Temporary Assistance for Needy Families Program (TANF)

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

issue regulations governing key provisions of the new welfare block

grant program enacted in 1996--the Temporary Assistance for Needy

Families, or TANF, program. It replaces the national welfare program

known as Aid to Families with Dependent Children (AFDC) and the related

programs known as the Job Opportunities and Basic Skills Training

Program (JOBS) and the Emergency Assistance (EA) program.

The proposed rules reflect new Federal, State, and Tribal

relationships in the administration of welfare programs; a new focus on

moving recipients into work; and a new emphasis on program information,

measurement, and performance. The proposed rules also reflect the

Administration's commitment to regulatory reform.

DATES: You must submit comments by February 18, 1998.

ADDRESSES: You may mail or hand-deliver comments to the Administration

for Children and Families, Office of Family Assistance, 5th Floor East,

370 L'Enfant Promenade, SW, Washington, DC 20447. You may also transmit

written comments electronically via the Internet. To transmit comments

electronically, or download an electronic version of the proposed rule,

you should access the ACF Welfare Reform Home Page at http://

www.acf.dhhs.gov/news/welfare/ and follow any instructions provided.

We will make all comments available for public inspection on the

5th Floor East, 901 D Street, SW, Washington, DC 20447, from Monday

through Friday between the hours of 9 a.m. and 4 p.m. For additional

information, see Supplementary Information section of the preamble.

FOR FURTHER INFORMATION CONTACT: Mack Storrs, Director, Division of

Self-Sufficiency Programs, Office of Family Assistance, ACF, at 202-

401-9289, or Robert Shelbourne, Chief, Program Development Branch, at

202-401-5150.

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:

Comment Procedures

We will not consider comments received beyond the 90-day comment

period in developing the final rule. Because of the large number of

comments we anticipate, we will only accept written comments. In

addition, all your comments should:

Be specific;

Address only issues raised by the proposed rule, not the

law itself;

Where appropriate, propose alternatives;

Explain reasons for any objections or recommended changes;

and

Reference the specific section of the proposed rule that

you are addressing.

We will not acknowledge the comments we receive. However, we will

review and consider all that are germane and received during the

comment period.

Table of Contents

I. The Personal Responsibility and Work Opportunity Reconciliation

Act

II. Regulatory Framework

A. Consultations

B. Related Regulations under Development

C. Statutory Context

D. Regulatory Reform

E. Scope of This Rulemaking

F. Applicability of the Rules

III. Principles Governing Regulatory Development

A. Regulatory Restraint

B. State Flexibility

C. Accountability for Meeting Program Requirements and Goals

IV. Discussion of Individual Regulatory Provisions

A. Part 270--General Temporary Assistance for Needy Families

(TANF) Provisions

B. Part 271--Ensuring that Recipients Work

C. Part 272--Accountability Provisions--General

D. Part 273--State TANF Expenditures

E. Part 274--Other Accountability Provisions

F. Part 275--Data Collection and Reporting Requirements

V. Regulatory Impact Analyses

A. Executive Order 12866

B. Regulatory Flexibility Analysis

C. Paperwork Reduction Act

D. Unfunded Mandates Reform Act of 1995

I. The Personal Responsibility and Work Opportunity Reconciliation

Act

On August 22, 1996, President Clinton signed ``The Personal

Responsibility and Work Opportunity Reconciliation Act of 1996''--or

PRWORA--into law. The first title of this new law (Pub. L. 104-193)

establishes a comprehensive welfare reform program designed to change

the nation's welfare system dramatically. The new program is called

Temporary Assistance for Needy Families, or TANF, in recognition of its

focus on moving recipients into work and time-limiting assistance.

Other key features of TANF include its provisions to reward States for

high performance and to encourage continued State expenditures on

assistance to needy families.

PRWORA repeals the existing welfare program known as Aid to

Families with Dependent Children (AFDC), which provided cash assistance

to needy families on an entitlement basis. It also repeals the related

programs known as the Job Opportunities and Basic Skills Training

program (JOBS) and Emergency Assistance (EA).

The new TANF program went into effect on July 1, 1997, except in

States that elected to submit a complete plan and implement the program

at an earlier date.

The new law reflects widespread, bipartisan agreement on a number

of key principles:

Welfare reform should help move people from welfare to

work.

Welfare should be a short-term, transitional experience,

not a way of life.

Parents should receive the child care and the health care

they need to protect their children as they move from welfare to work.

Child support programs should become tougher and more

effective in securing support from absent parents.

Because many factors contribute to poverty and dependency,

solutions to these problems should not be ``one size fits all.'' The

system should allow States, Indian tribes, and localities to develop

diverse and creative responses to their own problems.

The Federal government should focus less attention on

payment accuracy and program procedures and place more emphasis on

program results.

This landmark welfare reform legislation dramatically affects not

only needy families, but also intergovernmental relationships. It

challenges Federal, State, Tribal and local governments to foster

positive changes in the culture of the welfare system and to take more

responsibility for program results and outcomes. It transforms the way

agencies do business, requiring that they engage in genuine

partnerships with each other,

[[Page 62125]]

with businesses, community organizations and needy families.

The new law provides an unparalleled opportunity to achieve true

welfare reform. It also presents very significant challenges for

families and State and Tribal entities in light of the changing program

structure, loss of Federal entitlements, creation of time-limited

assistance, and new penalty and bonus provisions.

Most of the resources in the AFDC program went to support mothers

raising their children alone. In the early years, the expectation was

that these mothers would stay home and care for their children; in

fact, in a number of ways, program rules discouraged work. Over time,

as social and economic conditions changed, and more women entered the

work force, the expectations changed. In 1988, Congress enacted the new

JOBS program to provide education, training and employment that would

help needy families avoid long-term welfare dependence. By 1994, 20

percent of the non-exempt adult AFDC recipients nationwide were

participating in the JOBS program.

In spite of these changes, national sentiment supported more

drastic change. Policy-makers, agency officials and the public

expressed frustration about the slow progress being made in moving

welfare recipients into work and the continuing decline in family

stability. States were clamoring for more flexibility to reform their

programs.

While the Clinton Administration had supported individual reform

efforts in almost every State, approving 80 waivers in its first five

years, the waiver process was not an ideal way to achieve systemic

change. It required separate Federal approval of each individual reform

plan, limited the types of reforms that could be implemented, and

enabled reforms to take place only one State at a time. Governors

joined Congress and the President in declaring that the welfare system

was ``broken.''

After more than two years of discussion and negotiation, PRWORA

emerged as a bipartisan vehicle for comprehensive welfare reform. On

July 31, 1996, President Clinton issued a statement indicating that the

pending bill had the potential ``to transform a broken system that

traps too many people in a cycle of dependence to one that emphasizes

work and independence, to give people on welfare a chance to draw a

paycheck, not a welfare check. It gives us a better chance to give

those on welfare what we want for all families in America, the

opportunity to succeed at home and at work.''

The law that was enacted three weeks later gives States, and

federally recognized Indian tribes, the authority to use Federal

welfare funds ``in any manner that is reasonably calculated to

accomplish the purpose'' of the new program.

It provides them broad flexibility to set eligibility rules and

decide what benefits are most appropriate. It also enables States to

implement their new programs without getting the ``approval'' of the

Federal government. In short, it offers States and Tribes an

opportunity to try new, far-reaching changes that can respond more

effectively to the needs of families within their own unique

environments.

PRWORA redefines the Federal role in administration of the nation's

welfare system. It limits Federal regulatory and approval authority,

but gives the Federal government new responsibilities for tracking

State performance. In a select number of areas, it calls for penalties

when States fail to comply with program requirements, and it provides

bonuses for States that perform well in meeting new program goals.

Under the new statute, program funding and assistance for families

both come with new expectations and responsibilities. Adults receiving

assistance are expected to engage in work activities and develop the

capability to support themselves before their time-limited assistance

runs out. States and Tribes are expected to assist recipients making

the transition to employment. They are also expected to meet work

participation rates and other critical program requirements in order to

maintain their Federal funding and avoid penalties.

Some important indicators of the change in expectations are: time

limits; higher participation rates; the elimination of numerous

exemptions from participation requirements that existed under prior

law; and the addition of a statutory option for States to require

individual responsibility plans. Taken together, these provisions

signal an expectation that we must broaden participation beyond the

``job-ready.''

In meeting these expectations, States need to examine their

caseloads, identify the causes of long-term underemployment and

dependency, and work with families, communities, businesses, and other

social service agencies in resolving employment barriers. In some

cases, States may need to provide intervention services for families in

crisis or may need to adapt program models to accommodate individuals

with disabilities or other special needs. TANF gives States the

flexibility they need to respond to such individual family needs, but,

in return, it expects States to move towards a strategy that provides

appropriate services for all needy families.

II. Regulatory Framework

A. Consultations

In the spirit of both regulatory reform and PRWORA, we implemented

a broad and far-reaching consultation strategy prior to the drafting of

this Notice of Proposed Rulemaking (NPRM). In Washington, we set up

numerous meetings with outside parties to gain information on the major

issues underlying the work, penalty, and data collection provisions of

the new law. In our ten regional offices, we used a variety of

mechanisms--including meetings, conference calls, and written

solicitations--to garner views from ``beyond the Beltway.''

The purpose of these discussions was to gain a variety of

informational perspectives about the potential benefits and pitfalls of

alternative regulatory approaches. We spoke with a number of different

audiences, including: representatives of State, Tribal and local

governments; nonprofit and community organizations; business and labor

groups; and experts from the academic, foundation, and advocacy

communities. We solicited both written and oral comments, and we worked

to ensure that information and concerns raised during this process were

shared with both the staff working on individual regulatory issues and

key policy-makers.

These consultations were very useful in helping us identify key

issues and evaluate policy options. However, we would like to emphasize

that we are publishing these regulations as a proposed rule. Thus, all

interested parties have the opportunity to voice their concerns and

react to specific policy proposals. We will review comments we receive

during the comment period and take them into consideration before

issuing a final rule.

B. Related Regulations Under Development

This NPRM addresses the work, accountability, and data collection

and reporting provisions of the new TANF program. Over the next several

months, we expect to issue a number of other related proposed rules,

covering: child poverty rates; high performance bonuses; illegitimacy

reduction bonuses; and Tribal TANF and work programs.

We will also be issuing a number of NPRMs on the child support

[[Page 62126]]

enforcement provisions found in title III of PRWORA.

This NPRM does not include the provisions for the new Welfare-to-

Work (WTW) provisions at section 403(a)(5) of the Act, as created by

section 5001(a)(1) of Pub. L. 105-33. The Secretary of Labor is

responsible for issuing regulations on these provisions and the

provisions at section 5001(c), regarding WTW grants for Tribes.

Information about this program is available on the Web at http://

wtw.doleta.gov.

This NPRM does include the conforming amendment to the definition

of ``qualified State expenditures'' required by section 5001(a)(2) of

Pub. L. 105-33, as well as the amendments to the TANF provisions at

sections 5001(d), 5001(g)(1), and 5001(h). Section 5001(d) addresses

treatment of assistance under WTW under the TANF time limits. Section

5001(g)(1) provides a new penalty that takes away WTW funds when a

State fails to meet the TANF MOE requirements. Section 5001(h)

addresses the relationship between an individual penalty and work

requirements.

This NPRM does not include the provision at section 5001(g)(2),

which requires repayment of WTW funds to the Secretary of Labor

following a finding by the Secretary of Labor of misuse of funds. Since

the Department of Labor is responsible for administering this penalty

and receives any repaid funds, it would not be appropriate for us to

issue rules on this provision.

Under section 5001(e) of Pub. L. 105-33, we have responsibility for

regulating the WTW data reporting requirements, under section 411(a) of

the Act, as amended.

We will issue a rulemaking that addresses these requirements at a

later date, following consultation with the Department of Labor, State

agencies, Private Industry Councils, and other affected parties.

We encourage States and others who are interested in these areas to

review and comment on these proposed rules when they are published in

the Federal Register.

You should be aware of the important relationships between this

regulatory package and the other packages that will be following. In

particular, we would like to point out that section 412 of the Social

Security Act (as amended by PRWORA) provides that federally recognized

Tribes may elect to operate their own TANF programs, and Tribes that

operated their own JOBS programs may continue to receive those funds to

operate Tribal work programs.

The choice Tribes make on TANF will depend on a number of factors,

including the nature of services and benefits available under the State

program. Thus, Tribes have a direct interest in the regulations

governing State programs.

Tribes also have an interest in these regulations because some of

the rules we develop for State programs could eventually apply to the

Tribal programs. In particular, we urge Tribes to note the data

collection and reporting requirements at part 275. While the statute

allows Tribes to negotiate certain program requirements, it subjects

Tribal programs to the same data collection and reporting requirements

as States.

We would also like to direct the Tribes to the maintenance-of-

effort (MOE) policies discussed at Sec. 273.1. In that section, we

propose that State contributions to a Tribal program could count toward

a State's MOE. Tribes should be aware that this proposal could have

important implications for the funding of Tribal programs and State-

Tribal relations.

In order for welfare reform to succeed in Indian country, it is

important for State and Tribal governments to work together on a number

of key issues, including data exchange and coordination of services. We

remind States that Tribes have a right under law to operate their own

programs. States should cooperate in providing the information

necessary for Tribes to implement their own programs.

Likewise, Tribes should cooperate with States in identifying Tribal

members and tracking receipt of assistance.

We are also issuing separate final rules to make conforming changes

to our existing rules in chapter II of title 45.

In the first, we will be repealing the obsolete regulations for the

EA, JOBS, and the IV-A child care programs, and some rules covering

administrative requirements of the AFDC programs. This rulemaking will

be a final rule, effective upon publication. We expect to eliminate

about 82 pages from the Code of Federal Regulations.

Later on, we will be issuing a final rule that deletes or replaces

obsolete AFDC and title IV-A references throughout chapter II. This

second rulemaking will take additional time because the AFDC provisions

are intertwined with provisions for other programs that are not

repealed. Also, it is not clear that we should repeal all the AFDC

provisions because Medicaid, foster care and other programs depend on

the AFDC rules in effect under prior law. Because of these complexities

and the non-urgent nature of the conforming changes, the second rule is

on a slower schedule.

PRWORA also makes changes to other major programs administered by

ACF, the Department, and other Federal agencies that may significantly

affect a State's success in implementing welfare reform. For example,

title VI of PRWORA repeals the child care programs that were previously

authorized under title IV-A of the Social Security Act (the Act). In

their place, it provides two new sources of child care funding for the

Lead Agency that administers the Child Care and Development Block Grant

program. A major purpose of the increases in child care funding

provided under PRWORA is to assist low-income families in their efforts

to be self-sufficient. We issued proposed rules covering this new

funding and amendments to the Child Care and Development Block Grant

program on July 23, 1997. Comments were due within 60 days of that

date.

