[Federal Register Volume 60, Number 83 (Monday, May 1, 1995)]
[Rules and Regulations]
[Pages 21322-21364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9915]




[[Page 21321]]

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Part III





Department of Health and Human Services





_______________________________________________________________________



Office of the Secretary



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45 CFR Part 96



Block Grant Programs; Final Rule

Federal Register / Vol. 60, No. 83 / Monday, May 1, 1995 / Rules and 
Regulations 
[[Page 21322]] 

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 96


Block Grant Programs

AGENCY: Administration for Children and Families, HHS.

ACTION: Final rule.

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SUMMARY: This final rule amends the regulations of the Department of 
Health and Human Services (HHS) governing the administration of block 
grant programs; it applies specifically to the low-income home energy 
assistance program (LIHEAP). The rule revises, and makes final, 
provisions included in an interim final rule that amended the block 
grant regulations and implemented certain changes to the LIHEAP statute 
made by the Augustus F. Hawkins Human Services Reauthorization Act of 
1990. These changes involve the Department's response to complaints, 
reduction in the percent of LIHEAP funds that grantees may carry 
forward from one fiscal year to the next, waiver authority to increase 
the percent of LIHEAP funds that grantees may use for weatherization, a 
requirement for additional outreach and intake services under certain 
circumstances, and a leveraging incentive program. This final rule also 
makes several related, largely technical and conforming, amendments to 
the block grant regulations.

EFFECTIVE DATE: This final rule is effective beginning May 31, 1995, 
with the exception of section 96.87, Leveraging incentive program, 
which is effective beginning October 1, 1995. Section 96.87 as included 
in the interim final rule published in the Federal Register on January 
16, 1992 (57 FR 1960), is effective through September 30, 1995.

FOR FURTHER INFORMATION CONTACT:
Janet M. Fox, 202-401-9351, or Ann Bowker, 202-401-5308.

SUPPLEMENTARY INFORMATION: The Low-Income Home Energy Assistance Act of 
1981, title XXVI of the Omnibus Budget Reconciliation Act of 1981 
(Public Law 97-35), established the low-income home energy assistance 
program. On July 6, 1982, HHS issued final regulations for LIHEAP and 
the six other blocks grants it administered at that time (45 FR 29472). 
Since then, the statute and the block grant regulations have been 
amended several times.
    The Augustus F. Hawkins Human Services Reauthorization Act of 1990 
(Pub. L. 101-501) was enacted on November 3, 1990. Title VII of Public 
Law 101-501 contains amendments to the Low-Income Home Energy 
Assistance Act, including several changes effective in FY 1991 and FY 
1992. These changes concern HHS's response to formal complaints, 
reduction in the maximum amount that grantees may carry forward from 
one fiscal year to the next, waiver authority to increase the statutory 
weatherization assistance maximum, a requirement for additional 
outreach and intake services in certain cases, and a leveraging 
incentive program.
    On January 16, 1992, HHS published an interim final rule (57 FR 
1960) amending the block grant regulations and implementing these 
statutory changes, as required under Public Law 101-501. The interim 
final rule allowed a 60-day comment period.
    We received 25 letters commenting on the interim final rule--two 
from members of Congress, twelve from State LIHEAP grantees, one from a 
county, two from Indian tribal grantees, three from home energy 
suppliers, and five from others. Based on the comments we received and 
on our experience over the two and half years the interim rule has been 
in effect, we have revised the interim rule as appropriate. It is now 
being made final.
    In addition to the statutory changes implemented by the interim 
final rule published January 16, 1992, Public Law 101-501 includes 
several changes scheduled to affect LIHEAP beginning in FY 1994. These 
changes concern forward funding based on a program year of July 1 
through June 30--whose implementation, initially set for FY 1993, was 
delayed until FY 1994 by the Departments of Labor, Health and Human 
Services, and Education, and Related Agencies Appropriations Act, 1993 
(Public Law 102-394)--and the end of authority to transfer LIHEAP funds 
to other HHS block grants. The Department published a notice of 
proposed rule making (NPRM) regarding these changes, and other proposed 
changes involving both LIHEAP and other HHS block grants, on November 
16, 1993 (58 FR 60498). The NPRM allowed a 45-day comment period. Since 
then, the Human Services Amendments of 1994 (Public Law 103-252), 
enacted May 18, 1994, changed the forward (or advance) funding program 
year to October 1 through September 30--the same dates as the current 
Federal fiscal year, but funded one year in advance. The November 16, 
1993, proposed rule also included some provisions that had originally 
been included in a notice of proposed rulemaking issued by the 
Department on July 17, 1992. Based on comments received on these 
notices of proposed rulemaking, HHS intends to publish a separate final 
rule implementing appropriate provisions, except for the provisions 
described below, which are incorporated into the final rule published 
today.
    The final rule published today includes several changes proposed in 
the November 1993 NPRM. They involve issues that were also addressed in 
the January 1992 interim rule. One change gives grantees the option to 
submit a preliminary request for a waiver to increase the statutory 
weatherization maximum. Other changes relate to the end of grantees' 
authority to transfer LIHEAP funds to other block grants after FY 1993, 
and reduction in the amount grantees may carry forward from one fiscal 
year to the next, and are included in the regulations' discussion of 
the time period for obligation of LIHEAP funds. These technical 
amendments implement provisions of Public Law 101-501. We received one 
comment from a State LIHEAP grantee on the weatherization waiver in the 
NPRM, and none on the end of transfer authority or reduction in maximum 
carryover.
    The final rule also makes a technical amendment deleting reference 
to the transfer authority in the regulations' discussion of uses of 
leveraging incentive funds, because this authority has ended.
    Finally, the final rule makes a technical amendment changing the 
due date of grantees' reports on their leveraging activities, in 
accordance with the Human Services Amendments of 1994 (Pub. L. 103-
252). Title III of Public Law 103-252 contains amendments to the Low-
Income Home Energy Assistance Act. We plan to address most of these 
statutory amendments in a proposed rule at a later date.
    The provisions of the regulations, together with the comments we 
received and our responses, are discussed below.

Section-by-Section Analysis of Changes in the Regulations

Subpart B--General Procedures

Section 96.14  Time Period for Obligation and Expenditure of Grant 
Funds

    Public Law 101-501 amended section 2607(b)(2) of the LIHEAP 
statute, reducing the maximum amount of LIHEAP funds that grantees may 
carry forward for obligation in the succeeding fiscal year, from 15 to 
10 percent of the funds payable to the grantee and not transferred to 
another HHS block grant. [[Page 21323]] This change was effective 
beginning with FY 1991 funds carried forward to FY 1992. In addition, 
Public Law 101-501 amended section 2604(f)(2) of the statute, ending 
grantees' authority to transfer LIHEAP funds to other HHS block grants, 
beginning in FY 1994.
    The final rule makes technical and conforming corrections to 
section 96.14(a)(2) of the block grant regulations, which concerns 
obligation and carryover of LIHEAP funds, to reflect these statutory 
changes. Consistent with a change to section 96.81 that was included in 
the interim rule, the final rule specifies the current reduced amount 
that grantees may carry forward to the next fiscal year. Also, it omits 
reference to transfer of LIHEAP funds, beginning with FY 1994 
allotments.
    Also, the final rule clarifies that section 96.14(a)(2) applies to 
regular LIHEAP block grant funds and not to LIHEAP leveraging incentive 
funds. (Section 96.87 of the regulations deals with leveraging 
incentive funds.)
    These technical changes are consistent with language in the notice 
of proposed rulemaking published November 16, 1993, except that the 
final rule deletes references to funding on a program year cycle, since 
Congress determined in the Human Services Amendments of 1994 that 
LIHEAP will remain on a Federal fiscal year cycle. We received no 
comments on these changes in the NPRM.

Subpart E--Enforcement

Section 96.50  Complaints

    Public Law 101-501 amended section 2608(a)(2) of the LIHEAP 
statute, effective beginning in FY 1991. Section 2608(a)(2) concerns 
formal complaints of a substantial or serious nature that a grantee has 
failed to used funds in accordance with the LIHEAP statute. The 
previous statutory language had required HHS to ``respond in an 
expeditious and speedy manner to'' such complaints. The amended 
language sets a specific time period within which HHS must respond to 
complaints; it requires HHS to ``respond in writing in no more than 60 
days to matters raised in'' complaints.
    As originally published in July 1982, the block grant regulations 
stated at 45 CFR 96.50(d):
    The Department will provide a written response to complaints 
[concerning grantee administration of the block grants] within 180 days 
after receipt. If a final resolution cannot be provided at that time, 
the response will state the reasons why additional time is necessary.
    Section 96.50(c) of the regulations provides that HHS will 
``promptly furnish a copy of any complaint'' to the grantee against 
which the complaint was made and that, in responding to the complaint, 
HHS will consider any comments received from the grantee within 60 
days, or a longer period agreed on by the grantee and HHS.
    The preamble to the interim final rule published in January 1992 
explained that our experience has shown that, because of the serious 
and generally complex nature of the formal complaints we have received, 
LIHEAP grantees usually require a full 60 days to respond to complaints 
made against them. The interim rule therefore amended section 96.50(d) 
by adding a new sentence stating that, within 60 days after HHS 
receives a complaint concerning the low-income home energy assistance 
program, it ``will provide a written response to the complainant, 
stating the actions that it has taken to date and the timetable for 
final resolution of the complaint.''
    This amendment implemented the requirement in Public Law 101-501, 
that HHS respond within 60 days to complaints, while acknowledging the 
amount of time generally needed for grantees to respond to complaints, 
and for HHS to review and resolve these complaints. The interim rule's 
preamble explained that HHS will continue to provide final resolution 
as soon as possible, consistent with our responsibility to provide the 
affected grantee sufficient opportunity to respond and to provide 
thorough Federal review, and that we will continue to advise the 
complainant of the final action taken.
Public Comments, HHS Responses, and Change
    We received three comments on this amendment. Two commenters said 
that they believed the revised schedule for HHS response to complaints 
was reasonable and adequate.
    The third commenter said that, while HHS changed the regulation 
``to provide a written response to complaints under the LIHEAP statute 
within 60 days, rather than the previous 180 days, the response 
envisioned by HHS' language appears to be no more than a status 
report.'' The commenter also said that Public Law 101-501 requires HHS 
to ``establish a procedure for reviewing and investigating any 
complaint regarding State program compliance with Federal statutes and 
regulations. . . .'' The commenter asserted that ``HHS does not 
establish `a procedure for reviewing and investigating any complaint 
regarding State program compliance''' and noted that 45 CFR 96.50(c), 
``relating generally to block grants, states that HHS will conduct an 
investigation of complaints [only] `where appropriate.''' The commenter 
believed that ``this regulatory language is contrary to the statute'' 
and must be amended ``to establish for LIHEAP the procedure called for 
by this statutory change.''
    However, the language cited by the commenter is not the language of 
Public Law 101-501. Further, the block grant regulations provide a 
procedure under paragraphs (c), (d), and (e) of 45 CFR 96.50, for 
reviewing the resolving complaints, and the January 1992 interim rule 
modified that procedure to implement the requirement in Public Law 101-
501 for a written response within 60 days to complaints involving 
LIHEAP.
    Where section 96.50(c) states that HHS ``will conduct an 
investigation of complaints where appropriate,'' ``investigation'' 
means a formal and systematic, thorough and detailed effort to learn 
facts, that is carried out after a review conducted in response to a 
complaint shows evidence of possible illegal action, such as commission 
of fraud or theft. An investigation typically would result in a 
recommendation for civil or criminal prosecution and/or administrative 
sanctions. (This is consistent with the use of the term by the HHS 
Office of Inspector General.) In most cases, complaints are resolved 
without conducting a formal investigation. We will conduct an 
investigation if our review of a complaint indicates a need to do so.
    The same commenter also referred to Senate Report 101-421 
accompanying H.R. 4151 (the predecessor to Public Law 101-501), that 
``explains this proposed change as `designed to respond to concerns 
regarding the need for a more expeditious and effective response to 
complaints. . . .'''
    Since the start of the LIHEAP block grant in FY 1982, we have tried 
to respond expeditiously and effectively to the formal complaints we 
have received. In addition, we have worked to reach expeditious and 
effective resolution of other concerns expressed to us about grantee 
LIHEAP programs. During this time, the only comments we have received 
on the timeliness and effectiveness of our response to complaints have 
been the cited sentence in the Senate Report and the comments of this 
commenter. Neither included any specific examples.
    In response to this commenter, the final rule adds the phrase, ``if 
the complaint has not yet been fully resolved,'' to the last sentence 
under [[Page 21324]] section 96.50(d), to indicate that we will fully 
resolve complaints within 60 days whenever possible. That sentence now 
reads,
    Under the low-income home energy assistance program, within 60 days 
after receipt of complaints, the Department will provide a written 
response to the complainant, stating the actions that it has taken to 
date and, if the complaint has not yet been fully resolved, the 
timetable for final resolution of the complaint.
    We will make every reasonable effort--while providing sufficient 
time for grantees to respond to complaints and for HHS to review the 
complainant's allegations and the grantee's response and to conduct an 
investigation as necessary--to fully resolve complaints within 60 days 
from the date we receive them. However, based on our experience over 
the past decade, we believe that it would not serve the best interests 
of the complainant, the grantee, or the Department to require by 
regulation that HHS provide final resolution of formal complaints 
within 60 days of their receipt.

Subpart H--Low-Income Home Energy Assistance Program

Section 96.83  Increase in Maximum Amount That May Be Sued for 
Weatherization And Other Energy-Related Home Repair

    Public Law 101-501 amended section 2605(k) of the LIHEAP statute, 
beginning in FY 1991. It provides that grantees may request after March 
31 of each fiscal year that HHS grant a waiver for the fiscal year that 
increases from 15 percent to up to 25 percent of the LIHEAP funds 
allotted or available to the grantee, the maximum amount of LIHEAP 
funds the grantee may use for low-cost residential weatherization or 
other energy-related home repair. Grantees that choose to apply for a 
waiver may request authority to use for these purposes any amount 
between 15 percent and 25 percent of their LIHEAP funds.
    The statute provides that, after reviewing a grantee's waiver 
request and any public comments, HHS may grant a waiver if it 
determines that: (1) the number of households in the grantee's service 
population that will receive LIHEAP heating assistance, cooling 
assistance, and crisis assistance (energy crisis intervention) benefits 
during the fiscal year will not be fewer than the number that received 
such benefits in the preceding fiscal year; (2) the aggregate amount of 
LIHEAP benefits that will be received during the fiscal year will not 
be less than the aggregate amount received in the preceding fiscal 
year; and (3) the weatherization activities have been demonstrated to 
produce measurable savings in energy expenditures. The statue also 
provides that HHS may grant a waiver if, in accordance with regulations 
to be published by HHS, the grantee's waiver request demonstrates good 
cause for failing to satisfy the requirements in the preceding 
sentence.
    The January 1992 interim final rule added a new section 96.83 to 
the block grant regulations to implement procedures concerning 
``standard'' and ``good cause'' waivers of the 15 percent 
weatherization maximum.
    The November 1993 NPRM on forward funding proposed that grantees be 
allowed to submit preliminary weatherization waiver requests after 
January 31 of the program year, to expedite review and provide more 
time for obligation of funds.
Public Comments, HHS Responses, and Changes
    We received several comments on the provisions in the LIHEAP 
statute, the interim rule, and the November 1993 NPRM relating to 
waiver of the weatherization maximum.
    Two commenters supported the statutory waiver provision allowing an 
increase in the percent of LIHEAP funds that can be used for 
weatherization. One commenter opposed the statutory waiver provision, 
stating that it makes LIHEAP ``cash'' heating/cooling/energy crisis 
assistance and LIHEAP weatherization ``continue to compete for limited 
resources.'' One commenter said that the rule ``reflects our 
understanding'' of the statutory weatherization amendments.

Comment and Response

    Another commenter believed that HHS ``should have been more 
explicit in conveying'' to grantees that Congress intended that 
weatherization waivers be granted only ``under the most limited of 
circumstances.'' A different commenter said that the guidance in the 
interim rule failed to state Congress' intent, per the Senate report, 
that a ``good cause'' waiver be granted only when a grantee has 
demonstrated ``compelling reasons.''
    While we did not specifically state that waivers--especially ``good 
cause'' waivers--would be granted only for compelling reasons and under 
very limited circumstances, we believe it is clear that grantees must 
demonstrate that they meet specific, stringent requirements in order to 
receive a waiver. To date, we have received only eight weatherization 
waiver requests. We approved the one request received in FY 1991 and 
seven requests received in FY 1994. We approved standard waivers for 
four of the FY 1994 requests.

Comment and Respronse

    A commenter erroneously stated that the interim rule ``merely 
requests that the Grantee submit an explanation of the specific 
criteria under which the Grantee's weatherization activities have been 
shown to produce measurable savings'' in energy expenditures. The 
commenter believed that these savings must be ``substantial and long 
term.'' The commenter proposed that HHS establish ``a standard 
methodology * * * in the regulations for normalizing annual consumption 
to ensure a common measure for energy savings'' and set ``a minimum 
threshold'' for ``measurable savings.''
    The interim rule--and this final rule--require at section 
96.83(c)(5) that grantees include with their weatherization waiver 
requests ``an explanation of the specific criteria under which the 
grantee has determined whether'' all LIHEAP weatherization activities 
to be carried out during the fiscal year for which the waiver is 
requested ``have been shown to produce measurable savings in energy 
expenditures.'' However, we decline to require that savings be 
``substantial and long term,'' to establish a standard methodology to 
measure energy savings, or to set a minimum threshold for savings. The 
LIHEAP statute's third criterion for a ``standard'' waiver specifies 
that the grantee's ``weatherization activities have been demonstrated 
to produce measurable savings in energy expenditures by low-income 
households.'' The regulation uses parallel language; it does not go 
beyond the substance of the statutory criterion to specify a required 
level or duration, or a standard measure, of energy savings. We believe 
that it would be inconsistent with the block grant philosophy expressed 
by Congress and implemented by HHS to impose such additional 
requirements. The basic premise of the block grants is that, within the 
parameters set by the statute, grantees should have maximum flexibility 
to target resources to meet the needs of their citizens. The regulation 
limits the circumstances under which waivers will be granted, in 
accordance with the statutory language and what we understand to be the 
legislative intent as expressed in the legislative history.

Comment and Response

    Another commenter addressed the third criterion that must be met by 
grantees applying for a ``standard'' [[Page 21325]] waiver--that the 
weatherization activities to be carried out by the grantee in the 
fiscal year for which the waiver is requested have been shown to 
produce measurable savings in energy expenditures. The commenter 
erroneously believed that the criterion applies only to 
``weatherization'' and ``ignores [other] `low-cost energy related 
repair.''' However, paragraph (a) of section 96.83, which describes the 
scope of the section, states that ``low-cost residential weatherization 
and other energy-related home repair'' is referred to (more briefly) as 
``weatherization.''

Comment and Response

    A commenter proposed that improvement in health and safety 
resulting from weatherization be considered acceptable to meet the 
third criterion. We cannot adopt this proposal, because it would 
violate the LIHEAP statute's requirements for this criterion--that the 
``weatherization activities have been demonstrated to produce 
measurable savings in energy expenditures by low-income households.'' 
However, the statute and regulations provide for a waiver if a grantee 
can demonstrate ``good cause'' for failing to meet one or more of the 
three ``standard'' waiver criteria.

Comment and Response

    The interim rule's preamble indicated that, when determining 
whether to grant a ``good cause'' waiver, HHS would consider arguments 
and documentation that greater benefits will accrue to recipients for 
use of LIHEAP funds for weatherization than for cash assistance. A 
commenter asserted that neither the statute nor the legislative history 
supports considering this argument. However, the commenter mentions the 
Senate report's reference to long-term benefits resulting from 
weatherization improvements that reduce home energy costs. Consistent 
with the Senate report's prominent discussion of the expanded 
flexibility grantees have to provide energy conservation improvements 
through the weatherization waiver and the reductions in home energy 
costs resulting from these improvements, and with the statute's 
designation of HHS to determine rules for ``good cause'' waivers, we 
are not changing this policy.

Comment and Response

    The commenter also believed that if the grantee operated a shorter 
program, reduced outreach activities, and/or ``took other 
administrative steps which may also have led to a reduction in 
applications,'' this would be relevant in considering whether to grant 
a ``good cause'' waiver. We agree. We therefore revised section 
96.83(e) to provide that a grantee requesting a ``good cause'' waiver 
must include with its request a comparison of its opening and closing 
dates for applications, and a description of its outreach efforts, for 
heating, cooling and crisis assistance, in the fiscal year for which 
the waiver is requested and in the preceding fiscal year. The 
comparison should address the actual dates and outreach efforts--or the 
planned dates and planned outreach for future efforts expected to take 
place later in the fiscal year for which the waiver is requested. If 
the grantee's application period was longer and/or its outreach efforts 
were greater in the preceding fiscal year for one or more of these 
program components, the grantee must include an explanation 
demonstrating good cause why a waiver should be granted in spite of 
this fact. We also revised this section to provide that if the grantee 
took, or will take, other actions that led, or will lead, to a 
reduction in the number of applications for heating, cooling, and/or 
crisis assistance in the fiscal year for which the waiver is requested, 
the grantee must include with its request a description of these 
actions, and an explanation demonstrating good cause why a waiver 
should be granted in spite of these actions.
    In addition, we made minor clarifying technical amendments to 
section 96.83(e) describing information that must be included in 
grantees' requests for ``good cause'' waivers under a newly designated 
paragraph (1), and explaining the conditions under which HHS will grant 
a ``good cause'' waiver under a newly-designated paragraph (2).

Comment and Response

    A commenter believed that data from local home energy vendors are 
most appropriate for documenting decreased home energy costs, because 
Department of Energy data are mostly national or regional. We agree. 
While we are not changing the regulation to require use of data from 
local vendors, we encourage grantees submitting waiver requests that 
document decreased home energy costs to use actual cost/price/
expenditure data from the State or local area. In most cases, compiling 
the best available data probably would involve at least a sample of 
vendors in the grantee's service area.

Comment and Response

    A commenter said that HHS should require grantees submitting waiver 
requests to include copies of public statements in full, including 
transcripts of comments made during public hearings, because the 
interim rule's requirement that grantees submit ``copies and/or 
summaries of public comments'' affords grantees ``an opportunity to 
selectively quote and characterize concerns expressed'' by the public. 
The commenter quoted the Senate report statement that HHS ``should not 
necessarily be guided only by the submissions from the state'' in 
deciding whether to grant a waiver, to support the assertion that the 
legislative history ``clearly'' intends HHS ``to independently consider 
these comments.''
    We decline to require grantees seeking waivers to submit ``copies 
of public statements in full, including transcripts of comments made 
during public hearings.'' We believe that the paperwork burden imposed 
would outweigh the possible advantages of such a requirement. Use of 
the words ``not necessarily'' in the Senate report indicates that HHS 
may decide the extent to which it will review public comments. We 
believe that grantees will make responsible decisions regarding 
submission of relatively brief public comments in full and submission 
of summaries of lengthy and/or numerous comments. We will independently 
consider the comments and summaries submitted to us. During compliance 
reviews, we will monitor the records/documentation of grantees that 
submitted summaries of public comments with waiver requests, to assure 
that these summaries accurately reflect the comments.
    In response to this commenter's recommendations, however, we 
changed section 96.83(b) of the regulations to require that written 
public comments on a proposed waiver request be made available for 
public inspection upon their receipt by grantees, and that any 
summaries of written comments, and transcripts and/or summaries of any 
verbal comments made on the request at public meetings or hearings also 
be made available for public inspection. We also changed this section 
to specify that transcripts and/or summaries of any comments made on 
the request at public meetings or hearings must be included with waiver 
requests submitted to HHS. Finally, we changed this section to require 
that copies of actual waiver requests must be made available for public 
inspection upon submission of the requests to HHS, enabling the public 
to review the decisions made by the grantee and verify that comments 
were accurately conveyed. These additional requirements strengthen 
grantees' accountability to the public by assuring 
[[Page 21326]] public access and the opportunity to respond to 
comments, and by assuring that waiver requests submitted to HHS include 
verbal as well as written public input.
    The final rule also changes section 96.83(b) to require grantees to 
make all weatherization waiver requests--including the preliminary 
waiver requests described below--available for public inspection and 
comment until at least March 15 of the fiscal year for which the waiver 
is requested. Several grantees said in their FY 1994 LIHEAP plans that 
they intended to request weatherization waivers in FY 1994. Public 
participation in the development of the plan--before or early in the 
fiscal year--took place before the severity of the winter, winter fuel 
prices, etc., were known. Therefore, public inspection and comment this 
far in advance of submission of a waiver request is not sufficient; 
public participation would not be meaningful if the only public 
notification was before the winter. There should be public notice about 
a proposed request, after January 1 of the fiscal year for which the 
waiver is to be requested.
    We have tried to balance the interests of the public--the 
recipients of LIHEAP assistance--and the valid concerns of grantees--
the primary administrators of the LIHEAP block grant. We have also 
tried to write regulations that are consistent with the statute and 
legislative history, that require grantees to address specific criteria 
and provide specific information (including quantified data) to justify 
use of additional funds for weatherization--without imposing 
unnecessary and burdensome paperwork requirements and without making it 
virtually impossible to receive a waiver. We are commented to assuring 
program accountability and fair treatment, meaningful access to 
information, and meaningful opportunity for input for the public. 
However, it would be inconsistent with the block grant philosophy 
clearly expressed by Congress and implemented by HHS to burden grantees 
with regulatory requirements that do not clearly serve those ends and 
that are not based on statutory requirements and/or legislative 
history.

Comments and Response

    Finally, the interim rule's preamble said that we were interested 
in comments about whether the statutory starting date of April 1 for 
weatherization waiver requests would create problems for administration 
of grantee programs under forward funding. The forward funding program 
year was scheduled to begin July 1 and end June 30, leaving only three 
months for submission and review of waiver requests and for obligation 
of most of the funds for which a waiver has been granted. We received 
two comments in response. A State proposed that HHS ask Congress to 
amend the LIHEAP statute to allow submission of waiver requests after 
January 31 if forward funding is implemented. Another commenter said 
that a submission date two to four weeks before March 31 might be 
reasonable.
    Our November 1993 NPRM on forward funding proposed that grantees be 
permitted to submit a preliminary waiver request after January 31 of a 
program year. This would provide sufficient time for HHS to review the 
waiver request and obtain any additional information that might be 
needed, and still allow the grantee to obligate its funds by June 30, 
which was scheduled to be the end of the forward funding program year. 
In a comment on the NPRM, a State proposed that weatherization waiver 
requests be submitted with the grantee's initial LIHEAP application for 
a program year, and that States not be required to submit new waiver 
requests each time they wanted a waiver. The commenter objected to the 
(statutory) requirement that HHS make decisions on waiver requests only 
after March 31.
    Seeking earlier feedback on their FY 1994 waiver requests, this 
State and another submitted these requests before April 1, 1994. These 
grantees confirmed and completed the requests, and HHS made the 
decisions to approve them, after March 31.
    The LIHEAP statute specifies that HHS may grant a waiver ``for a 
fiscal year'' if the grantee submits a written request to the 
Department ``after March 31 of such fiscal year'' and if HHS 
``determines, after reviewing such request and any public comments,'' 
that the number of households that will receive LIHEAP benefits other 
than weatherization, and the aggregate amount of these benefits, will 
be greater in the fiscal year for which it requests a waiver than they 
were in the preceding fiscal year, or there is good cause for not 
meeting these conditions. The grantee cannot know until well into each 
winter how many households it will (or is likely) to serve and the 
amount of benefits it will provide, since this often depends on weather 
and economic conditions that are not known before the winter.
    However, the written comment on the NPRM, grantees' submission of 
early weatherization waiver requests and statements of intent to apply 
for waivers, and verbal comments indicated grantees' concern that April 
1 is relatively late in the program year--and in the Federal fiscal 
year as well. It would be mid-April, at the earliest, before a decision 
was made. This would leave considerably less than three months for 
additional weatherization funds to be obligated under the proposed July 
1 to June 30 program year. It would leave considerably less than six 
months under the Federal fiscal year.
    As noted earlier, Congress has determined that LIHEAP will remain 
on the Federal fiscal year funding cycle, so there will be more time 
for weatherization to be implemented. But we have concluded that the 
option for a grantee that wants a weatherization waiver, to submit a 
preliminary waiver request between February 1 and March 31, is 
appropriate for the fiscal year cycle as well as the program year 
cycle. It will enable HHS to review the preliminary request and discuss 
any issues or concerns with the grantee as winter is ending. Once the 
grantee submits updated information and a confirmation of its request 
after March 31, HHS can more quickly decide and respond, and the 
grantee will have more time to carry out the weatherization.
    This final rule therefore changes section 96.83(c) of the 
regulations to permit grantees to submit preliminary waiver requests at 
their option, between February 1 and March 31 of the fiscal year for 
which the grantee seeks a waiver. The preliminary request should 
contain the same information required for waiver requests submitted 
after March 31. Because the LIHEAP statute permits grantees to submit 
waiver requests for a fiscal year ``after March 31 of such fiscal 
year,'' grantees that submit preliminary requests must submit formal 
confirmation of their request after March 31, along with information on 
any additional public comments received and any changes to the request. 
HHS will make the decisions on whether to grant waivers after March 31.
Additional Information
    The preamble to the January 1992 interim final rule included 
additional information relating to ``standard'' and ``good cause'' 
waivers, public comment, submission and review of waiver requests, and 
the effective period for waivers. With indicated modifications and 
clarifications made in response to comments and our experience with 
weatherization waiver requests, that information is still effective and 
is included as the remainder of this final rule's preamble discussion 
of section 96.83, as follows.
[[Page 21327]]

