Food Stamp Program: Revisions to the Retail Food Store Definition and Program Authorization Guidance

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281,

282, 283, 284, and 285

RIN 0584-AB90

Food Stamp Program: Revisions to the Retail Food Store Definition

and Program Authorization Guidance

AGENCY: Food and Nutrition Service (FNS), USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement provisions of the Food

Stamp Program Improvements Act of 1994 to revise the criteria for

eligibility of firms to participate in the Food Stamp Program (FSP) as

retail food stores, and to provide for notification to such firms of

eligibility criteria for participation in the FSP. The intended effect

of this proposed rule is to ensure that food stamp recipients continue

to have adequate access to retail food stores where they can purchase a

wide variety of nutritious food items, intended for home preparation

and consumption, that meet their daily food needs, and to clarify

procedures and eligibility requirements for authorizing participation

in the FSP as a retail food store. This proposed rule also reinserts

part of a sentence inadvertently removed from the regulations by an

earlier rule, and replaces references to the Secretary of Health and

Human Services with references to the Commissioner of the Social

Security Administration.

DATES: Comments must be received by August 30, 1999 to be assured of

consideration.

ADDRESSES: Comments should be addressed to Judy Love, Redemption

Management Branch, Benefit Redemption Division, Food and Nutrition

Service, 3101 Park Center Drive, Alexandria, Virginia 22302-1594, or

faxed to (703) 305-2418. All written comments will be open to public

inspection at the office of the Food and Nutrition Service during

regular business hours (8:30 a.m. to 5 p.m., Monday through Friday) in

room 706, 3101 Park Center Drive, Alexandria, Virginia.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking

should be addressed to Judy Love at the above address or by telephone

at (703) 305-2418.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

the Office of Management and Budget under Executive Order 12866.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551. For the reasons set forth in the final

rule and related Notice to 7 CFR Part 3015 subpart V (48 FR 29115, June

24, 1983), this Program is excluded from the scope of the Executive

Order 12372 which requires inter-governmental consultation with State

and local officials.

Regulatory Flexibility Act

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

Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Samuel Chambers,

Jr., the Administrator of FNS, has certified that this rule does not

have a significant economic impact on a substantial number of small

entities, based on preliminary implementation data. It may, however,

impact a small number of firms that do not effectuate the purposes of

the FSP.

Executive Order 12988

This proposed rule has been reviewed under Executive Order 12988,

Civil Justice Reform. This rule is intended to have preemptive effect

with respect to any State or local laws, regulations or policies that

conflict with its provisions, or that would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

unless so specified in the EFFECTIVE DATE'' paragraph of this preamble.

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

application of its provisions, all applicable administrative procedures

must be exhausted. In the Food Stamp Program the administrative

procedures are as follows: (1) for Program benefit recipients--State

administrative procedures issued under to 7 U.S.C. 2020(e)(10) and 7

CFR 273.15; (2) for State agencies--administrative procedures issued

under to 7 U.S.C. 2023, and set forth in 7 CFR 276.7 (for rules related

to non-quality control (QC) liabilities) or 7 CFR Part 283 (for rules

related to QC liabilities); (3) for Program retailers and wholesalers--

administrative procedures issued under to 7 U.S.C. 2023, and set forth

in 7 CFR 278.8.

Unfunded Mandate Reform Act of 1995

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.

104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local and tribal

governments and the private sector. Under section 202 of the UMRA, FNS

generally must prepare a written statement, including a cost-benefit

analysis, for proposed and final rules with ``Federal mandates'' that

may result in expenditures to State, local or tribal governments, in

the aggregate, or to the private sector, of $100 million or more in any

one year. When such a statement is needed for a rule, section 205 of

the UMRA generally requires FNS to identify and consider a reasonable

number of regulatory alternatives and adopt the least costly, more

cost-effective or least burdensome alternative that achieves the

objectives of the rule. This rule contains no Federal mandates under

the regulatory provision of Title II of the UMRA for State, local and

tribal governments or the private sector of $100 million or more in any

one year. Thus, this rule is not subject to the requirements of

sections 202 and 205 of the UMRA.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, this notice

announces our intent to collect additional information on the

application completed by retail food stores to request approval to

participate in the Food Stamp Program (FSP) and to obtain approval for

3 years of the revised applications.

Comments on this notice must be submitted by August 30, 1999.

[[Page 35083]]

Comments are invited on: (a) whether the proposed collection of

information is necessary for the performance of the functions of the

agency, including whether the information will have practical utility;

(b) the accuracy of the agency's estimate of the burden of the proposed

collection of information including the validity of the methodology and

assumptions used; (c) ways to enhance the quality, utility and clarity

of the information to be collected; and (d) ways to minimize the burden

of the collection of information on those who are to respond, including

through the use of appropriate automated, electronic, mechanical, or

other technological collection techniques or other forms of information

technology.

Comments may be sent to Lori Schack, Desk Officer, Office of

Information and Regulatory Affairs, Office of Management and Budget

(OMB), Washington, D.C. 20502 (a copy may also be sent to Judy Love,

Redemption Management Branch, Benefit Redemption Division, Food and

Nutrition Service, U.S. Department of Agriculture, 3101 Park Center

Drive, Alexandria, VA 22302. For further information, or for copies of

the information collection, please contact Ms. Love at the above

address.)

All responses to this notice will be summarized, included in the

request for OMB approval, and become a matter of public record.

Title: Food Stamp Program Store Applications.

OMB Number: 0584-0008.

Type of Request: Revision of a currently approved collection.

Abstract: The Food and Nutrition Service (FNS) of the U.S.

Department of Agriculture is the Federal agency responsible for the

FSP. The Food Stamp Act of 1977, as amended (the Act) (7 U.S.C. 2011-

2036), requires that the Agency determine the eligibility of firms and

certain food service organizations to accept and redeem food stamp

benefits and to monitor them for compliance and continued eligibility.

