State Administrative Expense Funds: National School Lunch Program, Special Milk Program for Children, School Breakfast Program, Child and Adult Care Food Program, Food Distribution Program

SUMMARY: This rulemaking incorporates in the regulations the

requirements in the Child Nutrition and WIC Reauthorization Act of

1989, which concern State Administrative Expense (SAE) funds. SAE funds

are Federal funds provided to State agencies to assist with the

administrative costs of the National School Lunch Program (NSLP), the

School Breakfast Program (SBP), the Special Milk Program for Children

(SMP) and the Child and Adult Care Food Program (CACFP) and the

administrative costs of the Food Distribution Program (FDP) in

conjunction with these programs. The SAE provisions of the 1989

legislation included in this final rulemaking do the following:

Establish limits on the level of SAE funds that may be retained by the

State from one fiscal year to another and specify how SAE funds that

are returned by the State are to be redistributed. Finally, the

legislation provides that alternate State agencies which administer the

CACFP receive the funds to which they are entitled. In practical

effect, this provision concerns the ``adult care component'' of the

CACFP since the Department already provides funds directly to the State

agencies administering the CACFP. This final regulation reflects this

statutory provision. These changes to the SAE provisions are designed

to ensure that adequate funds are available for the purposes specified.

EFFECTIVE DATE: This final regulation is effective April 24, 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Robert Eadie, Chief, Policy and

Program Development Branch or Mr. Charles Heise, Child Nutrition

Division, Food and Consumer Service, USDA, 3101 Park Center Drive,

Alexandria, Virginia 22302 or by telephone at (703) 305-2620.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be not significant for purposes of

Executive Order 12866 and, therefore, has not been reviewed by the

Office of Management and Budget.

Regulatory Flexibility Act

This final rule has been reviewed with regard to the requirements

of the Regulatory Flexibility Act (5 U.S.C. 601-612). The Administrator

of the Food and Consumer Service (FCS) has certified that this final

rule will not have a significant economic impact on a substantial

number of small entities, since the regulation pertains entirely to the

funding of State agencies, and these are not small entities.

Paperwork Reduction Act

The proposed rule contained information collections. However, the

provisions that contained reporting and recordkeeping burdens are not

included in this final rule. Therefore, this final rule does not

contain information collections which are subject to review by the

Office of Management and Budget (OMB) under the Paperwork Reduction Act

of 1980 (44 U.S.C. Chapter 35).

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'' section of this preamble.

Prior to any judicial challenge to the provisions of this rule or the

application of the provision, all applicable administrative procedures

must be exhausted. In the National School Lunch Program, the

administrative procedures for State agency appeals of State

Administrative Expense funds sanctions (7 CFR 235.11(b)) are set forth

in 7 CFR 235.11(f).

Executive Order 12372

The FDP, SBP, NSLP, SMP, CACFP, and SAE are listed in the Catalog

of Federal Domestic Assistance under No. 10.550, No. 10.553, No.

10.555, No. 10.556, No. 10.558, and No. 10.560, respectively. These

programs are subject to the provisions of Executive Order 12372, which

requires intergovernmental consultation with State and local officials.

(See 7 CFR part 3015, subpart V, and final rule related to notice

published at 49 FR 29114, June 24, 1983.)

Background

Public Law 101-147, entitled the Child Nutrition and WIC

Reauthorization Act of 1989 (103 Stat. 877), was enacted on November

10, 1989. Section 122 of this legislation included changes to some of

the statutory provisions governing the use of State Administrative

Expense (SAE) funds provided by the Federal government to assist States

with meeting the administrative costs of many of the programs

authorized under the National School Lunch Act (NSLA) and the Child

Nutrition Act of 1966 (CNA).

On December 6, 1991, the Department published a proposed rulemaking

at 56 FR 63882 to incorporate these statutory changes into the SAE

regulations and to make discretionary changes to the funding of Food

Distribution Programs. This proposal included the following provisions:

(1) The maximum amount of SAE which a State could carry over from one

fiscal year to the next was limited to 25 per cent for Fiscal Year 1991

and 20 per cent for subsequent years; (2) a minimum of $3 million of

any excess SAE funds recovered by the Department in Fiscal Year 1992

and $4 million of SAE recovered in each of the next two years must be

made available to demonstration projects authorized under section 107

of Public Law 101-147 to provide food service to homeless children

under the age of 6 in [[Page 15458]] emergency shelters; (3) if a State

elects to have an agency other than the agency administering the child

care component of the CACFP administer the adult care component of that

Program, the Department will ensure that a share of the SAE funds

generated by the CACFP is made available to this other agency; (4) a

portion of the nondiscretionary SAE funds made available to a State

would be designated exclusively for the Food Distribution Program's

administrative expenses associated with providing commodities to the

NSLP, SBP, and CACFP; and (5) beginning with Fiscal Year 1993,

expenditures from State sources for applicable food distribution

administrative costs would have to be no less than the amount of State

funds expended or obligated in Fiscal Year 1991, in order to ensure

continued State support for food distribution activities. Readers are

referred to the proposed rule for a more complete explanation of these

provisions.

