Special Supplemental Food Program for Women, Infants and Children (WIC); Food Funding Formula Rule

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

Special Supplemental Food Program for Women, Infants and Children

(WIC); Food Funding Formula Rule

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule amends regulations governing funding and funds

allocation procedures for the Special Supplemental Food Program for

Women, Infants and Children (WIC) in order to simplify and update the

funding process in anticipation of a fully funded program. The

amendments provide a greater share of funds to State agencies receiving

comparatively less than their fair share of funds based on their WIC

income eligible population, provide all State agencies with stability

funding, adjusted for inflation, to the extent funds are available, and

simplify the food funding allocation process by eliminating obsolete

features.

EFFECTIVE DATE: This rule is effective on October 1, 1994.

FOR FURTHER INFORMATION CONTACT: Deborah McIntosh, Chief, Program

Analysis and Monitoring Branch, Supplemental Food Programs Division,

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

Virginia 22302, (703) 305-2710.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant and was reviewed by

the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

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

Regulatory Flexibility Act (5 U.S.C. 601-612). Pursuant to that review,

the Administrator of the Food and Nutrition Service (FNS) has certified

that this rule will not have a significant impact on a substantial

number of small entities. The rule affects how the Department will

calculate food grant allocations for WIC State agencies.

Paperwork Reduction Act

No new data collection or recordkeeping requiring Office of

Management and Budget (OMB) approval under the Paper Reduction Act of

1980 (44 U.S.C. 3501 through 3502) are included in this final rule.

Executive Order 12372

The Special Supplemental Food Program for Women, Infants and

Children (WIC) is listed in the Catalog of Federal Domestic Assistance

Programs under 10.557 and is subject to Executive Order 12372, which

requires intergovernmental consultation with State and local officials

(7 CFR Part 3015, Subpart V, and final rule-related notice published

June 24, 1983 (48 FR 29114)).

Executive Order 12778

This final 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 WIC Program, the

administrative procedures are as follows: (1) local agencies and

vendors--State agency hearing procedures issued pursuant to 7 CFR

Sec. 246.18; (2) applicants and participants--State agency hearing

procedures issued pursuant to 7 CFR Sec. 246.9; (3) sanctions against

State agencies (but not claims for repayment assessed against a State

agency) pursuant to 7 CFR Sec. 246.19--administrative appeal in

accordance with 7 CFR Sec. 246.22; and (4) procurement by State or

local agencies--administrative appeal to the extent required by 7 CFR

Sec. 3016.36.

Background

The WIC Program has consistently demonstrated its effectiveness in

promoting the health and nutritional well-being of low-income women,

infants and children at nutritional or medical risk, and has

experienced large increases in its appropriation for the last several

years. Due to its success, the WIC Program is likely to soon achieve

``full funding'' whereby it is estimated that all eligible women,

infants and children who apply could obtain program benefits. In moving

toward the full funding objective, the Department finds that its

current food funding formula presents impediments to funding equity and

is so complex it is difficult to execute and predict its results.

Historically, WIC has never had enough funds to serve all who are

in need of, and eligible for, its benefits. Certain State agencies

receive levels of funding that allow them to serve more of their

eligible populations than others. The concept of full funding for WIC,

as set forth by the Administration, does not guarantee unlimited funds

nor does it establish the WIC Program as a federal entitlement program.

As before, WIC must manage within a finite appropriation level.

However, a fully funded WIC Program implies that the appropriation

level will more adequately provide for all eligible persons who apply

for benefits, and that each State agency should have an equal chance to

serve their eligible population. Currently, many State agencies are

serving lesser proportions of their WIC-eligible population than other

State agencies. Therefore, the formula must support growth among State

agencies which are now funded to serve a lesser proportion of their

eligible population, as well as allocate funds fairly among all State

agencies under a stable, fully funded program.

Therefore, to better prepare the WIC Program for full funding, the

Department published a proposed rule on June 8, 1994 to revise the food

funding formula in order to meet three major objectives: 1) to provide

a greater share of funds to State agencies receiving comparatively less

than their fair share of funds based on their WIC income eligible

population; 2) to simplify the food funding formula and delete obsolete

components; and 3) to maintain current services to eligible

participants that State agencies are serving to the extent funds are

available.

The proposed rule provided for a 60-day comment period, which ended

on August 8, 1994. Thirty-six comment letters were received from a

variety of sources, including State and local agencies, advocacy groups

and other public interest groups. The Department has given all comments

careful consideration in the development of this final rule and would

like to thank all commenters who responded to the proposal.