Part of FNS's responsibility is to accept applications from retail

food establishments and meal service programs that wish to participate

in the FSP, review the applications in order to determine whether or

not applicants meet eligibility requirements, and make determinations

whether to grant or deny authorization to accept and redeem food stamp

benefits. FNS is also responsible for requiring updates to application

information and reviewing that information to determine whether or not

the firms or services continue to meet eligibility requirements.

There are currently 3 application forms approved under OMB No.

0584-0008. Together these forms are used by retailers, wholesalers,

meal service providers, certain types of group homes, shelters, and

state-contracted restaurants, to apply to FNS for authorization to

participate in the FSP. Form FNS-252, Food Stamp Application For Stores

is generally used by stores, excluding facilities which provide meal

services such as communal dining, shelters, restaurant and other meal

service programs, which are newly applying for authorization; Form FNS-

252R, Food Stamp Program Application For Stores-Reauthorization is used

by the majority of currently authorized stores to apply for

reauthorization, excluding facilities which provide meal services such

as communal dining, shelters, restaurants and other meal service

programs; and Form FNS-252-2, Application to Participate in the Food

Stamp Program for Communal Dining Facility/Others generally used by

communal dining and restaurant facilities and other food service

programs which are newly applying or applying for reauthorization. In a

few cases, at the discretion of the FNS field offices, some stores

would be required to complete Form FNS-252 to apply for

reauthorization. Section 9(c) of the Act provides the necessary

authorization(s) to collect the information contained in these forms.

This proposed rule contains new eligibility requirements that result in

changes to the application form(s).

Except for two of the new eligibility requirements (discussed later

in this notice), the burden imposed by the new requirements have

already been incorporated into Form FNS-252 and FNS-252R, as

appropriate. On May 6, 1996, FNS published a notice for public comment

on the revisions resulting from these new statutory requirements and

associated burden estimates. The burden estimates and comments received

were submitted to OMB. OMB approved the burden estimates through May

30, 1999. On October 15, 1996, FNS issued final rules (61 FR 53595)

which implemented a new collection requirement for certain users of

Form FNS-252-2. The appropriate notice soliciting comments on the

revised estimates was contained in the preamble of that rule. Again,

the burden estimates and comments were submitted to OMB. That

submission to OMB included the May 1996 estimates and the October 1996

estimates, and were approved by OMB through October 31, 1999. This new

notice announces our intent to revise the existing burden estimates

approved by OMB through October 31, 1999 and obtain OMB approval for an

additional 3 years based on proposed re-estimates of the existing

burden using more recent data as well as estimates for new information

collection that was not contained in the May 6, 1996 or October 15,

1996 notices for public comment.

We do not collect information on the number of FSP applications

received annually. Current burden estimates associated with these 3

application forms are determined from information maintained in STARS

(Store Tracking and Redemption System) based on the total number of

currently authorized stores or the number of newly authorized stores.

The number of expected applications is divided between initial

applications from new applicants and applications for reauthorization

from currently authorized stores.

We are proposing new burden estimates which: use more recent store

authorization data; include burden estimates associated with new

information collection contained in this proposed rule which was not

included in the May 6, 1996 notice; and, include a correction in burden

estimates to capture a change in application requirements for private

restaurants that was inadvertently omitted from the hourly burden

estimates when last submitted to OMB.

Adjustments--Re-estimates Based on More Recent Data and Corrections

For burden estimates associated with new applicants (initial

authorizations), we used the number of stores (all types) newly

authorized/approved currently estimated at 20,696 (rounded to 20,700)

based on FY 1997 year-end data from STARS and inflated this number by

10% (2,070) to capture a total of 22,770 applications expected to be

received and processed from stores annually. It is estimated that 98%

(22,315) of the 22,770 applications expected to be received would be on

Form FNS-252 and 2% (455 would be on Form FNS-252-2. Due to a technical

correction discussed later in this section of the preamble, the number

of expected applications would be further changed to reflect an

expected total of 22,347 applications using Form FNS-252 and 423

applications using Form FNS-252-2.

For burden estimates associated with applications for

reauthorization, we used the total number of stores (all types)

authorized (184,300) as of December 1997. Generally, authorized stores

are subject to reauthorization at least once every 4 years. Thus, it is

[[Page 35084]]

estimated that 25% (46,000) of all authorized stores would be subject

to reauthorization in any given year. Using, the number of authorized

stores as of December 1997, it is estimated that 46,000 reauthorization

applications would be expected to be received annually. Of the 46,000

reauthorization applications expected, it is estimated that 96%

(44,160) will be on Form FNS-252R, 3% (1,380) will be on Form FNS-252-

2, and 1% (460) will be on Form FNS-252.

Hourly burden time per response varies by type of application and

includes the time to review instructions, search existing data

resources, gather and copy the data needed, complete and review the

application, and submit the form and documentation to FNS. It should be

noted that the number of applicant and authorized stores has been

declining over the past few years due to several program changes, such

as changes in eligibility requirements, stronger sanctions against

violators, and implementation of Electronic Benefit Transfer systems.

These declines have resulted in a reduction in the overall number of

respondents and ultimately a reduction in the overall proposed burden

hours reflected in the summary chart.

Currently, private restaurants applying for FSP participation in

the State-administered special restaurant program use Form FNS-252-2 to

apply for participation. This category of applicant represents about 7%

of the number of current applicants using Form FNS-252-2. Over time, it

has been determined that we need additional information from such

private restaurants to ensure that they meet necessary requirements of

operation to carry out the intent of the FSP. The additional

information needed would be captured by having these respondents,

estimated at about 32, complete Form FNS-252 rather than Form FNS-252-

2. We estimate that these restaurants will spend an estimated 10

minutes of additional burden time using the longer Form FNS-252,

however, this contributes to a negligible amount to the increase in the

average hourly burden rate reflected in the chart on page 10 because

the number of respondents is so small. This change is a technical

correction rather than a re-estimate based on more recent data, and is

reflected in the number of initial applications expected to be received

as shown in the summary chart.

