Food Stamp ProgramDistribution of Employment and Training Performance-Based Funds

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 273

[Amendment No. 351]

Food Stamp Program--Distribution of Employment and Training

Performance-Based Funds

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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SUMMARY: State agencies that are responsible for administering the Food

Stamp Program are required to operate the Food Stamp Employment and

Training (E&T) program. To assist in the operation of their E&T

programs, the State agencies receive a Federal E&T grant, a portion of

which is distributed on the basis of each State agency's performance in

serving the target population. This rule proposes to freeze the

performance-based grants at the level the State agencies received in

Fiscal Year 1993, for two years from promulgation of this rule in final

form. The Department is proposing this action because of statutory

amendments to the Food Stamp Act of 1977, as amended, made by the Food,

Agriculture, Conservation and Trade Act Amendments of 1991 (December

13, 1991).

DATES: Comments must be received by March 21, 1994 to be assured of

consideration.

ADDRESSES: Comments should be addressed to Ellen Henigan, Supervisor,

Work Programs Section, Program Development Division, Food Stamp

Program, Food and Nutrition Service, USDA, 3101 Park Center Drive,

Alexandria, VA 22302. Comments may also be sent via fax to the

attention of Ms. Henigan at (703) 305-2454. All written comments will

be open for public inspection during regular business hours (8:30 a.m.

to 5 p.m., Monday through Friday) at 3101 Park Center Drive,

Alexandria, VA, Room 718.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking

should be addressed to Ms. Henigan at the above address or by telephone

at (703) 305-2762.

SUPPLEMENTARY INFORMATION:

Classification

Executive Order 12866

This proposed rule is issued in conformance with E.O. 12866.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance Programs under No. 10.551. For reasons set forth in the

final rule related Notice(s) of 7 CFR part 3015, subpart V (48 FR

29115), this Program is excluded from the scope of Executive Order

12372 which requires intergovernmental consultation with State and

local officials.

Executive Order 12778

This proposed rule has been reviewed under Executive Order 12778,

Civil Justice Reform. This rule is intended to have preemptive effect

with respect to any State or local laws, regulations or policies which

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

unless so specified in the ``Effective Date'' paragraph of this

preamble. Prior to any judicial challenge to the provisions of this

rule or the application of its provisions, all applicable

administrative procedures must be exhausted. In the Food Stamp Program

the administrative procedures are as follows: (1) For program benefit

recipients--State administrative procedures issued pursuant to 7 U.S.C.

2020(e)(10) and 7 CFR 273.15; (2) for State agencies--administrative

procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for

rules related to non-quality control (QC) liabilities) or part 284 (for

rules related to QC liabilities); (3) for program retailers and

wholesalers--administrative procedures issued pursuant to 7 U.S.C. 2023

set out at 7 CFR 278.8.

Regulatory Flexibility Act

This rule has been reviewed with regard to the requirements of the

Regulatory Flexibility Act (5 U.S.C. 601 through 612). Christopher J.

Martin, Acting Administrator of the Food and Nutrition Service (FNS),

has certified that this action does not have a significant economic

impact on a substantial number of small entities. State and local

welfare agencies will be the most affected because they administer the

Program and the rule will affect the performance-based funding levels

for each State agency.

Paperwork Reduction Act

This proposed rule does not contain reporting or recordkeeping

requirements subject to approval by the Office of Management and Budget

(OMB) under the Paperwork Reduction Act of 1980 (44 U.S.C. 3507).

Background

Under section 6(d)(4) of the Food Stamp Act of 1977, as amended (7

U.S.C. 2015(d)(4)), State agencies are required to operate the Food

Stamp Employment and Training (E&T) program. The purpose of the E&T

program is to place able-bodied food stamp recipients in educational or

work-related activities that will increase their chances of obtaining

regular employment, and thus, reduce their need for public assistance.

Food stamp recipients who are required to register for work as

specified under section 6(d)(4) of the Food Stamp Act are expected, if

assigned, to participate in an E&T component as a condition of

eligibility for receiving food stamps. Work registrants who refuse or

fail to comply with an assigned E&T activity or component are

ineligible to receive benefits for two months or until they comply with

the assigned activity, whichever comes first.

The Food Stamp Act provides State agencies flexibility in operating

their E&T programs. To meet the needs of their work registrant

populations, the State agencies have discretion in determining which

components will be offered to E&T participants and in targeting

services toward certain work registrants. However, to avoid fiscal

sanction, State agencies must meet performance standards specified

under 7 CFR 273.7(o). In Fiscal Years (FYs) 1990 and 1991, the State

agencies were required to place at least 50 percent of their mandatory

E&T participants into E&T components. In FY 1992 performance standards

were lowered to 10 percent in response to section 907(b) of Public Law

102-237. For the purpose of determining each State agency's performance

level, a person is considered ``placed'' in a component each time they

begin a component or fail to comply with an assigned activity and are

sent a Notice of Adverse Action (NOAA). The performance formula also

includes participants who are exempt from work registration but elect

to participate in the E&T program (i.e., volunteers). State agencies

may, but are not required to, serve volunteers.

