[Federal Register: February 18, 2000 (Volume 65, Number 34)] [Rules and Regulations] [Page 8477-8558] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr18fe00-16] [[Page 8477]] ----------------------------------------------------------------------- Part II Department of Health and Human Services ----------------------------------------------------------------------- Administration for Children and Families ----------------------------------------------------------------------- 45 CFR Parts 286 and 287 Tribal Temporary Assistance for Needy Families Program (Tribal TANF) and Native Employment Works (NEW) Program; Final Rule [[Page 8478]] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Administration for Children and Families 45 CFR Parts 286 and 287 RIN 0970-AB78 Tribal Temporary Assistance for Needy Families Program (Tribal TANF) and Native Employment Works (NEW) Program AGENCY: Administration for Children and Families, HHS. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Administration for Children and Families is issuing final regulations to implement key tribal provisions of the new welfare block grant program enacted in 1996--the Temporary Assistance for Needy Families, or TANF program and the new tribal work activities program-- the Native Employment Works, or NEW Program. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Public Law 104-193, established the Tribal TANF and NEW Programs. Subsequent technical changes were enacted by the Balanced Budget Act of 1997, Public Law 105-33. The TANF block grant program replaces the national welfare program known as Aid to Families with Dependent Children (AFDC) and the related programs known as the Job Opportunities and Basic Skills Training Program (JOBS) and the Emergency Assistance (EA) program. These Final Rules reflect new Federal, Tribal, and State relationships in the administration of welfare programs; a new focus on moving TANF recipients into work; and a new emphasis on program information, measurement, and performance. They also reflect the Administration's commitment to regulatory reform. EFFECTIVE DATE: These Final Rules are effective June 19, 2000. FOR FURTHER INFORMATION CONTACT: John Bushman, Director, Division of Tribal Services, Office of Community Services, Administration for Children and Families (ACF), at 202-401-2418, Raymond Apodaca, Tribal TANF Team Leader, at 202-401-5020, or Ja-Na Oliver-Bordes, NEW Team Leader, at 202-401-5713. Deaf and hearing impaired individuals may call the Federal Dual Party Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. eastern time. SUPPLEMENTARY INFORMATION: On July 22, 1998, ACF published in the Federal Register (63 FR 39365-39429) a Notice of Proposed Rulemaking (NPRM) that covered key Tribal TANF provisions of the new welfare block grant program, known as Temporary Assistance for Needy Families, or TANF. In addition, the NPRM covered key provisions of the Native Employment Works (NEW) program. We provided an extended 120-day comment period which ended on November 20, 1998. We offered commenters the opportunity to submit comments by mail or electronically via our web site. A number of commenters took advantage of this electronic access, but the majority of the comments we received were through the mail. Comment Overview We received an estimated 400 comments on the NPRM from 46 separate commenters. The largest number of comments came from tribal governments, followed by state agencies, and tribal organizations. For several reasons, we decided not to attempt precise numerical counts of the comments received. First, several comments had multiple signatories and others provided general endorsements of the comments of other parties. Also, commenters presented their views of overlapping and cross-cutting issues in many different ways; for example, some commented generically about major provisions of the proposed rule, while others provided specific suggestions about alternative approaches, words, and phrases. The diversity in the approach of commenters made precision in tallying comments impossible. Nevertheless, we are confident that this preamble accurately conveys the scope and nature of the comments received. In the preamble to the proposed rule we discussed our general approach to some of the major cross-cutting issues up front, prior to the section-by-section analysis. Many of the commenters organized their comments in the same way, addressing the issues thematically instead of following the specific structure of the rule. This preamble follows that same basic format, presenting a separate discussion of cross- cutting issues apart from the separate section-by-section analysis (e.g., consultation, child support, plan format). The discussion of data collection and reporting issues is presented in several places--the preambles for part 286 (Tribal TANF) and part 287 (NEW), and the preamble discussion entitled the ``Paperwork Reduction Act'' in the ``Regulatory Impact Analyses'' section of the preamble. We believe that structuring the preamble this way enables us to provide a clearer framework for the specific regulatory provisions and to represent the commenters' concerns most accurately. We appreciate the time and attention that commenters gave to reviewing the NPRM and preparing their comments, and we have reviewed and considered each. As a result of their efforts, we have been able to resolve certain technical and administrative issues, incorporate numerous substantive revisions to the proposed rule, make key clarifications of policy goals, and consider alternative regulatory approaches. Table of Contents I. Overview: The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 II. Regulatory Framework A. Pre-NPRM Consultation Process B. Related Regulations C. Statutory Context D. Regulatory Reform E. Scope of This Rulemaking F. Federal Programs to Assist Families to Achieve Self Sufficiency G. Applicability of the Rules III. Principles Governing Regulatory Development A. Tribal Flexibility B. Regulatory Authority C. Accountability for Meeting Program Requirements and Goals IV. Discussion of Cross-Cutting Issues A. Child Support B. Plan Format C. Approved Plans Which Do Not Meet the Terms of the Final Rule D. Other General Issues V. Part 286 Tribal TANF Program Provisions A. General Tribal TANF Provisions B. Tribal TANF Funding C. Tribal TANF Plan Content and Processing D. Accountability and Penalties E. Data Collection and Reporting Requirements VI. Part 287--Native Employment Works (NEW) Program Provisions A. General NEW Provisions B. Eligible Tribes C. NEW Program Funding D. Plan Requirements E. Program Design and Operations F. Data Collection and Reporting Requirements VII. Regulatory Impact Analyses A. Executive Order 12866 B. Regulatory Flexibility Analysis C. Family Impact Assessment D. Paperwork Reduction Act E. Unfunded Mandates Reform Act of 1995 F. Congressional Review of Regulations G. Executive Order 13132 I. Overview: The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 On August 22, 1996, President Clinton signed ``The Personal Responsibility and Work Opportunity Reconciliation Act of 1996'' (PRWORA) [[Page 8479]] into law. The first title of this new law (Pub. L. 104-193) establishes a comprehensive welfare reform program that is designed to change the nation's welfare system. The new program is called Temporary Assistance for Needy Families, or TANF, in recognition of its focus on moving recipients into work and time-limiting assistance. PRWORA repeals the existing welfare program known as Aid to Families with Dependent Children (AFDC), which provided cash assistance to needy families on an entitlement basis. It also repeals the related programs known as the Job Opportunities and Basic Skills Training program (JOBS) and Emergency Assistance (EA). The new law reflects widespread, bipartisan agreement on a number of key principles: Welfare programs should be designed to help move people from Welfare-to-Work. Welfare should be a short-term, transitional experience, not a way of life. Parents should receive the child care and the health care they need to protect their children as they move from Welfare-to-Work. Child support programs should become tougher and more effective in securing support from absent parents. Because many factors contribute to poverty and dependency, solutions to these problems should not be ``one size fits all.'' The system should allow States, Indian tribes, and localities to develop diverse and creative responses to their own problems. The Federal government should focus less attention on eligibility determinations and place more emphasis on program results. After more than two years of discussion and negotiation, PRWORA emerged as a bipartisan vehicle for comprehensive welfare reform. As President Clinton stated in his remarks as he signed the bill, ``* * * legislation provides an historic opportunity to end welfare as we know it and transform our broken welfare system by promoting the fundamental values of work, responsibility, and family.'' Under the new statute, TANF funding and assistance for families comes with new expectations and responsibilities. Adults receiving assistance are expected to engage in work activities and develop the capability to support themselves and their families before their time-limited assistance runs out. The new law provides federally-recognized Indian tribes, or consortia of such Tribes, the opportunity to apply for funding under section 412 of the Social Security Act (or the Act), as amended by PRWORA, to operate their own TANF programs beginning July 1, 1997. The law gives States and federally recognized Indian tribes the authority to use Federal welfare funds ``in any manner that is reasonably calculated to accomplish the purposes'' of the new program. Those purposes are: (1) To provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; (2) to end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (3) to prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and (4) to encourage the formation and maintenance of two-parent families. Indian tribes that choose to administer a Tribal TANF program have been given broad flexibility to set TANF eligibility rules and to decide what benefits are most appropriate for their service areas and populations. Tribes who take on the responsibility for administering a TANF program will be expected to assist recipients making the transition to employment. Tribal TANF grantees also will be expected to meet work participation rates and other critical program requirements in order to avoid penalties and maintain their Federal funding. In meeting these expectations, Tribes need to examine the needs of their service areas and service populations, identify the causes of long-term underemployment and dependency, and work with families, communities, businesses, and other social service agencies in resolving employment barriers. TANF gives Tribes the flexibility they need to respond to such individual family needs. However, in return, it expects Tribes to move towards a strategy that provides appropriate services for needy families. PRWORA offers States and Tribes an opportunity to try new, far-reaching changes that can respond more effectively to the needs of families within their own unique environments. PRWORA also redefines the Federal role in administration of the nation's welfare system. It limits Federal regulatory and enforcement authority, but gives the Federal government new responsibilities for tracking the performance of States and Tribes. In addition to establishing the Tribal TANF program, PRWORA authorizes funding, to the former Tribal JOBS grantees, for a tribal program ``to make work activities available.'' Based upon tribal recommendations, we have designated this tribal work activities program as the Native Employment Works (NEW) program. Tribes are encouraged to focus the NEW Program on work activities and on services which support participation in work activities. In addition, Tribes are encouraged to create and expand employment opportunities when possible. This new welfare reform legislation not only gives Tribes new opportunities, as in the case of the TANF program, and continued responsibilities, as in the case of the NEW Program, but it also dramatically affects intergovernmental relationships. It challenges Federal, Tribal, State and local governments to foster positive changes in the culture of the welfare system. It transforms the way agencies do business, requiring that they engage in genuine partnerships with each other, community organizations, businesses, and needy families. II. Regulatory Framework A. Pre-NPRM Consultation Process In the spirit of both regulatory reform and the government-to- government relationship between Tribes and the federal government, we implemented a broad consultation strategy prior to the drafting of the Notice of Proposed Rulemaking (NPRM). In the preamble to the NPRM we briefly discussed this consultation strategy. However, we received many comments from Tribes questioning whether we had engaged in effective or meaningful Tribal consultation in the drafting of the proposed regulations. We are therefore taking this opportunity to further explain our consultation strategy. In May 1998 President Clinton signed Executive Order 13084, which provides for ``an effective process to permit elected officials and other representatives of Indian Tribal governments to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.'' In recognizing the unique relationship which the federal government and Tribal governments share, this consultation process allows agencies to develop meaningful consultation opportunities with the Tribes in the development of regulatory policies which directly affect them. Accordingly, when PRWORA was signed on August 22, 1996 we began internal discussions on how best to obtain input from Tribes on the content of the regulations. We decided to take a multi-pronged approach, which was designed to ensure that Tribes would be provided opportunities at various times [[Page 8480]] throughout the regulation-drafting process to comment and provide input into the proposed regulations. In early 1997, ACF Regional Offices sent letters out to all eligible tribal governments seeking comments and input on the TANF and NEW regulations. These offices then began to conduct regional Pre-NPRM Tribal TANF/NEW consultation meetings. These Regional meetings were held to discuss the PRWORA law and its potential impact on the Tribes, and to obtain specific information on what should be in the proposed regulations. Representatives from many Tribes attended these on-site consultations, providing us with much useful information. Concurrent