Child Care and Development Fund

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 98 and 99

RIN 0970-AB74

Child Care and Development Fund

AGENCY: Administration for Children and Families (ACF), HHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Administration for Children and Families (ACF) proposes to

amend the Child Care and Development Block Grant (CCDBG) regulations at

45 CFR Part 98. In large part, the proposed amendments respond to the

amendments made to the CCDBG Act and the Social Security Act by the

Personal Responsibility and Work Opportunity Reconciliation Act

(PRWORA) of 1996 (Pub. L. 104-193). This proposed rule additionally

includes certain selected amendments and preamble clarifications

originally proposed for the CCDBG regulations on May 11, 1994 (59 FR

24510-24527) but never issued as a final rule due to the welfare reform

initiative that resulted in PRWORA.

DATES: Interested persons and agencies are invited to submit written

comments concerning these proposed regulations no later than September

22, 1997.

ADDRESSES: An electronic version of this proposed rule can be found at

http://www.acf.dhhs.gov/programs/ccb/policy/nprm.htm for your review.

Comments on the regulation can be submitted electronically following

the directions at the site, and will be posted according to those

directions. Comments received from State Lead Agencies for child care

will also be posted on the web site as a service to the public,

regardless of the method of submission. Printed copies of the

electronic comments will be added to the file of written comments and

be available for public review during the hours described below.

Comments may also be mailed (facsimile transmissions will not be

accepted) to the Assistant Secretary for Children and Families,

Attention: Child Care Bureau, Hubert Humphrey Building, Room 320F, 200

Independence Avenue, SW, Washington, DC 20201 or delivered to that

address between 8 a.m. and 4:30 p.m on regular business days. Comments

received may be inspected during the same hours by making arrangements

with the contact person shown below.

FOR FURTHER INFORMATION CONTACT: Barbara Binker, Director, Policy

Division, Child Care Bureau, Hubert Humphrey Building, Room 320F, 200

Independence Avenue, SW, Washington, DC 20201, telephone (202) 401-

5145. Deaf and hearing-impaired individuals may call the Federal Dual

Party Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. Eastern

time.

SUPPLEMENTARY INFORMATION:

Background

Section 103(c) of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) repealed the child care programs

authorized under title IV-A of the Social Security Act--AFDC Child

Care, Transitional Child Care and At-Risk Child Care. In addition,

PRWORA amended section 418 of the Social Security Act to provide new

Federal child care funds and transfer them to the Lead Agency under the

amended Child Care and Development Block Grant Act. The funding under

section 418 is now subject to the CCDBG Act. PRWORA also amended the

CCDBG Act.

PRWORA also reformed the Federal welfare program, replacing the Aid

to Families with Dependent Children (AFDC) program with the Temporary

Assistance for Needy Families (TANF) program. Under TANF, States have

great flexibility to design programs that promote work, responsibility

and self-sufficiency, and strengthen families.

In preparing to draft this proposed rule, ACF consulted extensively

with grantees and with organizations interested in child care. In these

early, pre-drafting consultations we met with representatives of State-

level organizations, such as the National Governors' Association and

the American Public Welfare Association. We also met with

representatives of national organizations of local governments such as

the National Association of Counties, and with national organizations

such as the Children's Defense Fund and the National Association of

Child Care Resource and Referral Agencies. We held a national

teleconference with State child care administrators, and held extensive

discussions regarding the new statute at ACF's national child care

conference held in September 1996. We consulted with two on-going Child

Care Bureau work groups composed of State and tribal child care

administrators, held 10 regional conference calls with our tribal

grantees, and conducted two workshops on tribal child care issues at

ACF's Tribal Welfare Reform Conference, held in Seattle, Washington, in

October 1996. We also received a number of letters touching on possible

regulatory approaches to implementing the child care provisions of

PRWORA.

The PRWORA provides several child care funds to support low-income

families, transfers these funds to the CCDBG Lead Agency, and amended

the CCDBG Act to ensure the consistent quality of child care services

provided with these Federal funds. Therefore, consistent with the

intent of the statute, we have named the combined funds the Child Care

and Development Fund (CCDF). In this proposed rule, references to the

CCDBG have been revised to refer to the CCDF.

Goals and Purpose of the Proposed Rule

In developing this proposed rule, our primary goals were to:

--amend the CCDBG regulations in light of the child care amendments

under title VI of PRWORA,

--achieve a balance between program flexibility and accountability,

--assure the health and safety of children in child care,

--recognize that child care is a key support for work, as envisioned in

TANF, and

--clarify, streamline, simplify, and unify the Federal child care

program.

Our specific efforts toward achieving these primary goals include:

assuring that States have adequate information upon which to base their

child care payments; promoting public involvement in the Plan process;

strengthening health and safety in child care by requiring children

receiving CCDF subsidies to be age-appropriately immunized; requiring

coordination between child care Lead Agencies and agencies

administering TANF, health, education and employment programs;

streamlining the CCDF application and Plan; and providing

clarifications based on experience operating both the CCDBG program and

the now-repealed title IV-A programs.

We believe that our proposed regulatory changes respond to the

statutory changes and also represent a balancing of viewpoints in cases

where there were multiple views on a single issue. For example, in our

consultations we asked for information on how the statutory amendments

around payment rates and the concept of ``equal access'' should be

implemented. In the responses we received, there was a central tension

between the desire for complete flexibility by States to establish

child care subsidy payment

[[Page 39611]]

rates and the need to assure that the established rates promoted both

work and parental choice. To achieve balance on the issue, we propose

to give Lead Agencies the flexibility to set payments, but to require

that the rates be based on a market survey conducted no earlier than

two years prior to the effective date of the currently approved CCDF

Plan. Using this approach, we assure that Lead Agencies have an

appropriate frame of reference for establishing payments that meet the

needs of work and family.

Another issue on which we heard opposing views was the amended

public hearing requirements concerning the CCDF Plan. States and their

organizations desired complete flexibility, i.e., no further regulation

beyond the requirements that the hearing be announced with sufficient

time and statewide notice. Others with whom we consulted wanted

regulations that specified both the timing and the manner of the

notice, as well as details on the locations of the hearing. Our

proposed rule contains basic requirements on the timing of the notice

and the hearing, but we provided flexibility regarding the number,

location(s), and other details of the hearings. Here we believe we have

established a balance between the flexibility of Lead Agencies to take

into account such considerations as variations in geography and the

calendars of State legislatures, and the statute's strengthening of the

basic accountability of Lead Agencies to the public during the child

care planning process.

We continue to believe in the need for immunization of children in

child care as an essential part of health and safety. Immunization is a

critical part of what we consider to be a natural connection between

child care and healthy children, and we again propose, as we did in

1994, that children in subsidized care be age-appropriately immunized.

Since there is a natural connection between child care and healthy

children, we also are proposing a specific requirement that Lead

Agencies for child care coordinate with public health agencies,

including those responsible for immunization.

We also propose specifically to require coordination between child

care Lead Agencies and other entities that we believe are crucial to

supporting a strong child care program. Since the relationship between

the CCDF and the TANF program is especially important, we would be

requiring coordination between the CCDF agency and the TANF agency. We

also propose to require that child care consumer information provided

by the CCDF Lead Agency include information regarding the TANF agency's

implementation of the TANF exception to sanctioning a single custodial

parent with a child under age six who refuses to work due to lack of

appropriate, accessible, or affordable child care.

In addition to our proposed requirements regarding coordination

with TANF, our proposed rules include specific requirements relating to

coordination between CCDF Lead Agencies and public education,

employment, and public health agencies, including those agencies

responsible for immunizations. There are numerous opportunities for

linkages between child care and these agencies. We believe that the

connections between child care programs and these agencies are pivotal

in promoting family self-sufficiency and general well-being. It is

important, for example, that such coordination support the linkage of

families to a system of continuous, accessible health care.

Our goals in developing these proposed amendments included

clarification, simplification, and streamlining to support the strong,

unified child care system that PRWORA provides. Further, since the

changes under PRWORA necessitated Plan revisions, we chose to use this

as an additional opportunity to reorganize and simplify the application

and CCDF Plan document, and to create a separate Plan document

specifically for Tribes. We have aimed for clarity in this regulation

on a number of points. In the regulations at subparts F, Use of Child

Care and Development Funds, and G, Financial Management, we clarified

new statutory provisions regarding such areas as administrative costs,

quality, matching (including the use of pre-kindergarten funds as

match), maintenance-of-effort, and reallotment.

Finally, we are again proposing certain changes and clarifications

that were contained in an earlier proposed rule (59 FR 24510-24527, May

11, 1994). The 1994 proposed rule was published in response to requests

from States, child care providers, and organizations for certain

amendments to promote the health and safety of children receiving

subsidized care and to enable the improved coordination between the now

repealed title IV-A child care programs and the Child Care and

Development Block Grant. The enactment of the child care provisions of

PRWORA provided even greater opportunities for unifying the Federal

child care programs and made many of those proposed child care

amendments unnecessary. However, we are carrying over into this

proposed rule the changes to the CCDBG health and safety standards

included in the earlier proposed rule, and we also include the

clarification contained in the preamble to the 1994 proposed rule

regarding the availability of child care certificates. We have again

offered the clarification contained in the 1994 proposed rule regarding

inclusion of foster care in the definition of protective services and

have added clarifications regarding respite care and parental choice in

protective services cases, which we felt were necessary based on our

experience with the CCDBG program. Also, as we did in 1994, we propose

to give Lead Agencies additional flexibility in offering in-home child

care.

The rules and clarifications that we proposed in 1994 and repeated

in this proposed rule received public support at the time they were

originally proposed. In view of this support, the changes had been

planned for publication as final rule. However, our plans for

publication were overtaken by the welfare reform legislative agenda

that culminated in the passage of PRWORA. Since over two years have

passed from the date of these original proposals, however, ACF is again

soliciting comments on the amendments and clarifications that we

carried over from our 1994 proposed rule.

Statutory Authority

Section 658E of the Child Care and Development Block Grant Act of

1990 requires that the Secretary shall by rule establish the

information needed in the Block Grant Plan.

Regulatory Impact Analysis

This proposed rule has been reviewed by the Office of Management

and Budget (OMB) pursuant to Executive Order 12866. Executive Order

12866 requires that regulations be reviewed to ensure that they are

consistent with the priorities and principles set forth in the

Executive Order. The Department has determined that this rule is

consistent with these priorities and principles. An assessment of the

costs and benefits of available regulatory alternatives (including not

regulating) demonstrated that the approach taken is the most cost-

effective and least burdensome while still achieving the regulatory

objectives.

For the most part, the proposed regulations are required by PRWORA

and represent changes to the existing regulations or deletions from the

existing regulations.

As in 1994, we are again proposing a requirement that children be

immunized in order to receive services under the Child Care and

Development

[[Page 39612]]

Fund and clarifying that such immunizations be age-appropriate. The

CCDBG health and safety regulations currently require grantees to

include provisions about immunizations in their CCDBG Plans and to

provide assurances that requirements with respect to immunizations are

in place. In addition, most States already include immunizations in

their child care standards.

We do not anticipate that our proposal will have a significant

negative impact on either grantees or families, since grantees will not

be required to provide immunizations directly. The Vaccines for

Children Program, an important component of the Childhood Immunization

Initiative (CII), provides immunizations to eligible children,

including those without insurance coverage, those eligible for

Medicaid, and American Indians and Alaskan Natives. In addition, every

State receives grant funds for immunization activities, including

hiring nurses, expanding clinic hours, assessing coverage levels, and

conducting outreach. Immunization levels of children 19-35 months of

age are measured by the National Immunization Survey, the first ever

survey conducted throughout the U.S. that provides comparable State

vaccination coverage estimates.

The immunization provision was considered the most cost-effective

and least burdensome approach because: (1) it helps ensure that

vulnerable young children are age-appropriately immunized; (2)

immunization of such children is highly cost-effective; and (3) it

provides flexibility to grantees in determining how to implement the

provision.

Regulatory Flexibility Analysis

The Regulatory Flexibility Act (Pub. L. 96-354) requires the

Federal government to anticipate and reduce the impact of rules and

paperwork requirements on small businesses and other small entities.

The primary impact of these proposed rules is on State, tribal and

territorial governments. To a lesser extent the regulation could affect

individuals and small businesses. However, the number of small

businesses affected should be limited, and the expected economic impact

on these businesses would not be so significant that a full regulatory

flexibility analysis is indicated.

First, the regulations retain many provisions designed to

ensure broad participation by small businesses in the program. The

regulations still require that parents have a choice among a variety of

providers including family day care providers. These and other

provisions in the current rules will help ensure that States exercise

restraint in imposing any additional requirements on small entities

providing child care.

The proposed rule contains a number of provisions that

could result in some decrease in the regulatory and economic burdens on

providers that are small businesses. Most importantly, because States

will be required to operate their programs under a more consistent set

of program rules, participating providers will face a simpler and more

streamlined set of Federal regulatory requirements.

The providers who would potentially be most affected by

this rule are in-home providers. These providers are generally not

operating as small businesses, but as domestic employees; thus, any

impact on them need not be specifically addressed under this Act.

The regulation could ultimately result in some additional

State or tribal regulatory requirements or health and safety standards

for other providers, such as family day care providers that are small

businesses. However, the impacts on small businesses, if any, would not

be directly attributable to this regulation. With the possible

exception of the immunization provision, the regulation does not direct

any expansion of Federal, State or tribal regulatory requirements or

health and safety standards for providers; thus, any impacts on

providers should arise only as the result of independent State and/or

local decisions to impose additional requirements.

State, local and tribal governments already have authority to set

general regulatory requirements and health and safety standards for

child care providers. If States (or other grantees) believe that there

was a substantial need for additional requirements (to protect the

well-being of children in care), we would have expected them to act

under this general authority.

While States generally have immunization requirements for children

in child care, the proposed immunization provision might result in some

additional children being subject to immunization requirements or

stronger requirements for some children. However, States have

flexibility in deciding how immunization requirements are to be

implemented. Our proposal does not dictate that States impose

requirements on providers; rather, States can choose to impose them on

eligible families. Thus, the immunization provision in this proposed

rule does not necessarily affect small businesses. Further, where

States do choose to impose additional requirements on providers related

to the immunization provision, such requirements would be basically

administrative in nature (e.g., documentation); we expect the costs of

immunization to be covered through other funding sources. Thus, this

provision would not have a significant economic impact on providers.

Thus, the number of entities affected, and the net economic impact

on them, should not be significant.

Paperwork Reduction Act

Sections 98.16 and 98.81 contain the Lead Agency Plan information

requirements of the ACF-118 and ACF-118-A respectively. Sections 98.70

and 98.71 contain the information required by both the ACF-800 and ACF-

801 child care data collections. As required by the Paperwork Reduction

Act of 1995 (44 U.S.C. 3507 (d)), the Administration for Children and

Families has submitted a copy of these sections to the Office of

Management and Budget (OMB) for its review.

Title: State/Territorial Plan Pre-Print (ACF-118) and Tribal Plan

Pre-print (ACF-118-A) for the Child Care and Development Fund (Child

Care and Development Block Grant).

