Block Grant Programs

SUMMARY: This final rule amends the regulations of the Department of

Health and Human Services (HHS) governing the administration of block

grant programs; it applies specifically to the low-income home energy

assistance program (LIHEAP). The rule revises, and makes final,

provisions included in an interim final rule that amended the block

grant regulations and implemented certain changes to the LIHEAP statute

made by the Augustus F. Hawkins Human Services Reauthorization Act of

1990. These changes involve the Department's response to complaints,

reduction in the percent of LIHEAP funds that grantees may carry

forward from one fiscal year to the next, waiver authority to increase

the percent of LIHEAP funds that grantees may use for weatherization, a

requirement for additional outreach and intake services under certain

circumstances, and a leveraging incentive program. This final rule also

makes several related, largely technical and conforming, amendments to

the block grant regulations.

EFFECTIVE DATE: This final rule is effective beginning May 31, 1995,

with the exception of section 96.87, Leveraging incentive program,

which is effective beginning October 1, 1995. Section 96.87 as included

in the interim final rule published in the Federal Register on January

16, 1992 (57 FR 1960), is effective through September 30, 1995.

FOR FURTHER INFORMATION CONTACT:

Janet M. Fox, 202-401-9351, or Ann Bowker, 202-401-5308.

SUPPLEMENTARY INFORMATION: The Low-Income Home Energy Assistance Act of

1981, title XXVI of the Omnibus Budget Reconciliation Act of 1981

(Public Law 97-35), established the low-income home energy assistance

program. On July 6, 1982, HHS issued final regulations for LIHEAP and

the six other blocks grants it administered at that time (45 FR 29472).

Since then, the statute and the block grant regulations have been

amended several times.

The Augustus F. Hawkins Human Services Reauthorization Act of 1990

(Pub. L. 101-501) was enacted on November 3, 1990. Title VII of Public

Law 101-501 contains amendments to the Low-Income Home Energy

Assistance Act, including several changes effective in FY 1991 and FY

1992. These changes concern HHS's response to formal complaints,

reduction in the maximum amount that grantees may carry forward from

one fiscal year to the next, waiver authority to increase the statutory

weatherization assistance maximum, a requirement for additional

outreach and intake services in certain cases, and a leveraging

incentive program.

On January 16, 1992, HHS published an interim final rule (57 FR

1960) amending the block grant regulations and implementing these

statutory changes, as required under Public Law 101-501. The interim

final rule allowed a 60-day comment period.

We received 25 letters commenting on the interim final rule--two

from members of Congress, twelve from State LIHEAP grantees, one from a

county, two from Indian tribal grantees, three from home energy

suppliers, and five from others. Based on the comments we received and

on our experience over the two and half years the interim rule has been

in effect, we have revised the interim rule as appropriate. It is now

being made final.

In addition to the statutory changes implemented by the interim

final rule published January 16, 1992, Public Law 101-501 includes

several changes scheduled to affect LIHEAP beginning in FY 1994. These

changes concern forward funding based on a program year of July 1

through June 30--whose implementation, initially set for FY 1993, was

delayed until FY 1994 by the Departments of Labor, Health and Human

Services, and Education, and Related Agencies Appropriations Act, 1993

(Public Law 102-394)--and the end of authority to transfer LIHEAP funds

to other HHS block grants. The Department published a notice of

proposed rule making (NPRM) regarding these changes, and other proposed

changes involving both LIHEAP and other HHS block grants, on November

16, 1993 (58 FR 60498). The NPRM allowed a 45-day comment period. Since

then, the Human Services Amendments of 1994 (Public Law 103-252),

enacted May 18, 1994, changed the forward (or advance) funding program

year to October 1 through September 30--the same dates as the current

Federal fiscal year, but funded one year in advance. The November 16,

1993, proposed rule also included some provisions that had originally

been included in a notice of proposed rulemaking issued by the

Department on July 17, 1992. Based on comments received on these

notices of proposed rulemaking, HHS intends to publish a separate final

rule implementing appropriate provisions, except for the provisions

described below, which are incorporated into the final rule published

today.

The final rule published today includes several changes proposed in

the November 1993 NPRM. They involve issues that were also addressed in

the January 1992 interim rule. One change gives grantees the option to

submit a preliminary request for a waiver to increase the statutory

weatherization maximum. Other changes relate to the end of grantees'

authority to transfer LIHEAP funds to other block grants after FY 1993,

and reduction in the amount grantees may carry forward from one fiscal

year to the next, and are included in the regulations' discussion of

the time period for obligation of LIHEAP funds. These technical

amendments implement provisions of Public Law 101-501. We received one

comment from a State LIHEAP grantee on the weatherization waiver in the

NPRM, and none on the end of transfer authority or reduction in maximum

carryover.

The final rule also makes a technical amendment deleting reference

to the transfer authority in the regulations' discussion of uses of

leveraging incentive funds, because this authority has ended.

Finally, the final rule makes a technical amendment changing the

due date of grantees' reports on their leveraging activities, in

accordance with the Human Services Amendments of 1994 (Pub. L. 103-

252). Title III of Public Law 103-252 contains amendments to the Low-

Income Home Energy Assistance Act. We plan to address most of these

statutory amendments in a proposed rule at a later date.

The provisions of the regulations, together with the comments we

received and our responses, are discussed below.

Section-by-Section Analysis of Changes in the Regulations

Subpart B--General Procedures

Section 96.14 Time Period for Obligation and Expenditure of Grant

Funds

Public Law 101-501 amended section 2607(b)(2) of the LIHEAP

statute, reducing the maximum amount of LIHEAP funds that grantees may

carry forward for obligation in the succeeding fiscal year, from 15 to

10 percent of the funds payable to the grantee and not transferred to

another HHS block grant. [[Page 21323]] This change was effective

beginning with FY 1991 funds carried forward to FY 1992. In addition,

Public Law 101-501 amended section 2604(f)(2) of the statute, ending

grantees' authority to transfer LIHEAP funds to other HHS block grants,

beginning in FY 1994.

The final rule makes technical and conforming corrections to

section 96.14(a)(2) of the block grant regulations, which concerns

obligation and carryover of LIHEAP funds, to reflect these statutory

changes. Consistent with a change to section 96.81 that was included in

the interim rule, the final rule specifies the current reduced amount

that grantees may carry forward to the next fiscal year. Also, it omits

reference to transfer of LIHEAP funds, beginning with FY 1994

allotments.

Also, the final rule clarifies that section 96.14(a)(2) applies to

regular LIHEAP block grant funds and not to LIHEAP leveraging incentive

funds. (Section 96.87 of the regulations deals with leveraging

incentive funds.)

These technical changes are consistent with language in the notice

of proposed rulemaking published November 16, 1993, except that the

final rule deletes references to funding on a program year cycle, since

Congress determined in the Human Services Amendments of 1994 that

LIHEAP will remain on a Federal fiscal year cycle. We received no

comments on these changes in the NPRM.

Subpart E--Enforcement

Section 96.50 Complaints

Public Law 101-501 amended section 2608(a)(2) of the LIHEAP

statute, effective beginning in FY 1991. Section 2608(a)(2) concerns

formal complaints of a substantial or serious nature that a grantee has

failed to used funds in accordance with the LIHEAP statute. The

previous statutory language had required HHS to ``respond in an

expeditious and speedy manner to'' such complaints. The amended

language sets a specific time period within which HHS must respond to

complaints; it requires HHS to ``respond in writing in no more than 60

days to matters raised in'' complaints.

As originally published in July 1982, the block grant regulations

stated at 45 CFR 96.50(d):

The Department will provide a written response to complaints

[concerning grantee administration of the block grants] within 180 days

after receipt. If a final resolution cannot be provided at that time,

the response will state the reasons why additional time is necessary.

Section 96.50(c) of the regulations provides that HHS will

``promptly furnish a copy of any complaint'' to the grantee against

which the complaint was made and that, in responding to the complaint,

HHS will consider any comments received from the grantee within 60

days, or a longer period agreed on by the grantee and HHS.

The preamble to the interim final rule published in January 1992

explained that our experience has shown that, because of the serious

and generally complex nature of the formal complaints we have received,

LIHEAP grantees usually require a full 60 days to respond to complaints

made against them. The interim rule therefore amended section 96.50(d)

by adding a new sentence stating that, within 60 days after HHS

receives a complaint concerning the low-income home energy assistance

program, it ``will provide a written response to the complainant,

stating the actions that it has taken to date and the timetable for

final resolution of the complaint.''

This amendment implemented the requirement in Public Law 101-501,

that HHS respond within 60 days to complaints, while acknowledging the

amount of time generally needed for grantees to respond to complaints,

and for HHS to review and resolve these complaints. The interim rule's

preamble explained that HHS will continue to provide final resolution

as soon as possible, consistent with our responsibility to provide the

affected grantee sufficient opportunity to respond and to provide

thorough Federal review, and that we will continue to advise the

complainant of the final action taken.

Public Comments, HHS Responses, and Change

We received three comments on this amendment. Two commenters said

that they believed the revised schedule for HHS response to complaints

was reasonable and adequate.

The third commenter said that, while HHS changed the regulation

``to provide a written response to complaints under the LIHEAP statute

within 60 days, rather than the previous 180 days, the response

envisioned by HHS' language appears to be no more than a status

report.'' The commenter also said that Public Law 101-501 requires HHS

to ``establish a procedure for reviewing and investigating any

complaint regarding State program compliance with Federal statutes and

regulations. . . .'' The commenter asserted that ``HHS does not

establish `a procedure for reviewing and investigating any complaint

regarding State program compliance''' and noted that 45 CFR 96.50(c),

``relating generally to block grants, states that HHS will conduct an

investigation of complaints [only] `where appropriate.''' The commenter

believed that ``this regulatory language is contrary to the statute''

and must be amended ``to establish for LIHEAP the procedure called for

by this statutory change.''

However, the language cited by the commenter is not the language of

Public Law 101-501. Further, the block grant regulations provide a

procedure under paragraphs (c), (d), and (e) of 45 CFR 96.50, for

reviewing the resolving complaints, and the January 1992 interim rule

modified that procedure to implement the requirement in Public Law 101-

501 for a written response within 60 days to complaints involving

LIHEAP.

Where section 96.50(c) states that HHS ``will conduct an

investigation of complaints where appropriate,'' ``investigation''

means a formal and systematic, thorough and detailed effort to learn

facts, that is carried out after a review conducted in response to a

complaint shows evidence of possible illegal action, such as commission

of fraud or theft. An investigation typically would result in a

recommendation for civil or criminal prosecution and/or administrative

sanctions. (This is consistent with the use of the term by the HHS

Office of Inspector General.) In most cases, complaints are resolved

without conducting a formal investigation. We will conduct an

investigation if our review of a complaint indicates a need to do so.

The same commenter also referred to Senate Report 101-421

accompanying H.R. 4151 (the predecessor to Public Law 101-501), that

``explains this proposed change as `designed to respond to concerns

regarding the need for a more expeditious and effective response to

complaints. . . .'''

Since the start of the LIHEAP block grant in FY 1982, we have tried

to respond expeditiously and effectively to the formal complaints we

have received. In addition, we have worked to reach expeditious and

effective resolution of other concerns expressed to us about grantee

LIHEAP programs. During this time, the only comments we have received

on the timeliness and effectiveness of our response to complaints have

been the cited sentence in the Senate Report and the comments of this

commenter. Neither included any specific examples.

In response to this commenter, the final rule adds the phrase, ``if

the complaint has not yet been fully resolved,'' to the last sentence

under [[Page 21324]] section 96.50(d), to indicate that we will fully

resolve complaints within 60 days whenever possible. That sentence now

reads,

Under the low-income home energy assistance program, within 60 days

after receipt of complaints, the Department will provide a written

response to the complainant, stating the actions that it has taken to

date and, if the complaint has not yet been fully resolved, the

timetable for final resolution of the complaint.

We will make every reasonable effort--while providing sufficient

time for grantees to respond to complaints and for HHS to review the

complainant's allegations and the grantee's response and to conduct an

investigation as necessary--to fully resolve complaints within 60 days

from the date we receive them. However, based on our experience over

the past decade, we believe that it would not serve the best interests

of the complainant, the grantee, or the Department to require by

regulation that HHS provide final resolution of formal complaints

within 60 days of their receipt.

Subpart H--Low-Income Home Energy Assistance Program

Section 96.83 Increase in Maximum Amount That May Be Sued for

Weatherization And Other Energy-Related Home Repair

Public Law 101-501 amended section 2605(k) of the LIHEAP statute,

beginning in FY 1991. It provides that grantees may request after March

31 of each fiscal year that HHS grant a waiver for the fiscal year that

increases from 15 percent to up to 25 percent of the LIHEAP funds

allotted or available to the grantee, the maximum amount of LIHEAP

funds the grantee may use for low-cost residential weatherization or

other energy-related home repair. Grantees that choose to apply for a

waiver may request authority to use for these purposes any amount

between 15 percent and 25 percent of their LIHEAP funds.

The statute provides that, after reviewing a grantee's waiver

request and any public comments, HHS may grant a waiver if it

determines that: (1) the number of households in the grantee's service

population that will receive LIHEAP heating assistance, cooling

assistance, and crisis assistance (energy crisis intervention) benefits

during the fiscal year will not be fewer than the number that received

such benefits in the preceding fiscal year; (2) the aggregate amount of

LIHEAP benefits that will be received during the fiscal year will not

be less than the aggregate amount received in the preceding fiscal

year; and (3) the weatherization activities have been demonstrated to

produce measurable savings in energy expenditures. The statue also

provides that HHS may grant a waiver if, in accordance with regulations

to be published by HHS, the grantee's waiver request demonstrates good

cause for failing to satisfy the requirements in the preceding

sentence.

The January 1992 interim final rule added a new section 96.83 to

the block grant regulations to implement procedures concerning

``standard'' and ``good cause'' waivers of the 15 percent

weatherization maximum.

The November 1993 NPRM on forward funding proposed that grantees be

allowed to submit preliminary weatherization waiver requests after

January 31 of the program year, to expedite review and provide more

time for obligation of funds.

Public Comments, HHS Responses, and Changes

We received several comments on the provisions in the LIHEAP

statute, the interim rule, and the November 1993 NPRM relating to

waiver of the weatherization maximum.

Two commenters supported the statutory waiver provision allowing an

increase in the percent of LIHEAP funds that can be used for

weatherization. One commenter opposed the statutory waiver provision,

stating that it makes LIHEAP ``cash'' heating/cooling/energy crisis

assistance and LIHEAP weatherization ``continue to compete for limited

resources.'' One commenter said that the rule ``reflects our

understanding'' of the statutory weatherization amendments.

Comment and Response

Another commenter believed that HHS ``should have been more

explicit in conveying'' to grantees that Congress intended that

weatherization waivers be granted only ``under the most limited of

circumstances.'' A different commenter said that the guidance in the

interim rule failed to state Congress' intent, per the Senate report,

that a ``good cause'' waiver be granted only when a grantee has

demonstrated ``compelling reasons.''

While we did not specifically state that waivers--especially ``good

cause'' waivers--would be granted only for compelling reasons and under

very limited circumstances, we believe it is clear that grantees must

demonstrate that they meet specific, stringent requirements in order to

receive a waiver. To date, we have received only eight weatherization

waiver requests. We approved the one request received in FY 1991 and

seven requests received in FY 1994. We approved standard waivers for

four of the FY 1994 requests.

