggested that we 
require States to use NDNH information to identify circumstances in 
which actual hours of work change. Another commenter recommended that 
we make each State's NDNH match results available to all States for 
comparison purposes.
    Response: While we appreciate these recommendations, the uses of 
the NDNH are restricted by law. The law prohibits the use or disclosure 
of information in the NDNH, as well as information resulting from NDNH 
comparisons, except as expressly provided. The use of NDNH information 
for verification of work participation purposes is a permissible use, 
as it is a program responsibility of the State TANF agency. Matches for 
this purpose may occur only to the extent and with the frequency that 
the Secretary of HHS determines to be effective in assisting States to 
carry out their responsibilities under the TANF program. Access to 
confidential information in the NDNH is restricted to authorized 
persons and the use of such information is limited to authorized 
purposes. Any misuse of NDNH information is subject to penalty.
    Comment: One commenter questioned the benefit of using NDNH data to 
calculate work participation rates. The commenter stated that a pilot 
in two urban counties of one State indicated that NDNH data were not 
useful for the intended purpose, because not all employers provided 
NDNH data and the data pertain to new employees only, not ongoing 
employment. The commenter urged us to acknowledge that the NDNH is not 
a panacea.
    Response: We agree that the NDNH has limitations in contributing to 
work participation data, particularly because it does not collect the 
number of hours of employment. However, we would like to note that the 
NDNH does contain quarterly wage data about individuals engaged in 
ongoing employment, as well as information about newly hired employees, 
which the State may not be able to obtain as quickly and efficiently 
from any other source. The Federal Office of Child Support Enforcement, 
which manages the NDNH, is committed to working closely with State TANF 
agencies to help agencies understand the NDNH and how the data may be 
used for optimal results. To conduct a data match between its data

[[Page 6815]]

and NDNH data, for purposes of verifying work participation, a State 
TANF agency must enter into a written Memorandum of Understanding (MOU) 
with the Federal Office of Child Support Enforcement. The MOU addresses 
the terms and conditions governing the data match and the security 
measures required for safeguarding NDNH match results. NDNH data may 
only be used for certain narrowly defined purposes, including assisting 
States in carrying out their responsibility under the federally-funded 
TANF program to establish and maintain work participation procedures. 
NDNH data may not be used to determine eligibility in State MOE or 
solely State-funded programs.

Section 261.63 When is the State's work verification plan due?

    In accordance with the Deficit Reduction Act of 2005, our interim 
final rule required each State to submit an interim Work Verification 
Plan that included procedures for validating reported work activities 
to the Secretary no later than September 30, 2006. A State must submit 
revisions requested by the Department within 60 days of receipt of our 
request, and must submit and operate under an approved Work 
Verification Plan no later than September 30, 2007. If a State modifies 
its verification procedures for TANF or SSP-MOE work activities or 
internal controls for ensuring a consistent measurement of the work 
participation rate, then the State must submit for approval an amended 
Work Verification Plan by the end of the quarter in which the State 
modifies the procedures or internal controls. We have retained these 
provisions in the final rule.
    We received no comments on this section, so we have not made any 
substantive changes to the provision.

Section 261.64 How will we determine whether a State's work 
verification procedures ensure an accurate work participation 
measurement?

    The DRA added a new penalty to section 409(a)(15) of the Social 
Security Act for a State that fails to establish or maintain adequate 
work participation verification procedures. The interim final rule 
outlined the two-part penalty. First, a State will be liable for a 
penalty if it fails to submit an interim Work Verification Plan by 
September 30, 2006, and a plan that we have approved by September 30, 
2007. Second, effective October 1, 2007, States must maintain adequate 
internal controls and verification procedures to ensure that reported 
work participation data is accurate.
    We will use the single audit under OMB Circular A-133 in 
conjunction with other reviews, audits, and data to determine whether 
the State's controls and procedures result in accurate data. A State 
must maintain case documentation and pertinent findings of its 
verification process for use by the single audit or other reviews.
    Readers should note that we revised the title of this section and 
of Sec.  261.65 of this part to be more concise.
    Comment: We received a couple of comments that expressed concern 
over the burden imposed by maintaining case file documentation and 
findings until a single audit is resolved.
    Response: The DRA and our interim final rule did not change the 
record retention and record access rules that apply to TANF. These 
separate rules are in 45 CFR 92.42. These requirements apply to all 
financial and programmatic records, supporting documents, statistical 
records, and other records of grantees or sub-grantees. Records must be 
retained for three years, or longer, if any litigation, claim, 
negotiation, audit, or other action involving the records has been 
started before the expiration of the three-year period. If extended, 
records must be retained until all issues have been resolved. We issued 
Program Instruction TANF-ACF-PI-2003-1, dated January 28, 2003, to 
clarify the start date of the three-year record retention period for 
Federal TANF funds and State MOE expenditures. For Federal TANF awards, 
the record retention period starts on the day the grantee submits its 
final expenditure report showing that all the funds awarded in the 
particular Federal fiscal year have been expended. For State MOE 
expenditures, the record retention period starts on the day the State 
submits its final expenditure report for a Federal fiscal year.
    Comment: One commenter asked whether HHS or the single audits will 
use a threshold or a specified percentage to determine whether the 
State had inadequate controls and procedures for accurate work 
participation data.
    Response: As under the original rule, we will not impose a penalty 
based on isolated failures to document and verify work participation 
information reported to HHS. We will impose a penalty if the audit or 
review identifies a systemic problem or weakness. To ensure that our 
conclusion is not based on incorrect information, it is critically 
important for States to dispute ``questioned'' audit findings and 
refute the allegation with appropriate documentation. States also have 
the opportunity to dispute our penalty finding, to claim reasonable 
cause, and to submit a corrective compliance plan to correct the 
deficiency.
    Comment: One commenter expressed concern that a State that submits 
participation data for the universe of cases would be at a disadvantage 
in an audit or review compared to a State that submits sample data. The 
commenter suggested that ``States reporting on all participants be 
allowed to pull their own samples for audit based on general ACF 
guidelines.''
    Response: Auditors must follow prescribed procedures for conducting 
audits regardless of whether the State submits universe or sample data. 
They use the sample standards of the American Institute of Certified 
Public Accountants (AICPA) and the GAO auditing standards. In addition, 
we provide them with a compliance supplement to guide their review of 
our programs.

Section 261.65 Under what circumstances will we impose a work 
verification penalty?

    Under our interim final rule, the penalty amount is based on the 
State's degree of noncompliance and is equal to an amount of not less 
than one percent and not more than five percent of the State's adjusted 
SFAG. We will impose the maximum penalty of five percent if a State 
fails to submit its interim Work Verification Plan by the due date of 
September 30, 2006, or if it fails to revise its procedures based on 
Federal guidance and submit the complete plan by September 30, 2007. 
This is because the State will not have complied with the fundamental 
requirement to establish a Work Verification Plan. But, States must 
also implement the procedures. If we determine that a State fails to 
maintain adequate documentation, verification, and internal control 
procedures, we will impose a penalty based on the number of years of 
noncompliance, i.e., one percent of the adjusted SFAG for the first 
year, two percent for the second year, three percent for the third year 
until a maximum of five percent is reached. If, after any failure, a 
State demonstrates effective work verification procedures for two 
consecutive years, then we will consider any future failure to be the 
first occurrence.
    Readers should note that we revised the title of this section and 
of Sec.  261.64 of this part to be more concise.
    We only received a few comments on this section of the interim 
final rule. The comments mainly concerned the distinction between this 
penalty and the penalty for failing the work participation rate(s) and 
the criteria that a State must meet to comply with the

[[Page 6816]]

work verification requirements for any given year.
    Comment: One commenter asked whether the work verification penalty 
applies if a State operates its work participation verification system 
poorly.
    Response: If we determine that any of the State's procedures is 
inadequate, a penalty could result. Once a State has an approved Work 
Verification Plan, the penalty is based on whether the internal 
controls and verification procedures ensure consistent and accurate 
work participation rates. A State's system of internal controls and 
verification procedures includes a whole array of activities, such as: 
ensuring that it counts only work activities that are consistent with 
the Federal definitions; verifying and monitoring actual hours of 
participation; identifying work-eligible individuals; and validating 
the accuracy of the data reported. All of these factors contribute to 
an effective internal control system.
    Comment: Some commenters asked us to clarify the distinction 
between the penalty for failure to meet the work participation rate and 
the work verification penalty.
    Response: These are two completely separate penalties established 
by the statute. A State could meet its required work participation 
rates and still risk imposition of the work verification penalty as a 
result of inadequate work verification procedures and/or internal 
control procedures. Similarly, a State could fail a work participation 
rate but meet the work verification requirements. We expect States to 
review and monitor their processes and procedures regularly to ensure 
the accuracy of the data used in calculating the work participation 
rates.
    Comment: Several commenters asked about the criteria that a State 
must meet to be found in compliance with the work verification 
requirements for any given year. For example, one commenter inquired 
whether a State must be error-free or, alternatively, required to stay 
below a specific threshold. The commenter also asked whether a State 
that responded to errors appropriately and timely in an agreed-upon 
manner would be considered to be in compliance.
    Response: States must maintain adequate documentation, 
verification, and internal control procedures to ensure the accuracy of 
the data used in calculating the work participation rates. We will 
determine through audits or other reviews whether the State has 
adequate controls. Our penalty determinations will be made only after 
fully considering the auditor's findings, the State's reply, if any, to 
the auditor's findings, and any other reports, audits, and data 
sources, as appropriate. We will also consider the controls the State 
has in place and actions the State takes to review and to address any 
problems so that the State's work verification procedures and internal 
controls are working properly. We will not impose a penalty based on 
non-systemic errors.
    Comment: Some commenters suggested alternative penalty structures, 
finding the structure in the interim final rule to be too severe. For 
example, one commenter suggested that ``ACF apply a 2nd or subsequent 
year penalty only for the repetition of an error penalized in the 1st 
year. In other words, if ACF determined that a state's internal control 
procedures were inadequate and imposed a 1% penalty in the 1st year, 
and then found that the state did not maintain adequate documentation 
in the 2nd year, the 2nd year penalty would again be 1% since it 
involved a separate error. Any penalty should be lifted after the state 
has complied with the work verification procedures for one full year, 
not two.''
    Response: While we understand the commenter's concern, the work 
verification requirements were imposed by Congress to ensure that 
States implement procedures to ensure accurate and consistent work 
participation data. We also note that the requirement to document and 
verify work participation information is not new. States were always 
required to comport with the accurate and complete data standard at 
Sec.  265.7 under the existing regulations. Our penalty structure 
represents a reasonable, graduated approach, increasing only by the 
number of years of failure (degree of noncompliance). We do not believe 
it would be appropriate to treat a subsequent year of failure for 
another reason as if the prior failure had not occurred. Therefore, we 
have not accepted this recommendation.