Description: These legislatively-mandated plans serve as the

agreement between the Lead Agency and the Federal Government as to how

CCDF programs will be administered in conformance with legislative

requirements, pertinent Federal regulations, and other applicable

instructions and guidelines issued by ACF. This information will be

used for Federal oversight of the Child Care and Development Fund.

Respondents: State governments and territories, Tribal

organizations

[[Page 39613]]

Annual Burden Estimates

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Number of

Number of responses Average Total burden

Instrument respondents per burden hours hours

respondent per response

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ACF-118................................................. 56 .5 30 840

ACF-118................................................. 240 .5 30 3,600

Estimated Total Annual Burden Hours................. ............ ............ ............ 4,440

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Title: Child Care Biannual Aggregate Report--ACF-800.

Description: This legislatively mandated report collects program

and participant data on all children and families receiving direct CCDF

services. Aggregate data will be collected and will be used to

determine the scope, type, and methods of child care delivery, and to

provide a report to Congress.

Respondents: State governments, Guam, Virgin Islands, Puerto Rico

and the District of Columbia.

Annual Burden Estimates

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

Number of

Number of responses Average Total burden

Instrument respondents per burden hours hours

respondent per response

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ACF-800................................................. 54 2 40 4,320

Estimated Total Annual Burden Hours................. ............ ............ ............ 4,320

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Title: Child Care Quarterly Unit Report, ACF-801

Description: This legislatively-mandated report collects program

and participant data on children and families receiving direct CCDF

services. Disaggregate data will be collected and will be used to

determine the participant and program characteristics as well as cost

and level of child care services. The data will be used to provide a

report to Congress. Form ACF 801 represents the data elements to be

collected and reported to ACF.

Respondents will be asked to sample the population of families

receiving benefits on a monthly basis and submit the three most current

monthly samples to ACF quarterly. Each monthly sample is drawn

independent of the other samples and retained for submission within a

quarterly report. ACF is not issuing specifications on how respondents

compile overall database(s) from which samples are drawn. ACF will

provide to the respondents a sampling plan which will specify minimum

sample size. It is expected to be a monthly sample of approximately 150

cases for large States with smaller samples based on population size

adjustments for smaller respondents.

Respondents: States, D.C., Guam, Virgin Islands and Puerto Rico

Annual Burden Estimates

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Number of

Number of responses Average Total

Instrument respondents per burden hours burden

respondent per response hours

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

ACF-801................................................. 54 4 20 4,320

Estimated Total Annual Burden Hours:................ ............ ............ ............ 4,320

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The Administration for Children and Families will consider comments

by the public on these proposed collections of information in:

--Evaluating whether the proposed collections are necessary for the

proper performance of the functions of ACF, including whether the

information will have practical utility;

--Evaluating the accuracy of the ACF's estimate of the burden of the

proposed collections of information, including the validity of the

methodology and assumptions used;

--Enhancing the quality, usefulness, and clarity of the information to

be collected; and

--Minimizing the burden of the collection of information on those who

are to respond, including through the use of appropriate automated,

electronic, mechanical, or other technology, e.g., permitting

electronic submission of response.

OMB is required to make a decision concerning the collections of

information in these proposed regulations between 30 and 60 days after

publication of this document in the Federal Register. Therefore, a

comment is best assured of having its full effect if OMB receives it

within 30 days of publication. This does not affect the deadline for

the public to comment to the Department on the proposed regulations.

Written comments to OMB for the proposed information collection should

be sent directly to the following: Office of Management and Budget,

Paperwork Reduction Project, 725 17th Street, N.W., Washington, D.C.

20503, Attn: Laura Oliven.

Proposed Amended Regulations, 45 CFR Part 98

We have chosen to present the proposed amendments by publishing a

proposal to completely revise 45 CFR Part 98. We believe that the

publication of the whole text of Part 98 will facilitate understanding

of the impact of the amendments on the regulations that are retained.

The preamble discussion

[[Page 39614]]

in this proposed rule primarily discusses the changed regulations. It

also contains certain clarifications based on ACF's experience in

implementing the prior final rule. Where regulations are retained, the

preamble explanation and interpretation of those regulations published

with the prior final rule (57 FR 34352-413, August 4, 1992) is also

retained unless specifically modified in the preamble to this proposed

rule. The following table describes in detail the substantive changes

to the amended sections. In addition, we made a number of other minor

editorial changes throughout the regulations to enhance clarity, to

reflect the change of program name from the Child Care and Development

Block Grant (CCDBG) to the Child Care and Development Fund (CCDF), and

to reflect the change from ``Grantee'' to ``Lead Agency'' for reasons

explained in this preamble at Sec. 98.2.

We have made the following changes to the regulations.

Title/heading: Part 98; Subparts--A, E and F; Sections--98.1,

98.13, 98.15, 98.43, 98.45, 98.51, 98.52, 98.53, 98.61, 98.62, 98.63,

98.64, 98.65, 98.70, 98.71, and 98.81.

Definitions: Sec. 98.2 is now an alphabetical listing.

Removed: (e), (f), (n), (o), (s), (gg), (nn) and (oo).

Added: Child Care and Development Fund (CCDF), Construction,

Discretionary Fund, Facility, Major Renovation, Mandatory Funds,

Matching Funds, Modular unit, Real property, and Tribal Mandatory

Funds.

Assurances and Certifications: Sec. 98.15 has been reorganized to

reflect the statute intent that states ``assure'' they meet certain

requirements and ``certify'' that they meet others.

Tribes: We have consolidated tribal regulations from

Secs. 98.16(b), 98.17(b) and 98.60(g) into Subpart I.

The following distribution table summarizes what has been added,

removed, revised and redesignated in 45 CFR Part 98.

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Existing section Action New section

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

Added............ 98.1(a)

98.1 (a) and (b).............. Redesignated..... 98.1 (b) and (c)

98.1(b)(7).................... Removed.......... .....................

98.1(b)(8).................... Redesignated..... 98.1(c)(7)

98.2(a), (j), (q), (mm)....... Revised.......... 98.2--Alphabetical

98.10 (b) and (e)............. Revised.......... 98.10 (b) and (e)

98.11(a) and (b)(8)........... Revised.......... 98.11 (a) and (b)(8)

98.12 (a) and (c)............. Revised.......... 98.12 (a) and (c)

Added............ 98.12 Introductory

text

98.13(a)...................... Revised.......... 98.13 (a) and (b)

98.13 (b) and (c)............. Removed

98.13(a)(10).................. Redesignated..... 98.13(c)

98.13(a)(11).................. Redesignated..... 98.13(d)

98.14 (a)-(c)................. Revised.......... 98.14(a)-(c)

98.15......................... See note above

98.16(a)...................... Redesignated..... 98.16 Introductory

text

98.16(a) (1)-(12)............. Revised.......... 98.16 (a)-(l)

98.16(a) (13)-(16)............ Removed

Added............ 98.16 (m)-(q)

98.16(a)(17).................. Redesignated..... 98.16(r)

98.17(a)...................... Revised.......... 98.17(a)

98.17(c)...................... Redesignated..... 98.17(b)

98.20(a)...................... Revised.......... 98.20(a)

98.21......................... Removed

Added............ 98.30(c)(3)

98.30(c) (3)-(5).............. Redesignated..... 98.30(c) (4)-(6)

98.30(d)...................... Removed

98.30 (e)-(g)................. Redesignated..... 98.30 (d)-(f)

98.31......................... Revised.......... 98.31

Added............ 98.32(c)

98.33......................... Revised.......... 98.33

98.40(a)...................... Revised.......... 98.40(a)

98.41(a)(1)................... Revised.......... 98.41(a)(1)

98.41 (c) and (d)............. Removed

98.41 (e)-(g)................. Redesignated..... 98.41 (c)-(e)

98.42(d)...................... Removed

98.43 (a) and (b)............. Revised.......... 98.43 (a) and (b)

Added............ 98.43(c)

98.43 (c) and (d)............. Redesignated..... 98.43 (d) and (e)

98.43 (e) and (f)............. Removed

98.45......................... Revised.......... 98.45

98.50 (a) and (c)............. Revised.......... 98.50 (a) and (c)

98.50(d)...................... Removed

Added............ 98.50 (d)-(f)

98.51 (a) and (b)............. Revised.......... 98.51(a)

98.51 (c)-(f)................. Removed

98.51(g)...................... Redesignated..... 98.51(b)

Added............ 98.51(c)

98.52 (a) and (b)............. Revised.......... 98.52(a)

98.52(c)...................... Revised.......... 98.52(c)

98.53......................... Revised.......... 98.53

98.54(a)...................... Revised.......... 98.54(a)

Added............ 98.54(b)(3)

[[Page 39615]]

98.60 (a), (d) and (f)........ Revised.......... 98.60 (a), (c) and

(e)

98.60(b)...................... Removed

98.60 (c)-(f)................. Redesignated..... 98.60 (b)-(e)

98.60 (h)-(j)................. Redesignated..... 98.60 (g)-(i)

98.61 (a) and (b)............. Revised.......... 98.61(a)

98.62(a)-(c).................. Redesignated..... 98.61 (b)-(d)

Added............ 98.61(e)

Added............ 98.62 (a) and (b)

98.63 (a) and (b)............. Redesignated..... 98.64(b)

Added............ 98.63 (a)-(c)

98.64 (a)-(d)................. Removed

Added............ 98.64 (a), (c) and

(d)

Added............ 98.65 (f) and (g)

98.67(c)...................... Revised.......... 98.67(c)

98.70......................... Revised.......... 98.70

98.71......................... Revised.......... 98.71

98.80 Introductory text....... Revised.......... 98.80 Introductory

text

98.80 (b) and (f)............. Revised.......... 98.80 (b) and (f)

98.81(a)...................... Revised.......... 98.81(a)

Added............ 98.81(b)

98.81(b)...................... Redesignated..... 98.81(c)

98.82 Introductory text....... Revised.......... 98.82 Introductory

text

98.83 (c)-(f)................. Revised.......... 98.83 (c)-(f)

98.83 (g) and (h)............. Removed

98.83(i)...................... Redesignated..... 98.83(g)

Added............ 98.84

98.90(e)...................... Revised.......... 98.90(e)

98.92(a)...................... Revised.......... 98.92(a)

98.92(b)...................... Removed

98.92(c)...................... Revised.......... 98.92(b)

98.92 (d) and (e)............. Redesignated..... 98.92 (c) and (d)

Added............ 98.92(e)

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

Subpart A--Goals, Purposes and Definitions

Goals and Purposes (Section 98.1)

This section of the regulations has been modified to incorporate

the goals for the Child Care and Development Fund (CCDF) contained in

section 658A of the amended CCDBG Act. We incorporated the goals as

Sec. 98.1(a), and we retained but moved the subparagraphs on the

purpose of the CCDF program and the regulations to Sec. 98.1 (b) and

(c), respectively.

In subparagraph (c), we eliminated the items relating to non-

supplantation and administrative costs. The PRWORA amendments

eliminated the non-supplantation requirement and, for the first time,

placed statutory limits on administrative costs. The new regulations

relating to the statutory limits on administrative costs are proposed

at Sec. 98.52.

Definitions (Section 98.2)

The amendments proposed for this section are related to changes

necessitated by the new statute, including additions and deletions. We

have made the following changes: updated the definition of the Child

Care and Development Block Grant Act to reflect it as amended; amended

the definition of a child care certificate to reflect the new statutory

language allowing the use of a certificate as a required deposit for

child care services; and amended the definition of relative child care

provider to reflect the statutory addition of great grandparents and

siblings (if living in a separate residence) as relative providers.

Since the new statute created a multi-part child care fund subject

to the provisions of the Act, we have substituted the term ``Child Care

and Development Fund (CCDF)'' for ``Block Grant.'' Use of the term

``CCDF'' reflects the multiple sources of monies with a shared purpose.

We have also defined the constituent parts of the CCDF: Mandatory

Funds, Matching Funds, Discretionary Funds, and Tribal Mandatory Funds.

The new section 658O(c)(6) of the Act provides for Tribes to use

CCDF funds for construction and renovation of child care facilities,

with the Secretary's approval. Therefore, we have proposed definition

of several new terms related to this provision: construction, facility,

major renovation, modular unit, and real property. ACF especially seeks

comments on this proposed terminology, which is a first step towards

developing program instructions on tribal applications for use of CCDF

funds for construction and renovation.

The amended Act deleted the terms ``elementary school'' and

``secondary school'' formerly found at sections 658P(3) and (10).

Therefore, we have also deleted these terms from our regulatory

definitions. In so doing, we want to emphasize that child care services

to school-aged children are still allowable under the CCDF, and we

strongly encourage Lead Agencies to continue providing such services.

Although the definitions of these terms have been removed as

unnecessary, the Lead Agency has the flexibility to retain these very

necessary services.

We have replaced separate terms for ``Grantee'' and ``Lead Agency''

with the single term ``Lead Agency.'' We did this for a number of

reasons. First, there was not a meaningful difference between those

terms. Second, we wished to remove any ambiguity that could result from

the use of two different terms. Third, we wanted to emphasize the

streamlined administration of all child care programs in a State that

resulted from PRWORA. We believe that use of the term ``Lead Agency''

conveyed that sense of unified and expanded responsibility better than

the term ``Grantee.'' Lastly, we wanted to avoid any confusion that

could arise when the State uses subgrantees in implementing the CCDF.

We have replaced the specific term ``Grantee,'' as formerly defined,

[[Page 39616]]

with ``Lead Agency'' throughout these regulations, although there

remain some instances where the word ``grantee'' appears in its common

usage.

Finally, we have eliminated the numbering to conform with Federal

Register style which requires only alphabetical order for definitions.

This will simplify any future additions or deletions to this section.

Subpart B--General Application Procedures

Lead Agency Responsibilities (Section 98.10)

The new statute did not change the responsibilities of the Lead

Agency. The amended statute at section 658D(b)(1)(A), however, expands

the CCDF Lead Agency's ability to administer the CCDF program through

other agencies. This change broadens the ability of the Lead Agency to

administer the CCDF program through governmental or non-governmental

entities, not just ``other State agencies'' as provided in the original

CCDBG Act. These entities could include local governmental agencies and

private organizations. The new statute and the Conference Agreement

report (H.R. Rep. No. 725, 104th Cong., 2d Sess. (1996)) are silent

regarding whether the non-governmental agencies cited in this statutory

change must be non-profit organizations, so ACF has not regulated on

the characteristics of the agencies through which the Lead Agency may

administer the program.

Administration Under Contracts and Agreements (Section 98.11)

Under the latest statutory amendments, the Lead Agency remains the

single point of contact and retains overall responsibility for the

administration of the CCDF program. We have amended this section,

however, to reflect the statutory change discussed at Sec. 98.10

regarding the Lead Agency's additional flexibility to administer the

program through other governmental or non-governmental agencies.

