This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

15457

Vol. 60, No. 57

Friday, March 24, 1995

DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Part 235

RIN 0584–AB31

State Administrative Expense Funds:

National School Lunch Program,

Special Milk Program for Children,

School Breakfast Program, Child and

Adult Care Food Program, Food

Distribution Program

AGENCY: Food and Consumer Service,

USDA.

ACTION: Final rule.

SUMMARY: This rulemaking incorporates

in the regulations the requirements in

the Child Nutrition and WIC

Reauthorization Act of 1989, which

concern State Administrative Expense

(SAE) funds. SAE funds are Federal

funds provided to State agencies to

assist with the administrative costs of

the National School Lunch Program

(NSLP), the School Breakfast Program

(SBP), the Special Milk Program for

Children (SMP) and the Child and Adult

Care Food Program (CACFP) and the

administrative costs of the Food

Distribution Program (FDP) in

conjunction with these programs. The

SAE provisions of the 1989 legislation

included in this final rulemaking do the

following: Establish limits on the level

of SAE funds that may be retained by

the State from one fiscal year to another

and specify how SAE funds that are

returned by the State are to be

redistributed. Finally, the legislation

provides that alternate State agencies

which administer the CACFP receive

the funds to which they are entitled. In

practical effect, this provision concerns

the ‘‘adult care component’’ of the

CACFP since the Department already

provides funds directly to the State

agencies administering the CACFP. This

final regulation reflects this statutory

provision. These changes to the SAE

provisions are designed to ensure that

adequate funds are available for the

purposes specified.

EFFECTIVE DATE: This final regulation is

effective April 24, 1995.

FOR FURTHER INFORMATION CONTACT: Mr.

Robert Eadie, Chief, Policy and Program

Development Branch or Mr. Charles

Heise, Child Nutrition Division, Food

and Consumer Service, USDA, 3101

Park Center Drive, Alexandria, Virginia

22302 or by telephone at (703) 305–

2620.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be

not significant for purposes of Executive

Order 12866 and, therefore, has not

been reviewed by the Office of

Management and Budget.

Regulatory Flexibility Act

This final rule has been reviewed

with regard to the requirements of the

Regulatory Flexibility Act (5 U.S.C.

601–612). The Administrator of the

Food and Consumer Service (FCS) has

certified that this final rule will not

have a significant economic impact on

a substantial number of small entities,

since the regulation pertains entirely to

the funding of State agencies, and these

are not small entities.

Paperwork Reduction Act

The proposed rule contained

information collections. However, the

provisions that contained reporting and

recordkeeping burdens are not included

in this final rule. Therefore, this final

rule does not contain information

collections which are subject to review

by the Office of Management and

Budget (OMB) under the Paperwork

Reduction Act of 1980 (44 U.S.C.

Chapter 35).

Executive Order 12778

This final rule has been reviewed

under Executive Order 12778, Civil

Justice Reform. This rule is intended to

have preemptive effect with respect to

any State or local laws, regulations or

policies which conflict with its

provisions or which would otherwise

impede its full implementation. This

rule is not intended to have retroactive

effect unless so specified in the

‘‘Effective Date’’ section of this

preamble. Prior to any judicial challenge

to the provisions of this rule or the

application of the provision, all

applicable administrative procedures

must be exhausted. In the National

School Lunch Program, the

administrative procedures for State

agency appeals of State Administrative

Expense funds sanctions (7 CFR

235.11(b)) are set forth in 7 CFR

235.11(f).

Executive Order 12372

The FDP, SBP, NSLP, SMP, CACFP,

and SAE are listed in the Catalog of

Federal Domestic Assistance under No.

10.550, No. 10.553, No. 10.555, No.

10.556, No. 10.558, and No. 10.560,

respectively. These programs are subject

to the provisions of Executive Order

12372, which requires

intergovernmental consultation with

State and local officials. (See 7 CFR part

3015, subpart V, and final rule related

to notice published at 49 FR 29114, June

24, 1983.)

Background

Public Law 101–147, entitled the

Child Nutrition and WIC

Reauthorization Act of 1989 (103 Stat.

877), was enacted on November 10,

1989. Section 122 of this legislation

included changes to some of the

statutory provisions governing the use

of State Administrative Expense (SAE)

funds provided by the Federal

government to assist States with

meeting the administrative costs of

many of the programs authorized under

the National School Lunch Act (NSLA)

and the Child Nutrition Act of 1966

(CNA).

On December 6, 1991, the Department

published a proposed rulemaking at 56

FR 63882 to incorporate these statutory

changes into the SAE regulations and to

make discretionary changes to the

funding of Food Distribution Programs.

This proposal included the following

provisions: (1) The maximum amount of

SAE which a State could carry over

from one fiscal year to the next was

limited to 25 per cent for Fiscal Year

1991 and 20 per cent for subsequent

years; (2) a minimum of $3 million of

any excess SAE funds recovered by the

Department in Fiscal Year 1992 and $4

million of SAE recovered in each of the

next two years must be made available

to demonstration projects authorized

under section 107 of Public Law 101–

147 to provide food service to homeless

children under the age of 6 in
15458 Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Rules and Regulations

emergency shelters; (3) if a State elects

to have an agency other than the agency

administering the child care component

of the CACFP administer the adult care

component of that Program, the

Department will ensure that a share of

the SAE funds generated by the CACFP

is made available to this other agency;

(4) a portion of the nondiscretionary

SAE funds made available to a State

would be designated exclusively for the

Food Distribution Program’s

administrative expenses associated with

providing commodities to the NSLP,

SBP, and CACFP; and (5) beginning

with Fiscal Year 1993, expenditures

from State sources for applicable food

distribution administrative costs would

have to be no less than the amount of

State funds expended or obligated in

Fiscal Year 1991, in order to ensure

continued State support for food

distribution activities. Readers are

referred to the proposed rule for a more

complete explanation of these

provisions.