Assumptions Under Full Funding

As explained in the preamble to the proposed rule, full funding is

not intended to replace or discourage efficient and effective program

management. Accordingly, mandatory cost containment efforts recently

undertaken must continue, and additional voluntary cost containment

efforts are encouraged. Funds will continue to be allocated based on a

national average food package cost as an incentive for State agencies

to manage their food package costs more efficiently to serve more

eligibles. Finally the commitment to WIC full funding can only be met

if States continue to utilize risk-related eligibility criteria that

are based on sound medical, nutritional and preventive health research.

Income eligibility alone is not a sufficient condition for program

eligibility.

Funding Formula Objectives

The funding process should assure each State agency a grant that

allows it an equal opportunity to serve its fair share of eligible

persons seeking WIC service by providing a food package suited to the

participant's unique nutritional deficiencies, not to exceed the

maximum food benefit allowed under regulations. This rule establishes a

funding formula to meet this overall goal. The following is a

discussion of each provision, as proposed, comments received on the

proposal, and an explanation of the provisions set forth in this final

rule.

1. Section 246.16(c)(1) Allocation Formula--Use of participation data

in the formula.

The Department proposed to revise Section 246.16(c)(1) to eliminate

the use of priority participation data or data reflecting State-funded

participation for imputing the figures needed for the targeting

components of the formula described in Section 246.16 (c)(3)(ii) and

(c)(1)(ii)(A).

All commenters on this provision supported it as proposed.

Therefore, the provision remains unchanged from the proposed rule.

2. Section 246.16(c)(3)(i) Allocation of stability funds.

Currently, in allocating funds to State agencies, first priority is

given to maintaining each State's operating level as ``stability

funding''. The stability component of a State agency's allocation is

initially based on the amount of food funds received by each State

agency in the prior fiscal year, adjusted to restore 50 percent of any

grant funds voluntarily returned in the prior year. This base level is

then adjusted to account for a portion of the inflation estimated for

the upcoming fiscal year (except that Indian State agencies receive a

full inflation adjustment).

The proposed formula retained this component with some

modification. The principle of stability was maintained to help assure

that each State agency would receive enough funds to support its

current participation level. However, the proposed rule deleted the

provision allowing a State agency the option to retain 50 percent of

funds it returns before July 16 of any given year as a part of its

stability grant the next fiscal year.

The majority of commenters addressing this issue opposed the

provision and stated that the current 50 percent recovery credit should

be maintained. The commenters indicated that eliminating the credit

would be a disincentive for State agencies to return funds, thereby

delaying the reallocation of unspent funds. Several commenters

suggested maintaining the 50 percent credit for one year only. A few

commenters were strongly in support of the provision to delete the 50

percent recovery credit.

The 50 percent credit was originally intended as an incentive for a

State agency to return food funds that it could not spend, thereby

making those funds available for reallocation to State agencies that

needed additional funds. However, almost all State agencies which have

elected to return funds under this provision have been those which were

in danger of failing to spend at least 95 percent of their allocated

food funds. Failure to achieve this expenditure level results in a

specific decrease in the amount of food funds in the subsequent fiscal

year. In these instances, State agencies simply returned the amount of

funds necessary to ensure expenditures of at least 95 percent of their

adjusted food grants. The Department no longer believes restoration of

50 percent of returned funds to State agencies in the next year is

prudent. The restoration of these funds makes it possible for a State

agency already receiving its fair share funding to retain funds it does

not need. In addition, the credit effectively increases stability

grants in the subsequent year by 150 percent of the amount of funds

returned, since the State agencies returning funds receive a 50 percent

credit in the subsequent year's stability grant, while the State

agencies to which the returned funds are reallocated have their

subsequent year's stability grants increased by the full amount of the

reallocation. If there are increases in appropriation levels for the

subsequent year, this additional liability can be funded. However, if

funds in the subsequent year are not adequate to meet all stability

grants, all State agencies share in a grant decrease to accommodate the

50 percent credit. Accordingly, to ensure equity, the 50 percent

recovery credit is deleted in this rule.

3. Section 246.16 (c)(3)(i)(A) Inflation adjustment.

The current food funding formula uses a calculation referred to as

the ``targeted inflation factor''. It was designed to provide an

inflation adjustment proportionate to a State agency's service to the

highest priority participants. Under this process, the full inflation

increase is adjusted according to each State agency's percentage of

participants in the top three priority level categories (Priority I-III

women, infants and children at nutritional or medical risk). For

instance, if 75 percent of a State agency's participation was in the

Priority I to III participation categories, and the full inflation rate

was 4 percent, that State agency would receive a targeted inflation

rate of 3 percent applied against its prior year grant to determine its

stability grant. An exception is made for Indian State agencies which

receive full inflation.

