Bonus To Reward States for High Performance Under the TANF Program

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 265 and 270

RIN 0970-AB66

Bonus To Reward States for High Performance Under the TANF Program

AGENCY:

Administration for Children and Families, HHS.

ACTION:

Final rule.

SUMMARY:

The Administration for Children and Families is issuing final regulations to implement section 403(a)(4) of the Social Security Act. This provision authorizes bonuses to high performing States in meeting the purposes of the Temporary Assistance for Needy Families Block Grant (the TANF program). We will base the bonus awards in FY 2002 and beyond on work measures (substantially the same work measures currently in effect for the FY 1999-2001 awards); measures that support work and self-sufficiency related to: participation by low-income working families in the Food Stamp Program, participation of former TANF recipients in the Medicaid and State Children's Health Insurance Programs (SCHIP), and receipt of child care subsidies; and a measure related to family formation and stability (increase in the number of children in the State who reside in married couple families).

Bonus funds of up to $200 million each year were authorized for awards in fiscal years 1999 through 2003. This rule specifies a formula for allocating these funds in FY 2002 and FY 2003. The amount awarded to each high performing State may not exceed five percent of the State's family assistance grant.

Earlier, we issued program guidance covering bonus awards in FY 1999, FY 2000, and FY 2001. We published a Notice of Proposed Rulemaking to cover awards beginning in FY 2002 on December 6, 1999 (64 FR 68202).

In a related regulatory action, we are amending 45 CFR Part 265, the TANF Data Collection and Reporting Requirements, to reduce the burden of reporting data on Separate State Program-Maintenance of Effort (SSP-MOE) programs. This amendment will allow waivers of certain reporting requirements under limited circumstances.

EFFECTIVE DATES:

These regulations are effective Ocotber 30, 2000 except for Section 270.4(e)(2)(ii), which requires an information collection that is not yet approved by OMB. We will publish an announcement in the

Federal Register

regarding the effective date of the additional data collection.

FOR FURTHER INFORMATION CONTACT:

Sean Hurley, Director, Division of Data Collection and Analysis, Office of Planning, Research and Evaluation, ACF, at 202-401-9297. Mr. Hurley's e-mail address is: shurley@acf.dhhs.gov.

This rule is accessible electronically via the Internet from the ACF Welfare Reform Home Page at http://www.acf.dhhs.gov/news/welfare.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Legislative Background.

A. The Temporary Assistance for Needy Families Program.

B. Summary of the Statutory Provisions Related to the High Performance Bonus Awards.

II. High Performance Bonus Awards in FY 1999, FY 2000, and FY 2001.

III. Summary of the Notice of Proposed Rulemaking.

IV. Overview of the Public Comments.

A. Overview of Comments on the Work Measures.

B. Overview of Comments on the Food Stamp and Medicaid/SCHIP Measures.

C. Overview of Comments on the Family Formation Measure.

D. Recommendations for the Inclusion of New Measures.

E. Other Recommendations and Suggestions.

V. Summary of the Final Rule.

VI. Section-by-Section Discussion of the Rule and the Public Comments.

VII. Amendment to 45 CFR Part 265.

VIII. Regulatory Impact Analyses.

A. Executive Order 12866.

B. Regulatory Flexibility Analysis.

C. Assessment of the Impact on Family Well-Being.

D. Paperwork Reduction Act.

E. Unfunded Mandates Reform Act of 1995.

F. Congressional Review.

G. Executive Order 13132.

I. Legislative Background

A. The Temporary Assistance for Needy Families Program

Title I of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. 104-193, established the Temporary Assistance for Needy Families (TANF) program at title IV-A of the Social Security Act (the Act). TANF is a block grant program designed to make dramatic reforms in the nation's welfare system. Its focus is on moving recipients into work and turning welfare into a program of temporary assistance, preventing and reducing the incidence of out-of-wedlock births, and promoting stable two-parent families. Other key features of TANF include provisions that emphasize program accountability through financial penalties and rewards for high performance.

Title I also “de-linked” the eligibility for cash assistance and Medicaid benefits. Under the Medicaid amendments, a family's eligibility for Medicaid is based on whether the family would have been eligible under the State's prior AFDC plan.

TANF replaced the national welfare program known as Aid to Families with Dependent Children (AFDC) that provided cash assistance to needy families on an entitlement basis. It also replaced the related programs known as the Job Opportunities and Basic Skills Training (JOBS) program and the Emergency Assistance (EA) program.

The new TANF program went into effect on July 1, 1997, except in States that elected to submit a complete plan and implement the program at an earlier date. We published final regulations to implement the work, penalties, and data collection provisions of the TANF program in the

Federal Register

on April 12, 1999 (64 FR 17720). These rules became effective October 1, 1999. We also published a number of other related regulations, including rules covering annual reports of State child poverty rates in relation to the TANF program (Notice of Proposed Rulemaking published September 23, 1998 (63 FR 50837)) and bonuses to reward States for decreases in out-of-wedlock births (final rule published April 14, 1999 (64 FR 18484)).

The 1996 welfare reform law reflected widespread, bipartisan agreement on a number of key principles:

• Welfare reform should help move people from welfare to work.

• Welfare should be a short-term, transitional experience, not a way of life.

• Parents should receive the child care, health care, and other supports that they need to protect their children as they move from welfare to work.

• Child support enforcement programs should become tougher and more effective in securing support from noncustodial parents.

• Because many factors contribute to poverty and dependency, solutions to these problems should not be “one size fits all.” The system should allow States, Indian tribes, and localities to develop diverse and creative responses to these problems.

• The Federal government should place more emphasis on program results.

Under section 401(a)(1) of the Act, States (and certain Indian tribes) have the authority to use Federal welfare funds “in any manner that is reasonably

calculated to accomplish the purpose” of the new program. They have broad flexibility to set eligibility rules and decide what benefits are most appropriate.

In short, they have the opportunity to try new, far-reaching changes that enable them to respond more effectively to the needs of families within their own unique environments.

B. Summary of the Statutory Provisions Related to the High Performance Bonus

Section 403(a)(4) of the Act requires the Secretary to award bonuses to “high performing States.” (Indian tribes are not eligible for these bonuses.) The term “high performing State” is defined in section 403(a)(4) of the Act to mean a State that is most successful in achieving the purposes of the TANF program as specified in section 401(a) of the Act. These purposes are to—

(1) provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives;

(2) end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage;

(3) prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and

(4) encourage the formation and maintenance of two-parent families.

Section 403(a)(4)(B) of the Act specifies that the bonus award for a fiscal year will be based on a State's performance in the previous fiscal year and may not exceed five percent of the State's family assistance grant.

Section 403(a)(4)(C) of the Act requires the Department to develop a formula for measuring State performance in consultation with the National Governors' Association (NGA) and the American Public Welfare Association, now known as the American Public Human Services Association (APHSA).

Section 403(a)(4)(D) of the Act requires the Secretary to use the formula developed to assign a score to each eligible State for the fiscal year preceding the bonus year and prescribe a performance threshold as the basis for awarding the bonus. Section 403(a)(4)(D) of the Act also specifies that $1 billion (or an average total of $200 million each year) will be awarded over five years, beginning in FY 1999.

II. High Performance Bonus Awards in FY 1999, FY 2000, and FY 2001

As we have done with all regulations related to the TANF program, we implemented a broad consultation strategy prior to our rulemaking. In addition, as required by section 403(a)(4)(C) of the Act, we consulted intensively with representatives of the NGA and the APHSA. We met with staff of these two national organizations as well as staff of the National Conference of State Legislatures (NCSL) and approximately 30 State representatives who participated by regularly scheduled conference calls over a period of approximately nine months.

We also consulted with a number of other audiences: researchers, data experts, and academics; other Federal and non-Federal agencies that had developed or were in the process of developing performance measures for their programs; and representatives of a broad range of non-profit, advocacy, and community-based programs.

We would have preferred to set the formula for all years through rulemaking. However, we were not able to conduct adequate consultations and complete a formal rulemaking process in order to advise States, in a timely way, how we would be assessing their performance (for both the performance year and the comparison year used to measure improvement) in FYs 1997-1998, FYs 1998-1999, and FYs 1999-2000, in order to make awards in FY 1999, FY 2000, and FY 2001. Therefore, we issued program guidance covering the first three award years without the benefit of a formal rulemaking process. (For the program guidance for the awards in FY 1999, see TANF-ACF-PI-98-1 and TANF-ACF-PI-98-5 (Form ACF 200, OMB #1970-0180); for the guidance for the FY 2000 awards, see TANF-ACF-PI-99-1; and for the guidance for the FY 2001 awards, see TANF-ACF-PI-99-5.)

The FY 1999 program guidance based the first-year bonus awards on four work measures,

i.e.

, the job entry rate, the success in the work force rate (this is a combination of the job retention rate and the earnings gain rate), and improvement in each of these measures. We have based the FY 2000 and FY 2001 bonus awards on similar work measures.

On December 4, 1999, the President announced three actions relating to the high performance bonus:

• The award of $200 million for the first-year bonus awards to 27 States with the best records in moving parents on welfare into jobs and subsequent success in the work force;

• The program guidance for the FY 2001 awards; and

• The publication of a Notice of Proposed Rulemaking (NPRM) covering awards in FY 2002 and beyond.

According to the reports filed by the 46 States competing for the first-year bonus, nationwide more than 1.3 million adults on welfare went to work in the one-year period between October 1, 1997, and September 30, 1998. Retention rates were also promising: 80 percent of those who had gotten jobs were still working three months later. The States also reported an average earnings increase of 23 percent for welfare recipients (some of whom were now former recipients) from $2,088 in the first quarter of employment to $2,571 in the third quarter.

The States ranked the highest in each category were Indiana (job entry), Minnesota (success in the work force,

i.e.

, job retention and earnings), Washington (biggest improvement in job entry), and Florida (biggest improvement in success in the work force).

The other States that received bonuses were: Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Louisiana, Massachusetts, Michigan, Nevada, New York, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, and Wyoming. Eleven States received bonuses in two categories, and one State, Minnesota, was successful in three.

In announcing these awards for FY 1999, we recognized that the award criteria did not necessarily identify all States that have implemented successful welfare reform strategies. For example, some States may have implemented exceptionally strong programs whose success was not captured by this award because of timing or the specific measures we used. In addition, although we awarded bonuses to the ten States with the highest scores in each measure, the performance scores for many other States were also high.

III. Summary of the Notice of Proposed Rulemaking

We faced a significant challenge in developing a performance measurement system for the new TANF program. Although there is considerable activity underway in both the public and private sectors, performance measurement is a field that is still evolving. Our aim in developing the bonus award system was to reflect outcomes based on the purposes of the Act, propose a system as simple as possible to understand and administer, and incorporate the best information available.

To provide context, in the NPRM, we included a discussion of some of the difficult and inter-related questions and issues with which we, and the groups

with which we had consulted, had struggled,

e.g.

, general approach questions, short-term versus long-term strategies, formula and distribution issues, and issues relating to the design of measures and the availability of data sources.

We also included a discussion of more specific issues related to TANF performance measurement, including issues around absolute performance and performance improvement and concerns about achieving a level playing field among States, and we discussed measures that we had considered and rejected. We also spoke about the difficulty of identifying appropriate measures without incurring new data collection responsibilities while relying, to the extent possible, on uniform, objective, and reliable State data; rewarding positive performance; and producing no unintended consequences.

Finally, as an additional encouragement to focus public comment on specific alternative approaches, we raised a series of questions on major sections of the proposed rule.

The consultations with NGA, APHSA, and others were very useful in helping us identify key issues, evaluate policy options, and develop both the program guidance for FY 1999, FY 2000, and FY 2001 and the Notice of Proposed Rulemaking. As a part of our consultations, NGA and APHSA developed a set of principles they believed should apply to a high performance bonus system. We found that these principles offered a positive framework for developing such a system and avoiding some major pitfalls. We also found these principles helpful as we addressed specific issues in developing the NPRM. The NGA/APHSA principles stated that a high performance bonus system should:

• Be simple, credible, quantifiable, understandable to the public, and consistent with the goals of the law;

• Focus on outcomes rather than process;

• Take varying State economic circumstances and policies into account and not impede the flexibility provided to States under Pub.L. 104-193;

• Minimize double jeopardy or reward. (For example, the law already provides bonuses for reducing out-of-wedlock births, a caseload reduction credit, and penalties and incentives related to child support enforcement and paternity establishment.);

• Avoid additional data collection requirements and costs and build on existing systems;

• Avoid unintended consequences;

• Focus on positive rather than negative measures; and

• Reflect the strong emphasis on employment and self-sufficiency in the Federal law and in the States' implementation of the law. This emphasis should influence the measures included in the system and the distribution of bonus funds.

We published a Notice of Proposed Rulemaking (NPRM) on December 6, 1999 (64 FR 68202). Since our initial consultations, we have held several additional formal and less formal discussions about TANF performance measures with States, State groups, and others. For example, on July 21, 1999, we invited States, advocates, researchers, and others to a day-long consultation on issues related to outcome and performance measurement related to the preparation of a “Study and Report to Congress on Alternative Outcome Measures” (section 107 of the Personal Responsibility and Work Opportunities Reconciliation Act). In addition, the core provisions of the NPRM were very similar to the measures, issues, and principles discussed in earlier consultations. Finally, we knew that the NPRM would provide an additional opportunity for public comment and believed it was important to move the regulations process forward.

In summary, the NPRM proposed to:

• Award bonuses beginning in FY 2002 based on four work measures (substantially the same work measures currently in use for FY 1999 and FY 2000 and specified for use in FY 2001);

• Award bonuses beginning in FY 2002 based on three non-work measures: one measure on family formation and family stability (increase in the number of children below 200 percent of poverty who reside in married couple families) and two measures that support work and self-sufficiency,

i.e.

, participation by low-income working families in the Food Stamp Program and participation of former TANF recipients in the Medicaid program and the State Children's Health Insurance Program (SCHIP);

• Use one of two possible alternative sets of data for the four work measures, including the National Directory of New Hires;

• Use the Census Bureau's decennial and annual demographic programs as the data sources for two of the three work support measures,

i.e.