Federal Funding for E&T Programs

Section 16(h), 7 U.S.C. 2025(h) of the Food Stamp Act authorizes

the Secretary to distribute $75 million each year in unmatched Federal

funds to State agencies to operate their E&T programs. The State

agencies may also receive Federal matching funds for administrative

costs above the initial Federal E&T grant. The Federal and State

governments equally share the costs for transportation or dependent

care reimbursements that are provided to E&T participants. Currently,

participants must receive monthly reimbursements of up to $25 for

transportation and other expenses related E&T to E&T participation.

Public Law 103-66 removes the monthly cap on dependent care expenses

effective September 1, 1994. Participants may be reimbursed for actual

expenses incurred, not to exceed the applicable local market rate for

the services.

As specified under section 16(h)(1)(C) of the Food Stamp Act, $60

million of the Federal E&T grant--the nonperformance based portion--is

distributed on the basis of each State agency's work registrant

population as a percent of the total work registrant population

nationwide. Pursuant to Section 16(h)(1)(B), the remaining $15 million

of the Federal E&T grant must be distributed on the basis of State

agency performance. The Food Stamp Act does not address the methodology

for distributing performance-based funds.

The Department published final rules on June 9, 1989 (54 FR 24664)

that specify how these funds are distributed. Under 7 CFR

273.7(d)(1)(i)(B), performance-based E&T funds are distributed on the

basis of the number of people placed into E&T components. A person is

considered placed for the purpose of distributing performance-based

funds if the person is required to work register and (1) begins an E&T

component; or (2) fails to comply with the E&T requirement and is sent

a Notice of Adverse Action (NOAA) by the State agency. Volunteers are

not included in the calculations for distributing performance-based

funds. To be eligible to receive performance-based funds, the State

agency must meet the performance standard as set forth under 7 CFR

273.7(o).

The current method for distributing the $15 million performance-

based funds encourages State agencies to serve large numbers of work

registrants (i.e., broad-based) with low cost components such as job

search and job search training. When implementing the E&T program in FY

1987, the Department encouraged broad-based programs because existing

research indicated that they had a positive impact on a participant's

future chances of obtaining employment or ending his or her dependence

on public assistance. Given these results, the Department believed the

possible benefits participants should be shared by as many participants

as possible.

Since implementation of the E&T program in 1987, several things

have shifted the focus of the program away from the broad-based

perspective. One was the implementation of the Job Opportunities and

Basic Skills Training (JOBS) program for non-exempt recipients of Aid

to Families with Dependent Children (AFDC). With a combination of

matching Federal funds of up to $1 billion annually, State agencies

must offer a number of mandatory and voluntary components that are

generally more intensive than those offered by the Food Stamp E&T

program. By October 1992 JOBS had to be implemented statewide

throughout the country. Several State agencies have sought to make the

two programs more similar. A number have started directing their E&T

funds toward a more targeted population.

Results of studies assessing the effectiveness of broad-based work

programs have been published in recent years, including the

Department's evaluation of the E&T program (See ``Evaluation of the

Food Stamp Employment and Training Program, Final Report,'' Abt

Associates, June 1990). This study concluded that the broad-based E&T

program in operation in FY 1988 did not have a significant effect on a

participant's ability to find work or increase work hours or earnings.

Without a positive effect on employment and earnings, the study further

concluded that participation in the E&T program did not significantly

reduce a person's need for food stamp benefits.

In light of these circumstances, Congress made certain amendments

to the E&T provisions of the Food Stamp Act that allow, or even

encourage, the State agencies to provide more intensive services

towards a targeted population.

One amendment in the Hunger Prevention Act of 1988, (Pub. L. 100-

435, 102 Stat. 1645, September 19, 1988), mandated that the Department

implement outcome-based standards in place of the current process-based

(i.e., placements) system. As specified under Public Law 100-435,

outcome-based standards would measure job placement rates, wage rates,

job retention rates, households ceasing to need food stamp benefits,

improved education levels and the extent to which persons volunteer for

E&T services. Public Law 100-435 also required that the outcome-based

standards encourage State agencies to serve participants with barriers

to employment (e.g., illiteracy or long-term food stamp dependency).

Therefore, the E&T provisions under Public Law 100-435 reflect

Congress' concern that, to be successful, Federal work programs must

apply resources towards disadvantaged populations with barriers to

employment and that performance must be measured in terms of successful

outcomes rather than placements.