We encourage you to look in the Federal Register for rulemaking

actions on related programs and to take the opportunity to comment.

C. Statutory Context

These proposed rules reflect PRWORA, as enacted, and amended by

Pub. L. 104-327 and Pub. L. 105-33.

The changes made by Pub. L. 104-237 are fairly limited in scope; we

discuss them in the preamble on contingency fund MOE requirements at

Secs. 274.71, 274.72, and 274.77.

Pub. L. 105-33 created the new Welfare-to-Work (WTW) program, made

a few substantive changes to the TANF program, and made numerous

technical corrections to the TANF statute. Throughout the preamble

discussion and the appendices, you will note references to the

amendments made by this legislation. However, as we previously

mentioned, this NPRM includes only a limited number of changes related

to the new WTW provisions. The Department of Labor has primary

responsibility for administering the program and issuing the WTW

regulations. We have responsibility for issuing rules on the WTW data

collection requirements, but will be doing that at a subsequent date.

D. Regulatory Reform

In its latest Document Drafting Handbook, the Office of the Federal

Register supports the efforts of the National Performance Review and

encourages Federal agencies to produce more reader-friendly

regulations. In drafting this proposed rule, we have paid close

attention to this guidance. Individuals who are familiar with our

[[Page 62127]]

existing welfare regulations should notice that this package

incorporates a more readable style. This rulemaking effort gave us a

unique opportunity to change our approach because we were starting from

scratch rather than amending an existing rule.

In the spirit of facilitating understanding, we have included some

preamble discussion and regulatory text to give you a broader context

for other parts of the rulemaking document. Examples include the

provisions in subparts A and G of part 271 (which address work

provisions other than participation rates and penalties) and

Sec. 270.20 (which includes the statutory goals of the program). These

sections are primarily explanatory or restatements of the statutory

requirements. The language used and the surrounding discussion should

indicate the nature of the provision.

In the same spirit, we have included draft data collection and

reporting forms as appendices to the proposed rules even though we do

not intend to publish the forms as part of the final rule. We thought

that the inclusion of the draft forms would expand public access to

this information and make it easier to comment on our data collection

and reporting plans.

E. Scope of This Rulemaking

Our initial regulatory plan for TANF included three separate TANF

regulations--one each on work, penalties, and data collection and

reporting. However, we decided it would be better to incorporate these

into a single regulatory package. While this decision resulted in a

much larger document, it should facilitate your understanding of the

entire regulatory framework of the TANF program, as well as your review

and comment.

F. Applicability of the Rules

As we indicated in previous policy guidance to the States, a State

may operate its program under a reasonable interpretation of the

statute prior to our issuance of final rules. Thus, in determining

whether a State is subject to a penalty, we will not apply regulatory

interpretations retroactively. You can find a statement of this policy

at Sec. 270.40(b) of the proposed rules.

III. Principles Governing Regulatory Development

A. Regulatory Restraint

Under the new section 417 of the Act, the Federal government may

not regulate State conduct or enforce any TANF provision except to the

extent expressly provided by law. This limitation on Federal authority

is consistent with the philosophy of State flexibility and the general

State and Congressional interest in shifting more responsibility for

program policy and procedures to the States.

We are interpreting this provision to allow us to regulate in two

different kinds of situations: (1) where Congress has explicitly

directed the Secretary to regulate (for example, under the caseload

reduction provisions, described below); and (2) where Congress has

charged HHS with enforcing penalties, even if there is no explicit

mention of regulation. In this latter case, we believe we have an

obligation to States to set out, in regulations, the criteria we will

use in carrying out our express authority to enforce certain TANF

provisions by assessing penalties.

Throughout the proposed rule, we have endeavored to regulate in a

manner that does not impinge on a State's ability to design an

effective and responsive program.

You will also note that this rulemaking does not cover the non-

discrimination provisions at section 408(c). This subsection specifies

that any program or activity receiving TANF funds is subject to the:

(1) Age Discrimination Act of 1975; (2) section 504 of the

Rehabilitation Act of 1973; (3) the Americans with Disabilities Act of

1990; and (4) title VI of the Civil Rights Act of 1964. Since ACF is

not responsible for administering these provisions of law, and they are

not TANF provisions, this rulemaking does not include them.

Individuals with questions about the requirements of the non-

discrimination laws, or concerns about compliance of individual TANF

programs with them, should address their comments or concerns to the

Director, Office of Civil Rights, Department of Health and Human

Services, 200 Independence Ave, SW, Room 522A, Washington, DC 20201.

B. State Flexibility

In the Conference Report to PRWORA, Congress stated that the best

welfare solutions come from those closest to the problems, not from the

Federal government. Thus, the legislation creates a broad block grant

to each State to reform welfare in ways that work best. It gives States

the flexibility to design their own programs, define who will be

eligible, establish what benefits and services will be available, and

develop their own strategies for achieving program goals, including how

to help recipients move into the work force.

Under the law and under these proposed rules, States may implement

innovative and creative strategies for supporting the critical goals of

work and responsibility. For example, they may choose to expend funds

on earned income tax credits or transportation assistance that would

help low-wage workers keep their jobs. They could also extend

employment services to non-custodial parents, by including them within

the definition of ``eligible families.''

To ensure that our rules support the legislative goals of PRWORA,

we are committed to gathering information on how States are responding

to the new opportunities available to them. We reserve the right to

revisit some issues, either through legislative or regulatory

proposals, if we identify situations where State actions are not

furthering the objectives of the Act.

C. Accountability for Meeting Program Requirements and Goals

The new law gives States enormous flexibility to design their TANF

programs in ways that strengthen families and promote work,

responsibility, and self-sufficiency. At the same time, however, it

reflects a bipartisan commitment to ensuring that State programs

support the goals of welfare reform. To this end, the statutory

provisions on data collection, bonuses, and penalties are crucial

because they allow us to track what is happening to needy families and

children under the new law, measure program outcomes, and promote key

program objectives.

Work

We believe the central goal of the new law is to move welfare

recipients into work. The law reflects this important goal in a number

of ways:

Work receives prominent mention in the statutory goals at

section 401 and the plan provisions in section 402;

Section 407 establishes specific work participation rates

each State must achieve;

Section 409 provides significant financial penalties

against any State that fails to achieve the required participation

rates;

Section 411 provides specific authority for the Secretary

to establish data reporting requirements to capture necessary data on

work participation rates; and

Section 413 calls for ranking of States based on the

effectiveness of their work programs.

These proposed rules reflect a similar, special focus on promoting

the work objectives of the Act. We are proposing

[[Page 62128]]

specific rules under sections 407, 409, and 411 designed to ensure that

States meet the statutory requirements. You should look at the proposed

rules in part 271, and the related preamble discussion, for specific

details.

This Administration has already shown its commitment to promoting

the work objectives of this new law in several ways. Before the

legislation was passed, we worked very hard to ensure that Congress

passed strong work provisions and provided adequate child care funding

and other program supports.

Since enactment, the President has announced a number of additional

welfare-to-work initiatives designed to promote work. These include

implementation of a new ``Work Opportunity Tax Credit'' that provides

incentives for employers to hire welfare recipients and proposals to:

Extend and expand this credit;

Increase investments in distressed communities; and

Provide $3 billion in additional funding to help

communities move hard-to-serve recipients into jobs.

As part of budget reconciliation, Congress increased the Work

Opportunity Tax Credit, available to employers who hire long-term

welfare recipients, and funded a new Welfare-to-Work (WTW) program.

States, localities, and Indian Tribes will receive the additional $3

billion in WTW funds in FYs 1998 and 1999.

The President has also challenged America's businesses, its large

non-profit sector and the executive branch of the Federal government to

make job opportunities available to welfare recipients. On March 8,

1997, he directed all Federal agencies to submit plans describing the

efforts they would make to respond to this challenge. In response to

this directive, Federal agencies identified more than 10,000 jobs that

would be available for welfare recipients over the next four years.

(You can find additional information on this initiative on the Web at

http://w2w.fed.gov.)

Meeting the Needs of Low-Income Families and Children

In a number of different ways, the new law works to ensure that the

needs of low-income children and families are met. First, it provides a

guaranteed base level of Federal funding for the TANF programs. Then,

in times of special financial need, it makes additional funding

available through a $2 billion Contingency Fund and through a Federal

loan fund. It also authorizes several studies to monitor changes in the

situations of needy children and families that occur after enactment.

For example, it requires us to report on how certain children are

affected by the provisions of the new law, and to track State child

poverty rates, and initiate corrective actions by States when such

rates rise.

Domestic Violence

We wish to bring one particular provision--known as the Family

Violence Option (FVO)--to your attention. This provision, at section

402(a)(7), gives States the option to waive certain program

requirements for certain victims of domestic violence. It thus provides

a valuable framework for identifying victims of domestic violence and

developing appropriate service strategies for them.

This Administration is strongly committed to reducing domestic

violence, and we encourage all States to consider adopting the Family

Violence Option. In working with domestic violence cases, we also

encourage States to pay special attention to the need for maintaining

the confidentiality of case-record information and the victims' own

assessments of their safety needs and their abilities to meet program

requirements.

During our consultations, we heard numerous questions about the

relationship between State policies on domestic violence and the

determination of State work and time-limit penalties. Congress

considered this issue in its budget resolution, but decided to study

the issue further rather than to amend the statute during budget

reconciliation. Our regulations seek to implement the statute in a way

that is consistent with both the language of the statute and our

national interest in fostering appropriate State responses to domestic

violence.

The FVO provides States with a specific vehicle for addressing

domestic violence among recipients of TANF assistance. The provision

envisions that States would screen and identify victims of violence,

conduct individual assessments, and develop temporary safety and

service plans that would protect victims from any immediate dangers,

stabilize their living situations, and explore avenues for overcoming

dependency.

The family's individual circumstances or service plans may require

that certain program requirements (e.g., regarding time limits and

child support cooperation) be temporarily waived in cases where

compliance with such requirements would make it difficult for

individuals to escape domestic violence, unfairly penalize victims, or

put individuals at further risk of domestic violence. In these cases,

the FVO allows States to grant such waivers.

Under TANF, States must meet numerical standards for work

participation and the percentage of families that may receive

federally-funded assistance for more than five years. The statutory

language on calculating work participation rates makes no reference to

domestic violence cases or to a State's good cause waivers of work

requirements under the Family Violence Option. Thus, we think that the

clearest reading of this statutory provision includes victims of

domestic violence in the calculation of the work participation rates.

The statutory language on time limits refers to victims of domestic

violence, but not to the good cause waivers provided under the Family

Violence Option. The statutory language suggests that victims of

domestic violence would be included in the 20 percent limit on

exceptions to the time limit.

However, there is legitimate concern among States and others that

election of the FVO might put States at special risk of incurring

financial penalties. In granting good cause waivers of program

requirements under the FVO, they may make it more difficult for

themselves to meet the numerical requirements on time limits and the

work participation rates.

Our proposed rules attempt to remain true to the statutory

provisions on work and time limits and to ensure that election of the

FVO is an authentic choice for States. In deciding to address these

waiver cases under ``reasonable cause'' rather than through direct

changes in the penalty calculations, we are reflecting the statutory

language and maintaining the focus on moving families to self-

sufficiency. At the same time, we are giving States some protection

from penalties when their failures to meet the standard rates are

attributable to the granting of good cause domestic violence waivers

that are based on individual assessments, are temporary, and include

individualized service and safety plans. We hope our proposal will

alleviate concern among States that attention to the needs of victims

of domestic violence might place them at special risk of a financial

penalty.

Our proposed rules recognize that, through the FVO, Congress gave

unique status to victims of domestic violence under the TANF program.

Likewise, under our proposed rules, this group of recipients receives

special recognition under the ``reasonable cause'' provisions for the

work and time-limit penalties.

At Sec. 270.30, the proposed rules reflect our expectation that

good cause waivers

[[Page 62129]]

will be bona fide waivers provided within the framework of the FVO.

Under this framework: (1) State policies would provide for

individualized responses and service strategies, consistent with the

needs of individual victims; (2) waivers of program requirements would

be temporary in nature (e.g., would not be granted for longer than six

months); and (3) in lieu of program requirements, victims of domestic

violence would be served in alternative ways, consistent with their

individualized safety and service plans.

In specifying that good cause waivers should not exceed six months

in length, we have attempted to balance two distinct objectives: (1)

giving States the flexibility they need to respond appropriately to the

individual circumstances of domestic violence victims; and (2) assuring

that the work objectives of the Act are not undermined.

We do not intend that all good cause waivers should last six

months. The length of the waiver should reflect the State's

individualized determination of what length of time a client needs. We

expect that the length of the waiver could be substantially shorter in

some cases. Also, we expect that, in some cases, States might have to

renew a waiver or issue a second waiver (i.e., because a victim of

domestic violence suffered from continued abuse that required further

protection and response).

We welcome comments on whether our proposed approach and language

achieve the balance we are seeking.

We want to ensure that our rules work to foster, not undermine, the

objectives of the Act. Our goal is to promote the provision of

appropriate alternative services for victims of domestic violence that

foster both safety and self-sufficiency.

To ensure that these policies have the desired effect, we limit the

availability of ``reasonable cause'' to States that have adopted the

FVO. In addition, in the definitions section of the proposed rule (at

Sec. 270.30), we specify criteria that will apply in deciding whether a

good cause domestic violence waiver exists. Also, we reserve the right

to audit States claiming ``reasonable cause'' to ensure that good cause

domestic violence waivers that States include in their ``reasonable

cause'' documentation meet the specified criteria.

In addition, we intend to monitor the number of good cause waivers

granted by States and their effect on work and time limits. We want to

ensure that States identify victims of domestic violence so that they

may be appropriately served, rather than exempted and denied services

that lead to independence. We also want to ensure that the provision of

good cause waivers does not affect a State's overall effort in moving

families towards self-sufficiency. Thus, we will be looking at

information on program expenditures and participation levels to see if

States granting good cause domestic violence waivers are making

commitments to assist all families in moving toward work.

If we find that good cause waivers are not having the desired

effects, we may propose regulatory or legislative remedies to address

the problems we identify.

For additional discussion of our proposals, see Secs. 270.30,

271.52 and 274.3 of the preamble and proposed rule.

Use of Funds

The new law imposes several restrictions on the use of both Federal

and State funds to help ensure that program expenditures serve program

goals. More specifically, the statute: (1) places a cap on the

percentage of funds spent on administrative costs; (2) authorizes

audits and penalties to protect against the misuse of funds; (3)

establishes a number of limitations on the use of Federal funds; and

(4) defines the conditions under which expenditures of State funds may

count for MOE purposes. In general, States must expend both their

Federal funds and their own State monies on activities that are

consistent with the purposes of the TANF program. (For additional

information on allowable uses of Federal TANF and State MOE funds, see

ACF's guidance, TANF-ACF-PA-97-1, dated January 31, 1997, and the

preamble discussion for part 273.)