, the measure on family formation and stability and the measure on participation in the Food Stamp Program;

• Measure performance on Medicaid/SCHIP participation, through State matches of TANF data with data on Medicaid/SCHIP enrollment;

• Award bonuses to the ten States with the highest scores in each measure;

• Specify an allocation of funds for each measure in FYs 2002 and FY 2003 (and beyond, if high performance bonus awards are subsequently authorized), under which we would award $140 million to the work measures and $60 million to the work support measures:

• Reiterate the requirement in § 265.3(d) of this chapter that, if a State wishes to receive a high performance bonus, it must file the information in Sections One and Three of the SSP-MOE Data Report; and

• Create an annual review process, as needed, if future modifications and technical changes are necessary.

We took this approach for several reasons. First, we believed that, given the primary focus of the TANF program on work, we should continue to focus the rewards to States for their efforts in this area. The funds allocation we proposed reflected the importance we placed on State performance directed towards work,

i.e.

, $140 million for work and $60 million for work support measures.

Second, potential new data sources appeared to be available with respect to both the proposed work measures and the work support measures:

i.e.

, the National Directory of New Hires would serve as a research data source and provide more comparable and reliable national work data; and data from the Census Bureau's decennial and annual demographic programs (

e.g.

, the Supplementary Census 2000 Survey and the American Community Survey) would provide data sources for two of the three proposed non-work measures.

In developing both the program guidance and the NPRM, the Department has been interested in utilizing a broad set of measures (

i.e.

, other than direct work measures) that more fully reflect other purposes of the TANF program. States, Congress, national organizations, and experts have also recommended the inclusion of other measures. During 1997 and 1998, we worked to develop other measures, but we were unable to identify measures for which we had reliable data sources.

Given the potential availability of the two new data sources, we proposed both work and work support measures. We strongly believe that Medicaid/SCHIP and Food Stamps are critical supports for many working families as they move towards self-sufficiency through employment. State performance to ensure that eligible families receive Food Stamps and Medicaid/SCHIP addresses two of the statutory purposes of the TANF program: Providing assistance to needy families so that

children may be cared for in their own homes and ending the dependence of needy parents on government benefits by promoting job preparation and work. Receipt of Medicaid/SCHIP and Food Stamps supports purpose two by helping make it possible for families to move off of welfare into employment, sustain that employment, and progress on the job to eventual full economic independence.

In addition, the non-work measures reflected our concern that the lives of children and families, particularly low-income children and families, should be a focus of attention within the TANF program. We also believe that strong families are one of the key factors in developing and sustaining high levels of individual competence and functioning in our complex society. Thus, we concluded that States should be rewarded for their efforts in addressing family formation and the other purposes of the Act noted above.

IV. Overview of the Public Comments

We received 130 comment letters, some with multiple signatures, from a wide range of national, State, and local entities and organizations, including: City and county governments; State human service agencies, and national organizations representing States, State legislatures, and State human service organizations; national and State children, family, and domestic violence advocacy and service organizations; national and local faith-based organizations; national, State, and local employment, housing, and legal advocacy organizations; national labor unions and a State labor agency; food and nutrition service and advocacy organizations; Members of Congress; a national foundation; and others.

Some of the 130 individual comment letters were similar or identical to the more than 300 identical notecards we received as a result of a letter-writing campaign organized by a broad-based national coalition monitoring the effects of welfare reform.

The major themes of the comments included the following:

• Most commenters supported the work measures, but a number made recommendations for substantive and technical changes.

• There was a division of opinion on the inclusion of the Food Stamp and Medicaid/SCHIP measures. For a number of reasons, States objected to the inclusion of these measures. Advocacy, service, and faith-based organizations strongly supported these measures, as did all of the Members of Congress who commented on the NPRM.

• Almost all commenters objected to the family formation and stability measure, although a few suggested modifications.

• A large number of commenters, primarily national advocacy organizations and three Members of Congress, recommended the addition of a new measure on child care.

• To a lesser extent, a number of organizations also recommended other new measures, including domestic violence measures and worker protection measures.

• Some commenters made recommendations for changes in the allocation of funds, although these comments did not present a consistent view. Many who supported the Medicaid/SCHIP and Food Stamp measures suggested substantial increases in the dollars for these measures and decreases in the dollars for the work measures, while national organizations representing States and State human service agencies recommended that all dollars go to the work measures.

A. Overview of Comments on the Work Measures

With a few exceptions, commenters considered the work measures of job entry, job retention, and earnings gain to be the appropriate measures for assessing State performance in moving TANF recipients from welfare to work and self-sufficiency. At the same time, we received a number of substantive and technical suggestions on how we should modify these measures,

e.g.

, establish a minimum level of earnings that would constitute employment; measure job retention and earnings gain over a longer time period; establish a separate measure of earnings gain (proposed as a combined job retention/earnings gain measure); measure performance improvement by percentage point change rather than percentage change; adjust performance scores by economic and demographic factors; and establish other threshold requirements, such as job placements above the poverty level. We address these comments in the section-by-section discussion below.

The States, their representative organizations, and other commenters expressed strong support for the proposed work measures (substantially the same work measures that are used for the high performance bonus awards for FYs 1999-2001). We considered a range of suggested changes, both substantive and technical, but, given the level of support for the proposed work measures, we made only a few technical changes in the final rule. We have changed the way we calculate performance improvement,

i.e.

, we will use the percentage point change rather than the percentage change. We have also removed the distinction on what kinds of subsidized jobs count under the work measures. In addition, we have added clarifying definitions in ¶270.2 and incorporated other technical changes in ¶270.5. We will consider adding an earnings threshold in the future, after further analysis and consultation with States and other interested individuals.

In the NPRM, we also proposed that States report one of two alternative sets of data—either a minimal set of identifying information on adult TANF recipients, which we would match against data from the National Directory of New Hires (NDNH) at the Federal level, or a more extensive set of work performance data. We proposed the use of the NDNH in response to concerns that States raised about access to out-of-State and Federal employment data during our initial consultations and implementation of the FY 1999 bonus awards. States and other commenters were strongly supportive of the use of the NDNH.

We agree that the use of the NDNH, matched with State data, will result in reduced burden for States and greater accuracy in implementing bonus awards. Therefore, in the final rule, we require States to report identifying information on adult TANF recipients that we will match with the NDNH data. We address these changes later in the section-by-section discussion of the rule.

B. Overview of Comments on the Food Stamp and Medicaid/SCHIP Measures

The proposed rules contained two measures that focused on State efforts to provide critical supports needed by low-income working families. One measure looked at improvements in the percentage of families leaving TANF who were enrolled in Medicaid or SCHIP six months later. The second measure looked at improvement in the rate of food stamp participation for certain low-income working families. These two proposals generated extensive comments, which were highly diverse in nature.

Because many commenters addressed these proposals together, and the comments on the two provisions were somewhat similar, this overview will address both provisions. However, there were also a variety of comments that spoke more directly to the separate proposals. You will find the discussion of these detailed and distinct comments

in the section-by-section analysis for §§ 270.4(d) and 270.4(e).

Comments:

A significant majority of all commenters supported inclusion of the Medicaid/SCHIP and food stamp measures. Among the reasons cited were the importance of these benefits as work supports, particularly for families with entry-level employment; the negative consequences of the recent declines in these program caseloads; the ability of States to operate TANF in ways that facilitate food stamp and Medicaid participation by low-income families; and the value of encouraging States to take steps necessary to improve access. At the same time, a number of these commenters had suggestions for modifications to the proposals.

These two proposals also drew a significant negative response, primarily from State agencies and organizations representing States. While generally agreeing that these programs provide important supports for low-income families, commenters raised a variety of philosophical, programmatic, administrative, and equity objections to including these measures as part of the high performance bonus. Philosophically, and particularly for the food stamp measures, some commenters indicated that the measures were inconsistent with TANF purposes, promoting dependency rather than self-sufficiency. In addition, State agencies objected to being held accountable, under a TANF provision, for serving families that were beyond the reach of the TANF program and for complying with requirements in other Federal programs. In the case of food stamp participation, in particular, they also objected to being held accountable when they lacked control over many program rules, and they could not spend TANF funds to pay for activities that are reimbursable under the Food Stamp Act. They expressed concern about the adequacy of national data, the equity of looking at annual improvement only from FY 2000 forward, the equity of applying annual improvement measures when some States had made significant efforts to improve access prior to the measurement period, and a variety of other issues.

Response:

We have decided to retain measures of Medicaid/SCHIP and food stamp participation in the final rule because we are committed to a high performance bonus system that rewards States not just for employment successes, but also for their efforts to support low-income families during their transitions. We believe these measures are consistent with, and support the statutory purposes of, TANF. By participating in Food Stamps and Medicaid or SCHIP, needy families receive the assistance they need to care for children in their homes (purpose one) and improve their chances of ending dependence on government benefits through work (purpose two). In fact, the bipartisan comments we received from Members of Congress on these measures uniformly supported their inclusion.

In response to the technical and substantive concerns raised by the States and others, we very carefully considered all the suggestions for how to improve the measures and looked for ways to address the States' concerns. As you will find in the section-by-section analysis, we have made a number of changes that respond to the concerns. For example, we have made it more explicit that States may choose whether to compete on the Food Stamp measure (consistent with our approach for all the measures), dropped the “qualifying conditions” for both the Food Stamp and Medicaid/SCHIP measures (

i.e.

, the threshold conditions that States had to meet in order to compete on these measures), added awards for absolute performance (not just improvement), and modified the improvement measure so that it is less biased towards States starting with a low level of performance in the comparison year.

Also, we recognize State concerns about being held accountable for activities that are outside of TANF. However:

• Unlike prior law, under TANF, all the key statutory provisions regarding goals and responsibilities refer to the “State” rather than the “State agency”; the concept of “single State agency” is gone; and all notifications go to the chief executive officer of the State, not the State agency. Thus, the statutory language suggests that it is appropriate for the high performance bonus to look more broadly at State performance rather than TANF State agency performance.

• The legislative history suggests that Congress intended that Food Stamps and Medicaid remain as part of the safety net for needy families affected by the TANF changes and that Congress was referring to welfare benefits when it included statutory language about reducing dependency on government benefits. More specifically, Congress did not modify the entitlement nature of Food Stamps and Medicaid when it repealed the entitlement to cash assistance. Further, in enacting sections 1925 and 1931 of the Act, Congress clearly intended that needy families would maintain eligibility for Medicaid benefits on the same basis as prior law (or a less restrictive basis). Indeed, the fact that Congress did not budget any savings for either the Medicaid or Food Stamp programs as the result of TANF indicates that it did not anticipate the declines in program participation that occurred in both programs, and it suggests that Congress did not intend for the declines to happen.

Congressional interest in maintaining Food Stamps and Medicaid as part of the safety net is also suggested by the managers' statement which: (1) Refers to changes in the Food Stamp program, but does not suggest any TANF-related effects; (2) Refers to PRWORA as a “fundamental reform of

welfare

” that “promotes work over

welfare

” [emphasis added]; and (3) speaks to not abandoning “those Americans who truly need a helping hand” and guaranteeing that children “will continue to receive the support they need.” This interpretation of Congressional intent also corresponds with the consistent bipartisan support we received in comments from Members of Congress on this issue.

• The statutory purposes of the TANF program reflect a broad view of the program that goes beyond families that are needy and receiving cash assistance.

• In most cases, the same State and local agencies are administering the TANF, Medicaid, and Food Stamp programs (or the TANF agency is making Medicaid eligibility determinations on behalf of the Medicaid agency), and a single caseworker is often responsible for determining eligibility and benefits in the three programs. Thus, in the course of administering the TANF program, TANF program managers often have the opportunity to work on eliminating barriers that may be deterring clients from seeking or retaining Medicaid or food stamp benefits.

For example, they can work on clearing up client misunderstandings about the applicability of TANF requirements to other program benefits (

e.g.

, believing there are food stamp and Medicaid time limits); ensuring that families served by TANF diversion programs have the opportunity to apply immediately for other benefits to which they are entitled; and ensuring that applications and notices are clear about the expectations of each program, the reasons why particular benefits are denied or terminated, and an individual's rights to pursue other benefits. They can also work to provide office hours, office locations, and cultural and language accommodations that are responsive to client needs and to minimize administrative requirements, such as reporting and face-to-face interviews, that might

discourage participation by eligible families.

C. Overview of Comments on the Family Formation Measure

The proposed rules contained one non-work measure directed at the second and fourth statutory purposes of TANF—

i.e.,

to end the dependency of needy parents by promoting marriage and encouraging the formation and maintenance of two-parent families. More specifically, based on Census Bureau data, the NPRM proposed to allocate $20 million of the annual high performance bonus award to the 10 States with the largest increase in the percent of children below 200 percent of poverty who reside in two-parent families.

Comments:

This proposal generated a significant number of comments and a largely negative reaction. While a few commenters commended our efforts to encourage State initiatives in this area, almost all who commented on this section expressed serious methodological and substantive concerns. Commenters noted that:

• States could earn awards based on bad outcomes, and thus the measure could have unintended negative effects.

• The measure fails to reward increases in marriage rates among families with higher incomes.

• Success in increasing marriage among single parents could inadvertently diminish a State's chances of receiving a bonus.

• This measure might also disadvantage those 10 or more States with State or local EITC programs.

Among the philosophical objections were:

• The measure's focus on marriage as the one acceptable form of “two-parent” families, noting that TANF purpose four refers to two-parent families, not marriage;

• The measure's failure to recognize noncustodial parents and a variety of less traditional family structures or to recognize the value of strengthening families through means other than marriage;

• The appropriateness of promoting marriage,

e.g.

, when there are contraindications such as domestic violence and substance abuse; and

• The appropriateness of engaging the government in decisions that are essentially personal and private.

In addition, some commenters questioned our preamble justification of the measure by referring to research findings that being raised in a single-parent family did not, in and of itself, negatively affect children.

Commenters also raised concerns about: (1) States being measured on something that seemed beyond their jurisdiction and control; (2) double jeopardy,

e.g.

, based on the proposed measure's similarity to the out-of-wedlock birth bonus; (3) the adequacy of Census data; and (4) the lack of a State option on whether to compete or not.

