Food Distribution Programs: Implementation of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Welfare Reform)

SUMMARY: This rule proposes to amend provisions of the Food

Distribution Program regulations and the Emergency Food Assistance

Program (TEFAP) regulations to implement the Personal Responsibility

and Work Opportunity Reconciliation Act of 1996, commonly known as

Welfare Reform, while generally streamlining and clarifying these

regulations. In accordance with the Welfare Reform legislation, the

proposals contained in this rule would address various changes required

by the repeal of Section 110 of the Hunger Prevention Act of 1988,

which authorized the former Soup Kitchens/Food Banks Program, the

former beneficiaries of which are now served by an expanded TEFAP. It

amends the definitions relating to organizational eligibility in TEFAP

to reflect the program consolidation, and to achieve consistency with

the Emergency Food Assistance Act of 1983 as amended by Welfare Reform.

Changes to these and other definitions are also proposed in order to

provide greater clarity to the regulations. As mandated by Welfare

Reform, this rule also proposes changes in the required content and

frequency of submission of the TEFAP State plan of operation, and

encourages State agencies to create advisory boards comprised of public

and private entities with an interest in the distribution of TEFAP

commodities. In addition, this rule proposes to broaden the allowable

uses of TEFAP administrative funds at the State and local levels, and

provide greater flexibility for State agencies in meeting the TEFAP

maintenance-of-effort requirement. Finally, in order to reduce the

paperwork burden and afford State agencies greater flexibility, this

rule proposes discretionary changes in TEFAP recordkeeping, monitoring,

and reporting requirements.

DATES: To be assured of consideration, comments must be postmarked on

or before September 7, 1999.

ADDRESSES: Comments should be sent to: Lillie Ragan, Assistant Branch

Chief, Household Programs Branch, Food Distribution Division, Food and

Nutrition Service, U.S. Department of Agriculture, Room 612, 4501 Ford

Avenue, Alexandria, Virginia 22302. Comments in response to this rule

may be inspected at 4501 Ford Avenue, Room 612, Alexandria, Virginia,

during normal business hours (8:30 a.m. to 5 p.m., Mondays through

Fridays).

FOR FURTHER INFORMATION CONTACT: Lillie Ragan at the above address or

telephone (703) 305-2662.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed rule has been determined to be not significant for

purposes of Executive Order 12866 and, therefore, has not been reviewed

by the Office of Management and Budget.

Regulatory Flexibility Act

This action has been reviewed with regard to the requirements of

the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The

Administrator of the Food and Nutrition Service (FNS) has certified

that this action will not have a significant economic impact on a

substantial number of small entities. The procedures in this rulemaking

would primarily affect FNS regional offices, and the State distributing

and recipient agencies that administer food distribution programs.

Private enterprises that enter into agreements for the storage of

donated food or meal service management would also be affected. While

some of these entities constitute small entities, a substantial number

will not be affected. Furthermore, any economic impact will not be

significant.

Unfunded Mandate Reform Act

Title II of the Unfunded Mandate Reform Act of 1995, Public Law

104-4 (UMRA), 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

provisions 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 proposed rule is not subject to the requirements of

sections 202 and 205 of the UMRA.

Executive Order 12372

These programs are listed in the Catalog of Federal Domestic

Assistance under 10.550, 10.568 and 10.569 and are subject to the

provisions of Executive Order 12372, which requires intergovernmental

consultation with State and local officials (7 CFR part 3015, Subpart V

and final rule-related notices published at 48 FR 29114, June 24, 1983

and 49 FR 22676, May 31, 1984).

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 which

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

unless so specified in the ``Effective Date'' section of the preamble.

There are no administrative procedures which must be exhausted prior to

any judicial challenge to the provisions of this rule or the

application of its provisions.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.

3507), FNS is submitting for public comment the changes in the

information collection burden that would result from the adoption of

the proposals in the rule.

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

information is necessary for the proper 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. To be assured of

[[Page 36979]]

consideration, comments must be postmarked on or before September 7,

1999. Comments may be sent to Lori Schack, Desk Officer, Office of

Information and Regulatory Affairs, Office of Management and Budget

(OMB), Washington, D.C. 20503. All comments will be summarized and

included in the request for OMB approval of the proposed changes in the

information collection burden. All comments will become a matter of

public record. For further information, or for copies of the

information collections discussed below, please contact Lillie Ragan,

Assistant Branch Chief, Household Programs Branch, Food Distribution

Division, Food and Nutrition Service, U.S. Department of Agriculture,

Room 612, 4501 Ford Avenue, Alexandria, Virginia 22302, or telephone

703-305-2662.

Title: Food Distribution Regulations and Forms.

OMB Number: 0584-0293.

Expiration Date: 1/31/01.

Type of Request: Revision of a currently approved collection.

Abstract: State plans of operation, household participation

reports, monitoring reviews, and review reports. The rule proposes to:

(1) require State agencies to submit the TEFAP plan of operation to FNS

only once every four years instead of the present annual requirement,

with amendments made as necessary; (2) eliminate the requirement that

State agencies report semiannually the number of households served

through TEFAP; (3) reduce the number of TEFAP agencies required to be

reviewed each year by State agencies from one-third or 50, whichever is

fewer, to one-tenth or 20, whichever is fewer; and (4) require State

agencies to submit review reports to TEFAP agencies they review only if

a review discloses deficiencies.

Plans of Operation

Section 202A(a) of the Emergency Food Assistance Act of 1983 (7

U.S.C. 612c note (EFAA), as amended by Section 871(b) of the Personal

Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L.

104-193, (Welfare Reform), mandates that each State agency submit

certain information to FNS in a TEFAP State plan of operation once

every four years. Present regulations specify an annual submission of

the State plan. Changes made by Welfare Reform in the required contents

of the plan and implemented by this rule are discussed below. It is

expected that changes in the amount of time required to prepare the

plan will be negligible. Thus, for the purposes of the calculations

below, response times are unaltered. The proposed decrease in burden

hours reflects only the decreased frequency of response.

Respondents: State agencies administering TEFAP.

Estimated Number of Respondents: State agencies administering TEFAP

number 56.

Estimated Number of Responses per Respondent: Frequency of response

for the States to submit plans would be every four years, or at a

frequency of 0.25 per year.

Household Participation Reports

Present regulations require State agencies to report household

participation figures on the FNS-155, Inventory Management Report,

semiannually. This rule proposes to eliminate this requirement, thus

reducing the time required for completion of the FNS-155.

Respondents: State agencies administering TEFAP.

Estimated Number of Respondents: State agencies administering TEFAP

number 56.

Estimated Number of Responses per Respondent: Frequency of response

for State agencies to submit the FNS-155 remains 2 per year, but

household participation reports would no longer be included, reducing

this component of the FNS-155 burden to zero.

Review Reports Submitted to Emergency Feeding Organizations

This rule proposes no changes in the present regulatory requirement

that State agencies annually review 25 percent of all emergency feeding

organizations, and review all such organizations no less frequently

than once every four years. Such organizations are, however, renamed

``eligible recipient agencies which have signed an agreement with the

State.'' This rule proposes to require State agencies to conduct an

annual review of one-tenth or 20, whichever is fewer, of eligible

recipient agencies which have signed an agreement with another eligible

recipient agency, rather than the current one-third or 50, whichever is

fewer, of ``distribution sites.'' In addition, this rule proposes to

require State agencies to submit review reports to those organizations

reviewed only if the review discloses deficiencies, rather than the

current requirement that a report be submitted for each review

conducted. Current specific content requirements for the report would

be eliminated. These changes are expected to reduce the number of

reviews State agencies conduct each year, and the number of those

reviews which will require reports.

Respondents: State agencies administering TEFAP.

Estimated Number of Respondents: State agencies administering TEFAP

number 56.

Estimated Number of Responses per Respondent: Frequency of response

for the States to submit reviews to emergency feeding organizations

would be 1 per year.

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

Respndnts. Freq. Hrs./Resp. Total hrs.

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

TEFAP State Plan:

Present..................................... 56 1 19 1064

Proposed.................................... 56 0.25 19 266

Submission of TEFAP Household Participation Data

on Inventory Reports (FNS-155):

Present..................................... 56 2 0.25 28

Proposed.................................... 56 2 0.00 0

TEFAP Review Reports Submitted to Eligible

Recipient Agencies:

Present..................................... 56 7 2 784

Proposed.................................... 56 1 2 112

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

Estimated Total Annual Burden on Respondents: The total annual

burden under OMB Control Number 0584-0293 would be reduced from

1,190,971 hours to 1,189,473 hours: a difference of 1,498 hours.

Background

On August 22, 1996, President Clinton signed into law the Personal

Responsibility and Work Opportunity

[[Page 36980]]

Reconciliation Act of 1996, (hereinafter ``Welfare Reform''). Welfare

Reform amended legislation authorizing Department of Agriculture

(hereinafter ``USDA'' or ``Department'') food distribution programs

operated by FNS. It consolidated the Soup Kitchens/Food Banks Program

(SK/FB) and TEFAP under the EFAA and repealed previous authorization

for SK/FB under Section 110 of the Hunger Prevention Act of 1988, Pub.

L. 100-435, (HPA), (7 U.S.C. 612c note). It also amended the

definitions regarding organizational eligibility in TEFAP, as contained

in Section 201A(3) of the EFAA, to ensure that organizations formerly

served by SK/FB would be eligible to participate in TEFAP. Welfare

Reform also made changes in the following areas: (1) allowable uses of

TEFAP administrative funds; (2) content and frequency of submission of

the TEFAP State plan of operation; (3) the annual date by which TEFAP

commodities must be delivered to States; (4) the TEFAP maintenance-of-

effort requirement; and (5) the distribution of commodities to aliens.

To assist State agencies in implementing the provisions contained

in Welfare Reform, the Department issued a policy memorandum on January

14, 1997, which was sent to all FNS Regional Offices for dissemination

to their respective State agencies. The guidance contained in the

memorandum generated questions from several State agencies concerning

the eligibility of certain types of organizations to receive TEFAP

commodities. In response to these questions, the Department once again

reviewed the legislative provisions and issued additional supplementary

guidance through a policy memorandum dated July 23, 1997.

This proposed rule would incorporate Welfare Reform's legislative

mandates into the appropriate regulations. Changes are also proposed as

part of the Department's effort to clarify the regulations and reduce

the burden associated with the administration of TEFAP. With the latter

goal in mind, this rule proposes changes in TEFAP recordkeeping,

monitoring, and reporting requirements. Welfare Reform also amended the

National School Lunch Act to eliminate the requirement that State

education agencies maintain advisory councils for the purpose of

advising FNS on schools' needs relative to the selection and

distribution of commodities, and to instead require that distributing

agencies consult with representatives of schools on this subject. The

substance of this provision is being addressed in a separate

rulemaking, but this rulemaking removes references to the advisory

councils in Food Distribution Program regulations. Provisions contained

in Welfare Reform relative to the distribution of commodities to aliens

which require a change in current regulations will be addressed under a

separate rulemaking. The specific changes proposed in this rule are

discussed in detail below.

Absorption of SK/FB into TEFAP

Repeal of Section 110 of the Hunger Prevention Act of 1988

The major change in Food Distribution Programs brought about by

Welfare Reform was consolidation of TEFAP and SK/FB. This consolidation

was accomplished by Section 873(1) of Welfare Reform, repealing Section

110 of the HPA, which authorized funds specifically for the purchase of

commodities for SK/FB. Its authorizing legislation repealed, SK/FB

ceased to exist. This rule proposes to amend current Food Distribution

Program regulations (7 CFR part 250) by removing Section 250.52, which

contained the requirements of Section 110 of the HPA, as well as all

other references to Section 110, wherever they appear, in 7 CFR parts

250 and 251.

Definitions

This rule proposes to add definitions of several terms not

currently found in Section 251.3 and to change the definitions of some

currently existing terms. The accompanying chart graphically represents

the existing and proposed definitions in a side-by-side format to

assist readers in understanding the changes. A detailed explanation of

the changes follows. It should be noted, however, that neither the

chart nor the following detailed explanation contain the definitions of

``formula,'' ``state agency,'' and ``value of commodities

distributed.'' These definitions are set forth in the proposed

regulatory text at the end of this rule. Although definitions of these

terms are contained in the current Section 251.3 and are not proposed

to be changed, it is easier, given the extensive surrounding additions

and changes, to set forth the revised text of the section in its

entirety.