As currently approved by OMB, the hourly burden rate per response

for Form FNS-252 is 20 to 68 minutes, with the average being 27 minutes

and 10 to 20 minutes for Form FNS 252-2, with the average being 10

minutes. These hourly burden rates are not affected by the re-estimated

number of applications expected to be received or the technical

correction. However, previous estimates to OMB erroneously reflected

the average burden time for Form FNS-252-2 as 10 minutes. The average

time is 12 minutes and this correction appears in the proposed

estimates in the summary chart.

Adjustments--New Information Collection--Proposed Rule

This proposed rule requires that retail food stores qualifying

under criterion A offer for sale on a continuous basis a variety of

foods in each of the 4 staple food categories: Bread/Cereals; Dairy

Products; Fruits/Vegetables; and Meat/Poultry/Fish. Forms FNS-252 and

252R would be affected by this new information collection. Currently,

stores simply use a check box entitled ``Variety'' on Forms FNS-252 and

FNS-252R to indicate that they have more than one type of staple food

within each of the 4 staple food categories listed. Under the proposed

rules (Sec. 278.1(b)(1)(ii)(A)), stores would have to declare that they

have a minimum of 3 different types of staple foods in each of the 4

staple food categories. To implement this change, we would make a

simple change to the heading of the current check-box item. Hourly

burden associated with this change is expected to be negligible, so no

change is made in the estimate.

The proposed regulations (Sec. 278.1(b)(1)(ii)(B)) further provide

that stores qualifying under criterion A have at least $30,000 in

annual wholesale staple food purchases. We would add a Yes/No check-box

question to Forms FNS-252 and FNS-252R to capture this information.

Most stores will know their wholesale staple food purchases exceed

$30,000 and will check this box. Those that do not know this

information will incur an estimated additional 10 minutes (or .1667

hours) of burden time to assemble and analyze readily available store

records such as wholesale inventory receipts. This requirement does not

affect users of Form FNS-252-2 as these applicants are meal service

providers, which are not subject to the new requirement, nor does it

affect stores qualifying under Criterion B, which requires that 50

percent or more of a firm's sales must be in staple foods. We do not

know how many stores would incur this additional burden on Forms FNS-

252 and 252R. For the purpose of assessing burden, we are assuming that

at least an estimated 5% (1,140) of the number of applications expected

to be received annually using Form FNS-252 (22,807) would incur this

additional burden. We further assume that at least an estimated 5%

(2,208) of the number of reauthorization applications expected to be

received using Form FNS-252R (44,160) would incur the additional

burden.

The hourly burden time for users of Form FNS-252 is estimated to be

20 to 68 minutes, with the average being 27 minutes. The hourly burden

time for users of Form FNS-252R is estimated to be 5 to 8 minutes, with

the average being 7 minutes. The estimated additional 10 minutes of

burden time associated with the new information collection requirements

would increase the average burden time for the affected respondents to

37 minutes for Form FNS-252 and 17 minutes for Form FNS-252R. Thus, the

overall average hourly burden rate for all users of these forms would

change from 27 to 27.5 minutes for Form FNS-252 and from 7 to 7.5

minutes for Form FNS-252R as a result of the new requirements.

Total number of respondents completing at least one of the 3

applications in question, taking into consideration the adjustments

discussed above, would be as follows:

FNS-252:

New authorizations......... - 22,347 (22,770 x .98 + 32).

Reauthorizations........... - 460 (184,000 x .25 x .01).

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

..... 22,807

FNS-252-2:

New authorizations......... - 423 (22,770 x .02-32).

Reauthorizations........... - 1,380 (184,000 x .25 x .03).

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1,803

FNS-252R:

[[Page 35085]]

Reauthorizations........... - 44,160 (184,000 x .25 x .01-1,380-460).

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

Total Responses........ 68,770

The existing estimates, as approved by OMB through May 1999 and

shown on the following chart, reflect the total annual number of

responses as 80,613 and the annual burden hours as 18,396. The proposed

number of responses would be 68,700 with total burden hours of 16,333

hours. The net effect of the proposed burden estimates is an overall

decrease in burden hours of 2,063 hours annually.

Affected Public: Food Retail and Wholesale Firms, Meal Service

Programs, certain types of Group Homes, Shelters, and State-contracted

Restaurants.

Estimated Number of Respondents: 68,770.

Estimated Number of Responses per respondent: 1.

Estimated Time per Response: 0.237501.

Estimated Total Annual Burden: 16,333.

Summary of Proposed Burden Estimates for Forms FNS-252, 252-2 and 252R

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Number of Responses per Total annual Burden hours Total annual

Title respondents respondent responses per response burden hours

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Form FNS-252:

Existing.................... 26,431 1 26,431 .4500 11,894

Proposed.................... 22,807 1 22,807 .4583 10,452

Difference.............. -3,624 1 -3,624 +.0083 -1,442

Form FNS-252-2:

Existing.................... 2,592 1 2,592 .1855 481

Proposed.................... 1,803 1 1,803 .2000 361

Difference.............. -789 .............. -789 +.0145 -120

Form FNS-252R:

Existing.................... 51,590 1 51,590 .1167 6,021

Proposed.................... 44,160 1 44,160 .1250 5,520

Difference.............. -7,430 .............. -7,430 +.0083 -501

Totals:

Existing.................... 80,613 .............. 80,613 .............. 18,396

Proposed.................... 68,770 .............. 68,770 .............. 16,333

Difference.............. -11,843 .............. -11,843 .............. -2,063

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Background

Sections 201 and 202 of the Food Stamp Program Improvements Act of

1994, Pub. L. 103-225, (hereinafter, Pub. L. 103-225), revised the

eligibility requirements found in section 3(k)(1) of the Food Stamp Act

of 1977, as amended, 7 U.S.C. 2011-2036 (hereinafter the Act) for firms

participating in the Food Stamp Program (FSP) as retail food stores.