We received some suggestions for changes to this measure or for alternative measures related to family formation. Two organizations suggested we might establish a competition and award bonuses based on innovative policy initiatives and program demonstrations, and one State suggested we evaluate individual State descriptions of their own initiatives in this area. Commenters also suggested that we consider marriage rates for the entire State population and reward only “noncoercive public education campaigns”; reward States for increasing the percentage of families receiving TANF cash assistance that are two-parent families; and add domestic violence provisions (either as threshold qualifying conditions or adjustments). A few commenters suggested, alternatively, that we could encourage States to reduce teen pregnancy.

Response:

Since our earliest consultations with NGA, APHSA, NCSL, and the State representatives, we have actively explored the best means for incorporating non-work measures in order to encompass the broad statutory purposes of TANF. We also have had a number of conversations with Congressional staff, advocates, academics, and others to seek suggestions for such measures.

The proposed family formation measure in the NPRM reflected our best attempt to synthesize what we had heard and develop a measure that was feasible in light of the data that were available to us. While we recognized some of the measure's flaws, we hoped that proposal might either generate some useful suggestions for modifications that would improve it or present us with some viable alternatives.

We seriously considered the suggestion to establish a panel-based competitive process that would reward innovative initiatives or demonstrations. However, we did not include it in the final rule because the approach is inconsistent with the statutory language at section 403(a)(4)(C)-(E), which clearly expects us to employ quantitative measures. Also, this approach seemed to move us away from focusing on outcomes. We also thought that, without specific quantitative standards, it would be extremely difficult to implement a system that was sufficiently objective and fair to serve as the basis for awarding millions of dollars a year.

We are committed to the marriage and family formation purposes of the Act and believe it is important that these purposes, in addition to the work and work-related purposes, be addressed in the high performance bonus system. We also believe that it is important for us to help States focus on the non-work related purposes of the TANF statute. This measure is intended to provide an additional incentive for State activity and creativity in this area.

Thus, we have retained a family formation measure in the final rule similar, but not identical, to the measure proposed in the NPRM. We agree with commenters who recommended a broader population measure, i.e., that we measure the increase in the percent of all children in each State who reside in married couple families, not just low-income children, and we have made this change in the final rule. We believe that this will address commenters' concerns that including a ceiling could produce unintended consequences. However, because the measurement issues associated with family formation are more significant than those for the work and work support measures, we have reduced the funding allocation for this measure to $10 million. The final rule specifies that, in FY 2002 and beyond, we will award $10 million to the ten States with the greatest percentage point improvement in this measure. We have also made clear that States may choose to compete on this measure (we will rank only those States that indicate that they wish to compete), emphasizing our overall policy that participation in the high performance bonus system is voluntary.

We address comments more specifically in Part VI of the preamble regarding new § 270.4(f).

D. Recommendations for the Addition of New Measures

In the NPRM, we proposed not only specific measures for FY 2002 and beyond, but we discussed a number of other measures and data sources that we had considered but elected not to include for various reasons. We actively encouraged comments on all aspects of these measures and data sources and solicited recommendations for other measures and data sources that we might not have considered.

Over one-half of the letters we received and all of the notecards offered suggestions for the inclusion of a range of new bonus measures, either as a

substitute for the family formation measure or as additional measures. Commenters discussed some measures in detail; others were mentioned as suggestions for future development. Some of the recommendations for new measures,

e.g.

, child care, domestic violence, and child poverty, were among the measures we had discussed in the preamble to the NPRM, but had not included in the proposed rule.

We appreciate the number of thoughtful, well-reasoned comments we received regarding new measures, as well as the detailed analysis and other information provided in support of the commenters' recommendations. We also appreciate commenters' commitment to the success of welfare reform, the focus on work and self-sufficiency, and the importance of the well-being of families and children.

We gave considerable thought and attention to all recommendations for new measures, particularly where commenters had provided suggestions for further exploration and analysis. In evaluating measures and data sources, we based our deliberations on the NPRM and the final rule on the principles for a high performance bonus system developed by NGA and APHSA. We were at all times aware of the availability and sufficiency of data sources and wanted to avoid new data collection requirements and costs. We have been particularly aware of the issue of diversity among States and how that diversity might impact the design and implementation of a fair bonus system. Finally, we wanted the bonus system to remain as simple as possible to understand and administer and focus on (1) positive, not negative goals; and (2) outcomes, not processes.

In light of the comments we received, we have added a child care measure in the final rule. We strongly agree with commenters that child care subsidies or assistance are essential supports for low-income families and a critical part of a successful welfare reform program. A child care measure was the one measure that received the strongest and most consistent support from commenters. It was also the one for which commenters offered the most concrete suggestions about how we might specify the measure. Supporters included a broad array of national, State, and local advocacy and service organizations, Members of Congress, and a number of individual commenters.

We discuss the specific child care measure and respond to comments in Part VI of the preamble, “Section-by-Section Discussion of the Rule and the Public Comments,” § 270.4(e). Following the discussion of the child care measure, we also respond to commenters' recommendations for other new measures.

V. Summary of the Final Rule

We continue to be committed to a high performance bonus system that meets statutory requirements; reflects the principles developed by NGA and APHSA; is based on measurable outcomes using the most uniform, objective, and reliable data available; and offers States an opportunity to be recognized for their achievements in several areas.

In making changes to the final rule, we seriously considered all concerns and recommendations of the commenters. We appreciate the thoughtful and detailed letters we received, and we particularly appreciate the sense of common goals, expressed directly or indirectly in the letters, focusing on both effective implementation of the TANF program and the economic self-sufficiency and well-being of families and children.

We also paid attention to the concerns of States and State representative organizations, given the statutory provision on consultation with NGA and APHSA and the diversity of views on certain issues between States and a number of other commenters. We believe that the final rule takes a balanced approach to this diversity. We believe we have been responsive to, and incorporated a number of, State recommendations regarding ways of making the measures less burdensome and more workable; at the same time, we incorporated other provisions that were not generally supported by States but were supported by a very broad range of other commenters,

e.g.

, retaining the Food Stamp and the Medicaid/SCHIP measures and adding a measure on receipt of child care. We discuss these changes and respond to specific comments in the detailed section-by-section discussion below. Briefly, however, the final rule:

1. Awards bonuses to the ten States with the highest scores in the four work measures proposed in the NPRM, with minor modifications;

2. Awards bonuses to the three States with the highest scores on a new absolute measure and the seven States with the highest scores on the proposed improvement measure related to the participation by low-income working families in the Food Stamp Program;

3. Awards bonuses to the three States with the highest scores on a new absolute measure and to the seven States with the highest scores on the proposed improvement measure related to the participation of former TANF recipients in the Medicaid and SCHIP programs;

4. Awards bonuses to the ten States with the highest scores on a new child care measure and the family formation and stability improvement measure;

5. Bases competition on the family formation and stability measure on a universal population,

i.e.

, the increase in the percent of children in each State who reside in married couple families;

6. Makes more explicit that States may choose any of the measures on which they wish to compete in order to conform the language of the proposed Food Stamp and family formation measures to the overall policy that participation is voluntary;

7. Eliminates the qualifying conditions and qualifying options proposed in the NPRM for the Food Stamp and the Medicaid/SCHIP measures;

8. Allots $140 million to the work measures, $20 million each to the Food Stamp and Medicaid/SCHIP measures, and $10 million each to the child care and family formation measures;

9. Reduces the reporting burden on States by allowing waivers of the reporting requirements for SSP-MOE data under certain limited circumstances;

10. Reduces the reporting burden on those States competing on the work measures by requiring only minimal identifying information on adult TANF recipients that we will use to match with NDNH data at the Federal level;

11. Bases competition on the Food Stamp measure and the family formation and stability measure initially on the Census Bureau's Census 2000 Supplementary Survey and the Census Long-Form Transitional Database and, later, on data from the American Community Survey;

12. Bases competition on the Medicaid/SCHIP measure on State Medicaid/SCHIP data, matched with TANF data at the State level;

13. Bases competition in FY 2002 on the child care measure, which focuses on child care accessibility (the percent of CCDF-eligible children receiving services), affordability (assessed family co-payments), and child care quality (based on State reimbursement rates) using data States currently report to us under the CCDF program;

14. Specifies the dates by which States must report data and other information to us;

15. Clarifies the use of the bonus funds; and

16. Makes technical and clarifying changes in the work measures,

e.g.

, changes the way we calculate the

improvement measures from percentage change to percentage point change and drops the requirement that States identify those persons whose jobs are fully subsidized.

VI. Section-by-Section Discussion of the Final Rule and the Public Comments

Section 270.1 What Does This Part Cover?

We received no comments on this section and have made no changes to it.

Section 270.2 What Definitions Apply to This Part?

This section of the NPRM proposed a number of definitions used in this part.

We have made several changes in this section: (1) We have updated the acronym and name of the CHIP (Children's Health Insurance Program) to SCHIP (State Children's Health Insurance Program); (2) we have defined the acronym “CCDF” as the Child Care and Development Fund; (3) we have added the words “or the calendar year” in the definition of “performance year” to indicate that, for the Food Stamp measure and the family formation measure, we will be comparing State performance based on a calendar year rather than a fiscal year; (4) we have moved the definition of “improvement rate” as proposed in § 270.5(c) of the NPRM to this section; and (5) we have added a definition of “absolute rate.” We have added these last two definitions in this section for clarity and because these terms now apply to both the work measures and the work support measures.

We received no comments on the definition of “improvement rate,” but we want to call attention to one change we have made in this definition and explain how it affects our ranking of States and making bonus awards. In the final rule, “Improvement rate” means the positive percentage point change between the absolute rate of performance in the performance year and the comparison year, except for the calculation and ranking of States on the increase in success in the work force measure in § 270.5(a)(4). The definition proposed in the NPRM did not include an exception and would have prohibited us from considering a State with a negative score in one sub-measure in the increase in the success in the work force measure in the ranking process. For example, a State may have a negative score on one sub-measure (

e.g.

, job retention) and a positive score on the other sub-measure (

e.g.

, earnings gain). We did not want to exclude that State from the competition for a bonus. We have made corresponding changes in § 270.5.

We received the following comments on this section:

Comment:

One State asked that we add definitions for the terms “TANF eligible,” “employed recipient,” and “leaving TANF assistance,” as these terms have different meanings across States.

Response:

We have not added definitions of these terms for several reasons. First, the term “TANF eligible” was used in the NPRM to describe qualifying conditions for the Food Stamp measure. These conditions have been dropped in the final rule. Second, the term “leaving TANF assistance” is used in the description of the Medicaid/SCHIP measure, but it is clear in the language of § 270.4(d) that this term refers to persons no longer receiving TANF assistance. Finally, the term “employed recipient” is used in describing components of several of the work measures. We believe it is clear that employment connotes earnings or wages. Since we have not established a minimum earnings threshold, we believe it is not necessary to define this term.

Comment:

In commenting specifically on the definition of the terms “comparison year,” “fiscal year,” and “performance year,” one commenter was concerned that these definitions, combined with the proposed work measures, resulted in a bonus system that penalizes those States that may have focused on these activities well before the first comparison year. For example, these definitions and our other proposals would penalize States that have achieved significant increases in health care coverage between the beginning of their welfare program and the comparison year, while providing an advantage to States that have started more slowly. (This is an example of the “level playing field” issue on which we received a number of comments.)

This commenter recommended that we should base the health coverage measure on the States' overall efforts beginning with the effective date of the TANF program.

Response:

The “level playing field” issue is one that we and others have struggled with since the beginning of our consultations on establishing a high performance bonus system. We agree that the system in place for the awards in FYs 1999 through 2001 and specified in this final rule would not completely address the concerns of, and may disadvantage, some strong performers who initiated their welfare reform programs prior to FY 1997.

However, we have made no change in the definitions in response to this comment. The statute specifies the “bonus years” for purposes of these awards as FYs 1999 through 2003, and we based bonus awards in FY 1999 on a State's performance in FYs 1997 and 1998. We did not believe that measuring performance in earlier years was responsive to the requirement that awards reflect a State's performance under, and following the establishment of, the TANF program.

Nevertheless, we have made two changes in the final rule that may help address concerns regarding a “level playing field,”

i.e.

, we have added an absolute outcome measure in both the Food Stamp and the Medicaid/SCHIP measures and we have changed the way we calculate the improvement measure from percentage to percentage point change. (See § 270.4(c) and (d).)

Section 270.3 What Is the Annual Maximum Amount We Will Award and the Maximum Amount That a State Can Receive Each Year?

In accordance with section 403(a)(4)(B)(ii) of the Act, we proposed that the amount payable to a State in a given bonus year will not exceed five percent of the State's family assistance grant (SFAG). We also published, as an Appendix to the NPRM, a list of the total amount of each State's SFAG and the amount equal to five percent of each State's SFAG.

Comment:

One State asked that we clarify whether the SFAG is the “present grant amount” or the grant amount when the bonuses are awarded.

Response:

The statute and the TANF regulations (45 CFR 260.30) define the State family assistance grant (SFAG) as the amount of the basic block grant allocated to each eligible State under the formula at section 403(a)(1) of the Act. Thus, other TANF funds that a State may receive under section 403,

e.g.

, bonus funds, contingency funds, and supplemental funds, are not a part of the SFAG. Neither would we reduce a State's bonus award based on reductions to the “SFAG payable” due to a penalty against the State. The amount of the State's SFAG as published in the Appendix to the NPRM is accurate and remains in effect until the statute changes.

Section 270.4 On What Measures Will We Base the Bonus Awards?

In the NPRM, we proposed in paragraph (a) of this section to award bonuses based on four work measures and three “non-work” measures. We proposed the work measures in paragraph (b) of this section. As we said

in the overview of comments on the work measures above, there was strong support for these measures, although we received a number of suggestions for substantive modifications and technical changes. We address these suggestions in the discussion of § 270.5 and § 270.6 below.

Section 270.4(c) Measure of Participation by Low-Income Working Households in the Food Stamp Program

Under the proposed food stamp outcome measure, we would measure the improvement in the number of low-income working families (

i.e.

, families with children under the age of 18 who have an income of less than 130 percent of poverty and earnings equal to at least half-time, full-year employment at the minimum wage) receiving food stamps as a percentage of the number of low-income working families in the State, using the same definition. For any given year, we would compare a State's performance on the measure with its performance in the previous year, beginning with a comparison of calendar year (CY) 2000 to CY 2001. We would rank all States and would award bonuses to the 10 States with the greatest percentage improvement in this measure. We proposed to allocate $20 million annually for the food stamp measure.