Maintenance-of-Effort (MOE)

One of the most important provisions in the new law designed to

protect needy families and children is the TANF maintenance-of-effort

(MOE) requirement. This provision requires States to maintain a certain

level of spending on welfare, based on historic (i.e., fiscal year (FY)

1994) expenditure levels. Because this provision is critical to the

successful implementation of the law, Congress gave us the authority to

enforce State compliance in meeting this requirement, and it receives

significant attention in this proposed rule.

Under the data collection, work, and penalty provisions of the

proposed rule, at parts 271-275, we took care to propose rules that:

(1) ensure that States continue to make the required investments in

meeting the needs of low-income children and families; (2) prevent

States from either supplanting State funds with Federal funds or using

their MOE funds to meet extraneous program or fiscal needs; (3) give us

adequate information to meet our statutory responsibility to determine

what is happening in State programs; and (4) take a broad view of work

effort, caseload reduction, and program performance.

We recognize that States have more flexibility in spending State

MOE funds than Federal funds, especially when they expend their MOE

funds in separate State programs. However, the proposed rules also

recognize and try to protect against actions that might undermine

important goals of welfare reform. This is the same concern that we

voiced in policy guidance we issued on MOE in January (TANF-ACF-PA-97-

1). In particular, we noted that States could design their programs so

as to avoid the work requirements of the new law or to avoid returning

a share of their child support collections to the Federal government.

To mitigate these potential negative consequences, we indicated our

intent to both take administrative actions and seek legislative

remedies. As part of our commitment to taking administrative action, we

are proposing to require States, under certain circumstances, to report

information about the families served by States under separate State

programs. Only through this additional reporting will we be able to

determine the full nature and scope of State efforts to move needy

families into work and the actual caseload reductions States are

achieving. (See the preamble discussion and regulation under part 272,

subpart D, and part 275.)

In TANF-ACF-PA-97-1, we indicated that States not making a good-

faith effort on work in their separate State programs would not be

eligible for a reasonable cause exception from the penalty for failing

to achieve their work rate. The proposed rule incorporates and expands

that proposal.

More specifically, it indicates that States would not be eligible

for a reasonable cause exception from the time-limit penalty or any of

the three work-related penalties if we detect a significant pattern of

diversion of families to separate State programs that has the effect of

undermining the work participation requirements of the Act. In general,

diverting States would not be eligible for reductions in the work

penalty amounts. Finally, they would be ineligible for a penalty

reduction under corrective compliance if they did not correct the

diversion and meet the other

[[Page 62130]]

conditions for reduction specified in these proposed rules.

In the January guidance we expressed similar concerns about the

effect of separate State programs on the Federal share of child support

collections. Therefore, our proposal in this area is similar to our

proposal to prevent undermining of the work participation provisions.

More specifically, we would deny States reasonable cause for the time-

limit, work participation, child support cooperation, and work sanction

penalties if we detect a significant pattern of diversion of families

into separate State programs that results in the diversion of the

Federal share of child support collections to State coffers. States

undertaking such diversions would also be ineligible for reductions in

the amounts of any of these four penalties under corrective compliance

unless they also corrected the diversion during the corrective

compliance process.

In making these proposals, we note that the Secretary has

considerable discretion in determining whether to reduce penalties or

grant a good cause exception.

Getting recipients to work is the most critical component to

achieving the purposes of TANF--making welfare a program of temporary

assistance for families moving to self-sufficiency. The Secretary has

determined that, to prevent circumvention of this purpose, it is

appropriate to limit the availability of the reasonable cause exception

and penalty reduction if a State attempts to avoid the work

participation requirements. Congress has reinforced the importance of

appropriate work for recipients in four of the established penalties in

section 409 of the Act--work participation rates, continuing assistance

when child care is not available, sanctioning families that fail to

participate in work, and continuation of assistance beyond 60 months.

To carry out the intent of Congress that work be a central part of the

TANF program, if we detect that a State is avoiding the work

requirements by diverting a significant number of families to separate

State programs, we will not grant this State a reasonable cause

exception from any of the four penalties most closely tied to the work

requirements, either in the form of a reduction in its work penalty

based on degree of non-compliance or as a reduction in any of the four

penalties as the result of achieving substantial (but not full)

compliance.

The other key component to achieving self-sufficiency is

implementation of the child support enforcement provisions. The Federal

government has a major role to play in such enforcement (particularly

with regard to the operation of the New Hire Directory and the Federal

Parent Locator Service). It also has a continuing interest in the

effectiveness of these programs and, under TANF, maintains its

commitment to the funding of needy families whose children have been

deprived of parental support and care.

We are concerned that a State's diverting cases to separate State

programs would not only have unintended, negative consequences for the

Federal budget and the Federal government's ability to ensure an

effective child support program; it would also diminish the State's

accountability for ensuring that needy families take appropriate steps

towards achieving self-sufficiency. The Secretary has determined that,

in the interest of protecting the key goals of TANF, it is appropriate

to exercise her discretion to set penalty amounts and forgive penalties

in a manner that will ensure that States do not divert cases

inappropriately. Thus, if we detect a significant pattern of diversion

of families to separate State programs that has the effect of diverting

the Federal share of child support collections, we will not grant a

reasonable cause exception or reduced penalty through corrective

compliance for the following four penalties: work participation, time

limits, failure to cooperate with paternity establishment and child

support enforcement requirements, or failure to impose work sanctions.

We plan to monitor States' actions to determine if they constitute

a significant pattern of diversion. For example, if, based on an

examination of statistical or other evidence, we came to the conclusion

that a State was assigning people to a separate State program in order

to divert the Federal share of child support collections, or in order

to evade the work requirements, we would conclude that this is a

significant pattern of diversion and would deny the State certain types

of penalty relief.

A State would be permitted the opportunity to prove that this

pattern was actually the result of State policies and objectives that

were entirely unrelated to the goal of diversion, but we would make the

final judgment as to what constitutes a significant pattern of

diversion.

For the specific regulatory changes associated with these policies,

see Secs. 271.51, 272.5 (c) and (d), and 272.6(i)(2).

We will also propose to require States seeking to receive high

performance bonuses to report on families served by separate State

programs. We will address this issue more fully in the coming NPRM on

high performance bonuses.

In the policy announcement, we advised States to think carefully

about the risks to the long-term viability of their TANF programs if

they rely too extensively on separate State MOE programs. In general,

States cannot receive contingency funds unless their expenditures

within the TANF program are at 100 percent of historic State

expenditures. Thus, excessive State reliance on expenditures outside

the TANF program to meet MOE requirements could make access to

contingency funds difficult during economic downturns.

Child-Only Cases

Since the January guidance came out, we have also become concerned

that States might be able to avoid the work participation rates and

time limits by excluding adults (particularly parents) from their

eligible cases. Given the flexibility available to States under the

statute and regulations, it appears possible that States could protect

themselves from the requirement and the associated penalty risk by

converting regular welfare cases into child-only cases. Such

conversions would seriously undermine these critical provisions of

welfare reform.

To protect against these negative consequences, in the work and

time-limit sections of this proposed rule, we would prohibit States

from converting cases to child-only cases for the purpose of avoiding

penalties and require annual reporting of any such exclusions (with

explanations). We are also proposing to recalculate a State's work

participation rates and time limit exemptions if we determine that a

State has excluded cases from its calculations for the purpose of

avoiding penalties in these areas. See Secs. 271.22, 271.24, and 274.1

for the specific proposals.

IV. Discussion of Individual Regulatory Provisions

Following is a discussion of all the regulatory provisions we have

included in this package. The discussion follows the order of the

regulatory text, addressing each part and section in turn.

A. Part 270--General Temporary Assistance for Needy Families (TANF)

Provisions

This part of the proposed rules helps set the framework for the

rest of the proposed rule. For the convenience of the reader, it

reiterates the goals stated in the new section 401. It also includes

[[Page 62131]]

a set of definitions that are common to the different parts of the

proposed rule.

What does this part cover? (Sec. 270.10)

This section of the proposed rules indicates that part 270 includes

provisions that are applicable across all the TANF regulations in this

rulemaking.

What is the purpose of the TANF program? (Sec. 270.20)

This section of the proposed rules repeats the statutory goals of

the TANF program. In brief, they include reducing dependency and out-

of-wedlock pregnancies; developing employment opportunities and more

effective work programs; and promoting family stability.

While we do not elaborate on the statutory language, we would like

to point out that, in a number of ways, the new law speaks to the need

to protect needy and vulnerable children. States should keep this

implicit goal in mind as they implement their new programs.

What definitions apply under the TANF regulations? (Sec. 270.30)

This section of the proposed rule includes definitions of the terms

used in parts 270 through 275. It does not include definitions that

pertain only to individual provisions. You should look to the

appropriate individual parts of the proposed rules for definitions that

are provision-specific.

In drafting this section of the proposed rule, we defined only a

limited number of terms used in the statute and regulations. We

understood that excessive definition of terms could unduly and

unintentionally limit State flexibility in designing programs that best

serve their needs. For example, we did not define ``family'' or ``head-

of-household.'' States are thus free to define what types of families

would be eligible for TANF assistance. (However, we suggest that you

look at the sections of this rule covering work participation rates

(Secs. 271.22 and 271.24), MOE requirements (subpart A of part 273),

time limits (Sec. 274.1), and data collection definitions (Sec. 275.2);

none of these sections creates a definition of family, but all address

the definition of the term ``family'' in describing key requirements on

States.)

We also decided not to define the individual work activities that

count for the purpose of calculating a State's participation rates. You

should look to the preamble discussion for Sec. 273.13 and subpart C of

part 271, respectively, for additional discussion of these decisions.

You will note that we use the term ``we'' throughout the regulatory

text and preamble. The term ``we'' means the Secretary of the

Department of Health and Human Services or any of the following

individuals or agencies acting on her behalf: the Assistant Secretary

for Children and Families, the Regional Administrators for Children and

Families, the Department of Health and Human Services, and the

Administration for Children and Families.

Likewise, you should note that we use the term ``Act'' to refer to

the Social Security Act, as amended by the new welfare law. We use the

term ``PRWORA'' when we refer to the new law itself. A section

reference is a Social Security Act reference if we use neither term.

Some of the definitions in this section incorporate the statutory

definitions in PRWORA. We included these definitions largely for the

reader's convenience. These statutory definitions include: ``adult,''

``minor child,'' ``eligible State,'' ``Indian, Indian Tribe and Tribal

organization,'' ``State,'' and ``Territories.''

We also propose some clarifying definitions. These include

explanations of commonly used acronyms (such as ACF, AFDC, EA, IEVS,

JOBS, MOE, PRWORA and TANF, as well as the new WTW) and commonly used

terms and phrases (such as the Act and the Secretary). While the

meaning of many of these is generally understood, we included them to

ensure a common understanding.

We are also proposing a number of definitions that have substantial

policy significance, for clarification purposes. For example, the

definitions distinguish among several types of expenditures. These

distinctions are critical because the applicability of the TANF

requirements vary depending on the source of funds for the

expenditures. In particular, it is important to distinguish between

expenditures from the Federal TANF grant and from the State funds

expended to meet MOE requirements (either within the TANF program or in

separate State programs).

Federal expenditures. This is short-hand for the State expenditure

of Federal TANF funds.

Qualified State Expenditures. This term refers to expenditures that

count for TANF MOE purposes (at section 409(a)(7)). By regulation, we

are proposing that most of the requirements that apply for countable

TANF MOE expenditures also apply for Contingency Fund MOE purposes.

TANF MOE. This term refers to the expenditure of State funds that a

State must make in order to meet the MOE requirement at section

409(a)(7).

Contingency Fund MOE. This term refers to expenditures of State

funds that a State must make in order to meet the Contingency Fund MOE

requirements under sections 403(b) and 409(a)(10). States must meet

this MOE level in order to retain contingency funds made available to

them for the fiscal year. Note that this term is more limited in scope

than the term ``TANF MOE.'' See discussion at subpart B of part 274 for

additional details.

State MOE expenditures. This term refers to any expenditure of

State funds that may count for TANF MOE or Contingency Fund purposes.

It includes both State TANF expenditures and expenditures under

separate State programs.

State TANF expenditures. This term encompasses the expenditure of

State funds within the State's TANF program. It identifies the only

expenditures that can be counted toward the Contingency Fund MOE,

except for expenditures made under the Child Care and Development Fund.

It includes both commingled and segregated State TANF expenditures.

Commingled State TANF expenditures. This term identifies the

expenditure of State funds, within the TANF program, that are

commingled with Federal funds. Such expenditures may count toward both

the State's TANF MOE and Contingency Fund MOE. To the extent that

expended State funds are commingled with Federal funds, they are

subject to the Federal rules.

Segregated State TANF expenditures. This term identifies State

funds expended within the TANF program that are not commingled with

Federal funds. Such expenditures count for both TANF MOE and

Contingency Fund MOE purposes. They are not subject to many of the TANF

requirements that apply only to Federal funds (including time limits).

Separate State program. This term identifies programs operated

outside of TANF in which the expenditure of State funds count toward

TANF MOE, but generally does not count for Contingency Fund MOE. With

one exception (for CCDF expenditures), expenditure of State funds must

be made within the TANF program in order to count as MOE for

Contingency Fund purposes.

The definitions also distinguish among different categories and

amounts of TANF grant funds. These distinctions are important because

they affect the size of grant adjustments and total funding available

to the State. In some

[[Page 62132]]

cases, different spending rules apply to different categories of funds.

State Family Assistance Grant (or SFAG). This term refers to the

annual allocation of Federal funds to a State under the formula at

section 403(a)(1).

Adjusted State Family Assistance Grant, or ``Adjusted SFAG.'' This

term refers to the grant awarded to a State through the formula and

annual allocation at section 403(a)(1), minus any reductions due to the

implementation of a Tribal TANF program to serve Indians residing in

the State. You should note the distinction between this term and the

``SFAG,'' because of their significance in determining spending

limitations and the amount of penalties that might be assessed against

a State under parts 271-275.

TANF funds. This term includes not just amounts made available to a

State through the SFAG, but also other amounts available under section

403, including bonuses, supplemental grants, and contingency funds.

Federal funds. This has the same meaning as ``TANF funds.'' In

expending Federal funds, States are subject to more restrictions than

they are in expending State MOE as discussed in this NPRM under subpart

B of part 273.