During the official comment period,

the Department received 53 comments.

Most of these were from State agencies

which administer one or more of the

child nutrition programs and/or the

Food Distribution Program, but three

comments were received from State or

national associations and one comment

was submitted by a State governor’s

office. Most of the commenters

addressed the provisions relating to the

transfer of funding to food distribution

activities and the maintenance of State

funding levels for these activities. The

overwhelming majority opposed these

provisions; in fact, only four

commenters approved wholly of the

proposed provisions on transfer of funds

to the FDP. The major concerns of those

opposed to the transfer/exclusive use

provisions were as follow:

• The provision is inconsistent with

either the statutory language or the

intent of Congress;

• The total prohibition against

transferring funds from the FDP to the

other child nutrition programs is

inconsistent with the statutory

provision which permits a 10 per cent

transfer of administrative funds among

programs;

• The proposal would divert

administrative funds away from the

child nutrition programs at the same

time that additional administrative

requirements such as coordinated

review and breakfast outreach are being

imposed;

• The requirement that the food

distribution portion of funds be used

exclusively for these activities would

interfere with States’ flexibility to

provide funding where it is most

needed, especially in those States in

which one agency administers both the

child nutrition programs and the FDP;

• Tracking and accounting for

separate funds will create a burden,

especially for those agencies which

administer both programs and must,

therefore, document the exclusive use of

funds for food distribution activities;

• The FDP already has a source of

funding through assessment fees, and

any additional funds should be

appropriated separately rather than

transferred at the expense of the child

nutrition programs.

Commenters opposed to the

maintenance of effort provision raised

the following concerns and issues:

• This provision exceeds

Congressional intent;

• This provision would penalize

those States which have been providing

funds voluntarily for food distribution

purposes;

• Since most States do not currently

track food distribution funds separately,

it will be difficult to establish the exact

level of funding to be maintained;

• Because of cutbacks in State

funding since 1991, some States will be

unable to comply with the maintenance

of effort requirement.

As noted in the preamble to the

December 6, 1991 proposed rulemaking,

section 122(a)(1)(D) of Pub. L. 101–147

added a new paragraph (8) to section

7(a) of the CNA which directs each State

to ensure (in accordance with

regulations issued by the Secretary) that

the State agency administering the

distribution of donated food (the

‘‘distributing agency’’) is provided an

appropriate amount of SAE for the

administrative costs incurred in

distributing donated commodities to the

NSLP, SBP and CACFP. The law further

authorized the Secretary to consider the

value of commodities when developing

regulations to implement this provision.

Currently, the Department provides SAE

funds directly to the distributing agency

in the State that administers the FDP for

the NSLP, SBP, and CACFP. Therefore,

no change to the SAE regulation was

required to implement this provision.

However, in order to further improve

the administration of SAE funds in

connection with the FDP, the

Department proposed a number of

discretionary changes to the SAE

regulations regarding funding of the

FDP. First, the Department proposed a

methodology for distributing a portion

of the nondiscretionary SAE allocation

for the FDP’s administrative costs.

Second, clarifications to the formula for

determining the level of discretionary

SAE funds to be used for the FDP were

proposed. Third, since the Department

has always intended that SAE funds

designated for food distribution

purposes be so used, the proposed rule

prohibited using the food distribution

portion of SAE for any other purposes,

even when the same agency administers

the FDP and the child nutrition

programs. Finally, the legislative history

of section 122 makes it clear that

distributing agencies were expected to

reduce or eliminate current assessment

fees, wherever possible, in response to

their receipt of SAE funds. The

‘‘maintenance of effort’’ provision of the

proposal was designed to promote this

goal by ensuring that States would

continue to provide the same level of

State funds derived from sources other

than assessment fees. Since the total of

State and Federal funds provided for

food distribution would, in many cases,

increase, assessment fees could be

reduced or eliminated.

Nevertheless, the Department

recognizes the concerns raised by

commenters and has no desire to adopt

provisions that could potentially have a

negative impact on operations in some

States. For these reasons, the

Department wishes to reconsider these

discretionary issues regarding FDP

funding and review available options,

including possible alternatives to the

proposal. Therefore, these provisions

are not included in this final regulation;

rather, they will be treated in a separate,

future rulemaking. The Department is,

however, proceeding to finalize those

provisions required by Public Law 101–

147. The remainder of this preamble

discusses commenters’ questions and

concerns on these issues.