We also proposed that, in order to compete on the food stamp outcome measure, a State must be in compliance with four qualifying conditions. The qualifying conditions proposed in the rule were the following:

(1) The State agency has issued policy instructions or regulations clearly specifying that, at first contact with the State agency which administers the Food Stamp Program, individuals must be informed of the opportunity to apply for food stamps in accordance with 7 CFR 273.2(c)(1).

(2) The State agency has issued policy instructions or regulations clearly specifying that food stamp application forms are to be readily accessible and available upon request, in accordance with 7 CFR 273.2(c)(3).

(3) As evidenced through policy instructions, regulations, and administrative reviews, the State agency is complying with application processing time frames and expedited service rules, as required by 7 CFR 273.2(g).

(4) As evidenced through policy instructions, regulations, and administrative reviews, the State agency has taken steps to prevent inappropriate denials and terminations of eligible food stamp participants who have lost TANF eligibility, in accordance with 7 CFR 273.12(f). Since food stamp eligibility is not based on TANF eligibility, States may not deny food stamp eligibility to a family or family member simply because the family is ineligible for TANF.

We proposed that the Food and Nutrition Service (FNS) of the U.S. Department of Agriculture would determine each State's compliance with the qualifying conditions, as a part of its ongoing oversight of the Food Stamp Program.

As noted earlier in this preamble, the majority of total comments received on the food stamp outcome measure supported the proposed measure. However, for a number of reasons, almost all of the State commenters opposed the inclusion of the food stamp outcome measure. We have seriously considered all comments, particularly the concerns of States. We believe that we have addressed many, though not all, of their concerns in the final rule. We have also accepted recommendations made by other commenters.

Briefly, we have made the following changes in § 270.4(c) of the final rule:

(1) Added an absolute performance measure;

(2) Changed the award structure to grant bonuses to the three States that rank the highest on the absolute performance measure and the seven States that rank the highest on the improvement measure;

(3) Changed the measured unit from “families” to “households with children”;

(4) Revised the improvement component to measure the percentage point improvement, rather than the percentage improvement, in the participation of low-income working households with children;

(5) Dropped the qualifying conditions;

(6) Made more explicit that competition on the measure is optional for States, to conform to the overall bonus policy that participation is voluntary; and

(7) Clarified how we will deal with tie scores.

We address the specific comments below.

Comments:

Some commenters claimed that awarding TANF high performance bonus funds based on a measure of food stamp performance exceeds the statutory authority of TANF. Others argued that the food stamp measure encourages continued dependence on government benefits and, thus, runs contrary to the second goal of the TANF program, which is to end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage.

Response:

We disagree with the commenters who believe that awarding TANF bonus funds based on State performance in the Food Stamp Program exceeds the statutory authority of TANF. Section 403(a)(4) of the Act requires the Secretary of the Department of Health and Human Services to award bonuses to those States that are most successful in achieving the goals and purposes of the TANF program. As noted earlier in the preamble, we believe that State performance to ensure that eligible working families receive food stamps addresses two of the statutory goals of the TANF program: providing assistance to needy families so that children may be cared for in their own homes; and ending the dependence of needy parents on government benefits by promoting job preparation and work.

We recognize that a number of commenters felt that, far from ending the dependence of needy parents on government benefits, the food stamp outcome measure encourages dependence by encouraging States to assist working families to participate in the Food Stamp Program. We strongly disagree with this viewpoint. Ending the dependence of needy parents on government assistance requires successfully transitioning parents from welfare to work. Key to that successful transition is the Food Stamp Program. Food stamps provide needed nutritional benefits during that period when families are working but are not earning at the level that will enable them to achieve full self-sufficiency. In some cases, working parents may only be able to keep their jobs and feed their families because food stamps help them make ends meet.

Comments:

Some commenters opposed the food stamp outcome measure on the grounds that it does not take into account many factors that have contributed to the decline in food stamp participation, including policy changes that have affected the eligibility of single adults and non-citizens.

Response:

We recognize that many factors combined to cause the significant decrease in program participation experienced since 1996, not the least of which were a strong economy and new food stamp requirements that barred many non-citizens from participating in the program and imposed work requirements on able-bodied, childless adults. However, other factors also appear to be at work. Between 1995 and 1998, food stamp participation fell three times as much as the fall in the number

of poor people, suggesting that many poor families have left the program despite their continuing eligibility. In 1999, participation continued to decline, although the rate of decline has slowed.

Traditionally, the program has had lower participation rates among eligible low-income families who are not receiving cash assistance. This means that as more families move from cash assistance to work, we have begun to see a dramatic decline in the food stamp rolls even though many of these low-income families remain eligible for food stamps. The food stamp outcome measure is designed to provide States with an incentive to implement policies and procedures necessary to improve access to the program among working families.

Comments:

Some commenters felt that the food stamp measure effectively holds States responsible for overcoming obstacles to program participation that are established in Federal law and regulation. The commenters noted that strict eligibility requirements in the Food Stamp Program and Federal policies in effect restrict the number of families who can receive food stamps. The commenters believe that if the Administration is committed to expanding food stamp participation, it should take the necessary steps to amend the law and relax Federal regulations. They recommended relaxing reporting and verification requirements for working families, improving conformity between food stamp and TANF rules, and simplifying rules related to self-employment.

Response:

We recognize that complex Federal laws and regulations, as well as State policies and procedures, can prove to be a barrier to Food Stamp Program participation among working families. For their part, the United States Department of Agriculture (USDA) and the Food and Nutrition Service (FNS) have taken steps to simplify program rules and reduce administrative burdens on working families. In July 1999, the President announced a series of actions to help ensure working families' access to food stamps. These actions included: (1) Expanding categorical eligibility rules to make it easier for working families to own a car and still be eligible for food stamps; (2) so long as the household's eligibility is redetermined at least every six months, providing States the option to allow working households to report changes in their circumstances on a quarterly basis, report only changes in income of $100 or more a month, and report only when there is a change in a job, hours of work, or wage rate; and (3) raising the quality control threshold that establishes when a case is considered to be in error from $5 to $25.

In addition, in a recently published proposed rule, Noncitizen Eligibility and Certification Provisions of Pub. L. 104-193, as amended by Public Laws 104-208, 105-33, and 105-185, (65 FR 10855), FNS proposed a number of provisions for further simplifying program rules and expanding State flexibility. The rule proposed the following: (1) Simplifying current verification requirements by removing overly prescriptive requirements for use of specific documents for verification; (2) allowing for the use of a simplified method of calculating self-employment expenses for certain specified types of businesses; and (3) establishing the ground rules for implementing the Simplified Food Stamp Program, under which States may determine food stamp benefit levels for households receiving TANF by using food stamp requirements, TANF rules, or a combination of the two.

In regard to achieving better conformity between TANF and food stamps, FNS has tried to provide States with as much flexibility as possible in conforming food stamp rules to TANF requirements without compromising the food security of the low-income population the program serves. State efforts to conform food stamp rules with TANF rules need to recognize that the Food Stamp Program serves a large and diverse range of people, two-thirds of whom do not receive TANF assistance,

i.e.

, primarily cash assistance.

Comments:

Some commenters believed that food stamp participation is not the appropriate variable for measuring a State's performance, given the fact that TANF benefit amounts and income disregards vary by State. In States with liberal disregards, a family's earnings plus TANF benefits may cause ineligibility for food stamps or reduce the food stamp benefit level to such a low amount that the family may conclude that it is not worth the effort to comply with certification requirements. Other commenters felt that the measure would reward States that place clients in low paying jobs or otherwise keep families below 130 percent of the Federal poverty level so that they may continue to qualify for food stamps.

Response:

We do not believe that the food stamp outcome measure disadvantages States with more liberal TANF programs. First, most State TANF assistance programs do not have eligibility standards that exceed 130 percent of poverty. Second, if a State has more liberal disregards, food stamp eligible working households with children are more likely to continue receiving TANF assistance, and thus are more likely than other working households to be participating on the Food Stamp Program.

Also, States should be focused on improving the food stamp participation rate among all low-income, working households with children, not just those receiving TANF assistance. There are many more low-income working households with children who are eligible for food stamps than there are TANF participants. Those States that will do the best in the improvement measure are not those who improve the food stamp participation rate the most among current or former recipients of TANF assistance. Rather, it will be those States that increase the food stamp participation rate the most among all low-income working households with children. Similarly, the absolute measure will reward States that serve the greatest percentage of low-income working households with children overall, not the most current or former TANF recipients.

Comments:

Some commenters felt that the food stamp outcome measure failed to take into account the restrictive rules of the Food Stamp Program. They noted that the only measure being used is income below 130 percent of poverty, but income is not the only factor that must be measured in actually determining eligibility for the Food Stamp Program. The asset rules alone will make many low-income families ineligible.

Response:

Limitations in the Census Bureau data that we will use to measure States' performances on the food stamp outcome measure make it difficult to screen households for food stamp eligibility factors other than income. However, we do not believe that using income below 130 percent of poverty as a proxy for food stamp eligibility disadvantages any State in the bonus competition. While it is true that, because of the food stamp asset test and non-financial eligibility tests, a State's ratio of working families participating in the Food Stamp Program to working families that are income eligible for the program may appear lower than it, in fact, is, this will be true for every State because the Food Stamp Program employs national eligibility criteria. Thus, no State should be disadvantaged in comparison to other States or to itself over time.

Also, States can close the gap between the number of households that are only income eligible for food stamps and those that are actually eligible for the program by taking advantage of the

expanded categorical eligibility rules announced as part of the President's July 14, 1999 food stamp initiative. The new policy allows States to use their more generous TANF assets tests, including their vehicle tests, rather than the Food Stamp Program asset limits, in determining food stamp eligibility for families receiving or authorized to receive TANF benefits.

Comments:

Several commenters noted that while the food stamp outcome measure gauges the TANF program's effectiveness in enrolling working poor families in the Food Stamp Program, States are prohibited by law from spending TANF and MOE money for food stamp outreach. These commenters felt that it is unreasonable to hold a TANF program accountable for increases or decreases in the food stamp caseload when States cannot use TANF funds for food stamp outreach.

Response:

Section 16(k)(5) of the Food Stamp Act of 1977, as amended, prohibits States from using TANF or MOE funds to pay for food stamp costs that are eligible for reimbursement under the Food Stamp Act. This includes the cost of activities to inform low-income households about the availability, eligibility requirements, application procedures and benefits of the Food Stamp Program. However, although States may not spend TANF, or MOE, money on these activities, they may use other State money to fund these activities, and FNS will match the expenditures at the 50:50 rate. In addition, there are certain activities related to increasing food stamp participation that are not reimbursable under the Food Stamp Act and for which States can use TANF or MOE funds. These activities include recruiting individuals to participate in the Food Stamp Program, providing transportation to certification and issuance offices, and acting as an authorized representative.

Comments:

Several commenters noted that while the food stamp measure refers to “families,” food stamp receipt is by household, which may or may not match the conventional (TANF) definition of family.

Response:

We recognize that looking at families in the food stamp measures makes the measures somewhat incongruous with the Food Stamp Program, in which receipt is based on “household.” A family, defined as parent and child, may not match the food stamp household, which would include anyone that lives with the family and purchases and prepares meals with them.

In the proposed food stamp outcome measure, a family that is included in the count of working families in a State that are income eligible for food stamps may not, because of the presence of another person in the home who purchases and prepares meals with the family, be in fact eligible for food stamps. This incongruity could cause the ratio of working families participating in the Food Stamp Program to families that are income eligible for the program in a State to appear lower than it in fact is.

Because this would be true in all States, we do not believe that this incongruity creates a bias in favor of any State in the competition or affects over time comparisons within States. However, in the final rule, we have changed the measured unit in the food stamp measures from families to households in order to better align the measure with the Food Stamp Program. We have revised the proposed regulations at § 270.4(c) to indicate that we will measure the number of low-income working households with children participating in the Food Stamp Program as a percentage of the number of low-income working households with children in the State.

Comments:

One commenter objected that the food stamp outcome measure effectively restores repealed Food Stamp Program client service requirements. The commenter noted that to effectively compete for a high-performance bonus under the Food Stamp Program measure, States must restore many client service requirements that were repealed by PRWORA. The commenter believed that HHS was using financial incentives as a trade-off for the flexibility and independence to operate local food stamp offices that was granted States under PRWORA.

Response:

In replacing specific client service requirements with the broad requirement that States establish procedures that best serve households, PRWORA directed States to take into account households with special needs. Included in this special needs category are working families. Therefore, beyond any desire to compete for TANF bonus funds, States have a responsibility to make the Food Stamp Program accessible to working families by implementing practices such as holding evening office hours and increasing the availability of application sites. Awarding TANF bonus funds based on State performance in serving working families, while primarily a recognition of the importance of food stamps to the overall success of welfare reform, is a means of providing States with an additional incentive to implement practices that will improve enrollment among a needy, yet difficult-to-serve, population.

Comments:

Some commenters believed that the food stamp measure was improperly designed and suggested alternative measures. A number of commenters felt that the proposed measure did not address the real issue—that families leaving the TANF rolls are not properly referred to and assisted in accessing food stamps, even though they may still be eligible. These commenters suggested that we re-design the measure to track food stamp receipt among former TANF recipients for the month following the end of TANF receipt to ensure continual access to the Food Stamp Program. Other commenters criticized the measure for not giving States credit for cases in which a family leaving TANF earns too much to qualify for food stamps.

Response:

Our interest in improving participation in the Food Stamp Program extends to all low-income, working families, not just those served by the TANF program. The majority of low-income working families that are eligible for food stamps have never participated in TANF. Also, many States refer eligible TANF recipients into diversion programs that provide them needed services and keep them off of the TANF program. The ability of these households to support themselves is vital to the success of welfare reform. Without food stamps, many of these families are in danger of going hungry; this could impact their ability to hold a job and to remain off of government cash assistance. The food stamp outcome measure provides States with an incentive to ensure that eligible former TANF recipients are properly referred to and assisted in obtaining food stamps. At the same time, it provides States with an incentive to improve access to the program for low-income, working families who have never been served by the TANF program, but whose ability to achieve and sustain self-sufficiency is nevertheless critical to the success of welfare reform.