You should also note the definition of ``assistance'' proposed in

this section.

Assistance. The terms ``assistance'' and ``families receiving

assistance'' are used in the PRWORA in many critical places, including:

(1) in most of the prohibitions and requirements at section 408, which

limit the provision of assistance; (2) in the numerator and denominator

of the work participation rates in section 407(b); and (3) the data

collection requirements of section 411(a). Largely through reference,

the term also affects the scope of the penalty provisions in section

409. Thus, it is important that States have a definition of

``assistance.'' At the same time, because TANF replaces AFDC, EA and

JOBS, and provides much greater flexibility than these programs, what

constitutes assistance is less clear than it was in the past.

Because PRWORA is a block grant, and it incorporates three

different programs, a State may provide some forms of support under

TANF that would not commonly be considered public assistance. Some of

this support might resemble the types of short-term, crisis-oriented

support that was previously provided under the EA program. Other forms

might be more directly related to the work objectives of the Act and

not have a direct monetary value to the family. We are proposing to

exclude some of these forms of support from the definition of

assistance.

The general legislative history for this title indicates that

Congress meant that this term encompass more than cash assistance;

beyond that, it is not very informative (H.R. Rep. No. 725, 104 Cong.,

2d Sess (1996)). Our consultations did not produce clear guidance in

this area either. However, they did identify some areas where

clarification would be helpful. Therefore, this proposed rule contains

essentially the same definition as we suggested in our January policy

announcement (TANF-ACF-PA-97-1), with some additional clarifications.

In our January proposal, we took the view that the definition of

assistance should encompass most forms of support. However, we

recognized two basic forms of support that would not be considered

welfare and proposed to exclude them from the definition. In brief, the

two exclusions were: (1) services that had no direct monetary value and

did not involve direct or indirect income support; and (2) one-time,

short-term assistance.

In the proposed rule, we are clarifying that child care, work

subsidies, and allowances that cover living expenses for individuals in

education or training are included within the definition of assistance.

For this purpose, child care includes payments or vouchers for direct

child care services, as well as the value of direct child care services

provided under contract or a similar arrangement. It does not include

child care services such as information and referral or counseling, or

child care provided on a short-term, ad hoc basis. Work subsidies

includes payments to employers to help cover the costs of employment or

on-the-job training.

We are also proposing to define one-time, short-term assistance as

assistance that is paid no more than once in any twelve-month period,

is paid within a 30-day period, and covers needs that do not extend

beyond a 90-day period. In response to the policy announcement, we

received a number of questions about what the term ``one-time, short-

term'' meant. Based on our experience with the EA program, we realized

that a wide range of interpretations was possible, and we were

concerned that States might try to define as ``short-term'' or ``one-

time'' many situations where assistance was of a significant and

ongoing nature. We hope our proposal will give States the flexibility

to meet short-term and emergency needs (such as an automobile repair),

without invoking too many administrative requirements and undermining

the objectives of the Act. We welcome comments on whether the proposed

policy achieves this end.

Under the policy announcement and proposed rule, we define the

minimum types of services and benefits that must be included. Based on

comments we received, we considered allowing States to include

additional kinds of benefits and services, at their option. However, we

were concerned that varying State definitions would create additional

comparability problems with respect to data collection and penalty

determinations. Also, we were concerned that an expanded definition

might have undesirable program effects. For example, it could extend

child support assignment to cases where it would not be appropriate.

If States expanded their definitions of assistance, they would have

to apply that same definition under all provisions of the regulations.

Thus, if something fell within the definition of assistance, the family

receiving that type of benefit would be subject to data collection and

reporting, child support assignment and cooperation requirements, work

requirements, and Federal time limits. In response to the policy

announcement, we have also received a number of questions about the

treatment of TANF assistance under the child support enforcement

program. The Office of Child Support Enforcement will be issuing

guidance on the distribution of child collections under PRWORA; this

guidance will explain the treatment of TANF assistance under the new

distribution rules.

For those concerned about the inclusion of child care in the

definition of assistance, we would point out the child care

expenditures made under the CCDBG program are not subject to TANF

requirements, and States have the authority to transfer up to 30

percent of their TANF grant to the CCDBG program.

We are proposing to collect data on how much of the program

expenditures are being spent on different kinds of ``assistance'' and

``non-assistance.'' See the discussion of the TANF Financial Report at

part 275 for additional details.

If the data show that large portions of the program resources are

being spent on ``non-assistance,'' we would have concerns that the

flexibility in our definition of ``assistance'' is undermining the

goals of the legislation. We would then look more closely at the ``non-

assistance'' being provided and try to assess whether work

requirements, time limits, case-record data and child support

assignment would be appropriate for those cases. If necessary, we would

consider a change to the

[[Page 62133]]

definition of ``assistance'' or other remedies.

You should also note the definitions of ``waiver'' and

``inconsistency'' in this part.

Waiver and Inconsistency. Under the new section 415, States that

received approval for welfare reform waivers under section 1115 before

July 1, 1997, have the option to operate their cash assistance programs

under some or all of these waivers. For States electing this option,

provisions of the new law that are inconsistent with the waivers do not

take effect until the expiration of the applicable waivers. States have

raised numerous questions about how we will interpret this provision,

particularly with regard to what is a waiver and an inconsistency.

Since a waiver extension might affect the application of certain of

the penalty provisions within a State, we are defining both terms. Part

of our responsibility in administering the penalty provisions is to

provide notice concerning the rules we will utilize in applying the

penalties.

The issue in defining waiver concerns the scope of the provision,

specifically how much of the current or underlying law (i.e., the

provisions of title IV-A as in effect on August 21, 1996) are properly

considered to be part of the waiver. Three possible interpretations

were suggested. The first is a very limited definition in which a

waiver is only the specific change to the AFDC statute as articulated

in the waiver list that was included in the terms and conditions for

each demonstration project. The second possible interpretation is that

a waiver includes all the underlying law; that, in effect, the AFDC

statute, as modified by the waiver terms and conditions, would continue

to apply in a State continuing a demonstration project. The third

interpretation is that the waiver includes only some parts of the

unwaived underlying law.

We believe the third option is the best. It seems most consistent

with the Congressional intent to allow States to finish testing the

welfare reform policies they had initiated through waivers by allowing

sufficient flexibility to continue relevant aspects of those policies.

It recognizes that, although some requirements may not have

specifically been part of the waiver (as there was no need for a waiver

under AFDC), the requirements are an integral part of the demonstration

embodied in the waiver.

The first interpretation option is too narrow to allow continuation

of many demonstration objectives; thus, it seems inconsistent with the

Congressional intent. Similarly, to allow a State to continue the AFDC

program in its entirety, even when a particular AFDC provision was not

necessary to the demonstration, would seem to frustrate the intent of

Congress in enacting TANF. Rather, we believe section 415 was intended

to allow States to continue their reform policies, but not the AFDC

program in its entirety.

The definition of ``waiver'' we are proposing allows a State the

flexibility to include applicable provisions of prior law, but only if

their inclusion were necessary to achieve the objective of the approved

waiver.

At Sec. 271.60, we provide an example of the application of the

definitions of waiver and inconsistent to the work requirements and

explain their implications. We also discuss the application of the

definitions to control and experimental groups.

After extensive deliberations, we have also defined what makes the

new law ``inconsistent'' with a waiver. We propose that a provision of

TANF is inconsistent with a waiver only if the State must change its

waiver policy in order to comply with the TANF requirement. A TANF

provision is not inconsistent if it is possible for the TANF

requirement and the waiver policy to operate concurrently.

For example, if the State has a time limit that runs for two years

and then has extensions if the recipient is ``playing by the rules,''

that time limit can run in tandem with the Federal time limit until the

five-year limit on Federal assistance is reached. At that point, the

TANF restriction would be inconsistent with providing further

assistance under the demonstration's extension. However, since there is

an inconsistency at that point, section 415 would allow a State to

continue such assistance until the demonstration ended.

We considered two alternative definitions of inconsistency. The

first was that just having a waiver that differs in any respect from

the TANF requirement creates an immediate inconsistency. For example,

under this definition, the State time limit and the Federal time limit

would run sequentially. However, this definition seems to create an

artificial inconsistency where one does not exist in fact; thus, it

seems contrary to the statute.

The second alternative was to find that a waiver was not

inconsistent with the TANF provisions of the law if TANF restrictions

related only to the expenditure of Federal funds and did not prohibit

States from continuing their waiver policies with their own funds.

However, application of this theory could lead to a finding of no

inconsistency for all waiver provisions, including those in the major

areas of work and time limits. It would thus render section 415

meaningless.

At Sec. 274.1, we provide additional discussion regarding the

implications of our definition of inconsistency.

You should also note the definitions of ``Family Violence Option,''

``good cause domestic violence waiver,'' and ``victim of domestic

violence.''

Family Violence Option, Good Cause Domestic Violence Waivers, and

Victims of Domestic Violence. These definitions are relevant to State

claims of ``reasonable cause'' for failing to meet the work

participation rate and time-limit requirements of the Act. Under parts

271 and 274, a State's decision to implement the Family Violence Option

and its provision of good cause waivers to victims of domestic violence

under that provision create a special-case situation that may affect a

State's eligibility for a reasonable cause exception from these two

penalties.

Finally, we would like you to note that Sec. 273.0(b) contains a

definition of ``administrative costs.'' This definition is important

because States are subject to 15 percent caps on the amount of Federal

TANF and State MOE funds they may spend on administrative activities.

When are these provisions in effect? (Sec. 270.40)

This section of the proposed rules provides only the general time

frames for the effective dates of the TANF provisions. Many of the

penalty and funding provisions have delayed effective dates. For

example, most penalties would not be assessed against States in the

first year of the program, and reductions in grants due to penalties

would not occur before FY 1998 because reductions take place in the

year following the failure. You should look to the discussion on the

individual regulatory sections for specific information on effective

dates.

This section also makes the important point that we will not

retroactively apply rules against States. With respect to any actions

or behavior that occurs before we issue final rules, we will judge

State actions and behavior only against a reasonable interpretation of

the statute.

B. Part 271--Ensuring That Recipients Work

What does this part cover? (Sec. 271.1)

This section identifies the scope of part 271: the mandatory work

requirements of TANF.

[[Page 62134]]

What definitions apply to this part? (Sec. 271.2)

This section cross-references the general definitions for the TANF

regulations established under part 270.

Supart A--Individual Responsibility

During our extensive consultations, a number of groups and

individuals asked how the requirements on individuals relate to the

State participation requirements and penalties. To help clarify what

the law expects of individuals as opposed to the requirements it places

on States, we have decided to outline a recipient's statutory

responsibilities as part of the proposed rules. In so doing, we only

paraphrase the statute, without interpreting these provisions.

Inclusion of these provisions in the regulation does not indicate our

intent to enforce these statutory provisions, but our expectation is

that States will meet these requirements. We have included the

requirements in the regulation for informational and contextual

reasons.

What work requirements must an individual meet? (Sec. 271.10)

PRWORA promotes self-sufficiency and independence by expanding work

opportunities for welfare recipients while holding individuals to a

higher standard of personal responsibility for the support of their

children. The legislation expands the concept of mutual responsibility,

introduced under the Family Support Act of 1988. It espouses the view

that income assistance to families with able-bodied adults should be

transitional and conditioned upon their efforts to become self-

sufficient. As States and communities assume new responsibilities for

helping adults get work and earn paychecks quickly, parents face new,

tougher work requirements.

Readers should understand that the law imposes a requirement on

each parent or caretaker to work (see section 402(a)(1)(A)(ii)). That

requirement applies when the State determines the individual is ready

to work, or after (s)he has received assistance for 24 months,

whichever happens first. For this requirement, the State defines what

work activities meet the requirement.

In addition, there is a requirement that each parent or caretaker

participate in community service employment if s(he) has received

assistance for two months and is not either engaged in work in

accordance with section 407(c) or exempt from work requirements. The

State must establish minimum hours of work and the tasks involved. A

State may opt out of this provision if it chooses. A State may impose

other work requirements on individuals, but there is no further Federal

requirement to work.

These individual requirements are different from the work

requirements described at section 407. Section 407 applies a

requirement on each State to engage a certain percentage of its total

caseload and a certain percentage of its two-parent caseload in

specified work activities. For the State requirement, the law lists

what activities meet the requirement. A State could chose to use this

statutory list for the first requirement on individuals, but is not

required to do so. Subpart B below explains more fully what the

required work participation rates are for States and how they are

calculated. Subpart C explains the work activities and when an

individual is considered ``engaged in work'' for those rates.

Which recipients must have an assessment under TANF? (Sec. 271.11)

Each State must make an initial assessment of the skills, prior

work experience and employability of each recipient who is at least 18

years old, or has not completed high school (or equivalent) and is not

attending secondary school.

With respect to the timing of assessments, within 90 days of the

effective date of the State's TANF program (or up to 180 days, at State

option), the State may assess an individual who is already receiving

benefits as of that date. For any other recipient, the State may make

the assessment within 30 days of the date on which the individual is

determined to be eligible for assistance, but may increase this period

to as much as 90 days. For example, if a State begins operating its

TANF program on July 1, 1997, it may assess all individuals in its

existing caseload by September 30, 1997 (or, at State option, December

31, 1997). For any individual applying after July 1, 1997, the State

may do an assessment within 30 days (or 90 days, at State option).

What is an individual responsibility plan? (Sec. 271.12)

A State may require individuals to adhere to the requirements of an

individual responsibility plan. Developed in consultation with the

individual on the basis of the initial assessment described above, the

plan should set forth the obligations of both the individual and the

State. It should include an employment goal for the individual and a

plan to move him/her into private-sector employment as quickly as

possible. The proposed regulation includes more detailed suggestions

for the content of an individual responsibility plan.

May an individual be penalized for not following an individual

responsibility plan? (Sec. 271.13)

If the individual does not have good cause, (s)he may be penalized

for not following the individual responsibility plan that (s)he signed.

The State has the flexibility to establish good cause criteria, as well

as to determine what is an appropriate penalty to impose on the family.

This penalty is in addition to any other penalties the individual may

have incurred.

What is the penalty if an individual refuses to engage in work?

(Sec. 271.14)

If an individual refuses to engage in work in accordance with

section 407, the State must reduce the amount of assistance otherwise

payable to the family pro rata (or more, at State option) for the

period during the month in which the individual refused, subject to

good cause and other exceptions determined by the State. The State also

has the option to terminate the case.

Each State may establish its own criteria for determining when not

to impose a penalty on an individual. States may also establish other

rules governing penalties as needed.

Under the Family Violence Option, a State may waive work

requirements in cases where compliance would make it difficult for an

individual to escape domestic violence or would unfairly penalize

individuals who are or have been victimized by such violence or

individuals who are at risk of further domestic violence. The State

must determine that the individual receiving the program waiver has

good cause for failing to comply with the standard work requirements.

