Food Stamp Program: Eligibility and Certification Provisions of the Farm Security and Rural Investment Act of 2002

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 273

[FNS-2007-0006]

RIN 0584-AD30

Food Stamp Program: Eligibility and Certification Provisions of the Farm Security and Rural Investment Act of 2002

AGENCY:

Food and Nutrition Service, USDA.

ACTION:

Final rule.

SUMMARY:

This final rule implements 11 provisions of the Farm Security and Rural Investment Act of 2002 (FSRIA) that establish new eligibility and certification requirements for the receipt of food stamps. The provisions of the final rule will simplify program administration, allow States greater flexibility, and provide enhanced access to eligible populations. This rule will allow States, at their option, to treat legally obligated child support payments to a non-household member as an income exclusion rather than a deduction; allow a State option to exclude certain types of income and resources that are not counted under the State's Temporary Assistance for Needy Families (TANF) cash assistance or Medicaid programs; replace the current, fixed standard deduction with a deduction that varies according to household size and is adjusted annually for cost-of-living increases; allow States to simplify the Standard Utility Allowance (SUA) if the State elects to use the SUA rather than actual utility costs for all households; allow States to use a standard deduction from income of $143 per month for homeless households with some shelter expenses; allow States to disregard reported changes in deductions during certification periods (except for changes associated with new residence or earned income) until the next recertification; increase the resource limit for households with a disabled member from $2,000 to $3,000 consistent with the limit for households with an elderly member; allow States to extend simplified reporting of changes to all households; require State agencies that have a Web site to post applications on these sites in the same languages that the State uses for its written applications; allow States to extend from the current 3 months up to 5 months the period of time households may receive transitional food stamp benefits when they cease to receive TANF cash assistance; and restore food stamp eligibility to qualified aliens who are otherwise eligible and who are receiving disability benefits regardless of date of entry, are under 18 years of age regardless of date of entry, or have lived in the United States for 5 years as qualified aliens beginning on the date of entry.

DATES:

Effective Date:

This final rule is effective April 1, 2010.

Implementation Dates:

1. Sections 273.4(a)(6)(ii)(H), 273.8(b), and 273.9(d)(1)—amendments of this final rule were to be implemented October 1, 2002.

2. Sections 273.4(a)(6)(ii)(B) through (a)(6)(ii)(F) and 273.4(a)(6)(iii)—amendments of this rule were to be implemented April 1, 2003.

3. Sections 273.4(a)(6)(ii)(J) and 273.4(c)(3)(vi)—amendments of this rule were to be implemented October 1, 2003.

4. State agencies must implement §§ 273.4(c)(2)(v), 273.4(c)(3)(iv), 273.4(c)(3)(vii), 273.9(b)(1)(vi), and 273.9(c)(3)(ii)(A) amendments no later than August 1, 2010.

5. State agencies may implement all other amendments on or after April 1, 2010.

6. States that implemented discretionary provisions, either under existing regulations or policy guidance issued by the Department, prior to the publication of this final rule have until August 1, 2010 to amend their policies to conform to the final rule requirements.

FOR FURTHER INFORMATION CONTACT:

Angela Kline, Branch Chief, Certification Policy Branch, Program Development Division, Food and Nutrition Service (FNS), USDA, 3101 Park Center Drive, Alexandria, Virginia 22302, (703) 305-2495. Her e-mail address is:

Angela.Kline@FNS.USDA.Gov.

SUPPLEMENTARY INFORMATION:

Background

The Farm Security and Rural Investment Act of 2002 (FSRIA), Public Law 107-171, enacted May 13, 2002, amended the Food Stamp Act of 1977, 7 U.S.C. 2011,

et seq.

(the Act), by establishing new eligibility and certification requirements for the receipt of food stamps. On April 16, 2004, we published a rule proposing to codify (published in the Code of Federal Regulations) the eligibility and certification requirements of the FSRIA. The period for comment on the proposed rule ended June 15, 2004. We received comments from 19 State and local agencies, 90 advocate groups, and 6 individuals. In this final rule, we will not discuss comments that supported our proposals. We will not discuss, in detail, comments that concerned merely technical corrections or inadvertent omissions; we have simply made the corrections. We will not discuss several provisions on which we received no comments. We will adopt these provisions as proposed. For a full understanding of the background of the provisions in this rule, see the proposed rulemaking which was published in the

Federal Register

on April 16, 2004 (69 FR 20724). With the exceptions noted above, we will discuss each provision and the comments made.

Availability of Food Stamp Program Applications on the Internet—7 CFR 273.2(c)

Section 11(e)(2)(B)(ii) of the Food Stamp Act (7 U.S.C. 2020(e)(2)(B)(ii)) requires State agencies to develop a Food Stamp Program application. Section 4114 of FSRIA amended Section 11(e)(2)(b)(ii) to require State agencies that maintain a Web site to make their State food stamp application available on that Web site in each language in which the State agency makes a printed application available. This final rule amends current regulations at 7 CFR 273.2(c)(3) to implement this provision. Section 4114 of FSRIA also required State agencies to provide the addresses and phone numbers of all State food stamp offices and a statement that the household should return the application form to its nearest local office.

Commenters suggested other information that the Department should require State agencies to place on their Web site such as fax numbers and the service area of each local office or some other means to connect individuals to the correct local office. We note that many State agencies do provide detailed local office information on their Web sites. However, we decided that requiring specific information about each local office such as a fax number and the service area of each office can be unduly burdensome to the State agencies, and should be a state option rather than a Federal mandate. The purpose of the statutory provision is to allow households to obtain a food stamp application without having to visit the local office and provide applicants with information to assist them in the application process. We believe that the commenter's proposal is best handled at the State level.

The Department proposed to include a reference to Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) in 7 CFR 273.2(c)(3) to ensure that documents on a State's Web site are

accessible to persons with disabilities. Commenters suggested that the regulatory language specify examples of the kinds of services States must offer in order to make their applications accessible to people with disabilities. They also suggested that the Department reference helpful guidance written by the Architectural and Transportation Barriers Compliance Board on improving access to individuals with disabilities and how to comply with such guidance. Finally, they wanted the Department to provide information in the preamble of the final rule about various assessment tools available to determine whether or not a State meets accessibility standards.

Although the Department appreciates these recommendations, it is impracticable to include such guidance in a regulation due to its extensive detail. As stated by the commenters, other agencies have already provided helpful guidance on improving access to individuals with disabilities. The Department encourages State agencies that administer the Food Stamp Program to consult information such as the guidance written by the Architectural and Transportation Barriers Compliance Board in the development of accessible systems.

Commenters asked the Department to provide a report on State compliance with this provision in the preamble to the final rule. The Department will not provide such a report in the final rule because of the ever changing nature of State systems. Additionally, the Department does not provide reports in the

Federal Register

on State compliance with other regulatory provisions; therefore, it is not appropriate to provide a report on this provision.

However, the Department has made it clear to all State agencies that the information provided on their Web site must be easily accessible. The Department also developed a page on its own Web site to assist participants in accessing program information for all 50 States and the District of Columbia. The Department's Web site contains a map and list of all 50 States and the District of Columbia. Participants can click on their State and obtain, at a minimum, an English language application form, acquire the food stamp hotline number for their State, and find the nearest food stamp office.

Partial Restoration of Benefits to Legal Immigrants—7 CFR 273.4

1. Expanded Eligibility for Certain Noncitizens

Section 4401 of FSRIA substantially expanded eligibility for the Food Stamp Program for legal immigrants. Prior to the enactment of Section 4401, Section 402 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), as amended, limited eligibility for food stamps to United States citizens, non-citizen nationals, and certain alien groups. The requirements of Section 402 of PRWORA, as well as the alien eligibility requirements contained in Section 6(f) of the Act (7 U.S.C. 2015(f)), were implemented through current regulations at 7 CFR 273.4(a). That section lists the groups eligible for food stamps which include qualified aliens, as defined under 7 CFR 273.4(a)(5)(i), who meet at least one of the criteria specified at 7 CFR 273.4(a)(5)(ii). Some of the criteria make a noncitizen eligible for only 7 years, while other criteria make the noncitizen permanently eligible for the program. The proposed rule contained a detailed discussion of these requirements; interested parties can refer to the current regulations and proposed rule for further discussion.

Section 4401 of FSRIA amended Section 402 of PRWORA to expand food stamp eligibility for certain additional qualified aliens. First, Section 4401 extends eligibility for food stamps to any qualified alien who has resided in the United States for 5 years or more as a qualified alien. As written, Section 4401 could be read to require that the alien has been in a qualified status at the time he or she entered the United States in order to be eligible under this provision. However, in reviewing the legislative history behind FSRIA in the development of the proposed rule, the Department came to the conclusion that it was not the intent of Congress to deny the benefits of the provision to aliens who are not qualified when they enter the United States but later attain qualified status. Therefore, the Department proposed to amend current regulations at 7 CFR 273.4(a)(5)(ii) to extend eligibility for the Food Stamp Program to any alien who has resided in the United States in a qualified alien status as defined in PRWORA for 5 years.

While most commenters approved of the language in the proposed rule, they asked the Department to clarify the 5-year residency requirement to incorporate guidelines regarding the calculation of the 5-year period. First, they asked us to clarify that the 5 years do not have to be consecutive. Second, they asked us to clarify that temporary absences of less than 6 months from the United States, with no intention of abandoning U.S. residency, do not terminate or interrupt the individual's period of U.S. residency. Third, they asked us to clarify that prior residence in any one or any combination of the immigrant statuses that confer eligibility counts toward the 5-year residency policy. Finally, to ensure that, when the U.S. Citizenship and Immigration Services grants qualified status retroactively, the retroactive time counts toward the 5-year requirement. The Department has considered these requests and the final rule reflects the recommended clarifications.

The 5-year residency rule effectively eliminates the 7-year time limit on food stamp participation for qualified aliens who are eligible for the program because they meet the criteria (for example, refugee or asylee status) set out in PRWORA and at current regulations 7 CFR 273.4(a)(5)(ii)(B) through (a)(5)(ii)(F). Because the 5-year residency rule effectively eliminates the 7-year time limit on food stamp eligibility, the Department proposed to amend current regulations at 7 CFR 273.4(a)(5)(ii)(B) through (a)(5)(ii)(F) to remove the reference to the 7-year time limit. One commenter noted that while it is technically correct to strike the now irrelevant 7-year time limit language, they felt that the proposed regulations would have required a confusing, redundant two-pronged test. They suggested that the changes proposed by Section 4401 gave FNS an opportunity for a substantial reorganization of 7 CFR 273.4(a).

The commenter suggested that the Department move the “refugee” group to its own unencumbered section under 7 CFR 273.4(a) and separately group the remaining qualified immigrants who must meet the two-pronged test. They felt that eligibility workers would have difficulty determining what rule is applicable to the household and become confused about how a member of a refugee group can be both “qualified” and “eligible” under the same set of facts but other non-citizens must meet a two-pronged test involving age, duration of status, disability, work history or veteran status. The commenter also recommended that the Department insert an additional provision to resolve any confusion around situations where an individual presents proof of lawful permanent residence (LPR) such as a Permanent Resident Card, I-551, which may have a “date of entry” based on when LPR status was granted, but the

immigrant may have previously entered in refugee or asylee status.

FNS has considered these suggestions, but maintains that the two-pronged test is a statutory requirement that must be addressed in the regulations. FNS finds that State agencies generally simplify their eligibility requirements for eligibility workers. We have attempted to simplify this provision by listing the requirements for eligibility for qualified aliens in one section at, 7 CFR 273.4(a)(6)(ii). In this section, we delete any reference to the 7-year time limit and delineate between those aliens that do not have to meet the 5-year residency requirement at 7 CFR 273.4(a)(6)(ii)(A)-273.4(a)(6)(ii)(J) and those that must meet the 5-year residency requirement at 7 CFR 273.4(a)(6)(iii) in order to establish eligibility. We did not relocate the refugee group to a separate group as there are other exceptions to the 5-year residency requirement and we felt that all of the eligibility requirements for qualified aliens should be grouped together. We did not add a provision regarding the date of entry as current regulations at 7 CFR 273.4(a)(6)(iv) address aliens who change from one status to another.

The 5-year residency rule also makes parolees and conditional entrants who retain qualified alien status for 5 years eligible for the program. Under the current rules, these two categories of qualified aliens have to meet one of the requirements under 7 CFR 273.4(a)(5)(ii) in addition to meeting the requirements for parolee or conditional entrant status. The Department proposed to amend the current regulations to accommodate this change in the law. These aliens are listed as qualified aliens in paragraph 273.4(a)(6)(i) of the final rule and are subject to the 5-year residency requirement listed at paragraph 273.4(a)(6)(iii) of the final rule. Section 4401 also effectively reduces the applicability of the 40 quarters of work requirement for aliens lawfully admitted for permanent residence under PRWORA and current regulation 7 CFR 273.4(a)(5)(ii)(A). Under the current rules, to be eligible to participate in the Food Stamp Program, an alien who is a qualified alien because he or she was admitted for permanent residence must have or be credited with 40 qualifying quarters of work to qualify for this exception. Thus, generally, a lawful permanent resident must work for 10 years before becoming eligible to participate in the Food Stamp Program. However, as a result of Section 4401, a lawful permanent resident will now become eligible for food stamps after residing in the United States for 5 years whether he or she has any qualifying quarters or not. The 40 quarters requirement is only applicable in cases of lawful permanent residents who have been in the United States less than 5 years but can still claim 40 qualifying quarters of work, such as in the case of an individual who claims quarters credited from the work of a parent earned before the applicant became 18.

One commenter asked the Department to conform its regulations to those of the Supplemental Security Income (SSI) program and provide that quarters credited from a spouse are not lost if the couple divorces unless food stamp benefits actually terminate. The commenter believes that USDA should conform its policy to that of other programs, including SSI, to further simplify program administration. According to the commenter, individuals who meet the non-citizen requirements for SSI based on the quarters of a spouse retain SSI eligibility upon divorce but lose food stamp eligibility at their next recertification.

Pursuant to 8 U.S.C. 1645, when determining the number of qualifying quarters of coverage under title II of the Social Security Act (SSA) (42 U.S.C. 401,

et. seq.