Comments:

Several commenters suggested that we should expand the food stamp measure to evaluate the improvement in participation among all low-income families in a State, not just those who are working.

Response:

While we recognize the importance of food stamps as a support for all low-income households, we believe that we should continue to focus the food stamp outcome measure on working poor families, given the focus on work in the TANF statute, including the second purpose of the program. Participation in the Food Stamp Program remains especially low among the working poor; in 1997, only 59

percent of individuals in households with employed adults who were eligible for food stamp benefits participated in the Food Stamp Program, compared to a participation rate of 63 percent overall. If welfare reform is to be a lasting success, States must increase the participation rate of low-income working families significantly. By restricting the food stamp outcome measure to working households with children, we can help States focus on improving access to food stamps for this hard-to-serve population. Thus, we have not made a change to the proposed regulation as a result of these comments.

Comments:

One commenter felt that it was inappropriate to limit bonuses to the top 10 States. The commenter recommended that we expand the number of States who could benefit from the performance bonus.

Response:

The bonuses are intended to reward those States that are the most successful in achieving the goals and purposes of the TANF program. We chose to limit the bonuses to the top 10 States in each performance measure in order to emphasize that the awards recognize the highest performance among States. Increasing the number of States eligible for a bonus under each measure would dilute the significance of the awards. For this reason, we have not made changes to the proposed rule.

Comments:

A number of commenters noted that the proposed food stamp performance measure, because it is a measure of improvement only, disadvantages States that are already doing a good job of encouraging Food Stamp Program participation among low-income working families. Some commenters requested that we expand the measure to recognize the progress made by States prior to the first year of the bonus awards and the progress made in prior years as the bonus moves from year to year. Other commenters suggested that we include a measure of absolute performance as well as an improvement measure. These commenters further suggested that we rank States separately on both the absolute and improvement measures and award bonuses to the top five States in each category.

Response:

We recognize the importance of rewarding States for both absolute performance and improvement in each high performance bonus category. Awarding bonuses for both absolute performance and improvement provides a way to ensure a more objective and fair competition, by allowing States that start from different baselines a reasonable chance to compete successfully for bonus money. Each of the four work measures has an absolute and improvement component. However, in the case of the food stamp outcome measure, because only $20 million is being allocated for the measure, we felt that dividing the bonus among 20 winners, 10 for the best performance and 10 for the most improved, would too greatly diminish the incentive the bonus would provide. We opted in the proposed rule, therefore, to make the food stamp outcome measure only a measure of improvement. Given the low participation rate of poor working families on the Food Stamp Program, we felt that it was more important to reward States that improve program access to this group than to reward States who are already doing a good job of serving them.

Based on the comments we have received on the provision, however, we have decided to modify the food stamp outcome measure by adding a measure of absolute performance. This measure is designed to reward those States that, in a given year, demonstrate the very best performance in serving low-income working families. Under the outcome measure in the final rule, we will award $6 million in bonus funds to the three States that serve the highest percentage of low-income working households with children in the current year (the absolute measure) and award $14 million to the seven States that show the most improvement in performance from the previous year to the current year. We chose to reward more States for improving performance than for maintaining high overall performance because we wish to keep the emphasis of the bonus on improving service to low-income working households with children. We believe that this provision offers an effective compromise between rewarding States that currently do the best job of serving low-income working families and providing an incentive for other States to improve their performance. We have revised the proposed regulations at § 270.4(c) to reflect these changes.

Comments:

Several commenters suggested that we revise the food stamp measure to measure the percentage point improvement, rather than the percentage improvement, in the participation of low-income working families. They noted that under the proposed measure, we would rank a State that increases food stamp participation from 5 percent to 10 percent (100 percent improvement) higher than a State that increases participation from 30 to 45 percent (50 percent improvement).

Response:

We agree with the commenters that a fairer measure of improvement would be to measure the percentage point improvement rather than the percentage improvement in the participation of low-income working families. Therefore, we are modifying the food stamp improvement measure at § 270.4(c) to reflect this change. This change is consistent with the change we made in the work improvement measure in § 270.6.

Comments:

A commenter noted that the food stamp performance measure needs to have a method for dealing with tie scores similar to the method for the work measures.

Response:

We agree with the commenters and are revising the food stamp outcome measures in paragraphs (c)(1) and (c)(2) of this section to include a method for dealing with tie scores. We will use the same method for resolving tie scores for the food stamp measures as we use for the work and the Medicaid/SCHIP measures. We will calculate the percentage rate for the absolute performance measure to two decimal points. If two or more States have the same percentage rate for this measure, we will calculate the rates for these States to as many decimal points as necessary to eliminate the tie. Likewise, we will calculate the percentage rate for the improvement measure to two decimal points. If two or more States have the same percentage rate for this measure, we will calculate the rates for these States to as many decimal points as necessary to eliminate the tie.

Comments:

We received a number of comments related to the proposed qualifying conditions. Several commenters suggested that we strengthen the conditions. One commenter recommended that we require States to affirmatively demonstrate that their computer systems have been programmed so that when any TANF case closes, the food stamp case remains open until the worker makes an independent determination as to whether the household is still eligible for food stamps. Another commenter requested that States be required to notify the public that they are competing for a bonus related to food stamp participation and solicit comments on the extent to which agency practices are inconsistent with the qualifying conditions. The same commenter also recommended that HHS publish the preliminary determinations as to States' compliance and the basis for such conclusions, and seek comments from the public as to whether the determinations are accurate.

A number of other commenters, however, recommended that we

eliminate the qualifying conditions. One commenter noted that FNS will not have the resources to undertake the new determinations and, as a result, will likely certify that States are in compliance based on incomplete information. If the agency did discover noncompliance with these policies at a later date, the earlier certification could interfere with administrative or legal actions the agency might wish to take.

Other commenters noted that the conditions proposed in the rule are already requirements in the Food Stamp Act of 1977, as amended, and therefore are among the many factors already monitored for compliance by both the States and FNS. These commenters recommended that FNS allow States to self-certify their compliance with the conditions. Otherwise, they argue, FNS would need to redirect its limited staff resources and focus on the qualifying conditions, to the exclusion of other important State assistance and monitoring activities.

Response:

After carefully considering all of the comments received on the qualifying conditions, we have decided to remove these conditions from the food stamp outcome measure. While HHS and FNS both firmly believe that it would be inappropriate for a State to win bonus money related to improving food stamp participation among working poor families if they are not in compliance with the most basic rules and regulations that are designed to provide program access, FNS' ongoing compliance activities will not necessarily be compatible with the timing of the high performance bonus awards. FNS already monitors State compliance with the four qualifying conditions, and the Food Stamp Program already contains appropriate remedies for addressing compliance issues. In addition, the qualifying conditions are so basic to maintaining good program access for working families that States that fail to meet them will likely not perform well in the bonus competition.

Although we are removing the qualifying conditions from the food stamp outcome measure, State compliance with those requirements, and with other legal and regulatory provisions related to program access, remains a high priority with FNS. For example, FNS has released two program access guides, one for working families and another for elderly and disabled households, that are designed to assist State policy makers and others in understanding what the food stamp statute and regulations require of States in terms of food stamp eligibility application processing, recertification, notice and appeal rights, among other matters. In addition, FNS is conducting customer service access reviews in every State that are designed to identify barriers to program participation, including problems stemming from noncompliance with the program's legal and regulatory requirements. By the end of FY 2000, FNS will have completed between one to three access reviews in every State. Beyond FY 2000, FNS intends to make customer service access reviews a permanent part of its oversight of the Food Stamp Program.

Comments:

We received a number of comments on our proposal to use Census Bureau decennial and annual demographic program data in ranking State performance on the food stamp measure. Many commenters expressed concern as to the reliability of Census Bureau data. They noted that, in the past, Census Bureau data have provided misleading information regarding food stamp participation when compared to actual State data. Also, they felt that, while using Census Bureau data simplifies setting the baseline, it could rapidly become outdated based on population growth in States, resulting in an inability to award State bonus funds accurately and appropriately. Many commenters wondered why we did not simply use State administrative data, which is more reliable and would match the method for tracking Medicaid and SCHIP enrollment.

Response:

The food stamp outcome measure examines changes in the ratio of the number of working households with children in a State that participate on the Food Stamp Program to the number of working households with children in the State that are income eligible for the program. State administrative data can only provide us with the number of working families in a State that are participating in the Food Stamp Program. They cannot tell us the total number of families in the State who are income eligible for the program. The only data source that can provide us that information is Census Bureau data.

We recognize there are problems inherent in using existing Census Bureau data sources for awarding TANF bonus funds. However, we hope to avoid many of the pitfalls identified by commenters by using new Census Bureau surveys. We will use the annual State estimates produced by the Census Bureau from its annual household survey program, beginning with the Census 2000 Supplementary Survey and transitioning to the Census Bureau's American Community Survey by 2004.

Comment:

One commenter asked that we publicize baseline information from the Census data used to determine State performance on the food stamp measure on all States so States will know what current data show and how they stand in relation to other States.

Response:

We intend to release the baseline Census data, as well as other data relevant to the performance and rankings of competing States.

Comments:

Some commenters noted that Census data would identify noncitizens as part of the low-income population potentially eligible for food stamps. However, they may not in fact be eligible for the program. The commenters noted that this would disadvantage States with significant noncitizen populations and suggested that we factor such noncitizen groups out of the outcome measure calculation or add a provision to the measure to count State-funded food stamp recipients toward a State's overall percentage of low-income working families receiving food stamp benefits.

Response:

Based on our most recent available data, almost 85 percent of households participating in the Food Stamp Program in 1995 that contained a noncitizen also contained at least one citizen child. Thus, the majority of the noncitizen households identified as part of the low-income working population eligible for food stamps in a State would contain at least one member who is eligible for food stamps. We recognize that households containing eligible children, but ineligible parents, can be an extremely difficult population to serve. However, if we were to exclude these households from the food stamp outcome measure, we would be providing States no incentive for improving access to these needy children and families.

Also, we have not included State-funded food stamp recipients in the count of a State's number of low-income working families receiving food stamps. Many of the individuals served in the State-funded program who have citizen children will already be included in the count of food stamp participating households. The majority of the remaining participants in the State-funded programs will be individuals without children who will not be included in the count of the number of low-income working households eligible for food stamps in the State.

Comments:

Several commenters felt that, regardless of whether they intend to compete in the non-work measures, States should be required to provide data on their progress in the food stamp outcome measures as a prerequisite to competing in the work measures.

Response:

As noted above, the data source for the food stamp outcome

measure will be Census data, not administrative data submitted by States. ACF and FNS, therefore, will have data on every State's performance on the food stamp outcome measure, regardless of whether or not a State chooses to compete on the measure. However, this information will not be used to restrict a State's ability to compete on the work measures.

Comments:

One commenter felt that the food stamp measure should include both quantitative and qualitative components, especially worker-client relationship evaluations and customer satisfaction. The commenter believed that many of the barriers to participation in the food stamp and Medicaid programs are attributable to caseworker attitudes. More training and encouragement from the State agency could reverse this trend, thus increasing enrollment.

Response:

Including qualitative components in the food stamp outcome measure, such as worker evaluations and reports on client satisfaction, would diminish our ability to rank States quickly and objectively. In addition, we are concerned that increasing administrative burdens on States by requiring them to collect and report such data would likely deter them from competing on the measures. We also believe the recommended new components would be process, not outcome, measures.

Finally, improving customer service is a vital component to increasing participation among low-income working families in the Food Stamp Program. States that wish to realistically compete for the food stamp related bonus will have to improve their customer service standards along the lines discussed in USDA's food stamp access guide, “The Nutrition Safety Net at Work for Families: A Primer for Enhancing the Nutrition Safety Net for Workers and Their Children,” published in 1999. Therefore, we are making no changes to the proposed rule.

Comments:

Two commenters noted that the Economic Research Service (ERS) of the USDA is conducting research into the reasons families may not participate in the Food Stamp Program. These commenters felt that participation by low-income families in the Food Stamp Program should not be part of the TANF high performance bonus system until ERS completed this research and specific barriers are identified and resolved at the national program level.

Response:

ERS is funding a study on Food Stamp Program access and declining participation. The study will examine the impact of local food stamp office policies and practices on food stamp participation. However, data collection for the study will not begin until Fall 2000, and a final report is not due until Winter 2001. While we expect the report to provide us with greater insight into the practices and policies of local offices that may deter individuals from applying for food stamps, we see no reason to wait two years to provide States with a fiscal incentive to begin removing barriers to participation. There are steps that States can take today to improve program access. We included a listing of best practices for serving working families in the proposed rule. They are also contained in USDA's publication “The Nutrition Safety Net at Work for Families: A Primer for Enhancing the Nutrition Safety Net for Workers and Their Children.”

Section 270.4(d) Measure of Participation By Low-Income Families in the Medicaid/SCHIP Programs

In the proposed rule, we included a non-work measure related to Medicaid/SCHIP that would reward State efforts to support work, self-sufficiency and the well-being of low-income families. This measure looked at improvement in the percentage of TANF families who were enrolled in Medicaid or SCHIP at the time they lost TANF and who are enrolled in Medicaid or SCHIP six months later. We chose this approach because nearly all of these families leaving TANF are likely to be eligible for a minimum of six months of transitional Medicaid under section 1925 of the Act or to qualify for Medicaid under other eligibility groups. In addition, there have been reports from consumer advocates and State and national studies indicating that many eligible families are losing Medicaid benefits when they leave TANF. While there may be a number of outside forces contributing to the decline in Medicaid enrollment,

e.g.

, a strong economy, changes in public attitude toward welfare, we believe the challenges presented States by the delinking of cash assistance from Medicaid have also contributed to the decline. This proposed measure focused on how well States are providing Medicaid to eligible families who lose TANF. We believe that continued health insurance coverage is crucial to families making the transition from welfare to self-sufficiency, and we expect States to achieve a high rate of Medicaid and SCHIP participation among this population in order to be considered high performers.