Comment and Respronse

A commenter erroneously stated that the interim rule ``merely

requests that the Grantee submit an explanation of the specific

criteria under which the Grantee's weatherization activities have been

shown to produce measurable savings'' in energy expenditures. The

commenter believed that these savings must be ``substantial and long

term.'' The commenter proposed that HHS establish ``a standard

methodology * * * in the regulations for normalizing annual consumption

to ensure a common measure for energy savings'' and set ``a minimum

threshold'' for ``measurable savings.''

The interim rule--and this final rule--require at section

96.83(c)(5) that grantees include with their weatherization waiver

requests ``an explanation of the specific criteria under which the

grantee has determined whether'' all LIHEAP weatherization activities

to be carried out during the fiscal year for which the waiver is

requested ``have been shown to produce measurable savings in energy

expenditures.'' However, we decline to require that savings be

``substantial and long term,'' to establish a standard methodology to

measure energy savings, or to set a minimum threshold for savings. The

LIHEAP statute's third criterion for a ``standard'' waiver specifies

that the grantee's ``weatherization activities have been demonstrated

to produce measurable savings in energy expenditures by low-income

households.'' The regulation uses parallel language; it does not go

beyond the substance of the statutory criterion to specify a required

level or duration, or a standard measure, of energy savings. We believe

that it would be inconsistent with the block grant philosophy expressed

by Congress and implemented by HHS to impose such additional

requirements. The basic premise of the block grants is that, within the

parameters set by the statute, grantees should have maximum flexibility

to target resources to meet the needs of their citizens. The regulation

limits the circumstances under which waivers will be granted, in

accordance with the statutory language and what we understand to be the

legislative intent as expressed in the legislative history.

Comment and Response

Another commenter addressed the third criterion that must be met by

grantees applying for a ``standard'' [[Page 21325]] waiver--that the

weatherization activities to be carried out by the grantee in the

fiscal year for which the waiver is requested have been shown to

produce measurable savings in energy expenditures. The commenter

erroneously believed that the criterion applies only to

``weatherization'' and ``ignores [other] `low-cost energy related

repair.''' However, paragraph (a) of section 96.83, which describes the

scope of the section, states that ``low-cost residential weatherization

and other energy-related home repair'' is referred to (more briefly) as

``weatherization.''

Comment and Response

A commenter proposed that improvement in health and safety

resulting from weatherization be considered acceptable to meet the

third criterion. We cannot adopt this proposal, because it would

violate the LIHEAP statute's requirements for this criterion--that the

``weatherization activities have been demonstrated to produce

measurable savings in energy expenditures by low-income households.''

However, the statute and regulations provide for a waiver if a grantee

can demonstrate ``good cause'' for failing to meet one or more of the

three ``standard'' waiver criteria.

Comment and Response

The interim rule's preamble indicated that, when determining

whether to grant a ``good cause'' waiver, HHS would consider arguments

and documentation that greater benefits will accrue to recipients for

use of LIHEAP funds for weatherization than for cash assistance. A

commenter asserted that neither the statute nor the legislative history

supports considering this argument. However, the commenter mentions the

Senate report's reference to long-term benefits resulting from

weatherization improvements that reduce home energy costs. Consistent

with the Senate report's prominent discussion of the expanded

flexibility grantees have to provide energy conservation improvements

through the weatherization waiver and the reductions in home energy

costs resulting from these improvements, and with the statute's

designation of HHS to determine rules for ``good cause'' waivers, we

are not changing this policy.

Comment and Response

The commenter also believed that if the grantee operated a shorter

program, reduced outreach activities, and/or ``took other

administrative steps which may also have led to a reduction in

applications,'' this would be relevant in considering whether to grant

a ``good cause'' waiver. We agree. We therefore revised section

96.83(e) to provide that a grantee requesting a ``good cause'' waiver

must include with its request a comparison of its opening and closing

dates for applications, and a description of its outreach efforts, for

heating, cooling and crisis assistance, in the fiscal year for which

the waiver is requested and in the preceding fiscal year. The

comparison should address the actual dates and outreach efforts--or the

planned dates and planned outreach for future efforts expected to take

place later in the fiscal year for which the waiver is requested. If

the grantee's application period was longer and/or its outreach efforts

were greater in the preceding fiscal year for one or more of these

program components, the grantee must include an explanation

demonstrating good cause why a waiver should be granted in spite of

this fact. We also revised this section to provide that if the grantee

took, or will take, other actions that led, or will lead, to a

reduction in the number of applications for heating, cooling, and/or

crisis assistance in the fiscal year for which the waiver is requested,

the grantee must include with its request a description of these

actions, and an explanation demonstrating good cause why a waiver

should be granted in spite of these actions.

In addition, we made minor clarifying technical amendments to

section 96.83(e) describing information that must be included in

grantees' requests for ``good cause'' waivers under a newly designated

paragraph (1), and explaining the conditions under which HHS will grant

a ``good cause'' waiver under a newly-designated paragraph (2).

Comment and Response

A commenter believed that data from local home energy vendors are

most appropriate for documenting decreased home energy costs, because

Department of Energy data are mostly national or regional. We agree.

While we are not changing the regulation to require use of data from

local vendors, we encourage grantees submitting waiver requests that

document decreased home energy costs to use actual cost/price/

expenditure data from the State or local area. In most cases, compiling

the best available data probably would involve at least a sample of

vendors in the grantee's service area.

Comment and Response

A commenter said that HHS should require grantees submitting waiver

requests to include copies of public statements in full, including

transcripts of comments made during public hearings, because the

interim rule's requirement that grantees submit ``copies and/or

summaries of public comments'' affords grantees ``an opportunity to

selectively quote and characterize concerns expressed'' by the public.

The commenter quoted the Senate report statement that HHS ``should not

necessarily be guided only by the submissions from the state'' in

deciding whether to grant a waiver, to support the assertion that the

legislative history ``clearly'' intends HHS ``to independently consider

these comments.''

We decline to require grantees seeking waivers to submit ``copies

of public statements in full, including transcripts of comments made

during public hearings.'' We believe that the paperwork burden imposed

would outweigh the possible advantages of such a requirement. Use of

the words ``not necessarily'' in the Senate report indicates that HHS

may decide the extent to which it will review public comments. We

believe that grantees will make responsible decisions regarding

submission of relatively brief public comments in full and submission

of summaries of lengthy and/or numerous comments. We will independently

consider the comments and summaries submitted to us. During compliance

reviews, we will monitor the records/documentation of grantees that

submitted summaries of public comments with waiver requests, to assure

that these summaries accurately reflect the comments.

In response to this commenter's recommendations, however, we

changed section 96.83(b) of the regulations to require that written

public comments on a proposed waiver request be made available for

public inspection upon their receipt by grantees, and that any

summaries of written comments, and transcripts and/or summaries of any

verbal comments made on the request at public meetings or hearings also

be made available for public inspection. We also changed this section

to specify that transcripts and/or summaries of any comments made on

the request at public meetings or hearings must be included with waiver

requests submitted to HHS. Finally, we changed this section to require

that copies of actual waiver requests must be made available for public

inspection upon submission of the requests to HHS, enabling the public

to review the decisions made by the grantee and verify that comments

were accurately conveyed. These additional requirements strengthen

grantees' accountability to the public by assuring

[[Page 21326]] public access and the opportunity to respond to

comments, and by assuring that waiver requests submitted to HHS include

verbal as well as written public input.

The final rule also changes section 96.83(b) to require grantees to

make all weatherization waiver requests--including the preliminary

waiver requests described below--available for public inspection and

comment until at least March 15 of the fiscal year for which the waiver

is requested. Several grantees said in their FY 1994 LIHEAP plans that

they intended to request weatherization waivers in FY 1994. Public

participation in the development of the plan--before or early in the

fiscal year--took place before the severity of the winter, winter fuel

prices, etc., were known. Therefore, public inspection and comment this

far in advance of submission of a waiver request is not sufficient;

public participation would not be meaningful if the only public

notification was before the winter. There should be public notice about

a proposed request, after January 1 of the fiscal year for which the

waiver is to be requested.

We have tried to balance the interests of the public--the

recipients of LIHEAP assistance--and the valid concerns of grantees--

the primary administrators of the LIHEAP block grant. We have also

tried to write regulations that are consistent with the statute and

legislative history, that require grantees to address specific criteria

and provide specific information (including quantified data) to justify

use of additional funds for weatherization--without imposing

unnecessary and burdensome paperwork requirements and without making it

virtually impossible to receive a waiver. We are commented to assuring

program accountability and fair treatment, meaningful access to

information, and meaningful opportunity for input for the public.

However, it would be inconsistent with the block grant philosophy

clearly expressed by Congress and implemented by HHS to burden grantees

with regulatory requirements that do not clearly serve those ends and

that are not based on statutory requirements and/or legislative

history.

Comments and Response

Finally, the interim rule's preamble said that we were interested

in comments about whether the statutory starting date of April 1 for

weatherization waiver requests would create problems for administration

of grantee programs under forward funding. The forward funding program

year was scheduled to begin July 1 and end June 30, leaving only three

months for submission and review of waiver requests and for obligation

of most of the funds for which a waiver has been granted. We received

two comments in response. A State proposed that HHS ask Congress to

amend the LIHEAP statute to allow submission of waiver requests after

January 31 if forward funding is implemented. Another commenter said

that a submission date two to four weeks before March 31 might be

reasonable.

Our November 1993 NPRM on forward funding proposed that grantees be

permitted to submit a preliminary waiver request after January 31 of a

program year. This would provide sufficient time for HHS to review the

waiver request and obtain any additional information that might be

needed, and still allow the grantee to obligate its funds by June 30,

which was scheduled to be the end of the forward funding program year.

In a comment on the NPRM, a State proposed that weatherization waiver

requests be submitted with the grantee's initial LIHEAP application for

a program year, and that States not be required to submit new waiver

requests each time they wanted a waiver. The commenter objected to the

(statutory) requirement that HHS make decisions on waiver requests only

after March 31.

Seeking earlier feedback on their FY 1994 waiver requests, this

State and another submitted these requests before April 1, 1994. These

grantees confirmed and completed the requests, and HHS made the

decisions to approve them, after March 31.

The LIHEAP statute specifies that HHS may grant a waiver ``for a

fiscal year'' if the grantee submits a written request to the

Department ``after March 31 of such fiscal year'' and if HHS

``determines, after reviewing such request and any public comments,''

that the number of households that will receive LIHEAP benefits other

than weatherization, and the aggregate amount of these benefits, will

be greater in the fiscal year for which it requests a waiver than they

were in the preceding fiscal year, or there is good cause for not

meeting these conditions. The grantee cannot know until well into each

winter how many households it will (or is likely) to serve and the

amount of benefits it will provide, since this often depends on weather

and economic conditions that are not known before the winter.

However, the written comment on the NPRM, grantees' submission of

early weatherization waiver requests and statements of intent to apply

for waivers, and verbal comments indicated grantees' concern that April

1 is relatively late in the program year--and in the Federal fiscal

year as well. It would be mid-April, at the earliest, before a decision

was made. This would leave considerably less than three months for

additional weatherization funds to be obligated under the proposed July

1 to June 30 program year. It would leave considerably less than six

months under the Federal fiscal year.

As noted earlier, Congress has determined that LIHEAP will remain

on the Federal fiscal year funding cycle, so there will be more time

for weatherization to be implemented. But we have concluded that the

option for a grantee that wants a weatherization waiver, to submit a

preliminary waiver request between February 1 and March 31, is

appropriate for the fiscal year cycle as well as the program year

cycle. It will enable HHS to review the preliminary request and discuss

any issues or concerns with the grantee as winter is ending. Once the

grantee submits updated information and a confirmation of its request

after March 31, HHS can more quickly decide and respond, and the

grantee will have more time to carry out the weatherization.

This final rule therefore changes section 96.83(c) of the

regulations to permit grantees to submit preliminary waiver requests at

their option, between February 1 and March 31 of the fiscal year for

which the grantee seeks a waiver. The preliminary request should

contain the same information required for waiver requests submitted

after March 31. Because the LIHEAP statute permits grantees to submit

waiver requests for a fiscal year ``after March 31 of such fiscal

year,'' grantees that submit preliminary requests must submit formal

confirmation of their request after March 31, along with information on

any additional public comments received and any changes to the request.

HHS will make the decisions on whether to grant waivers after March 31.

Additional Information

The preamble to the January 1992 interim final rule included

additional information relating to ``standard'' and ``good cause''

waivers, public comment, submission and review of waiver requests, and

the effective period for waivers. With indicated modifications and

clarifications made in response to comments and our experience with

weatherization waiver requests, that information is still effective and

is included as the remainder of this final rule's preamble discussion

of section 96.83, as follows.

[[Page 21327]]

``Standard'' and ``Good Cause'' Waivers

The first criterion for a ``standard'' waiver requires that the

number of households in the grantee's service population that will

receive LIHEAP heating, cooling, and crisis assistance benefits will

not be fewer than the number that received such benefits in the

preceding fiscal year. This criterion applies to the total, combined,

aggregate number of households receiving these types of benefits in

each fiscal year. Grantees are to use their best estimates for each

fiscal year of (1) the total or combined number of all households

receiving each of these types of assistance (which may involve some

duplication, e.g., counting a household twice if it received both

regular heating assistance and heating crisis assistance); or (2) the

unduplicated number of households receiving heating assistance and

heating crisis assistance plus the unduplicated number of households

receiving cooling assistance and cooling crisis assistance. Grantees

must use the same method of calculation for both fiscal years. Numbers

for the earlier fiscal year should be consistent with the numbers

included in the grantee's official report of the number and income

levels of households it assisted during that year (as required by 45

CFR 96.82) or with a revised report.

The second criterion requires that the aggregate amount of LIHEAP

benefits in the current year will not be less than the aggregate amount

of LIHEAP benefits received in the preceding fiscal year. It applies to

the total, combined, aggregate amount, in dollars, of LIHEAP heating,

cooling, and crisis assistance benefits in each fiscal year--not to the

separate totals for each type of assistance. This final rule clarifies

at section 96.83(c)(2)(ii) that the LIHEAP benefit amounts must be

expressed in dollars. When items such as blankets and fans are provided

as benefits, the dollar amount of LIHEAP funds used to purchase them

should be included. When services such as emergency repair of furnaces

are provided, the dollar amount of LIHEAP funds used to pay for the

services should be included.

Grantees will need to project figures for any households to be

served and funds to be obligated from the date the waiver request is

submitted until the end of the fiscal year for which the waiver is

requested.

This final rule clarifies that the first and second criteria apply

respectively to the number of households receiving LIHEAP heating,

cooling, and crisis assistance, and to the amount of LIHEAP heating,

cooling, and crisis assistance, provided by the grantee's Federal

LIHEAP allotment from regular and supplemental appropriations. It

clarifies that assistance provided from other sources, such as the

grantee's own funds, oil overcharge funds, (other) leveraged resources,

and leveraging incentive funds, should not be included under these

criteria.

The third criterion requires that the weatherization activities

have been shown to produce measurable savings in energy expenditures.

It applies to all LIHEAP weatherization activities to be carried out by

the grantee during the fiscal year for which the waiver is requested,

not just to activities proposed to be carried out with amounts above 15

percent of the grantee's LIHEAP funds. Grantees will not meet this

criterion unless all of their LIHEAP weatherization activities for the

fiscal year have been shown to produce measurable savings.