with those meetings, we mailed a questionnaire to all federally recognized Tribes in the lower forty-eight states, as well as all Alaska Native entities eligible to operate a TANF and/or NEW Program, asking them to respond to specific questions in the areas of TANF and/ or NEW implementation, plan content, penalties, work participation requirements, time limits, data reporting, and special provisions. We received many letters back from Tribes that provided valuable information and insights to us as we began to draft the regulations. As we drafted the regulations we continued to seek tribal input about potential tribal TANF operations. Several meetings were held in Washington, D.C. with advocates, tribal representatives, national tribal organizations, and other stakeholders. Although these meetings included agenda items in addition to TANF, we took every available opportunity to include separate sessions where individuals were specifically invited to discuss what should be in the proposed rule. Similarly, Regional Offices included TANF discussions in meetings and discussions which they held throughout their regions. Finally, Tribes, tribal organizations, and other stakeholders had the opportunity to provide specific written comments in response to the published NPRM. The comments received were both valuable and appreciated. Although we were unable to meet individually with every Tribe and tribal organization, we believe that we made our best and concerted effort of consulting with and involving the Tribes in the development of these regulations. We provided an effective process for the provision of meaningful and timely input into both the development and revision of the regulations. As you review the final Tribal TANF regulation, you will see the fruits of that consultation--many of these comments have brought about substantive changes to the Final Rule, changes which we believe will have a positive effect on the provision of Tribal TANF services in Indian country. B. Related Regulations There is an important relationship between this rulemaking and the Final TANF Rule (64 FR 17720, April 12, 1999) generally applicable to State TANF programs. Tribal decisions on whether to elect to administer a Tribal TANF program will depend on a number of factors, including the nature of services and benefits that will be available to tribal members under the State TANF program. Thus, Tribes have a direct interest in the regulations governing State TANF programs. Tribes also have an interest in these regulations because, while the statute allows Tribes to negotiate certain program requirements, such as work participation rates and time limits, it subjects tribal programs to the same data collection and reporting requirements as States. These requirements are found at part 265 of the Final TANF Rule (64 FR 17900) and appendices. A number of States and Tribes have inquired whether a State can count contributions made to an Indian tribe with an approved Tribal Family Assistance Plan toward the State's MOE requirement. On June 2, 1997, the Office of Community Services and the Office of Family Assistance jointly issued a Policy Announcement, TANF-ACF-PA-2 in this regard. This policy announcement provides that State funds paid to an Indian tribe with an approved Tribal Family Assistance Plan may meet the definition of a qualified State expenditure for the purpose of a State's required MOE, if the funds are expended for: (1) ``Eligible families,'' families who meet the income and resource standards established by the State; and (2) cash assistance, child care assistance, certain educational activities, or any other use of funds allowable under section 404(a)(1) of the Act, i.e., any use that is reasonably calculated to accomplish the purpose of the TANF program. The requirements contained in TANF-ACF-PA-2 remain in effect and fit within the provisions of 45 CFR 263.2 relating to the kind of expenditures that count toward meeting a State's basic MOE requirement, and funds spent accordingly would be allowable to satisfy the MOE requirements. In addition, the definition of ``eligible families'' limits MOE expenditures to families that include a child living with a parent or other adult care relative or to pregnant women. In order for welfare reform to succeed in Indian country, it is important for State and Tribal governments to work together on a number of key issues, including data exchange and coordination of services. We remind States that Tribes have a right under law to operate their own programs. States should cooperate in providing the information necessary for Tribes to do so. Likewise, Tribes should cooperate with States in identifying tribal members and tracking receipt of assistance. PRWORA also changed other major programs administered by ACF, the Department, and other Federal agencies that may significantly affect a State or Tribe's success in implementing welfare reform. For example, title VI of PRWORA repealed the child care programs that were previously authorized under title IV-A of the Social Security Act. In their place, it provided two new sources of child care funding (which we refer to collectively as the Child Care and Development Fund). These funds go to the Lead Agency that administers the Child Care and Development Block Grant program. A major purpose of the increases in child care funding provided under PRWORA is to assist low-income families in their efforts toward self-sufficiency. We issued Final Rules covering the Child Care and Development Fund on July 24, 1998 (see 63 FR 39935). In 1998, the Office of Child Support Enforcement (OCSE), Native American Program, conducted a series of six Nation-to-Nation consultations with Indian tribes, tribal organizations and other interested parties to obtain tribal input prior to drafting the regulations for direct funding to Tribes and tribal organizations as authorized by section 455(f) of the Social Security Act. OCSE is drafting those regulations and expects that the NPRM will be published in the Federal Register by late summer. The Secretary of Labor issued interim Final Rules on section 5001(c) of Public Law 105-33, regarding Welfare-to-Work (WtW) grants for Tribes, on November 18, 1997. A copy of these rules is available on the Internet at http://www.wdsc.org/dinap/dinapw2w/ta.html. General information on the Department of Labor's Indian and Native American WtW program is available at http://www.wdsc.org/dinap/dinapw2w/index.html. We encourage you to look in the Federal Register for actions on these related rules in order to understand the important relationships among these programs in developing a comprehensive strategy that can provide [[Page 8481]] support to all families that are working to maintain their family structure and become self-sufficient. C. Statutory Context These Final Rules reflect PRWORA, as enacted, and amended by Pub. L. 105-33 and Pub. L. 105-200. Pub. L. 105-33 created the new Welfare- to-Work (WtW) program, made a few substantive changes to the TANF program, and made numerous technical corrections to the TANF statute. Under section 403 of The Child Support Performance and Incentives Act of 1998, Pub. L. 105-200, Congress added a ``rule of interpretation'' to section 404(k)(3) of the Social Security Act, which indicates that the provision of transportation benefits under section 3037 of the Transportation Equity Act to an individual who is not otherwise receiving TANF assistance would not be considered assistance. We have made a conforming change to our definition of assistance at Sec. 286.10 to reflect this policy. D. Regulatory Reform In its latest Document Drafting Handbook, the Office of the Federal Register supports the efforts of the National Partnership for Reinventing Government and encourages Federal agencies to produce more reader-friendly regulations. In drafting the proposed and Final Rules, we paid close attention to this guidance and worked to produce a more readable rule. Individuals who are familiar with our previous welfare regulations should notice that this package incorporates a distinctly different, more readable style. We also provided electronic access to the document and gave readers the option to submit their comments electronically. We received a number of positive comments about how the NPRM was written and the electronic access. Based in part on the positive reaction to the proposed rule, and in the spirit of facilitating understanding, we decided to retain much of the NPRM preamble discussion. We believe it will be useful for some readers in providing the overall context for the final regulations. However, where we are changing our policy in the Final Rule, or the context has changed since we issued the NPRM, we have made appropriate changes to the preamble. We also exercised some editorial discretion to make the discussion more succinct or clearer in places. Wherever we made significant changes in policy, the preamble notes and explains those changes. In the spirit of providing access to information, we included draft data collection and reporting forms as appendices to the proposed rules even though we did not intend to publish the forms as part of the Final Rule. We thought that the inclusion of the draft forms would expand public access to this information and make it easier to comment on our data collection and reporting plans. E. Scope of This Rulemaking Because there are no existing Tribal TANF or NEW regulations, this package is intended to cover the Final Rules as they relate to the provisions of the Tribal TANF and NEW Programs (including definitions of common and frequently used terms). While this decision has resulted in a large rule, we think it has enabled us to develop a more coherent regulatory framework and provide readers an opportunity to look at the many interconnected pieces at one time. F. Federal Programs To Assist Families To Achieve Self-Sufficiency Child Care Federal Child Care and Development Fund (CCDF) grants enable Tribes to provide child care subsidies to low-income Indian families so they can work, attend training or return to school. The importance of providing Federal support for child care stems from increased emphasis on transitioning welfare recipients to work and enabling low-income working families to remain in the workforce. Obtaining affordable and safe child care is widely recognized as a major barrier that keeps families on welfare and out of the workforce. Parents are more likely to obtain work and remain in the workforce if child care is affordable, stable, conveniently located and of good quality. Child care helps parents reach and maintain economic self-sufficiency. Quality child care also plays an important role in children's healthy development and preparation for school. The Child Care and Development Fund (CCDF), as authorized by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), assists low-income families and those transitioning off welfare to obtain child care so they can work or attend training/ education. The CCDF brings together four Federal child care subsidy programs and allows States and Tribes to design a comprehensive, integrated service delivery system to meet the needs of low-income working families. The Child Care and Development Block Grant Act (CCDBG), as amended by PRWORA, now permits tribal grantees to directly administer child care funds related to the now repealed Title IV-A programs (At- Risk, Transitional and AFDC child care), in addition to operating CCDBG programs. The amended CCDBG Act also permits tribal grantees to use funds for construction and renovation purposes. The Administration for Children and Families (ACF) Child Care Bureau is responsible for oversight of the CCDF. Two percent of CCDF funding is earmarked for tribal child care programs. In fiscal year (FY) 1999, Tribes received over $62 million from the CCDF, more than doubling previous Federal grant amounts made directly to Tribes for child care prior to PRWORA. (See http://www.acf.dhhs.gov/programs/ccb for more information.) Programs Promoting Work This Administration has repeatedly shown its commitment to promoting the work objectives of this new law. Before and since the legislation was passed, the President and the Administration have worked very hard to ensure that Congress passed strong work provisions and provided adequate child care funding and other program supports to help families making the transition from Welfare-to-Work. These include, the Welfare-to-Work program (WtW), administered by the Department of Labor, the Welfare-to-Work Tax Credit enacted in the Balanced Budget Act, Welfare-to-Work housing vouchers included in the Fiscal Year 1999 budget for the Department of Housing and Urban Development, and Job Access transportation grants. WtW provides grants to Indian tribes, States, localities, and other grantees to help them move long-term welfare recipients and certain noncustodial parents into lasting, unsubsidized jobs. The Welfare-to- Work Tax Credit provides a credit equal to 35 percent of the first $10,000 in wages in the first year of employment, and 50 percent of the first $10,000 in wages in the second year, to encourage the hiring and retention of long-term recipients. (It complements the Work Opportunity Tax Credit, which provides a credit of up to $2,400 for the first year of wages to employers who hire long-term welfare recipients.) The Welfare-to-Work Housing Voucher Program provides tenant-based Section 8 housing assistance to help eligible families make the transition from welfare to work. In FY 1999, HUD awarded 50,280 vouchers to communities, including two Tribes, that [[Page 8482]] created cooperative efforts among their housing, welfare and employment agencies. (Only Tribes with Section 8 housing programs were eligible to apply. You can find additional information on this initiative at http:/ /www.hud.gov/native.) The Transportation Equity Act for the 21st Century (TEA-21) authorizes $750 million over five years for competitive grants to communities to develop innovative transportation activities to help welfare recipients and other low-income workers (i.e., those with income up to 150 percent of poverty) get to work. For FY 1999, the Department of Transportation awarded 171 grants totaling $71 million, including grants to several Tribes. You can find additional information at http://www.fta.dot.gov/. You can find more information about the Administration's initiatives at http://www. whitehouse.gov/WH/Welfare. The President has also challenged America's businesses, its large nonprofit sector, and the executive branch of the Federal government to help welfare recipients go to work and succeed in the workplace. In