``Standard'' and ``Good Cause'' Waivers

    The first criterion for a ``standard'' waiver requires that the 
number of households in the grantee's service population that will 
receive LIHEAP heating, cooling, and crisis assistance benefits will 
not be fewer than the number that received such benefits in the 
preceding fiscal year. This criterion applies to the total, combined, 
aggregate number of households receiving these types of benefits in 
each fiscal year. Grantees are to use their best estimates for each 
fiscal year of (1) the total or combined number of all households 
receiving each of these types of assistance (which may involve some 
duplication, e.g., counting a household twice if it received both 
regular heating assistance and heating crisis assistance); or (2) the 
unduplicated number of households receiving heating assistance and 
heating crisis assistance plus the unduplicated number of households 
receiving cooling assistance and cooling crisis assistance. Grantees 
must use the same method of calculation for both fiscal years. Numbers 
for the earlier fiscal year should be consistent with the numbers 
included in the grantee's official report of the number and income 
levels of households it assisted during that year (as required by 45 
CFR 96.82) or with a revised report.
    The second criterion requires that the aggregate amount of LIHEAP 
benefits in the current year will not be less than the aggregate amount 
of LIHEAP benefits received in the preceding fiscal year. It applies to 
the total, combined, aggregate amount, in dollars, of LIHEAP heating, 
cooling, and crisis assistance benefits in each fiscal year--not to the 
separate totals for each type of assistance. This final rule clarifies 
at section 96.83(c)(2)(ii) that the LIHEAP benefit amounts must be 
expressed in dollars. When items such as blankets and fans are provided 
as benefits, the dollar amount of LIHEAP funds used to purchase them 
should be included. When services such as emergency repair of furnaces 
are provided, the dollar amount of LIHEAP funds used to pay for the 
services should be included.
    Grantees will need to project figures for any households to be 
served and funds to be obligated from the date the waiver request is 
submitted until the end of the fiscal year for which the waiver is 
requested.
    This final rule clarifies that the first and second criteria apply 
respectively to the number of households receiving LIHEAP heating, 
cooling, and crisis assistance, and to the amount of LIHEAP heating, 
cooling, and crisis assistance, provided by the grantee's Federal 
LIHEAP allotment from regular and supplemental appropriations. It 
clarifies that assistance provided from other sources, such as the 
grantee's own funds, oil overcharge funds, (other) leveraged resources, 
and leveraging incentive funds, should not be included under these 
criteria.
    The third criterion requires that the weatherization activities 
have been shown to produce measurable savings in energy expenditures. 
It applies to all LIHEAP weatherization activities to be carried out by 
the grantee during the fiscal year for which the waiver is requested, 
not just to activities proposed to be carried out with amounts above 15 
percent of the grantee's LIHEAP funds. Grantees will not meet this 
criterion unless all of their LIHEAP weatherization activities for the 
fiscal year have been shown to produce measurable savings.
    The LIHEAP statute and the HHS block grant regulations do not name 
specific activities which are allowable as weatherization and other 
energy-related home repair under the LIHEAP program. However, the 
statute and Federal regulations for the low-income weatherization 
assistance program (LIWAP) administered by the Department of Energy 
(DOE) do name certain weatherization measures that are allowable under 
that program. The statute authorizing LIWAP is the Energy Conservation 
in Existing Buildings Act of 1976 (title IV of the Energy Conservation 
and Production Act, Public Law 94-385, as amended; 42 U.S.C. 6851 et 
seq.). The Federal regulations implementing DOE's Weatherization 
Assistance for Low-Income Persons are found at 10 CFR part 440. These 
regulations include ``Standards for Weatherization Materials'' at 
Appendix A. In addition, DOE has allowed other activities by program 
notice and correspondence.
    The DOE weatherization statute and regulations apply specifically 
to LIWAP, and the LIHEAP statute and regulations apply to LIHEAP. 
However, to promote consistency in their weatherization programs, 
LIHEAP grantees may choose to use certain DOE weatherization provisions 
as guidance in administering their LIHEAP weatherization programs, as 
long as these provisions are consistent with the LIHEAP statute and 
regulations.
    (Public Law 103-252--the Human Services Amendments of 1994--allows 
HHS to permit LIHEAP grantees to use LIHEAP weatherization funds under 
DOE LIWAP rules that are not consistent with the LIHEAP statute. HHS 
plans to address this new option in a proposed rule on Public Law 103-
252.)
    HHS will accept the following as weatherization activities which 
have been shown to produce measurable savings in energy expenditures, 
as long as these activities also are consistent with the requirements 
of the LIHEAP statute and regulations: installation of the specific 
materials meeting the specific standards listed in Appendix A of the 
DOE weatherization regulations at 10 CFR part 440; installation of 
materials meeting the specific standards incorporated by reference in 
Appendix A; and weatherization activities specifically allowed by 
official DOE correspondence and memoranda. LIHEAP grantees requesting a 
waiver of the LIHEAP statutory weatherization maximum who propose to 
carry out these weatherization activities may cite these sources as the 
criteria under which they have determined that these activities have 
been shown to produce measurable savings.
    In addition to listing requirements for a ``standard'' 
weatherization waiver for grantees that meet the three criteria 
discussed above, this final rule sets criteria for a ``good cause'' 
waiver for grantees that wish to use more than 15 percent of their 
LIHEAP funds for weatherization, but do not meet one or more of the 
three criteria for a ``standard'' waiver. As noted earlier in this 
preamble, the final rule includes additional requirements at section 
96.83(e) for a ``good cause'' waiver, regarding the length of the 
grantee's application period and the grantee's outreach efforts, for 
heating, cooling, and/or crisis assistance applications, from the 
preceding fiscal year to the fiscal year for which the waiver is 
requested.
    Requests for both ``standard'' and ``good cause'' waivers must 
include comparison of the grantee's best estimates of service and 
benefit totals for the year for which the waiver is requested with 
service and benefit totals for the preceding fiscal year. The criteria 
for a ``good cause'' waiver include the requirements that grantees 
explain the reasons they are not maintaining the prior year's service 
and/or benefit levels, as appropriate, demonstrating good cause for 
failing to maintain these levels and justifying use of additional funds 
for weatherization. Reasons for failing to maintain service levels 
might include reduction in need and/or fewer applications for 
assistance due to improvement in economic conditions and decline in 
unemployment, warmer than normal winter weather, and/or lower home 
energy costs for low-income households. As indicated earlier in this 
[[Page 21328]] preamble, we also will consider arguments and 
documentation (e.g., cost benefit analysis) that greater benefits will 
accrue to recipients from use of funds for weatherization than for cash 
assistance. Further, we will consider arguments that service or benefit 
levels were higher in the preceding year because of supplemental 
appropriations enacted in response to unusual conditions, such as 
abnormally cold winter weather and/or large fuel price increases.
    ``Good cause'' waiver requests also must include a comparison of 
the grantee's LIHEAP heating, cooling, and crisis assistance 
eligibility standards (eligibility criteria), benefit levels, 
application periods, and outreach efforts for the fiscal year of the 
waiver request and for the preceding fiscal year. If the eligibility 
standards were less restrictive, the benefit levels were higher, the 
application periods were longer, and/or the outreach efforts were 
greater for one or more of these program components in the preceding 
year, the ``good cause'' waiver request must include an explanation 
demonstrating good cause why a waiver should be granted in spite of 
this fact. In addition, other actions that led to a reduction in the 
number of applications for heating, cooling, and/or crisis assistance 
must be addressed. We will review this information to determine whether 
a waiver would be consistent with congressional intent to maintain 
service and benefit levels.
    ``Good cause'' documentation should cite measurable, quantified 
data, and the sources for these data. For example, grantees documenting 
reduction in need for cash benefits may provide comparison of 
unemployment statistics, Aid to Families with Dependent Children (AFDC) 
and other public assistance recipiency data, and the number of 
applications for LIHEAP assistance, for the current and the preceding 
fiscal year. Grantees documenting milder weather may cite National 
Weather Service data comparing heating or cooling degree days for their 
service area, as appropriate. Grantees documenting decreased home 
energy costs preferably should cite actual prices/costs in the local 
service area, as discussed earlier in this preamble.

Public Ispection and Comment

    Consistent with the requirements and legislative history of Public 
Law 101-501, the final rule maintains the requirement from the interim 
rule that grantees provide opportunity for timely and meaningful public 
review of, and comment on, their proposed weatherization waiver 
requests. The final rule adds the requirement that proposed waiver 
requests, and any preliminary waiver requests, be made available until 
at least March 15 of the fiscal year for which the waiver will be 
requested. As discussed earlier in this preamble, it also adds the 
requirement that written public comments on the proposed waiver request 
must be made available for public inspection upon their receipt by 
grantees, as must any summaries prepared of these written comments, and 
transcripts and/or summaries of any verbal comments made on the request 
at public meetings or hearings. Consistent with House of 
Representatives Conference Report 101-816, this public comment 
procedure does not require hearings. Once grantees have submitted 
waiver requests to HHS, copies of the entire waiver request submission 
must be made available for public inspection.
    For example, we expect grantees to provide notification about 
proposed waiver requests with enough lead time to allow interested 
parties a reasonable period in which to comment. We also expect 
grantees to specify what a LIHEAP weatherization waiver request is the 
(or a) topic of a meeting or request for comments, rather than simply 
to indicate that issues of general social services interest are 
involved.
    The final rule requires at section 96.83(c) that grantees include 
with their waiver requests a description of how and when the proposed 
waiver request was made available for timely and meaningful public 
review and comment, copies or summaries of public comments received, a 
statement of the method for reviewing public comments, and a statement 
of the changes, if any, that were made in response to these comments. 
Also, as discussed earlier in this preamble, the final rule adds the 
requirement that waiver requests include transcripts and/or summaries 
of any comments made on the request at public meetings or hearings.

Submission and Review of Waiver Requests

    Requests for waiver of the weatherization maximum must be made by 
the grantee's chief executive officer or designee, in writing. They 
should be sent to the Director, Office of Community Services, 
Administration for Children and Families, Department of Health and 
Human Services, 370 L'Enfant Promenade, S.W., Washington, D.C. 20447.
    HHS may require additional clarification or documentation as it 
determines necessary to decide whether a grantee fully satisfies the 
appropriate waiver requirements.
    We will review all requests and make a decision within a maximum of 
45 days of receipt of a completed request. We expect that most requests 
will be handled much more quickly than this. A need for additional 
information from the grantee will delay the start of this time period 
and delay the decision.
    HHS will approve all waiver requests that, in its judgment, meet 
all statutory and regulatory requirements for either a ``standard'' or 
a ``good cause'' waiver and that demonstrate adequate solicitation and 
consideration of public comments.
    No waiver will be granted after the end of the fiscal year for 
which the funds are appropriated. Accordingly, waiver requests must be 
submitted in sufficient time before the end of the fiscal year to allow 
for HHS review and grantee obligation of funds that cannot be carried 
forward.

Effective Period

    Waivers will be effective from the date of HHS's written approval 
until the funds are obligated in accordance with the LIHEAP statute and 
regulations.
    A grantee that has received a waiver is not required to use the 
full approved amount for weatherization. If a grantee decides to use 
less than the approved waiver amount for weatherization, it should 
amend its LIHEAP plan to reflect this decision.
    Funds for which a weatherization waiver is granted may be carried 
over to the following fiscal year, consistent with standard statutory 
and regulatory requirements for obligation and carryover of LIHEAP 
funds, and may retain their designation as funds to be used for 
weatherization, if the grantee so chooses. However, any carried-forward 
``waiver funds'' that retain this designation may not be considered 
``funds available'' or ``funds allotted'' for the purpose of 
calculating the maximum amount that may be used for weatherization in 
the succeeding fiscal year.

Section 96.84  Miscellaneous

    The January 1992 interim final rule consolidated three brief 
regulatory provisions under section 96.84. They are: a provision 
relating to rights and responsibilities of territories, a provision 
concerning applicability of the LIHEAP statutory assurances, and a 
provision concerning prevention of waste, fraud, and abuse in grantee 
LIHEAP programs. We consolidated these provisions due to space 
limitations in the LIHEAP portion of the block grant regulations. Also, 
the [[Page 21329]] interim rule amended the provision dealing with 
applicability of the assurances to indicate that the new assurance 15, 
discussed below, which was added to the LIHEAP statute as section 
2605(b)(15) by Public Law 101-501, applies to heating, cooling, and 
energy crisis intervention assistance.
    We received no comments on this consolidation. The final rule makes 
no change to section 96.84.

Section 96.86  Exemption From Requirement for Additional Outreach and 
Intake Services

    Public Law 101-501 added a new LIHEAP statutory assurance--
assurance 15--to which States must certify in their applications for 
LIHEAP funding. Under the new section 2605(b)(15), beginning in FY 
1992, States that provide outreach and intake for heating and cooling 
assistance and crisis situations through State departments of public 
welfare at the local level also must provide outreach and intake for 
these types of assistance through additional State and local 
governmental entities or community-based organizations. Examples of 
community-based organizations listed in the statute are not-for-profit 
neighborhood-based organizations, area agencies on aging, and community 
action agencies. In States where such entities or organizations did not 
administer these functions as of September 30, 1991, preference in 
awarding grants or contracts for intake services is to be provided to 
agencies that administer the low-income weatherization or energy crisis 
intervention programs.

Exemption of Indian Tribes, Tribal Organizations, and Some Territories

    The January 1992 interim final rule established a new section 96.86 
that exempted Indian tribes and tribal organizations from this 
requirement. This new section also exempted territories with annual 
LIHEAP allotments of $200,000 or less from the requirement.
    In the preamble to the interim rule, we explained the reasons for 
this exemption. We concluded that the provision concerning alternate 
outreach and intake services is not appropriate to American Indian 
tribal grantees because of the nature of tribal governments and their 
relationship to their service populations. Assurance 15 refers to 
outreach and intake services ``offered by State Departments of Public 
Welfare at the local level''--that is, by entities that administer 
public welfare programs. The legislative history for Public Law 101-501 
refers specifically to agencies that administer the Aid to Families 
with Dependent Children (AFDC) program. However, Indian tribes do not 
administer AFDC for their service populations. In accordance with 
Federal law and regulations, States provide AFDC assistance to eligible 
American Indians, including Indian people receiving LIHEAP assistance 
from tribes that receive direct LIHEAP funding. Indian tribes therefore 
do not have tribal departments or offices directly comparable to State 
departments of public welfare. We also noted that Indian tribes are 
close to their service populations. ``Tribal'' and ``local'' levels of 
administration generally are the same. Consequently, requiring tribes 
to provide for alternative outreach and intake services by additional 
governmental entities or community-based organizations would be 
inappropriate as well as inconsistent with the Federal government's 
policy of Indian self-determination.
    We also concluded that the new provision concerning alternate 
outreach and intake services is not appropriate to territories with 
regular LIHEAP allotments of $200,000 or less annually. Experience has 
shown that each grantee incurs certain basic administrative costs in 
developing and implementing a LIHEAP program. Most territories (and 
tribes) receive relatively small LIHEAP allotments. We concluded that, 
for territorial grantees with annual LIHEAP funding of $200,000 or 
less, the additional resources that would be required to provide 
alternative outreach and intake services would increase administrative 
and other non-benefit costs prohibitively and would significantly 
reduce the heating, cooling, crisis, and/or weatherization benefits 
that the territory could provide. We doubted that territories with 
LIHEAP allotments of $200,000 or less would have the ability to provide 
meaningful LIHEAP benefit levels if they also were required to provide 
for additional outreach and intake services. The time, effort, and 
funds spent providing alternate outreach and intake services would be 
significantly out of proportion to the direct LIHEAP benefits that 
could be provided to eligible households.
    In addition, the territories with current LIHEAP allotments of 
$200,000 or less that do not consolidate LIHEAP funds under other 
programs pursuant to Public Law 95-134, commonly referred to as the 
Omnibus Territories Act, administer LIHEAP entirely at the central 
territorial level. Because of their relatively small populations, they 
do not have separate local administering agencies. We concluded that a 
requirement for alternative local agencies would be inappropriate under 
these circumstances.
    This means that at current LIHEAP funding levels, all territories 
except the Commonwealth of Puerto Rico are exempt from this provision. 
The allotments of the territories in FY 1994, under the regular LIHEAP 
appropriation of $1.437 billion, range from $14,937 to $68,807 for all 
territories except Puerto Rico, whose allotment is $1,708,030.
    We received one comment, from a tribal organization, supporting the 
exemption of tribal and small territorial grantees from this 
requirement. We received no comments opposing the exemption.
    Consistent with our previously stated rationale and with this 
comment, we are continuing to exempt Indian tribes and tribal 
organizations, and territories with annual regular LIHEAP allotments of 
$200,000 or less, from the requirement of section 2605(b)(15) of the 
LIHEAP statute, as amended.
    Although these tribal and territorial grantees are exempt from this 
requirement for additional outreach and intake services, they are still 
subject to the requirements in section 2605(b)(3) of the LIHEAP 
statute--assurance 3--concerning outreach. Under this assurance, all 
grantees must ``conduct outreach activities designed to assure that 
eligible households, especially households with elderly individuals or 
disabled individuals, or both, and households with high home energy 
burdens, are made aware of'' LIHEAP and similar energy-related 
assistance.

Other Comments and HHS Responses

    The interim final rule provided guidance to States on 
interpretation and implementation of the requirement for additional 
outreach and intake services. The interim rule's preamble noted that 
grantees had requested such guidance and that Senate Report 101-421 
said that HHS is expected to provide guidance on compliance with this 
requirement.
    However, we did not provide detailed requirements on interpretation 
and implementation in the regulation itself. The preamble stated:

    ``As the original block grant regulations and preamble explain, 
consistent with statements of congressional intent, the Department's 
philosophy on block grants is that grantees are to be given as much 
flexibility as possible to implement the programs in their own 
jurisdictions. We will accept a grantee's interpretation of a 
statutory requirement unless the interpretation is clearly 
erroneous.
* * * * *
    ``We will review the grantees' compliance with the appropriate 
legislative and regulatory requirements in carrying out our 
[[Page 21330]] responsibilities to conduct LIHEAP compliance 
reviews, application reviews, complaint investigations, and 
resolution of audit findings. However, consistent with the block 
grant philosophy, we are not publishing Federal rules on how the 
requirement for additional outreach and intake services must be 
implemented by grantees, except to specify that it does not apply to 
Indian tribes and tribal organizations or to territories receiving 
$200,000 or less in annual LIHEAP allotments. This is also 
consistent with our regulatory treatment of other application 
assurances required by the statute.''

    We received nine comments on the statutory and regulatory 
provisions relating to the requirement for additional outreach and 
intake services (including the comment from a tribal organization 
mentioned previously).

Comments and Response

    Two of the commenters were members of Congress who requested a 
specific rule to explicitly implement assurance 15. Another letter 
supported a rule that would include definitions of a number of terms 
relating to this assurance.
    We continue to believe that it would be inconsistent with the block 
grant philosophy as expressed in law and legislative history to publish 
Federal rules mandating specific ways in which States must implement 
this statutory requirement. The LIHEAP statute specifies in section 
2605(b), which contains the assurances: ``The Secretary may not 
prescribe the manner in which the States will comply with the 
provisions of this subsection.''
    Another commenter believed that States might take assurance 15 
``less seriously because it is not included in the regulations 
themselves.'' However, the statute is paramount. Further, the chief 
executive officer of each State must certify that the State agrees to 
these assurances. Federal regulations are not intended simply to repeat 
the law. It is consistent with our treatment of the LIHEAP statute's 
other assurances--which are as important as assurance 15--not to issue 
regulations mandating specific ways in which grantees must implement 
them.
    We will continue to carry out our responsibilities to help assure 
that grantees comply with the statute. We review grantees' compliance 
with the statutory assurances when we conduct compliance reviews 
(including reviews for compliance purposes of funding applications), 
and when we resolve audit findings and complaints. Public Law 103-252 
(the Human Services Amendments of 1994) amends the LIHEAP statute to 
require that States include in their LIHEAP applications a description 
of how they will carry out assurance 15; this will help us in our 
monitoring. We resolve grantee failure to comply with the statute 
through appropriate enforcement proceedings. If we find while carrying 
out our compliance responsibilities that several grantees have 
misunderstood a statutory provision, it may be appropriate for us to 
clarify by regulation, as we did in October 1987 regarding the 
applicability of assurance 9's administrative cost requirements to 
subgrantees and contractors as well as to grantees.

Comment and Response

    One of the congressional commenters said that the final rule should 
contain ``strong regulation'' stating that alternative outreach and 
intake ``must be performed in a professional manner, with strict 
contract standards for agency accountability and paid for as part of 
the administrative or program expenditures of the LIHEAP program.''
    We agree that the requirements of assurance 15 must be carried out 
by States and by entities and persons acting on their behalf in a 
competent manner, by qualified agencies with effective standards for 
accountability. This is the case for all of the LIHEAP statutory 
assurances. In applying for Federal LIHEAP funds, the State has 
specifically assured the Federal government that it will carry out all 
of these assurances. In accepting Federal LIHEAP grant funds, the State 
has made a commitment to follow the requirements of all applicable 
Federal laws and regulations.
    However, we do not believe that assurance 15 requires that 
alternative outreach and intake be ``paid for as part of * * * the 
LIHEAP program''--i.e., always provided as a paid LIHEAP function or 
activity and never provided on an unpaid, voluntary basis. The LIHEAP 
statute does not specify that alternative outreach and intake must be 
provided on a paid basis. And, as previously stated, the statute 
specifies that HHS ``may not prescribe the manner in which the States 
will comply'' with the assurances. Further, we believe that the 
legislative history assumes that alternative outreach and intake 
provided by appropriate entities/organizations on an unpaid, voluntary 
basis will meet the assurance's requirements. Conference Report 101-816 
specifies that if States ``are already offering alternate intake sites 
in some areas, this section does not require them to modify their 
system of program management in those areas.'' Senate Report 101-421 
indicates that, if alternative services previously were provided 
voluntarily, providers should continue to maintain comparable levels of 
efforts voluntarily, stating that ``local entities now providing such 
[outreach and intake] services voluntarily are expected to maintain 
comparable levels of effort in addition to the new activities which may 
be contracted to them pursuant to this provision.'' As we stated in the 
preamble to the interim rule, assurance 15 should not be used as a 
basis for reducing voluntary efforts.
    While the law does not require that alternative outreach and intake 
be provided by entities or organizations ``paid * * * as part of the * 
* * expenditures of the LIHEAP program,'' States should not attempt to 
compel local entities/organizations to provide these services on an 
unpaid basis. Many--if not most--such entities do not have the 
resources to provide LIHEAP outreach and intake without appropriate 
payment. While we support the use of volunteer outreach and intake when 
appropriate, our guidance is not intended to encourage States to 
require local agencies to provide these services at no cost to the 
State. The Senate report says that ``State LIHEAP programs are expected 
to use LIHEAP administrative funding for any additional LIHEAP 
activities required by this section, rather than relying on other 
federal funds in local agencies.'' (We have found that grantees' 
classification of certain outreach functions--such as energy 
conservation education--as non-administrative is not clearly 
erroneous.) Also, if an alternative governmental entity or community-
based organization freely--without pressure or coercion--agrees to 
provide additional outreach and/or intake services without charge, we 
believe that assurance 15 does not require the grantee to pay it for 
providing these services.

Comments and Response

    Several commenters indicated that the discussion in the interim 
rule's preamble on the participation of utilities and other home energy 
vendors in LIHEAP outreach might imply that these vendors could be 
considered ``community-based organizations'' whose participation in 
LIHEAP outreach and/or intake could meet assurance 15's requirement for 
additional outreach and intake. These commenters said that utilities 
and other vendors are not community-based organizations. One letter 
rejected ``the notion that low-income clients may be given a choice by 
the State of applying for LIHEAP at the AFDC office or at the office of 
their creditor, the utility, to whom they would be required to submit 
income documentation for scrutiny.'' Another noted that vendors' 
relationships with their clients ``can be adversarial''-- 
[[Page 21331]] clients may need to bargain with their vendors over 
payment agreements, arrearage payments, etc. ``They may even have to 
resolve disputes in a regulatory setting. * * * In these circumstances, 
the confusion between access to the program and contact with a creditor 
that could be created by vendor outreach and intake may discourage the 
very expansion of access that the law intends to encourage.'' Two 
commenters asserted that `` community-based organizations'' must be 
nonprofit local agencies/organizations.
    We continue to encourage cooperation between grantee LIHEAP 
programs and home energy vendors, and use of vendors to provide LIHEAP 
outreach as appropriate. But upon further reflection, we agree with 
these commenters that outreach and/or intake provided by home energy 
vendors, including utility companies, does not meet assurance 15's 
requirement for additional outreach and intake services. We agree that 
the issues with respect to vendors' status as creditors are 
significant. In addition, ``community-based organization''--
historically a ``term of art'' used in Federal anti-poverty programs--
generally refers to nonprofit entities; utilities and other home energy 
vendors generally are for profit. (For example, regulations for the 
former Community Services Administration at 45 CFR 1076.50-1(c) defined 
``community-based organization'' as ``a cooperative or private 
nonprofit organization at least 50 per centum of whose governing body 
is composed of local area residents.* * *'')

Comment and Response

    A commenter believed that ``the statute required States to ensure 
that all interested organizations, including vendors, engage in 
outreach. * * *'' The statute requires that, ``in addition to'' 
outreach and intake offered by State public welfare departments at the 
local level, there must be outreach and intake for heating, cooling, 
and crisis assistance ``that is administered by additional State and 
local governmental entities or community-based organizations. * * *'' 
Comparable levels of outreach and intake services should be provided 
for welfare and non-welfare households and, if feasible, States should 
use a number of different service providers. However, we do not believe 
that the statute requires States to ensure that ``all interested 
organizations * * * engage in outreach.''

Comments and Response

    A commenter believed that intake functions were ``appropriately 
described in the guidance.'' Another commenter thought that intake 
might be ``too narrowly defined, given the legislative history.'' The 
statute does not define or otherwise indicate what ``intake'' includes; 
both the conference report and the Senate report refer to ``intake or 
application processing.'' The interim rule's guidance noted functions 
that are ``generally'' included as intake (receipt of applications for 
assistance and the opportunity for applicants to provide any missing 
information for their applications). It also noted that States have 
``the discretion to choose whether to include'' certain other functions 
(income determination and verification, and preliminary eligibility or 
benefit determination). We continue to believe that it is appropriate 
for grantees to have this degree of flexibility in defining the term--
that they should not be required to include all application processing 
tasks as part of ``intake.''

Comments and Response

    A State noted that mail-in applications can be acceptable for 
intake and recommended a similar accommodation for outreach. 
Information sent by mail about LIHEAP can be an effective part of a 
grantee's outreach effort. However, outreach by mail will not by itself 
meet the requirement for alternate outreach services. Many low-income 
households would not be reached, or adequately served, by outreach-by-
mail. As the Senate report explains, outreach efforts should be varied 
and targeted to the different populations eligible for LIHEAP 
assistance--such as welfare households, non-welfare households, and the 
elderly--``to assure that these households have an effective way to 
learn about the program and how to apply for benefits.''
    The same State recommended that if ``the local welfare office has 
an established local advisory board represented by those agencies that 
are listed [in assurance 15] as potential alternative sites, that the 
outreach requirement is met.'' However, assurance 15 requires more than 
participation in an advisory or other board by alternate agencies. It 
specifically requires that alternative outreach and intake functions be 
``administered by additional State and local governmental entities or 
community-based organizations,'' and is intended to provide information 
directly to low-income individuals, not just to other agencies.
    The State also proposed that a phone-in intake process for 
households experiencing an energy crisis be considered to meet the 
statutory requirements for crisis assistance. In some circumstances, 
receiving a telephone call by a household experiencing an energy crisis 
would be an appropriate and effective first step as intake, although 
information on the crisis and the household's eligibility would need to 
be verified. However, some low-income households do not have a 
telephone or reasonable access to a telephone that they can 
realistically use, and section 2604(c) of the LIHEAP statute 
specifically requires each entity that administers LIHEAP crisis 
assistance to accept crisis assistance applications ``at sites that are 
geographically accessible to all households in the area.''
    A commenter believed that the interim rule's preamble guidance 
might ``inadvertently encourage'' welfare departments ``to conduct 
exclusively mail-application intake.'' The guidance is not intended--
and should not be interpreted--as encouragement for exclusively mail-
application intake.

Comments and Response

    Two States objected to the requirements of assurance 15. One 
objected to the increased expenditures needed to provide additional 
outreach and intake--with reduced funds therefore available for 
benefits. The State said that the ``effort and funds spent'' to provide 
additional services ``would be significantly out of proportion to the 
direct benefits that could be provided to eligible households.'' 
Another State defended its effectiveness in reaching nonwelfare 
households and objected ``to the use of limited funding to replicate a 
function already being administered timely and effectively.'' The State 
believed that it would be extremely difficult to meet the requirement 
in section 2604(c) of the LIHEAP statute that assistance to resolve an 
energy crisis be provided within 48 hours of an eligible household's 
application for crisis assistance. This grantee requested that 
assurance 15 be deleted, or waived for grantees ``already serving a 
broad based population.''
    Only Congress can ``delete'' a statutory provision, and HHS does 
not have authority to waive statutory requirements for States. The 
conference report states that the conferees ``recognize the potential 
for significantly increased administrative expenses for some states to 
comply with the new alternative site requirements, and intend to 
monitor possible effects on the program and recipients.''

Guidance Regarding Additional Services

    The preamble to the January 1992 interim final rule included 
guidance [[Page 21332]] with respect to section 2605(b)(15) of the 
LIHEAP statute. With modifications and clarifications contained in the 
preamble to this final rule, that guidance is still effective and is 
included as the remainder of this final rule's preamble discussion of 
section 96.86 of the block grant regulations and of assurance 15.
    The requirement for additional outreach and intake services applies 
to States (including the District of Columbia) and to any territory 
with a LIHEAP allotment larger than $200,000 for the fiscal year in 
question, when local offices of the grantee department or agency that 
administers AFDC or the territorial equivalent basic cash public 
assistance program(s) provide outreach and intake for heating, cooling, 
and/or crisis assistance in all or part of the State or territory. The 
requirement applies in these cases whether or not that department or 
agency is named ``State Department of Public Welfare'' or ``Department 
of Public Welfare.''
    The requirement applies whether or not the department or agency 
provides some of these services outside its own offices. Section 
2605(b)(15) requires that grantees ``provide, in addition to such 
services as may be offered by State Departments of Public Welfare at 
the local level, outreach and intake functions for crisis situations 
and heating and cooling assistance that is administered by additional 
State and local governmental entities or community-based 
organizations.* * *.'' The provision does not refer to the locations 
where the welfare department provides services. Therefore, stationing a 
welfare department employee at a shopping mall, for example, will not 
meet the requirement of this provision.
    Consistent with Conference Report 101-816, if grantees are already 
offering alternative services in some areas, they are not required to 
modify their system in these areas. Consistent with Senate Report 101-
421, ``a reasonable share'' of outreach and intake functions is to be 
administered through alternative agencies, assuring that, to the extent 
possible, all eligible households in the grantee's service population 
will have viable access to alternative service sites. However, 
consistent with this Senate report, if the grantee finds no alternative 
in an area or areas after engaging in an open solicitation process, the 
grantee is not required to create new entities. (In such a case, the 
grantee would not be required to solicit for alternate agencies each 
succeeding year. However, periodic assessment of the situation will 
enable the grantee to determine when further solicitation is likely to 
provide an alternative and is therefore appropriate.)
    Also consistent with the Senate report, if such services previously 
were provided voluntarily, providers should continue to maintain 
comparable levels of effort voluntarily. The new requirement should not 
be used as a basis for reducing voluntary efforts. Neither should it be 
used to compel or require voluntary efforts.
    Consistent with the legislative history, we encourage the voluntary 
participation of community groups and organizations, including 
churches, and of utilities and other home energy vendors, in outreach 
activities. Such entities often have excellent knowledge of and access 
to low-income households who may need LIHEAP assistance. However, as 
explained earlier in this preamble, utilities and other home energy 
vendors are not ``community-based organizations'' for the purposes of 
the requirement of section 2605(b)(15) for outreach and intake services 
provided by ``additional State and local governmental entities or 
community-based organizations. . . .''
    In order to meet the requirement for alternative outreach and 
intake services, the statute specifies that the alternative service 
providers must be State or local governmental entities or community-
based organizations. Senate Report 101-421 mentions public or nonprofit 
agencies including other State or local government agencies, and 
community-based organizations such as community action agencies and 
aging organizations.
    The Senate report emphasizes the importance of providing sufficient 
access to the LIHEAP program to the non-welfare poor and the elderly, 
through additional outreach efforts and appropriate intake locations. 
Grantees should provide varied outreach efforts targeted to the 
different populations eligible for LIHEAP assistance. Further, grantees 
should consult with low-income individuals and other interested parties 
to determine the best ways to implement the requirement for additional 
outreach and intake services. As a commenter stated, the intention of 
assurance 15 is ``to broaden the access and availability of LIHEAP 
services to those who are eligible but are not part of the welfare 
system'' and ``to give preference for intake functions to those 
agencies that provide weatherization and/or crisis assistance.'' 
Agencies with experience in successfully managing similar Federal grant 
programs should be used when feasible.
    The term ``intake'' generally includes receipt of applications for 
assistance and the opportunity for applicants to provide any missing 
information that is needed to complete their applications. Each grantee 
has the discretion to choose whether to include income determination 
and verification responsibilities, and preliminary eligibility or 
benefit determination, as ``intake.'' The conference report states that 
the ``conferees believe that intake or application processing'' is 
``best provided by experienced service providers with approved federal 
and state grant management systems.''
    If a mail-in application system administered by a welfare 
department is used for a grantee's heating and/or cooling assistance 
programs, and if it is not necessary to designate local administering 
agencies to carry out intake for these components, then there is no 
need under section 2605(b)(15) to designate other State and local 
governmental entities or community-based organizations to carry out 
intake for these components. In such a case, the grantee should assure 
that help is readily available to households that are unable to prepare 
and/or mail their applications without such assistance. Also, grantees 
should not change to a system of mail-in applications in order to avoid 
designating additional local intake agencies.
    Section 2604(c) of the LIHEAP statute requires each entity that 
administers energy crisis assistance ``to accept applications for 
energy crisis benefits at sites that are geographically accessible to 
all households in the area to be served'' by the entity and to provide 
to physically-infirm low-income persons the means to submit 
applications for energy crisis benefits without leaving their 
residences or to provide the means to travel to the sites at which the 
entity accepts applications. The statute thus requires that there be 
energy crisis intake sites and services at the local level. Therefore, 
intake for crisis assistance provided solely by welfare departments 
will not meet the requirement in section 2605(b)(15) concerning 
additional intake services at the local level. Also, telephone intake 
can be part of a State's intake process but will not by itself meet the 
statutory requirements for intake services.
    It is our experience that outreach normally is provided through 
local administering agencies, and therefore additional outreach 
services would be necessary if outreach currently is provided at the 
local level only through the welfare department.
    In enacting the requirement that additional outreach and intake 
services be provided in certain cases, Congress has emphasized the 
importance of adequate and appropriate outreach and intake functions in 
grantee LIHEAP [[Page 21333]] programs. Congress also has specifically 
limited the amount of Federal funds that can be used for costs of 
LIHEAP administration and planning to 10 percent of the funds payable 
to a State and not transferred to another HHS block grant program 
(section 2605(b)(9) of the LIHEAP statute). (The block grant 
regulations provide somewhat higher administrative cost limits for 
Indian tribes, tribal organizations, and territories.) As we stated in 
the preamble to the block grant regulations of July 6, 1982, ``The 
consistent imposition of limits upon administrative expenditures under 
the various block grants is indicative of congressional intent that 
States devote a very high percentage of their block grant funds to 
direct payments or services'' (47 FR 29477). Grantees should make every 
effort to provide the maximum amount of direct LIHEAP assistance to 
low-income households, consistent with the provision of adequate 
support services.
    Although grantees subject to the new requirement may categorize 
some of their additional outreach expenses as non-administrative, many 
of the additional costs will be administrative. Some grantees may have 
difficulty providing additional outreach and intake services and 
remaining within the statutory limitation on use of Federal funds for 
costs of LIHEAP planning and administration. These grantees, in 
particular, may need to examine all of their LIHEAP activities and 
costs to determine ways to increase efficiency, to encourage voluntary 
efforts, and to use their own funds to supplement Federal LIHEAP funds. 
HHS does not have authority to waive the statutory limitation on 
administrative costs. The requirement for additional outreach and 
intake services does not relieve grantees of the need to comply with 
this statutory limitation.
    Consistent with Conference Report 101-816, HHS used FY 1992 LIHEAP 
training and technical assistance funds to help thirteen States that 
previously had provided outreach and intake solely through their public 
welfare departments, to make the transition required by assurance 15.
    Although this preamble modifies and clarifies some of the guidance 
regarding assurance 15, the final rule makes no change to section 96.86 
of the block grant regulations.

