[Federal Register Volume 75, Number 183 (Wednesday, September 22, 2010)]
[Proposed Rules]
[Pages 57704-57719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23583]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 75, No. 183 / Wednesday, September 22, 2010 / 
Proposed Rules

[[Page 57704]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 1307

RIN 0970-AC44


Head Start Program

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

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: This regulation proposes to amend Head Start Program 
regulations to implement statutory provisions of the Improving Head 
Start for School Readiness Act of 2007 for establishing a system of 
designation renewal to determine if Head Start and Early Head Start 
agencies are delivering high-quality and comprehensive Head Start and 
Early Head Start programs that meet the educational, health, 
nutritional, and social needs of the children and families they serve, 
and meet program and financial management requirements and standards.

DATES: In order to be considered, comments on this proposed rule must 
be received on or before December 21, 2010.

ADDRESSES: Interested persons are invited to submit comments to the 
Office of Head Start, 1250 Maryland Avenue, SW., Washington, DC 20024, 
Attention: Colleen Rathgeb or electronically via the Internet at http://www.regulations.gov. If you submit a comment, please include your name 
and address, identify the docket number for this rulemaking, indicate 
the specific section of this document to which each comment applies, 
and give the reason for each comment. You may submit your comments and 
material by electronic means, mail, or delivery to the address above, 
but please submit your comments and material by only one means. A copy 
of this Notice of Proposed Rulemaking may be downloaded from http://www.regulations.gov. Comments will be available for public inspection 
at the Department's offices in Portals, 8th Floor, 1250 Maryland 
Avenue, SW., Washington, DC 20024, Monday through Friday between 8:30 
a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: Colleen Rathgeb, Office of Head Start, 
202-205-7378 (not a toll-free call). Deaf and hearing impaired 
individuals may call the Federal Dual Party Relay Service at 1-800-877-
8339 between 8 a.m. and 7 p.m. Eastern time.

SUPPLEMENTARY INFORMATION:

I. Statutory Authority

    This proposed regulation is published under the authority granted 
to the Secretary of Health and Human Services by sections 641, 
645A(b)(12), and 644(c) of the Head Start Act (the Act) (42 U.S.C. 9801 
et seq.), as amended by the Improving Head Start for School Readiness 
Act of 2007 (Pub. L. 110-134).

II. Comment Procedures

    Section 641(c)(5) of the Act requires the Secretary of HHS to 
publish a notice in the Federal Register describing a proposed system 
for designation renewal, including a proposal for the transition to 
such system. The Act provides for a period of at least 90 days for 
public comment.
    In making any modifications to this notice of proposed rulemaking, 
we will not consider comments received beyond the 90-day comment 
period. To make sure your comments are addressed fully, we suggest the 
following:
    <bullet> Be specific;
    <bullet> Address only issues raised by the proposed rule, not the 
changes to the law itself;
    <bullet> Explain reasons for any objections or recommended changes;
    <bullet> Propose appropriate alternatives; and
    <bullet> Reference the specific section of the notice of the 
proposed rule being addressed.

III. Background

    The Head Start program is a national program administered by the 
Office of Head Start (OHS), Administration for Children and Families 
(ACF), Department of Health and Human Services (HHS), which promotes 
school readiness of low-income children by enhancing their cognitive, 
physical, social, and emotional development through the provision of 
health, educational, nutritional, social, and other services that are 
determined, based on family needs assessments, to be necessary.
    The Head Start program provides grants to local public and private 
non-profit and for-profit agencies to provide comprehensive child 
development services to economically disadvantaged children and 
families, with a special focus on helping preschoolers develop the 
skills they need to be successful in school. In FY 1995, the Early Head 
Start program was established to serve families of economically 
disadvantaged children from birth to three years of age and pregnant 
women from such families in recognition of the mounting evidence that 
the earliest years matter a great deal to children's growth and 
development.
    On February 28, 2005, the United States Government Accountability 
Office (GAO) issued a report entitled, ``Head Start: Comprehensive 
Approach to Identifying and Addressing Risks Could Help Prevent Grantee 
Financial Management Weaknesses'' (GAO-05-176). The report is available 
on the GAO Web site at: http://www.gao.gov/new.items/d05176.pdf. In 
that report, GAO found that the Administration for Children and 
Families (ACF) did not recompete the grants of poorly performing 
grantees. Instead, ACF gave continuous funding priority to current 
grantees and as a result, in a number of instances, ACF funded poorly 
performing grantees until the grantee either relinquished the grant or 
ACF terminated the grant. GAO stated that, ``When grants are allowed to 
remain with poorly performing grantees, children being served may not 
be getting the `head start' they deserve because the grantees 
continuously fail to meet program and financial management standards.''
    In their Recommendations for Executive Action, GAO recommended that 
ACF ``take steps to obtain competition for the grant if it has 
determined that the current recipient of those grant funds fails to 
meet program, financial management, or other requirements.'' In its 
comments on the draft GAO report, ACF expressed

[[Page 57705]]

uncertainty about the scope of its authority to implement the GAO 
recommendation to recompete Head Start grants. In response to the ACF 
concerns, GAO asked Congress to consider providing ACF with the 
authority to recompete grants when ACF determines that a current 
grantee is not meeting Head Start's program or financial management 
requirements.
    On December 12, 2007, the Improving Head Start for School Readiness 
Act of 2007 (Pub. L. 110-134) amended the Head Start Act (the Act) to 
provide HHS with the authority to recompete grants. The Head Start Act, 
as amended, establishes that Head Start grantees will be awarded grants 
for a five-year period and only grantees delivering high-quality 
services will be given another five-year grant non-competitively. 
Section 641 of the Act requires the Secretary of the HHS to develop and 
implement a system for designation renewal (e.g., Designation Renewal 
System (DRS)) to determine if a Head Start agency is delivering a high-
quality and comprehensive Head Start program that meets the 
educational, health, nutritional, and social needs of the children and 
families it serves.
    This proposed rule responds to those requirements. We also propose 
to extend these requirements to Early Head Start programs pursuant to 
the authority of section 645A(b)(12) of the Act. Early Head Start 
programs provide family-centered services for low-income families--
pregnant women, infants and toddlers. These are the youngest children 
and most vulnerable families we serve. We believe that Early Head Start 
programs must be held to the same high standards as all other Head 
Start programs in regard to designation and redesignation in order to 
ensure that they provide high-quality services to promote the 
development of the youngest children in the community and enable 
parents to move towards self sufficiency.
    Section 641(c)(1) of the Act requires that the DRS be shaped to 
determine whether a grantee is providing high-quality services and 
meets the program and financial management requirements and standards 
described in section 641A(a)(1) of the Act, based on:
    (A) Annual budget and fiscal management data;
    (B) Program reviews conducted under section 641A(c);
    (C) Annual audits required under section 647;
    (D) Classroom quality as measured under section 641A(c)(2)(F); and
    (E) Program Information Reports.
    In the Conference Report that accompanied the Improving Head Start 
for School Readiness Act of 2007, the Conference Committee stated, 
``This system is meant to facilitate the designation of programs that 
are in good standing and are providing a high-quality comprehensive 
early childhood program, for a period of 5 years. The Conferees believe 
that other programs not providing a high-quality comprehensive early 
childhood program should not receive a designation renewal without 
first entering into an open competition.'' H.R. Conf. Rep. No. 110-439 
at 111 (2007), as reprinted in 2007 U.S.C.C.A.N. 442, 462.
    The Conference Committee also noted that they did not intend the 
designation renewal system to result in competition for all Head Start 
grantees because such a process could undermine overall program 
performance. As stated in the Conference Report: ``Furthermore, the 
Conferees believe that the policy to limit open competition to under-
performing Head Start agencies will improve overall program 
performance. The Conferees strongly believe the majority of Head Start 
programs are delivering high-quality services and therefore do not 
intend for this new designation system to result in competition for 
designation for the majority of Head Start programs. Furthermore, 
competing high-quality programs could undermine overall program 
quality. The Conferees believe that in most instances, stability and 
continuity within Head Start promotes better quality and greater 
efficiency.'' Id.
    Section 641(c) of the Act required the Secretary of HHS to convene 
an expert panel (e.g., ``the Committee'') to inform the development of 
a DRS and ``make recommendations to the Secretary on the development of 
a transparent, reliable, and valid system for designation renewal.'' 
The seven members of the Committee were appointed by the Secretary per 
the requirements in section 641(c)(3) of the Act. The Committee 
convened three two-day meetings in March, June, and October 2008 and 
issued a report in December 2008. The report, ``A System of Designation 
Renewal of Head Start Grantees,'' is available at the following Web 
site: http://eclkc.ohs.acf.hhs.gov/hslc/Program%20Design%20and%20Management/Head%20Start%20Requirements/Renewal%20of%20Head%20Start%20Grantees.
    In its Report the Committee's first and overarching recommendation 
was for ACF to ``develop a designation renewal system that is--
    <bullet> Reliable and valid in terms of the criteria and indicators 
used, and is transparent to families, programs and the public;
    <bullet> Simple and easily understood by all stakeholders; and
    <bullet> Integrated into ongoing systems for program improvement in 
such a way as to add value.''
    ACF strongly agrees with this recommendation and used reliability 
and validity, simplicity and understandability, and connections to 
program improvement systems as the guiding principles in designing the 
proposed system.
    The Committee also recommended that the DRS be based on ``Automatic 
Indicators'' and eventually also include ``Key Quality Indicators.'' 
The term ``Automatic Indicators'' as defined in the report means events 
whose occurrence would require a grantee to compete for renewal 
automatically. The term ``Key Quality Indicators'' refers to poor 
performance in multiple areas that would require a grantee to compete 
for renewal. ACF agrees with the recommendations of the Committee, and 
we propose a set of conditions that would trigger competition.
    In addition, ACF is proposing to ensure that a minimum of 25 
percent of all grantees reviewed during each one-year cycle will be 
required to recompete. If the conditions outlined in the rule do not 
identify a minimum of 25 percent of grantees, then other indicators of 
low performance will be used to identify other poor performers that 
will be required to recompete. ACF believes that the expectation 
embodied in this provision is critical to ensuring that the proposed 
rule realizes its potential to improve child outcomes.
    We acknowledge the Committee's expectation that ``no more than 
approximately 15 to 20 percent of all grantees should be expected to 
compete for another five-year grant.'' However, the Administration is 
committed to funding only high-performing grantees and conducting 
effective and rigorous competitions. Recent research on Head Start 
programs has illustrated the need for improvement and for more rigorous 
standards across Head Start programs. We understand that neither the 
Committee nor the Congress intended for all grantees to recompete for 
grants as required by most Federal grant programs. However, given the 
importance of the provision of quality services for Head Start children 
and families, we believe that setting a minimum 25 percent standard for 
recompetition is appropriate to ensure the best services for Head Start 
children.
    The Administration is deeply committed to the mission of Head 
Start--to helping our nation's most vulnerable children get a head 
start on success in school and in life--and as