Can a family be penalized if a parent refuses to work because (s)he

cannot find child care? (Sec. 271.15)

A State may not reduce or terminate assistance to a single

custodial parent caring for a child under age six for refusing to

engage in required work, if the parent demonstrates an inability (as

determined by the State) to obtain needed child care. This exception

applies to penalties the State imposes for refusal to engage in work in

accordance with either section 407 or section 402(a)(1)(A)(ii) of the

Act. The parent's demonstrated inability must be for one of the

following reasons:

Appropriate child care within a reasonable distance from

the

[[Page 62135]]

individual's home or work site is unavailable;

Informal child care by a relative or under other

arrangements is unavailable or unsuitable; or

Appropriate and affordable formal child care arrangements

are unavailable.

This penalty exception underscores the pivotal role of child care

in supporting work and also recognizes that the lack of appropriate,

affordable child care can create unacceptable hardships on children and

families. To keep families moving toward self-sufficiency, and to

assess the State's compliance with this penalty exception, we have

described in the preamble to Sec. 274.20 our expectation that States

will have a process or procedure that: (1) Enables a family to

demonstrate its inability to obtain needed child care; (2) informs

parents that the family's benefits cannot be reduced or terminated when

they demonstrate that they are unable to work due to the lack of child

care for a child under the age of six; and (3) advises parents that the

time during which they are excepted from the penalty will still count

toward the time limit on benefits at section 408(a)(7).

Because the State has the authority to determine whether the

individual has demonstrated adequately an inability to obtain needed

child care, as the regulations indicate, we expect the State to define

the terms ``appropriate child care,'' ``reasonable distance,''

``unsuitability of informal care,'' and ``affordable child care

arrangements.'' The State should also provide families with the

criteria, including the definitions, that it will use to implement the

exception and the means by which a parent can demonstrate an inability

to obtain needed child care.

The proposed regulations for the Child Care and Development Fund

(CCDF) reinforce the importance of providing this vital information to

parents by requiring the child care Lead Agency, as part of its

consumer education efforts, to inform parents about: (1) The penalty

exception to the TANF work requirement; (2) the State's process or

procedure for determining a family's inability to obtain needed child

care; and (3) the fact that the exception does not extend the time

limit for receiving assistance. The information must also include the

definitions or criteria that the State employs to implement the State's

determination process.

Under the proposed CCDF rule, we would require the Lead Agency for

child care to coordinate with the TANF agency in order to understand

how the TANF agency defines and applies the terms of the statute

regarding the penalty exception and to include the definitions (listed

above) and criteria in the CCDF plan.

Thus, the proposed CCDF rule requires that the Lead Agency would

submit the definitions and criteria used by the State in determining

whether child care is available. We took this child care proposal into

consideration in drafting our proposed rule. Under Sec. 271.15, we

would require that the definitions and criteria be submitted, but would

not require that the TANF agency submit them directly. Our goal is to

ensure that these items are made available for audit and penalty

purposes and that they be part of the public record.

If, based on the child care final rule, we would not expect to

receive the criteria and definitions from the Lead Agency, we would add

a data element to one of the proposed TANF reporting forms (such as the

annual addendum) to incorporate them.

Does the imposition of a penalty affect an individual's work

requirement? (Sec. 271.16)

Section 408(c) of the Act, as amended by section 5001(h) of Pub. L.

105-33, clarifies that sanctions against recipients under TANF ``shall

not be construed to be a reduction in any wage paid to the

individual.'' This means that imposition of such penalties would not

result in a reduction in the number of hours of work required.

Subpart B--State Accountability

How will we hold a State accountable for achieving the work objectives

of TANF? (Sec. 271.20)

Work is the cornerstone of welfare reform. Research has

demonstrated that early connection to the labor force helps welfare

recipients make important steps toward self-sufficiency. The rigorous

work participation requirements embodied in the legislation provide

strong incentives to States to concentrate their resources in this

crucial area. This summary section makes the legislation's focus on

work and the requirements for work clear, while other sections address

each of these areas in more detail.

This section of the proposed regulations describes what a State

must do to meet the overall and two-parent work participation rates. It

explains that a State must submit data to allow us to measure each

State's success with the work participation rates. It notes that a

State meeting the minimum rates will have a reduced MOE requirement but

that a State failing to meet them risks a financial penalty.

What overall work rate must a State meet? (Sec. 271.21)

Section 407(a) establishes two minimum participation rates that a

State must meet for FYs 1997 through 2002 and thereafter. The first,

the overall work rate, is the percentage of all families receiving

assistance who must participate in work activities by fiscal year. This

section lists the statutory overall participation rate by fiscal year.

The second is the work rate for two-parent families, addressed below at

Secs. 271.23 and 271.24.

How will we determine a State's overall work rate? (Sec. 271.22)

This section of the proposed regulation restates in clear terms the

participation rate calculation specified in the statute. In particular,

without changing its meaning, we have phrased the denominator in a way

that we think is easier to understand than the statutory language.

We received many requests for guidance concerning how, for purposes

of the participation rates, a State should treat a family that it

exempts from work requirements. A State has the flexibility to

establish any exemptions it chooses; however, with two exceptions

(discussed below), the legislation offers no room to remove categories

of recipients from the denominator. PRWORA embodies the views that: (1)

Work is the best way to achieve independence; and (2) each individual

should participate to his or her greatest ability. As waiver projects

have demonstrated, innovative State programs can often find meaningful

ways for nearly every recipient to participate in work-related

activities. Therefore, the statute and the proposed regulation require

nearly all families to be included in the calculation of the

participation rates.

The proposed regulation makes clear that a State may count as a

month of participation any partial months of assistance, if an adult in

the family is engaged in work for the minimum average number of hours

in each full week that the family receives assistance in that month.

These families are already included in the denominator since they are

recipients of assistance in that month.

This provision ensures that a State receives credit for its efforts

in the first and last months that a family receives assistance. Without

it, a State would have an inadvertent incentive to start and end

assistance as close as possible to the beginning of the month, rather

than as families need it. We think that measuring work in full weeks of

[[Page 62136]]

assistance during a partial month is consistent with the spirit of

PRWORA. We have proposed the same policy for partial months of

assistance under the two-parent rate at Sec. 271.24.

During the development of the proposed regulation and in

consultation with stakeholders, one important topic of discussion was

how to treat victims of domestic violence whom the State is helping

under the Family Violence Option (FVO), under section 402(a)(7). We

recognize that there are circumstances in which a State should and will

temporarily waive work requirements for some domestic violence victims.

One question we considered was how such waivers would affect the

calculation of the participation rates.

Many commenters urged us to remove all victims of domestic violence

from the denominator of a State's participation rate so that the State

would not be penalized for choosing to develop appropriate responses to

their problems. Instead of changing the basic calculation of the work

participation rates, we chose to address this situation under the

definition of ``reasonable cause'' for States failing to meet their

rates. Our approach is targeted, so as not to provide blanket

exemptions for those who have ever suffered domestic violence, but

instead to provide appropriate protections and supports for TANF

recipients who need them.

We believe that keeping recipients who are being assisted under the

FVO in the calculation is the better reading of the statute. In the

calculation of work participation rates, the statute provides only two

exemptions from the denominator: one for a single custodial parent of a

child under 12 months old; the other for a recipient who is being

sanctioned but has not been so for more than three of the last 12

months. The law is very specific concerning these exemptions and does

not provide for others.

We believe victims of domestic violence and the objectives of the

Act will be best served if we maintain the integrity of the work

requirements and promote appropriate services to the victims of

domestic violence. Service providers who work closely with victims of

domestic violence attest that work is often a key part of the solution

to domestic violence problems; it may provide both emotional support

and a path to financial independence. Thus, we do not want to create an

incentive for States to waive work requirements routinely for a

recipient who does not need such a waiver.

However, we also hear that, in some cases, going to work may

aggravate tensions with a batterer and place the victim at risk of

further danger. Under our proposed rules, States should feel free to

provide temporary waivers of work requirements in such cases.

Given the pressure States are under to meet the work participation

rates, and the individualized circumstances that domestic violence

victims face, we have concerns that automatically removing victims of

domestic violence from the calculations could result in inappropriate

exemptions or deferrals of work requirements for victims of domestic

violence. We also have concerns that it could result in diversion of

resources away from these families to other categories of recipients.

We believe our ``reasonable cause'' proposal and our strategy for

monitoring the effect of these provisions will protect against these

possible negative effects.

You will also note that this section of the regulation addresses

our concern that States could use the flexibility inherent in the

statute and these regulations to avoid the work participation rates for

certain families in the TANF program. Because the participation rates

include only those families receiving assistance that include an adult,

the possibility exists that States could try to keep cases out of the

calculation by converting them to child-only cases. Under our proposal,

States would continue to have discretion in defining ``families

receiving assistance'' and deciding the circumstances under which

adults and children receive assistance in the State. However, we would

reserve the right to add cases back into the calculation if we

determine that a State was defining families solely for the purpose of

avoiding a work penalty. Also, we are proposing to require that States

submit annual reports to us specifying how many families were excluded

from the overall work participation rate, together with the basis for

any exclusions.

Please see Sec. 271.52 of the proposed regulations for further

discussion of the reasonable cause criteria.

What two-parent work rate must a State meet? (Sec. 271.23)

As with Sec. 271.21, this section restates the minimum work

participation rates for two-parent families established in the statute.

States should note the sharp increases in the two-parent

participation rate. Congress has high expectations that States will

help the vast majority of adults in two-parent families find jobs or

participate in other work activities. We note that most States had

difficulty meeting the less ambitious JOBS participation rates for

unemployed parent families (UPs), the primary two-parent cases under

AFDC. For several reasons, the new rates under TANF are much more

demanding than they were under JOBS. First, the TANF rate is a ``two-

parent'' rate, not a rate just for UPs. Secondly, the denominator

includes much more of the caseload; it recognizes many fewer

exemptions. Finally, PRWORA lifted the restrictions on providing

assistance to two-parent families. Thus, in some States, many more two-

parent families could be eligible for assistance and subject to the

work requirements than under prior law.

We strongly encourage each State to consider carefully what it must

do to get two-parent families working. In some cases, States may need

to make substantial changes to their program designs over time. In the

first few years of operating TANF, the participation rates are at their

lowest and pro rata reductions may significantly reduce the minimum

required rates. We think it is important for States to capitalize on

this initial period to invest in program designs that will allow them

to achieve the higher participation rates in effect in later years. We

intend to assist States in this endeavor through technical assistance

and by sharing promising models as they emerge.

Finally, we would like to make it clear that providing a non-

custodial parent with TANF services need not cause a State to consider

the family a two-parent family for the purposes of the participation

rate. States could define two-parent families as those with two parents

living in the same household.

How will we determine a State's two-parent work rate? (Sec. 271.24)

The proposed regulations express the two-parent work participation

rate in terms very similar to those we used for the overall rate.

States should note that any family that includes a disabled parent is

not considered a two-parent family for purposes of the participation

rate and, thus, is not included in the numerator or denominator of the

two-parent rate. They should also note the prohibition against defining

families receiving assistance for the purpose of excluding cases from

two-parent participation rate. (See Sec. 271.22 for additional

discussion.)

It is important to note that, in accordance with the statute, we

calculate both participation rates in terms of families, not

individuals. Whether we include the family in the numerator depends on

the actions of individuals, but an entire family either

[[Page 62137]]

counts toward the rate or does not. In the case of a two-parent family,

whether a family counts may depend on the actions of both parents.

Section 408(a)(7) limits the receipt of Federal TANF assistance to

60 months for any family, unless the family qualifies for a hardship

exception or disregard of a month of assistance. (In our discussion of

Sec. 274.1, we explain that months of receipt are disregarded when the

assistance was received either: (1) by a minor child who was not the

head of a household or married to the head of a household; or (2) while

an adult lived in Indian country or in an Alaska Native Village with 50

percent or greater unemployment.) We have received inquiries concerning

the effect of a time-limit exception or disregard on the participation

rates. In fact, the time limit does not have a bearing on the

calculation of the participation rate. All families must be included in

the participation rate, unless they have been removed from the rate for

one of the two work-related exemptions (i.e., the family is subject to

a penalty but has not been sanctioned for more than three of the last

12 months, or the parent is a single custodial parent of a child under

one year of age and the State has opted to remove the family from the

rate).

Does a State include Tribal families in calculating these rates?

(Sec. 271.25)

States have the option of including in the participation rates

families in the State that are receiving assistance under an approved

Tribal family assistance plan or under a tribal work program. If the

State opts to include such families, they must be included in the

denominator, as well as the numerator where appropriate. We are

particularly interested in receiving comments relating to the

implementation of this option, such as Tribal reporting of

participation information to the State.

Subpart C--Work Activities and How To Count Them

What are ``work activities?'' (Sec. 271.30)

Section 407(d) specifies the twelve work, training, and education

activities in which individuals may participate in order to be

``engaged in work'' for the purpose of counting toward the work

participation rate requirements. Congress did not define these

activities further. Some have commonly understood meanings from their

use over time or from operational definitions adopted by prior

employment and training programs. But several of the permissible

activities, such as ``vocational educational training'' and ``job

readiness assistance,'' do not have commonly understood meanings and

are subject to interpretation. Because these terms lack a common

definition or understanding, we began receiving questions soon after

the enactment of PRWORA about whether we would define them in the

rules.

To address this problem, we first examined legislative intent. In

enacting TANF, Congress wanted to give States significant flexibility

in administering TANF and limit Federal authority to regulate. At the

same time, Congress wanted to create a work-focused program of time-

limited assistance. In addition, it established significant data

reporting requirements for States, including information about the

activities in which individuals participate. As discussed below, these

three purposes do not clearly point in the direction of more or less

definition. Thus, the statute itself did not clearly resolve the

matter.

Secondly, we engaged in wide and extensive consultation with a

variety of groups to determine what others thought about the definition

issue. Most groups, particularly States and their organizational

representatives, overwhelmingly urged us not to define the work

activities further and recommended that definitions be left to States.

They suggested that we could use this preamble to underscore the

flexibility and latitude intended by the statute, especially in

vocational education. A few individuals asked whether a State would be

subject to a penalty if it did not define activities in a way we

thought appropriate. They suggested providing illustrative examples or

including guidance in the preamble on activities that could not count

as work. Several participants thought that we should offer general

guidance on the definition of activities to ensure uniform data

reporting across States.