Limits on Funds Retained From the

Previous Fiscal Year

The Department proposed to amend

§ 235.5(e) and § 235.6(a) to incorporate

the mandate of section 7(a)(5)(A) of the

CNA as amended by section 122(a)(1)(C)

of Public Law 101–147, which limits the

amount of unobligated SAE funds that

may be retained and carried over into

the next fiscal year to a maximum of 25

per cent for Fiscal Year 1991 and a

maximum of 20 per cent for subsequent

fiscal years. The proposed amendment

also specified how the limit would be

calculated and how the limit would be

compared at the end of the first fiscal

year to the amount of unobligated SAE

funds. Essentially, the Department

would apply the appropriate percentage

to the State’s initial allocation to

establish the maximum amount of SAE

that may be carried over. To determine

the total amount of unobligated funds,

the Department would subtract the

amount reported by the State agency on

Line k (Total Federal share of outlays
Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Rules and Regulations 15459

and unliquidated obligations) of the

fourth quarter Standard Form (SF) 269

from the total amount of SAE funds

granted for the fiscal year. The

Department would then recover any of

these funds in excess of the maximum

amount of SAE that can be carried over.

For an example of how the process

would work, interested parties should

refer to the discussion on page 63885 of

the preamble to the proposed rule.

Twenty-three commenters addressed

the limitation provisions of the

proposed rule, with most of them

believing that such a limitation would

have a negative impact on Program

administration, although one State

agency reported that its carryover has

been well below 20 per cent, so

compliance was not perceived to be a

problem. One commenter, however, was

concerned that the carryover limit will

lead to the elimination of funds for

reallocation, with the result that small

States in particular will have difficulty

funding their activities with only the

minimum grant available to them. One

commenter suggested that an arbitrary

percentage is inequitable to those States

with allocations below the national

mean, and another stated that basing the

carryover amount only on the initial

allocation does not conform with the

language of the statute, which allows

the carryover of 20 per cent of the funds

available for the fiscal year. Two

commenters were concerned about

including reallocated funds as part of

the year-end balance subject to the

carryover limitation, since these funds

are sometimes received late in the fiscal

year and returning any or all of these

monies due to the carryover limit would

defeat the purpose of reallocation. One

commenter believed the carryover limit

should apply on an agency-by-agency

basis rather than being calculated using

the total amount of SAE allocated to the

State as a whole, and another

commenter suggested that States should

be allowed to use excess funds for

demonstration projects in lieu of

returning the monies to the Federal

Government. Some commenters

requested clarification on whether the

carryover limit applies to the funds

designated for food distribution

activities, and several commenters

noted that the last word in § 235.5(e)(2)

should be ‘‘unobligated’’ rather than

‘‘unexpended.’’

The Department recognizes

commenters’ concerns about the impact

of the carryover limitation on their

operations. However, section 7(a)(5)(B)

of the CNA specifically established

carryover limits of 25 per cent for Fiscal

Year 1991 and 20 per cent for

succeeding fiscal years, and the

Department has no authority to waive or

modify this mandate. Moreover, as

discussed in the preamble to the

proposed rulemaking, this limitation is

applied to the initial allocation rather

than to the total administrative funds

made available during the fiscal year

because the Department wished to

simplify the overall process of

calculation and to enable State agencies

to know at the beginning of the fiscal

year exactly what the maximum amount

of their carryover would be. To this end,

the Department believes Congress’

overriding intent was to reduce the

amount of carryover funds available as

much as possible while still allowing

States flexibility in obligating and

expending funds. The Department

believes that the proposal to base the

carryover limit on the initial allocation

is consistent with this intent.

The Department does not believe this

provision will adversely affect the

overall reallocation process. Funds are

reallocated to States on the basis of

need. Consequently, States receiving

reallocations should generally have few,

if any, unobligated funds remaining

from their initial allocations. Moreover,

States will often request reallocations

for specific expenses and can, therefore,

obligate these funds relatively quickly.

The Department recognizes that some

small State agencies, particularly those

receiving minimum grants, could

receive reallocations which are large

relative to the States’ carryover limit,

and in these instances a State’s

reallocation might be affected. These

situations should not be common,

however, and the Department will make

every effort to provide reallocations well

in advance of the end of the fiscal year

in order to facilitate the States’ ability to

obligate a major portion of their

reallocations before the funds become

subject to the carryover limit.

This limitation applies to all SAE

funds received by any State agency for

the administration of any aspect of the

child nutrition programs. Funding for

food distribution activities, therefore, is

subject to the carryover limit, regardless

of whether the State education agency

or another State agency performs these

activities. Moreover, under the proposed

regulation the limitation would be

applied on an agency-by-agency basis,

since the Department receives separate

SF–269’s from each administering

agency and has no feasible means of

making the necessary year-end

comparison for the State as a whole.

With respect to allowing States to retain

excess funds for demonstration projects,

the statute is specific about requiring

the return of excess funds and how the

recovered funds may be used, and the

Department does not have the authority

to authorize alternate uses. Further

discussion of this issue appears later in

this preamble.

Finally, proposed § 235.5(e)(2) reads

as follows:

(2) At the end of the fiscal year following

the fiscal year for which funds were

allocated, each State agency shall return any

funds made available which are unexpended.

Several commenters believed that the

last word of this paragraph should read

‘‘unobligated’’ rather than

‘‘unexpended.’’ The Department notes,

however, that this provision clearly

refers to the recovery made at the end

of the second fiscal year for which SAE

has been available, not the return of

funds in excess of the carryover limits.

Proposed § 235.5(e)(2) merely restated

the requirement that has always been in

effect. Previously, this requirement for

the recovery of unexpended funds at the

end of the second fiscal year was stated

in § 235.5(e).