Section 96.87  Leveraging Incentive Program

    Public Law 101-501 added a new section 2607A to the LIHEAP statute, 
establishing a leveraging incentive program, and amended section 2602 
of the LIHEAP statute, authorizing funds for this program. Under the 
leveraging incentive program, beginning in FY 1992, HHS may allocate 
supplementary LIHEAP funds--leveraging incentive funds--to grantees 
that have acquired non-Federal leveraged resources and use these non-
Federal resources to expand the effect of Federal LIHEAP dollars.
    The interim final rule published January 16, 1992, added a new 
section 96.87 to the block grant regulations to implement the 
leveraging incentive program. Consistent with the requirements of 
section 2607A, the interim final rule included requirements for 
countable leveraged resources and for calculation and documentation of 
the value of leveraged resources, submission of leveraging reports to 
HHS, calculation of grantee shares of leveraging incentive funds, and 
use of leveraging incentive funds.
    Discussing the leveraging program, Senate Report 101-421 notes 
that, ``if the LIHEAP program uses its purchasing power (or `leverage') 
to acquire the full economic value of its resources, it can acquire 
substantial additional energy assistance resources and services for the 
poor from state energy market sources.'' This report lists the 
following examples of leveraged resources: ``state-appropriated funds, 
quantifiable payments, discounts, credits, energy conservation 
improvements or other measurable benefits to eligible households in 
excess of the energy that could be purchased by the LIHEAP program at 
commonly available residential rates.''
    All LIHEAP grantees--States (including the District of Columbia), 
Indian tribes, tribal organizations, and territories--may participate 
in the leveraging incentive program. Grantees are not required to 
participate in the leveraging program. We encourage grantees to 
leverage additional resources to supplement their Federal LIHEAP funds, 
whether or not they choose to request leveraging incentive funds.
    Leveraged resources are counted in the ``base period'' in which 
their benefits were provided to low-income households. For example, 
grantee funds added to the LIHEAP program are countable only when the 
benefits they pay for--such as heating assistance payments or 
weatherization services--are provided to or on behalf of low-income 
households.
    Under the statute's terms, grantees that want to apply for 
leveraging incentive funds must submit a report to HHS that quantifies 
the grantee's leveraged resources for the preceding fiscal year (the 
base period), less any costs incurred by the grantee to leverage the 
resources and any costs imposed on federally eligible households. 
Leveraging incentive funds to reward these leveraging activities are 
awarded in the fiscal year following the fiscal year in which the 
leveraged resources/benefits were provided to low-income households. In 
other words, they are awarded later in the fiscal year in which the 
leveraging reports are submitted, after HHS has reviewed the reports, 
adjusted claimed resources and their valuation as appropriate, and 
calculated leveraging incentive grant amounts. The leveraging incentive 
program's first ``base period'' was FY 1991, and its first ``award 
period'' was FY 1992; leveraging activities in FY 1991 were the basis 
for the leveraging incentive grant awards HHS made in FY 1992. Section 
2607A of the LIHEAP statute requires that grantees use leveraging 
incentive funds awarded to them only ``for increasing or maintaining 
benefits to households.''
    As the interim rule's preamble explained, consistent with the block 
grant legislation and legislative history, HHS' policy generally is to 
provide maximum flexibility to grantees to operate their LIHEAP 
programs. Grantees are the primary interpreters of the LIHEAP statute 
and the primary administrators of the LIHEAP program. However, grantees 
apply ``competitively'' to HHS for shares of a limited amount of 
leveraging incentive funds. Shares are determined based on reports 
submitted by grantees which describe, and quantify the value of, the 
resources they have leveraged. It is therefore necessary that all 
grantees applying for leveraging inventive funds use the same rules. 
There must be standard criteria and methods for determining the 
resources that are countable under the leveraging incentive program and 
for quantifying the value of these resources. In the interim rule and 
in this final rule, we have tried to make these criteria and methods as 
clear and fair as possible, within the limits of the statute and 
legislative history.
Public Comments, HHS Responses, and Changes: Section-by-Section 
Discussion
    Twenty-four of the 25 letters we received on the interim final rule 
included comments on the leveraging incentive program. Several of the 
commenters addressed the interim rule and its preamble in general. For 
example, one believed that the complex statutory instructions for the 
leveraging program require the implementing regulation to be 
``instructive yet flexible'' and said that the interim rule ``generally 
meets these sometimes [[Page 21334]] conflicting purposes in an 
understandable and common-sense fashion.'' Another appreciated HHS' 
philosophy of keeping the rules for the leveraging program ``within the 
spirit of a block grant.'' A third supported HHS' decision to exempt 
grantees' use of leveraging incentive funds from some requirements that 
apply to regular LIHEAP funds.
    Most comments concerned specific leveraging provisions. These 
comments, and our responses, are discussed below under the appropriate 
headings.
    The section and subsection headings are essentially the same in the 
interim final rule and the final rule. While we made some substantive 
changes, we retained the structure and most of the content of the 
interim rule. We made some nonsubstantive changes for clarity and 
consistency, as well. The changes are based on the public comments on 
the interim rule and on our experience in operating the leveraging 
incentive program under the interim rule.

Scope and Eligible Grantees

    Subsection (a) of Sec. 96.87 of the interim final rule explained 
that Sec. 96.87 concerns the leveraging incentive program authorized by 
section 2607A of the LIHEAP statute. We received no comments on this 
statement of the scope of the section, and we retained it in the final 
rule in a new paragraph (1) under Sec. 96.87(a).
    After the comment period on the interim rule, we received an 
informal comment from a tribal grantee about entities eligible to 
receive leveraging incentive funds. A tribal organization and its 
member tribes had leveraged resources while the organization received 
direct regular LIHEAP funding on the tribes' behalf; the tribes wanted 
to apply for their own direct regular funding--and the leveraging 
incentive funds to reward the leveraged resources--in the next fiscal 
year. However, the preamble to the interim rule stated that, in order 
to receive leveraging incentive funds, ``grantees must receive regular 
LIHEAP block grant funding directly from HHS in both the `base' year 
for which their leveraging activities are reported and the `award' year 
for which leveraging incentive funds are requested'' (57 FR 1965). We 
agree with the tribal grantee that credit for leveraging should be 
``portable'' when a tribe enters or leaves a tribal organization when 
certain conditions are met--for example, a bribe or tribal organization 
that applies for leveraging incentive funds also must apply for and 
receive direct regular LIHEAP funding in the award period in order to 
receive incentive funds. We do not want to require tribes to continue 
existing administrative relationships in order to qualify for incentive 
funds. We modified the statement of entities eligible for leveraging 
incentive funds accordingly and added the revised statement in a new 
paragraph (2) under Sec. 96.87(a) in the final rule itself, for clarity 
and because of its importance.
    Under the revised statement, if a tribe leveraged resources while 
receiving regular LIHEAP services under a directly-funded tribal 
organization in the base period, and then receives direct regular 
LIHEAP funding on its own in the award period, the tribe is eligible to 
receive leveraging incentive funds to reward these resources in the 
award period. If a tribe leveraged resources while receiving direct 
LIHEAP funding in the base period and receives LIHEAP services under a 
tribal organization in the award period, the tribal organization is 
eligible to receive leveraging incentive funds on the tribe's behalf to 
reward these resources in the award period. If a directly-funded tribal 
organization leveraged resources in the base period and one or more of 
the tribes it had served apply for direct funding in the award period, 
the tribes and/or the tribal organization should inform HHS in writing 
about the desired fair and appropriate distribution of leveraging 
incentive funds in the award period. If the tribes and/or the tribal 
organization are unable to agree, HHS will determine the distribution 
of the incentive funds among eligible applicants based on the 
comparative role of each entity in obtaining and/or administering the 
resources, and/or their relative numbers of LIHEAP-eligible households.

Definitions

    Section 96.87(b) of the interim final rule defined five terms used 
in the leveraging incentive program. We received no comments on four of 
the definitions--of ``base period,'' ``home energy,'' ``low-income 
households,'' and ``weatherization.'' These definitions remain 
substantively unchanged in the final rule.
    We received several comments relating to the fifth definition--
``countable petroleum violation escrow funds.'' These comments, and the 
changes we made in response, are discussed later in this preamble, 
under ``Countable Leveraged Resources and Benefits'' and ``Leveraging 
Issues Relating to Tribal Grantees.''
    We added two definitions in the final rule--of ``award period'' and 
``countable loan fund.'' We defined ``award period'' because--like 
``base period,'' which already was defined in the interim rule--``award 
period'' is an important and basic term whose meaning must be clear. 
Countable loan funds and issues related to them are discussed later in 
this preamble, under ``Countable Leveraged Resources and Benefits'' and 
``Resources and Benefits That Cannot Be Counted.''

LIHEAP Funds Used To Identify, Develop, and Demonstrate Leveraging 
Programs

    Section 96.87(c) of the interim final rule and of this final rule 
concern LIHEAP funds used to identify, develop, and demonstrate 
leveraging programs.
    Section 2607A(c)(2) of the LIHEAP statute provided that, each 
fiscal year, States may spend up to the greater of $35,000 or 0.0008 
percent of their funds allocated under the LIHEAP statute to identify, 
develop, and demonstrate leveraging programs. Consistent with 
Sec. 96.87(g)(5) of the interim rule, in grantees' leveraging reports 
to HHS, all funds from grantees' regular LIHEAP allotments that are 
used under the authority of section 2607A(c)(2) to identify, develop, 
and demonstrate leveraging programs are to be deducted as offsetting 
costs in the base period in which these funds were obligated, whether 
or not there are any resulting leveraged benefits.
    As we noted in the interim rule's preamble, 0.0008 percent of the 
largest FY 1991 State LIHEAP allotment was approximately $1,700; 
clearly $35,000 was the larger in all cases, and $35,000 would be the 
larger under all foreseeable LIHEAP appropriation levels. Therefore, we 
determined that if the language were carried out as written, the result 
would appear to be illogical and inconsistent with reason. We concluded 
that the figure 0.0008 percent resulted from a typographical error and 
that 0.0008 was intended to be the actual factor by which the State's 
allotment is multiplied, rather than the percent. (When calculating 
0.08 percent of a State's allotment, one multiplies the allotment by 
the factor 0.0008.) In the interim final rule, we clarified that the 
figure is 0.08 percent. This interpretation provided a meaningful 
result, since 0.08 percent of the FY 1991 State LIHEAP allotments 
ranged from approximately $1,200 for the State with the smallest 
allotment to $170,000 for the State with the largest allotment; $35,000 
was the larger in some cases, and 0.08 percent was the larger in other 
cases. We received one comment agreeing with this interpretation and 
none disagreeing.
    Since then, the Human Services Amendments of 1994 (Public Law 103-
252) confirmed our interpretation and [[Page 21335]] corrected the 
percent in the LIHEAP statue, which now says ``0.08 percent.'' We kept 
this same, corrected figure in the final rule.

Comments and Response

    In the interim rule we also determined that $35,000 would be a 
disproportionate amount for most tribes, tribal organizations, and 
territories to spend annually to identify, develop, and demonstrate 
leveraging programs. (As the preamble noted, FY 1991 tribal allotments 
ranged from approximately $1,100 to $1,038,000; the allotments of 84 of 
the 115 tribal grantees were under $100,000. FY 1991 territorial 
allotments ranged from approximately $15,000 to $1,711,000; the 
allotments of five of the six territorial grantees were under 
$100,000.) The interim rule therefore limited to two percent of their 
annual LIHEAP allotments the amount that these grantees may spend each 
fiscal year for these purposes. This is approximately the same percent 
as the territory with the largest allotment would have spent if it had 
used $35,000 of its FY 1991 allotment for these purposes ($35,000 
divided by $1,711,284 equals 0.0204524 or 2.04524 percent).
    We received no written comments on this provision. Several tribal 
grantees have told us informally, however, that they believe that the 
two percent limit is too low.
    For most tribes and territories, we believe that two percent is a 
realistic amount to use for these purposes. We recognize, however, that 
two percent of the smallest allotments will provide very little. For 
example, two percent of $2,500 is only $50. Therefore, in response to 
the concerns of small tribal grantees, the final rule provides that 
tribes, tribal organizations, and territories may use up to the greater 
of two percent, or $100, of their annual LIHEAP allotments, 
specifically to identify, develop, and demonstrate leveraging programs. 
(For tribal organizations receiving LIHEAP funds on behalf of two or 
more tribes, the base to which the two percent and $100 are applied is 
the tribal organization's total regular LIHEAP allotment, not the 
separate ``allotments'' of the individual tribes that designated the 
tribal organization to administer LIHEAP for them.) For grantees with 
allotments under $5,000, $100 is the larger and will provide a usable 
amount. (In FY 1992, 22 of the 120 tribal grantees, and no territorial 
grantees, had LIHEAP allotments under $5,000.) To allow use of more 
than the greater of two percent or $100 for these purposes--in addition 
to LIHEAP funds that can be used for planning and administration--would 
adversely affect the grantee's ability to provide home energy 
assistance with its LIHEAP funds, which is the basic purpose of the 
LIHEAP program. We also note that the leveraging reports covering FY 
1991, FY 1992, and FY 1993 leveraging activities show that most 
grantees used no LIHEAP funds to identify, develop, or demonstrate 
leveraging. Only two tribal grantees have reported using LIHEAP funds 
to develop leveraging. Only seven of the 63 grantees that received 
leveraging incentive funds for their FY 1992 leveraging activities said 
they used any LIHEAP funds for this purpose; only two of the seven used 
the maximum amount allowed.

Related Issues

    The 0.08 percent maximum for States, and the two percent/$100 
maximum for tribes, tribal organizations, and territories, are based on 
and apply to the grantee's funds allocated under the LIHEAP statute. 
For the purpose of this provision, we defined this in the interim rule 
to mean the grantees' Federal LIHEAP allotments, including supplemental 
funds except leveraging incentive funds. We received no comments on 
this definition and have retained it in the final rule. Grantees may 
spend additional monies from their own funds or other sources as 
appropriate, to identify, develop, and demonstrate leveraging programs.
    LIHEAP block grant funds that are used to identify, develop, and 
demonstrate leveraging programs are likely to support both planning and 
administrative activities and costs, and non-planning, non-
administrative (``program'') activities and costs. The interim rule 
stated that LIHEAP funds used under section 2607A(c)(2) of the LIHEAP 
statute to identify, develop, and demonstrate leveraging programs are 
not subject to the statute's limitation on the maximum percent of 
Federal funds that grantees may use for costs of planning and 
administration. As we stated in the interim rule's preamble, we believe 
that, if these funds were subject to the limitation, it would be a 
disincentive to grantees to develop leveraging programs. However, 
Congress established the leveraging incentive program to encourage--to 
provide an incentive to--grantees to leverage funds. We therefore 
concluded that LIHEAP funds used under section 2607A(c)(2) should be 
available in addition to the regular LIHEAP planning and administration 
limits. We received one comment supporting this decision. We have 
retained this provision in the final rule.
    In addition to the maximum set by Sec. 96.87(c) specifically for 
identifying, developing, and demonstrating leveraging programs, a 
grantee may find that part of the LIHEAP funds it spends for planning 
and administrative costs also have the effect of helping to identify, 
develop, and/or demonstrate leveraging programs. Since these are valid 
LIHEAP planning or administrative activities, paid for from the portion 
of a grantee's LIHEAP block grant funds that can be used for planning 
and administration, they are not subject to the 0.08 percent/$35,000 
limit for States or the two percent/$100 limit for tribes/territories 
set by section 96.87(c). Thus, a grantee could, in effect, use somewhat 
more than the maximum 0.08 percent/$35,000 or two percent/$100 set 
specifically for identifying, developing, and demonstrating leveraging. 
This option is available to all LIHEAP grantees.

Comment and Response

    A commenter said that, because these funds ``are coming out of 
program funds'' and do not count against the statutory limit on Federal 
funds used for LIHEAP administration and planning, HHS should request 
itemization of how they are spent. The commenter said that ``[w]ithout 
this information, neither Congress nor advocates will have any sense of 
how these additional non-benefit, non-administrative funds will have 
been used.'' However, we have no indication that Congress wants HHS to 
collect and report this information, and we do not believe that we need 
to impose such an information collection and reporting burden on 
grantees in order to assure program accountability. We therefore 
decline to accept this suggestion. We do not require grantees to 
specify how they use their LIHEAP planning and administrative funds, 
and we are not requiring them to specify how they use their LIHEAP 
leveraging development funds. Consistent with the block grant 
philosophy and Federal paperwork reduction efforts, the only reports 
that LIHEAP grantees are required to submit are those that provide 
information necessary to meet requirements in the LIHEAP statute and 
the Single Audit Act. The LIHEAP leveraging report form and our 
voluntary LIHEAP telephone survey of States provide data on the 
amount--if any--that grantees spend to identify, develop, and 
demonstrate leveraging. We will check further on these activities when 
carrying out our compliance responsibilities--for example, when we 
conduct compliance reviews. [[Page 21336]] 

Basic Requirements for Leveraged Resources and Benefits

    Based on the provisions of section 2607A of the LIHEAP statute, 
Sec. 96.87(d) of the regulation sets basic requirements for leveraged 
resources and benefits.

Information and Comment on Basic Requirements, Paragraph (1)

    In the interim rule, paragraph (1) of Sec. 96.87(d) listed four 
criteria, all of which had to be met by countable leveraged resources/
benefits.
    The first two criteria under paragraph (1) implement requirements 
in section 2607A of the LIHEAP statute. They require that countable 
leveraged resources/benefits be from non-Federal sources, and be 
provided to the grantee's LIHEAP program or to federally qualified low-
income households. We received no comments on these criteria; they 
remain the same in the final rule.
    In accordance with the LIHEAP statute, leveraged resources that are 
provided to households that do not meet the Federal eligibility 
standards in section 2605(b)(2) of the statute cannot be counted under 
the leveraging incentive program. Federally qualified (federally 
eligible) low-income households are:
    <bullet> Households with incomes that do not exceed the greater of 
150 percent of the poverty level for their State, or 60 percent of 
State median income; and
    <bullet> Households in which one or more individuals receive Aid to 
Families with Dependent Children, Supplemental Security income 
payments, food stamps, or certain need-tested veterans' and survivors' 
payments (payments under sections 415, 521, 541, or 542 of title 38 of 
the U.S. Code or section 306 of the Veterans' and Survivors' Pension 
Improvement Act of 1978).
    If a countable leveraging program/activity provides benefits to 
both federally eligible households and households that do not meet 
Federal eligibility standards, the grantee should report only the 
benefits for households that are federally eligible.
    The LIHEAP statute allows grantees to set eligibility standards for 
their LIHEAP programs that are more restrictive than these Federal 
maximums. The statute permits grantees to set their LIHEAP programs' 
income eligibility standard as low as 110 percent of the poverty level. 
The statute also permits grantees to decide whether to have categorical 
eligibility for their LIHEAP program and, if so, to decide which of the 
programs listed above to include. State eligible (State qualified) 
households are households that meet the eligibility requirements set by 
a State for its LIHEAP program. A grantee may claim leveraged resources 
provided to federally eligible households even if the grantee set lower 
eligibility standards for its LIHEAP program, provided the resources 
meet all the other statutory and regulatory requirements.
    Criterion (iv) under paragraph (1) implements section 2607A(b)(1) 
of the LIHEAP statute. Section 2607A(b)(1) states that countable 
leveraged resources/benefits must ``represent a net addition to the 
total energy resources available to State and federally qualified 
households in excess of the amount of such resources that could be 
acquired by such households through the purchase of energy at commonly 
available household rates.'' The interim rule's preamble noted that 
this language could be interpreted to limit countable leveraged 
resources to energy credits and fuels purchased at discounted prices--
to mean, for example, that a grantee could not count leveraged donated 
funds used to pay low-income households' actual fuel costs at normal 
rates, because there would be no net addition to the resources these 
households could acquire at ``commonly available household rates,'' or 
that a grantee could not count tangible non-fuel items purchased at 
discounted prices. We did not adopt this narrow interpretation in the 
interim rule. In criterion (iv) under paragraph (1) in the interim 
rule, we clarified the statutory language to state that countable 
leveraged resources and benefits must ``represent a net addition to the 
total home energy resources available to low-income households in 
excess of the amount of such resources that could be acquired by these 
households through the purchase of home energy, or the purchase of 
items that help these households meet the cost of home energy, at 
commonly available household rates or costs, or that could be obtained 
with regular LIHEAP allotments provided under section 2602(b) of Public 
Law 97-35. . . .''
    We received one comment on this regulatory provision. The commenter 
believed that the provision ``is consistent with the overall intent'' 
of the statutory leveraging provisions. We retained the same language 
in the final rule.

Changes and recommendation

    Based on our experience in operating the leveraging program, we 
added a fifth criterion to Sec. 96.87(d)(1) in the final rule, 
specifying and clarifying that countable resources/benefits must meet 
the requirements for leveraged resources and benefits throughout 
Sec. 96.87 of these regulations and section 2607A of the LIHEAP 
statute. This is to assure consistent understanding and prevent 
confusion about the fact that the criteria in Sec. 96.87(d) are not the 
only requirements for countable leveraged resources/benefits. We also 
added the word ``basic'' to the heading for this section--``Basic 
requirements for leveraged resources and benefits''--to underscore this 
point.
    The third criterion under Sec. 96.87(d)(1) states that countable 
resources/benefits must be measurable and quantifiable in dollars. We 
made no change to this criterion in the final rule. However, based on 
our experience in operating the leveraging program, we encourage 
grantees to consolidate similar resources in their leveraging reports, 
so that each counted resource has a gross dollar value of $200 or more 
as determined in accordance with Sec. 96.87(g). Several grantees have 
included in their leveraging reports separate resources valued at only 
$10 or $20. Disproportionate amounts of time and effort are spent 
preparing and reviewing information on such small resources. We 
therefore urge grantees to consolidate similar resources in their 
leveraging reports, especially resources valued at under $200, into 
combined resources valued at $200 or more. For example, a grantee could 
combine in-kind donations of space heaters and blankets by different 
groups and/or individuals, which are separately valued at under $200, 
into one resource with a value of $200 or more. Consolidation of 
similar resources in the leveraging report is often helpful for larger 
resources, as well. In almost all cases, grantees will be able to 
consolidate very small resources into resources valued at $200 or more.

Information on Basic Requirements, Paragraph (2)

    In the interim rule, paragraph (2) of section 96.87(d) listed three 
additional basic requirements for countable leveraged resources. 
Countable resources/benefits were required to meet at least one of 
these three requirements.
    Paragraph (2) implements section 2607A(b)(2) of the LIHEAP statute. 
Section 2607A(b)(2) mandates that leveraged resources/benefits meet at 
least one of the following three criteria relating to the role of the 
grantee's LIHEAP program in the development or distribution of the 
resources/benefits: (1) They ``result from the acquisition or 
development by the State program of quantifiable benefits that are 
obtained from energy vendors through negotiation, regulation or 
competitive [[Page 21337]] bid''; or (2) they ``are appropriated or 
mandated by the State for distribution . . . through the State 
program''; or (3) they ``are appropriated or mandated by the State for 
distribution . . . under the plan referred to in section 2605(c)(1)(A) 
to federally qualified low-income households and such benefits are 
determined by the Secretary to be integrated with the State program.''
    The first criterion refers to the role of the grantee's LIHEAP 
program in the acquisition or development of benefits obtained from 
energy vendors. Based on the discretion in the statute, the interim 
rule defined the phrase ``acquisition or development by the State 
program'' to mean that the grantee's LIHEAP program must have 
``substantial involvement in the acquisition or development of these 
benefits. The involvement of the grantee's LIHEAP program'' must be 
``considerable, important, material, and of real value or effect.''
    The interim rule defined the second criterion to mean that the 
leveraged resources and benefits must be ``provided to low-income 
households eligible under the grantee's standards, as a part of 
(through or within) the grantee's LIHEAP program, consistent with the 
Federal statutes and regulations applicable to the LIHEAP program.''
    The plan referred to in the third criterion is a part of each 
grantee's annual application for regular LIHEAP funds; in the plan, the 
grantee describes how it will carry out statutory assurances to which 
its chief executive officer has certified and includes other 
information required by statute. Based on the context in which it 
appears in the statute, the interim rule defined the phrase, 
``appropriated or mandated by the State for distribution . . . under 
the plan . . .'', to mean that the leveraged resources and benefits 
must be ``identified and described in the plan and distributed as 
indicated in the plan; however, they are not provided to low-income 
households as a part of (through or within) the grantee's LIHEAP 
program.''
    The third statutory criterion also requires that the leveraged 
benefits be ``integrated with the State program.'' The interim rule 
defined this to mean that the benefits must be ``coordinated with the 
grantee's LIHEAP program and . . . provided in cooperation and in 
conjunction with the LIHEAP program.''
    We received ten letters that commented on one or more of these 
three criteria.

Comment and Response

    A commenter recommended ``that the rules applying'' to criteria (i) 
and (ii) ``simply restate the language of the law.'' The commenter said 
that HHS implemented an ``expanded interpretation'' of these criteria 
that ``is unnecessary and inconsistent with the nature of a block 
grant.''
    Much of the language of the LIHEAP statute--including section 
2607A--is subject to differing interpretations. As we stated earlier in 
this preamble, the leveraging incentive program is different from the 
regular LIHEAP block grant, where different grantees may adopt 
different interpretations of a statutory provision, as long as the 
interpretations are not clearly erroneous. In the regular LIHEAP 
program, one grantee's statutory interpretations and program operations 
generally do not depend on or affect another's. In the leveraging 
program, however, where grantees are ``competing'' for shares of the 
same limited amount of leveraging incentive funds, we need to apply 
common rules to all proposed resources, and all concerned parties 
should have common understandings about leveraged resources that are 
countable, and resources that are not. This is why we do not ``simply 
restate that language of the law'' in cases where conflicting 
interpretations of provisions in section 2607A are likely.

Comments and Response

    We received several verbal comments about the meaning of the 
statutory phrase, ``the State program,'' in criterion (i). The same 
phrase is used in the statute with respect to criteria (ii) and (iii), 
where it clearly means the grantee's LIHEAP program, and not another 
State agency or program. We believe it is logical and appropriate to 
conclude that it has the same meaning in criterion (i). Through these 
three criteria, the statute and regulations require that the grantee's 
LIHEAP program have a clear, substantive role in developing, acquiring, 
administering, and/or coordinating with leveraged resources countable 
under the LIHEAP leveraging incentive program.
    A commenter said that the requirement in criterion (i) that the 
grantee's LIHEAP program have ``substantial involvement'' which is 
``considerable, important, material, and of real value or effect'' in 
acquisition or development of benefits ``is both overly restrictive and 
subject to subjective interpretation.'' We do not believe it is overly 
restrictive to require that the grantee's LIHEAP program play an active 
role in acquiring or developing a resource under this criterion. The 
statute requires that, in order to meet the criterion, the benefits 
must ``result from the acquisition or development by the State program 
of quantifiable benefits that are obtained from energy vendors through 
negotiation, regulation or competitive bid.'' We do not believe that 
this language should be understood to require the grantee's LIHEAP 
program to acquire or develop the benefits entirely by itself. On the 
other hand, in cases where other entities also were involved in the 
acquisition or development, the grantee's LIHEAP program should have a 
substantive role. If, for example, grantee LIHEAP staff had simply 
attended a meeting at which other people negotiated reduced home energy 
rates for low-income households, that attendance alone should not count 
as meeting criterion (i). The interim rule therefore required that the 
grantee's LIHEAP program have ``substantial involvement,'' and the 
final rule requires that the actions/efforts of grantee LIHEAP program 
staff be ``substantial and significant'' in obtaining a resource from a 
vendor.
    The same commenter believed that the statutory requirement for 
criterion (i) is met as long as ``the source of leveraged funds are 
[sic] energy vendors and the funds resulted from negotiation, 
regulation, or competitive bidding,'' and the benefits ``go to * * * 
the state program.'' We do not believe that a resource countable under 
criterion (i) must ``go to'' (be administered through or within) the 
LIHEAP program. Resources leveraged under this criterion are often 
discounts or waivers for low-income households, not ``funds'' that can 
be administered through the LIHEAP program. We believe that reduced 
home energy rates and waivers of certain home energy charges that are 
negotiated with home energy vendors by (or with substantive 
participation of) LIHEAP program staff should be countable under this 
criterion--even though reduced rates and waivers usually are not 
administered through the LIHEAP program.
    This commenter apparently assumed that ``development by the State 
program'' means that the State program must be involved in developing 
``a method of acquiring'' the resources, but that ``acquisition * * * 
by the State program'' means only that the benefits must ``go to'' the 
program. However, we continue to believe that the grantee's LIHEAP 
program--at the central, regional, and/or local office level--should 
play an active, substantial role in acquiring (obtaining) or developing 
the resource from the home energy vendor, not simply passively 
``acquire'' (receive) [[Page 21338]] a benefit in whose acquisition it 
played no part. (Such a resource could be countable under criterion 
(ii), if the resource is ``appropriated or mandated'' by the State, 
tribe, or territory for distribution through the LIHEAP program.) 
Benefits from vendors that are negotiated by or result from competitive 
bidding conducted by (or with substantive participation of) 
subrecipients (e.g., local administering entities) under a State, 
tribal, or territorial LIHEAP program acting in that capacity, also are 
countable under criterion (i) as long as all other requirements also 
are met.
    We agree that the interim rule's requirement that the involvement 
of the grantee's LIHEAP program in the acquisition or development of 
the resource be ``substantial'' and ``considerable, important, 
material, and of real value or effect'' in some cases may be confusing 
and subject to subjective interpretation. In grantees' leveraging 
reports on FY 1991 and FY 1992 leveraging, most resources claimed under 
criterion (i) clearly met this test, and several clearly did not. 
However, there also were a number of claimed resources for which we had 
to request additional information from the grantee to substantiate 
``substantial'' involvement, and on several of these we still had to 
make difficult judgments about whether to count the resource. Short of 
requiring that the grantee LIHEAP program acquire or develop the 
resource completely on its own, or saying that the grantee program need 
have no role at all in acquiring or developing the resource--which we 
do not believe to be appropriate--we see no way to write regulatory 
language that would totally eliminate such situations.
    We also have found that several grantees were confused about 
whether criterion (i) applied only to resources obtained from energy 
vendors. The statute clearly limits this criterion to resources/
benefits ``that are obtained from energy vendors through negotiation, 
regulation, or competitive bid,'' not from charitable organizations, 
etc.
    To clarify criterion (i) without materially changing its substance, 
we amended Sec. 96.87(d)(2)(i) as follows in the final rule:
    ``The grantee's LIHEAP program had an active, substantive role in 
developing and/or acquiring the resource/benefits from home energy 
vendor(s) through negotiation, regulation, and/or competitive bid. The 
actions or efforts of one or more staff of the grantee's LIHEAP 
program--at the central and/or local level--and/or one or more staff of 
LIHEAP program subrecipient(s) acting in that capacity, were 
substantial and significant in obtaining the resource/benefits from the 
vendor(s).''