Under the current provisions of the Act, as amended by Pub. L. 103-225,

a firm to be eligible to participate as a retail food store, under

section 3(k)(1) of the Act, must offer for sale a variety of staple

foods for home preparation and consumption in each of four staple food

categories, including perishable foods in at least two of the

categories, or have the majority of its total gross sales in staple

foods for home preparation and consumption.

Current food stamp regulations, implementing section 3(k)(1) of the

Act, provide that, in order to participate in the FSP, a firm must have

more than 50 percent of its eligible food sales volume in staple food

items intended for home preparation and consumption. In 1992, when the

Department began the periodic reauthorization of retail food stores, as

authorized by the Food, Agriculture, Conservation, and Trade Act of

1990, Pub. L. 101-624, it was determined that a significant number of

small retail food stores participating in the Food Stamp Program, under

section 3(k)(1) of the Act, no longer met the required ratio of staple

food sales to eligible food sales. Concern developed over the

possibility that a massive withdrawal of these retail food stores,

especially stores serving recipients in inner-cities and rural areas,

could create a hardship for food stamp recipients throughout the

country. Accordingly, in Pub. L. 103-225, Congress revised the

eligibility criteria that firms must meet in order to obtain and

maintain FSP authorization to participate as a retail food store.

H.R. Report No. 352, 103rd Congress (1993) (November 10, 1993, page

3), which accompanied Pub. L. 103-225, (hereafter Report 352), stated

that the revised eligibility criteria were intended to allow stores

that ``. . . sell a wide range and high percentage of nutritious staple

foods . . .'' to continue participating in the FSP, to ensure ``. . .

that food stamp recipients have adequate access to retail food stores.

. . .'' That same report also stated that the revised definition of a

retail food store in section 3(k)(1) was intended to `` . . . bar

marginal food stores from participating in the program. . . .''

Under current rules implementing section 3(k)(1) of the Act, a

firm's eligibility is based on the ratio of staple food sales to

eligible food sales. At section 3(g) of the Act, ``eligible food'' is

defined as any food or food product intended for home consumption

except alcoholic beverages, tobacco, hot foods, or hot food products

ready for immediate consumption. Thus, under current rules, a firm

could qualify as long as its staple food sales exceeded 50 percent of

its total eligible food sales. This means, for example, that a liquor

store that sells a variety of staple snack foods such as chips,

crackers, cheeses and hors d'oeuvres, would qualify for authorization

as long as the staple food sales exceeded eligible accessory food

sales, including carbonated and uncarbonated non-alcoholic beverages,

coffee, tea, cocoa, candy, condiments, and spices. This was true even

though a store's food sales may have represented only a small portion

of its business. Consequently, such marginal food stores have been

allowed to participate in the FSP under current rules.

[[Page 35086]]

As noted, Report 352 states that the revised definition of a retail

food store under Pub. L. 103-225 was intended to bar such marginal food

stores from participating in the FSP. Congress amended section 3(k)(1)

to require that firms sell a wide range or high percentage of staple

foods in order to be eligible to participate as a retail food store.

Thus, based on Pub. L. 103-225, this rule proposes that in order to

qualify under section 3(k)(1) of the Act, as amended, a firm must

either offer for sale an ample variety of staple foods for home

preparation and consumption in each of the four staple food categories,

including perishable foods in at least two of the categories, or have

the majority of a its total gross sales in staple foods for home

preparation and consumption. This would effectively bar many marginal

food stores from participation, and at the same time, ensure that food

stamp recipients have access to retail food stores that sell an ample

variety of staple foods intended for home preparation and consumption.

Pub. L. 103-225 and this proposed rule are not intended to affect

the current prohibition against the participation of certain types of

firms that do not effectuate the purposes of the Food Stamp Program, as

set forth in Report 352. This includes, but is not limited to, stores

selling only accessory foods, such as spices, candy, soft drinks, tea,

or coffee; ice cream vendors selling solely ice cream; specialty

doughnut shops or bakeries not selling bread. Furthermore, this rule is

not intended to affect and does not change current statutory

restrictions on the participation of meal services, wholesalers or the

special restaurant programs for the elderly, disabled, and the

homeless.

Pub. L. 103-225 and this proposed rule restate the long-standing

requirement that a qualifying firm under section 3(k)(1) of the Act

must sell staple foods for home preparation and consumption. As set

forth in section 1 of the Act, the purpose of the FSP is ``to provide

for improved levels of nutrition among low-income households.''

Further, as set forth in section 2, the FSP should ``permit low-income

households to obtain a more nutritious diet through normal channels of

trade * * *'' The policies and concepts proposed in this rule are based

on the underlying principle that a qualifying firm under section

3(k)(1) of the Act must either sell an ample variety of staple foods

for home preparation and consumption, or have the majority of its total

gross retail sales in staple foods intended for home preparation and

consumption.

In addition, Pub. L. 103-225 states that the Secretary must issue

regulations providing for periodic notice to participating retail food

stores and wholesale food concerns of the definitions of ``retail food

store,'' ``staple foods,'' ``eligible foods,'' and ``perishable

foods.'' The Department is proposing that this notification, at a

minimum, be provided at the time of the initial authorization of a

firm, as well as at the time a participating retail food store is

reauthorized.

Finally, this proposed rule reinserts language that was

inadvertently removed in a regulation published on December 27, 1996,

titled ``Revisions in Use and Disclosure Rules Involving the Sharing of

Information Provided by Retail and Wholesale Concerns with Other

Federal and State Agencies''. The language, which allows the Department

to disclose information about firms participating in the FSP for

administration and enforcement purposes, would be added to the first

sentence in Sec. 278.1(q) of the FSP regulations. This is consistent

with section 9(c)of the Food Stamp Act of 1977, as amended, and section

17 of the Child Nutrition Act of 1966.