We considered an outcome measure that would capture State performance in enrolling and retaining all eligible families and children in Medicaid and SCHIP, regardless of their former or current welfare status. However, we limited the outcome measure to individuals leaving TANF assistance because:

(1) States have a clear responsibility for serving these families under PRWORA; and

(2) welfare “leaver” studies and other studies on program participation indicated that these families frequently were not being served.

While a broader population measure would be consistent with a goal of expanding health coverage and have the positive effect of encouraging States to enroll eligible individuals who are diverted from TANF assistance or who do not apply for TANF assistance, the proposed measure was more directly related to the goals and purposes of TANF, as well as title I of PRWORA. Also, with no national data source on health coverage for low-income families, we believed that the focus on TANF “leavers” would result in a smaller reporting burden and in the collection of more accurate and consistent information by States. It, thus, should produce fairer comparisons in assessing State performance.

In the NPRM, we also proposed certain qualifying conditions, based on requirements in Medicaid law and regulations, that States must meet before competing for an award in the Medicaid/SCHIP measure. Those qualifying conditions were:

(1) The State has issued policy instructions or regulations clearly specifying that, at first contact with the TANF agency (when the TANF agency is also the Medicaid agency), an individual must be given the opportunity to apply for Medicaid in accordance with 42 CFR 435.906;

(2) When eligibility under section 1931 of the Act is lost due to hours of, or earnings from employment or loss of time-limited earning disregards, the State issues to the affected family a written notice that meets the requirements of section 1925(a)(2)(A) of the Act and a card or other evidence of the family's entitlement to assistance as required under section 1925(a)(2)(B) of the Act;

(3) The State has issued policy instructions or regulations clearly specifying that family members may not be terminated from Medicaid until it has been determined that they are not eligible under any other Medicaid group; and

(4) The State has fulfilled all data requirements under the law, including being up to date on all Medicaid and

SCHIP data submissions, and having the MSIS on-line and operating properly.

We proposed these qualifying conditions because we did not believe that a State that is out of compliance with basic program requirements should be eligible for a bonus related to Medicaid and SCHIP participation.

In addition to complying with the qualifying conditions, we proposed that applicant States must meet at least two qualifying State options. We believe that States exercising these options are likely to increase enrollment of eligible families and, therefore, would perform better on the outcome measure. The proposed programmatic options were:

(1) The State accepts mail-in or phone-in applications for Medicaid for families and children, which can be completed without a face-to-face interview;

(2) State Medicaid workers have been outstationed at locations in addition to the locations required under 42 CFR 435.904(c)(1) and (c)(2);

(3) The State has expanded Medicaid eligibility for recipient and applicant families through the use of less restrictive methodologies, authorized by section 1931(b)(2)(B) and (C) of the Act;

(4) The State uses a definition of “unemployed parent” that includes parents who are employed more than 100 hours per month, as authorized under 45 CFR 233.101 and section 1931(b) of the Act.

(5) The State provides continuous Medicaid eligibility for children for a period of time without regard to changes in circumstances, as authorized by section 1902(e)(12) of the Act;

(6) The State provides a period of presumptive Medicaid eligibility for children as authorized by section 1920A of the Act; or

(7) The State has simplified the enrollment and re-enrollment processes for children and low-income families by implementing such improvements as shortened application forms.

We proposed that those States that met the qualifying conditions and options would be eligible to compete for the bonus award based on their performance under the outcome measure. Specifically, the outcome measure would assess Medicaid and SCHIP participation among persons whose TANF assistance cases were closed in the calendar year who also were enrolled in Medicaid or SCHIP at the time of case closure. The measure of State performance would be the percentage of such individuals who are enrolled in Medicaid or SCHIP six months after leaving TANF and who are not currently receiving TANF assistance in that month. We proposed to compare a State's performance to its performance in the previous year, beginning with a comparison of CY 2000 to CY 2001, and to award bonuses to the 10 States with the greatest percentage improvement in this measure. We proposed to allocate $20 million annually for this measure.

We received a significant number of comments from States objecting to the Medicaid measure. We received a larger number of comments from other individuals and organizations, including national advocacy organizations and Members of Congress, in support of the Medicaid measure. Some States objected based on philosophical grounds while others objected for programmatic, administrative and equity reasons. Those commenters supporting the inclusion of a Medicaid measure cited the importance of Medicaid to low-income working families and referred to several recent studies on the declines in Medicaid caseloads where individuals, particularly children, were eligible for Medicaid or SCHIP benefits. (See “Overview of Comments in the Food Stamp and Medicaid/SCHIP Measures” in Part IV above.)

Briefly, in response to the comments, we have made the following changes in the final rule:

• Added an absolute performance measure;

• Changed the award structure to grant bonuses to the three States that rank the highest on the absolute performance measure and the seven States that rank the highest on the improvement measure;

• Revised the improvement measure to measure the percentage point improvement, rather than the percentage improvement, in participation;

• Changed the six-month time frame to a four-month time frame;

• Dropped the qualifying conditions and qualifying options;

• Required that States competing on these measures submit data on a fiscal year, rather than a calendar year, basis; and

• Clarified how we would deal with tie scores.

In addition, based on our own review and analysis, we have revised the regulatory text at § 270.4(d) to clarify that the denominators of the Medicaid/SCHIP measures exclude individuals who are receiving TANF at the time of follow-up (

i.e.

, the fourth month after leaving).

Below, we summarize the comments we received and our responses.

Comment:

Most commenting States objected to the inclusion of Medicaid as a performance measure. They stated that including the Medicaid measure is at odds with the TANF goal to decrease dependence on Government benefits and is not specific to the TANF program. Specifically, they argued that:

• The measure is inappropriate because it unfairly rates the success of TANF on the State performance in other programs;

• The high performance bonus awards should not be used to enforce Medicaid law;

• Including Medicaid shifts the focus away from work and the TANF population; and

• It is not an outcome measure of the number of former TANF customers who are better off, but instead a process measure of the number of enrollees in another government program.

Commenters supporting inclusion of the Medicaid measure viewed Medicaid as a critical support to low-income working families; in view of the declines in the Medicaid rolls after passage of welfare reform, they noted that the measure looks to reward State improvements in increasing Medicaid and SCHIP participation.

Response:

We believe that Medicaid is a vital support to low-income working families and the provisions in this regulation will measure overall State performance in achieving the TANF goal of promoting job preparation and work. In addressing this comment earlier in the section entitled “Overview of Comments on the Food Stamp and Medicaid/SCHIP Measures,” we gave many reasons why we believe the inclusion of the Food Stamp and Medicaid/SCHIP measures is appropriate. In this response, we expand on those thoughts, particularly as they relate to the Medicaid measure.

The commenters are correct that one of the goals under section 401(a) of the Act is to end welfare dependence by promoting job preparation, work, and marriage. However, States can best promote self-sufficiency through job preparation and work by providing the support systems, such as health insurance coverage, that are essential to families during their transition from welfare to work.

As noted by several commenters, there have been many studies that indicate the need for Medicaid coverage while families make this transition. A January 2000 Urban Institute study found that more than one-third of women and nearly one out of five children are uninsured within the first six months of leaving welfare. State studies of families that have left TANF are also finding that at least 20% of children and the majority of parents are no longer receiving Medicaid (see

“Participation in Welfare and Medicaid Enrollment,” Kaiser Family Foundation, 1998). A May 1999 Families USA study found that over two-thirds of a million low-income individuals lost Medicaid coverage and became uninsured as of 1997 due to welfare reform.

In enacting section 114 of PRWORA, Congress clearly intended to preserve Medicaid coverage for low-income families whose parents left welfare and went to work if they needed health care coverage and otherwise qualified for Medicaid. Congress preserved the health care safety net because it considers Medicaid a critical support for working families who might otherwise have no health insurance.

We do not believe that the fact that Medicaid may be administered by an agency other than the agency principally responsible for TANF is a reason for not including Medicaid enrollment as a measure in this high performance bonus regulation. As we stated earlier, it is more appropriate to view the high performance bonus as an award for State, not State agency, performance. TANF funds are used by many State and local agencies to accomplish the goals of the TANF legislation; indeed, the TANF block grant opens up new opportunities for additional agencies and nongovernmental organizations to get involved in the administration of the TANF program and the delivery of TANF benefits and services. It also provides new incentives for improved State and local interagency cooperation and cross-program efforts to encourage work and self-sufficiency.

TANF and Medicaid are closely related whether or not the programs are administered jointly by the State. Inclusion of a Medicaid outcome measure as part of the high performance bonus award is not an attempt to enforce Medicaid law, but rather to measure a State's overall success in serving low-income families leaving welfare. We believe that we should use the high performance bonus to encourage and recognize State efforts to effectively coordinate TANF and Medicaid program operations and reduce or eliminate barriers to ongoing Medicaid coverage for eligible families leaving TANF. Inclusion of a Medicaid performance measure provides focus on how well a State is achieving the goals of TANF and further meets congressional intent to provide support services while ending dependence on cash assistance.

Comment:

Several commenters objected to including the qualifying conditions and the qualifying options in the NPRM. The commenters argued that these conditions appeared too controlling and that the high performance bonus does not provide an appropriate vehicle for HCFA to evaluate whether a State is in compliance with the qualifying conditions. Other commenters also questioned whether the high performance bonus was an appropriate vehicle for evaluating or verifying State compliance with HCFA requirements. One commenter recommended that we offer programmatic options to States as suggestions for improving their performance.

A number of other commenters supported inclusion of the qualifying conditions and options, but recommended modifications. The specific suggestions included one to strengthen the qualifying conditions by requiring States to “affirmatively demonstrate compliance” and others to strengthen the qualifying options by requiring that States adopt a higher number of the seven qualifying options.

Response:

We proposed the qualifying conditions based on the philosophy that States out of compliance with related Federal requirements should not be eligible for a bonus. We also believed that States meeting the qualifying options would perform better on the outcome measure. However, we recognize that the inclusion of the qualifying conditions and options conflicts with the NGA/APHSA principle that a high performance bonus system should focus on outcomes rather than process.

In addition, we have concluded that the bonus award system is not the appropriate vehicle by which to evaluate or certify State compliance with Federal Medicaid requirements. For example, at the time we are making the high performance awards, we might not have completed a recent assessment of all State programs or there might be a potential compliance issue pending with one State that cannot be resolved in a short enough timeframe. Thus, we agree that it would be more appropriate to address such issues through ongoing Federal oversight of State Medicaid programs and a vigorous agenda of technical assistance and guidance. Therefore, we are dropping the qualifying conditions and qualifying options from the final rule.

Among the significant activities in the Department's agenda to resolve Medicaid enrollment issues are the following:

• Reviews of all State Medicaid programs, primarily during the summer and fall of 1999, to assess compliance with Medicaid requirements and to advise States when corrective actions are necessary;

• Issuance of additional program guidance to State Medicaid Directors clarifying the expectations that apply (

e.g.

, the April 7, 2000, letter that addressed expectations with respect to reinstatements, redeterminations, and computer systems modifications);

• Development and distribution of thousands of copies of a guide entitled Supporting Families in Transition: A Guide to Expanding Health Coverage in the Post-Welfare Reform World, which explains the basic rules for Medicaid eligibility under the PRWORA amendments;

• Development and distribution of special guides for State and local partners in the child care and Head Start communities to promote their participation in enrollment efforts;

• Issuance of guidance encouraging States to use the $500 million made available to help them provide outreach and address administrative changes related to delinking development and distribution;

• Issuance of a TANF guidance (in the form of a guide entitled “Helping Families Achieve Self-Sufficiency: A Guide of Funding Services for Children and Families through the TANF Program”) making clear that States may use TANF funds to “provide outreach activities that will improve access of needy families to medical benefits under the Medicaid and [S]CHIP programs”;

• In cooperation with the Robert Wood Johnson Foundation, interdepartmental support for the “Supporting Families” initiative to assist 22 sites in assessing and resolving barriers to initial and continuous participation in Medicaid and SCHIP. (Six of these sites will look at food stamp issues as well);

• Related contract support for development of a literature review and “promising practices” report to provide background information and technical assistance for all States; and

• Meetings with State agencies to discuss access issues of general concern.

Comment:

Several States disagreed with the six-month time frame in the outcome measure, primarily because tracking families who leave TANF for six months would impose a significant burden on States. Also, data collection is problematic because SCHIP is a stand-alone agency in many States; States cannot always match the Medicaid records to TANF records (

e.g.

, because the case composition may be different under the two programs); and some States do not have social security numbers for all SCHIP participants to

match with TANF records. Commenters generally suggested limiting the time frame to the month following the month that families leave TANF. One other commenter suggested that States also demonstrate that families accessed health care services.

Response:

We had proposed the six-month time frame because most families who leave TANF are eligible for six months of transitional Medicaid or for ongoing Medicaid under other eligibility categories. We also believed that States could easily identify these cases. However, a time frame shorter than six months may reduce the tracking burden on States because families will presumably have undergone fewer changes in this shorter time period, and case management information may be more useful. For example, there should be fewer families that have moved out of State or that have experienced significant changes in family composition. At the same time, we believe that the recommended one-month time frame is too short. Our concern is that some States may carry Medicaid coverage for one month after TANF benefits are terminated for systems reasons; thus, a one-month coverage period would not fairly assess whether policies and systems were in place to ensure ongoing Medicaid coverage for eligible families.

We are revising the final regulation at § 270.4(d) to reduce the measurement period in both the absolute measure and the improvement measure from six months to four months. We believe that a four-month time frame better accommodates States' concerns about tracking and the availability of case management information while still providing a reasonable time frame for assessing Medicaid or SCHIP participation by individuals in families who leave TANF. Also, the four-month time frame accommodates families that receive Medicaid extensions based on increased child support collections since this form of transitional benefit only lasts four months.

Most families who leave TANF are eligible for Medicaid through transitional Medicaid, under section 1931 of the Act, or under the medically needy or poverty level groups. Because families eligible under Medicaid must enroll in Medicaid rather than SCHIP, the instances under which children will be eligible for coverage under a separate SCHIP program are greatly limited. States can use methods such as case identifiers to match SCHIP and TANF cases in those instances.

We have also required that States competing on these measures submit their information on a fiscal year, rather than a calendar year basis as we proposed in the NPRM. We are changing to reporting semi-annually on a fiscal year basis for ease of processing the information and to parallel the requirements for reporting information for the work measures.