Comments and Response

    There have been several questions about the statutory requirement 
that resources countable under criterion (ii) be distributed 
``through'' the grantee's (LIHEAP) program. The interim rule and this 
final rule state that this means ``within'' and ``as a part of'' the 
grantee's LIHEAP program. Under criterion (ii), the leveraged resource/
benefit is administered by the LIHEAP agency or agencies under the 
LIHEAP statute and regulations, consistent with the eligibility 
standards and benefit levels used by the grantee for its Federal LIHEAP 
funds; it is considered a LIHEAP benefit. Resources counted under 
criterion (ii) do not have to be specifically identified in the 
grantee's LIHEAP plan if they are clearly covered by the plan. For 
example, the plan would not have to say that leveraged cash resources 
are used to provide heating assistance, as long as the plan describes a 
heating assistance program that is funded with LIHEAP resources and the 
leveraged resources are used in accordance with this description.
    Five letters addressed the statutory and regulatory requirements 
that resources countable under criteria (ii) and (iii) must be 
``appropriated or mandated'' by the grantee ``for distribution'' 
through the grantee's LIHEAP program (criterion (ii)) or under the 
grantee's LIHEAP plan and integrated with the LIHEAP program (criterion 
(iii)).
    Using similar language, two Congressional letters said the 
regulation should ``make clear'' that leveraging initiatives that 
qualify for incentive funds because they are ``mandated'' by State 
action must be created by legislation, rule, contract, binding 
agreement, or another specific action or identifiable ``mandate'' or 
requirement--the grantee cannot merely list voluntary charitable 
efforts in its LIHEAP plan in order to meet these criteria. Two other 
commenters said that the interim rule was not sufficiently clear 
regarding the requirements for ``mandated'' resources. One of these 
commenters said that ``merely mentioning a program in the state's plan 
do not constitute a mandate''; a mandate ``should be a regulation, 
order, or other formal agreement or expression by the state agency 
governing the control and the distribution of the leveraged resource.''
    We agree that a mere list of voluntary charitable efforts in a 
grantee's LIHEAP plan does not meet these two criteria. Resources/
benefits that are mentioned in the plan, but are neither provided 
through nor integrated with the LIHEAP program, are not countable under 
these criteria.
    We do not believe that the statute or legislative history require 
that resources countable under these criteria be ``created'' by State, 
tribal, or territorial ``mandate,'' however. We therefore did not make 
a change in response to comments supporting such a requirement. The 
statute requires instead that the resource/benefits be ``appropriated 
or mandated by the State [or tribal or territorial grantee] for 
distribution'' through its LIHEAP program (criterion (ii)) or under its 
LIHEAP plan and also integrated with its LIHEAP program (criterion 
(iii)). For example, oil overcharge funds counted under criterion (ii) 
would not be created by State mandate; they would be mandated by the 
State for distribution through its LIHEAP program.
    We believe that ``by the State'' means that the State, tribe, 
tribal organization, or territory--the grantee--must appropriate or 
mandate the resource/benefits for distribution. A subrecipient such as 
a local nonprofit agency might actually ``distribute'' the resource/
benefits on behalf of the grantee, but the grantee must take the action 
that meets the requirement to appropriate or mandate the resource/
benefits for distribution through its LIHEAP program or under its 
LIHEAP plan, etc.
    The grantee's LIHEAP application--which includes the plan--is an 
official, formal document in which the grantee makes a binding 
commitment to distribute resources in certain ways. We therefore 
believe that it is reasonable to assume that the inclusion of the 
leveraged resource/benefits in the LIHEAP plan means that the grantee 
has ``mandated'' the resource for distribution as described in the 
plan. Inclusion of appropriate information in the plan is documentation 
of the mandate. Because the grantee's LIHEAP plan is a formal 
expression by the grantee that governs the distribution of the 
leveraged resource, we consider resources appropriately described in or 
covered by the plan to be mandated by the grantee for distribution as 
required by criteria (ii) and (iii).
    Another commenter believed that criterion (ii) ``can reasonably be 
read to require that some state entity (in the Executive, Legislative 
or Judicial branch) provide the additional resources to the State 
program for distribution by the program, that is, they were 
appropriated or mandated by the Governor or legislature or by the 
judiciary * * *.'' On the other hand, [[Page 21339]] this commenter 
said that criterion (iii) ``is somewhat of a `catchall' for 
independently initiated activities, so long as they are then 
`integrated with' the state program. The advantage of this approach is 
that the program does not have to assure that it is aware of every 
instance when a CAP negotiates an arrearage forgiveness or a waived fee 
for a LIHEAP client in time to amend its state plan to include such 
activity.'' This commenter believed that resources under this criterion 
``may clearly be available independently of state activity.''
    However, the statute requires that resources countable under both 
criterion (ii) and criterion (iii) be ``appropriated or mandated by the 
State for distribution.'' We therefore do not believe it is appropriate 
to conclude that criterion (ii) requires that a State entity provide 
the resource for distribution by the LIHEAP program, but that under 
criterion (iii), the resource may be available independent of State 
activity. Also, criterion (iii) requires that the resource/benefits be 
integrated with the grantee's LIHEAP program, and we do not believe 
that a resource can be both integrated with the LIHEAP program and 
``available independently of State activity.''
    We agree that ``independently initiated'' resources/benefits that 
are appropriated or mandated by the grantee for distribution in a way 
that is integrated with the LIHEAP program can be countable under 
criterion (iii) as long as all other relevant statutory and regulatory 
requirements are met. However, we believe that, in order to be 
distributed under the grantee's LIHEAP plan--as required by the statute 
for criterion (iii)--the resource/benefits must be identified and 
described in the plan. Also, because the statute requires that 
resources countable under criterion (iii) be ``appropriated or mandated 
by the State for distribution'' under the LIHEAP plan and 
``integrated'' with the LIHEAP program, we believe that the grantee 
needs to be aware of these resources. The grantee cannot legitimately 
claim that it appropriated or mandated a resource and the resource was 
integrated with the LIHEAP program--but the grantee did not know about 
or document the resource during the base period in which the benefits 
were provided to recipients. The identification and description of the 
resource/benefits in the plan provides formal documentation of the 
mandate by the grantee that the resource/benefits be distributed 
``under the plan'' and ``integrated'' with the LIHEAP program. We 
therefore continue to require that resources to be counted under 
criterion (iii) must be included in the grantee's plan.
    The preamble to the interim rule required (at 57 FR 1967) that the 
resource be included in the plan during the base period for which the 
resource is claimed--the period in which the resource/benefits are 
provided to low-income households. For clarity, we added this 
requirement to the final rule itself. As we stated in the interim 
rule's preamble, grantees that did not identify and describe all of 
their leveraging activities for a base period in their initial plans 
covering this period may amend their plans to include such resources at 
any time (before or) during the base period, but they may not amend 
their plans to include such resources retroactively, after the base 
period has ended. For clarity, the final rule requires that any LIHEAP 
plan amendments needed to cover leveraging activities counted under 
criteria (ii) and (iii) of section 96.87(d)(2) must be submitted before 
the end of the base period. Resources/benefits provided under the 
criterion (ii) must be distributed consistent with the grantee's LIHEAP 
plan and program policies that were in effect during the base period. 
The plan must identify and describe resources/benefits provided under 
criterion (iii) before the base period ends.
    In addition, the final rule reiterates the requirement in the 
interim rule that the plan identify and describe the resources/benefits 
to be counted under criterion (iii), and now also requires that the 
plan identify and describe their sources, and the way in which they are 
integrated/coordinated with the grantee's LIHEAP program. We added the 
latter requirements because several grantees' plan ``descriptions'' of 
leveraged resources were so vague (e.g., ``donations'') that they were 
virtually meaningless. Each individual resource does not necessarily 
need to be separately identified; similar resources may be grouped 
together. For example, similar donations from a number of churches 
might be covered as follows in the plan: ``In-kind contributions by 
approximately five churches, of blankets, space heaters, and fans that 
will be distributed by these churches to low-income households referred 
by the LIHEAP program because the households' LIHEAP benefits do not 
meet their need for these items.'' (Such related donations also could 
be combined as one resource in the grantee's LIHEAP leveraging report.)
    There have been several questions and comments about the statutory 
requirement that resources countable under criterion (iii) must be 
``integrated with the State program.'' A commenter said that 
``integration'' should be defined ``to clearly require a higher form of 
relationship than merely serving the same income-class of households. 
An integrated program should have coordinated administrative 
procedures, cooperative targeting of benefits and benefit levels, and 
an integrated set of aims and purposes that rely on LIHEAP as the 
keystone to fulfilling those common purposes.'' Another said that 
``[t]here must be a direct connection [with the LIHEAP program] through 
a set of mutual, explicit obligations and formalized arrangements.''
    The statutory requirement that resources counted under criterion 
(iii) be ``integrated'' with the grantee's LIHEAP program has been 
difficult for HHS and grantees to implement. In the interim rule, 
criterion (iii) required that resources/benefits be ``integrated'' and 
``coordinated'' with the grantee's LIHEAP program, and ``provided in 
cooperation and in conjunction'' with the LIHEAP program. A number of 
grantees were confused about what constituted integration and 
coordination. In practice, these terms were not sufficiently clear or 
measurable, and they were subject to differing understandings and 
interpretations. We needed a more objective way to determine whether a 
resource was integrated with the LIHEAP program.
    We therefore added eight ``conditions'' (``A'' through ``H'') in 
the final rule, describing specific circumstances that demonstrate that 
a resource is integrated with the grantee's LIHEAP program--that the 
resource and LIHEAP function cooperatively and in coordination with 
each other to provide an interrelated larger unit or whole. If a 
leveraged resource meets at least one of these eight conditions, we 
will consider it to be integrated and coordinated with the grantee's 
LIHEAP program.
    Based on the comments we received and on our experience in the 
first three cycles of the leveraging program, we clarified requirements 
for criteria (ii) and (iii) of Sec. 96.87(d)(2) in the final rule. We 
amended criterion (ii) as follows:
    The grantee appropriated or mandated the resource/benefits for 
distribution to low-income households through (that is, within and as a 
part of) its LIHEAP program. The resource/benefits are provided through 
the grantee's LIHEAP program to low-income households eligible under 
the grantee's LIHEAP standards, in accordance with the LIHEAP statute 
and regulations and consistent with the grantee's LIHEAP plan and 
program policies that were in effect during the base period, as if they 
[[Page 21340]] were provided from the grantee's Federal LIHEAP 
allotment.
    We amended criterion (iii) as follows: The grantee appropriated or 
mandated the resource/benefits for distribution to low-income 
households as described in its LIHEAP plan * * *. The resource/benefits 
are provided to low-income households as a supplement and/or 
alternative to the grantee's LIHEAP program, outside (that is, not 
through, within, or as a part of) the LIHEAP program. The resource/
benefits are integrated and coordinated with the grantee's LIHEAP 
program. Before the end of the base period, the plan identifies and 
describes the resource/benefits, their source(s), and their 
integration/coordination with the LIHEAP program.
    The Department will determine resources/benefits to be integrated 
and coordinated with the LIHEAP program if they meet at least one of 
the following eight conditions. If a resource meets at least one of 
conditions A through F when the grantee's LIHEAP program is operating 
(and meets all other applicable requirements), the resource also is 
countable when the LIHEAP program is not operating.
    (A) For all households served by the resource, the assistance 
provided by the resource depends on and is determined by the assistance 
provided to these households by the grantee's LIHEAP program in the 
base period. The resource supplements LIHEAP assistance that was not 
sufficient to meet households' home energy needs, and the type and 
amount of assistance provided by the resource is directly affected by 
the LIHEAP assistance received by the households.
    (B) Receipt of LIHEAP assistance in the base period is necessary to 
receive assistance from the resource. The resource serves only 
households that received LIHEAP assistance in the base period.
    (C) Ineligibility for the grantee's LIHEAP program, or denial of 
LIHEAP assistance in the base period because of unavailability of 
LIHEAP funds, is necessary to receive assistance from the resource.
    (D) For discounts and waivers: Eligibility for and/or receipt of 
assistance under the grantee's LIHEAP program in the base period, and/
or eligibility under the Federal standards set by section 2605(b)(2) of 
Public Law 97-35 * * * is necessary to receive the discount or waiver.
    (E) During the period when the grantee's LIHEAP program is 
operating, staff of the grantee's LIHEAP program and/or staff assigned 
to the LIHEAP program by a local LIHEAP administering agency or 
agencies, and staff assigned to the resource communicate orally and/or 
in writing about how to meet the energy needs of specific, individual 
households. For the duration of the LIHEAP program, this communication 
takes place before assistance is provided to each household to be 
served by the resource, unless the applicant for assistance from the 
resource presents documentation of LIHEAP eligibility and/or the amount 
of LIHEAP assistance received or to be received.
    (F) A written agreement between the grantee's LIHEAP program or 
local LIHEAP administering agency, and the agency administering the 
resource, specifies the following about the resource: eligibility 
criteria; benefit levels; period of operation; how the LIHEAP program 
and the resource are integrated/coordinated; and relationship between 
LIHEAP eligibility and/or benefit levels, and eligibility and/or 
benefit levels for the resource. The agreement provides for annual or 
more frequent reports to be provided to the LIHEAP program by the 
agency administering the resource.
    (G) The resource accepts referrals from the grantee's LIHEAP 
program, and as long as the resource has benefits available, it 
provides assistance to all households that are referred by the LIHEAP 
program and that meet the resource's eligibility requirements. Under 
this condition, only the benefits provided to households referred by 
the LIHEAP program are countable.
    (H) Before the grantee's LIHEAP heating, cooling, crisis, and/or 
weatherization assistance component(s) open and/or after the grantee's 
LIHEAP heating, cooling, crisis, and/or weatherization assistance 
component(s) close for the season or for the fiscal year, or before the 
entire LIHEAP program opens and/or after the entire LIHEAP program 
closes for the season or for the fiscal year, the resource is made 
available specifically to fill the gap caused by the absence of the 
LIHEAP component(s) or program. The resource is not available while the 
LIHEAP component(s) or program is operating.

Additional Information

    In order to be countable, a leveraged resource must meet the 
requirements under at least one of criteria (i), (ii), and (iii). A 
single resource cannot meet both criterion (ii) and criterion (iii), 
because a resource cannot be provided to low-income households both as 
a part of the LIHEAP program (criterion (ii)), and not as a part of, 
but integrated with, the LIHEAP program (criterion (iii)). A resource 
countable under criterion (iii) must meet all of the requirements in 
the first part of the criterion, and at least one of the conditions 
demonstrating integration/coordination in the second part of the 
criterion.
    In criterion (iii), conditions A through F describe acceptable 
circumstances of integration/coordination while the grantee's LIHEAP 
program is operating. If a resource meets at least one of these six 
conditions while the grantee's LIHEAP program is operating (as well as 
all other applicable requirements), the resource also is countable 
during the base period when the LIHEAP program is not operating. The 
circumstances described in a condition must apply to all assistance 
provided by the resource, and all households assisted by the resource, 
except for condition G. Condition G describes certain resources that 
accept referrals from the grantee's LIHEAP program. It is possible that 
some of the households served by a resource will not be referred to it 
by the LIHEAP program. Under condition G, benefits provided by certain 
resources to households that were referred by the LIHEAP program are 
countable, but benefits provided to households that were not referred 
by the LIHEAP program are not countable. Condition H describes certain 
resources made available specifically because the grantee's entire 
LIHEAP program has not yet opened or has closed, or because one or more 
components of the LIHEAP program have not yet opened or have closed.
    If a grantee sets its LIHEAP income eligibility standard below the 
LIHEAP statute's maximum (for example, at 125 percent of the poverty 
level), it could count leveraged benefits provided to households with 
incomes between the State standard and the Federal maximum standard 
(the greater of 150 percent of the poverty level or 60 percent of State 
median income) under criterion (i) or criterion (iii), as long as the 
benefits meet all other requirements for leveraged resources as well. 
These criteria allow the counting of leveraged benefits that are 
provided to households with incomes up to the Federal maximum and to 
categorically eligible households, as described in section 2605(b)(2) 
of the LIHEAP statute, whether or not the grantee's LIHEAP program has 
more restrictive eligibility standards. Under criterion (ii), leveraged 
benefits must be provided through the grantee's LIHEAP program, to 
households eligible under the grantee's standards. [[Page 21341]] 

Countable Leveraged Resources and Benefits

    Section 96.87(e) of the interim rule and the final rule describes 
resources and benefits that are countable under the LIHEAP leveraging 
incentive program. This section describes the three types of countable 
resources--certain cash resources, home energy discounts and waivers, 
and third-party in-kind contributions--and lists examples of countable 
resources/benefits under each. Countable resources/benefits are not 
limited to the examples named. Additional resources may be countable as 
well, provided that they also meet all applicable requirements.
    Under both the interim rule and the final rule, we do not require 
that leveraging activities be ``new'' in the base period in order to be 
countable. Benefits provided by ongoing leveraging activities--such as 
discounts in home energy bills and home energy assistance provided by 
fuel funds--are countable as long as they meet the requirements of the 
statute and these regulations, and the counted benefits are provided to 
federally or State eligible low-income households during the base 
period.
    There is sometimes a distinction or difference between a resource 
as it was acquired, and the benefits that the resource provided to low-
income households. Resources acquired in the form of cash can be used 
to provide benefits in the form of certain cash payments, tangible 
items, and/or services. However, when resources are acquired in the 
form of discounts/waivers and in-kind contributions, the benefits are 
essentially the same as the resources.
    The interim rule listed the three types of countable leveraged 
resources as ``cash resources,'' ``home energy discounts and credits,'' 
and ``third-party in-kind contributions.'' Because the word ``credits'' 
has more than one common meaning, we found that its use was confusing 
on occasion. In some cases, a ``credit'' refers to and means a 
discount. For example, a ``credit'' donated by a home energy vendor 
toward the purchase of fuel from the vendor--with no payment received 
for this amount--represents a discount/reduction in the price of the 
fuel and should be classified as a discount. In other cases, however, a 
``credit'' to a household's home energy account results from a payment 
on behalf of the household and therefore refers to the benefit provided 
by a cash resource. For example, a grantee's own funds used to provide 
heating assistance benefits should be considered a cash resource. 
However, in its leveraging report, a grantee mistakenly categorized 
these funds under ``discount/credit'' because the benefits represented 
``credits'' toward the recipients' accounts with their vendors. To 
reduce confusion, therefore, this final rule refers to ``home energy 
discounts and waivers,'' rather than ``home energy discounts and 
credits'' as used in the interim rule. In cases where a grantee has 
difficulty determining whether to classify a ``credit'' as a cash 
resource or a discount/waiver, we will discuss the resource with the 
grantee to determine the correct classification.

Comment and Response

    We received one comment on resources listed as countable in 
Sec. 96.87(e) of the interim rule. The commenter questioned whether 
forgiveness of utility sales taxes for LIHEAP-eligible households 
should be countable.
    The interim rule listed as a countable resource/benefit ``partial 
or full forgiveness of home energy bill arrearages''; the arrearage 
amounts could include sales taxes and/or other extra charges, such as 
special energy taxes, environmental surcharges, and late payment 
charges. As long as such charges are included in the low-income 
household's home energy bill and apply to all residential customers in 
comparable situations, we do not believe that they should be excluded. 
Use of leveraged funds to pay low-income households' home energy bills, 
or portions of these bills, that include such charges would be 
countable as well. We retained this provision in the final rule.

Comments and Changes

    The final rule specifies that purchase and donation of space 
heating and space cooling devices, equipment, and systems are 
countable. Purchase and donation of space heating and space cooling 
devices and equipment, such as furnaces, fans, and air conditioners, 
already were specified as countable in the interim rule. Based on our 
experience in operating the leveraging program, we found that the term 
``devices and equipment'' was too limited. Therefore, we added the 
broader term ``systems'' in the final rule. For clarity, the final rule 
also specifies additional countable weatherization services: 
Replacement and repair of weatherization materials (installation of 
weatherization materials already was specified as countable); 
installation, replacement, and repair of space heating and space 
cooling devices, equipment, and systems (for example, installation of 
energy efficient furnaces and repair of leaks in heating system ducts); 
and installation, replacement, and repair of other tangible items that 
help low-income households meet the costs of home energy and that are 
specifically approved by HHS. Also, for clarity and in response to 
comments urging that they be countable, the final rule adds the 
following services when they are an integral part of weatherization to 
help low-income households meet the costs of home energy: Installation, 
replacement, and repair of windows, exterior doors, roofs, exterior 
walls, and exterior floors; pre-weatherization home energy audits of 
homes that were weatherized as a result of these audits; and post-
weatherization inspection of homes. Also, we agree with the informal 
comments we received recommending that several safety-related aspects 
of weatherization be countable when they are integral and necessary 
parts of weatherization. In response to these comments, the final rule 
adds: Installation, replacement, and repair of smoke/fire alarms that 
are an integral part, and necessary for safe operation, of a home 
heating or cooling system installed or repaired as a weatherization 
activity; and asbestos removal that is an integral part of and 
necessary to carry out weatherization to help low-income households 
meet the costs of home energy. These services are countable if they are 
paid for with leveraged cash resources, or provided as in-kind 
contributions by volunteers or donated paid staff under the conditions 
specified in the final rule. Discounts in the cost of these items and 
services also are countable under the conditions specified in the final 
rule.
    A commenter recommended that weatherization ``audits'' and 
inspections be countable, because they are essential to the success of 
weatherization and ``ensure the net addition of energy resources to the 
household.'' We adopted this recommendation, with respect to home 
energy audits to determine households' weatherization needs, and 
inspections to assure that weatherization has been properly carried 
out, when these audits and inspections are integral parts of 
weatherization to help low-income households meet the costs of home 
energy. Only the home energy audits of low-income households' homes 
that were weatherized as a result of these audits are countable.
    Because these countable services involving smoke/fire alarms, 
asbestos removal, pre-weatherization audits, and post-weatherization 
inspections must be an integral part of weatherization carried out to 
help specific low-income [[Page 21342]] households meet the costs of 
home energy, they generally should be counted in the base period in 
which these households' homes were weatherized. Pre-weatherization 
audits--which are countable as an integral part of resulting 
weatherization--should be counted in the base period in which the 
weatherization is carried out. This will prevent counting the audits of 
homes when the follow-up weatherization was not done. However, homes 
might be weatherized using leveraged funds or volunteer services in one 
base period and therefore counted in that base period, but the post-
weatherization inspections of these homes might take place and be 
counted in the following base period.
    Also, based on our experience in operating the leveraging incentive 
program, we added a clarification to the final rule at 
Sec. 96.87(e)(1)(i), naming several specific examples of countable 
benefits provided by leveraged cash resources: Heating, cooling, and 
energy crisis assistance payments and cash benefits made in the base 
period to or on behalf of low-income households toward their home 
energy costs--including home energy bills, taxes on home energy sales/
purchases and services, connection and reconnection fees, application 
fees, late payment charges, bulk fuel tank rental or purchase costs, 
and security deposits that are retained for six months or longer.
    Also as a clarification, we added language at the beginning of 
paragraph (2) of Sec. 96.87(e), which describes countable home energy 
discounts and waivers, stating that countable discounts/waivers must 
``pertain to generally applicable prices, rates, fees, charges, costs, 
and/or requirements.'' This language applies to all of the sub-
paragraphs under this paragraph. We therefore deleted similar language 
from subparagraph (ii).
    Finally, we added clarifying language specifying that the following 
are countable: Partial or full waivers of bulk fuel tank rental or 
purchase costs; and reductions in, and partial or full waivers of, non-
Federal taxes on home energy sales/purchases and services (such as 
furnace repairs) and of other non-Federal taxes provided as tax 
``credits'' to low-income households to offset their home energy costs, 
unless Federal funds or Federal tax ``credits'' provide payment or 
reimbursement of these costs.
    As long as a fuel is used wholly or partly for home energy by the 
low-income recipient household, the full amount of leveraged heating, 
cooling, and crisis assistance benefits for the fuel, and the full 
amount of leveraged discounts and waivers (including arrearage 
forgiveness) relating to the fuel, are countable, even if they may 
exceed the home energy portion of the household's bill. It is often 
difficult or impossible to determine the exact portion of a household's 
fuel bill that covers home energy--that is, home heating and cooling 
rather than other residential uses. Also, it is often necessary to pay 
a household's entire fuel bill--not just the heating and cooling 
portion--to prevent service shut-off or termination.
    Tangible items that are installed or repaired using leveraged 
services must be items that would be countable if they were leveraged, 
or must be specifically approved by HHS upon request by the grantee. 
(For example, donated services to install a washing machine would not 
be countable, because this appliance, even if it was purchased with 
non-Federal funds or donated, would not be countable.) However, these 
items themselves do not have to be leveraged resources. Only the 
leveraged resource/benefit (for example, leveraged cash used to pay for 
installation of non-leveraged insulation) is countable in such cases.
    We deleted as separate countable resources all services involving 
delivery and transportation--that is, delivery of fuel, weatherization 
materials, and other items. We also deleted purchase, rental, donation, 
and loan of supplies and equipment used to deliver these things and 
used to install weatherization materials. Therefore, cash resources 
used to pay for these services and items, discounts in their cost, and 
in-kind contributions of these services and items are no longer 
countable as separate resources. (Although delivery services are no 
longer separately countable, delivery costs sometimes are included in 
the fair market price of delivered bulk fuel--such as fuel oil, 
propane, coal, and wood--and as part of the purchase and/or 
installation costs of weatherization materials and space heating and 
space cooling devices, equipment, and systems.)
    We deleted delivery services, and supplies and equipment used for 
delivery and installation services, for several reasons, based on our 
experience with the leveraging program. These services often are not 
actually direct benefits to specific low-income households. Valuation 
was a problem. The value of equipment such as trucks that would be used 
for a number of years and by a number of different users might have 
been pro-rated for the items' expected useful life and anticipated 
other users. However, it would be virtually impossible to get 
consistent estimates of, and pro-rating for, the useful life of 
equipment, and accurate pro-rating for other users, even if we issued 
extensive regulatory instructions. If the entire value of expensive 
equipment that was to be used over a period of years was counted for 
only one base period, this would inflate the resource's effect for that 
base period--and still leave the question of how to account for other 
users. We also found that several grantees' leveraging reports tried to 
stretch countable delivery-related services and items beyond the letter 
and intent of the interim rule--for example, to count a ``discount'' in 
the cost of gasoline used in a vehicle that transported fuel oil. 
Finally, the amount of effort necessary to estimate and document 
valuation, and to review these calculations and documentation, is 
disproportionate for such marginal resources.

Comments and Response

    Since the end of the comment period on the interim rule, questions 
have arisen about whether certain types of borrowed funds are countable 
under the leveraging incentive program. The interim rule said that 
borrowed funds were not countable. The interim rule's preamble 
indicated that borrowed funds were not countable because they must be 
repaid, and therefore there is no net addition to households' home 
energy resources. This is the case if a low-income household borrows 
funds, uses these funds to pay a home energy bill or weatherize its 
home, etc., and then repays the loan with its own funds. It is also the 
case if, for example, a grantee borrows funds, uses these funds to pay 
home energy bills or weatherize homes, etc., and then repays the loan 
with Federal LIHEAP funds.
    In general, benefits or services paid for with borrowed funds and 
interest on those funds are not countable under the leveraging 
incentive program. We clarified in the final rule that this prohibition 
also applies to loans made to low-income households to help them pay 
their home energy costs, including weatherization, and to loans made by 
low-income households.
    However, we now recognize that borrowed or repaid funds from 
certain revolving loan funds and similar loan arrangements can be 
countable. We revised the final rule accordingly, at Secs. 96.87(b)(3) 
and 96.87(f)(2). The final rule defines ``countable loan fund'' in 
Sec. 96.87(b)(3) as follows:
    Countable loan fund means revolving loan funds and similar loan 
instruments in which:
[[Page 21343]]

    (i) The sources of both the loaned and the repaid funds meet the 
requirements of this section, including the prohibitions of paragraphs 
(f)(1), (f)(2), and (f)(3);
    (ii) Neither the loaned nor the repaid funds are Federal funds or 
payments from low-income households, and the loans are not made to low-
income households; and
    (iii) The benefits provided by the loaned funds meet the 
requirements of this section for countable leveraged resources and 
benefits.
    In this definition, ``payments from low-income households'' do not 
include normal rent payments. Any interest paid on funds borrowed from 
a revolving loan fund would not be countable when paid to the fund, but 
could be countable when borrowed later and used for countable benefits.
    An example of a countable loan fund is a resource in which a State 
used oil overcharge funds in its LIHEAP program to establish a 
revolving loan fund for landlords to install weatherization materials 
for low-income households. The funds are used by landlords to provide 
weatherization that helps the households reduce their home energy 
needs, with a requirement that the landlords repay the loans to the 
State. Repaid funds are then used to make loans to landlords for 
additional weatherization. This has the result of increasing the amount 
of weatherization carried out, with non-Federal funds and without 
putting any burden on low-income households. The resources are 
countable in the base period in which the weatherization takes place. 
When repaid funds are used again, the additional weatherization is 
countable in the base period in which it is provided. Such activities 
are countable if neither Federal funds nor payments from low-income 
households are used for the loans or to repay the loans, charges to the 
households (including rent) are neither increased nor imposed as a 
result, and all other statutory and regulatory requirements are met.
    Also, as long as all requirements of Sec. 96.87 for countable 
leveraged resources and benefits are met, if a grantee or other entity 
borrows funds (commercially or otherwise, consistent with all 
applicable laws and regulations), uses these funds to provide benefits 
that would otherwise be countable, and repays the loan with countable 
non-Federal funds in the base period in which the benefits were 
provided, the benefits are countable based on the countable non-Federal 
character of the repaid funds and the benefits' net addition to low-
income households' home energy resources.

Comments and Response

    We made several changes in the final rule involving countable 
petroleum violation escrow (PVE or oil overcharge) funds. Oil 
overcharge funds result from settlements of cases of overcharges which 
violated petroleum price controls in effect from 1973 to 1981, under 
the Emergency Petroleum Allocation Act of 1973. Since 1981, over $4.5 
billion in oil overcharge funds have been distributed by the Department 
of Energy (DOE) to the 50 States, the District of Columbia, and most 
U.S. territories; additional oil overcharge funds are expected to be 
distributed in the future. LIHEAP is one of the programs under which 
most of these funds can be used.
    Senate Report 101-421 on the 1990 LIHEAP reauthorization law states 
that the Senate Committee on Labor and Human Resources

believes there are very limited circumstances under which Petroleum 
Violation Escrow Funds should be considered as leveraged resources. 
Therefore, if the Secretary chooses to count Petroleum Violation 
Escrow Funds as leveraged resources, he or she may only count funds 
that are distributed after October 1, 1990, and that were not 
previously required to be allocated to low-income households.