The LIHEAP statute and the HHS block grant regulations do not name

specific activities which are allowable as weatherization and other

energy-related home repair under the LIHEAP program. However, the

statute and Federal regulations for the low-income weatherization

assistance program (LIWAP) administered by the Department of Energy

(DOE) do name certain weatherization measures that are allowable under

that program. The statute authorizing LIWAP is the Energy Conservation

in Existing Buildings Act of 1976 (title IV of the Energy Conservation

and Production Act, Public Law 94-385, as amended; 42 U.S.C. 6851 et

seq.). The Federal regulations implementing DOE's Weatherization

Assistance for Low-Income Persons are found at 10 CFR part 440. These

regulations include ``Standards for Weatherization Materials'' at

Appendix A. In addition, DOE has allowed other activities by program

notice and correspondence.

The DOE weatherization statute and regulations apply specifically

to LIWAP, and the LIHEAP statute and regulations apply to LIHEAP.

However, to promote consistency in their weatherization programs,

LIHEAP grantees may choose to use certain DOE weatherization provisions

as guidance in administering their LIHEAP weatherization programs, as

long as these provisions are consistent with the LIHEAP statute and

regulations.

(Public Law 103-252--the Human Services Amendments of 1994--allows

HHS to permit LIHEAP grantees to use LIHEAP weatherization funds under

DOE LIWAP rules that are not consistent with the LIHEAP statute. HHS

plans to address this new option in a proposed rule on Public Law 103-

252.)

HHS will accept the following as weatherization activities which

have been shown to produce measurable savings in energy expenditures,

as long as these activities also are consistent with the requirements

of the LIHEAP statute and regulations: installation of the specific

materials meeting the specific standards listed in Appendix A of the

DOE weatherization regulations at 10 CFR part 440; installation of

materials meeting the specific standards incorporated by reference in

Appendix A; and weatherization activities specifically allowed by

official DOE correspondence and memoranda. LIHEAP grantees requesting a

waiver of the LIHEAP statutory weatherization maximum who propose to

carry out these weatherization activities may cite these sources as the

criteria under which they have determined that these activities have

been shown to produce measurable savings.

In addition to listing requirements for a ``standard''

weatherization waiver for grantees that meet the three criteria

discussed above, this final rule sets criteria for a ``good cause''

waiver for grantees that wish to use more than 15 percent of their

LIHEAP funds for weatherization, but do not meet one or more of the

three criteria for a ``standard'' waiver. As noted earlier in this

preamble, the final rule includes additional requirements at section

96.83(e) for a ``good cause'' waiver, regarding the length of the

grantee's application period and the grantee's outreach efforts, for

heating, cooling, and/or crisis assistance applications, from the

preceding fiscal year to the fiscal year for which the waiver is

requested.

Requests for both ``standard'' and ``good cause'' waivers must

include comparison of the grantee's best estimates of service and

benefit totals for the year for which the waiver is requested with

service and benefit totals for the preceding fiscal year. The criteria

for a ``good cause'' waiver include the requirements that grantees

explain the reasons they are not maintaining the prior year's service

and/or benefit levels, as appropriate, demonstrating good cause for

failing to maintain these levels and justifying use of additional funds

for weatherization. Reasons for failing to maintain service levels

might include reduction in need and/or fewer applications for

assistance due to improvement in economic conditions and decline in

unemployment, warmer than normal winter weather, and/or lower home

energy costs for low-income households. As indicated earlier in this

[[Page 21328]] preamble, we also will consider arguments and

documentation (e.g., cost benefit analysis) that greater benefits will

accrue to recipients from use of funds for weatherization than for cash

assistance. Further, we will consider arguments that service or benefit

levels were higher in the preceding year because of supplemental

appropriations enacted in response to unusual conditions, such as

abnormally cold winter weather and/or large fuel price increases.

``Good cause'' waiver requests also must include a comparison of

the grantee's LIHEAP heating, cooling, and crisis assistance

eligibility standards (eligibility criteria), benefit levels,

application periods, and outreach efforts for the fiscal year of the

waiver request and for the preceding fiscal year. If the eligibility

standards were less restrictive, the benefit levels were higher, the

application periods were longer, and/or the outreach efforts were

greater for one or more of these program components in the preceding

year, the ``good cause'' waiver request must include an explanation

demonstrating good cause why a waiver should be granted in spite of

this fact. In addition, other actions that led to a reduction in the

number of applications for heating, cooling, and/or crisis assistance

must be addressed. We will review this information to determine whether

a waiver would be consistent with congressional intent to maintain

service and benefit levels.

``Good cause'' documentation should cite measurable, quantified

data, and the sources for these data. For example, grantees documenting

reduction in need for cash benefits may provide comparison of

unemployment statistics, Aid to Families with Dependent Children (AFDC)

and other public assistance recipiency data, and the number of

applications for LIHEAP assistance, for the current and the preceding

fiscal year. Grantees documenting milder weather may cite National

Weather Service data comparing heating or cooling degree days for their

service area, as appropriate. Grantees documenting decreased home

energy costs preferably should cite actual prices/costs in the local

service area, as discussed earlier in this preamble.

Public Ispection and Comment

Consistent with the requirements and legislative history of Public

Law 101-501, the final rule maintains the requirement from the interim

rule that grantees provide opportunity for timely and meaningful public

review of, and comment on, their proposed weatherization waiver

requests. The final rule adds the requirement that proposed waiver

requests, and any preliminary waiver requests, be made available until

at least March 15 of the fiscal year for which the waiver will be

requested. As discussed earlier in this preamble, it also adds the

requirement that written public comments on the proposed waiver request

must be made available for public inspection upon their receipt by

grantees, as must any summaries prepared of these written comments, and

transcripts and/or summaries of any verbal comments made on the request

at public meetings or hearings. Consistent with House of

Representatives Conference Report 101-816, this public comment

procedure does not require hearings. Once grantees have submitted

waiver requests to HHS, copies of the entire waiver request submission

must be made available for public inspection.

For example, we expect grantees to provide notification about

proposed waiver requests with enough lead time to allow interested

parties a reasonable period in which to comment. We also expect

grantees to specify what a LIHEAP weatherization waiver request is the

(or a) topic of a meeting or request for comments, rather than simply

to indicate that issues of general social services interest are

involved.

The final rule requires at section 96.83(c) that grantees include

with their waiver requests a description of how and when the proposed

waiver request was made available for timely and meaningful public

review and comment, copies or summaries of public comments received, a

statement of the method for reviewing public comments, and a statement

of the changes, if any, that were made in response to these comments.

Also, as discussed earlier in this preamble, the final rule adds the

requirement that waiver requests include transcripts and/or summaries

of any comments made on the request at public meetings or hearings.

Submission and Review of Waiver Requests

Requests for waiver of the weatherization maximum must be made by

the grantee's chief executive officer or designee, in writing. They

should be sent to the Director, Office of Community Services,

Administration for Children and Families, Department of Health and

Human Services, 370 L'Enfant Promenade, S.W., Washington, D.C. 20447.

HHS may require additional clarification or documentation as it

determines necessary to decide whether a grantee fully satisfies the

appropriate waiver requirements.

We will review all requests and make a decision within a maximum of

45 days of receipt of a completed request. We expect that most requests

will be handled much more quickly than this. A need for additional

information from the grantee will delay the start of this time period

and delay the decision.

HHS will approve all waiver requests that, in its judgment, meet

all statutory and regulatory requirements for either a ``standard'' or

a ``good cause'' waiver and that demonstrate adequate solicitation and

consideration of public comments.

No waiver will be granted after the end of the fiscal year for

which the funds are appropriated. Accordingly, waiver requests must be

submitted in sufficient time before the end of the fiscal year to allow

for HHS review and grantee obligation of funds that cannot be carried

forward.

Effective Period

Waivers will be effective from the date of HHS's written approval

until the funds are obligated in accordance with the LIHEAP statute and

regulations.

A grantee that has received a waiver is not required to use the

full approved amount for weatherization. If a grantee decides to use

less than the approved waiver amount for weatherization, it should

amend its LIHEAP plan to reflect this decision.

Funds for which a weatherization waiver is granted may be carried

over to the following fiscal year, consistent with standard statutory

and regulatory requirements for obligation and carryover of LIHEAP

funds, and may retain their designation as funds to be used for

weatherization, if the grantee so chooses. However, any carried-forward

``waiver funds'' that retain this designation may not be considered

``funds available'' or ``funds allotted'' for the purpose of

calculating the maximum amount that may be used for weatherization in

the succeeding fiscal year.

Section 96.84 Miscellaneous

The January 1992 interim final rule consolidated three brief

regulatory provisions under section 96.84. They are: a provision

relating to rights and responsibilities of territories, a provision

concerning applicability of the LIHEAP statutory assurances, and a

provision concerning prevention of waste, fraud, and abuse in grantee

LIHEAP programs. We consolidated these provisions due to space

limitations in the LIHEAP portion of the block grant regulations. Also,

the [[Page 21329]] interim rule amended the provision dealing with

applicability of the assurances to indicate that the new assurance 15,

discussed below, which was added to the LIHEAP statute as section

2605(b)(15) by Public Law 101-501, applies to heating, cooling, and

energy crisis intervention assistance.

We received no comments on this consolidation. The final rule makes

no change to section 96.84.

Section 96.86 Exemption From Requirement for Additional Outreach and

Intake Services

Public Law 101-501 added a new LIHEAP statutory assurance--

assurance 15--to which States must certify in their applications for

LIHEAP funding. Under the new section 2605(b)(15), beginning in FY

1992, States that provide outreach and intake for heating and cooling

assistance and crisis situations through State departments of public

welfare at the local level also must provide outreach and intake for

these types of assistance through additional State and local

governmental entities or community-based organizations. Examples of

community-based organizations listed in the statute are not-for-profit

neighborhood-based organizations, area agencies on aging, and community

action agencies. In States where such entities or organizations did not

administer these functions as of September 30, 1991, preference in

awarding grants or contracts for intake services is to be provided to

agencies that administer the low-income weatherization or energy crisis

intervention programs.

Exemption of Indian Tribes, Tribal Organizations, and Some Territories

The January 1992 interim final rule established a new section 96.86

that exempted Indian tribes and tribal organizations from this

requirement. This new section also exempted territories with annual

LIHEAP allotments of $200,000 or less from the requirement.

In the preamble to the interim rule, we explained the reasons for

this exemption. We concluded that the provision concerning alternate

outreach and intake services is not appropriate to American Indian

tribal grantees because of the nature of tribal governments and their

relationship to their service populations. Assurance 15 refers to

outreach and intake services ``offered by State Departments of Public

Welfare at the local level''--that is, by entities that administer

public welfare programs. The legislative history for Public Law 101-501

refers specifically to agencies that administer the Aid to Families

with Dependent Children (AFDC) program. However, Indian tribes do not

administer AFDC for their service populations. In accordance with

Federal law and regulations, States provide AFDC assistance to eligible

American Indians, including Indian people receiving LIHEAP assistance

from tribes that receive direct LIHEAP funding. Indian tribes therefore

do not have tribal departments or offices directly comparable to State

departments of public welfare. We also noted that Indian tribes are

close to their service populations. ``Tribal'' and ``local'' levels of

administration generally are the same. Consequently, requiring tribes

to provide for alternative outreach and intake services by additional

governmental entities or community-based organizations would be

inappropriate as well as inconsistent with the Federal government's

policy of Indian self-determination.

We also concluded that the new provision concerning alternate

outreach and intake services is not appropriate to territories with

regular LIHEAP allotments of $200,000 or less annually. Experience has

shown that each grantee incurs certain basic administrative costs in

developing and implementing a LIHEAP program. Most territories (and

tribes) receive relatively small LIHEAP allotments. We concluded that,

for territorial grantees with annual LIHEAP funding of $200,000 or

less, the additional resources that would be required to provide

alternative outreach and intake services would increase administrative

and other non-benefit costs prohibitively and would significantly

reduce the heating, cooling, crisis, and/or weatherization benefits

that the territory could provide. We doubted that territories with

LIHEAP allotments of $200,000 or less would have the ability to provide

meaningful LIHEAP benefit levels if they also were required to provide

for additional outreach and intake services. The time, effort, and

funds spent providing alternate outreach and intake services would be

significantly out of proportion to the direct LIHEAP benefits that

could be provided to eligible households.

In addition, the territories with current LIHEAP allotments of

$200,000 or less that do not consolidate LIHEAP funds under other

programs pursuant to Public Law 95-134, commonly referred to as the

Omnibus Territories Act, administer LIHEAP entirely at the central

territorial level. Because of their relatively small populations, they

do not have separate local administering agencies. We concluded that a

requirement for alternative local agencies would be inappropriate under

these circumstances.

This means that at current LIHEAP funding levels, all territories

except the Commonwealth of Puerto Rico are exempt from this provision.

The allotments of the territories in FY 1994, under the regular LIHEAP

appropriation of $1.437 billion, range from $14,937 to $68,807 for all

territories except Puerto Rico, whose allotment is $1,708,030.

We received one comment, from a tribal organization, supporting the

exemption of tribal and small territorial grantees from this

requirement. We received no comments opposing the exemption.

Consistent with our previously stated rationale and with this

comment, we are continuing to exempt Indian tribes and tribal

organizations, and territories with annual regular LIHEAP allotments of

$200,000 or less, from the requirement of section 2605(b)(15) of the

LIHEAP statute, as amended.

Although these tribal and territorial grantees are exempt from this

requirement for additional outreach and intake services, they are still

subject to the requirements in section 2605(b)(3) of the LIHEAP

statute--assurance 3--concerning outreach. Under this assurance, all

grantees must ``conduct outreach activities designed to assure that

eligible households, especially households with elderly individuals or

disabled individuals, or both, and households with high home energy

burdens, are made aware of'' LIHEAP and similar energy-related

assistance.

Other Comments and HHS Responses

The interim final rule provided guidance to States on

interpretation and implementation of the requirement for additional

outreach and intake services. The interim rule's preamble noted that

grantees had requested such guidance and that Senate Report 101-421

said that HHS is expected to provide guidance on compliance with this

requirement.

However, we did not provide detailed requirements on interpretation

and implementation in the regulation itself. The preamble stated:

``As the original block grant regulations and preamble explain,

consistent with statements of congressional intent, the Department's

philosophy on block grants is that grantees are to be given as much

flexibility as possible to implement the programs in their own

jurisdictions. We will accept a grantee's interpretation of a

statutory requirement unless the interpretation is clearly

erroneous.

* * * * *

``We will review the grantees' compliance with the appropriate

legislative and regulatory requirements in carrying out our

[[Page 21330]] responsibilities to conduct LIHEAP compliance

reviews, application reviews, complaint investigations, and

resolution of audit findings. However, consistent with the block

grant philosophy, we are not publishing Federal rules on how the

requirement for additional outreach and intake services must be

implemented by grantees, except to specify that it does not apply to

Indian tribes and tribal organizations or to territories receiving

$200,000 or less in annual LIHEAP allotments. This is also

consistent with our regulatory treatment of other application

assurances required by the statute.''

We received nine comments on the statutory and regulatory

provisions relating to the requirement for additional outreach and

intake services (including the comment from a tribal organization

mentioned previously).

Comments and Response

Two of the commenters were members of Congress who requested a

specific rule to explicitly implement assurance 15. Another letter

supported a rule that would include definitions of a number of terms

relating to this assurance.

We continue to believe that it would be inconsistent with the block

grant philosophy as expressed in law and legislative history to publish

Federal rules mandating specific ways in which States must implement

this statutory requirement. The LIHEAP statute specifies in section

2605(b), which contains the assurances: ``The Secretary may not

prescribe the manner in which the States will comply with the

provisions of this subsection.''