Revisions in Definitions and Eligibility Criteria Involving Retail

Food Stores (7 CFR 271.2 and 7 CFR 278.1)

Under current rules (7 CFR 271.2), a retail food store is defined

as having more than 50 percent of its total eligible food sales in

staple food sales intended for home preparation and consumption. Pub.

L. 103-225 amended section 3(k)(1) of the Act and established two

separate criteria, meeting either one of which, absent any other

restriction, would qualify a firm to be eligible to accept and redeem

food stamp benefits as a participating retail food store. This

rulemaking proposes to implement changes to section 3(k)(1) of the Act

required by Pub. L. 103-225, to revise the definition of ``retail food

store'' and ``staple foods'' to conform to the statutory changes. It

also would define four new terms--``continuous basis,'' ``perishable,''

``total gross retail sales'' and ``variety of foods''--that are used in

the revised definition of a retail food store.

Eligibility Requirements Under Criterion A

Criterion A, section 3(k)(1)(A) as amended by Pub. L. 103-225, is

the first basis upon which a firm may qualify for participation in the

FSP as a retail food store. Section 3(k)(1)(A) requires that an

establishment or house-to-house trade route offer for sale, on a

continuous basis, a variety of staple foods intended for home

preparation and consumption in each of the four categories of staple

foods, as specified in subsection (u)(1) of the Act, including

perishable foods in at least two of the four categories.

The Department proposes to revise the definition of ``staple food''

contained in regulations at 7 CFR 271.2 to mean those items intended

for home preparation and consumption in the following four categories:

(1) meat, poultry, or fish; (2) bread or cereals; (3) vegetables or

fruits; and, (4) dairy products. ``Staple foods'' do not include

accessory food items such as coffee, tea, cocoa, carbonated and

uncarbonated drinks, candy, condiments, and spices (section 3(u)(2) of

the Act). The definition of ``staple food'' under current rules in 7

CFR 271.2 and in previous statutory language at section 3(k)(1) of the

Act, described ``staple food'' as items for home preparation and

consumption, such as meat, poultry, fish, bread, breadstuffs, cereals,

vegetables, fruits, fruit and vegetable juices, dairy products and the

like, but not including accessory food items, such as coffee, tea,

cocoa, carbonated and uncarbonated drinks, candy, condiments, and

spices.

Hot foods, by statute, continue to be ineligible for purchase with

food stamps under this proposed rule, and therefore do not qualify as

staple foods for the purpose of determining eligibility. Pub. L. 103-

225 and this rule do not change the definition of ``eligible foods''

that can be purchased with food coupons.

The revised statutory definition of retail food store under this

criterion includes four new terms--``variety of foods,'' ``continuous

basis,'' ``perishable foods,'' and ``total gross retail sales''

(section 3(k)(1)(A) of the Act, as amended by Pub. L. 103-225). Firms

that qualify to participate in the Food Stamp Program as a retail food

store under Criterion A, must stock and offer for sale a variety of

foods on a continuous basis in each of the four defined staple food

categories, with perishable foods in at least two of those categories.

Variety of Foods

The Department proposes that the term ``variety of foods'' means

that a qualifying firm must maintain no fewer than three different

varieties of staple food items for home preparation and consumption in

each of the four defined staple food categories, including perishable

foods in at least two of those categories.

The Department further proposes that the term ``variety of foods''

should not be interpreted as meaning different brands, different types

of packaging,

[[Page 35087]]

different package sizes, or similar food items with varying

ingredients. The purpose of this is to ensure that food stamp

recipients have a reasonable selection of foods from which to choose.

For example, a store could not satisfy the dairy requirement under

Criterion A by stocking only skim milk, whole milk, and chocolate milk,

because these milks with varying ingredients would count as only one

variety. Examples of processed foods with similar ingredients that

would count as a single staple food variety for the purpose of

determining store eligibility are: various types and brands of sausage

(mild, spicy, low salt, low fat); breakfast cereals; sliced breads

(white, wheat, rye, oat bran, and multi-grains); pasta sauces; and milk

(low fat, flavored, canned, powdered). Examples of unprocessed foods

that, because of their similarities, would count as a single staple

food variety for the purpose of determining store eligibility are:

different types of apples, lettuce, mushrooms, potatoes, cabbage,

tomatoes, squash, or onions. The Department is particularly interested

in receiving comments on this aspect of the proposed rulemaking.

In addition, the Department proposes that multi-ingredient food

items intended for home preparation and consumption, such as macaroni

and cheese, canned beef stew, cold pizzas or frozen dinners, would only

be counted as one variety of staple food, which would normally be based

on the main staple food ingredient as determined by the Department. For

example, macaroni and cheese would be counted as only one variety, a

pasta, and not a cheese or both pasta and cheese, because pasta is the

main ingredient. The Department believes this proposal is needed for

clarification purposes and to ensure more consistent application of the

new retail store definition in determining a firm's eligibility. The

Department also believes this proposal is reasonable and prudent and

meets the intent of Congress in requiring eligible stores to sell a

variety of staple foods. The Department invites comments regarding this

criteria.

Continuous Basis

The stated purpose of the FSP in section 2 of the Act is to

alleviate hunger and malnutrition and to permit low-income households

to obtain a more nutritious diet. Report 352 states that ``only food

stores that carry an ample supply of food items in each category of

staple foods would be authorized to accept and redeem food stamps.'' It

is, therefore, important that authorized firms qualifying under section

3(k)(1) of the Act be able to provide food stamp households access to

an ample variety of staple food items in sufficient amounts on a

continuous basis. The Department proposes that one way to measure

whether or not qualifying firms offer a sufficient depth of stock in

staple foods on a continuous basis is to require that firms meet a

minimum annual staple food wholesale purchase threshold, which would

require verification of at least $30,000 in staple food wholesale

purchases annually. Wholesale purchases are purchases of goods by

retailers for resale to consumers. This threshold may be periodically

adjusted. Participating stores would be notified in advance of any

changes in the minimum annual staple food threshold. The Department

seeks comments on its proposed threshold, as well as any alternative

suggestions.

