[Federal Register Volume 80, Number 142 (Friday, July 24, 2015)]
[Rules and Regulations]
[Pages 43966-43968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-18138]
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LEGAL SERVICES CORPORATION
45 CFR Part 1628
Recipient Fund Balances
AGENCY: Legal Services Corporation.
ACTION: Final rule.
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SUMMARY: This final rule revises the Legal Services Corporation (LSC or
Corporation) regulation on recipient fund balances to give the
Corporation more discretion to grant a recipient's request for a waiver
to retain a fund balance in excess of 25% of its annual LSC support.
This final rule also provides that recipients facing a fund balance in
excess of 25% of their annual LSC support may submit a waiver request
prior to submitting their annual audited financial statements.
DATES: This final rule is effective August 24, 2015.
FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or [email protected].
SUPPLEMENTARY INFORMATION:
I. Regulatory Background
LSC issued its first instruction on recipient fund balances in 1983
to implement what is now the Corporation's longstanding objective of
ensuring the timely expenditure of LSC funds for the effective and
economical provision of high quality legal assistance to eligible
clients. 48 FR 560, 561, Jan. 5, 1983. Later that year, LSC published a
redrafted version titled Instruction 83-4, Recipient Fund Balances
(``Instruction''). 48 FR 49710, 49711, Oct. 27, 1983. The Instruction
limited recipients' ability to carry over LSC funds that remained
unused at the end of the fiscal year. Id. Specifically, the Instruction
provided that in the absence of a waiver granted by the Corporation, a
recipient must repay to LSC any funds retained at the end of the fiscal
year in excess of 10% of its total annual LSC support. Id. The
Instruction also prohibited a recipient from ever retaining a fund
balance in excess of 25% of its annual support, thereby limiting the
Corporation's waiver granting authority to fund balance amounts of 25%
or less of a recipient's annual LSC support. Id.
In 1984, LSC substantially adopted the Instruction in a regulation
published at 45 CFR part 1628. 49 FR 21331, May 21, 1984. Part 1628
remained unchanged until 2000, when LSC promulgated revisions in
response to public comments and staff advice that the rule was ``more
strict'' than the fund balance requirements of most federal agencies.
65 FR 66637, 66638, Nov. 7, 2000. The revised rule provided the
Corporation with more discretion to grant a recipient's request for a
waiver to retain a fund balance of up to 25% of its annual LSC support.
Id. at 66637.
[[Page 43967]]
In addition, for the first time, the rule authorized the Corporation to
exercise its discretion to grant a recipient's request for a waiver to
retain a fund balance in excess of 25% of its annual LSC support. Id.
The Corporation reasoned that, by allowing for waivers to retain that
amount, ``[t]he recipient can better plan and find the best use for the
funds, rather than being forced into a hasty expenditure simply to
avoid the limitation on the carryover of fund balances.'' Id. at 66640.
The rule, however, limited the situations justifying a recipient's
request to retain more than 25% of its annual support to ``three
specific circumstances when extraordinary and compelling reasons exist
for such a waiver,'' listed in Sec. 1628.3(c). Id. at 66638. These
extraordinary and compelling circumstances were restricted to the
following situations when a recipient received income derived from its
use of LSC funds: ``(1) An insurance reimbursement; (2) the sale of
real property; and (3) the receipt of monies from a lawsuit in which
the recipient was a party.'' Id. at 66639. Although the Operations and
Regulations Committee (Committee) ``considered using a standard of
`extraordinary and compelling' for these waivers with the three
specific circumstances discussed as examples,'' it ultimately decided
``that more guidance was required to avoid erosion of the standard,''
and the three circumstances became exclusive limitations, not mere
examples. Id. at 66640. The LSC Board of Directors (Board) adopted the
revisions to part 1628 on November 20, 1999, and the revised rule has
been in effect since December 7, 2000. Id. at 66637-38.
During the nearly 15-year period since part 1628 was last revised,
LSC grantees have experienced various unexpected occurrences outside of
those listed in Sec. 1628.3(c) that caused them to accrue fund
balances in excess of 25% of their annual support. These occurrences
have included an end-of-year transfer of assets from a former grantee
to a current grantee, a natural disaster that resulted in a significant
infusion of use-or-lose disaster relief funds from non-LSC sources, and
receipt of a large attorneys' fees award in an LSC-funded case near the
end of the fiscal year. In each of these situations, LSC determined
that part 1628 prevented recipients with legitimate reasons for having
fund balances exceeding 25% of their annual LSC support from seeking
and obtaining needed waivers.