    In the interim final rule, we defined ``countable petroleum 
violation escrow funds'' in section 96.87(b) as ``petroleum violation 
escrow (oil overcharge) funds that were distributed to a State or 
territory after October 1, 1990, were added to and used as a part of 
the State or territory's LIHEAP program, and were not previously 
required to be allocated to low-income households.'' We said in the 
interim rule's preamble that oil overcharge funds ``may be counted 
under the LIHEAP leveraging incentive program only by the 50 States, 
the District of Columbia, and the territories to which they were 
distributed directly * * *.'' Three States commented on the interim 
rule's treatment of oil overcharge funds.
    Two of these States disagreed with the interim rule's requirement 
that only PVE funds distributed to States and territories after October 
1, 1990, are countable. One of the two States believed that 
countability of PVE funds should depend on the date a State or 
territory added them to its LIHEAP program. The second State believed 
that all PVE funds added to and used as part of a State's LIHEAP 
program during a base period should be countable.
    We do not agree with these comments. We believe that it is 
consistent with the Senate Report to provide that oil overcharge funds 
distributed to States and territories by DOE on or before October 1, 
1990, cannot be counted under the leveraging program. Also, we believes 
that it would be unfair to count remaining oil overcharge funds that 
were distributed to States and territories by DOE before the LIHEAP 
leveraging incentive program was established--before grantees knew that 
they might receive leveraging incentive funds if they used oil 
overcharge funds in certain ways. This would unfairly penalize grantees 
that used these funds in a timely way, soon after receiving them--as 
the terms of distribution encouraged them to do. It would unfairly 
reward grantees that did not use these funds in a timely way. We 
therefore retained and clarified the requirement that only PVE funds 
that were distributed to a State or territory by DOE after October 1, 
1990 (and used consistent with all other relevant regulatory and 
statutory requirements) are countable.
    In correspondence relating to its leveraging report on FY 1991 
leveraging activities, a third State argued that oil overcharge funds 
it used for home energy, but not under LIHEAP, should be countable. 
Under the interim final rule, these funds were not countable because 
they were not ``added to and used as a part of'' the State's LIHEAP 
program. However, after further reflection, we agree that PVE funds 
that are used under other programs to provide home energy to low-income 
households should be countable as long as they meet the requirements 
under section 96.87. Therefore, this final rule changes the definition 
of countable petroleum violation escrow funds in section 96.87(b)(4) to 
state, in part, that they must be

    * * * used to assist low-income households to meet the costs of 
home energy through (that is, within and as a part of) a State or 
territory's LIHEAP program, another Federal program, or a non-
Federal program, in accordance with a submission for use of these 
petroleum violation escrow funds that was approved by DOE * * *.

    Because the LIHEAP statute limits the percent of LIHEAP funds that 
can be used for weatherization, a grantee that wanted to use large 
amounts of PVE funds for weatherization would use them under DOE's low-
income weatherization assistance program or under a non-Federal 
weatherization program that meets the requirements for use of PVE 
funds. With this change in the regulations, these PVE funds could be 
countable under the LIHEAP leveraging incentive program as long as they 
meet all applicable requirements for countable leveraged resources.
    The final rule also specifies the requirements under 
Sec. 96.87(d)--``Basic [[Page 21344]] requirements for leveraged 
resources and benefits''--that countable PVE funds must meet: all of 
the criteria under paragraph (d)(1), as well as criterion (ii) or 
criterion (iii) under paragraph (d)(2). Paragraph (d)(1) includes the 
requirement that countable leveraged resources meet the requirements in 
the leveraging incentive program section of the final rule. This 
clarifies that, for example, like other countable leveraged resources, 
countable PVE funds cannot be used as matching or cost sharing for any 
Federal program--such as emergency assistance under title IV of the 
Social Security Act--and they cannot be counted for any other Federal 
leveraging incentive program. This clarification is based on our 
experience in operating the leveraging incentive program and is 
intended to prevent misunderstanding.
    Because the grantee's LIHEAP program does not have an active, 
substantive role in developing or acquiring PVE funds from home energy 
vendors through negotiation, regulation, or competitive bid, PVE funds 
cannot be counted under criterion (i) under paragraph (d)(2). Countable 
PVE funds added to and used as a part of the grantee's LIHEAP program 
would be counted under criterion (ii) of paragraph (d)(2). Countable 
PVE funds used under another program would be counted under criterion 
(iii); therefore, grantees that want to count such funds must be sure 
to meet the requirements of criterion (iii) for inclusion in the LIHEAP 
plan and integration with the LIHEAP program.
    In its comments on the interim rule, a State urged HHS to allow 
tribes to count oil overcharge funds under some circumstances; several 
tribal grantees have verbally agreed with that comment. Upon further 
consideration, we agree that there are certain circumstances under 
which tribes should be able to count oil overcharge funds. We describe 
those circumstances later in this preamble, under ``Leveraging Issues 
Relating to Tribal Grantees.''
    Finally, we changed the definition of countable petroleum violation 
escrow funds at Sec. 96.87(b)(4) in the final rule to include interest 
earned on PVE funds distributed to a State or territory by DOE after 
October 1, 1990 (as long as all other applicable statutory and 
regulatory requirements also are met). Interest earned on PVE funds 
generally is treated like the PVE funds themselves; this change 
clarifies that this practice is acceptable in the leveraging program.

Resources and Benefits That Cannot Be Counted

    Section 96.87(f) of the interim rule and the final rule describes 
resources and benefits that are not countable under the LIHEAP 
leveraging incentive program. Thirteen of the letters we received 
included comments on this section.

Comment and Response

    A commenter proposed that low-income households' co-payments for 
home energy be countable as leveraged funds. Similarly, in its 
leveraging report on FY 1991 leveraging, a grantee proposed to count 
the services of a householder who installed weatherization materials in 
his own home. We cannot count such payments and services under the 
leveraging incentive program. In the first instance, the household 
would simply be helping to pay its own bill. In both cases, these are 
the households' own ``contributions,'' not leveraged contributions, and 
they do not add to the households' net resources. We therefore 
clarified in the final rule at paragraph (1) under this section that 
the following are not countable: resources (or portions of resources) 
obtained, arranged, provided, contributed, and/or paid for, by a low-
income household for its own benefit, or which a low-income household 
is responsible for obtaining or required to provide for its own benefit 
or for the benefit of others, in order to receive a benefit of some 
type.
    We also note that the LIHEAP statute and these regulations require 
that any costs and charges imposed on low-income households in order to 
receive counted resources/benefits must be offset from the value of 
these resources.

Comment and Response

    Another commenter disagreed with the interim rule's exclusion of 
leveraged resources counted under the leveraging incentive program(s) 
of the low-income weatherization assistance program administered by the 
Department of Energy, or any other Federal leveraging incentive 
program. However, we continue to believe that leveraged resources 
should be countable only once--under one Federal leveraging program 
only--and therefore we retained this exclusion in the final rule.

Comment and Response

    A commenter said that funds used as matching for other Federal 
programs should not be excluded from consideration as leveraged 
resources, because counting such funds ``constitutes increasing the 
total amount of funds available from all sources to assist low-income 
households with their home heating needs.'' We do not agree. As with 
resources counted under another Federal leveraging program, we continue 
to believe that ``leveraged'' resources should be countable only once. 
In addition, the matching funds are required in order to receive 
Federal funds under the other program, and thus nothing new has been 
added to help low-income households that would not otherwise have been 
added.

Comment and Response

    Another commenter recommended that interest paid on borrowed funds, 
and reductions in interest paid on borrowed funds, be countable ``when 
it can be demonstrated that they do increase the amount of heat 
available to households.'' Interest paid by a borrower to a commercial 
lender does not represent a net addition to the home energy resources 
of low-income households. On the other hand, if a late payment charge 
or ``interest'' is included in a low-income household's home energy 
bill and is paid with leveraged funds or is waived, the amount paid or 
waived could be countable. Also, as discussed earlier in this preamble, 
interest paid on funds borrowed from a revolving loan fund would not be 
countable when paid to the fund, but could be countable later when, 
like repaid principal, it is borrowed from the revolving loan fund and 
used for countable benefits. Reductions in interest paid on borrowed 
funds are not in themselves countable; leveraged funds that might have 
been used for interest but instead are used to provide countable 
benefits would be countable.

Comment and Response

    A commenter stated that the value/costs of space, equipment, and 
paid staff donated by local agencies and energy suppliers should be 
countable because they are ``crucial and an integral part of the 
service delivery system'' and counting them would ``facilitate more 
donations in these areas.'' ``Donation'' of office or other space, 
office equipment, and paid or unpaid administrative staff do not 
provide direct, quantifiable home energy benefits for low-income 
households or result in a direct, quantifiable addition to these 
households' home energy resources. Therefore they are not countable. As 
we stated in the preamble to the interim rule,

donated materials such as office supplies and equipment do not 
result directly in a specific net addition to low-income households' 
total energy resources, as required by section 2607A(b)(1) of the 
LIHEAP statute. The same [[Page 21345]] can be said of donations of 
time by volunteers or staff to perform office or administrative 
chores. Even though this may result in the grantee being able to 
free some of its funds for other uses, it would be extremely 
difficult to assure and to document that any savings are used for 
direct benefits to low-income households.

Comments and Response

    Nine commenters proposed that some or all energy conservation 
education costs be countable. As one of these commenters stated, these 
``efforts can yield significant cost savings for low-income consumers, 
and produce tangible benefits.'' Another stated that energy 
conservation education that ``employs a proven curriculum'' provides 
``a valid energy saving measure'' and should be countable. Another 
suggested that the value of conservation education be quantified as 
three percent of the recipient households' energy bills, based on the 
commenter's understanding that these education programs ``consistently 
result in an average 3% reduction in energy usage.''
    We agree that a well designed and implemented energy conservation 
education program presented to receptive households should result in 
reduced home energy consumption and costs. However, while the cost of 
providing energy conservation education can be quantified, we do not 
know a reliable way to determine the value of education as a net 
addition to the total energy resources of low-income households that 
would apply to all grantees. The quality of the education provided, the 
condition of different homes, and the motivation of different 
households to implement conservation measures are highly variable. We 
believe that the education activities themselves do not provide direct, 
quantifiable benefits or quantifiable net additions to households' home 
energy resources. The final rule therefore continues to exclude energy 
conservation education.
    One of the nine commenters claimed that if energy education/case 
management activities are not countable under the leveraging program, 
``there will not be an incentive to the CAP agencies to provide energy 
case management services although it has been proven to be 
successful.'' Section 2607A of the LIHEAP statute allows the counting 
only of limited kinds of activities and services as leveraging. There 
are many additional worthwhile activities and services that benefit the 
program and the low-income households it exists to serve. (Local 
administering agencies and their staff generally are paid for providing 
these services.) Grantees should not change successful activities that 
help low-income households simply to substitute activities that will 
count as leveraging.

Changes

    Based on our experience in implementing the leveraging incentive 
program under the interim final rule and on comments we received on the 
interim rule, we retained most of the list at Sec. 96.87(f) of 
resources and benefits that are not countable. For example, like the 
interim rule, the final rule does not allow the counting of office 
supplies and equipment, services for administrative activities, or any 
other services that do not result in a direct, net, quantifiable 
addition to low-income households' total energy resources, as required 
by section 2607A(b)(1) of the LIHEAP statute. Based on our experience 
in operating the leveraging program and on public comments indicating 
that some of the leveraging requirements in the interim rule were 
unclear or too loose, and to assure consistent understanding and avoid 
misunderstanding, we changed Sec. 96.87(f) in the final rule by 
clarifying and tightening language in several places and by specifying 
that the following are not countable:
    <bullet> Resources obtained, arranged, provided, contributed, and/
or paid for, by a low-income household for its own benefit, or which a 
low-income household is responsible for obtaining or required to 
provide in order to receive some type of benefit;
    <bullet> Resources provided, contributed, and/or paid for by 
building owners, building managers, and/or home energy vendors, if the 
cost of rent, home energy, or other charges to the recipient were or 
will be increased, or if other charges to the recipient were or will be 
imposed, as a result;
    <bullet> Resources directly provided, contributed, and/or paid for 
by member(s) of the recipient household's family (parents, 
grandparents, great-grandparents, sons, daughters, grandchildren, 
great-grandchildren, brothers, sisters, aunts, uncles, first cousins, 
nieces, and nephews, and their spouses), regardless of whether the 
family member(s) lived with the household, unless the family member(s) 
also provided the same resource to other low-income households during 
the base period and did not limit the resource to members of their own 
family;
    <bullet> Delivery, and discounts in the cost of delivery, of fuel, 
weatherization materials, and all other items;
    <bullet> Purchase, rental, donation, and loan, and discounts in the 
cost of purchase and rental, or supplies and equipment used for 
delivery, installation, and repairs;
    <bullet> Oil overcharge funds that do not meet the definition in 
Sec. 96.87(b)(4) of the regulations;
    <bullet> Interest earned/paid on oil overcharge funds that were 
distributed to a State or territory by DOE on or before October 1, 
1990;
    <bullet> Interest earned/paid on Federal funds (grantees should 
draw down Federal funds only as needed for ``immediate'' use);
    <bullet> Interest earned/paid on customers' security deposits, 
utility deposits, etc., except when forfeited by the customer and used 
to provide countable benefits (interest is generally earned on such 
deposits and therefore would not be a leveraged benefit obtained for 
low-income households);
    <bullet> Borrowed funds that do not meet the requirements in 
Sec. 96.87(b)(3) of the regulations (including loans made by and/or to 
low-income households);
    <bullet> Resources for which Federal payment or reimbursement has 
been or will be provided;
    <bullet> Training;
    <bullet> Installation, replacement, and repair of lighting fixtures 
and light bulbs (countable weatherization must be directly related to 
home energy, consistent with the definitions of ``home energy'' and 
``weatherization'' in Sec. 96.87(b) of the regulations); and
    <bullet> Activities involving smoke/fire alarms and asbestos 
removal that are not described in the final rule as countable.
    Also, in response to questions raised during the first two years of 
the leveraging program, we clarified the regulatory language regarding 
non-countable tax deductions and tax credits. The revised language 
specifies that tax deductions and tax credits received by donors of 
resources for these donations, and by vendors for providing discounts, 
waivers, etc., are not countable. If they meet the requirements in the 
LIHEAP statute and these regulations, the items and services donated 
and discounts/waivers provided would be countable. Counting tax 
deductions and tax credits received by the donors/vendors essentially 
would result in double counting the same benefit. In addition, tax 
deductions and tax credits received by donors of resources do not 
represent a net addition to the home energy resources available to low-
income households, as required by the LIHEAP statute and these 
regulations. (On the other hand, as noted earlier, special non-Federal 
tax ``credits'' provided to low-income households to offset their home 
energy costs can be countable as discounts/waivers, and non-Federal 
[[Page 21346]] payments to low-income households from tax authorities 
to offset their home energy costs can be countable as cash resources/
benefits--as long as Federal funds are not used to pay for these 
``credits'' and payments, and they are not generally available to other 
households.)

Leveraging Issues Relating to Tribal Grantees

    A number of leveraging issues relate specifically to Indian tribes 
and tribal organizations. These issues include countability of oil 
overcharge funds, resources obtained from trust lands, resources 
obtained from National Forests and Bureau of Land Management areas, and 
Public Law 93-638 funds. Several grantees have commented, formally in 
response to the January 1992 interim final rule, or informally, and 
asked questions concerning these issues. While researching these 
issues, we consulted with the Office of the General Counsel in HHS, the 
Office of the Solicitor and the Bureau of Land Management in the 
Department of the Interior, and the Office of the General Counsel and 
the Forest Service in the Department of Agriculture.
    In addition, questions have been raised about the possibility of 
both a tribe and a State claiming the same leveraged resource.
    The guidance that follows addresses these issues. We advised 
grantees of most of this guidance in LIHEAP Information Memorandum 92-
19, dated June 25, 1992.

Oil Overcharge Funds

    In accordance with Federal law, court orders, and agreements, the 
Department of Energy distributes petroleum violation escrow--PVE or oil 
overcharge--funds to States and territories, but not to Indian tribes 
or tribal organizations. In the preamble to the January 1992 interim 
final rule, we stated that, because oil overcharge funds are not 
distributed directly to tribes or tribal organizations, tribal LIHEAP 
grantees cannot count them under the LIHEAP leveraging incentive 
program. We noted that if a tribe receives PVE funds under a State 
LIHEAP program, the tribe would be a subgrantee or contractor of the 
State's program for the administration of these funds, and the funds 
would be used by the tribe as part of the State's LIHEAP program. Also, 
we noted that if a tribe and State agree that the tribe's direct 
Federal LIHEAP allotment is to be increased in lieu of the tribe 
receiving PVE funds under the State's LIHEAP program, the increased 
funds received by the tribe would be regularly appropriated Federal 
LIHEAP funds, not PVE funds; the State would retain the actual PVE 
funds.
    Several tribal grantees told us informally that they believe that 
tribes that obtain oil overcharge funds from the State(s) in which they 
are located and use these funds for home energy assistance should be 
able to count them under the leveraging incentive program, since the 
tribes in fact have leveraged those funds. Also, in its formal comments 
on the January 1992 preamble and interim rule, a State encouraged HHS 
``to allow tribes to offer as countable resources any oil overcharge 
funds [provided to them by the States in which they are located] that 
meet other criteria defined in the law'' for countable leveraged 
resources.
    After considering these comments, we determined that tribal LIHEAP 
grantees that receive oil overcharge funds from the State in which they 
are located (and/or interest the State earned on oil overcharge funds) 
and use these funds (and/or interest the tribes or tribal organizations 
earn on these funds) for home energy assistance (generally as 
subrecipients--subgrantees, contractors, or subcontractors--of the 
State) can count these funds under the leveraging program, as long as 
these funds meet all applicable statutory and regulatory requirements 
for countable leveraged resources, and the requirements in the 
following paragraphs.
    If a tribe or tribal organization wants to count oil overcharge 
funds (and/or interest earned on oil overcharge funds) that it has used 
for home energy assistance as a subrecipient of the State, it must 
include with its leveraging report documentation or verification that 
(1) these particular oil overcharge funds (and/or the oil overcharge 
funds on which the interest was earned) were distributed by the 
Department of Energy to the State in which the tribal grantee is 
located after October 1, 1990, and (2) the State is not counting these 
particular funds as leveraged resources. A copy of a written statement 
from the State providing this information will meet this requirement. 
(As explained earlier in this preamble, consistent with the legislative 
history, the regulations require that countable PVE funds must be 
distributed by the Department of Energy after October 1, 1990. It is 
the State that knows when particular PVE distributions were made to it 
by DOE.)
    In general, the criterion in Sec. 96.87(d)(2) of this final rule 
under which a tribe would count these funds is criterion (iii), where 
the resource is distributed under the tribe's LIHEAP plan and 
integrated with its LIHEAP program. (The tribe's LIHEAP program did not 
develop or acquire these funds from vendors through negotiation, 
regulation, or competitive bid, as required under criterion (i).) 
Tribes should be sure to meet all of the requirements for criterion 
(iii) in order to claim these oil overcharge funds under this 
criterion. Also, for purposes of leveraging, when a tribe uses oil 
overcharge funds received from its State in accordance with the LIHEAP 
statute and regulations and the tribe's LIHEAP application, essentially 
as if they were regular Federal LIHEAP funds, then the tribe may count 
these oil overcharge funds under criterion (ii). (Because the tribe 
received the overcharge funds from the State, rather than from the 
Federal government, the tribe is accountable to the State for their 
use.)
    On the other hand, we have determined that Federal funds added to 
tribal grantees' LIHEAP allotments, in lieu of overcharge funds, cannot 
be counted as leveraged resources, because of the statutory requirement 
that countable leveraged resources be from non-Federal sources. In this 
case, the State has retained the actual oil overcharge funds, and the 
increased funds awarded to the tribe by HHS are regularly appropriated 
Federal LIHEAP funds from the State's gross LIHEAP allotment.

Resources Obtained From Trust Land

    Tribes may obtain home energy resources, such as wood used to heat 
low income households' homes, from tribal or individual trust land. 
These trust lands are not Federal lands. Therefore, resources obtained 
from these lands are countable under the LIHEAP leveraging incentive 
programs, as long as they meet all relevant statutory and regulatory 
requirements.
    It is important to trace the source of a resource/benefit to its 
origin, to determine whether it is countable. For example, if a tribe 
cuts firewood from tribal trust land and gives that firewood to low-
income households, the fair market value of the wood at the time of 
``donation'' is countable. However, if a tribe uses Federal LIHEAP 
funds to purchase firewood cut from an individual's trust land at fair 
market value, the wood is not countable, because it was bought with 
Federal funds and there was no discount in its price. If a tribe uses 
Federal funds to purchase firewood from an individual's trust land at a 
discount, then the amount of the discount is countable, as long as all 
relevant statutory and regulatory requirements for leveraged resources 
are met. The amount actually paid is not countable, because Federal 
funds were used. (If a tribe uses non- [[Page 21347]] Federal tribal 
funds to purchase firewood from an individual's trust land and gives 
the wood to low-income households, the wood's fair market value is 
countable.)
    Donated or paid services specifically to cut firewood, mine coal, 
etc., are not countable under the leveraging incentive program. 
However, in many cases, the value of these services would be included 
in the fair market value of donated or purchased firewood, coal, etc., 
that is obtained from non-Federal land.

Resources Obtained From National Forests and Bureau of Land Management 
Areas

    There are some circumstances under which free firewood can be cut 
from National Forest land; the Department of Agriculture sometimes 
issues permits to cut dead or downed trees or ``slash'' without a 
charge or fee. Also, there might possibly be situations where there is 
no charge or fee to cut firewood on Bureau of Land Management (BLM) 
land. The following two paragraphs discuss the countability of home 
energy resources obtained for free from National Forest and/or BLM 
land.
    Resources such as firewood that are obtained from National Forests 
and BLM areas in general are considered Federal resources. Therefore, 
in general, they are not countable as leveraged resources under the 
LIHEAP leveraging incentive program. Donated or paid services to obtain 
such resources (e.g., to cut such firewood) also would not be 
countable.
    In some cases, an Indian tribe might have treaty rights to 
specified timber or firewood resources on Federal lands administered by 
the Forest Service or the BLM. Where they exist, such treaty provisions 
may confer a right to usufruct, that is, a nonpossessory right to use 
timber, usually for domestic purposes. HHS will recognize such rights 
where they have been adjudicated by a court of competent jurisdiction 
or are recognized by the Federal agency administering the land in 
question. (HHS cannot make such determinations itself.) Where the 
usufructuary right is so adjudicated or recognized, a resource such as 
firewood would be considered a tribal or Indian resource--that is, non-
Federal. Therefore, a home energy resource like firewood that is 
obtained in such a case would be countable under the leveraging 
incentive program, as long as the resource met all applicable statutory 
and regulatory requirements for leveraged resources.
    More often, firewood is cut from National Forest or BLM land for 
payment, rather than for free. A tribe might pay for a permit to cut 
firewood for domestic use, and/or it might pay for the amount of wood 
actually cut. If, for example, the tribe uses tribal funds to pay for 
this permit and/or to pay for the wood actually cut, then the tribal 
funds are the leveraged resource--the resource is cash; and the 
firewood, which is obtained in return for payment of the cash, is the 
benefit that is provided to low-income households. In this case, 
because the resource is non-Federal cash, the resource is countable, as 
long as all applicable statutory and regulatory requirements for 
leveraged resources and benefits are met. The value of the resource/
benefit would be the amount that was actually paid for the permit and/
or for the wood itself. If the wood is paid for with LIHEAP or other 
Federal funds, it would not be countable under the leveraging incentive 
program.

Public Law 93-638 Contract and Grant Funds

    Several tribal grantees informally asked us whether contract and 
grant funds provided to them under Public Law 93-638, the Indian Self-
Determination and Education Assistance Act, by the Bureau of Indian 
Affairs/Department of the Interior and the Indian Health Service/HHS 
are countable under the leveraging incentive program. Also, in its 
formal comments on the interim rule, a tribal organization requested 
that these funds be countable.
    Contract and grant funds provided to tribes under Public Law 93-638 
are considered to be Federal funds. Because they retain their character 
as Federal funds, they cannot be counted as leveraged resources under 
the LIHEAP leveraging incentive program.
    Under certain circumstances, Public Law 93-638 contract and grant 
funds can be used as matching shares for other programs. However, the 
LIHEAP leveraging incentive program is not a matching (cost sharing or 
cost participation) program for which grantees provide matching shares. 
(If the Federal Public Law 93-638 funds were used as matching shares 
for a program other than LIHEAP, they still would not be countable 
under the leveraging incentive program, because Federal funds, and 
funds used as matching for other Federal programs, are not countable 
under the leveraging program.)

Resources That Might Be Claimed by Both a Tribe and a State

    In some cases, a leveraged resource might be claimed by both a 
tribe or tribal organization and the State in which it is located. For 
example, countable oil overcharge funds used by a tribe as a 
subrecipient of a State's LIHEAP program could be claimed by both. (The 
tribe might count these funds under criterion (iii) of 
Sec. 96.87(d)(2), and the State might count them under criterion (ii).) 
Also, donation of weatherization materials might be negotiated with a 
home energy vendor by a State LIHEAP program (criterion (i)), but then 
a tribe might install the weatherization materials for its service 
population through its LIHEAP program (criterion (ii)) or under its 
LIHEAP plan and integrated with its LIHEAP program (criterion (iii)).
    We have concluded that households served by such resources can be 
counted only once. It would be unfair to other grantees applying for 
leveraging incentive fund to count some households twice, for both a 
tribe and a State. We encourage tribes and States themselves to 
determine which should claim such a resource--or to have one claim some 
of the tribal households served and the other claim the remainder. 
(Under the formula for allocating leveraging incentive funds, the 
tribe, with its smaller regular LIHEAP allotment, would receive a 
comparatively larger ``return'' for the resource than the State would. 
However, as explained later in this preamble, under the final rule, no 
grantee can receive a leveraging incentive funds award greater than the 
smaller of its net regular LIHEAP allotment during the base period, or 
twice the final net value of its countable leveraged resources for the 
base period.) If a tribe and State cannot resolve the issue, HHS will 
decide on a case-by-case basis how such a resource should be claimed, 
depending on the comparative role of each grantee in obtaining and/or 
administering the resource in question.

Valuation of Leveraged Resources

    Section 96.87(g) of the interim rule and the final rule concerns 
valuation and documentation of leveraged resources and offsetting 
costs.
    The benefits of countable leveraging activities must be measurable 
and quantifiable in dollars. Using the best data available to them, 
grantees applying for leveraging incentive funds must quantify the 
actual value in dollars of countable leveraged resources/benefits 
provided to low-income households during the base period. Anticipated 
future benefits--for example, savings expected in home energy bills as 
a result of weatherization--cannot be counted.
    The statute requires that grantees deduct from the gross value of 
leveraged [[Page 21348]] resources any costs the grantee incurred in 
leveraging the resources and any costs imposed on low-income 
households. These costs are discussed under ``Valuation of Offsetting 
Costs'' later in this preamble.
    We received no comments regarding valuation of leveraged resources 
and offsetting costs.
    Because the final rule adds discounts in the cost of specified 
services as countable resources (under Sec. 96.87(e)(2)), we revised 
the valuation of countable paid services under Sec. 96.87(g) as 
follows, for consistency:

    Installation, replacement, and repair of weatherization 
materials, and other countable services, will be valued at rates 
consistent with those ordinarily paid for similar work, by persons 
of similar skill in this work, in the grantee's or subrecipient's 
organization in the local area, at the time these services were 
provided. If the grantee or subrecipient does not have employees 
performing similar work, the rates will be consistent with those 
ordinarily paid by other employers for similar work, by persons of 
similar skill in this work, in the same labor market, at the time 
these services were provided. Fringe benefits and overhead costs 
will not be counted.

    Because the final rule deletes delivery services and rented and 
loaned supplies and equipment as separate countable resources, we made 
a conforming change to Sec. 96.87(g) to delete valuation of these 
services and items.
    The final rule's other requirements for valuation of leveraged 
resources/benefits are substantially unchanged from the interim rule. 
They are summarized below.
    Third-party donations of fuel, weatherization materials, and other 
countable tangible items must be valued at their fair market value at 
the time of donation, according to the best data available to the 
grantee.
    Unpaid volunteer services must be valued at rates consistent with 
those ordinarily paid for similar work, by persons of similar skill in 
this work, in the grantee's or subrecipient's organization. If the 
grantee or subrecipient does not have employees doing similar work, the 
rates must be consistent with those ordinarily paid by other employers 
for similar work, by persons of similar skill in this work, in the same 
labor market. Fringe benefits and overhead costs cannot be counted. 
Valuation of volunteers' services must vary according to the skill of 
the volunteer at the task. For example, the services of professional 
weatherization installers working at a volunteer weatherization project 
would be more highly valued than the services of unskilled 
weatherization volunteers.
    When an employer other than a grantee or subrecipient furnishes 
free of charge the services of an employee in the employee's normal 
line of work, the services must be valued at the employee's regular 
rate of pay, excluding the employee's fringe benefits and overhead 
costs. If the services are in a different line of work, the valuation 
described in the previous paragraph applies.
    The benefits provided by leveraged resources other than in-kind 
contributions must be valued as explained in the following paragraphs.
    Cash benefits for heating, cooling, and energy crisis assistance 
must be valued at their actual amount at the time they were provided 
to, or on behalf of, the recipient household. Purchased fuel, 
weatherization materials, and other countable tangible items must be 
valued at their actual fair market value at the time of purchase, 
according to the best data available to the grantee. The fair market 
value of a fuel or tangible non-fuel item is the price or cost normally 
charged a customer in the same customer class, in the same local area, 
as the recipient household. Countable services, including installation, 
replacement, and repair of weatherization materials, must be valued as 
described earlier. Home energy discounts and credits must be valued at 
their actual value--the actual amount of the discount, reduction, 
waiver, or forgiveness.
    Fuel purchased with leveraged cash at a discounted price and 
provided without charge to low-income households would be valued at the 
actual fair market value of the fuel--the commonly available household 
rate or cost--at the time it was purchased. Fuel purchased with 
leveraged cash at a discounted price and provided at a discount to low-
income households would be valued at the actual fair market value of 
the fuel--the commonly available household rate or cost--at the time it 
was purchased, less (minus) the amount paid by the recipients. Only the 
amount of the net addition to recipient households' home energy 
resources may be counted.
    When low-income households pay discounted prices or reduced rates 
for home energy (such as fuel oil or electricity), only the amount of 
the discount or reduction is countable. When low-income households 
receive home energy at no cost to themselves (for example, a LIHEAP 
grantee which has purchased fuel oil with leveraged resources or 
received donated fuel oil provides the oil to a household at no cost to 
the household), the amount the fuel would have cost the household at 
``commonly available household rates'' is countable.
    Grantees may use leveraged funds, regularly appropriated LIHEAP 
funds, and leveraging incentive funds awarded to them, to purchase fuel 
or other approved tangible items at discounted prices. If the grantee 
uses leveraged funds, the gross value of the resource/benefit is the 
amount it would have cost the recipient households at the commonly 
available household rate or cost. This means that a grantee may count 
as leveraged resources both the leveraged funds and savings obtained 
through buying at a discount. For example, a grantee might use $10,000 
of its own funds to purchase fuel oil at a discount, so that it obtains 
oil that would be worth $12,500 at commonly available household rates/
costs. The grantee would have leveraged $10,000 in cash and $2,500 in 
discounts. If the grantee uses regular LIHEAP funds or leveraging 
incentive funds--that is, funds that are not countable leveraged 
resources--to purchase fuel or other approved tangible items at 
discounted prices, the gross value of the resource/benefit is the 
amount of the discount--the difference between the amount the item 
would have cost the recipient household at the commonly available 
household rate or cost and the reduced amount actually paid. For 
example, if the grantee had purchased the same fuel oil as above, at 
the same discounted price but with regular LIHEAP funds, it could count 
as leveraging only the $2,500 in discounts.