The proposed rule took a more straight-forward approach by

providing all State agencies with a full inflationary increase as long

as funds are adequate to do so. If, however, the appropriation for any

given year is insufficient to support prior year grant levels plus full

inflation, the proposed funding formula would reduce State agency

grants to allow for funds allocation within available funding. Those

State agencies with under fair share allocations would receive first

priority for any available inflationary increases, and State agencies

at or above their fair share allocation for that fiscal year would

receive second priority. The proposal sought to assure continued

progress in increasing the grants of States that are under their fair

share.

All of the commenters addressing this issue were opposed to this

provision. The consensus was that if funds were insufficient to provide

full inflationary increases, then all State agencies should take a

prorata reduction for that fiscal year. The commenters were opposed to

the two-tier concept and stated that small reductions in all State

agency grants would be less disruptive to WIC operations than large

cuts to a few State agencies.

The Department is persuaded by the concerns raised by commenters on

this aspect of the proposed rule. Therefore, Section 246.6 (c)(3)(ii)

in this final rule provides that in the event that funds are

insufficient to support prior year grant levels plus full inflation,

all state agencies would take a prorata reduction for that fiscal year.

4. Section 246.16 (c)(3)(i)(B) Migrant set-aside.

Section 17(g)(4) of the Child Nutrition Act of 1966 (42 U.S.C.

1786(g)(4)) provides that not less than 9/10 of one percent of the

funds appropriated for the WIC Program be available first for services

to migrant women, infants and children. The current regulations

stipulated that the full 9/10 of one percent set-aside is to be

subtracted from all States' stability grants and then added to

stability grants of States that report serving migrants. Because these

adjustments for the migrant set-aside become part of the base grant of

stability funds for the next fiscal year, FNS found that stability

grants were skewed over time, directly causing some State agencies to

receive more than their fair share of funds while preventing other

States from receiving their fair share. This distorting effect becomes

even larger as over-all funding increases.

The rule proposed that for State agencies that serve migrants, a

portion of the grant be designated for service to the migrant

population. The designated amount would be based on prior year migrant

participation reported by each State agency. By designating a target

funding level, the migrant grant will not distort subsequent grant

allocations, yet will establish service to this needy population as a

priority. This is an approach similar to the one employed to target

expenditures for breastfeeding promotion and support.

The Department believes that State agencies must estimate and

accommodate such changes according to the information available from

State and local sources. Therefore, it was proposed that, for planning

purposes, expenditure targets would be established for both food grants

and nutrition services and administration grants to insure that \9/10\

of one percent of the appropriation is made available for service to

migrants. State agencies would be expected to plan for migrant

participants as now required in their State Plan of Operation and give

priority service to migrant participants that arrive from another State

agency seeking WIC services.

Most of the commenters supported this provision. However, two

commenters thought the proposed change was unclear and implied

additional reporting requirements. In addition, it was suggested that

the methodology to be used be clarified.

The Department is not imposing any additional reporting

requirements regarding migrant participants. State agencies will

continue to report migrant participation as in past years. For purposes

of clarity, the Department has deleted the last sentence in section

246.16(c)(3)(iv) of the proposed regulation which erroneously implied

that migrant funds would be deducted from the State agency's stability

allocation. Since this was not the intent of the regulation, this

language was removed for clarification. The remainder of section

246.16(c)(3)(iv), which designates a migrant service expenditure

target, is adopted final as proposed.

5. Section 246.16(c)(3)(ii) Allocation of residual funds.

Under the current rule, any funds remaining after stability grants

are allocated are ``residual funds''. Residual funds are allocated

under two components--``targeting'' and ``growth''. The Department

proposed eliminating the targeting component and modifying the growth

component as discussed below.

``Targeting'' Component for Food Funds (Section

246.16(c)(3)(ii)(A))

As explained in detail in the preamble, the targeting component is

no longer needed to encourage service to Priority I participants, and

is a barrier to achieving funding equity among State agencies.

Therefore, the Department proposed the elimination of the targeting

component to simplify the formula, and ensure greater funding equity

based on each State agency's eligible population.

All of the commenters on this provision supported it, and the final

rule retains the provision that would eliminate targeting as a

consideration in funds allocation. However, five commenters stated that

they would oppose the provision unless all States were guaranteed prior

year funding levels plus full inflation if funds are available. In the

event that funds are insufficient, the commenters wanted a prorata

reduction for all States. These concerns were addressed above in the

discussion of the stability allocation (Section 246.16(c)(3)(ii)).