On January 22, 2015, LSC staff presented the Committee with a
proposal to consider revising part 1628 to address the difficulties
faced by recipients that encounter these types of occurrences, yet are
unable to justify a waiver request to retain a balance in excess of 25%
of their annual support under part 1628's standards. The Committee
authorized LSC management to add the matter to the Committee's
rulemaking agenda.
As required by the LSC Rulemaking Protocol, LSC staff prepared an
explanatory rulemaking options paper, accompanied by a proposed rule
amending part 1628. On April 12, 2015, the Committee voted to recommend
that the Board publish the notice of proposed rulemaking (NPRM) in the
Federal Register for notice and comment. On April 14, 2015, the Board
accepted the Committee's recommendation and voted to approve
publication of the NPRM in the Federal Register. 80 FR 21700, Apr. 20,
2015. The comment period remained open for thirty days and closed on
May 20, 2015.
On July 16, 2015, the Committee considered the draft final rule for
publication and voted to recommend its adoption publication to the
Board. On July 18, 2015, the Board adopted the final rule and approved
its publication.
Material regarding this rulemaking is available in the open
rulemaking section of LSC's Web site at http://www.lsc.gov/about/regulations-rules/open-rulemaking. After the effective date of this
rule, those materials will appear in the closed rulemaking section of
LSC's Web site at http://www.lsc.gov/about/regulations-rules/closed-rulemaking.
II. Section-by-Section Discussion of Comments and Regulatory Provisions
LSC received two comments during the public comment period. One
comment was submitted by an LSC recipient, the Northwest Justice
Project (NJP). The other comment was submitted by the non-LSC-funded
nonprofit National Legal Aid and Defender Association (NLADA) through
its Civil Policy Group and Regulations and Policy Committee. Both
commenters were generally supportive of LSC's proposed changes to part
1628.
Section 1628.3 Policy
LSC proposed to revise Sec. 1628.3(c) to eliminate the language
limiting the extraordinary and compelling circumstances in which LSC
may grant a recipient's request for a waiver to retain a fund balance
that exceeds 25% of its annual support. LSC staff determined that the
list of extraordinary and compelling circumstances should be
illustrative, rather than exhaustive, so that recipients that encounter
truly unforeseeable situations can avoid having to make the difficult
choice between returning large portions of unused balances and
hurriedly spending funds before the end of the fiscal year. Whereas
existing Sec. 1628.3(c) is limited to three circumstances where a
recipient receives a sudden infusion of income, the new section expands
the types of situations that the Corporation, in its discretion, may
consider to be extraordinary and compelling circumstances. The new
section adds the example of a natural disaster to illustrate a
situation where a recipient would be unable to expend its current LSC
grant for reasons other than the receipt of new funds, such as being
forced to temporarily shut down operations. The section also adds the
example of ``a payment from an LSC-funded lawsuit, regardless of
whether the recipient was a party to the lawsuit.'' This revision makes
clear that a recipient may request a waiver to retain a fund balance in
excess of 25% of its annual support when it receives an award as the
result of a court decision in an LSC-funded case, even if the recipient
was not named as a party to the action. LSC also proposed to make a
minor revision to Sec. 1628.3(d) to reflect the proposed redesignation
of certain paragraphs in Sec. 1628.4.
Comments: Both commenters expressed strong support of the revisions
to Sec. 1628.3.
Section 1628.4 Procedures
LSC proposed to add a new Sec. 1628.4(d) to expressly allow
recipients that expect to have a fund balance in excess of 25% of their
annual support at the end of the fiscal year to submit a waiver request
prior to the submission of their annual audited financial statements.
This addition will require existing Sec. 1628.4(d), (e), (f), and (g)
to be redesignated as Sec. 1628.4(e), (f), (g), and (h). The new Sec.
1628.4(d) will list the written requirements for a waiver request to
retain a fund balance in excess of 25% of annual support. It will also
require recipients that receive early approval to later submit updated
information consistent with the requirements of Sec. 1628.4(a) to
confirm the actual fund balance amount to be retained by the recipient,
as determined by reference to its annual audited financial statements.
Accordingly, an advance approval would be, in effect, an approval of
the reasons for a waiver and of the proposed amount to be retained. The
recipient must later provide confirmation of the actual amount of
excess funds it has retained. Finally, LSC proposed to revise the
introductory text of paragraph (a), as well as paragraphs (a)(2) and
(a)(3), for clarity and readability.