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Eligible recipient agency. Accompanying the repeal of Section 110

of the HPA, Section 871(a) of Welfare Reform slightly altered the

definition of ``eligible recipient agency'' (ERA) contained in Section

201A of the EFAA. The alteration emphasizes that organizations formerly

receiving commodities under SK/FB are eligible to receive TEFAP

commodities. Soup kitchens and food banks had always been listed as

eligible recipient agencies under Section 201A of the EFAA and in TEFAP

regulations, but were not specifically defined, as they were in Section

110 of the HPA. Most States served soup kitchens exclusively under SK/

FB. In addition to amending the definition of ERA itself, Welfare

Reform incorporated into Section 201A specific definitions for ``food

banks'' and ``soup kitchens'' similar to those found in the former

Section 110 of the HPA. The term ``food pantry'' had never been listed

or defined in the EFAA; Welfare Reform both added food pantries as a

type of ERA and added to the EFAA the definition for this term formerly

found in section 110 of the HPA. The net result of these changes is

that more detailed and specific authority now exists in the EFAA for

the distribution of TEFAP commodities to food banks, food pantries, and

soup kitchens. Therefore, no organization formerly receiving

commodities under SK/FB lost eligibility for food due to this program

consolidation.

Section 871(a) of Welfare Reform amended Section 201A of the EFAA

to explicitly prohibit the participation of penal institutions in

TEFAP. It also removed school lunch programs and Commodity Supplemental

Food Program (CSFP) sites from the list of eligible recipient agencies,

while not categorically prohibiting their participation. All other

types of organizations may participate as long as they meet the

organizational eligibility criteria. While mention of school lunch

programs as a specific category was removed, child nutrition programs

as a category remains, and thus school lunch programs remain eligible.

And while the removal of the reference to CSFP sites means that such

sites may not receive TEFAP commodities for the sole purpose of serving

CSFP participants, CSFP sites may receive TEFAP commodities if they

meet the organizational eligibility criteria described below. The

result of these changes is that penal institutions are the only type of

organization which can be termed categorically ineligible for TEFAP.

Since TEFAP commodities have never, in fact, been provided to penal

institutions, school lunch programs or CSFP sites, this change has had

no practical effect.

Although the changes wrought by Welfare Reform in the definition of

ERA were minor, the January 14, 1997 guidance memorandum, discussed

above, generated questions from several State agencies regarding the

eligibility of certain types of organizations to receive TEFAP

commodities. Based on an analysis of these questions, it appears that

much of the need for clarification can be attributed to the fact that

current TEFAP regulations (7 CFR part 251) do not contain a definition

of ERA, instead employing the term ``emergency feeding organization''

(EFO). Thus, current regulations do not address the distribution of

commodities to all of the various types of organizations specifically

encompassed by the definition of ERA as set forth in the EFAA. These

organizations include summer camps for children, child nutrition

programs providing food service, nutrition projects operating under the

Older Americans Act of 1965 (42 U.S.C. 3001 et seq.), and disaster

relief programs. These organizations have always been eligible to

receive commodities under the EFAA. However, 7 CFR part 251 does not

currently address the distribution of TEFAP commodities to such

organizations because they have traditionally received assistance

through other commodity programs.

Another source of misunderstanding appears to be associated with

the eligibility of certain adult correctional institutions. As

discussed above, Welfare Reform explicitly prohibits penal institutions

from receiving TEFAP commodities. Similarly, penal institutions are

ineligible to receive commodities as charitable institutions under 7

CFR part 250. However, certain adult correctional institutions are

eligible to receive commodities that are made available to States for

distribution to charitable institutions under other donation

authorities if they meet the requirements for rehabilitation programs

set forth in Section 250.41(a)(2).

Therefore, to clarify the types of organizations eligible to

receive TEFAP commodities, this rule proposes to amend Section 251.3 to

add the following definition of ERA, which specifically includes all

the various types of organizations eligible to receive TEFAP

commodities that are included under the definition of ERA set forth in

the EFAA: ``eligible recipient agency means an organization which--(1)

is public, or (2) is private, possessing tax exempt status pursuant to

Sec. 251.5(a)(3); and (3) is not a penal institution; and (4) provides

food assistance--(i) exclusively to needy persons for household

consumption, pursuant to a means test established pursuant to

Sec. 251.5(b), or (ii) predominantly to needy persons in the form of

prepared meals pursuant to Sec. 251.5(a)(2); and (5) has entered into

an agreement with the designated State agency pursuant to Sec. 251.2(c)

for the receipt of commodities or administrative funds, or receives

commodities or administrative funds under an agreement with another

eligible recipient agency which has signed such an agreement with the

State agency or another eligible recipient agency within the State

pursuant to Sec. 251.2(c); and (6) falls into one of the following

categories: (i) emergency feeding organizations (including food banks,

food pantries and soup kitchens); (ii) charitable institutions

(including hospitals and retirement homes); (iii) summer camps for

children, or child nutrition programs providing food service; (iv)

nutrition projects operating under the Older Americans Act of 1965

(Nutrition Program for the Elderly), including projects that operate

congregate nutrition sites and projects that provide home-delivered

meals; and (v) disaster relief programs.''

The only material differences between this definition of ERA and

that contained in the EFAA are intended to render the definition more

useful to State and local agencies making day-to-day organizational

eligibility determinations. Language regarding the execution of

agreements between the State and eligible recipient agencies has been

added. The term ``needy persons'' and related language have also been

included, since the EFAA limits the distribution of commodities to

organizations that provide food assistance to the needy. In addition,

the proposed rule's ERA definition lists all of the types of EFOs for

which Welfare Reform provides a specific, separate definition, i.e.,

food banks, food pantries, and soup kitchens. The proposed definition

of ERA does not, however, limit EFOs to these organizational types,

because, as discussed below, any type of ERA may qualify as an EFO, as

long as it meets the criteria.

Emergency feeding organization. As discussed above, current

regulations contain no definition of ERA. Instead, the regulations use

the term ``emergency feeding organization'' and in Section 251.3 define

it to mean ``any public or nonprofit private organization which has

entered into an agreement with the designated State agency to provide

nutrition assistance to relieve situations of emergency and distress

through the

[[Page 36984]]

provision of food to needy persons, including low-income and unemployed

persons, and which receives commodities under agreements pursuant to

Sec. 251.2(c). Emergency feeding organizations include charitable

institutions, food banks, hunger centers, soup kitchens, and similar

public or private nonprofit eligible recipient agencies.''

The program consolidation and the need for greater clarity require

that the regulatory definition of EFO be revised to further sharpen the

legislative distinction between ERAs which are also EFOs on one hand,

and on the other, ERAs which are not also EFOs. This distinction is

crucial under the consolidated TEFAP, because it forms the basis of the

priority system discussed below, which State agencies must employ in

allocating TEFAP commodities. It also affects the requirement that

State agencies pass down at least 40 percent of their administrative

grants. This requirement, too, is discussed in detail below. Welfare

Reform stresses this distinction in Section 201A(1) of the EFAA by

removing the definition of EFO from within the definition of ERA, and

providing a separate definition of EFO in Section 201A(4). The proposed

regulatory definition of EFO removes the present language regarding

agreements, which is neither included in the EFAA's definition of EFO

nor necessary to distinguish EFOs from other ERAs. Instead agreements

are addressed in the definition of ERA, as discussed above. The

proposed definition of EFO also removes references to types of

organizations which may or may not qualify as EFOs, likewise confining

these to the definition of ERA, which is structured to more

appropriately contain them. This change shifts the emphasis from types

of organizations to criteria which ERAs must meet to be considered

EFOs. Under this proposed rule at Section 251.3(e), an EFO would mean

``an eligible recipient agency which provides nutrition assistance to

relieve situations of emergency and distress through the provision of

food to needy persons, including low-income and unemployed persons.

Emergency feeding organizations have priority over other eligible

recipient agencies in the distribution of TEFAP commodities pursuant to

Sec. 251.4(h).'' Examples of EFOs are food banks, food pantries, soup

kitchens, and organizations such as Community Action Programs that

distribute TEFAP commodities occasionally, e.g., monthly or quarterly.

Charitable institution. Section 201A of the EFAA authorizes the

distribution of TEFAP commodities to charitable institutions. However,

Section 251.3 does not currently contain a definition of this term.

While Section 250.3 contains such a definition, it is needlessly

complex given the limited application the term will have in TEFAP.

Therefore, this rule proposes to include a definition of ``charitable

institution'' in Section 251.3 which more accurately describes the

types of organizations that would be considered eligible to participate

in TEFAP and alerts the reader to the fact that the definition differs

from that found in Section 250.3. The following definition of

``charitable institution'' would be included in this proposed rule:

``charitable institution (which is defined differently in this part

than in part 250 of this chapter) means an organization which--(1) is

public, or (2) is private, possessing tax exempt status pursuant to

Sec. 251.5(a)(3); and (3) is not a penal institution (this exclusion

also applies to correctional institutions which conduct rehabilitation

programs); and (4) provides food assistance to needy persons.''

Distribution site. Section 251.3(b) of the current regulations

defines ``distribution site'' as ``the location(s) where the emergency

feeding organization actually distributes commodities to needy persons

under this part.'' To reflect the consolidation of SK/FB into TEFAP,

this rule proposes to revise the definition of ``distribution site'' to

organizations which prepare meals using TEFAP commodities as well as

the traditional distribution of commodities to households for home use.

Also, the proposed definition employs the term ERA, rather than EFO, as

discussed above, even though in practice, most distribution sites are,

and will most likely continue to be, operated by organizations

qualifying as EFOs. Under this proposed rule, ``distribution site''

means ``a location where the eligible recipient agency actually

distributes commodities to needy persons for household consumption or

serves prepared meals to needy persons under this part.''

Food bank, Food pantry, Soup kitchen. Provisions regarding the

distribution of Section 110 commodities as set forth in HPA, including

the definitions of food banks and soup kitchens, are currently

contained in 7 CFR part 250. Since Welfare Reform consolidated SK/FB

into TEFAP, this rule proposes to include the definitions of these

terms, as slightly revised by Welfare Reform, in Section 251.3 and to

remove the corresponding definitions from Section 250.3. While the term

``food pantry'' was also defined in the HPA, the definition was never

included in either 7 CFR part 250 or 7 CFR part 251. This rule also

proposes to include in Section 251.3 the definition of ``food pantry''

as set forth in Welfare Reform. The changes made by Welfare Reform in

the definitions of these terms are in all cases non-material. The

proposed rule sets forth these definitions in Sections 251.3(f),

251.3(g), and 251.3(j) as follows: ``Food bank'' means ``a public or

charitable institution that maintains an established operation

involving the provision of food or edible commodities, or the products

of food or edible commodities, to food pantries, soup kitchens, hunger

relief centers, or other food or feeding centers that, as an integral

part of their normal activities, provide meals or food to feed needy

persons on a regular basis.'' ``Food pantry'' means ``a public or

private nonprofit organization that distributes food to low-income and

unemployed households, including food from sources other than the

Department of Agriculture, to relieve situations of emergency and

distress.'' ``Soup kitchen'' means ``a public or charitable institution

that, as an integral part of the normal activities of the institution,

maintains an established feeding operation to provide food to needy

homeless persons on a regular basis.''

Eligible Recipient Agency Eligibility Criteria

While Section 201A of the EFAA, in its definition of ERA, lists a

broad array of organizations as eligible to participate in TEFAP,

Section 202A(b)(4)(A) of the EFAA continues to require that TEFAP

commodities be used to provide food assistance to those in need.

Organizations applying to participate in TEFAP which distribute foods

to households for home consumption meet this criterion by requiring

that households applying for assistance pass a ``means test,'' i.e.,

the household must meet the TEFAP income eligibility criteria

established by the State agency. Eligibility cannot be established

merely on the basis of a household residing within a specific area.

Organizations which provide food assistance through the preparation of

meals do not employ a means test because such testing would not be

cost-effective, and because people who attend soup kitchens can

reasonably be assumed to be needy. Accordingly, this proposed rule

would require such organizations to demonstrate that they serve

predominantly needy people. The State agency can determine if the

organization meets this criterion by considering the socioeconomic data

(e.g., poverty, unemployment, vagrancy and welfare

[[Page 36985]]

program usage rates) on the area in which the organization is located,

or from which it draws its clientele. In the case of most traditional

soup kitchens, this minimal standard will no doubt be easily and

clearly satisfied. Application of this criterion will, however, render

some organizations of a particular type eligible and others of the same

type ineligible. For example, a hospital which is located in, or draws

its patients from, an economically distressed area could be considered

eligible to participate in TEFAP, whereas a hospital located in an area

with more positive economic characteristics would not qualify. State

agencies remain free to set a higher standard than ``predominantly,''

should they wish to target resources to only their neediest citizens.

This rule proposes to amend Section 251.5(a) to include these criteria.