The Department was required under Public Law 100-435 to implement

outcome-based performance standards by April 1, 1991. The

implementation date was later amended to October 1, 1991 through the

Mickey Leland Memorial Domestic Hunger Relief Act (Pub. L. 101-624, 104

Stat. 3359, November 28, 1990). This date was changed again by the

Food, Agriculture, Conservation and Trade Act Amendments of 1991 (Pub.

L. 102-237, 105 Stat. 1818, December 13, 1991). Under section 907(a) of

Public Law 102-237, outcome-based performance standards must be

implemented no later than one year after the DHHS publishes final

outcome-based performance standards for its JOBS program. This delay

will allow the Department of Agriculture and the DHHS to coordinate

outcome-based performance standards for the two programs.

In the interim period before outcome-based performance standards

are implemented, section 907(b) of Public Law 102-237 reduced the

annual performance standard for States from 50 percent to no more than

10 percent in FYs 1992 and 1993. The provisions show clear

Congressional intent that the State agencies no longer be held to a

standard requiring service to a large number of participants. Rather,

under Public Law 102-237, the State agencies must be provided the

flexibility to target a smaller population with more intensive

components. State agencies are not required to implement a more

intensive E&T program and may continue to operate broad-based programs.

Section 907(b) of Public Law 102-237 was effective on September 30,

1991. On February 12, 1992, the Department notified State agencies in

writing of the reduction in performance standards for FY 1992. The

Department will publish a rule implementing the revised performance

standards in the near future.

The amendments made under Public Law 102-237 support efforts to

target the E&T program towards fewer, harder to employ participants or

to offer more intensive components to a smaller segment of the food

stamp population. Given these amendments, the Department believes it

must suspend the current method for distributing the $15 million

performance-based funds and, in its place, implement a method which

will not penalize State agencies that place fewer participants and/or

operate more intensive components. If the current method for

distributing performance funds is left unchanged, State agencies that

elect to target fewer participants will lose performance-based funding.

Thus, the current method for distributing funds is a barrier to the

State agencies' implementation of amendments made by Public Law 102-

237.

The Department considered numerous options for revising the

methodology for distributing performance-based funds. All options were

viewed with two purposes in mind--to remove barriers for those State

agencies that wish to target their E&T programs and to reward State

agencies equitably for their performance. After careful consideration

of these options, the Department is proposing in this rule to freeze

performance-based funds at the levels the State agencies received in FY

1993. This rule proposes that the freeze of performance-based funding

remain in effect for two years from the date of promulgation of this

rule in final form.

On February 12, 1992, the Department notified State agencies in

writing of the freeze of performance-based funding to the FY 1993

level. FY 1994 performance-based funds were distributed based on this

methodology.

The Department believes there are several advantages for freezing

performance-based funds. First, the proposed freeze does not prohibit

State agencies from either modifying their E&T program to target

smaller populations or retaining the current broad-based program.

Therefore, this proposal would provide the State agencies with the

flexibility to move their E&T programs in the direction they believe is

most appropriate for their work registrant population. However, no

State agency would be penalized for meeting the lower standard. Second,

the State agencies would know the amount of their performance-based

funding levels for the foreseeable future.

In reaching its decision to propose a freeze on performance-based

funds, the Department considered numerous other options. These

included: (1) Distributing the funds on the basis that is currently

used for distributing the $60 million nonperformance-based funds (i.e.,

work registrant population); (2) rewarding performance on the basis of

how many participants complete a component or leave a component to take

a job; (3) modifying the current definition of a ``placement'' (e.g.,

include volunteers and/or exclude NOAA's); and (4) providing extra

credit to State agencies that target hard-to-employ populations (e.g.,

allow credit only for service to certain hard-to-employ groups such as

long-term recipients of food stamp benefits or individuals who have not

completed high school).

Even though each of these options has merit, the Department

rejected the options in favor of a freeze. The option for distributing

the $75 million Federal E&T grant on the basis of each State agency's

work registrant population was rejected because it would not distribute

the $15 million E&T funds on the basis of performance, as required by

law.

The second option, rewarding performance for completed E&T

components or job entries was rejected because it would base

performance on outcomes. Because section 907(a) of Public Law 102-237

specifically delays outcome-based performance standards until

coordination with the JOBS program can be achieved, the Department

believes the option would not be consistent with the law. The

Department is also reluctant to implement changes to program areas

which will, in all likelihood, be changed again when the outcome-based

performance standards are implemented.