V. Part 262--Accountability Provisions--General

    The DRA added an additional penalty at section 409(a)(15) of the 
Social Security Act for States that fail to establish or comply with 
work participation verification procedures. The interim final rule 
clarified that if a State failed to comply, we would reduce the 
adjusted SFAG payable for the immediately succeeding fiscal year by not 
less than one percent and not more than five percent. A State that 
fails to meet the work verification requirements may claim reasonable 
cause or submit a corrective compliance plan under the procedures 
described in Sec. Sec.  262.4-262.7 of this chapter. If we impose the 
penalty, we will reduce the SFAG payable for the immediately succeeding 
fiscal year.

Section 262.1 What penalties apply to States?

    We received no comments on this section, so we have made no changes 
to the provision.

Section 262.2 When do the TANF penalty provisions apply?

    The penalty for failing to establish and submit a Work Verification 
Plan takes effect on October 1, 2006. The penalty for failing the 
ongoing requirement to maintain adequate work verification procedures 
takes effect on October 1, 2007.
    Comment: Several commenters noted that many States will not have 
time to legislate the changes needed to comply with the new rules by 
October 1, 2006, and urged ACF to withhold penalties until States have 
a reasonable amount of time to pass legislation. For example, one 
commenter noted that, in order for the State to comply fully with the 
requirements may take both legislative and automation changes. Since 
that State's legislature does not meet until January 2007, the 
commenter encouraged ACF to take these factors into consideration.
    Response: We are sensitive to the fact that some States must make 
both legislative and automation changes to implement the new DRA 
requirements. There are several recourses available to States to avoid 
or mitigate financial penalties. Under this rule, we have delayed the 
imposition of a penalty for inadequate work verification procedures 
until FY 2008 as one way to address this concern. Under prior, 
continuing law and regulations, there are a number of remedies 
available to a State that is potentially liable for a penalty. If we 
issue a penalty notice to a State, the State may submit a reasonable 
cause argument outlining the specific legislative provisions that it 
needed and the impact of the delay in getting such provisions through 
the legislative process. We will consider granting a reasonable cause 
exception if a State can demonstrate that it was impossible to meet the 
requirements absent such legislation. Also, the State may submit a 
corrective compliance plan to meet the requirements at a future time. 
This will allow States additional implementation time. We look forward 
to working cooperatively with States to help them operate effective 
programs, ensuring that they can submit timely, accurate data and avoid 
financial penalties.

[[Page 6817]]

Section 262.3 How will we determine if a State is subject to a penalty?

    In the interim final rule, we explained that we would use the 
single audit under OMB Circular A-133 in conjunction with other 
reviews, audits, and data sources to assess whether the State 
maintained adequate controls and procedures to ensure accurate data are 
reported to calculate work participation rates.
    We received no comments on this section, so we have made no changes 
to the provision.

Section 262.6 What happens if a State does not demonstrate reasonable 
cause?

    Comment: A significant number of commenters proposed that we grant 
reasonable cause exemptions to States that have not completed a 
legislative session since the publication of the interim final TANF 
regulations on June 29, 2006, both for failure to meet the work 
participation rates and failure to maintain adequate work verification 
procedures. One commenter contended that elements of the Work 
Verification Plan will require more staff, resources, and additional 
system support than are currently funded within the State's existing 
budget. Others suggested that the rule should provide ``phase-in time'' 
to comply with the new requirements or to respond to delays in 
adjusting the participation requirements or adding parents to the 
requirements.
    Response: We do not have the authority to adjust or modify the 
statutory participation requirements or rates. While we recognize that 
this rule may impose new requirements on States, few of them require 
actual legislative action. With respect to work verification 
requirements, our rule permits the Work Verification Plan to be phased-
in over time and to be revised in future months. But, to give meaning 
to the participation rate requirements, the State must have adequate 
procedures and internal controls in place by October 1, 2007. The State 
may amend its Work Verification Plan at any time during the course of 
the fiscal year in accordance with Sec.  261.63(c) of this chapter. 
While we have not created an automatic reasonable cause exemption, any 
State that fails the work participation requirements or work 
verification requirements may avail itself of the penalty resolution 
process described in Sec. Sec.  262.4-262.7 of this chapter. This 
allows a State to outline the basis of its request for a reasonable 
cause exception for failing to meet a requirement, including the 
argument that lack of timely State legislation caused it to fail to 
meet the requirement.

VI. Part 263--Expenditures of State and Federal TANF Funds

Subpart A--What Rules Apply to a State's Maintenance of Effort?

Section 263.2 What kinds of State expenditures count toward meeting a 
State's basic MOE expenditure requirement?
    The Deficit Reduction Act of 2005 retained the same MOE spending 
levels required in PRWORA; however, it also added a new provision, 
``Counting of Spending on Certain Pro-Family Activities'' at section 
409(a)(7)(B)(I)(V) of the Social Security Act. We included this 
provision in Sec.  263.2(a)(4) of the interim final rule to allow 
States to count non-assistance expenditures on pro-family activities if 
the expenditure is reasonably calculated to prevent and reduce the 
incidence of out-of-wedlock pregnancies (TANF purpose three), or to 
encourage the formation and maintenance of two-parent families (TANF 
purpose four). Under this provision, non-assistance, pro-family 
expenditures for benefits and services were not limited to ``eligible'' 
families (as defined in Sec.  263.2(b)), which under prior rules, was a 
limitation on all MOE spending. Instead, States could claim qualified 
pro-family expenditures for non-assistance benefits and services 
provided to or on behalf of an individual or family, regardless of 
financial need or family composition.
    In developing the final rule, based on comments we received, we 
reconsidered the scope of the pro-family claiming provision. We have 
concluded that ``Counting of Spending on Certain Pro-Family 
Activities'' within TANF purposes three or four means counting of non-
assistance expenditures on only the activities enumerated in the 
healthy marriage promotion and responsible fatherhood section of the 
DRA (sections 403(a)(2)(A)(iii) and 403(a)(2)(C)(ii) of the Act)--
unless a limitation, restriction or prohibition under this subpart 
applies. For other allowable expenditures within TANF purposes three or 
four, States may only claim toward their MOE requirement the portion 
expended for or on behalf of eligible families. We have amended the 
pro-family claiming provision at Sec.  263.2(a)(4) to specify which 
non-assistance, pro-family expenditures within TANF purposes 3 or 4 are 
not limited to eligible families.
    With the exception of the pro-family claiming provision discussed 
above, States must continue to limit the provision of all other MOE-
funded assistance and non-assistance benefits to eligible families as 
defined at Sec.  263.2(b), regardless of the TANF purpose. We remind 
readers that Federal TANF assistance is also limited to eligible 
families, regardless of the TANF purpose.
    Congress also created new TANF discretionary funding streams 
(Grants for Healthy Marriage Promotion and Responsible Fatherhood) in 
the DRA. These funds are in Title IV-A, sections 403(a)(2)(A)(iii) and 
403(a)(2)(C)(ii) of the Social Security Act. Under MOE, States may 
count qualified expenditures that are made as a condition of receiving 
Federal funds under Title IV-A toward their MOE requirement. For FY 
2006, Healthy Marriage Promotion and Responsible Fatherhood grantees 
had to contribute a matching share of the total approved costs of a 
project as a condition of receiving any of the Federal discretionary 
funds. Thus, a State may count these State expenditures, when made on 
allowable activities under the Healthy Marriage Promotion and Promoting 
Responsible Fatherhood programs, toward its MOE requirement, unless a 
limitation, restriction, or prohibition under this subpart applies. 
This provision is outlined in Sec.  263.2(g).
    The regulations at 45 CFR part 92 on matching or cost-sharing 
requirements permit States to count toward their MOE requirement 
qualified, non-Federal, cash or in-kind expenditures by a third party. 
For example, this may include Healthy Marriage and Responsible 
Fatherhood providers in a State. As set forth in the policy 
announcement, TANF-ACF-PA-2004-01, dated December 1, 2004, and repeated 
in the interim final rule at Sec.  263.2(e), we require an agreement in 
writing between the State and any third party allowing the State to 
count such expenditures toward its MOE requirement. This policy was 
initially explained in a policy announcement, TANF-ACF-PA-2004-01, 
dated December 1, 2004 and repeated the policy in the interim final 
rule at Sec.  263.2(e).
    Comment: We received several comments of concurrence and 
appreciation for clarifying these provisions. One commenter asked us to 
clarify whether ``pro-family'' expenditures are limited to TANF 
eligible families, or whether it is broader and may include other low-
income families. Other commenters wondered whether countable 
expenditures for activities like pre-K or after-school programs fall 
under the new pro-family claiming provision.
    Response: When Congress created the expanded pro-family spending 
provision, it limited the provision to ``certain pro-family 
activities.'' Moreover, it created this new provision

[[Page 6818]]

as part of the section of the DRA titled ``Grants for Healthy Marriage 
Promotion and Responsible Fatherhood.'' In reevaluating our rule to 
respond to these comments, we have concluded that this placement 
signaled Congressional intent that ``certain'' pro-family activities 
means the healthy marriage promotion and responsible fatherhood 
activities it described in this section of the DRA. Thus, the final 
rule limits pro-family activities for the purposes of this new 
provision to the healthy marriage activities listed in section 
403(a)(2)(A)(iii) of the Act and the responsible fatherhood activities 
listed in section 403(a)(2)(C)(ii) of the Act, unless a limitation, 
restriction, or prohibition under this subpart applies to any such 
activity. These are the only expenditures within TANF purposes three or 
four that are not limited to eligible families.
    We recognize that this additional claiming provision became 
effective on October 1, 2005 (FY 2006). We further recognize that, 
since publication of the interim final rule, States may have been 
claiming toward their MOE requirement a whole array of non-assistance 
expenditures--e.g., after-school programs, pre-K programs, college 
scholarship programs--as a result of this new provision. This is 
because we presented this new claiming provision in the interim final 
rule in a general way. As a result, we have advised States that, until 
we publish the final rule, they may draw their own reasonable 
conclusions as to the sort of pro-family expenditure within TANF 
purpose three or four to claim under this new provision. Therefore, 
this amended provision will be effective with the effective date of 
this final rule.
    In summary, with the exception of the pro-family, non-assistance 
expenditures described above, States may only claim toward their MOE 
requirement expenditures for or on behalf of eligible families. We 
remind readers that an eligible family is a financially needy family 
that consists of, at a minimum, a child living with a caretaker 
relative or consists of a pregnant woman. Please see Sec.  263.2(b) for 
further information on eligible families.