Further, since we made revisions corresponding to the added

administrative flexibility granted to the Lead Agency, we also wanted

to align the wording of this section more closely with the statute

concerning the overall, lead responsibility of the Lead Agency. Thus,

we have re-worded the paragraphs in this section that suggested that

the Lead Agency ``shares'' administration of the program with other

entities, because the relationship between the Lead Agency and other

entities through which it administers the CCDF is not co-equal.

Coordination and Consultation (Section 98.12)

Section 658D(b)(1)(D) of the Act requires the Lead Agency to

coordinate the provision of CCDF child care services with other

Federal, State, and local child care and early childhood development

programs. Coordination is crucial to the successful implementation of

child care programs and quality improvement activities. Therefore, we

propose at Sec. 98.12(a) to require the Lead Agency to coordinate its

child care services with the specific entities required at

Sec. 98.14(a) to be involved in the CCDF Plan development process:

Temporary Assistance for Needy Families (TANF), public health,

employment services, and public education.

The statutory changes under PRWORA significantly heighten the need

for enhanced coordination between TANF and child care. The new

temporary assistance program, TANF, imposes increased work requirements

both regarding the number of TANF families participating in work and

the number of hours they must work. At the same time, the guarantee of

child care for families who are in work or approved education and

training and the guarantee of Transitional Child Care program

assistance were eliminated when PRWORA repealed the title IV-A child

care programs.

Moreover, the new statute provides new child care funding and gives

the CCDF Lead Agency administrative oversight over the new funds in

addition to the funds authorized under the amended Child Care and

Development Block Grant Act. The law requires that States dedicate 70

percent of these new funds to the child care needs of families who are

receiving assistance under a State program under Part A of title IV of

the Social Security Act, families who are attempting through work

activities to transition from such assistance, and families who are at

risk of becoming eligible for such assistance. Under the new law,

Tribes also receive additional child care funding and have the option

to operate TANF programs. Tribes that operated tribal programs under

the now-repealed Job Opportunities and Basic Skills Training (JOBS)

program, may continue to operate work programs. Considered together,

these changes present both an opportunity and a challenge for Lead

Agencies to serve the child care needs of TANF families.

It is extremely important that children and their families be

linked to a system of continuous and accessible health care services,

and there are numerous opportunities for linkages between health and

child care programs. Overall coordination between child care programs

and agencies responsible for children's health is key to supporting the

healthy development of children. An ongoing Departmental initiative

encourages the linkage between child care and health care. In May 1995,

Secretary Shalala initiated the Healthy Child Care America Campaign,

which encourages States and localities to forge linkages between the

health and child care communities. Recognizing their mutually

beneficial roles, we propose to require that the Lead Agency, as part

of its health and safety provisions, assure that children in subsidized

care be age-appropriately immunized. We believe that children will

benefit substantially from this enhanced linkage we are making between

child care and health services.

Employment is the goal of most TANF families and employment

services are critical to the low-income working families served by the

CCDF. Therefore, we believe that it is only prudent that the Lead

Agency coordinate with those State agencies that are responsible for

providing employment and employment-related services. But child care is

also emerging as an important workforce development issue for the

entire population. As such, we believe that Lead Agencies should also

undertake policies that support and encourage public-private

partnerships that promote high quality child care.

Linkages with education agencies are crucial for leveraging

additional services and enhancing child development. One important

aspect of this linkage is the role played by public schools as a

critical on-site resource for child care. Although PRWORA repealed

section 658H of the Child Care and Development Block Grant Act, which

directly addressed before- and after-school child care, in the fiscal

year 1997 budget Congress nevertheless set aside $19 million

specifically to use for before- and after-school child care activities

and child care resource and referral. We, therefore, believe that the

repeal of section 658H should not result in a lessening of coordination

with before- and after-school programs. We have included requirements

to coordinate with public education agencies, both for the purpose of

child care planning and development, as well as for more general

coordination initiatives.

Aside from proposing to require Lead Agency coordination with

specific entities discussed above, we also

[[Page 39617]]

strongly encourage coordination with other agencies with potential

impact on child care, including: Head Start collaborative offices,

child support, child protective services (especially when the Lead

Agency chooses to include children receiving protective services among

the families eligible for CCDF subsidies), transportation, National

Service, and housing.

The Head Start comprehensive model of health, parent involvement,

family support and education, when linked with child care, can provide

parents and children with quality comprehensive full day/full year

services. Promising models that fund Head Start-eligible children in

community-based child care provided in child care centers and homes are

emerging across the country, and we encourage Lead Agencies to explore

and support such efforts.

Partnerships with National Service programs present promising

opportunities for collaborations that can expand and enhance child care

for both young children and school-aged children. National Service

programs have developed several effective and replicable models for

providing the tools and skills necessary to build the capacity and

sustainability of local child care programs, involving parents and

community volunteers in child care activities, and enlisting private

sector participation in meeting community needs, including child care.

The availability of transportation is key to enabling families to

access child care services and, ultimately, work. Coordination with

transportation agencies and planning groups can ensure that child care

facilities are located near major transportation modes for easier

access and that systems of public transportation support travel

patterns of low-income workers. Alleviating transportation difficulties

for child care cuts down on travel time and stress, and allows parents

to focus on achieving self-sufficiency through work and education.

Child care and child support enforcement programs serve many of the

same families and have a shared mission--to promote self-sufficiency of

families and the well-being of children. As a result, we encourage

collaborative outreach initiatives between these programs. For example,

child care programs can disseminate information to parents about

paternity establishment and child support enforcement. We also

encourage the two programs to coordinate on policy issues. For example,

the programs have a common interest in assuring that the State

guidelines used to calculate child support awards adequately consider

the cost of child care.

Coordinating with housing agencies is crucial for the millions of

TANF recipients and low-income workers who receive child care subsidies

and reside in public housing. Locating child care facilities in or near

public housing makes services more accessible, and can provide parents

with a more stable and familiar environment for their children's care.

Lead Agencies can work with public housing authorities to identify

opportunities where co-located housing and child care can serve as an

employment or entrepreneurial strategy, and a support service for

residents.

We also wish to highlight that the regulation at Sec. 98.12(c),

which requires States to coordinate, to the maximum extent feasible,

with any Indian Tribes that receive CCDF funds has new meaning in the

context of the changes made by PRWORA. As we have noted above, Tribes

are eligible to directly receive additional child care funding, and to

operate TANF as well as continue to operate work programs if they

operated a JOBS program. Nonetheless, the new law did not amend section

6580(c)(5), which specifically provides tribal children with dual

eligibility for both tribal and State child care programs funded under

CCDF. A broad range of options for implementing and designing programs

is available to both States and Tribes. States and Tribes, therefore,

have a mutual responsibility to undertake meaningful coordination in

designing child care services for Indian families.

Applying for Funds (Section 98.13)

We are proposing to simplify the application process in order to

reduce the administrative burdens of duplicative information requests

and to provide budget information in the CCDF Plan, which is a public

document. The current regulations require an annual ``application,''

separate from the Plan. This separate application must indicate the

amount of funds requested, broken down by proposed use (e.g., direct

services, administration, quality activities, etc.). A Plan that

describes the entire child care program in detail is also required, but

only once every two years. The Plan currently does not provide a

``fiscal context'' for the program, since it does not include budgetary

information.

In the past, the separate application requested extensive budget

information, largely due to the requirements related to the now-

discontinued 25 percent setaside of funds for quality and supply

building. Because we knew that the budget data was preliminary, we had

not required its inclusion in the Plan or made it subject to the

compliance process. More importantly, the budget information was not

subject to the public hearing process.

We believe that the Lead Agency, in setting the goals and

objectives of the program and in determining how to achieve them, must

consider the allocation of funds, as well as the program and

administrative activities that will be undertaken. We also believe that

public knowledge of how funds might be allocated among activities and

eligible populations is critical to the planning process. Therefore, we

are requiring the Lead Agency to include in its Plan an estimate of the

percent or amount of funds that it will allocate to direct services,

quality activities, and administration. These estimates are for the

public's consideration in the hearing process; they will not be used to

award funds. The ACF 696, when approved by OMB, will be the formal

vehicle for providing estimates to ACF for the purpose of awarding

funds.

These Plan estimates will be macro-level estimates. That is, the

Plan will reflect an estimated amount (or percentage) of funds that the

Lead Agency proposes to use for: all direct services, for all quality

activities and for administration. We will not ask that these estimates

be broken down into subcategories as we had in the separate

application. We wish to reiterate that we recognize that these are

estimates and, as such, will not be subject to compliance actions. Nor

will approval of a Plan be withheld based on the Lead Agency's

allocation of funds among activities, unless the Plan indicates that

the requirements for administrative cost or quality expenditures will

be violated.

It is because of our strong belief in full public participation in

the planning process for CCDF-funded child care services that we make

this requirement. We remind Lead Agencies that, pursuant to section

658K of the Act, they must provide information on the actual use and

distribution of funds at the end of the program period to ACF.

At Sec. 98.13(a) we have retained the requirement that the Lead

Agency apply for funds. We intend to use the financial form ACF-696 to

fulfill this requirement, so that the need for a separate application

is obviated.

We continue to request the various certifications and assurances

that are required by other statutes or regulations and that apply to

all applicants for Federal financial assistance, specifically:

Pursuant to 45 CFR part 93, Standard Form LLL (SF-LLL),

which assures that the funds will not be used

[[Page 39618]]

for lobbying purposes. (Tribal applicants are not required to submit

this form.)

Pursuant to 45 CFR 76.600, an assurance (including any

required forms) that the grantee provides a drug-free workplace.

Pursuant to 45 CFR 76.500, certification that no

principals have been debarred.

Assurances that the grantee will comply with the

applicable provisions regarding nondiscrimination at 45 CFR part 80

(implementing title VI of the Civil Rights Act of 1964, as amended), 45

CFR part 84 (implementing section 504 of the Rehabilitation Act of

1973, as amended), 45 CFR part 86 (implementing title IX of the

Education Amendments of 1972, as amended) and 45 CFR part 91

(implementing the Age Discrimination Act of 1975, as amended).

We have retained but sightly modified the requirement at Sec. 98.13

to provide that the Lead Agency, not the Chief Executive Officer, must

supply the requested information. While the Chief Executive Officer

designates the Lead Agency, we feel that it is unnecessary for the

Chief Executive Officer to thereafter apply for funding each year. This

proposed change gives grantees the flexibility to simplify the

application process further.

In summary, the proposed CCDF application process for States and

Territories consists of the two-year CCDF Plan as required in

Sec. 98.17 and such other information as may be specified by the

Secretary. For the second year of the Plan, the Lead Agency will use

financial reporting forms to provide ACF with its estimates of funds

needed quarterly--there is no longer a separate ``application'' needed

from States and Territories in the second year of the Plan period.

Accordingly, we have changed the title of this section from

``Application Content and Procedures'' to ``Applying for Funds.''

The requirements for Tribes have been moved to Subpart I and are

discussed there. We have separated the tribal requirements in order

that the discussion of tribal requirements may be more focused and

coherent.

Plan Process (Section 98.14)

Section 658D(b) of the Act requires the Lead Agency in developing

the Plan to: (1) coordinate the provision of services with Federal,

State and local child care and early childhood development programs;

(2) consult with appropriate representatives of local governments; and

(3) hold at least one hearing in the State with sufficient time and

statewide notification to provide an opportunity for the public to

comment on the provision of child care services.

In amending the CCDBG Act to require that the Lead Agency provide

``sufficient time and Statewide distribution'' of the notice of

hearing, Congress established a higher standard for public comment than

previously existed in the Act. Affording the public a meaningful

opportunity to comment on the provision of child care services advances

public participation, Lead Agency accountability and the overall goals

of welfare reform. Accordingly, we have established a minimum 20-day

notice-of-hearing requirement at Sec. 98.14(c). That is, the Lead

Agency must allow a minimum of 20 days from the date of the statewide

distribution of the notice of the hearing before holding the hearing.

Many Lead Agencies have ongoing planning processes with broad community

involvement that convene regularly during the year. We applaud such

broad participatory approaches as they are especially responsive to

changing needs and these approaches may fulfil the requirements of

Sec. 98.16.

In the interest of State flexibility, we have established only a

minimum amount of time that the public should be notified of the

hearing. However, we encourage Lead Agencies to consider providing

longer lead times that would allow the public more time to prepare for

hearings, especially when only a single hearing is held in the State.

Although the Act requires the Lead Agency to hold only one public

hearing, the Lead Agency may, of course, hold additional public

hearings.

We considered establishing regulations around the newly added

statutory language that requires ``statewide distribution of the notice

of hearing.'' Clearly, the expanded Child Care and Development Fund

potentially impacts a much wider segment of the population than may

have been the case under the CCDBG. In light of the stronger statutory

language about public hearings, we considered, for example, a

regulation to require the Lead Agency to employ specific media in

publicizing its hearing or to ensure that specific portions of the

population be potentially exposed to the hearing notice.

We rejected these and other alternatives as restricting State

flexibility. Nevertheless, we remain concerned that some Lead Agencies

may not respond to the heightened statutory requirement. We, therefore,

expect the Lead Agency to describe how it achieved statewide

distribution of the notice of hearing in its description of the hearing

process required in the Plan by Sec. 98.16(e). Although we decline to

propose a prescriptive rule in this matter at this time, we

specifically reserve the authority to regulate further if Lead Agency

Plans or actions indicate a less than ``statewide distribution of the

notice of hearing'' as exemplified above.

Similarly, we have not established a specific requirement

concerning written comments from the public. We believe, however, that

a meaningful public comment process must consider written comments from

persons or organizations, especially those who are unable to attend a

hearing.

At Sec. 98.14(c)(2) we have proposed that the hearing be held

before the Plan is submitted to ACF, but no earlier than nine months

prior to the effective date of a Plan. We recognize that States may

have established public comment mechanisms that coincide with their

budgetary cycle but not with our usual time frames for public hearings

and Plan submittal. Therefore, we wish to clarify our intention in this

area.

It is our expectation that the Lead Agency will submit at least a

draft of the Plan for public comment through a hearing. We believe

that, in some instances, the CCDF Plan may be the only public document

that summarizes the child care policy of the State. As such, the Plan

is an important part of the effort to keep the public well informed of

State policies and programs.

ACF does not believe that the public hearing is held for the

purposes of ``approving'' the Plan as it will be submitted, but rather

to solicit public comment and input into the services that will be

provided through the CCDF. For this reason, we are proposing a flexible

process that does not create an undue burden on Lead Agencies, yet

insures that the statutorily required public input is obtained.

The Plan that is submitted to ACF must reflect the program that

will be conducted and must incorporate any changes to the program that

the Lead Agency chooses to adopt as a result of the input received

during the public hearing. We advise the Lead Agency to retain a copy

of the draft Plan that it made available for public comment in

fulfillment of this requirement. We also remind Lead Agencies that

substantive changes in their programs, after their Plans are submitted

to ACF, must be reflected by amending the Plan per Sec. 98.18(b).

The potential impact of PRWORA on the child care programs in every

State cannot be underestimated. We believe the public should be

involved in creating the flexible child care systems allowed by PRWORA.