For these reasons, this final

rulemaking adopts the provisions

limiting the amount of SAE that may be

carried over from one fiscal year to the

next as proposed. The Department

emphasizes, however, that this

carryover limit does not apply to funds

made available to State agencies which

agree to assume responsibility for

programs previously administered

directly by FCS, as authorized under the

newly redesignated § 235.4(d). These

funds are intended to assist States with

costs associated with start-up operations

when assuming responsibility for a

program formerly administered by FCS.

As such, they are made infrequently

and are intended for a specific purpose.

Consequently, the Department does not

consider that this funding is subject to

the carryover limit and is amending

§ 235.5(e)(1) to specify that start-up

funds are excluded from the amount

subject to the retention limit. In

addition, the reference in § 235.5(e) to

§ 235.4 (a) through (e) is revised from

the proposal to § 235.4 (a) through (c) to

reflect the deletion of the proposed new

§ 235.4 (d) and (e). These latter

paragraphs provided for pro rata shares

of SAE funds for FDP administrative

purposes which are not included in this

final regulation. This same change is

made to the references in § 235.6(a).

Use of Returned SAE Funds

The Department proposed to add a

new paragraph—§ 235.6(h) to

incorporate the mandate of Public Law

101–147 regarding how any excess

carryover funds recovered by the

Department were to be used. Section

7(a)(5)(B) as amended by section
15460 Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Rules and Regulations

122(a)(1)(C) of Public Law 101–147

stipulated that in Fiscal Year 1992, a

minimum of $3 million of recovered

monies be made available for the

purpose of providing grants to private

nonprofit organizations participating in

demonstration projects to provide food

service to homeless children under the

age of 6 in emergency shelters. The law

also mandated that a minimum of $4

million be made available for this

purpose in each of the next two fiscal

years. Any funds in excess of the

amount made available to these

demonstration projects would be

reallocated to States which need SAE

funds. The Department emphasized,

however, that any disbursal of funds to

homeless shelters or the States would be

subject to availability of recovered

monies.

Commenters did not generally discuss

this provision except to recognize that

the use of recovered funds for this

purpose is mandated by the statute. One

commenter, however, expressed

concern that SAE plans might be

disapproved or significantly modified to

ensure that sufficient funding is

available to fund these projects. The

Department wishes to emphasize that

there will be no change in the

procedures currently in place to review

and approve SAE plans. The

Department acknowledges that the

disallowance of outlays stated in the

plan could result in additional funds

being carried over and, hence, subject to

the limitation and possible recovery.

The Department considers, however,

that the primary purpose of SAE is to

ensure that States have adequate funds

available to administer the child

nutrition programs effectively. To this

end, the Department will continue to

negotiate these plans with the States to

ensure that outlays are appropriate but

has no intention of artificially reducing

the funding available to States in order

to provide funds for the homeless

demonstration projects.

Since publication of the proposed

rule, additional legislation was passed

which impacts upon the use of

recovered SAE funds. On September 30,

1992, Public Law 102–512, the

Children’s Nutrition Assistance Act of

1992, was enacted which further

amended the provision on the use of

excess carryover funds for

demonstration projects for the homeless.

Public Law 102–512 amended section

7(a)(5)(B)(i) of the CNA to require that

a minimum of $1,000,000 in Fiscal

Years 1993 and 1994 be available at the

beginning of the fiscal year, based on

Departmental estimates of the funds

expected to be recovered as a result of

the limit on funds that can be carried

over. The Department is, therefore,

incorporating the language of Public

Law 102–512 on the use of returned

funds into § 235.6(h) to comply with

this most recent statutory requirement.

Alternate State Agencies for the CACFP

Section 7(a)(3) of the CNA as

amended by section 122(a)(1)(A) of

Public Law 101–147 requires that if an

agency other than the State educational

agency administers the CACFP, the

State must ensure that such State agency

which administers the CACFP is

provided an amount equal to no less

than the SAE funds due to the State for

the CACFP. Since the Department

already provides funds directly to State

agencies administering the CACFP, the

practical effect of the applicability of

this provision concerns the ‘‘adult care

component’’ of the CACFP.

Accordingly, the Department proposed

to add a new paragraph, to be

designated as § 235.4(c), to allow a

prorated portion of the State’s SAE

allocation for the CACFP to be made

available directly to another agency in

the State when that agency administers

the adult care component of the CACFP.

The Department further proposed to

calculate the prorated share by

determining what percentage of total

CACFP monies expended by that State

in the second preceding fiscal year was

generated by the adult care component

of the CACFP and applying that

percentage to the State’s total SAE

allocation for the CACFP. To

accommodate this change, the

Department also proposed a number of

technical amendments and proposed to

delete the word ‘‘agency’’ where it

appears in § 235.4 (b)(1) and (4) to

clarify that it is the State which earns

the total CACFP grant.

The Department received eight

comments on this proposal. Three of the

commenters argued that the $30,000

discretionary grant made available to

assist in administering the CACFP

should be redirected to help fund the

monitoring requirements of the NSLP.

Three commenters from one State

(which has designated an alternate

agency to administer the adult care

component of the CACFP) maintained

that the prorated share is insufficient

and recommended a minimum level of

$50,000 per year, while another State

suggested that the provision be

eliminated entirely, since redirecting of

finite SAE funds would weaken overall

Program administration. Finally, one

commenter recommended adjusting the

SAE nondiscretionary allocation for the

CACFP based on growth in the Program

between the second preceding year and

the current year.