Section 263.5 When do expenditures in State-funded programs count?

    Due to an oversight on our part, we did not include this section in 
the interim final rule. It addresses the MOE ``new spending'' 
limitation in section 409(a)(7)(B)(i)(II) of the Social Security Act, 
which continues to apply. States may only count, for MOE purposes, 
expenditures in pre-existing State or local programs that exceed the 
amount expended in such programs during FY 1995. The original TANF rule 
provides that the new spending amount is determined by comparing total 
FY 1995 expenditures in the pre-existing program with total qualified 
expenditures for or on behalf of eligible families during the current 
fiscal year. The State may claim the excess, if any, toward its MOE 
requirement. This new spending limitation does not apply to 
expenditures under State or local programs that had been previously 
authorized and allowable under the State's former title IV-A programs 
in effect as of August 21, 1996.
    Comment: A commenter noted an inconsistency between Sec.  263.2 of 
the interim final regulations and this ``new spending'' section. One 
allows States to claim as MOE, expenditures for pro-family activities, 
regardless of whether a family is financially ``eligible'' or not, but, 
the ``new spending'' test still refers only to ``eligible'' families. 
The commenter suggested that the new spending calculation needed to be 
changed to count qualified, pro-family, non-assistance expenditures 
within TANF purposes three or four.
    Response: We agree with the commenter. This was an oversight. We 
have amended the new spending provision at Sec.  263.5(b). The amount 
of expenditures that may be claimed for MOE purposes is limited to the 
amount by which total current fiscal year expenditures for certain non-
assistance, pro-family activities within TANF purposes three or four 
exceed total State expenditures in the program during FY 1995. Readers 
should refer to the discussion of Sec.  263.2 for more detail on 
counting these pro-family expenditures.
Section 263.6 What kinds of expenditures do not count?
    As we stated in the preamble of the interim final regulations, the 
Deficit Reduction Act of 2005 did not change the prohibition at section 
409(a)(7)(B)(iv)(IV) of the Social Security Act. This provision 
prohibits States from counting expenditures made ``as a condition of 
receiving Federal funds ``other than under this part'' toward its TANF 
MOE requirement. Because paragraph (c) of our original rule did not 
accurately reflect this prohibition, we corrected it to say that the 
prohibition only applies to expenditures that a State makes as a 
condition of receiving Federal funds under another program that is not 
in Part IV-A of the Act. States may count the non-Federal share of 
expenditures on allowable activities under the healthy marriage 
promotion or promoting responsible fatherhood programs in sections 
403(a)(2)(A)(iii) or 403(a)(2)(C)(ii) of the Act, unless a limitation, 
restriction or prohibition under this subpart applies.
    We received no comments on this section; thus, it has been retained 
without change in the final rule.

VII. Part 265--Data Collection and Reporting Requirements

    Section 411(a) of the Social Security Act imposes specific data 
reporting requirements on States to provide information about program 
effectiveness and to assure State accountability for key requirements, 
including work participation. Section 411(a)(7) permits the Secretary 
to prescribe such regulations as may be necessary to define the data 
elements required in the reports mandated by section 411(a). The 
Deficit Reduction Act of 2005 added these same data collection 
requirements for cases receiving assistance in separate State programs.

Section 265.1 What does this part cover?

    We received no comments on this section and made no changes to it 
in the final rule.

Section 265.2 What definitions apply to this part?

    We received no comments on this section and made no changes to it 
in the final rule.

Section 265.3 What reports must the State file on a quarterly basis?

Section 265.3(b) TANF Data Report

    We have made some changes to the TANF Data Report--Section one. In 
order to implement the policy on deeming core hours for the overall 
work participation rate and the two-parent work participation rate, we 
are adding two data elements to the TANF Data Report--Section one. The 
new data elements are: (1) ``Number of Deemed Core Hours for the 
Overall Rate''; and (2) ``Number of Deemed Core Hours for the Two-
Parent Rate.'' Tennessee is the only State with an ongoing 1115 welfare 
reform waiver and the waiver ends on June 30, 2007. Thus, we are 
removing two data elements from the TANF Data Report--Section One that 
we no longer need. The data elements are: (1) ``Additional Work 
Activities Permitted Under Waiver Demonstration''; and (2) ``Required 
Hours of Work Under Waiver Demonstration.''
    Comment: One commenter stated that we require extensive and 
detailed disaggregated data in the TANF Data Report--Section One, 
including individual social security numbers, and commented that 
collecting social

[[Page 6819]]

security numbers does not serve any useful research purpose. The 
commenter expressed concern for the privacy of individuals and further 
suggested that we should be collecting data on the well-being of 
children.
    Response: Collecting social security numbers is an existing 
requirement. We have been collecting the social security numbers for 
TANF family members since October 1999. This information is protected 
by the safeguards under the Privacy Act. The TANF recipient social 
security numbers are encrypted during data transmission, maintained in 
a secure location and use and access to them is limited. We have found 
them very useful in our research, especially as it relates to the use 
of the National Directory of New Hires database to assess the impact of 
welfare reform on TANF recipients using such measures as job entry, job 
retention, and earnings gain. We do not have statutory authority to 
collect additional data on the well-being of children; the statute 
limits the data that the Department can collect.
    Comment: One commenter requested that we make the new data file 
layouts and caseload reduction forms available as quickly as possible 
due to the reprogramming needs of our State reporting. The commenter 
further requested that, following the sorting of participation reports, 
we give States a spreadsheet showing which participants did not meet 
the participation rates so that they can better manage participation 
and address particular areas of need.
    Response: We already have made the data file layouts and caseload 
reduction credit forms, based on the interim final rule, available to 
the States in a timely manner. We will also make available to States 
any changes to these forms based on the final rule as quickly as 
possible. We have in the past made available and will continue to make 
available in the future a file showing on a case-by-case basis which 
families are counted as participating and which ones are not, upon 
request from a State.
    Comment: One commenter noted that the adult work participation 
activities fields in Section 1 of the TANF Data Report did not have 
enough significant digits to determine whether someone meets the work 
participation requirements. The commenter wrote, ``If a person 
participates for 1 or 2 hours a month in an activity, the field for 
that activity will contain average weekly hours of 0. Those 1 or 2 
monthly hours, in combination with other countable activities may 
result in successful participation. For example, 2 monthly hours in 
Work Experience plus 83 monthly hours in Unsubsidized Employment result 
in 85 monthly hours, or 19.6 total average weekly hours. That rounds to 
20 average weekly hours. That is successful participation for a single 
parent with a child less than age 6. This case should be in the 
numerator and denominator of the overall work participation rate. 
However, under current reporting protocol, this case is not included in 
the numerator because the sum of the individual activities is only 
19.''
    Response: If we use more significant digits to collect the data, 
there would be no need to round the final result to the nearest whole 
number. The commenter is using the 4.33 weeks per month. The 2 hours 
converts to 0.4618 hours per week and the 83 hours converts to 19.1686 
hours per week. If we had collected the data with two digits after the 
decimal place, the State would have reported 0.46 and 19.17 hours per 
week. The sum would be 19.63 hours per week, which is less than the 20 
hours per week required. Requiring States to report the average hours 
per week of participation with more digits would increase reporting 
burden and not provide us with an additional benefit.

Section 265.3(d) SSP-MOE Data Report

    We received no comments on this subsection of the regulation.

Section 265.4 When are quarterly reports due?

    We received no comments on this section, so we have made no changes 
to the provision in the final rule.

Section 265.7 How will we determine if the State is meeting the 
quarterly reporting requirements?

    Although the interim final rule did not include this section of the 
TANF regulations, we have added it to this final rule in order to 
respond to requests we received as part of the comment period to 
clarify the period of time during which States may revise work 
participation and caseload data.
    The original TANF regulations at Sec.  265.7(b) defined the 
``complete and accurate'' standard for reporting disaggregated data for 
the TANF Data Report. In describing this standard in the preamble to 
that April 12, 1999 final rule, we recognized the necessity for States 
to revise their quarterly data submissions occasionally. In practice, a 
number of States submit revised data after each quarterly submittal up 
to the due date for the final data submittal for the fourth quarter 
data for a fiscal year, i.e., December 31. We have decided to amend 
these final DRA regulations to recognize this practice. We are taking 
this action for two reasons. First, we want States to provide us with 
complete and accurate data and we recognize that States often receive 
data from a variety of sources that require correction of submitted 
quarterly data. Second, we define a ``work-eligible individual'' under 
rule at Sec.  261.2(n)(iii) to exclude at State option a recipient of 
Supplemental Security Income (SSI) or Social Security Disability 
Insurance (SSDI). States have informed us that the SSI/SSDI application 
approval process is lengthy. We have advised States that they can 
remove retroactively work-eligible individuals that they included in 
the quarterly data submittal for a fiscal year who subsequently are 
approved for SSI or SSDI, so long as the data correction occurs by the 
end of the reporting for the fiscal year, i.e., December 31.

Section 265.8 Under what circumstances will we take action to impose a 
reporting penalty for failure to submit quarterly and annual reports?

    We received no comments on this section, so we have made no changes 
to the provision in the final rule.