``Growth'' Component for Food Funds (Section 246.16(c)(3)(ii)(B))

Under the current formula, after targeting funds are allocated, the

remaining half of residual funds are allocated for ``growth'' within

State agencies that have less opportunity to serve their eligible

population compared to other State agencies. Growth funds are allocated

based primarily on a ``fair share'' concept similar to that discussed

earlier. To determine fair share funding, FNS used a mathematical

equation to create an estimate of each State's eligible WIC population.

The estimate began with each State agency's number of income eligibles,

currently extracted from decennial census data. The estimate is

adjusted slightly to account for State agency variations in infant

mortality and low birth weight rates (``health indicators''). Also,

women, infants and children served by the Commodity Supplemental Food

Program (CSFP) are subtracted from this estimate for those States in

which CSFP operates.

As explained below, the Department proposed retaining the

``growth'' component of the formula using only the estimate of income

eligibles (with some adjustments) and deleting the use of health

indicators. It was believed that this best defines each State agency's

actual need for program funds and greatly simplifies the ``fair share''

equation. Each component and revision of the eligibles database for the

fair share allocation provided in Section 246.16(c)(3)(ii) is discussed

below.

Income Eligibles. Each State agency's estimate of WIC income

eligible persons is based on data from the 1990 Decennial Census, which

reflects population characteristics as of 1989. Although the Census

data provides the most current State-by-State information, the

Department recognizes that data which describe a population at a fixed

point in the past may not accurately reflect recent and future

socioeconomic and demographic trends. Accordingly, the Department is

currently exploring other potential data sources for the state-level

income eligibles estimates. The proposed rule did not establish or

define the exact source of the eligibles database in order to allow for

the use of the most timely and reliable data as it becomes available.

This was supported by the majority of commenters who commented on the

eligibles data.

Under the proposed rule, fair share funding allocations would be

based on estimates of the State agency's eligible population at or

below 185 percent of poverty rather than estimates of the fully-

eligible population (persons income eligible and at nutritional risk).

Unlike the national estimate of eligibles, State agency allocations are

not adjusted for an estimate of fully eligible persons as nutritional

risk standards vary by State agency and application of a ``national''

estimate would serve no useful purpose for funding allocation purposes.

The State level income-eligible estimates were used to determine each

State's proportion of the national total of WIC income-eligibles.

Funding allocations are based on this proportion--not on the absolute

number of estimated income eligibles in each State. Each State agency's

fair share allocation thus depends on both its proportion of income

eligibles and the total amount of funds available nationally.

Most commenters stated that they concur with the proposed ``fair

share'' concept, but that more timely updates of eligibles data are

critical. Commenters consistently stated that the current data

seriously under counts the number of WIC eligibles and they strongly

encourage FNS to continue working on obtaining new and better

estimates. However, two commenters stated that FNS should withdraw the

current proposal until better data is obtained. One commenter

maintained that Medicaid participants should be included in the

estimates. One commenter proposed an alternative approach similar to

fair share using a ``full funding'' concept. However, after much

consideration of this particular alternative, the Department believes

that it would impede under fair share State agencies progress in moving

towards full funding. The Department will retain the fair share

principle as proposed, using the best available indicators to determine

each State agency's population of income eligibles. At the same time,

the Department continues its commitment to develop more timely and

accurate estimates of eligibles to be used in the WIC food funding

formula.

Health Indicators. In the current formula, the calculation of each

State's eligible WIC population, used to compute its fair share

allocation, includes an adjustment for certain health indicators

(infant mortality and low birth weight rates) in the food funding

formula. As explained in the preamble to the proposed rule, the

population targeted by the health indicators is now largely served.

Moreover, as service to the highest risk participants has increased,

the overall impact of the health indicators on the amount of food funds

received by States has become negligible. Furthermore, the inclusion of

the health indicators unduly complicates and reduces understanding of

the food funding formula. Therefore, the Department proposed to

eliminate the use of the health indicator adjustments. All commenters

who commented on this provision were supportive of removing the health

indicators from the formula. Therefore, this final rule retains the

provision as proposed.

Adjustments for Higher Cost Areas. The current growth component

also makes an adjustment for the higher food costs of four specific

State agencies located outside of the continental United States (or

Indian State agencies located within their borders). These State

agencies currently are Alaska, Hawaii, Guam, and the Virgin Islands.

The Department proposed to retain this adjustment, but to allow more

flexibility than the current regulation. The majority of commenters

supported the proposed provision. However, some commenters

misinterpreted this provision to mean that State agencies or portions

of State agencies (urban areas, rural areas, Indian Tribal

organizations) within the continental United States (i.e., within the

48 contiguous States and the District of Columbia) that can document

higher food costs should receive an adjustment. Other commenters

specifically stated that Puerto Rico should be considered as an

outlying State agency.