[[Page 57706]]

such is deeply committed to improving quality across all Head Start 
programs. Participation in high-quality early childhood care and 
education programs can affect crucial child outcomes dramatically, but 
participation in low-quality programs has little or no impact. Recent 
research suggests that quality in Head Start programs varies 
considerably, and suggests that there is significant room for 
improvement in Head Start programs. For example, ``FACES Findings: New 
Research on Head Start Outcomes and Program Quality'' reports that 
while average Head Start classroom quality is good, there was 
substantial variation.
    Competition for grants is an important tool for encouraging 
excellence, establishing accountability for poor performance, and 
opening up Head Start to new energetic organizations that may have 
great capacity to run high-quality programs. Unless specified in the 
regulations for grantees that have been terminated, current grantees 
will be eligible to compete again for their current grants, but other 
potential grantees will be able to do so as well. Finally, subjecting a 
fixed percentage of grants to recompetition reduces the risk of 
unintended consequences that could jeopardize a meaningful assessment 
of grantee performance.
    ACF agrees with the Committee that Head Start and Early Head Start 
grantees should have a clear understanding of what criteria will be 
used as ``triggers'' in making the decision to recompete a grant and so 
proposes the concept of conditions/criteria that will result in 
recompetition of a grant. The proposed conditions/criteria draw 
substantively from both Automatic and Key Quality Indicators and allow 
for a more simple and understandable system. ACF also believes that the 
proposed data sources that are utilized to support the recompetition 
decisions would be reliable, valid, and transparent as recommended by 
the Committee.
    The Committee made specific recommendations on determination 
criteria that would automatically require a grantee to compete for 
renewal, including: Suspension; bankruptcy or debarment; revocation by 
a State or local government of a license to operate a child care 
program; and a significantly higher number of deficiencies in OHS 
monitoring than the average grantee has. In the discussion of 
determination criteria, the Committee discussed program performance 
indicators in the area of Financial Management, including: An audit 
finding of going concern risk (going concern is proposed to be defined 
as an organization that operates without the threat of liquidation for 
the foreseeable future, a period of at least 12 months); and a 
designation of fiscal high risk. The Committee discussed the use of 
Program Management determination criteria, including: Governance; 
internal controls; eligibility, recruitment, selection, enrollment, 
attendance (ERSEA); self-assessment and ongoing monitoring; human 
resources; and safety. The Committee discussed determination criteria 
in the area of Education, including: Curriculum; assessment; and 
structured learning environment. The Committee recommended 
incorporating a practical classroom observation tool and effective 
measures of child outcomes and of individualization when ACF is 
satisfied it has the appropriate tools and measures. The Committee 
recommended determination criteria in the area of Comprehensive 
Services, including: Immunization; screening and follow-up; meeting the 
requirement that at least 10 percent of actual enrollment include 
children with disabilities that have been determined eligible for 
special services under Individuals with Disabilities Education Act 
(IDEA) by the agency providing IDEA services in their community; and a 
developmental indicator on parent involvement.
    As discussed in the following Section by Section Discussion of the 
Regulatory Provisions, we are proposing to adopt the majority of the 
Committee's recommendations in whole or with minor modifications. 
Concurrent with publishing this proposed rule, ACF will provide a 
report to Congress that provides a detailed description of the proposed 
new system, including a clear rationale for any differences between the 
proposed system and the recommendations of the Committee. Until the new 
system is developed and implemented by the Secretary of HHS, section 
641(a)(2) of the Act states that the interim policy after the enactment 
of Public Law 110-134 is for ACF to award grants as it has done prior 
to the 2007 Head Start reauthorization.

Section by Section Discussion of Regulatory Provisions

    To address Head Start designation renewal, we propose to amend 45 
CFR Chapter XIII by adding a new Part 1307, Policies and Procedures for 
Designation Renewal of Head Start and Early Head Start Grantees.

Section 1307.1--Purpose and Scope

    We propose to add section 1307.1 to set forth the purpose and scope 
of Part 1307. The purpose of this Part is to set forth policies and 
procedures for the designation renewal of Head Start and Early Head 
Start programs. It is intended that these programs be administered 
effectively and responsibly; that applicants to administer programs 
receive fair and equitable consideration; and that the legal rights of 
current Head Start and Early Head Start grantees be fully protected. 
The designation renewal system is established in this Part to determine 
if Head Start and Early Head Start agencies meet the educational, 
health, nutritional, and social needs of the children and families they 
serve and qualify to be designated for funding for five years without 
competing for such funding as required under section 641(c) of the Head 
Start Act with respect to Head Start agencies and pursuant to section 
645A(b)(12) with respect to Early Head Start agencies. A competition to 
select a new Head Start or Early Head Start grantee to replace a Head 
Start or Early Head Start agency that has been terminated voluntarily 
or involuntarily is not part of the designation renewal system 
established in this Part, and is subject instead to the requirements of 
Part 1302, Policies and Procedures for Selection, Initial Funding and 
Refunding of Head Start Grantees, and for Selection of Replacement 
Grantees.

Section 1307.2--Definitions

    Section 1307.2 proposes the following definitions as applicable to 
this part: ACF, Act, Agency, designated ACF official, Early Head Start 
Agency, going concern, Head Start Agency, material weakness, and 
transition period.
    ACF is proposed to be defined as the Administration for Children 
and Families in the Department of Health and Human Services.
    Act is proposed to be defined as the Head Start Act, 45 U.S.C. 9831 
et seq.
    Agency is proposed to be defined as a public or private non-profit 
or for-profit entity designated by ACF to operate a Head Start or Early 
Head Start program.
    Designated ACF official is proposed to be defined as the Official 
authorized under Department of Health and Human Services delegations 
authority to perform actions required or authorized by statute, 
regulation, delegation, or order of a superior official.
    Early Head Start Agency is proposed to be defined as a public or 
private non-profit or for-profit entity designated by ACF to operate an 
Early Head Start program to serve pregnant women and children from 
birth to age three, pursuant to 645A(e) of the Head Start Act.
    Going concern is proposed to be defined as an organization that 
operates

[[Page 57707]]

without the threat of liquidation for the foreseeable future, a period 
of at least 12 months. One Head Start agency, for example, had a 
``going concern'' audit finding because it suffered recurring losses 
from operations resulting in a net deficit in working capital, which 
raised substantial doubt about its ability to continue as a viable 
operation.
    Head Start Agency is proposed to be defined as a local public or 
private non-profit or for-profit entity designated by ACF to operate a 
Head Start program to serve children age three to compulsory school 
age, pursuant to section 641(b) and (d) of the Head Start Act.
    Material weakness means a weakness, or a combination of weaknesses, 
in internal control over financial reporting such that there is a 
reasonable possibility that a material misstatement of the grantee's 
annual or interim financial statements will not be prevented or 
detected on a timely basis. One Head Start agency, for example, had an 
audit finding resulting from its failure to pay the payroll taxes for 
personnel as required by the Internal Revenue Code. This resulted in 
the agency being subject to Internal Revenue Service penalties.
    ACF believes that an agency that is determined to have one or more 
material weaknesses or to be unable to ensure that it can continue as a 
going concern should result in the grantee being required to recompete 
for renewal. If a grantee is not a going concern, it will not be able 
to provide the Head Start services it is funded to provide because it 
will have ceased operations and be in the process of being liquidated. 
The definition of ``material weakness'' ACF is proposing to use is 
based on the definition of the term in the Securities and Exchange 
Commission regulation at 17 CFR 210.1-02(a)(4).
    ACF is proposing to adopt the definitions for going concern and 
material weakness because they reflect the way the two terms are used 
in audits of Head Start grantees as required by section 647 of the Head 
Start Act. We invite comments on these definitions and request that 
along with any issues raised, commenters suggest specific alternative 
definitions.
    The final definition proposed is transition period, which ACF 
proposes to mean the three-year time period after the effective date of 
the final rule on the Designation Renewal System during which ACF will 
convert all of the current continuous Head Start and Early Head Start 
grants into five-year grants after reviewing each grantee to determine 
if it meets any of the conditions or criteria under section 1307.3 that 
would require recompetition or if the grantee will receive its first 
five-year grant non-competitively.

Section 1307.3--Basis for Determining Whether a Head Start Agency Will 
Be Subject to an Open Competition

    In section 1307.3, ACF proposes to establish a designation renewal 
system in which a minimum of 25 percent of all Head Start grantees 
(including both Head Start and Early Head Start grantees) reviewed in 
the same year will be required to recompete based on seven specified 
performance conditions. As described further below, the rule sets forth 
how other lower performing grantees will be selected for recompetition 
if the seven conditions specified in the rule--such as having a 
deficiency or license revocation--do not result in at least 25 percent 
of grantees being identified for recompetition.
    Under paragraph (a), a minimum of 25 percent of all Head Start 
grantees (including both Head Start and Early Head Start grantees) 
reviewed in the same year will be required to compete for their next 
five years of funding.
    Under paragraph (b), ACF proposes seven conditions in three 
critical areas of Head Start program administration that would trigger 
recompetition: quality, licensing and operation, and fiscal and 
internal controls. Paragraphs (b)(1), (2), and (3) address the quality 
of Head Start programs by proposing that an agency is required to 
recompete if it has one or more deficiencies that were determined 
during a single review of the Head Start agency; fails to establish and 
use goals for improving school-readiness of children in their program; 
or has low performance on one or more domains of the Classroom 
Assessment Scoring System Pre-K (CLASS: Pre-K) in the two most recent 
CLASS: Pre-K observations. Paragraphs (b)(4) and (b)(5) address the 
area of licensing and operation by proposing that an agency is required 
to recompete if it experiences a revocation of its license to operate 
by a State or local licensing agency; or a suspension of its Head Start 
grant by ACF. Paragraphs (b)(6) and (b)(7) address the area of fiscal 
and internal controls by proposing that an agency is required to 
recompete if it is debarred by any Federal or State agency from 
receiving Federal or State funds or is disqualified from The Child and 
Adult Care Food Program (CACFP); or is determined to have one or more 
material weaknesses or determined to be unable to ensure that it can 
continue as a going concern.
    The conditions provided under paragraph (b) may result in the 
designation of at least 25 percent of grantees for recompetition as 
required under proposed paragraph (a). However, given the uncertainty 
regarding the impact of this new system and the critical need to ensure 
high-quality services for Head Start children, if a minimum of 25 
percent of all grantees reviewed in the same year are not required to 
compete for their next five years of funding based on the conditions 
described in proposed paragraphs (b)(1)-(7), then objective criteria 
established by the Secretary would identify additional low performing 
grantees that will be required to recompete such that the total number 
of grantees required to recompete meets the 25 percent requirement. We 
are requesting public comments on several possible criteria to use to 
strengthen the test for redesignation of poorly performing Head Start 
grantees. We are considering two primary structures for defining the 
additional criteria to be met by grantees if needed to satisfy the 25 
percent standard and seek public comments on the most effective 
approach to ensure high-quality performance by all grantees. We also 
are considering use of a combination of the two approaches outlined 
below.
    The first approach would be based on a system that would assign 
values to non-compliance findings from reviews under section 
641A(c)(A), (C), and (D) of the Act, with higher values assigned to 
more problematic non-compliance findings. This would result in a system 
in which a higher score indicated that the grantee had demonstrated a 
pattern of weaker performance. Each grantee then would be ranked among 
all the other grantees reviewed in that year. Grantees that received 
the highest scores would be identified for recompetition as a result of 
their pattern of poor performance compared to all other grantees 
reviewed during the same time period. We are seeking public comments 
about the general merits of such a system, and specifically on the 
relative weighting of findings, whether some non-compliances should be 
weighted more heavily than others, and whether the size of the grantee 
should be a factor taken into consideration in the ranking system.
    The second approach we are considering would introduce the use of 
evidence-based rating instruments into the Head Start monitoring review 
system. Such rating instruments include: the Early Childhood 
Environment Rating Scale, the Infant Toddler Environment Rating Scale, 
and the Family Child Care Environment Rating Scale. Low scores 
determined using any of these instruments would result in 
recompetition. Use of these