The Department proposes that a retail food store covered by section

3(k)(1) of the Act would not qualify under Criterion A if it failed to

meet the minimum $30,000 in staple food wholesale purchases annually.

New stores must meet this standard to be authorized, and all

participating stores must continue to meet this standard in order to

maintain their authorization. New stores may meet the standard through

projections of, at least, $30,000 in staple food wholesale purchases

annually.

As mentioned above, Congress revised the eligibility requirements

in section 3(k)(1) of the Act in response to concerns that a number of

small firms (particularly convenience type stores), were at risk of

losing their authorization to accept food stamps. This concern was

particularly evident in inner-cities and rural areas where the

Department seeks to ensure that food stamp households have access to

nutritious foods that are intended for home preparation and

consumption. The department anticipates that because of the relatively

few firms that may be negatively impacted by these requirements and the

small quantities of staple foods that affected stores sell to

recipients, their ineligibility will not cause hardship to food stamp

households and the standard will continue to allow adequate recipient

access to eligible staple food for home preparation and consumption.

Perishable Foods

The Department proposes that, for the purpose of this rule, the

term ``perishable foods'' means frozen staple foods as well as fresh,

unrefrigerated or refrigerated staple foods that have a turnover rate

of approximately 2 to 3 weeks to ensure that optimal quality is

maintained. Frozen food is included as a perishable because of the

potential for frozen foods to deteriorate if they are maintained at

temperatures above freezing for lengthy periods of time. Typically,

perishable foods will spoil or suffer significant deterioration in

quality within a 2-3 week period. Examples of perishable food items

include fresh milk; fresh or frozen vegetables, fruits, breads, meats,

and fish. Two or more staple food categories must include perishable

foods. Congressional intent for this requirement, as referenced in

Report 352, is to ensure ``* * *adequate turnover of items in those

categories* * *.'' which is evidence that a firm is a legitimate food

store regularly in the business of selling food for home preparation

and consumption under section 3(k)(1) of the Act.

Eligibility Requirements Under Criterion B

The eligibility requirements under this criterion, section

3(k)(1)(B) of the Act, are similar to current rules, but rather than

requiring a firm to have more than 50 percent of its total eligible

food sales in staple foods, it requires that more than 50 percent of

its total gross retail sales be in staple food sales. A firm that meets

the eligibility requirements of the first criterion (Criterion A)

(absent other restrictions) would not be required to meet this second

criterion (Criterion B) and likewise, a firm that meets the second

criterion (absent other restrictions) would not be required to meet the

first criterion.

The Department wishes to clarify that total gross retail sales

means all retail sales of the firm, including food and non-food

merchandise, as well as services such as rental fees, professional

fees, and entertainment/sports/game income. However, the Department

proposes that retail service fees directly connected to the processing

of staple foods, such as raw meat, poultry or fish by the service

provider, would be calculated as staple food sales under Criterion B.

This is to ensure that specialty firms, such as those selling only

meat, are not negatively impacted by the proposed retail food store

definition if they derive a high percentage of their gross retail sales

from services that are not staple food sales but are directly related

to staple food sales, such as meat processing fees. These types of

specialty firms generally offer reasonably priced staple foods and

provide a valued service to food stamp recipients, and clearly

effectuate the purposes of the FSP. The Department wishes to reiterate,

however, that service charges such as rental fees, professional fees,

and entertainment/

[[Page 35088]]

sports/games incomes are to be included in the computation of a firm's

total gross retail sales.

Verification of Information

As set forth in Pub. L. 103-225, the Department proposes that

verification of information (such as a firm's food sales data,

wholesale purchasing receipts, and inventory records) that covers an

appropriate period of time may be required to be provided by the firm

to the Department to document compliance with eligibility criteria.

Failure to provide this information when requested would result in the

denial or withdrawal of authorization.

Recipient Hardship Consideration

Historically, FSP rules and the Act have only stipulated special

recipient hardship exceptions in rare cases involving stores that have

committed violations and face disqualification from program

participation under section 278.6. This rule does not propose to create

a new recipient hardship exception for applicant firms. The Department

is, however, requesting comments regarding justification for such an

exception.

Ineligible Stores

The changes proposed in this rulemaking are intended to allow

continued FSP participation as a retail food store for firms that

effectuate the purposes of the FSP and which meet either of the

criterion under section 3(k)(1). In keeping with the intent of

Congress, it is not the purpose of this proposed rulemaking to expand

participation to entities that have not been allowed to participate in

the past under section 3(k)(1). Thus, the Department wishes to

reiterate that firms that are primarily restaurants would qualify to

participate in the FSP only under the restrictions of the special,

State administered restaurant programs that serve only special

populations (the elderly, disabled or homeless food stamp recipients)

at concessional prices. These programs are specifically provided for in

section 3(g) of the Act. Therefore, at section 271.2, paragraph 4, the

Department has proposed that firms having more than 50 percent of their

total gross retail sales in hot or cold prepared foods that are not

intended for home preparation and consumption, such as prepared

sandwiches, prepared salads and individual cones or dishes of ice

cream, that are consumed on the premises or sold for carryout, will

continue to be ineligible under section 3(k)(1) (A) or (B) of the Act.

This position is strongly supported by the manner in which the statute

at section 3(k) was constructed and subsequently amended by Pub. L.

103-225. That is, section 3(k) sets forth 4 separate and distinct types

of eligible firms. Firms described in sections 3(k) (2), (3) and (4)

are clearly distinguishable from those covered in 3(k)(1) and are

singled out for special treatment. Section 3(k)(2) covers, among other

firm types, private restaurants by directly referencing entities cited

in sections 3(g) (3), (4), (5), (7), (8), and (9), under the definition

of ``food.'' Clearly Pub. L. 103-225 amended only section 3(k)(1) and

did not change the restrictions on the types of firms covered under

sections 3(k) (2), (3) and (4).

