[Federal Register Volume 73, Number 142 (Wednesday, July 23, 2008)]
[Rules and Regulations]
[Pages 42718-42721]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-16854]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 263

RIN 0970-AC15


Cost Allocation Methodology Applicable to the Temporary 
Assistance for Needy Families Program

AGENCY: Administration for Children and Families (ACF), Department of 
Health and Human Services (HHS).

ACTION: Final rule.

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SUMMARY: This final rule applies to the Temporary Assistance for Needy 
Families (TANF) program and requires States, the District of Columbia 
and the Territories (hereinafter referred to as the ``States'') to use 
the ``benefiting program'' cost allocation methodology in U.S. Office 
of Management and Budget (OMB) Circular A-87 (2 CFR part 225). It is 
the judgment and determination of HHS/ACF that the ``benefiting 
program'' cost allocation methodology is the appropriate methodology 
for the proper use of Federal TANF funds. The Personal Responsibility 
and Work Opportunity Reconciliation Act (PRWORA) of 1996 gave 
federally-recognized Tribes the opportunity to operate their own Tribal 
TANF programs. Federally-recognized Indian tribes operating approved 
Tribal TANF programs have always followed the ``benefiting program'' 
cost allocation methodology in accordance with OMB Circular A-87 (2 CFR 
part 225) and the applicable regulatory provisions at 45 CFR 286.45(c) 
and (d). This final rule contains no substantive changes to the 
proposed rule published on September 27, 2006.

EFFECTIVE DATE: This rule is effective July 23, 2008.

FOR FURTHER INFORMATION CONTACT: Robert Shelbourne, Director, State 
TANF Policy Division at (202) 401-5150, rshelbourne@acf.hhs.gov.

SUPPLEMENTARY INFORMATION: On September 27, 2006, ACF published a 
Notice of Proposed Rulemaking (NPRM) to add section 263.14 to 45 CFR 
part 263, requiring a State or Territory to use a benefiting program 
cost allocation methodology consistent with the general requirements of 
OMB Circular A-87 to allocate TANF costs. We provided a 60-day comment 
period that ended on November 27, 2006. We offered the public the 
opportunity to submit comments by surface mail, e-mail, or 
electronically via our Web site.

Comment Overview

    After accounting for duplication, we received one comment on the 
NPRM. We have summarized the public comment and our response to it in 
Section II of the preamble to this final rule.

Table of Contents

I. Statutory Authority
II. Background
III. Discussion of Regulatory Provisions
IV. Paperwork Reduction Act of 1995
V. Regulatory Flexibility Analysis
VI. Regulatory Impact Analysis
VII. Unfunded Mandates Reform Act of 1995
VIII. Congressional Review
IX. Assessment of Federal Regulation and Policies on Families
X. Executive Order 13132

I. Statutory Authority

    We are issuing this regulation under the authority granted to the 
Secretary of Health and Human Services (HHS) by 42 U.S.C. 1302(a). 
Section 1302(a) authorizes the Secretary to make and publish such rules 
as may be necessary for the efficient administration of functions with 
which he is charged under the Social Security Act.
    42 U.S.C. 617 limits the authority of the Federal government to 
regulate State conduct or enforce the TANF provisions of the Social 
Security Act, except as expressly provided. We interpret this

[[Page 42719]]

provision to allow us to regulate the use of a permissible cost 
allocation methodology because States and the Territories need to know 
what they may and may not do to avoid potential misuse of funds 
penalties under 42 U.S.C. 609(a)(1).
    Pursuant to 42 U.S.C. 609(a)(1), we may impose a financial penalty 
whenever a State misuses Federal TANF funds. The TANF regulations at 45 
CFR 263.11 address the proper and improper uses of Federal TANF funds. 
Section 263.11(b) sets forth the circumstances that constitute misuse 
of Federal funds. Use of Federal TANF funds in violation of any of the 
provisions in OMB Circular A-87 (2 CFR part 225) is one such 
circumstance. Accordingly, we are specifying that the ``benefiting 
program'' cost allocation methodology is the appropriate methodology 
for the proper use of Federal TANF funds.