[[Page 57708]]

instruments could provide an increased ability to distinguish the level 
of quality of services being provided in Head Start and Early Head 
Start classrooms and family child care homes with evidence-based 
measures. We are seeking public comments about this structure in 
general, as well as the three particular rating instruments mentioned 
above and any alternative tools that interested parties wish to 
identify in their comments. We also invite public comment on the 
appropriate scoring level for each instrument that would indicate 
poorer than acceptable performance as well as the most efficient 
mechanism for incorporating these rating instruments into the Head 
Start review process.
    The proposed regulation describes the system whereby a Head Start 
or Early Head Start agency shall be required to compete for its next 
five years of funding whenever ACF determines that one of the specified 
conditions/criteria under section 1307.3 are met during the relevant 
time periods described in section 1307.7. Of note, ACF proposes two 
exceptions related to the time periods under which data will be 
considered for the conditions described in section 1307.3(b)(2) and 
(3), as described below and in section 1307.7.
    ACF is considering publication of the various data underlying 
decisions to recompete. Making such information public would provide a 
valuable service to parents and other community members concerned about 
the quality of Head Start and Early Head Start, and also would provide 
a valuable incentive for improvement among Head Start and Early Head 
Start grantees.
    It should be noted that this proposed competition process differs 
from the current competition process that is used to select a new Head 
Start or Early Head Start grantee to replace a Head Start or Early Head 
Start agency that has been terminated voluntarily or involuntarily. The 
replacement grantee process is not part of the DRS established in this 
Part, and is subject instead to the requirements of Part 1302, Policies 
and Procedures for Selection, Initial Funding and Refunding of Head 
Start Grantees, and for Selection of Replacement Grantees.
    ACF will begin implementing the DRS within 12 months of the 
publication of the final rule. Consistent with section 641(c)(9) of the 
Act, ACF will convert all of the current continuous grants into five-
year grants within a three-year transition period after the final rule 
is published. Per section 641(c)(9)(C) of the Act, ACF is required to 
establish and implement a schedule for reviewing each Head Start 
agency. We propose that the designation review will be scheduled to 
occur during the year following the year that the grantee has its 
triennial review. In order to initiate the designation review process, 
each Head Start or Early Head Start agency wishing to be renewed for 
five years without competition shall request that status from ACF 
immediately after its review under section 641A(c)(1)(A); the request 
process is explained further in section 1307.7(a). Under this plan, 
one-third of grantees will be reviewed in each of the first three years 
after the final rule is published in order for ACF to determine if they 
meet any of the conditions/criteria under section 1307.3 that would 
require recompetition or if they will receive the first five-year grant 
non-competitively. (Section 1307.7 addresses timing and notice of 
designation decisions.)
    After the three-year transition period is finished, all existing 
Head Start and Early Head Start grantees will be subject to a five-year 
grant period, as described further in section 1307.7. Grantees for 
which none of the conditions/criteria in proposed section 1307.3 are 
met will not be required to recompete and will be awarded another five-
year grant; grantees for which one or more of the conditions/criteria 
in proposed section 1307.3 are met will be required to recompete.
    During the DRS review, ACF proposes to examine relevant records 
about the grantee's performance since June 12, 2009 consistent with 
section 641(c)(9)(B) of the Act, which specifies that Head Start 
agencies are not subject to the DRS requirements prior to 18 months 
after the enactment of the 2007 reauthorization of the Head Start Act. 
Therefore, no data prior to June 12, 2009 will be considered for the 
conditions listed in section 1307.3(b)(1), (b)(2), or (b)(4)-(b)(7) or 
the criteria in paragraph (c); for the condition listed in section 
1307.3(b)(3), ACF proposes that no data will be considered until after 
the effective date of this Part and then only in reviews under section 
1307.7(c) beginning in the third year of the three-year transition 
period.
    The first three conditions ACF proposes to use to determine 
designation renewal related to program quality are described in section 
1307.3(b)(1)-(3). We are proposing several conditions that reflect the 
Committee's recommendations that established conditions should be 
simple and easily understandable and based on data that is reliable, 
valid and transparent: (b)(1) one or more deficiencies that were 
determined during a single review conducted by ACF under section 
641A(c)(1)(A), (C), or (D) of the Act; (b)(2) lack of establishment and 
use of goals for improving school-readiness of children in their 
program as required by section 641A(g)(2) of the Act; and (b)(3) low 
performance on the relevant number of domains depending on the time 
period in which the DRS review occurs of the Classroom Assessment 
Scoring System Pre-K (CLASS: Pre-K) in the two most recent CLASS: Pre-K 
observations.
    Paragraph (b)(1) as proposed cites deficiency findings through any 
review conducted under section 641A(c)(1)(A), (C), or (D) of the Act--
full triennial reviews, follow-up reviews, or other reviews, including 
unannounced site inspections of Head Start centers, as appropriate. 
``Deficiency'' is defined in section 637(2) of the Act as: (1) A 
systemic or substantial material failure of an agency in an area of 
performance that the Secretary determines involves a threat to the 
health, safety, or civil rights of children or staff; a denial to 
parents of the exercise of their full roles and responsibilities 
related to program operations; a failure to comply with standards 
related to early childhood development and health services, family and 
community partnerships, or program design and management; the misuse of 
funds received under the Act; loss of legal status (as determined by 
the Secretary) or financial viability, loss of permits, debarment from 
receiving Federal grants or contracts, or the improper use of Federal 
funds; or failure to meet any other Federal or State requirement that 
the agency has shown an unwillingness or inability to correct, after 
notice from the Secretary, within the period specified; (2) systemic or 
material failure of the governing body of an agency to fully exercise 
its legal and fiduciary responsibilities; or (3) an unresolved area of 
non-compliance.
    A grantee that has been determined by ACF to have one or more 
deficiencies in a single review has demonstrated poor performance that 
should require the grantee to recompete for renewal. ACF believes that 
Head Start programs determined to have a failure of this kind are 
considered appropriately to be failing to provide children with a high-
quality and comprehensive Head Start program. Failure to correct a 
deficiency within the allotted time, which ACF generally establishes as 
30 to 45 days for health and safety and financial integrity issues, and 
90 to 180 days for most other deficiencies, is grounds to terminate an 
agency from the Head Start or Early Head Start program under section 
641A(e)(1)(C) of the Act. We note that the reviews conducted under 
section 641A of the Act can result in deficiencies in each of the areas 
of

[[Page 57709]]

education, health, family engagement and management and fiscal systems. 
Violations of program requirements demonstrating a systemic or 
substantial lack of program integrity, such as the absence of effective 
internal financial controls or a failure to properly apply eligibility 
criteria, will result in deficiency findings. The deficiencies may 
include findings in the specific ``Key Quality Indicators'' noted in 
the Committee's recommendations. Therefore, ACF believes that the 
proposed deficiency condition indirectly addresses the specific program 
performance indicators recommended by the Committee.
    Proposed paragraph (b)(2) is consistent with the Committee's 
recommendation regarding the importance of Head Start agencies 
assessing their own performance in relation to achieving agency-
determined school-readiness goals. An agency would be required to 
recompete if it has been determined by the designated ACF official 
through a review conducted under section 641A(c)(1)(A), (C), or (D) of 
the Act during the period covered by the ACF review under section 
1307.7 not to have assessed its own performance regarding school-
readiness goals. Of note, we propose that the criteria that will be 
considered when determining if an agency has assessed successfully its 
own performance regarding school-readiness goals will differ for the 
time period prior to the effective date of this Part compared to the 
time period after the effective date of this Part, as described further 
in Sec.  1307.7. Specifically, beginning on June 12, 2009, ACF proposes 
that the criteria to be considered in the recompetition review is 
whether agencies have established and taken steps to achieve their 
goals for improving the school readiness of children participating in 
their program in accordance with the requirements of section 641A(g)(2) 
of the Act. Beginning with the effective date of this Part, ACF 
proposes that the criteria to be considered in the recompetition review 
also will include whether agencies have: analyzed individual child-
level assessment data in order to determine each child's status and 
progress with regard to each of the domains of the Head Start Child 
Outcomes Framework for Head Start programs and the Child Competencies 
listed in the Early Head Start Program Performance Measures Framework 
for Early Head Start programs and to plan how to individualize 
experiences and instructional approaches to best support each child's 
progress; and analyzed aggregated child assessment data at least three 
times per year, except for programs operating less than 90 days, which 
will be required to do so at least two times within their program 
period, and program data to support continuous program improvement and 
to inform professional development, staffing, and other program 
decisions. We are proposing this two-phase process in order to provide 
grantees with sufficient time to develop the necessary polices and 
procedures and train staff on implementation of analysis of child-level 
data and subsequent action steps to best support each child's progress.
    The Head Start Child Outcomes Framework is not developed for, and 
will not be utilized in, Early Head Start programs. Instead, the Child 
Competencies listed in the Early Head Start Program Performance 
Measures Framework will be used as the categories for determining the 
status of infants and toddlers enrolled in Early Head Start programs.
    The third condition proposed under paragraph (b)(3) is the Head 
Start agency score from the Classroom Assessment Scoring System: Pre-K 
(CLASS: Pre-K), a system that rates classroom interactions on a seven-
point scale with scores of one to two being in the low range; three to 
five in the mid-range; and six to seven in the high range of quality. 
Section 641A(c)(2)(F) of the Act requires the Secretary to include as 
part of the Head Start monitoring review process ``a valid and reliable 
research-based observational instrument, implemented by qualified 
individuals with demonstrated reliability, that assesses classroom 
quality, including assessing multiple dimensions of teacher-child 
interactions that are linked to positive child development and later 
achievement.'' Section 641(c)(1)(D) requires that such an instrument be 
used as part of reviews and for determining whether the grantee meets 
the program and financial management requirements and standards 
described in section 641A(a)(1) of the Act. CLASS: Pre-K is ``a valid 
and reliable research-based observational instrument'' that meets the 
statutory requirements. As discussed in the ``CLASS Implementation 
Guide: Measuring and Improving Classroom Interactions in Early 
Childhood Settings'', CLASS has been validated by over ten years of 
research in educational settings. The authors cite overarching 
conclusions based on this extensive research noting that ``effective 
teacher-child interactions are a crucial ingredient for children's 
social and academic development''.
    It should be noted that the regulations propose an alternative time 
period to be considered for this condition compared to the other six 
conditions described in this paragraph. In addition, the regulations 
propose an alternative standard of performance that would apply only 
for the cohort of grantees that receive its DRS review during the third 
year of the three-year transition period.
    Specifically, ACF proposes that a Head Start agency will be 
required to compete for designation renewal if: (1) It scores one, on 
one or more domains on CLASS: Pre-K, on the two most recent CLASS: Pre-
K observations, when the observations are conducted after the effective 
date of Part 1307, and the findings are identified in a DRS review 
under Part 1307 conducted after the beginning of the third year of the 
transition period; and (2) it scores below three, on one or more 
domains on CLASS: Pre-K, on the two most recent CLASS: Pre-K 
observations, when the observations are conducted after the effective 
date of Part 1307, and the findings are identified in a DRS review 
under Part 1307 conducted after the close of the transition period. 
Thus, ACF proposes that the results from CLASS: Pre-K observations will 
not be considered starting on June 12, 2009 as will be the case for the 
other six conditions described in this paragraph and instead will be 
considered starting after the effective date of this Part and either at 
the beginning of the third year of the transition period or after the 
close of the transition period (depending on when the DRS review is 
conducted for each grantee). ACF believes that a grantee that has such 
low scores as described above on the two most recent CLASS: Pre-K 
observations is not providing children the level of high-quality 
instruction necessary to adequately prepare for school, and should be 
required to recompete for renewal. ACF is seeking comment on this 
standard.
    The Administration believes that it is a major step forward to 
bring the quality of teacher-child interactions to bear on 
redesignation. The use of CLASS: Pre-K in particular is warranted by 
the strong research base validating its correlation with student 
outcomes. Use of CLASS: Pre-K in redesignation should begin as promptly 
as possible, recognizing also that CLASS: Pre-K has not been used in 
this way before. ACF will implement the use of CLASS: Pre-K results 
during the third year of the three-year transition period rather than 
waiting until the close of the transition period. For this third year 
of the transition period, we are proposing an alternative standard of 
performance related to CLASS: Pre-K data that would trigger