May 1997, the President helped to launch a new private-sector initiative to promote the hiring of welfare recipients by private- sector employers. The Welfare-to-Work Partnership, which started with 105 participating businesses, now includes over 12,000 businesses that have hired over 410,000 welfare recipients. This partnership has produced a variety of materials to support businesses in these efforts, including the ``Blueprint for Business'' hiring manual and ``The Road to Retention,'' a report of companies that have achieved higher retention rates for former welfare recipients. You can find information about the Welfare-to-Work Partnership at http://www.welfaretowork.org. The Small Business Administration (SBA) is addressing the unique and vital role of small businesses, which account for over one-half of all private-sector employment. It is helping small businesses make connections to job training organizations and job-ready welfare recipients. SBA is also providing training and assistance to Tribal welfare recipients who wish to start their own businesses through its Tribal Business Information Centers. Businesses can receive assistance through SBA's 1-800-U-ASK-SBA and through its network of one-stop centers, one-stop capital shops, and district offices. Information on SBA's Welfare-to-Work initiative (WtW) and other activities are available through the SBA home page at http://www.sba.gov. In addition, the Vice President has developed a coalition of national civic, service, and faith-based groups committed to helping former welfare recipients succeed in the workforce--by providing mentoring, job training, child care, and other supports. On March 8, 1997, the President directed all Federal agencies to submit plans describing the efforts they would make to respond to this challenge. Under the Vice President's leadership, Federal agencies committed to hiring at least 10,000 welfare recipients over the next four years. Agencies have already fulfilled this commitment--nearly two years ahead of schedule. (You can find additional information on this effort at http://www.welfaretowork.fed.gov.) G. Applicability of the Rules As we indicated in the NPRM, a Tribe may operate its TANF and/or NEW Program under a reasonable interpretation of the statute prior to publication of the Final Rules. Thus, in determining whether a Tribe is subject to a penalty under TANF or a disallowance under the NEW Program, we would not apply regulatory interpretations retroactively. We have retained this basic policy, but modify it to clarify that the ``reasonable interpretation'' standard applies until the effective date of these Final Rules. Tribes remain bound by any Policy Announcements issued by ACF, including those issued in advance of the final regulations, both prior to and after the effective date of these regulations. You can find additional discussion of this policy at Part IV.C below, as well as in Sec. 286.215 of the preamble. III. Principles Governing Regulatory Development A. Tribal Flexibility In the conference report to PRWORA, Congress stated that the best welfare solutions come from those closest to the problems, not from the Federal government. Thus, the legislation provides Tribes with the opportunity to reform welfare in ways that work best to serve the needs of their service areas and service populations. It gives Tribes the flexibility to design their own programs, define who will be eligible, establish what benefits and services will be available, and develop their own strategies for achieving program goals, including how to help recipients move into the work force. To ensure that our rules support the legislative goals of PRWORA, we are also committed to gathering information on how Tribes are responding to the new opportunities available to them. We reserve the right to revisit some issues, either through proposed legislation or regulation, if we identify situations where these rules are not furthering the objectives of the Act. B. Regulatory Authority Early input from the consultations with Indian tribes suggested that, consistent with the intent of Congress to provide for program flexibility, we should limit the extent to which we regulate Tribal TANF and NEW Programs. However, Congress gave us more authority to regulate the Tribal TANF and NEW Programs than State TANF programs. Unlike the process for reviewing and accepting plans for State TANF, the statute requires us to approve Tribal TANF plans. While we propose maximum flexibility in program design and procedure, we believe it is important for us to set forth, in regulations, the process for the submission and approval of plans and other program requirements. Tribal TANF programs must meet minimum work participation rates, and Tribal TANF recipients are subject to maximum time limits for the receipt of assistance as well as penalties for failure to meet program requirements. While these requirements are specified in PRWORA for State TANF programs, they are not specified for Tribal TANF programs, and we will negotiate these with each tribal program. Although the proposed rules suggested flexibility in how these requirements could be established, we believe that it is important for us to lay out, in regulations, the criteria that we will use. Although Tribes that operate TANF programs are subject to some of the same statutory requirements as are States, there are some requirements that do not apply to Tribes, such as the prohibitions in section 408. Since the statute does not always treat Tribes and States in the same way, we believe the Tribal TANF regulations should reflect the distinctions where appropriate. C. Accountability for Meeting Program Requirements and Goals The new law gives Tribes flexibility to design their TANF programs in ways that strengthen families and promote work, responsibility, and self-sufficiency. At the same time, however, TANF reflects a bipartisan commitment to ensuring that State and Tribal programs support the goals of welfare reform. To this end, the statutory provisions on data collection and penalties are crucial because they give us the authority we need to track what is happening to needy families and children under the new law, measure [[Page 8483]] program outcomes, and promote key objectives. IV. Discussion of Cross-Cutting Issues A. Child Support One of TANF's purposes is to provide assistance to needy families so that children may be cared for in their own homes or the homes of relatives. Another is to end the dependence of needy parents on government benefits by promoting job preparation, work, marriage, and parental responsibility. A third is to prevent and reduce the incidence of out-of-wedlock pregnancies and to encourage the formation and maintenance of two-parent families. Child support enforcement provides an important means of achieving all of these goals for Indian families and children. In the NPRM, we solicited comments on the subject of conditioning eligibility for receipt of Tribal TANF assistance on cooperation with child support enforcement efforts. We received very few comments on this issue. The comments we received indicated that the decision on conditioning eligibility for Tribal TANF assistance on either cooperation or assignment of child support to the Tribe should be left to the individual Tribes or to tribal-state negotiations. We have considered all comments received on the issue and believe that conditioning Tribal TANF eligibility on cooperation with child support enforcement agencies is consistent with assisting needy families achieve self-sufficiency. Section 286.75(a)(8) provides that, at their option, Tribal TANF programs may require cooperation with IV-D agencies as a prerequisite to receipt of TANF assistance. Good cause and other exceptions to cooperation shall be defined by the Tribal TANF program. In addition, at Sec. 286.155 we establish the rule that Tribal TANF programs may, at their option, condition eligibility for TANF assistance on assignment of child support to the Tribe. The statute does not address conditioning eligibility for Tribal TANF on the assignment of child support and we have determined that Tribes may require assignment as a condition of eligibility for Tribal TANF. If a Tribe elects this option, it may be approved only if the TFAP addresses the following to the satisfaction of the Secretary: (1) how the Tribe will use assigned support to further their TANF programs and, (2) procedures by which the Tribe will pay to the family any amount of child support collected and assigned to the Tribe that is in excess of the amount of TANF assistance provided to that family. Section 286.155(b)(1) means that a Tribe may not retain assigned support in excess of TANF assistance. Any such excess must be passed on to the family. Section 286.155(b)(2) requires that assigned child support retained by the Tribe be used for TANF purposes under the TFAP. The TFAP should specify how assigned support will be used. Until ACF issues regulations regarding the direct funding of Tribal child support enforcement programs, most child support will continue to be collected by States. States will continue to distribute amounts collected in accordance with Federal requirements and may, consistent with those requirements, retain amounts assigned to the State as a condition of receipt of AFDC and/or State TANF assistance. Amounts in excess of the amount that may be retained by the State would normally be passed through to the family. However, States may remit such amounts, if assigned to a Tribe with respect to Tribal TANF, to the Tribe within the required disbursement time frames. As we stated above, to ensure that our rules support the legislative goals of PRWORA, we are committed to gathering information on how Tribes are responding to the new opportunities available to them to promote self-sufficiency. We intend to revisit the issue of child support enforcement as it relates to Tribal TANF programs, either through proposed legislation or regulation, if we identify situations where the Final Tribal TANF rules are not furthering the objectives of the Act. Implementation of child support enforcement in Indian country is key to achieving self-sufficiency. The Federal government has a major role in child support enforcement (particularly with regard to the operation of the Federal Case Registry, National New Hire Directory and the expanded Federal Parent Locator Service), the continuing Federal interest in the effectiveness of child support collections, and the continued Federal financial commitment, under TANF, for needy families whose children do not have access to parental support. B. Plan Format In the NPRM, we solicited comments on the subject of whether ACF should develop a format or preprint for TANF. We received few comments on this issue. We have decided that, although all plans have common required elements, there is no need to prescribe the format which a Tribe should use to develop its plan. A Tribe may therefore use a format of its choosing, as long as all required statutory and regulatory elements are addressed. C. Approved Plans Which Do Not Meet the Terms of the Final Rule The Supreme Court has held that the Administrative Procedures Act (5 U.S.C. 551 et seq.) prohibits regulations from having retroactive effect because section 551 defines a rule as agency action having ``future effect.'' We acknowledge that there will inevitably be Tribal TANF programs that are currently operating in a manner that is inconsistent with the Final Rule and that will need time to amend their plans and their operations to bring programs in line with the final regulations. Between publication of the final Tribal TANF and NEW regulations and the effective date of the regulations, we will permit Tribal TANF and NEW Programs to continue to operate under a ``reasonable interpretation'' of the statute and applicable Policy Announcements, with the understanding that as of the effective date ALL Tribal TANF and New programs must comply with the final regulations or face penalties for non-compliance. The time frames for submitting amendments at Sec. 286.165 applies; any amendments must be submitted at least 30 days prior to the effective date of the final regulations (i.e., 90 days from the date of publication of the Final Rule). D. Other General Issues The following is a discussion of all the comments we received regarding the proposed rule, as well as a discussion of all the regulatory provisions which we have changed. In most cases the discussion follows the order of the regulatory text, addressing each part and section in turn. However, we incorporated the discussion regarding any changes to the ``definitions'' section in the appropriate topic area discussion section. For areas where we received no comments, and where no changes have been made to the draft language, we have included the preamble discussion from the NPRM. The entire regulatory text is included in the Final Rule. V. Part 286--Tribal TANF Program Provisions Subpart A--General Tribal TANF Provisions (Secs. 286.1-286.15) Section 286.1 What Does This Part Cover? This part contains our Final Rule for the implementation of section 412 of the Social Security Act, except for section 412(a)(2) which is covered in part 287. [[Page 8484]] Section 412 allows federally-recognized Indian tribes, certain specified Alaska Native organizations and Tribal consortia to submit plans for the administration of a Temporary Assistance for Needy Families (TANF) program. In this Final Rule, we have tried to retain the flexibility provided by the statute to the Tribal Family Assistance program. At the same time, we recognize the need to set forth the general rules that will govern the program. In addition, in recognition of the unique legal relationship the United States has with Tribal governments, these regulations will be applied in a manner that respects and promotes a government-to- government relationship between Tribal governments and the United States government, Tribal sovereignty, and the realization of Indian self-governance. In this Final Rule the terms ``Tribal Family Assistance program'' or ``TFAP'' and ``Tribal TANF program'' are used interchangeably. Section 286.5 What Definitions Apply to This Part? This section of the Final Rule includes definitions of the terms used in Part 286. Where appropriate, it also includes cross-references which direct the reader to other sections or subparts of the Final Rule for additional information. In drafting this section of the Final Rule, we chose not to define every term used in the statute and in these final regulations. We understand that excessive definitions may unduly and unintentionally