Therefore, the Plan to be submitted to ACF for the Federal Fiscal Year

beginning October 1,

[[Page 39619]]

1997, is subject to the amended statutory hearing requirement. All Lead

Agencies must conduct a new public hearing before submitting the Plan

to ACF.

As discussed above at Sec. 98.12, we believe that ongoing

coordination and consultation processes are vital to the design of a

successful program. Therefore, at Sec. 98.14(a) we have included a

minimum list of State agencies with which the Lead Agency must

coordinate the provision of services under the CCDF. The results of the

coordination with these State agencies must be reflected in each

biennial Plan submitted to ACF.

Both the public hearing and the coordination and consultation

processes must be undertaken each time the entire Plan is required to

be submitted. Although an amendment to the Plan is not subject to the

regulatory hearing requirement, State rules may require a hearing or

public comment period.

Assurances and Certifications (Section 98.15)

The PRWORA amendments made a number of changes to the assurances

under the CCDBG. In several instances the term ``assure'' was replaced

by the term ``certify.'' Also, as described below, the amendments

changed the content of two of the former assurances and some assurances

were eliminated.

While ACF believes that there is no practical difference between an

assurance or certification, when both are given in writing, the

proposed amendments have grouped the assurances together at

Sec. 98.15(a) and the certifications together at Sec. 98.15(b).

Regarding specific substantive changes, the new section

658E(c)(2)(D) of the Act replaces the former assurance regarding

consumer education. The proposed corresponding regulatory amendment at

Sec. 98.15(b)(3) uses the statutory language requiring the Lead Agency

to certify it ``will collect and disseminate to parents of eligible

children and the general public, consumer education information that

will promote informed child care choices.''

The new section 658E(c)(2)(E) does not contain prior language

requiring Lead Agencies to have in place a registration process for

unregulated care providers that provided care to children receiving

subsidized care under the CCDBG Act. We, therefore, removed the

assurance formerly found at Sec. 98.15(i). We note, however, that the

Lead Agency has the flexibility to continue to maintain a registration

process for providers if it chooses. This process has enabled States to

maintain an efficient payment system. In addition it has provided a

means to transmit relevant information, such as health and safety

requirements and training opportunities, to providers who might

otherwise be difficult to reach.

The Act also revises the requirement that providers meet all

licensing and regulatory requirements applicable under State and local

law. The revised requirement proposed at Sec. 98.15(b)(4) mirrors the

new statutory language that there be ``in effect licensing requirements

applicable to child care services provided within the State.''

For tribal programs, the amendments specifically provide that, ``in

lieu of any licensing and regulatory requirements applicable under

State and local law, the Secretary, in consultation with Indian tribes

and tribal organizations, shall develop minimum child care standards

(that appropriately reflect tribal needs and available resources) that

shall be applicable to Indian tribes and tribal organizations receiving

assistance under this subchapter'' (section 658E(c)(2)(E)(ii)). ACF is

in the process of arranging those consultations.

The PRWORA deleted requirements formerly found in the statute at

section 658E(c)(2)(H), (I), and (J). These provisions, which related to

reporting reductions in standards, reviewing State licensing and

regulatory requirements, and non-supplantation would therefore be

deleted by this proposed revised rule.

Finally, we propose at Sec. 98.15(a)(6) that States provide an

assurance that they have not reduced their level of effort in full-day/

full-year services if they use pre-K expenditures to meet the MOE

requirement, as discussed further at Sec. 98.53.

Plan Provisions (Section 98.16)

We have amended Sec. 98.16 to reflect changes in the Plan resulting

from PRWORA. For example, we have deleted the language on registration

and the calculation of base-year level-of-effort previously found at

Sec. 98.16(a)(13), (14) and (16). We substituted for them the statutory

requirements for the Lead Agency to provide detailed descriptions of

its parental complaints process at Sec. 98.16(m) and its procedures for

parental access at Sec. 98.16(n). Similarly, we have modified some

language to reflect new statutory language. For example, Sec. 98.16(h)

now discusses the additional purposes for which funds may be used, and

Sec. 98.16(l) now requests the summary of facts upon which payment

rates were determined, including the conduct of a market rate survey.

Section 98.16(c) has been expanded to include the entities designated

to receive private donated funds pursuant to Sec. 98.53(f). We have

also modified the language at Sec. 98.16(g)(2) to reflect broader

flexibility concerning the use of in-home care. This change is

addressed more fully under our discussion of parental choice later in

this Preamble. The other changes in Plan provisions are more fully

discussed in the related sections that follow.

We take this opportunity to correct the wording of Sec. 98.16(j),

formerly Sec. 98.16(a)(10), concerning health and safety requirements.

We have removed the word ``minimum'' here since the legislation

contains no such qualification, nor do our regulations limit the

flexibility to establish such requirements. We note that Sec. 98.41

remains unaffected by this correction since that section did not

include the use of the word ``minimum.''

We have also proposed to add Sec. 98.16(p), which would require the

Lead Agency to include in the CCDF Plan the definitions or criteria

used to implement the exception to TANF work requirement penalties that

applies when a single custodial parent with a child under age six has

demonstrated an inability to locate needed child care. Among others,

the definitions or criteria would include ``appropriate child care,''

and ``affordable child care arrangements.'' We elaborate on this

requirement in the discussion of consumer education at Sec. 98.33.

Finally, we propose to add Sec. 98.16(q), which provides that the

Lead Agency describe State efforts to ensure that pre-Kindergarten

programs, for which Federal matching funds are claimed, meet the needs

of working parents. This requirement is discussed at Sec. 98.53.

Period Covered by Plan (Section 98.17)

The statute was amended at section 658E(b) to eliminate the three-

year initial period for State Plans. We therefore made corresponding

amendments in this proposed rule to provide that all Lead Agencies for

States, Territories, and Tribes must submit new Plans every two years.

This process begins with the Plans to be submitted in summer 1997 for

approval for implementation on October 1, 1997. Those Plans, when

approved, will be applicable for Federal Fiscal Years 1998 and 1999.

All current Lead Agencies must submit new Plans if they wish to receive

the CCDF funds that become available on October 1, 1997.

[[Page 39620]]

Subpart C--Eligibility for Services

A Child's Eligibility for Child Care Services (Section 98.20)

General eligibility. The amended statute at 658P(4)(B) expands the

definition of ``eligible child'' to include families whose income does

not exceed 85 percent of the State median income for a family of the

same size, instead of the 75 percent level previously stipulated.

Therefore, Sec. 98.20(a)(2) is amended to reflect that change.

We amended the regulation at Sec. 98.20(a)(1)(ii) regarding the

option to serve dependent children age 13 and over who are physically

or mentally incapacitated or under court supervision. We retained the

State option to serve older children. However, our amendment removes

the reference to the definition of ``dependent child'' in the State

plan under title IV-A of the Social Security Act, since the amended

title IV-A of the Social Security Act no longer requires a State to

adopt a single definition of ``dependent child.'' We are proposing

instead that States may elect to serve children age 13 or older who are

physically or mentally incapacitated or under court supervision up to

age 19, if they include the age limit in the eligibility and priority

terminology section of their CCDF Plan.

Additionally, the statute eliminates the requirement for States to

reserve a specific portion of their funds for activities designed to

establish or expand and conduct early childhood development or before-

and after-school care programs. Therefore, the regulations providing

additional conditions for eligibility for before- and after-school and

early childhood development services at Sec. 98.21 are deleted. ACF

believes that the setaside enabled many States to develop and expand

such services. Further, the FY 1997 Appropriations Bill included $19

million in Discretionary funds which, according to the Conference

Report, H.Rpt. 104-863 (1996), were targeted specifically for resource

and referral activities and for school-age child care activities. This

action acknowledges the important role that school-age child care plays

in the lives of families. With the added flexibility under the amended

CCDBG Act States can continue to provide child care services to all

eligible children, including these targeted populations, without a

requirement that specific portions must go to any particular program.

Foster Care and Protective Services

We are clarifying that grantees have the flexibility to include

foster care in their definition of protective services in their Plan

and thus provide child care services to children in foster care in the

same manner in which they provide services to children in protective

services.

We previously distinguished between children in protective services

and children in foster care by allowing child care subsidies for foster

care only when the foster parent is working, in education or in

training. The distinction was made only in the preamble language; the

regulatory and statutory language provides for child protective

services as a separate eligibility criterion but is silent about foster

care. Therefore, this change in interpretation does not require a

regulatory change.

Under the existing regulations, a child in a family that is

receiving, or needs to receive, protective intervention is eligible for

child care subsidies if he or she remains in his or her own home even

if the parent is not working, in education or in training. In these

instances, child care serves the child's needs as much or more than the

parent's needs. In many States, Territories and Tribes, however, foster

care is an integral part of the protective services system. Some

grantees do not differentiate between protective services for families

who remain intact and for those children who are in a foster placement.

Lead Agencies electing to include foster care in their definition

of protective services are required to state so in their CCDF Plan. If

Lead Agencies do not include foster care in their definition of

protective services, they must tie eligibility for CCDF child care of

children in foster care to the status of the foster parent's work,

education or training.

We also wish to clarify the type of CCDF-funded child care services

allowable for families who also receive protective services. In the

preamble to the current regulations (57 FR 34360, Aug 4, 1992), we gave

Lead Agencies the option to allow child care for more than 24

consecutive hours when it is due to the nature of the parent's work,

and as long as the care is actually child care, not ``institutional''

services. Thus, child care normally covers a less than 24-hour period

except in instances where the work schedule of the parent(s) requires

longer periods of care.

Regarding respite child care, we said in the preamble (57 FR 34368,

Aug. 4, 1992), ``Grantees have the flexibility to allow a child

receiving, or in need of, protective services, to receive respite child

care.'' We wish to clarify that respite child care is allowable for

only brief, occasional periods in excess of the normal ``less than 24

hour period'' in instances where protective services parent(s)--

including foster parents where the Lead Agency has defined protective

service families to include foster care--need relief from caretaking

responsibilities. For example, a child care arrangement by someone

other than the custodial parent for one weekend a month to give relief

to the custodial parent(s) that are protective service families is

acceptable. We believe that this kind of respite child care, if

necessary for support to families with children in protective services,

would be an acceptable use of CCDF funds.

If a State or Tribe uses CCDF funds to provide respite child care

service, i.e., for more than 24 consecutive hours, to families

receiving protective services (including foster families when defined

as protective services families), the CCDF Plan must include a

statement to that effect in the definition of protective services. We

note this definition of ``respite child care'' may differ from how

States or Tribes define it for other purposes (e.g., child welfare).

Thus, respite child care must be specified in the Lead Agency's Plan if

it is to be considered an allowable expenditure under CCDF.

Finally, we have reconsidered our position concerning the selection

of providers in child protective services (CPS) cases. In the preamble

at 57 FR 34369, Aug. 4, 1992 we suggested that the CPS caseworker could

question, but only on a case-by-case basis, a parent's choice of

provider and could determine that the choice of provider is not in the

best interest of the child.

The children and families who receive, or who need to receive,

protective services are obviously in crisis. The CPS system must

respond quickly and appropriately, yet sensitively, to the needs of

such families--the need to protect the child should be foremost.

To meet these needs, some States have higher licensing standards

for, or established networks of, specially trained child care providers

to be used in CPS cases. In such instances, we believe that the State's

obligation to protect the child would best be accomplished by allowing

the State to require the use of such providers as the norm in CPS

cases, if the State so chooses. The parent could, nevertheless, request

another provider, which the CPS caseworker would consider on a case-by-

case basis. Because our policy was originally only stated in preamble,

no change to the regulations is required.

[[Page 39621]]

Subpart D--Program Operations (Child Care Services)--Parental Rights

and Responsibilities

Parental Choice (Section 98.30)

Cash as a certificate. Since welfare reform has raised issues about

methods of paying for child care, we wish to provide clarification with

respect to child care certificates provided in the form of cash. In

defining the term ``certificate,'' the statute at 658P(2) says, ``The

term `child care certificate' means a certificate (that may be a check

or other disbursement) that is issued by a State or local government *

* * directly to a parent who may use such certificate only as payment

for child care services or as a deposit for child care services if such

a deposit is required of other children being cared for by the

provider.''

With a certificate or two-party check, the Lead Agency can ensure

that money is paid to a provider who meets applicable health and safety

requirements. This is not the case when a Lead Agency provides cash to

a parent. We strongly discourage a cash system, because providers must

meet health and safety standards, and we believe that the use of cash

can severely curtail the Lead Agency's ability to conform with this

statutory requirement.

If, nevertheless, a Lead Agency chooses to provide cash, it must be

able to demonstrate that: (1) CCDF funds provided to parents are spent

in conformity with the goals of the child care program as stated at

section 658A of the Act, i.e., that the money is used for child care;

and (2) that child care providers meet all applicable licensing and

health and safety standards, as required by section 658E(c)(2) (E) and

(F) of the Act. Lead Agencies, therefore, may wish to consider having

parents who receive cash attest that the funds were used for child care

and to identify the provider. Such a statement would help assure that

the funds were expended as intended by the statute and lessen the

possibilities for fraud. Finally, Lead Agencies are reminded that they

must establish procedures to ensure that all providers, including those

receiving cash payments from parents, meet applicable health and safety

standards.

Availability of certificates. Section 658E(c)(2)(A) of the Act

requires States to provide assurances that parents of each eligible

child who receives or is offered CCDF child care services are given the

option of (1) enrolling their children with a provider who has a grant

or contract to provide services; or (2) receiving a child care

certificate. The Act also requires that children who are to be enrolled

in contracted slots must be placed with the provider of their parents'

choice whenever possible. This statutory requirement is reflected in

the regulations at Sec. 98.30(a). The requirement basically is repeated

at Sec. 98.30(d) (formerly Sec. 98.30(e)).

Based on our experience administering the CCDBG program, we have

found that the duplication of the certificate option in the regulations

has created some misunderstanding that the CCDBG Act gives preeminence

to certificates. We wish to clarify that repetition of the provision

should not be interpreted as giving preeminence to certificates. Both

the statute and the regulations promote parental choice, not a specific

method for achieving choice. Neither the statute nor the regulation can

be interpreted accurately as giving a preference to certificates or to

contracted slots.

If a choice of providers is denied to parents to whom services are

offered, the complaints process set forth in Sec. 98.93 provides an

appropriate mechanism for redress. The Administration for Children and

Families will respond to all complaints filed through this process.

We want to clarify that, although certificates must be an option

for parents whenever services are offered, it may not be necessary to

offer certificates whenever services are being used. For example, a

local program might not offer new child care services during some

portion of the program year because all available funds have been

assigned to participating eligible children and are being used or

``reserved'' for those specific children. Availability of funding will

continue to determine when child care subsidies are to be offered.

We want to emphasize that Lead Agencies are not precluded from

entering into grants or contracts for child care services. Depending

upon the child care needs of the eligible population in discrete

geographic markets, grants and contracts may be necessary to ensure a

stable supply of child care services. In essence, the Lead Agency must

make a good faith effort to balance the funding for grants or contracts

and certificates to ensure that parents have optimum choice among

quality child care options as stipulated in the legislation and

reinforced in the existing regulation.