[[Page 57710]]

recompetition. For only the cohort of agencies reviewed under section 
1307.7 during the third year of the three-year transition period, 
agencies that received a score of one, on one or more domains of CLASS: 
Pre-K, on the two most recent CLASS: Pre-K observations would be 
required to compete for designation renewal.
    ACF is considering incorporating into the final rule that the 
condition based on CLASS: Pre-K observations will become effective in 
the second year of the transition period. In this case, we would use 
the same criteria stated above for the cohort of grantees reviewed in 
the third year of the transition period, i.e., if a grantee scores one, 
on one or more domains on CLASS: Pre-K, on the two most recent CLASS: 
Pre-K observations. We are interested in receiving public comments on 
both the implementation timeframe and the use of this alternative 
standard of performance.
    For both time periods, ACF is proposing the following methodology 
for determining the domain scores for Head Start grantees. The CLASS: 
Pre-K observations will be incorporated into the reviews under section 
641A(c)(1)(A), (C), or (D) of the Act. Except when all children are 
served by a grantee in a single classroom, ACF will conduct multiple 
class observations and rate the conduct of the classes observed using 
the CLASS: Pre-K instrument. When the grantee serves the children in 
its program in a single class, that class will be observed and rated 
using the CLASS: Pre-K instrument. The domain scores for that single 
class will be the domain scores for the grantee for that CLASS: Pre-K 
observation. For grantees that serve children in multiple classrooms, 
ACF will conduct CLASS: Pre-K observations on a subset of the 
classrooms. After the observation is completed, ACF will report to the 
grantee the scores of the classes observed during the CLASS: Pre-K 
observation in each of the domains covered by the CLASS: Pre-K 
instrument. ACF will average the scores in each of the domains for all 
classrooms assessed during an observation to determine the grantee's 
average score in each domain. ACF has provided and will continue to 
provide technical assistance to grantees on the CLASS: Pre-K 
instrument.
    We also are considering a number of alternatives related to (b)(3) 
and the method of calculating the recompetition trigger using the 
CLASS: Pre-K scores. One option we are considering is to apply 
different absolute thresholds for each of the three domains based on 
the national mean scores for those domains. For example, an absolute 
threshold for the domains of Emotional Support and Classroom 
Organization could be higher than the threshold for Instructional 
Support. This approach would reflect research that shows ``the domains 
of Emotional Support and Classroom Organization typically are at the 
moderate to high level of quality in early childhood classrooms and 
Instructional Support, however, is typically at a low level of 
quality'' (CLASS Implementation Guide, Hamre et al, December 2009). 
Research also is exploring whether there are thresholds of quality that 
must be achieved in each domain in order to influence children's 
development. For example, research has shown correlations between 
children's social emotional outcomes in classrooms scoring in the mid 
to high range of emotional support and for academic outcomes in the 
lower end of the mid range on Instructional Support (Threshold analysis 
of association between child care quality and child outcomes for low-
income children in pre-kindergarten programs, Burchinal et al, June 
2008).
    Another alternative we are considering is to base the determination 
on the grantee's score on each domain relative to the scores of the 
other grantees reviewed in the same year and then measure a grantee's 
performance against that threshold. We are interested in receiving 
public comments on these alternative approaches and whether they 
provide a more meaningful assessment of grantee performance and/or 
avoid possible unintended consequences.
    The CLASS: Pre-K was developed as part of classroom observation 
research supported by the National Center for Early Development and 
Learning and the National Institute for Child Health and Human 
Development (NICHD) Study of Early Care and Youth Development. It was 
designed to allow a trained outside observer to provide a reliable 
assessment of the quality of preschool classrooms. The CLASS: Pre-K 
also has been used extensively for professional development to improve 
the quality of classrooms.
    The CLASS: Pre-K is based on research and theory suggesting that 
interactions between children and adults are the primary mechanism for 
children's development and learning.
    The CLASS: Pre-K looks at three dimensions of quality in preschool 
classrooms: Emotional Support, Classroom Organization, and 
Instructional Support. In high-quality programs, effective teacher-
child interactions measured in the Emotional Support dimension create 
positive relationships among teachers and children. In Classroom 
Organization, high-quality interactions lead to well-managed classrooms 
that provide children with frequent, engaging learning activities and 
classrooms. High-quality effective interactions as measured in the 
Instructional Support domain develop children's critical thinking 
skills, provide ongoing feedback, and facilitate vocabulary 
development.
    The CLASS: Pre-K has been used in a number of large scale studies 
of early childhood programs, including those mentioned, but also in the 
Head Start Family and Children Experience Study (FACES) which provides 
a nationally representative picture of Head Start programs. In general 
across these studies, average CLASS: Pre-K scores are in the high end 
of the mid range of quality in Emotional Support and Classroom 
Organization and lower in the Instructional Support dimension. The 
Office of Head Start has been pursuing the use of CLASS: Pre-K both as 
an observational tool and a professional development tool.
    The Committee recommended that when ACF was satisfied that it had a 
valid, reliable, and practical classroom observation tool, we should 
incorporate it into the designation renewal system. ACF now is 
satisfied, based on extensive research and testing, that CLASS: Pre-K 
has proven to be a valid, reliable, and practical classroom observation 
tool. ACF believes that a low score on CLASS is a reliable and valid 
indicator of poor performance in preparing Head Start children for 
school, the primary statutory purpose of Head Start.
    The CLASS: Pre-K is not developed for, and will not be utilized in, 
either Early Head Start programs or Home-based programs. When ACF is 
satisfied with a valid and reliable measure of quality interactions for 
Early Head Start programs and Home-based programs, a measure will be 
added as a recompetition condition through a subsequent rulemaking 
process.
    The next two conditions are described in paragraphs (b)(4) and 
(b)(5), which address the area of licensing and operation by proposing 
that an agency is required to recompete if it experiences a revocation 
of its license to operate by a State or local licensing agency; or a 
suspension of its Head Start grant by ACF.
    Section 1307.3(b)(4) considers whether an agency has had its 
license to operate a center or program revoked by a State or local 
licensing agency, and the revocation of the license has not been 
overturned or withdrawn. This is

[[Page 57711]]

consistent with the Committee's recommendations to consider revocation 
of a license to operate a child care program as an automatic indicator 
requiring competition under the DRS. A license to operate is required 
in section 641A(a)(1)(D)(i) of the Act, which states that center-based 
and combination program option facilities ``shall meet or exceed State 
and local requirements concerning licensing for such facilities.''
    Grantees have appeal rights for license revocations. It is possible 
that these actions may be overturned. If these actions are overturned, 
or withdrawn by the responsible State or local agency, before ACF 
decides to require competition, they will not be used as a basis for a 
recompetition decision by ACF. The grantee, however, could be required 
to recompete by ACF based on the existence in its program of any other 
conditions/criteria listed in section 1307.3. ACF does believe that 
license revocations, if not overturned or withdrawn, are serious enough 
to be included as conditions that would require recompetition of a 
grant. Accordingly, if a challenge to a license revocation is pending 
at the time of a final decision by ACF on required competition, the 
grantee would still be required to compete for further funding.
    It should be noted that revocation of a license to operate either a 
child care facility or program, or any other necessary permit, can be 
grounds for a ``deficiency'' finding, as the term is defined in section 
637(2) of the Act. Failure to correct a deficiency within the allotted 
time is grounds to terminate an agency from the Head Start or Early 
Head Start program under section 641A(e)(1)(C) of the Act. An agency 
that has had its license revoked, but subsequently has it restored 
during the period for deficiency correction, still would be required to 
recompete for funding because of the revocation. ACF understands that 
licensing requirements vary based on State and locality, but agrees 
with the Committee that licensing standards reflect the standards of 
care for young children in that community and a sustained license 
revocation is a serious violation of those standards. ACF is aware of 
the fact that some grantees, like local government agencies and Indian 
tribes, are responsible both for administering Head Start programs and 
enforcing licensing standards applicable to Head Start facilities. We 
are concerned about the potential conflict of interest that could arise 
when such agencies are called to apply licensing standards to their own 
facilities. ACF is seeking comment on this concern and ideas for 
mitigating risks that may be associated with this condition. ACF also 
is seeking comment on its impact on large grantees.
    Section 1307.3(b)(5) proposes another condition, which was 
recommended by the Committee: Whether an agency has been suspended from 
the Head Start or Early Head Start program by ACF. ``Suspension of a 
grant'' is defined at 45 CFR 1303.2 as the ``temporary withdrawal of 
the grantee's authority to obligate grant funds pending corrective 
action by the grantee.'' In accordance with 45 CFR 1303.12(a), ACF may 
suspend a grant ``in whole or in part without prior notice and an 
opportunity to show cause if it is determined that immediate suspension 
is necessary because of a serious risk of: (1) Substantial injury to 
property or loss of project funds; or (2) violation of a Federal, 
State, or local criminal statute; or (3) if staff or participants' 
health and safety are at risk.'' A grantee that has been suspended by 
ACF will be required to compete for further funding unless the 
suspension has been overturned or withdrawn before the date of ACF's 
decision about requiring competition under section 1307.7. A grantee 
that has had its suspension withdrawn or overturned before the ACF 
decision under section 1307.7 may still be required to compete for 
further funding based on having met one of the other conditions/
criteria in section 1307.3. ACF agrees that any Head Start agency that 
has been suspended successfully has demonstrated an extremely poor 
performance and should be required to recompete. A pending challenge to 
the suspension or restoration of the grantee to the Head Start program 
after correction of the violation shall not affect application of this 
requirement. If there is a risk of the loss of Federal funds as a 
result of mismanagement by a Head Start or Early Head Start agency, ACF 
will suspend the agency.
    The final two conditions are described in paragraphs (b)(6) and 
(b)(7), which address the area of fiscal and internal controls by 
proposing that an agency is required to recompete if it is debarred by 
any Federal or State agency from receiving Federal or State funds or is 
disqualified from the Child and Adult Care Food Program (CACFP); or is 
determined to have one or more material weaknesses or to be unable to 
ensure that it can continue as a going concern.
    Section 1307.3(b)(6) proposes as the sixth condition, Head Start 
agency debarment by a Federal or State agency from receiving Federal or 
State funds or disqualification from the Child and Adult Care Food 
Program (CACFP). CACFP disqualification applies to individuals who have 
been disqualified from participation in the CACFP as principals of 
institutions, sponsored centers, or as operators of day care homes, as 
a result of being determined to be responsible for an uncorrected 
serious deficiency in the operation of an institution, a sponsored 
center, or a family day care home that participates in the program. 
This is consistent with the Committee's recommendation that grantees 
that have been debarred should be considered to be poor performing 
programs that should have to recompete for their grants. Debarment is 
grounds for a deficiency finding under section 637(2) of the Head Start 
Act. Where a deficiency involving debarment exists, the means for 
correction of the deficiency would be for an agency to obtain a waiver 
pursuant to 2 CFR 180.135. A former grantee during the period of its 
debarment would not be eligible for grants and other ``Covered 
Transactions,'' including grants under the Head Start Act. 2 CFR 
180.130(a). An agency that is terminated because it has been debarred 
will not be in the position to be refunded without undergoing 
competition because it is no longer participating in the Head Start or 
Early Head Start program. While we cannot preclude previously debarred 
grantees after their period of debarment has ended from applying in an 
open competition, past performance is a criterion for funding under 
section 641(d)(2)(A) of the Act.
    Section 1307.3(b)(7) proposes the final of the seven conditions in 
paragraph (b), which incorporates two criteria that are consistent with 
the Committee's recommendations concerning the area of financial 
management. The Committee proposed that audit findings that determine 
an agency is unable to ensure it can continue as a going concern and/or 
that an agency has received a designation of high risk should be used 
as indicators of program performance determination criteria for 
recompetition. ACF believes that an agency that is determined to have 
one or more material weaknesses or to be unable to ensure that it can 
continue as a going concern is a high-risk agency that has demonstrated 
poor financial performance that should result in the grantee being 
required to recompete for renewal. We propose to use the definitions 
described in section 1307.2 for ``material weakness'' and ``going 
concern.'' Section 1307.3(b)(7) provides that the basis for the two 
criteria in this condition will be findings and opinions of either an 
audit conducted in accordance with section 647 of the Act; an audit, 
review or