Finally, the provisions in sections 3(g) (3), (4) and (9) of the

Act under the definition of ``food,'' permit private establishments

(i.e., restaurants) to accept food stamps only from elderly, disabled

or homeless individuals, and only if the establishment has a contract

with an agency of the State to offer meals to such persons at

concessional prices.

Periodic Notification to Stores

In accordance with the provisions and requirements set forth in

section 202 of Pub. L. 103-225, this rule proposes that firms

participating as retail food stores will be provided periodic

notification of program eligibility criteria. In order to maintain

program integrity, authorized retail food stores must fully understand

and comply with regulatory requirements to continue to participate in

the FSP. Thus, the Department proposes that when a new firm applies for

authorization, it will routinely be provided with materials that lay

out the criteria for authorization under section 3(k)(1) of the Act. In

addition, FNS will provide this information when a participating retail

food store receives its reauthorization notification, and at other

times, upon request. These materials, at a minimum, will include the

definitions of ``retail food store,'' ``eligible foods,'' ``staple

foods,'' and ``perishable foods.''

Request for Comments on Proposed Retail Food Store Eligibility Criteria

Because the statutory requirements were effective upon enactment,

most of the changes in store eligibility criteria required by Pub. L.

103-225 have been implemented. The proposed wholesale purchase

threshold used to define the continuous basis requirement under

Criterion A is new and has not been implemented. The Department

believes most firms that are otherwise eligible under Criterion A will

meet this new proposed requirement. Some small stores that are

currently eligible may not meet this proposed threshold; however,

because these stores tend to sell primarily staple food items, they

should easily qualify under Criterion B, which does not include such a

threshold.

The Department projects that the overall impact of this proposed

rule will not affect most stores currently participating in the Food

Stamp Program. FNS data shows that 1.7 percent of all stores evaluated

for reauthorization between October, 1993 and September, 1998, (2,866

out of 168,079 stores) failed to meet either Criterion A or B. The

Department requests comments on the effects of this proposed rule,

including costs and benefits.

List of Subjects

7 CFR Part 271

Administrative practice and procedure, Food stamps, Grant

programs--social programs.

7 CFR Part 278

Administrative practice and procedure, Banks, Banking, Claims, Food

stamps, Groceries--retail, Groceries, General line--wholesaler,

Penalties.

Accordingly, 7 CFR parts 271 through 285 are proposed to be amended

as follows:

PARTS 271-285--[AMENDED]

1. The authority citation for parts 271 through 285 is revised to

read as follows:

Authority: 7 U.S.C. 2011-2036.

PART 271--GENERAL INFORMATION AND DEFINITIONS

2. In Sec. 271.2:

a. The definitions of ``retail food store'' and ``staple food'' are

revised to read as follows:

Sec. 271.2 Definitions.

* * * * *

Retail food store means: (1) An establishment or house-to-house

trade route that sells food for home preparation and consumption

displayed in a public area, and, either offers for sale on a continuous

basis, a variety of foods in sufficient quantities in each of the four

categories of staple foods including perishable foods in at least two

such categories (Criterion A) as set forth in Sec. 278.1(b)(1), or has

more than 50 percent of its total gross retail sales in staple foods

(Criterion B) as set forth in Sec. 278.1(b)(1). Entities that have more

than 50 percent of their total gross sales in hot and/or cold prepared,

ready-to-eat foods that are intended for

[[Page 35089]]

immediate consumption either for carry-out or on-premises consumption,

and require no additional preparation, are not eligible for FSP

participation as retail food stores under Sec. 278.1(b)(1);

(2) An entity with indicators which may be used to establish that a

firm is a legitimate retail food store. These include, but are not

limited to, the following: a firm's marketing structure; appropriate

retail business licenses; the posting of prices, and the accessibility

of food items offered for sale; and

(3) An entity that meets this definition of retail food store as

determined by visual inspection, sales records, wholesale purchase

records, counting of stockkeeping units, or other inventory or

accounting recordkeeping methods that are customary or reasonable in

the retail food industry.

* * * * *

Staple food means those food items intended for home preparation

and consumption in each of the following food categories: meat,

poultry, or fish; bread or cereals; vegetables or fruits; and dairy

products. Commercially processed foods and prepared mixtures with

multiple ingredients shall only be counted in one staple food category.

For example, foods such as cold pizza, macaroni and cheese, multi-

ingredient soup, or frozen dinners, shall only be counted as one staple

food item and will normally be included in the staple food category of

the main ingredient as determined by FNS. Hot foods are not eligible

for purchase with food stamps, and therefore do not qualify as staple

foods for the purpose of determining eligibility under

Sec. 278.1(b)(1). Accessory food items including, but not limited to,

coffee, tea, cocoa, carbonated and uncarbonated drinks, candy,

condiments, and spices shall not be considered staple foods for the

purpose of determining eligibility of any firm. However, accessory

foods that are offered for sale in authorized retail food stores are

eligible food items to be purchased with food stamp benefits.

* * * * *

PART 278--PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD

CONCERNS AND INSURED FINANCIAL INSTITUTIONS

3. In Sec. 278.1:

a. Paragraphs (b)(1)(i) and (b)(1)(ii) are revised;

b. Paragraph (b)(1)(iii) is redesignated as paragraph (b)(1)(v) and

revised;

c. Paragraph (b)(1)(iv) is redesignated as paragraph (b)(1)(vi) and

a heading is added;

d. New paragraphs (b)(1)(iii) and (b)(1)(iv) are added;

e. The first sentence of paragraph (q) introductory text is revised

and a new sentence is added after the first sentence.

f. Paragraph (q)(3)(iii) is amended by removing the words

``Secretary of Health and Human Services'' wherever they appear, and

adding in their place the words ``Commissioner of the Social Security

Administration''; and,

g. A new paragraph (t) is added.

The revisions and additions read as follows:

Sec. 278.1 Approval of retail food stores and wholesale food concerns.