During the official comment period, the Department received 53

comments. Most of these were from State agencies which administer one

or more of the child nutrition programs and/or the Food Distribution

Program, but three comments were received from State or national

associations and one comment was submitted by a State governor's

office. Most of the commenters addressed the provisions relating to the

transfer of funding to food distribution activities and the maintenance

of State funding levels for these activities. The overwhelming majority

opposed these provisions; in fact, only four commenters approved wholly

of the proposed provisions on transfer of funds to the FDP. The major

concerns of those opposed to the transfer/exclusive use provisions were

as follow:

The provision is inconsistent with either the statutory

language or the intent of Congress;

The total prohibition against transferring funds from the

FDP to the other child nutrition programs is inconsistent with the

statutory provision which permits a 10 per cent transfer of

administrative funds among programs;

The proposal would divert administrative funds away from

the child nutrition programs at the same time that additional

administrative requirements such as coordinated review and breakfast

outreach are being imposed;

The requirement that the food distribution portion of

funds be used exclusively for these activities would interfere with

States' flexibility to provide funding where it is most needed,

especially in those States in which one agency administers both the

child nutrition programs and the FDP;

Tracking and accounting for separate funds will create a

burden, especially for those agencies which administer both programs

and must, therefore, document the exclusive use of funds for food

distribution activities;

The FDP already has a source of funding through assessment

fees, and any additional funds should be appropriated separately rather

than transferred at the expense of the child nutrition programs.

Commenters opposed to the maintenance of effort provision raised

the following concerns and issues:

This provision exceeds Congressional intent;

This provision would penalize those States which have been

providing funds voluntarily for food distribution purposes;

Since most States do not currently track food distribution

funds separately, it will be difficult to establish the exact level of

funding to be maintained;

Because of cutbacks in State funding since 1991, some

States will be unable to comply with the maintenance of effort

requirement.

As noted in the preamble to the December 6, 1991 proposed

rulemaking, section 122(a)(1)(D) of Pub. L. 101-147 added a new

paragraph (8) to section 7(a) of the CNA which directs each State to

ensure (in accordance with regulations issued by the Secretary) that

the State agency administering the distribution of donated food (the

``distributing agency'') is provided an appropriate amount of SAE for

the administrative costs incurred in distributing donated commodities

to the NSLP, SBP and CACFP. The law further authorized the Secretary to

consider the value of commodities when developing regulations to

implement this provision. Currently, the Department provides SAE funds

directly to the distributing agency in the State that administers the

FDP for the NSLP, SBP, and CACFP. Therefore, no change to the SAE

regulation was required to implement this provision.

However, in order to further improve the administration of SAE

funds in connection with the FDP, the Department proposed a number of

discretionary changes to the SAE regulations regarding funding of the

FDP. First, the Department proposed a methodology for distributing a

portion of the nondiscretionary SAE allocation for the FDP's

administrative costs. Second, clarifications to the formula for

determining the level of discretionary SAE funds to be used for the FDP

were proposed. Third, since the Department has always intended that SAE

funds designated for food distribution purposes be so used, the

proposed rule prohibited using the food distribution portion of SAE for

any other purposes, even when the same agency administers the FDP and

the child nutrition programs. Finally, the legislative history of

section 122 makes it clear that distributing agencies were expected to

reduce or eliminate current assessment fees, wherever possible, in

response to their receipt of SAE funds. The ``maintenance of effort''

provision of the proposal was designed to promote this goal by ensuring

that States would continue to provide the same level of State funds

derived from sources other than assessment fees. Since the total of

State and Federal funds provided for food distribution would, in many

cases, increase, assessment fees could be reduced or eliminated.

Nevertheless, the Department recognizes the concerns raised by

commenters and has no desire to adopt provisions that could potentially

have a negative impact on operations in some States. For these reasons,

the Department wishes to reconsider these discretionary issues

regarding FDP funding and review available options, including possible

alternatives to the proposal. Therefore, these provisions are not

included in this final regulation; rather, they will be treated in a

separate, future rulemaking. The Department is, however, proceeding to

finalize those provisions required by Public Law 101-147. The remainder

of this preamble discusses commenters' questions and concerns on these

issues.