II. Background

    The Office of Management and Budget (OMB) has issued government-
wide standards for allocating the costs of government programs. 
Specifically, OMB Circular A-87 (2 CFR part 225), ``Cost Principles for 
State, Local and Indian Tribal Governments,'' provides that ``A cost is 
allocable to a particular cost objective if the goods or services 
involved are chargeable or assignable to such cost objective in 
accordance with relative benefits received.'' Thus, costs that benefit 
multiple programs may not be allocated to a single program. An 
illustrative way to determine whether multiple programs benefit from a 
cost objective is to ask, for example: In the absence of the TANF 
program, would another program still have to undertake the function? If 
the answer is yes, there is a benefit to each program and the costs 
should be allocated using the ``benefiting programs'' cost allocation 
method.
    The ``benefiting program'' cost allocation method applies to all 
Federal programs, unless there is a statutory or OMB-approved 
exception. Prior to enactment of the TANF program, HHS allowed States, 
the District of Columbia, and the Territories to charge the common 
administrative costs of determining eligibility and case maintenance 
activities for the Food Stamp and Medicaid programs to the AFDC 
program--a so-called ``primary program'' allocation method. This 
exception to the ``benefiting program'' cost allocation requirement of 
OMB Circular A-87 (2 CFR part 225) was consistent with Conference 
Committee language indicating AFDC might pay for these common costs 
because families who were eligible for AFDC (the primary program) were 
also automatically eligible for Medicaid and met the categorical, but 
not necessarily the income, requirements of Food Stamps.
    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996 (PRWORA) (Pub. L. 104-193) was enacted on August 22, 1996. 
Title I of PRWORA repealed the AFDC program and replaced it with the 
TANF program. Unlike AFDC, TANF eligibility no longer automatically 
makes a family eligible for Medicaid, and eligibility for certain TANF 
services and benefits do not lead to categorical eligibility for Food 
Stamps.
    As a result, HHS issued guidance prohibiting States from continuing 
to use the ``primary program'' allocation methodology. On September 30, 
1998, the Office of Grants and Acquisition Management (OGAM) in HHS 
issued OGAM Action Transmittal (AT) 98-2 which required States to 
allocate costs to each ``benefiting program'' in accordance with the 
provisions in OMB Circular A-87 (2 CFR part 225). According to the 
instructions and rationale in OGAM AT 98-2, ``Cost shifting (to a 
primary program) is not permitted by most program statutes, except 
where there is a specific legislative provision allowing such cost 
shifting. While the former AFDC program allowed such an exception, the 
TANF legislation that replaced AFDC does not permit it being designated 
as the sole benefiting or primary program.'' All States submitted 
revised cost allocation plans to comply with this policy and since then 
have continued to allocate Medicaid, Food Stamp and TANF costs in 
accordance with a ``benefiting'' methodology.
    Six States filed suit in District Court to prevent HHS from 
enforcing OGAM AT 98-2 (Arizona v. Thompson, 281 F.3d 248 (DC Cir. 
2002). The States alleged that they incur common administrative costs 
that benefit the TANF, Medicaid, and Food Stamp programs and contended 
that the ``grandfather provision'' under 42 U.S.C. 604(a)(2) permits 
them to use TANF grants as they did under the AFDC program. Section 
604(a)(2) allows States to use Federal TANF funds in any manner that 
the State was authorized to use Federal funds received under the 
State's former AFDC program, the Job Opportunities and Basic Skills 
Training (JOBS) program or the Emergency Assistance program in effect 
as of either September 30, 1995 or August 21, 1996, whichever date the 
State has elected.
    The United States District Court for the District of Columbia 
upheld the Department's position. However, the States appealed to the 
United States Court of Appeals for the District of Columbia Circuit 
(Court of Appeals). The Court of Appeals decided, on March 5, 2002, 
that the TANF legislation does not require HHS to conclude that States 
are prohibited from using the ``primary program'' cost allocation 
methodology (281 F.3d at 256). The Appeals Court noted that: ``The 
background against which Congress enacted the Welfare Reform Act 
included both Circular A-87's general principle of benefiting program 
allocation and its well-recognized exception for the AFDC program.'' 
Id. However, the Court left open the possibility that HHS could, in the 
exercise of its rulemaking discretion, prospectively prescribe that 
States use the ``benefiting program'' method to allocate common costs 
among programs. Id. The case was ultimately remanded to HHS for further 
consideration. After considerable deliberation, we have determined that 
the benefiting program cost allocation methodology is the appropriate 
cost allocation rule to apply to the TANF program.
    Comment: A national association requested that we reconsider our 
proposal, because it restricts State flexibility and State options. It 
maintains that the ties between the TANF program and the Food Stamp 
program are strong and numerous in most States. It points to the 2002 
Farm Bill as an example of legislation which enables States to align 
the definition of income and/or resources under the Food Stamp program 
to that used in the TANF or Medicaid program. As another example, it 
points to the close connection between the Food Stamp program and the 
TANF program set forth in the interim final TANF rule published in the 
Federal Register on June 29, 2006. A provision in the rule urges States 
to implement a Simplified Food Stamp Program, for purposes of 
considering the required hours of work participation in a work 
experience or community service program. It argues that the widespread 
adoption of such conformity options has led States to combine staff, 
automated systems, and other administrative functions when operating 
these programs.
    Response: The 2002 Farm Bill provisions and the Simplified Food 
Stamp Program give States the option to align certain Food Stamp and 
TANF program eligibility rules. But, this flexibility did not alter or 
affect in any way the required cost principles applicable to both 
programs. The Food Stamp program, administered by the U.S. Department 
of Agriculture's Food and Nutrition Service, is subject to the