[[Page 57712]]

investigation by a State agency; a review by the National External 
Audit Review (NEAR) Center; or an audit, investigation or inspection by 
the Department of Health and Human Services Office of Inspector General 
as mandated under Public Law 95-452. We considered including as another 
criterion in the area of financial management whether the grantee had a 
disallowance of any of its Head Start or Early Head Start funds. As 
defined in the HHS Uniform Administrative Requirements implemented at 
45 CFR 74.2, ``disallowed costs'' means ``those charges to an award 
that the HHS awarding agency determines to be unallowable, in 
accordance with the applicable Federal cost principles or other terms 
and conditions contained in the award.'' However, we recognize that an 
instance of disallowed costs would lead to a deficiency finding by ACF 
in most cases and therefore did not include this as one of the criteria 
for recompetition.
    In our development of this proposed rule, we also considered 
incorporating into the DRS two other conditions: The results of Head 
Start agencies' Program Information Reports (PIR) and agency 
bankruptcy. However, based on the rationales described below, we 
decided that the PIR should be used only in a limited way and 
bankruptcy should not be included as a DRS condition.
    The PIR is a survey tool used by ACF to collect self-reported 
information about Head Start and Early Head Start services received by 
children and families enrolled in Head Start programs. ACF uses the 
information collected through the PIR to inform the public and Congress 
about the status of children in Head Start programs as required by the 
Act. We recognize that Congress included the PIR as a source of 
information for the DRS in the 2007 reauthorization of the Head Start 
Act. Specifically, section 641(c)(1)(E) of the Act requires that 
Program Information Reports (PIR) be only one of the sources of 
information that the DRS will use to make its determination of whether 
the grantee meets the program and financial management requirements and 
standards described in section 641A(a)(1) of the Act. However, the 
Committee stated in its report that the PIR has ``significant 
limitations,'' and noted in particular ``documented reliability 
problems.'' In addition, a number of public comments were received by 
the Committee arguing against use of PIR data as part of the DRS due to 
reliability concerns. We note that in carrying out ongoing Federal 
oversight of programs, and as preparation for conducting triennial 
reviews, Federal staff already review the PIR data of specific programs 
and look for ``red flags'' that warrant follow-up attention. Therefore, 
ACF proposes to continue to utilize PIR data when gathering background 
information about programs, including when performing DRS reviews, with 
due regard to its limitations.
    Similarly, we considered incorporating bankruptcy as another 
condition under the DRS, but instead we propose to regard bankruptcy as 
a ``red flag'' that should result in further inquiry. We note that the 
Committee recommended that bankruptcy be included in the automatic 
conditions for recompetition by stating that it is ``indicative of 
instability in the program.'' While we agree that this is a very 
serious situation that raises the question of whether a grantee is in 
sound enough fiscal condition to continue to be funded to operate a 
Head Start program, we believe that it is possible that, in some cases, 
a grantee could file for bankruptcy or agree to a reorganization plan 
as part of a bankruptcy settlement, but could continue to be able to 
function as a Head Start program if it still has its Head Start funding 
intact. In addition, we believe that the two financial conditions we 
propose to establish in section 1307.3(b)(7) are sufficient to satisfy 
the Committee's recommendations concerning financial management.

Section 1307.4--Grantee Reporting Requirements Concerning Certain 
Conditions

    Section 1307.4 proposes reporting requirements concerning the 
occurrence of certain conditions related to requirements for grant 
recompetition under section 1307.3. Under proposed paragraph (a), Head 
Start and Early Head Start agencies are required to report in writing 
to ACF within ten working days of occurrence of any of the following 
events: (1) The agency has had a license to operate a center revoked by 
a State or local licensing entity; (2) the agency has filed for 
bankruptcy or agreed to a reorganization plan as part of a bankruptcy 
settlement; (3) the agency has been debarred from receiving Federal or 
State funds from any Federal or State department or agency or has been 
disqualified from The Child and Adult Care Food Program (CACFP); or (4) 
the agency has received an audit, audit review, investigation or 
inspection report from the agency's auditor, a State agency, or the 
cognizant Federal audit agency containing a determination that the 
agency has one or more material weaknesses or is at risk for ceasing to 
function as a going concern.
    Currently Head Start and Early Head Start agencies are not required 
to report these occurrences. ACF believes that timely reporting of the 
occurrences is warranted because of their potential seriousness and 
that ten days is a reasonable amount of time for the agency to report 
the occurrence to ACF. Failure to comply with the reporting requirement 
may result in additional monitoring of the grantee in order to 
determine whether or not there is basis for ACF to issue a finding of 
non-compliance or deficiency. While we considered making the failure to 
report any of these occurrences another condition that would require 
recompetition automatically, we recognized that the majority of 
grantees will comply with these reporting requirements. We also would 
not want to force a grantee to recompete based on an honest mistake 
whereby it missed the 10-day reporting deadline or an extenuating 
circumstance whereby it was unable to comply with the deadline. 
However, if we learn through the Head Start monitoring process, or 
other measures, that a grantee deliberately neglected to report any of 
these occurrences, then ACF will issue a deficiency finding and the 
grantee would be required to compete based on the condition described 
in section 1307.3(b)(1).

Section 1307.5--Requirements To Be Considered for Designation for a 
Five-Year Period When No Entity in a Community Is Determined To Be 
Delivering a High-Quality and Comprehensive Head Start Program

    Section 641(d) of the Act requires that ``if no entity in a 
community is determined to be successfully delivering a high-quality 
and comprehensive Head Start program * * * the Secretary shall, after 
conducting an open competition, designate for a five-year period a Head 
Start agency from among qualified applicants in such community.'' If a 
grantee is found to meet any of the conditions/criteria in section 
1307.3, its service area will be subject to an open competition to 
determine if it or another provider is best able to serve children and 
families in that community. Section 641(h) of the Act explains that 
``for purposes of this subchapter, a community may be a city, county, 
or multicity or multicounty unit within a State, an Indian reservation 
(including Indians in any off-reservation area designated by an 
appropriate tribal government in consultation with the Secretary), or a 
neighborhood or other area (irrespective of boundaries or

[[Page 57713]]

political subdivisions) that provides a suitable organizational base 
and possesses the commonality of interest needed to operate a Head 
Start program.''
    Section 1307.5 proposes requirements for how to compete for the 
opportunity to be awarded a five-year grant if no entity in a community 
is determined to be successfully delivering a high-quality and 
comprehensive Head Start program. We are proposing that any agency that 
has had its Head Start or Early Head Start grant terminated in the 
preceding five years will be excluded from participating in such a 
competition for a period of five years due to the extremely serious 
nature of uncorrected deficiencies that would have led to such a 
termination. ACF believes that because of their poor performance such 
organizations cannot be considered to be `qualified applicants' in a 
community under section 641(d)(1) of the Head Start Act.
    Under this section, we propose that in order to compete for the 
opportunity to be awarded a five-year grant, an agency must submit an 
application to the designated ACF official that demonstrates it will 
deliver a high-quality and comprehensive program. The application must 
address the criteria for selection listed at section 641(d)(2) of the 
Act.
    Section 641(d)(2) of the Act provides the factors ACF will consider 
in selecting a grantee, including the applicant's past performance and 
plans to provide comprehensive services, attract and retain qualified 
staff, maintain strong fiscal controls and cost effective fiscal 
management, maintain child to teacher ratios, meet the program 
performance standards, coordinate and collaborate with other early 
childhood education and development entities, and facilitate parent 
involvement in their program.
    In cases in which a new grantee is selected as a result of 
recompetition, ACF believes that the transition generally will proceed 
without any disruption of services to children and families in the 
community served. If ACF determines that a particular transition poses 
a risk of disruption of services, ACF may exercise its statutory 
authority to utilize the replacement process in exceptional 
circumstances.