Limits on Funds Retained From the Previous Fiscal Year

The Department proposed to amend Sec. 235.5(e) and Sec. 235.6(a) to

incorporate the mandate of section 7(a)(5)(A) of the CNA as amended by

section 122(a)(1)(C) of Public Law 101-147, which limits the amount of

unobligated SAE funds that may be retained and carried over into the

next fiscal year to a maximum of 25 per cent for Fiscal Year 1991 and a

maximum of 20 per cent for subsequent fiscal years. The proposed

amendment also specified how the limit would be calculated and how the

limit would be compared at the end of the first fiscal year to the

amount of unobligated SAE funds. Essentially, the Department would

apply the appropriate percentage to the State's initial allocation to

establish the maximum amount of SAE that may be carried over. To

determine the total amount of unobligated funds, the Department would

subtract the amount reported by the State agency on Line k (Total

Federal share of outlays [[Page 15459]] and unliquidated obligations)

of the fourth quarter Standard Form (SF) 269 from the total amount of

SAE funds granted for the fiscal year. The Department would then

recover any of these funds in excess of the maximum amount of SAE that

can be carried over. For an example of how the process would work,

interested parties should refer to the discussion on page 63885 of the

preamble to the proposed rule.

Twenty-three commenters addressed the limitation provisions of the

proposed rule, with most of them believing that such a limitation would

have a negative impact on Program administration, although one State

agency reported that its carryover has been well below 20 per cent, so

compliance was not perceived to be a problem. One commenter, however,

was concerned that the carryover limit will lead to the elimination of

funds for reallocation, with the result that small States in particular

will have difficulty funding their activities with only the minimum

grant available to them. One commenter suggested that an arbitrary

percentage is inequitable to those States with allocations below the

national mean, and another stated that basing the carryover amount only

on the initial allocation does not conform with the language of the

statute, which allows the carryover of 20 per cent of the funds

available for the fiscal year. Two commenters were concerned about

including reallocated funds as part of the year-end balance subject to

the carryover limitation, since these funds are sometimes received late

in the fiscal year and returning any or all of these monies due to the

carryover limit would defeat the purpose of reallocation. One commenter

believed the carryover limit should apply on an agency-by-agency basis

rather than being calculated using the total amount of SAE allocated to

the State as a whole, and another commenter suggested that States

should be allowed to use excess funds for demonstration projects in

lieu of returning the monies to the Federal Government. Some commenters

requested clarification on whether the carryover limit applies to the

funds designated for food distribution activities, and several

commenters noted that the last word in Sec. 235.5(e)(2) should be

``unobligated'' rather than ``unexpended.''

The Department recognizes commenters' concerns about the impact of

the carryover limitation on their operations. However, section

7(a)(5)(B) of the CNA specifically established carryover limits of 25

per cent for Fiscal Year 1991 and 20 per cent for succeeding fiscal

years, and the Department has no authority to waive or modify this

mandate. Moreover, as discussed in the preamble to the proposed

rulemaking, this limitation is applied to the initial allocation rather

than to the total administrative funds made available during the fiscal

year because the Department wished to simplify the overall process of

calculation and to enable State agencies to know at the beginning of

the fiscal year exactly what the maximum amount of their carryover

would be. To this end, the Department believes Congress' overriding

intent was to reduce the amount of carryover funds available as much as

possible while still allowing States flexibility in obligating and

expending funds. The Department believes that the proposal to base the

carryover limit on the initial allocation is consistent with this

intent.

The Department does not believe this provision will adversely

affect the overall reallocation process. Funds are reallocated to

States on the basis of need. Consequently, States receiving

reallocations should generally have few, if any, unobligated funds

remaining from their initial allocations. Moreover, States will often

request reallocations for specific expenses and can, therefore,

obligate these funds relatively quickly. The Department recognizes that

some small State agencies, particularly those receiving minimum grants,

could receive reallocations which are large relative to the States'

carryover limit, and in these instances a State's reallocation might be

affected. These situations should not be common, however, and the

Department will make every effort to provide reallocations well in

advance of the end of the fiscal year in order to facilitate the

States' ability to obligate a major portion of their reallocations

before the funds become subject to the carryover limit.

This limitation applies to all SAE funds received by any State

agency for the administration of any aspect of the child nutrition

programs. Funding for food distribution activities, therefore, is

subject to the carryover limit, regardless of whether the State

education agency or another State agency performs these activities.

Moreover, under the proposed regulation the limitation would be applied

on an agency-by-agency basis, since the Department receives separate

SF-269's from each administering agency and has no feasible means of

making the necessary year-end comparison for the State as a whole. With

respect to allowing States to retain excess funds for demonstration

projects, the statute is specific about requiring the return of excess

funds and how the recovered funds may be used, and the Department does

not have the authority to authorize alternate uses. Further discussion

of this issue appears later in this preamble.

Finally, proposed Sec. 235.5(e)(2) reads as follows:

(2) At the end of the fiscal year following the fiscal year for

which funds were allocated, each State agency shall return any funds

made available which are unexpended.