Valuation of Offsetting Costs

    Section 2607A(d) of the LIHEAP statute requires that, to determine 
the net dollar value of grantees' leveraged resources, grantees must 
subtract from the gross dollar value of leveraged resources they 
received or acquired during the base period any costs they incurred to 
leverage such resources and any costs imposed on federally eligible 
low-income households.
    Funds from grantees' regular LIHEAP allotments that are used 
specifically to identify, develop, and demonstrate leveraging programs 
under section 2607A(c)(2) of the LIHEAP statute must be deducted as 
offsetting costs in leveraging reports covering the base period in 
which these funds were obligated, whether or not there were any 
leveraged benefits resulting from these particular funds. However, if a 
grantee does not submit a leveraging report covering the base period in 
which these funds were obligated, they should not be offset in future 
reports. Also, any funds from the grantee's LIHEAP planning and 
administrative funds that [[Page 21349]] are used to identify, develop, 
and demonstrate leveraging should not be deducted as offsetting costs. 
Such funds are likely to serve more than one planning/administrative 
purpose, and exact amounts spent to identify, develop, and demonstrate 
leveraging are likely to be difficult to identify and isolate.
    Costs incurred from grantees' own funds to identify, develop, and 
demonstrate leveraging programs must be deducted in the first base 
period in which resulting leveraged benefits are provided to low-income 
households. If there is no resulting leveraged benefit from the 
expenditure of the grantee's own funds, the grantee's expenditure 
should not be counted or deducted.
    Any costs assessed or charged to counted low-income households on a 
continuing or on-going basis, year after year, specifically to 
participate in a counted leveraging program or to receive counted 
leveraged resources must be deducted in the base period these costs are 
paid. Any one-time costs or charges to counted low-income households 
specifically to participate in a counted leveraging program or to 
receive counted leveraged benefits must be deducted in the first base 
period the program or resource is counted, even if those charges were 
made before this base period. These costs/charges are to be subtracted 
from the gross value of a counted resource/benefit for low-income 
households whose benefits are counted, but not for any low-income or 
other households whose benefits are not counted. On the other hand, 
nonspecific costs imposed on low-income households--such as costs 
resulting from increases in a utility company's general rates to pay 
for or support benefits for households in special programs--should not 
be deducted.

Documentation of Resources, Benefits, and Costs

    Section 96.87(g)(8) of the interim rule required that grantees

maintain, or have readily available, records sufficient to document 
leveraged resources and benefits, and offsetting costs and charges, 
and their valuation. These records must be retained for three years 
after the end of the base period whose leveraged resources and 
benefits they document.

    In addition, the preamble contained guidance regarding 
documentation, including a listing of the specific types of 
documentation that should be included in leveraging records maintained 
by, or readily available to, grantees.

Comment and Response

    We received one comment concerning leveraging documentation. The 
commenter stated that grantees competing for leveraging incentive funds 
``have a right to expect each other to keep archives of material 
clearly documenting the flow of benefits claimed.'' The commenter 
agreed that HHS should require applicants to keep documentation for 
three years and make it available to HHS when needed. We retained these 
requirements in the final rule.

Guidance on Documentation

    We retained--and repeat below for easy reference--most of the 
interim rule's preamble guidance on documentation.
    Grantees should have clear, consistent, documented policies and 
procedures for documenting leveraged resources, benefits, and costs. 
Grantees are to maintain, or have readily available, records adequate 
to document leveraged resources and benefits, and offsetting costs and 
charges, and their valuation. (For example, a grantee--and/or 
subrecipients--should maintain records to document counted oil 
overcharge funds. A grantee should maintain and/or have easy access to 
documentation relating to counted fuel fund benefits.) These records 
are to consist of written and/or printed papers, etc., furnishing 
evidence that substantiates the claims made in the grantees' leveraging 
reports. These records are to be retained for three years after the end 
of the base period whose leveraged resources they document.
    These records should include:
    <bullet> Documentation of the sources of leveraged resources;
    <bullet> Documentation of the negotiations, competitive bids, 
written agreements, legislation, regulations, and mandates through 
which leveraged resources were acquired or developed and under which 
they were provided;
    <bullet> Documentation of recipient households' Federal 
eligibility, or eligibility for the grantee's LIHEAP program, as 
appropriate;
    <bullet> Documentation of the type, amount, and value of leveraged 
benefits provided, including documentation of commonly available, local 
market household home energy rates or costs charged;
    <bullet> Documentation of the type, amount, and value of in-kind 
contributions;
    <bullet> Documentation of the costs incurred by the grantee to 
leverage resources and of the costs imposed on low-income households;
    <bullet> Documentation of the calculation of the net addition to 
recipient households' home energy resources; and
    <bullet> Documentation of the integration of leveraged resources 
with the grantee's LIHEAP program, as appropriate.
    Recipient eligibility documentation should document each 
household's income or categorical eligibility. Benefit documentation 
should document the delivery and value of each benefit, including the 
amount or quantity and unit price, as appropriate.
    We are requiring submission of some of this documentation with 
grantees' leveraging reports. We may require submission of additional 
documentation to clarify or support information submitted in a 
leveraging report.
    Many of the resources submitted during the first three years of the 
leveraging incentive program were provided and administered at the 
subrecipient level. As discussed elsewhere in this preamble, such 
resources are countable if they meet all of the requirements for 
countable resources. In such cases, records likely will be kept at the 
local level, and information required for the leveraging report likely 
will be provided to State officials by local agencies. Again, this is 
acceptable, as long as the documentation discussed above is maintained 
and readily available both to State and Federal officials.
    However, we emphasize that it is important for grantees to develop 
and institute procedures to ensure that this documentation is accurate 
and complete. In some cases, when we asked States for more information 
about particular resources administered by subrecipients, we found that 
the States not only had virtually no knowledge about the resources, but 
also were unable to obtain the necessary additional information from 
the local agencies.
    We expect grantees to ensure that local agencies that provide and/
or administer leveraged resources/benefits will receive adequate 
instruction or training in the requirements for countable resources and 
their valuation. Also, we expect grantees to institute monitoring 
procedures to ensure that such agencies maintain required documentation 
and provide accurate reports. In addition, as previously discussed in 
this preamble, resources counted under criteria (ii) and (iii) of 
Sec. 96.87(d)(2) must be ``appropriated or mandated'' by the grantee--
the State, tribe, tribal organization, or territory--for distribution 
to low-income households, either through its LIHEAP program (criterion 
(ii)) or as described in its LIHEAP plan and integrated and 
[[Page 21350]] coordinated with its LIHEAP program (criterion (iii))--
not provided independently by local agencies.

Leveraging Report

    Section 2607A(e) of the LIHEAP statute provides that grantees 
desiring leveraging incentive funds must submit a report to HHS that 
quantifies the grantee's leveraged resources for the base period. These 
reports are grantees' applications for leveraging incentive funds. 
Section 96.87(h) of the regulations lists requirements for these 
reports. In both the interim rule and this final rule, we included in 
the list only the information we believe we need to know in order to 
fulfill our responsibility to evaluate grantees' leveraged resources/
benefits and to determine appropriate grantee shares of leveraging 
incentive funds.
    HHS does not prescribe a format for grantees' annual applications 
for regular LIHEAP funds. However, because leveraging applications must 
include specific, comparable data for grantees ``competing'' for shares 
of a limited amount of leveraging incentive funds, the interim rule and 
this final rule specify that leveraging reports must be in a format 
established by HHS. The LIHEAP leveraging report form has received 
Office of Management and Budget clearance through May 1995 and was used 
by grantees applying for leveraging incentive funds in fiscal years 
1992, 1993, and 1994.
    Grantee leveraging reports must describe the leveraged resources/
benefits provided to low-income households during the base period, and 
must indicate the grantee's valuation of these resources and of the 
costs of leveraging them. Grantees should report these amounts as whole 
numbers rounded to the nearest whole dollar or rounded to the nearest 
multiple of 10 or 100.
    We received four letters commenting on Sec. 96.87(h) of the interim 
final rule. This section includes the requirements that leveraging 
reports indicate the geographical area (for example, the cities and/or 
counties) in which the leveraged resources/benefits were provided to 
low-income households and state the month(s) and year(s) when these 
benefits were provided during the base period.

Comments and Response

    Two States commented that grantees should not be required to 
include in their leveraging reports either the geographical area or the 
months and years in which benefits were provided. One of these comments 
recommended instead that grantees provide ``assurance that the reported 
resources were provided during the required base period and in the 
grantee's LIHEAP service area.''
    However, we retained these requirements in the final rule, for the 
following reasons. This information helps to identify each resource. We 
have found it to be useful and believe that Congress and other 
interested parties may find it useful as well. It should not be 
difficult for grantees to include in their reports. Also, while 
reviewing reports on leveraging activities, we have found that several 
grantees that indicated the appropriate base period at the top of their 
leveraging report forms included dates in the report itself, where they 
were required to state the month(s) and year(s) of the base period in 
which benefits were provided, that showed that the benefits actually 
were not provided in the base period for which the report was 
submitted. The requirement thus serves as a check to assure that 
benefits were provided in the proper base period.
    However, in response to commenters' concerns about reporting 
requirements and paperwork burden, we changed the final rule to remove 
the requirement that grantees explain how reported resources/benefits 
valued under $5,000 meet criterion (i) or criterion (iii), as 
appropriate, under Sec. 96.87(d)(2). The interim rule required that 
grantees explain how all resources reported for these criteria meet the 
appropriate criterion or criteria; the final rule requires this 
explanation only for resources valued at $5,000 or more. It is not 
intended that grantees divide large resources into smaller components 
of less than $5,000 in order to avoid the documentation requirement. 
Resources valued under $5,000 are subject to verification by HHS during 
compliance reviews, as are larger resources.

Comment and Response

    Section 2607A(f) of the LIHEAP statute provides that HHS ``may 
request any documentation'' that it ``determines necessary for the 
verification'' of grantees' applications for leveraging incentive 
funds. Section 96.87(h) of the interim rule required that leveraging 
reports state the dollar value of each resource/benefit, ``indicate the 
source(s) of the data used, and describe how the grantee quantified the 
value and calculated the total amount.'' It also provided that HHS

may require submission of additional documentation and/or 
clarification as it determines necessary to verify information in a 
grantee's leveraging report, to determine whether a leveraged 
resource is countable, and/or to determine the net valuation of a 
resource. In such cases, the Department will set a date by which it 
must receive information sufficient to document countability and/or 
valuation.

    A commenter believed that HHS should require grantees to provide 
with their leveraging reports an ``extensive annotated listing'' of 
their documentation, detailing the data contained in each document, 
``the claim to resources it supports and its physical location.''
    We decline to require grantees to submit routinely with their 
leveraging reports the additional documentation proposed by this 
commenter. We believe that the burden of compiling and submitting the 
``extensive annotated listing'' on a routine basis would clearly 
outweigh the possible benefits. Further, the regulations require that 
detailed documentation be readily available and submitted to HHS upon 
request. In addition, we monitor grantees' leveraging records when we 
conduct compliance reviews.
    However, to reduce the chance of misunderstanding regarding the 
importance of grantees' maintaining accurate records that properly 
document their claimed resources and submitting any additional 
information requested by HHS, we have added the following clarification 
to section 96.87(h)(3): in cases when HHS requires submission of 
additional documentation and/or clarification, ``if the Department does 
not receive information that it considers sufficient to document 
countability and/or valuation by the date it has set, then the 
Department will not count the resource (or portion of resource) in 
question.''

Submission Dates for Leveraging Reports

    Section 2607A(e) of the LIHEAP statute as amended in 1990 provided 
that grantees must submit their leveraging reports to HHS by July 31 of 
each year in order to qualify for leveraging incentive funds. Public 
Law 102-394, which provided FY 1993 LIHEAP appropriations, anticipated 
that, beginning in July 1994, LIHEAP funds would be available on the 
basis of the ``forward funding'' program year of July 1 through June 
30. As we explained in the interim rule's preamble, we believe it was 
reasonable to assume that Congress intended the July 31 date to apply 
only after ``forward funding'' began, when July 31 would be one month 
after the end of the program year or base period whose leveraging 
activities were reported. Grantees would then be able to report 
leveraging activities for the entire program year. [[Page 21351]] 
    However, with LIHEAP funds available for obligation on the basis of 
the Federal fiscal year starting October 1, if grantees were required 
to submit leveraging reports by July 31, they would not be able to 
include leveraging activities for the last two or three months of the 
fiscal year. The interim rule therefore modified the reporting dates 
for reports to be submitted before forward funding began. The deadline 
for submission of reports while LIHEAP funding is provided to grantees 
on the basis of the Federal fiscal year of October 1 through September 
30 was set as October 31 of the fiscal year for which leveraging 
incentive funds are requested--on month after the end of the fiscal 
year or base period for which leveraging activities are reported.
    In a comment on the interim rule, a State recommended that HHS 
change the leveraging report submission deadline to two months after 
the end of the base period, to allow local entities at least one month 
to report leveraging results for the full base period to States, and to 
allow a ``reasonable amount of time'' for States to analyze the reports 
and include allowable resources in their leveraging reports.
    The Human Services Amendments of 1994, Public Law 103-252, enacted 
May 18, 1994, reauthorizing LIHEAP through FY 1999, provides for 
forward or advance funding (that is, funding appropriated one year in 
advance) on the basis of the Federal fiscal year of October 1 through 
September 30. Thus, the July through June program year will not be 
implemented.
    Public Law 103-252 specifies that leveraging reports are to be 
submitted ``2 months after the close of the fiscal year'' during which 
the grantee provided the leveraged resources to eligible households. 
The final rule makes this technical change to the regulations at 
Sec. 96.87(h)(2), stating that ``Leveraging reports must be postmarked 
or hand-delivered not later than November 30 of the fiscal year for 
which leveraging incentive funds are requested.'' Leveraging reports 
submitted later will not be considered for a share of leveraging 
incentive funds. The new deadline is two months after the end of the 
base period and two months ``into'' the award period, effective with 
the leveraging reports to be submitted on FY 1994 leveraging 
activities. (The report on FY 1994 leveraging activities must be 
submitted by November 30, 1994. Any LIHEAP plan amendments necessary to 
qualify FY 1994 leveraging activities under criterion (ii) or criterion 
(iii) of section 96.87(d)(2) must be submitted by September 30, 1994.)
    Leveraging reports should be mailed or delivered to the following 
address: Director, Office of Community Services, Administration for 
Children and Families, Department of Health and Human Services, 370 
L'Enfant Promenade, S.W., Washington, D.C. 20447.

Determination of Grantee Shares of Leveraging Incentive Funds

    Section 96.87(i) of the interim final rule set the formula used to 
allocate leveraging incentive funds among grantees submitting 
leveraging reports. The formula in the interim rule was used to 
allocate leveraging incentive funds in fiscal years 1992, 1993, and 
1994. As indicated under ``Effective Date'' near the beginning of this 
preamble, it also will be used to allocate leveraging incentive funds 
in FY 1995 that reward FY 1994 leveraging activities. This means that 
the revised formula included in this final rule and described below 
will be used beginning with leveraging incentive funds awarded in FY 
1996 to reward FY 1995 leveraging activities.
    Section 2607A of the LIHEAP statute requires HHS to develop a 
formula for allocating leveraging incentive funds that takes into 
account the size of the grantee's regular LIHEAP allotment 
(allocation), and the value of the grantee's leveraged resources in 
relation to its regular allotment amount. The legislative history also 
includes recommendations for the formula.
    After considering ideas for possible formulas, and then three 
different formulas under three different scenarios, we selected the 
two-part formula that was in the interim rule. The formula we selected, 
which we called ``Formula One,'' was intended to carry out Congress' 
intent to give the largest reward to the grantees that were most 
successful in leveraging their LIHEAP dollars. We included in the 
preamble to the interim rule a detailed discussion of the three 
formulas, with examples of how allocations would differ under each. 
(See pp. 1972-1976 of the Federal Register dated January 16, 1992; 57 
FR 1972-1976.)
    Under the interim rule's formula, we distributed half of the 
leveraging incentive funds for an award period based on the value of 
the leveraged resources/benefits provided by a grantee during the base 
period relative to its net allotment under the regular LIHEAP program 
during the base period, as a proportion of the total value of leveraged 
resources/benefits provided by all grantees in relation to their 
regular net allotments during the same period. We distributed the 
remaining half of the funds based on the value of leveraged resources/
benefits that a grantee provided during the base period as a proportion 
of the total value of leveraged resources/benefits provided by all 
grantees. No grantee could receive a leveraging incentive award larger 
than its regular LIHEAP allotment during the base period. When the 
formula would have resulted in a grantee receiving an incentive award 
larger than its regular allotment, the ``excess'' funds were 
reallocated to the other grantees receiving leveraging incentive funds. 
The leveraging figures used in these calculations were based on the net 
value of the countable leveraged resources in grantees' leveraging 
reports, as approved by HHS.
    We received eleven comments regarding the formula used to determine 
grantee shares of leveraging incentive funds. Some of the commenters 
supported our selection of Formula One, while others suggested using a 
different formula or modifying our selection in some way.
    In determining what allocation formula to adopt in this final rule, 
we considered not only the comments we received, but also experience we 
have gained in the last three grant periods in using Formula One for 
allocations based on the actual leveraging reports submitted by 
grantees. We reconsidered all three of the formulas discussed in the 
preamble to the interim rule and calculated what leveraging grant 
awards would have been in FY 1994 if we had used each of them. The 
actual FY 1994 awards--based on Formula One--are shown below, as are 
the allocations that would have resulted if we had used Formula Two and 
Formula Three, and State and territorial allocations that would have 
resulted if we had distributed the funds under the regular LIHEAP block 
grant allocation formula, rather than using them in the leveraging 
incentive program.

                                                                                                                
[[Page 21352]]                                                                                                  
                        Low-Income Home Energy Assistance Program--Final Totals for Fiscal Year 1994 Leveraging Incentive Grants                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Formula one   Formula two     Formula                      
                                                                             Fiscal year     total share   total share   three total     Regular block  
                          Grantee                             Fiscal year    1993 regular   of $25 M for  of $25 M for  share of $25         grant      
                                                              1993 lev $       allot $       fiscal year   fiscal year  M for fiscal  allocationformula<SUP>1
                                                                                                1994          1994        year 1994                     
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama....................................................    $4,806,142      $11,280,337      $345,359      $701,732      $113,424         $214,720   
Alaska.....................................................     5,962,440        4,717,311       767,112     2,081,738       417,434          137,061   
Arizona....................................................     3,734,137        4,834,769       471,567     1,272,070       159,749          103,841   
Arkansas...................................................       296,071        8,655,748        24,941        56,336           561          163,842   
California.................................................    62,681,576       60,489,538     2,422,358     1,706,696     3,597,770        1,151,911   
Colorado...................................................    12,845,031       21,218,391       677,400       997,055       430,717          401,635   
Connecticut................................................    10,408,642       27,680,140       496,176       619,330       216,797          523,947   
Delaware...................................................       302,815        3,674,006        47,354       135,748         1,382           69,544   
Dist. of Col...............................................     1,515,878        4,298,771       209,438       580,787        29,609           81,370   
Florida....................................................       196,428       17,935,527        11,140        18,038           119          339,751   
Idaho......................................................       776,651        8,154,122        67,966       156,872         4,097          156,665   
Illinois...................................................     2,769,870       76,613,847       102,605        59,545         5,547        1,450,196   
Indiana....................................................     3,045,067       34,688,598       134,922       144,579        14,806          656,608   
Iowa.......................................................       137,864       24,584,274         6,863         9,236            43          465,347   
Kentucky...................................................       796,475       18,051,829        45,034        72,669         1,947          341,697   
Louisiana..................................................       292,500       11,589,893        20,699        41,566           409          219,518   
Maine......................................................     4,740,507       17,332,318       273,066       450,469        71,817          339,434   
Maryland...................................................    18,267,659       21,194,333       963,820     1,419,580       872,127          401,180   
Massachusetts..............................................    40,715,017       55,359,810     1,602,173     1,211,314     1,658,626        1,048,068   
Michigan...................................................    27,757,124       72,601,649     1,037,432       629,687       587,809        1,376,834   
Minnesota..................................................     7,119,144       52,403,709       283,485       223,750        53,571          991,931   
Mississippi................................................       493,047        9,714,872        38,673        83,589         1,386          184,089   
Missouri...................................................     1,221,353       30,602,562        56,280        65,732         2,700          579,265   
Montana....................................................     1,322,366        8,238,065       114,959       264,377        11,757          183,758   
Nevada.....................................................       839,136        2,576,577       176,024       536,396        15,138           48,771   
New Hampshire..............................................     2,153,023       10,480,307       161,422       338,354        24,500          198,378   
New Jersey.................................................    77,849,703       51,321,226     3,114,419     2,498,368     6,541,100          972,969   
New Mexico.................................................       430,906        6,369,423        44,529       111,424         1,615          130,002   
New York...................................................   136,047,801      167,660,542     4,595,541     1,336,464     6,114,853        3,176,890   
North Carolina.............................................     1,894,735       24,477,911        94,445       127,488         8,124          473,453   
North Dakota...............................................       508,805        9,365,661        40,808        89,477         1,531          199,616   
Ohio.......................................................    23,155,352       67,776,399       875,896       562,690       438,186        1,282,915   
Oklahoma...................................................     1,504,870        9,678,967       118,301       256,075        12,960          197,372   
Oregon.....................................................     3,998,678       16,445,150       236,066       400,475        53,855          311,284   
Pennsylvania...............................................    63,174,400       90,152,177     2,283,149     1,154,148     2,452,110        1,706,458   
Rhode Island...............................................     1,945,150        9,076,024       159,061       352,983        23,091          172,518   
South Carolina.............................................       550,490        9,009,177        45,222       100,638         1,863          170,531   
South Dakota...............................................       282,427        7,292,137        26,602        63,789           606          162,123   
Tennessee..................................................       422,992       18,286,116        23,779        38,098           542          346,131   
Utah.......................................................     1,682,970        9,693,988       132,178       285,937        16,184          186,641   
Vermont....................................................       980,437        7,855,363        87,904       205,565         6,778          148,691   
Virginia...................................................     1,471,001       25,817,067        71,888        93,843         4,643          488,682   
Washington.................................................    15,620,693       25,953,922       761,918       991,274       520,753          512,020   
Wisconsin..................................................    19,992,724       47,170,863       815,604       698,063       469,358          892,880   
Wyoming....................................................        61,886        3,947,822         9,142        25,819            54           74,727   
Northern Mariana...........................................       100,809           22,355        22,355        22,355        22,355              423   
AK Tanana Chiefs...........................................        14,078          648,973        10,428        35,728            17  ..................
AK Tlingit & Haida.........................................        17,940          384,423        22,048        76,862            46  ..................
AZ Quechan Tribe...........................................        12,265            1,054         1,054         1,054         7,905  ..................
CA Rincon Band.............................................        12,401           10,523        10,523        10,523           809  ..................
CA San Pasqual Band........................................           100            1,796         1,796         1,796             0  ..................
ID Shoshone-Bannock........................................        17,299           92,612        86,558        92,612           179  ..................
MI Inter-Tribal Cnl........................................        11,303           31,196        31,196        31,196           227  ..................
MI Sault Ste. Marie........................................        22,760           86,569        86,569        86,569           331  ..................
MS Band of Choctaw.........................................         2,960           10,554        10,554        10,554            46  ..................
MT Assin & Sioux...........................................        27,000          287,713        44,056       154,561           140  ..................
MT Blackfeet Tribe.........................................        31,566          465,164        32,232       111,766           119  ..................
MT C Salish Kootenai.......................................        15,967          266,686        28,068        98,609            53  ..................
OK Cherokee Nation.........................................        37,000          342,717        50,867       177,813           221  ..................
OK Choctaw Nation..........................................        21,750          197,057        51,505       181,787           133  ..................
OK Kiowa Tribe.............................................        15,651           14,668        14,668        14,668           925  ..................
OK Seneca-Cayuga Trb.......................................         2,276            2,296         2,296         2,296           125  ..................
SD Sisseton-Wahpeton.......................................        45,065          116,073       116,073       116,073           969  ..................
SD Yankton Sioux Trb.......................................        27,000           64,631        64,631        64,631           625  ..................
WA Colville Conf Trb.......................................        44,000          239,114        86,109       239,114           448  ..................
WA Kalispel Ind Comm.......................................         2,394            4,463         4,463         4,463            71  ..................
WA Lummi Tribe.............................................         9,600           67,598        65,701        67,598            76  ..................
                                                                                                                                                        
                                                                                                                                                        
[[Page 21353]]WA Muckleshoot Tribe.........................        30,112           24,129        24,129        24,129         2,081  ..................
WA Port Gamble S'Kl........................................           970           11,145        11,145        11,145             5  ..................
WA Yakima Nation...........................................        15,000          267,855        26,256        92,233            47  ..................
                                                            --------------------------------------------------------------------------------------------
      Total................................................   567,309,248    1,229,982,602    25,000,000    25,000,000    25,000,000       23,435,689   
--------------------------------------------------------------------------------------------------------------------------------------------------------
<SUP>1The ``Regular Block Grant Allocation Formula'' column does not add to $25 million because under this formula a portion is set aside for all states and 
  territories, including those that did not apply for leveraging incentive funds. In addition, we have not calculated awards for the tribal grantees    
  whose share of regular block grant funds comes out of their States' allotments.                                                                       

    We also considered several other options to determine whether we 
could devise a new formula that resulted in a fairer distribution of 
the funds, but we found that these other formulas were hard to 
understand and use and even harder to explain, and did not provide 
results that were any fairer than Formula One's. After consideration 
of all these results and the comments we received, we decided to 
continue with Formula One, with modifications as outlined below.

Comments and Response

    Two of the commenters agreed with our choice of Formula One. Two 
others suggested the use of Formula Two from the interim rule's 
preamble, which would have distributed all of the funds based on the 
first half of Formula One (that is, based on the amount of 
leveraging each grantee carried out relative to the size of its 
regular allotment, as a proportion of the total amount of leveraging 
carried out by all grantees relative to their regular allotments). 
We seriously considered selecting Formula Two at the time we 
published the interim final rule, but felt then that Formula One was 
fairer overall. Our experience in the last three grant periods with 
our formula pointed out an unexpected result with the first half of 
Formula One, and thus with Formula Two as well. The actual FY 1994 
leveraging incentive grant awards, determined using Formula One, are 
shown below, along with details of how the allocations were 
calculated. (Some numbers were affected by rounding.)

                       Low-Income Home Energy Assistance Program--Final Totals for FY 1994 Leveraging Incentive Grants Formula One                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Grantee                            Final total
                                            FY 1993 lev  FY 1993 regular    Lev $   Grantee    Part one   percent    Part two   Preliminary    share of 
                 Grantee                         $           allot $       div. by  percent     share      of lev     share     total share   $25 M for 
                                                                           allot $                           $                    of $25 M     FY 1994  
A                                                     B                C         D        E            F        G            H            I            J
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama..................................    $4,806,142      $11,280,337    0.4261     1.11     $139,319     0.85     $105,898     $245,217     $345,359
Alaska...................................     5,962,440        4,717,311    1.2639     3.31      413,301     1.05      131,375      544,676      767,112
Arizona..................................     3,734,137        4,834,769    0.7724     2.02      252,552     0.66       82,277      344,829      471,567
Arkansas.................................       296,071        8,655,748    0.0342     0.09       11,185     0.05        6,524       17,709       24,941
California...............................    62,681,576       60,489,538    1.0362     2.71      338,841    11.05    1,381,116    1,719,957    2,422,358
Colorado.................................    12,845,031       21,218,391    0.6054     1.58      197,952     2.26      283,025      480,977      677,400
Connecticut..............................    10,408,642       27,680,140    0.3760     0.98      122,960     1.83      229,342      352,302      496,176
Delaware.................................       302,815        3,674,006    0.0824     0.22       26,951     0.05        6,672       33,623       47,354
Dist. of Col.............................     1,515,878        4,298,771    0.3526     0.92      115,307     0.27       33,401      148,708      209,438
Florida..................................       196,428       17,935,527    0.0110     0.03        3,582     0.03        4,328        7,910       11,140
Idaho....................................       776,651        8,154,122    0.0952     0.25       31,145     0.14       17,113       48,258       68,966
Illinois.................................     2,769,870       76,613,847    0.0362     0.09       11,822     0.49       61,031       72,853      102,605
Indiana..................................     3,045,067       34,688,598    0.0878     0.23       28,704     0.54       67,095       95,799      134,922
Iowa.....................................       137,864       24,584,274    0.0056     0.01        1,835     0.02        3,038        4,873        6,863
Kentucky.................................       796,475       18,051,829    0.0441     0.12       14,427     0.14       17,549       31,976       45,034
Louisiana................................       292,500       11,589,893    0.0252     0.07        8,252     0.05        6,445       14,697       20,699
Maine....................................     4,740,507       17,332,318    0.2735     0.72       89,434     0.84      104,452      193,886      273,066
Maryland.................................    18,267,659       21,194,333    0.8619     2.25      281,838     3.22      402,507      684,345      963,820
Massachusetts............................    40,715,017       55,359,810    0.7355     1.92      240,490     7.18      897,108    1,137,598    1,602,173
Michigan.................................    27,757,124       72,601,649    0.3823     1.00      125,016     4.89      611,596      736,612    1,037,432
Minnesota................................     7,119,144       52,403,709    0.1359     0.36       44,422     1.25      156,862      201,284      283,485
Mississippi..............................       493,047        9,714,872    0.0508     0.13       16,595     0.09       10,864       27,459       38,673
Missouri.................................     1,221,353       30,602,582    0.0399     0.10       13,050     0.22       26,911       39,961       56,280
Montana..................................     1,322,366        8,238,065    0.1605     0.42       52,488     0.23       29,137       81,625      114,959
Nevada...................................       839,136        2,576,577    0.3257     0.85      106,494     0.15       18,489      124,983      176,024
New Hampshire............................     2,153,023       10,480,307    0.2054     0.54       67,176     0.38       47,439      114,615      161,422
New Jersey...............................    77,849,703       51,321,226    1.5169     3.97      496,017    13.72    1,715,328    2,211,345    3,114,419
New Mexico...............................       430,906        6,369,423    0.0677     0.18       22,122     0.08        9,495       31,617       44,529
New York.................................   136,047,801      167,660,542    0.8114     2.12      265,337    23.98    2,997,655    3,262,992    4,595,541
North Carolina...........................     1,894,735       24,477,911    0.0774     0.20       25,311     0.33       41,748       67,059       94,445
North Dakota.............................       508,805        9,365,661    0.0543     0.14       17,764     0.09       11,211       28,975       40,808
Ohio.....................................    23,155,352       67,776,399    0.3416     0.89      111,715     4.08      510,201      621,916      875,896
Oklahoma.................................     1,504,870        9,678,967    0.1555     0.41       50,840     0.27       33,158       83,998      118,301
                                                                                                                                                        
[[Page 21354]]                                                                                                                                          
                                                                                                                                                        