Section 201A(3) of the EFAA continues to require that eligible

recipient agencies be public or nonprofit organizations, thus

continuing to exclude for-profit organizations. In order to clarify

this legislative mandate, this rule also proposes to incorporate within

part 251 requirements associated with tax-exempt status. Such

requirements are currently contained in Section 250.52(b) which, as

discussed above, is removed under this proposed rule as a result of

Section 110 of the HPA being repealed by Welfare Reform. Under Section

250.52(b), all organizations receiving Section 110 commodities for

distribution under the former SK/FB were required to have obtained tax-

exempt status under the Internal Revenue Code (26 U.S.C. 501) (IRC) or

to have made application for such status. However, under Section

501(c)(3) of the current IRC, organizations are automatically tax-

exempt if they are ``organized or operated exclusively for religious *

* * purposes. * * *'' Such organizations are not precluded from seeking

Internal Revenue Service (IRS) recognition of their tax-exempt status,

but they are not required to do so. Therefore, the Department does not

intend to require organizations that are ``organized or operated

exclusively for religious * * * purposes. * * *'' to obtain tax-exempt

status in order to participate in TEFAP.

These tax exempt status requirements of current Section 250.52(b)

also contain a ``moving toward'' exemption that allows an organization

which has applied for, but has yet to obtain, IRS recognition of its

tax-exempt status to receive Section 110 commodities for 12 months from

the date of its approval for participation in TEFAP, and for an

indefinite period thereafter, if the organization ``documents to the

distributing agency's satisfaction that it has made good faith efforts

to obtain recognition of its tax-exempt status and that such

recognition has not been provided due to no fault of the

organization.'' The Department has learned through experience that this

requirement is not strict enough to be consonant with program

accountability, and recent legislation has set forth a higher standard.

Section 107(d) of the William F. Goodling Child Nutrition

Reauthorization Act of 1998, Pub. L. 105-336, amended Section 17(d)(1)

of the National School Lunch Act (42 U.S.C. 1766(d)(1)) (NSLA) to limit

the ``moving toward'' exemption for the Child and Adult Care Food

Program to ``not more than 180 days, except that a State agency may

grant a single extension of not to exceed an additional 90 days if the

institution demonstrates, to the satisfaction of the State agency, that

the inability of the institution to obtain tax-exempt status within the

180-day period is due to circumstances beyond the control of the

institution.'' This rule proposes to amend Section 251.5(a)(3) to add

tax-exempt requirements consistent with the above discussion. Prior to

shipping TEFAP commodities, the State agency or ERA would be required

to ensure that a recipient agency (1) possesses documentation from the

IRS recognizing tax-exempt status under the IRC, or (2) if not in

possession of such documentation, is automatically tax-exempt as

``organized or operated exclusively for religious purposes'' under the

IRC, or if required to file an application under the IRC to obtain tax-

exempt status, has made application for recognition of such status and

is moving toward compliance with the requirements for recognition of

tax-exempt status, or (3) is currently operating another Federal

program requiring such tax-exempt status. In instances in which an

organization's application for tax-exempt status is denied or has not

been obtained within 180 days of the effective date of the

organization's approval for participation in TEFAP, the State agency or

ERA must terminate the organization's participation until such time as

recognition of tax-exempt status is actually obtained. However the

State agency or ERA may grant a single extension of not to exceed 90

days if the organization can demonstrate, to the State agency's or

ERA's satisfaction, that its inability to obtain tax-exempt status

within the 180 day period is due to circumstances beyond its control.

In sum, to be eligible to receive TEFAP commodities, organizations

must be public or nonprofit organizations providing food assistance to

needy persons. If they distribute commodities for household

consumption, they must administer a means test to ensure that only

needy persons receive TEFAP commodities. If they serve prepared meals,

they must demonstrate that they serve predominantly needy persons.

State agencies cannot require organizations to conduct a means test of

individuals receiving prepared meals. Section 871(b) of Welfare Reform

amended the EFAA to require that State agencies set forth the standards

of eligibility for ERAs in the State plan. As discussed in detail

below, this rule proposes to amend Section 251.6(b) to include this

requirement.

This rule also proposes to revise Section 251.5 to address those

instances in which the State agency chooses to delegate authority to

one or more ERAs to determine which organizations they, in turn, will

supply with TEFAP commodities. Section 251.5(a) currently requires

State agencies to determine the eligibility of organizations and enter

into agreements with such organizations prior to making TEFAP

commodities available to them. However, in many instances, State

agencies use ERAs to distribute commodities to other ERAs (e.g., a

central food bank distributing commodities to one or more food

pantries) and depend on those organizations to: (1) Determine the

eligibility of organizations requesting TEFAP commodities from them;

and (2) to make decisions regarding which organizations will receive

TEFAP commodities and the amount of commodities to be provided when

quantities are insufficient to support all requests. This rule proposes

to revise Section 251.5 to clarify a State agency's authority to

delegate such responsibilities to ERAs. If a State chooses to do this,

it must require that such ERAs make decisions regarding an

organization's eligibility to participate in TEFAP in accordance with

the provisions contained in 7 CFR part 251 and the State Plan. However,

responsibility for establishing eligibility criteria for recipient

agencies may not be delegated to an ERA.

Priority System

While the explicit priority system outlined in Section 110 of the

HPA no longer exists, Section 203B(b) of the EFAA requires that, in

instances in which the State agency cannot meet all requests for TEFAP

commodities, the State agency give priority in the

[[Page 36986]]

distribution of such commodities to eligible recipient agencies

``providing nutrition assistance to relieve situations of emergency and

distress through the provision of food to needy persons, including low-

income and unemployed persons.'' [emphasis supplied] As discussed in

detail above, this is the definition of EFO as set forth in the EFAA.

Thus, there is a two-tier priority system. The need to effectively

describe the priority system is the primary reason for amending the

regulatory definition of EFO to conform to the EFAA. The two-tier

priority system provides that organizations which relieve situations of

emergency and distress through the provision of food to needy persons,

i.e., EFOs under the definition discussed above, are of higher priority

and other organizations, which serve the needy, but do not relieve

situations of emergency and distress and, thus, fall into the lower

priority category. A State agency may, within the first priority, set

subpriorities so that, for example, EFOs providing household

distribution have access to resources before EFOs providing prepared

meals, or vice versa. However, the needs of all EFOs must be satisfied

before food is made available to a second-tier organization, i.e., an

ERA which is not also an EFO. The supply of TEFAP commodities may not

be sufficient for States to serve all ERAs. Therefore, some State

agencies may be able to serve only EFOs. This rule proposes to revise

Section 251.4(h) to reflect the legislatively mandated two-tier

priority system.

This rule also proposes to revise Section 251.4(h) to address those

instances in which the State agency chooses to delegate to ERAs, with

which the State agency has an agreement, the responsibility for

choosing ERAs to which they will provide TEFAP commodities. An example

of this would be a central food bank distributing commodities to one or

more food pantries. In such instances, the ERA is responsible for

ensuring that commodities are distributed using the priority system

described above. Though improbable, given the limited supplies of TEFAP

commodities, there may be instances in which one ERA has sufficient

inventories of commodities to serve some second-tier organizations

while another ERA does not have sufficient inventories to serve all of

its EFOs. The added expense and administrative complexity necessary to

prevent this unlikely event would not be justified. Therefore, with

regard to delegated authority, both the State agency and any ERA to

which this authority has been delegated will be considered to be in

compliance with the priority system requirement when the ERA

distributes TEFAP commodities in a manner that ensures the needs of

EFOs under its jurisdiction have been met prior to making commodities

available to non-EFOs under its jurisdiction. The Department would

expect State agencies and EFOs to be sufficiently knowledgeable about

the organizations to which they distribute food to avoid substantial

amounts of commodities being provided to non-EFOs before the needs of

all EFOs have been satisfied.

To further assist States in making the best use of TEFAP

commodities, Section 871(b) of Welfare Reform amended Section 202A of

the EFAA to require the Secretary to encourage States to establish a

State advisory board comprised of public and private entities with an

interest in the distribution of TEFAP commodities. Such advisory boards

can provide valuable guidance on how the State should allocate

resources among various eligible outlet types, what areas have the

greatest need for food assistance, and other important issues that will

help States use their program resources in the most efficient and

effective manner possible. This rule proposes to revise Section

251.4(h) to include language encouraging States to establish an

advisory board and allowing them to use TEFAP administrative funds for

its support. Section 203B(b) of the EFAA, besides establishing the

priority of EFOs, requires that ``[e]ach State agency shall encourage

distribution of TEFAP commodities in rural areas.'' [emphasis supplied]

This encouragement is set forth in Section 251.4(k) of present

regulations and would be retained by this proposed rule. State agencies

are also reminded that, in accordance with Section 251.4(h) of the

current regulations, which reflects the provisions contained in Section

203B(a) of the EFAA, State agencies have the option to give priority to

existing food bank networks and other organizations whose ongoing

primary function is to facilitate the distribution of food to low-

income households. This option is, of course, subject to the two-tier

priority system discussed above.

Recipient Eligibility Criteria

Section 251.5(b) of the current regulations requires that State

agencies establish criteria for determining the eligibility of

households to receive TEFAP commodities for household use. The criteria

must include income-based standards and the methods by which households

may demonstrate eligibility under such standards. Criteria may include

a requirement that the household reside in the State, provided that

length of residency is not used as an eligibility criterion. Section

871(a) of Welfare Reform amended Section 202A(b) of the EFAA to require

that recipients reside in the ``geographic location served by the

distributing agency at the time of applying for assistance.''

Accordingly, this rule proposes to amend Section 251.5(b) to reflect

the fact that State agencies must establish a residency requirement for

households applying to receive commodities for home consumption.

However, State agencies would continue to be prohibited from

establishing a length-of-residency requirement. It should be noted that

Section 251.4(j) of current regulations permits State agencies to enter

into cooperative agreements with other State agencies to provide

commodities jointly to, or to transfer commodities to, an organization

serving needy persons in a contiguous area which crosses their

respective States' borders. Organizations operating under such

agreements may continue to serve persons crossing State lines for

assistance. Section 203B(d) of the EFAA, which authorizes these

cooperative agreements, was unchanged by Welfare Reform. This rule also

proposes to amend Section 251.5(c) to clarify that State agencies may

not delegate the responsibility for establishing eligibility criteria

for program recipients to ERAs.

As was the case under the now defunct SK/FB, individuals seeking

food assistance at prepared meal sites would not be subject to a means

test under the proposed rule, since such a test would obviously be

difficult to implement and regulate, and not at all cost-effective when

compared to the value of the benefit provided. A person may attend a

soup kitchen on a very irregular basis and receive meals of which TEFAP

commodities are only a small part. Rather, as discussed above,

organizations which provide prepared meals would be required to

demonstrate that they serve predominantly needy persons.

State Agreements With Eligible Recipient Agencies

Section 251.2(c) of the current regulations requires State agencies

to enter into an agreement with an EFO receiving TEFAP commodities or

administrative funds. The agreement must provide that EFOs agree to

operate the program in accordance with the requirements of 7 CFR part

251 and, as applicable, 7 CFR part 250. As discussed above, this rule

proposes to amend the definition of the term EFO to conform to the

definition contained in

[[Page 36987]]

Welfare Reform and require that State agencies enter into agreements

with ERAs to which they distribute TEFAP commodities and/or

administrative funds; therefore, Section 251.2(c) would be amended

under this proposed rule to reflect this change.

The final rule, ``Food Distribution Programs--Reduction of the

Paperwork Burden,'' published in the Federal Register on October 16,

1997 (62 FR 53727), amended Sections 250.12(c) and 251.2(c) to make

agreements between State agencies and ERAs permanent, with amendments

to be made as necessary. Although none of those commenting on the rule

at its proposed stage expressed concern, it has since come to the

Department's attention that, while the authority for State agencies and

ERAs to terminate agreements is clearly set forth in Section

250.12(c)(3), no corresponding provision is contained in Section

251.2(c). Therefore, Section 251.2(c) may have been interpreted by some

to mean that State agencies could not terminate agreements with TEFAP

ERAs. Since this was never the Department's intent, this rule proposes

to revise Section 251.2(c) to clarify that agreements must provide

State agencies and ERAs the authority to terminate the agreements upon

30 days' written notice.

In addition, this rule proposes to revise Section 251.2 to address

those instances in which a State agency delegates responsibility to one

or more ERAs to distribute TEFAP commodities and administrative funds

to other ERAs (e.g., a central food bank distributing to one or more

food pantries on the local level). In an effort to ensure that both the

State agency and the ERA are fully cognizant of the responsibilities

being delegated to the ERA, this rule proposes to require that the

State agency specifically identify each function for which the ERA will

be held responsible, and to require that the ERA perform such functions

in accordance with the provisions contained in 7 CFR parts 250 and 251.