Several commenters believed that the last word of this paragraph

should read ``unobligated'' rather than ``unexpended.'' The Department

notes, however, that this provision clearly refers to the recovery made

at the end of the second fiscal year for which SAE has been available,

not the return of funds in excess of the carryover limits. Proposed

Sec. 235.5(e)(2) merely restated the requirement that has always been

in effect. Previously, this requirement for the recovery of unexpended

funds at the end of the second fiscal year was stated in Sec. 235.5(e).

For these reasons, this final rulemaking adopts the provisions

limiting the amount of SAE that may be carried over from one fiscal

year to the next as proposed. The Department emphasizes, however, that

this carryover limit does not apply to funds made available to State

agencies which agree to assume responsibility for programs previously

administered directly by FCS, as authorized under the newly

redesignated Sec. 235.4(d). These funds are intended to assist States

with costs associated with start-up operations when assuming

responsibility for a program formerly administered by FCS.

As such, they are made infrequently and are intended for a specific

purpose. Consequently, the Department does not consider that this

funding is subject to the carryover limit and is amending

Sec. 235.5(e)(1) to specify that start-up funds are excluded from the

amount subject to the retention limit. In addition, the reference in

Sec. 235.5(e) to Sec. 235.4 (a) through (e) is revised from the

proposal to Sec. 235.4 (a) through (c) to reflect the deletion of the

proposed new Sec. 235.4 (d) and (e). These latter paragraphs provided

for pro rata shares of SAE funds for FDP administrative purposes which

are not included in this final regulation. This same change is made to

the references in Sec. 235.6(a).

Use of Returned SAE Funds

The Department proposed to add a new paragraph--Sec. 235.6(h) to

incorporate the mandate of Public Law 101-147 regarding how any excess

carryover funds recovered by the Department were to be used. Section

7(a)(5)(B) as amended by section [[Page 15460]] 122(a)(1)(C) of Public

Law 101-147 stipulated that in Fiscal Year 1992, a minimum of $3

million of recovered monies be made available for the purpose of

providing grants to private nonprofit organizations participating in

demonstration projects to provide food service to homeless children

under the age of 6 in emergency shelters. The law also mandated that a

minimum of $4 million be made available for this purpose in each of the

next two fiscal years. Any funds in excess of the amount made available

to these demonstration projects would be reallocated to States which

need SAE funds. The Department emphasized, however, that any disbursal

of funds to homeless shelters or the States would be subject to

availability of recovered monies.

Commenters did not generally discuss this provision except to

recognize that the use of recovered funds for this purpose is mandated

by the statute. One commenter, however, expressed concern that SAE

plans might be disapproved or significantly modified to ensure that

sufficient funding is available to fund these projects. The Department

wishes to emphasize that there will be no change in the procedures

currently in place to review and approve SAE plans. The Department

acknowledges that the disallowance of outlays stated in the plan could

result in additional funds being carried over and, hence, subject to

the limitation and possible recovery. The Department considers,

however, that the primary purpose of SAE is to ensure that States have

adequate funds available to administer the child nutrition programs

effectively. To this end, the Department will continue to negotiate

these plans with the States to ensure that outlays are appropriate but

has no intention of artificially reducing the funding available to

States in order to provide funds for the homeless demonstration

projects.

Since publication of the proposed rule, additional legislation was

passed which impacts upon the use of recovered SAE funds. On September

30, 1992, Public Law 102-512, the Children's Nutrition Assistance Act

of 1992, was enacted which further amended the provision on the use of

excess carryover funds for demonstration projects for the homeless.

Public Law 102-512 amended section 7(a)(5)(B)(i) of the CNA to require

that a minimum of $1,000,000 in Fiscal Years 1993 and 1994 be available

at the beginning of the fiscal year, based on Departmental estimates of

the funds expected to be recovered as a result of the limit on funds

that can be carried over. The Department is, therefore, incorporating

the language of Public Law 102-512 on the use of returned funds into

Sec. 235.6(h) to comply with this most recent statutory requirement.

Alternate State Agencies for the CACFP

Section 7(a)(3) of the CNA as amended by section 122(a)(1)(A) of

Public Law 101-147 requires that if an agency other than the State

educational agency administers the CACFP, the State must ensure that

such State agency which administers the CACFP is provided an amount

equal to no less than the SAE funds due to the State for the CACFP.

Since the Department already provides funds directly to State agencies

administering the CACFP, the practical effect of the applicability of

this provision concerns the ``adult care component'' of the CACFP.

Accordingly, the Department proposed to add a new paragraph, to be

designated as Sec. 235.4(c), to allow a prorated portion of the State's

SAE allocation for the CACFP to be made available directly to another

agency in the State when that agency administers the adult care

component of the CACFP. The Department further proposed to calculate

the prorated share by determining what percentage of total CACFP monies

expended by that State in the second preceding fiscal year was

generated by the adult care component of the CACFP and applying that

percentage to the State's total SAE allocation for the CACFP. To

accommodate this change, the Department also proposed a number of

technical amendments and proposed to delete the word ``agency'' where

it appears in Sec. 235.4 (b)(1) and (4) to clarify that it is the State

which earns the total CACFP grant.