Section 1307.6--Tribal Government Consultation Under the Designation 
Renewal System for When an Indian Head Start Grant Is Being Considered 
for Competition

    This section proposes a process for Tribal government consultation 
under the Designation Renewal System for when an Indian Head Start 
grant is being considered for competition. American Indian and Alaska 
Native Head Start programs provide Head Start services to Tribes, 
bands, pueblos, or other organized groups or communities, including 
native villages, recognized as eligible for the special programs and 
services provided by the United States to Indians because of their 
status as Indians.
    Section 641(c)(7)(B) of the Act prescribes a specific timeframe and 
process for implementing the DRS for Indian Head Start agencies, which 
differs from the DRS for other Head Start agencies. For instances in 
which an Indian Head Start agency is determined to not be delivering a 
high-quality and comprehensive Head Start program, the Act requires the 
Secretary of HHS to engage in government-to-government consultation 
with the appropriate Tribal government or governments in order to 
establish a plan to improve the quality of Head Start programs operated 
by the Indian Head Start agency. The Act requires that the Secretary of 
HHS reevaluate the performance of the Indian Head Start agency no more 
than six months after the implementation of the plan. If the Indian 
Head Start agency still is not delivering a high-quality and 
comprehensive Head Start program, the Secretary shall conduct an open 
competition.
    This section proposes the same process that is required by section 
641(c)(7)(B) of the Act. Under paragraph (a), when making a designation 
renewal determination, the designated ACF official will engage in 
government-to-government consultation with the appropriate Tribal 
government or governments for the purpose of establishing a plan to 
improve the quality of Head Start programs operated by the Indian Head 
Start agency.
    The plan will be established and implemented within six months 
after the designated ACF official's determination. Not more than six 
months after the implementation of that plan, the designated ACF 
official will reevaluate the performance of the Indian Head Start 
agency and will conduct an open competition following a determination 
that the Indian Head Start agency still is not delivering a high-
quality and comprehensive Head Start program.
    Per section 641(e) of the Act, a non-Indian Head Start agency will 
not be eligible to receive a grant to carry out an Indian Head Start 
program, unless no Indian Head Start agency in the community is 
available for designation to carry out an Indian Head Start program. In 
such a circumstance, a non-Indian Head Start agency may receive a grant 
to carry out an Indian Head Start program, but only until such time as 
an Indian Head Start agency in such community becomes available and is 
designated pursuant to section 641 of the Act.
    Accordingly, under proposed paragraph (b), a non-Indian Head Start 
or Early Head Start agency will not be eligible to receive a grant to 
carry out an Indian Head Start program, unless there is no Indian Head 
Start or Early Head Start agency available for designation to carry out 
an Indian Head Start or Indian Early Head Start program.
    Under proposed paragraph (c), a non-Indian Head Start or Early Head 
Start agency may receive a grant to carry out an Indian Head Start 
program only until such time as an Indian Head Start or Indian Early 
Head Start agency in such community becomes available and is 
designated.

Section 1307.7--Designation Request and Review Process

    As discussed earlier in this preamble, following publication of the 
final rule, ACF will implement the DRS and, consistent with section 
641(c)(9) of the Act, will transition the current continuous grants 
into five-year grants over a three-year period. One-third of grantees 
will be reviewed in each of three years to determine if they meet any 
of the conditions/criteria set out in section 1307.3 that would require 
recompetition or if they will receive the first five-year grant non-
competitively. The designation review will be scheduled to occur during 
the year following the year that the grantee has its triennial review.
    ACF's designation review will examine relevant records about the 
grantee's performance since June 12, 2009, and no data prior to June 
12, 2009 will be considered in order to comply with section 
641(c)(9)(B) of the Act, which describes the following limitation for 
the transition to the DRS: ``A Head Start agency shall not be subject 
to the requirements of the system for designation renewal prior to 18 
months after the date of enactment of the Improving Head Start for 
School Readiness Act of 2007.'' As discussed previously, there is one 
exception to this time period. ACF proposes an alternative relevant 
time period to be considered for the third condition described in 
section 1307.3(b)(3), which considers the results of the classroom 
interaction rating system known as ``CLASS: Pre-K.'' ACF proposes to 
delay implementing the consideration of results from CLASS: Pre-K until 
after

[[Page 57714]]

the effective date of the regulation and beginning in the third year of 
the three-year transition period because the use of CLASS still is 
relatively new to many Head Start agencies. Therefore, results from 
CLASS: Pre-K will not be considered starting on June 12, 2009 and 
instead will be considered starting after the effective date of this 
Part and beginning in the third year of the three-year transition 
period.
    Paragraph (a) proposes that agencies wishing to be renewed without 
competition must request that status. Under paragraph (b)(1), in the 
three years after the effective date of the final rule, during the year 
after review of a Head Start or Early Head Start agency under section 
641(c)(1)(A) of the Act, each agency that has requested non-competitive 
renewal would be reviewed to determine whether the conditions/criteria 
in proposed section 1307.3 are met, using information on the agency's 
performance since June 12, 2009.
    As provided under paragraph (b)(2), ACF proposes to provide 
preliminary notice to each grantee of the results of the designation 
review at least twelve months before expiration of their current grant. 
Such notices will be in writing by registered mail return receipt 
requested providing preliminary notice under paragraph (b)(2)(i), that 
the agency will be required to compete for funding for an additional 
five-year period based on a determination that one or more conditions/
criteria in proposed section 1307.3 are met, or under (b)(2)(ii), that 
the agency has been determined on a preliminary basis to be eligible 
for renewed funding under section 1307.3.
    ACF proposes to provide final notice to the grantee of the 
designation decision at least six months before expiration of their 
current grant. A grantee determined to be delivering a high-quality and 
comprehensive Head Start or Early Head Start program, as established by 
the fact that none of the conditions/criteria in proposed section 
1307.3 are met for its program, will be awarded a five-year grant non-
competitively. A grantee determined to be not delivering a high-quality 
and comprehensive Head Start or Early Head Start program, as 
established by the fact that one or more of the conditions/criteria in 
proposed section 1307.3 are met, will be subject to open competition 
for the opportunity to be awarded a five-year grant. Proposed paragraph 
(b)(3) provides that at least six months before the expiration of the 
grant of an agency, written notice by certified mail return receipt 
requested will be sent of the final finding that the agency is eligible 
for renewed funding without competition, or that the agency will be 
required to recompete for funding for an additional five-year period 
based on a determination under section 1307.3. ACF invites grantees to 
comment on the proposed transition plans.
    Following the transition period, all existing grantees will be 
subject to a five-year grant period. As provided in paragraph (c)(1), 
during the fourth year of the grant period, ACF will review all 
relevant data about a grantee's performance and make a determination, 
based on the conditions/criteria established in section 1307.3, of 
whether the grantee is providing high-quality, comprehensive services. 
Grantees for which none of the conditions/criteria in proposed section 
1307.3 are met will not be required to recompete under proposed section 
1307.3 and will be awarded another five-year grant. Grantees for which 
one or more of the conditions/criteria in proposed section 1307.3 are 
met will be required to compete.
    Following the approach proposed for the transition period under 
paragraph (a) and (b), ACF proposes under paragraph (c)(2) to provide 
preliminary notice to the grantee of the results of the designation 
review at least twelve months before expiration of their current five-
year grant, subject to revision based on developments that take place 
within the ensuing six-month period.
    Under paragraph (c)(3), ACF proposes to provide final notice to the 
grantee of the designation decision at least six months before 
expiration of their current five-year grant. Grantees determined to be 
delivering a high-quality and comprehensive program, evidenced by not 
meeting any of the conditions/criteria, will be awarded a five-year 
grant non-competitively. For grantees determined not to be delivering a 
high-quality and comprehensive Head Start or Early Head Start program, 
ACF proposes to provide final notice to the grantee at least six months 
before expiration of their current five-year grant that they will have 
to compete for the opportunity to be awarded a five-year grant.

Section 1307.8--Use of CLASS: Pre-K Instrument in the Designation 
Review System

    ACF is proposing in section 1307.8 that, except when all children 
are served in a single classroom, ACF will conduct multiple class 
observations and rate the conduct of the classes observed using the 
Classroom Assessment Scoring System: Pre-K (CLASS: Pre-K) instrument. 
When the grantee serves the children in its program in a single class, 
that class will be observed and rated using the CLASS: Pre-K 
instrument. The domain scores for that single class will be the domain 
scores for the grantee for that observation. For grantees that serve 
children in multiple classrooms, ACF will conduct CLASS: Pre-K 
observations on a subset of the classrooms. After the CLASS: Pre-K 
observation is completed, ACF will report to the grantee the scores of 
the classes observed during the observation in each of the domains 
covered by the CLASS: Pre-K instrument. ACF will average the scores in 
each of the domains for all classrooms assessed during a CLASS: Pre-K 
observation to determine the grantee's score in each domain. As 
provided in section 1307.3(b)(3), an agency that has been determined by 
ACF to have a score of one, on one or more domains during the 
transition period or a score below three, on one or more domains, for 
the period after the close of the transition period on each of the two 
most recent CLASS: Pre-K observations in the time period covered by an 
ACF decision under section 1307.7 will be required to compete for 
designation renewal. As provided under section 1307.3(b)(3), the CLASS: 
Pre-K condition will apply to CLASS: Pre-K observations in DRS reviews 
under section 1307.7(c) that take place after the effective date of 
this Part and during the third year of the transition period. As 
discussed earlier in the preamble, ACF is considering alternatives for 
calculating CLASS: Pre-K scores to determine the need to recompete and 
we welcome comments on those alternatives.

IV. Paperwork Reduction Act

    This rule establishes new information collection requirements in 
section 1307.4. As required by the Paperwork Reduction Act of 1995, 
codified at 44 U.S.C. 3507, ACF will submit a copy of these sections to 
the Office of Management and Budget (OMB) for review and they will not 
be effective until they have been approved and assigned a clearance 
number.

[[Page 57715]]



----------------------------------------------------------------------------------------------------------------
                                                                                Average burden
               Requirement                    Respondents         Annual        per respondent    Total burden
                                                                                   (hours)            hours
----------------------------------------------------------------------------------------------------------------
Per section 1307.4, Head Start and Early   12-22 grantees..  1 hour or less..  1 hour or less.  12-22 hours.
 Head Start agencies must report to ACF
 within ten working days of occurrence of
 any of the following:
    (1) The agency has had a license to
     operate a center revoked by a State
     or local licensing entity.
    (2) The agency has filed for
     bankruptcy or agreed to a
     reorganization plan as part of a
     bankruptcy settlement.
    (3) The agency has been debarred from
     receiving Federal or State funds
     from any Federal or State agency or
     has been disqualified from the Child
     and Adult Care Food Program (CACFP).
    (4) The agency has received an audit,
     audit review, investigation or
     inspection report from the agency's
     auditor, a State agency, or the
     cognizant Federal audit agency
     containing a determination that the
     agency: Has one or more material
     weaknesses; or is at risk of failing
     to function as a going concern.
Per section 1307.7(a), each Head Start or  1,600 grantees..  1 hour or less..  1 hour or less.  1,600 hours.
 Early Head Start agency wishing to be
 renewed for five years without
 competition shall request that status
 from ACF immediately after its review
 under section 641A(c)(1)(A).
----------------------------------------------------------------------------------------------------------------

    We estimate the costs of implementing these requirements will be 
approximately $20,000 annually.
    We do not anticipate that Head Start agencies would be gathering 
new information to accomplish these changes. They only will be required 
to inform ACF that the event has occurred or that they wish to have 
their designation renewed.
    With respect to these provisions, ACF will consider comment by the 
public on this proposed collection of information in the following 
areas:
    <bullet> Evaluating whether the proposed collection is necessary 
for the proper performance of the functions of ACF, including whether 
the information will have practical utility;
    <bullet> Evaluating the accuracy of ACF's estimate of the proposed 
collection of information, including the validity of the methodology 
and the assumptions used;
    <bullet> Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    <bullet> Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technology, e.g., 
permitting electronic submission of responses.
    OMB is required to make a decision concerning the collection of 
information contained in these regulations between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment is best assured of having its full effect if OMB receives it 
within 30 days of publication. This does not affect the deadline for 
the public to comment to the Department on the regulations. Written 
comments to OMB for the proposed information collection should be sent 
directly to the following: Office of Management and Budget, either by 
fax to 202-395-6974 or by e-mail to OIRA at <a href="/cdn-cgi/l/email-protection#a9dadccbc4c0dadac0c6c7e9c6c4cb87ccc6d987cec6df"><span class="__cf_email__" data-cfemail="4f3c3a2d22263c3c2620210f20222d612a203f61282039">[email protected]</span></a>. 
Please mark faxes and e-mails to the attention of the desk officer for 
ACF.