VIII. Paperwork Reduction Act of 1995

    This final rule contains information collection requirements that 
have been submitted to the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1995. Under this Act, no persons are 
required to respond to a collection of information unless it displays a 
valid OMB control number. If you have any comments on these information 
collection requirements, please submit them to OMB within 30 days. The 
address is: Office of Management and Budget, Paperwork Reduction 
Project, 725 17th Street, NW., Washington, DC 20503, Attn: ACF/HHS Desk 
officer.
    This final rule incorporates our response to comments regarding the 
reporting burden that we received in response to the interim final rule 
and Paperwork Notice we published on June 29, 2006. The rule requires 
States to submit a TANF Data Report, SSP-MOE Data Report, Work 
Verification Plan, and, if a State wants to request a caseload 
reduction credit, a Caseload Reduction Report. In addition, States must 
provide documentation in support of the caseload reduction credit, work 
verification, and the reasonable cause/corrective compliance 
documentation processes.
    We considered comments by the public on these collections of 
information in:
    <bullet> Evaluating whether the collections are necessary for the 
proper performance of our functions, including

[[Page 6820]]

whether the information will have practical utility;
    <bullet> Evaluating the accuracy of our estimate of the burden of 
the collections of information, including the validity of methodology 
and assumptions used, and the frequency of collection;
    <bullet> Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    <bullet> Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technology, e.g., the 
electronic submission of responses.
    We received only two comments from one individual specifically 
addressing the hour burden stated in the interim final rule. The 
commenter believed that we understated the burden associated with these 
new data reporting requirements, especially with respect to work 
verification requirements. In calculating the additional burden 
associated with the preparation and submission of State data 
verification procedures, we considered that States already had 
procedures in place to comport with the complete and accurate 
requirements under Sec.  265.7 of the regulations.
    The commenter also thought that we were requiring an unnecessary 
paper burden when electronic reporting would suffice. The commenter 
stated that Sec.  261.61(a) of the interim final rule would, for 
example, require for 50 job search participants the copying and filing 
of 50 separate daily attendance sheets into individual case files, 
while a central or electronic file would meet the purpose of 
documenting attendance. We did not intend to preclude the use of a 
central or electronic file. States may use these kinds of files as long 
as they are available for the single audit and other reviews. Our 
burden estimates in the interim final rule took this into 
consideration.
    In addition to considering the comments, we also made some changes 
to the TANF Data Report based on the need to implement the deeming of 
core hours in the final rule. As discussed in Sec.  265.3, we are 
adding only two new data elements. Some burden hours will be required 
for programming of the State systems, but actual additional reporting 
burden hours should be minimal. In addition, total burden will be 
slightly offset by elimination of two data elements related to waivers. 
We estimate that the net additional burden averaged out over a period 
of a year will result in a net increase of eight hour per quarter per 
respondent for each of the two data reports. We show the adjustment in 
the following table.
    The estimated burden hours for these information collections are:

----------------------------------------------------------------------------------------------------------------
                                                                      Average        Final rule     Interim rule
    Instrument or requirement        Number of         Yearly      burden hours    total annual    total annual
                                    respondents     submittals     per response    burden hours    burden hours
----------------------------------------------------------------------------------------------------------------
Preparation and Submission of                 54               1             640          34,560          34,560
 Data Verification Procedures--
 Sec.  Sec.   261.60--261.63....
Caseload Reduction Documentation              54               1             120           6,480           6,480
 Process, ACF-202--Sec.  Sec.
 262.4, 262.6, & 262.7; Sec.
 261.51.........................
 Reasonable Cause/Corrective                  54               2             240          25,920          25,920
 Compliance Documentation
 Process--Sec.  Sec.   262.4,
 262.6, & 262.7; Sec.   261.51..
 TANF Data Report--Part 265.....              54               4           2,201         475,416         473,688
 SSP-MOE Data Report--Part 265..              29               4             714          82,824          82,824
----------------------------------------------------------------------------------------------------------------

    Estimated total burden hours: 625,200.
    Copies of an information collection may be obtained by e-mailing 
the ACF Reports Clearance Officer at <a href="/cdn-cgi/l/email-protection#86f4e9e4e3f4f2a8f5e7f4e1eff5c6e7e5e0a8eeeef5a8e1e9f0"><span class="__cf_email__" data-cfemail="790b161b1c0b0d570a180b1e100a39181a1f5711110a571e160f">[email protected]</span></a> or by 
writing to the Administration for Children and Families, Office of 
Administration, Office of Information Services, 370 L'Enfant Promenade, 
SW., Washington, DC 20447, Attn: ACF Reports Clearance Officer. All 
requests should be identified by the title of the information 
collection.

IX. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 605(b)) requires the 
Federal government to anticipate and reduce the impact of rules and 
paperwork requirements on small businesses and other small entities. 
Small entities are defined in the Act to include small businesses, 
small non-profit organizations, and small governmental entities. This 
rule will affect primarily the 50 States, the District of Columbia, and 
certain Territories. Therefore, the Secretary certifies that this final 
rule will not have a significant impact on small entities.

X. Regulatory Impact Analysis

    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 
final rule is consistent with these priorities and principles. These 
regulations primarily implement statutory changes to TANF included in 
the Deficit Reduction Act of 2005.

XI. 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.
    If an agency must prepare a budgetary impact statement, section 205 
requires that it select the most cost-effective and least burdensome 
alternative that achieves the objectives of the rule consistent with 
the statutory requirements. Section 203 requires a plan for informing 
and advising any small government that may be significantly or uniquely 
impacted.
    The Department has determined that this final rule, in implementing 
the new statutory requirements, would 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 more than $100 million in 
any one year. The DRA maintains the basic funding structure and 
flexibility of the TANF program. For the next five years, the TANF 
block grant provides States with $16.5 billion in Federal funds and 
requires States to expend around $11 billion a year in State 
Maintenance of Effort (MOE) funds. Along with available, unobligated 
TANF balances, we believe States have adequate resources to achieve the 
DRA requirements. Fixed funding for States is based on welfare spending 
at the time of historic high caseloads, which have been reduced by 
half. States retain wide latitude to design their programs, to 
establish

[[Page 6821]]

eligibility criteria, benefit levels and the type of services and 
benefits to provide to TANF clients.
    The Department estimates that between FYs 2008 and 2012, States 
will incur penalties of $62 million due to failure to meet work 
requirements. Our estimate assumes that most States will meet the work 
participation rates through a renewed focus on work and internal 
control systems. We do not anticipate assessing penalties under new 
requirements until FY 2009. States may also claim reasonable cause or 
enter into a corrective compliance process to eliminate or reduce the 
penalty amount. We estimate issuing penalties amounting to $0 in FY 
2008, $20 million in FY 2009, $19 million in FY 2010, $19 million in FY 
2011, and $4 million in FY 2012. Accordingly, we have not prepared a 
budgetary impact statement or prepared a plan for informing impacted 
small governments.

XII. Congressional Review

    This regulation is not a major rule as defined in 5 U.S.C. Chapter 
8.

XIII. Assessment of Federal Regulations and Policies on Families

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 requires Federal agencies to determine whether a proposed 
policy or regulation may negatively affect family well being. The 
Department has conducted this assessment and concluded that these final 
rules will not have a negative impact on family well being. This final 
rule promotes activities leading to work and self-sufficiency for low-
income families and will thus have a positive impact on family well 
being.

XIV. Executive Order 13132

    Executive Order 13132, Federalism, requires that Federal agencies 
consult with State and local government officials in the development of 
regulatory policies with federalism implications. Consistent with 
Executive Order 13132, we specifically solicited comment from State and 
local government officials in the interim final rule. In addition, in 
concert with the National Governors Association (NGA), the American 
Public Human Services Association (APHSA), the National Conference of 
State Legislators (NCSL), and the National Association of Counties 
(NACo), we held five ``listening sessions'' across the country to which 
State and local executive and legislative officials were invited. 
During the ``listening sessions,'' ACF outlined the statutory and 
regulatory provisions associated with the DRA and offered the 
opportunity for attendees to ask questions and to submit comments which 
were recorded and considered in the final rule.
    We seriously considered all comments in developing the final rule. 
We considered and carefully assessed each of the options and 
suggestions of commenters. In the end, we adopted those suggestions 
that we believe promote effective programs leading to self-sufficiency, 
while also reducing inconsistency in work measures. At the same time, 
the policies reflected in the final rule provide enough flexibility to 
States to address the varying needs and characteristics of TANF 
clients, including those with disabilities. To count and verify 
allowable work activities, States are offered guidelines that permit 
different types of documentation based on the type of work activity.

List of Subjects in 45 CFR Parts 261, 262, 263, and 265

    Administrative practice and procedure, Day care, Employment, Grant 
programs--social programs, Loan programs--social programs, Penalties, 
Public assistance programs, Reporting and recordkeeping requirements, 
Vocational education.

    Dated: January 29, 2008.
Daniel C. Schneider,
Acting Assistant Secretary for Children and Families.

    Approved: January 29, 2008.
Michael O. Leavitt,
Secretary of Health and Human Services.

0
For the reasons stated in the preamble, the interim final rule amending 
45 CFR chapter II published on June 29, 2006, (71 FR 37454) is 
confirmed as final with the following changes:

PART 261--ENSURING THAT RECIPIENTS WORK

0
1. The authority citation for part 261 continues to read as follows:

    Authority: 42 U.S.C. 601, 602, 607 and 609.


0
2. Revise Sec.  261.2 to read as follows:


Sec.  261.2  What definitions apply to this part?