Another commenter believed that States might take assurance 15

``less seriously because it is not included in the regulations

themselves.'' However, the statute is paramount. Further, the chief

executive officer of each State must certify that the State agrees to

these assurances. Federal regulations are not intended simply to repeat

the law. It is consistent with our treatment of the LIHEAP statute's

other assurances--which are as important as assurance 15--not to issue

regulations mandating specific ways in which grantees must implement

them.

We will continue to carry out our responsibilities to help assure

that grantees comply with the statute. We review grantees' compliance

with the statutory assurances when we conduct compliance reviews

(including reviews for compliance purposes of funding applications),

and when we resolve audit findings and complaints. Public Law 103-252

(the Human Services Amendments of 1994) amends the LIHEAP statute to

require that States include in their LIHEAP applications a description

of how they will carry out assurance 15; this will help us in our

monitoring. We resolve grantee failure to comply with the statute

through appropriate enforcement proceedings. If we find while carrying

out our compliance responsibilities that several grantees have

misunderstood a statutory provision, it may be appropriate for us to

clarify by regulation, as we did in October 1987 regarding the

applicability of assurance 9's administrative cost requirements to

subgrantees and contractors as well as to grantees.

Comment and Response

One of the congressional commenters said that the final rule should

contain ``strong regulation'' stating that alternative outreach and

intake ``must be performed in a professional manner, with strict

contract standards for agency accountability and paid for as part of

the administrative or program expenditures of the LIHEAP program.''

We agree that the requirements of assurance 15 must be carried out

by States and by entities and persons acting on their behalf in a

competent manner, by qualified agencies with effective standards for

accountability. This is the case for all of the LIHEAP statutory

assurances. In applying for Federal LIHEAP funds, the State has

specifically assured the Federal government that it will carry out all

of these assurances. In accepting Federal LIHEAP grant funds, the State

has made a commitment to follow the requirements of all applicable

Federal laws and regulations.

However, we do not believe that assurance 15 requires that

alternative outreach and intake be ``paid for as part of * * * the

LIHEAP program''--i.e., always provided as a paid LIHEAP function or

activity and never provided on an unpaid, voluntary basis. The LIHEAP

statute does not specify that alternative outreach and intake must be

provided on a paid basis. And, as previously stated, the statute

specifies that HHS ``may not prescribe the manner in which the States

will comply'' with the assurances. Further, we believe that the

legislative history assumes that alternative outreach and intake

provided by appropriate entities/organizations on an unpaid, voluntary

basis will meet the assurance's requirements. Conference Report 101-816

specifies that if States ``are already offering alternate intake sites

in some areas, this section does not require them to modify their

system of program management in those areas.'' Senate Report 101-421

indicates that, if alternative services previously were provided

voluntarily, providers should continue to maintain comparable levels of

efforts voluntarily, stating that ``local entities now providing such

[outreach and intake] services voluntarily are expected to maintain

comparable levels of effort in addition to the new activities which may

be contracted to them pursuant to this provision.'' As we stated in the

preamble to the interim rule, assurance 15 should not be used as a

basis for reducing voluntary efforts.

While the law does not require that alternative outreach and intake

be provided by entities or organizations ``paid * * * as part of the *

* * expenditures of the LIHEAP program,'' States should not attempt to

compel local entities/organizations to provide these services on an

unpaid basis. Many--if not most--such entities do not have the

resources to provide LIHEAP outreach and intake without appropriate

payment. While we support the use of volunteer outreach and intake when

appropriate, our guidance is not intended to encourage States to

require local agencies to provide these services at no cost to the

State. The Senate report says that ``State LIHEAP programs are expected

to use LIHEAP administrative funding for any additional LIHEAP

activities required by this section, rather than relying on other

federal funds in local agencies.'' (We have found that grantees'

classification of certain outreach functions--such as energy

conservation education--as non-administrative is not clearly

erroneous.) Also, if an alternative governmental entity or community-

based organization freely--without pressure or coercion--agrees to

provide additional outreach and/or intake services without charge, we

believe that assurance 15 does not require the grantee to pay it for

providing these services.

Comments and Response

Several commenters indicated that the discussion in the interim

rule's preamble on the participation of utilities and other home energy

vendors in LIHEAP outreach might imply that these vendors could be

considered ``community-based organizations'' whose participation in

LIHEAP outreach and/or intake could meet assurance 15's requirement for

additional outreach and intake. These commenters said that utilities

and other vendors are not community-based organizations. One letter

rejected ``the notion that low-income clients may be given a choice by

the State of applying for LIHEAP at the AFDC office or at the office of

their creditor, the utility, to whom they would be required to submit

income documentation for scrutiny.'' Another noted that vendors'

relationships with their clients ``can be adversarial''--

[[Page 21331]] clients may need to bargain with their vendors over

payment agreements, arrearage payments, etc. ``They may even have to

resolve disputes in a regulatory setting. * * * In these circumstances,

the confusion between access to the program and contact with a creditor

that could be created by vendor outreach and intake may discourage the

very expansion of access that the law intends to encourage.'' Two

commenters asserted that `` community-based organizations'' must be

nonprofit local agencies/organizations.

We continue to encourage cooperation between grantee LIHEAP

programs and home energy vendors, and use of vendors to provide LIHEAP

outreach as appropriate. But upon further reflection, we agree with

these commenters that outreach and/or intake provided by home energy

vendors, including utility companies, does not meet assurance 15's

requirement for additional outreach and intake services. We agree that

the issues with respect to vendors' status as creditors are

significant. In addition, ``community-based organization''--

historically a ``term of art'' used in Federal anti-poverty programs--

generally refers to nonprofit entities; utilities and other home energy

vendors generally are for profit. (For example, regulations for the

former Community Services Administration at 45 CFR 1076.50-1(c) defined

``community-based organization'' as ``a cooperative or private

nonprofit organization at least 50 per centum of whose governing body

is composed of local area residents.* * *'')

Comment and Response

A commenter believed that ``the statute required States to ensure

that all interested organizations, including vendors, engage in

outreach. * * *'' The statute requires that, ``in addition to''

outreach and intake offered by State public welfare departments at the

local level, there must be outreach and intake for heating, cooling,

and crisis assistance ``that is administered by additional State and

local governmental entities or community-based organizations. * * *''

Comparable levels of outreach and intake services should be provided

for welfare and non-welfare households and, if feasible, States should

use a number of different service providers. However, we do not believe

that the statute requires States to ensure that ``all interested

organizations * * * engage in outreach.''

Comments and Response

A commenter believed that intake functions were ``appropriately

described in the guidance.'' Another commenter thought that intake

might be ``too narrowly defined, given the legislative history.'' The

statute does not define or otherwise indicate what ``intake'' includes;

both the conference report and the Senate report refer to ``intake or

application processing.'' The interim rule's guidance noted functions

that are ``generally'' included as intake (receipt of applications for

assistance and the opportunity for applicants to provide any missing

information for their applications). It also noted that States have

``the discretion to choose whether to include'' certain other functions

(income determination and verification, and preliminary eligibility or

benefit determination). We continue to believe that it is appropriate

for grantees to have this degree of flexibility in defining the term--

that they should not be required to include all application processing

tasks as part of ``intake.''

Comments and Response

A State noted that mail-in applications can be acceptable for

intake and recommended a similar accommodation for outreach.

Information sent by mail about LIHEAP can be an effective part of a

grantee's outreach effort. However, outreach by mail will not by itself

meet the requirement for alternate outreach services. Many low-income

households would not be reached, or adequately served, by outreach-by-

mail. As the Senate report explains, outreach efforts should be varied

and targeted to the different populations eligible for LIHEAP

assistance--such as welfare households, non-welfare households, and the

elderly--``to assure that these households have an effective way to

learn about the program and how to apply for benefits.''

The same State recommended that if ``the local welfare office has

an established local advisory board represented by those agencies that

are listed [in assurance 15] as potential alternative sites, that the

outreach requirement is met.'' However, assurance 15 requires more than

participation in an advisory or other board by alternate agencies. It

specifically requires that alternative outreach and intake functions be

``administered by additional State and local governmental entities or

community-based organizations,'' and is intended to provide information

directly to low-income individuals, not just to other agencies.

The State also proposed that a phone-in intake process for

households experiencing an energy crisis be considered to meet the

statutory requirements for crisis assistance. In some circumstances,

receiving a telephone call by a household experiencing an energy crisis

would be an appropriate and effective first step as intake, although

information on the crisis and the household's eligibility would need to

be verified. However, some low-income households do not have a

telephone or reasonable access to a telephone that they can

realistically use, and section 2604(c) of the LIHEAP statute

specifically requires each entity that administers LIHEAP crisis

assistance to accept crisis assistance applications ``at sites that are

geographically accessible to all households in the area.''

A commenter believed that the interim rule's preamble guidance

might ``inadvertently encourage'' welfare departments ``to conduct

exclusively mail-application intake.'' The guidance is not intended--

and should not be interpreted--as encouragement for exclusively mail-

application intake.

Comments and Response

Two States objected to the requirements of assurance 15. One

objected to the increased expenditures needed to provide additional

outreach and intake--with reduced funds therefore available for

benefits. The State said that the ``effort and funds spent'' to provide

additional services ``would be significantly out of proportion to the

direct benefits that could be provided to eligible households.''

Another State defended its effectiveness in reaching nonwelfare

households and objected ``to the use of limited funding to replicate a

function already being administered timely and effectively.'' The State

believed that it would be extremely difficult to meet the requirement

in section 2604(c) of the LIHEAP statute that assistance to resolve an

energy crisis be provided within 48 hours of an eligible household's

application for crisis assistance. This grantee requested that

assurance 15 be deleted, or waived for grantees ``already serving a

broad based population.''

Only Congress can ``delete'' a statutory provision, and HHS does

not have authority to waive statutory requirements for States. The

conference report states that the conferees ``recognize the potential

for significantly increased administrative expenses for some states to

comply with the new alternative site requirements, and intend to

monitor possible effects on the program and recipients.''

Guidance Regarding Additional Services

The preamble to the January 1992 interim final rule included

guidance [[Page 21332]] with respect to section 2605(b)(15) of the

LIHEAP statute. With modifications and clarifications contained in the

preamble to this final rule, that guidance is still effective and is

included as the remainder of this final rule's preamble discussion of

section 96.86 of the block grant regulations and of assurance 15.

The requirement for additional outreach and intake services applies

to States (including the District of Columbia) and to any territory

with a LIHEAP allotment larger than $200,000 for the fiscal year in

question, when local offices of the grantee department or agency that

administers AFDC or the territorial equivalent basic cash public

assistance program(s) provide outreach and intake for heating, cooling,

and/or crisis assistance in all or part of the State or territory. The

requirement applies in these cases whether or not that department or

agency is named ``State Department of Public Welfare'' or ``Department

of Public Welfare.''

The requirement applies whether or not the department or agency

provides some of these services outside its own offices. Section

2605(b)(15) requires that grantees ``provide, in addition to such

services as may be offered by State Departments of Public Welfare at

the local level, outreach and intake functions for crisis situations

and heating and cooling assistance that is administered by additional

State and local governmental entities or community-based

organizations.* * *.'' The provision does not refer to the locations

where the welfare department provides services. Therefore, stationing a

welfare department employee at a shopping mall, for example, will not

meet the requirement of this provision.

Consistent with Conference Report 101-816, if grantees are already

offering alternative services in some areas, they are not required to

modify their system in these areas. Consistent with Senate Report 101-

421, ``a reasonable share'' of outreach and intake functions is to be

administered through alternative agencies, assuring that, to the extent

possible, all eligible households in the grantee's service population

will have viable access to alternative service sites. However,

consistent with this Senate report, if the grantee finds no alternative

in an area or areas after engaging in an open solicitation process, the

grantee is not required to create new entities. (In such a case, the

grantee would not be required to solicit for alternate agencies each

succeeding year. However, periodic assessment of the situation will

enable the grantee to determine when further solicitation is likely to

provide an alternative and is therefore appropriate.)

Also consistent with the Senate report, if such services previously

were provided voluntarily, providers should continue to maintain

comparable levels of effort voluntarily. The new requirement should not

be used as a basis for reducing voluntary efforts. Neither should it be

used to compel or require voluntary efforts.

Consistent with the legislative history, we encourage the voluntary

participation of community groups and organizations, including

churches, and of utilities and other home energy vendors, in outreach

activities. Such entities often have excellent knowledge of and access

to low-income households who may need LIHEAP assistance. However, as

explained earlier in this preamble, utilities and other home energy

vendors are not ``community-based organizations'' for the purposes of

the requirement of section 2605(b)(15) for outreach and intake services

provided by ``additional State and local governmental entities or

community-based organizations. . . .''

In order to meet the requirement for alternative outreach and

intake services, the statute specifies that the alternative service

providers must be State or local governmental entities or community-

based organizations. Senate Report 101-421 mentions public or nonprofit

agencies including other State or local government agencies, and

community-based organizations such as community action agencies and

aging organizations.

The Senate report emphasizes the importance of providing sufficient

access to the LIHEAP program to the non-welfare poor and the elderly,

through additional outreach efforts and appropriate intake locations.

Grantees should provide varied outreach efforts targeted to the

different populations eligible for LIHEAP assistance. Further, grantees

should consult with low-income individuals and other interested parties

to determine the best ways to implement the requirement for additional

outreach and intake services. As a commenter stated, the intention of

assurance 15 is ``to broaden the access and availability of LIHEAP

services to those who are eligible but are not part of the welfare

system'' and ``to give preference for intake functions to those

agencies that provide weatherization and/or crisis assistance.''

Agencies with experience in successfully managing similar Federal grant

programs should be used when feasible.

The term ``intake'' generally includes receipt of applications for

assistance and the opportunity for applicants to provide any missing

information that is needed to complete their applications. Each grantee

has the discretion to choose whether to include income determination

and verification responsibilities, and preliminary eligibility or

benefit determination, as ``intake.'' The conference report states that

the ``conferees believe that intake or application processing'' is

``best provided by experienced service providers with approved federal

and state grant management systems.''

If a mail-in application system administered by a welfare

department is used for a grantee's heating and/or cooling assistance

programs, and if it is not necessary to designate local administering

agencies to carry out intake for these components, then there is no

need under section 2605(b)(15) to designate other State and local

governmental entities or community-based organizations to carry out

intake for these components. In such a case, the grantee should assure

that help is readily available to households that are unable to prepare

and/or mail their applications without such assistance. Also, grantees

should not change to a system of mail-in applications in order to avoid

designating additional local intake agencies.

Section 2604(c) of the LIHEAP statute requires each entity that

administers energy crisis assistance ``to accept applications for

energy crisis benefits at sites that are geographically accessible to

all households in the area to be served'' by the entity and to provide

to physically-infirm low-income persons the means to submit

applications for energy crisis benefits without leaving their

residences or to provide the means to travel to the sites at which the

entity accepts applications. The statute thus requires that there be

energy crisis intake sites and services at the local level. Therefore,

intake for crisis assistance provided solely by welfare departments

will not meet the requirement in section 2605(b)(15) concerning

additional intake services at the local level. Also, telephone intake

can be part of a State's intake process but will not by itself meet the

statutory requirements for intake services.

It is our experience that outreach normally is provided through

local administering agencies, and therefore additional outreach

services would be necessary if outreach currently is provided at the

local level only through the welfare department.