The Department received eight comments on this proposal. Three of

the commenters argued that the $30,000 discretionary grant made

available to assist in administering the CACFP should be redirected to

help fund the monitoring requirements of the NSLP. Three commenters

from one State (which has designated an alternate agency to administer

the adult care component of the CACFP) maintained that the prorated

share is insufficient and recommended a minimum level of $50,000 per

year, while another State suggested that the provision be eliminated

entirely, since redirecting of finite SAE funds would weaken overall

Program administration. Finally, one commenter recommended adjusting

the SAE nondiscretionary allocation for the CACFP based on growth in

the Program between the second preceding year and the current year.

As noted in the preamble to the proposed rule, the Department

believes this amendment to section 7(a)(3) of the CNA must be read in

the context of section 17(p)(6) of the National School Lunch Act as

amended by section 105(b)(3)(B) of Public Law 101-147, which authorizes

governors to designate alternate agencies to administer the adult care

component of the CACFP. In those instances in which a governor decides

that an agency other than the CACFP agency is better able to serve the

adult community, the Department believes it is consistent with the

alternate State agency legislation to ensure that a portion of SAE

funds is provided to that agency. However, the Department continues to

stress that the total SAE allocation is earned by the CACFP as a whole.

Moreover, the total amount of SAE available for all of the child

nutrition programs is limited. Consequently, if the Department were to

guarantee a minimum level of funding for the adult care component of

the CACFP, the amount of funds available to administer the other child

nutrition programs would be diminished. Finally, the Department notes

that nationally, the adult care component accounts for only slightly

more than 1 per cent of the total funding for the CACFP, and

designating a large pool of administrative funding strictly for this

purpose would not be justified. Therefore, it would not be reasonable

to provide a minimum grant of $50,000 to an alternate agency solely to

administer the adult care component of the CACFP. The Department does

wish to emphasize, however, that in those States which do elect to

administer the adult care component through an alternate agency, the

agency administering the child care component of the CACFP may elect to

transfer a portion of its SAE funds to the alternate agency in

accordance with established FCS procedures. This would be in addition

to the amount required by the regulations to be provided the agency

administering the adult care component of the CACFP.

Secondly, the Department does not agree with those commenters who

wish to redirect the CACFP discretionary grant to cover the costs of

monitoring the school nutrition programs. The Department makes these

grants available to CACFP agencies in recognition of the fact that this

Program has heavy monitoring responsibilities, which actually exceed

the requirements for monitoring of schools, as well as other

administrative requirements, such as the oversight of approval when

licensing or approval is not otherwise available, [[Page 15461]] which

are unique to the CACFP. If States could redirect the entire

discretionary money from the CACFP to school programs, the overall

management of the CACFP could be weakened. The Department also provides

States with $4 million for the specific purpose of conducting reviews

of the NSLP. For these reasons, the Department could not justify

redirecting monies from the CACFP to NSLP.

The Department recognizes the concern about possible fragmentation

of the SAE grant for the CACFP if funding is made available to an

alternate agency to administer the adult care component. As the above

discussion makes clear, the Department is anxious to maintain

sufficient funding to ensure proper management of the Program. Under

the proposal, a portion of the SAE grant is designated for an alternate

agency only when the State, itself, has decided to split the

administration of the CACFP. Since this action would be voluntary on

the part of the State, the Department assumes that the State has

determined that the advantages, both financial and administrative, of

shifting the adult care component outweigh any reduction the agency

administering the CACFP may experience in its SAE grant. For these

reasons, the Department is adopting as proposed the provision to

designate a pro rata share of the CACFP's SAE grant for an alternate

agency administering the adult care component.

The final comment to address on this provision is the

recommendation that the SAE nondiscretionary allocation for the CACFP

be adjusted based on growth in the Program between the second preceding

year and the current year. The Department is unable to adopt this

recommendation because the time frame for determining the level of

nondiscretionary funds for the CACFP is statutory.

Miscellaneous Provisions

In addition to the changes described above, the Department proposed

a number of amendments intended to remove obsolete references, provide

clarification and incorporate the provision in Public Law 101-147

mandating cooperation with studies authorized by the Secretary. In

Sec. 235.1 and Sec. 235.2(s), the references to the Food Service

Equipment Assistance Program were deleted, as were references to Fiscal

Year 1986 in Sec. 235.5(b) and Fiscal Year 1980 in Sec. 235.7(c). Also,

the definition of ``State'' in Sec. 235.2(r) was revised by deleting

references to the Trust Territories and American Samoa and replacing

them with references to the Commonwealth of the Northern Marianas

Islands and the Republic of Palau, respectively. The Department notes

that separate SAE funds are no longer made available to the

Commonwealth of the Northern Marianas Islands; it is not necessary,

therefore, to include that entity in the definition at all.