limit Tribal flexibility in designing programs that best serve their needs. For example, we have not defined ``Indian family'' or ``service population.'' Each Tribe administering its own Tribal TANF program is permitted by the statute to define its service population. Because funding for the Tribal TANF program is based on State expenditures of Federal funds on Indian families during fiscal year 1994, we believe the Tribal TANF program was intended to serve primarily Indian families. However, in order to provide flexibility to Tribes and States, Tribes may define service population and have the option of including only a portion of the Tribal enrollment, only Tribal members, all Indians, or even non-Indians residing in the service area. It will be up to each Tribe submitting a TANF plan to define the service population that the plan covers. The service population definition provided by a Tribe in turn determines what data the State would be asked to provide to calculate the amount of the Tribal TANF grant. Note that at Sec. 286.75(d)(2) if a Tribe chooses to include non-Indian families in its service population definition, the Tribe is required to demonstrate State agreement with the inclusion of that portion of the Tribe's service population. We also have not defined the individual work activities that count for the purpose of calculating a Tribe's work participation rate. These are terms the Tribe should define in designing its Tribal TANF program. We believe Tribes should have maximum flexibility to define these terms as appropriate for their program design. Readers will note that we use the term ``we'' throughout the regulation and preamble. The term ``we'' means the Secretary of the Department of Health and Human Services or any of the following individuals or agencies acting on the Secretary's behalf: the Assistant Secretary for Children and Families, the Regional Administrators for Children and Families, the Department of Health and Human Services, and the Administration for Children and Families. Readers should also note that we use the term ``Tribe'' throughout the regulation and preamble. The term ``Tribe'' means federally- recognized Indian tribes, consortia of such Indian tribes, and the 13 entities in the State of Alaska that are eligible to administer a Tribal Family Assistance program, under an approved plan. It also refers to the Indian tribes and the Alaska Native organizations that are eligible to administer a NEW Program because they operated a Tribal JOBS Program in fiscal year 1995. We have provided necessary definitions from PRWORA for the readers' convenience. However, we have chosen not to augment these statutory definitions. We also have provided clarifying, operational and administrative definitions in the interest of developing clearer, more coherent and succinct regulations. These include common acronyms and definitions we believe are needed in order to understand the nature and scope of the provisions in this Final Rule. Some of these terms have commonly understood meanings; others are consistent with definitions included in the State TANF Final Rule. We advise readers to review all the terms in this section carefully because many of them determine the application of substantive requirements. Federal requirements related to the expenditures of Federal grant funds necessitate the use of precise definitions. An example of such a definition is that used for the term ``administrative costs,'' which triggers particular Federal grant requirements (see Sec. 286.50). This definition is important because we have established, at Sec. 286.50, a graduated cap over the first three years of operation which will ultimately limit to 25 percent the amount of Tribal TANF funds that a Tribe may use for administrative costs. The terms ``assistance'' and ``families receiving assistance'' are used in the PRWORA in many critical places that affect the Tribal TANF program. For the purposes of the Tribal TANF program, we are adopting the same definition of assistance as developed and included in the Final Rule for the State TANF program. Please refer to Sec. 286.10 for a detailed discussion of this definition. Section 286.10 What Does the Term ``Assistance'' Mean? (New Section) This is a new section in the Final Rule. In the NPRM we noted that the term ``assistance'' was a key term that affected Tribal TANF programs in the areas of calculating work participation rates and time limits, data collection and reporting, and consistency with legislative mandates for TANF program operations. The proposed rule included the definition of assistance in Sec. 286.5, with the other Tribal TANF definitions. However, because of the length and significance of this term, we decided to give it its own section in the Final Rule. Background The legislative history for title IV-A of the Act makes clear that Congress did not intend ``assistance'' to mean something different in the Tribal TANF context than it does in the general TANF context. In addition, while the legislative history indicates that Congress intended ``assistance'' to encompass more than cash payments, it does not provide specific guidance (see H.R. Rep. No. 725, 104th Cong., 2d Session). Insofar as the legislative history circumscribes the development of a Final Rule on the definition of ``assistance,'' we determined that the statute requires a single definition of the term regardless of whether a State or a Tribe is administering the TANF program. Both the NPRM applicable to State TANF programs and the NPRM applicable to Tribal TANF programs proposed the same definition of assistance. For reference, please refer to 64 FR 17755 for an overview of comments received on the definition of assistance proposed in the NPRM applicable to State TANF programs published by ACF on November 20, 1997. [[Page 8485]] Overview of Comments We received multiple comments in response to the Tribal TANF NPRM on this definition. Several commenters indicated that individual Tribes should determine what they consider short term/emergency assistance. Others wanted to narrow the possible benefits that could be considered within the definition of assistance. Commenters also requested that we expand the definition of one-time short-term assistance. As a result of consideration of all comments received on this key concept, we have made substantial modifications to the definition of assistance as in the proposed Tribal TANF rule. The modifications address concerns with the scope of benefits treated as assistance, the treatment of work supports and the exclusion from the definition of ``one-time, short-term'' assistance. Appropriateness of a Single Federal Definition of Assistance Comment: Several commenters argued that Tribes should be able to determine for themselves how assistance would be defined in the TANF program rather than having a single Federal definition of TANF assistance. Response: There are several reasons why we do not believe that this a feasible option. The definition of assistance is central to the accountability provisions in the statute. There must be a single definition of this term in order to insure that key TANF provisions are implemented as intended. Having various definitions of assistance rather than a single, uniform definition would raise questions about the consistency and comparability of TANF data reports, program information, work participation rates, time limits, and application of penalties. It would also make it very difficult to understand whether or how the TANF program is contributing to the movement of needy families to self-sufficiency. We have established one uniform definition of assistance at Sec. 286.10. We emphasize that this definition does not substantially impede the flexibility of States and Tribes to set eligibility rules or to expend funds on a broad range of benefits and services for needy families. The definition of assistance does not limit the types of allowable benefits or services which State and Tribal TANF programs may provide. Rather, the major effect of the definition is to determine the applicability of key TANF requirements to the benefits that a State or Tribe elects to provide. Scope of Benefits Treated as Assistance Comments: Several comments were received to the effect that the scope of what is considered assistance should be narrow and should exclude a variety of supports for working families such as child care, transportation and work-based assistance such as wage subsidies. Response: We have made significant modifications to the definition of assistance with the effect that the scope of benefits deemed assistance is narrower than proposed in the published NPRMs. We agree that there are sound reasons for narrowing the definition of assistance to exclude some work supports. While neither the statute nor the legislative history specifically indicate that a particular subset of benefits under a TANF program should be excluded from the definition of assistance, there is also little direct evidence that Congress intended for time limits and data collection to apply to every conceivable array of new benefits or to working families that have not traditionally been part of the welfare system. Clearly, in reforming the welfare program, Congress was trying to facilitate the ability of families to work and become self-sufficient. Two of the main effects of defining a TANF benefit as ``assistance'' are to require that a family work so that it can become self-sufficient and to time limit that benefit. However, the need to time limit work supports is mitigated where the family is already moving toward self- sufficiency. At Sec. 286.10(b) the definition of ``assistance'' provides that supports for working families (such as child care and transportation) are excluded. This exclusion covers supportive services needed to address employment-related needs and time spent by an employed individual in education and training needed for job retention and career advancement. Except as provided in Sec. 286.10(b), the exclusion does not cover supportive services related to participation in education, training, job search and related employment activities for nonworking families. Supportive services provided in this situation (to nonworking families) look more like traditional welfare rather than work supports. In addition, the same rationale for excluding nonworking families from the TANF work requirements, including work participation and time limits, does not exist for these families as exists for families that are already working. Educational and training activities are generally excluded under Sec. 286.10(b)(6). The one exception is if education or training benefits include allowances or stipends designed to provide income support. These particular types of education and training benefits are considered assistance. While our definition excludes some forms of support as ``assistance,'' the exclusions do not apply to the eligible Alaska Tribal entities and the State of Alaska in determining whether the Alaska Tribal entities' Tribal TANF programs are comparable to Alaska's State TANF program. For example, an Alaska Tribal entity that implements a Tribal TANF program may choose to include ``direct services'' as part of their benefit level definition, and these ``direct services'' would trigger the TANF requirements, i.e., work requirements, time limits, and data collection and reporting. Please refer to Sec. 286.175 for more information on the Alaska comparability requirement. Exclusion of Contribution To and Distributions From Individual Development Accounts The definition at Sec. 286.10(b)(5) excludes contributions to, and distributions from Individual Development Accounts (IDAs). While commenters did not raise concerns with the treatment of IDA benefits under the definition of assistance, enactment of the Assets for Independence Act (AFIA) (under title IV of Pub. L. 105-285) subsequent to publication of the Tribal TANF NPRM justify a specific discussion here of the impact of IDAs on Tribal TANF programs. Please note that we have added a new section, Sec. 286.40 and ask that you refer to the discussion of Sec. 286.40 in the Preamble for additional information about Tribal contributions to IDAs and the extent to which such contributions are allowable TANF expenditures. Contributions to and distributions from IDAs are excluded from the definition of assistance for several reasons. First, many of the assets in IDA accounts represent deposits from the earnings of low-income families and the interest on those deposits. These sorts of assets do not represent assistance from TANF or any other governmental source. Second, when contributions are made into IDA accounts from the Tribal TANF agency or other third parties, they only represent potential assistance at that point. The individuals whose funds are in the account are potential beneficiaries, but have very limited access to the funds in the account. These funds are unavailable to meet their basic needs. Furthermore, the distributions from IDA accounts would normally be excluded under other provisions of our definition (e.g. as [[Page 8486]] emergency benefits, for education, and as nonrecurring, short-term benefits). Because the residual cases are likely insignificant in terms of the amount of assistance involved and the tracking of such amounts might create significant administrative burdens, we believe it is appropriate to provide an umbrella exclusion for IDA benefits. Employment-related Services The ``employment-related services'' exclusion at Sec. 286.10(b)(6) generally covers on-the-job training, subsidized employment, and most education and training activities since most do not represent income support. This exclusion also covers payments to employers and third parties for supervision and training and payments under performance- based contracts for success in achieving job placements and job retention. As discussed above, there may be types of education and training benefits (e.g. stipends or allowances) that fall within the definition of assistance. The definition of assistance includes payments to individuals participating in work experience or community service. It also includes need-based payments to individuals in any work activity whose purpose is to supplement the money they receive for participating in the activity. The distinction we make between work subsidies paid to employers and payments to participants in work experience and community service is similar to distinctions made under tax law. For example, we refer you to Notice 93-3, issued by the Internal Revenue Service on December 17, 1998. This Notice explains that TANF payments that meet certain conditions would