Under the third option, the Department would have redefined

``placements'' in calculating the success of a State agency's

performance. None of the possible redefinitions examined, however,

would have resulted in moving away from rewarding States with high

numbers of placements over those with low numbers. Thus, all of the

possible changes would have penalized States that reduce the number of

people served--contrary to the Congressional intent underlying the

amendment.

The last option, providing extra credit to State agencies targeting

populations with the greatest barriers to employment, was rejected

because of its administrative burdens. The option would have resulted

in better targeting of hard-to-employ populations, and thus, taken

State agencies in the direction the program is heading. However, the

Department is reluctant to implement a major increase in reporting

requirements for a relatively short period of time before outcome-based

performance standards are implemented. The Department further believes

that the definition of hard-to-employ populations should be coordinated

with the JOBS program during development of outcome-based performance

standards.

Accordingly, the Department is proposing to amend

Sec. 273.7(d)(1)(i)(B) in this rulemaking to specify that the $15

million E&T funds will be frozen at the levels the State agencies

received in FY 1993. In accordance with current rules, performance-

based funds will be allocated by the ratio of the number of E&T

mandatories placed in an E&T program in an eligible State to the number

of E&T mandatories placed in all eligible States in Calendar Year 1991.

The rule proposes that the FY 1993 levels be used for the two

Fiscal Years following the year in which this rule is published in

final form. The Department is anxious to receive suggestions for ways

the performance-based funds could be distributed beyond that, until

outcome-based performance standards are implemented.

The State agencies must continue to meet established performance

standards (i.e., 10 percent in FY 1994) to be eligible for their share

of these funds as is required under 7 CFR 273.7(d)(1)(i)(B). Should a

State agency fail to meet the 10 percent performance standard in a

given fiscal year, it would be ineligible to receive its share of

performance-based funding in the second following fiscal year. For

instance, if a State agency fails to meet the 10 percent performance

standard in FY 1992, it would be ineligible to receive performance-

based funding in FY 1994. Should this occur, the Department is

proposing in this rule to recalculate the performance-based funds to

the State agencies on the basis of Calendar Year 1991 data, but

excluding the States which did not place at least 10 percent of their

eligible population.

As required under current rules, State agencies may not submit

corrected FNS 583 reports any later than March 1 if they are to be used

in determining whether a State agency is eligible for performance-based

funding.

Implementation

The proposed provisions in this rule are effective retroactively to

October 1, 1993. The State agencies are not required to take any action

to implement these provisions.

List of Subjects in 7 CFR Part 273

Administrative practice and procedure, Aliens, Claims, Food stamps,

Fraud, Grant programs--social programs, Penalties, Reporting and

recordkeeping requirements, Social security, Students.

Accordingly, 7 CFR part 273 is proposed to be amended as follows:

1. The authority citation for part 273 continues to read as

follows:

Authority: 7 U.S.C. 2011-2032.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

2. In Sec. 273.7, paragraph (d)(1)(i)(B) is revised to read as

follows:

Sec. 273.7 Work requirements.

* * * * *

(d) Federal financial participation.

(1) Employment and training grants.

(i) * * *

(B) In Fiscal Year 1993, the Secretary shall allocate $15 million

of the Federal funds available for unmatched employment and training

grants based on the ratio of the number of E&T mandatory participants

placed (as defined under paragraph (o) in this section) in a food stamp

E&T program in an eligible State to the number of E&T mandatory

participants placed in all eligible States in Calendar Year 1991.

Beginning in Fiscal Year 1994, and each subsequent fiscal year until

two years after the promulgation of this rule in final, the Secretary

shall allocate $15 million of Federal funds on the basis of the amount

of performance-based funding each State agency received in Fiscal Year

1993, provided the State agency has met the performance standard as

specified under paragraph (o) of this section for the second preceding

fiscal year. For example, to receive performance-based funding in

Fiscal Year 1994, the State agency must have met its performance

standard in Fiscal Year 1992. Corrections to reports required to be

submitted in accordance with paragraph (c) of this section must be

received by FNS, and State agency good cause appeals must be resolved

no later than March 1, to be used in determining whether a State agency

is eligible for performance-based funding for the fiscal year beginning

the following October. In Fiscal Year 1994 and each subsequent fiscal

year until two years after the promulgation of this rule in final form,

if the data on the reports show that a State agency did not meet its

performance standard or a good cause determination was not made by FNS

by March 1, the State agency shall not be eligible for performance-

based funding. In this instance, the Secretary shall redistribute the

$15 million Federal funds to eligible State agencies on the basis of

Calendar Year 1991 data as prescribed under this paragraph, excluding

the noncompliant States.

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Dated: January 10, 1994.

Ellen Haas,

Assistant Secretary for Food and Consumer Services.

[FR Doc. 94-1261 Filed 1-18-94; 8:45 am]

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