), an alien shall be credited with all of the qualifying quarters worked by a spouse of such alien during their marriage if the alien remains married to such spouse. Under the guidelines of the Social Security Administration, provided in Section SI 00502.135 of the Program Operations Manual (POMS), the qualifying quarters of a spouse cannot be credited if the marriage has ended, unless by death, before a determination of alien eligibility is made for aliens lawfully admitted for permanent residence. However, the POMS also states that qualifying quarters credited from a spouse are not lost if the marriage ends for any reason after a determination of eligibility is made unless the benefits terminate and a new claim is required.

Unlike food stamp benefits which expire if there is no determination of eligibility for the new certification period, SSI benefits are provided on a continual basis with the Social Security Administration performing redeterminations on a schedule that is based on the likelihood that a recipient's situation may change. This difference has led the two agencies to apply different methodologies for crediting qualifying quarters worked by a spouse.

In 2000, the Department received a similar comment to the proposed Noncitizen Eligibility and Certification Provisions (NECP) Rule. The analysis of this comment can be found in the final rule at 65 FR 70134 on November 21, 2000. At that time, the Department rejected the proposal to conform their policies to mirror those of the SSI program. However, the Department did amend the regulation to allow the State agency to continue eligibility until the household's next recertification once they determine eligibility based on quarters of coverage of the spouse.

The commenter asked for the Department to revisit this issue based on a belief that the Department unnecessarily relied on the technicality that food stamps are provided on a time-limited certification period. The commenter felt that this reliance on a technicality in 2000 was unnecessary because the statute only requires that the couple “remain married” at the time the quarters are credited, not that they continue to be married at the time of recertification.

Although Congress intended to simplify program administration under the FSRIA, this was not an issue that they addressed. The FSRIA lists specific programs that the Department needs to work with to develop uniform policies. Congress did not include SSI in this list of specific programs. Additionally, the current regulations are consistent with the administration of the Food Stamp Program. As stated above, the certification period of the Food Stamp Program does not mirror that of the SSI program. Therefore, the Department developed a regulation that came as close to the SSI program policy as it could without violating the overall principles of the Food Stamp Program. All federal benefit programs are different in their administration of benefits because Congress implemented laws that fit the overall goals of each program. Therefore, the agencies governing these programs need to comply with Congressional intent and develop rules to achieve the specific goals of each program.

Although the 40 qualifying quarters requirement has been minimized as an eligibility requirement, it continues to play a role in the area of deeming of the income of a sponsor to a sponsored alien. Except for aliens exempt from the deeming requirement in accordance with 7 CFR 273.4(c)(3), the deeming requirement applies until the alien has worked or can receive credit for 40 qualifying quarters of work, gains United States citizenship, or his or her sponsor dies. Thus, even though a lawful permanent resident may be eligible for the Food Stamp Program after 5 years without any qualifying quarters of work, the deeming requirement may apply to the individual until he or she works or can receive credit for 40 qualifying quarters.

The Department did receive comments regarding the deeming rules which will be discussed in detail below.

In addition to extending eligibility to aliens who satisfy the 5-year residency requirement, Section 4401 also extends eligibility to two other groups of qualified aliens. First, Section 4401 extends eligibility for the Food Stamp Program to all qualified aliens who meet the definition of disabled at Section 3(r) of the Act, regardless of the date they began residing in the United States. Second, Section 4401 extends eligibility to all qualified aliens who are under the age of 18. The Department proposed to amend current regulations at 7 CFR 273.4(a)(5)(ii) to incorporate the revised eligibility requirements for certain qualified aliens.

Under the Act, individuals are considered disabled if they receive certain federal or State disability benefits. Most of the benefits listed in the Act require an individual to provide proof of a disability. The Act also provides that persons receiving disability-related Medicaid, State-funded medical assistance benefits, and State General Assistance (GA) benefits may be considered disabled for food stamp purposes if they are determined disabled using criteria as stringent as federal SSI criteria. One commenter noted that some States will provide disability-related general or medical assistance to residents based on age. They were concerned that although some of these individuals also meet the SSI definition of disabled, they may be denied food stamps because they did not have to provide proof of their disability to receive their State-funded assistance. To ensure that this does not happen, the commenter suggested that the final rule clarify that an individual may qualify as disabled for food stamp purposes if the individual has been determined by the State to have a disability that meets SSI standards, as long as the individual is receiving a State-funded, needs-based, benefit. Although these points are addressed in the preamble to the proposed rule and in program policies, the commenter wanted to have these policies codified to avoid the anomaly of denying food stamps to disabled elders while allowing food stamps to non-elderly disabled persons.

The Department has considered these comments and has determined that the issue presented by the commenter is so limited that it is not necessary to codify. Additionally, the Act requires the individual to receive these benefits based on their disability. The fact that the State agency has elected to provide benefits to individuals based on their age and not their disability is not something that the Department can control. The Department must comply with the Act and maintain the provision that the individual receive benefits based on disability criteria. There is nothing in the Act that requires State agencies to accommodate disabled individuals and make a disability determination to qualify under this provision. Therefore, the Department cannot amend this provision of the proposed rule and finalizes it as proposed.

One commenter discovered what they believed to be conflicting language in the proposed rule. They noted that the preamble states that Section 4401 extends eligibility to qualified aliens who meet the definition of disabled and further discussion states that they need to be qualified aliens legally residing in the United States.

The language in the preamble to the proposed rule that refers to the term “lawfully residing” is in a discussion about the current regulations. The proposed rule clearly states that the requirement that an individual be “lawfully residing” as of a certain date would be amended. The proposed language for 7 CFR 273.4(a)(5)(ii)(H) and 7 CFR 273.4(a)(5)(ii)(J) would have amended the current language for those sections by removing the words “on August 22, 1996, was lawfully residing in the U.S. and is now” and adding in their place the word “is”. Therefore, there is no conflict for the Department to correct in the final rule. Under the final rule, to be eligible under 7 CFR 273.4(a)(6)(ii)(H), a qualified alien must be receiving benefits or assistance for blindness or disability. Under revised 7 CFR 273.4(a)(6)(ii)(J), a qualified alien must be under 18.

As a result of the change in program rules qualifying individuals under the age of 18, the Department received several comments on the issue of sponsor liability regarding this group of newly qualified immigrants. Under the current rules, sponsors who sign a binding affidavit of support are responsible for food stamp benefits received by the immigrants they sponsor if those benefits were received during the period of time the affidavit of support is in effect. The affidavit of support remains in effect until the sponsored immigrant becomes a naturalized citizen, can be credited with 40 qualifying quarters of work, is no longer a lawful permanent resident and leaves the U.S. permanently, or until the sponsor or the sponsored immigrant dies.

The NCEP Rule clarified that a State agency cannot request reimbursement from the sponsor during any period of time that the sponsor receives food stamps. The Department decided not to regulate the issue of sponsor liability any further until the Department has completed a thorough policy development process in coordination with other Federal agencies. Several commenters suggested that the Department amend the regulations to clarify that sponsors are not required to reimburse agencies for benefits provided to immigrant children. They believed that this would ensure that immigrant children have access to food stamps, as intended by the recent legislation.

Sponsors are normally shielded from liability in the first 5 years of residence because, under prior law, sponsored aliens were not eligible (with limited exceptions) for 5 years. In amending the Act to make legal immigrant children immediately eligible for benefits, Congress made sponsors of these children potentially immediately liable for benefits issued to them. The commenters believed that this was the result of a Congressional oversight. Therefore, they suggested that the Department consider the option of excluding benefits received by sponsored alien children from sponsor liability for the first 5 years that they are in residence.

The Department has considered these comments and will maintain the current rule as proposed. This was not an issue that Congress felt was necessary to raise in the statutory language and the Department does not want to regulate the issue of sponsor liability any further until the Department has completed a thorough policy development process in coordination with other Federal agencies. Since Congress did not raise this issue in the statutory language, the Department is following the statutory language and does not believe that it is necessary or proper to regulate beyond these statutory provisions.

Several commenters suggested that the Department amend the current regulations to clarify that human trafficking victims and certain family members are eligible for food stamps to ensure that victims and their families are not denied benefits. This was not addressed in the proposed rule. The Department included this issue among several it addressed in the “Eligibility Determination Guidance: Noncitizen Requirements for the Food Stamp Program” issued in January 2003 (and in further guidance issued in August 2004).

The guidance reflects the requirements under the “Trafficking Victims Protection Act of 2000” (Pub. L. 106-386), as reauthorized by the

Trafficking Victims Protection Reauthorization Act of 2003 (Pub. L. 108-193) that adult victims of trafficking who are certified by the U.S. Department of Health and Human Services (DHHS) are eligible for food stamp benefits to the same extent as refugees. Additionally, children who are under 18 years of age and have been subject to trafficking are also eligible on the same basis as refugees, but they do not need to be certified. The Department is making a technical amendment to reflect the eligibility status of victims of trafficking as required by statute, by adding these provisions to the final regulations. Therefore, the final rule includes a new 7 CFR 273.4(a)(5). This new paragraph will clarify that trafficking victims and certain family members are eligible for food stamp benefits.

2. Elimination of the Deeming Requirement for Noncitizen Children

In addition to expanding Food Stamp Program eligibility to certain noncitizens, Section 4401 of FSRIA also removed deeming requirements for immigrant children. Deeming is the process by which the State agency counts a portion of the income and resources of an alien's sponsor as income and resources belonging to the alien when determining the latter's eligibility for the Food Stamp Program and amount of benefits. Both Section 421(a) of PRWORA and Section 5(i) of the Act impose deeming requirements on the Food Stamp Program. As stated in the proposed rule, the requirements of the two laws are not fully consistent. However, the Department addressed and resolved the inconsistencies in the NCEP Rule.

Current deeming requirements appear in food stamp regulations at 7 CFR 273.4(c). A complete discussion of the current deeming rules is provided in the proposed rule. Section 4401 of FSRIA amends Section 421 of PRWORA and Section 5(i) of the Act (7 U.S.C. 2014(i)) to add aliens under the age of 18 to the list of sponsored aliens excluded from deeming requirements. Therefore, as of October 1, 2003, the effective date of the provision, the State agency may not count the income and resources of the sponsor of an alien under the age of 18 when determining the eligibility or benefit level of the sponsored alien's household. The Department proposed to amend current regulations at 7 CFR 273.4(c)(3) to add sponsored aliens under the age of 18 to the list of aliens exempt from deeming requirements.

Under current rules at 7 CFR 273.4(c)(2)(v) if an alien's sponsor sponsors more than one alien, the State agency will divide the sponsor's deemable income and resources by the number of sponsored aliens and deem to each alien his or her portion. However, because sponsored aliens under the age of 18 will now be exempt from deeming requirements, following current rules, the State agency must deem only a portion of the sponsor's income to the household. Even though the sponsored child is exempt from deeming requirements, the sponsor is still sponsoring that child. Thus, if an individual sponsors two aliens, an adult and a child who reside in the same food stamp household, the State agency must divide the sponsor's deemable income and resources by two and deem one-half of such income and resources to the sponsored adult alien. The State agency would deem nothing to the child. The Department proposed to amend current regulations at 7 CFR 273.4(c)(2)(v) to clarify this point.

While most commenters supported this provision, several had issues with what they regarded inequitable treatment of households with U.S. citizen children versus those with immigrant children. In a case involving a sponsored immigrant adult and citizen child, the eligibility worker would deem all of the sponsor's income to the household. In a household with sponsored immigrant parents and immigrant children, the eligibility worker would deem only that portion of the sponsor's income attributable to the adult and disregard the portion attributed to the immigrant child. According to the commenters, this could result in the reduction or even the elimination of food stamp benefits for the citizen child with sponsored immigrant parents because all of the sponsor's countable income is added when determining a household's eligibility for the Food Stamp Program. Commenters noted that according to the Urban Institute, 85 percent of immigrant-headed households include at least one U.S. citizen, typically a child. They felt that Congress could not have intended to provide less assistance to households with U.S. citizen children.

The commenters asked the Department to place all sponsored households on equal footing by applying deemed income to households with citizen children in the same manner as it is applied to households with immigrant children. The deemed income would be divided equally among any sponsored immigrants and children in the household with the child's amount excluded. They felt that this would prevent the inequitable distribution of benefits among sponsored households and decrease program complexity.

One commenter suggested that the household be divided into different units. In a household with a sponsored parent and two children (either immigrant or citizen children), for example, the two children would be considered separately with only their parent's income counted in determining their eligibility. Then the sponsored parent's eligibility would be determined separately, with the sponsor's income considered. This same commenter suggested an alternative approach which would allow the sponsored immigrant to “opt out” of the household and be treated under the State's formula for “PRWORA ineligible” immigrants.

The Department believes it was not the intent of Congress to create an inequity between citizen children and sponsored alien children that is fundamentally at odds with the overall goal of the program. Therefore, the final rule places all households on equal footing providing the same income deeming procedures to households with citizen children as those applied to households with immigrant children.

3. Attorney General Notification of Indigency

Current rules require that the State agency notify the Attorney General any time a sponsored alien has been determined indigent, and include in the notification the names of the sponsor and sponsored aliens. Moreover, under Section 423(b) of PRWORA, upon notification that a sponsored alien has received any benefit under any means-tested public benefits program, the appropriate Federal or State agency (or an agency of a political subdivision of a State) must request reimbursement by the sponsor in the amount of such assistance. Commenters raised concerns that some eligible aliens may be deterred from applying for food stamps because of the Attorney General notification requirement and sponsor liability, which could lead to reprisals from their sponsors. The groups suggested that the Department allow alien applicants to opt out of the indigence determination and have their eligibility and benefit levels determined under regular deeming rules. The Department agreed with this concern over the mandatory notification requirement as a deterrent to participation and so proposed to amend current regulations at 7 CFR 273.4(c)(3)(iv) to allow a household to opt out of the indigence determination and be subject to regular sponsor deeming rules at 7 CFR 273.4(c)(2). Under the sponsor deeming rules,

failure to verify the sponsor's income and assets would result in the disqualification of the sponsored alien.

The Department received one comment from a State agency that saw little benefit in this provision. The commenter stated that most sponsored alien applicants who are determined to be indigent have either little or no contact with their sponsor, or are receiving no monetary assistance from their sponsor. Therefore, it makes little sense for the alien applicant to try to request information from the sponsor for purposes of regular sponsor deeming. Additionally, the commenter noted that allowing the applicants to opt out will not necessarily increase participation because the aliens typically opt out completely or become ineligible if the sponsor's income is deemed to them. However, the Department believes that opting out may increase participation by other household members, particularly children. Accordingly, the Department will adopt the revisions as proposed.