In conducting on-site program reviews, we have found that Lead

Agencies are operating certificate programs that provide for parental

choice. While some offer only certificates, others commit funds on a

proportional basis between certificates and contracts based on the

particular needs of individual areas or populations. Some Lead

Agencies, for example, have found that stable child care is more

difficult to find in rural or inner-city areas, for infants, or for

children with special needs and have therefore contracted with

competent providers to address these specific shortages.

In planning the distribution of funds for grants or contracts and

certificates, Lead Agencies should ensure that parents who choose

certificates are not placed on a waiting list while substantial numbers

of contracted slots in the same area remain unutilized.

Child care administrators have told us that there are areas where

the need for subsidized low-income child care exceeds the available

resources. Thus, if certificate funds are fully reserved for children

who are already enrolled, and no subsidized slots are available, it may

be necessary to begin a waiting list for certificates. Similarly,

because many Lead Agencies allocate funds on a locality-by-locality

basis, there may be waiting lists in some areas, while services are

still available in others.

In addition to a certificate's being used for child care services,

the statute at amended section 658P(2) stipulates that a certificate

can also serve as a deposit for child care services, if such a deposit

is required of other children being served by the provider. We have

added regulations at Sec. 98.30(c)(3) to reflect this new provision.

The amendments eliminated language at section 658E(c)(2)(A)(iii)

requiring a certificate program to be in place by October 1, 1992,

since all Lead Agencies must now have a certificate program in place,

except for Tribes that are exempt under Sec. 98.83(f). We have amended

Sec. 98.30 of the regulations accordingly.

We have also amended Sec. 98.30 to reflect that section

658E(c)(2)(E) of the Act no longer requires registration of providers.

For further discussion about registration, see the preamble at

Sec. 98.45.

In-home care. In-home child care is still a required category of

care; however, since this care is provided in the child's own home it

has unique characteristics that deserve special attention. First, in-

home care is affected by interaction with other laws and regulations.

For example, in-home providers are classified as domestic service

workers under the Fair Labor Standards Act (FLSA) (29 U.S.C. Section

206(a)) and are therefore covered under minimum wage. As employees, in-

home child care providers are also subject to tax requirements. In

highlighting these special considerations, we also note that

[[Page 39622]]

whenever the FLSA and other worker protections apply, ACF is committed

to maintaining the integrity of these protections. A strong commitment

to work, and therefore to worker protections, is critical to welfare

reform.

Second, child care administrators have faced a number of special

challenges in monitoring the quality of care and the appropriateness of

payments to in-home providers. For that reason, we propose to give Lead

Agencies greater latitude to impose conditions and restrictions on in-

home care. We have revised Sec. 98.16(g)(2) to require that Lead

Agencies, in their CCDF Plans, specify any limitations on in-home care

and the rationale for those limitations.

We are mindful that in-home care plays a valid and important role

in meeting the needs of working parents, and that many participants in

subsidized care programs rely on such care to meet their family needs.

Access to care that meets the needs of individual families is

critically important to parents and children, to schools and the

workplace, and to other community institutions that interface with the

family. While in-home care represents only a small proportion of all

available care in most communities, it may be the best or only option

for some families and may prove valuable, necessary and cost-effective

when compared to other options. There are a number of situations in

which in-home care may be the most practical solution to a family's

child care needs. For example, the child's own home may be the only

practical setting in rural areas or in areas where transportation is

particularly difficult. Employees who work nights, swing shifts,

rotating shifts, weekends or other non-standard hours may experience

considerable difficulty in locating and maintaining satisfactory

center-based or family day care arrangements. Part-time employees often

find it more difficult to make child care arrangements than do those

who work full-time. Similarly, families with more than one child or

children of very different ages might be faced with multiple child care

arrangements if in-home care were unavailable. Many families also

believe that very young children are often best served in their own

homes. Given the general scarcity of school-age child care in many

communities, in-home care may enable some families to avoid latchkey

situations before school, after school, and when school is not in

session. For many families, in-home care by relatives also reflects

important cultural values and may promote stability, cohesion and self-

sufficiency in nuclear and extended families.

We urge child care administrators to consider the capacity of local

child care markets to meet existing demand and the role that in-home

care may play in the ability of parents to manage work and family life.

Although in-home care does not represent a large share of the national

supply, it fills an important niche in the structure and functioning of

local child care markets by extending the ability of parents to care

for children within their own families, closing gaps in the supply of

community facilities, and creating a bridge between adult care and

self- or sibling-care as children near adolescence.

Some Lead Agencies may choose to limit in-home care because of cost

factors. For example, a State might determine that minimum wage

requirements result in payments for in-home care serving only one or

two children that are much higher than the payments for other

categories of care. Therefore, the Lead Agency could elect to limit in-

home care to families in which three or more children require care. The

payment to the in-home provider would then be similar to the payment

for care of the three children in other settings. This ability to limit

in-home care allows Lead Agencies to recognize the same cost restraints

that families whose care is unsubsidized must face.

However, since in-home care has proven to be an important resource,

we expect Lead Agencies to consider family and community circumstances

carefully before limiting its availability. For that reason, we are

proposing that CCDF Plans specify any limitations placed on in-home

care and the rationale for those limitations.

ACF recognizes that giving Lead Agencies greater latitude to impose

conditions and restrictions on in-home care may affect parents' ability

to make satisfactory child care arrangements and thus their ability to

participate in work, education or training. We also recognize the

challenges of implementing health and safety requirements in the

child's own home, monitoring in-home providers, and complying with

Federal wage and tax laws governing domestic workers. Therefore, we are

seeking focused comments on our regulatory proposals for in-home care

and would especially appreciate suggestions on how to balance parental

choice, cost effectiveness, and adherence to other Federal and State

provisions, such as the FLSA, that are unique to in-home settings.

Parental Access (Section 98.31)

We have amended the regulations at Secs. 98.31 and 98.16(n) to

reflect the new statutory requirement at section Sec. 658E(c)(2)(B)

that Lead Agencies have in effect procedures to ensure unlimited

parental access and to provide a detailed description of those

procedures. We have also amended Sec. 98.15(b)(1) to reflect the

statutory change to certify rather than assure that procedures are in

effect to ensure unlimited access.

Parental Complaints (Section 98.32)

We have added paragraph (c) to the regulations at Sec. 98.32 and

amended Sec. 98.16 by adding paragraph (m) to reflect the new statutory

requirements at Sec. 658E(c)(2)(C) on parental complaints. Under the

changes, Lead Agencies must provide a detailed description of how a

record of substantiated parental complaints is maintained and made

available to the public on request. We have also amended the regulation

at Sec. 98.15(b)(2) to reflect the requirement of the statute at

658E(c)(2)(C) that a Lead Agency ``certify'' rather than ``assure''

that it will maintain a record of substantiated parental complaints.

Consumer Education (Section 98.33)

We have amended the regulation at Secs. 98.33 and 98.15(b)(3) to

reflect the statutory requirement at section 658E(c)(2)(D) that the

Lead Agency ``certify'' that it ``will collect and disseminate to

parents of eligible children and the general public, consumer education

information that will promote informed child care choices.'' It is

important to emphasize that the use of the words ``collect and

disseminate'' is more proactive and forceful than the former

requirement that consumer education ``be made available'' to parents

and the public. We also believe that by changing the wording, Congress

wished to emphasize the importance of consumer education as a service

to be provided by Lead Agencies. This emphasis is also stressed by the

third goal of the CCDF, listed at section 658A(b) of the amended

statute, ``to encourage States to provide consumer education

information to help parents make informed choices about child care.''

Moreover, the amendment to the reporting requirements at section

658K(a)(2)(D)--reflected in the revised regulations at

Sec. 98.71(b)(3)--requires Lead Agencies to report twice a year on the

manner in which consumer education information was provided to parents

and the number of parents that received such information.

[[Page 39623]]

The statute previously specified the type of consumer education

information that the Lead Agency had to provide: ``licensing and

regulatory requirements, complaint procedures, and policies and

practices relative to child care services within the State.'' The

statute now is less prescriptive. Consumer education information is

defined as that which ``will promote informed child care choices.''

Thus, the statute leaves it up to the Lead Agency to determine the type

of information that will help the public and parents make informed

child care choices.

While Lead Agencies have flexibility in providing consumer

education, ACF strongly encourages Lead Agencies to promote informed

child care choices by offering information about: the various

categories of care; the freedom of parents to choose the type of care

that best meets their needs; the Lead Agency's certificate system; the

rates for the various categories of care; the sliding fee scale; a

checklist of what to look for in choosing quality care; providers with

whom the Lead Agency has contracts for care; the basic health and

safety regulations that all providers must meet; the Lead Agency's

policy regarding its file of substantiated complaints by parents that

is available upon request as required by Sec. 98.32; and local resource

and referral agencies that can assist parents in choosing appropriate

child care.

The best child care arrangements are developed in one-on-one

consultation with trained or experienced counselors. Professional help

with locating child care is time-and cost-efficient for both families

and Lead Agencies. Thus, it may be in the Lead Agency's interest to

invest in strategies such as co-location of child care resource and

referral counselors in work development offices or agencies. Economists

make the argument that good consumer information is critical to making

the child care market function more like other markets. Moreover,

experience has shown that printed materials alone may not always be a

sufficient information source, particularly if parents have low

literacy rates.

Exception to Individual Penalties in the TANF Work Requirement

Title I of the PRWORA amends Title IV-A of the Social Security Act

and replaces the Aid to Dependent Children (AFDC) with a new block

grant program entitled Temporary Assistance for Needy Families, or

TANF. The new section 407(e)(2) addresses an exception to the work

requirement in the TANF program and provides that a State may not

reduce or terminate TANF assistance to a single custodial parent who

refuses to work when she demonstrates an inability to obtain needed

child care for a child under six, because of one or more of the

following reasons:

(1) Unavailability of appropriate child care within a reasonable

distance from the individual's home or work site;

(2) Unavailability or unsuitability of informal child care by a

relative or under other arrangements;

(3) Unavailability of appropriate and affordable formal child care

arrangements.

The TANF penalty exception underscores the pivotal role of child

care in supporting work and also recognizes that the unavailability of

appropriate, affordable child care can create unacceptable hardships on

children and families. Since Congress provided that the new Mandatory

and Matching child care funding be transferred to the Lead Agency under

the CCDF and also provided that at least 70 percent of the new funding

must be spent on families receiving temporary assistance, in transition

from public assistance, or at risk of becoming eligible for public

assistance, the Lead Agencies will be playing a dominant role in

providing the child care necessary to support the strong work

provisions found in TANF. It is critical, therefore, that CCDF Lead

Agencies help disseminate information about the TANF exception.

Knowledge of this exception on the part of parents also will be very

important in promoting informed child care choices.

Therefore, we propose to require that Lead Agencies include

information about it in their consumer education programs. This

responsibility entails informing parents that: (1) TANF benefits cannot

be reduced or terminated for parents who meet the conditions as

specified in the statute and as defined by the TANF agency; and (2) the

time during which an eligible parent receives the exception will count

toward the time limit on benefits stipulated by the statute at section

408(a)(7).

In order for a Lead Agency to comply with this requirement, it will

need to understand how the TANF agency defines and applies the terms of

the statute to determine that the parent has a demonstrated inability

to obtain needed child care. The elements that require definition

consist of: ``appropriate child care,'' ``reasonable distance,''

``unsuitability of informal care,'' and ``affordable child care

arrangements.''

In our pre-regulatory consultations, some groups urged us not only

to ensure that the CCDF agency disseminates information about the TANF

penalty exception but to regulate the content of the definitions or

criteria used to determine if a family is unable to obtain needed child

care. The approach we have taken in this proposed rule provides

flexibility and strikes an appropriate balance between the roles of the

CCDF and TANF agencies. We recognize the flexibility of the TANF

program to define the terms established by the statute. However, we

strongly encourage TANF agencies to define ``appropriate care,'' at a

minimum, as care that meets the health and safety standards of the CCDF

program, specified at Sec. 98.41. The definition should also take into

account the results of many studies that show the value of quality

child care for low-income children and the benefits to many of these

children from more enriched child care.

We are requiring, under Sec. 98.12 of the regulations, that Lead

Agencies coordinate with TANF programs to ensure, pursuant to

Sec. 98.33(b), that case workers, eligibility workers, and others who

work with TANF recipients in both the TANF and the CCDF programs will

inform families with young children of their right not to be sanctioned

if they meet the criteria set forth in the statute and plan. As part of

this coordination, at Sec. 98.16(p) we are requiring that the Lead

Agency include in its plan the definitions or criteria the TANF program

has adopted in implementing this exception to the work requirement.

The new section 409(a)(11) of the SSA specifies that if the TANF

program sanctions parents who are eligible for this exception to the

individual penalties associated with the TANF work requirements, it may

incur a penalty of up to five percent of its grant. Therefore,

coordination between the Lead Agency and the TANF program in this

matter will serve the best interests both of the recipients of TANF

benefits and the service agencies themselves. ACF will issue proposed

rules on the TANF penalty provisions later this year.

Subpart E--Program Operations (Child Care Services)--Lead Agency and

Provider Requirements

Compliance with Applicable State and Local Regulatory Requirements

(Section 98.40)

We have amended the regulations at Sec. 98.40(a) to reflect a

change in Section 658E(c)(2)(E)(i) of the Act. The amendment requires

Lead Agencies to certify that they have in effect licensing

requirements applicable to child care services, and to provide a

detailed description of those requirements and of how they are

effectively enforced. This

[[Page 39624]]

change is also reflected in Secs. 98.15 and 98.16. The statute notes,

however, that these licensing requirements need not be applied to

specific types of providers of child care services.

Because amendments to section 658P(5)(B) have eliminated the

requirement for registration of unlicensed providers serving families

receiving subsidized child care, we have deleted the former regulation

Sec. 98.40(a)(2) requiring registration. This change, however, does not

prevent Lead Agencies from continuing to register unlicensed or

unregulated providers, and we encourage them to do so. Those Lead

Agencies that choose not to have a registration process will be

required to maintain a list of providers. We discuss this in more

detail at Sec. 98.45.

Health and Safety Requirements (Section 98.41)

Section 658E(c)(2)(F), as amended, requires a Lead Agency to

certify, rather than assure, that health and safety regulations

applicable to child care providers are in place. We have amended the

regulations at Secs. 98.41(a) and 98.15(b)(5) to conform with the

amended statute.

We propose to amend the regulation at Sec. 98.41(a)(1) to require

that States and Territories incorporate in their health and safety

provisions (by reference or otherwise) the latest recommendations for

childhood immunizations of their respective State or territorial public

health agency. While many State and territorial public health agencies

adopt the recommendations of the Advisory Committee on Immunization

Practices (ACIP) of the Centers for Disease Control and Prevention

(CDC), we wish to emphasize that this proposed new requirement does not

impose Federal standards for immunization but allows for decision of

the individual State or Territory regarding immunization requirements.