    (a) The general TANF definitions at Sec. Sec.  260.30 through 
260.33 of this chapter apply to this part.
    (b) Unsubsidized employment means full-or part-time employment in 
the public or private sector that is not subsidized by TANF or any 
other public program.
    (c) Subsidized private sector employment means employment in the 
private sector for which the employer receives a subsidy from TANF or 
other public funds to offset some or all of the wages and costs of 
employing an individual.
    (d) Subsidized public sector employment means employment in the 
public sector for which the employer receives a subsidy from TANF or 
other public funds to offset some or all of the wages and costs of 
employing an individual.
    (e) Work experience (including work associated with the 
refurbishing of publicly assisted housing) if sufficient private sector 
employment is not available means a work activity, performed in return 
for welfare, that provides an individual with an opportunity to acquire 
the general skills, knowledge, and work habits necessary to obtain 
employment. The purpose of work experience is to improve the 
employability of those who cannot find unsubsidized full-time 
employment. This activity must be supervised by an employer, work site 
sponsor, or other responsible party on an ongoing basis no less 
frequently than once in each day in which the individual is scheduled 
to participate.
    (f) On-the-job training means training in the public or private 
sector that is given to a paid employee while he or she is engaged in 
productive work and that provides knowledge and skills essential to the 
full and adequate performance of the job.
    (g) Job search and job readiness assistance means the act of 
seeking or obtaining employment, preparation to seek or obtain 
employment, including life skills training, and substance abuse 
treatment, mental health treatment, or rehabilitation activities. Such 
treatment or therapy must be determined to be necessary and documented 
by a qualified medical, substance abuse, or mental health professional. 
Job search and job readiness assistance activities must be supervised 
by the TANF agency or other responsible party on an ongoing basis no 
less frequently than once each day in which the individual is scheduled 
to participate.
    (h) Community service programs mean structured programs and 
embedded activities in which individuals perform work for the direct 
benefit of the community under the auspices of public or nonprofit 
organizations. Community service programs must be limited to projects 
that serve a useful community purpose in fields such as health, social 
service, environmental protection, education, urban and rural 
redevelopment, welfare, recreation, public facilities, public safety, 
and child care. Community service programs are designed to improve the 
employability of individuals not otherwise able to obtain

[[Page 6822]]

unsubsidized full-time employment, and must be supervised on an ongoing 
basis no less frequently than once each day in which the individual is 
scheduled to participate. A State agency shall take into account, to 
the extent possible, the prior training, experience, and skills of a 
recipient in making appropriate community service assignments.
    (i) Vocational educational training (not to exceed 12 months with 
respect to any individual) means organized educational programs that 
are directly related to the preparation of individuals for employment 
in current or emerging occupations. Vocational educational training 
must be supervised on an ongoing basis no less frequently than once 
each day in which the individual is scheduled to participate.
    (j) Job skills training directly related to employment means 
training or education for job skills required by an employer to provide 
an individual with the ability to obtain employment or to advance or 
adapt to the changing demands of the workplace. Job skills training 
directly related to employment must be supervised on an ongoing basis 
no less frequently than once each day in which the individual is 
scheduled to participate.
    (k) Education directly related to employment, in the case of a 
recipient who has not received a high school diploma or a certificate 
of high school equivalency means education related to a specific 
occupation, job, or job offer. Education directly related to employment 
must be supervised on an ongoing basis no less frequently than once 
each day in which the work-eligible individual is scheduled to 
participate.
    (l) Satisfactory attendance at secondary school or in a course of 
study leading to a certificate of general equivalence, in the case of a 
recipient who has not completed secondary school or received such a 
certificate means regular attendance, in accordance with the 
requirements of the secondary school or course of study, at a secondary 
school or in a course of study leading to a certificate of general 
equivalence, in the case of a work-eligible individual who has not 
completed secondary school or received such a certificate. This 
activity must be supervised on an ongoing basis no less frequently than 
once each day in which the individual is scheduled to participate.
    (m) Providing child care services to an individual who is 
participating in a community service program means providing child care 
to enable another TANF or SSP recipient to participate in a community 
service program. This is an unpaid activity and must be a structured 
program designed to improve the employability of individuals who 
participate in this activity. This activity must be supervised on an 
ongoing basis no less frequently than once each day in which the 
individual is scheduled to participate.
    (n)(1) Work-eligible individual means an adult (or minor child 
head-of-household) receiving assistance under TANF or a separate State 
program or a non-recipient parent living with a child receiving such 
assistance unless the parent is:
    (i) A minor parent and not the head-of-household;
    (ii) A non-citizen who is ineligible to receive assistance due to 
his or her immigration status; or
    (iii) At State option on a case-by-case basis, a recipient of 
Supplemental Security Income (SSI) benefits or Aid to the Aged, Blind 
or Disabled in the Territories.
    (2) The term also excludes:
    (i) A parent providing care for a disabled family member living in 
the home, provided that there is medical documentation to support the 
need for the parent to remain in the home to care for the disabled 
family member;
    (ii) At State option on a case-by-case basis, a parent who is a 
recipient of Social Security Disability Insurance (SSDI) benefits; and
    (iii) An individual in a family receiving MOE-funded assistance 
under an approved Tribal TANF program, unless the State includes the 
Tribal family in calculating work participation rates, as permitted 
under Sec.  261.25.

0
3. Revise subpart B to part 261 to read as follows:

Subpart B--What Are the Provisions Addressing State Accountability?

Sec.
261.20 How will we hold a State accountable for achieving the work 
objectives of TANF?
261.21 What overall work rate must a State meet?
261.22 How will we determine a State's overall work rate?
261.23 What two-parent work rate must a State meet?
261.24 How will we determine a State's two-parent work rate?
261.25 Does a State include Tribal families in calculating the work 
participation rate?


Sec.  261.20  How will we hold a State accountable for achieving the 
work objectives of TANF?

    (a) Each State must meet two separate work participation rates in 
FY 2006 and thereafter, one--the two-parent rate based on how well it 
succeeds in helping work-eligible individuals in two-parent families 
find work activities described at Sec.  261.30, the other--the overall 
rate based on how well it succeeds in finding those activities for 
work-eligible individuals in all the families that it serves.
    (b) Each State must submit data, as specified at Sec.  265.3 of 
this chapter, that allows us to measure its success in requiring work-
eligible individuals to participate in work activities.
    (c) If the data show that a State met both participation rates in a 
fiscal year, then the percentage of historic State expenditures that it 
must expend under TANF, pursuant to Sec.  263.1 of this chapter, 
decreases from 80 percent to 75 percent for that fiscal year. This is 
also known as the State's TANF ``maintenance-of-effort'' (MOE) 
requirement.
    (d) If the data show that a State did not meet a minimum work 
participation rate for a fiscal year, a State could be subject to a 
financial penalty.
    (e) Before we impose a penalty, a State will have the opportunity 
to claim reasonable cause or enter into a corrective compliance plan, 
pursuant to Sec. Sec.  262.5 and 262.6 of this chapter.


Sec.  261.21  What overall work rate must a State meet?

    Each State must achieve a 50 percent minimum overall participation 
rate in FY 2006 and thereafter, minus any caseload reduction credit to 
which it is entitled as provided in subpart D of this part.


Sec.  261.22  How will we determine a State's overall work rate?

    (a)(1) The overall participation rate for a fiscal year is the 
average of the State's overall participation rates for each month in 
the fiscal year.
    (2) The rate applies to families with a work-eligible individual.
    (b) We determine a State's overall participation rate for a month 
as follows:
    (1) The number of TANF and SSP-MOE families that include a work-
eligible individual who meets the requirements set forth in Sec.  
261.31 for the month (i.e., the numerator), divided by,
    (2) The number of TANF and SSP-MOE families that include a work-
eligible individual, minus the number of such families that are subject 
to a penalty for refusing to work in that month (i.e., the 
denominator). However, if a family with a work-eligible individual has 
been penalized for refusal to participate in work activities for more 
than three of the last 12 months, we will not exclude it from the 
participation rate calculation.

[[Page 6823]]

    (3) At State option, we will include in the participation rate 
calculation families with a work-eligible individual that have been 
penalized for refusing to work no more than three of the last 12 
months.
    (c)(1) A State has the option of not requiring a single custodial 
parent caring for a child under age one to engage in work.
    (2) At State option, we will disregard a family with such a parent 
from the participation rate calculation for a maximum of 12 months.
    (d)(1) If a family receives assistance for only part of a month, we 
will count it as a month of participation if a work-eligible individual 
is engaged in work for the minimum average number of hours in each full 
week that the family receives assistance in that month.
    (2) If a State pays benefits retroactively (i.e., for the period 
between application and approval of benefits), it has the option to 
consider the family to be receiving assistance during the period of 
retroactivity.


Sec.  261.23  What two-parent work rate must a State meet?

    Each State must achieve a 90 percent minimum two-parent 
participation rate in FY 2006 and thereafter, minus any caseload 
reduction credit to which it is entitled as provided in subpart D of 
this part.


Sec.  261.24  How will we determine a State's two-parent work rate?

    (a)(1) The two-parent participation rate for a fiscal year is the 
average of the State's two-parent participation rates for each month in 
the fiscal year.
    (2) The rate applies to two-parent families with two work-eligible 
individuals. However, if one of the parents is a work-eligible 
individual with a disability, we will not consider the family to be a 
two-parent family; i.e., we will not include such a family in either 
the numerator or denominator of the two-parent rate.
    (b) We determine a State's two-parent participation rate for the 
month as follows:
    (1) The number of two-parent TANF and SSP-MOE families in which 
both parents are work-eligible individuals and together they meet the 
requirements set forth in Sec.  261.32 for the month (i.e., the 
numerator), divided by,
    (2) The number of two-parent TANF and SSP-MOE families in which 
both parents are work-eligible individuals during the month, minus the 
number of such two-parent families that are subject to a penalty for 
refusing to work in that month (the denominator). However, if a family 
with a work-eligible individual has been penalized for more than three 
months of the last 12 months, we will not exclude it from the 
participation rate calculation.
    (3) At State option, we will include in the participation rate 
calculation families with a work-eligible individual that have been 
penalized for refusing to work no more than three of the last 12 
months.
    (c) For purposes of the calculation in paragraph (b) of this 
section, a two-parent family includes, at a minimum, all families with 
two natural or adoptive parents (of the same minor child) who are work-
eligible individuals and living in the home, unless both are minors and 
neither is a head-of-household.
    (d)(1) If the family receives assistance for only part of a month, 
we will count it as a month of participation if a work-eligible 
individual in the family (or both work-eligible individuals, if they 
are both required to work) is engaged in work for the minimum average 
number of hours in each full week that the family receives assistance 
in that month.
    (2) If a State pays benefits retroactively (i.e., for the period 
between application and approval of benefits), it has the option to 
consider the family to be receiving assistance during the period of 
retroactivity.


Sec.  261.25  Do we count Tribal families in calculating the work 
participation rate?

    At State option, we will include families with a work-eligible 
individual that are receiving assistance under an approved Tribal 
family assistance plan or under a Tribal work program in calculating 
the State's participation rates under Sec. Sec.  261.22 and 261.24.

0
4. Revise Sec.  261.31 to read as follows:


Sec.  261.31  How many hours must a work-eligible individual 
participate for the family to count in the numerator of the overall 
rate?