not be considered income, earned income, or wages for Federal income tax purposes. The Notice provides that: ``Payments by a governmental unit to an individual under a legislatively provided social benefit for the promotion of the general welfare that are not basically for services rendered are not includable in the individual's gross income and are not wages for employment tax purposes, even if the individual is required to perform certain activities to remain eligible for the payments. * * * Similarly, these payments are not earned income for Earned Income Credit (EIC) purposes.'' Our definition of assistance distinguishes between work subsidies paid to employers and community service and work experience on a similar basis. We believe that payments to participants in work experience and community service are closely associated with traditional welfare benefits and are designed primarily to meet basic needs rather than as compensation for services performed. This view is also reflected in the Conference Report, H. Rep. 105-34, which added the Welfare-to-Work (WtW) program. In discussing the treatment of WtW cash assistance for time-limit purposes, it indicates that wage subsidies are indirect cash assistance. (See discussion in the preamble for Sec. 286.130). Nonrecurring, Short-Term Benefits Comment: We received comments asking that short-term, episodic assistance for families in discrete circumstances and encompassing nonrecurring, short-term payments that could occur more than once in a 12 month period be excluded from the definition of assistance. Concerns were raised about the negative impact on innovation by TANF agencies unless the exclusion were expanded. Response: In part, the narrower language in the proposed rule reflected our determination that it would not be appropriate to exempt families that received a substantial amount of assistance, assistance over a significant amount of time, or assistance provided on a recurring basis from work requirements and time limits. At the same time, we did not intend our definition to undermine State and Tribal efforts to divert families from the welfare rolls by providing short- term relief that could resolve discrete family problems. Based on comments received on the proposed rule as well as other sources of information, we realize that diversion activities are an important part of State and Tribal strategies to reduce dependency and encourage self- sufficiency. Restrictive Federal rules in this area could inadvertently stifle the ability of States and Tribes to respond effectively to discrete family problems. We also understand that subjecting families in diversion programs to all the TANF administrative and programmatic requirements would not represent an effective use of limited TANF resources. Thus, the Final Rules include a revised definition that excludes more than one payment a year, so long as such payments provide only short-term relief to families, are meant to address a discrete crisis situation rather than to meet ongoing or recurrent needs, and will not provide for needs extending beyond four months. The revised definition uses the term ``nonrecurring'' rather than ``one-time'' because the former term is more consistent with the intended policy. A family may receive such benefits more than once. However, the expectation at the time such benefits are granted is that the situation will not occur again, and such benefits are not to be provided on a regular basis. We believe the revised exclusion is limited enough in nature and scope not to undermine the statutory provisions of the TANF program, while giving Tribes the flexibility to design effective diversion strategies. The definition also excludes supports provided to individuals participating in applicant job search. Applicant job search is a common form of diversion that clearly fits within the goals of TANF and within this exclusion's view of a ``short-term'' benefit. Similarly, the definition excludes supports for families that were recently employed, during periods of temporary unemployment, in order to enable them to maintain continuity in their service arrangements. Unnecessary disruptions in these arrangements could negatively affect the family's ability to re-enter the labor force quickly and, in the case of child care, could negatively affect the children in the family. The four-month limitation reflects our belief that we could not maintain the integrity of the short-term exclusion without providing some regulatory framework. As written, the four-month limitation does not restrict the amount of accrued debts or liabilities (such as overdue rent) that a Tribe may cover or impose a specific monetary limit on the amount of benefits that the Tribe may provide. The exclusion at Sec. 286.10(b)(1) is more flexible with respect to past debts or liabilities; it merely limits the extent to which payments for future needs can be excluded from the definition of assistance. The limitation reflects the period of time for which future needs can be addressed by a single ``nonrecurrent, short-term'' benefit. It is not appropriate for Tribes merely to condense the time period over which they pay assistance to needy families so they can categorize the benefits as ``nonassistance'' and avoid TANF requirements. Also, if a family's emergency is not resolvable within a reasonably short period of time, the Tribe should not keep the case in emergency status, but should convert it to a TANF assistance case. At the same time, if a family receives aid in one month that falls under the nonrecurring, short-term exclusion, but suffers a major setback later in the year and develops a need for ongoing assistance, we do not want to require the Tribe to redefine the month of initial aid as assistance and retroactively subject the family to TANF requirements. We note that diverting individuals from programs where they have an entitlement to benefits or to prompt [[Page 8487]] action on a request for assistance could represent a violation of rules in the other programs. Because of the tremendous importance of food stamps and Medicaid as supports for working families, we strongly encourage Tribes to maintain critical linkages with States with regard to these programs because accessing these other program benefits could further the goals of TANF. Please refer to 64 FR 17760 for a full discussion of State responsibilities under the Food Stamp and Medicaid programs. Transitional services To the extent that Tribes provide supports for working families, such as child care and transportation or work subsidies, or work- related services such as counseling, coaching, referrals, and job retention and advancement services under their transitional services programs, we exclude those services from the definition of assistance. In addition, short-term benefits such as cash assistance to stabilize a housing situation are excluded as ``nonrecurring, short-term'' assistance. Tribes wanting to provide ongoing transitional payments that meet the definition of assistance to former recipients have two options. They may fund those programs under TANF as assistance, but use different need standards than they do for other forms of TANF assistance, or Tribes may fund ongoing transitional benefits with non- Federal Tribal funds. Section 286.15 (Sec. 286.10 in the NPRM) Who Is Eligible To Operate a Tribal TANF Program? This section of the Final Rule specifies which Indian tribes are eligible to submit Tribal Family Assistance Plans (TFAPs). In general, any federally-recognized Indian tribe is eligible to submit a Tribal Family Assistance Plan. However, with respect to the State of Alaska, only the 12 Alaska Native regional nonprofit corporations specified at section 419 of the Act, plus the Metlakatla Indian Community of the Annette Islands Reserve may submit a TFAP. In addition, a consortium of eligible Indian tribes may develop and submit a single TFAP. Subpart B--Tribal TANF Funding (Secs. 286.20-286.60) Section 286.20 (Sec. 286.15 in the NPRM) How Is the Amount of a Tribal Family Assistance Grant (TFAG) Determined?, and Section 286.25 (Sec. 286.20 in the NPRM) How Will We Resolve Disagreements Over the State-submitted Data Used to Determine the Amount of a Tribal Family Assistance Grant? We have combined the discussions for these two sections of the Final Rule because they are interrelated. These sections of the Final Rule discuss how the amount of a Tribal Family Assistance Grant (TFAG) will be determined and the actions we believe will be necessary to resolve disagreements over the data received from a State. PRWORA requires the Secretary to pay TFAGs to federally-recognized Indian tribes with approved 3-year Tribal Family Assistance Plans. To determine the amount of a TFAG, we must use data submitted by the State or States in which the Indian tribe is located. Section 412(a)(1)(B) specifies the data that we will use. The statute provides that, for each fiscal year 1997-2002, an Indian tribe that has an approved Tribal Family Assistance Plan will receive an amount equal to the Federal share (including administrative expenditures, which would include systems costs) of all expenditures (other than child care expenditures) by the State or States under the AFDC and Emergency Assistance (title IV-A) programs, and the JOBS (title IV-F) program for fiscal year (FY) 1994 for Indian families residing in the service area(s) identified in the Tribal Family Assistance Plan. For Tribes that operated a Tribal JOBS Program in FY 1994, the State title IV-F expenditures (including administrative costs) used in the calculation of the TFAG would be for expenditures made by the State on behalf of non-member Indians and non- Indians, if either or both are included in the Tribal TANF population and are living in the designated Tribal TANF service area(s). Any expenditures by the State for Tribal members who were served by the State JOBS program will also be included in the determination. Section 412(a)(1)(B)(ii)(II) of the statute allows Tribes the opportunity to disagree with State-submitted data and to submit additional information relevant to our determination of the TFAG amount. We believe Tribes should have an opportunity to submit relevant information in instances in which the State has failed to submit requested data on a timely basis. However, we believe the lack of State-submitted data will be a very rare occurrence. We will request State data based on the Tribe's identified service area and population, which may include areas outside the reservation and non-Indian families. We will allow States 30 days from the date of our request to submit the requested data before notifying the affected Tribe of its option under section 412(a)(1)(B)(ii)(II) of PRWORA to submit its own data. This time frame should allow States adequate time to gather and submit the data. However, in order for us to notify the State of any reduction in its grant not later than three months before payment of any quarterly installment, as specified by section 405(b), we will use the best available data to determine the amount of the TFAG, if the State has not submitted the specified data at the end of the 30-day period. Our experience to date has shown that we need time to resolve any issues related to determining the amount of a TFAG in order to meet the statutory requirement for notification to the State of the reduction in the amount of their State TANF grant. We also believe a Tribe should have a reasonable period of time in which to review the State-submitted data and make a determination as to whether or not it concurs with the data. We have determined that a forty-five (45) day period should be sufficient for this activity. Therefore, we will allow a Tribe 45 days from when it receives the State-submitted data from us to notify us of its concurrence or non- concurrence with the data. Once we receive State data, we will share it with the Tribe. We will also facilitate any meeting or discussions between the Tribe and the State to answer any questions the Tribe has about the submitted data. Any meetings or discussions to answer the Tribe's questions about the data need to be held within the 45-day period for Tribal concurrence. We believe it is in the best interests of both the Tribe and the State to reach a consensus on the State data. However, if the Tribe finds it cannot concur with the State data and has notified us to this effect, we will provide the Tribe an additional 45 days to submit additional relevant information. It will then be our responsibility under section 412(a)(1)(B)(ii)(II) to make the final determination as to the amount of the TFAG after review of the information submitted by the Tribe. In instances in which the State has not submitted the requested data within [[Page 8488]] the time period given, we will notify the Tribe. We will give the Tribe 45 days from the date of our notification to submit relevant data. This 45-day time frame is the same time frame we have established for Tribes to submit information if they disagree with State-submitted data. In the absence of State-submitted data, we propose to use relevant Tribe- submitted data to determine the amount of the TFAG. If a Tribe disagrees with the data submitted by the State, we will use the State-submitted data and any additional relevant information submitted by the Tribe to determine the amount of the TFAG. Relevant Tribal data may include, but are not limited to, Census Bureau data, data from the Bureau of Indian Affairs, data from other Federal programs, and tribal records. Once the amount of the TFAG is officially determined, we will notify both the Tribe and the State of the Secretary's decision. Our goal will be to resolve any data issues at least two weeks prior to when we are required to notify the State. We will make official notification of the amount of the State Family Assistance Grant reduction to the appropriate State(s) no later than 90 days before the payment of the State's next quarterly SFAG installment. Comments: Tribal commenters raised the issue of the sufficiency of fiscal year 1994 figures to determine the amount of the TFAG. Response: ACF recognizes that the statutory TFAG funding formula fails to account for the State portion of funds expended for Indian families in fiscal year 1994. Without agreements with States to provide State matching funds, Tribes must absorb this funding gap. While ACF is committed to facilitating Tribes and States agreements on the provision of State matching funds, under the current statute, the amount of the TFAG is limited by the statutory formula specified at section 412(a)(1)(B) of the Act, and this formula does not allow for any