The Department also received a comment asking that the final rule contain a provision that will ensure that the sponsored alien is provided notice of the consequences of refusing an indigence determination. Namely, that if the household refuses the determination, the State agency will not complete the determination and will deem the sponsor's income and resources to the alien's household. The final rule contains language to ensure that participants are notified of these consequences.

Prior to the publication of the proposed rule, the Department was asked to permit State agencies to develop an administrative process which requires an eligible sponsored alien to provide consent before release of information to the Attorney General or the sponsor. Commenters suggested that many sponsored aliens would learn of the Attorney General notification and sponsor liability requirements only after they have disclosed their immigration status and social security number. Fearing adverse consequences as a result of the notification requirements, the sponsored alien may withdraw the entire application, resulting in other household members, in many cases U.S. citizen children, losing the opportunity to receive benefits. The Department stated in the proposed rule that it is within the discretion of the State agency to utilize a process under which information about the sponsored alien is not shared with the Attorney General or the sponsor without consent so long as the sponsored alien is aware of the consequences of failure to grant consent or failure to provide any other information necessary for the purposes of deeming the sponsor's income to the alien. As stated previously, the consequence of failure to verify the sponsor's income and assets is the disqualification of the sponsored alien. The Department sees the new option as an administrative simplification, rather than a basic change in policy. The new provision allows the sponsored alien to opt out at the beginning of the application process. This results in an outcome that would have ensued under the existing regulations, but with much more time consuming administrative process. The Department received comments in favor of this provision. Therefore, we are incorporating this provision in this final rule.

4. Comments Related to Department Guidance on Immigration

In addition to the comments that addressed provisions of the proposed rule that are discussed above, the Department received comments that address additional immigration issues. Most of these comments reflect primarily on the guidance issued by the Department in January 2003. Since these issues were not addressed in the proposed rule, the comments are beyond the scope of this rulemaking and should be addressed in a future rulemaking in order to have the force and effect of law.

Simplified Definition of Resources— 7 CFR 273.8

For the purposes of this final rule, the Department is defining cash assistance under a program funded under part A of title IV of the SSA as “assistance” as defined in the TANF regulations at 45 CFR 260.31(a)(1) and (a)(2), except for programs grand-fathered under Section 404(a)(2) of the SSA. Under TANF, assistance includes cash and other forms of benefits designed to meet a family's ongoing basic needs including benefits conditioned on participation in work experience or community service. Programs grand-fathered under Section 404(a)(2) of the SSA include emergency foster care, the Job Opportunities and Basic Skills program and juvenile justice. We do not believe that these grand-fathered programs are what the Congress meant when it used the term “cash assistance” in the statute, even though they may involve a cash payment to a family.

In the final rule, the Department is defining medical assistance under Section 1931 of the SSA as Medicaid for low-income families with children. This section, which was added by PRWORA, allows low-income families with children to qualify for Medicaid. It requires that States use the income and resource standards that were in effect in July 1996 for the Aid to Families with Dependent Children (AFDC) program, but also provides options for States to use less restrictive income and resources tests for these families.

This final rule adds a new paragraph at 7 CFR 273.8(e)(19) which provides State agencies the option to exclude from resource consideration for food stamp purposes any resources they exclude when determining eligibility for TANF cash assistance or medical assistance under Section 1931 of the SSA. However, the final rule prohibits State agencies from adopting resource exclusions, for food stamp purposes, of TANF cash assistance and Medicaid programs that do not evaluate the financial circumstances of adults in the household while determining eligibility and benefits.

The requirement at 7 CFR 273.8(c)(3) to deem the resources of sponsors of aliens as resources of the alien applicants continues to be in effect. However, if a State agency has chosen in accordance with the provisions of 7 CFR 273.8(e)(19) in this final rule to exclude a type of resource excluded for TANF or Medicaid, and the alien's sponsor owns that resource, the State agency would not include that resource when determining which resources to deem to the sponsored alien's household.

The final rule amends 7 CFR 273.8(b) to extend the $3,000 resource limit to households which contain a disabled member or members. (The food stamp definition of an elderly or disabled member is reflected at 7 CFR 271.2).

A State agency that selects the option to use its TANF cash assistance or Medicaid resource rules in lieu of food stamp resource rules may not exclude the following:

1. Licensed vehicles not excluded under Section 5(g)(2)(C) or (D) of the Act (7 U.S.C. 2014(g)(2)(C) and (D)). (Section 5(g)(2)(D)) allows State agencies to substitute the vehicle rules they use in their TANF programs for the food stamp vehicle rules when doing so results in a lower attribution of resources to the household); and

2. Cash on hand and amounts in any account in a financial institution that are readily available to the household, including money in checking or savings accounts, stocks, bonds, or savings certificates.

The proposed rule would have required that the term “readily available” apply to resources, in financial institutions, that can be converted to cash in a single transaction without going to court to obtain access

or incurring a financial penalty other than loss of interest. While commenters found the proposed definition of “readily available” to be easy to understand and specific, they also found that it added complexity to program administration. Some suggested that making the term “readily available” apply to all financial instruments would be simpler than the proposed definition, which would be more restrictive than current policy. Others argued that we should allow State agencies to exclude stocks, bonds, and savings certificates if their TANF cash assistance or Section 1931 Medical assistance programs exclude them. We disagree. These financial instruments are generally easily converted to cash. In the rare instances where they are not easily cashed, current regulations would exclude them as inaccessible resources. As examples, a stock certificate without value, one whose value is not easily determined, or an inherited stock that has not yet cleared probate is considered inaccessible under current rules and would not be counted against a household's resource limit. For these reasons the final rule defines “readily available resources” as resources the owner can simply withdraw from a financial institution. For example, one can withdraw funds from a money market account, or convert foreign currency stored in a safety deposit box to U.S. dollars, by simply going to the financial institution and going through the required procedures.

Under the proposed rule, State agencies would have been able to exclude deposits in individual development accounts (IDAs) made under written agreements that restrict the use of such deposits to home purchase, higher education, or starting a business. This provision drew over 100 comments reminding FNS that the intent of the legislation is to simplify food stamp resource rules and to conform them to other Federal assistance programs. Commenters argued that IDAs are intended to help break the poverty cycle and to encourage work. We agree. The final rule allows States to exclude any and all IDAs from resources, provided their TANF cash assistance or Section 1931 medical assistance programs exclude them.

The proposed rule would have offered States the option to exclude deposits in individual retirement accountants (IRAs) the terms of which enforce a penalty, other than forfeiture of interest, for early withdrawal. The intent of this language was to limit the exclusion to situations where converting the IRA to cash would entail significant loss of resources. Title IV of the Food, Conservation and Energy Act of 2008 (Pub. L. 110-246)(FCEA) provided for the exclusion of all IRAs. Accordingly, any discussion of IRAs is dropped from this rule and will be discussed in a future rulemaking.

Simplified Definition of Income—7 CFR 273.9(c)

Current regulations at 7 CFR 273.9(c) specify the types of income that State agencies must exclude from a household's income when determining the household's eligibility for the Program and benefit levels. Provisions at 7 CFR 273.9(c)(1) through (c)(16) provide a long list of income exclusions that State and local agencies must apply when calculating a household's income.

Section 4102 of FSRIA amends Section 5(d) of the Act (7 U.S.C. 2014(d)) to add three new categories of income that, at the option of the State agency, may also be excluded from household income. Under the amendment, State agencies may, at their option, exclude the following types of income:

1. Educational loans on which payment is deferred, grants, scholarships, fellowships, veteran's educational benefits and the like that are required to be excluded under a State's Medicaid rules;

2. State complementary assistance program payments excluded for the purpose of determining eligibility for medical assistance under section 1931 of the SSA; and

3. Any type of income that the State agency does not consider when determining eligibility or benefits for TANF cash assistance or eligibility for medical assistance under section 1931. However, a State agency may not exclude the following:

• Wages or salaries;

• Benefits under Titles I (Grants to States for Old-Age Assistance for the Aged), II (Federal Old Age, Survivors, and Disability Insurance Benefits), IV (Grants to States for Aid and Services to Needy Families with Children and for Child-Welfare Services), X (Grants to States for Aid to the Blind), XIV (Grants to States for Aid to the Permanently and Totally Disabled) or XVI (Grants To States For Aid To The Aged, Blind, Or Disabled and Supplemental Security Income) of the SSA;

• Regular payments from a government source (such as unemployment benefits and general assistance);

• Worker's compensation;

• Legally obligated child support payments made to the household; or

• Other types of income that are determined by the Secretary through regulations to be essential to equitable determinations of eligibility and benefit levels.

Current regulations at 7 CFR 273.9(c)(3) provide an exclusion for educational assistance including grants, scholarships, fellowships, work-study, educational loans which defer payment, veterans' educational benefits and the like. These exclusions (based on an exclusion provided at Section 5(d) of the Act) are limited to educational assistance provided to a household member who is enrolled at a recognized institution of post-secondary education and that are used or earmarked for tuition or other allowable expenses. State agencies have the option of excluding this assistance from income for food stamp purposes to the extent that their Medicaid rules require exclusion of additional educational assistance,

i.e.,

educational assistance that would not be excludable under the current rules at 7 CFR 273.9(c)(3).

To implement section 4102 of FSRIA, the Department proposed to amend 7 CFR 273.9(c)(3) by adding a new 7 CFR 273.9(c)(3)(v) which grants State agencies the option to exclude any educational assistance required to be excluded under its State Medicaid rules that would not already be excluded under food stamp rules. State agencies that implement this option must include a statement in their State plan to that effect, including a statement of the types of educational assistance that are being excluded under the provision.

One commenter recommended the Department take the opportunity in this final rule to clarify the interaction of the federal Higher Education Act (Pub. L. 99-498) with the Food Stamp Program. The Higher Education Act, as amended, provides that certain types of student financial assistance shall not be taken into account in determining the need, eligibility or benefit level of any person for benefits or assistance under any Federal, State or local program financed in whole or in part with Federal funds (20 U.S.C. 1087uu). Food stamp regulations at 7 CFR 273.9(c)(3) differ from 20 U.S.C. 1087uu by counting student aid as income when such aid is used for normal living expenses, as opposed to tuition and books. The commenter recommended that the Department amend food stamp regulations to conform to 20 U.S.C. 1087uu.

The Department reviewed the applicable language in the Higher Education Act and confirmed that current regulations at 7 CFR 273.9(c)(3) are inconsistent with this law. The Food

Stamp Program is a federally funded program, thereby meeting the criteria of 20 U.S.C. 1087uu. Therefore, in addition to adopting 7 CFR 273.9(c)(3)(v) as proposed, the Department is adding a new 7 CFR 273.9(c)(3)(ii)(A) to exclude student financial assistance received under 20 U.S.C. 1087uu of the Higher Education Act. The Department notes that this section of the Higher Education Act funds work study programs. Therefore, any income received by an individual participating in a work study program funded under this section of the Higher Education Act shall not be counted when determining the individual's eligibility for food stamps. The final rule amends 7 CFR 273.9(b)(1)(vi) to conform to this mandate.

The Department proposed a new 7 CFR 273.9(c)(18) to provide for the exclusion, at State agency option, of any State complementary assistance program payments excluded for the purpose of determining eligibility for medical assistance under section 1931 of the SSA. Complementary assistance relates to certain types of assistance provided under the old AFDC program. In the proposed rule, we specifically asked State agencies to include, in their comments, examples of the types of payments that fall under the category of State complementary assistance program payments. We received only one example of such a program, the Supplemental Living Program in New Jersey. Due to the low response rate, the final rule does not include specific examples of these payments. This rule adopts as final the proposed 7 CFR 273.9(c)(18).

To incorporate the changes mandated by section 4102 of FSRIA, the Department proposed to add a new 7 CFR 273.9(c)(19), that would allow the State agency at its option to exclude from Food Stamp Program income the types of income that the State agency does not consider when determining eligibility or benefits for TANF cash assistance or eligibility for medical assistance under section 1931 of the SSA. However, this provision would not include programs that do not evaluate the financial circumstances of adults in the household and programs grand-fathered under Section 404(a)(2) of the SSA. Additionally, a State would not be able to exclude wages or salaries, benefits under Titles I, II, IV, XIV or XVI of the SSA, regular payments from a government source, worker's compensation, or legally obligated child support payments made to the household.

The Department received several comments regarding proposed 7 CFR 273.9(c)(19). Most of these comments focused on the specific incomes or payments listed in the paragraph. We will address comments concerning specific incomes and payments in the order they appear in proposed 7 CFR 273.9(c)(19). Before we begin this detailed discussion, we wish to address two miscellaneous items. First, the Department is changing the format of the language in the proposed rule. The final rule lists each income or payment that section 4102 of FSRIA does not exclude as income in a list format, starting with 7 CFR 273.9(c)(19)(i) and ending with (c)(19)(x). We believe this revised format will make it easier for readers to understand what income or payments cannot be excluded.

Second, the Department received a comment regarding child support arrearages and whether such sums should be included or excluded as income. The commenter pointed out that, in some cases, a large arrearage of child support may accrue while the non-custodial parent is unemployed or working off the books to evade a wage attachment. State Child Support Enforcement offices (“State IV-D agencies”) sometimes are able to attach a bank account, tax refund, lottery winnings or other property of the non-custodial parent and may remit several months of support at once to the custodial parent. These non-recurring lump sums of child support must be excluded from the custodial parent's household income in accordance with 7 CFR 273.9(c)(8). However, the commenter thought that this may confuse some eligibility workers accustomed to querying their State IV-D agencies for information on child support received. The commenter asked the Department to include lump sums of child support arrearages to the examples of lump sums in 7 CFR 273.9(c)(8).

The Department disagrees with the comment. Current 7 CFR 273.9(c)(8) contains some, but not all, examples of non-recurring lump sum payments. The paragraph clearly indicates that the examples included in the text are not exclusive. The Department sees no need to add more specific examples of non-recurring lump sum payments to this paragraph.

1. Income Excluded by State Agencies When Determining TANF or Medical Assistance

The Department proposed to amend the current regulations at 7 CFR 273.9(c) to permit exclusion of new types of income at State agency option. In addition to permitting the exclusion, one commenter expressed the desire to see this regulation apply to the “treatment” of income as well. If the TANF or medical assistance program treats a certain income as earned income, the commenter would have the State agency also apply the same treatment for food stamps. For example, the regulations governing the TANF program treat workers' compensation as earned income if it is employer funded and if the recipient is still considered an employee of the company. However, current food stamp policy requires worker's compensation be counted as unearned income.