    (a) Subject to paragraph (d) of this section, a family with a work-
eligible individual counts as engaged in work for a month for the 
overall rate if:
    (1) He or she participates in work activities during the month for 
at least a minimum average of 30 hours per week; and
    (2) At least 20 of the above hours per week come from participation 
in the activities listed in paragraph (b) of this section.
    (b) The following nine activities count toward the first 20 hours 
of participation: unsubsidized employment; subsidized private-sector 
employment; subsidized public-sector employment; work experience; on-
the-job training; job search and job readiness assistance; community 
service programs; vocational educational training; and providing child 
care services to an individual who is participating in a community 
service program.
    (c) Above 20 hours per week, the following three activities may 
also count as participation: job skills training directly related to 
employment; education directly related to employment; and satisfactory 
attendance at secondary school or in a course of study leading to a 
certificate of general equivalence.
    (d)(1) We will deem a work-eligible individual who participates in 
a work experience or community service program for the maximum number 
of hours per month that a State may require by dividing the combined 
monthly TANF or SSP-MOE grant and food stamp allotment by the higher of 
the Federal or State minimum wage to have participated for an average 
of 20 hours per week for the month in that activity.
    (2) This policy is limited to States that have adopted a Simplified 
Food Stamp Program option that permits a State to count the value of 
food stamps in determining the maximum core hours of participation 
permitted by the FLSA.
    (3) In order for Puerto Rico, which does not have a traditional 
Food Stamp Program, to deem core hours, it must include the value of 
food assistance benefits provided through the Nutrition Assistance 
Program in the same manner as a State must include food stamp benefits 
under subsection (d)(1).

0
5. Revise Sec.  261.32 to read as follows:


Sec.  261.32  How many hours must work-eligible individuals participate 
for the family to count in the numerator of the two-parent rate?

    (a) Subject to paragraph (d) of this section, a family with two 
work-eligible parents counts as engaged in work for the month for the 
two-parent rate if:
    (1) Work-eligible parents in the family are participating in work 
activities for a combined average of at least 35 hours per week during 
the month, and
    (2) At least 30 of the 35 hours per week come from participation in 
the activities listed in paragraph (b) of this section.
    (b) The following nine activities count for the first 30 hours of 
participation: unsubsidized employment; subsidized private-sector 
employment; subsidized public-sector employment; work experience; on-
the-job training; job search and job readiness assistance; community 
service programs; vocational educational training; and providing child 
care services to an individual who

[[Page 6824]]

is participating in a community service program.
    (c) Above 30 hours per week, the following three activities may 
also count for participation: job skills training directly related to 
employment; education directly related to employment; and satisfactory 
attendance at secondary school or in a course of study leading to a 
certificate of general equivalence.
    (d)(1) We will deem a family with two work-eligible parents in 
which one or both participates in a work experience or community 
service program for the maximum number of hours per month that a State 
may require by dividing the combined monthly TANF or SSP-MOE grant and 
food stamp allotment by the higher of the Federal or State minimum wage 
to have participated for an average of 30 hours per week for the month 
in that activity.
    (2) This policy is limited to States that have adopted a Simplified 
Food Stamp Program option that permits a State to count the value of 
food stamps in determining the maximum core hours of participation 
permitted by the FLSA.
    (3) In order for Puerto Rico, which does not have a traditional 
Food Stamp Program, to deem core hours, it must include the value of 
food assistance benefits provided through the Nutrition Assistance 
Program in the same manner as a State must include food stamp benefits 
under paragraph (d)(1) of this section.
    (e)(1) Subject to paragraph (f) of this section, if the family 
receives federally funded child care assistance and an adult in the 
family does not have a disability or is not caring for a child with a 
disability, then the work-eligible individuals must be participating in 
work activities for an average of at least 55 hours per week to count 
as a two-parent family engaged in work for the month.
    (2) At least 50 of the 55 hours per week must come from 
participation in the activities listed in paragraph (b) of this 
section.
    (3) Above 50 hours per week, the three activities listed in 
paragraph (c) of this section may also count as participation.
    (f)(1) We will deem a family with two work-eligible parents in 
which one or both participates in a work experience or community 
service program for the maximum number of hours per month that a State 
may require by dividing the combined monthly TANF or SSP-MOE grant and 
food stamp allotment by the higher of the Federal or State minimum wage 
to have participated for an average of 50 hours per week for the month 
in that activity.
    (2) This policy is limited to States that have adopted a Simplified 
Food Stamp Program option that permits a State to count the value of 
food stamps in determining the maximum core hours of participation 
permitted by the FLSA.
    (3) In order for Puerto Rico, which does not have a traditional 
Food Stamp Program, to deem core hours, it must include the value of 
food assistance benefits provided through the Nutrition Assistance 
Program in the same manner as a State must include food stamp benefits 
under paragraph (d)(1) of this section.

0
6. Revise Sec.  261.34 to read as follows:


Sec.  261.34  Are there any limitations in counting job search and job 
readiness assistance toward the participation rates?

    Yes. There are four limitations concerning job search and job 
readiness assistance.
    (a) Except as provided in paragraph (b) of this section, an 
individual's participation in job search and job readiness assistance 
counts for a maximum of six weeks in the preceding 12-month period.
    (b) If the State's total unemployment rate is at least 50 percent 
greater than the United States' total unemployment rate or if the State 
meets the definition of a ``needy State'', specified at Sec.  260.30 of 
this chapter, then an individual's participation in job search and job 
readiness assistance counts for a maximum of 12 weeks in that 12-month 
period.
    (c) For purposes of paragraphs (a) and (b) of this section, a week 
equals 20 hours for a work-eligible individual who is a single 
custodial parent with a child under six years of age and equals 30 
hours for all other work-eligible individuals.
    (d) An individual's participation in job search and job readiness 
assistance does not count for a week that immediately follows four 
consecutive weeks in which the State reports any hours of such 
participation in the preceding 12-month period. For purposes of this 
paragraph a week means seven consecutive days.
    (e) Not more than once for any individual in the preceding 12-month 
period, a State may count three or four days of job search and job 
readiness assistance during a week as a full week of participation. We 
calculate a full week of participation based on the average daily hours 
of participation for three or four days and will prorate participation 
at that level for the remaining one or two days to determine the total 
hours for a five-day week. Any prorated hours of participation must be 
included in the calculation of total hours permitted under the 
limitation in this section.

0
7. Revise subpart D to part 261 to read as follows:

Subpart D--How Will We Determine Caseload Reduction Credit for 
Minimum Participation Rates?

Sec.
261.40 Is there a way for a State to reduce the work participation 
rates?
261.41 How will we determine the caseload reduction credit?
261.42 Which reductions count in determining the caseload reduction 
credit?
261.43 What is the definition of a ``case receiving assistance'' in 
calculating the caseload reduction credit?
261.44 When must a State report the required data on the caseload 
reduction credit?


Sec.  261.40  Is there a way for a State to reduce the work 
participation rates?

    (a)(1) If the average monthly number of cases receiving assistance, 
including assistance under a separate State program (as provided at 
Sec.  261.42(b)), in a State in the preceding fiscal year was lower 
than the average monthly number of cases that received assistance, 
including assistance under a separate State program in that State in FY 
2005, the minimum overall participation rate the State must meet for 
the fiscal year (as provided at Sec.  261.21) decreases by the number 
of percentage points the prior-year caseload fell in comparison to the 
FY 2005 caseload.
    (2) The minimum two-parent participation rate the State must meet 
for the fiscal year (as provided at Sec.  261.23) decreases, at State 
option, by either:
    (i) The number of percentage points the prior-year two-parent 
caseload, including two-parent cases receiving assistance under a 
separate State program (as provided at Sec.  261.42(b)), fell in 
comparison to the FY 2005 two-parent caseload, including two-parent 
cases receiving assistance under a separate State program; or
    (ii) The number of percentage points the prior-year overall 
caseload, including assistance under a separate State program (as 
provided at Sec.  261.42(b)), fell in comparison to the FY 2005 overall 
caseload, including cases receiving assistance under a separate State 
program.
    (3) For the credit calculation, we will refer to the fiscal year 
that precedes the fiscal year to which the credit applies as the 
``comparison year.''
    (b)(1) The calculations in paragraph (a) of this section must 
disregard caseload reductions due to requirements of Federal law and to 
changes that a

[[Page 6825]]

State has made in its eligibility criteria in comparison to its 
criteria in effect in FY 2005.
    (2) At State option, the calculation may offset the disregard of 
caseload reductions in paragraph (b)(1) of this section by changes in 
eligibility criteria that increase caseloads.
    (c)(1) To establish the caseload base for FY 2005 and to determine 
the comparison-year caseload, we will use the combined TANF and 
Separate State Program caseload figures reported on the Form ACF-199, 
TANF Data Report, and Form ACF-209, SSP-MOE Data Report, respectively.
    (2) To qualify for a caseload reduction, a State must have reported 
monthly caseload information, including cases in separate State 
programs, for FY 2005 and the comparison year for cases receiving 
assistance as defined at Sec.  261.43.
    (d)(1) A State may correct erroneous data or submit accurate data 
to adjust program data or to include unduplicated cases within the 
fiscal year.
    (2) We will adjust both the FY 2005 baseline and the comparison-
year caseload information, as appropriate, based on these State 
submissions.
    (e) We refer to the number of percentage points by which a caseload 
falls, disregarding the cases described in paragraph (b) of this 
section, as a caseload reduction credit.


Sec.  261.41  How will we determine the caseload reduction credit?