In enacting the requirement that additional outreach and intake

services be provided in certain cases, Congress has emphasized the

importance of adequate and appropriate outreach and intake functions in

grantee LIHEAP [[Page 21333]] programs. Congress also has specifically

limited the amount of Federal funds that can be used for costs of

LIHEAP administration and planning to 10 percent of the funds payable

to a State and not transferred to another HHS block grant program

(section 2605(b)(9) of the LIHEAP statute). (The block grant

regulations provide somewhat higher administrative cost limits for

Indian tribes, tribal organizations, and territories.) As we stated in

the preamble to the block grant regulations of July 6, 1982, ``The

consistent imposition of limits upon administrative expenditures under

the various block grants is indicative of congressional intent that

States devote a very high percentage of their block grant funds to

direct payments or services'' (47 FR 29477). Grantees should make every

effort to provide the maximum amount of direct LIHEAP assistance to

low-income households, consistent with the provision of adequate

support services.

Although grantees subject to the new requirement may categorize

some of their additional outreach expenses as non-administrative, many

of the additional costs will be administrative. Some grantees may have

difficulty providing additional outreach and intake services and

remaining within the statutory limitation on use of Federal funds for

costs of LIHEAP planning and administration. These grantees, in

particular, may need to examine all of their LIHEAP activities and

costs to determine ways to increase efficiency, to encourage voluntary

efforts, and to use their own funds to supplement Federal LIHEAP funds.

HHS does not have authority to waive the statutory limitation on

administrative costs. The requirement for additional outreach and

intake services does not relieve grantees of the need to comply with

this statutory limitation.

Consistent with Conference Report 101-816, HHS used FY 1992 LIHEAP

training and technical assistance funds to help thirteen States that

previously had provided outreach and intake solely through their public

welfare departments, to make the transition required by assurance 15.

Although this preamble modifies and clarifies some of the guidance

regarding assurance 15, the final rule makes no change to section 96.86

of the block grant regulations.

Section 96.87 Leveraging Incentive Program

Public Law 101-501 added a new section 2607A to the LIHEAP statute,

establishing a leveraging incentive program, and amended section 2602

of the LIHEAP statute, authorizing funds for this program. Under the

leveraging incentive program, beginning in FY 1992, HHS may allocate

supplementary LIHEAP funds--leveraging incentive funds--to grantees

that have acquired non-Federal leveraged resources and use these non-

Federal resources to expand the effect of Federal LIHEAP dollars.

The interim final rule published January 16, 1992, added a new

section 96.87 to the block grant regulations to implement the

leveraging incentive program. Consistent with the requirements of

section 2607A, the interim final rule included requirements for

countable leveraged resources and for calculation and documentation of

the value of leveraged resources, submission of leveraging reports to

HHS, calculation of grantee shares of leveraging incentive funds, and

use of leveraging incentive funds.

Discussing the leveraging program, Senate Report 101-421 notes

that, ``if the LIHEAP program uses its purchasing power (or `leverage')

to acquire the full economic value of its resources, it can acquire

substantial additional energy assistance resources and services for the

poor from state energy market sources.'' This report lists the

following examples of leveraged resources: ``state-appropriated funds,

quantifiable payments, discounts, credits, energy conservation

improvements or other measurable benefits to eligible households in

excess of the energy that could be purchased by the LIHEAP program at

commonly available residential rates.''

All LIHEAP grantees--States (including the District of Columbia),

Indian tribes, tribal organizations, and territories--may participate

in the leveraging incentive program. Grantees are not required to

participate in the leveraging program. We encourage grantees to

leverage additional resources to supplement their Federal LIHEAP funds,

whether or not they choose to request leveraging incentive funds.

Leveraged resources are counted in the ``base period'' in which

their benefits were provided to low-income households. For example,

grantee funds added to the LIHEAP program are countable only when the

benefits they pay for--such as heating assistance payments or

weatherization services--are provided to or on behalf of low-income

households.

Under the statute's terms, grantees that want to apply for

leveraging incentive funds must submit a report to HHS that quantifies

the grantee's leveraged resources for the preceding fiscal year (the

base period), less any costs incurred by the grantee to leverage the

resources and any costs imposed on federally eligible households.

Leveraging incentive funds to reward these leveraging activities are

awarded in the fiscal year following the fiscal year in which the

leveraged resources/benefits were provided to low-income households. In

other words, they are awarded later in the fiscal year in which the

leveraging reports are submitted, after HHS has reviewed the reports,

adjusted claimed resources and their valuation as appropriate, and

calculated leveraging incentive grant amounts. The leveraging incentive

program's first ``base period'' was FY 1991, and its first ``award

period'' was FY 1992; leveraging activities in FY 1991 were the basis

for the leveraging incentive grant awards HHS made in FY 1992. Section

2607A of the LIHEAP statute requires that grantees use leveraging

incentive funds awarded to them only ``for increasing or maintaining

benefits to households.''

As the interim rule's preamble explained, consistent with the block

grant legislation and legislative history, HHS' policy generally is to

provide maximum flexibility to grantees to operate their LIHEAP

programs. Grantees are the primary interpreters of the LIHEAP statute

and the primary administrators of the LIHEAP program. However, grantees

apply ``competitively'' to HHS for shares of a limited amount of

leveraging incentive funds. Shares are determined based on reports

submitted by grantees which describe, and quantify the value of, the

resources they have leveraged. It is therefore necessary that all

grantees applying for leveraging inventive funds use the same rules.

There must be standard criteria and methods for determining the

resources that are countable under the leveraging incentive program and

for quantifying the value of these resources. In the interim rule and

in this final rule, we have tried to make these criteria and methods as

clear and fair as possible, within the limits of the statute and

legislative history.

Public Comments, HHS Responses, and Changes: Section-by-Section

Discussion

Twenty-four of the 25 letters we received on the interim final rule

included comments on the leveraging incentive program. Several of the

commenters addressed the interim rule and its preamble in general. For

example, one believed that the complex statutory instructions for the

leveraging program require the implementing regulation to be

``instructive yet flexible'' and said that the interim rule ``generally

meets these sometimes [[Page 21334]] conflicting purposes in an

understandable and common-sense fashion.'' Another appreciated HHS'

philosophy of keeping the rules for the leveraging program ``within the

spirit of a block grant.'' A third supported HHS' decision to exempt

grantees' use of leveraging incentive funds from some requirements that

apply to regular LIHEAP funds.

Most comments concerned specific leveraging provisions. These

comments, and our responses, are discussed below under the appropriate

headings.

The section and subsection headings are essentially the same in the

interim final rule and the final rule. While we made some substantive

changes, we retained the structure and most of the content of the

interim rule. We made some nonsubstantive changes for clarity and

consistency, as well. The changes are based on the public comments on

the interim rule and on our experience in operating the leveraging

incentive program under the interim rule.

Scope and Eligible Grantees

Subsection (a) of Sec. 96.87 of the interim final rule explained

that Sec. 96.87 concerns the leveraging incentive program authorized by

section 2607A of the LIHEAP statute. We received no comments on this

statement of the scope of the section, and we retained it in the final

rule in a new paragraph (1) under Sec. 96.87(a).

After the comment period on the interim rule, we received an

informal comment from a tribal grantee about entities eligible to

receive leveraging incentive funds. A tribal organization and its

member tribes had leveraged resources while the organization received

direct regular LIHEAP funding on the tribes' behalf; the tribes wanted

to apply for their own direct regular funding--and the leveraging

incentive funds to reward the leveraged resources--in the next fiscal

year. However, the preamble to the interim rule stated that, in order

to receive leveraging incentive funds, ``grantees must receive regular

LIHEAP block grant funding directly from HHS in both the `base' year

for which their leveraging activities are reported and the `award' year

for which leveraging incentive funds are requested'' (57 FR 1965). We

agree with the tribal grantee that credit for leveraging should be

``portable'' when a tribe enters or leaves a tribal organization when

certain conditions are met--for example, a bribe or tribal organization

that applies for leveraging incentive funds also must apply for and

receive direct regular LIHEAP funding in the award period in order to

receive incentive funds. We do not want to require tribes to continue

existing administrative relationships in order to qualify for incentive

funds. We modified the statement of entities eligible for leveraging

incentive funds accordingly and added the revised statement in a new

paragraph (2) under Sec. 96.87(a) in the final rule itself, for clarity

and because of its importance.

Under the revised statement, if a tribe leveraged resources while

receiving regular LIHEAP services under a directly-funded tribal

organization in the base period, and then receives direct regular

LIHEAP funding on its own in the award period, the tribe is eligible to

receive leveraging incentive funds to reward these resources in the

award period. If a tribe leveraged resources while receiving direct

LIHEAP funding in the base period and receives LIHEAP services under a

tribal organization in the award period, the tribal organization is

eligible to receive leveraging incentive funds on the tribe's behalf to

reward these resources in the award period. If a directly-funded tribal

organization leveraged resources in the base period and one or more of

the tribes it had served apply for direct funding in the award period,

the tribes and/or the tribal organization should inform HHS in writing

about the desired fair and appropriate distribution of leveraging

incentive funds in the award period. If the tribes and/or the tribal

organization are unable to agree, HHS will determine the distribution

of the incentive funds among eligible applicants based on the

comparative role of each entity in obtaining and/or administering the

resources, and/or their relative numbers of LIHEAP-eligible households.

Definitions

Section 96.87(b) of the interim final rule defined five terms used

in the leveraging incentive program. We received no comments on four of

the definitions--of ``base period,'' ``home energy,'' ``low-income

households,'' and ``weatherization.'' These definitions remain

substantively unchanged in the final rule.

We received several comments relating to the fifth definition--

``countable petroleum violation escrow funds.'' These comments, and the

changes we made in response, are discussed later in this preamble,

under ``Countable Leveraged Resources and Benefits'' and ``Leveraging

Issues Relating to Tribal Grantees.''

We added two definitions in the final rule--of ``award period'' and

``countable loan fund.'' We defined ``award period'' because--like

``base period,'' which already was defined in the interim rule--``award

period'' is an important and basic term whose meaning must be clear.

Countable loan funds and issues related to them are discussed later in

this preamble, under ``Countable Leveraged Resources and Benefits'' and

``Resources and Benefits That Cannot Be Counted.''

LIHEAP Funds Used To Identify, Develop, and Demonstrate Leveraging

Programs

Section 96.87(c) of the interim final rule and of this final rule

concern LIHEAP funds used to identify, develop, and demonstrate

leveraging programs.

Section 2607A(c)(2) of the LIHEAP statute provided that, each

fiscal year, States may spend up to the greater of $35,000 or 0.0008

percent of their funds allocated under the LIHEAP statute to identify,

develop, and demonstrate leveraging programs. Consistent with

Sec. 96.87(g)(5) of the interim rule, in grantees' leveraging reports

to HHS, all funds from grantees' regular LIHEAP allotments that are

used under the authority of section 2607A(c)(2) to identify, develop,

and demonstrate leveraging programs are to be deducted as offsetting

costs in the base period in which these funds were obligated, whether

or not there are any resulting leveraged benefits.

As we noted in the interim rule's preamble, 0.0008 percent of the

largest FY 1991 State LIHEAP allotment was approximately $1,700;

clearly $35,000 was the larger in all cases, and $35,000 would be the

larger under all foreseeable LIHEAP appropriation levels. Therefore, we

determined that if the language were carried out as written, the result

would appear to be illogical and inconsistent with reason. We concluded

that the figure 0.0008 percent resulted from a typographical error and

that 0.0008 was intended to be the actual factor by which the State's

allotment is multiplied, rather than the percent. (When calculating

0.08 percent of a State's allotment, one multiplies the allotment by

the factor 0.0008.) In the interim final rule, we clarified that the

figure is 0.08 percent. This interpretation provided a meaningful

result, since 0.08 percent of the FY 1991 State LIHEAP allotments

ranged from approximately $1,200 for the State with the smallest

allotment to $170,000 for the State with the largest allotment; $35,000

was the larger in some cases, and 0.08 percent was the larger in other

cases. We received one comment agreeing with this interpretation and

none disagreeing.

Since then, the Human Services Amendments of 1994 (Public Law 103-

252) confirmed our interpretation and [[Page 21335]] corrected the

percent in the LIHEAP statue, which now says ``0.08 percent.'' We kept

this same, corrected figure in the final rule.

Comments and Response

In the interim rule we also determined that $35,000 would be a

disproportionate amount for most tribes, tribal organizations, and

territories to spend annually to identify, develop, and demonstrate

leveraging programs. (As the preamble noted, FY 1991 tribal allotments

ranged from approximately $1,100 to $1,038,000; the allotments of 84 of

the 115 tribal grantees were under $100,000. FY 1991 territorial

allotments ranged from approximately $15,000 to $1,711,000; the

allotments of five of the six territorial grantees were under

$100,000.) The interim rule therefore limited to two percent of their

annual LIHEAP allotments the amount that these grantees may spend each

fiscal year for these purposes. This is approximately the same percent

as the territory with the largest allotment would have spent if it had

used $35,000 of its FY 1991 allotment for these purposes ($35,000

divided by $1,711,284 equals 0.0204524 or 2.04524 percent).

We received no written comments on this provision. Several tribal

grantees have told us informally, however, that they believe that the

two percent limit is too low.

For most tribes and territories, we believe that two percent is a

realistic amount to use for these purposes. We recognize, however, that

two percent of the smallest allotments will provide very little. For

example, two percent of $2,500 is only $50. Therefore, in response to

the concerns of small tribal grantees, the final rule provides that

tribes, tribal organizations, and territories may use up to the greater

of two percent, or $100, of their annual LIHEAP allotments,

specifically to identify, develop, and demonstrate leveraging programs.

(For tribal organizations receiving LIHEAP funds on behalf of two or

more tribes, the base to which the two percent and $100 are applied is

the tribal organization's total regular LIHEAP allotment, not the

separate ``allotments'' of the individual tribes that designated the

tribal organization to administer LIHEAP for them.) For grantees with

allotments under $5,000, $100 is the larger and will provide a usable

amount. (In FY 1992, 22 of the 120 tribal grantees, and no territorial

grantees, had LIHEAP allotments under $5,000.) To allow use of more

than the greater of two percent or $100 for these purposes--in addition

to LIHEAP funds that can be used for planning and administration--would

adversely affect the grantee's ability to provide home energy

assistance with its LIHEAP funds, which is the basic purpose of the

LIHEAP program. We also note that the leveraging reports covering FY

1991, FY 1992, and FY 1993 leveraging activities show that most

grantees used no LIHEAP funds to identify, develop, or demonstrate

leveraging. Only two tribal grantees have reported using LIHEAP funds

to develop leveraging. Only seven of the 63 grantees that received

leveraging incentive funds for their FY 1992 leveraging activities said

they used any LIHEAP funds for this purpose; only two of the seven used

the maximum amount allowed.

Related Issues

The 0.08 percent maximum for States, and the two percent/$100

maximum for tribes, tribal organizations, and territories, are based on

and apply to the grantee's funds allocated under the LIHEAP statute.

For the purpose of this provision, we defined this in the interim rule

to mean the grantees' Federal LIHEAP allotments, including supplemental

funds except leveraging incentive funds. We received no comments on

this definition and have retained it in the final rule. Grantees may

spend additional monies from their own funds or other sources as

appropriate, to identify, develop, and demonstrate leveraging programs.