Such functions must be identified in the agreement or through other

written documents incorporated by reference in the agreement. In no

case may a State agency delegate responsibility for establishing

recipient or recipient agency eligibility criteria, or responsibility

for ensuring, through State agency reviews, that the program is

administered in accordance with Federal requirements. A State has the

option to delegate both the authority to determine if organizations

meet the State-established criteria for organizations to receive TEFAP

commodities and administrative funds, and the authority to establish

subpriorities consistent with the legislatively mandated priority

system. If the State chooses not to exercise either one of these

options, the State must identify the specific organizations which are

eligible to receive TEFAP commodities and administrative funds in the

agreement or other written documents incorporated by reference in the

agreement.

As discussed in detail below, State agencies may choose to allocate

administrative funds to ERAs for use in paying specific costs. Since

the amount of administrative funds may not be sufficient to cover all

costs allowable under TEFAP regulations, State agencies may also

restrict ERAs' use of these funds to a narrower list of cost types than

is allowed by the regulations. Their reasons for doing so might include

the desire to concentrate these funds on the most important program

functions, such as transport and warehousing of food, rather than on

ancillary expenses, such as office supplies. This rule proposes to

amend Section 251.2 to require that, when the State agency imposes on

its ERAs a more restrictive use of TEFAP administrative funds than

provided in Section 251.8, the restricted list of costs must be

identified in the agreement, or provided to ERAs by other written

documents incorporated by reference in the agreement.

Agreements Between Eligible Recipient Agencies

As discussed above, current regulations require agreements between

States and ERAs to which they provide TEFAP commodities or

administrative funds. There is, however, no requirement that ERAs enter

into agreements with other ERAs to which they distribute TEFAP

commodities or administrative funds on behalf of the State agency. It

is extremely difficult to hold recipient agencies accountable for the

distribution and use of TEFAP commodities and administrative funds

without the existence of an agreement which sets forth the terms and

conditions necessary to ensure that TEFAP commodities and

administrative funds are distributed and used in accordance with

Federal regulations. Therefore, this rule proposes to amend Section

251.2 to require that ERAs distributing TEFAP commodities or

administrative funds to other ERAs on behalf of the State agency enter

into an agreement with those organizations prior to making TEFAP

commodities or administrative funds available. ERAs would have to

receive formal written authorization from the State, either in the

agreement itself or by other written documents incorporated into the

agreement by reference, to enter into agreements with other ERAs for

the further distribution of TEFAP commodities or administrative funds.

While current regulations do not require that such agreements be

entered into, the Department has been advised that this practice is

characteristic of the program and will not, therefore, result in an

increase in the paperwork burden on ERAs. The Department, in its

original calculation of burden hours for part 251, assumed that

agreements would be in place whenever TEFAP commodities or

administrative funds were transferred between State agencies and EFOs

and between EFOs, since ensuring compliance with regulatory

requirements would be extremely difficult if not impossible without

written agreements at all levels. Therefore, the discussion of changes

in burden hours under Paperwork Reduction Act above does not address

these agreements, as their effect on the calculations has already been

taken into consideration.

Distribution Rates

Section 251.4(d)(3) of the current regulations requires that State

agencies establish distribution rates for use by EFOs in distributing

TEFAP commodities to needy households. This requirement was established

when all, or almost all, commodities reached households through mass

distributions, and when distributions of non-USDA commodities along

with TEFAP commodities occurred infrequently. Increased reliance on

food pantries, the growing practice of simultaneously distributing

TEFAP and State or privately donated foods, and absorption of SK/FB

into TEFAP have rendered mandatory distribution rates inappropriate.

Such rates have also become increasingly less useful as the supply of

TEFAP commodities to households has become more variable over time.

Therefore, this rule proposes to revise Section 251.4(d)(3) to remove

this requirement. However, State agencies may choose to develop

distribution rates and require their use by all ERAs or specific types

of ERAs, such as those that distribute TEFAP commodities only through

mass distributions.

TEFAP State Distribution Plan

Section 251.6(b) of the current regulations requires State agencies

to submit a TEFAP distribution plan to the appropriate FNS Regional

Office on an annual basis. This plan is required to contain: (1) a

description of the criteria to be used for determining that applicant

households are in need of

[[Page 36988]]

food assistance; (2) household rates of distribution for commodities;

(3) a description of the program monitoring system, including any

factors which may contribute to requests for approval of exceptions to

conducting the minimum number of reviews; (4) a description of the

State's formula for allocating administrative funds; and (5) a

description of the State's contribution toward the matching

requirement.

Section 871(b) of Welfare Reform amended Section 202A of the EFAA

in a manner that: (1) for the first time codifies the requirement of a

TEFAP State Plan; (2) specifies its contents differently than present

regulations; and (3) requires submittal of the plan once every four

years, instead of the present annual regulatory requirement. Welfare

Reform provides that the plan may be amended at any time. Welfare

Reform also specifies that plans must: (1) designate the State agency

responsible for distributing commodities; (2) set forth a plan of

operation and administration to expeditiously distribute TEFAP

commodities; (3) set forth standards of eligibility for recipient

agencies; and (4) set forth standards of eligibility for individual or

household recipients of commodities, which must require that

individuals or households be comprised of needy persons, and that they

reside in the geographic area served by the distributing agency at the

time of applying for assistance.

State agencies were notified of the changes in Welfare Reform

regarding the State distribution plan in the January 14, 1997

memorandum, which also indicated that they would not be required to

submit a complete plan until Fiscal Year 2001. However, in the interim,

State agencies were required to submit, by March 14, 1997, amendments

to the plan reflecting any changes in program operations or

administration, including those mandated by Welfare Reform. In

accordance with the provisions of Welfare Reform, this rule proposes to

amend Section 251.6 to require the submission of a State distribution

plan once every four years, establishing 2001 as the base year, with

amendments to be added as changes occur in aspects of State program

administration that are described in the plan, or at the request of

FNS.

This rule also proposes to amend Section 251.6 to reflect the

provisions contained in Welfare Reform regarding the specific contents

of the plan. Following is a detailed description of the information

State agencies are required to provide, pursuant to Section 871(b) of

Welfare Reform.

Single State Agency--Welfare Reform requires that the plan identify

the State agency responsible for administration of the program. Thus,

this rule proposes to require States to include the current name and

address of the agency authorized to administer TEFAP, and the name of

the agency official entrusted with binding signature authority. Where

TEFAP and SK/FB were administered by two different State agencies prior

to enactment of Welfare Reform, the January 14, 1997 memorandum

required States to inform FNS of the Governor's selection of a single

State administering agency; otherwise the Department assumed that the

State agency administering TEFAP at the time of enactment would

administer the consolidated TEFAP. The State agency identified in the

plan will be responsible for all aspects of program administration,

including reporting and monitoring requirements, submission of the

State distribution plan, and commodity ordering, storage, and

distribution. The State agency may enter into an agreement with another

State agency or private organization to perform some program functions,

but FNS will deal only with the designated single State agency, which

remains fully responsible for program administration.

Plan of Operation and Administration--Welfare Reform requires that

the State agency ``set forth a plan of operation and administration to

expeditiously distribute'' TEFAP commodities. Therefore, this rule

proposes to reflect the requirement that State agencies include such an

element as part of the State plan.

Standards of Eligibility for Recipient Agencies--Under Welfare

Reform, State agencies are now required to set forth eligibility

standards for recipient agencies in their distribution plan. Within the

minimum standards established by 7 CFR part 251, State agencies are

afforded broad discretionary authority in establishing their

distribution networks. This rule proposes to require State agencies to

describe eligibility criteria established by the State agency,

including any sub-priorities set within the two-tier priority system,

for the receipt of TEFAP commodities and/or administrative funds.

Standards of Eligibility for Individual or Household Recipients--

Welfare Reform requires that State agencies set forth standards of

eligibility in their State plan which ensure that commodities are

provided only to those in need, and that needy persons reside in the

geographic location served by the distributing agency at the time of

application for assistance. Therefore, this rule proposes to retain the

requirement currently found in Section 251.6(a)(1), which requires

State agencies to describe the criteria which must be used in

determining the eligibility of households to receive TEFAP commodities

for household use.

This rule proposes to eliminate the present State plan

requirements, with the exception of the neediness criteria of Section

251.6(a)(1), as mentioned above. Also, as discussed in detail above,

this rule proposes to remove the requirement of Section 251.4(d)(3)

that State agencies develop distribution rates; therefore such rates

will not be included in State plans. The other program requirements

previously mandated to be addressed in State plans would continue to

exist, as they possess an independent regulatory basis, but State

agencies would no longer be required to include proposals for meeting

them in their State plans. State agencies would continue to be required

to comply with the program monitoring provisions contained in Section

251.10(e). They would also be bound by the criteria for allowable uses

of administrative funds contained in Section 251.8(d)(1), redesignated

by this proposed rule as Section 251.8(e)(1), as discussed below, but

would no longer be required to describe the monitoring system or the

formula for allocating administrative funds in the State plan. A

description of the State's contribution toward the matching requirement

contained in Section 251.9(a) would no longer be required. Section

251.9(e), referring to the matching requirement as an element of the

State plan, is therefore proposed to be removed. Of course States must

still meet their matching requirement and report it as required in

Section 251.9(f). Under current regulations, the match is to be

reported on form SF-269, Financial Status Report, which has become

obsolete. Therefore, this rule would remove references to it and

instead refer to form FNS-667, Report of Administrative Costs

throughout Section 251.9(f), which is redesignated as Section 251.9(e)

under this proposed rule. Elimination of the above plan requirements

would reduce the burden associated with the administration of TEFAP at

the State level, while not affecting program accountability.

Formula Adjustments

Section 214(a) of the EFAA mandates the allocation of commodities

purchased with funds appropriated for TEFAP to States through a formula

based 60 percent on the number of persons in the State with incomes

below the poverty line, relative to national figures, and 40 percent on

the average

[[Page 36989]]

monthly number of unemployed persons in the State, again relative to

national figures. Section 204(a)(1) of the EFAA, in turn, mandates that

TEFAP administrative funds be allocated among the States on the same

basis.

Section 251.7 of the regulations implements this legislative

mandate for the allocation of all commodities, including surplus USDA

commodities, made available for distribution through TEFAP. In

accordance with the regulatory provisions, the Department currently

makes adjustments to the allocation formula for each State, based on

updated unemployment statistics. For surplus commodities, adjustment is

to be performed semi-annually, effective January 1 and July 1 of each

fiscal year. For purchased commodities and administrative funds,

adjustments are to be made annually, effective for the entire fiscal

year. In the interest of streamlining program administration, and not

subjecting States to disruptive mid-year formula adjustments, this rule

proposes to revise Section 251.7 to make annual formula adjustments

applicable to all commodities and administrative funds.

Disbursement of Administrative Funds

Disbursement of Funds to States by USDA--Section 251.8(c) provides

for the disbursement of administrative funds to State agencies by means

of U.S. Treasury checks or letters of credit in accordance with FNS

Instruction 407-3 (Grant Award Process). This section currently

requires that U.S. Treasury checks or letters of credit be issued

pursuant to submission of the SF-270, Request for Advance or

Reimbursement, and that State agencies receive funds through a letter

of credit if payments are more than $120,000 for the year. Changes in

financial management procedures and regulations, mainly attributable to

implementation of automated electronic transactions, have rendered

these provisions obsolete. It is now the practice of FNS to make funds

available to States exclusively by means of letters of credit.

Therefore, the above cited references to U.S. Treasury checks and the

$120,000 threshold, would be removed by this proposed rule. FNS

Instruction 407-3 is also obsolete, and in order to prevent part 251

from becoming outdated whenever financial management instructions

change, this reference would be removed and replaced with a general

reference to financial procedures established by FNS. Furthermore, as

the SF-270 is no longer used, this rule would remove reference to it.

Disbursement of funds to ERAs by States--In the two-tiered priority

system discussed in this preamble, not every ERA qualifies as an EFO.

Under this system, State agencies and ERAs to which authority has been

delegated would be required to ensure that the USDA commodity needs of

all first-tier organizations, i.e., EFOs, are met before food is made

available to a second-tier ERA. A similar situation exists with respect

to documenting compliance with the requirement contained in Section

204(a)(2) of the EFAA that each State agency make available to EFOs not

less than 40 percent of the State's share of TEFAP administrative

funding. Although State agencies may disburse administrative funds to

second-tier ERAs, such funds cannot be counted toward meeting the 40

percent pass-through requirement. This rule proposes to amend Section

251.9 to expressly prohibit State agencies from counting any funds

provided by the State agency directly to ERAs that are not EFOs, or

used by the State to pay costs on such ERAs' behalf, toward the 40

percent pass-through requirement. However, in instances in which State

agencies have agreements with EFO intermediaries such as food banks,

which, in turn, may share administrative funds with other EFOs as well

as second-tier ERAs, requiring State agencies to account for the

disposition of administrative funding to EFOs and second-tier ERAs by

the organizations with which they have agreements would create undue

expense and administrative complexity to protect against an unlikely

event, i.e., that EFOs might receive less than 40 percent of the

State's grant. Recent history has shown that administrative funding

will probably not be sufficient to serve very many second-tier ERAs. In

addition, most State agencies currently pass through to EFOs

considerably more than 40 percent of their administrative funds, making

it extremely unlikely that a State agency would fall below the minimum

threshold. Therefore, this rule proposes to amend Section 251.8 to

clarify that, if a State agency passes down to EFOs with which it has

an agreement, or expends on behalf of such organizations, at least 40

percent of its administrative grant, the State agency will be deemed to

have met its pass-through requirement. State agencies would not be

required to account for how these organizations further distribute

administrative funding in order to meet their pass-through requirement.