Consequently, in this final regulation, the old references are replaced

by the single reference to the Republic of Palau.

To distinguish more clearly between nondiscretionary and

discretionary SAE funding, the proposed rule amended Sec. 235.4 by

redesignating paragraph (a) as paragraph (a)(1), adding new

introductory text to paragraph (a), redesignating paragraph (b) as

paragraph (a)(2) and adding new introductory text to paragraph (b) to

indicate the additional discretionary SAE funding designations. The

Department also proposed to delete the second sentence of

Sec. 235.4(b)(3)(iv) and add a new paragraph (i) to Sec. 235.4 to

clarify that funds allotted to State agencies under Sec. 235.4 are

subject to the reallocation provisions in Sec. 235.5(d).

Finally, the Department proposed changes to Sec. 235.7(c) to comply

with section 122(a)(2) of Public Law 101-147, which amended section

7(g) of CNA to require that SAE funds cannot be distributed unless the

State agrees to participate fully in any studies authorized by the

Secretary. The proposal deleted the phrase ``studies directed by

Congress and requested'' (by the Secretary) and replaced it with the

word ``authorized'' as well as deleted the reference to Fiscal Year

1980.

The Department received only one comment on these provisions, and

that commenter observed that the requirement to participate in studies

authorized by the Secretary should not be imposed unless there is

specific authorizing legislation. As noted in the preamble to the

proposed rule and in this preamble above, the change was in response to

the specific mandate of Public Law 101-147. Therefore, the Department

is adopting this provision and the other miscellaneous amendments as

proposed. However, because of changes in the final rule in Sec. 235.4,

the proposed new Sec. 235.4(i) is now designated as Sec. 235.4(g).

The Department is also taking this opportunity to correct an

erroneous reference which was discovered subsequent to the publication

of the proposed rule. Section 235.7(b) contains a reference to

Sec. 235.4(c). In the proposed rule, Sec. 235.4(c) was redesignated

Sec. 235.4(f) because three new paragraphs were being inserted after

Sec. 235.4(b), and the reference was changed in Sec. 235.7(b) to

accommodate this redesignation. The Department notes, however, that the

original reference was incorrect, since Sec. 235.4(c) did not address

carryover. The correct reference should have been Sec. 235.6(a), and

this reference is being incorporated into Sec. 235.7(b) of this final

rule.

Changes are also made to Sec. 235.4(b)(4) to revise references to

reflect other changes made by this regulation and to correct an

obsolete reference to Sec. 235.4(f) which was renamed Sec. 235.4(c) by

an earlier regulation. This paragraph is also changed to clarify that

funds provided under this paragraph are allocated on a State basis for

the CACFP and the FDP, not for each State agency that administers these

programs.

Implementation

The provisions of section 122 affecting SAE funds were effective

October 1, 1989. Accordingly, the Department has already implemented

these requirements, and this rule is made effective 30 days after

publication.

List of Subjects in 7 CFR Part 235

Administrative practice and procedure, Child and Adult Care Food

Program, Food assistance programs, Grant administration,

Intergovernmental relations, National School Lunch Program, Reporting

and recordkeeping requirements, School Breakfast Program, Special Milk

Program.

Accordingly, 7 CFR part 235 is amended as follows:

PART 235--STATE ADMINISTRATIVE EXPENSE FUNDS

1. The authority citation for part 235 continues to read as

follows:

Authority: Secs. 7 and 10 of the Child Nutrition Act of 1966, 80

Stat. 888, 889, as amended (42 U.S.C. 1776, 1779).

Sec. 235.1 [Amended]

2. In Sec. 235.1, the second sentence is amended by removing the

words ``the Food Service Equipment Assistance Program (7 CFR Part

230)''.

Sec. 235.2 [Amended]

3. In Sec. 235.2:

a. Paragraph (r) is amended by removing the words ``American Samoa,

or the Trust Territory of the Pacific Islands'' and adding in their

place the words ``or the Republic of Palau''.

b. Paragraph (s)(2) is amended by removing the reference to part

230 in the first sentence.