Representatives of the education community and some from the labor

community expressed concerns about how work-focused activities will

affect programs that have been operating under the Job Opportunities

and Basic Skills Training (JOBS) program. They emphasized the positive

correlation between educational attainment and job acquisition and

advancement, as well as the importance of parental education levels and

involvement in the education of their children. They also expressed

concern that, without additional education and training, many families

will find it difficult to hold meaningful employment, much less to

advance. They wanted us to take this opportunity to define work

activities in ways that fostered education while promoting work.

In this regulation, we are proposing not to define the individual

work activities. In making our decision, we considered the following.

Congress did not define the terms and clearly gave States overall

flexibility to design their programs. Certainly, one element of that

flexibility could be to allow each State to define the work activities

in order to address its unique needs and circumstances.

We recognize that definitions of terms could help clarify the

parameters of a work-focused program design. For example, without

Federal definitions, States could conceivably include a range of

activities that may not enhance work skills or might not be considered

``work experience'' by potential employers. However, in light of the

five-year time limit, we expect that States will be very careful to

establish programs that do not work to prolong a family's use of

assistance.

After considering the extensive input we received, we think that

the goals and objectives of the legislation will be better served by

having each State define the work activities. We believe States will

use the flexibility of the statute to formulate a variety of reasonable

interpretations leading to greater innovation, experimentation, and

success in helping families become self-sufficient quickly.

Because the flexibility could also be used in ways that do not

further Congressional intent, we are requiring each State to provide us

with its definitions of work activities for both TANF and separate

State programs under the data collection requirements at Secs. 275.9

and 273.7. We are concerned that different TANF definitions could

affect the vulnerability of States to penalties for failure to meet the

participation rate. This data collection will help us determine whether

this is in fact a serious problem; to the extent possible, we want to

ensure an equitable and level playing field for the States. Over the

next several years, we will carefully assess the types of programs and

activities States develop and will actively publicize and share the

results of our findings. If necessary at some time in the future, we

will initiate further regulatory action.

Before leaving the subject of work activities and program design,

we would like to remind States about some key research findings from

prior welfare-to-work programs. According to the Manpower Demonstration

Research Corporation's publication, Work First:

The most successful work first programs have shared some

characteristics: a mixed

[[Page 62138]]

strategy including job search, education and training, and other

activities and services; an emphasis on employment in all

activities; a strong, consistent message; a commitment of adequate

resources to serve the full mandatory population; enforcement of

participation requirements; and a cost-conscious management style.

While the most successful programs consistently and strongly

emphasize work, the actual program designs recognize and address the

critical role education plays in preparing adults for work. As more and

more recipients engage in work, State caseloads may reflect higher

proportions of the educationally disadvantaged. In combination with

other work activities, education may become more important in improving

basic communication, analytical and work-readiness skills of

recipients. Thus, States may need to integrate adult basic skills,

secondary education, and language training within high-quality

vocational education programs. Such program designs encourage

recipients to continue acquiring necessary educational skills and

foster programs that prepare recipients for higher-skill, higher-wage

jobs.

In his most recent ``State of the Union'' address, President

Clinton identified education as his number one priority. He Issued a

call to action for American education based on principles necessary to

prepare people for the 21st century. One principle was to make sure

that learning is available for a lifetime.

We encourage States to adopt program designs that take advantage of

existing educational opportunities. States may use the statutory

flexibility to design programs that promote educational principles by:

Actively encouraging adults and children to finish high

school or its equivalent;

Expecting family members to attain basic levels of

literacy and to supplement their education in order to enhance

employment opportunities;

Encouraging family literacy; and

Promoting community-based work-related vocational

education classes, created in collaboration with employers.

States could also make it easier for individuals to combine school

and work. For example, they could develop on-campus community work

experience program positions, where child care is also available. They

could also encourage schools to use work-study funds for students on

welfare and then count the hours worked in those programs toward work

requirements.

While we have not regulated the definition of work activities, we

want to ensure that recipients and children both experience positive

outcomes. This is a particularly significant issue when child care is

the work activity. For this to happen, child care arrangements should

be well developed, implemented and supported.

Research has found that quality child care is critical to the

healthy development of children and that providers who choose to care

for children create more nurturing environments than those who feel

they have no choice and are providing care only out of necessity. Thus,

States should assess whether recipients have an interest in providing

child care before assigning them to this activity.

In addition, States should provide training, supervision and other

supports to enhance caregiving skills if they wish recipients to attain

self-sufficiency. Such supports would assist the development of both

the caregivers and the children in care.

A State that assesses the individual's commitment to child care and

provides opportunities for training in health and safety (e.g., first

aid and CPR), nutrition, and child development, should see successful

outcomes for both the adults and children in care.

Finally, the stability of child care arrangements affects outcomes

for both parents and the children in care. When parents feel

comfortable with their child care arrangements, their own participation

in the work force becomes more stable. Stability fosters emotional

security for children. Thus, stability should be one of the factors

States take into account when assigning participants to child care as a

work activity.

How many hours must an individual participate to count in the numerator

of the overall rate? (Sec. 271.31)

Section 407(c) specifies the minimum hours an individual must

participate to count in the State's participation rate calculation.

There are two related requirements. First, there is a minimum average

number of hours per week for which a recipient must be engaged in work

activities. The average weekly hours are reflected in the following

table:

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

All families

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

and the

If the fiscal year is: Then the average

participation weekly

rate is: hours of

(percent) work are:

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

1997.......................................... 25 20

1998.......................................... 30 20

1999.......................................... 35 25

2000.......................................... 40 30

2001.......................................... 45 30

2002.......................................... 50 30

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

Second, the law requires that at least an average of 20 hours per

week of the minimum average must be attributable to certain specific

activities. These activities are:

Unsubsidized employment;

Subsidized private sector employment;

Subsidized public sector employment;

Work experience;

On-the-job training;

Job search and job readiness assistance for no more than

four consecutive weeks and up to six weeks total in a year;

Community service programs;

Vocational educational training not to exceed 12 months;

Provision of child care services to an individual who is

participating in a community service program.

Note: The limitation that at least 20 hours come from certain

activities does not apply to teen heads of households; however,

there are other limitations related to teen heads of households.

Please refer to Sec. 271.33 below.

After an individual meets the basic level of participation, the

following activities may count toward the total work requirement hours

of work:

Job skills training directly related to employment;

Education directly related to employment for those without

a high school diploma or equivalent;

Satisfactory attendance at a secondary school or GED

course for those without a high school diploma or equivalent.

In our consultations, several people asked whether a State may

average the hours of participation of different recipients to reach the

minimum average hours required by the work participation rate, as they

could in the JOBS program. PRWORA does not permit combining and

averaging the hours of work of different individuals. However, we have

clarified in the rules that a State may average an individual's weekly

work hours over the month to reach the minimum average number of hours

per week that the individual must engage in work.

Our consultations uniformly suggested that we did not need to

provide any further regulatory guidance or clarification in this area.

Thus, in the

[[Page 62139]]

regulatory text, we have paraphrased the statute in simple,

understandable terms.

How many hours must an individual participate to count in the numerator

of the two-parent rate? (Sec. 271.32)

For two-parent families, section 407(c) specifies that the parents

must be participating in work activities for a total of at least 35

hours per week and that a specified number of hours be attributable to

specific work activities. A State may have one parent participate for

all 35 hours, or both parents may share in the work activities. If the

family receives federally-funded child care assistance and an adult in

the family is not disabled or caring for a severely disabled child,

then the parents must be participating for a total of at least 55 hours

per week. As before, a specified number of hours must be attributable

to certain activities (listed below). We summarize the requirements for

two-parent families in the table below:

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

Two-parent families

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

and the

weekly

hours of

If the fiscal year is: then the work

participation (without/

rate is: with

(percent) federal

child care)

are:

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

1997........................................ 75 35/55

1998........................................ 75 35/55

1999........................................ 90 35/55

2000........................................ 90 35/55

2001........................................ 90 35/55

2002........................................ 90 35/55

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

In the first situation (where the weekly total must be at least 35

hours), at least 30 hours must be attributable to the same specific

activities as in the overall rate. In the second situation (where the

weekly total must be at least 55 hours), 50 hours must be attributable

to these activities. Again, these are:

Unsubsidized employment;

Subsidized private sector employment;

Subsidized public sector employment;

Work experience;

On-the-job training;

Job search and job readiness assistance for no more than

four consecutive weeks and up to six weeks total in a year;

Community service programs;

Vocational educational training (for not more than 12

months);

The provision of child care services to an individual who

is participating in a community service program.

Therefore, no more than five of the appropriate minimum hours may

be attributable to education related to employment, high school (or

equivalent), or job skills training activities.

During our consultations, many thought it was unclear whether the

35-hour requirement is a minimum for each week or whether it is a

minimum weekly average, as is the case in the overall rate. For

example, if a parent participated 40 hours one week and 30 hours the

next, the question arises whether (s)he would meet the minimum

requirement for both weeks. To provide maximum flexibility for States

to meet the program goals, we have clarified in the proposed rule that,

as long as the parents' average total hours equal at least 35 hours per

week, the individual meets the participation requirement.

Other than this clarification, we have mirrored the statute in

simple, understandable terms.

What are the special requirements concerning educational activities in

determining monthly participation rates? (Sec. 271.33)

Section 407(c)(2)(C) provides that a teen who is married or the

single head-of-household is deemed to be engaged in work for a month if

(s)he maintains satisfactory attendance at a secondary school or the

equivalent or participates in education directly related to employment

for an average of at least 20 hours per week. Since we have heard few

comments about this provision, our proposed rule paraphrases the

statutory language.

To reinforce the emphasis on work, section 407 limits educational

activities in two ways:

(1) An individual's participation in vocational educational

training may count for participation rate purposes for a maximum of 12

months; and

(2) For each participation rate, not more than 30 percent of

individuals determined to be engaged in work for a month may count by

reason of participation in vocational educational training or, for

teens who are married or single heads of households, either by reason

of maintaining satisfactory attendance at secondary school (or the

equivalent) or participating in education directly related to

employment. Teen parents are only included in the 30 percent limitation

in fiscal year 2000 and thereafter.

When PRWORA was enacted, there was substantial controversy about

precisely how the second limitation would apply. However, Pub. L. 105-

33 modified this provision, making the limitation much clearer. The

description above and the regulation at Sec. 271.33 reflect the new

provision, as amended by Pub. L. 105-33.

Are there any limitations in counting job search and job readiness

assistance toward the participation rates? (Sec. 271.34)

Section 407(c)(2)(A)(i) limits job search and job readiness

assistance in several ways.

First, an individual generally may not be counted as engaged in

work by virtue of participation in job search and job readiness

assistance for more than six weeks. No more than four of these weeks

may be consecutive. During our consultations, we were asked whether

these limitations apply for the lifetime of the individual, per spell

of assistance, or per fiscal year.

Many people recommended treating it as a fiscal-year limit for two

policy reasons. First, since the participation rate itself is tied to

the fiscal year, it makes sense to have the limitation apply to the

same time frame. Second, a different policy could force States to place

individuals in other, less appropriate activities just to meet the

participation rate. Moreover, research indicates that job search

activities are an instrumental component in effective work program

designs.

The statutory language supports the fiscal-year interpretation. The

job search language at 407(c)(2)(A)(i) limiting the weeks of

participation states that the limit is ``notwithstanding paragraph

(1).'' Paragraph (1) refers to the determination of whether a recipient

is engaged in work for a month ``in a fiscal year.'' Thus the reference

to paragraph (1) puts the job search limitation in the context of a

calculating whether an individual is engaged in work in the fiscal

year. Based on these considerations, we have clarified in the proposed

rules that the six-week limitation applies to each fiscal year.

The legislation and our proposed rules allow the six-week limit on

job search and job readiness assistance to extend to 12 weeks if the

unemployment rate of a State exceeds the national unemployment rate by

at least 50 percent, or if the State could qualify as a needy State for

the Contingency Fund.

Finally, our rules paraphrase the statute (at section

407(c)(2)(A)(ii)) in allowing a State to count three or four days of

job search and job readiness assistance during a week as a full week of

participation on one occasion for the individual.

Are there any special work provisions for single custodial parents?

(Sec. 271.35)

Section 407(c)(2)(B) provides a special participation rule for

single parents or caretakers with young children. A single

[[Page 62140]]

parent or caretaker with a child under the age of six will be deemed to

be engaged in work for a month if s(he) participates in work activities

for an average of at least 20 hours per week.

This provision has little relevance in FYs 1997 and 1998, when, for

the overall rate, the required number of hours for all individuals is

20 hours per week. But, when the required number of hours rises to 25

hours per week in FY 1999 and to 30 hours per week thereafter, this

provision allows single parents or caretakers to spend time with

younger children. It also may enable those with young children to

fulfill their work obligations while their children are in preschool

activities.

Because our consultations yielded few comments regarding this

provision, the proposed regulations paraphrase the statute.

Do welfare reform waivers affect what activities count as engaged in

work? (Sec. 271.36)

This section is simply a cross-reference to Sec. 271.60, which

addresses welfare reform demonstration waivers. We thought it would be

helpful to include it so that readers would know to refer to this

important exception to the work activities and hours specified in

subpart C.

Subpart D--Caseload Reduction Factor for Minimum Participation Rates

Is there a way for a State to reduce the work participation rates?

(Sec. 271.40)

Section 407(b)(3) requires us to issue regulations to reduce a

State's minimum participation rate based on reductions in its welfare

caseload. Under this provision, a State's participation rate for any

fiscal year will be reduced by the same number of percentage points as

the reduction in the State's average monthly caseload since 1995. The

reduction reflects the difference between the State's caseload under

the IV-A State plan in effect in FY 1995 and the average number of

cases receiving assistance, including assistance under a separate State

program, in the prior year.

The statute specifies that the reduction must not reflect any

caseload changes that resulted from either Federal requirements or

State changes in eligibility between the previous and current IV-A

programs.

States have an inherent interest in achieving caseload reductions;

this provision increases that interest. If a State were to reduce its

caseload, under the caseload reduction provision it could qualify for

lower participation rate requirements, reduce the risk of a penalty for

failing to meet the work participation rates, and increase its chance

of qualifying for a lower TANF MOE requirement. It could also free up

resources to serve recipients in alternative ways.

How will we determine the caseload reduction factor? (Sec. 271.41)

We found it difficult to develop an appropriate methodology that

could quantify different types of caseload reductions. In our extensive

consultations, we found no straightforward methodology for estimating

the reduction factor.

We considered and rejected two alternative approaches for

calculating the caseload reduction factor.