LIHEAP block grant funds that are used to identify, develop, and

demonstrate leveraging programs are likely to support both planning and

administrative activities and costs, and non-planning, non-

administrative (``program'') activities and costs. The interim rule

stated that LIHEAP funds used under section 2607A(c)(2) of the LIHEAP

statute to identify, develop, and demonstrate leveraging programs are

not subject to the statute's limitation on the maximum percent of

Federal funds that grantees may use for costs of planning and

administration. As we stated in the interim rule's preamble, we believe

that, if these funds were subject to the limitation, it would be a

disincentive to grantees to develop leveraging programs. However,

Congress established the leveraging incentive program to encourage--to

provide an incentive to--grantees to leverage funds. We therefore

concluded that LIHEAP funds used under section 2607A(c)(2) should be

available in addition to the regular LIHEAP planning and administration

limits. We received one comment supporting this decision. We have

retained this provision in the final rule.

In addition to the maximum set by Sec. 96.87(c) specifically for

identifying, developing, and demonstrating leveraging programs, a

grantee may find that part of the LIHEAP funds it spends for planning

and administrative costs also have the effect of helping to identify,

develop, and/or demonstrate leveraging programs. Since these are valid

LIHEAP planning or administrative activities, paid for from the portion

of a grantee's LIHEAP block grant funds that can be used for planning

and administration, they are not subject to the 0.08 percent/$35,000

limit for States or the two percent/$100 limit for tribes/territories

set by section 96.87(c). Thus, a grantee could, in effect, use somewhat

more than the maximum 0.08 percent/$35,000 or two percent/$100 set

specifically for identifying, developing, and demonstrating leveraging.

This option is available to all LIHEAP grantees.

Comment and Response

A commenter said that, because these funds ``are coming out of

program funds'' and do not count against the statutory limit on Federal

funds used for LIHEAP administration and planning, HHS should request

itemization of how they are spent. The commenter said that ``[w]ithout

this information, neither Congress nor advocates will have any sense of

how these additional non-benefit, non-administrative funds will have

been used.'' However, we have no indication that Congress wants HHS to

collect and report this information, and we do not believe that we need

to impose such an information collection and reporting burden on

grantees in order to assure program accountability. We therefore

decline to accept this suggestion. We do not require grantees to

specify how they use their LIHEAP planning and administrative funds,

and we are not requiring them to specify how they use their LIHEAP

leveraging development funds. Consistent with the block grant

philosophy and Federal paperwork reduction efforts, the only reports

that LIHEAP grantees are required to submit are those that provide

information necessary to meet requirements in the LIHEAP statute and

the Single Audit Act. The LIHEAP leveraging report form and our

voluntary LIHEAP telephone survey of States provide data on the

amount--if any--that grantees spend to identify, develop, and

demonstrate leveraging. We will check further on these activities when

carrying out our compliance responsibilities--for example, when we

conduct compliance reviews. [[Page 21336]]

Basic Requirements for Leveraged Resources and Benefits

Based on the provisions of section 2607A of the LIHEAP statute,

Sec. 96.87(d) of the regulation sets basic requirements for leveraged

resources and benefits.

Information and Comment on Basic Requirements, Paragraph (1)

In the interim rule, paragraph (1) of Sec. 96.87(d) listed four

criteria, all of which had to be met by countable leveraged resources/

benefits.

The first two criteria under paragraph (1) implement requirements

in section 2607A of the LIHEAP statute. They require that countable

leveraged resources/benefits be from non-Federal sources, and be

provided to the grantee's LIHEAP program or to federally qualified low-

income households. We received no comments on these criteria; they

remain the same in the final rule.

In accordance with the LIHEAP statute, leveraged resources that are

provided to households that do not meet the Federal eligibility

standards in section 2605(b)(2) of the statute cannot be counted under

the leveraging incentive program. Federally qualified (federally

eligible) low-income households are:

Households with incomes that do not exceed the greater of

150 percent of the poverty level for their State, or 60 percent of

State median income; and

Households in which one or more individuals receive Aid to

Families with Dependent Children, Supplemental Security income

payments, food stamps, or certain need-tested veterans' and survivors'

payments (payments under sections 415, 521, 541, or 542 of title 38 of

the U.S. Code or section 306 of the Veterans' and Survivors' Pension

Improvement Act of 1978).

If a countable leveraging program/activity provides benefits to

both federally eligible households and households that do not meet

Federal eligibility standards, the grantee should report only the

benefits for households that are federally eligible.

The LIHEAP statute allows grantees to set eligibility standards for

their LIHEAP programs that are more restrictive than these Federal

maximums. The statute permits grantees to set their LIHEAP programs'

income eligibility standard as low as 110 percent of the poverty level.

The statute also permits grantees to decide whether to have categorical

eligibility for their LIHEAP program and, if so, to decide which of the

programs listed above to include. State eligible (State qualified)

households are households that meet the eligibility requirements set by

a State for its LIHEAP program. A grantee may claim leveraged resources

provided to federally eligible households even if the grantee set lower

eligibility standards for its LIHEAP program, provided the resources

meet all the other statutory and regulatory requirements.

Criterion (iv) under paragraph (1) implements section 2607A(b)(1)

of the LIHEAP statute. Section 2607A(b)(1) states that countable

leveraged resources/benefits must ``represent a net addition to the

total energy resources available to State and federally qualified

households in excess of the amount of such resources that could be

acquired by such households through the purchase of energy at commonly

available household rates.'' The interim rule's preamble noted that

this language could be interpreted to limit countable leveraged

resources to energy credits and fuels purchased at discounted prices--

to mean, for example, that a grantee could not count leveraged donated

funds used to pay low-income households' actual fuel costs at normal

rates, because there would be no net addition to the resources these

households could acquire at ``commonly available household rates,'' or

that a grantee could not count tangible non-fuel items purchased at

discounted prices. We did not adopt this narrow interpretation in the

interim rule. In criterion (iv) under paragraph (1) in the interim

rule, we clarified the statutory language to state that countable

leveraged resources and benefits must ``represent a net addition to the

total home energy resources available to low-income households in

excess of the amount of such resources that could be acquired by these

households through the purchase of home energy, or the purchase of

items that help these households meet the cost of home energy, at

commonly available household rates or costs, or that could be obtained

with regular LIHEAP allotments provided under section 2602(b) of Public

Law 97-35. . . .''

We received one comment on this regulatory provision. The commenter

believed that the provision ``is consistent with the overall intent''

of the statutory leveraging provisions. We retained the same language

in the final rule.

Changes and recommendation

Based on our experience in operating the leveraging program, we

added a fifth criterion to Sec. 96.87(d)(1) in the final rule,

specifying and clarifying that countable resources/benefits must meet

the requirements for leveraged resources and benefits throughout

Sec. 96.87 of these regulations and section 2607A of the LIHEAP

statute. This is to assure consistent understanding and prevent

confusion about the fact that the criteria in Sec. 96.87(d) are not the

only requirements for countable leveraged resources/benefits. We also

added the word ``basic'' to the heading for this section--``Basic

requirements for leveraged resources and benefits''--to underscore this

point.

The third criterion under Sec. 96.87(d)(1) states that countable

resources/benefits must be measurable and quantifiable in dollars. We

made no change to this criterion in the final rule. However, based on

our experience in operating the leveraging program, we encourage

grantees to consolidate similar resources in their leveraging reports,

so that each counted resource has a gross dollar value of $200 or more

as determined in accordance with Sec. 96.87(g). Several grantees have

included in their leveraging reports separate resources valued at only

$10 or $20. Disproportionate amounts of time and effort are spent

preparing and reviewing information on such small resources. We

therefore urge grantees to consolidate similar resources in their

leveraging reports, especially resources valued at under $200, into

combined resources valued at $200 or more. For example, a grantee could

combine in-kind donations of space heaters and blankets by different

groups and/or individuals, which are separately valued at under $200,

into one resource with a value of $200 or more. Consolidation of

similar resources in the leveraging report is often helpful for larger

resources, as well. In almost all cases, grantees will be able to

consolidate very small resources into resources valued at $200 or more.

Information on Basic Requirements, Paragraph (2)

In the interim rule, paragraph (2) of section 96.87(d) listed three

additional basic requirements for countable leveraged resources.

Countable resources/benefits were required to meet at least one of

these three requirements.

Paragraph (2) implements section 2607A(b)(2) of the LIHEAP statute.

Section 2607A(b)(2) mandates that leveraged resources/benefits meet at

least one of the following three criteria relating to the role of the

grantee's LIHEAP program in the development or distribution of the

resources/benefits: (1) They ``result from the acquisition or

development by the State program of quantifiable benefits that are

obtained from energy vendors through negotiation, regulation or

competitive [[Page 21337]] bid''; or (2) they ``are appropriated or

mandated by the State for distribution . . . through the State

program''; or (3) they ``are appropriated or mandated by the State for

distribution . . . under the plan referred to in section 2605(c)(1)(A)

to federally qualified low-income households and such benefits are

determined by the Secretary to be integrated with the State program.''

The first criterion refers to the role of the grantee's LIHEAP

program in the acquisition or development of benefits obtained from

energy vendors. Based on the discretion in the statute, the interim

rule defined the phrase ``acquisition or development by the State

program'' to mean that the grantee's LIHEAP program must have

``substantial involvement in the acquisition or development of these

benefits. The involvement of the grantee's LIHEAP program'' must be

``considerable, important, material, and of real value or effect.''

The interim rule defined the second criterion to mean that the

leveraged resources and benefits must be ``provided to low-income

households eligible under the grantee's standards, as a part of

(through or within) the grantee's LIHEAP program, consistent with the

Federal statutes and regulations applicable to the LIHEAP program.''

The plan referred to in the third criterion is a part of each

grantee's annual application for regular LIHEAP funds; in the plan, the

grantee describes how it will carry out statutory assurances to which

its chief executive officer has certified and includes other

information required by statute. Based on the context in which it

appears in the statute, the interim rule defined the phrase,

``appropriated or mandated by the State for distribution . . . under

the plan . . .'', to mean that the leveraged resources and benefits

must be ``identified and described in the plan and distributed as

indicated in the plan; however, they are not provided to low-income

households as a part of (through or within) the grantee's LIHEAP

program.''

The third statutory criterion also requires that the leveraged

benefits be ``integrated with the State program.'' The interim rule

defined this to mean that the benefits must be ``coordinated with the

grantee's LIHEAP program and . . . provided in cooperation and in

conjunction with the LIHEAP program.''

We received ten letters that commented on one or more of these

three criteria.

Comment and Response

A commenter recommended ``that the rules applying'' to criteria (i)

and (ii) ``simply restate the language of the law.'' The commenter said

that HHS implemented an ``expanded interpretation'' of these criteria

that ``is unnecessary and inconsistent with the nature of a block

grant.''

Much of the language of the LIHEAP statute--including section

2607A--is subject to differing interpretations. As we stated earlier in

this preamble, the leveraging incentive program is different from the

regular LIHEAP block grant, where different grantees may adopt

different interpretations of a statutory provision, as long as the

interpretations are not clearly erroneous. In the regular LIHEAP

program, one grantee's statutory interpretations and program operations

generally do not depend on or affect another's. In the leveraging

program, however, where grantees are ``competing'' for shares of the

same limited amount of leveraging incentive funds, we need to apply

common rules to all proposed resources, and all concerned parties

should have common understandings about leveraged resources that are

countable, and resources that are not. This is why we do not ``simply

restate that language of the law'' in cases where conflicting

interpretations of provisions in section 2607A are likely.

Comments and Response

We received several verbal comments about the meaning of the

statutory phrase, ``the State program,'' in criterion (i). The same

phrase is used in the statute with respect to criteria (ii) and (iii),

where it clearly means the grantee's LIHEAP program, and not another

State agency or program. We believe it is logical and appropriate to

conclude that it has the same meaning in criterion (i). Through these

three criteria, the statute and regulations require that the grantee's

LIHEAP program have a clear, substantive role in developing, acquiring,

administering, and/or coordinating with leveraged resources countable

under the LIHEAP leveraging incentive program.

A commenter said that the requirement in criterion (i) that the

grantee's LIHEAP program have ``substantial involvement'' which is

``considerable, important, material, and of real value or effect'' in

acquisition or development of benefits ``is both overly restrictive and

subject to subjective interpretation.'' We do not believe it is overly

restrictive to require that the grantee's LIHEAP program play an active

role in acquiring or developing a resource under this criterion. The

statute requires that, in order to meet the criterion, the benefits

must ``result from the acquisition or development by the State program

of quantifiable benefits that are obtained from energy vendors through

negotiation, regulation or competitive bid.'' We do not believe that

this language should be understood to require the grantee's LIHEAP

program to acquire or develop the benefits entirely by itself. On the

other hand, in cases where other entities also were involved in the

acquisition or development, the grantee's LIHEAP program should have a

substantive role. If, for example, grantee LIHEAP staff had simply

attended a meeting at which other people negotiated reduced home energy

rates for low-income households, that attendance alone should not count

as meeting criterion (i). The interim rule therefore required that the

grantee's LIHEAP program have ``substantial involvement,'' and the

final rule requires that the actions/efforts of grantee LIHEAP program

staff be ``substantial and significant'' in obtaining a resource from a

vendor.

The same commenter believed that the statutory requirement for

criterion (i) is met as long as ``the source of leveraged funds are

[sic] energy vendors and the funds resulted from negotiation,

regulation, or competitive bidding,'' and the benefits ``go to * * *

the state program.'' We do not believe that a resource countable under

criterion (i) must ``go to'' (be administered through or within) the

LIHEAP program. Resources leveraged under this criterion are often

discounts or waivers for low-income households, not ``funds'' that can

be administered through the LIHEAP program. We believe that reduced

home energy rates and waivers of certain home energy charges that are

negotiated with home energy vendors by (or with substantive

participation of) LIHEAP program staff should be countable under this

criterion--even though reduced rates and waivers usually are not

administered through the LIHEAP program.

This commenter apparently assumed that ``development by the State

program'' means that the State program must be involved in developing

``a method of acquiring'' the resources, but that ``acquisition * * *

by the State program'' means only that the benefits must ``go to'' the

program. However, we continue to believe that the grantee's LIHEAP

program--at the central, regional, and/or local office level--should

play an active, substantial role in acquiring (obtaining) or developing

the resource from the home energy vendor, not simply passively

``acquire'' (receive) [[Page 21338]] a benefit in whose acquisition it

played no part. (Such a resource could be countable under criterion

(ii), if the resource is ``appropriated or mandated'' by the State,

tribe, or territory for distribution through the LIHEAP program.)

Benefits from vendors that are negotiated by or result from competitive

bidding conducted by (or with substantive participation of)

subrecipients (e.g., local administering entities) under a State,

tribal, or territorial LIHEAP program acting in that capacity, also are

countable under criterion (i) as long as all other requirements also

are met.

We agree that the interim rule's requirement that the involvement

of the grantee's LIHEAP program in the acquisition or development of

the resource be ``substantial'' and ``considerable, important,

material, and of real value or effect'' in some cases may be confusing

and subject to subjective interpretation. In grantees' leveraging

reports on FY 1991 and FY 1992 leveraging, most resources claimed under

criterion (i) clearly met this test, and several clearly did not.

However, there also were a number of claimed resources for which we had

to request additional information from the grantee to substantiate

``substantial'' involvement, and on several of these we still had to

make difficult judgments about whether to count the resource. Short of

requiring that the grantee LIHEAP program acquire or develop the

resource completely on its own, or saying that the grantee program need

have no role at all in acquiring or developing the resource--which we

do not believe to be appropriate--we see no way to write regulatory

language that would totally eliminate such situations.