For example, if a State passes administrative funds down to, or expends

such funds on behalf of, a food bank with which it has an agreement,

and which is an EFO, those funds can be counted toward the pass-through

requirement. The State need not examine the food bank's records for the

purpose of determining if the food bank passed any of the funds on to

an organization which is not an EFO. All ERAs would, of course, be

subject to audit and are accountable for their use of funds for

necessary, reasonable, and allowable costs.

As discussed in detail below, the provisions of Welfare Reform

permit State and local agencies to use TEFAP administrative funds for a

much broader array of costs associated with the distribution of USDA

and non-USDA commodities. This will, of course, intensify competing

demands for funds, and require that additional priorities be set. The

Department believes that TEFAP administrative funds should be available

to leverage the supply of food to the needy, from whatever the source.

However, the Department also expects that those funds should be

available first to distribute the supply of TEFAP commodities. Only

after this need has been fully met should TEFAP administrative funds be

used to distribute non-USDA commodities. However, it would be

impractical to apportion administrative funds within an organization on

the basis of the proportion of USDA and non-USDA commodities it

handles, in an attempt to ensure that administrative expenses

associated with USDA commodities are covered before funds are used for

the distribution of non-USDA commodities. Therefore, this rule proposes

to amend Section 251.8(d) to provide only that State agencies and ERAs

distributing administrative funds shall ensure that the administrative

funding needs of ERAs which receive USDA commodities are met, relative

to both USDA commodities and any non-USDA commodities they may receive,

before such funding is made available to ERAs which distribute only

non-USDA commodities.

Allowable Administrative Costs

Indirect Costs--Over the years, many questions have been raised

about whether indirect costs may be charged against TEFAP

administrative grants. The definition of ``storage and distribution

costs'' in the initial TEFAP regulations issued on April 26, 1983 (48

FR 19004) limited allowable storage and distribution costs to ``direct

costs.'' Subsequent revisions of the TEFAP regulations retained this

limitation, currently found in Section 251.8(d)(1)(i). However, section

204(a)(2) of the EFAA requires States to make available not less than

40 percent of their grants as necessary to meet the ``direct expenses''

of EFOs. This term is

[[Page 36990]]

defined as including ``transporting, storing, handling, repackaging,

processing, and distributing commodities * * * costs associated with

determinations of eligibility, verification, and documentation; costs

of providing information to persons receiving commodities * * *

concerning the appropriate storage and preparation of such commodities;

and costs of recordkeeping, auditing, and other administrative

procedures required for participation in the program under this Act.''

Direct ``expenses'' does not have the same meaning as direct

``costs.'' In fact, many of the items identified in EFAA Section

204(a)(2) as ``direct expenses'' could be charged as either direct or

indirect costs depending on the EFO's accounting system (e.g.,

recordkeeping and auditing costs). To ensure consistency in the

treatment of these expenses, this rule would amend Section 251.8 to

define ``direct expenses'' to include both direct and indirect costs

attributable to TEFAP.

Non-USDA Commodities--Prior to Welfare Reform, States and EFOs were

permitted by Section 203D(b) of the EFAA to use TEFAP administrative

funds to pay costs associated with the storing, handling, and

distributing of non-USDA commodities. In addition, Section 204(a)(2) of

the EFAA permitted EFOs to pay costs associated with the repackaging

and processing of USDA commodities, as well as the costs of

transporting, storing, handling and distributing such commodities.

Welfare Reform amended Section 204(a)(1) of the EFAA to expand the

allowable uses of TEFAP administrative funds to permit States to use

such funds to pay costs associated with the processing of both TEFAP

commodities and commodities secured from other sources. However, no

corresponding change was made to Section 204(a)(2). Nevertheless, upon

further review of the legislative changes made to the EFAA as a result

of Welfare Reform, it has been noted that removing the distinction

between TEFAP commodities and commodities secured from other sources in

Section 204(a)(1) affected Section 204(a)(2) as well. As a result of

this amendment, both States and ERAs may use TEFAP funds to pay costs

associated with the processing, as well as the transporting, storing,

handling, repackaging, and distributing of USDA and non-USDA

commodities. This rule proposes to revise Section 251.8(e)(1)(i) to

reflect the authority of the State agencies and ERAs to use TEFAP

administrative funds to pay such costs.

Interstate Costs--TEFAP regulations have consistently limited

``storage and distribution costs'' to intrastate costs at both the

State and local level. This limitation was based on the language

contained in Section 204(a)(2) of the EFAA which limits allowable EFO

costs of transporting, storing, handling, repackaging, processing and

distributing both USDA and non-USDA commodities to those costs incurred

``after [the commodities] are received by the organization.'' However,

this restriction fails to recognize the increasing instances of

interstate costs associated with the distribution of non-USDA

commodities. The HPA first provided for the use of TEFAP administrative

funds to pay costs associated with the distribution of non-USDA

commodities by ERAs in 1988. Section 871(c) of Welfare Reform extended

the authority to use TEFAP administrative funds for this purpose to

States. These legislative changes have caused the Department to re-

evaluate the prohibition on interstate costs. It has been determined

that the phrase ``incurred after they are received by the

organization'' does not necessarily mean that the ERA must have

physical possession of the commodities. Once a particular commodity has

been earmarked for a particular agency and has become its

responsibility, the proposal would permit TEFAP funds to be used to pay

any associated allowable cost. For example, if a farmer in another

State makes potatoes available to an organization for gleaning, TEFAP

funds could be used to pay the cost of transporting, processing and

storing those potatoes. Therefore, this rule also proposes to amend

Section 251.8(e)(1)(i) to allow interstate expenditures by both State

and local agencies, with the restriction that for such expenditures to

be allowable, the commodities in question must have been earmarked for

the particular local agency and become its responsibility.

While the EFAA gives a more exhaustive list of the types of EFO

costs that may be counted toward the 40 percent pass-through

requirement, the Department considers these costs to be a subset of the

full range of costs for which a State and other types of ERAs may use

TEFAP funds. Included are typical ``local'' costs such as those

associated with determinations of eligibility, verification, and

documentation, costs of providing information to persons receiving

commodities concerning the appropriate storage and preparation of such

commodities, and costs of recordkeeping, auditing, and other

administrative procedures required for participation in the program, as

they are considered legitimate costs associated with program

administration. Therefore, this rule proposes to revise Section

251.8(e)(1) to provide one list of the types of allowable costs for

which TEFAP administrative funds can be used at either the State or

local level.

This rule also proposes to amend Section 251.8(e)(2) to address

those instances in which State agencies limit the use of TEFAP

administrative funds to pay specific types of expenses. In most

instances, there is not a sufficient amount of TEFAP administrative

funds to pay all allowable local level costs. Therefore, some State

agencies choose to limit the use of such funds to ensure that funds are

utilized in a manner that results in TEFAP commodities being made

available to the greatest number of needy possible. As discussed above,

if the State agency chooses to limit the use of TEFAP administrative

funds, the specific types of expenses for which funds can be used by

ERAs must be identified in the agreement or other written documents

incorporated by reference in the agreement.

The accompanying chart has been included in this preamble to assist

readers in understanding the changes to the allowable administrative

cost categories of Section 251.8 set forth in this proposed rule.

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Recordkeeping and Reporting Requirements

Section 251.10(a)(5) currently requires EFOs to retain all records

for a period of 3 years from the close of the Federal Fiscal Year to

which they pertain. This rule proposes to amend Section 251.10(a)(5),

which is redesignated under this proposed rule as Section 251.10(a)(4),

to require records to be kept by the ERA, or the State agency on behalf

of the ERA, as long as such records are reasonably accessible at all

times for purposes of management evaluation reviews, audits or

investigations. This change would serve to clearly state the commonly

accepted rule that once records become the subject of an audit or

investigation, any time limits otherwise permitting their disposal are

suspended until the audit or investigation is concluded. The second

advantage would be greater flexibility in custodial arrangements for

records, e.g., a mass distribution site may not have appropriate record

storage space and may wish to ship its records to the State for

safekeeping. This provision would be further amended to require records

to be kept longer than 3 years if related to an audit or investigation

in progress.

Section 251.10(a)(3) of the regulations currently requires each

TEFAP distribution site to keep records showing the data and method

used to determine the number of eligible households served at that

site. Section 251.10(d)(2) of the regulations in turn currently

requires States to report, on form FNS-155, the total number of

households served in the State under TEFAP. Now that TEFAP and SK/FB

have been consolidated, a significant proportion of TEFAP commodities

are used for prepared meals. The Department does not intend to require

that sites which serve prepared meals report the number of meals

served, as in many instances, some meals would not contain TEFAP

commodities, and in many other situations, such commodities might

comprise a small part of meals. In addition, such a requirement would

impose an unreasonable burden on sites which provide prepared meals.

Therefore, information relative only to the number of households served

through TEFAP is of little value to the Department since it bears no

relationship to the total number of needy receiving assistance through

TEFAP, and does not account for the disposition of all TEFAP

commodities. The Final Rule, ``Food Distribution Programs-Reduction of

the Paperwork Burden,'' published at 62 FR 53727, amended Section

250.17(a) to allow the Department to establish the frequency of

submission of form FNS-155 and, by implication, the information

reported on the form, to conform to program needs. FNS Regional Offices

were notified by means of TEFAP Policy Memorandum No. 12-TEFAP

Household Participation Data, dated December 23, 1997, that the

Department was exercising this authority to eliminate reporting of

household data in TEFAP, and that current regulations would be amended

to reflect this change. Therefore, this rule proposes to remove Section

251.10(a)(3), as it is oriented toward reporting the number of

households served, and to revise Section 251.10(d)(2) to eliminate the

requirement that State agencies report the total number of households

served. Since it remains necessary, for purposes of accountability, to

maintain information specific to each household certified for

participation in the program, the requirements contained in Section

251.10(a)(4) are retained in this proposed rule, and redesignated as

Section 251.10(a)(3).

Monitoring Requirements

Section 251.10(e)(2)(i) of current regulations requires State

agencies to conduct on-site reviews of each participating organization

with which the State has an agreement (i.e., EFO as defined by current

regulations) at least once every four years, with at least 25 percent

of the total number of such institutions reviewed each year. As

discussed above, this rulemaking proposes to change the definition of

EFO so that it corresponds to the legislative definition. Therefore,

this rule proposes to replace the reference to EFO in Section

251.10(e)(2)(i) with ``eligible recipient agency with which the State

agency has executed an agreement.'' However, the applicability of the

requirement remains unchanged in this proposed rule.

Section 251.10(e)(2)(ii) of current regulations requires that the

State agency annually review one-third or 50, whichever is fewer, of

all distribution sites within the State, to be conducted, to the

maximum extent feasible, simultaneously with actual distribution and/or

eligibility determinations. In selecting distribution sites for review,

Sec. 251.10(e)(3) of current regulations requires the State agency to

rank all the sites according to the number of households participating

during the previous Federal fiscal quarter and select for review the

first 25 sites, or first one-sixth of all sites, whichever is fewer,

which served the greatest number of households.

As indicated above, the 25 percent review requirement is proposed

to apply to all ERAs which have an agreement with the State agency. The

remaining review requirement, in Section 251.10(e)(2)(ii), is proposed

to apply to all other ERAs, that is, to all ERAs which have an

agreement with another ERA rather than the State agency. The Department

proposes to reduce the frequency of this requirement. Thus, instead of

annually reviewing the lesser of one-third or 50 of all distribution

sites, the State agency would be required to review the lesser of one-

tenth or 20 of all ERAs which have an agreement with another ERA. With

the absorption of SK/FB into TEFAP, State agencies must actually expand

their monitoring activities to include ERAs which serve prepared meals,

so the total number of ERAs will increase. However, the value of

available USDA commodities has decreased since the current regulatory

requirement was established many years ago, generally reducing the need

for oversight. As such, State agencies should have the flexibility to

direct limited administrative resources where there is the most need

for program oversight and corrective action. This change would decrease

the burden associated with administration currently imposed on State

agencies while maintaining program accountability.