The first alternative was to use Medicaid records to estimate the

effect of eligibility changes. Initially, we thought this might be a

viable solution because, under section 114 of PRWORA, States continue

to determine Medicaid eligibility on the basis of the AFDC eligibility

rules in effect as of July, 1996. Thus, in theory, this provision might

give us a count of how many individuals would have been eligible for

benefits in the absence of Title IV-A eligibility changes. However,

this option proved not to be feasible because Medicaid data are not

collected in a manner that is useful for this purpose. In addition, the

statute allows States to modify AFDC rules for Medicaid eligibility

purposes; adjusting for such changes would greatly complicate any

estimations.

Our second alternative was to estimate the caseload reduction

factor for each State based on a computer model. The hope was that we

might estimate the caseload effects of State and Federal policy changes

using State-reported information on policy changes and Current

Population Survey household data. However, this option also was not

feasible due to the difficulty of developing computer models that could

accurately estimate the effects on State caseloads. In particular,

using Census data would make it difficult to estimate the effects of

certain policy changes in small States. Finally, we were concerned that

this approach would run counter to our intention of creating a simple,

understandable methodology.

Because of the difficulty we had in establishing a uniform

methodology, we are proposing to determine the appropriate caseload

reductions that apply to each State based on information and estimates

reported to us by the State. The statute specifies that the

responsibility for establishing the caseload reduction factors lies

with us. We will analyze the information and estimates provided,

determine whether we think they are reasonable (based in part on State-

by-State comparisons), and conduct periodic, on-site reviews to

validate the accuracy of the information. This approach involves States

in the process of assessing the causes of caseload changes. It also

tries to ensure program accountability and preserve the focus on work.

As the first step in the process, we will be using the caseload

data reported to us by the State. To establish the caseload base for

fiscal year 1995, we will use the number of AFDC cases reported on ACF-

3697, Statistical Report on Recipients Under Public Assistance. For

fiscal years 1996-1998, we will be using data from this same report,

supplemented by caseload information from the TANF Data Report and the

TANF MOE Data Report, beginning with the fourth quarter of fiscal year

1997, where appropriate. For fiscal years 1999 and beyond, we will only

be using caseload information from the TANF Data Report and the TANF

MOE Data Report to compare against the fiscal year 1995 base year

information. Therefore, in order to qualify for a caseload reduction, a

State must have reported information on monthly caseloads for the

previous year (including cases in separate State programs), based on

the definition of a case receiving assistance, as defined at

Sec. 271.43.

Next, to receive a reduction in the participation rates, a State

must provide us with sufficient data and information to calculate the

reduction. To facilitate such reporting, a State must submit the

Caseload Reduction Report to us containing the following information:

(1) A complete listing of and implementation dates for all

eligibility changes, including those mandated by Federal law, made by

the State since the beginning of FY 1995, and a listing of the reasons

(such as found employment) for case closures;

(2) A numerical estimate of the impact on the caseload of each

eligibility change or case closure reason;

(3) Descriptions of its estimating methodologies, with supporting

documentation; and

(4) A certification from the Governor that it has taken into

account all reductions resulting from changes in Federal and State

eligibility.

States should note that the information required here to make a

determination about the reduction factors is distinct from the case-

record information proposed as an optional reporting requirement at

Sec. 275.3(d).

[[Page 62141]]

We will determine whether the methodology and resulting estimates

are reasonable. We will compare each State's methodology, estimates and

impact against that of other States. We will also review the quality

and completeness of data and the adequacy of the documentation. We may

discuss the estimates and methodologies with State staff and may

request additional information or documentation to make adjustments in

the estimates. We will also conduct periodic, on-site visits and

examine case-record information in order to validate the information,

data and estimates provided.

The proposed regulation requires States to provide us with any

additional information within two weeks of our requesting it. We

realize that this is a short time period, but we have proposed this

deadline because a State's MOE requirement for the fiscal year may

hinge upon the caseload reduction calculations. A State that achieves

the participation rates must only reach 75 percent of its historic

expenditures for the MOE requirement, rather than 80 percent. The

reduction factor may play a significant part in whether States meet the

participation rates. We have given ourselves a limited timeframe of 90

days in which to evaluate, make any necessary modifications, and

establish caseload reduction factors. We must acquire and evaluate any

additional information we need within that period. In light of these

constraints, we think that the two-week timeframe is reasonable.

Many of the eligibility changes States have made have a

differential effect on two-parent cases (compared to the impact on

cases overall). We did a State-by-State comparison of the overall

caseload reductions and the two-parent caseload reduction between

fiscal years 1995 and 1996 and noted dramatic differences for almost

all States. Therefore, we are requiring States to calculate two

separate sets of caseload reduction estimates, one for the overall

caseload and another for two-parent cases. States must base their

overall caseload reduction estimates on decreases in cases receiving

assistance in the prior year compared to the AFDC caseload in FY 1995.

States must base their caseload reduction estimates for two-parent

families on decreases in their two-parent caseload compared to the AFDC

Unemployed Parent caseload in FY 1995.

Which reductions count in determining the caseload reduction factor?

(Sec. 271.42)

In drafting this provision, Congress recognized that some, but not

all, caseload reductions in a State should be allowed to reduce work

participation rates. Allowing States too much credit could mean that

they could avoid accountability for meeting the law's tough new work

requirements; they could simply deny families assistance and face much

lower requirements. Allowing States too little credit would mean that

the States that are most successful in moving families into employment

and off their caseloads would not get the intended reward for their

efforts.

In implementing this provision, therefore, our primary goals were

to: (1) reinforce strongly the work participation requirements of the

Act; (2) give States full credit for caseload reductions that result

from moving people into work; and (3) avoid categorizations of

eligibility changes that would create inadvertent incentives for

changes in State policy that were unrelated to work and harmful to

vulnerable families. Thus, we propose to give States credit for

caseload reductions except when those caseload reductions arise from

changes in eligibility rules that directly affect a family's

eligibility for benefits (e.g., more stringent income and resource

limitations, time limits, grant reductions, changes in requirements

based on residency, age or other demographic or categorical factors). A

State need not factor out calculable effects of enforcement mechanisms

or procedural requirements that are used to enforce existing

eligibility criteria (such as fingerprinting or other verification

techniques) to the extent that such mechanisms or requirements identify

or deter families ineligible under existing rules.

In short, we are seeking to achieve the balance identified by

Congress: that a State should receive credit for moving families off

welfare, but should not be able to avoid its accountability for work as

a result of any changes that restrict program eligibility.

Likewise, a State can argue that some or all of the families in

separate State programs should not be included in this calculation,

based on the type of family served or the nature of benefits provided,

but it must substantiate such a claim with specific data on the family.

Case-record information on the characteristics of families served in

separate State programs and data on the services provided in those

programs will contribute to this discussion. Under part 275 and

Sec. 271.41(e), we propose that States wishing to claim a caseload

reduction factor must report these data.

What is the definition of a ``case receiving assistance'' in

calculating the caseload reduction factor? (Sec. 271.43)

To determine the caseload reduction factor, we will look at

caseloads in both TANF and separate State programs. Using the

definition of assistance proposed under part 270, we propose to base

the calculation on all cases in the State receiving IV-A assistance,

except those receiving one-time, short-term assistance or services with

no monetary value.

When must a State report the required data on the caseload reduction

factor? (Sec. 271.44)

The caseload reduction factors reflect the caseloads in the

previous year compared to FY 1995. For each fiscal year, a State must

report its data by November 15th. We will approve or reject a State's

proposed reduction within 90 days of that date, or by February 15th.

Subpart E--State Work Penalties

While PRWORA embodies State flexibility in program design and

decision-making, it also embodies the principle of accountability.

Where a State does not live up to the minimum standards of performance,

it faces serious financial penalties. One of the principal areas of

accountability is in the State's provision of work and work-related

activities that recipients need to leave the system and become self-

sufficient. The work participation rates are demanding, but designed to

ensure that recipients move as quickly as possible into work and

towards independence. This is especially important given the time-

limited nature of Federal TANF benefits.

Almost all of the groups with which we consulted were interested in

the penalty related to the work participation rates. Most had strong

views about what should be a reasonable cause exception to the penalty.

They stressed that the criteria should be flexible, leaving room to

respond to circumstances in different States. They also urged us to

examine a State's good-faith efforts in determining the severity of a

penalty.

In structuring this part of the proposed regulations, we have

attempted to balance the imperative of State accountability in the work

participation rates with the knowledge that each State enters TANF from

a different standpoint and with different plans for helping its

recipients.

What happens if a State fails to meet the participation rates?

(Sec. 271.50)

In accordance with section 409(a)(3), as amended by Pub. L. 105-33,

if we

[[Page 62142]]

determine that a State has not achieved either or both of the minimum

participation rates in a fiscal year, we must reduce the SFAG payable

for the following fiscal year. The initial penalty is five percent of

the adjusted SFAG and increases by two percentage points for each

successive year that the State does not achieve the participation

rates. We may reduce the penalty amount based on the degree of

noncompliance, as discussed at Sec. 271.51. The total work

participation penalty can never exceed 21 percent of the adjusted SFAG.

(Please refer to Sec. 272.1(d) for a discussion of the total penalty

limit under TANF.)

If a State fails to provide complete and accurate data on work

participation, as required under section 411(a) of the Act and part 275

of the proposed rules, we will determine that a State has not achieved

its participation rates, and the State will be subject to a penalty

under this part. We have the authority to penalize a State that does

not report its work participation data for failure to report (under

section 409(a)(2)). However, in this case, we thought it would be more

appropriate to penalize the State for failure to meet its work rate.

First, this policy is consistent with the approach we are taking when

States fail to report information related to other penalty

determinations. Also, we did not want to create a situation where non-

reporting States would face lesser penalties than reporting States, and

we did not believe duplicate penalties were warranted.

Under what circumstances will we reduce the amount of the penalty below

the maximum? (Sec. 271.51)

The statute requires us to reduce the amount of the penalty based

on the degree to which the State is not in compliance with the required

participation rate. However, it specifies neither the measures of

noncompliance nor the extent of reduction. The proposed rule uses three

criteria to measure the degree of noncompliance. The statute also gives

us the discretion to reduce the penalty if the State's noncompliance

resulted from certain specific causes; we address this latter issue

separately, in the section entitled ``Discretionary Reductions.''

We are proposing that, a State will not receive a penalty reduction

based on the severity of the failure or our discretionary authority, if

a State has diverted cases to a separate State program for the purpose

of avoiding the work participation rates. We want to ensure that each

State makes a serious effort to provide work and work-related

activities in any State-only funded programs. As we indicated in

program announcement TANF-ACF-PA-97-1, we do not believe Congress

intended a State to use separate State welfare programs to avoid TANF's

focus on work.

Required Reduction

In part, we will measure noncompliance on the basis of whether the

State failed one or both rates for the fiscal year and which

participation rate it failed, if only one. First, we believe that a

State that fails the two-parent rate should be subject to a smaller

penalty than a State that fails the overall rate or both. Second, we

believe it is appropriate to consider the size of the two-parent

caseload in deciding how much weight to give a failure of the two-

parent rate only.

In looking at the data for FY 1996, we noted that the two-parent

participation rate on average affects a very small percentage of a

State's entire caseload; the mean State percentage was about 6.6

percent, but the median was only about 2.4 percent.

Under our proposal, the maximum penalty a State would face for

failure to meet the two-parent rate would depend directly on how much

of the total caseload in the State was comprised of two-parent

families.

The State would not get a similar reduction if it failed the

overall rate because all cases, including two-parent cases, are

reflected in the overall rate.

We believe a State that failed with respect to only a small

percentage of its cases should not face a huge penalty. At the same

time, we want to ensure that States make adequate commitments to

achieving the two-parent participation rates and that our policies

support State efforts to extend benefits to two-parent families. We

would like comments as to whether our proposal properly balances these

objectives.

Finally, we will measure noncompliance on the basis of the severity

of a State's failure to achieve the required rate. We are proposing to

reduce the penalty in direct proportion to the State's level of

achievement above a threshold of 90 percent. We would compute a ratio

whose numerator is the difference between the participation rate a

State actually achieved and the applicable threshold rate and whose

denominator is the difference between the applicable required

participation rate and the applicable threshold rate.

For example, assume a State achieved 95 percent of the required

rate, or 5 percentage points above the threshold. These 5 percentage

points represent 50 percent of the difference between the required rate

and the threshold. Therefore, we would reduce by 50 percent that

portion of the penalty (either 90 percent or 10 percent) allocated to

the rate the State failed.

In drafting the regulation, we wanted to strike the right balance

between the importance of work and the requirement to reduce the

penalty based on the degree of noncompliance. Although our first

inclination was to make reductions in proportion to the State's

achievement toward the required rate, our experience in the JOBS

program led us to consider creating a threshold below which we would

grant no reduced penalty. We were concerned that, as in the JOBS

Unemployed Parent participation rates, there would be States whose

level of achievement was negligible, particularly with the two-parent

caseload, and thus did not merit a reduced penalty. Given that

experience, we thought it was essential to have a threshold.

We considered basing the threshold on the past performance of the

States, for example at the 50th or 75th percentile of participation the

previous year. However, the data we had from the JOBS program did not

prove sufficient to determine where we should set such a State

performance threshold. Instead, we chose to establish a threshold as a

percentage of the required participation rate. We set the participation

threshold at 90 percent because of the emphasis in the statute on

making the work penalty meaningful. In particular, Pub. L. 105-33

amended the work penalty provision so that the amount was fixed,

removing the discretion we had under PRWORA to set a lesser penalty

amount. We think this shows Congressional intent that the work penalty

should be meaningful. To avoid undercutting this intent, we believe

that a State should make substantial progress in meeting the target

rates before we should consider a reduction.

Moreover, the threshold works in conjunction with the penalty

allocation we are proposing for failing to meet just one rate. Given

their combined effects, we think it is appropriate to set the threshold

at 90 percent.

We are particularly interested in any comments readers have

concerning the measures of noncompliance we have proposed.

Discretionary Reductions

The proposed regulation also reflects the discretion that we have

to reduce the amount of the penalty if the State could qualify as a

needy State for the Contingency Fund. The definition of ``needy State''

is based on especially high unemployment or large numbers of Food Stamp

recipients in the State. Please see Sec. 270.2 for more discussion of

[[Page 62143]]

how a State qualifies for the Contingency Fund.

Pub. L. 105-33 gave us the added discretion to reduce the penalty

if the State failed to meet the participation rate due to extraordinary

circumstances such as a natural disaster or regional recession. To

ensure that we take any such circumstances into consideration, States

should submit information describing the circumstances and their

effects on the ability of the State to meet the participation rates. We

must provide a written report to Congress to justify any penalty

reductions we provide States on this basis.