The definition of earned and unearned income, as well as how much of a particular type of income to count is set by regulation, not statute (although Section 5(d) of the Food Stamp Act does say household income includes all income from whatever source except that which is specifically excluded). Thus, even though FSRIA speaks only to types of income to count or exclude for food stamp purposes, the Department agrees with the commenter that having consistency among TANF, medical assistance, and food stamps in how they “treat” income would simplify budgeting for State or local staff who administer multiple programs and would be another step toward simplifying the Program. Therefore, the Department is amending 7 CFR 273.9 to expand the list of allowable earned income to include certain income as earned income if the household is receiving TANF and/or State medical assistance and this income is treated as earned income by a State's TANF or medical assistance program.

Even though a State may exclude income in its TANF or medical assistance program, section 4102 mandated that certain types of income cannot be excluded. Many commenters said these specific income exclusions disregarded the clearly expressed Congressional intent that the Department only supplements the list in the case of unforeseen gamesmanship by some States. Others claimed the additional mandatory income exclusions would increase the administrative burdens on caseworkers and paperwork burdens on households. For example, State agencies would be required to ask about these types of incomes on the application forms and certification interviews even if a State does not find them worth counting for TANF and Medicaid. Moreover, commenters noted that each type of income affects very few households and the Department does not collect data on them through its quality control database. Commenters stated that by supplementing the Congressional list of exclusions, the language in the

proposed rule largely eliminates the simplifying purpose of the provision.

The Department gave serious consideration to these comments. While Congress supported simplifying program administration, it did give the Department the authority to add types of income to the list of mandatory inclusions viewed essential to the equitable determination of eligibility and benefit levels. The Department has determined that the additional types of income included in the proposed rule can be significant sources of income to households and should be counted in determining food stamp eligibility and benefits.

2. Exemption of Gross Income From a Self-employment Enterprise

Three commenters argued that States are unlikely to want to bear the expenses of a blanket disregard of self-employment income in their TANF and medical assistance programs. They believe the Department should leave it to the States to determine which particular types of self-employment income are rare and erratic forms of income and not worth the trouble to ask about through application questions and/or verification requirements. Commenters also stated that if the Department is determined to regulate in the area of self-employment income, it should only require the counting of self-employment income that is the household's primary source of support. The amount of income received from some self-employment sources, such as garage sales and sale of blood plasma, is sometimes minimal and is not a regular source of net income to the household.

The Department does not see a need to clarify this point in the final rule. In determining a household's income for the certification period, State agencies are instructed by current regulations at 7 CFR 273.10(c)(1) to consider income already received by the household during the certification period and anticipate income that the household and State agency are reasonably certain will be received during the certification period. Thus, the Department contends that State agencies should only count self-employment income that at certification can be anticipated with reasonable certainty. Income from rare or erratic sources, like garage sales and the sale of blood plasma, does not meet the standard of reasonable anticipation.

Another commenter stated that there is no need for a single uniform definition of self-employment income for food stamp purposes. Most States count self-employment income in their TANF programs but take a range of approaches in their TANF definitions. The commenter felt that there are very legitimate reasons why a State may wish to develop or test an alternative approach. The commenter stated that imposing the uniform definition has the effect of forcing States to either adopt that definition for TANF purposes or have inconsistent TANF and food stamp definitions. This could greatly increase the complexity of eligibility and benefit determinations for self-employed households. This commenter suggested that the final rule specify that while States must count self-employment income, a State may elect to use the methodology it uses in its TANF or medical assistance program for counting such income.

The Department disagrees with this comment. The methodology a State uses to count self-employment income in its TANF or medical assistance program may not conform to the rules and regulations of the Food Stamp Program. Moreover, these methodologies, if applied to the Food Stamp Program, could allow a greater number of individuals to qualify for benefits than would be the case if States had used a specific food stamp methodology. Self-employed individuals must be found eligible for food stamp benefits through the use of a food stamp methodology. State agencies that believe there is an administrative and cost advantage for applying TANF or medical assistance program methodologies for counting self-employed income to the Food Stamp Program may present their case to FNS through the certification waiver process.

A commenter asked if it was the Department's intent to say that no self-employment income can be excluded under this provision. Currently, 7 CFR 273.9(b)(1) indicates that gross self-employment income is counted and 7 CFR 273.11(a)(2) allows for excluding some self-employed income due to allowable costs. The commenter stated that the Department's proposal implies that gross self-employment income is countable without regard for allowable costs. The commenter noted that if this is the Department's intent, it is a major change and will exclude many from receiving food stamps. They also noted that the Department did not propose to revise the regulations at 7 CFR 273.11(a)(2) and this regulation continues to provide that the costs for making the self-employment income are excluded.

In developing the language for the proposed rule, the Department intended that States would count self-employment income just as they do currently, with the exclusions permitted under 7 CFR 273.11(a)(2). The Department appreciates the commenter pointing out this contradiction between 7 CFR 273.9(b)(1) and 7 CFR 273.11(a)(2). To address this conflict, the final rule includes a reference in 7 CFR 273.9(c)(19) to 7 CFR 273.11(a)(2) and requires States to calculate self-employment income in accordance with this part.

3. Foster Care and Adoption Payments

A commenter presented reasons why the Department should exempt adoption assistance for special needs children. Adoption assistance for special needs children are negotiated payments made to families who adopt a child with special needs. Such payments are meant to reimburse the adoptive parents for the additional costs incurred due to the child's needs, such as modifying a home, respite care, and medical and counseling needs.

The commenter discussed a situation where a foster care family is receiving food stamps for its household, which includes a foster child with special needs. If the family decides to adopt the special needs child, once they adopt him/her, the child will become part of their household and the family will be eligible for the federal title IV adoption assistance program. The commenter noted that under the proposed rule, the adoption assistance payments will count, which may result in the household facing a reduction or, more likely, termination of their food stamp benefits. The commenter urged the Department to examine the issue and facilitate a change that will serve as an incentive for foster care families to adopt special needs children and proposed a remedy. The commenter suggested the Department exempt part of the adoption assistance that reimburses the family for special needs of the child.

In the preamble for the proposed rule, the Department answered a specific question regarding whether adoption or foster care payments made to a household must be counted as income if they are excluded for TANF or Medicaid purposes. The Department said that section 4102 of FSRIA specifically requires that the State include benefits paid under title IV of the SSA as income for food stamp purposes. Title IV-E of the SSA authorizes federal payments for foster care and adoption assistance. Any benefits received by a food stamp household pursuant to a program operated under title IV-E must be counted as income to the household. The Department has no discretion to exempt adoption subsidies for families received under a title IV-E program.

Therefore, the Department cannot exempt part of these subsidies as requested by the commenter.

Another commenter stated that the proposed rule is unnecessarily restrictive by limiting States' discretion. For example, by specifying that foster care and adoption payments must be counted as income, the proposed rule did not accommodate the broad range of different purposes and funding streams for these payments. As noted by the commenter, portions or all of these payments may be funded by State or local programs, and not just under title IV-E, and may be based on a child's special needs beyond normal living expenses. Thus, the commenter believed that it should be within a State's discretion to exclude foster care or adoption subsidies paid by State or local programs as income for the purposes of determining food stamp eligibility and benefit amounts.

The final rule does not give States discretion to exclude foster care or adoption subsidies paid by a State or local agency. The Congressional intent in the 2002 FSRIA was to ensure that payments from a government source, such as foster care or adoption subsidies from a State or local agency, would not be excluded. Although it may be possible that funding for adoption or foster care payments may come from several funding sources, the legislation specifically refers to payments from a government source. This would include payments from a State or local government. Neither Title IV-E of the SSA nor the Act addresses adoption or foster care payments from a non-governmental source. Therefore, States have discretion in determining the exclusion of such payments. The final rule at 7 CFR 273.9(c)(19) does not grant State agencies the option to exempt any portion of adoption and foster care payments that are paid through federal, State or local government funds.

4. Regular Payments From a Government Source

Section 4102 of FSRIA does not exclude regular payments from a government source. To fulfill this mandate, the Department proposed to add a new 7 CFR 273.9(c)(19). The proposed rule would require counting direct payments from a government source as income to a household. In addition, the proposed rule would also require counting of indirect payments or allowances from a government source that are paid to a household through an intermediary. For example, as stated in the proposed rule, if a household is participating in an on-the-job training program and is being paid by an employer with funds provided by a Federal, State or local government, the State agency must count those payments as income for food stamp purposes. This rule would apply even if such payments would be excluded under the State TANF or medical assistance program. This requirement would not apply to payments which are excluded from income for the purposes of determining food stamp eligibility under another provision of law.

Several commenters objected to this section of the proposed rule. The commenters contend that requiring States to count governmental payments, even if the household receives these funds from a non-government source, can be extremely complex and goes against the idea of program simplification. For example, fuel funds and similar utility assistance programs may be available to assist low-income households to buy low-cost heating and cooking fuel or to pay utility bills. The commenters noted that these programs may be funded by a combination of money from State and local governments, utility companies, and voluntary contributions from individual ratepayers.

The Department gave careful consideration to these comments. State agencies, the entities directly responsible for implementing food stamp rules, did not comment on this subject. The silence of State agencies leads us to believe that this may not be as serious a problem for State agencies as the commenters believe. Nevertheless, to ensure the regulation is understood, the final rule clarifies in 7 CFR 273.9(c)(19) that States should count money paid through a private intermediary when it is clear that all the funding money comes from a government source.

In the preamble to the proposed rule, the Department provided another example of a regular payment from a government source—Volunteers in Service to America (VISTA) payments made under Title I of the Domestic Volunteer Service Act of 1973. (42 U.S.C. 4950,

et. seq.

) A commenter stated that States should be able to decide whether or not they want to exclude VISTA payments for VISTA volunteers who apply for food stamps after joining VISTA. The commenter noted that the proposed policy is inequitable because VISTA volunteers who are already receiving food stamps have these payments excluded but volunteers who apply for benefits after they become part of VISTA must have their subsidy counted as income. The commenter believed that this policy is inconsistent with the goals of State flexibility and program simplification.

Current regulations at 7 CFR 273.9(c)(10)(iii) require that VISTA payments be counted as income only if the households applies for benefits after joining the VISTA program. There is nothing in the FSRIA that indicates current food stamp policy should be changed to exempt VISTA subsidies from income for these applicants. Therefore, the Department adopts in the final rule the portion of proposed 7 CFR 273.9(c)(19) pertaining to regular payments from a government source.

5. Child Support Payments Made by a Non-Household Member

Section 4102 explicitly requires that legally obligated child support payments made to households be counted as income. This requirement includes any portion of a household's child support payments that are passed-through to the household under the State's TANF program. Therefore, the Department proposed that all child support payments made to a household be counted as income for food stamp purposes.

We received several comments about voluntary child support payments. A couple of commenters agreed that voluntary child support should not be treated differently from court-ordered child support. However, they stated that the Department should explicitly reassure States that they should not count voluntary child support payments received by a household as income unless they are reasonably certain a voluntary child support payment will be received in a month. The commenters believed that no quality control error or claim should result when an irregular voluntary child support payment is received that the State did not budget when determining the household's income. Moreover, they stated that States need some guidance on the treatment of these payments but the Department failed to provide such guidance in the proposed rule. The Department disagrees with these comments. We discussed the issue of legally obligated or voluntary child support payments in the preamble to the proposed rule. The Department explained that voluntary child support payments should not be treated more favorably than legally obligated payments. Moreover, the Department noted that there may be circumstances in which voluntary child support payments to a household are paid infrequently or irregularly. The Department reminded State agencies that infrequent and irregular income can be excludable under current regulations

at 7 CFR 273.9(c)(2) if not in excess of $30 per quarter. State agencies are expected to apply appropriate food stamp policy and use their judgment in cases where a household receives voluntary child support payment. Therefore, the Department is adopting this provision in our final rule.

6. Monies Withdrawn or Dividends Received by a Household From Trust Funds

The Department proposed that State agencies count monies withdrawn or dividends received by a household from trust funds considered to be excludable resources under 7 CFR 273.8(e)(8). The Department believes that trust fund disbursements may be of a significant amount and may be made on a regular basis to a household.

A commenter expressed the view that trust fund disbursements are typically made for specific purposes, such as medical or educational expenses. The commenter noted that if such disbursements are made for normal living expenses, they are not excludable under 7 CFR 273.8(e)(8). In most cases, the household should be able to show that trust fund money is not accessible, is a non-recurring lump sum payment, or is an excluded reimbursement. The commenter stated that the final rule should allow any State to exclude these funds for food stamps, if it is willing to do so for TANF and medical assistance eligibility. This would avoid the burdensome and confusing process that the proposed rule imposes on States.

The Department disagrees. As we stated in the proposed rule, trust fund disbursements may be of a significant amount and may be made on a regular basis to a household. While the trust account itself may not be accessible to a household, the household may still receive a trust fund disbursement that is accessible and available to them. The household must report this information. It is prudent for State agencies to ask about trust income at certification and recertification, and note the household's answer. Even if the household receives irregular trust disbursements, they must be reminded of their obligation to report any trust disbursements in conformance with the household's reporting requirement. This portion of proposed 7 CFR 273.9(c)(19) is adopted in the final rule.

Child Support Payments—7 CFR 273.9(c) and (d)

1. State Option To Treat Child Support Payments as an Income Exclusion or Deduction

Current rules at 7 CFR 273.9(d)(5) provide households with a deduction from income for legally obligated child support payments paid by a household member to or for a non-household member, including vendor payments made on behalf of the non-household member. Section 4101 of FSRIA amended Section 5(d) of the Act (7 U.S.C. 2014(d)) to add legally obligated child support payments made by a household member to a non-household member to the list of income exclusions. It also amended Section 5(e) by removing existing paragraph (4), which established the child support deduction, and inserting a new paragraph (4) giving State agencies the option of treating child support payments as an income deduction rather than as an exclusion.