Comment:

Several commenters responded to our invitation to comment on our decision to limit the outcome measure to individuals leaving TANF assistance, rather than all eligible families and children. Most of these commenters recommended using the larger population of Medicaid/SCHIP eligibles to assess overall State performance since these programs provide critical supports to all low-income families and children. They believed that the proposed measure merely rewards States for complying with section 1925 of the Act, by providing six months of transitional Medicaid to certain families who lose TANF assistance.

Response:

In view of the decline in the Medicaid rolls nationwide since 1995, continued Medicaid for families losing TANF is of particular concern. In the NPRM, we proposed to concentrate the performance measure on States' efforts to provide continued Medicaid for eligible families leaving TANF since this is an area of program administration that has been identified by consumer advocate groups and local and national studies as needing improvement. In the final rule, we have aligned the Medicaid provisions with the food stamp provisions to allow for consistency to the extent possible. However, unlike the Food Stamp Program, there are many variables, as discussed below, that affect Medicaid participation among populations other than TANF leavers. For this reason, and other reasons that we also discuss below, the Medicaid outcome measure differs from the food stamp outcome measure in that it does not assess State performance based on participation of all Medicaid populations.

In response to widespread concerns that PRWORA's delinkage of Medicaid and cash assistance had negatively affected access of low-income families to medical benefits, HCFA conducted on-site reviews in all the States and Territories from September to December 1999 to examine State TANF and Medicaid application and enrollment policies and procedures to ensure that eligible families learn about, receive, and maintain Medicaid coverage. A particular focus of these reviews was on how the TANF application, denial, diversion, and termination processes affect application for and receipt of Medicaid. Based on these reviews, HCFA is in the process of identifying areas where States need to improve their Medicaid application, enrollment, and re-enrollment processes either solely in their Medicaid programs or in conjunction with the administration of their TANF programs. HCFA released policy guidance in some of these areas by way of an April 7, 2000, State Medicaid Directors Letter. This guidance directs States to identify individuals who have been improperly terminated from Medicaid and to reinstate their coverage; clarifies the proper procedures for eligibility redeterminations, and reviews the obligations imposed by Federal law with regard to operation of computerized eligibility systems. In view of the need for continued improvement in these areas and the purpose of the high performance bonus, we believe that the high performance bonus system should include a Medicaid/SCHIP measure that focuses on how well States are meeting the TANF goals of work preparation, work and self-sufficiency.

As stated earlier, we limited the outcome measure to individuals leaving TANF assistance because: (1) States have a clear responsibility for serving these families under title I of PRWORA,

i.e.

, under the amendments to section 193l of the Social Security Act; and (2) welfare “leaver” studies and other studies on program participation indicate that these families frequently are not receiving Medicaid/SCHIP. Furthermore, we believe this type of measure will result in a significantly smaller reporting burden for States, as well more accurate and consistent reporting.

We do not agree with the comment that this measure merely rewards States for complying with the law. The transitional Medicaid provision under section 1925 of the Act covers only those families who were eligible and received Medicaid under section 1931 of the Act. (This is the PRWORA provision covering families who meet AFDC-related eligibility standards for three of the six months prior to losing Medicaid because of income or employment.) Some families leaving TANF because of work are not eligible for transitional Medicaid because they were not receiving Medicaid under section 1931 for three of the six months before losing Medicaid due to earnings or income. However, under section 1931, States may adopt less restrictive income methodologies to ensure that families seeking TANF benefits, but moving quickly to work, can qualify for transitional Medicaid benefits.

In cases not covered by this transitional Medicaid provision, the dependent children generally continue to receive Medicaid under the State's poverty levels groups or may qualify for benefits under the SCHIP program, and we want to ensure that these children are receiving these benefits. A different provision in section 1931 of the Act provides transitional Medicaid for families losing benefits as the result of child support collections. Other families might be eligible under a State's medically needy group.

In addition, many of the factors affecting enrollment in Medicaid are not compliance matters. Two States that fully comply with all Federal requirements could have vastly different participation rates because of differences in how they operate their programs. While there are potential compliance issues with respect to matters such as

ex parte

redeterminations and proper notice, States have discretion in numerous areas of policy and administrative practice. For example, in the policy area, States have flexibility to expand eligibility coverage through the use of more liberal income and resource standards and methodologies. In the area of administrative practice, States have broad flexibility with regard to variables such as the location of eligibility offices, office hours, length of application, amount of verification required, outstationing, and use of mail-in and phone-in applications to eliminate barriers to and simplify the application process and reduce procedural requirements. Limiting the outcome measure to families who leave TANF but remained enrolled in Medicaid focuses on the only group for which there are data easily accessible to all States on a uniform basis.

In view of the reasons stated above addressing the responsibilities of States to provide Medicaid to eligible families, particularly those leaving TANF, and the flexibility afforded States to meet these responsibilities, we are retaining in the final rule at § 270.4(d) the outcome measure limited to those families who leave TANF, but are enrolled in Medicaid after leaving TANF.

Comment:

One commenter observed that the September 30, 2001, sunset date of section 1925 of the Act complicates the measurement since eligibility for transitional benefits will change after that date and one would expect a number of families would not be entitled to be on the rolls by month six.

Response:

The commenter is correct. Unless Congress acts to change this provision, beginning in FY 2002, families who lose Medicaid eligibility because of hours of, or income from, employment or because of loss of earned income disregards will be eligible for a minimum four-month period of extended Medicaid eligibility. Since we are reducing the measurement time frame from six months to four months in this final rule, we do not expect States will be adversely affected in competing for an award.

Comment:

A number of States commented that there are other factors—such as moves out-of-State, death, changes in family formation, increased earnings, and enrollment in private health insurance—that affect participation in Medicaid and SCHIP. Of particular concern was that the proposed measure did not allow any adjustment for families who obtain private health insurance.

Response:

We agree that there are numerous factors that affect families' participation in the Medicaid and SCHIP programs. However, if we were to provide an adjustment for all circumstances that can affect States' caseloads, the outcome measure would conflict with the NGA/APHSA principles that the bonus system should: (1) Be simple, credible and quantifiable; and (2) rely on existing data where available. Also, if all States could not identify or exclude cases based on deaths, moves out-of-State, or other circumstances, then allowing adjustments would disadvantage the States that could not do so, thus creating an uneven playing field.

Similarly, we have decided not to make adjustments for families who obtain private health insurance after leaving TANF. While we applaud State efforts to get individuals into jobs that provide health coverage and related benefits, and we would like to be able to credit States somehow for success in this area, adequate data on private health insurance coverage do not exist. Further, the costs that would be associated with collecting comparable, adequate data for all States would be prohibitive. One underlying issue is that private insurance coverage varies substantially across employers and individual employee circumstances. This variability suggests that, in order to treat States fairly, we should somehow measure the quality and level of coverage under the private plans and include appropriate adjustments.

In summary, since private plans seldom offer benefits comparable to Medicaid, we would not necessarily want to give States the same credit for private coverage. Furthermore, participation in employer-sponsored insurance does not affect an individual's entitlement to transitional medical assistance.

Finally, although we recognize that some States have given a high priority to job placements that provide health coverage and have achieved some success, the national statistics suggest that it would be quite rare for those entering low-wage jobs to obtain private health insurance that is affordable and comparable to the benefits provided by Medicaid. The types of employment situations these families generally access, especially in the short run, mitigate against adequate health coverage. The types of industries and the types of occupations, union status, the size of establishments, length of time on the job, and the use of part-time or temporary employment all increase the chances that a family would not have adequate coverage.

For example, according to a study in the June 1995 Monthly Labor Review, while six of ten workers had employer-based coverage, only one-fourth of service workers in service-producing industries had such coverage. The study also noted that, in general, industries where coverage has traditionally been more prevalent have been in decline as a portion of the U.S. economy. It cited service jobs such as waitressing, cosmetology, and cleaning as occupations with less access to employer-based coverage. According to more recent data (1996-1997) from the Bureau of Labor Statistics (BLS), while 70 percent of those employed full-time in the private sector participate in employer-based plans, only 11 percent of part-time private-sector employees do.

In the event that private insurance is available, it is apt to be under a plan with a limited benefits package. Data from the 1996 and 1997 BLS Employee Benefits Surveys show that 78 percent of those participating in an employer-based plan had to contribute to the cost for family coverage (“Compensation and Working Conditions,” Winter 1999). Earlier BLS data showed a 200 percent increase in the average family premium between 1983 and 1993. Accordingly, “premiums may be difficult for some workers to afford, causing them to decline coverage.” Also, about three-fifths of all participants have coverage that is subject to a pre-existing condition clause, limiting the care they can receive. Thus, even where individuals have access to employee benefits, we are concerned that families receive the wrap-around services that Medicaid can provide and to which they are entitled.

Comment:

A number of States commented that the performance

measure disadvantages States that have achieved high levels of Medicaid/SCHIP participation since low-performing States can make greater improvements. A few of the commenters recommended that we use a percentage point improvement measurement rather than percentage improvement measurement to even the playing field.

Response:

We agree that high performing States may be disadvantaged by the performance measure as proposed. Therefore, in the final regulations at § 270.4(d), we have substituted a measure of percentage point improvement for the proposed percentage improvement measure. We believe the measure in the final regulation puts States on a more even playing field, regardless of their baseline level of performance. At the same time, States whose performance was relatively low in the base year are still in an excellent position to be rewarded for their efforts toward increasing enrollment.

Under the proposed measure, a State that increased Medicaid participation from 5 percent to 10 percent (a 100 percent improvement) would be ranked higher than a State that increases participation from 30 percent to 45 percent (a 50 percent improvement). In the final rule, a State that increases participation from five percent to ten percent would achieve a five percentage point improvement while a State that increases participation from 30 percent to 45 percent would achieve a 15 percentage point improvement and would be ranked higher than the first State.

Comment:

Some commenters recommended an absolute measure rather than a performance improvement measure. Other commenters recommended expanding the measure to have both an improvement measure and an absolute measure so that States could be ranked separately on both measures. They also suggested that we divide the bonus funds among the top five States achieving high performance in both measures.

Response:

We agree that adding an absolute measure provides for a fairer system of awards and have made this change in the final rule. Under the NPRM, States that engaged in early and successful efforts to increase enrollment could have found it extremely difficult to compete for these awards, and their efforts might never have been recognized. The final rule sets aside some of the bonus awards for those States that have the highest overall success in enrolling individuals in eligible families. For the absolute performance measure, we will rank the States in order of the highest percentage of Medicaid/SCHIP participation rates by individuals in families four months after leaving TANF and who are not receiving TANF in the fourth month.

In awarding bonuses to the top performing States under both performance measures, we will divide the $20 million in bonus funds, as specified in § 270.8, among the three States that have the highest percentage of Medicaid/SCHIP participation rates by individuals in families four months after leaving TANF and who are not receiving TANF in the fourth month (absolute performance measure) and the seven States that show the most improvement performance from the previous year to the current year (improvement performance measure). This allocation of bonus funds among the States is consistent with the Food Stamp allocation of bonus funds among States that compete on the Food Stamps measure.

Comment:

One commenter noted that the Medicaid measure should have a method for dealing with tied scores.

Response:

We agree with this comment. In the interest of consistency, we will use the same method that we used for the work and food stamp measures. We specify in paragraphs (d)(1) and (d)(2) that we will calculate the percentage rate for the two measures to two decimal points. If two of more States have the same percentage rates, we will calculate the rates for these States to as many decimal points as necessary to eliminate the tie.

Also, since participation in the high performance bonus award system is voluntary, we will rank only those States that choose to compete, notify us by February 28 of the bonus year of their intent (§ 270.11), and provide the requisite data.

New Section 270.4(e) Child Care Subsidy Measure

A substantial number of commenters recommended a child care measure, either as an additional new measure or as a replacement for the family formation measure. We agree that child care is of critical importance to working families, and we share the commenters' view that access to affordable, high quality care is a necessary part of a welfare reform program. We believe that high quality care is of critical importance to children of TANF and other very low-income families. A growing body of research indicates that quality and stability of the child care setting influences outcomes for children as well as the ability of parents to retain employment.

In support of their recommendations, commenters observed that currently there is no reward for good performance in providing child care. A child care bonus, they believed, would be an excellent incentive toward better State performance, given that only a small percentage of income-eligible children are now receiving subsidies, according to published estimates from this Department. Many commenters based their rationale simply on the fact that child care is a critical work support needed in order for poor families to work. The suggestions for how we should construct a specific child care measure centered primarily on the number or proportion of children receiving child care subsidies and/or the amount of expenditures on eligible children.

In developing the NPRM, we had considered the possibility of including a child care measure, not only because of its importance to working families but also because the CCDF program and the TANF program are closely related. However, we did not propose a child care measure for various reasons. Our reasons included the lack of currently available data that would completely capture State performance on all of the crucial elements, including quality, affordability and accessibility of an effective child care subsidy delivery system. We also took into account the lack of data that would fully capture how well States are performing in serving the TANF/CCDF population given the considerable duplication in data sets and inconsistencies in statutory data collection between the two programs.

Based on the extensive support among commenters for a child care measure and upon further evaluation of the availability of data, we have devised a child care measure that we believe will reward States based on an appropriate range of important child care program elements. This new measure is located at § 270.4(e) of this final rule. The three components of the measure address child care accessibility, as indicated by the percent of CCDF-eligible children receiving services; affordability, as indicated by assessed family co-payments; and quality, as indicated by State reimbursement rates. We believe it is essential to include all three components in order to assess a State's performance in making high quality child care more accessible to low-income families. We will use Census Bureau and existing CCDF data on two elements for the FY 2002 bonus year and add an additional element for subsequent years that will require additional information to be reported by

States choosing to compete for the measure. The top 10 performing States that choose to compete on this measure will each receive a portion of a total of $10 million in bonus funds awarded annually for this measure.

We intend to engage States and others, particularly data experts, in discussions regarding the technicalities of implementing key elements of the measure. While there were many comments in support of a child care measure, and many of these comments supported the areas that we have selected for measurement—accessibility, affordability, and quality of child care—there was no opportunity for detailed consultation or comment on the technical aspects of measurement within these areas, because a child care measure was not included in the NPRM. After consultation with States and others. We intend to issue details regarding the components of the measure by the end of the calendar year.