As indicated above, Section 251.10(e)(3) of current regulations

mandates a system for selecting and ranking distribution sites for

review based on the number of households they serve. As previously

noted, the number of households served is no longer meaningful data

since SK/FB has been merged with TEFAP. In addition, it has been

determined that States should be granted more flexibility in selecting

ERAs for review. Therefore, this rule proposes to remove the current

Section 251.10(e)(3) and to amend Section 251.10(e)(2)(ii) to require

that State agencies develop a system for reviewing ERAs which have

signed an agreement with another ERA for the receipt of TEFAP

commodities and/or administrative funds that ensures deficiencies in

program administration are detected and resolved in an effective and

efficient manner. Examples of criteria States might apply include

actual or probable deficiencies in program administration, such as

weakness in inventory management, that have been identified through

audits, investigations of complaints; deficiencies in, or tardiness of,

reports submitted by ERAs; or the dollar value of the TEFAP commodities

received in

[[Page 36993]]

the previous Federal fiscal quarter. Use of such criteria would yield

systematic selection while at the same time providing State agencies

the flexibility necessary to direct limited administrative resources

where oversight and corrective action are most needed.

FNS Instruction 113-3, ``Civil Rights Compliance and Enforcement--

Food Distribution Programs,'' presently includes an on-site review

requirement of recipient agencies every five years to ensure compliance

with civil rights regulations. In accordance with the change in on-site

review requirements for TEFAP proposed above, the Department plans to

revise this provision of the instruction. The revised instruction would

require that on-site reviews of ERAs to ensure compliance with civil

rights provisions be conducted at the frequency established in Section

251.10(e)(2)(i) and (e)(2)(ii) of this proposed rule.

Section 251.10(e)(6) of current regulations requires that the State

agency submit a report of review findings to each EFO, including a

description of each deficiency found and factors contributing to each,

requirements for corrective actions, and a timetable for completion of

corrective action. The State agency must then monitor the

implementation of corrective actions identified in the report. The

Department has determined that this requirement is too prescriptive.

State agencies should be given more flexibility to determine the manner

in which they will work with ERAs to develop corrective action plans to

remedy deficiencies. Therefore, this rule proposes to redesignate

Section 251.10(e)(6) as Section 251.10(e)(5) and to amend it to require

the State agency to submit a report of review findings to an ERA only

if the review discloses deficiencies in program administration. In

addition, the specific requirements for the report would be removed.

State agencies would, however, continue to be responsible for ensuring

that ERAs take corrective action to eliminate the deficiencies

identified during the review.

Maintenance of Effort

Section 871(d)(5) of Welfare Reform amended Section 214(d) of the

EFAA to allow States greater flexibility in complying with the

maintenance-of-effort requirement by removing the mandate that a State

agency maintain the amount of State funds made available to support

other (non-TEFAP) nutrition programs in the State during each fiscal

year. The prohibition against reducing State funding remains only for

TEFAP itself, i.e., it applies only to State agencies that use their

own funds to provide commodities or services to organizations receiving

federal funds or services under TEFAP. This rule proposes to amend

Section 251.10(h) accordingly.

In recent years, some States have been supporting TEFAP with

significant amounts of their own funds, a development that should be

encouraged. Therefore, the maintenance-of-effort requirement should not

be construed to require that State spending on TEFAP within the State

never fall below the highest level achieved in any year. Such an

interpretation would no doubt cause States to become extremely wary of

increasing their support for TEFAP, for fear that they would be forced,

even if unable, to continue to provide the increased level of

contributions in future years. Therefore, in an effort to encourage

States to contribute additional resources to the extent feasible in any

given year, this rule proposes to amend Section 251.10(h) to define the

``base year'' to be used in determining if States are complying with

the maintenance-of-effort requirement as ``the fiscal year when the

State first began administering TEFAP, or Fiscal Year 1988, which is

the fiscal year in which the maintenance-of-effort requirement became

effective, whichever is later.'' The maintenance-of-effort requirement

is independent of the State matching requirement for TEFAP

administrative funds which States retain for State-level administrative

costs, as set forth in Section 251.9.

National School Lunch Program--State Advisory Councils and Consultation

Requirement

Section 707(b) of Welfare Reform amended Section 14(e) of the NSLA

(42 U.S.C. 1762a(e)) to remove the requirement that State educational

agencies-which typically are not involved with decisions relative to

the commodity program-establish an advisory council for the purpose of

advising the agency on schools' needs relative to the selection and

distribution of commodities. Current regulations at 7 CFR 210.28

require State educational agencies to maintain these advisory councils.

State agencies were informed via the January 14, 1997 policy memorandum

that, effective immediately, State educational agencies need not

maintain the formerly required advisory councils. The elimination of

this requirement from the regulations is being addressed by FNS's Child

Nutrition Division in a separate rulemaking covering the implementation

of Welfare Reform relative to child nutrition programs. States should

not interpret this change in the law as a requirement to disband their

advisory councils. To the extent that they have proved useful, States

may wish to retain them. It should be noted that, as mentioned

previously, Section 871(b) of Welfare Reform amended Section 202A(c) of

the EFAA to require the Secretary to encourage States to establish a

State advisory board comprised of public and private entities with an

interest in the distribution of TEFAP commodities. As noted above, this

rule proposes to revise Section 251.4(h) to include language

encouraging States to establish such an advisory board.

Section 707(b) of Welfare Reform also amended section 14(e) of the

NSLA (42 U.S.C. 1762a(e)) to require that State agencies responsible

for the distribution of commodities consult with representatives of

schools in the State that participate in the National School Lunch

Program when making decisions regarding the selection and distribution

of commodities. Food Distribution Program regulations regarding

commodity acceptability reports and information dissemination (Sections

250.13(k) and 250.24(b) respectively) should prove adequate to fulfill

this consultation requirement, especially given Congress' decision to

eliminate the requirement for advisory councils, and the general need

to reduce the burden of program administration. Therefore this rule

proposes no new regulations in furtherance of this legislative mandate.

The above regulatory provisions do, however, include references

(Sections 250.13(k)(2) and 250.24(b)(4)) to the no-longer-required

advisory councils, which this rule proposes to eliminate.

Alien Provisions

The provisions of Welfare Reform affecting aliens do not require

that States in any way restrict access of aliens to TEFAP. States can

continue serving all categories of aliens they served prior to

enactment of Welfare Reform. While Welfare Reform does not require

discontinuation of benefits to aliens, Section 742 does give States the

option to provide, or not provide, program benefits to any individual

who is not a citizen or a qualified alien. However, prior to making any

changes in program administration based on the alien provisions of

Welfare Reform, States are advised to consult with their legal counsel.

States should also be aware that Section 403(a) of Welfare Reform

imposes a five-year waiting period after

[[Page 36994]]

a qualified alien enters the country before s/he is eligible for any

``Federal means-tested public benefit.'' The Department has determined

that FNS's food distribution programs, including TEFAP, are not subject

to this provision. Therefore the five-year waiting period does not

apply. The Department will publish a separate rulemaking to incorporate

the provisions of Welfare Reform regarding eligibility of aliens for

TEFAP and other food distribution programs.

Technical Amendments

This rule proposes to amend part 251 to remove the obsolete word

``Temporary'' from Section 251.1 and to correct outdated references.

List of Subjects

7 CFR Part 250

Aged, Agricultural commodities, Business and industry, Food

assistance programs, Food donations, Food processing, Grant programs-

social programs, Indians, Infants and children, Commodity loan

programs, Reporting and recordkeeping requirements, School breakfast

and lunch programs, Surplus agricultural commodities.

7 CFR Part 251

Aged, Agricultural commodities, Business and industry, Food

assistance programs, Food donations, Grant programs-social programs,

Indians, Infants and children, Commodity loan programs, Reporting and

recordkeeping requirements, School breakfast and lunch programs,

Surplus agricultural commodities.

Accordingly, 7 CFR parts 250 and 251 are proposed to be amended as

follows:

PART 250--DONATION OF FOODS FOR USE IN THE UNITED STATES, ITS

TERRITORIES AND POSSESSIONS AND AREAS UNDER ITS JURISDICTION

1. The authority citation for part 250 continues to read as

follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 612c, 612c note, 1431, 1431b,

1431e, 1431 note, 1446a-1, 1859, 2014, 2025; 15 U.S.C. 713c; 22

U.S.C. 1922; 42 U.S.C. 1751, 1755, 1758, 1760, 1761, 1762a, 1766,

3030a, 5179, 5180.

Sec. 250.3 [Amended]

2. In Section 250.3, the definitions of Food bank and Soup kitchen

are removed.

Sec. 250.13 [Amended]

3. In Sec. 250.13:

a. Paragraph (a)(1)(iv) is amended by removing the words

``emergency feeding organizations'' wherever they appear and adding the

words ``eligible recipient agencies'' in their place.

b. The last sentence of paragraph (k)(2) is amended by removing the

words ``, including, for example, State Food Distribution Advisory

Council Reports''.

Sec. 250.24 [Amended]

4. In Sec. 250.24, paragraph (b)(4) is removed, and paragraphs

(b)(5) and (b)(6) are redesignated as paragraphs (b)(4) and (b)(5),

respectively.

Sec. 250.41 [Amended]

5. In Sec. 250.41, the first sentence of paragraph (a)(1) is

amended by removing the words ``With the exception of section 110

commodities, which are to be distributed in accordance with the

provisions of Sec. 250.52, the'' and adding in their place ``The''.

Sec. 250.52 [Removed]

6. Section 250.52 is removed.

PART 251--THE EMERGENCY FOOD ASSISTANCE PROGRAM

1. The authority citation for part 251 continues to read as

follows:

Authority: 7 U.S.C. 7501-7516.

Sec. 251.1 [Amended]

2. In Sec. 251.1, the word ``Temporary'' is removed.

3. In Sec. 251.2:

a. Paragraph (a) is amended by adding the heading ``Food and

Nutrition Service.'';

b. Paragraph (b) is amended by adding the heading ``State

Agencies.'', by removing the words ``emergency feeding organizations''

and by adding the words ``eligible recipient agencies'' in their place;

c. Paragraph (c) is revised; and

d. Paragraph (d) is added.

The revision and addition read as follows:

Sec. 251.2 Administration.

* * * * *

(c) Agreements. (1) Agreements between Department and States. Each

State agency that distributes donated foods to eligible recipient

agencies or receives payments for storage and distribution costs in

accordance with Sec. 251.8 must perform those functions pursuant to an

agreement entered into with the Department. This agreement will be

considered permanent, with amendments initiated by State agencies, or

submitted by them at the Department's request, all of which will be

subject to approval by the Department.

(2) Agreements between State agencies and eligible recipient

agencies, and between eligible recipient agencies. Prior to making

donated foods or administrative funds available, State agencies must

enter into a written agreement with eligible recipient agencies to

which they plan to distribute donated foods and/or administrative

funds. State agencies must ensure that eligible recipient agencies in

turn enter into a written agreement with any eligible recipient

agencies to which they plan to distribute donated foods and/or

administrative funds before donated foods or administrative funds are

transferred between any two eligible recipient agencies. All agreements

entered into must contain the information specified in paragraph (d) of

this section, and be considered permanent, with amendments to be made

as necessary, except that agreements must specify that they may be

terminated by either party upon 30 days' written notice. State agencies

must ensure that eligible recipient agencies provide, on a timely

basis, by amendment to the agreement, or other written documents

incorporated into the agreement by reference if permitted under

paragraph (d) of this section, any information on changes in program

administration, including any changes resulting from amendments to

Federal regulations or policy.

(d) Contents of agreements between State agencies and eligible

recipient agencies and between eligible recipient agencies. (1)

Agreements between State agencies and eligible recipient agencies and

between eligible recipient agencies must provide:

(i) That eligible recipient agencies agree to operate the program

in accordance with the requirements of this part, and, as applicable,

part 250 of this chapter; and

(ii) The name and address of the eligible recipient agency

receiving commodities and/or administrative funds under the agreement;

and

(iii) The name of the person responsible for administering the

program in the receiving eligible recipient agency.

(2) The following information must also be identified, either in

the agreement or other written documents incorporated by reference in

the agreement:

(i) If the State agency delegates the responsibility for any aspect

of the program to an eligible recipient agency, each function for which

the eligible recipient agency will be held responsible; except that in

no case may State agencies delegate responsibility for establishing

eligibility criteria for organizations in accordance with

[[Page 36995]]

Sec. 251.5(a), establishing eligibility criteria for recipients in

accordance with Sec. 251.5(b), or conducting reviews of eligible

recipient agencies in accordance with Sec. 251.10(e);

(ii) If the receiving eligible recipient agency is to be allowed to

further distribute TEFAP commodities and/or administrative funds to

other eligible recipient agencies, the specific terms and conditions

for doing so, including, if applicable, a list of specific

organizations or types of organizations eligible to receive commodities

or administrative funds;

(iii) If the use of administrative funds is restricted to certain

types of expenses pursuant to Sec. 251.8(e)(2), the specific types of

administrative expenses eligible recipient agencies are permitted to

incur;

(iv) Any other conditions set forth by the State agency.