The proposed new immunization requirements at Sec. 98.41(a)(1)

apply only to States and Territories. While tribal Lead Agencies must

meet health and safety requirements that address the prevention and

control of infectious diseases (including immunizations), they do not

have to meet the specific immunization requirements that apply to

States and Territories. In the proposed rule published May 11, 1994 (59

FR 24510), which was never finalized, ACF proposed specific

immunization requirements for Tribes. However, consistent with the

amendments in PRWORA, we have not included those specific requirements

in this proposed rule. We anticipate that tribal immunization

requirements will be addressed in the minimum child care standards that

are being developed by ACF in consultation with Indian Tribes and

tribal organizations. New section 658E(c)(2)(E)(ii) of the CCDBG Act

requires the development of minimum child care standards for Indian

Tribes and tribal organizations.

Our youngest and most vulnerable children remain at risk for

vaccine-preventable diseases. The measles epidemic of 1989-1991

resulted in more than 55,000 reported cases of the disease, 11,000

hospitalizations, and more than 130 deaths. Half of those who died were

infants. Although immunization rates for two-year-olds are now at an

all-time high of 76 percent, and vaccine-preventable diseases are at an

all-time low, more than one million two-year-olds still are not

adequately protected. Childhood vaccines protect young children against

infectious diseases that could lead to serious illness and deaths. Data

reveal that by age two, when children should have received most of

their vaccines, more than 24 percent of American children are not

adequately protected against childhood diseases. Over one million

children need at least one dose of polio vaccine; 640,000 children

require a dose of MMR (measles/mumps/rubella); and about 530,000

children have not received all their pertussis shots.

Since a large percentage of children receiving child care

assistance are under five years of age, we believe that the

immunization requirement will have a positive impact in reducing the

incidence of infectious diseases among preschool age children. Vaccines

are the most cost-effective way to prevent childhood diseases.

Nationally, approximately $10.00 are saved in direct medical costs for

every dollar spent on the measles/mumps/and rubella (MMR) vaccine,

$6.00 are saved for every dollar spent on the diphtheria/tetanus/

pertussis (DTP) vaccine, and $3.00 are saved for every dollar spent on

the oral polio vaccine (OPV). For every dollar spent on immunization,

as much as $29.00 can be saved in direct and indirect medical costs.

In requiring children to be age-appropriately immunized, we

considered that parents may not always be able to access immunizations

easily. However, a number of national initiatives are under way to

promote immunizations for all children. In response to disturbing gaps

in the immunization rates for young children in America, a

comprehensive Childhood Immunization Initiative (CII) was developed.

CII addresses five areas:

--Improving immunization services for needy families, especially in

public health clinics;

--Reducing vaccine costs for lower-income and uninsured families,

especially for vaccines provided in private physician offices;

--Building community networks to reach out to families and ensure that

young children are vaccinated as needed;

--Improving systems for monitoring diseases and vaccinations; and

--Improving vaccines and vaccine use.

The CDC and its partners in the public and private sectors are

working to build a comprehensive vaccination delivery system. The goals

of the CII are to ensure that at least 90 percent of all two-year-olds

receive each of the initial and most critical doses, to reduce diseases

preventable by childhood vaccination to zero, and put in place a system

to sustain high immunization coverage. Since 1994, the National

Immunization Survey (NIS) has been used to provide immunization

coverage estimates for all 50 States and 28 large urban areas.

As part of the efforts in the CII, immunization programs on the

State and local level are collaborating with WIC programs (Special

Supplemental Food Program for Women, Infants, and Children) to focus on

children's immunization. For example, local WIC clinics check the

immunization records of WIC participants, assist families to find a

primary health care provider, and provide immunization information. On-

site immunization services are sometimes also provided at local WIC

clinics.

On September 30, 1996, the CDC awarded funds ranging from $130,000

to $250,000, to education agencies in four States (New York, South

Dakota, West Virginia, and Wisconsin) to deliver immunization services

to preschool-aged children in health centers at elementary schools.

Over the past four years, welfare reform waivers were granted to 18

States to allow them to require parents to immunize their children as a

condition of receiving assistance.

Surveys of licensed child care facilities indicate that the

majority of States require some proof of immunizations for children

enrolled in licensed or regulated child care centers and family day

care homes. However, individual States differ in their specific

requirements and regulatory approaches, and requirements for the

immunization of children in child care settings that are exempt from

licensure or other regulatory provisions vary widely.

[[Page 39625]]

Lead Agencies have the flexibility to determine the method they

will use to implement the immunization requirement. For example, they

may require parents to provide proof of immunization as part of the

initial eligibility determination and again at redetermination, or they

may require child care providers to maintain proof of immunization for

children enrolled in their care. The requirements established by the

Lead Agency will generally be applicable to all children receiving CCDF

assistance and in all child care settings. However, States have the

option to exempt the following groups:

Children who are cared for by relatives (defined as

grandparents, great grandparents, siblings--if living in a separate

residence--aunts and uncles);

Children who receive care in their own homes;

Children whose parents object on religious grounds; and

Children whose medical condition contraindicates

immunization.

While families are taking the necessary actions to comply with the

immunization requirements, Lead Agencies must establish a grace period

during which children can continue to receive child care services.

Finally, we encourage all Lead Agencies to consider requirements

that provide for documenting regular updates of a child's

immunizations.

Section 98.30(f) (2) and (3) prohibit any health and safety

requirements from having the effect of limiting parental access or

choice of providers, or of excluding a significant number of providers.

We do not think these new immunization requirements will have such an

effect. Rather, we are convinced that, when applied to all providers,

they will have the effect of enhancing parental choice of providers,

since all providers will have the same requirements. More importantly,

however, the requirements will promote better health for children,

their families, and the public.

Other revisions. Based on former statutory provisions,

Sec. 98.41(c) of the 1992 regulations required a Lead Agency to include

in its annual report a rationale for any reduction it might have made

in standards applicable to child care, and paragraph (d) required each

Lead Agency to review the licensing requirements of each licensing

agency in the area served by the Lead Agency and report its findings in

its first or second annual report. We have deleted both these

requirements because of changes in the statute at section 658E(c)(2)

(H) and (I).

Pursuant to section 658P(5)(B) of the amended statute, we have

added ``great grandparents, and siblings (if such providers live in a

separate residence)'' to the list of relatives who, at State option,

may be exempted from the health and safety requirements at

Sec. 98.41(e) and to the definition of ``eligible child care provider''

at Sec. 98.2.

Sliding Fee Scales (Section 98.42)

We have simplified Sec. 98.42 of the regulations by removing

separate references to services under Secs. 98.50 and 98.51.

For a further discussion of copayments, see Sec. 98.43.

Equal Access (Section 98.43)

We have changed the title of this section to ``Equal Access,'' from

``Payment Rates,'' because the amended CCDBG Act now focuses on equal

access for families receiving subsidies to child care services. Under

the amendments, Lead Agencies are required to certify that payment

rates are sufficient to provide access to child care services for

eligible families that are comparable to those provided to ineligible

families. The amended section 658E(c)(4)(A) also requires the Lead

Agency to provide a summary of the facts relied on to determine that

its payment rates are sufficient to ensure equal access.

The proposed regulation at Sec. 98.43(b) requires a Lead Agency to

show that it considered the following three key elements in determining

that its child care program provides equal access for eligible families

to child care services:

1. Choice of the full range of categories and types of providers,

e.g., the categories of center-based, group, family, in-home care, and

types of providers such as for-profit and non-profit providers,

sectarian providers, and relative providers as already required by

Sec. 98.30.

2. Adequate payment rates, based on a local market survey conducted

no earlier than two years prior to the effective date of the current

Plan; and

3. Affordable copayments. These elements must be addressed in the

summary of facts submitted in a Lead Agency's biennial Plan, pursuant

to Sec. 98.16(l).

1. Full range of providers. All working parents, regardless of

income, need a full range of categories and types of providers from

which they may choose their child care services, because their child

care needs vary considerably according to the child's age and special

needs, the parents' work schedule, provider proximity, cultural values

and expectations. Therefore, we believe that the statutory requirement

of equal access means that low-income working parents receiving CCDF-

subsidized care must have a full range of the categories and types of

providers from which to choose care that they believe best meets their

needs and those of their children. The parental choice requirements at

Sec. 98.30 already require that parents who receive certificates be

afforded such variety.

2. Adequate payment rates. The statute at section 658E(c)(4)(A)

eliminated the requirement that, in establishing payment rates, the

Lead Agency take into account variations in the cost of providing care

in different categories of care, to different age groups, and to

children with special needs. We have amended Sec. 98.43 to conform with

the statute. However, while eliminating the requirement for different

payment rates for different categories of care, Congress added a

requirement that Lead Agencies provide ``a summary of the facts relied

on by the State to determine that such rates are sufficient to ensure

such [equal] access.''

The statute suggests that if families receiving child care

subsidies under the CCDF are to have equal access to child care, the

payment rates established by a Lead Agency should be comparable to

those paid by families who are not eligible for subsidies. In other

words, the payment rates should reflect the child care market. Although

the statute has changed, the reality remains that the market reflects

differences along several dimensions, and we do not believe that

Congress expected Lead Agencies to establish a single payment rate for

all types of child care.

Child care is often the major factor in whether families are able

to work--and access to a variety of child care arrangements is

necessary both to support today's increasingly diverse workforce and

workplace demands, and to ensure that the healthy development of

children is not compromised. The focus of PRWORA on work further

highlights the need for CCDF Lead Agencies, which now are required by

statute to administer the new Mandatory and Matching Funds, to

establish payment rates that support work as well as enable the

developmental needs of children to be met.

The major variable in the cost of child care is the age of the

child, especially the added expense of caring for infants and very

young children. Under PRWORA, many more families with infants and pre-

school-aged children will be required to participate in work activities

for longer hours per week. Payments that do not reflect the expense of

caring for very young children will frustrate the ability of families

to work. In providing the exception to the

[[Page 39626]]

individual penalties under TANF for single custodial parents with a

child under age six who cannot obtain needed child care, Congress

recognized the special difficulties of locating care for young

children. We have proposed a consumer education provision at Sec. 98.33

that recognizes the relationship between the TANF provision and the

responsibilities of the CCDF Lead Agency. Consequently, we also expect

Lead Agencies to ensure that their payment rates reflect the market

rate variations in the cost of providing child care to different age

groups as well as the additional costs of providing care to children

with special needs. We anticipate that market rate surveys will also

show variations in rates among categories of care, and we expect any

significant variations to be reflected in the Lead Agency's payments.

A system of child care payments that does not reflect the demands

of the market makes it economically infeasible for many providers to

serve low-income children. This undermines the statutory and regulatory

requirements of equal access and parental choice. Experience with the

now-repealed title IV-A child care programs and the CCDBG suggests that

providers limit their enrollment of children with subsidies because the

subsidy payments were too low. Similarly, failing to compensate

providers timely or not reimbursing them for days when children are

absent also causes providers to refuse care to children with subsidies.

At Sec. 98.43(c) we have added a provision prohibiting different

payment rates based on a family's eligibility status or circumstances.

This provision means that the Lead Agency may not establish payments

for TANF families that differ from the payments for the families of the

working poor, or for families in education or training, for example. We

believe that multiple payment rates based on an eligibility status

precludes the statutorily-required equal access to child care for

families receiving CCDF subsidies. Additionally, such multiple payment

rates would frustrate one of the main intents in amending the Act--to

have a unified child care system with only a single set of rules. This

purpose would be undercut if different payment rates based on

eligibility criterion were permitted.

With the exception of payments for children with special needs, who

sometimes require services on a highly individualized basis, we believe

that a survey of market rates is the only methodologically sound way

for Lead Agencies to gather the facts necessary to establish payments

that are realistic and thus provide the required equal access for low

income families. Implementation of this provision should not be a

burden to States, which were required to conduct local market surveys

in implementing the now-repealed title IV-A child care programs. We

also know from comparing State plans for the two programs, that the

great majority of States used the IV-A payment rates for subsidies

provided under the Child Care and Development Block Grant. Thus, States

have had a number of years' experience with the survey process. States

retain the flexibility to design such surveys; we have not proposed a

survey methodology.

We propose that Lead Agencies conduct such a survey biennially to

ensure that their payments reflect reasonably current market

conditions. We have amended the regulations at Secs. 98.43(b)(2) and

98.16(l) to include this proposed requirement. Lead Agencies must

provide evidence in the biennial Plan to show that a local market rate

survey was conducted no earlier than two years prior to the effective

date of the currently approved Plan, together with an explanation of

how the survey was conducted.

We have not established specific requirements for the payments

established by Lead Agencies. Lead Agencies have the flexibility to

establish payments, based on a biennial survey, which provide CCDF-

subsidized families with equal access to the full range of care in

their areas. We would consider parents to have equal access, however,

if payments are established at least at the 75th percentile of the rate

in the child care market. States and families have both recognized that

the 75th percentile, which we required in the now-repealed title IV-A

child care programs, generally provided families receiving subsidies

with a range of care that was adequate to support their work schedules

and the needs of their children.

Since the requirement to conduct a market survey biennially is

intended to ensure that payments reflect reasonably current market

conditions, lengthy delays between the survey and basing the payments

on that survey would undermine the intent of the requirement.

Therefore, we propose that a Lead Agency conduct its survey no earlier

than two years prior to the effective date of the currently approved

Plan; and payments derived from that survey must be in place no later

than the beginning of the second year of the Plan for which the survey

was conducted. The survey will be the basis for payments for only two

years.

We propose to revise Secs. 98.43 and 98.16 to remove the ten

percent limit on payment differences within a category of care. We also

propose to remove the reference to limits on payment differences in

Sec. 98.16. This revision recognizes the change in focus of the statute

to a factual basis for the establishment of payments and the

elimination of the requirement to establish payment rates by category

of care. It will also provide Lead Agencies the flexibility to

recognize and compensate higher quality child care facilities and

providers, including those that have obtained nationally recognized

accreditation or special credentials. This will also give the Lead

Agency the flexibility to address possible shortages of certain types

of care--for example, care during non-traditional hours or on

weekends--when the survey results for this care are incomplete, not

obtainable, or contradict the agency's experience in providing such

care.

3. Affordable copayments. The third essential element of equal

access is that any copayment or fee paid by the parent is affordable

for the family and sliding fee scales should not be designed in a way

that limits parental choice. We wish to emphasize that Lead Agencies

have flexibility in establishing their sliding fee scales. However, in

our view, copayment scales that require a low-income family to pay no

more than ten percent of its income for child care, no matter how many

children are in care, will help ensure equal access.

Recent reports by the Census Bureau indicate that families with

income below the poverty level pay a disproportionate share of their

income--18 percent--for child care; whereas families above the poverty

level pay only seven percent of their income for child care. The size

of the fee paid by a low-income working parent can be crucial in

determining whether she and her family become, and remain, self-

sufficient. When devising the fee scale Lead Agencies should try to

ensure that small wage increases do not trigger large increases in

copayments, lest continuation on the path to self-sufficiency be

jeopardized for any family. The size of a fee increase is an especially

important consideration because recent changes in the Food Stamp,

housing assistance, Medicaid, SSI, and the Earned Income Credit

programs may also affect the resources now available to a low-income

working family.