As noted in the preamble to the

proposed rule, the Department believes

this amendment to section 7(a)(3) of the

CNA must be read in the context of

section 17(p)(6) of the National School

Lunch Act as amended by section

105(b)(3)(B) of Public Law 101–147,

which authorizes governors to designate

alternate agencies to administer the

adult care component of the CACFP. In

those instances in which a governor

decides that an agency other than the

CACFP agency is better able to serve the

adult community, the Department

believes it is consistent with the

alternate State agency legislation to

ensure that a portion of SAE funds is

provided to that agency. However, the

Department continues to stress that the

total SAE allocation is earned by the

CACFP as a whole. Moreover, the total

amount of SAE available for all of the

child nutrition programs is limited.

Consequently, if the Department were to

guarantee a minimum level of funding

for the adult care component of the

CACFP, the amount of funds available

to administer the other child nutrition

programs would be diminished. Finally,

the Department notes that nationally,

the adult care component accounts for

only slightly more than 1 per cent of the

total funding for the CACFP, and

designating a large pool of

administrative funding strictly for this

purpose would not be justified.

Therefore, it would not be reasonable to

provide a minimum grant of $50,000 to

an alternate agency solely to administer

the adult care component of the CACFP.

The Department does wish to

emphasize, however, that in those States

which do elect to administer the adult

care component through an alternate

agency, the agency administering the

child care component of the CACFP

may elect to transfer a portion of its SAE

funds to the alternate agency in

accordance with established FCS

procedures. This would be in addition

to the amount required by the

regulations to be provided the agency

administering the adult care component

of the CACFP.

Secondly, the Department does not

agree with those commenters who wish

to redirect the CACFP discretionary

grant to cover the costs of monitoring

the school nutrition programs. The

Department makes these grants available

to CACFP agencies in recognition of the

fact that this Program has heavy

monitoring responsibilities, which

actually exceed the requirements for

monitoring of schools, as well as other

administrative requirements, such as the

oversight of approval when licensing or

approval is not otherwise available,
Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Rules and Regulations 15461

which are unique to the CACFP. If

States could redirect the entire

discretionary money from the CACFP to

school programs, the overall

management of the CACFP could be

weakened. The Department also

provides States with $4 million for the

specific purpose of conducting reviews

of the NSLP. For these reasons, the

Department could not justify redirecting

monies from the CACFP to NSLP.

The Department recognizes the

concern about possible fragmentation of

the SAE grant for the CACFP if funding

is made available to an alternate agency

to administer the adult care component.

As the above discussion makes clear,

the Department is anxious to maintain

sufficient funding to ensure proper

management of the Program. Under the

proposal, a portion of the SAE grant is

designated for an alternate agency only

when the State, itself, has decided to

split the administration of the CACFP.

Since this action would be voluntary on

the part of the State, the Department

assumes that the State has determined

that the advantages, both financial and

administrative, of shifting the adult care

component outweigh any reduction the

agency administering the CACFP may

experience in its SAE grant. For these

reasons, the Department is adopting as

proposed the provision to designate a

pro rata share of the CACFP’s SAE grant

for an alternate agency administering

the adult care component.

The final comment to address on this

provision is the recommendation that

the SAE nondiscretionary allocation for

the CACFP be adjusted based on growth

in the Program between the second

preceding year and the current year. The

Department is unable to adopt this

recommendation because the time frame

for determining the level of

nondiscretionary funds for the CACFP is

statutory.

Miscellaneous Provisions

In addition to the changes described

above, the Department proposed a

number of amendments intended to

remove obsolete references, provide

clarification and incorporate the

provision in Public Law 101–147

mandating cooperation with studies

authorized by the Secretary. In § 235.1

and § 235.2(s), the references to the

Food Service Equipment Assistance

Program were deleted, as were

references to Fiscal Year 1986 in

§ 235.5(b) and Fiscal Year 1980 in

§ 235.7(c). Also, the definition of

‘‘State’’ in § 235.2(r) was revised by

deleting references to the Trust

Territories and American Samoa and

replacing them with references to the

Commonwealth of the Northern

Marianas Islands and the Republic of

Palau, respectively. The Department

notes that separate SAE funds are no

longer made available to the

Commonwealth of the Northern

Marianas Islands; it is not necessary,

therefore, to include that entity in the

definition at all. Consequently, in this

final regulation, the old references are

replaced by the single reference to the

Republic of Palau.

To distinguish more clearly between

nondiscretionary and discretionary SAE

funding, the proposed rule amended

§ 235.4 by redesignating paragraph (a) as

paragraph (a)(1), adding new

introductory text to paragraph (a),

redesignating paragraph (b) as paragraph

(a)(2) and adding new introductory text

to paragraph (b) to indicate the

additional discretionary SAE funding

designations. The Department also

proposed to delete the second sentence

of § 235.4(b)(3)(iv) and add a new

paragraph (i) to § 235.4 to clarify that

funds allotted to State agencies under

§ 235.4 are subject to the reallocation

provisions in § 235.5(d).

Finally, the Department proposed

changes to § 235.7(c) to comply with

section 122(a)(2) of Public Law 101–147,

which amended section 7(g) of CNA to

require that SAE funds cannot be

distributed unless the State agrees to

participate fully in any studies

authorized by the Secretary. The

proposal deleted the phrase ‘‘studies

directed by Congress and requested’’ (by

the Secretary) and replaced it with the

word ‘‘authorized’’ as well as deleted

the reference to Fiscal Year 1980.