We also have found that several grantees were confused about

whether criterion (i) applied only to resources obtained from energy

vendors. The statute clearly limits this criterion to resources/

benefits ``that are obtained from energy vendors through negotiation,

regulation, or competitive bid,'' not from charitable organizations,

etc.

To clarify criterion (i) without materially changing its substance,

we amended Sec. 96.87(d)(2)(i) as follows in the final rule:

``The grantee's LIHEAP program had an active, substantive role in

developing and/or acquiring the resource/benefits from home energy

vendor(s) through negotiation, regulation, and/or competitive bid. The

actions or efforts of one or more staff of the grantee's LIHEAP

program--at the central and/or local level--and/or one or more staff of

LIHEAP program subrecipient(s) acting in that capacity, were

substantial and significant in obtaining the resource/benefits from the

vendor(s).''

Comments and Response

There have been several questions about the statutory requirement

that resources countable under criterion (ii) be distributed

``through'' the grantee's (LIHEAP) program. The interim rule and this

final rule state that this means ``within'' and ``as a part of'' the

grantee's LIHEAP program. Under criterion (ii), the leveraged resource/

benefit is administered by the LIHEAP agency or agencies under the

LIHEAP statute and regulations, consistent with the eligibility

standards and benefit levels used by the grantee for its Federal LIHEAP

funds; it is considered a LIHEAP benefit. Resources counted under

criterion (ii) do not have to be specifically identified in the

grantee's LIHEAP plan if they are clearly covered by the plan. For

example, the plan would not have to say that leveraged cash resources

are used to provide heating assistance, as long as the plan describes a

heating assistance program that is funded with LIHEAP resources and the

leveraged resources are used in accordance with this description.

Five letters addressed the statutory and regulatory requirements

that resources countable under criteria (ii) and (iii) must be

``appropriated or mandated'' by the grantee ``for distribution''

through the grantee's LIHEAP program (criterion (ii)) or under the

grantee's LIHEAP plan and integrated with the LIHEAP program (criterion

(iii)).

Using similar language, two Congressional letters said the

regulation should ``make clear'' that leveraging initiatives that

qualify for incentive funds because they are ``mandated'' by State

action must be created by legislation, rule, contract, binding

agreement, or another specific action or identifiable ``mandate'' or

requirement--the grantee cannot merely list voluntary charitable

efforts in its LIHEAP plan in order to meet these criteria. Two other

commenters said that the interim rule was not sufficiently clear

regarding the requirements for ``mandated'' resources. One of these

commenters said that ``merely mentioning a program in the state's plan

do not constitute a mandate''; a mandate ``should be a regulation,

order, or other formal agreement or expression by the state agency

governing the control and the distribution of the leveraged resource.''

We agree that a mere list of voluntary charitable efforts in a

grantee's LIHEAP plan does not meet these two criteria. Resources/

benefits that are mentioned in the plan, but are neither provided

through nor integrated with the LIHEAP program, are not countable under

these criteria.

We do not believe that the statute or legislative history require

that resources countable under these criteria be ``created'' by State,

tribal, or territorial ``mandate,'' however. We therefore did not make

a change in response to comments supporting such a requirement. The

statute requires instead that the resource/benefits be ``appropriated

or mandated by the State [or tribal or territorial grantee] for

distribution'' through its LIHEAP program (criterion (ii)) or under its

LIHEAP plan and also integrated with its LIHEAP program (criterion

(iii)). For example, oil overcharge funds counted under criterion (ii)

would not be created by State mandate; they would be mandated by the

State for distribution through its LIHEAP program.

We believe that ``by the State'' means that the State, tribe,

tribal organization, or territory--the grantee--must appropriate or

mandate the resource/benefits for distribution. A subrecipient such as

a local nonprofit agency might actually ``distribute'' the resource/

benefits on behalf of the grantee, but the grantee must take the action

that meets the requirement to appropriate or mandate the resource/

benefits for distribution through its LIHEAP program or under its

LIHEAP plan, etc.

The grantee's LIHEAP application--which includes the plan--is an

official, formal document in which the grantee makes a binding

commitment to distribute resources in certain ways. We therefore

believe that it is reasonable to assume that the inclusion of the

leveraged resource/benefits in the LIHEAP plan means that the grantee

has ``mandated'' the resource for distribution as described in the

plan. Inclusion of appropriate information in the plan is documentation

of the mandate. Because the grantee's LIHEAP plan is a formal

expression by the grantee that governs the distribution of the

leveraged resource, we consider resources appropriately described in or

covered by the plan to be mandated by the grantee for distribution as

required by criteria (ii) and (iii).

Another commenter believed that criterion (ii) ``can reasonably be

read to require that some state entity (in the Executive, Legislative

or Judicial branch) provide the additional resources to the State

program for distribution by the program, that is, they were

appropriated or mandated by the Governor or legislature or by the

judiciary * * *.'' On the other hand, [[Page 21339]] this commenter

said that criterion (iii) ``is somewhat of a `catchall' for

independently initiated activities, so long as they are then

`integrated with' the state program. The advantage of this approach is

that the program does not have to assure that it is aware of every

instance when a CAP negotiates an arrearage forgiveness or a waived fee

for a LIHEAP client in time to amend its state plan to include such

activity.'' This commenter believed that resources under this criterion

``may clearly be available independently of state activity.''

However, the statute requires that resources countable under both

criterion (ii) and criterion (iii) be ``appropriated or mandated by the

State for distribution.'' We therefore do not believe it is appropriate

to conclude that criterion (ii) requires that a State entity provide

the resource for distribution by the LIHEAP program, but that under

criterion (iii), the resource may be available independent of State

activity. Also, criterion (iii) requires that the resource/benefits be

integrated with the grantee's LIHEAP program, and we do not believe

that a resource can be both integrated with the LIHEAP program and

``available independently of State activity.''

We agree that ``independently initiated'' resources/benefits that

are appropriated or mandated by the grantee for distribution in a way

that is integrated with the LIHEAP program can be countable under

criterion (iii) as long as all other relevant statutory and regulatory

requirements are met. However, we believe that, in order to be

distributed under the grantee's LIHEAP plan--as required by the statute

for criterion (iii)--the resource/benefits must be identified and

described in the plan. Also, because the statute requires that

resources countable under criterion (iii) be ``appropriated or mandated

by the State for distribution'' under the LIHEAP plan and

``integrated'' with the LIHEAP program, we believe that the grantee

needs to be aware of these resources. The grantee cannot legitimately

claim that it appropriated or mandated a resource and the resource was

integrated with the LIHEAP program--but the grantee did not know about

or document the resource during the base period in which the benefits

were provided to recipients. The identification and description of the

resource/benefits in the plan provides formal documentation of the

mandate by the grantee that the resource/benefits be distributed

``under the plan'' and ``integrated'' with the LIHEAP program. We

therefore continue to require that resources to be counted under

criterion (iii) must be included in the grantee's plan.

The preamble to the interim rule required (at 57 FR 1967) that the

resource be included in the plan during the base period for which the

resource is claimed--the period in which the resource/benefits are

provided to low-income households. For clarity, we added this

requirement to the final rule itself. As we stated in the interim

rule's preamble, grantees that did not identify and describe all of

their leveraging activities for a base period in their initial plans

covering this period may amend their plans to include such resources at

any time (before or) during the base period, but they may not amend

their plans to include such resources retroactively, after the base

period has ended. For clarity, the final rule requires that any LIHEAP

plan amendments needed to cover leveraging activities counted under

criteria (ii) and (iii) of section 96.87(d)(2) must be submitted before

the end of the base period. Resources/benefits provided under the

criterion (ii) must be distributed consistent with the grantee's LIHEAP

plan and program policies that were in effect during the base period.

The plan must identify and describe resources/benefits provided under

criterion (iii) before the base period ends.

In addition, the final rule reiterates the requirement in the

interim rule that the plan identify and describe the resources/benefits

to be counted under criterion (iii), and now also requires that the

plan identify and describe their sources, and the way in which they are

integrated/coordinated with the grantee's LIHEAP program. We added the

latter requirements because several grantees' plan ``descriptions'' of

leveraged resources were so vague (e.g., ``donations'') that they were

virtually meaningless. Each individual resource does not necessarily

need to be separately identified; similar resources may be grouped

together. For example, similar donations from a number of churches

might be covered as follows in the plan: ``In-kind contributions by

approximately five churches, of blankets, space heaters, and fans that

will be distributed by these churches to low-income households referred

by the LIHEAP program because the households' LIHEAP benefits do not

meet their need for these items.'' (Such related donations also could

be combined as one resource in the grantee's LIHEAP leveraging report.)

There have been several questions and comments about the statutory

requirement that resources countable under criterion (iii) must be

``integrated with the State program.'' A commenter said that

``integration'' should be defined ``to clearly require a higher form of

relationship than merely serving the same income-class of households.

An integrated program should have coordinated administrative

procedures, cooperative targeting of benefits and benefit levels, and

an integrated set of aims and purposes that rely on LIHEAP as the

keystone to fulfilling those common purposes.'' Another said that

``[t]here must be a direct connection [with the LIHEAP program] through

a set of mutual, explicit obligations and formalized arrangements.''

The statutory requirement that resources counted under criterion

(iii) be ``integrated'' with the grantee's LIHEAP program has been

difficult for HHS and grantees to implement. In the interim rule,

criterion (iii) required that resources/benefits be ``integrated'' and

``coordinated'' with the grantee's LIHEAP program, and ``provided in

cooperation and in conjunction'' with the LIHEAP program. A number of

grantees were confused about what constituted integration and

coordination. In practice, these terms were not sufficiently clear or

measurable, and they were subject to differing understandings and

interpretations. We needed a more objective way to determine whether a

resource was integrated with the LIHEAP program.

We therefore added eight ``conditions'' (``A'' through ``H'') in

the final rule, describing specific circumstances that demonstrate that

a resource is integrated with the grantee's LIHEAP program--that the

resource and LIHEAP function cooperatively and in coordination with

each other to provide an interrelated larger unit or whole. If a

leveraged resource meets at least one of these eight conditions, we

will consider it to be integrated and coordinated with the grantee's

LIHEAP program.

Based on the comments we received and on our experience in the

first three cycles of the leveraging program, we clarified requirements

for criteria (ii) and (iii) of Sec. 96.87(d)(2) in the final rule. We

amended criterion (ii) as follows:

The grantee appropriated or mandated the resource/benefits for

distribution to low-income households through (that is, within and as a

part of) its LIHEAP program. The resource/benefits are provided through

the grantee's LIHEAP program to low-income households eligible under

the grantee's LIHEAP standards, in accordance with the LIHEAP statute

and regulations and consistent with the grantee's LIHEAP plan and

program policies that were in effect during the base period, as if they

[[Page 21340]] were provided from the grantee's Federal LIHEAP

allotment.

We amended criterion (iii) as follows: The grantee appropriated or

mandated the resource/benefits for distribution to low-income

households as described in its LIHEAP plan * * *. The resource/benefits

are provided to low-income households as a supplement and/or

alternative to the grantee's LIHEAP program, outside (that is, not

through, within, or as a part of) the LIHEAP program. The resource/

benefits are integrated and coordinated with the grantee's LIHEAP

program. Before the end of the base period, the plan identifies and

describes the resource/benefits, their source(s), and their

integration/coordination with the LIHEAP program.

The Department will determine resources/benefits to be integrated

and coordinated with the LIHEAP program if they meet at least one of

the following eight conditions. If a resource meets at least one of

conditions A through F when the grantee's LIHEAP program is operating

(and meets all other applicable requirements), the resource also is

countable when the LIHEAP program is not operating.

(A) For all households served by the resource, the assistance

provided by the resource depends on and is determined by the assistance

provided to these households by the grantee's LIHEAP program in the

base period. The resource supplements LIHEAP assistance that was not

sufficient to meet households' home energy needs, and the type and

amount of assistance provided by the resource is directly affected by

the LIHEAP assistance received by the households.

(B) Receipt of LIHEAP assistance in the base period is necessary to

receive assistance from the resource. The resource serves only

households that received LIHEAP assistance in the base period.

(C) Ineligibility for the grantee's LIHEAP program, or denial of

LIHEAP assistance in the base period because of unavailability of

LIHEAP funds, is necessary to receive assistance from the resource.

(D) For discounts and waivers: Eligibility for and/or receipt of

assistance under the grantee's LIHEAP program in the base period, and/

or eligibility under the Federal standards set by section 2605(b)(2) of

Public Law 97-35 * * * is necessary to receive the discount or waiver.

(E) During the period when the grantee's LIHEAP program is

operating, staff of the grantee's LIHEAP program and/or staff assigned

to the LIHEAP program by a local LIHEAP administering agency or

agencies, and staff assigned to the resource communicate orally and/or

in writing about how to meet the energy needs of specific, individual

households. For the duration of the LIHEAP program, this communication

takes place before assistance is provided to each household to be

served by the resource, unless the applicant for assistance from the

resource presents documentation of LIHEAP eligibility and/or the amount

of LIHEAP assistance received or to be received.

(F) A written agreement between the grantee's LIHEAP program or

local LIHEAP administering agency, and the agency administering the

resource, specifies the following about the resource: eligibility

criteria; benefit levels; period of operation; how the LIHEAP program

and the resource are integrated/coordinated; and relationship between

LIHEAP eligibility and/or benefit levels, and eligibility and/or

benefit levels for the resource. The agreement provides for annual or

more frequent reports to be provided to the LIHEAP program by the

agency administering the resource.

(G) The resource accepts referrals from the grantee's LIHEAP

program, and as long as the resource has benefits available, it

provides assistance to all households that are referred by the LIHEAP

program and that meet the resource's eligibility requirements. Under

this condition, only the benefits provided to households referred by

the LIHEAP program are countable.

(H) Before the grantee's LIHEAP heating, cooling, crisis, and/or

weatherization assistance component(s) open and/or after the grantee's

LIHEAP heating, cooling, crisis, and/or weatherization assistance

component(s) close for the season or for the fiscal year, or before the

entire LIHEAP program opens and/or after the entire LIHEAP program

closes for the season or for the fiscal year, the resource is made

available specifically to fill the gap caused by the absence of the

LIHEAP component(s) or program. The resource is not available while the

LIHEAP component(s) or program is operating.

Additional Information

In order to be countable, a leveraged resource must meet the

requirements under at least one of criteria (i), (ii), and (iii). A

single resource cannot meet both criterion (ii) and criterion (iii),

because a resource cannot be provided to low-income households both as

a part of the LIHEAP program (criterion (ii)), and not as a part of,

but integrated with, the LIHEAP program (criterion (iii)). A resource

countable under criterion (iii) must meet all of the requirements in

the first part of the criterion, and at least one of the conditions

demonstrating integration/coordination in the second part of the

criterion.

In criterion (iii), conditions A through F describe acceptable

circumstances of integration/coordination while the grantee's LIHEAP

program is operating. If a resource meets at least one of these six

conditions while the grantee's LIHEAP program is operating (as well as

all other applicable requirements), the resource also is countable

during the base period when the LIHEAP program is not operating. The

circumstances described in a condition must apply to all assistance

provided by the resource, and all households assisted by the resource,

except for condition G. Condition G describes certain resources that

accept referrals from the grantee's LIHEAP program. It is possible that

some of the households served by a resource will not be referred to it

by the LIHEAP program. Under condition G, benefits provided by certain

resources to households that were referred by the LIHEAP program are

countable, but benefits provided to households that were not referred

by the LIHEAP program are not countable. Condition H describes certain

resources made available specifically because the grantee's entire

LIHEAP program has not yet opened or has closed, or because one or more

components of the LIHEAP program have not yet opened or have closed.