Sliding fee scales must continue to be based on family size and

income, as currently required at Sec. 98.42(b). While Lead Agencies

have flexibility to take

[[Page 39627]]

additional elements into consideration when designing their fee scales,

basing fees on the cost or category of care could violate the statutory

requirements of equal access and parental choice. Similarly, multiple

fee scales based on factors such as a family's eligibility status would

be precluded.

List of Providers (Section 98.45)

We have renamed this section ``List of Providers'' because the

amendments to section 658(E)(c)(2)(E) of the Act eliminated the

language on the registration of unlicensed or unregulated providers. We

have also deleted the requirement at Sec. 98.16 to describe the

registration process in the biennial Plan.

At Sec. 98.45, however, we propose to require any Lead Agency not

having a registration process to maintain a list of the names and

addresses of all unregulated providers. It is essential that Lead

Agencies have some simple, standardized system to record the names and

addresses of unlicensed providers in order to pay them and to provide

them with pertinent information about health and safety regulations and

training.

The regulations would no longer specifically require Lead Agencies

to have a registration process for providers not licensed or regulated

under State or local law before paying them for child care services.

However, Lead Agencies should note that they may continue such a

system, and we strongly encourage them to do so.

Subpart F--Use of Block Grant Funds

Child Care Services (Section 98.50)

The 70 percent requirement. Section 418(b)(2) of the PRWORA

specifically requires the State to ensure that not less than 70 percent

of the funds received by the State are used to provide child care

assistance to families who are receiving assistance under a State

program under Part A of title IV of the Social Security Act, families

who are attempting through work activities to transition off of such

assistance program and families that are at risk of becoming dependent

on such assistance program. We wish to clarify that the 70 percent

requirement applies only to the Mandatory and Matching Funds. Further,

the amended statute at 658E(c)(2)(H) requires the State to demonstrate

in its CCDF plan the manner in which the State will meet the specific

child care needs of these families.

States have great flexibility in designing a single comprehensive

program to serve families. The need to coordinate and consult closely

with the TANF program has been discussed at length in Subpart A of the

preamble. In our consultation process we heard concerns that further

regulations regarding the 70 percent requirement could hamper the

State's ability to coordinate and develop a comprehensive program. We

therefore will not regulate beyond the statutory language of this

provision but have amended the regulation by adding the statutory

provisions at Sec. 98.50 (e) and (f).

Serving other low-income working families. Section 658E(c)(3)(D) as

amended directs the State to ensure that a ``substantial portion'' of

the amounts available (after a State has complied with the 70 percent

requirement discussed above) is used to provide assistance to low-

income working families other than those who are receiving assistance,

transitioning off assistance or at risk of becoming dependent on

assistance under Part A of title IV of the Social Security Act.

Since the income level for eligible children is increased in the

statute to 85 percent of the State median income, it is clear that

Congress intended for child care assistance to be available to more

low-income working families than were previously eligible. We believe,

however, that families whose income is less than 85 percent of the

State median income may well be at risk of becoming dependent on

assistance. Thus the two populations overlap.

The regulation at Sec. 98.50(e) now provides the statutory

description of the families who are to be served under the 70 percent

provision. In addition Sec. 98.50(f) is added to require the State,

pursuant to the statute, to specify in its plan how the State will meet

the needs of these families. We believe, based on our consultations,

that the circumstances of low-income working families (whose income is

below 85 percent of the State median income) are no different than the

families specifically mentioned in those regulations and thus would

expect that they would be treated similarly.

Since States are required to collect and report data concerning

family income, including the number of families who are receiving

temporary assistance under title IV of the Social Security Act, ACF

will have the opportunity to monitor such reports to determine whether

States are serving both welfare and at-risk families as the statute

intends. Additionally, ACF will have the CCDF Plan, which includes the

manner in which the State will meet the needs of families receiving

assistance, transitioning off assistance or at risk of becoming

dependent on assistance under Part A of title IV of the Social Security

Act.

We therefore do not plan to require additional definitions of these

populations. However, if the State elects to have a specific

description of at-risk families, it could, for example, be included

when defining very low income or in providing additional terminology

related to conditions of eligibility or priority in the CCDF plan.

Activities to Improve the Quality of Child Care (Section 98.51)

Not less than four percent. Section 658G of the CCDBG Act was

amended to direct that a State that receives CCDF funds shall use not

less than four percent of the amount of such funds for activities to

improve the quality of child care and availability of child care (such

as resource and referral services). Section 98.51(a) provides that the

not less than four percent requirement for quality applies to the

aggregate amount of expenditures (i.e., Discretionary, Mandatory, and

both the Federal and State share of Matching funds); it need not be

applied individually to each of the component funds. Section 98.51(a)

also provides that the four percent requirement applies to the funds

expended, rather than the total of funds that are available but may not

be used. Lead Agencies, however, have the flexibility to spend more

than four percent on quality activities. Section 98.51(c) provides that

the quality expenditure requirement does not apply to the maintenance-

of-effort expenditures required by Sec. 98.53(c) in order to claim from

the Matching Fund.

The statute details specific activities that may be undertaken:

activities designed to provide consumer education to parents and the

public; activities that increase parental choice; and activities

designed to improve the overall quality and availability of child care.

ACF believes that activities that provide parents and the public with

information about child care options will help to improve the quality

of child care. As the public learns more about the need for and

benefits of quality child care, we expect that the availability of

quality child care will also expand, creating increased choices for

parents.

The statute formerly provided five examples of activities to

improve the quality of child care. These included resource and referral

programs (cited in the amended statute), grants or loans to assist in

meeting state and local standards, monitoring of compliance with

licensing and regulatory requirements, training, and compensation.

These activities continue

[[Page 39628]]

to be allowable quality activities under this minimum four percent

requirement.

Lead Agencies have used these activities over the years to improve

the quality of child care and we believe that they can continue to be

used successfully. We also want to provide Lead Agencies with increased

flexibility to develop other successful strategies by not restricting

their options. We have added, therefore, regulations at Sec. 98.51(a)

based on the broad statutory language, while retaining the former

options for specific activities. We will continue to collect, in the

plan, descriptions of activities to improve the quality of child care

services. We encourage Lead Agencies to evaluate the success of their

efforts to improve quality and will disseminate promising practices.

States will need flexibility to design a child care delivery system

that is customized to the needs of their families and that includes

flexibility in the choice of activities that will improve the quality

of child care. Since the requirement is expressed as a baseline it is

clear that quality activities are important and must be included in

developing a comprehensive plan.

Administrative Costs (Section 98.52)

Section 658E(c)(3)(C) of the amended Act limits the amount of funds

available for the administrative costs of the CCDF program to ``not

more than five percent of the aggregate amount of funds available to

the State.'' Section 98.52(a) provides that the five percent limitation

on administrative costs applies to the funds expended, rather than to

the total of funds that are available but which may not be granted or

used. Thus, Lead Agencies may not use five percent of the total funds

available to them for administrative costs unless they use all the

available funds including Matching Funds.

This provision also makes clear that the five percent limitation

applies to the total Child Care and Development Fund. The five percent

limitation need not be applied individually to each of the component

funds--the Discretionary, Mandatory, and Matching (including the State

share) Funds. We believe this flexibility will streamline the overall

administration of the Fund. The limitation does not apply to the

maintenance-of-effort expenditures required by Sec. 98.53(c) in order

to claim from the Matching Fund.

Section 98.52(a) lists administrative activities and is derived

from the current regulations as modified by the PRWORA amendments and

the Conference Agreement (H.R. Rep. 104-725 at 411). While the statute

does not define administrative costs, it does preclude ``the costs of

providing direct services'' from any definition of administrative

costs.

The Conference Agreement specifies that the following activities

``should not be considered administrative costs'':

(1) Eligibility determination and redetermination;

(2) Preparation and participation in judicial hearings;

(3) Child care placement;

(4) The recruitment, licensing, inspection, reviews and supervision

of child care placements;

(5) Rate setting;

(6) Resource and referral services;

(7) Training [of child care staff]; and

(8) The establishment and maintenance of computerized child care

information systems.

Therefore, we have deleted from the current regulation's list of

administrative activities at Sec. 98.52(a) three activities:

determining eligibility, establishing and operating a certificate

program, and developing systems (formerly Sec. 98.52(b)(1) (i), (iii),

and (vi) respectively). We deleted ``establishing and operating a

certificate program'' as an administrative activity, even though it was

not listed in the Conference Agreement, because it appears that most of

the components of a certificate program would not be considered to be

administrative costs per the Conference Agreement. For example,

certificate programs must determine and redetermine eligibility,

provide the public with information about the program, develop and

maintain computer systems, place children, offer resource and referral

services, etc. Although we believe that many of the costs of a

certificate program are not administrative, Lead Agencies must examine

their certificate programs and ascribe to administrative cost those

activities that are clearly administrative per Sec. 98.52(a). Lead

Agencies may wish to examine the components of other activities in this

manner to ensure that they are correctly considering administrative

costs in accordance with Sec. 98.52(a) and the Conference Agreement.

While these proposed regulations reflect the Conference Agreement

language, we are nevertheless concerned that States will misinterpret

the intent of the change and re-direct a disproportionate amount of

expenditures on these redesignated activities rather than on direct

services to children. We wish to emphasize that services to children is

the purpose for which the CCDF was created. Therefore, we would not

expect a large increase in costs to activities that are not direct

services to children. We will closely monitor such expenditures to

determine if States are overspending for such activities at the expense

of services. As one method of monitoring, we intend to require that the

proposed CCDF financial reporting forms separately collect the amounts

that are expended on developing systems and other kinds of non-direct

service activities. If we determine that there are problems, we reserve

the right to re-visit the policy and regulate in the future.

Nevertheless, States should know that any administrative components of

the activities that have been re-designated as non-administrative in

nature are subject to the CCDF administrative cost cap.

Lastly, we clarify in Sec. 98.52(c) that the non-Federal

expenditures required of the State in order to meet its maintenance-of-

effort threshold for receiving matching funds are not subject to the

five percent limitation on administrative costs. Nevertheless, audits

of State reports of maintenance-of-effort expenditures should indicate

that administrative expenditures included in those MOE amounts are

reasonable, necessary for carrying out the services provided, and

consistent with other provisions of law.

Administrative costs for Tribes. We have specifically noted at

Sec. 98.52(b) that Tribes, and tribal organizations are exempt from the

five percent cap on administrative costs as it applies only to the

entities defined as ``States.'' Tribes and tribal organizations are not

currently subject to the administrative cost limitation at

Sec. 98.50(d) and we wanted to codify this existing exemption. Tribes,

however, are subject to the requirements at Sec. 98.83(g) regarding

limits on administrative expenditures.

Matching Fund Requirements (Section 98.53)

Section 98.53 used to describe non-supplantation requirements. As

those have been repealed by the PRWORA amendments, we are now using

this section to discuss the Matching Fund requirements.

Terminology and general requirements. In this section we have used

the phrase ``expenditures in the State'' to encompass not only local

expenditures on child care but also private, donated funds that meet

the requirements at Sec. 98.53(e)(2), as explained below. Whenever the

term ``State funds,'' ``State expenditures'' or ``non-Federal

expenditures'' is used it should be understood to include State, local

or permissible private donated funds that meet these requirements and

[[Page 39629]]

are expended for allowable child care purposes.

Section 418(a)(2)(C) of the Social Security Act creates a two-part

matching requirement. First, a State must expend an amount that at

least equals its allowable expenditures for the title IV-A child care

programs during 1994 or 1995, whichever is greater. We refer to this

amount as the ``maintenance-of-effort'' (MOE) threshold.

State expenditures in excess of its MOE threshold, up to a maximum

determined by the statute, are matched at the 1995 Federal medical

assistance rate. The total amount that can be matched rises each year

and is equal to the sum appropriated for that year, less the amounts of

the Mandatory Fund, the tribal allocation and the allocation for

technical assistance. The maximum to be matched for each State is its

share of that total based upon the proportion of the State's children

under age 13 in 1995 to the national total of children under age 13 in

1995.

Section 98.53(c) lists the requirements that States must meet if

they wish to claim Federal Matching Funds. In summary, this section

requires that the State obligate all of its Mandatory Funds by the end

of the fiscal year (FY) they are granted. Mandatory Funds need not be

obligated before Matching Funds are claimed, provided that all

Mandatory Funds will be obligated by the end of that FY. Second, they

must expend State-only dollars in an amount that equals the State's MOE

threshold described at Sec. 98.53(c)(1). And third, they must obligate

the Federal and State share of the Matching Fund by the end of the FY.

Section 98.53(b)(1) provides that all costs are matched at the

Federal Medical Assistance Percentage (FMAP) for FY 1995, irrespective

of the year of expenditure as directed by the statute. The FMAP rate

pertains to both child care services and administrative expenditures.

State expenditures allowable for MOE and Federal Matching Funds.

State expenditures on any activities or services that meet the goals of

the CCDBG Act and that are described in the approved CCDF Plan, if

appropriate, may be used to meet the MOE requirement or may be claimed

for Federal Matching Funds (proposed Secs. 98.53(c)(2) and (b)(2)). For

MOE, these proposed regulations offer greater flexibility than we

offered in our interim guidance provided in our Program Instruction,

ACYF-PI-CC-96-17, dated October 30, 1996. However, as provided at

Sec. 98.53(d), the same expenditure still may not be counted for both

MOE and match purposes.

Under the regulations we propose, States will have flexibility to

define child care services, so long as those services meet the

requirements of the statute. For example, State expenditures for child

care for those populations previously served by the title IV-A or CCDBG

child care programs would be eligible for Federal match. Similarly,

State investments in child care through the use of State funds to

expand Head Start programs or to otherwise enhance the quality or

comprehensiveness of full-day/full-year child care would also be

eligible for Federal Matching funds since these activities meet the

goals of the Act.

Sections 98.53(e) and (f) contain additional qualifications on what

constitutes an expenditure in the State for purposes of this Part.

These qualifications are the same that generally apply to Federal

programs that provide for matching State expenditures, with two

important clarifications.

First, the proposed Sec. 98.53(e)(1)(i) would allow public

agencies, other than the Lead Agency, to certify their expenditures as

eligible for Federal match. This provision allows States, for example,

to use pre-kindergarten (pre-K) expenditures to meet the MOE

requirement (when the regulatory provisions for use of pre-K funds are

met) and/or receive Federal Matching funds. The second clarification,

proposed at Sec. 98.53(f), concerns the treatment of private donated

funds. It provides greater flexibility than previously offered as

interim guidance under ACF Program Instruction, ACYF-PI-CC-96-17, dated

October 30, 1996.

In our consultations we were asked several questions about the

relationship between the child care and certain TANF requirements.

Regarding the MOE requirements, the same State expenditure may be used

to meet both the child care and TANF MOE requirements provided the

expenditure meets the requirements of both programs. However, pursuant

to section 409(a)(7)(B)(iv) of PRWORA, expenditures which States make

as a condition of receiving Federal funds under other programs (e.g.,

expenditures for which the State receives CCDF Matching Funds) may not

be included as part of the State MOE for TANF. ACF's Office of Family

Assistance issued preliminary guidance concerning these questions in

their policy announcement dated January 31, 1997 (TANF-ACF-PA-97-1).