[[Page 43968]]
Comments: Both commenters were supportive of LSC's proposal to
allow recipients with fund balances in excess of 25% of annual support
to submit waiver requests prior to the submission of their annual audit
reports. NLADA recommended that LSC further revise Sec. 1628.4 to also
allow recipients expecting to have fund balances in excess of 10% and
up to 25% of their annual LSC support to submit early waiver requests.
NLADA reasoned that this would allow recipients seeking such waivers to
plan for the next fiscal year with greater certainty. NJP, on the other
hand, expressed support for continuing the standard waiver request
process for recipients with fund balances that do not exceed 25% of
annual support. NJP stated that, in its experience, such requests are
more than likely to be approved and that using annual audit report
information to draft them assures that the amount approved for
retention is equal to the final audited carryover.
Response: As stated in the preamble of the NPRM, LSC staff found
that limiting early approvals to waiver requests for fund balances in
excess of 25% of annual support was proper in light of the unique and
significant financial planning burdens faced by recipients that
experience extraordinary and compelling circumstances causing them to
accrue substantial amounts of unused funds. Furthermore, while the
Corporation will continue to apply the heightened standard of
``extraordinary and compelling circumstances'' to requests to retain
fund balances in excess of 25% of annual support, it will maintain the
less burdensome standard of ``special circumstances'' for requests to
retain fund balances that do not exceed 25% of annual support.
Therefore, LSC believes that recipients seeking to retain fund balance
amounts in excess of 10% and up to 25% of annual support would not
benefit significantly from the minimal level of additional assurance
that allowing the early submission of waiver requests may potentially
provide. In addition, recipients that receive early approvals of such
requests would later have to provide confirmation of the actual amount
of excess funds they accrued when they submit their annual audited
financial statements. LSC believes that the additional time and effort
required by this process would not be justified by the small amount of
additional assurance that it may provide.
List of Subjects in 45 CFR Part 1628
Administrative practice and procedure, Grant programs--law, Legal
services.
For the reasons set forth in the preamble, the Legal Services
Corporation amends 45 CFR part 1628 as follows:
PART 1628--RECIPIENT FUND BALANCES
0
1. The authority citation for Part 1628 is revised to read as follows:
Authority: 42 U.S.C. 2996g(e).
0
2. Revise paragraphs (c) and (d) of Sec. 1628.3 to read as follows:
Sec. 1628.3 Policy.
* * * * *
(c) Recipients may request a waiver to retain a fund balance in
excess of 25% of a recipient's LSC support only for extraordinary and
compelling circumstances, such as when a natural disaster or other
catastrophic event prevents the timely expenditure of LSC funds, or
when the recipient receives an insurance reimbursement, the proceeds
from the sale of real property, a payment from a lawsuit in which the
recipient was a party, or a payment from an LSC-funded lawsuit,
regardless of whether the recipient was a party to the lawsuit.
(d) A waiver pursuant to paragraph (b) or (c) of this section may
be granted at the discretion of the Corporation pursuant to the
criteria set out in Sec. 1628.4(e).
* * * * *
0
3. Amend Sec. 1628.4 by revising paragraphs (a) introductory text,
(a)(2) and (3), and (d) to read as follows:
Sec. 1628.4 Procedures.
(a) A recipient may request a waiver of the 10% ceiling on LSC fund
balances within 30 days after the submission to LSC of its annual
audited financial statements. The request shall specify:
* * * * *
(2) The reason(s) for the excess fund balance;
(3) The recipient's plan for disposing of the excess fund balance
during the current fiscal year;
* * * * *
(d) A recipient may submit a waiver request to retain a fund
balance in excess of 25% of its LSC support prior to the submission of
its audited financial statements. The Corporation may, at its
discretion, provide approval in writing. The request shall specify the
extraordinary and compelling circumstances justifying the fund balance
in excess of 25%; the estimated fund balance that the recipient
anticipates it will accrue by the time of the submission of its audited
financial statements; and the recipient's plan for disposing of the
excess fund balance. Upon the submission of its annual audited
financial statements, the recipient must submit updated information
consistent with the requirements of paragraph (a) of this section to
confirm the actual fund balance to be retained.
* * * * *
Dated: July 20, 2015.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2015-18138 Filed 7-23-15; 8:45 am]
BILLING CODE 7050-01-P