V. Regulatory Flexibility Act

    The Secretary certifies that, under 5 U.S.C. 605(b), as enacted by 
the Regulatory Flexibility Act (Pub. L. 96-354), this rule will not 
result in a significant economic impact on a substantial number of 
small entities. The actions required of grantees to comply with the 
reporting, recordkeeping, and other requirements of this rule do not 
require significant expenditures of funds.
    Specifically, as noted under the Paperwork Reduction Act section of 
this preamble, we estimate the cost of implementing new reporting 
requirements to be approximately $20,000 annually, which when applied 
to all 1,600 grantees nationally, results in a cost per grantee of less 
than $20. In addition, only a subset of the 1,600 grantees will be 
required to compete for renewal of a grant under these regulations. At 
least 25 percent of grantees reviewed in a year will be affected by the 
regulation. Those grantees that need to compete for another five-year 
grant are required to submit an application. Since all grantees 
currently are required to submit a refunding application each year for 
their noncompetitive grant, there only will be an incremental increase 
in costs for grantees that must prepare and submit a competitive 
application. We estimate those costs to be less than $1,500 for each 
grantee submitting a competitive application. In developing this 
estimate, we assumed that the primary cost factor relates to hourly 
salaries of the staff that likely would be involved in a refunding 
application. Further, we assumed that grantees could spend up to twice 
as much time preparing this competitive application as they do on their 
regular annual refunding application.
    These rules primarily are intended to ensure accountability for 
Federal funds consistent with the purposes of the Head Start Act and 
are not duplicative of other requirements. In developing this notice of 
proposed rulemaking, we sought to implement the new and expanded 
requirements of the Head Start Act in a manner that does not impinge on 
a small entity's ability to design and manage effective and responsive 
Head Start programs. At the same time, we sought to focus renewed 
attention on strengthening accountability for Head Start programs and 
increasing quality outcomes for low-income families. We believe this 
rule implements the aims of the Head Start Act, as amended, to improve 
the effectiveness of Head Start programs while preserving Head Start 
grantees' abilities to continue using creativity and innovation to 
promote the school readiness of low-income children. We request public 
comments on whether we have adequately considered all costs for small 
entities and achieved the balance described above.

[[Page 57716]]

VI. 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 
notice of proposed rulemaking is consistent with these priorities and 
principles. These regulations primarily implement statutory changes to 
the Head Start program enacted in the Improving Head Start for School 
Readiness Act of 2007 (Pub. L. 110-134). We have consulted with the 
Office of Management and Budget (OMB) and determined that these rules 
meet the criteria for a significant regulatory action under E.O. 12866. 
Thus, they were subject to OMB's review.
    ACF does not believe there will be a significant economic impact 
from this regulatory action. At least 25 percent of grantees reviewed 
in a year will be affected by the regulation. Combining the costs of 
implementation of these rules for all grantees (approximately $20,000 
annually) and the costs to those subset of grantees that would be 
required to compete in any year (estimated to be no more than $1,500 
for each grantee), the total cost per year resulting from this 
regulation is well under $1 million.

VII. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that a covered agency prepare a budgetary impact statement before 
promulgating a rule that includes any Federal mandate that may result 
in the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector, of $100 million or more in any one 
year. If an agency must prepare a budgetary impact statement, section 
205 requires that it select the most cost-effective and least 
burdensome alternative that achieves the objectives of the rule 
consistent with the statutory requirements. Section 203 requires a plan 
for informing and advising any small government that may be 
significantly or uniquely impacted. The Department has determined that 
this rule, in implementing the new statutory requirements, would not 
impose a mandate that will result in the expenditure by State, local, 
and Tribal governments, in the aggregate, or by the private sector, of 
more than $100 million in any one year.

VIII. Congressional Review

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

IX. Executive Order 13132

    Executive Order 13132, Federalism, requires that Federal agencies 
consult with State and local government officials in the development of 
regulatory policies with federalism implications. This rule will not 
have substantial direct impact on the States, on the relationship 
between the National Government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
Therefore, in accordance with section 6 of Executive Order 13132, it is 
determined that this rule does not have sufficient federalism 
implications to warrant the preparation of a federalism summary impact 
statement.

X. Treasury and General Government Appropriations Act of 1999

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 (Pub. L. 105-277) requires Federal agencies to issue a 
Family Policymaking Assessment for any rule that may affect family 
well-being. This rule would not have any impact on the autonomy or 
integrity of the family as an institution. Accordingly, ACF has 
concluded that it is not necessary to prepare a Family Policymaking 
Assessment.

List of Subjects in 45 CFR Part 1307

    Education of disadvantaged, Grant programs-social programs.

(Catalog of Federal Domestic Assistance Program Number 93.600, Head 
Start)

    Dated: June 14, 2010.
Carmen R. Nazario,
Assistant Secretary for Children and Families.
    Approved: June 14, 2010.
Kathleen Sebelius,
Secretary.

    For the reasons set forth in the preamble, we propose to amend 45 
CFR Chapter XIII by adding part 1307 to read as set forth below:

PART 1307--POLICIES AND PROCEDURES FOR DESIGNATION RENEWAL OF HEAD 
START AND EARLY HEAD START GRANTEES

Sec.
1307.1 Purpose and scope.
1307.2 Definitions.
1307.3 Basis for determining whether a Head Start agency will be 
subject to an open competition.
1307.4 Grantee reporting requirements concerning certain conditions.
1307.5 Requirements to be considered for designation for a five-year 
period when no entity in a community is determined to be delivering 
a high-quality and comprehensive Head Start program.
1307.6 Tribal government consultation under the Designation Renewal 
System for when an Indian Head Start grant is being considered for 
competition.
1307.7 Designation request and review process.
1307.8 Use of CLASS: Pre-K Instrument in the Designation Review 
System.

    Authority:  42 U.S.C. 9801 et seq.


Sec.  1307.1  Purpose and scope.

    The purpose of this part is to set forth policies and procedures 
for the designation renewal of Head Start and Early Head Start 
programs. It is intended that these programs be administered 
effectively and responsibly; that applicants to administer programs 
receive fair and equitable consideration; and that the legal rights of 
current Head Start and Early Head Start grantees be fully protected. 
The designation renewal system is established in this part to determine 
if Head Start and Early Head Start agencies meet the educational, 
health, nutritional, and social needs of the children and families they 
serve and qualify to be designated for funding for five years without 
competing for such funding as required under section 641(c) of the Head 
Start Act with respect to Head Start agencies and pursuant to section 
645A(b)(12) with respect to Early Head Start agencies. A competition to 
select a new Head Start or Early Head Start to replace a Head Start or 
Early Head Start agency that has been terminated voluntarily or 
involuntarily is not part of the designation renewal system established 
in this part, and is subject instead to the requirements of part 1302.


Sec.  1307.2  Definitions.

    As used in this part--
    ACF means the Administration for Children and Families in the 
Department of Health and Human Services.
    Act means the Head Start Act, 45 U.S.C. 9831 et seq.
    Agency means a public or private non-profit or for-profit entity 
designated by ACF to operate a Head Start or Early Head Start program.
    Designated ACF official means the Official authorized under 
Department of Health and Human Services delegations authority to 
perform actions required or authorized by statute, regulation, 
delegation, or order of a superior official.
    Early Head Start Agency means a public or private non-profit or 
for-profit entity designated by ACF to operate an Early Head Start 
program to serve pregnant women and children from birth to age three, 
pursuant to section 645A(e) of the Head Start Act.

[[Page 57717]]

    Going concern means an organization that operates without the 
threat of liquidation for the foreseeable future, a period of at least 
12 months.
    Head Start Agency means a local public or private non-profit or 
for-profit entity designated by ACF to operate a Head Start program to 
serve children age three to compulsory school age, pursuant to section 
641(b) and (d) of the Head Start Act.
    Material weakness means a weakness, or a combination of weaknesses, 
in internal control over financial reporting such that there is a 
reasonable possibility that a material misstatement of the grantee's 
annual or interim financial statements will not be prevented or 
detected on a timely basis.
    Transition period means the three-year time period after the 
effective date of the final rule on the Designation Renewal System 
during which ACF will convert all of the current continuous Head Start 
and Early Head Start grants into five-year grants after reviewing each 
grantee to determine if it meets any of the conditions or criteria 
under Sec.  1307.3 that would require recompetition or if the grantee 
will receive its first five-year grant non-competitively.


Sec.  1307.3  Basis for determining whether a Head Start agency will be 
subject to an open competition.

    (a) A minimum of 25 percent of all Head Start grantees (including 
both Head Start and Early Head Start grantees) reviewed in the same 
year will be required to compete for their next five years of funding.
    (b) A Head Start or Early Head Start agency shall be required to 
compete for its next five years of funding whenever the designated ACF 
official determines that one or more of the following seven conditions 
existed during the relevant time periods described under Sec.  1307.7:
    (1) An agency has been determined by ACF to have one or more 
deficiencies on a single review conducted under section 641A(c)(1)(A), 
(C), or (D) of the Act in the period covered by an ACF review under 
Sec.  1307.7.
    (2) An agency has been determined by the designated ACF official 
based on a review conducted under section 641A(c)(1)(A), (C), or (D) of 
the Act during the period covered by the ACF review under Sec.  1307.7:
    (i) In the period beginning on June 12, 2009, not to have 
established and taken steps to achieve its goals for improving the 
school-readiness of children participating in their program in 
accordance with the requirements of section 641A(g)(2) of the Act; and
    (ii) Beginning with the effective date of the part, not to have 
analyzed individual child-level assessment data in order to determine 
each child's status with regard to each of the domains of the Head 
Start Child Outcomes Framework for Head Start programs and the Child 
Competencies listed in the Early Head Start Program Performance 
Measures Framework for Early Head Start programs and to plan how to 
individualize experiences and instructional approaches to best support 
each child's progress; and not to have analyzed aggregated child 
assessment data at least three times per year, except for programs 
operating less than 90 days, which will be required to do so at least 
two times within their program period, and program data to support 
continuous improvement and inform professional development, staffing, 
and other program decisions.
    (3) An agency has been determined by the designated ACF official 
during the period covered by an ACF review under Sec.  1307.7:
    (i) In the period after the effective date of part 1307, and for 
the findings identified in a DRS review under part 1307 conducted 
during the third year of the three-year transition period, but before 
the close of the three-year transition period, to have a score of one, 
on one or more domains on CLASS: Pre-K, on the two most recent CLASS: 
Pre-K observations; and
    (ii) In the period after the effective date of part 1307, and for 
the findings identified in a DRS review under part 1307 conducted after 
the close of the three-year transition period, to have a score that is 
below three, on one or more domains of the CLASS: Pre-K on the two most 
recent CLASS: Pre-K observations.
    (4) An agency has had its license to operate a Head Start or Early 
Head Start center or program revoked by a State or local licensing 
agency in the period covered by an ACF review under Sec.  1307.7, and 
the revocation has not been overturned or withdrawn during that period. 
A pending challenge to the license revocation or restoration of the 
license after correction of the violation shall not affect application 
of this requirement.
    (5) An agency has been suspended from the Head Start or Early Head 
Start program by ACF during the period covered by the designated ACF 
official review under Sec.  1307.7 and the suspension has not been 
overturned or withdrawn before a competition for funding for the next 
five-year period is announced. A pending challenge to suspension or 
restoration of the grantee to the Head Start program after correction 
of the violation shall not affect application of this requirement.
    (6) An agency has been debarred from receiving Federal or State 
funds from any Federal or State department or agency or has been 
disqualified from The Child and Adult Care Food Program (CACFP) any 
time during the period covered by the designated ACF official's review 
under Sec.  1307.7 but has not yet been terminated or denied refunding 
by ACF. (A debarred agency will only be eligible to compete for Head 
Start funding if it receives a waiver described in 2 CFR 180.135.)
    (7) An agency has been determined by ACF within the twelve months 
preceding the designated ACF official's review under Sec.  1307.7 to 
have either one or more material weaknesses or to be at risk for 
failing to continue functioning as a going concern. The final 
determination is made by the designated ACF official based on a review 
of the findings and opinions of an audit conducted in accordance with 
section 647 of the Act; an audit, review or investigation by a State 
agency; a review by the National External Audit Review (NEAR) Center, 
or an audit, investigation or inspection by the Department of Health 
and Human Services Office of Inspector General.
    (c) If a minimum of 25 percent of all Head Start grantees 
(including both Head Start and Early Head Start grantees) reviewed in 
the same year are not required to compete for their next five years of 
funding based on the conditions described in paragraphs (b)(1) through 
(7) of this section, then additional grantees up to that threshold, 
identified by the Secretary through established criteria, will be 
required to compete, pursuant to paragraph (a) of this section.