Since these questions relate to the TANF provisions of PRWORA no

regulations are proposed for Parts 98 or 99.

Use of private agencies to receive donated funds. Historically,

private donations to State-level programs have been very limited;

locally controlled donations have been somewhat more prevalent.

Frequently cited reasons for this lack of public support for seemingly

worthwhile programs have included suspicion of government, in general,

especially government outside the immediate community, coupled with

regulations that appeared to limit the State's ability to assure the

donor that the donated funds will be used in a specific area or for the

donor's intended purpose.

At a time when child care programs face increased demands, and

State budgets face constraints, we realize that we must reexamine prior

ACF policies on donated funds. We have tried to respond to the issues

that we were told have inhibited private donations in the past by

proposing to include in the definition of State expenditures donated

funds that meet the qualifications at Sec. 98.53(e)(2) even though they

are not under direct State control. At Sec. 98.53(f) we have added that

private donated funds need not be transferred to or under the

administrative control of the Lead Agency to be eligible for Federal

match. Instead they may be donated to an entity designated by the State

to receive donated funds. Both the Lead Agency and the donor must,

however, certify that the donated funds are available and eligible for

Federal match. In addition to this dual certification requirement, we

want to ensure Lead Agency accountability for funds that may not be

under its direct control. Therefore, we also propose that the Lead

Agency separately report the amount of private donated funds it claims

as match. And finally, Lead Agencies should be aware that private

donated funds claimed as match are also subject to the audit

requirements at Sec. 98.65.

This proposed rule will allow Lead Agencies to cooperate more

closely with various organizations, foundations, and associations that

already support high quality child care and related activities. It will

also allow the Lead Agency to leverage private funds in order to serve

more families, while working within State and Federal budget

restrictions.

We also take this opportunity to clarify the regulation at

Sec. 98.53(e)(2)(i) which requires that private funds be donated

without restriction on their use for a specified individual,

organization, facility or institution. Under this clarification a donor

could designate a specific geographic location for the receipt of

funds. Such a geographic specification can be broad, such as within the

limits of a specific city, or

[[Page 39630]]

extremely narrow, such as a single neighborhood. Such geographic

specification is possible whenever funds are donated, whether the funds

are donated to the Lead Agency or to an entity specially designated to

receive private donations.

Lead Agencies will be asked to identify those entities that are

designated to receive private donated funds and the purposes for which

those donated funds are expended in their Plan, pursuant to

Sec. 98.16(c)(2).

Claims for pre-K expenditures for MOE and match purposes. Many

States fund pre-K programs for young children. These are important

early childhood services that contribute to school readiness.

Expenditures for State-funded public pre-K services to children from

families who meet the CCDF eligibility criteria (as outlined in the

Plan) may meet the requirements for allowable child care services

expenditures for MOE and match purposes. The pre-K program must meet

each of the following four conditions:

Attendance in the pre-K program must not be mandatory.

The pre-K program must meet applicable standards of State,

local or tribal law.

The pre-K program must allow parental access.

The pre-K program must not be Federally funded (unless

funded with ``exempt'' Federal funds for matching purposes), and its

State funding may not be used as basis for claiming other Federal

funding.

In addition, the pre-K program must serve families who are at or

below 85 percent of the State median income (SMI) (or lower SMI

established as the CCDF eligibility criterion by the Lead Agency) and

who meet other State eligibility criteria.

During our consultations we heard the full range of issues around

allowing States to use their pre-K expenditures to meet the matching

and MOE requirements of the CCDF. We came away from those consultations

with some reservations about the use of pre-K expenditures, but we also

came away with increased respect for the importance of these programs.

A chief concern to working parents is that many pre-K services are

only part-day and or part-year and such programs may not serve the

family's real needs. Some have expressed concerns that an excessively

broad approach to counting pre-K expenditures might result in a real

reduction in full-day child care services to potentially eligible

working families. The potential exists for a State with a sufficiently

large pre-K program to divert all state funds away from other child

care programs and fulfill its MOE and Matching requirements solely

through pre-K expenditures. On the other hand, allowing pre-K

expenditures to be counted toward MOE or match could provide a critical

incentive for States to more closely link their pre-K and child care

systems. This could result in a coordinated system that would better

meet the needs of working families for full-day/full-year services that

prepare children to enter school ready to learn. We struggled with

these issues and considered various alternative approaches to counting

pre-K expenditures in the CCDF.

In the end, we decided on a policy that attempts to balance

concerns about the use of pre-K expenditures in meeting CCDF

requirements. At Sec. 98.53(h) (3) and (4) we have addressed our

concerns about balance by proposing a maximum amount of State

expenditures for pre-K services that can be claimed for match or MOE.

Expenditures for pre-K programs may constitute no more than 20% of the

State's expenditures which are matched. Similarly, expenditures for

pre-K programs may constitute no more than 20% of the State's

expenditures counted in fulfilling the MOE requirement. However, if a

State intends to exceed 10% of either its MOE or matching requirements

with pre-K expenditures, its CCDF plan, which is subject to approval,

must reflect that intent. Additionally, if a State intends to exceed

10% of either MOE or matching with pre-K expenditures, the CCDF plan

must describe how the State will coordinate its pre-K and child care

services to expand the availability of child care. We propose the 20%

limits because they approximate the proportion of pre-school age

children nationwide currently receiving services under the CCDBG. (This

level also approximates the average monthly proportion of pre-school

age children of JOBS participants who received child care assistance in

the past.)

States may count only those pre-K expenditures that meet the

criteria as allowable child care services explained above (i.e.,

attendance is not mandatory, the program meets applicable standards,

allows parental access, serves CCDF eligible families as provided in

the Plan, etc.). We also intend to require the Lead Agency, using

financial forms to be proposed later, to separately report the amount

of pre-K expenditures it claims as match or uses to meet the MOE

requirement.

In addition, for MOE purposes, we propose at Sec. 98.53(h)(1) that

States cannot reduce their level of effort in full-day/full-year child

care services if they use pre-K expenditures to meet the MOE

requirement. And, States will be required to provide an assurance of

this, pursuant to Sec. 98.15(a)(6). Our proposal reflects the fact that

although the statute eliminated the non-supplantation requirement

formerly found at section 658E(c)(2)(J) of the CCDBG Act, another non-

supplantation requirement was created by section 418(a)(2)(C) of the

Social Security Act. That non-supplantation requirement--the MOE

requirement--requires States to continue to spend at least the same

amount on child care services that they spent on the repealed title IV-

A child care programs, in order to receive the new Matching Fund. Such

a provision would be meaningless if States used MOE expenditures for

services that were not responsive to the real child care needs of

working families that the CCDF was intended to assist, i.e., the State

``buys out'' with pre-K expenditures the full-day/full year child care

services it previously provided under title IV-A. In the interest of

State flexibility we have not otherwise regulated on the types of

services that may be counted in meeting the MOE requirement and, as

discussed below, have eased the burden on the State in calculating the

amount of pre-K expenditures that may be used to meet the MOE and

matching requirements.

In contrast, we have not proposed a similar requirement if pre-K

expenditures are claimed for match. We view the Matching Fund, since it

is ``new money,'' as not subject to the same requirements as

expenditures that are used to meet a non-supplantation requirement.

However, we are proposing at Secs. 98.53(h)(2) and 98.16(q) that States

describe in their CCDF Plan any efforts they will undertake to ensure

that pre-K programs meet the needs of working parents if pre-K

expenditures are claimed for match. Our different treatment of pre-K

expenditures in the MOE and matching requirements, then, reflects a

balance between the principles of non-supplantation and state

flexibility.

Furthermore, ACF will permit States to use a different method for

calculating the amount of pre-K services claimed for both MOE and

matching purposes than was required under the former title IV-A child

care programs. Under the now repealed title IV-A child care programs,

ACF required States wishing to claim Federal match for their pre-K

expenditures to base their claim on the number of title IV-A-eligible

(or potentially eligible) children who actually participated in the

pre-K program. As many school districts did not have the information to

identify

[[Page 39631]]

whether pre-K participants were members of IV-A-eligible families, it

was difficult for States to claim Federal matching funds for these

programs. In fact, only a handful of States claimed Federal Match under

title IV-A for their pre-K expenditures. In our consultations we were

asked to loosen this child-by-child approach to counting pre-K

expenditures.

In the interest of easing administrative burdens on the Lead

Agency, we will adopt the following policy toward calculating pre-K

expenditures for purposes of claiming MOE and Matching funds. For pre-K

expenditures to be claimed, States must ensure that children receiving

pre-K services meet the eligibility requirements established in the

CCDF plan. In cases where States do not have exact information,

however, they must develop a sound methodology for estimating the

percentage of children served in the pre-K program who are CCDF-

eligible. Expenditure claims must reflect these estimates.

Although the methodology should be documented, we will not require

that the methodology be submitted to ACF for prior review or approval.

In documenting their methodology, Lead Agencies are reminded of the

requirement at Sec. 98.67(c), which provides that fiscal control and

accounting procedures must be sufficient to permit the tracing of funds

to a level of expenditure adequate to establish that such funds have

not been used in violation of the Act or regulations.

We specifically request comments on the amounts of pre-K

expenditures that may be counted in meeting CCDF requirements and the

basis for placing limits on such expenditures. While we have eased

policies regarding calculating the amounts of pre-K funds used for MOE

and matching, we have also capped the amounts that can be used for each

purpose. We have no historical base for predicting the impact that the

relaxed calculation requirements will have on the availability of child

care services. Therefore we are soliciting broad public comment on our

proposed approach to striking a balance of child care services that are

used for CCDF MOE and match. We especially want comments on: (1) The

20% maximum on both funds; (2) the interplay between the relaxation of

the methodology for calculating the amounts and the cap; (3) the impact

of the proposed pre-K policy on both parental choice and the overall

goals and purposes of the CCDF; and (4) the proposed requirement for

notification in the CCDF plan if a State intends to use pre-K

expenditures in excess of 10%.

Family fees and the Matching Fund. Section 98.53(g)(2) clarifies

that family contributions to the cost of care as required by Sec. 98.42

are not considered eligible State expenditures under this subpart. This

policy is based on the fact that family fees are not State

expenditures.

Restrictions on Use of Funds (Section 98.54)

Section 103(c) of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) repealed the three title IV-A child

care programs--the AFDC child care program, the Transitional Child Care

program and the At-Risk Child Care program. However, in appropriating

new child care funds under section 418 of the Social Security Act, the

PRWORA provides that these funds must be spent in accordance with the

provisions of the Child Care and Development Block Grant Act as

amended. This requirement is incorporated into Sec. 98.54(a). This

section also provides that TANF funds that are transferred to the Lead

Agency under the provision of the new section 404(d) of the Social

Security Act are treated as Discretionary Funds for the purposes of

Sec. 98.60.

Other Federal funds expended for child care, unless transferred to

the Lead Agency, are not required to be spent in accordance with the

amended CCDBG Act. This means, for example, that child care provided

with title XX funds or TANF funds that are not transferred to the Lead

Agency might be subject to different requirements. However, ACF

cautions States about the administrative and policy problems associated

with operating a variety of Federally-funded child care programs, e.g.,

one program subject to CCDBG requirements and others not. The

amendments to the CCDBG Act contained in the PRWORA are intended to

create a single child care program with consistent standards and

requirements and to counteract the fragmentation and conflicting

requirements that had arisen under prior law.

We have also added a new section at Sec. 98.54(b)(3) which

clarifies the special provisions on use of funds for construction that

apply to Tribes and tribal organizations under the PRWORA amendments.

Subpart G--Financial Management

Availability of Funds (Section 98.60)

Section 418 of the Social Security Act, which was added by PRWORA,

requires that all Federal child care funds appropriated therein be

spent in accordance with the provisions of the amended Child Care and

Development Block Grant. In consolidating the Federal child care

programs under a single set of eligibility requirements, Congress

nevertheless instituted three funding sources. We have chosen to refer

to the combined funding as the Child Care and Development Fund--CCDF.

This term recognizes the different sources of Federal monies flowing

into child care but the common purposes for which they may be expended.

Section 418 of the Social Security Act appropriates Federal funds

for the 50 States, the District of Columbia and Indian Tribes in the

form of formula grants which we refer to as the Mandatory Fund. A

specified amount of Federal funds is also made available under a

different formula to the 50 States and the District of Columbia to

match their allowable child care expenditures. We refer to this amount

as the Matching Fund. Section 658B of the Child Care and Development

Block Grant (CCDBG) Act authorizes funds to States, Tribes and

Territories according to a third formula. We refer to the funds

authorized under the CCDBG Act as Discretionary Funds. The formulas for

allocating each of the Funds and requirements unique to each Fund are

discussed at Secs. 98.61, 98.62 and 98.63.

Both the Mandatory and Discretionary Funds are 100 percent Federal

Funds--no match is required to use these Funds. Section 418(a)(2)(C) of

the Social Security Act, however, makes the availability of Matching

Funds contingent on a State's child care expenditures.

We have deleted the regulation formerly at Sec. 98.60(g) concerning

start-up planning costs associated with the initial implementation of

the CCDBG and have redesignated the remaining regulations. All of the

States began operating a CCDBG program in FY 1991, therefore the

regulation at Sec. 98.60(g) is obsolete since the time frames for

obligating and expending start-up funds have passed. We recognize that

there still may be Tribes that wish to begin a CCDF program and for

which the question of start-up funds still applies. Accordingly, we

have addressed the availability of funds for planning purposes for new

tribal Lead Agencies at Sec. 98.83(h) in subpart I.

We have also clarified the wording of Sec. 98.60(f) to indicate

that 31 CFR part 205 applies only to State Lead Agencies.

Obligation period/liquidation periods. The following table shows

the obligation and liquidation periods for the various Funds and the

maintenance-of-effort (MOE) requirements.

[[Page 39632]]

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

Must be obligated by the

These funds end of the And, must be liquidated by the end of the

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

Discretionary.................... 2nd FY................... 3rd FY.

Mandatory (State)................ 1st FY--only if Matching NA, no limit.

is requested.

Mandatory (Tribes)............... 2nd FY................... 3rd FY.

Matching......................... 1st FY................... 2nd FY.

MOE.............................. 1st FY, and expended in NA, must be liquidated in 1st FY

that FY.

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

The PRWORA amended the CCDBG Act to require States and Territories

to obligate their Discretionary allotments in the fiscal year in which

they are received, or in the succeeding fiscal year. These amendments

return the statutory language to its status before the Juvenile Justice

and Delinquency Prevention Amendments of 1992 (Pub. L. 102-586). Since

the final regulations which would have incorporated the changes from

the Juvenile Justice and Delinquency Prevention Amendments of 1992 were

never published, no change is needed in the regulatory language.

The FY 1997 Health and Human Services appropriation (Pub. L. 104-

208) changed the date that the CCDF Di

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