In order to implement Section 4101, the Department proposed to amend 7 CFR 273.9 to add a new paragraph (c)(17) which would provide that legally obligated child support payments be excluded from household income. The proposed paragraph (c)(17) would give State agencies the option to treat child support payments as an income deduction rather than an income exclusion, and included a reference to 7 CFR 273.9(d)(5) which contains existing requirements for the child support deduction. In the proposed rule, 7 CFR 273.9(d)(5) would be amended to reference a new 7 CFR 273.9(c)(17), and would provide that if the State agency chooses not to exclude legally obligated child support payments from household income, then it must provide eligible households with an income deduction for those payments. Commenters generally supported this new option while noting that it may benefit only a small number of households. However, commenters had several concerns regarding the implementation of this option and its effect on other eligibility calculations which will be discussed in further detail below. The proposed rule would further amend 7 CFR 273.9(d)(5) to require State agencies that choose to provide a deduction rather than an exclusion to include a statement to that effect in their State plan of operation. The Department did not receive any comments regarding this requirement so we are adopting it as proposed.

Under the proposed rule, child support payments that qualify under the existing regulations for the income deduction would also qualify for the income exclusion. Under current regulations at 7 CFR 273.9(d)(5), a household can receive a deduction only for legally obligated child support payments paid by a household member to or for a non-household member, including payments made to a third party on behalf of the non-household member (vendor payments). No deduction is allowed for any amount that the household member is not legally obligated to pay. State agencies, in consultation with the State IV-D agency, may determine what constitutes a legal obligation to pay child support under State law.

The preamble for the proposed rule also stated that if State agencies provide a household an exclusion for legally obligated child support payments rather than a deduction, households may reap the benefit of both. The proposed exclusion would cause the household to have a lower gross income, making it more likely that the household would meet the program's monthly gross income limit and be eligible for benefits. In addition, the excluded payments would not be counted as part of the household's net income, in effect deducting the payments from income. A detailed discussion of this provision follows.

2. Order of Determining Deductions

Current rules at 7 CFR 273.10(e)(1) specify the order in which State agencies must subtract deductions from income when calculating a household's net income. Under the rules, the order of subtraction is as follows: First, the 20 percent earned income deduction; second, the standard deduction; third, the excess medical deduction; fourth, dependent care deductions; fifth, the child support deduction; and finally the excess shelter deduction (or homeless shelter deduction for homeless households). The excess shelter deduction is subtracted last because, pursuant to Section 5(e)(6) of the Act (7 U.S.C. 2014(e)(6)), households are entitled to a deduction for monthly shelter costs that exceed 50 percent of their monthly income after all other program deductions have been allowed.

Section 4101 of FSRIA requires that if the State agency opts to provide households a deduction for legally obligated child support payments rather than an exclusion, the deduction must be determined before computation of the excess shelter deduction. The Department proposed to make a minor change to current rules at 7 CFR 273.10(e)(1)(i)(F) to indicate that treating legally obligated child support payments as a deduction is a State option. The Department did not receive

any specific comments about this provision so adopts it as proposed.

Prior to the publication of the proposed rule, several State agencies asked the Department how a household's earned income deduction should be computed if the State agency grants an income exclusion for child support payments rather than a deduction. Under current rules at 7 CFR 273.9(d)(2), the earned income deduction is equal to 20 percent of the household's gross earned income. Child support payments that are excluded from income are subtracted from the household's gross income. Thus, under the current rules, if the State agency provides the household an income exclusion for child support payments, the earned income used to make child support payments will not be part of the household's gross income when the State agency calculates the earned income deduction.

The Department proposed to address this problem by amending current rules at 7 CFR 273.9(d)(2) and 7 CFR 273.10(e)(1)(i)(B) to specify that in determining the earned income deduction, the State agency must count any earnings used to pay child support that were excluded from the household's income in accordance with the child support exclusion at 7 CFR 273.9(c)(17). The Department asked interested parties for suggestions on other methods for ensuring that households receive the full earned income deduction when they receive an exclusion for child support payments.

While the Department received comments supporting the proposed amendment, several commenters expressed concern with the time consuming calculations involved. Some thought it was going to be difficult to train workers and administer a system where the State agency needs to exclude payments from gross income to come up with an adjusted gross income and then add it back in to determine the earned income deduction. They felt this two tier approach was complex and error prone. Some also addressed concern regarding time and cost factors associated with system implementation.

One commenter proposed an example of a household with a monthly gross income of $1,000 who has $400 in child support payments excluded. The commenter asked if the rule intends to take 20 percent of the total gross income prior to the exclusion ($1,000) or 20 percent of the countable gross income ($600) in calculating the earned income deduction. The answer to this question is that when a State agency utilizes the child support exclusion, the State agency shall take 20 percent of the total gross income ($1,000) prior to the exclusion to calculate the earned income deduction.

According to the State Options Report, published by FNS in June 2009, thirteen (13) States are complying with the rule and have effectively added legally obligated child support to their list of exclusions. The remaining States have opted to treat child support payments as an income deduction rather than an exclusion. Most of the State agencies that apply child support as an exclusion have programmed their computer system to handle this calculation. The caseworker simply types in the data for the amount of child support paid by the applicant and the system performs the computation for the caseworker. Most State agencies have not had to provide any extensive training to eligibility workers about this calculation because it is performed by their computer system. Although State agencies and other commenters have expressed concern over the complexity of this formula, the Department adopts the amendment as proposed. Most State agencies are computerized so they can program their systems to handle the calculation.

One commenter noted that the purpose of choosing the exclusion over the deduction is to help a family become eligible for food stamps by reducing their countable income. They felt that it was inequitable to allow an earned income deduction on one type of excluded income but not on other types. The Department has considered this comment but adopts the change as proposed because it is consistent with Congress's intent in the implementation of this option in the FSRIA.

3. State Option To Simplify the Determination of Child Support Payments

Current rules at 7 CFR 273.2(f)(1)(xii) require the State agency to verify, prior to a household's initial certification, the household's legal obligation to pay child support, the amount of the obligation, and the monthly amount of child support the household actually pays. The rules strongly encourage the State agency to obtain information regarding a household member's child support obligation and payments from Child Support Enforcement (CSE) agency automated data files.

Section 4101 of FSRIA amended Section 5 of the Act (7 U.S.C. 2014) to add a new paragraph (n) that directs the Department to establish simplified procedures that State agencies, at their option, can use to determine the amount of child support paid by a household, including procedures to allow the State agency to rely on information collected by the State's CSE agency concerning payments made in prior months in lieu of obtaining current information from the household.

To implement Section 4101, the Department proposed to amend current rules at 7 CFR 273.2(f)(1)(xii) to permit State agencies, in determining a household's legal obligation to pay child support, the amount of its obligation, and amounts the household has actually paid, to rely solely on information provided through its State's CSE agency and not require further reporting or verification by the household. This proposed option would only be available in the cases of households that pay their child support through their State CSE agency.

The Department received a number of comments expressing concern with this proposed amendment. Most of the comments involved the reliance by State agencies on information received from the State CSE agency and the method for obtaining this information. Some commenters did not completely understand the fact that the provision only applied to households who pay their child support through their State CSE agency. They were concerned that the Department's use of the word “solely” would disadvantage individuals with legal obligations who make payments outside of the CSE system. However, the Department notes that the rule clearly states that this provision only applies to those households who make payments through the State CSE agency.

Other commenters noted that the use of the word “solely” could be limiting for individuals who make payments through the State CSE agency but who either contest the information provided by the CSE agency or need time to accommodate for the lapse between the date of the order and the time it is recorded into the State CSE system. Commenters requested that the final rule allow for a corroboration of sources. One commenter also asked for clarification regarding procedures for an obligor who has multiple child support cases and for child support cases that cross State boundaries.

The Department has considered these comments and the final rule modifies the proposed language so that State agencies will not rely on this information as their sole source of verification. The final rule gives State agencies the opportunity to rely on this information but it will not have to be the sole source of verification for households who participate in the State CSE system. Additionally, the final rule contains language that will provide

households with the opportunity to challenge information provided by the State CSE agency.

If an obligor has multiple child support cases, the payments from these cases should be combined to determine the total obligation of the household. The removal of the requirement for State agencies to rely solely on information received from the State CSE agency should eliminate any complication that could arise from cases that cross State boundaries. However, under the regulations governing the Office of Child Support Enforcement (OCSE) at 45 CFR 303.7(a), State CSE agencies must establish an interstate central registry responsible for receiving, distributing and responding to inquiries on all incoming interstate CSE cases. Therefore, any problems arising from interstate cases should be minimal and do not need to be addressed in regulatory form for Food Stamp Program participants.

Several commenters stated that the FSRIA suggests that the Department develop a number of approaches to simplified reporting of a household's child support obligation. They felt that the single proposed approach, the use of CSE, was insufficient to satisfy the mandate of Congress. In the proposed rule, the Department asked for suggestions as to other simplified methods State agencies could employ to determine the amount of legally obligated child support payments made by households. A detailed discussion of the proposals made by commenters is provided below.

In order to allow the State's CSE agency to share information with the Food Stamp Program, the proposed rule would have required State agencies following this procedure to have households eligible for the exclusion or deduction sign a statement authorizing the release of the household's child support payment records to the State agency. Several commenters opposed this proposed procedure saying that it was unnecessary and burdensome. Some State agencies already have a system in place allowing local offices access to CSE records without any authorization. They asked the Department to omit this requirement and leave the accessibility of this information to be worked out between the local food stamp office and CSE. One commenter suggested that getting a signature might not be enough if there is no agreement between the food stamp office and CSE.

The Department proposed the provision in this manner because under the Child Support Enforcement Act and the regulations governing the OCSE, the State's computerized child support enforcement system must provide security to prevent unauthorized access to, or use of, the data in the system. Both the Child Support Enforcement Act (42 U.S.C. 654a(f)(3)) and the regulations governing the OCSE (45 CFR 307.13(a)) limit the accessibility of the Child Support Enforcement data to agencies that are necessary to perform the duties under the Child Support Enforcement Act, the TANF program and the Medicaid program. Therefore, legally, the State agencies administering the Food Stamp Program will have to obtain authorization for the use of the data in the State CSE system. The Department adopts this requirement as proposed. For those State agencies who are having difficulties in working with their counterparts in the State CSE agency, the Department is willing to work with DHHS or OCSE to assist any State that wants to take up this option and requests such assistance.

Commenters asked the Department to address what procedures a State agency should follow when a non-custodial parent declines to authorize the release of CSE information to the local food stamp office. As stated above, the removal of the requirement for States to rely solely on information provided by the State CSE agency should clarify any issues that may arise for individuals who make payments through the CSE agency but wish to provide alternative verification. The information provided by the individual must satisfy program verification requirements. The language in the proposed rule would have required State agencies that chose this option to include a statement indicating that they have implemented the option in their State plan of operation. The Department adopts this change as proposed since no comments regarding this requirement were received. The Department also proposed to make conforming amendments to 7 CFR 273.2(f)(8)(i)(A), and 7 CFR 273.12(a)(1)(vi) and (a)(4). The Department did not propose any changes to the monthly reporting and retrospective budgeting rules at 7 CFR 273.21 because under 7 CFR 273.21(h) and (i) the State agency may determine what information must be reported on the monthly report and what information must be verified.

In the proposed rule, the Department asked State agencies interested in implementing this proposed provision whether there are any additional issues that the Department needs to address by regulation in order to make this an effective option for States. Commenters pointed out that issues may arise in instances of reunification or change in custody. They asked for clarification from the Department about how to handle these situations. They felt that it would be egregious to disregard a deduction or exclusion because the payment is being made to a household member and also require the household to report the payment as income.

The proposed rule refers parties to the final rule implementing the child support deduction, published on October 17, 1996, at 61 FR 54282 to find information on what qualifies as a child support payment for purposes of the income deduction and exclusion. That rule amended 7 CFR 273.9(d)(5) to allow a deduction for child support payments to or for a non-household member. The rule does not permit a deduction if a child support payment is made to a household member. However, if the child and the payor move into the same household but the payor is still obligated to make payments to a non-household member due to an arrearage or other circumstance, the payor is still allowed a deduction or exclusion. The proposed rule reflected this in the language that allowed a deduction, and now exclusion, “to or for a non-household member” and for “amounts paid toward child support arrearages.” The proposed language addressed the concerns of the commenters so there is no need for further clarification. The Department adopts this amendment as proposed.

The Department also asked for suggestions from interested parties as to other simplified methods State agencies could employ to determine the amount of legally obligated child support payments made by households. In addition to the suggestions discussed above, commenters suggested taking the opportunity to conform the treatment of outgoing child support payments to that of deductible dependent care or medical costs. This would make them an optional change reporting item. They proposed the deletion, rather than the amendment, of 7 CFR 273.12(a)(1)(vi). Some commenters proposed the codification of a provision of a question and answer policy memorandum that the Department issued following the passage of the FSRIA. That memorandum addressed the issue of a household's responsibility to report a change in their child support obligation. The memorandum clarifies that the requirement to report a change depends on the household's reporting requirements. It provides general guidance for procedures a State agency can utilize in setting forth these requirements. The guidance gives an example of a procedure that a State agency could use to address this issue.

The alternative approach listed in the memorandum states that an eligibility worker would provide each household with a reporting threshold. This threshold would include the sum of the monthly gross income limit for the household and its child support exclusion amount and then direct the household to report when its income exceeds this limit. The memorandum also highlights that there are other alternatives for reporting a change but does not go into details about these alternatives. Commenters felt that any other approach subjects child support to less favorable treatment than other deductible expenses, contrary to the intent of the FSRIA.

While the FSRIA permits the Department to develop simplified procedures for State agencies to determine the amount of a household's child support obligation, it does not speak to reporting changes in this obligation. In general, child support obligations change due to an unanticipated change in circumstances that may occur during the certification period. Given the small number of households claiming this deduction, and the fact that changes in the amount of the obligation do not have to be reported under simplified reporting, there should be little or no cost attributable to making this an optional change reporting item. Therefore, the Department will make reporting changes in a household's child support obligation an optional change reporting item. The final rule amends the language in newly redesignated 7 CFR 273.12(a)(6) and other sections of the rule to reflect this change.

Finally, commenters noted a numbering problem in the proposed rule. The rule proposed to insert new material on child support in 7 CFR 273.12(a)(4). The proposed rule did not take into consideration the redesignation of 7 CFR 273.12(a)(4) as 7 CFR 273.12(a)(5) in the final change reporting regulation. The Department appreciates the commenters calling this error to our attention. The final rule adopts the changes proposed for 7 CFR 273.12(a)(4) but inserts them into 7 CFR 273.12(a)(5) instead. Other provisions of the final rule are renumbered accordingly.