This rule retains the provision as proposed. However, the

Department would like to clarify that the proposed provision was not

intended to expand the adjustment for higher cost in areas to those

State agencies located within the continental United States. At this

time, there is no data to support adjustments for areas within the

continental United States. With regard to Puerto Rico, although it is

potentially eligible for this adjustment under the new provision, it

must still demonstrate that it meets the requisite requirements set

forth in Section 246.16(c)(3)(i)(B). In particular, it must document

that economic conditions result in higher food costs, and that it has

successfully implemented voluntary cost containment measures.

Adjustments for Indian Tribal Organizations (ITOs)

The growth allocation for the Indian Tribal Organizations has

traditionally presented problems due to inadequate data regarding

eligibles. The Department knows of no data source to resolve this

problem. Therefore, it proposed to give FNS the authority to oversee

negotiations between one or more ITOs and the geographic State agency

or agencies in which the ITO is located. FNS could, acting

independently or at the request of a State agency, involve affected

State agencies in an agreement on the temporary or permanent transfer

of funds. Negotiations could be conducted to shift funds among these

State agencies to better reflect the actual service being provided by

each of the State agencies.

Only a few commenters addressed this provision. The commenters were

generally in favor of the provision but stressed that caution must be

used in shifting funds from one State agency to another, particularly

based on eligibles data that is questionable. In addition, there may be

a misunderstanding that such grant adjustments will occur without input

from all affected State agencies. The Department would like to clarify

that any grant adjustments must be agreed upon by all State agencies

involved, and by FNS. At no time would any affected State agency be

left out of the negotiation process.

Additionally, since the proposed rule was published, it has been

brought to our attention that negotiations may need to also take place

between two or more ITOs not just between ITOs and geographic State

agencies. The final rule has been modified to reflect this. In all

other respects, it remains as proposed.

Commodity Supplemental Food Program

The Commodity Supplemental Food Program's (CSFP) service to low-

income women, infants and children contributes to the Administration's

goal of fully funding the WIC Program by the end of fiscal year 1996.

The fiscal year 1995 budget request and out year budget targets assume

CSFP women, infants and children participation will equal the

authorized caseload level.

In those States where both CSFP and WIC operate, the current rule

requires the subtraction from the WIC income eligible database of those

participants (based on actual, average CSFP participation in the prior

fiscal year) who are estimated as eligible for the WIC Program, but

elect to receive benefits under CSFP. As CSFP is currently authorized

to serve, in addition to WIC eligibles, 5 year old children and

postpartum women from 6 months to 1 year postpartum, not all CSFP

participants are categorically eligible for the WIC Program. Therefore,

FNS assumes that one-fourth of the children and one-half of the

postpartum women participating in CSFP are not eligible for the WIC

Program. The balance of CSFP participants are subtracted from the WIC

eligibles estimate.

The Department proposed to make three changes to this deduction

from the WIC eligibles database. First, it proposed to modify the

method for determining the number of CSFP women, infants and children

to subtract from the WIC eligibles database. It proposed to base the

deduction upon the authorized caseload for CSFP women, infants and

children, rather than actual participation. Second, it proposed to base

the deduction on the CSFP caseload authorized at the beginning of the

caseload cycle of the prior fiscal year (generally announced on

December 1). Finally, it proposed that the adjustment described above

for those CSFP participants who are not also categorically eligible for

WIC (postpartum women from 6 months to 1 year postpartum and 5 year old

children) would no longer be made. The Department believed that

utilizing the total CSFP caseload level for women, infants and

children, rather than actual participation, more equitably accounts for

the resources provided to a State agency to serve the WIC target

population under CSFP. These changes were intended to ensure that

States that do not have access to CSFP were not disadvantaged in their

access to WIC funds when compared with States that operate both

programs.

Uniformly, commenters were strongly opposed to reducing the WIC

eligibles data by the CSFP caseload, particularly with no reduction for

non-WIC eligibles participating in CSFP. Commenters felt that deducting

CSFP caseload from the WIC eligibles would improperly reduce estimates

of income eligibles. They also stated that it was inequitable to no

longer adjust the deduction to account for non-WIC eligible CSFP

recipients. Most commenters suggested retaining the method used in the

current formula. However, several commenters suggested perhaps there

are States that could report WIC eligibles actually served by CSFP and

then that data could be used to determine income eligibles.

In view of the concerns raised by commenters, the Department has

decided not to adopt the proposed rule. Instead, the method used in the

current regulations for deducting the CSFP participants eligible for

WIC from the WIC income eligible data base will be retained.