The Department received only one

comment on these provisions, and that

commenter observed that the

requirement to participate in studies

authorized by the Secretary should not

be imposed unless there is specific

authorizing legislation. As noted in the

preamble to the proposed rule and in

this preamble above, the change was in

response to the specific mandate of

Public Law 101–147. Therefore, the

Department is adopting this provision

and the other miscellaneous

amendments as proposed. However,

because of changes in the final rule in

§ 235.4, the proposed new § 235.4(i) is

now designated as § 235.4(g).

The Department is also taking this

opportunity to correct an erroneous

reference which was discovered

subsequent to the publication of the

proposed rule. Section 235.7(b) contains

a reference to § 235.4(c). In the proposed

rule, § 235.4(c) was redesignated

§ 235.4(f) because three new paragraphs

were being inserted after § 235.4(b), and

the reference was changed in § 235.7(b)

to accommodate this redesignation. The

Department notes, however, that the

original reference was incorrect, since

§ 235.4(c) did not address carryover.

The correct reference should have been

§ 235.6(a), and this reference is being

incorporated into § 235.7(b) of this final

rule.

Changes are also made to § 235.4(b)(4)

to revise references to reflect other

changes made by this regulation and to

correct an obsolete reference to

§ 235.4(f) which was renamed § 235.4(c)

by an earlier regulation. This paragraph

is also changed to clarify that funds

provided under this paragraph are

allocated on a State basis for the CACFP

and the FDP, not for each State agency

that administers these programs.

Implementation

The provisions of section 122

affecting SAE funds were effective

October 1, 1989. Accordingly, the

Department has already implemented

these requirements, and this rule is

made effective 30 days after publication.

List of Subjects in 7 CFR Part 235

Administrative practice and

procedure, Child and Adult Care Food

Program, Food assistance programs,

Grant administration, Intergovernmental

relations, National School Lunch

Program, Reporting and recordkeeping

requirements, School Breakfast Program,

Special Milk Program.

Accordingly, 7 CFR part 235 is

amended as follows:

PART 235—STATE ADMINISTRATIVE

EXPENSE FUNDS

1. The authority citation for part 235

continues to read as follows:

Authority: Secs. 7 and 10 of the Child

Nutrition Act of 1966, 80 Stat. 888, 889, as

amended (42 U.S.C. 1776, 1779).

§ 235.1 [Amended]

2. In § 235.1, the second sentence is

amended by removing the words ‘‘the

Food Service Equipment Assistance

Program (7 CFR Part 230)’’.

§ 235.2 [Amended]

3. In § 235.2:

a. Paragraph (r) is amended by

removing the words ‘‘American Samoa,

or the Trust Territory of the Pacific

Islands’’ and adding in their place the

words ‘‘or the Republic of Palau’’.

b. Paragraph (s)(2) is amended by

removing the reference to part 230 in

the first sentence.

4. In § 235.4:

a. Paragraph (a) is redesignated as

paragraph (a)(1), and new paragraph (a)

introductory text is added, the

introductory text of paragraph (b) is

redesignated as paragraph (a)(2); and
15462 Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Rules and Regulations

new paragraph (b) introductory text is

added.

b. The first sentence of newly

redesignated paragraph (a)(1) is

amended by removing the words ‘‘For

each fiscal year, FNS shall allocate’’ and

the word ‘‘agency’’ the first time it

occurs; the first sentence is further

amended by removing the words ‘‘by

such agency’’ and adding in their place

the words ‘‘by such State’’.

c. The first sentence of newly

redesignated paragraph (a)(2) is

amended by removing the words ‘‘For

each fiscal year, FCS shall allocate’’ and

by removing the words ‘‘to each State

agency’’ and adding in their place the

words ‘‘to each State’’.

d. Paragraph (b)(1) is amended by

removing the words ‘‘For each fiscal

year, FCS shall allocate’’ and the word

‘‘agency’’.

e. Paragraph (b)(2) is revised in its

entirety.

f. The introductory text of paragraph

(b)(3) is revised in its entirety.

g. Paragraph (b)(3)(iv) is amended by

removing the second sentence.

h. Paragraph (b)(4) is revised in its

entirety.

i. Paragraphs (c) through (e) are

redesignated as paragraphs (d) through

(f), respectively; and a new paragraph

(c) is added.

j. Newly redesignated paragraphs (d)

through (f) are amended by adding

paragraph headings.

k. In newly redesignated paragraph

(f), the references to paragraphs ‘‘(a)’’

and ‘‘(b)’’ are removed and references to

paragraphs ‘‘(a)(1)’’ and ‘‘(a)(2)’’ are

added in their place.

l. A new paragraph (g) is added.

The additions read as follows:

§ 235.4 Allocation of funds to States.

(a) Nondiscretionary SAE Funds. For

each fiscal year, FCS shall allocate the

following:

* * * * *

(b) Discretionary SAE Funds. For each

fiscal year, FCS shall provide the

following additional allocations:

* * * * *

(2) $30,000 to each State which

administers the Food Distribution

Program (part 250 of this chapter) in

schools and/or institutions which

participate in programs under parts 210,

220, 226 of this chapter.