* * * * *

(b) Determination of authorization.* * *

(1) The nature and extent of the food business conducted by the

applicant. (i) Retail food store. An establishment or house-to-house

trade route shall normally be considered to have food business of a

nature and extent that will effectuate the purposes of the program if

they sell food for home preparation and consumption and meet one of the

following criteria:

(A) offer for sale, on a continuous basis, a variety of qualifying

foods in each of the four categories of staple foods as defined in

Sec. 271.2 of this chapter, including perishable foods in at least two

of the categories; or

(B) have more than 50 percent of the total gross retail sales of

the establishment or route in staple foods; and

(C) eligibility determination may be based on, but not limited to,

visual inspection, sales records, purchase records, counting of

stockkeeping units, or other inventory or accounting recordkeeping

methods that are customary or reasonable in the retail food industry.

In determining eligibility such information may be requested for

verification purposes, and failure to provide such documentation may

result in denial or withdrawal from the FSP.

(ii) Application of Criterion A. In order to qualify under this

criterion, firms shall:

(A) Offer for sale and displayed in a public area, qualifying

staple food items on a continuous basis, evidenced by having on any

given day, no fewer than three different varieties of food items in

each of the four staple food categories;

(B) Meet a minimum annual staple food wholesale purchase

requirement of $30,000 which may be shown through business records such

as, but not limited to, wholesale purchase receipts or sales records,

or by visual inspections. Failure to provide verifying information when

requested shall result in the denial or withdrawal of authorization.

Wholesale purchases are purchases of goods by retailers for resale to

consumers. For new firms, this minimum annual staple food wholesale

purchase requirement may be met by business projections. This minimum

annual staple food wholesale purchase requirement may be periodically

adjusted after advance notification to participating firms of such a

change;

(C) Offer for sale perishable staple food items in at least two

staple food categories. Perishable foods are items which are either

frozen staple food items or fresh, unrefrigerated or refrigerated

staple food items that will spoil or suffer significant deterioration

in quality within 2-3 weeks;

(D) Variety of foods is not to be interpreted as different brands,

different nutrient values, different varieties of packaging, or

different package sizes. Similar processed food items with varying

ingredients such as, but not limited to, sausages, breakfast cereals,

milk, sliced breads, and cheeses, and similar unprocessed food items,

such as, but not limited to, different varieties of apples, cabbage,

tomatoes, or squash, shall not be considered as more than one staple

food variety each for the purpose of determining variety. Multiple

ingredient food items intended for home preparation and consumption,

such as, but not limited to, cold pizza, macaroni and cheese, soup, or

frozen dinners, shall only be counted as one staple food variety each

and will normally be included in the staple food category of the main

ingredient as determined by the FNS; and

(E) Failure to stock and offer for sale staple food items as

required under paragraph (b)(1)(ii) of this section shall result in the

store not meeting Criterion A.

(iii) Application of Criterion B. In order to qualify under this

criterion, firms must have more than 50 percent of their total gross

retail sales in staple food sales. Total gross retail sales must

include all retail sales of a firm, including food and non-food

merchandise, as well as services, such as rental fees, professional

fees, and entertainment/sports/games income. However, a fee directly

connected to the processing of staple foods, such as raw meat, poultry

or fish by the service provider, shall be calculated as staple food

sales under Criterion B.

(iv) Ineligible firms. Firms that do not meet the eligibility

requirements in this section or that do not effectuate the purpose of

the FSP shall not be eligible for program participation. New applicant

firms that are found to be ineligible will be denied authorization for

program participation and

[[Page 35090]]

authorized retail food stores found to be ineligible will be withdrawn

from program participation. Ineligible firms under this paragraph

(b)(1)(iv) include, but are not limited to, stores selling only

accessory foods, including spices, candy, soft drinks, tea, or coffee;

ice cream vendors selling solely ice cream; and specialty doughnut

shops or bakeries not selling bread. In addition, firms that are

considered to be restaurants, that is, firms that have more than 50

percent of their total gross retail sales in hot and/or cold prepared

foods not intended for home preparation and consumption, shall not

qualify for participation as retail food stores under Criterion A or B.

This includes firms that primarily sell prepared foods that are

consumed on the premises or sold for carryout. This does not, however,

change the eligibility requirements for the special restaurant programs

that serve the elderly, disabled, and homeless populations, as set

forth in paragraph (d) of this section.

(v) Wholesale food concerns. Wholesale food concerns, the primary

business of which is the sale of eligible food at wholesale, and which

meet the staple food requirements in paragraph (b) of this section,

shall normally be considered to have adequate food business for the

purposes of the program, provided such concerns meet the criteria

specified in paragraph (c) of this section.

(vi) Co-located wholesale food concerns. * * *

* * * * *

(q) Use and disclosure of information provided by firms. With the

exception of EINs and SSNs, any information collected from retail food

stores and wholesale food concern, such as ownership information and

sales and redemption data, may be disclosed for purposes directly

connected with the administration and enforcement of the Food Stamp Act

and these regulations, and can be disclosed to and used by State

agencies that administer the Special Supplemental Food Program for

Women, Infants and Children (WIC). Such information may also be

disclosed to and used by Federal and State law enforcement and

investigative agencies for the purpose of administering or enforcing

other Federal or State law, and the regulations issued under such other

law.* * *

* * * * *

(t) Periodic notification. The FNS will issue periodic notification

to participating retail stores and wholesale food concerns to clarify

program eligibility criteria, including the definitions of ``retail

food store'', ``staple foods'', ``eligible foods'', and ``perishable

foods''. At a minimum, such information will be provided to stores at

the time of authorization, reauthorization and upon request.

Dated: June 18, 1999.

Shirley R. Watkins,

Under Secretary, Food, Nutrition and Consumer Services.

[FR Doc. 99-16501 Filed 6-29-99; 8:45 am]

BILLING CODE 3410-30-U