Performance Standard

The Department also proposed to revise the 95 percent performance

standard which reduces the current year grant for any State agency that

does not spend at least 95 percent of its food grant. The Department is

concerned that expenditure of only 95 percent of the grant is too

generous in the context of a fully funded program. While the Department

is sympathetic to the difficulties of rapidly growing States in meeting

the 95 percent expenditure level, State agencies with relatively stable

funding and participation do not face the same difficulties. For State

agencies at or exceeding their fair share level, expending less than

the 95 percent of allocated food funds is likely to indicate they have

funds they cannot use. The Department proposed to retain the 95 percent

standard for State agencies receiving less than their fair share

allocation, and to increase the performance standard to 98 percent for

those at or over their fair share level.

The majority of commenters were adamantly opposed to two different

performance standards for over and under fair share State agencies.

Additionally, most commenters felt the 98 percent performance standard

was much too stringent and unrealistic due to food cost fluctuations,

infant formula rebates, variations in participation and other factors

not directly controlled by the WIC State agency. In view of these

comments, the final rule deletes the proposed two-tier performance

standard for over and under fair share State agencies. However, the

Department continues to be concerned that unspent funds be directed to

States with documented need, especially as State demographic and

socioeconomic situations fluctuate from year to year. This is

particularly critical in a full funding environment. Therefore, the

Department has decided to retain a uniform performance standard, and to

gradually increase it over time. Accordingly, paragraph 246.16

(e)(2)(i) in the final rule establishes a 96 percent performance

spending standard in fiscal years 1995 and 1996, and a 97 percent

standard for fiscal year 1997 and beyond for all WIC State agencies.

Additionally, prior to applying the performance standard, the

current regulations in section 246.16(e)(3)(i) allow for exclusion from

the grant of food funds that are spent forward into a succeeding fiscal

year as authorized by section 246.16(b)(3)(ii), and (iv) and (v). Since

spentforward funds are merely unspent funds that the State agency can

retain, the Department proposed that they should no longer be excluded

when assessing spending performance. A few commenters opposed this

provision, but the Department continues to believe that spendforward

funds should not be deducted when calculating the performance standard.

This deduction has led to the current situation in which there are

significant amounts of unspent money moving from one fiscal year to

another. If not rectified, this will compound the extreme pressure that

will be placed on all Departmental discretionary spending in order to

meet the commitment to WIC full funding. Therefore, the final rule

retains this provision as proposed. Any food funds backspent under

section 246.16(b)(3)(i) or converted to nutritional services and

administration (NSA) funds under section 246.16(g) will continue to be

excluded from the food grant for purposes of applying the performance

standard. These two reductions are appropriate in that they reflect

food funds actually expended in the current year, and not merely

reserved for future use.

Summary of the Final Food Funding Formula

The foregoing has described the decisions reached on the proposed

provisions. To ensure that the new formula in this final rule is fully

understood, the following describes the allocation process and provides

simplified examples of the funding process.

Fair Share Allocation Objective

The funding objective is to give each State agency its fair share

allocation of funds to the extent funds are available. Funds available

include funds appropriated for the fiscal year as well as unspent funds

carried over from the prior fiscal year that State agencies have not

retained under spendforward authority as provided in section 246.16

(b)(3)(ii). An example of a simplified fair share allocation is shown

below. This example assumes that available funds total $5000, and the

total number of income eligibles is 1000 persons.

------------------------------------------------------------------------

Fair share

State agency Eligibles percentage Fair share

No. allocation

------------------------------------------------------------------------

A.................................... 200 20 $1,000

B.................................... 500 50 2,500

C.................................... 300 30 1,500

----------------------------------

Total.......................... 1,000 100 5,000

------------------------------------------------------------------------

Stability Allocation

Recognizing that State agencies may already have participants on

the program supported with the grant funds each State agency received

in the prior year, the formula strives to protect this service

depending on total funds available. A stability allocation is provided

to protect prior year grant levels contingent on availability of funds.

If funds are not adequate to fully fund prior year grants, all

State agencies will receive a prorata reduction from their prior year

grant level commensurate with the shortfall of available funds. If

funds are available, each State agency would receive a stability

allocation equal to its final authorized grant level as of September 30

of the prior fiscal year. If funds are still available, all State

agencies will receive an inflation adjustment.

This inflation adjustment will reflect the anticipated rate of food

cost increases as determined by the Department. Should funds be

inadequate to fully meet this adjustment, each State agency will

receive an equal percent inflation increase as permitted by the amount

of funds available.