    (a)(1) We will determine the overall and two-parent caseload 
reduction credits that apply to each State based on the information and 
estimates reported to us by the State on eligibility policy changes 
using application denials, case closures, or other administrative data 
sources and analyses.
    (2) We will accept the information and estimates provided by a 
State, unless they are implausible based on the criteria listed in 
paragraph (d) of this section.
    (3) We may conduct on-site reviews and inspect administrative 
records on applications, case closures, or other administrative data 
sources to validate the accuracy of the State estimates.
    (b) In order to receive a caseload reduction credit, a State must 
submit a Caseload Reduction Report to us containing the following 
information:
    (1) A listing of, and implementation dates for, all State and 
Federal eligibility changes, as defined at Sec.  261.42, made by the 
State since the beginning of FY 2006;
    (2) A numerical estimate of the positive or negative average 
monthly impact on the comparison-year caseload of each eligibility 
change (based, as appropriate, on application denials, case closures or 
other analyses);
    (3) An overall estimate of the total net positive or negative 
impact on the applicable caseload as a result of all such eligibility 
changes;
    (4) An estimate of the State's caseload reduction credit;
    (5) A description of the methodology and the supporting data that a 
State used to calculate its caseload reduction estimates; and
    (6) A certification that it has provided the public an appropriate 
opportunity to comment on the estimates and methodology, considered 
their comments, and incorporated all net reductions resulting from 
Federal and State eligibility changes.
    (c)(1) A State requesting a caseload reduction credit for the 
overall participation rate must base its estimates of the impact of 
eligibility changes on decreases in its comparison-year overall 
caseload compared to the FY 2005 overall caseload baseline established 
in accordance with Sec.  261.40(d).
    (2) A State requesting a caseload reduction credit for its two-
parent rate must base its estimates of the impact of eligibility 
changes on decreases in either:
    (i) Its two-parent caseload compared to the FY 2005 base-year two-
parent caseload baseline established in accordance with Sec.  
261.40(d); or
    (ii) Its overall caseload compared to the FY 2005 base-year overall 
caseload baseline established in accordance with Sec.  261.40(d).
    (d)(1) For each State, we will assess the adequacy of information 
and estimates using the following criteria: Its methodology; Its 
estimates of impact compared to other States; the quality of its data; 
and the completeness and adequacy of its documentation.
    (2) If we request additional information to develop or validate 
estimates, the State may negotiate an appropriate deadline or provide 
the information within 30 days of the date of our request.
    (3) The State must provide sufficient data to document the 
information submitted under paragraph (b) of this section.
    (e) We will not calculate a caseload reduction credit unless the 
State reports case-record data on individuals and families served by 
any separate State program, as required under Sec.  265.3(d) of this 
chapter.
    (f) A State may only apply to the participation rate a caseload 
reduction credit that we have calculated. If a State disagrees with the 
caseload reduction credit, it may appeal the decision as an adverse 
action in accordance with Sec.  262.7 of this chapter.


Sec.  261.42  Which reductions count in determining the caseload 
reduction credit?

    (a)(1) A State's caseload reduction credit must not include 
caseload decreases due to Federal requirements or State changes in 
eligibility rules since FY 2005 that directly affect a family's 
eligibility for assistance. These include, but are not limited to, more 
stringent income and resource limitations, time limits, full family 
sanctions, and other new requirements that deny families assistance 
when an individual does not comply with work requirements, cooperate 
with child support, or fulfill other behavioral requirements.
    (2) At State option, a State's caseload reduction credit may 
include caseload increases due to Federal requirements or State changes 
in eligibility rules since FY 2005 if used to offset caseload decreases 
in paragraph (a)(1) of this section.
    (3) A State may not receive a caseload reduction credit that 
exceeds the actual caseload decline between FY 2005 and the comparison 
year.
    (4) A State may count the reductions attributable to enforcement 
mechanisms or procedural requirements that are used to enforce existing 
eligibility criteria (e.g., fingerprinting or other verification 
techniques) to the extent that such mechanisms or requirements identify 
or deter families otherwise ineligible under existing rules.
    (b) A State must include cases receiving assistance in separate 
State programs as part of its FY 2005 caseload and comparison-year 
caseload. However, if a State provides documentation that separate 
State program cases overlap with or duplicate cases in the TANF 
caseload, we will exclude them from the caseload count.


Sec.  261.43  What is the definition of a ``case receiving assistance'' 
in calculating the caseload reduction credit?

    (a) The caseload reduction credit is based on decreases in 
caseloads receiving TANF- or SSP-MOE-funded assistance (other than 
those excluded pursuant to Sec.  261.42).
    (b)(1) A State that is investing State MOE funds in excess of the 
required 80 percent or 75 percent basic MOE amount need only include 
the pro rata share of caseloads receiving assistance that is required 
to meet basic MOE requirements.
    (2) For purposes of paragraph (b)(1) of this section, a State may 
exclude from the overall caseload reduction credit calculation the 
number of cases funded

[[Page 6826]]

with excess MOE. This number is calculated by dividing annual excess 
MOE expenditures on assistance by the average monthly expenditures on 
assistance per case for the fiscal year,
    (i) Where annual excess MOE expenditures on assistance equal total 
annual MOE expenditures minus the percentage of historic State 
expenditures specified in paragraph (v) of this section, multiplied by 
the percentage that annual expenditures on assistance (both Federal and 
State) represent of all annual expenditures, and
    (ii) Where the average monthly assistance expenditures per case for 
the fiscal year equal the sum of annual TANF and SSP-MOE assistance 
expenditures (both Federal and State) divided by the average monthly 
sum of TANF and SSP-MOE caseloads for the fiscal year.
    (iii) If the excess MOE calculation is for a separate two-parent 
caseload reduction credit, we multiply the number of cases funded with 
excess MOE by the average monthly percentage of two-parent cases in the 
State's total (TANF plus SSP-MOE) average monthly caseload.
    (iv) All financial data must agree with data reported on the TANF 
Financial Report (form ACF-196) and all caseload data must agree with 
data reported on the TANF Data and SSP-MOE Data Reports (forms ACF-199 
and ACF-209).
    (v) The State must use 80 percent of historic expenditures when 
calculating excess MOE; however if it has met the work participation 
requirements for the year, it may use 75 percent of historic 
expenditures.


Sec.  261.44  When must a State report the required data on the 
caseload reduction credit?

    A State must report the necessary documentation on caseload 
reductions for the preceding fiscal year by December 31.

0
8. Revise subpart F to part 261 to read as follows:

Subpart F--How Do We Ensure the Accuracy of Work Participation 
Information?

Sec.
261.60 What hours of participation may a State report for a work-
eligible individual?
261.61 How must a State document a work-eligible individual's hours 
of participation?
261.62 What must a State do to verify the accuracy of its work 
participation information?
261.63 When is the State's Work Verification Plan due?
261.64 How will we determine whether a State's work verification 
procedures ensure an accurate work participation measurement?
261.65 Under what circumstances will we impose a work verification 
penalty?


Sec.  261.60  What hours of participation may a State report for a 
work-eligible individual?

    (a) A State must report the actual hours that an individual 
participates in an activity, subject to the qualifications in 
paragraphs (b) and (c) of this section and Sec.  261.61(c). It is not 
sufficient to report the hours an individual is scheduled to 
participate in an activity.
    (b) For the purposes of calculating the work participation rates 
for a month, actual hours may include the hours for which an individual 
was paid, including paid holidays and sick leave. For participation in 
unpaid work activities, it may include excused absences for hours 
missed due to a maximum of 10 holidays in the preceding 12-month period 
and up to 80 hours of additional excused absences in the preceding 12-
month period, no more than 16 of which may occur in a month, for each 
work-eligible individual. Each State must designate the days that it 
wishes to count as holidays for those in unpaid activities in its Work 
Verification Plan. It may designate no more than 10 such days. In order 
to count an excused absence as actual hours of participation, the 
individual must have been scheduled to participate in a countable work 
activity for the period of the absence that the State reports as 
participation. A State must describe its excused absence policies and 
definitions as part of its Work Verification Plan, specified at Sec.  
261.62.
    (c) For unsubsidized employment, subsidized employment, and OJT, a 
State may report projected actual hours of employment participation for 
up to six months based on current, documented actual hours of work. Any 
time a State receives information that the client's actual hours of 
work have changed, or no later than the end of any six-month period, 
the State must re-verify the client's current actual average hours of 
work, and may report these projected actual hours of participation for 
another six-month period.
    (d) A State may not count more hours toward the participation rate 
for a self-employed individual than the number derived by dividing the 
individual's self-employment income (gross income less business 
expenses) by the Federal minimum wage. A State may propose an 
alternative method of determining self-employment hours as part of its 
Work Verification Plan.
    (e) A State may count supervised homework time and up to one hour 
of unsupervised homework time for each hour of class time. Total 
homework time counted for participation cannot exceed the hours 
required or advised by a particular educational program.


Sec.  261.61  How must a State document a work-eligible individual's 
hours of participation?

    (a) A State must support each individual's hours of participation 
through documentation in the case file. In accordance with Sec.  
261.62, a State must describe in its Work Verification Plan the 
documentation it uses to verify hours of participation in each 
activity.
    (b) For an employed individual, the documentation may consist of, 
but is not limited to pay stubs, employer reports, or time and 
attendance records substantiating hours of participation. A State may 
presume that an employed individual participated for the total number 
of hours for which that individual was paid.
    (c) The State must document all hours of participation in an 
activity; however, if a State is reporting projected hours of actual 
employment in accordance with Sec.  261.60(c), it need only document 
the hours on which it bases the projection.
    (d) For an individual who is self-employed, the documentation must 
comport with standards set forth in the State's approved Work 
Verification Plan. Self-reporting by a participant without additional 
verification is not sufficient documentation.
    (e) For an individual who is not employed, the documentation for 
substantiating hours of participation may consist of, but is not 
limited to, time sheets, service provider attendance records, or school 
attendance records. For homework time, the State must also document the 
homework or study expectations of the educational program.


Sec.  261.62  What must a State do to verify the accuracy of its work 
participation information?

    (a) To ensure accuracy in the reporting of work activities by work-
eligible individuals on the TANF Data Report and, if applicable, the 
SSP-MOE Data Report, each State must:
    (1) Establish and employ procedures for determining whether its 
work activities may count for participation rate purposes;
    (2) Establish and employ procedures for determining how to count 
and verify reported hours of work;
    (3) Establish and employ procedures for identifying who is a work-
eligible individual;
    (4) Establish and employ internal controls to ensure compliance 
with the procedures; and

[[Page 6827]]

    (5) Submit to the Secretary for approval the State's Work 
Verification Plan in accordance with paragraph (b) of this section.
    (b) A State's Work Verification Plan must include the following:
    (1) For each countable work activity:
    (i) A description demonstrating how the activity meets the relevant 
definition at Sec.  261.2;
    (ii) A description of how the State determines the number of 
countable hours of participation; and
    (iii) A description of the documentation it uses to monitor 
participation and ensure that the actual hours of participation are 
reported;
    (2) A description of the State's procedures for identifying all 
work-eligible individuals, as defined at Sec.  261.2;
    (3) A description of how the State ensures that, for each work-
eligible individual, it:
    (i) Accurately inputs data into the State's automated data 
processing system;
    (ii) Properly tracks the hours though the automated data processing 
system; and
    (iii) Accurately reports the hours to the Department;
    (4) A description of the procedures for ensuring it does not 
transmit to the Department a work-eligible individual's hours of 
participation in an activity that does not meet a Federal definition of 
a countable work activity; and
    (5) A description of the internal controls that the State has 
implemented to ensure a consistent measurement of the work 
participation rates, including the quality assurance processes and 
sampling specifications it uses to monitor adherence to the established 
work verification procedures by State staff, local staff, and 
contractors.
    (c) We will review a State's Work Verification Plan for 
completeness and approve it if we believe that it will result in 
accurate reporting of work participation information.