Standard Deduction—7 CFR 273.9(d)(1)

As noted above, a household's net income for food stamp purposes is its nonexcluded gross income minus any deductions for which the household is eligible. Section 5(e) of the Act (7 U.S.C. 2014(e)) lists the six allowable deductions. Section 5(e)(1) requires that the Department provide all households with a standard deduction. Section 4103 of FSRIA amended section 5(e)(1) of the Act to replace the fixed standard deduction with one that is adjusted annually and that also varies by household size.

Under the new provision, each household applying for or receiving food stamps in the 48 contiguous States, the District of Columbia, Hawaii, Alaska, and the U.S. Virgin Islands will receive a standard deduction that is equal to 8.31 percent of the Food Stamp Program's monthly net income for its household size, except for household sizes greater than six, which will receive the same standard deduction as a 6-person household. Section 4103 also requires that the standard deduction for any household not fall below the standard deduction in effect for FY 2002.

To implement Section 4103, the Department adjusts the standard deduction every October 1 by multiplying the Food Stamp Program's monthly net income limits for household sizes one through six for the 48 contiguous States and the District of Columbia, Alaska, Hawaii, and the U.S. Virgin Islands by .0831, and rounding the result to the nearest whole dollar. If 0.5 or higher, the amount is rounded up to the next highest dollar; if 0.49 or lower, the amount is rounded down. If the result is less than the FY 2002 standard deduction for any household size, that household size will receive the standard deduction in effect in FY 2002 for its geographic area. The proposed rule contains a chart illustrating how the standard deduction for FY 2003 was calculated for the 48 contiguous States and the District of Columbia.

Section 4103 requires that for Guam, the standard deduction for household sizes one to six be equal to two times the monthly net income standard times 8.31 percent. The same rules for households over six and the minimum deduction amount indicated above apply to applicants and current recipients in Guam.

Although some commenters felt that final rule should maintain the proposed rounding rules for the standard deduction, others pointed out that the rounding rules could lead to a calculation that is fractionally less than 8.31 percent of the net income limit. They noted that FSRIA requires that households receive a standard deduction equal to 8.31 percent of the program's net income limit. The provision in the proposed rule that called for the Department to round down where the number of odd cents in the exact figure is less than 0.50, would lead to a standard that is fractionally less than 8.31 percent. Therefore, commenters are requesting that the Department round up all fractional results to ensure that no household is denied a standard deduction “equal to” 8.31 percent of the net income limits.

The Department finds the comment has merit and simplifies program administration. Therefore, the final rule automatically rounds up the 8.31 percent calculation to the nearest whole dollar. This ensures that households are not denied a standard deduction “equal to” 8.31 percent. For example, if 8.31 percent of the monthly net income limit equals $146.34, the figure would be rounded up to a standard deduction of $147.

The Department also proposed that ineligible and disqualified members would not be included when determining the household's size for the purpose of assigning a standard deduction to the household. This would be consistent with other regulatory provisions that do not include ineligible and disqualified members in their calculations, including assigning a benefit amount.

While some commenters agreed that keeping this provision consistent with other eligibility provisions that look at household composition would help in achieving the goal of program simplification, others felt that treating some households as smaller than they actually are is inconsistent with the FSRIA's recognition that larger households have larger, inescapable costs. Additionally, commenters noted that Section 3(i) of the Food Stamp Act (7 U.S.C. 2012(i)) defines a household in terms of food purchasing and preparation patterns, family relationships, and living arrangements. Under that definition, an individual could be considered a member of the household whether or not they are eligible to receive food stamps. These commenters felt that the Department had no reason to deny households with ineligible members the full standard deduction, especially when it would unfairly reduce a household's food stamp allotment.

The Department has considered these comments but we continue to believe that only eligible household members should be included in the calculation for the standard deduction. Only eligible household members should be receiving the benefit; for that reason they are the only ones considered in determining the standard deduction amount. Therefore, the Department adopts the language from the proposed rule.

Simplified Determination of Housing Costs—7 CFR 273.9(d)(6)(i)

Current rules at 7 CFR 273.9(d)(6)(i) provide that State agencies may develop a homeless household shelter deduction to be used in place of the excess shelter deduction in determining the net income of homeless households. Under the rules, State agencies may set the homeless household shelter deduction at any amount up to a maximum of $143 per month. State agencies may make households with extremely low shelter costs ineligible for the deduction. Homeless households with actual shelter expenses that exceed their State's homeless household shelter deduction can opt to receive the excess shelter deduction instead of the homeless household shelter deduction if their actual shelter costs are verified.

Section 4105 of FSRIA amended Section 5(e) of the Act (7 U.S.C. 2014(e)) to grant State agencies the option of providing homeless households with a monthly shelter deduction of $143 in lieu of providing them an excess shelter deduction. Current regulations at 7 CFR 273.9(d)(6)(i) already reflect most of the requirements of Section 4105 of FSRIA. The only difference between the current rules and the requirements of Section 4105 is that the current rules permit State agencies to develop their own homeless household shelter deduction up to a maximum of $143 per month, whereas Section 4105 mandates that the homeless household shelter deduction be $143 per month.

Commenters suggested that 7 CFR 273.2(f)(2)(iii) could be read to require homeless households to verify some shelter costs in order to receive the old and the new shelter deduction. They noted that the provision does not limit itself to cases where the homeless family's statements are questionable and the verification requirement largely undercuts the goal of simplification. Commenters suggested deleting 7 CFR 273.2(f)(2)(iii). The removal of verification requirements and proposed deletion of 7 CFR 273.2(f)(2)(iii) originates from a concern that eligibility workers may take it upon themselves to require verification from homeless households when it is not necessary. This may lead to fewer households receiving the homeless shelter deduction.

The Department has considered these comments. The final rule relocates 7 CFR 273.2(f)(2)(iii) from the provision about verification of questionable information to 7 CFR 273.2(f)(4) which addresses sources of verification. The final rule contains language to reflect that these sources of verification are for households who seek to claim actual expenses or if the State agency determines that households with extremely low shelter costs are ineligible for the deduction. It is necessary for the final rule to retain the provision about verification because households can still claim actual costs and amended Section 5(e) of the Act still makes it permissible for State agencies to make households with extremely low shelter costs ineligible for this deduction. However, current regulations clearly allow the State worker to give the deduction solely on the basis of the applicant's statement.

Commenters suggested that the Department has the latitude to allow States to assume that all homeless households have shelter expenses and wants the Department to provide the homeless shelter deduction simply based on a household's meeting the program definition of being homeless. One commenter noted that some States do not require verification of expenses for households to qualify for the standard homeless shelter deduction. They felt that this provides simple administration for the State and substantial benefit to households. Although this is a good point, other households are required to provide some evidence of shelter costs so the Department believes that State agencies should be provided with the latitude to ensure that households have some shelter costs before making a deduction. However, as stated above, the final rule relocates and amends the language of the provision to discourage State agencies from requiring verification from homeless households when it is not necessary.

Although Section 4105 only addresses the homeless household shelter deduction, the Conference Report (H.R. Conf. Rep. No. 107-424, at 537-538 (2002)) in its discussion of Section 4105, directs the Department to review current rules regarding allowable shelter costs and determine if, within existing statutory authority, the Department could make the rules less complicated and error prone for food stamp participants and eligibility workers. In response to this directive, the Department asked commenters to identify ways to further simplify existing procedures for determining eligible shelter expenses. The reason that the Department asked for recommendations and suggestions for simplification was to help identify program complexities so they could be addressed in future rulemaking. However, very few commenters provided suggestions that would be feasible under the current law.

One commenter suggested that States should be given the option to allow shelter expenses based on a standard such as project area or household size instead of the current dollar for dollar deduction. This option would be similar to the Standard Utility Allowance (SUA) that is revised annually based on current costs for residents.

The Department cannot establish a standard shelter deduction because the Food Stamp Act does not authorize the Department to develop such a deduction. Under Section 5(e)(6) of the Food Stamp Act, a household can only obtain a shelter deduction if their monthly shelter costs exceed 50 percent of their monthly income. In order for a caseworker to determine if the household's shelter costs meet this requirement those costs need to be assessed. Therefore, a standard deduction cannot be used in determining whether or not a household qualifies for a shelter deduction.

Another commenter suggested that the Department should have taken this opportunity to review the desk guide for eligibility workers and its underlying regulations to identify other complexities in the deduction that do not serve important purposes and can be eliminated without violating Congressional prohibitions. Commenters also urged the Department to further simplify the process to support low-wage workers' ability to obtain assistance but failed to identify ways to simplify existing procedures other than the proposed development of a standard shelter deduction. As stated above, the purpose of this request was to address issues that had rulemaking authority and ask for specific suggestions, not issue overall directives for the Department. Since commenters did not provide this information to the Department, the final rule adopts this section as proposed.

Simplified Standard Utility Allowance—7 CFR 273.9(d)(6)(iii)

Current rules at 7 CFR 273.9(d)(6)(iii) provide State agencies the option of developing a SUA to be used in place of a household's actual utility costs when determining the household's excess shelter expenses deduction. State agencies may develop an SUA for any allowable utility expense listed in the regulations at 7 CFR 273.9(d)(6)(ii)(C). Allowable utility expenses listed in 7 CFR 273.9(d)(6)(ii)(C) include the costs of heating and cooling; electricity or fuel used for purposes other than heating and cooling; water; sewerage; well and septic tank installation and maintenance; garbage collection; and telephone. State agencies may establish

separate SUAs for each utility, an SUA that includes expenses for all allowable utilities including heating or cooling costs, and a limited utility allowance (LUA) which includes expenses for at least two allowable utility costs. The LUA may not include heating or cooling costs, except that if the State agency is offering the LUA to public housing residents it may include excess heating or cooling costs incurred by such residents.

The current rules at 7 CFR 273.9(d)(6)(iii) implement Section 5(e)(7)(C) of the Act (7 U.S.C. 2014(e)(7)(C)), which generally leaves it to the Department to develop regulations relating to SUAs. Section 5(e)(7)(C), however, does impose certain requirements on the use of SUAs. Section 4104 of FSRIA amends Section 5(e)(7)(C) of the Act to simplify current rules relating to the SUA when the State agency elects to make the SUA mandatory. First, Section 4104 allows State agencies that elect to make the SUA mandatory to provide a SUA that includes heating and cooling costs to residents of public housing units which have central utility meters and which charge the households only for excess heating or cooling costs. Second, it eliminates the current requirement to prorate the SUA when a household shares the living quarters with others. Therefore, if the State agency mandates the use of SUAs, a household eligible for an SUA that includes heating or cooling costs and lives and shares heating or cooling expenses with others must receive the full SUA.

The Department proposed to amend current regulations at 7 CFR 273.9(d)(6)(iii) to incorporate the new requirements. Several State agencies commented that they have implemented this option and it has simplified policy significantly. No one opposed the implementation of this provision. However, one commenter noted that current regulations require States to update their SUAs annually to reflect changes in energy costs. That commenter wanted the final rule to clarify that this requirement applies to mandatory as well as non-mandatory SUAs.

The requirement for States to update their SUAs is based upon changes in energy costs, not on whether the SUA is mandatory. The regulations already clarify that State agencies must review their standards annually and make adjustments to reflect changes in energy costs. Therefore, the Department does not need to amend the current regulation regarding updating the SUA and adopts this section of the proposed rule as written.

The proposed rule also addressed two SUA-related issues. First, the Department proposed a technical correction to the title of 7 CFR 273.9(d)(6). The title to the section was inadvertently changed in the NCEP final rule from “shelter costs” to “standard utility allowance.” The Department proposed to amend 7 CFR 273.9(d)(6) to restore the proper title. We did not receive any comments on this change; therefore, the final rule restores the proper title to 7 CFR 273.9(d)(6).

Under the current rule, State agencies follow different procedures for prorating the SUA when the household includes an ineligible member. Some follow the rule at 7 CFR 273.11(c)(2)(iii) which requires the proration of shelter expenses if the ineligible member is billed for or pays the expense; others follow the rule at 7 CFR 273.9(d)(6)(iii)(F) which prohibits the proration of the SUA when the household shares the expense with an ineligible household member. Because the SUA is a component of shelter costs, State agencies have interpreted both sets of regulations as applying to the SUA. However, on their face, the regulations appear to conflict.

To resolve any confusion related to prorating the SUA when ineligible members are present in the household, the Department proposed two alternative procedures and asked for comments on which procedure commenters prefer. The Department said it would incorporate the procedure that gets the most support into the final rule.

The first option allows State agencies to implement the Department's original intention and not prorate the SUA when a household contains an ineligible member. The second option requires State agencies to prorate the SUA when the ineligible member pays either part or all of the expenses included in the SUA. Under the latter option, the household would be entitled to the full SUA if the expenses were paid in their entirety by eligible household members, even if they were billed to the ineligible member.

A significant majority of the commenters believed that the SUA should not be prorated for households with ineligible members for program simplification and benefit maximization. Field workers have a much better understanding of the SUA procedures when the full SUA is always allowed. Therefore, allowing the full SUA decreases the error rate for State agencies. One commenter stated that the regulations and Department policy made it clear that States must not prorate the SUA so there was no need for this clarification and if the Department decided to change this policy that it would be burdensome for the States, detrimental to recipients, and decrease participation rates. Based on the support for the first option, which does not allow States to prorate the SUA for households with ineligible members, the Department incorporates this option into this final rule.

One commenter noted that the proposed rule does not mention ineligible students. That commenter asserted that it is confusing to allow the entire utility allowance for all ineligible members except students. Ineligible members should include all individuals who reside in the household and purchase and prepare meals together but are excluded from participation based on regulations governing the Food Stamp Program. Under the current regulations, students are not included as household members; therefore the Department did not have to specifically mention them in the proposed rule.

One commenter proposed a third option, to allow the full SUA when the ineligible person pays only a portion of the utility bill and to prorate the SUA when the ineligible person pays the entire bill or is responsible for all expenses even if they are not paid. This same commenter suggested that the Department incorporate all three options into the final rule and allow States to select the option that they want to implement, giving States maximum flexibility. Due to the overwhelming support of the first option and the fact that this provision is meant to simplify the program, the final rule does not incorporate this third option.

Although the proposed rule did not address the issue of the LUA or propose any changes to the provision in the current regulations governing this allowance, the Department received a significant number of comments asking the Department to allow States to use the SUA for households that pay for only one utility. They noted that the proposed rule would continue to prohibit States from using a LUA for households that do not pay for heating or cooling and pay only one other utility bill. States have to collect information on actual expenses instead. Therefore, States have to keep questions about actual expenses on the application which undermines the purpose of the new law in simplifying the SUA. These commenters asked the Department to eliminate this complexity and allow States to use the SUA for households that pay for only one utility.