4. In Sec. 235.4:

a. Paragraph (a) is redesignated as paragraph (a)(1), and new

paragraph (a) introductory text is added, the introductory text of

paragraph (b) is redesignated as paragraph (a)(2); and

[[Page 15462]] new paragraph (b) introductory text is added.

b. The first sentence of newly redesignated paragraph (a)(1) is

amended by removing the words ``For each fiscal year, FNS shall

allocate'' and the word ``agency'' the first time it occurs; the first

sentence is further amended by removing the words ``by such agency''

and adding in their place the words ``by such State''.

c. The first sentence of newly redesignated paragraph (a)(2) is

amended by removing the words ``For each fiscal year, FCS shall

allocate'' and by removing the words ``to each State agency'' and

adding in their place the words ``to each State''.

d. Paragraph (b)(1) is amended by removing the words ``For each

fiscal year, FCS shall allocate'' and the word ``agency''.

e. Paragraph (b)(2) is revised in its entirety.

f. The introductory text of paragraph (b)(3) is revised in its

entirety.

g. Paragraph (b)(3)(iv) is amended by removing the second sentence.

h. Paragraph (b)(4) is revised in its entirety.

i. Paragraphs (c) through (e) are redesignated as paragraphs (d)

through (f), respectively; and a new paragraph (c) is added.

j. Newly redesignated paragraphs (d) through (f) are amended by

adding paragraph headings.

k. In newly redesignated paragraph (f), the references to

paragraphs ``(a)'' and ``(b)'' are removed and references to paragraphs

``(a)(1)'' and ``(a)(2)'' are added in their place.

l. A new paragraph (g) is added.

The additions read as follows:

Sec. 235.4 Allocation of funds to States.

(a) Nondiscretionary SAE Funds. For each fiscal year, FCS shall

allocate the following:

* * * * *

(b) Discretionary SAE Funds. For each fiscal year, FCS shall

provide the following additional allocations:

* * * * *

(2) $30,000 to each State which administers the Food Distribution

Program (part 250 of this chapter) in schools and/or institutions which

participate in programs under parts 210, 220, 226 of this chapter.

(3) Amounts derived by application of the following four-part

formula to each State agency which is allocated funds under paragraph

(a) of this section:

* * * * *

(4) Funds which remain after the allocations required in paragraphs

(a)(1), (a)(2), (b)(1), (b)(2) and (b)(3) of this section, and after

any payments provided for under paragraph (c) of this section, as

determined by the Secretary, to those States which administer the Food

Distribution Program (part 250 of this chapter) in schools and/or

institutions which participate in programs under parts 210, 220, or 226

of this chapter and to those States which administer part 226 of this

chapter. The amount of funds to be allocated to each State for the Food

Distribution Program for any fiscal year shall bear the same ratio to

the total amount of funds made available for allocation to the State

for the Food Distribution Program under this paragraph as the value of

USDA donated foods delivered to the State for schools and institutions

participating in programs under parts 210, 220 and 226 of this chapter

during the second preceding fiscal year bears to the value of USDA

donated foods delivered to all the States for such schools and

institutions during the second preceding fiscal year. The amount of

funds to be allocated to each State which administers the Child and

Adult Care Food Program for any fiscal year shall bear the same ratio

to the total amount of funds made available for allocation to all such

States under this paragraph as the amount of funds allocated to each

State under paragraph (a)(2) of this section bears to the amount

allocated to all States under that paragraph.

(c) SAE Funds for the Child and Adult Care Food Program. If a State

elects to have a separate State agency administer the adult care

component of the Child and Adult Care Food Program, such separate State

agency shall receive a pro rata share of the SAE funds allocated to the

State under paragraphs (a)(2), (b)(1), and (b)(4) of this section which

is equal to the ratio of funds expended by the State for the adult care

component of the Child and Adult Care Food Program during the second

preceding fiscal year to the funds expended by the State for the entire

Child and Adult Care Food Program during the second preceding fiscal

year. The remaining funds shall be allocated to the State agency

administering the child care component of the Child and Adult Care Food

Program.

(d) SAE Start-up Cost Assistance for State Administration of Former

ROAPs. * * *

(e) SAE Funding Reduction Upon State Agency Termination of a Food

Service Program. * * *

(f) SAE Funds for ROAPs. * * *

(g) Reallocation. Funds allotted to State agencies under this

section shall be subject to the reallocation provisions of

Sec. 235.5(d).

5. In Sec. 235.5:

a. The first sentence of paragraph (b)(1) is amended by removing

the semicolon following the words ``upcoming fiscal year'' and adding

in its place a period, and by removing the remainder of the sentence.

b. Paragraph (e) is revised in its entirety.

The revision reads as follows:

Sec. 235.5 Payments to States.

* * * * *

(e) Return of funds. (1) In Fiscal Year 1991, up to 25 per cent of

the SAE funds allocated to each State agency under Sec. 235.4 may

remain available for obligation and expenditure in the second fiscal

year of the grant. In subsequent fiscal years, up to 20 percent may

remain available for obligation and expenditure in the second fiscal

year. The maximum amount to remain available will be calculated at the

time of the formula allocation by multiplying the appropriate

percentage by each State agency's formula allocation as provided under

Sec. 235.4(a) through (c). At the end of the first fiscal year, the

amount subject to the retention limit is determined by subtracting the

amount reported by the State agency as Total Federal share of outlays

and unliquidated obligations on the fourth quarter Standard Form (SF)

269, Financial Status Report, from the total amount of SAE funds made

available for that fiscal year (i.e., the formula allocation adjusted

for any transfers or reallocations). However, funds provided under

Sec. 235.4(d) are not subject to the retention limit. Any funds in

excess of the amount that remains available to each State agency shall

be returned to FCS.