Oregon...................................     3,998,678       16,445,150    0.2432     0.64       79,509     0.70       88,106      167,615      236,066
Pennsylvania.............................    63,174,400       90,152,177    0.7008     1.83      229,140    11.14    1,391,974    1,621,114    2,283,149
Rhode Island.............................     1,945,150        9,076,024    0.2143     0.56       70,080     0.34       42,859      112,939      159,061
South Carolina...........................       550,490        9,009,177    0.0611     0.16       19,980     0.10       12,129       32,109       45,222
South Dakota.............................       282,427        7,292,137    0.0387     0.10       12,665     0.05        6,223       18,888       26,602
Tennessee................................       422,992       18,286,116    0.0231     0.06        7,564     0.07        9,320       16,884       23,779
Utah.....................................     1,682,970        9,693,988    0.1736     0.45       56,769     0.30       37,082       93,851      132,178
Vermont..................................       980,437        7,855,363    0.1248     0.33       40,812     0.17       21,603       62,415       87,904
Virginia.................................     1,471,001       25,817,067    0.0570     0.15       18,631     0.26       32,412       51,043       71,888
Washington...............................    15,620,693       25,953,922    0.6019     1.57      196,804     2.75      344,184      540,988      761,918
Wisconsin................................    19,992,724       47,170,863    0.4238     1.11      138,591     3.52      440,516      579,107      815,604
Wyoming..................................        61,886        3,947,822    0.0157     0.04        5,127     0.01        1,364        6,491        9,142
Northern Mariana.........................       100,809           22,355    4.5094    11.80    1,474,550     0.02        2,221    1,476,771       22,355
Alaska:                                                                                                                                                 
    Tanana Chiefs Conf...................        14,078          648,973    0.0217     0.06        7,094     0.00          310        7,404       10,428
    Tlingit & Haida CC...................        17,940          384,423    0.0467     0.12       15,260     0.00          395       15,655       22,048
Arizona: Quechan Tribe...................        12,265            1,054   11.6366    30.44    3,805,080     0.00          270    3,805,350        1,054
California:                                                                                                                                             
    Rincon Band..........................        12,401           10,523    1.1785     3.08      385,345     0.00          273      385,618       10,523
    San Pasqual Band.....................           100            1,796    0.0557     0.15       18,207     0.00            3       18,210        1,796
Idaho: Shoshone-Bannock Tr...............        17,299           92,612    0.1868     0.49       61,078     0.00          381       61,459       86,558
Michigan:                                                                                                                                               
    Inter-Tribal Coun....................        11,303           31,196    0.3623     0.95      118,476     0.00          249      118,725       31,196
    Sault Ste. Marie Tr..................        22,760           86,569    0.2629     0.69       85,969     0.00          501       86,470       86,569
Mississippi: MS Band of Choctaw In.......         2,960           10,554    0.2805     0.73       91,709     0.00           65       91,774       10,554
Montana:                                                                                                                                                
    Assin & Sioux (Ft Peck)..............        27,000          287,713    0.0938     0.25       30,686     0.00          595       31,281       44,056
    Blackfeet Tribe......................        31,566          465,164    0.0679     0.18       22,190     0.01          696       22,886       32,232
    Con Salish Kootenai..................        15,967          266,686    0.0599     0.16       19,577     0.00          352       19,929       28,068
Oklahoma:                                                                                                                                               
    Cherokee Nat of OK...................        37,000          342,717    0.1080     0.28       35,302     0.01          815       36,117       50,867
    Choctaw Nat of OK....................        21,750          197,057    0.1104     0.29       36,091     0.00          479       36,570       51,505
    Kiowa Tribe..........................        15,651           14,668    1.0670     2.79      348,906     0.00          345      349,251       14,668
    Seneca-Cayuga Tribe..................         2,276            2,296    0.9913     2.59      324,143     0.00           50      324,193        2,296
South Dakota:                                                                                                                                           
    Sisseton-Wahpeton....................        45,065          116,073    0.3882     1.02      126,954     0.01          993      127,947      116,073
    Yankton Sioux Tribe..................        27,000           64,631    0.4178     1.09      136,603     0.00          595      137,198       64,631
Washington:                                                                                                                                             
    Colville Conf Tribe..................        44,000          239,114    0.1840     0.48       60,171     0.01          969       61,140       86,109
    Kalispel Ind Comm....................         2,394            4,463    0.5364     1.40      175,402     0.00           53      175,455        4,463
    Lummi Tribe..........................         9,600           67,598    0.1420     0.37       46,438     0.00          212       46,650       65,701
    Muckleshoot Tribe....................        30,112           24,129    1.2480     3.26      408,072     0.01          663      408,735       24,129
    Port Gamble S'Kl Tr..................           970           11,145    0.0871     0.23       28,469     0.00           22       28,491       11,145
    Yakima Nation........................        15,000          267,855    0.0560     0.15       18,312     0.00          331       18,643       26,256
                                          --------------------------------------------------------------------------------------------------------------
        Total............................   567,309,248    1,229,982,602   38.2273   100.00   12,500,000   100.00   12,500,000   25,000,000   25,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this table, the following information is included in the 
columns:
    Column A is the individual grantee.
    Column B is the dollar value of countable leveraged resources that 
the grantee provided to low-income households during the base period, 
after deducting offsetting costs, as approved by HHS.
    Column C is the amount of the grantee's regular LIHEAP allotment 
during the base period, net of any set-asides for direct-grant Indian 
tribes and tribal organizations in the case of a State.
    Column D is the amount of a grantee's net countable leveraged 
resources as a proportion of its regular allotment (column B divided by 
column C).
    Column E is the amount of a grantee's net countable leveraged 
resources divided by its regular allotment, as a proportion of the net 
countable resources leveraged by all grantees relative to their regular 
allotments, with the resulting figure expressed as a percent (column D 
divided by the total for column D).
    Column F is the amount of leveraging incentive funds that a grantee 
would receive under the first part of the formula (column E multiplied 
by one-half of the leveraging funds available, in this case 
$12,500,000).
    Column G is the grantee's net countable leveraged resources as a 
proportion of the net countable resources leveraged by all grantees 
(column B divided by the total for column B). [[Page 21355]] 
    Column H is the amount of leveraging incentive funds that a grantee 
would receive under the second part of the formula (column G multiplied 
by one-half of the leveraging funds available, in this case 
$12,500,000).
    Column I is a preliminary calculation of the total amount of 
leveraging incentive funds a grantee would receive under this two-part 
formula, if there were no limit on the amount of funds a grantee could 
receive (column F plus column H).
    Column J is the final calculation of the total amount of leveraging 
incentive funds a grantee received. Because the interim rule provided 
that no grantee may receive a leveraging incentive award larger than 
its regular LIHEAP allotment, where the amount in column I exceeds the 
amount in column C, the ``excess'' funds were distributed on a 
proportionate basis to the other leveraging grantees.
    We were surprised that this formula resulted in some tribal 
grantees receiving very large grants in proportion to the amount of 
leveraging they carried out (and the awards would have been even larger 
for half of the tribal grantees in FY 1994, had it not been for the 
limit that no grantee could receive a leveraging incentive award larger 
than its regular LIHEAP allotment). Under the first part of the formula 
in FY 1994, each grantee received about $12,000 for each tenth of a 
percent (0.1 percent) that appears in column E in the chart above, no 
matter how large the grantee's regular allotment or the value of its 
approved leveraging activities. The basic determining factor in this 
first half of the formula is the value of the leveraging activities an 
individual grantee carries out in relation to the size of its regular 
allotment. For example, the State of Virginia leveraged $1,471,001 and 
had a regular allotment in FY 1993 of $25,817,067, which means it 
leveraged 5.7 percent of its regular grant amount, translating to 0.15 
percent in column E. Based on these results, Virginia received $18,631 
under the first part of the formula. By comparison, the Yakima Indian 
Nation of Washington State leveraged $15,000 and had a regular 
allotment in FY 1993 of $267,855, which means it leveraged 5.6 percent 
of its regular grant amount, translating to 0.15 percent in column E. 
Based on these results, the Yakima Nation received $18,312 under the 
first part of the formula. (Numbers are slightly different because of 
rounding.) Grantees that leveraged large dollar amounts made up for any 
``shortfall'' under the first half of the formula by receiving large 
amounts under the second half of the formula, which rewards grantees 
based on the amount of leveraging they accomplished as a proportion of 
the amount leveraged by all grantees. In this case, Virginia carried 
out 0.26 percent of all the leveraging activities carried out by all 
grantees for the year and received $32,412 under the second half of the 
formula, while the Yakima Nation carried out 0.00264 percent of all the 
leveraging activities for the year (rounded to 0.00 percent in the 
chart above) and received $331 under the second half of the formula. 
(Both Virginia and the Yakima Nation received additional funds when 
``excess awards'' for other grantees were redistributed.) Grantees that 
carried out more leveraged activities did even better under the second 
half of the formula, as can be seen in the table above.
    Based on these results, we do not believe it would be fair to all 
grantees to distribute the leveraging incentive funds on the basis of 
Formula Two. We believe the second half of Formula One balances out the 
first half, and makes it more fair to all. In addition, the first table 
above shows that Formula Three would skew the leveraging allocations 
much too heavily in favor of larger grantees, and thus would remove or 
reduce the incentive for smaller grantees to leverage resources. For 
these reasons, we decided to retain Formula One in the final rule.

Comments and Response

    Some tribal grantees expressed concern that prohibiting a grantee 
from receiving a leveraging incentive award that is larger than the 
size of its regular allotment would unfairly affect tribal grantees, 
which are generally in greater need than State grantees. The 
prohibition against receiving more in leveraging incentive funds than 
in regular block grant funds affected only tribal grantees in fiscal 
years 1992 and 1993, and tribal and territorial grantees in FY 1994. 
Tribes in general did very well under the interim rule's formula, in 
most cases receiving considerably more than the value of the leveraging 
activities they carried out. (The amount awarded to tribal grantees 
under this formula was still relatively small compared with the amount 
awarded to States. In FY 1992, the eight tribal grantees receiving 
leveraging incentive funds received 2.27 percent of the leveraging 
incentive funds awarded. In FY 1993, the 19 tribal leveraging fund 
recipients received 4.58 percent of the leveraging incentive funds 
awarded. In FY 1994, the 24 tribal leveraging fund recipient received 
3.53 percent of the leveraging incentive funds awarded.) As noted, 
several of the tribes would have received more than their regular grant 
amount under this formula were it not for the prohibition against this 
(we redistributed those ``excess'' funds on a proportionate basis among 
the other grantees). In an extreme example, shown in the table above, 
the Port Gamble S'Klallam Tribe of Washington State leveraged $970 in 
FY 1993 and received a leveraged grant award in FY 1994 of $11,145, the 
same amount as its regular allotment in the base period of FY 1993. It 
would have received a grant award of $28,491 had it not been for the 
limit on receiving no more than the size of its regular allotment. We 
think the actual grant award of $11,145, based on $970 in countable 
leveraging activities, is disproportionate and unfair to other 
grantees. An award of $28,491 clearly would have been excessive. 
Accordingly, we considered various ways of changing the formula or its 
limits to make the awards for tribes and other small grantees more 
equitable, while still giving them an advantage to compensate for their 
smaller size, reduced leverage, and generally higher level of poverty, 
compared with States.
    Therefore, this final rule changes the formula at section 96.87(i) 
to provide that a grantee cannot receive a leveraging incentive award 
that is more than the smaller of (1) its regular LIHEAP net allotment 
during the base period, or (2) twice the net value of its countable 
leveraged resources for the base period. This means that the Port 
Gamble S'Klallam Tribe's leveraging award in FY 1994 would have been 
$1,940 (twice the amount of the $970 in countable leveraging carried 
out in the base period of FY 1993), rather than the $11,145 the tribe 
received (the same amount as its regular FY 1993 allotment). We believe 
that this revision will be fairer to all grantees.

Comments and Response

    Four commenters expressed concern that the bulk of the leveraging 
incentive funds should not go to one or just a few large grantees that 
carry out a large amount of leveraging, leaving little for others. 
Several other persons made similar comments informally. In general, we 
found that the formula as a whole tended to favor smaller grantees and 
to dampen the effect of large amounts of leveraging carried out by 
large grantees. For example, New York had countable leveraging 
activities in FY 1993 valued at $136 million (with a regular FY 1993 
allotment of $167.7 million), which is about 24 percent of the total 
amount of $567.3 million in leveraging carried out by all grantees. Its 
incentive grant award, however, was $4.6 million, which is about 18.4 
[[Page 21356]] percent of the $25 million in incentive grants. By 
comparison, Wyoming had countable leveraging activities of $61,886 
(0.01 percent of the total amount of leveraging for all grantees) and a 
regular allotment of $3.9 million, and received a leveraging incentive 
award of $9,142, which is 0.04 percent of the $25 million.
    However, we recognize the potential for just a few grantees 
receiving the bulk of the available leveraging incentive funds in the 
future. In FY 1992, the four grantees with the largest amount of 
leveraged resources received a total of $11,924,159, or 47.7 percent of 
the $25 million distributed. In FY 1993, the four grantees with the 
most leveraging received $11,658,428, or 47 percent of the $24.8 
million distributed. In FY 1994, the four grantees with the most 
leveraging received $12,415,467, or 49.7 percent of the $25 million 
distributed.
    Accordingly, we changed the formula to stipulate that no grantee 
can receive a leveraging award larger than 12 percent of the total 
amount of leveraging incentive funds available for distribution in any 
award period. At a funding level of $25 million for the leveraging 
incentive program, that means that no grantee could receive an award of 
more than $3 million. We believe this allows for adequate compensation 
to a grantee that does a large amount of leveraging, while still 
leaving significant incentive for other grantees. We do not expect a 
large number of grantees to earn this maximum grant amount. (In FY 
1992, FY 1993, and FY 1994, each of two States received more than 12 
percent of the available leverging funds.)

Reexamining the Formula

    Public Law 103-252, enacted in May 1994, and the conference report 
on Public Law 103-252, do not mention the formula for distributing 
leveraging incentive funds. However, the Senate and House committee 
reports on predecessor bills do. Senate Report 103-251 states that ``it 
would be appropriate for the Secretary to reconsider the regulations 
for the fund in order to give greater weight to rewarding initiatives 
affecting energy regulations, markets, and terms of service to LIHEAP-
eligible households.'' House of Representatives Report 103-483 uses 
essentially the same language, except that it refers to ``rewarding new 
initiatives affecting energy regulations, markets, and terms of 
service.'' We believe the public should have opportunity to comment on 
reconsideration of the formula based on this report language. We 
therefore will reexamine the formula based on this language in our 
forthcoming proposed rule to implement Public Law 103-252.

Uses of Leveraging Incentive Funds

    Section 96.87(j) of the interim rule and the final rule concerns 
allowable and unallowable uses of leveraging incentive funds awarded to 
grantees by HHS. Regular LIHEAP funds and LIHEAP leveraging incentive 
funds are separately authorized in the LIHEAP statute--the former at 
section 2602(b), and the latter at section 2602(d). Section 2607A of 
the LIHEAP statute directs that leveraging incentive funds must be used 
to increase or maintain benefits to households--that is, they must be 
used for LIHEAP heating, cooling, crisis, and/or weatherization 
assistance, and they cannot be used for some of the purposes for which 
regular LIHEAP funds can be used.

Comment and Response

    We received one comment on this section of the interim rule: a 
State agreed with the exemption of leveraging incentive funds from the 
weatherization maximum applied to regular LIHEAP funds, providing 
flexibility to grantees. We retained this provision in the final rule.

Clarifications

    In accordance with the requirements of section 2607A, leveraging 
incentive funds cannot be used for costs of planning and 
administration. However, if a grantee receives more than a minimal 
leveraging fund award, it likely will need to use additional monies to 
administer these funds. We therefore said in the interim rule that 
leveraging incentive funds can be counted in the base for calculating 
the grantee's maximum planning and administrative costs. This is 
consistent with the treatment of oil overcharge funds under section 155 
of Public Law 97-377 (the Warner Amendment) and Exxon oil overcharge 
funds. However, leveraging incentive funds may be obligated by the 
grantee either in the award period--the fiscal year in which they were 
awarded to the grantee--or in the following fiscal year. We believe it 
would not be appropriate to permit grantees to count the same 
leveraging incentive funds in the base for calculating administrative 
costs--thereby reducing the amount of regular LIHEAP grant funds used 
for benefits--in both years. In response to questions from grantees 
about the year in which to count incentive funds in the administrative 
cost calculation base, the final rule clarifies that leveraging 
incentive funds cannot be counted in the base for calculating maximum 
administrative and planning costs in both the award period and the 
following fiscal year. The entire leveraging award does not have to be 
counted in the base in the same year--some may be counted in the award 
year and the remainder in the next. (Presumably they would be counted 
in the base in the year in which carrying out the activities they 
support increases the grantee's administrative/planning costs.) While 
the grantee has the discretion and flexibility to choose how much to 
count in the base in each year, the total amount from the leveraging 
award that is included in the base in both years combined cannot exceed 
the amount of the leveraging award.
    As we said in the interim rule's preamble, grantees are to include 
the uses of their leveraging incentive funds in their LIHEAP plans. 
Uses must be covered in the plan for the fiscal year in which these 
funds will be used--either in the plan as originally submitted to HHS 
or in amendment(s) to the plan. We added this requirement to the final 
rule at a new Sec. 96.87(j)(2), because of its importance, and to 
clarify and avoid misunderstanding. If the plan covers the uses of the 
leveraging incentive funds, it does not have to specify that leveraging 
incentive funds are involved. If the original plan does not cover these 
uses, then these uses must be added. For example, if leveraging 
incentive funds are to be used along with regular LIHEAP funds for 
cooling assistance that is described in the plan, then the plan need 
not specify that some of this assistance will be provided with 
leveraging incentive funds. However, if the grantee does not have a 
regular LIHEAP cooling assistance component and leveraging incentive 
funds are to be used for cooling assistance, the plan must include the 
cooling assistance supported by the leveraging funds.
    The interim rule's preamble said that grantees are to document uses 
of leveraging incentive funds in the same way they document uses of 
regular LIHEAP funds, and that leveraging incentive funds are subject 
to the same audit requirements as regular LIHEAP funds. Because of 
their importance, and to clarify and avoid misunderstanding, we added 
these requirements to the final rule at section Sec. 96.87(j)(2).
    Finally, consistent with Public Law 101-501, which ended grantees' 
authority to transfer LIHEAP funds effective in FY 1994, the final rule 
deletes reference to transfers in Sec. 96.87(j).

Period of Obligation for Leveraging Incentive Funds

    Section 96.87(k) of the interim rule and the final rule concerns 
the period of [[Page 21357]] time during which grantees can use 
leveraging incentive funds awarded to them by HHS.
    Incentive funds are awarded during the course of each award period, 
rather than at the beginning, since grantees' leveraging reports are to 
be submitted two months after each fiscal year begins, and since 
Federal review of these reports will follow. (Also, in fiscal years 
1992 and 1993, Congress required HHS to make leveraging incentive fund 
awards in late September, at the end of the fiscal year/award period.) 
We therefore determine that leveraging incentive funds are not subject 
to the statutory and regulatory carryover and reallotment requirements 
that apply to regular LIHEAP funds. (Section 2607(b) of the LIHEAP 
statute provides that grantees may carry forward for use in the 
succeeding fiscal year no more than 10 percent of their regular LIHEAP 
funds payable for the prior fiscal year.) Instead, the interim rule 
provided that all leveraging incentive funds are available for 
obligation from the date they are awarded to a grantee until the end of 
the succeeding fiscal year. Thus, grantees could use these funds during 
the remainder of the fiscal year in which they were awarded, and 
throughout the following fiscal year.

Comments and Response

    We received one written comment on this section in the interim 
rule: a State supported the exemption of leveraging incentive funds 
from the carryover limit applied to regular LIHEAP funds.
    Based on informal grantee comments urging that we allow use of 
leveraging incentive funds to pay for appropriate activities carried 
out during the entire award period, this final rule changes 
Sec. 96.87(k) to provide that leveraging incentive funds ``are 
available for obligation during both the award period and the fiscal 
year following the award period, without regard to limitations on 
carryover of funds in section 2607(b)(2)(B)'' of the LIHEAP statute. 
Grantees therefore can use leveraging incentive funds to reimburse 
themselves for appropriate obligations made in the award period before 
the leveraging award was made.
    Any leveraging incentive funds not obligated for allowable purposes 
by the end of this obligation period must be returned to HHS. HHS will 
return such funds to the U.S. Treasury.

Paperwork Reduction Act of 1980

    There are no new information collection requirements in this final 
rule which require approval under the Paperwork Reduction Act. The 
information collection requirements affected by this final rule have 
previously been approved.
    Section 96.87 of this final rule contains information collection 
requirements relating to applications for leveraging incentive funds. 
Section 2607A of the Low-Income Home Energy Assistance Act requires 
grantees to submit these leveraging reports in order to qualify for 
leveraging incentive funds. These reports are the only source of the 
information HHS needs in order to allocate leveraging incentive funds 
among grantees. ACF estimates the reporting burden on applicants for 
leveraging incentive funds to be 40 hours per applicant. As required by 
the Paperwork Reduction Act, HHS submitted these information collection 
requirement to the Office of Management and Budget (OMB) for its 
review. OMB approved these requirements and the LIHEAP leveraging 
report form (form no. ACF-119) through May 1995 (OMB clearance no. 
0970-0121).
    Section 96.83 of this final rule requires grantees to submit a 
waiver request if they wish to obligate more than 15 percent of their 
LIHEAP funds allotted or funds available in any fiscal year for 
weatherization activities. We expect to receive less than 10 waiver 
requests per year, and thus this provision is not subject to the 
Paperwork Reduction Act. We received only one waiver request in FY 
1991, and no waiver requests in FY 1992 and FY 1993. We received seven 
waiver requests in FY 1994.

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 
rule is consistent with these priorities and principles. An assessment 
of the costs and benefits of available regulatory alternatives 
(including not regulating) demonstrated that the approach taken in the 
regulation is the most cost-effective and least burdensome while still 
achieving the regulatory objectives.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (Pub. L. 96-354) requires the 
Federal government to anticipate and reduce the impact of regulations 
and paperwork requirements on small entities. The primary impact of 
these regulations is on State, tribal, and territorial governments. 
Therefore, the Department of Health and Human Services certifies that 
this final rule will not have a significant economic impact on a 
substantial number of small entities because it affects payments to 
States, tribes, and territories. Thus, a regulatory flexibility 
analysis is not required.

Catalog of Federal Domestic Assistance Program Number

    The Catalog of Federal Domestic Assistance program number for the 
low-income home energy assistance program (LIHEAP) is 93.568.

List of Subjects in 45 CFR Part 96

    Energy, Grant programs-energy, Grant programs-Indians, Income 
assistance, Leveraging incentive program, Low and moderate income 
housing, Reporting and recordkeeping requirements, Weatherization.

    Approved: April 4, 1995.
Mary Jo Bane,
Assistant Secretary for Children and Families.

    For the reasons set forth in the preamble, part 96 of Title 45 of 
the Code of Federal Regulations as amended in the interim rule 
published in the Federal Register issue of January 16, 1992 (57 FR 
1960) is adopted as final with the following changes and part 96 is 
further amended as set forth below:

PART 96--[AMENDED]

    1. The authority citation for part 96 continues to read as follows:

    Authority: 42 U.S.C. 300w et seq.; 42 U.S.C. 300x et seq.; 42 
U.S.C. 300y et seq.; 42 U.S.C. 701 et seq.; 42 U.S.C. 8621 et seq.; 
42 U.S.C. 9901 et seq.; 42 U.S.C. 1397 et seq.; 31 U.S.C. 1243 note.

Subpart B--General Procedures

    2. Section 96.14(a)(2) is revised as follows:


Sec. 96.14  Time period of obligation and expenditure of grant funds.

    (a) * * *
    (2) Low-income home energy assistance. Regular LIHEAP block grant 
funds authorized under section 2602(b) of Public Law 97-35 (42 U.S.C. 
8621(b)) are available only in accordance with section 2607(b)(2)(B) of 
Public Law 97-35 (42 U.S.C. 8626(b)(2)(B)), as follows. From allotments 
for fiscal year 1982 through fiscal year 1984, a maximum of 25 percent 
may be held available for the next fiscal year. From allotments for 
fiscal year 1985 through fiscal year 1990, a maximum of 15 percent of 
the amount payable to a grantee and not transferred to another block 
grant according to section 2604(f) of Public Law 97-35 (42 U.S.C. 
8623(f)) may be held available for the next fiscal year. From 
allotments for fiscal year 1991 through fiscal year 1993, a maximum of 
10 percent of the amount payable to a [[Page 21358]] grantee and not 
transferred to another block grant according to section 2604(f) of 
Public Law 97-35 (42 U.S.C. 8623(f)) may be held available for the next 
fiscal year. Beginning with allotments for fiscal year 1994, a maximum 
of 10 percent of the amount payable to a grantee may be held available 
for the next fiscal year. No funds may be obligated after the end of 
the fiscal year following the fiscal year for which they were allotted.
* * * * *

Subpart E--Enforcement

    3. Section 96.50 is amended by revising the last sentence of 
paragraph (d) as follows:


Sec. 96.50  Complaints.

* * * * *
    (d) . . . Under the low-income home energy assistance program, 
within 60 days after receipt of complaints, the Department will provide 
a written response to the complainant, stating the actions that it has 
taken to date and, if the complaint has not yet been fully resolved, 
the timetable for final resolution of the complaint.
* * * * *

Subpart H--Low-income Home Energy Assistance Program

    4. Section 96.83 is revised as follows:


Sec. 96.83  Increase in maximum amount that may be used for 
weatherization and other energy-related home repair.

    (a) Scope. This section concerns requests for waivers increasing 
from 15 percent to up to 25 percent of LIHEAP funds allotted or 
available to a grantee for a fiscal year, the maximum amount that 
grantees may use for low-cost residential weatherization and other 
energy-related home repair for low-income households (hereafter 
referred to as ``weatherization''), pursuant to section 2605(k) of 
Public Law 97-35 (42 U.S.C. 8624(k)).
    (b) Public inspection and comment. Before submitting waiver 
requests to the Department, grantees must make proposed waiver requests 
available for public inspection within their jurisdictions in a manner 
that will facilitate timely and meaningful review of, and comment upon, 
these requests. Written public comments on proposed waiver requests 
must be made available for public inspection upon their receipt by 
grantees, as must any summaries prepared of written comments, and 
transcripts and/or summaries of verbal comments made on proposed 
requests at public meetings or hearings. Proposed waiver requests, and 
any preliminary waiver requests, must be made available for public 
inspection and comment until at least March 15 of the fiscal year for 
which the waiver is to be requested. Copies of actual waiver requests 
must be made available for public inspection upon submission of the 
requests to the Department.
    (c) Waiver request. After March 31 of each fiscal year, the chief 
executive officer (or his or her designee) may request a waiver of the 
weatherization obligation limit for this fiscal year, if the grantee 
meets criteria in paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of 
this section, or can show ``good cause'' for obtaining a waiver despite 
a failure to meet one or more of these criteria. (If the request is 
made by the chief executive officer's designee and the Department does 
not have on file written evidence of the designation, the request also 
must include evidence of the appropriate delegation of authority.) 
Waiver requests must be in writing and must include the information 
specified in paragraphs (c)(1) through (c)(6) of this section. The 
grantee may submit a preliminary waiver request for a fiscal year, 
between February 1 and March 31 of the fiscal year for which the waiver 
is requested. If a grantee chooses to submit a preliminary waiver 
request, the preliminary request must include the information specified 
in paragraphs (c)(1) through (c)(6) of this section; in addition, after 
March 31 the chief executive officer (or his or her designee) must 
submit the information specified in paragraphs (c)(7) through (c)(10) 
of this section, to complete the preliminary waiver request.
    (1) A statement of the total percent of its LIHEAP funds allotted 
or available in the fiscal year for which the waiver is requested, that 
the grantee desires to use for weatherization.
    (2) A statement of whether the grantee has met each of the 
following three criteria:
    (i) In the fiscal year for which the waiver is requested, the 
combined total (aggregate) number of households in the grantee's 
service population that will receive LIHEAP heating, cooling, and 
crisis assistance benefits that are provided from Federal LIHEAP 
allotments from regular and supplemental appropriations will not be 
fewer than the combined total (aggregate) number that received such 
benefits in the preceding fiscal year;
    (ii) In the fiscal year for which the waiver is requested, the 
combined total (aggregate) amount, in dollars, of LIHEAP heating, 
cooling, and crisis assistance benefits received by the grantee's 
service population that are provided from Federal LIHEAP allotments 
from regular and supplemental appropriations will not be less than the 
combined total (aggregate) amount received in the preceding fiscal 
year; and
    (iii) All LIHEAP weatherization activities to be carried out by the 
grantee in the fiscal year for which the wavier is requested have been 
shown to produce measurable savings in energy expenditures.
    (3) With regard to criterion in paragraph (c)(2)(i) of this 
section, a statement of the grantee's best estimate of the appropriate 
household totals for the fiscal year for which the wavier is requested 
and for the preceding fiscal year.
    (4) With regard to criterion in paragraph (c)(2)(ii) of this 
section, a statement of the grantee's best estimate of the appropriate 
benefit totals, in dollars, for the fiscal year for which the waiver is 
requested and for the preceding fiscal year.
    (5) With regard to criterion in paragraph (c)(2)(ii) of this 
section, a description of the weatherization activities to be carried 
out by the grantee in the fiscal year for which the wavier is requested 
(with all LIHEAP funds proposed to be used for weatherization, not just 
with the amount over 15 percent), and an explanation of the specific 
criteria under which the grantee has determined whether these 
activities have been shown to produce measurable savings in energy 
expenditures.
    (6) A description of how and when the proposed wavier request was 
made available for timely and meaningful public review and comment, 
copies and/or summaries of public comments received on the request 
(including transcripts and/or summaries of any comments made on the 
request at public meetings or hearings), a statement of the method for 
reviewing public comments, and a statement of the changes, if any, that 
were made in response to these comments.
    (7) To complete a preliminary waiver request: Official confirmation 
that the grantee wishes approval of the waiver request.
    (8) To complete a preliminary waiver request: A statement of 
whether any public comments were received after preparation of the 
preliminary waiver request and, if so, copies and/or summaries of these 
comments (including transcripts and/or summaries of any comments made 
on the request at public meetings or hearings), and a statement of the 
changes, if any, that were made in response to these comments.
    (9) To complete a preliminary waiver request: A statement of 
whether any [[Page 21359]] material/substantive changes of fact have 
occurred in information included in the preliminary waiver request 
since its submission, and, if so, a description of the change(s).
    (10) To complete a preliminary waiver request: A description of any 
other changes to the preliminary request.
    (d) ``Standard waiver. If the Department determines that a grantee 
has meet the three criteria in paragraph (c)(2) of this section, has 
provided all information required by paragraph (c) of this section, has 
shown adequate concern for timely and meaningful public review and 
comment, and has proposed weatherization that meets all relevant 
requirements of title XXVI of Public Law 97-35 (42 U.S.C. 8621 et seq.) 
and 45 CFR part 96, the Department will approve a ``standard'' waiver.
    (e) ``Good cause'' waiver.
    (1) If a grantee does not meet one or more of the three criteria in 
paragraph (c)(2) of this section, then the grantee may submit 
documentation that demonstrates good cause why a waiver should be 
granted despite the grantee's failure to meet this criterion or these 
criteria. ``Good cause'' waiver requests must include the following 
information, in addition to the information specified in paragraph (c) 
of this section:
    (i) For each criterion under paragraph (c)(2) of this section that 
the grantee does not meet, an explanation of the specific reasons 
demonstrating good cause why the grantee does not meet the criterion 
and yet proposes to use additional funds for weatherization, citing 
measurable, quantified data, and stating the source(s) of the data 
used;
    (ii) A statement of the grantee's LIHEAP heating, cooling, and 
crisis assistance eligibility standards (eligibility criteria) and 
benefits levels for the fiscal year for which the waiver is requested 
and for the preceding fiscal year; and, if eligibility standards were 
less restrictive and/or benefit levels were higher in the preceding 
fiscal year for one or more of these program components, an explanation 
of the reasons demonstrating good cause why a waiver should be granted 
in spite of this fact;
    (iii) A statement of the grantee's opening and closing dates for 
applications for LIHEAP heating, cooling, and crisis assistance in the 
fiscal year for which the waiver is requested and in the preceding 
fiscal year, and a description of the grantee's outreach efforts for 
heating, cooling, and crisis assistance in the fiscal year for which 
the waiver is requested and in the preceding fiscal year, and, if the 
grantee's application period was longer and/or outreach efforts were 
greater in the preceding fiscal year for one or more of these program 
components, an explanation of the reasons demonstrating good cause why 
a waiver should be granted in spite of this fact; and
    (iv) If the grantee took, or will take, other actions that led, or 
will lead, to a reduction in the number of applications for LIHEAP 
heating, cooling, and/or crisis assistance, from the preceding fiscal 
year to the fiscal year for which the waiver is requested, a 
description of these actions and an explanation demonstrating good 
cause why a waiver should be granted in spite of these actions.
    (2) If the Department determines that a grantee requesting a ``good 
cause'' waiver has demonstrated good cause why a waiver should be 
granted, has provided all information required by paragraphs (c) and 
(e)(1) of this section, has shown adequate concern for timely and 
meaningful public review and comment, and has proposed weatherization 
that meets all relevant requirements of title XXVI of Public Law 97-35 
(42 U.S.C. 8621 et seq.) and 45 CFR part 96, the Department will 
approve a ``good cause'' waiver.
    (f) Approvals and disapprovals. After receiving the grantee's 
complete waiver request, the Department will respond in writing within 
45-day, informing the grantee whether the request is approved on either 
a ``standard'' or ``good cause'' basis. The Department may request 
additional information and/or clarification from the grantee. If 
additional information and/or clarification is requested, the 45-day 
period for the Department's response will start when the additional 
information and/or clarification is received. No waiver will be granted 
for a previous fiscal year.
    (g) Effective period. Waivers will be effective from the date of 
the Department's written approval until the funds for which the waiver 
is granted are obligated in accordance with title XXVI of Public Law 
97-35 (42 U.S.C. 8621 et seq.) and 45 CFR part 96. Funds for which a 
weatherization waiver was granted that are carried over to the 
following fiscal year and used for weatherization shall not be 
considered ``funds allotted'' or ``funds available'' for the purposes 
of calculating the maximum amount that may be used for weatherization 
in the succeeding fiscal year.
    5. Section 96.87 is revised as follows:


Sec. 96.87  Leveraging incentive program.