adjustment to make up for the missing State portion of funds expended for Indian families in fiscal year 1994. Comments: Commenters suggested that we clarify that the TFAG amount determined under section 412(a)(1)(B) is an amount equal to the total amount of Federal payments to the State for fiscal year 1994 attributable to expenditures under the former AFDC, JOBS and Emergency Assistance programs for Indian families, and that this amount includes not only expenditures attributable to direct family assistance, but also expenditures for administrative costs. Response: The statute is clear that the TFAG amount is determined based on total Federal expenditures, and all expenditures for administrative costs must be included in the data that States submit under section 412(a)(1)(B)(ii)(I). Comments: We received several comments calling for us to clarify that determination of the TFAG is not based upon the Tribe's definition of service population. Response: We agree that, under the law, there is no nexus between a Tribe's definition of its service population and the formula under which the TFAG is determined. The TFAG funding formula must take into account ALL Indian families residing in the geographic service area or areas defined by the Tribe, but there is no requirement that the Indian families residing in a Tribe's geographic service area coincide with the Tribe's service population. Section 412(b)(1)(C) of the Act makes a clear distinction between a Tribe's service population and its service area or areas. The statute bases TFAG funding levels on ALL Indian families residing in the geographic service area determined by the Tribe. The statute leaves it to the Tribe to determine its service population and this service population may, but does not have to, include all Indian families residing in the Tribe's service area. Comments: Several commenters suggested that we define the term ``Indian Family'' for the limited purpose of determining the amount of the TFAG. One commenter argued that a definition of Indian Family was critical in determining the amount of the TFAG. This commenter suggested that when we request the necessary data from the state to determine the TFAG, we should include in our letter to the state the definition of the Indian Family being proposed by the Tribe. Response: In drafting the proposed rule, we chose not to define ``Indian family'' or ``service population.'' ACF will not define the term ``Indian family'' in recognition of the fact that like any sovereign government, Tribes determine their own membership criteria. Each Tribe administering its own Tribal TANF program is permitted by the statute to define its service population. As we noted in the preamble, in order to provide maximum flexibility to the Tribe, each Tribe may define its service population and it has the option of including only a portion of the tribal enrollment, only tribal members, all Indians, or even non-Indians residing in the service area. It will be up to each Tribe submitting a TANF plan to define the population that the plan will serve. We continue to believe that excessive definitions may in fact unduly and unintentionally limit tribal flexibility in designing programs that best meet their service population needs. We are not persuaded that defining the term Indian family is critical to determination of the TFAG. However, because States need to know what data to submit under section 412(a)(1)(B)(ii)(I), we will require a Tribe to declare its definition of ``Indian family'' in its Tribal Family Assistance Plan. We therefore adopt the suggestion that, when we request the necessary data from the state to determine the TFAG, we include in our letter the definition of Indian family and a description of the proposed service area proposed by the Tribe (Sec. 286.20). We believe this information will aid the State in determining the amount equal to the Federal expenditures (other than child care expenditures) spent by the State or States under the AFDC and Emergency Assistance Programs (including administrative costs), and the JOBS programs for fiscal year 1994 for Indian families residing in the service area(s) identified in the TFAP. Comments: A significant number of commenters requested that we extend the time frames for State submission of expenditure data used to determine the TFAG amount, and the time frame for the Tribe to notify us of either their concurrence or non-concurrence with the State expenditure data. All commenters were unanimous in their view that the proposed time frames of 21 days for the state to respond to our data request and the amount of time provided to the Tribe to determine whether or not it concurs with the state data were insufficient. All commenters recommended the proposed time frames of 21 days be extended. Some commenters recommended the time frames be extended to 30 days, while others recommended the time frames be extended to anywhere from 45 days to 90 days. Response: We have determined that it would be helpful to allow the State to take up to 30 days from the date of our letter to submit its data, 45 days for the Tribe to concur or nonconcur, and 45 days for the Tribe to submit alternative data, prior to our making a determination of the TFAG amount. Our experience to date has shown that this will allow sufficient time for the State to gather the expenditure data, and sufficient time for the Tribe to either concur or not concur with the State expenditure data. Comment: One commenter suggested that States be given the opportunity to review and rebut data submitted by [[Page 8489]] Tribes under section 412(a)(1)(B)(ii)(II) of the Act. Section 412(a)(1)(B)(ii)(II) specifies that if Tribes disagree with data States are required to submit under section 412(a)(1)(B)(ii)(I) in order to determine the TFAG, Tribes may submit to the Secretary such additional information as may be relevant to making the determination and the Secretary may consider such information before making such determination. Response: We agree with tribal commenters that the statute contemplates only that States submit the data described in section 412(a)(1)(B)(i) of the Act. The law requires States to submit data indicating the total amount of the Federal payments to a State or States * * * attributable to expenditures by the State or States under parts A and F (as so in effect) for fiscal year 1994 for Indian families residing in the service area or areas identified by the Indian tribe. The statute clearly indicates the parameters for State-submitted data. Once States submit the data described in section 412(a)(1)(B)(i) of the Act, only Tribes are afforded the opportunity to rebut or supplement such data by submitting additional information as may be relevant to the Secretary. Where there are inconsistencies in the data, follow-up discussions with the Tribe and the State will ensue. Comments: Regarding the final regulation at Sec. 286.25(a)(2), several comments were received proposing that we require a Tribe's agreement before the TFAG amount is determined. Response: We have considered this and decided not to adopt this proposal. We have determined that the law does not envision conditioning determination of the TFAG amount on a Tribe's agreement. The statute specifies the data upon which the Secretary must determine the TFAG amount and provides for Tribes to submit additional relevant data in the event of disagreement with such data. The proposed scheme would frustrate clear Congressional intent as to how the TFAG is to be determined. Section 286.30 (286.25 in the NPRM) What Is the Process for Retrocession of a Tribal Family Assistance Grant? As defined at Sec. 286.5, retrocession is a voluntary termination of a Tribal TANF program. Section 412 of the Act does not include a provision for retrocession. However, we recognize that Tribes voluntarily implement a TANF program for their needy families and should, therefore, be afforded the opportunity to withdraw their agreement to operate the program. For example, a Tribe may lose a State's commitment to provide State funds for Tribal TANF, which could significantly impact the Tribe's financial ability to operate the program. Based on overwhelming support and comments by both Tribes and States, we determined the necessity of a retrocession provision in these regulations. In providing a retrocession provision in the regulations, we developed a time frame which we believed ensured that: (1) There would be minimal disruption of services to families in need of assistance; (2) a Tribe made an informed decision in determining whether or not to cease operating the Tribal TANF program; and (3) a State was provided adequate notice to ensure continuity of program services. A Tribe that retrocedes a Tribal TANF program is responsible for complying with the data collection and reporting requirements and all other program requirements for the period before the retrocession is effective. In addition, the Tribe is liable for any applicable penalties (see subpart D); and it is subject to the provisions of 45 CFR part 92 and OMB Circulars A-87 and A-133, and other Federal statutes and regulations applicable to the TANF program. The Tribe also will be responsible for any penalties resulting from audits covering the period up to the effective date of retrocession. Please refer to Sec. 286.195 for the discussion on penalties. Overview of Comments We received substantial comments regarding the proposed retrocession process. Most of these comments came from Tribes, but we also received a number of comments from States, advocacy groups, and other community organizations. All commenters agreed that a Tribe should be allowed to relinquish the program, but most questioned both the time frame for notification as well as the time frame for retrocession itself. To deal with the large number of comments on this issue, we decided to cluster the comments into the following general categories: (1) When a Tribe should be allowed to relinquish the program; (2) how much advance notice is adequate; (3) conditions for return of a program to a Tribe who has retroceded its grant; and (4) other concerns. Timing for Relinquishment Comment: The draft regulation required that the effective date of a retrocession coincide with the end of the grant period. Virtually all commenters took exception to this limitation, noting that a Tribe should be allowed to relinquish the program (upon adequate notice) at any point in the year. These commenters argued that Tribes unable to adequately administer a program should be permitted to retrocede as soon as the state is able to begin providing services to the Tribal TANF service population. To require a Tribe to keep operating a program after the proposed effective date of the retrocession could result in a program diminished by a lack of resources or staff, an increased chance of tribal penalties, and the possibility of negative fiscal impacts occurring to other programs operated by the Tribe as the results of the Tribe's effort to meet the programmatic responsibilities under its tribal TANF plan. Response: Regarding retrocession, we acknowledge that our proposal may not have been adequately responsive to the needs of Tribes operating a Tribal TANF program or to the families receiving services under the TANF program. However, that language was proposed because we believe that with approval of a plan to operate a Tribal TANF program comes both the Tribe's commitment and its responsibility to utilize funds specifically awarded under the TFAG to provide the approved services to its identified service population throughout the duration of the plan. We agree with the commenters that Tribal TANF grantees should be given the opportunity to retrocede more than one day per year. It was never our intent to place tribal programs in the position of continuing operations beyond a reasonable time frame from when they sought to terminate Tribal TANF operations. Therefore, we have included specific language in the regulatory text which permits a Tribe to retrocede at any time, with the effective date of the retrocession the last day of any month, as mutually agreed upon by ACF, the Tribe, and the affected State. Adequate Advance Notice Comments: There were no consistent comments in this area. Although most Tribes and States agreed with the proposed 120-day time frame for notification, several Tribes commented that a time frame of 60 or 90 days was more than adequate for a state, in order to assure that a program failing to provide services would not be forced into a situation it could not handle. On the other hand, one state voiced concern that it would need a minimum of 180 days advance notice in order to develop the necessary infrastructure for service delivery and to minimize disruption of services. [[Page 8490]] Response: Since States are currently operating TANF programs, and since many States are already coordinating with Tribes, we believe that 120 days formal advance notice will give the State ample time to begin to implement services to those individuals previously served by the Tribal TANF program. However, in order to be responsive to unforeseen emergency circumstances which may require a more expeditious retrocession of a Tribal TANF program back to the state, the revised regulation will provide for an emergency waiver from the 120-day notice, upon mutual agreement by the Tribe and the affected State. Comments: In many cases commenters recommended that the Tribe provide simultaneous notice to ACF and the state of its intent to terminate operation of the TANF program, thereby enabling the Tribe and state to begin discussions early, rather than waiting for ACF to formally notify the state of the Tribe's intent. Response: In the writing of this section of the regulation we never intended to function as the intermediary between the Tribe and the State. Rather, our expectation has always been that the Tribe and State will work together to ensure that the families served under the Tribal TANF plan receive the necessary services. We believe it may be reasonably implied from section 405(b) of the Act that it is our responsibility to notify a State at least 90 days prior to the effective date of a Tribe's retrocession of the TANF program. However, we see no reason why the state, which will be responsible for taking over provision of TANF services to persons formerly served by the tribal program, should have less notice than ACF. We have revised the language in the final regulation to indicate that the Tribe should simultaneously notify ACF and the state of its intent to retrocede the TANF program. Conditions for Return of a Program to a Tribe Who Had Retroceded its Grant Comments: The draft regulations delineated two conditions for return of a TANF program to a Tribe that had previously retroceded. These conditions are that ``the reasons for the retrocession are no longer applicable, and all outstanding funds and penalty amounts [are] repaid.'' Several commenters expressed their views that these conditions were unfair and exceeded the Secretary's authority under the statute. Response: Section 412(e) of the Act grants the Secretary broad authority to ``maintain program funding accountability.'' It is a reasonable exercise of that authority to take into account the circumstances of a Tribe's previous retrocession when considering the approval of a subsequent Tribal TANF plan. We have rewritten the regulation to emphasize that Sec. 286.30(e) (previously Sec. 286.25(d)) is intended to implement the Secretary's fiscal oversight authority. Comment: Several commenters referred to a retroceded Tribe's motivation for deciding to ``renew'' its TANF program operation, as distinguished from a ``continuing program context.'' They pointed out that an unauthorized penalty would be imposed on a Tribe in this ``renewal context,'' and that there is no regulatory authority to deny a Tribe the right to operate a program. Response: If a Tribe submits a TFAP subsequent to its retrocession of its TANF program back to the State, it is inaccurate to characterize this as a ``renewal.'' Rather, it is an application to operate a TANF program by an entity that was not able to complete its approved three- year TANF program. If a Tribe retrocedes its TANF program to the State, there are significant administrative, financial, and technical issues that must be addressed in transferring the Tribal TANF caseload to the State TANF program. It is an appropriate exercise of the Secretary's authority to ``maintain program funding accountability'' to require that a Tribe demonstrate that the circumstances that led to retrocession are no longer present. However, the Secretary may consider the extent to which the Tribe has control over such circumstances and those circumstances are related to fiscal accountability. It is inaccurate to characterize Sec. 286.25(d) as presented in the proposed rule as a ``penalty.'' It is not. Rather, it is a reasonable inquiry that only arises when triggered by a particular objective fact: Namely, tribal retrocession. Tribes that retrocede are not ``penalized''; they are merely required to rebut the presumption that they cannot complete a three-year TANF plan which is based on the fact that the Tribe retroceded a previously approved three-year TANF plan. If the ``reason'' for retrocession is beyond the control of the Tribe, or is not reasonably related to fiscal accountability, then the fact that a Tribe retroceded is irrelevant to its subsequent application to operate a TANF program. Other Concerns Comments: One Tribe commented that rather than return all unobligated funds to the Federal government, Tribes who retrocede a program should be allowed to retain a pro-rated amount of funds based on the amount of time they operated the TANF program. These funds could be used in a variety of other welfare-related programs that the Tribe is involved with. Response: Tribal TANF funds are awarded to provide specific welfare-related services and assistance under the Tribal TANF program, as specified in Secs. 286.35-286.45. Tribes who are no longer operating a TANF program have no authority to expend Tribal TANF funds beyond those that were obligated for the purposes of the TANF program prior to the effective date of the retrocession. Upon retrocession, they are therefore unable to retain any funds other than those which were previously obligated. Comments: Several states requested that the regulations devote more attention to the potential problems that a state may encounter after a retrocession. One state indicated that if a Tribe runs out of funds before it retrocedes the program, the state may not have sufficient funds to absorb the returning caseload. They requested that adequate federal funds be made available until state appropriations could be provided by the state legislature. Similarly, one state organization requested guidance on how states and Tribes should proceed if the tribal grant is exhausted before the end of the fiscal year. Response: If a Tribe is making expenditures for purposes which are reasonably calculated to accomplish the purpose of the statute, such expenditures are within the authority of the Tribe to determine. If a Tribe expends all of its TANF grant before it retrocedes the program and such expenditures are not otherwise improper, there is no general authority under which the federal government may augment State TANF funds to absorb any returning caseload subsequent to retrocession. We take seriously the concerns raised about potential problems that a State may encounter subsequent to retrocession. In fact, this is a major reason why we would permit retrocession during a grant period only upon agreement of the state. In the current environment we should not presume that this situation would create a financial hardship for the State. Some states have surplus funds because of caseload reductions. In addition, states have access to some supplemental funding sources that are not accessible to the Tribes--including the Bonus to Reward Decrease in Illegitimacy Ratio (section 403(a)(2)), Supplemental Grant for Population Increases (section 403(a)(3)), the High Performance Bonus [[Page 8491]] (section 403(a)(4)), and the Contingency Fund (section 403(b)). In order for welfare reform to work in Indian country, it is important for State and Tribal governments to work together. To avoid some of the potential problems that may arise subsequent to retrocession, we encourage States to plan for such contingencies as well as to work with tribal partners to minimize its occurrence. It is the responsibility of the Tribe to carefully manage funds in order to minimize potential problems in this area. The federal government has the authority to monitor TANF expenditures on the mandated quarterly reports to ensure the Tribe is maintaining a viable TANF program and we will provide technical assistance to the extent necessary to prevent retrocession where that is possible. Comment: One state objected that unobligated funds would be returned by the Tribe to the federal government rather than the State, indicating that the regulation was unclear as to whether these funds would be returned to the States' SFAG account for drawdown availability. The return of funds would promote service continuity and ease financial constraints that may be brought about as a result of the retrocession. Response: We have clarified the regulation to specify that the SFAG will be increased by the amount of the TFAG available for the subsequent quarterly installment. Comments: Several states indicated that the regulations should incorporate ongoing budgetary oversight of the tribal programs and provide HHS with the ability to intervene if a tribal program is losing financial viability. They requested that the regulations be amended to include criteria and a process for a federal decision to terminate a tribal program if tribal members are not able to gain access to the services specified in the TFAP as well as provisions for early notification to the state of possible financial problems with a Tribal TANF program, and for early notification to clients and other involved parties prior to retrocession. Response: The United States has a unique legal relationship with Indian tribal governments. The federal government has guaranteed the right of Indian tribes to self-government, and the Tribes exercise sovereign powers over their members and territory. Just as states, Tribes must be provided the opportunity to develop and administer their own TANF programs within the confines of the statue and regulations. Adequate budgetary oversight is provided through the mandated submission of the quarterly reports. Comments: Several states appealed for a ``grace period'' in meeting work participation requirements when there is a retrocession, and that they should be able to increase the percentage that can be exempted from time limits if adversely affected by a retrocession. Response: The statute does not provide for a grace period, nor can we revise state TANF requirements in the Tribal TANF regulation. However, Regional Offices are available to provide technical assistance if a State is having difficulty incorporating former Tribal TANF recipients into the State program. Comment: One state requested that the draft regulations be amended to include provisions allowing for ``partial retrocession,'' such as when a consortium member drops out, or a Tribe changes its service area or service population in a way which changes the amount of the allocation. Response: We have considered the suggestion and determined that Sec. 286.30 of these rules adequately accommodate these situations. Section 286.35 (Section 286.30 in the NPRM) What are Proper Uses of Tribal Family Assistance Grant Funds? Section 412 of the Act does not specify the particular purposes for which a TFAG may be used. However, under these Final Rules any such use must be consistent with section 401(a) of the Act. We believe the Tribes should have the same flexibility as the States in their use of TANF funds. Therefore, we indicate at Sec. 286.35 that the Tribal TANF grantees will be able to use their TFAGs for the same purposes as States may use their TANF funds as specified in section 404(a) of the Act. Thus, a Tribe may use its TFAG in any reasonable manner to accomplish the purposes of part A of title IV of the Act. This may include the provision of low-income households with assistance in meeting home heating and cooling costs. In addition, we believe that Tribes should be able to use their TFAGs in any manner that was an authorized use of funds under the AFDC and JOBS programs, as those programs were in effect on September 30, 1995. In determining whether a welfare-related service or activity may be funded with its TFAG, a Tribe should refer to the purposes of TANF, as described in section 401 of the Act, as well as to section 404(a). Tribes should be aware that TANF funds may be used for activities reasonably calculated to accomplish the purposes of part IV-A of the Act. As specified in section 401(a), those purposes are: (1) To provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; (2) to end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (3) to prevent and reduce the incidence of out-of- wedlock pregnancies; and (4) to encourage the formation and maintenance of two-parent families. TANF funds are not authorized to be used to contribute to or otherwise support non-TANF programs. Use of TANF funds to support non-TANF programs or other unauthorized purpose shall give rise to penalties under section 409(a)(1) of the Act (made applicable to Tribes by section 412(g). Comments: Several commenters raised concerns with perceived restrictions on the use of TFAG funds for economic development and job creation activities. Response: We will consider expenditures for economic development and job creation activities, and for supportive services to assist needy families to prepare for, obtain and retain employment to be permissible uses of TANF grant funds and will revise the regulatory language accordingly. Comment: One commenter suggested that the language of Sec. 286.30(a)(1) in the proposed rule be amended with the insertion of the words ``but not limited to'' after the word ``including'' on line 2 to clarify the fact that ``reasonably related purposes'' is not limited to home heating and cooling. Response: The suggestion is appropriate, and we amended the language of Sec. 286.35(a)(1) to insure clarity. Comment: Regarding the proposed regulation at Sec. 286.30(b), one commenter observed that in the proposed rule we had reserved this subsection, and presumed that we had intended to use it to define an appeals process when there was disagreement with the Secretary's determination of the TFAG amount. The commenter further suggested that Sec. 286.30(b) specify that the appeals procedures found in 25 CFR part 900, subpart L, apply where the Tribe disagrees with the Secretary's determination of the TFAG amount. Response: The commenter's presumption was incorrect on two counts. First, it is standard regulatory practice in order to preserve the future structural integrity of the provision to reserve a subsequent subsection when only one element in a sequence is used. Secondly, the appeals procedures found in 25 CFR part 900, subpart L, do not apply to the TANF program. The appeals procedures found in 25 CFR [[Page 8492]] part 900, subpart L, apply only to contracts by the Department of Health and Human Services (DHHS) and the Department of the Interior (DOI) in implementing title I of the Indian Self-Determination and Education Assistance Act or to programs administered by the DHHS or DOI for the benefit of Indians. The Department has determined that the TANF program is not contractible under the Indian Self-Determination and Education Assistance Act, nor is it a program administered by DHHS for the benefit of Indians. The TANF program is not one under which the federal government provides benefits or services directly to Indian tribes nor is TANF a program designed to benefit Indians based on their status as Indians, but rather it is a program designed to provide time limited assistance to needy families. Section 286.40 May a Tribe Use the Tribal Family Assistance Grant To Fund IDAs ? (New Section) Comment: Comments were raised about the extent to which the Individual Development Account (IDA) provision at section 404(h) of the Act was an optional program that Tribes could choose to implement. Response: We addressed in the Preamble discussion at Sec. 286.10 the question of the extent to which contributions to or distributions from IDAs were excluded from the definition of assistance. Here, we discuss the extent to which such contributions are allowable Tribal TANF expenditures. Section 404(h) of the Act expressly gives States the option to fund IDAs with TANF funds for individuals who are eligible for TANF assistance. The statute is silent with regard to whether Tribes have the same option to fund IDAs with TANF funds for individuals who are eligible for Tribal TANF assistance. However, in the subsequently enacted Assets for Independence Act (Pub. L. 105-285, or AFIA), there is strong evidence that Congress intended Tribes to have the same option to fund IDAs with TANF funds as is expressly provided to States. For example, section 412 of AFIA requires each qualified