If a grantee sets its LIHEAP income eligibility standard below the

LIHEAP statute's maximum (for example, at 125 percent of the poverty

level), it could count leveraged benefits provided to households with

incomes between the State standard and the Federal maximum standard

(the greater of 150 percent of the poverty level or 60 percent of State

median income) under criterion (i) or criterion (iii), as long as the

benefits meet all other requirements for leveraged resources as well.

These criteria allow the counting of leveraged benefits that are

provided to households with incomes up to the Federal maximum and to

categorically eligible households, as described in section 2605(b)(2)

of the LIHEAP statute, whether or not the grantee's LIHEAP program has

more restrictive eligibility standards. Under criterion (ii), leveraged

benefits must be provided through the grantee's LIHEAP program, to

households eligible under the grantee's standards. [[Page 21341]]

Countable Leveraged Resources and Benefits

Section 96.87(e) of the interim rule and the final rule describes

resources and benefits that are countable under the LIHEAP leveraging

incentive program. This section describes the three types of countable

resources--certain cash resources, home energy discounts and waivers,

and third-party in-kind contributions--and lists examples of countable

resources/benefits under each. Countable resources/benefits are not

limited to the examples named. Additional resources may be countable as

well, provided that they also meet all applicable requirements.

Under both the interim rule and the final rule, we do not require

that leveraging activities be ``new'' in the base period in order to be

countable. Benefits provided by ongoing leveraging activities--such as

discounts in home energy bills and home energy assistance provided by

fuel funds--are countable as long as they meet the requirements of the

statute and these regulations, and the counted benefits are provided to

federally or State eligible low-income households during the base

period.

There is sometimes a distinction or difference between a resource

as it was acquired, and the benefits that the resource provided to low-

income households. Resources acquired in the form of cash can be used

to provide benefits in the form of certain cash payments, tangible

items, and/or services. However, when resources are acquired in the

form of discounts/waivers and in-kind contributions, the benefits are

essentially the same as the resources.

The interim rule listed the three types of countable leveraged

resources as ``cash resources,'' ``home energy discounts and credits,''

and ``third-party in-kind contributions.'' Because the word ``credits''

has more than one common meaning, we found that its use was confusing

on occasion. In some cases, a ``credit'' refers to and means a

discount. For example, a ``credit'' donated by a home energy vendor

toward the purchase of fuel from the vendor--with no payment received

for this amount--represents a discount/reduction in the price of the

fuel and should be classified as a discount. In other cases, however, a

``credit'' to a household's home energy account results from a payment

on behalf of the household and therefore refers to the benefit provided

by a cash resource. For example, a grantee's own funds used to provide

heating assistance benefits should be considered a cash resource.

However, in its leveraging report, a grantee mistakenly categorized

these funds under ``discount/credit'' because the benefits represented

``credits'' toward the recipients' accounts with their vendors. To

reduce confusion, therefore, this final rule refers to ``home energy

discounts and waivers,'' rather than ``home energy discounts and

credits'' as used in the interim rule. In cases where a grantee has

difficulty determining whether to classify a ``credit'' as a cash

resource or a discount/waiver, we will discuss the resource with the

grantee to determine the correct classification.

Comment and Response

We received one comment on resources listed as countable in

Sec. 96.87(e) of the interim rule. The commenter questioned whether

forgiveness of utility sales taxes for LIHEAP-eligible households

should be countable.

The interim rule listed as a countable resource/benefit ``partial

or full forgiveness of home energy bill arrearages''; the arrearage

amounts could include sales taxes and/or other extra charges, such as

special energy taxes, environmental surcharges, and late payment

charges. As long as such charges are included in the low-income

household's home energy bill and apply to all residential customers in

comparable situations, we do not believe that they should be excluded.

Use of leveraged funds to pay low-income households' home energy bills,

or portions of these bills, that include such charges would be

countable as well. We retained this provision in the final rule.

Comments and Changes

The final rule specifies that purchase and donation of space

heating and space cooling devices, equipment, and systems are

countable. Purchase and donation of space heating and space cooling

devices and equipment, such as furnaces, fans, and air conditioners,

already were specified as countable in the interim rule. Based on our

experience in operating the leveraging program, we found that the term

``devices and equipment'' was too limited. Therefore, we added the

broader term ``systems'' in the final rule. For clarity, the final rule

also specifies additional countable weatherization services:

Replacement and repair of weatherization materials (installation of

weatherization materials already was specified as countable);

installation, replacement, and repair of space heating and space

cooling devices, equipment, and systems (for example, installation of

energy efficient furnaces and repair of leaks in heating system ducts);

and installation, replacement, and repair of other tangible items that

help low-income households meet the costs of home energy and that are

specifically approved by HHS. Also, for clarity and in response to

comments urging that they be countable, the final rule adds the

following services when they are an integral part of weatherization to

help low-income households meet the costs of home energy: Installation,

replacement, and repair of windows, exterior doors, roofs, exterior

walls, and exterior floors; pre-weatherization home energy audits of

homes that were weatherized as a result of these audits; and post-

weatherization inspection of homes. Also, we agree with the informal

comments we received recommending that several safety-related aspects

of weatherization be countable when they are integral and necessary

parts of weatherization. In response to these comments, the final rule

adds: Installation, replacement, and repair of smoke/fire alarms that

are an integral part, and necessary for safe operation, of a home

heating or cooling system installed or repaired as a weatherization

activity; and asbestos removal that is an integral part of and

necessary to carry out weatherization to help low-income households

meet the costs of home energy. These services are countable if they are

paid for with leveraged cash resources, or provided as in-kind

contributions by volunteers or donated paid staff under the conditions

specified in the final rule. Discounts in the cost of these items and

services also are countable under the conditions specified in the final

rule.

A commenter recommended that weatherization ``audits'' and

inspections be countable, because they are essential to the success of

weatherization and ``ensure the net addition of energy resources to the

household.'' We adopted this recommendation, with respect to home

energy audits to determine households' weatherization needs, and

inspections to assure that weatherization has been properly carried

out, when these audits and inspections are integral parts of

weatherization to help low-income households meet the costs of home

energy. Only the home energy audits of low-income households' homes

that were weatherized as a result of these audits are countable.

Because these countable services involving smoke/fire alarms,

asbestos removal, pre-weatherization audits, and post-weatherization

inspections must be an integral part of weatherization carried out to

help specific low-income [[Page 21342]] households meet the costs of

home energy, they generally should be counted in the base period in

which these households' homes were weatherized. Pre-weatherization

audits--which are countable as an integral part of resulting

weatherization--should be counted in the base period in which the

weatherization is carried out. This will prevent counting the audits of

homes when the follow-up weatherization was not done. However, homes

might be weatherized using leveraged funds or volunteer services in one

base period and therefore counted in that base period, but the post-

weatherization inspections of these homes might take place and be

counted in the following base period.

Also, based on our experience in operating the leveraging incentive

program, we added a clarification to the final rule at

Sec. 96.87(e)(1)(i), naming several specific examples of countable

benefits provided by leveraged cash resources: Heating, cooling, and

energy crisis assistance payments and cash benefits made in the base

period to or on behalf of low-income households toward their home

energy costs--including home energy bills, taxes on home energy sales/

purchases and services, connection and reconnection fees, application

fees, late payment charges, bulk fuel tank rental or purchase costs,

and security deposits that are retained for six months or longer.

Also as a clarification, we added language at the beginning of

paragraph (2) of Sec. 96.87(e), which describes countable home energy

discounts and waivers, stating that countable discounts/waivers must

``pertain to generally applicable prices, rates, fees, charges, costs,

and/or requirements.'' This language applies to all of the sub-

paragraphs under this paragraph. We therefore deleted similar language

from subparagraph (ii).

Finally, we added clarifying language specifying that the following

are countable: Partial or full waivers of bulk fuel tank rental or

purchase costs; and reductions in, and partial or full waivers of, non-

Federal taxes on home energy sales/purchases and services (such as

furnace repairs) and of other non-Federal taxes provided as tax

``credits'' to low-income households to offset their home energy costs,

unless Federal funds or Federal tax ``credits'' provide payment or

reimbursement of these costs.

As long as a fuel is used wholly or partly for home energy by the

low-income recipient household, the full amount of leveraged heating,

cooling, and crisis assistance benefits for the fuel, and the full

amount of leveraged discounts and waivers (including arrearage

forgiveness) relating to the fuel, are countable, even if they may

exceed the home energy portion of the household's bill. It is often

difficult or impossible to determine the exact portion of a household's

fuel bill that covers home energy--that is, home heating and cooling

rather than other residential uses. Also, it is often necessary to pay

a household's entire fuel bill--not just the heating and cooling

portion--to prevent service shut-off or termination.

Tangible items that are installed or repaired using leveraged

services must be items that would be countable if they were leveraged,

or must be specifically approved by HHS upon request by the grantee.

(For example, donated services to install a washing machine would not

be countable, because this appliance, even if it was purchased with

non-Federal funds or donated, would not be countable.) However, these

items themselves do not have to be leveraged resources. Only the

leveraged resource/benefit (for example, leveraged cash used to pay for

installation of non-leveraged insulation) is countable in such cases.

We deleted as separate countable resources all services involving

delivery and transportation--that is, delivery of fuel, weatherization

materials, and other items. We also deleted purchase, rental, donation,

and loan of supplies and equipment used to deliver these things and

used to install weatherization materials. Therefore, cash resources

used to pay for these services and items, discounts in their cost, and

in-kind contributions of these services and items are no longer

countable as separate resources. (Although delivery services are no

longer separately countable, delivery costs sometimes are included in

the fair market price of delivered bulk fuel--such as fuel oil,

propane, coal, and wood--and as part of the purchase and/or

installation costs of weatherization materials and space heating and

space cooling devices, equipment, and systems.)

We deleted delivery services, and supplies and equipment used for

delivery and installation services, for several reasons, based on our

experience with the leveraging program. These services often are not

actually direct benefits to specific low-income households. Valuation

was a problem. The value of equipment such as trucks that would be used

for a number of years and by a number of different users might have

been pro-rated for the items' expected useful life and anticipated

other users. However, it would be virtually impossible to get

consistent estimates of, and pro-rating for, the useful life of

equipment, and accurate pro-rating for other users, even if we issued

extensive regulatory instructions. If the entire value of expensive

equipment that was to be used over a period of years was counted for

only one base period, this would inflate the resource's effect for that

base period--and still leave the question of how to account for other

users. We also found that several grantees' leveraging reports tried to

stretch countable delivery-related services and items beyond the letter

and intent of the interim rule--for example, to count a ``discount'' in

the cost of gasoline used in a vehicle that transported fuel oil.

Finally, the amount of effort necessary to estimate and document

valuation, and to review these calculations and documentation, is

disproportionate for such marginal resources.

Comments and Response

Since the end of the comment period on the interim rule, questions

have arisen about whether certain types of borrowed funds are countable

under the leveraging incentive program. The interim rule said that

borrowed funds were not countable. The interim rule's preamble

indicated that borrowed funds were not countable because they must be

repaid, and therefore there is no net addition to households' home

energy resources. This is the case if a low-income household borrows

funds, uses these funds to pay a home energy bill or weatherize its

home, etc., and then repays the loan with its own funds. It is also the

case if, for example, a grantee borrows funds, uses these funds to pay

home energy bills or weatherize homes, etc., and then repays the loan

with Federal LIHEAP funds.

In general, benefits or services paid for with borrowed funds and

interest on those funds are not countable under the leveraging

incentive program. We clarified in the final rule that this prohibition

also applies to loans made to low-income households to help them pay

their home energy costs, including weatherization, and to loans made by

low-income households.

However, we now recognize that borrowed or repaid funds from

certain revolving loan funds and similar loan arrangements can be

countable. We revised the final rule accordingly, at Secs. 96.87(b)(3)

and 96.87(f)(2). The final rule defines ``countable loan fund'' in

Sec. 96.87(b)(3) as follows:

Countable loan fund means revolving loan funds and similar loan

instruments in which:

[[Page 21343]]

(i) The sources of both the loaned and the repaid funds meet the

requirements of this section, including the prohibitions of paragraphs

(f)(1), (f)(2), and (f)(3);

(ii) Neither the loaned nor the repaid funds are Federal funds or

payments from low-income households, and the loans are not made to low-

income households; and

(iii) The benefits provided by the loaned funds meet the

requirements of this section for countable leveraged resources and

benefits.

In this definition, ``payments from low-income households'' do not

include normal rent payments. Any interest paid on funds borrowed from

a revolving loan fund would not be countable when paid to the fund, but

could be countable when borrowed later and used for countable benefits.

An example of a countable loan fund is a resource in which a State

used oil overcharge funds in its LIHEAP program to establish a

revolving loan fund for landlords to install weatherization materials

for low-income households. The funds are used by landlords to provide

weatherization that helps the households reduce their home energy

needs, with a requirement that the landlords repay the loans to the

State. Repaid funds are then used to make loans to landlords for

additional weatherization. This has the result of increasing the amount

of weatherization carried out, with non-Federal funds and without

putting any burden on low-income households. The resources are

countable in the base period in which the weatherization takes place.

When repaid funds are used again, the additional weatherization is

countable in the base period in which it is provided. Such activities

are countable if neither Federal funds nor payments from low-income

households are used for the loans or to repay the loans, charges to the

households (including rent) are neither increased nor imposed as a

result, and all other statutory and regulatory requirements are met.

Also, as long as all requirements of Sec. 96.87 for countable

leveraged resources and benefits are met, if a grantee or other entity

borrows funds (commercially or otherwise, consistent with all

applicable laws and regulations), uses these funds to provide benefits

that would otherwise be countable, and repays the loan with countable

non-Federal funds in the base period in which the benefits were

provided, the benefits are countable based on the countable non-Federal

character of the repaid funds and the benefits' net addition to low-

income households' home energy resources.

Comments and Response

We made several changes in the final rule involving countable

petroleum violation escrow (PVE or oil overcharge) funds. Oil

overcharge funds result from settlements of cases of overcharges which

violated petroleum price controls in effect from 1973 to 1981, under

the Emergency Petroleum Allocation Act of 1973. Since 1981, over $4.5

billion in oil overcharge funds have been distributed by the Department

of Energy (DOE) to the 50 States, the District of Columbia, and most

U.S. territories; additional oil overcharge funds are expected to be

distributed in the future. LIHEAP is one of the programs under which

most of these funds can be used.

Senate Report 101-421 on the 1990 LIHEAP reauthorization law states

that the Senate Committee on Labor and Human Resources

believes there are very limited circumstances under which Petroleum

Violation Escrow Funds should be considered as leveraged resources.

Therefore, if the Secretary chooses to count Petroleum Violation

Escrow Funds as leveraged resources, he or she may only count funds

that are distributed after October 1, 1990, and that were not

previously required to be allocated to low-income households.

In the interim final rule, we defined ``countable petroleum

violation escrow funds'' in section 96.87(b) as ``petroleum violation

escrow (oil overcharge) funds that were distributed to a State or

territory after October 1, 1990, were added to and used as a part of

the State or territory's LIHEAP program, and were not previously

required to be allocated to low-income households.'' We said in the

interim rule's preamble that oil overcharge funds ``may be counted

under the LIHEAP leveragi

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