Growth Allocation

If funds remain after the stability allocation, then these funds

are provided for a ``growth allocation''. The growth allocation gives

additional funds to each State agency which has an inflation-adjusted

stability allocation which is less than its fair share allocation. The

formula subtracts each State agency's current year stability allocation

from its fair share allocation to determine the dollar shortfall. Each

State agency's shortfall, as a percent of all State agency's

shortfalls, yields its percent share of the funds available for the

growth allocation.

Example of Formula Allocation Process

The example below describes allocation steps for stability and

growth. First, all State agencies have received at least their prior

year final grant, which totaled $4,500. As $5,000 is available to

allocate in this case, funds are sufficient to do both stability and

growth allocations.

1. Stability Allocation. All State agencies receive an inflationary

increase, based on full inflation, to the extent permitted by available

funding. In this example, available funding permits the entire

inflationary increase:

------------------------------------------------------------------------

Prior year Inflation Stability

State agency Fair share final grant 3% grant

------------------------------------------------------------------------

A................... $1,000 $1,100 33 $1,133

B................... 2,500 2,000 60 2,060

C................... 1,500 1,400 42 1,442

---------------------------------------------------

Total......... 5,000 4,500 135 4,635

Funds remaining=$365

------------------------------------------------------------------------

2. Growth Allocation. Under fair share State agencies get a

proportion of remaining funds based on the shortfall between their fair

share allocation and stability grant. In the example below, the $365

available for growth funding is shared by States B and C according to

their respective shortfalls from their fair share allocations.

----------------------------------------------------------------------------------------------------------------

$$

State agency Fair share Stability Shortfall ------------- Funds rec'd Final grant

grant Pct.

----------------------------------------------------------------------------------------------------------------

A................................. $1,000 $1,133 NA NA NA $1,133

B................................. 2,500 2,060 $440 88 $322 2,382

C................................. 1,500 1,442 58 12 43 1,485

-----------------------------------------------------------------------------

Total....................... 5,000 4,635 498 100 365 5,000

Funds remaining=$0

----------------------------------------------------------------------------------------------------------------

If any funds allocated in the two steps above cannot be used and

are declined by one or more State agencies, then these funds are

allocated, using the method in Step 2, to the under fair share State

agencies which have the ability to use more funds. If all funds are

still not distributed, then these remaining funds would be allocated to

State agencies which have a stability allocation which is at or greater

than its fair share allocation. Each of these State agencies which can

document the need for additional funds will be eligible to receive

additional funds based on the difference between its stability

allocation level and fair share allocation. State agencies closest to

their fair share allocation shall receive first consideration. The

Department recognizes that being at or over fair share is a statistical

definition that may or may not accurately indicate the actual need for

funding to serve all eligibles within that State. Therefore, over fair

share States must have the opportunity to receive additional funds,

should the funding be available.

For instance, in the example above, State A would be able to

receive funds declined by State B or C. In this way, the precedence for

funding will be to increase funding to under fair share State agencies

to the extent possible, while still allowing State agencies that are

over their fair share level to receive additional funds when a

documented need for additional funds exists. Additionally, over fair

share States must demonstrate effective efforts to control food package

costs. All grants awarded through this process would become the basis

of the following year's stability allocation.

List of Subjects in 7 CFR Part 246

Food assistance programs, Food donations, Grant programs--Social

programs, Infants and children, Maternal and child health, Nutrition

education, Public assistance programs, WIC, Women.

Accordingly, 7 CFR Part 246 is amended as follows:

PART 246--SPECIAL SUPPLEMENTAL FOOD PROGRAM FOR WOMEN, INFANTS AND

CHILDREN

1. The authority citation for part 246 continues to read as

follows:

Authority: 42 U.S.C. 1786.

2. In Sec. 246.16:

a. Paragraphs (c)(1), (c)(3) and (e)(2)(i) are revised; and

b. Paragraph (r) is redesignated as paragraph (p) and all internal

references to the redesignated paragraph are revised. The revisions

read as follows:

Sec. 246.16 Distribution of funds.

* * * * *

(c) Allocation formula. * * *

(1) Use of participation data in the formula. Wherever the formula

set forth in paragraphs (c)(2) and (c)(3) of this section require the

use of participation data, the Department shall use participation data

reported by State agencies according to Sec. 246.25(b).

* * * * *

(3) Allocation of food benefit funds. In any fiscal year, any

amounts remaining from amounts appropriated for such fiscal year and

amounts appropriated from the preceding fiscal year after making

allocations under paragraph (a)(6) of this section and allocations for

nutrition services and administration (NSA) as required by paragraph

(c)(2) of this section shall be made available for food costs.