(2) At the end of the fiscal year following the fiscal year for

which funds were allocated, each State agency shall return any funds

made available which are unexpended.

(3) Return of funds by the State agency shall be made as soon as

practicable, but in any event, not later than 30 days following demand

by FCS.

6. In Sec. 235.6:

a. Paragraph (a) is amended by revising the last sentence.

b. Paragraph (c) is revised in its entirety.

c. Paragraphs (d) and (f), previously reserved, are removed;

paragraphs (e), (g), and (h) are redesignated as (d), (e), and (f),

respectively, and a new paragraph (g) is added.

The revisions and addition read as follows:

Sec. 235.6 Use of funds.

(a) * * * Up to 25 per cent of funds allocated under Sec. 235.4(a)

through (c) [[Page 15463]] for Fiscal Year 1991 and up to 20 per cent

of funds allocated in subsequent fiscal years to a State agency may,

subject to the provisions of Sec. 235.5 of this part, remain available

for obligation and expenditure by such State agency during the

following fiscal year.

* * * * *

(c) The SAE funds allocated under Sec. 235.4(b)(2), (b)(4), and (d)

shall be used exclusively for Food Distribution Program administrative

expenses for the programs under Parts 210, 220, and 226 of this chapter

by any distributing agency which receives such funds. SAE funds

allocated under Sec. 235.4(a)(1), (a)(2), (b)(1), (b)(3) and (f), and

those funds for the Child and Adult Care Food Program under (b)(4)

which are not otherwise redirected for the Food Distribution Program

under Sec. 235.4(d) may be used to assist in the administration of the

Food Distribution Program for such purposes. However, no funds

designated for the exclusive use of the Food Distribution Program may

be transferred by any State agency for other purposes. Furthermore, for

each fiscal year beginning with Fiscal Year 1993, expenditures of funds

from State sources for administrative costs incurred in the

distribution of USDA donated foods to schools and institutions which

participate in programs governed by parts 210, 220, and/or 226 of this

chapter shall not be less than the amount of such funds expended in

Fiscal Year 1991.

* * * * *

(g) FCS shall allocate, for the purpose of providing grants on an

annual basis to public entities and private nonprofit organizations

participating in projects under section 18(c) of the National School

Lunch Act, not more than $4,000,000 in each of Fiscal Years 1993 and

1994. Subject to the maximum allocation for such projects for each

fiscal year, at the beginning of each of Fiscal Years 1993 and 1994,

FCS shall allocate, from funds available under Sec. 235.5(d) that have

not otherwise been allocated to States, an amount equal to the

estimates by FCS of the funds to be returned under paragraph (a) of

this section, but not less than $1,000,000 in each fiscal year. To the

extent that amounts returned to FCS are less than estimated or are

insufficient to meet the needs of the projects, FCS may allocate

amounts to meet the needs of the projects from funds available under

this section that have not been otherwise allocated to States. FCS

shall reallocate any of the excess funds above the minimum level in

accordance with Sec. 235.5(d).

Sec. 235.7 [Amended]

7. In Sec. 235.7,

a. The second sentence of paragraph (b) is amended by removing the

reference to ``Sec. 235.4(c) of this part'' and adding in its place the

reference to ``Sec. 235.6(a)''.

b. The first sentence of paragraph (c) is amended by removing the

words ``directed by Congress and requested'' and adding in their place

the word ``authorized''. Paragraph (c) is further amended by removing

the words ``FY '80'' from the last sentence.

Sec. 235.11 [Amended]

8. In Sec. 235.11:

a. Paragraph (b)(2) is amended by removing the reference to

``Sec. 235.4(a)'' and adding in its place the reference to ``Sec. 235.4

(a)(1)''.

b. Paragraph (b)(3) is amended by removing the reference to

``Sec. 235.4(b)'' and addding in its place the reference to

``Sec. 235.4(a)(2)''.

c. Paragraph (b)(4) is amended by removing the reference to

``Sec. 235.4(a)'' and adding in its place the reference to ``

Sec. 235.4(a)(1)''.

d. Paragraph (b)(7) is amended by removing the reference to

``Sec. 235.4(e)'' and adding in its place the reference to

``Sec. 235.5(d)''.

Dated: March 16, 1995.

William E. Ludwig,

Administrator.

[FR Doc. 95-7310 Filed 3-23-95; 8:45 am]

BILLING CODE 3410-30-U