Sec.  1307.4  Grantee reporting requirements concerning certain 
conditions.

    (a) Head Start agencies must report in writing to the designated 
ACF official within ten working days of occurrence any of the following 
events:
    (1) The agency has had a license to operate a center revoked by a 
State or local licensing entity.
    (2) The agency has filed for bankruptcy or agreed to a 
reorganization plan as part of a bankruptcy settlement.
    (3) The agency has been debarred from receiving Federal or State 
funds from any Federal or State department or agency or has been 
disqualified from The Child and Adult Care Food Program (CACFP).
    (4) The agency has received an audit, audit review, investigation 
or inspection report from the agency's auditor, a State agency, or the 
cognizant Federal audit

[[Page 57718]]

agency containing a determination that the agency has one or more 
material weaknesses or is at risk for ceasing to be a going concern.


Sec.  1307.5  Requirements to be considered for designation for a five-
year period when no entity in a community is determined to be 
delivering a high-quality and comprehensive Head Start program.

    In order to compete for the opportunity to be awarded a five-year 
grant, an agency must submit an application to the designated ACF 
official that demonstrates it will deliver a high-quality and 
comprehensive Head Start program. The application must address the 
criteria for selection listed at section 641(d)(2) of the Act. Any 
agency that has been terminated as a Head Start or Early Head Start 
agency in the preceding five years will be excluded from competing in 
such competition.


Sec.  1307.6  Tribal government consultation under the Designation 
Renewal System for when an Indian Head Start grant is being considered 
for competition.

    (a) In the case of an Indian Head Start or Early Head Start agency 
determined not to be delivering a high-quality and comprehensive Head 
Start or Early Head Start program, the designated ACF official will 
engage in government-to-government consultation with the appropriate 
Tribal government or governments for the purpose of establishing a plan 
to improve the quality of the Head Start program or Early Head Start 
program operated by the Indian Head Start or Indian Early Head Start 
agency.
    (1) The plan will be established and implemented within six months 
after the designated ACF official's determination.
    (2) Not more than six months after the implementation of that plan, 
the designated ACF official will reevaluate the performance of the 
Indian Head Start or Early Head Start agency.
    (3) If the Indian Head Start or Early Head Start agency is still 
not delivering a high-quality and comprehensive Head Start or Early 
Head Start program, the designated ACF official will conduct an open 
competition to select a grantee to provide services for the community 
currently being served by the Indian Head Start or Early Head Start 
agency.
    (b) A non-Indian Head Start or Early Head Start agency will not be 
eligible to receive a grant to carry out an Indian Head Start program, 
unless there is no Indian Head Start or Early Head Start agency 
available for designation to carry out an Indian Head Start or Indian 
Early Head Start program.
    (c) A non-Indian Head Start or Early Head Start agency may receive 
a grant to carry out an Indian Head Start program only until such time 
as an Indian Head Start or Indian Early Head Start agency in such 
community becomes available and is designated pursuant to this part.


Sec.  1307.7  Designation request and review process.

    (a) In the three years after the effective date of this part, 
during the year after the review of a Head Start or Early Head Start 
agency under section 641A(c)(1)(A) of the Act, each Head Start or Early 
Head Start agency wishing to be renewed for five years without 
competition shall request that status from ACF immediately after its 
review under section 641A(c)(1)(A).
    (b)(1) ACF shall review each Head Start and Early Head Start agency 
which has made a request under paragraph (a) of this section to 
determine if any of the conditions listed in Sec.  1307.3(b)(1), 
(b)(2), or (b)(4) through (7) or the criteria under Sec.  1307.3(c) 
were met by the agency's program since June 12, 2009 or if the 
condition listed in Sec.  1307.3(b)(3) existed in the agency's program 
since the effective date of this part and beginning in the third year 
of the three-year transition period.
    (2) Except as provided in Sec.  1307.6, at least twelve months 
before the expiration date of a Head Start or Early Head Start agency's 
then current grant, ACF shall give written notice by certified mail 
return receipt requested or other system that establishes the date of 
receipt of the notice by the addressee, stating:
    (i) The Head Start or Early Head Start agency will be required to 
compete for funding for an additional five-year period because ACF 
finds that one or more conditions listed in Sec.  1307.3(b)(1), (b)(2), 
or (b)(4) through (7) or the criteria under Sec.  1307.3(c) were met by 
the agency's program after June 12, 2009 or if the condition listed in 
Sec.  1307.3(b)(3) existed in the agency's program since the effective 
date of this part and beginning in the third year of the three-year 
transition period; or
    (ii) That such agency has been determined on a preliminary basis to 
be eligible for renewed funding for five years without competition 
because ACF did not find that any conditions listed in Sec.  
1307.3(b)(1), (b)(2), or (b)(4) through (7) or the criteria under Sec.  
1307.3(c) were met by the agency's program after June 12, 2009 or the 
condition listed in Sec.  1307.3(b)(3) existed in the agency's program 
since the effective date of this part and beginning in the third year 
of the three-year transition period.
    (3) Except as provided in Sec.  1307.6, at least six months before 
the expiration date of a Head Start or Early Head Start agency's then-
current grant, ACF shall give written notice by certified mail return 
receipt requested or other system that establishes the date of receipt 
of the notice by the addressee, stating either:
    (i) The Head Start or Early Head Start agency will be required to 
compete for funding for an additional five-year period because ACF 
finds that one or more conditions or criteria listed in Sec.  1307.3 
were met by the agency's program during the relevant time periods 
described in Sec.  1307.7(b), identifying the conditions or criteria 
ACF found, and summarizing the basis for the finding; or
    (ii) That such agency has been determined on a final basis to be 
eligible for renewed funding for five years without competition because 
ACF did not find that any conditions or criteria listed in Sec.  1307.3 
were met by the agency's program during the relevant time periods 
described in Sec.  1307.7(b). The letter will include instructions on 
the information it must provide to the designated ACF official in order 
to receive funding.
    (c)(1) Beginning with the five-year grant period after the 
transition period under paragraph (b) of this section, at the beginning 
of the fourth year of a Head Start or Early Head Start agency's then 
current grant, an agency wishing to be renewed without competition 
shall request that status. ACF shall review the applicant Head Start 
and Early Head Start agency to determine if any of the conditions or 
criteria listed in Sec.  1307.3 were met by the agency's program:
    (i) Since the most recent ACF review of the agency under this part, 
or,
    (ii) After the effective date of this part, in the case of the 
condition described under Sec.  1307.3(b)(3).
    (2) Except as provided in Sec.  1307.6, at least twelve months 
before the expiration date of a Head Start or Early Head Start agency's 
grant, ACF shall give written notice by certified mail return receipt 
requested, or other system that establishes the date of receipt of the 
notice by the addressee, stating either:
    (i) The Head Start or Early Head Start agency will be required to 
compete for funding for an additional five-year period because ACF 
finds that one or more conditions or criteria listed in Sec.  1307.3 
were met by the agency's program during the period established in 
paragraphs (c)(1)(i) or (ii) of this section, identifying the 
conditions or criteria ACF found, and summarizing the basis for the 
finding; or
    (ii) That such agency has been determined on a preliminary basis to 
be eligible for renewed funding for five years without competition 
because ACF

[[Page 57719]]

did not find that any conditions or criteria listed in Sec.  1307.3 
were met by the agency's program in the period established in 
paragraphs (c)(1)(i) or (ii) of this section.
    (3) Except as provided in Sec.  1307.6, at least six months before 
the expiration date of a Head Start or Early Head Start agency's then 
current grant, ACF shall give written notice by certified mail return 
receipt requested, or other system that establishes the date of receipt 
of the notice by the addressee, either stating:
    (i) The Head Start or Early Head Start agency will be required to 
compete for funding for an additional five-year period because ACF 
finds that one or more conditions or criteria listed in Sec.  1307.3 
were met by the agency's program during the period established under 
paragraphs (c)(1)(i) or (ii) of this section identifying the conditions 
or criteria ACF found, and summarizing the basis for the finding; or
    (ii) That such agency has been determined on a final basis to be 
eligible for renewed funding for five years without competition because 
ACF did not find that any conditions or criteria listed in Sec.  1307.3 
existed in the agency's program during the period established under 
paragraphs (c)(1)(i) or (ii) of this section. The letter will include 
instructions on the information it must provide to the designated ACF 
official in order to receive funding.


Sec.  1307.8  Use of CLASS: Pre-K Instrument in the Designation Review 
System.

    Except when all children are served in a single classroom, ACF will 
conduct multiple class observations and rate the conduct of the classes 
observed using the CLASS: Pre-K instrument. When the grantee serves the 
children in its program in a single class, that class will be observed 
and rated using the CLASS: Pre-K instrument. The domain scores for that 
class will be the domain scores for the grantee for that observation. 
After the observation is completed, ACF will report to the grantee the 
scores of the classes observed during the CLASS: Pre-K observation in 
each of the domains covered by the CLASS: Pre-K instrument. ACF will 
average the scores on each domain for all classrooms assessed during a 
CLASS: Pre-K observation to determine the grantee's score in each 
domain. As provided in Sec.  1307.3(b)(3), an agency that has been 
determined by ACF to have a score of one, on one or more domains, 
during the transition period or a score below three, on one or more 
domains, for the period after the close of the transition period on 
each of the two most recent CLASS: Pre-K observations in the time 
period covered by an ACF decision under Sec.  1307.7 will be required 
to compete for designation renewal. As provided under Sec.  
1307.3(b)(3), the CLASS: Pre-K condition will apply to CLASS: Pre-K 
observations in DRS reviews under Sec.  1307.7(c) that take place after 
the effective date of this part and during the third-year of the 
transition period.

[FR Doc. 2010-23583 Filed 9-21-10; 8:45 am]
BILLING CODE 4184-01-P


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