    (a) Scope and eligible grantees.
    (1) This section concerns the leveraging incentive program 
authorized by section 2607A of Public Law 97-35 (42 U.S.C. 8626(a).
    (2)(i) The only entities eligible to receive leveraging incentive 
funds from the Department are States (including the District of 
Columbia), Indian tribes, tribal organizations, and territories that 
received direct Federal LIHEAP funding under section 2602(b) of Public 
Law 97-35 (42 U.S.C. 8621(b)) in both the base period for which 
leveraged resources are reported, and the award period for which 
leveraging incentive funds are sought; and tribes and tribal 
organizations described in paragraphs (a)(2)(ii) and (a)(2)(iii) of 
this section.
    (ii) Indian tribes that received LIHEAP services under section 
2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) through a directly-
funded tribal organization in the base period for which leveraged 
resources are reported, and receive direct Federal LIHEAP funding under 
section 2602(b) in the award period, will receive leveraging incentive 
funds allocable to them if they submit leveraging reports meeting all 
applicable requirements. If the tribal organization continues to 
receive direct funding under section 2602(b) in the award period, the 
tribal organization also will receive incentive funds allocable to it 
if it submits a leveraging report meeting all applicable requirements. 
In such cases, incentive funds will be allocated among the involved 
entities that submit leveraging reports, as agreed by these entities. 
If they cannot agree, HHS will allocate incentive funds based on the 
comparative role of each entity in obtaining and/or administering the 
leveraged resources, and/or their relative number of LIHEAP-eligible 
households.
    (iii) If a tribe received direct Federal LIHEAP funding under 
section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) in the base 
period for which resources leveraged by the tribe are reported, and the 
tribe receives LIHEAP services under section 2602(b) through a 
directly-funded tribal organization in the award period, the tribal 
organization will receive leveraging incentive funds on behalf of the 
tribe for the resources if the tribal organization submits a leveraging 
report meeting all applicable requirements.
    (b) Definitions.
    (1) Award period means the fiscal year during which leveraging 
incentive funds are distributed to grantees by the Department, based on 
the countable leveraging activities they reported to the Department for 
the preceding fiscal year (the base period). [[Page 21360]] 
    (2) Base period means the fiscal year for which a grantee's 
leveraging activities are reported to the Department; grantees' 
countable leveraging activities during the base period or base year are 
the basis for the distribution of leveraging incentive funds during the 
succeeding fiscal year (the award period or award year). Leveraged 
resources are counted in the base period during which their benefits 
are provided to low-income households.
    (3) Countable loan fund means revolving loan funds and similar loan 
instruments in which:
    (i) The sources of both the loaned and the repaid funds meet the 
requirements of this section, including the prohibitions of paragraphs 
(f)(1), (f)(2), and (f)(3) of this section;
    (ii) Neither the loaned nor the repaid funds are Federal funds or 
payments from low-income households, and the loans are not made to low-
income households; and
    (iii) The benefits provided by the loaned funds meet the 
requirements of this section for countable leveraged resources and 
benefits.
    (4) Countable petroleum violation escrow funds means petroleum 
violation escrow (oil overcharge) funds that were distributed to a 
State or territory by the Department of Energy (DOE) after October 1, 
1990, and interest earned in accordance with DOE policies on petroleum 
violation escrow funds that were distributed to a State or territory by 
DOE after October 1, 1990, that:
    (i) Were used to assist low-income households to meet the costs of 
home energy through (that is, within and as a part of) a State or 
territory's LIHEAP program, another Federal program, or a non-Federal 
program, in accordance with a submission for use of these petroleum 
violation escrow funds that was approved by DOE;
    (ii) Were not previously required to be allocated to low-income 
households; and
    (iii) Meet the requirements of paragraph (d)(1) of this section, 
and of paragraph (d)(2)(ii) or (d)(2)(iii) or this section.
    (5) Home energy means a source of heating or cooling in residential 
dwellings.
    (6) Low-income households mean federally eligible (federally 
qualified) households meeting the standards for LIHEAP income 
eligibility and/or LIHEAP categorical eligibility as set by section 
2605(b)(2) of Public Law 97-35 (42 U.S.C. 8624(b)(2)).
    (7) Weatherization means low-cost residential weatherization and 
other energy-related home repair for low-income households. 
Weatherization must be directly related to home energy.
    (c) LIHEAP funds used to identify, develop, and demonstrate 
leveraging programs.
    (1) Each fiscal year, States (excluding Indian tribes, tribal 
organizations, and territories) may spend up to the greater of $35,000 
or 0.08 percent of their net Federal LIHEAP allotments (funds payable) 
allocated under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) 
specifically to identify, develop, and demonstrate leveraging programs 
under section 2607A(c)(2) of Public Law 97-35 (42 U.S.C. 8626a(c)(2)). 
Each fiscal year, Indian tribes, tribal organizations, and territories 
may spend up to the greater of two (2.0) percent of $100 of their 
Federal LIHEAP allotments allocated under section 2602(b) of Public law 
97-35 (42 U.S.C. 8621(b)) specifically to identify, develop, and 
demonstrate leveraging programs under section 2607A(c)(2) of Public Law 
97-35 (42 U.S.C. 8625a(c)(2)). For the purpose of this paragraph, 
Federal LIHEAP allotments include funds from regular and supplemental 
appropriations, with the exception of leveraging incentive funds 
provided under section 2602(d) of Public Law 97-35 (42 U.S.C. 8621(d)).
    (2) LIHEAP funds used under section 2607A(c)(2) of Public Law 97-35 
(42 U.S.C. 8626a(c)(2)) specifically to identify, develop, and 
demonstrate leveraging programs are not subject to the limitation in 
section 2605(b)(9) of Public Law 97-35 (42 U.S.C. 8624(b)(9)) on the 
maximum percent of Federal funds that may be used for costs of planning 
and administration.
    (d) Basic requirements for leveraged resources and benefits.
    (1) In order to be counted under the leveraging incentive program, 
leveraged resources and benefits must meet all of the following five 
criteria:
    (i) They are from non-Federal sources.
    (ii) They are provided to the grantee's low-income home energy 
assistance program, or to federally qualified low-income households as 
described in section 2605(b)(2) of Public Law 97-35 (42 U.S.C. 
8624(b)(2)).
    (iii) They are measurable and quantifiable in dollars.
    (iv) They represent a net addition to the total home energy 
resources available to low-income households in excess of the amount of 
such resources that could be acquired by these households through the 
purchase of home energy, or the purchase of items that help these 
households meet the cost of home energy, at commonly available 
household rates or costs, or that could be obtained with regular LIHEAP 
allotments provided under section 2602(b) of Public Law 97-35 (42 
U.S.C. 8621(b)).
    (v) They meet the requirements for countable leveraged resources 
and benefits throughout this section and section 2607A of Public Law 
97-35 (42 U.S.C. 8626a).
    (2) Also, in order to be counted under the leveraging incentive 
program, leveraged resources and benefits must meet at least one of the 
following three criteria:
    (i) The grantee's LIHEAP program had an active, substantive role in 
developing and/or acquiring the resource/benefits from home energy 
vendor(s) through negotiation, regulation, and/or competitive bid. The 
actions or efforts of one or more staff of the grantee's LIHEAP 
program--at the central and/or local level--and/or one or more staff of 
LIHEAP program subrecipient(s) acting in that capacity, were 
substantial and significant in obtaining the resource/benefits from the 
vendor(s).
    (ii) The grantee appropriated or mandated the resource/benefits for 
distribution to low-income households through (that is, within and as a 
part of) its LIHEAP program. The resource/benefits are provided through 
the grantee's LIHEAP program to low-income households eligible under 
the grantee's LIHEAP standards, in accordance with the LIHEAP statute 
and regulations and consistent with the grantee's LIHEAP plan and 
program policies that were in effect during the base period, as if they 
were provided from the grantee's Federal LIHEAP allotment.
    (iii) The grantee appropriated or mandated the resource/benefits 
for distribution to low-income households as described in its LIHEAP 
plan (referred to in section 2605(c)(1)(A) of Public Law 97-35) (42 
U.S.C. 8624(c)(1)(A). The resource/benefits are provided to low-income 
households as a supplement and/or alternative to the grantee's LIHEAP 
program, outside (that is, not through, within, or as a part of) the 
LIHEAP program. The resource/benefits are integrated and coordinated 
with the grantee's LIHEAP program. Before the end of the base period, 
the plan identifies and describes the resource/benefits, their 
source(s), and their integration/coordination with the LIHEAP program. 
The Department will determine resources/benefits to be integrated and 
coordinated with the LIHEAP program if they meet at least one of the 
following eight conditions. If a resource meets at least one of 
conditions A through F when the grantee's LIHEAP program is operating 
(and meets all other applicable requirements), the resource also is 
[[Page 21361]] countable when the LIHEAP program is not operating.
    (A) For all households served by the resource, the assistance 
provided by the resource depends on and is determined by the assistance 
provided to these households by the grantee's LIHEAP program in the 
base period. The resource supplements LIHEAP assistance that was not 
sufficient to meet households' home energy needs, and the type and 
amount of assistance provided by the resource is directly affected by 
the LIHEAP assistance received by the households.
    (B) Receipt of LIHEAP assistance in the base period is necessary to 
receive assistance from the resource. The resource serves only 
households that received LIHEAP assistance in the base period.
    (C) Ineligibility for the grantee's LIHEAP program, or denial of 
LIHEAP assistance in the base period because of unavailability of 
LIHEAP funds, is necessary to receive assistance from the resource.
    (D) For discounts and waivers: eligibility for and/or receipt of 
assistance under the grantee's LIHEAP program in the base period, and/
or eligibility under the Federal standards set by section 2605(b)(2) of 
Public Law 97-35 (42 U.S.C. 8624(b)(2)), is necessary to receive the 
discount or waiver.
    (E) During the period when the grantee's LIHEAP program is 
operating, staff of the grantee's LIHEAP program and/or staff assigned 
to the LIHEAP program by a local LIHEAP administering agency or 
agencies, and staff assigned to the resource communicate orally and/or 
in writing about how to meet the home energy needs of specific, 
individual households. For the duration of the LIHEAP program, this 
communication takes place before assistance is provided to each 
household to be served by the resource, unless the applicant for 
assistance from the resource presents documentation of LIHEAP 
eligibility and/or the amount of LIHEAP assistance received or to be 
received.
    (F) A written agreement between the grantee's LIHEAP program or 
local LIHEAP administering agency, and the agency administering the 
resource, specifies the following about the resource: eligibility 
criteria; benefit levels; period of operation; how the LIHEAP program 
and the resource are integrated/coordinated; and relationship between 
LIHEAP eligibility and/or benefit levels, and eligibility and/or 
benefit levels for the resource. The agreement provides for annual or 
more frequent reports to be provided to the LIHEAP program by the 
agency administering the resource.
    (G) The resource accepts referrals from the grantee's LIHEAP 
program, and as long as the resource has benefits available, it 
provides assistance to all households that are referred by the LIHEAP 
program and that meet the resource's eligibility requirements. Under 
this condition, only the benefits provided to households referred by 
the LIHEAP program are countable.
    (H) Before the grantee's LIHEAP heating, cooling, crisis, and/or 
weatherization assistance component(s) open and/or after the grantee's 
LIHEAP heating, cooling, crisis, and/or weatherization assistance 
component(s) close for the season or for the fiscal year, or before the 
entire LIHEAP program/opens and/or after the entire LIHEAP program 
closes for the season or for the fiscal year, the resource is made 
available specifically to fill the gap caused by the absence of the 
LIHEAP component(s) or program. The resource is not available while the 
LIHEAP component(s) or program is operating.
    (e) Countable leveraged resources and benefits. Resources and 
benefits that are countable under the leveraging incentive program 
include but are not limited to the following, provided that they also 
meet all other applicable requirements:
    (1) Cash resources: State, tribal, territorial, and other public 
and private non-Federal funds, including countable loan funds and 
countable petroleum violation escrow funds as defined in paragraphs 
(b)(3) and (b)(4) of this section, that are used for:
    (i) Heating, cooling, and energy crisis assistance payments and 
cash benefits made in the base period to or on behalf of low-income 
households toward their home energy costs (including home energy bills, 
taxes on home energy sales/purchases and services, connection and 
reconnection fees, application fees, late payment charges, bulk fuel 
tank rental or purchase costs, and security deposits that are retained 
for six months or longer);
    (ii) Purchase of fuels that are provided to low-income households 
in the base period for home energy (such as fuel oil, liquefied 
petroleum gas, and wood);
    (iii) Purchase of weatherization materials that are installed in 
recipients' homes in the base period;
    (iv) Purchase of the following tangible items that are provided to 
low-income households and/or installed in recipients' homes in the base 
period: blankets, space heating devices, equipment, and systems; space 
cooling devices, equipment, and systems; and other tangible items that 
help low-income households meet the costs of home energy and are 
specifically approved by the Department as countable leveraged 
resources;
    (v) Installation, replacement, and repair of the following in the 
base period: weatherization materials; space heating devices, 
equipment, and systems; space cooling devices, equipment, and systems; 
and other tangible items that help low-income households meet the costs 
of home energy and are specifically approved by the Department;
    (vi) The following services, when they are an integral part of 
weatherization to help low-income households meet the costs of home 
energy in the base period: installation, replacement, and repair of 
windows, exterior doors, roofs, exterior walls, and exterior floors; 
pre-weatherization home energy audits of homes that are weatherized as 
a result of these audits; and post-weatherization inspection of homes; 
and
    (vii) The following services, when they are provided (carried out) 
in the base period: installation, replacement, and repair of smoke fire 
alarms that are an integral part, and necessary for safe operation, of 
a home heating or cooling system installed or repaired as a 
weatherization activity; and asbestos removal and that is an integral 
part of, and necessary to carry out, weatherization to help low-income 
households meet the cost of home energy.
    (2) Home energy discounts to waivers that are provided in the base 
period to low-income households and pertain to generally applicable 
prices, rates, fees, charges, costs and/or requirements, in the amount 
of the discount, reduction, waiver, or forgiveness, or that apply to 
certain tangible fuel and non-fuel items and to certain services, that 
are provided in the base period to low-income households and help these 
households meet the costs of home energy, in the amount of the discount 
or reduction.
    (i) Discounts or reductions in utility and bulk fuel prices, rates, 
or bills;
    (ii) Partial or full forgiveness of home energy bill arrearages;
    (iii) Partial or full waivers of utility and other home energy 
connection and reconnection fees, application fees, late payment 
charges, bulk fuel tank rental or purchase costs, and home energy 
security deposits that are retained for six months or longer;
    (iv) Reductions in and partial or full waivers of non-Federal taxes 
on home energy sales/purchases and services, and reductions in and 
partial or full waivers of other non-Federal taxes provided as tax 
``credits'' to low-income [[Page 21362]] households to offset their 
home energy costs, except when Federal funds or Federal tax ``credits'' 
provide payment or reimbursement for these reductions/waivers;
    (v) Discounts or reductions in the cost of the following tangible 
items that are provided to low-income households and/or installed in 
recipients' homes: weatherization materials; blankets; space heating 
devices, equipment, and systems; space cooling devices, equipment, and 
systems; and other tangible items that are specifically approved by the 
Department;
    (vi) Discounts or reductions in the cost of installation, 
replacement, and repair of the following: weatherization materials; 
space heating devices, equipment, and systems; space cooling devices, 
equipment, and systems; and other tangible items that help low-income 
households meet the costs of home energy and are specifically approved 
by the Department;
    (vii) Discounts or reductions in the cost of the following 
services, when the services are an integral part of weatherization to 
help low-income households meet the costs of home energy: installation, 
replacement, and repair of windows, exterior doors, roofs, exterior 
walls, and exterior floors; pre-weatherization home energy audits of 
homes that were weatherized as a result of these audits; and post-
weatherization inspection of homes; and
    (viii) Discounts or reductions in the cost of installation, 
replacement, and repair of smoke/fire alarms that are an integral part, 
and necessary for safe operation, of a home heating or cooling system 
installed or repaired as a weatherization activity; and discounts or 
reductions in the cost of asbestos removal that is an integral part of, 
and necessary to carry out, weatherization to help low-income 
households meet the costs of home energy.
    (3) Certain third-party in-kind contributions that are provided in 
the base period to low-income households:
    (i) Donated fuels used by recipient households for home energy 
(such as fuel oil, liquified petroleum gas, and wood);
    (ii) Donated weatherization materials that are installed in 
recipients' homes;
    (iii) Donated blankets; donated space heating devices, equipment, 
and systems; donated space cooling devices, equipment, and systems; and 
other donated tangible items that help low-income households meet the 
costs of home energy and are specifically approved by the Department as 
countable leveraged resources;
    (iv) Unpaid volunteers' services specifically to install, replace, 
and repair the following: weatherization materials; space heating 
devices, equipment, and systems; space cooling devices, equipment, and 
systems; and other items that help low-income households meet the costs 
of home energy and are specifically approved by the Department;
    (v) Unpaid volunteers' services specifically to provide (carry out) 
the following, when these services are an integral part of 
weatherization to help low-income households meet the costs of home 
energy: installation, replacement, and repair of windows, exterior 
doors, roofs, exterior walls, and exterior floors; pre-weatherization 
home energy audits of homes that were weatherized as a result of these 
audits; and post-weatherization inspection of homes;
    (vi) Unpaid volunteers' services specifically to: install, replace, 
and repair smoke/fire alarms as an integral part, and necessary for 
safe operation, of a home heating or cooling system installed or 
repaired as a weatherization activity; and remove asbestos as an 
integral part of, and necessary to carry out, weatherization to help 
low-income households meet the costs of home energy;
    (vii) Paid staff's services that are donated by the employer 
specifically to install, replace, and repair the following: 
weatherization materials; space heating devices, equipment, and 
systems; space cooling devices, equipment, and systems; and other items 
that help low-income households meet the costs of home energy and are 
specifically approved by the Department;
    (viii) Paid staff's services that are donated by the employer 
specifically to provide (carry out) the following, when these services 
are an integral part of weatherization to help low-income households 
meet the costs of home energy: installation, replacement, and repair of 
windows, exterior doors, roofs, exterior walls, and exterior floors; 
pre-weatherization home energy audits of homes that were weatherized as 
a result of these audits; and post-weatherization inspection of homes; 
and
    (ix) Paid staff's services that are donated by the employer 
specifically to: install, replace, and repair smoke/fire alarms as an 
integral part, and necessary for safe operation, of a home heating or 
cooling system installed or repaired as a weatherization activity; and 
remove asbestos as an integral part of, and necessary to carry out, 
weatherization to help low-income households meet the costs of home 
energy.
    (f) Resources and benefits that cannot be counted. The following 
resources and benefits are not countable under the leveraging incentive 
program:
    (1) Resources (or portions of resources) obtained, arranged, 
provided, contributed, and/or paid for, by a low-income household for 
its own benefit, or which a low-income household is responsible for 
obtaining or required to provide for its own benefit or for the benefit 
of others, in order to receive a benefit of some type;
    (2) Resources (or portions of resources) provided, contributed, 
and/or paid for by building owners, building managers, and/or home 
energy vendors, if the cost of rent, home energy, or other charge(s) to 
the recipient were or will be imposed, as a result;
    (3) Resources (or portions of resources) directly provided, 
contributed, and/or paid for by member(s) of the recipient household's 
family (parents, grandparents, great-grandparents, sons, daughters, 
grandchildren, great-grandchildren, brothers, sisters, aunts, uncles, 
first cousins, nieces, and nephews, and their spouses), regardless of 
whether the family member(s) lived within the household, unless the 
family member(s) also provided the same resource to other low-income 
households during the base period and did not limit the resource to 
members of their own family;
    (4) Deferred home energy obligations;
    (5) Projected future savings from weatherization;
    (6) Delivery, and discounts in the cost of delivery, of fuel, 
weatherization materials, and all other items;
    (7) Purchase, rental, donation, and loan, and discounts in the cost 
of purchase and rental, of: supplies and equipment used to deliver 
fuel, weatherization materials, and all other items; and supplies and 
equipment used to install and repair weatherization materials and all 
other items;
    (8) Petroleum violation escrow (oil overcharge) funds that do not 
meet the definition in paragraph (b)(4) of this section;
    (9) Interest earned/paid on petroleum violation escrow funds that 
were distributed to a State or territory by the Department of Energy on 
or before October 1, 1990;
    (10) Interest earned/paid on Federal funds;
    (11) Interest earned/paid on customers' security deposits, utility 
deposits, etc., except when forfeited by the customer and used to 
provide countable benefits;
    (12) Borrowed funds that do not meet the requirements in paragraph 
(b)(3) above (including loans made by and/or to low-income households), 
interest [[Page 21363]] paid on borrowed funds, and reductions in 
interest paid on borrowed funds;
    (13) Resources (or portions of resources) for which Federal payment 
or reimbursement has been or will be provided/received;
    (14) Tax deductions and tax credits received from any unit(s) of 
government by donors/contributors of resources for these donations, and 
by vendors for providing rate reductions, discounts, waivers, credits, 
and/or arrearage forgiveness to or for low-income households, etc.;
    (15) Funds and other resources that have been or will be used as 
matching or cost sharing for any Federal program;
    (16) Leveraged resources counted under any other Federal leveraging 
incentive program;
    (17) Costs of planning and administration, space costs, and intake 
costs;
    (18) Outreach activities, budget counseling, case management, and 
energy conservation education;
    (19) Training;
    (20) Installation, replacement, and repair of lighting fixtures and 
light bulbs;
    (21) Installation, replacement, and repair of smoke/fire alarms 
that are not an integral part, and necessary for safe operation, of a 
home heating or cooling system installed or repaired as a 
weatherization activity;
    (22) Asbestos removal that is not an integral part of, and 
necessary to carry out, weatherization to help low-income households 
meet the costs of home energy;
    (23) Paid services where payment is not made from countable 
leveraged resources, unless these services are donated as a countable 
in-kind contribution by the employer;
    (24) All in-kind contributions except those described in paragraph 
(e)(3) of this section; and
    (25) All other resources that do not meet the requirements of this 
section and of section 2607A of Public Law 97-35 (42 U.S.C. 8626a).
    (g) Valuation and documentation of leveraged resources and 
offsetting costs.
    (1) Leveraged cash resources will be valued at the fair market 
value of the benefits they provided to low-income households, as 
follows. Payments to or on behalf of low-income households for heating, 
cooling, and energy crisis assistance will be valued at their actual 
amount or value at the time they were provided. Purchased fuel, 
weatherization materials, and other countable tangible items will be 
valued at their fair market value (the commonly available household 
rate or cost in the local market area) at the time they were purchased. 
Installation, replacement, and repair of weatherization materials, and 
other countable services, will be valued at rates consistent with those 
ordinarily paid for similar work, by persons of similar skill in this 
work, in the grantee's or subrecipient's organization in the local 
area, at the time these services were provided. If the grantee or 
subrecipient does not have employees performing similar work, the rates 
will be consistent with those ordinarily paid by other employers for 
similar work, by persons of similar skill in this work, in the same 
labor market, at the time these services were provided. Fringe benefits 
and overhead costs will not be counted.
    (2) Home energy discounts, waivers, and credits will be valued at 
their actual amount or value.
    (3) Donated fuel, donated weatherization materials, and other 
countable donated tangible items will be valued at their fair market 
value (the commonly available household cost in the local market area) 
at the time of donation.
    (4) Donated unpaid services, and donated third-party paid services 
that are not in the employee's normal line of work, will be valued at 
rates consistent with those ordinarily paid for similar work, by 
persons of similar skill in this work, in the grantee's or 
subrecipient's organization in the local area, at the time these 
services were provided. If the grantee or subrecipient does not have 
employees performing similar work, the rates will be consistent with 
those ordinarily paid by other employers for similar work, by persons 
of similar skill in this work, in the same labor market, at the time 
these services were provided. Fringe benefits and overhead costs will 
not be counted. Donated third-party paid services of employees in their 
normal line of work will be valued at the employee's regular rate of 
pay, excluding fringe benefits and overhead costs.
    (5) Offsetting costs and charges will be valued at their actual 
amount or value.
    (i) Funds from grantees' regular LIHEAP allotments that are used 
specifically to identify, develop, and demonstrate leveraging programs 
under section 2607A(c)(2) of Public Law 97-35 (42 U.S.C. 8626a(c)(2)) 
will be deducted as offsetting costs in the base period in which these 
funds are obligated, whether or not there are any resulting leveraged 
benefits. Costs incurred from grantees' own funds to identify, develop, 
and demonstrate leveraging programs will be deducted in the first base 
period in which resulting leveraged benefits are provided to low-income 
households. If there is no resulting leveraged benefit from the 
expenditure of the grantee's own funds, the grantee's expenditure will 
not be counted or deducted.
    (ii) Any costs assessed or charged to low-income households on a 
continuing or on-going basis, year after year, specifically to 
participate in a counted leveraging program or to receive counted 
leveraged resources/benefits will be deducted in the base period these 
costs are paid. Any one-time costs or charges to low-income households 
specifically to participate in a counted leveraging program or to 
receive counted leveraged resources/benefits will be deducted in the 
first base period the leveraging program or resource is counted. Such 
costs or charges will be subtracted from the gross value of a counted 
resource or benefit for low-income households whose benefits are 
counted, but not for any households whose benefits are not counted.
    (6) Only the amount of the net addition to recipient low-income 
households' home energy resources may be counted in the valuation of a 
leveraged resource.
    (7) Leveraged resources and benefits, and offsetting costs and 
charges, will be valued according to the best data available to the 
grantee.
    (8) Grantees must maintain, or have readily available, records 
sufficient to document leveraged resources and benefits, and offsetting 
costs and charges, and their valuation. These records must be retained 
for three years after the end of the base period whose leveraged 
resources and benefits they document.
    (h) Leveraging report.
    (1) In order to qualify for leveraging incentive funds, each 
grantee desiring such funds must submit to the Department a report on 
the leveraged resources provided to low-income households during the 
proceedings base period. These reports must contain the following 
information in a format established by the Department.
    (i) For each separate leveraged resource, the report must:
    (A) Briefly describe the specific leveraged resource and the 
specific benefit(s) provided to low-income households by this resource, 
and state the source of the resource;
    (B) State whether the resource was acquired in cash, as a discount/
waiver, or as an in-kind contribution;
    (C) Indicate the geographical area in which the benefit(s) were 
provided to recipients;
    (D) State the month(s) and year(s) when the benefit(s) were 
provided to recipients;
[[Page 21364]]

    (E) State the gross dollar value of the countable benefits provided 
by the resource as determined in accordance with paragraph (g) of this 
section, indicate the source(s) of the data used, and describe how the 
grantee quantified the value and calculated the total amount;
    (F) State the number of low-income households to whom the 
benefit(s) were provided, and state the eligibility standard(s) for the 
low-income households to whom the benefit(s) were provided;
    (G) Indicate the agency or agencies that administered the resource/
benefit(s); and
    (H) Indicate the criterion or criteria for leveraged resources in 
paragraph (d)(2) of this section that the resource/benefits meet, and 
for criteria in paragraphs (d)(2)(i) and (d)(2)(iii) of this section, 
explain how resources/benefits valued at $5,000 or more meet the 
criterion or criteria.
    (ii) State the total gross dollar value of the countable leveraged 
resources and benefits provided to low-income households during the 
base period (the sum of the amounts listed pursuant to paragraph 
(h)(1)(i)(E) of this section).
    (iii) State in dollars any costs incurred by the grantee to 
leverage resources, and any costs and charges imposed on low-income 
households to participate in a counted leveraging program or to receive 
counted leveraged benefits, as determined in accordance with paragraph 
(g)(5) of this section. Also state the amount of the grantee's regular 
LIHEAP allotment that the grantee used during the base period 
specifically to identify, develop, and demonstrate leveraging programs 
under section 2607A(c)(2) of Public Law 97-35 (42 U.S.C. 8626a(c)(2)).
    (iv) State the net dollar value of the countable leveraged 
resources and benefits for the base period. (Subtract the amounts in 
paragraph (h)(1)(iii) of this section from the amount in paragraph 
(h)(1)(ii) of this section.)
    (2) Leveraging reports must be postmarked or hand-delivered not 
later than November 30 of the fiscal year for which leveraging 
incentive funds are requested.
    (3) The Department may require submission of additional 
documentation and/or clarification as it determines necessary to verify 
information in a grantee's leveraging report, to determine whether a 
leveraged resource is countable, and/or to determine the net valuation 
of a resource. In such cases, the Department will set a date by which 
it must receive information sufficient to document countability and/or 
valuation. In such cases, if the Department does not receive 
information that it considers sufficient to document countability and/
or valuation by the date it has set, then the Department will not count 
the resource (or portion of resource) in question.
    (i) Determination of grantee shares of leveraging incentive funds. 
Allocation of leveraging incentive funds to grantees will be computed 
according to a formula using the following factors and weights:
    (1) Fifty (50) percent based on the final net value of countable 
leveraged resources provided to low-income households during the base 
period by a grantee relative to its net Federal allotment of funds 
allocated under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) 
during the base period, as a proportion of the final net value of the 
countable leveraged resources provided by all grantees during the base 
period relative to their net Federal allotment of funds allocated under 
that section during the base period; and
    (2) Fifty (50) percent based on the final net value of countable 
leveraged resources provided to low-income households during the base 
period by a grantee as a proportion of the total final net value of the 
countable leveraged resources provided by all grantees during the base 
period; except that: No grantee may receive more than twelve (12.0) 
percent of the total amount of leveraging incentive funds available for 
distribution to grantees in any award period; and no grantee may 
receive more than the smaller of its net Federal allotment of funds 
allocated under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) 
during the base period, or two times (double) the final net value of 
its countable leveraged resources for the base period. The calculations 
will be based on data contained in the leveraging reports submitted by 
grantees under paragraph (h) of this section as approved by the 
Department, and allocation data developed by the Department.
    (j) Uses of leveraging incentive funds.
    (1) Funds awarded to grantees under the leveraging incentive 
program must be used to increase or maintain heating, cooling, energy 
crisis, and/or weatherization benefits through (that is, within and as 
a part of) the grantee's LIHEAP program. These funds can be used for 
weatherization without regard to the weatherization maximum in section 
2605(k) of Public Law 97-35 (42 U.S.C. 8624(k)). However, they cannot 
be counted in the base for calculation of the weatherization maximum 
for regular LIHEAP funds authorized under section 2602(b) of Public Law 
97-35 (42 U.S.C. 8621(b)). Leveraging incentive funds cannot be used 
for costs of planning and administration. However, in either the award 
period or the fiscal year following the award period, they can be 
counted in the base for calculation of maximum grantee planning and 
administrative costs under section 2605(b)(9) of Public Law 97-35 (42 
U.S.C. 8624(b)(9)). They cannot be counted in the base for calculation 
of maximum carryover of regular LIHEAP funds authorized under section 
2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)).
    (2) Grantees must include the uses of leveraging incentive funds in 
their LIHEAP plans (referred to in section 2605(c)(1)(A) of Public Law 
97-35) (42 U.S.C. 8624(c)(1)(A)) for the fiscal year in which the 
grantee obligates these funds. Grantees must document uses of 
leveraging incentive funds in the same way they document uses of 
regular LIHEAP funds authorized under section 2602(b) of Public Law 97-
35 (42 U.S.C. 8621(b)). Leveraging incentive funds are subject to the 
same audit requirements as regular LIHEAP funds.
    (k) Period of obligation for leveraging incentive funds. Leveraging 
incentive funds are available for obligation during both the award 
period and the fiscal year following the award period, without regard 
to limitations on carryover of funds in section 2607(b)(2)(B) of Public 
Law 97-35 (42 U.S.C. 8626(b)(2)(B)). Any leveraging incentive funds not 
obligated for allowable purposes by the end of this period must be 
returned to the Department.

[FR Doc. 95-9915 Filed 4-28-95; 8:45 am]
BILLING CODE 4110-60-M