(3) Amounts derived by application of

the following four-part formula to each

State agency which is allocated funds

under paragraph (a) of this section:

* * * * *

(4) Funds which remain after the

allocations required in paragraphs (a)(1),

(a)(2), (b)(1), (b)(2) and (b)(3) of this

section, and after any payments

provided for under paragraph (c) of this

section, as determined by the Secretary,

to those States which administer the

Food Distribution Program (part 250 of

this chapter) in schools and/or

institutions which participate in

programs under parts 210, 220, or 226

of this chapter and to those States which

administer part 226 of this chapter. The

amount of funds to be allocated to each

State for the Food Distribution Program

for any fiscal year shall bear the same

ratio to the total amount of funds made

available for allocation to the State for

the Food Distribution Program under

this paragraph as the value of USDA

donated foods delivered to the State for

schools and institutions participating in

programs under parts 210, 220 and 226

of this chapter during the second

preceding fiscal year bears to the value

of USDA donated foods delivered to all

the States for such schools and

institutions during the second preceding

fiscal year. The amount of funds to be

allocated to each State which

administers the Child and Adult Care

Food Program for any fiscal year shall

bear the same ratio to the total amount

of funds made available for allocation to

all such States under this paragraph as

the amount of funds allocated to each

State under paragraph (a)(2) of this

section bears to the amount allocated to

all States under that paragraph.

(c) SAE Funds for the Child and Adult

Care Food Program. If a State elects to

have a separate State agency administer

the adult care component of the Child

and Adult Care Food Program, such

separate State agency shall receive a pro

rata share of the SAE funds allocated to

the State under paragraphs (a)(2), (b)(1),

and (b)(4) of this section which is equal

to the ratio of funds expended by the

State for the adult care component of

the Child and Adult Care Food Program

during the second preceding fiscal year

to the funds expended by the State for

the entire Child and Adult Care Food

Program during the second preceding

fiscal year. The remaining funds shall be

allocated to the State agency

administering the child care component

of the Child and Adult Care Food

Program.

(d) SAE Start-up Cost Assistance for

State Administration of Former ROAPs.

* * *

(e) SAE Funding Reduction Upon

State Agency Termination of a Food

Service Program. * * *

(f) SAE Funds for ROAPs. * * *

(g) Reallocation. Funds allotted to

State agencies under this section shall

be subject to the reallocation provisions

of § 235.5(d).

5. In § 235.5:

a. The first sentence of paragraph

(b)(1) is amended by removing the

semicolon following the words

‘‘upcoming fiscal year’’ and adding in

its place a period, and by removing the

remainder of the sentence.

b. Paragraph (e) is revised in its

entirety.

The revision reads as follows:

§ 235.5 Payments to States.

* * * * *

(e) Return of funds. (1) In Fiscal Year

1991, up to 25 per cent of the SAE funds

allocated to each State agency under

§ 235.4 may remain available for

obligation and expenditure in the

second fiscal year of the grant. In

subsequent fiscal years, up to 20 percent

may remain available for obligation and

expenditure in the second fiscal year.

The maximum amount to remain

available will be calculated at the time

of the formula allocation by multiplying

the appropriate percentage by each State

agency’s formula allocation as provided

under § 235.4(a) through (c). At the end

of the first fiscal year, the amount

subject to the retention limit is

determined by subtracting the amount

reported by the State agency as Total

Federal share of outlays and

unliquidated obligations on the fourth

quarter Standard Form (SF) 269,

Financial Status Report, from the total

amount of SAE funds made available for

that fiscal year (i.e., the formula

allocation adjusted for any transfers or

reallocations). However, funds provided

under § 235.4(d) are not subject to the

retention limit. Any funds in excess of

the amount that remains available to

each State agency shall be returned to

FCS.

(2) At the end of the fiscal year

following the fiscal year for which funds

were allocated, each State agency shall

return any funds made available which

are unexpended.

(3) Return of funds by the State

agency shall be made as soon as

practicable, but in any event, not later

than 30 days following demand by FCS.

6. In § 235.6:

a. Paragraph (a) is amended by

revising the last sentence.

b. Paragraph (c) is revised in its

entirety.

c. Paragraphs (d) and (f), previously

reserved, are removed; paragraphs (e),

(g), and (h) are redesignated as (d), (e),

and (f), respectively, and a new

paragraph (g) is added.

The revisions and addition read as

follows:

§ 235.6 Use of funds.

(a) * * * Up to 25 per cent of funds

allocated under § 235.4(a) through (c)
Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Rules and Regulations 15463

for Fiscal Year 1991 and up to 20 per

cent of funds allocated in subsequent

fiscal years to a State agency may,

subject to the provisions of § 235.5 of

this part, remain available for obligation

and expenditure by such State agency

during the following fiscal year.

* * * * *

(c) The SAE funds allocated under

§ 235.4(b)(2), (b)(4), and (d) shall be

used exclusively for Food Distribution

Program administrative expenses for the

programs under Parts 210, 220, and 226

of this chapter by any distributing

agency which receives such funds. SAE

funds allocated under § 235.4(a)(1),

(a)(2), (b)(1), (b)(3) and (f), and those

funds for the Child and Adult Care Food

Program under (b)(4) which are not

otherwise redirected for the Food

Distribution Program under § 235.4(d)

may be used to assist in the

administration of the Food Distribution

Program for such purposes. However, no

funds designated for the exclusive use

of the Food Distribution Program may

be transferred by any State agency for

other purposes. Furthermore, for each

fiscal year beginning with Fiscal Year

1993, expenditures of funds from State

sources for administrative costs

incurred in the distribution of USDA

donated foods to schools and

institutions which participate in

programs governed by parts 210, 220,

and/or 226 of this chapter shall not be

less than the amount of such funds

expended in Fiscal Year 1991.