One commenter noted that the legislative history for the FSRIA suggests that it was the intent of

Congress to give States the option of providing a utility allowance to households with only one utility bill so more eligible families would find it easier to get the help they need. That commenter suggested that to deny the LUA to households who pay only one utility bill would be contrary to the intent of Congress and should be corrected.

The Department notes that the current regulations allow States to develop an individual standard for each type of utility expense. About fifteen States currently have single utility standards in place for certain utilities including non-heat electric, cooking fuel, water/sewer and garbage. Since there is already a provision in the current regulations that allow States to develop single standards, there is no need to amend the current rule.

State Option To Reduce Reporting Requirements—7 CFR 273.12(a)(1)(vii)

Current regulations at 7 CFR 273.12(a)(1)(vii) allow State agencies to simplify reporting requirements for households with earned income who are assigned certification periods of 6 months or longer. State agencies may require such households to report only changes in income that result in their gross monthly income exceeding 130 percent of the monthly poverty income guideline (

i.e.,

the program's monthly gross income limit) for their household size. Households with earned income certified for longer than 6 months must submit an interim report at 6 months that includes all of the items subject to reporting under 7 CFR 273.12(a)(1)(i) through (a)(1)(vi). Section 4109 of FSRIA amends Section 6(c)(1) of the Act (7 U.S.C. 2015(c)(1)) to provide State agencies the option to extend simplified reporting procedures from just households with earnings to all food stamp households. In addition, Section 4109 amends Section 6(c)(1) to provide that State agencies may require households that submit periodic reports, in lieu of change reporting, to submit such reports at least once every 6 months, but not more often than once a month.

1. In General

The Department proposed to move current regulations on simplified reporting from 7 CFR 273.12(a)(1)(vii) to 7 CFR 273.12(a)(5). The Department also proposed to amend the current rules to include several requirements that will be discussed in detail below. In general, commenters expressed overall support for the concept of simplified reporting; indicating that by reducing the reporting burden it would benefit both the State agency and the participating households. One State agency even noted that reforms like simplified reporting, which alleviate the workload for caseworkers, are critical for an overstressed and understaffed State agency. However, this commenter was concerned about additional requirements imposed by the proposed rule, as were many commenters.

The Department has decided to make very few major changes to the language contained in the proposed rule. This decision is due in part to the success of 50 State agencies who have implemented expanded simplified reporting systems with terms similar to those in the proposed rule. These State agencies are operating these expanded systems under the authority of waiver requests approved by the Department. These systems have addressed most of the potential adverse consequences proposed by commenters.

One commentator expressed the belief that eliminating the requirement to report circumstances that impact a client's eligibility and/or benefit levels is not in the best interests of the client or the taxpaying public. The same commenter, a State fraud investigator, also expressed the belief that the rules as proposed all but eliminate the ability to pursue an intentional program violation and/or sanction a client with the exception of an instance of the client's failure to report having exceeded certain income thresholds. Although we understand the commenter's concerns, simplified reporting is based on a statutory mandate. Therefore, we do not have the discretion to withhold implementation of expanded simplified reporting or to rescind the current regulations that provide State agencies with the simplified reporting option. Additionally, the program allows State agencies to ensure that participants are not committing intentional program violations.

Participants in a simplified reporting system are required to report changes at least twice a year, once during their periodic report and then again at recertification. At that time, the State agency has the opportunity to scrutinize any changes in the household circumstances that may go unreported, pursue any intentional program violations and sanction clients, if necessary. The goal of simplified reporting is to provide stable benefits to households with minor fluctuations in the benefit amount. Additionally, the simplified reporting option provides overall improvements in program administration and reduces error rates. The Department is satisfied that the simplified reporting system is efficient and maintains program integrity.

Commenters also suggested that FNS use this opportunity to correct a technical error in 7 CFR 273.12(a)(1)(v). This section requires households to report when the value of its resources equals or exceeds $2,000. The commenters noted that the provision fails to mention the $3,000 resource limit for households with an elderly or disabled member. Contrary to the belief of the commenters, this was not a technical error. The provision was designed to give all households one threshold to adhere to for reporting the value of their resources. Therefore, the Department will not amend this provision.

Under the proposed rule, a State agency that opts to utilize simplified reporting procedures would be required to include in its State plan of operation a statement that it has implemented the option and a description of the types of households to whom the option applies. The Department did not receive any comments specifically addressing this provision so adopts the requirement as proposed.

2. Households To Include Under a Simplified Reporting System

Under the proposed rule, a State agency could include any household certified for at least 4 months within a simplified reporting system, except households subject to monthly reporting under 7 CFR 273.21 or quarterly reporting under 7 CFR 273.12(a)(4). The statute does not provide the Department authority to apply simplified reporting to households certified for less than 4 months. The Department did not receive any comments regarding this specific provision. Therefore, we are adopting this requirement as proposed.

3. Application of Simplified Reporting to Households Exempt From Periodic Reporting Requirements

Under the proposed rule, households exempt from periodic reporting under Section 6(c)(1)(A) of the Act, which includes homeless households and migrant and seasonal farm workers, would be subject to simplified reporting but would not be required to submit periodic reports. The certification periods of such households would be at least 4 months but not more than 6 months. Those that offered comments on this provision offered support. However, the FCEA provided that simplified reporting could be extended to all households. Therefore, in the final regulatory provisions on simplified reporting, we are dropping all references to the exclusion of elderly, disabled,

homeless, and migrant and seasonal farm worker households in simplified reporting systems in a subsequent proposed rulemaking to implement provisions of the FCEA. Although not included in this preamble discussion, we note that commenters addressed reporting issues involving these households, particularly the elderly and disabled households. Commenters asked that the final rule include an option for the States to extend the simplified reporting option to any participant in their respective food stamp program, regardless of the household's gross income. They felt this would allow for a more consistent approach for clients and workers alike. One commenter expressed the mistaken belief that simplified reporting was limited to households with at least some countable income. Under the proposed rule, all households would have been included in a simplified reporting system. However, as discussed above, it is not to the advantage of the State agency or the participants to include certain households in a simplified reporting system due to the rules governing their participation in the Food Stamp Program. Therefore, this final rule adopts the proposed language.

4. Periodic Reports

Under the proposed rule, the State agency could have required most households subject to simplified reporting to submit periodic reports on their circumstances from once every 4 months up to once every 6 months. The Department did not receive any comments that specifically addressed this provision.

Under the proposed rule, the State agency would not have to require periodic reporting by any household certified for 6 months or less. However, households certified for more than 6 months would be required to submit a periodic report at least every 6 months. The periodic report form would request from the household information on any of the changes in circumstances listed at 7 CFR 273.12(a)(1)(i) through (a)(1)(vii). The periodic report form would be the sole reporting requirement for any information that is required to be reported on the form, except that households would be required to report when their monthly gross income exceeds the monthly gross income limit for its household size and able-bodied adults subject to the time limit of 7 CFR 273.24 would be required to report whenever their work hours fall below 20 hours per week, averaged monthly.

Commenters felt that the proposed language (regarding who must submit a periodic report and how frequently) was somewhat confusing and suggests that a State may impose both a periodic report and a recertification requirement on a household for the same month. They asked that final rule clarify that States may not require a periodic report at recertification.

The final rule does not make this clarification because it is highly unlikely that State agencies would engage in such a practice. Requiring households to submit a periodic report at recertification would burden a State agency as much as a household, create confusion at recertification, and completely undermine the purpose of simplified reporting.

Several commenters suggested that because monthly, quarterly and simplified reporting are forms of periodic reporting, the procedures for quarterly and simplified reporting should be moved from 7 CFR 273.12 to 7 CFR 273.21. These commenters also expressed the opinion that the move would provide for consistent client protection for all forms of periodic reporting.

Although the commenters raise a valid point, we still feel that it would be more appropriate to include the procedures for simplified reporting in 7 CFR 273.12. First, not all households subject to simplified reporting would be submitting periodic reports since State agencies would have the option of utilizing four to six-month certification periods rather than periodic reports. Second, certain households, such as homeless and migrant farmworker households, would be included in a simplified reporting system if they are assigned a 4- to 6-month certification period. Finally, 7 CFR 273.21 provides an alternative to the prospective budgeting system provided in the preceding sections with a system that provides for the use of retrospective information in calculating household benefits.

Under the language in the proposed rule, if a household fails to submit a complete periodic report or if it submits a complete report that results in a reduction or termination of benefits, the State agency should follow the same procedure used for quarterly reporting at 7 CFR 273.12(a)(4)(iii). Under the quarterly reporting requirements, if a household fails to file a complete report by the specified filing date, the State agency sends a notice to the household advising it of the missing or incomplete report no later than 10 days from the date the report should have been submitted. If the household does not respond to the notice, the household's participation is terminated. If the household files a complete report resulting in the reduction or termination of benefits, the State agency shall send an adequate notice, as defined in 7 CFR 271.2. The notice must be issued so that the household will receive it no later than the time that its benefits are normally received. If the household fails to provide sufficient information or verification regarding a deductible expense, the State agency will not terminate the household, but will instead determine the household's benefits without regard to the deduction.

The Department also proposed to subject periodic reports to the requirements of 7 CFR 273.12(b)(2), which currently apply only to quarterly reports. This provision requires that quarterly reports be written in clear, simple language, and meet the program's bilingual requirements described in 7 CFR 272.4(b). It also requires that the quarterly report form specify the date by which the State agency must receive the form and the consequences of submitting a late or incomplete form; the verification the household must submit with the form; where the household can call for help in completing the form; and that it include a statement to be signed by a member of the household indicating his or her understanding that the information provided may result in a reduction or termination of benefits.

Several commenters felt that the proposed notice and form requirements for periodic reports would provide inadequate protections for households that participate in simplified reporting. Commenters noted that in the 1980s, during the Reagan Administration, FNS recognized that periodic reporting systems carry the risk that some eligible households may lose benefits for purely procedural reasons. As a result, the agency built into its monthly reporting regulations provisions to ensure that the potentially burdensome requirements of monthly reporting are implemented as fairly as possible. The commenters felt that the Congress clearly intended to extend monthly reporting protections to simplified reporting. They believed that Representative Stenholm specifically insisted that the monthly reporting protections would apply to simplified reporting in his floor statement on the final bill. In his statement, which can be found in the Congressional Record at 148 Cong. Rec. H2044, Representative Stenholm stated that Congress assumed that the Department's rules for monthly reporting would apply to the simplified reporting option. This would include providing households with the opportunity to supply missing

information when submitting a late or incomplete semiannual report.

The commenters believed that the proposed rule failed to follow Congressional intent because it does not extend these protections to all forms of periodic reporting. They felt that it is critical that FNS extend the most important monthly reporting procedures to all other forms of periodic reporting. They noted that this could be accomplished by a reference to the appropriate sections of the monthly reporting regulations at 7 CFR 273.21(c), 273.21(h), 273.21(j), and 273.21(k). The commenters felt that the most important monthly reporting procedures include using: (1) Forms and processes that participants can understand; (2) procedures for missing or incomplete reports that do not penalize households that may be attempting to comply; and (3) procedures for issuing benefits that allow for timely issuance. The commenters provided a detailed list of the citations and provisions that they felt should be referenced.

The Department agrees with the basic premise of these comments. The final rule modifies the proposed language to incorporate the procedural protections the Department feels are necessary to provide protections for households participating in simplified reporting. Several of the procedures applicable to a monthly reporting system are not applicable to simplified reporting. Additionally, several of the procedures that are listed in these sections are either provided under this rule or are contained within the current regulations in a manner that is applicable to the provisions of 7 CFR 273.12. For example, 7 CFR 273.12 contains provisions regarding processing reports, issuing notices, the timely issuance of benefits and consequences for incomplete filing as they relate to various changes. Since the rules governing periodic, quarterly, change and monthly reporting vary, the regulations need to contain provisions consistent with each type of reporting system. Therefore, the Department has applied those procedures that it feels are necessary to provide protection to participants while maintaining the overall principles of simplification.

Commenters also asked that the regulations clarify that if a household files a report on time, its benefits may not be terminated simply because the State agency fails to process the report. They pointed out that some computer systems may automatically terminate benefits if an eligibility worker does not process a periodic report, even if the household filed the report on time and it contained all of the necessary information. They felt that since quality control counts improper issuances but not improper denials, States will set their systems to err on the side of caution and implement systems that operate in favor of automatic suspensions. The commenters felt that the final rule should prohibit the reduction or termination of benefits to a household unless an affirmative decision is made that the household is either ineligible or in default of its procedural obligations.

The Department will not amend the regulations to accommodate this comment because a State agency will not avoid quality control or fiscal sanctions by suspending or terminating benefits due to the untimely processing of a periodic report. In assessing a case for quality control purposes, the reviewer conducts an analysis of all variances in elements of eligibility and basis of issuance. If the benefits of a household are suspended, the case may still be selected for quality control review. State agencies are expected to process reports in a timely manner and when they fail to accomplish this goal, they may be sanctioned accordingly. Benefits shall not be terminated due to an untimely processing of a periodic report but a suspension will help avoid making an overpayment or an underpayment to the household.

One commenter noted that under the proposed rule, a State agency would be allowed to elect to combine a notice of a missing or incomplete report with a notice of termination. Should a State agency make this election, it is not clear how long a household has to respond to the notice and be reinstated. The Department proposed that if a household fails to complete a report by a specified filing date, the State agency would then send a notice to the household advising it of the missing or incomplete report no later than 10 days from the date the report should have been submitted. If the household does not respond to that notice, then the household's participation would be terminated. The language in the proposed rule would have allowed State agencies to combine the notice of a missing or incomplete report with the adequate notice termination. As stated above, the final rule amends the language in the proposed rule to include some procedural protections for households participating in simplified reporting.