[[Page 42720]]

same Common Rule cost principles as the TANF program. In using Federal 
Food Stamp program funds or Federal TANF program funds, States have 
been and continue to be required to follow the uniform cost principles 
for determining allowable costs in OMB Circular A-87 (2 CFR part 255).
    OMB Circular A-87 (2 CFR part 225) states that program costs must 
be necessary, reasonable, and allocable. A cost must also be allowable 
under OMB Circular A-87 cost principles and the program's laws, terms 
and conditions of the Federal award, or governing regulations. An 
allowable cost is allocable to a particular program in accordance with 
the relative benefits received by that program. Thus, allowable shared 
costs must be allocated in accordance with the ``benefiting program'' 
cost allocation methodology and no changes have been made in this final 
rule.

III. Discussion of Regulatory Provisions

    We have added the following new section to part 263, subpart B of 
the TANF regulations.

Section 263.14 What methodology shall States use to allocate Federal 
TANF costs?

    This section provides that States shall use only the ``benefiting 
program'' cost allocation methodology. Requiring a ``benefiting 
program'' cost allocation methodology is consistent with the TANF final 
rules which make the TANF program subject to 45 CFR part 92 and 
includes the cost principles of OMB Circular A-87 (2 CFR part 225).
    One of the fundamental Federal appropriation principles at 31 
U.S.C. 1301(a) states that appropriations can only be used for the 
purposes for which they were appropriated, unless otherwise provided by 
law. OMB Circular A-87 (2 CFR part 225) reflects this principle by 
requiring ``benefiting program'' cost allocation. The overall purpose 
of OMB Circular A-87 (2 CFR part 225) is to achieve more efficient and 
uniform administration of Federal awards and to provide the foundation 
for greater uniformity in the costing procedures of non-Federal 
governments. Without an explicit legislative provision permitting 
``primary program'' cost allocation, we believe it would be 
inconsistent with and contrary to these appropriation principles to 
allow TANF funds to be used to pay for costs allocable to other 
programs.
    Since the decision of the Appeals Court, no State has submitted a 
revised ``primary program'' cost allocation plan for allocating the 
common costs of determining eligibility or case maintenance for TANF, 
Food Stamps and Medicaid to HHS for approval. These were the primary 
common costs previously claimed and allowed under a ``primary program'' 
cost allocation methodology under the former AFDC program.
    Under the President's Management Agenda of improved accountability, 
each program needs to know its full costs using consistent and 
comparable data to assess program trends and measure performance. 
Appropriate program and funding decisions, both now and in the future, 
must be based on the knowledge and accounting of total program costs, 
including those costs incurred under a consistent benefiting program 
methodology. Under this rule, we will not permit an exception to the 
benefiting program cost allocation methodology generally required under 
OMB Circular A-87 (as permitted for the AFDC program prior to the 
enactment of the TANF program). Thus, HHS will disapprove any TANF cost 
allocation amendments proposing a ``primary program'' cost allocation 
methodology.
    Therefore, the Secretary is exercising his discretion to require a 
``benefiting program'' cost allocation methodology under TANF in 
accordance with OMB Circular A-87 (2 CFR part 225). This final rule 
requires States to make no changes to their TANF cost allocation plans, 
but instead will affirm and lock in place, current cost allocation 
practice.
    Readers should note that we revised the title of this section to be 
more concise. ``States'' has already been defined in 45 CFR 260.30 to 
mean the 50 States, the District of Columbia, and the Territories.
    This final rule does not affect federally-recognized Indian tribes 
operating approved Tribal TANF programs. Prior to enactment of PRWORA 
of 1996, needy families in a federally-recognized Indian tribe received 
assistance under the State's former Aid to Families with Dependent 
Children (AFDC) program. PRWORA gave federally-recognized Tribes the 
opportunity to operate their own Tribal TANF programs. These Tribes 
have always followed the ``benefiting program'' cost allocation 
methodology in accordance with OMB Circular A-87 and the applicable 
Tribal TANF regulatory provisions at 45 CFR 286.45(c) and (d).