4. Section 251.3 is revised to read as follows:

Sec. 251.3 Definitions.

(a) The terms used in this part that are defined in part 250 of

this chapter have the meanings ascribed to them therein, unless a

different meaning for such a term is defined herein.

(b) Charitable institution (which is defined differently in this

part than in part 250 of this chapter) means an organization which--

(1) Is public, or

(2) Is private, possessing tax exempt status pursuant to

Sec. 251.5(a)(3); and

(3) Is not a penal institution (this exclusion also applies to

correctional institutions which conduct rehabilitation programs); and

(4) Provides food assistance to needy persons.

(c) Distribution site means a location where the eligible recipient

agency actually distributes commodities to needy persons for household

consumption or serves prepared meals to needy persons under this part.

(d) Eligible recipient agency means an organization which--

(1) Is public, or

(2) Is private, possessing tax exempt status pursuant to

Sec. 251.5(a)(3); and

(3) Is not a penal institution; and

(4) Provides food assistance--

(i) Exclusively to needy persons for household consumption,

pursuant to a means test established pursuant to Sec. 251.5(b), or

(ii) Predominantly to needy persons in the form of prepared meals

pursuant to Sec. 251.5(a)(2); and

(5) Has entered into an agreement with the designated State agency

pursuant to Sec. 251.2(c) for the receipt of commodities or

administrative funds, or receives commodities or administrative funds

under an agreement with another eligible recipient agency which has

signed such an agreement with the State agency or another eligible

recipient agency within the State pursuant to Sec. 251.2(c); and

(6) Falls into one of the following categories:

(i) Emergency feeding organizations (including food banks, food

pantries and soup kitchens);

(ii) Charitable institutions (including hospitals and retirement

homes);

(iii) Summer camps for children, or child nutrition programs

providing food service;

(iv) Nutrition projects operating under the Older Americans Act of

1965 (Nutrition Program for the Elderly), including projects that

operate congregate nutrition sites and projects that provide home-

delivered meals; and

(v) Disaster relief programs.

(e) Emergency feeding organization means an eligible recipient

agency which provides nutrition assistance to relieve situations of

emergency and distress through the provision of food to needy persons,

including low-income and unemployed persons. Emergency feeding

organizations have priority over other eligible recipient agencies in

the distribution of TEFAP commodities pursuant to Sec. 251.4(h).

(f) Food bank means a public or charitable institution that

maintains an established operation involving the provision of food or

edible commodities, or the products of food or edible commodities, to

food pantries, soup kitchens, hunger relief centers, or other food or

feeding centers that, as an integral part of their normal activities,

provide meals or food to feed needy persons on a regular basis.

(g) Food pantry means a public or private nonprofit organization

that distributes food to low-income and unemployed households,

including food from sources other than the Department of Agriculture,

to relieve situations of emergency and distress.

(h) Formula means the formula used by the Department to allocate

among States the commodities and funding available under this part. The

amount of such commodities and funds to be provided to each State will

be based on each State's population of low-income and unemployed

persons, as compared to national statistics. Each State's share of

commodities and funds shall be based 60 percent on the number of

persons in households within the State having incomes below the poverty

level and 40 percent on the number of unemployed persons within the

State. The surplus commodities will be allocated to States on the basis

of their weight (pounds), and the commodities purchased under section

214 of the Emergency Food Assistance Act of 1983 will be allocated on

the basis of their value (dollars). In instances in which a State

determines that it will not accept the full amount of its allocation of

commodities purchased under section 214 of the Emergency Food

Assistance Act of 1983, the Department will reallocate the commodities

to other States on the basis of the same formula used for the initial

allocation.

(i) State agency means the State government unit designated by the

Governor or other appropriate State executive authority which has

entered into an agreement with the United States Department of

Agriculture under Sec. 251.2(c).

(j) Soup kitchen means a public or charitable institution that, as

an integral part of the normal activities of the institution, maintains

an established feeding operation to provide food to needy homeless

persons on a regular basis.

(k) Value of commodities distributed means the Department's cost of

acquiring commodities for distribution under this part.

5. In Sec. 251.4:

a. The words ``emergency feeding organization'', ``emergency

feeding organizations'' and ``emergency feeding organization's'' are

removed wherever they appear in the section, and the words ``eligible

recipient agency'', ``eligible recipient agencies'' and ``eligible

recipient agency's'' respectively are added in their place;

b. Paragraph (c)(1) is amended by removing the reference to

``Sec. 251.3(d)''and adding a reference to ``Sec. 251.3(h)'' in its

place;

c. Paragraph (d)(3) is removed;

d. Paragraph (f)(5) is amended by removing the reference

``Sec. 250.15'' and adding in its place the reference ``Sec. 250.30'';

e. Paragraphs (g) and (h) are revised;

f. Paragraph (j) is amended by adding the words ``that has signed

an agreement with the respective State agencies'' after the words

``eligible recipient agency'';

The revisions read as follows:

Sec. 251.4 Availability of commodities.

* * * * *

(g) Availability and control of donated commodities. Donated

commodities will be made available to State agencies only for

distribution and use in accordance with this part. Except as otherwise

provided in paragraph (f) of this section, donated commodities not so

distributed or used for any reason may not be sold, exchanged, or

otherwise disposed of

[[Page 36996]]

without the approval of the Department. However, donated commodities

made available under section 32 of Pub. L. 74-320 (7 U.S.C. 612c) may

be transferred by eligible recipient agencies receiving commodities

under this part, or recipient agencies, as defined in Sec. 250.3 of

this chapter, to any other eligible recipient agency or recipient

agency which agrees to use such donated foods to provide without cost

or waste, nutrition assistance to individuals in low-income groups.

Such transfers will be effected only with prior authorization by the

appropriate State agency and must be documented. Such documentation

shall be maintained in accordance with Sec. 251.10(a) of this part and

Sec. 250.16 of this chapter by the distributing agency and the State

agency responsible for administering TEFAP and made available for

review upon request.

(h) Distribution to eligible recipient agencies-priority system and

advisory boards.--(1) State agencies must distribute commodities made

available under this part to eligible recipient agencies in accordance

with the following priorities:

(i) First priority. When a State agency cannot meet all eligible

recipient agencies' requests for TEFAP commodities, the State agency

must give priority in the distribution of such commodities to emergency

feeding organizations as defined under Sec. 251.3(e). A State agency

may, at its discretion, concentrate commodity resources upon a certain

type or types of such organizations, to the exclusion of others.

(ii) Second priority. After a State agency has distributed TEFAP

commodities sufficient to meet the needs of all emergency feeding

organizations, the State agency must distribute any remaining program

commodities to other eligible recipient agencies which serve needy

people, but do not relieve situations of emergency and distress. A

State agency may, at its discretion, concentrate commodity resources

upon a certain type or types of such organizations, to the exclusion of

others.

(2) Delegation. When a State agency has delegated to an eligible

recipient agency the authority to select other eligible recipient

agencies, the eligible recipient agency exercising this authority must

ensure that any TEFAP commodities are distributed in accordance with

the priority system set forth in paragraphs (h)(1)(i) and (h)(1)(ii) of

this section. State agencies and eligible recipient agencies will be

deemed to be in compliance with the priority system when eligible

recipient agencies distribute TEFAP commodities to meet the needs of

all emergency feeding organizations under their jurisdiction prior to

making commodities available to eligible recipient agencies which are

not emergency feeding organizations.

(3) Existing networks. Subject to the constraints of paragraphs

(h)(1)(i) and (h)(1)(ii) of this section, State agencies may give

priority in the distribution of TEFAP commodities to existing food bank

networks and other organizations whose ongoing primary function is to

facilitate the distribution of food to low-income households, including

food from sources other than the Department.

(4) State advisory boards. Each State agency receiving TEFAP

commodities is encouraged to establish a State advisory board

representing all types of entities in the State, both public and

private, interested in the distribution of such commodities. Such

advisory boards can provide valuable advice on how resources should be

allocated among various eligible outlet types, what areas have the

greatest need for food assistance, and other important issues that will

help States to use their program resources in the most efficient and

effective manner possible. A State agency may expend TEFAP

administrative funds to support the activities of an advisory board in

accordance with Sec. 251.8 of this part.

* * * * *

6. Section 251.5 is revised to read as follows:

Sec. 251.5 Eligibility determinations.

(a) Criteria for determining eligibility of organizations. Prior to

making commodities available, State agencies or eligible recipient

agencies to which the State agency has delegated responsibility for the

distribution of TEFAP commodities, must ensure that an organization

applying for participation in the program meets the definition of an

``eligible recipient agency'' under Sec. 251.3(d). In addition,

applicant organizations must meet the following criteria:

(1) Agencies distributing to households. Organizations distributing

commodities to households for home consumption must limit the

distribution of commodities provided under this part to those

households which meet the eligibility criteria established by the State

agency in accordance with paragraph (b) of this section.

(2) Agencies providing prepared meals. Organizations providing

prepared meals must demonstrate, to the satisfaction of the State

agency or eligible recipient agency to which they have applied for the

receipt of commodities, that they serve predominantly needy persons.

State agencies may establish a higher standard than ``predominantly''

and may determine whether organizations meet the applicable standard by

considering socioeconomic data of the area in which the organization is

located, or from which it draws its clientele. State agencies may not,

however, require organizations to employ a means test to determine that

recipients are needy, or to keep records solely for the purpose of

demonstrating that its recipients are needy.

(3) Tax-exempt status. Private organizations must--

(i) Be currently operating another Federal program requiring tax-

exempt status under the Internal Revenue Code (IRC), or

(ii) Possess documentation from the Internal Revenue Service (IRS)

recognizing tax-exempt status under the IRC, or

(iii) If not in possession of such documentation, be automatically

tax exempt as ``organized or operated exclusively for religious

purposes'' under the IRC, or

(iv) If not in possession of such documentation, but required to

file an application under the IRC to obtain tax-exempt status, have

made application for recognition of such status and be moving toward

compliance with the requirements for recognition of tax-exempt status.

If the IRS denies a participating organization's application for

recognition of tax-exempt status, the organization must immediately

notify the State agency or the eligible recipient agency, whichever is

appropriate, of such denial, and that agency will terminate the

organization's agreement and participation immediately upon receipt of

such notification. If documentation of IRS recognition of tax-exempt

status has not been obtained and forwarded to the appropriate agency

within 180 days of the effective date of the organization's approval

for participation in TEFAP, the State agency or eligible recipient

agency must terminate the organization's participation until such time

as recognition of tax-exempt status is actually obtained, except that

the State agency or eligible recipient agency may grant a single

extension of not to exceed 90 days if the organization can demonstrate,

to the State agency's or eligible recipient agency's satisfaction, that

its inability to obtain tax-exempt status within the 180 day period is

due to circumstances beyond its control. It is the responsibility of

the organization to document that it has complied with all IRS

requirements and has provided all

[[Page 36997]]

information requested by IRS in a timely manner.

(b) Criteria for determining recipient eligibility. Each State

agency must establish uniform Statewide criteria for determining the

eligibility of households to receive commodities provided under this

part for home consumption. The criteria must:

(1) Enable the State agency to ensure that only households which

are in need of food assistance because of inadequate household income

receive TEFAP commodities;

(2) Include income-based standards and the methods by which

households may demonstrate eligibility under such standards; and

(3) Include a requirement that the household reside in the

geographic location served by the State agency at the time of applying

for assistance, but length of residency shall not be used as an

eligibility criterion.

(c) Delegation of authority. A State agency may delegate to one or

more eligible recipient agencies with which the State agency enters

into an agreement the responsibility for the distribution of

commodities and administrative funds made available under this part.

State agencies may also delegate the authority for selecting eligible

recipient agencies and for determining the eligibility of such

organizations to receive commodities and administrative funds. However,

responsibility for establishing eligibility criteria for organizations

in accordance with paragraph (a) of this section, and for establishing

recipient eligibility criteria in accordance with paragraph (b) of this

section, may not be delegated. In instances in which State agencies

delegate authority to eligible recipient agencies to determine the

eligibility of organizations to receive commodities and administrative

funds, eligibility must be determined in accordance with the provisions

contained in this part and the State plan. State agencies will remain

responsible for ensuring that commodities and administrative funds are

distributed in accordance with the provisions contained in this part.

7. Section 251.6 is revised to read as follows:

Sec. 251.6 Distribution plan.