* * * * *

(g) FCS shall allocate, for the purpose

of providing grants on an annual basis

to public entities and private nonprofit

organizations participating in projects

under section 18(c) of the National

School Lunch Act, not more than

$4,000,000 in each of Fiscal Years 1993

and 1994. Subject to the maximum

allocation for such projects for each

fiscal year, at the beginning of each of

Fiscal Years 1993 and 1994, FCS shall

allocate, from funds available under

§ 235.5(d) that have not otherwise been

allocated to States, an amount equal to

the estimates by FCS of the funds to be

returned under paragraph (a) of this

section, but not less than $1,000,000 in

each fiscal year. To the extent that

amounts returned to FCS are less than

estimated or are insufficient to meet the

needs of the projects, FCS may allocate

amounts to meet the needs of the

projects from funds available under this

section that have not been otherwise

allocated to States. FCS shall reallocate

any of the excess funds above the

minimum level in accordance with

§ 235.5(d).

§ 235.7 [Amended]

7. In § 235.7,

a. The second sentence of paragraph

(b) is amended by removing the

reference to ‘‘§ 235.4(c) of this part’’ and

adding in its place the reference to

‘‘§ 235.6(a)’’.

b. The first sentence of paragraph (c)

is amended by removing the words

‘‘directed by Congress and requested’’

and adding in their place the word

‘‘authorized’’. Paragraph (c) is further

amended by removing the words ‘‘FY

’80’’ from the last sentence.

§ 235.11 [Amended]

8. In § 235.11:

a. Paragraph (b)(2) is amended by

removing the reference to ‘‘§ 235.4(a)’’

and adding in its place the reference to

‘‘§ 235.4 (a)(1)’’.

b. Paragraph (b)(3) is amended by

removing the reference to ‘‘§ 235.4(b)’’

and addding in its place the reference to

‘‘§ 235.4(a)(2)’’.

c. Paragraph (b)(4) is amended by

removing the reference to ‘‘§ 235.4(a)’’

and adding in its place the reference to

‘‘ § 235.4(a)(1)’’.

d. Paragraph (b)(7) is amended by

removing the reference to ‘‘§ 235.4(e)’’

and adding in its place the reference to

‘‘§ 235.5(d)’’.

Dated: March 16, 1995.

William E. Ludwig,

Administrator.

[FR Doc. 95–7310 Filed 3–23–95; 8:45 am]

BILLING CODE 3410–30–U

FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R–0858]

Truth in Lending

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board is publishing

amendments to Regulation Z (Truth in

Lending). The amendments implement

changes made to the Truth in Lending

Act by the Riegle Community

Development and Regulatory

Improvement Act of 1994. The law

imposes new disclosure requirements

and substantive limitations on closedend home equity mortgage loans bearing

rates or fees above a certain percentage

or amount. The amendments provide

protection to consumers entering into

these mortgages. The law also imposes

new disclosure requirements to assist

consumers in comparing the cost of

reverse mortgage transactions, which

provide periodic advances primarily to

elderly homeowners and rely

principally on the home’s value for

repayment.

DATES: This rule is effective March 22,

1995. Compliance is optional until

October 1, 1995.

FOR FURTHER INFORMATION CONTACT: Jane

Ahrens, Senior Attorney, or Kyung ChoMiller, Sheilah Goodman, or Kurt

Schumacher, Staff Attorneys, Division

of Consumer and Community Affairs,

Board of Governors of the Federal

Reserve System, at (202) 452–3667 or

452–2412; for the hearing impaired

only, Dorothea Thompson,

Telecommunications Device for the

Deaf, at (202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The purpose of the Truth in Lending

Act (15 U.S.C. 1601–1666j) is to

promote the informed use of consumer

credit. The act requires creditors to

disclose credit terms and the cost of

credit as an annual percentage rate

(APR). The act requires additional

disclosures for loans secured by a

consumer’s home, and permits

consumers to cancel certain transactions

that involve their principal dwelling.

The act is implemented by the Board’s

Regulation Z (12 CFR part 226).

The Home Ownership and Equity

Protection Act of 1994 (HOEPA),

contained in the Riegle Community

Development and Regulatory

Improvement Act of 1994 (Community

Development Act), Pub. L. 103–325, 108

Stat. 2160, amends the Truth in Lending

Act (TILA). Section 152 of the HOEPA

adds a new section 129 dealing with

certain mortgages bearing rates or fees

above a certain percentage or amount.

Section 154 adds a new section 138

dealing with reverse mortgage

transactions.

The HOEPA was enacted in

September 1994, and directs the Board

to issue final regulations within 180

days. Section 155 provides that the

statutory provisions and the Board’s

rules shall apply on the October 1

following six months after the final

regulation is issued. It also states that

the final rule governs all mortgage

transactions having rates or fees above

a certain percentage or amount

(‘‘Section 32 mortgages,’’ as found in

§ 226.32 of the regulation) consummated

after the mandatory effective date. The

Board has determined that the same

compliance rule applies to reverse

mortgage transactions consummated

after October 1, 1995.