Sec.  261.63  When is a State's Work Verification Plan Due?

    (a) Each State must submit its interim Work Verification Plan for 
validating work activities reported in the TANF Data Report and, if 
applicable, the SSP-MOE Data Report no later than September 30, 2006.
    (b) If HHS requires changes, a State must submit them within 60 
days of receipt of our notice and include all necessary changes as part 
of a final approved Work Verification Plan no later than September 30, 
2007.
    (c) If a State modifies its verification procedures for TANF or 
SSP-MOE work activities or its internal controls for ensuring a 
consistent measurement of the work participation rate, the State must 
submit for approval an amended Work Verification Plan by the end of the 
quarter in which the State modifies the procedures or internal 
controls.


Sec.  261.64  How will we determine whether a State's work verification 
procedures ensure an accurate work participation measurement?

    (a) We will determine that a State has met the requirement to 
establish work verification procedures if it submitted an interim Work 
Verification Plan by September 30, 2006 and a complete Work 
Verification Plan that we approved by September 30, 2007.
    (b) A ``complete'' Work Verification Plan means that:
    (1) The plan includes all the information required by Sec.  
261.62(b); and
    (2) The State certifies that the plan includes all the information 
required by Sec.  261.62(b) and that it accurately reflects the 
procedures under which the State is operating.
    (c) For conduct occurring after October 1, 2007, we will use the 
single audit under OMB Circular A-133 in conjunction with other 
reviews, audits, and data sources, as appropriate, to assess the 
accuracy of the data filed by States for use in calculating the work 
participation rates.


Sec.  261.65  Under what circumstances will we impose a work 
verification penalty?

    (a) We will take action to impose a penalty under Sec.  
262.1(a)(15) of this chapter if:
    (1) The requirements under Sec. Sec.  261.64(a) and (b) have not 
been met; or
    (2) We determine that the State has not maintained adequate 
documentation, verification, or internal control procedures to ensure 
the accuracy of the data used in calculating the work participation 
rates.
    (b) If a State fails to submit an interim or complete Work 
Verification Plan by the due dates in Sec.  261.64(a), we will reduce 
the SFAG payable for the immediately succeeding fiscal year by five 
percent of the adjusted SFAG.
    (c) If a State fails to maintain adequate internal controls to 
ensure a consistent measurement of work participation, we will reduce 
the adjusted SFAG by the following percentages for a fiscal year:
    (1) One percent for the first year;
    (2) Two percent for second year;
    (3) Three percent for the third year;
    (4) Four percent for the fourth year; and,
    (5) Five percent for the fifth and subsequent years.
    (d) If a State complies with the requirements in this subpart for 
two consecutive years, then any penalty imposed for subsequent failures 
will begin anew, as described in paragraph (c) of this section.
    (e) If we take action to impose a penalty under Sec. Sec.  
261.64(b) or (c), we will reduce the SFAG payable for the immediately 
succeeding fiscal year.

PART 263--EXPENDITURES OF STATE AND FEDERAL TANF FUNDS

0
9. The authority citation for part 263 continues to read as follows:

    Authority: 42 U.S.C. 604, 607, 609, and 862a.


0
10. Revise Sec.  263.2 to read as follows:


Sec.  263.2  What kinds of State expenditures count toward meeting a 
State's basic MOE expenditure requirement?

    (a) Expenditures of State funds in TANF or separate State programs 
may count if they are made for the following types of benefits or 
services:
    (1) Cash assistance, including the State's share of the assigned 
child support collection that is distributed to the family, and 
disregarded in determining eligibility for, and amount of the TANF 
assistance payment;
    (2) Child care assistance (see Sec.  263.3);
    (3) Education activities designed to increase self-sufficiency, job 
training, and work (see Sec.  263.4);
    (4) Any other use of funds allowable under section 404(a)(1) of the 
Act including:
    (i) Nonmedical treatment services for alcohol and drug abuse and 
some medical treatment services (provided that the State has not 
commingled its MOE funds with Federal TANF funds to pay for the 
services), if consistent with the goals at Sec.  260.20 of this 
chapter; and
    (ii) Pro-family healthy marriage and responsible fatherhood 
activities enumerated in part IV-A of the Act, sections 
403(a)(2)(A)(iii) and 403(a)(2)(C)(ii) that are consistent with the 
goals at Sec. Sec.  260.20(c) or (d) of this chapter, but do not 
constitute ``assistance'' as defined in Sec.  260.31(a) of this 
chapter; and
    (5)(i) Administrative costs for activities listed in paragraphs 
(a)(1) through (a)(4) of this section, not to exceed 15 percent of the 
total amount of countable expenditures for the fiscal year.
    (ii) Costs for information technology and computerization needed 
for tracking or monitoring required by or under part IV-A of the Act do 
not count towards the limit in paragraph (5)(i) of this section, even 
if they fall within the definition of ``administrative costs.''

[[Page 6828]]

    (A) This exclusion covers the costs for salaries and benefits of 
staff who develop, maintain, support, or operate the portions of 
information technology or computer systems used for tracking and 
monitoring.
    (B) It also covers the costs of contracts for the development, 
maintenance, support, or operation of those portions of information 
technology or computer systems used for tracking or monitoring.
    (b) With the exception of paragraph (a)(4)(ii) of this section, the 
benefits or services listed under paragraph (a) of this section count 
only if they have been provided to or on behalf of eligible families. 
An ``eligible family'' as defined by the State, must:
    (1) Be comprised of citizens or non-citizens who:
    (i) Are eligible for TANF assistance;
    (ii) Would be eligible for TANF assistance, but for the time limit 
on the receipt of federally funded assistance; or
    (iii) Are lawfully present in the United States and would be 
eligible for assistance, but for the application of title IV of PRWORA;
    (2) Include a child living with a custodial parent or other adult 
caretaker relative (or consist of a pregnant individual); and
    (3) Be financially eligible according to the appropriate income and 
resource (when applicable) standards established by the State and 
contained in its TANF plan.
    (c) Benefits or services listed under paragraph (a) of this section 
provided to a family that meets the criteria under paragraphs (b)(1) 
through (b)(3) of this section, but who became ineligible solely due to 
the time limitation given under Sec.  264.1 of this chapter, may also 
count.
    (d) Expenditures for the benefits or services listed under 
paragraph (a) of this section count whether or not the benefit or 
service meets the definition of assistance under Sec.  260.31 of this 
chapter. Further, families that meet the criteria in paragraphs (b)(2) 
and (b)(3) of this section are considered to be eligible for TANF 
assistance for the purposes of paragraph (b)(1)(i) of this section.
    (e) Expenditures for benefits or services listed under paragraph 
(a) of this section may include allowable costs borne by others in the 
State (e.g., local government), including cash donations from non-
Federal third parties (e.g., a non-profit organization) and the value 
of third party in-kind contributions if:
    (1) The expenditure is verifiable and meets all applicable 
requirements in 45 CFR 92.3 and 92.24;
    (2) There is an agreement between the State and the other party 
allowing the State to count the expenditure toward its MOE requirement; 
and,
    (3) The State counts a cash donation only when it is actually 
spent.
    (f)(1) The expenditures for benefits or services in State-funded 
programs listed under paragraph (a) of this section count only if they 
also meet the requirements of Sec.  263.5.
    (2) Expenditures that fall within the prohibitions in Sec.  263.6 
do not count.
    (g) State funds used to meet the Healthy Marriage Promotion and 
Responsible Fatherhood Grant match requirement may count to meet the 
MOE requirement in Sec.  263.1, provided the expenditure also meets all 
the other MOE requirements in this subpart.


0
11. Amend Sec.  263.5 by revising paragraph (b) to read as follows:


Sec.  263.5  When do expenditures in State-funded programs count?

* * * * *
    (b) If a current State or local program also operated in FY 1995, 
and expenditures in this program would not have been previously 
authorized and allowable under the former AFDC, JOBS, Emergency 
Assistance, Child Care for AFDC recipients, At-Risk Child Care, or 
Transitional Child care programs, then countable expenditures are 
limited to:
    (1) The amount by which total current fiscal year expenditures for 
or on behalf of eligible families, as defined in Sec.  263.2(b), exceed 
total State expenditures in this program during FY 1995; or, if 
applicable,
    (2) The amount by which total current fiscal year expenditures for 
pro-family activities under Sec.  263.2(a)(4)(ii) exceed total State 
expenditures in this program during FY 1995.

PART 265--DATA COLLECTION AND REPORTING REQUIREMENTS

0
12. The authority citation for part 265 continues to read as follows:

    Authority: 42 U.S.C. 603, 605, 607, 609, 611, and 613.


0
13. Amend Sec.  265.7 by revising paragraph (b) to read as follows:


Sec.  265.7  How will we determine if the State is meeting the 
quarterly reporting requirements?

* * * * *
    (b) For a disaggregated data report, ``a complete and accurate 
report'' means that:
    (1) The reported data accurately reflect information available to 
the State in case records, financial records, and automated data 
systems, and include correction of the quarterly data by the end of the 
fiscal year reporting period;
    (2) The data are free from computational errors and are internally 
consistent (e.g., items that should add to totals do so);
    (3) The State reports data for all required elements (i.e., no data 
are missing);
    (4)(i) The State provides data on all families; or
    (ii) If the State opts to use sampling, the State reports data on 
all families selected in a sample that meets the specification and 
procedures in the TANF Sampling Manual (except for families listed in 
error); and
    (5) Where estimates are necessary (e.g., some types of assistance 
may require cost estimates), the State uses reasonable methods to 
develop these estimates.
* * * * *
[FR Doc. 08-455 Filed 1-29-08; 4:40 pm]
BILLING CODE 4184-01-P


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