Readers will note the similarity between this criterion for

reducing the amount of the penalty and the criterion at

Sec. 272.5(a)(1) for granting a reasonable cause exception to a penalty

due to a natural disaster. We will evaluate any information a State

submits concerning the effects of a natural disaster on its ability to

achieve the participation rates. If the material does not support

granting a reasonable cause exception, we will consider whether it is

appropriate to reduce the penalty. For example, if the disaster caused

a failure in only one area of the State, we might reduce the penalty in

proportion to the TANF caseload in that area. We intend to use a

similar approach to evaluating the effects of a regional recession.

Finally, this section of the proposed regulation indicates that

States may dispute our findings that they are subject to a penalty.

Is there a way to waive the State's penalty for failing to achieve

either of the participation rates? (Sec. 271.52)

Section 409(b) creates a reasonable cause exception to the

requirement for certain penalties, including failure to meet the

minimum participation rates. If we determine that a State has

reasonable cause for failing to meet one of the rates, we cannot impose

a penalty.

We have included general reasonable cause criteria at Sec. 272.5,

which may apply to any of the penalties for which there are reasonable

cause exceptions. The preamble to Sec. 272.5 discusses how we arrived

at these criteria as well as our general thinking about the reasonable

cause exception. For the work participation rate penalty, two

additional, specific reasonable cause exceptions apply. Under the

proposed rule at Sec. 271.52, a State may demonstrate that its failure

can be attributed to its granting of good cause domestic violence

waivers under the Family Violence Option. In this case, the State must

show that it would have achieved the required work rates if cases with

good cause waivers were removed from both parts of the calculation

(i.e., from the numerators described in Secs. 271.22(b)(1) and

271.24(b)(1) and the denominators described in Secs. 271.22(b)(2) and

271.24(b)(2)). A State must grant the good cause domestic violence

waivers in accordance with criteria in the regulation to be eligible to

receive a reasonable cause exemption on these grounds.

The regulation also provides that a State may receive a good cause

exemption if it demonstrates that its failure to achieve the work

participation rates can be attributed to the provision of assistance to

refugees in federally-approved alternative project.

In either of these two situations, as well as in the general

reasonable cause criteria, a State must demonstrate that it did not

divert cases to a separate State program for the purpose of avoiding

the work participation rates before we will grant a reasonable cause

exemption.

Can a State correct the problem before incurring a penalty?

(Sec. 271.53)

The process for developing a corrective compliance plan does not

differ from one penalty to the next, although the content of the plan

naturally would. Thus, the proposed regulation refers to Sec. 272.6,

the general section on submittal of a corrective compliance plan for

any penalty.

However, in this section, we establish a specific threshold that

States must achieve in order to be considered for a reduced work

penalty under Sec. 272.6(i)(1). More specifically, we indicate that the

State must increase its participation rate during the compliance period

enough to reduce the difference between the participation rate it

achieved in the year for which it is subject to a penalty and the

minimum participation rate it must achieve in the year of the

corrective compliance plan by 50 percent. (In other words, if you

divided the difference between the rate achieved during the compliance

period and the rate achieved during the penalty year by the difference

between the target rate during the compliance period and the rate

achieved during the penalty year, the result must be 0.50 or greater.)

We believe that showing more progress than not indicates

significant compliance. Thus, if the State achieves this amount of

progress towards coming into compliance, we may reduce its work penalty

under the corrective compliance provision.

This proposal is similar in approach to the approach taken in

Sec. 271.51, with respect to potential reductions in work penalties

based on degree of noncompliance. In both cases, we are expecting a

State to come into significant compliance in order to get a reduced

penalty.

Is a State subject to any other penalty relating to its work program?

(Sec. 271.54)

In accordance with section 409(a)(14), as amended by Pub. L. 105-

33, if we determine that a State has violated 407(e) of the Act in a

fiscal year, which relates to when a State must impose penalties on

individuals who refuse to engage in required work, we must reduce the

SFAG payable for the following fiscal year by between one and five

percent of the adjusted SFAG.

We propose to require each State to provide us with a description

of how it will carry out a pro reduction for individuals under both

TANF and separate State programs. This requirement appears in the data

collection requirements at Sec. 275.9. This data collection will help

us determine whether this is in fact a serious problem; to the extent

possible, we want to ensure an equitable and level playing field for

the States.

Under what circumstances will we reduce the amount of the penalty for

not properly imposing penalties on individuals? (Sec. 271.55)

The statute requires us to reduce the amount of the penalty based

on the degree to which the State is not in compliance with the section

407(e) of the Act.

In determining the size of any reduction, we propose to consider

two factors. First, we will examine whether the State has established a

control mechanism to ensure that the grants of individuals are reduced

for refusing to engage in required work. Second, we will consider the

percentage of grants that the State has failed to reduce in accordance

with the statute. We are particularly interested in any comments

readers have concerning what criteria to use in this area. We would

like readers' views on the proposal to link the penalty amount to the

percentage of cases for which grants have not been appropriately

reduced.

Subpart F--Waivers

How do existing welfare waivers affect the participation rate?

(Sec. 271.60)

Section 415 permits a State to continue operating any welfare

reform demonstration waiver (i.e., section 1115 waiver) affecting work

activities granted prior to the date of enactment of PRWORA, to the

extent that PRWORA is inconsistent with the waiver.

In considering how this provision affects the work rules applicable

in a State, we wanted to draft a regulation

[[Page 62144]]

that would balance the legislative emphasis on helping recipients find

work quickly with the intent to allow States to continue reform

activities they had already undertaken. Under prior law, this

Administration encouraged States to use the waiver mechanism to its

fullest capacity and to act as the ``laboratories of change'' for the

nation. Our intent is to help States capitalize on the promising

initiatives they began under those waivers, but in a way that is

consistent with the overall purpose of PRWORA. We are also cognizant of

the importance Congress placed on ensuring that States are accountable

for promoting work.

The proposed regulation requires a waiver to meet the definition

included in Sec. 270.30. This definition allows a State the flexibility

to include applicable provisions of prior law, but only if their

inclusion were necessary to achieve the objective of the approved

waiver. For example, a State might have had a waiver requiring single

parents with children under one year of age and pregnant recipients to

participate in JOBS, while maintaining the JOBS exemptions for the

disabled and the elderly. In this example, the objective of the waiver,

as reflected in the application and terms and conditions, was to expand

the group of recipients who were required to participate in work

activities. Maintaining the other statutory exemptions would not be

necessary to achieve this objective and, in fact, would be inconsistent

with the fundamental purpose of the waiver. Therefore, the prior law

exemptions would not be included as part of the waiver; the waiver

would include only the expanded participation requirements for single

parents of young children and pregnant recipients. Moreover, because

those two groups can also be required to participate under TANF, there

is no inconsistency. Thus, in this example, the prior law exemptions

would not be included in the waiver, and the waiver itself would not be

inconsistent with TANF.

The proposed definition recognizes two kinds of waiver

inconsistencies with respect to the work requirements. The first is in

the area of what activities a State may count toward the participation

rate. As part of the waiver demonstrations, a number of States expanded

the JOBS work activities. Those States believed that a broader range of

activities would be most effective in helping the recipients in their

States find and retain work and achieve self-sufficiency. In creating

this package of activities, States generally kept some of the prior law

activities, changed others, and added new ones. While only the changed

and new activities required waivers, we would include the prior law

activities under the waiver because they are necessary for the State to

carry out the objectives of the approved waiver. Some of these

activities are inconsistent with the definition of work activities in

section 407(d), so States could use the activities defined under the

waivers instead of the TANF list of work activities. Thus, States could

count participation in a broader range of activities as participation

in work.

The other area in which the proposed definition recognizes waiver

inconsistencies relates to hours of participation. In approving waivers

of required hours of participation, we allowed States to implement two

kinds of policies.

First, States expanded the number of required hours of

participation for a class or classes of recipients. Because those

classes of recipients are already required to participate for a greater

number of hours under TANF than under prior law, there is no

inconsistency. Those waivers would not continue under this proposed

regulation.

Second, we approved waivers that allowed a State to set the number

of hours an individual must participate in accordance with an

individualized plan for achieving self-sufficiency. This gave States

additional freedom to tailor work requirements to the circumstances of

the individual. For example, some States removed the JOBS exemption for

the disabled. The intent of such a waiver was to find an appropriate

level of participation based on the particular circumstances and

abilities of the individual. Because continuing these policies could be

inconsistent with TANF, due to requiring a lesser number of hours of

participation than TANF, we will recognize such waivers as allowable

inconsistencies.

The definition does not recognize prior law exemptions from the

denominators of the participation rates as part of the waiver, except

for research group cases. We believe this is appropriate for two

reasons. First, although we have allowed new or modified activities to

count for participation, we have never granted a waiver of a

participation rate itself. Second, we have never granted a waiver that

added new exemptions from the work requirements, which would have

reduced the number of recipients counted in the denominator. We think

that States need to try to provide work-related services for the entire

caseload, because almost all families will be facing the time limit on

benefits. By not adjusting the number of families who would otherwise

be counted in the denominators, States have a greater incentive to

provide work-related services for everyone.

Finally, we would like to explain the policy in the proposed

regulations with respect to control and experimental treatment groups.

As part of the demonstrations, States divided the AFDC population in

the demonstration into three groups. The first, the control group,

received benefits under the regular, statutory AFDC program. The

second, the experimental treatment group, received benefits under AFDC

with the demonstration changes and is used to evaluate the impacts of

the new program. The third, the non-experimental treatment group, also

received benefits under AFDC with the demonstration changes, but is not

used to evaluate the impacts of the new program. The control and

experimental treatment groups together comprise the research group and

contain a fairly small number of the AFDC recipients. Except in States

with small caseloads, the research group represents a very small

proportion of the welfare caseload. The non-experimental treatment

group includes the vast majority of the welfare population.

Information on the research group is the sole basis for impact and

cost-benefit analyses of the effects of the demonstration provisions

and is essential to all the major components of the evaluation. Because

evaluation is one of the goals of the demonstration, and the

maintenance of different requirements for the three groups of

recipients is necessary to avoid compromising the evaluation, we

believe all of the underlying law for the research group continues to

apply in those States continuing demonstration evaluations and is

uniquely necessary to achieve that evaluation goal. Thus, the research

group--both the control and experimental treatment groups--should not

be included in either the numerator or the denominator of the

participation rates.

Subpart G--Non-displacement

What safeguards are there to ensure that participants in work

activities do not displace other workers? (Sec. 271.70)

The proposed regulations incorporate the statutory prohibition

against allowing an individual participating in TANF work activities

from displacing another employee. A participant in a work activity may

not fill a vacancy that exists because another individual is on layoff

from the same or equivalent job. Also, a participant may not fill a

[[Page 62145]]

vacancy created by an involuntary reduction in work force or by the

termination of another employee for the purpose of filling a vacancy

with a participant.

We encourage States to take aggressive steps to ensure that the

current work force is not harmed or their employment jeopardized in any

way by a State's efforts to place welfare recipients in employment or

work-related positions. Our ultimate goal, and that of States, is to

increase the ranks of the employed, not to substitute one group of job-

seekers for another. Displacing current workers is counter-productive

and damages the overall stability of the labor force. We are confident

that States will develop procedures for working with employers to

protect against displacing other employees.

C. Part 272--Accountability Provisions--General

It is clear that, in enacting the penalties at section 409(a),

Congress intended for State flexibility to be balanced with State

accountability. To assure that States fulfilled their new

responsibilities under the TANF program, Congress established a number

of penalties and requirements under section 409(a). The penalty areas

indicate the areas of State performance that Congress found most

significant and for which it gave us clear enforcement authority.

What definitions apply to this part? (Sec. 272.0)

This section cross-references the general TANF regulatory

definitions established under part 270.

What penalties will apply to States? (Sec. 272.1)

Section 409 includes 15 penalties that may be imposed on States.

This proposed rule covers 14 of the 15. We have not included the

specific penalty dealing with substantial noncompliance with

requirements under title IV-D (section 409(a)(8)) in this proposed

rule. Our Office of Child Support Enforcement will address this penalty

in a separate proposed rule to be published at a future time.

The penalties for which we are proposing regulations are:

(1) a penalty for using the grant in violation of title IV-A of the

Act, as determined by findings from a single State audit and equal to

the amount of the misused funds;

(2) a penalty of five percent of the adjusted SFAG, based on audit

findings that show that a State intentionally violated a provision of

the Act;

(3) a penalty of four percent of the adjusted SFAG for the failure

to submit an accurate, complete and timely required report;

(4) a penalty of up to 21 percent of the adjusted SFAG for the

failure to satisfy the minimum participation rates;

(5) a penalty of no more than two percent of the adjusted SFAG for

the failure to participate in the Income and Eligibility Verification

System (IEVS);

(6) a penalty of no more than five percent of the adjusted SFAG for

the failure to enforce penalties on recipients who are not cooperating

with the State Child Support Enforcement Agency;

(7) a penalty equal to the outstanding loan amount plus interest

for the failure to repay a Federal loan provided for under section 406;

(8) a penalty equal to the amount by which qualified State

expenditures fail to meet the appropriate level of historic effort in

the operation of the TANF program;

(9) a penalty of five percent of the adjusted SFAG for the failure

to comply with the five-year limit on Federal funding of assistance;

(10) a penalty equal to the amount of contingency funds unremitted

by a State for a fiscal year;

(11) a penalty of no more than five percent of the adjusted SFAG

for the failure to maintain assistance to an adult single custodial

parent who cannot obtain child care for a child under age six;

(12) a penalty of no more than two percent of the adjusted SFAG

plus the amount a State has failed to expend of its own funds to

replace the reduction to its SFAG due to the assessment of penalties in

Sec. 272.1 in the year of the reduction;

(13) a penalty equal to the amount of the State's Welfare-to-Work

formula grant for failure to maintain the historic effort during a year

in which this formula grant is received; and

(14) a penalty of not less than one percent and not more than five

percent of the adjusted SFAG for failure to reduce assistance for

recipients refusing without good cause to work.

In calculating the amount of the penalty, we will take into

consideration the extent to which a State's SFAG has been reduced to

fund Tribal TANF grants. This is particularly applicable for penalties

based on percentage reductions. These regulations use the term

``adjusted SFAG'' to refer to States whose SFAG allocations are reduced

for this purpose. For States without Tribal grantees, ``adjusted SFAG''

will be the same as SFAG.

Except for the penalty at Sec. 272.1(a)(12), all penalties are

either a percentage of the adjusted SFAG or a fixed amount. In

calculating the amount of these penalties, we will add all applicable

penalty percentages together, and we will apply the total percentage

reduction to the amount of the adjusted SFAG that would have been

payable if no penalties were assessed against the State. As a final

step, we will subtract other (fixed) penalty amounts.

The penalty at Sec. 272.1(a)(12) requires that we reduce a State's

adjusted SFAG if, after one of the penal

This text is long and has been trimmed here. Open the source document for the complete record.