Allocations to State agencies for food costs will be determined

according to the following procedure:

(i) Fair share allocation. (A) For each State agency, establish a

fair share allocation which shall be an amount of funds proportionate

to the State agency's share of the national aggregate population of

persons who are income eligible to participate in the Program based on

the 185 percent of poverty criterion. The Department will determine

each State agency's population of persons categorically eligible for

WIC which are at or below 185% of poverty, through the best available,

nationally uniform, indicators as determined by the Department. If the

Commodity Supplemental Food Program (CSFP) also operates in the area

served by the WIC State agency, the number of participants in such area

participating in the CSFP but otherwise eligible to participate in the

WIC Program, as determined by FNS, shall be deducted from the WIC State

agency's population of income eligible persons.

(B) The Department may adjust the respective amounts of food funds

that would be allocated to a State agency which is outside the 48

contiguous states and the District of Columbia when the State agency

can document that economic conditions result in higher food costs for

the State agency. Prior to any such adjustment, the State agency must

demonstrate that it has successfully implemented voluntary cost

containment measures, such as improved vendor management practices,

participation in multi-state agency infant formula rebate contracts or

other cost containment efforts. The Department may use the Thrifty Food

Plan amounts used in the Food Stamp Program, or other available data,

to formulate adjustment factors for such State agencies.

(ii) Stability allocation. If funds are available, each State

agency shall receive a stability allocation equal to its final

authorized grant level as of September 30 of the prior fiscal year plus

a full inflation increase. The inflation factor shall reflect the

anticipated rate of food cost increases as determined by the

Department. If funds are not available to provide all State agencies

with their full stability allocation, all State agencies shall receive

a prorata reduction from their full stability allocation as required by

the short fall of available funds.

(iii) Growth allocation. (A) If additional funds remain available

after the allocation of funds under (c)(3)(ii) of this section, each

State agency which has a stability allocation, as calculated in

paragraph (c)(3)(ii) of this section, which is less than its fair share

allocation shall receive additional funds based on the difference

between its stability allocation and fair share allocation. Each State

agency's difference shall be divided by the total of the differences

for all such State agencies, to determine the percent share of the

available growth funds each State agency shall receive. In the event a

State agency declines any of its allocation in paragraph (c)(3)(ii) of

this section or this paragraph, the funds declined shall be allocated

to the remaining State agencies which are still under their fair share.

(B) In the event funds still remain after completing the

distribution in paragraph (c)(3)(iii)(A) of this section, these funds

shall be allocated to all State agencies including those with a

stability allocation at, or greater than, their fair share allocation.

Each State agency which can document the need for additional funds

shall receive additional funds based on the difference between its

prior year grant level and its fair share allocation. State agencies

closest to their fair share allocation shall receive first

consideration.

(iv) Migrant services. At least \9/10\ of one percent of

appropriated funds for each fiscal year shall be available first to

assure service to eligible members of migrant populations. For those

State agencies serving migrants, a portion of the grant shall be

designated to each State agency for service to members of migrant

populations based on that State agency's prior year reported migrant

participation. The national aggregate amount made available first for

this purpose shall equal \9/10\ of one percent of all funds

appropriated each year for the Program.

(v) Special provisions for Indian State agencies. The Department

may choose to adjust the allocations and/or eligibles data among Indian

State agencies, or among Indian State agencies and the geographic State

agencies in which they are located when eligibles data for the State

agencies' population is determined to not fairly represent the

population to be served. Such allocations may be redistributed from one

State agency to another, based on negotiated agreements among the

affected State agencies approved by FNS.

* * * * *

(e) Recovery and reallocation of funds.

* * * * *

(2) Performance standards. * * *

(i) The amount allocated to any State agency for food benefits in

the current fiscal year shall be reduced if such State agency's food

expenditures for the preceding fiscal year do not equal or exceed 96

percent of the amount allocated to the State agency for such costs for

fiscal year 1995 and fiscal year 1996 and 97 percent for fiscal year

1997 and beyond. Such reduction shall equal the difference between the

State agency's preceding year food expenditures and the performance

expenditure standard amount. For purposes of determining the amount of

such reduction, the amount allocated to the State agency for food

benefits for the preceding fiscal year shall not include food funds

expended for food costs incurred under the spendback provision in

paragraph (b)(3)(i) of this section or conversion authority in

paragraph (g) of this section. Temporary waivers of the performance

standard may be granted at the discretion of the Department.

* * * * *

Dated: September 30, 1994.

Ellen Haas,

Assistant Secretary for Food and Consumer Services.

[FR Doc. 94-24673 Filed 10-4-94; 11:08 am]

BILLING CODE 3410-30-U