IV. Paperwork Reduction Act of 1995

    This rule contains no new information collection activities that 
are subject to review and approval by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995, codified at 44 
U.S.C. 3507.

V. Regulatory Flexibility Analysis

    The Secretary certifies, under 5 U.S.C. 605(b), as enacted by the 
Regulatory Flexibility Act (Pub. L. 96-354), that this rule will not 
result in a significant impact on a substantial number of small 
entities. The primary impact is on State governments. State governments 
are not considered small entities under the Regulatory Flexibility Act.

VI. Regulatory Impact Analysis

    Executive Order 12866 requires that regulations be reviewed to 
ensure that they are consistent with the priorities and principles set 
forth in the Executive Order. The Department has determined that this 
rule is consistent with these priorities and principles. This rule is 
considered a ``significant regulatory action'' under the Executive 
Order, and therefore has been reviewed by the Office of Management and 
Budget.
    Since all States should be using a ``benefiting program'' cost 
allocation methodology under TANF, we believe the impact of this final 
rule is minimal. We do not believe this rule will have a significant 
negative impact or reduce potential Federal reimbursement, as States 
receive a fixed Federal block grant amount.

VII. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that a covered agency prepare a budgetary impact statement before 
promulgating a rule that includes any Federal mandate that may result 
in the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the private sector, of $100 million or more in any one 
year.
    The Department has determined that this rule would not impose a 
mandate that will result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector, of more than 
$100 million in any one year.

VIII. Congressional Review

    This regulation is not a major rule as defined in 5 U.S.C. Chapter 
8.

IX. Assessment of Federal Regulation and Policies on Families

    Section 654 of The Treasury and General Government Appropriations 
Act of 1999 requires Federal agencies to determine whether a proposed 
policy or regulation may affect family well-being. If the agency's 
determination is affirmative, then the agency must prepare an impact 
assessment

[[Page 42721]]

addressing seven criteria specified in the law. These regulations will 
not have an impact on family well-being as defined in the legislation.

X. Executive Order 13132

    Executive Order 13132 ``Federalism'' requires that Federal agencies 
consult with State and local government officials in the development of 
regulatory policies with Federalism implications. In the NPRM, we did 
solicit comments from State and local government officials, consistent 
with this Executive Order. We did not receive any comments from State 
and local government officials.

List of Subjects in 45 CFR part 263

    Grant programs--Federal aid programs, Penalties, Public assistance 
programs--Welfare programs.

    Approved: May 16, 2008.
Daniel C. Schneider,
Acting Assistant Secretary for Children and Families.
Michael O. Leavitt,
Secretary of Health and Human Services.

0
For the reasons set forth in the preamble, the Administration for 
Children and Families amends 45 CFR chapter II to read as follows:

PART 263--EXPENDITURES OF STATE AND FEDERAL TANF FUNDS

0
1. The authority citation for 45 CFR part 263 continues to read as 
follows:

    Authority: 42 U.S.C. 604, 607, 609, and 862a.


0
2. Add Sec.  263.14 to subpart B to read as follows:


Sec.  263.14  What methodology shall States use to allocate TANF costs?

    States shall use a benefiting program cost allocation methodology 
consistent with the general requirements of OMB Circular A-87 (2 CFR 
part 225) to allocate TANF costs.

[FR Doc. E8-16854 Filed 7-22-08; 8:45 am]
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