For the FY 2002 bonus year, the measure consists of two components: the percentage of eligible children served and the affordability of care for the families of the children served as indicated by the relationship between the State's reported family CCDF co-payments and reported family income. These components of the measure use existing data reported by the States on the ACF-801 and the ACF-800 as the source for the number of children served, family copayments, and family income. We will calculate the percentage of children served with “pooled” funds,

i.e.

, CCDF funds (including transfers from TANF) and any other funds that are reported to us on the ACF-696 (CCDF financial reporting form) for the applicable year.

Each State's rank on the measure in the FY 2002 bonus year will be a composite weighted score of the two components, with the component on percent of population served having a weight of 6 and the component on affordability of family co-payment having a weight of 4.

We will use Census Bureau data (the Census 2000 Supplementary Survey and the Long-Form Transitional Database) as the data source for family income at 85% of the State's median income,

i.e.

, the Federal eligibility limit set in statute for the CCDF, to determine income-eligibility in calculating the percentage of children served.

To determine affordability, we will compare family income with assessed state family co-payment as reported on the ACF-801. Because States have tremendous flexibility in setting sliding fee scales under the regulations governing the CCDF, in order that they can balance different needs and make child care affordable for families at a range of incomes, we will refine the technical details of this measure through additional consultation with States and data experts.

For FY the 2003 bonus year we will further strengthen the measure by adding a third component that compares actual rates paid by the State to the market rates applicable to the performance year. Each State's rank on the measure in the FY 2003 bonus year will be a composite weighted score of the three components, with the component on percent of population served having a weight of 5, the component on affordability of family co-payment having a weight of 3 and the third component on the comparison of rates paid to market rates having a weight of 2.

This third component cannot be implemented in the FY 2002 bonus year because States do not currently report the data collected in the CCDF-required market rate surveys, nor is there any consistency among States in how the surveys are conducted. However, we believe this additional component of the measure will strengthen our ability to assess a State's performance with respect to both affordability and quality, since access to higher quality, more stable care for families receiving subsidies is often linked to the rates paid to providers by the State.

This component will use existing data on actual rates paid for children receiving CCDF subsidies as reported on the ACF-801, and data on actual market rates that will be submitted by those States that choose to compete on the child care high performance measure. We will draw the necessary data from the market rate data collected by the State in the CCDF-required survey. Consistent with existing CCDF requirements, this survey must be completed no earlier than two years prior to the beginning of the performance year when the performance year is the first of the biennial State CCDF Plan cycle, or no earlier than three years prior to the beginning of the performance year when the performance year is the second year of the State CCDF Plan cycle. While States must complete their surveys within the specified time frame, CCDF regulations do not require submission of the survey data. A process for submission of this data by States choosing to compete on the child care measure and the precise methodology to be used in ranking States on the relationship between rates paid and market rates will be developed through additional consultation with States and data experts.

For all bonus years, we will distribute bonuses to the top 10 qualifying States that have both fully obligated their CCDF Matching Funds for the fiscal year corresponding to the performance year and fully expended their CCDF Matching Funds for the fiscal year preceding the performance year. The source of this financial information is the ACF-696 for the corresponding bonus performance period. This requirement contributes to the effective use of Federal funds and to a level playing field across States, by ensuring that no State can win the child care high performance bonus through substituting TANF or other 100% Federal funds for CCDF Matching Funds (although States may certainly add resources to the CCDF “pool” of funds). Thus, all States competing for the child care bonus must have committed all of their dedicated child care funds.

We address commenters' specific recommendations for the child care measure below. The approaches suggested by many of the commenters were similar. The commenters proposed a variety of options, some more detailed than others, while none provided an in-depth analysis of potential data sources. To avoid repetition, we have organized the comments by type, rather than by content of individual letters.

Comments:

Commenters suggested that a child care measure might be based on various target populations, including:

(1) TANF recipients and former TANF recipients;

(2) Children eligible under the provisions of the Child Care and Development Fund (

i.e.

, at or below 85 percent of State median income);

(3) Children at or below 200 percent of poverty;

(4) Children served under both the Child Care and Development Fund (CCDF) and, at State option, other subsidy programs funded by TANF or State sources; or

(5) Children in two-parent households receiving child care services (as a suggested substitute for the family formation measure).

Response:

We concur that a child care measure should take into account the population served,

i.e.

a measure of accessibility to subsidies. Therefore, we have incorporated percentage of CCDF-eligible children served into the composite child care measure. We will include children served with “pooled” funds (all funds reported on the ACF-696 for the period corresponding to the performance year) in the percentage. We believe that the most appropriate denominator is the target population eligible under the Child Care and

Development Block Grant Act,

i.e.

, at or below 85% of the State Median Income.

We do not have an existing data source that would accurately capture child care subsidy services to all TANF recipients. Nor could we determine a method of eliminating duplicate counting of children served with TANF and CCDF maintenance-of-effort funds.

Since we are adopting a separate family formation measure, we did not see a rationale for focusing the child care measure solely on two-parent families. Child care is a critical support for one-parent as well as two-parent families when parents are working. Our measure does recognize that this is a TANF high performance bonus by capturing those children connected to TANF, transitioning from TANF or at risk of becoming eligible for TANF who are served in the CCDF system, including families served with “pooled” funds reported on the ACF-696.

Comments:

A few commenters suggested that the bonus be based on a measure of State expenditures on child care subsidies divided by the estimated number of federally-eligible children under the age of 13. They suggested this simple measure in recognition that there are problems with consistency among programs in eligibility, payment levels, and other factors.

Response:

While this measure would involve a minimal reporting burden, we do not believe that this is a meaningful measure, since it would not capture a measure of the extent of services provided to families, as our measure does. This suggested measure would be more process-based than the measure we adopted and would ignore critical elements of a State's child care performance.

Comments:

A few commenters also suggested using both an absolute and an improvement measure for one or more of the suggested components of the child care bonus.

Response:

We believe that it is most important to focus upon an absolute measure. First, we could not include quality until the third year of child care bonus if we were to seek to include an improvement measure, because there are no baseline data available. We would be very concerned about this consequence because, as we have noted, we believe that a balanced measure of accessibility, affordability, and quality is crucial to ensure beneficial outcomes for children. Second, we believed it to be especially important to reward those States that have already made considerable progress in improving the access, affordability, and quality of care for low-income families.

Comments:

Some commenters suggested factors such as high payment rates and low family co-payments. One suggestion was to pay an increased bonus to States that adopted reimbursement rates at the 75th percentile of the local market rate.

Response:

We concur that the child care performance measure should contain an indicator of affordability. Therefore, we have incorporated an indicator of affordability into the composite bonus, beginning with the first child care bonus year, by measuring the relationship of family copayments to family income.

In the second year of the child care bonus we will add a component that compares reimbursement rates to applicable market rates. These facets of the measure will also at least indirectly address quality of services, since families in top performing States would likely have access to a broader range of higher quality care, which often costs more than mediocre care. We cannot implement the payment component in the FY 2002 bonus year because States are not currently required to submit data on the relationship between their reimbursement rates and the market rates in the State. Nor do we have access to consistent information on what constitutes the 75th percentile in each State.

We believe that this approach is stronger than an approach that would link extra bonus funds to a specific level of rates, such as the 75th percentile. First, we believe that an approach that rewards States for rates that provide more access to the market for low-income families without setting a single standard is more consistent with the flexibility in the CCDF statute. The CCDF final rule (63 FR 39959) uses the 75th percentile as a benchmark, not a requirement. Second, we want to ensure that States have a continued incentive to improve the access of low-income families to the market beyond any specific marker. Third, we want to ensure that the bonus approach does not inadvertently inhibit the ability of States to try a variety of approaches to rate-setting that might enhance quality, including rate structures that offer incentives linked to provider qualifications, certification, or other quality measures. In the context of a shortage of dedicated Federal child care funds and the trade-offs that States could be forced to make as a result, we are concerned that a bonus linked to a single approach to payment could inadvertently be counter-productive. Our approach is intended to reward States that, by making the best use of all the resources and choices available to them, have established higher rates.

Comments:

Some commenters suggested that the child care bonus incorporate certain measures of quality. The ideas forwarded by one or more commenters consisted of:

• Excluding children who are in informal or unlicensed care from the population measure;

• Measuring the use of licensed care by subsidized families; and

• The payment of higher rates to accredited centers.

Response:

We concur that quality child care is important for the healthy development of all children and is especially crucial for children in low-income families who often are disadvantaged educationally as well as financially. Thus, we incorporated quality into the bonus measure by looking at factors that allow families to pay for better care, an approach that is consistent with the parental choice concept that is central to the statute governing the CCDF. Licensing and certification systems vary greatly, and we do not have the data to determine access to accredited care. Moreover, children often are in multiple arrangements or frequently are moved to different settings for various reasons. Available data would not support an unduplicated measure related to use of specific types of care.

Comments:

Several commenters also suggested a child care threshold measure, either as a qualifying factor for a child care bonus or in order for a State to receive other bonus awards. They suggested:

1. Before a State could compete on a child care measure, the State must pay a child care rate equal to at least the 75th percentile of the local market rate based on a survey that is not more than two years old; or

2. To qualify to compete, a State must spend a required percentage of child care funding for care that meets State certification standards.

Other suggestions included granting high performance bonus awards only on the condition that a State based its child care payments on recent market surveys or served at least 70% of its income-eligible children.

Response:

We agree with commenters on the critical importance of quality and access to child care services. However, we do not believe it is useful to include these factors as qualifying conditions. Instead, we have taken a stronger position by addressing payment rates and percentage of children served directly in the child care measure we developed. In our response regarding the suggestion that we include use of

licensed or accredited care in the bonus itself, we explained why we believe that there are not data available to make a measurable determination on use of such care. As we pointed out earlier, we also sought to develop a measure that supports the central CCDF concept of parental choice.

Other Recommendations for New Measures in or Approaches to the Bonus System

In addition to recommendations for a new child care measure, we received many comments for other measures as well as suggestions for how the high performance bonus system might be improved. We summarize and respond to these comments below.

A. Domestic Violence

Comments:

A substantial number of the letters and notecards recommended adding a measure of how well States address domestic violence. In support of this recommendation, some commenters provided detailed background information about the prevalence of domestic violence among women on TANF and how domestic violence can hinder an individual's ability to maintain work in a way that leads to self-sufficiency.

Most commenters on this issue recommended that the measure be designed to “look at the proportion of women who disclose they are victims of domestic violence who receive services or waivers under the [TANF] family violence option.” Alternatively, a few other commenters suggested that we add a threshold measure related to domestic violence,

i.e.

, only States that adopted the TANF Family Violence Option and “meet the requirements of federally recognized good cause waivers” (45 CFR 260.55) could compete for other bonuses. One commenter suggested that the Department would have to adopt “a detailed statement on how to effectively implement a Family Violence Option”; another commenter suggested that competition for the bonus include interviewing domestic violence advocates in the State.

Response:

We strongly agree that domestic violence services are important to the well-being of families and to support work and self-sufficiency. We are committed to efforts that both serve families who are victims of domestic violence and implement prevention programs. The Department has underway an on-going, coordinated, multi-agency initiative on Family and Intimate Partner Violence. This initiative is comprised of a wide range of activities whose purpose is to:

• Strengthen the health care system's ability to screen, treat, and prevent family and intimate partner violence;

• Provide education, training, and support for battered women and their families;

• Increase the ability of battered women, including those on welfare, to obtain and retain employment and obtain child support;

• Encourage greater linkages between child welfare, family and intimate partner violence, and criminal justice fields to better protect both children and parents in homes where violence occurs;

• Enhance community prevention and response systems by increasing collaboration between the Department's State and Tribal family violence grantees and the Department of Justice's State and community-based grantees and other community-based groups; and

• Increase the knowledge base about family and intimate partner violence, through data collection and research;

Specific examples of activities related to this initiative include:

• As the commenters recognized, the TANF final rule includes provisions pertaining to the Family Violence Option instituted under PRWORA. The TANF final rule also provides States penalty relief when they fail to meet the numerical standards for time limits and the work participation rates because they provide good cause domestic violence waivers to battered women. It also includes provisions for the reporting of the strategies and procedures the State has put into place to ensure that victims of domestic violence receive appropriate alternative services.

• ACF awarded grants to several States and localities to increase collaboration between domestic violence programs and welfare programs. These grants have been used for training, policy development, and joint intervention responses.

• ACF's Office of Child Support Enforcement (OCSE) has four ongoing grants examining child support cooperation/good cause and domestic violence, and a fifth cross-site evaluation of the projects. The grants will provide additional information about the incidence of domestic violence among child support recipients and ways the child support and domestic violence communities can work collaboratively to meet the needs of battered women.

• OCSE has also been working with States on implementation of the “Family Violence Indicator,” an automated flagging mechanism within OCSE's national database, the Federal Parent Locator Service, that will prevent the release of data on battered women.

• ACF has formed an interstate domestic violence working group that is examining a number of issues surrounding domestic violence and child support.

• The Department's Office of the Assistant Secretary for Planning and Evaluation is conducting assessments of State policies and practices regarding domestic violence in the TANF program.

ACF will issue periodic reports and technical assistance materials reflecting the results of these and other activities. For example, the Center for Law and Social Policy, in conjunction with OCSE, recently published “models of Safe Child Support Enforcement,” a guide for States and others.

Finally, through the Family Violence and Services Program, ACF also provides grants to all States, all State coalitions, and a number of Indian tribes to provide immediate shelter and related assistance to victims of family violence and their dependents. ACF also funds five national resource centers and the national Domestic Violence Hotline.

Although we are committed to addressing the problems and the often tragic consequences of domestic violence, our task with respect to the high performance bonus was to assess the appropriateness of such a measure in the context of our policy and evaluative framework. In the NPRM, we indicated that we considered a measure looking at the proportion of TANF recipients who received domestic violence services, but we noted that we had identified no objective and reliable data sources for this measure. Similarly, there is no existing source or uniform standards for determining whether a State is meeting federally recognized good cause waiver requirements (especially if it is not penalty-liable), and no existing Federal standards for qualitative measures of service.

After carefully considering the comments and verifying that no data were available to support an outcome rather than a process measure, we

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