(a) Contents of the plan. The State agency must submit for approval

by the appropriate FNS Regional Office a plan which contains:

(1) A designation of the State agency responsible for distributing

commodities and administrative funds provided under this part, the

address of such agency, and the name of the agency official entrusted

with binding signature authority;

(2) A plan of operation and administration to expeditiously

distribute commodities received under this part;

(3) A description of the standards of eligibility for recipient

agencies, including any subpriorities within the two-tier priority

system; and

(4) A description of the criteria established in accordance with

Sec. 251.5(b) which must be used by eligible recipient agencies in

determining the eligibility of households to receive TEFAP commodities

for home consumption.

(b) Plan submission. A complete plan will be required for Fiscal

Year 2001, to be submitted no later than August 15, 2000. Thereafter, a

complete plan must be submitted every 4 years, due no later than August

15 of the fiscal year prior to the end of the 4 year cycle.

(c) Amendments. State agencies must submit amendments to the

distribution plan to the extent that such amendments are necessary to

reflect any changes in program operations or administration as

described in the plan, or at the request of FNS, to the appropriate FNS

Regional Office.

8. Section 251.7 is revised to read as follows:

Sec. 251.7 Formula adjustments.

(a) Commodity adjustments. The Department will make annual

adjustments to the commodity allocation for each State, based on

updated unemployment statistics. These adjusted allocations will be

effective for the entire fiscal year, subject to reallocation or

transfer in accordance with this part.

(b) Funds adjustments. The Department will make annual adjustments

of the funds allocation for each State based on updated unemployment

statistics. These adjusted allocations will be effective for the entire

fiscal year unless funds are recovered, withheld, or reallocated by FNS

in accordance with Sec. 251.8(f).

9. In Sec. 251.8:

a. Paragraph (a) is amended by removing the reference

``Sec. 251.3(d)'' and adding in its place the reference

``Sec. 251.3(h)'';

b. Paragraph (b) is amended by removing the reference ``part 3015''

and adding in its place the reference ``part 3016 or part 3019, as

applicable.'';

c. Paragraph (c)(1) is amended by removing the words ``U.S.

Treasury Department checks or'';

d. Paragraph (c)(2) is amended by:

1. removing the words ``FNS Instruction 407-3 (Grant Award

Process)'' and adding in their place the words ``procedures established

by FNS'';

2. removing from the first sentence the words ``either'' and ``or a

U.S. Treasury check pursuant to submission of the SF-270, Request for

Advance or Reimbursement'';

3. removing the second sentence; and

4. removing reference to ``Sec. 251.8(e)'' and in its place adding

reference to ``Sec. 251.8(f)'';

e. Paragraphs (d) and (e) are redesignated as paragraphs (e) and

(f), and new paragraph (d) is added; and

f. Newly redesignated paragraph (e) is revised.

The addition and revision read as follows:

Sec. 251.8 Payment of funds for administrative costs.

* * * * *

(d) Priority for eligible recipient agencies distributing USDA

commodities. State agencies and eligible recipient agencies

distributing administrative funds must ensure that the administrative

funding needs of eligible recipient agencies which receive USDA

commodities are met, relative to both USDA commodities and any non-USDA

commodities they may receive, before such funding is made available to

organizations which distribute only non-USDA commodities.

(e) Use of funds. (1) Allowable administrative costs. State

agencies and eligible recipient agencies may use funds made available

under this part to pay the direct expenses associated with the

distribution of USDA commodities and commodities secured from other

sources to the extent that the commodities are ultimately distributed

by eligible recipient agencies which have entered into agreements in

accordance with Sec. 251.2. Direct expenses include the following,

regardless of whether they are charged to TEFAP as direct or indirect

costs:

(i) The intrastate and interstate transport, storing, handling,

repackaging, processing, and distribution of commodities; except that

for interstate expenditures to be allowable, the commodities must have

been specifically earmarked for the particular State or eligible

recipient agency which incurs the cost;

(ii) Costs associated with determinations of eligibility,

verification, and documentation;

(iii) Costs of providing information to persons receiving USDA

commodities concerning the appropriate storage and preparation of such

commodities;

(iv) Costs involved in publishing announcements of times and

locations of distribution; and

[[Page 36998]]

(v) Costs of recordkeeping, auditing, and other administrative

procedures required for program participation.

(2) State restriction of administrative costs. A State agency may

restrict the use of TEFAP administrative funds by eligible recipient

agencies by disallowing one or more types of expenses expressly allowed

in paragraph (e)(1) of this section. If a State agency so restricts the

use of administrative funds, the specific types of expenses the State

will allow eligible recipient agencies to incur must be identified in

the State agency's agreements with its eligible recipient agencies, or

set forth by other written notification, incorporated into such

agreements by reference.

(3) Agreements. In order to be eligible for funds under paragraph

(e)(1) of this section, eligible recipient agencies must have entered

into an agreement with the State agency or another eligible recipient

agency pursuant to Sec. 251.2(c).

(4) Pass-through requirement-local support to emergency feeding

organizations. (i) Not less than 40 percent of the Federal Emergency

Food Assistance Program administrative funds allocated to the State

agency in accordance with paragraph (a) of this section must be:

(A) Provided by the State agency to emergency feeding organizations

that have signed an agreement with the State agency as either

reimbursement or advance payment for administrative costs incurred by

emergency feeding organizations in accordance with paragraph (e)(1) of

this section, except that such emergency feeding organizations may

retain advance payments only to the extent that they actually incur

such costs; or

(B) Directly expended by the State agency to cover administrative

costs incurred by, or on behalf of, emergency feeding organizations in

accordance with paragraph (e)(1) of this section.

(ii) Any funds allocated to or expended by the State agency to

cover costs incurred by eligible recipient agencies which are not

emergency feeding organizations shall not count toward meeting the

pass-through requirement.

(iii) State agencies must not charge for commodities made available

under this part to eligible recipient agencies.

* * * * *

10. In Sec. 251.9:

a. The words ``emergency feeding organization'' and ``emergency

feeding organizations'' are removed wherever they appear in the

section, and added in their place are the words ``eligible recipient

agency'' and ``eligible recipient agencies'' respectively;

b. Paragraph (a) is revised;

c. In paragraph (c) introductory text, the reference

``3016.24(b)(1)'' is removed, and in paragraph (c)(2)(i) the reference

``3016.24(c) through 3016.24(f)'' is removed, and the reference ``part

3016 or 3019, as applicable'' is added in both places.

d. Paragraph (e) is removed, and paragraphs (f) and (g) are

redesignated as paragraphs (e) and (f), respectively;

e. Newly redesignated paragraph (e) is amended by removing the

words ``SF-269, Financial Status Report,'' and adding the words ``FNS-

667, Report of TEFAP Administrative Costs,'' in their place.

f. Newly redesignated paragraph (f) is amended by removing the

reference ``SF-269'' wherever it appears and adding the reference

``FNS-667'' in its place.

The revision reads as follows:

Sec. 251.9 Matching of funds.

(a) State matching requirement. The State must provide a cash or

in-kind contribution equal to the amount of TEFAP administrative funds

received under Sec. 251.8 and retained by the State agency for State-

level costs or made available by the State agency directly to eligible

recipient agencies that are not emergency feeding organizations as

defined in Sec. 251.3(e). The State agency will not be required to

match any portion of the Federal grant passed through for

administrative costs incurred by emergency feeding organizations or

directly expended by the State agency for such costs in accordance with

Sec. 251.8(e)(4) of this part.

* * * * *

11. In Sec. 251.10:

a. Paragraph (a) is revised;

b. Paragraph (b) is amended by adding the words ``commodities

distributed for home consumption and meals prepared from'' after the

word ``law,'';

c. Paragraph (c) is amended by adding the words ``for home

consumption or availability of meals prepared from commodities'' after

the word ``foods''.

d. Paragraphs (d) and (e) are revised;

e. Paragraph (f) is amended by:

1. removing the words ``emergency feeding organizations and

distribution sites'', ``emergency feeding organization or distribution

site'' and ``emergency feeding organization's or distribution site's''

wherever they appear, and adding in their place the words ``eligible

recipient agencies'', ``eligible recipient agency'' and ``eligible

recipient agency's'' respectively;

2. adding the words ``or meal service'' after the word ``foods'' in

paragraph (f)(1) introductory text;

3. adding the words ``for home consumption or prepared meals

containing TEFAP commodities'' after the word ``commodities'' in

paragraph (f)(1)(ii);

4. adding the words ``or meal service'' at the end of paragraph

(f)(1)(iii);

5. adding the words ``or meal service'' after the word ``foods'' in

paragraph (f)(2); and

6. removing the words ``the distribution of commodities by'' in

paragraph (f)(4);

f. Paragraph (g) is amended by removing the words ``emergency

feeding organizations'' and adding in their place ``eligible recipient

agencies'';

g. Paragraph (h) is revised.

The revisions read as follows:

Sec. 251.10 Miscellaneous provisions.

(a) Records. (1) Commodities. State agencies must maintain records

to document the receipt, disposal, and inventory of commodities

received under this part in accordance with requirements of Sec. 250.16

of this chapter. State agencies must also ensure that eligible

recipient agencies maintain such records.

(2) Administrative funds. In addition to maintaining financial

records in accordance with 7 CFR part 3016, State agencies must

maintain records to document the amount of funds received under this

part and paid to eligible recipient agencies for allowable

administrative costs incurred by such eligible recipient agencies.

State agencies must also ensure that eligible recipient agencies

maintain such records.

(3) Household information. Each distribution site must collect and

maintain on record for each household receiving TEFAP commodities for

home consumption, the name of the household member receiving

commodities, the address of the household (to the extent practicable),

the number of persons in the household, and the basis for determining

that the household is eligible to receive commodities for home

consumption.

(4) Record retention. All records required by this section must be

retained for a period of 3 years from the close of the Federal Fiscal

Year to which they pertain, or longer if related to an audit or

investigation in progress. State agencies may take physical possession

of such records on behalf of their eligible recipient agencies.

However, such records must be reasonably accessible at all times for

use during management evaluation reviews, audits or investigations.

* * * * *

[[Page 36999]]

(d) Reports. (1) Submission of Form FNS-667. Designated State

agencies must identify funds obligated and disbursed to cover the costs

associated with the program at the State and local level. State and

local costs must be identified separately. The data must be identified

on Form FNS-667, Report of Administrative Costs (TEFAP) and submitted

to the appropriate FNS Regional Office on a quarterly basis. The

quarterly report must be submitted no later than 30 calendar days after

the end of the quarter to which it pertains. The final report must be

submitted no later than 90 calendar days after the end of the fiscal

year to which it pertains.

(2) Reports of excessive inventory. Each State agency must complete

and submit to the FNS Regional Office reports to ensure that excessive

inventories of donated foods are not maintained, in accordance with the

requirements of Sec. 250.17(a) of this chapter.

(e) State monitoring system. (1) Each State agency must monitor the

operation of the program to ensure that it is being administered in

accordance with Federal and State requirements.

(2) Unless specific exceptions are approved in writing by FNS, the

State agency monitoring system must include:

(i) An annual review of at least 25 percent of all eligible

recipient agencies which have signed an agreement with the State agency

pursuant to Sec. 251.2(c), provided that each such agency must be

reviewed no less frequently than once every four years; and

(ii) An annual review of one-tenth or 20, whichever is fewer, of

all eligible recipient agencies which receive TEFAP commodities and/or

administrative funds pursuant to an agreement with another eligible

recipient agency. Reviews must be conducted, to the maximum extent

feasible, simultaneously with actual distribution of commodities and/or

meal service, and eligibility determinations, if applicable. State

agencies must develop a system for selecting eligible recipient

agencies for review that ensures deficiencies in program administration

are detected and resolved in an effective and efficient manner.

(3) Each review must encompass, as applicable, eligibility

determinations, food ordering procedures, storage and warehousing

practices, inventory controls, approval of distribution sites, and

reporting and recordkeeping requirements.

(4) Upon concurrence by FNS, reviews of eligible recipient agencies

which have been conducted by FNS Regional Office personnel may be

incorporated into the minimum coverage required by paragraph (e)(2) of

this section.

(5) If deficiencies are disclosed through the review of an eligible

recipient agency, the State agency must submit a report of the review

findings to the eligible recipient agency and ensure that corrective

action is taken to eliminate the deficiencies identified.

* * * * *

(h) Maintenance of effort. The State may not reduce the expenditure

of its own funds to provide commodities or services to organizations

receiving funds or services under the Emergency Food Assistance Act of

1983 below the level of such expenditure existing in the fiscal year

when the State first began administering TEFAP, or Fiscal Year 1988,

which is the fiscal year in which the maintenance-of-effort requirement

became effective, whichever is later.

Dated: June 24, 1999.

Samuel Chambers, Jr.,

Administrator.

[FR Doc. 99-17160 Filed 7-7-99; 8:45 am]

BILLING CODE 3410-30-U