One commenter disagreed with the requirement that all able-bodied adults without dependants (ABAWDs) report as soon as their work hours go below 20 hours per week if they are in a simplified reporting system. The commenter felt that this rule needlessly complicates simplified reporting and is inconsistent with the current regulatory provision that requires an ABAWD to report changes in work hours in accordance with the reporting system to which he is subject. The commenter interpreted this provision to permit an ABAWD subject to simplified reporting to only report a loss of job on their interim report or at recertification. The commenter asked that the Department clarify the ABAWD reporting requirement to ensure that these participants only report a change in their hours as a part of the reporting system to which they are subjected, and no more. This same commenter also asked that the Department eliminate the additional ABAWD reporting requirement for those on quarterly reporting at 7 CFR 273.12(a)(4)(iv). We disagree with the commenter and adopt the language as proposed. First, we believe that compliance with the ABAWD work requirement is a condition of eligibility, and, as such, must be reported as soon as the household member's hours of work change. Second, we wish to note that the language in 7 CFR 273.12(a)(5)(iii)(E) of the final rule (the phrase “as part of the reporting system to which they are subject”) was intended to harmonize reporting requirements for all households containing ABAWDs. The Department initially added the phrase to the regulations at a time when households were either subject to change reporting under 7 CFR 273.12(a) or monthly reporting under 7 CFR 273.21. We determined that a consistent reporting standard should apply to these participants because the ABAWD work requirement is an explicit condition of eligibility and up to 6 months may elapse before a household may be required to report a change in income.

5. Reporting When Income Exceeds Gross Income Limit for Household Size

Under the language in the proposed rule, households subject to simplified reporting would be required to report when their monthly gross income exceeds the monthly gross income limit for their household size. Households would be required to report only if their income exceeds the monthly gross income limit for the household size that existed at the time of the household's most recent certification or recertification. The Department did receive support for this provision. Commenters noted that under the current rules, State agencies take different approaches to these reporting requirements. Some agencies use the income limit for the household size at

the time of the initial certification while others use the household size at the time of the report. These commenters believe that the proposed language would resolve this confusion by requiring State agencies to use the income limit for the household size at the time of their initial certification. The commenters noted that this change is easier for households to understand. It allows local offices to give households one figure, and explain that if the household income goes over this set figure then the household needs to report to the local office.

Although commenters provided overall support, they did have some issues with the proposed regulatory language. Some felt that the proposed regulatory language was incomplete because virtually all States have some participating households with a gross income in excess of the 130 percent threshold, including elderly and disabled households with earned income or households who are categorically eligible. The commenters asked the Department to clarify that States may use simplified reporting for these households and articulate that States may set their reporting threshold to equal the Program's gross income limit that triggers categorical eligibility. They felt that this requirement could prohibit States from extending simplified reporting to these households.

The Department does not see the need to amend the proposed regulatory language to accommodate the few households who may fall under this scenario. The Department has already issued guidance that leaves the treatment of these households up to the States. Because these households are not subject to the gross income guidelines, they would not be subject to this income threshold. Therefore, the guidance issued by the Department suggests that once households report going over the 130 percent threshold, their reporting requirement is met and States need not require further reporting. This practice will be easier to administer than throwing off an entire system for a few households for whom this reporting threshold would apply.

Commenters also stated that the proposed language for this requirement was confusing because the language did not specify what action the State agency should take. The commenters noted that by contrast, the proposed rule at 7 CFR 273.12(a)(5)(v)(A) would instruct State agencies to act in accordance with 7 CFR 273.12(c) when they receive information that the household was not required to report. Commenters felt that the final regulation should amend the proposed language at 7 CFR 273.12(a)(5)(v) to require State agencies to act in accordance with 7 CFR 273.12(c) when acting on a household report that its gross monthly income exceeds the gross monthly income limit for its household size.

These commenters were concerned that State agencies may issue a Notice of Adverse Action (NOAA) to households experiencing a temporary increase in their income which would normally not result in ineligibility. This could result in a decrease or termination of benefits if the household fails to clarify that the increase was only temporary. Therefore, they asked the Department to remind States that it is inappropriate to routinely issue a NOAA in response to a report that the household's income has exceeded the gross income limit. In many cases, further information is needed to determine the appropriate course of action.

While we agree that, in certain cases, the State agency should follow-up on reported changes to ensure that the household's eligibility would actually be affected, we fail to see why there is a need to elaborate on this in the regulatory language. A similar situation currently exists with respect to change reporting and, for the most part, States have not experienced problems in determining when a change is temporary or when it would actually affect the household's eligibility.

One commenter, a State agency, expressed the opinion that requiring households to report when income exceeds 130 percent of the federal poverty level does not work well for households with an ineligible noncitizen. In this instance, the State agency prorates income according to the rules at 7 CFR 273.11(c)(3). Because determining the countable gross income for households with ineligible members can be complex, the commenter implied that it may be difficult to implement this reporting requirement for households with ineligible members.

Since this income limit is applicable to most households, except elderly or disabled households, the final rule also includes this reporting requirement. Under the current rules at 7 CFR 273.11(c)(3), State agencies who prorate income must elect one State-wide option for determining the eligibility and benefit level of households with ineligible aliens. The State agency should continue to follow the same formula for determining whether the income of the household has exceeded the 130 percent threshold. For example, if the State agency excludes the ineligible members for determining household size at the initial eligibility determination, they will continue to do so for this reporting requirement.

6. Acting on Changes Outside of the Periodic Report

The Department proposed to give the State agency two options for acting on changes in household circumstances reported outside the periodic report (other than changes in monthly gross income that exceed the monthly gross income limit for the household's size). First, the State agency would be allowed to follow current procedures at 7 CFR 273.12(a)(1)(vii)(A). Those rules generally require that the State agency only act on changes that a household reports outside its periodic report if the changes would increase the household's benefits. Other than increases in income that result in income exceeding the monthly gross income limit, the State agency may only act on changes that would decrease benefits if the change, reported by the household or by another source, is verified upon receipt or is a change in the household's public assistance or general assistance grant.

Second, the State agency would be allowed to act on all reported client changes, regardless of whether such changes increase or decrease the household's benefits. Following implementation of simplified reporting in the NCEP Rule, the Department approved a number of waivers requesting this latter procedure. To eliminate the need to approve future waivers, the Department proposed to incorporate the procedure as an option in the regulations.

While the proposed provision providing State agencies the option to act on all changes did receive support, several commenters felt that this option could adversely impact millions of food stamp households. Most of the concerns lay with the possibility that State agencies would act on changes reported to other benefit programs. This will be discussed in detail below. However, some commenters also had concerns because this proposed option would allow States to reduce benefits and limit food stamp participation which is contrary to the intent of simplified reporting. As stated above, the Department incorporated this provision into the proposed rule to further simplify reporting requirements. Several State agencies are currently implementing this option successfully under waivers with it having a minimal impact on limiting participation.

Several commenters expressed the opinion that allowing State agencies to act on all changes will reduce the advantage of using simplified reporting

because it will not reduce the workload. While the Department encourages State agencies to limit the action it takes on changes reported in a simplified reporting system, the Department also understands that the Food Stamp Program is not operated in a vacuum. Therefore, State agencies need a common automated system to effectively operate all of their benefit programs. To simplify these automated systems, it is easier for an eligibility worker to enter a change into the system and allow the system to process the necessary calculations and issue the proper notices as a result of those calculations for all benefit programs rather than determine the impact of the change on each individual benefit program. The Department encourages State agencies to harmonize their systems to allow this option to reach its full potential. However, we cannot require State agencies to perform such an act and, as stated above, the success of this option for State agencies currently initiating it under a waiver demonstrates that it should be maintained in this final rule.

7. Acting on Changes That a Household Reports to Another Public Assistance Program

Under the proposed rule, State agencies that choose to act on all reported changes would not be required to act on changes that a household reports for another public assistance program when the change does not trigger action in that other program but would decrease the household's food stamp benefit. For example, if a household receiving Medicaid as well as food stamps reports an increase in income to its Medicaid office that it is not required to report for food stamp purposes (

i.e.,

the income does not push the household over the monthly gross income limit for its household size), the State agency would not have to reduce the household's food stamp benefit if the income change would not trigger a change in the household's Medicaid eligibility or benefits. This provision was proposed to relieve State agencies that choose to act on all reported changes from the burden of acting on reports required by another public assistance program that do not trigger action in that other program and would not increase the household's food stamp benefit.

The Department received several comments on this provision. First, commenters suggested that the Department prohibit State agencies from acting on changes reported to other programs that would result in a decrease in benefits if the changes are not otherwise subject to the simplified reporting requirements. The Department does not include this prohibition in the final rule because the primary purpose of the simplified reporting option under Section 4109 of FSRIA is to increase State flexibility and decrease administrative burden.

Commenters also felt that the Department went beyond the Congressional intent by including an option for making adjustments based on reports made to other assistance programs. The commenters point out that the statutory language governing simplified reporting expressly limits reporting to circumstances in which the household's benefit exceeds the gross income limit. Congress did not include a provision for benefits to be adjusted based on information provided to another program.

The reason why the Department includes this provision as an option is to assist State agencies that have multi-program computer systems. This option provides simplification to those agencies because they do not have to adjust their computer systems to account for changes reported to the Food Stamp Program and those reported to other benefit programs. It also assists households because they do not have to remember the various reporting requirements for each assistance program and can make one report that will impact all of their benefits.

Additionally, commenters expressed concern with the State option to act on changes reported to other programs, based on the belief that the option would add administrative complexity to the simplified reporting system. One commenter pointed out that, in their State, eligibility workers manage several programs for the same client. In a situation like that, the caseworker has to first determine what program the client is reporting the change for, then make adjustments based on the impact that the change has on the other program's benefits and the potential change it may have on the client's food stamp benefits.

The commenters felt that this would be very complex and time consuming for eligibility workers in addition to being error prone. They asked that the Department allow them to act on changes reported to another program if it is verified by the other program. Commenters also asked that the final rule include exemptions for follow-up requirements for simplified reporters who have joint benefits with another program that has more stringent reporting requirements.

We wish to emphasize that allowing a State agency to utilize information reported to other programs is an option and we anticipate that only States with automated systems designed to implement changes in multiple programs simultaneously would utilize the option. Therefore, the time consuming, complex formula will be handled by a computer system, not the eligibility worker. Additionally, if a State agency needs to verify information and the other program has more stringent reporting requirements, the information provided for that program will satisfy the reporting requirements for the Food Stamp Program.

As stated above, in the last several years, the Department has approved a number of waivers allowing States to act on all changes reported to other assistance programs, primarily because these States utilize multi-program automated systems that simultaneously implement changes in all of the State-administered assistance programs, including the Food Stamp Program. Although participating households may benefit from the delayed implementation of changes that would reduce their benefits, this benefit to a few participating households is outweighed by the overall increase in administrative efficiency for the State agencies. Additionally, households have protection because before making a reduction in benefits, State agencies must follow the advance notice procedures of 7 CFR 273.12(c)(2). These procedures enable households to contest their benefit reduction and continue receiving benefits.

Commenters also asked the Department to define what it means to “trigger an action in another program.” Apparently they were concerned that most changes reported to other programs would trigger an action in the other program. Therefore, the State agency would have to take action in the food stamp case for almost all of the changes reported to other programs.

The intent of this provision is to give States the ability to develop a simplified reporting system that would meet the needs of their multi-program eligibility system. The Department is allowing the State agencies, in their policies, to define what it means to “trigger an action in another program.” State agencies are required to have clear, uniform rules on what changes they should act on and what changes they should not act on. The State agency cannot leave it up to the eligibility worker to determine how to define the “triggers”; the policy needs to be implemented in their Statewide policies and procedures.

8. Using the Request for Contact for Verification of Changes That Are Not Subject to Mandatory Reporting

In cases involving changes reported to another program, issues of verification arise because the requirements for the various benefit programs differ. Although it would be ideal for all benefit programs to develop similar verification requirements, State agencies do not have the authority to develop their own, uniform verification requirements. Under the current and proposed regulations, States are permitted to pursue clarification and verification of reported changes that may be unclear to the caseworker. Commenters expressed concern over the use of the Request for Contact (RFC), specifically it's used to obtain clarification of information not subject to mandatory reporting in a State's simplified reporting system. Under simplified reporting, most changes do not need to be reported between reviews or reports. As discussed above, if a household reports information pursuant to the reporting requirements in another program, such as Medicaid or TANF, current rules often require (and the proposed rule would require) the caseworker to evaluate the report for its impact on the household's food stamp benefits.

Commenters felt that the most client-friendly approach would be to follow the existing procedures at 7 CFR 273.12(c)(1) and (c)(2). Using these rules, the State would send a food stamp request for verification if the household reports a change that would lead to an increase in benefits. If the household fails to respond to the request for verification, it would forfeit the benefit increase but would not lose eligibility. If the change suggests a decrease in benefits, but not ineligibility, the State would send a Notice of Adverse Action (NOAA) informing the household that benefits would be reduced unless the household disagrees. If the household fails to respond to this notice, the caseworker would reduce the benefits without terminating the household.

Commenters also noted that one of the reasons for the use of the RFC process set out in 7 CFR 273.12(c)(3) is that it provides States with better quality control protection because there is no risk that a quality control reviewer will question the caseworker's decision to freeze or adjust benefits without verification. Unfortunately, if the household fails to respond to the RFC, it will be terminated from the Food Stamp Program. This is true even when the household is eligible for a benefit increase based on the reported change.

Commenters felt that this outcome clearly contravenes the intent of simplified reporting. The system was intended to reduce paperwork and decrease the number of households who fall out of the Food Stamp Program because they do not respond to a RFC. Commenters expressed the belief that as the result of quality control pressure and the need to respond to unverified reports for other programs, simplified reporting has been reduced to a version of change reporting.

Although the Department does not agree with the overall principle of utilizing the RFC process to obtain additional verification in a simplified reporting system, we need to provide the State agencies with the flexibility to request verification of reported information that they may deem questionable. Under the current regulations, State agencies should only resort to the RFC process to obtain information about changes where they cannot readily determine the effect of the change on the household's benefit amount. Therefore, the Department encourages State agencies to only resort to this process when they deem information to be questionable. However, as stated above, we need to allow States to utilize this process for information that they deem unclear. Therefore, we will not amend the language from the proposed rule to accommodate this comment and adopt this language as proposed.

Commenters noted that the Congressional intent in crafting simplified reporting was to establish a 6-month benefit freeze. The only exception was to require households to report if their income exceeds 130 percent of the federal poverty limit. The commenters felt that by requiring States to seek additional verification from households that report to other programs, the Department is suggesting that Congress intended to single out these households who comply with other program requirements and subject them to additional verification requirements. This results in putting their case at risk. As stated above, the Department discourages State agencies from utilizing this process unless they feel that the information provided is too unclear for the State agency to determine the effect of the change on the household's benefit level.

Simplified Determination of Deductions—7 CFR 273.12(c)

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