entity (including tribal governments) to prepare an annual report on the progress of the demonstration project including information on ``the number and characteristics of individuals making a deposit into an individual development account, the amounts withdrawn from the individual development accounts and the purposes for which such amounts were withdrawn, and the balances remaining in the individual development accounts.'' This legislative requirement would not make sense unless Congress intended to authorize Tribes as well as States to fund IDAs with TANF funds. It is not necessary for a Tribal government to have applied for AFIA funding in order for a Tribal TANF program to fund IDAs with TANF funds. Rather, it is the authorization at section 404(7) of AFIA which indicates that Congress intended to permit Tribal TANF programs to fund IDAs on the same basis as State TANF programs may fund IDAs. The IDA provision in the Act creates an optional program which is subject to specific statutory requirements. IDAs are similar to savings accounts and enable recipients to save earned income for certain specified, significant items. IDAs are subject to special statutory restrictions on TANF recipient deposits, who can match recipient contributions, and how recipients may spend IDA funds. Funds in an IDA account do not affect a recipient's eligibility for TANF assistance. Withdrawals from the IDA must be paid directly to a college or university, a bank, savings and loan institution, an individual selling a home, or a special account (if the recipient is starting a business). Section 404(h)(2)(D) authorizes the Secretary to establish regulations to ensure that individuals do not withdraw funds held in an IDA except for one or more of the qualified purposes. Post secondary education expenses, first home purchase, and business capitalization specifically are allowed qualified withdrawals. With this in mind, we did not feel it was necessary to be overly prescriptive in mandating how Tribes would ensure that individuals do not make unauthorized withdrawals from IDA accounts. We have given States and Tribes broad flexibility to establish procedures that ensure that only qualified withdrawals are made. Section 286.45 (Section 286.35 in the NPRM) What Uses of Tribal Family Assistance Grant Funds Are Improper? Just as section 412 of the Act does not specify the particular purposes for which Tribal Family Assistance Grant funds may be used, it does not specify any prohibitions or restrictions on the use of TFAG funds in a Tribal TANF program. However, we believe it is important to indicate in this Final Rule what would not be a proper use of a TFAG. TFAG funds must be used for the operation and administration of the TANF program. Tribal TFAG funds may not be used to contribute to or to subsidize non-TANF programs. Any use of TFAG funds to contribute to or otherwise support non-TANF programs will be considered an improper use of TANF funds and subject to penalties under Sec. 286.195. TFAG funds must be used to provide assistance to families and individuals that meet the eligibility criteria contained in the TFAP. We have revised the language in the final rule to clarify that funds must be used only for families or individuals meeting the Tribe's eligibility criteria. In addition, we propose that a TFAG may be used to provide assistance for no more than the number of months specified in a Tribe's approved TFAP. OMB Circular A-87 includes restrictions and prohibitions that limit the use of a TFAG. In addition, all provisions in 45 CFR part 92 and OMB Circular A-133 apply to the Tribal TANF program. TANF is not one of the Block Grant programs exempt from the requirement of part 92 because OMB has determined that TANF should be subject to part 92. Non-Citizens Title IV of PRWORA establishes restrictions on the use of TANF funds to provide assistance to certain individuals who are not citizens of the United States. These restrictions are part of the definition of eligible family at Sec. 286.5. Individuals who do not meet the criteria at Sec. 286.5 may not receive TANF assistance paid with Tribal Family Assistance Grant funds. Construction and Purchase of Facilities The Comptroller General of the United States has prohibited the use of Federal funds for the construction or purchase of facilities or buildings unless there is explicit statutory authority permitting such use. Since the statute is silent on this, a Tribe may not use its TFAG for construction or for the purchase of facilities or buildings. Program Income We have received inquiries as to whether TANF funds may be used to generate program income. An example of program income is the income a Tribe earns if it sells a product (e.g., a software program) developed, in whole or mostly with TANF funds. Tribes may generate program income to defray costs of the program. Under 45 CFR 92.25, there are several options for how this program income may be treated. To give Tribes flexibility in the use of TFAGs, we are proposing to permit Tribes to add to their Tribal Family Assistance Grant program income that has been earned by the Tribe. Tribes must use such program income for the purposes of the TANF program and for allowable TANF services, activities and assistance. We [[Page 8493]] will not require Tribes to report on the amount of program income earned, but they must keep on file financial records on program income earned and the purposes for which it is used in the event of an audit or review. Comment: One comment relating to Sec. 286.35(f) as proposed in the NPRM suggests that the proposed rule requiring that, ``Tribes must use program income generated by the Tribal Family Assistance Grant for administrative costs during the grant period'' needs to be clarified or deleted. Response: There is no language or proposed rule in this section that requires that a Tribe use program income for administrative costs. Comment: One comment relating to Sec. 286.35(f) as proposed in the NPRM questions the statutory authority for this subsection, which requires that, ``Tribes must use program income generated by the Tribal Family Assistance Grant for the purposes of the TANF program and for allowable TANF services, activities, and assistance,'' and suggests that this provision be clarified or deleted. Response: The authority for this requirement is found in 45 CFR Part 92.25(g)(2), which governs the use of program income for Federal grants and cooperative agreements and subawards to State, local and Indian tribal governments. Use of Funds Comment: A commenter suggests that Sec. 286.35(a)(3) as proposed in the NPRM should be amended by including qualified aliens in the language, to clarify that TFAG fund cannot be used to provide services to individuals who are not qualified aliens and who do not meet the definition of eligible families. Response: The suggested amendment is in order, and we have incorporated it in the regulatory text at Sec. 286.45(a)(3). However, for Tribes that receive State funds (which the State can count for MOE purposes) and those funds are not commingled with Federal TANF funds, a Tribe may use these funds to provide a State or local public benefit as defined in PRWORA title IV, section 411(c) to members of eligible families as defined in Sec. 263.2(b) of the TANF Final Rule applicable to State TANF programs. (64 FR 17894, April 12, 1999) A State or local public benefit may be provided to qualified aliens and some non- qualified aliens (non-immigrants under the Immigration and Nationality Act or aliens paroled into this country under section 212(d)(5) of such Act for less than one year). State or local public benefits may also be provided to illegal aliens if the State enacts a law after August 22, 1996 that affirmatively provides that illegal aliens are eligible to receive all or particular State or local public benefits (per 411(d) of PRWORA). If the benefit is not a State or local public benefit or if the Federal or State or local public benefit is a non-cash benefit that is included on the Attorney General's Notice dated August 23, 1996 as necessary for the protection of life or safety, then the Tribe may help the alien family members--qualified and non-qualified. (See discussion in the preamble to the State TANF Final Rule (64 FR 17817-819, April 12, 1999). Comment: With reference to Sec. 286.35(b) as proposed, a commenter suggests that the * * * (p)rohibition on using TANF funds to contribute to or subsidize non-TANF programs is overly restrictive.'' Response: We disagree with the suggestion that the prohibition is overly restrictive. TANF funds may only be expended to further the purposes and goals for which the TANF program was created. The authority for this prohibition is clearly established in 45 CFR 92.25(g)(2). Section 286.50 (Section 286.40 in the NPRM) Is There a Limit on the Percentage of a Tribal Family Assistance Grant That Can Be Used for Administrative Costs? Under section 404(b) of the Act no more than 15 percent of a State's SFAG may be spent on administrative expenditures. Expenditures by a State for information technology and computerization needed for tracking or monitoring cases covered by the TANF program are excluded from the 15 percent limit. Because section 404(b) is not applicable to Tribal TANF programs, we asked in our discussions with Tribes and States, what limit, if any, should be placed on administrative expenditures under the Tribal TANF program. Many respondents indicated that a limit on administrative expenditures should not be applied to Tribal TANF programs. Other respondents indicated that Tribes do not have the same level of experience in operating this kind of welfare program as do States, and, that if a limit had to be set, any limit should be higher than the State TANF limit. Respondents also cited both the additional start-up expenses that Tribes will experience and the new requirements of the TANF program as a reason to set a higher limit for Tribal TANF programs. In our deliberations on whether to propose a limit on administrative expenditures, we considered various options. One was to follow the statute and be silent on the issue. The second option was to apply the same limit placed on States. The third option was to set a limit that recognizes the special needs of Tribes mentioned above. In whatever option we chose, we felt it necessary to ensure that most of a Tribal TANF grant would be available to carry out the primary objective of the TANF statute. We understand the reason why many of the respondents said that an administrative expenditure limit should not be placed on Tribal TANF programs. However, not placing a limit could result in depriving needy families of the program benefits Congress intended families to receive. We believe setting a limit on administrative expenditures is more consistent with the purposes of the Act. Placing a limit on administrative expenditures guarantees that the major portion of a Tribal TANF grant goes to assisting needy families. We have responded to the fact that Tribes do not have the same level of experience operating welfare programs as do the States. In addition, we recognize that Tribes will need to expend a larger portion of their grant funds on administration than States because they cannot take advantage of economies of scale. Therefore, as the discussion below details, we revised this section to provide for a graduated cap over the first three years of operation which will ultimately limit to 25 percent the amount of Tribal TANF funds that a Tribe may use for administrative expenditures during any grant period. Thus, after the first two years of operation each Tribal TANF grantee will be required to expend at least 75 percent of its grant on direct program services (and technology) during the grant period. Because expenditures for information technology and computerization needed for tracking and monitoring of cases under the TANF program by the States will be excluded from the administrative expenditure limit, these same expenditures by Tribes will also be excluded from the Tribal limit. Tribes must allocate costs to proper programs. Under the Federal Appropriations Law, grantees must use funds in accordance with the purpose for which they were appropriated. In addition, as stated previously, the grants administration regulations at part 92, and OMB Circular A-87, ``Cost Principles for State, Local, and Indian Tribal Governments'', apply to the TANF program. OMB Circular A-87, in particular, establishes the procedures and rules applicable to the allocation of costs among programs and the allowability of costs under Federal grant programs such as TANF. [[Page 8494]] Overview of Comments We received numerous comments regarding the proposed administrative cost provisions. A substantial majority of these comments came from Tribes and tribal organizations, but we also received comments from States, advocacy groups, and other community organizations. To deal with the number of responses on this issue, we decided to cluster the comments into the following general categories: (1) The imposition of an administrative cost cap, including whether or not there is authority to impose such a cap; (2) the proposed 20 percent administrative cost limitation; (3) the treatment of eligibility determination and verification costs, as well as data entry costs, in the definition; (4) the relationship of indirect costs to administrative costs; and (5) identifying the base to be used to determine the cap (that is, whether the appropriate base for computing the Federal cap includes State matching funds). The first two categories will be dealt with in this section; the remaining three will be addressed in Sec. 286.55. Imposition of an Administrative Cost Cap Comments: We received multiple comments questioning whether ACF had statutory authority to impose a cap. Comments from a number of Tribes indicated their belief that the cap goes beyond the authority of Public Law 93-638, the Indian Self-Determination Act. These respondents asked that the entire section be deleted. Response: There is legal support for imposition of an administrative cap. Although the statute only requires an administrative cost cap for States, Federal law does not preclude the Secretary from establishing a cap for the Tribal TANF program. Both the statute and legislative history make it clear that Congress intended that a substantial majority of TFAG funds be available to provide time- limited program assistance and/or services to needy Indian families. Section 412(b), which specifies Tribal Family Assistance plan requirements, clearly contemplates that the TFAG be used to support the provision of ``assistance'' and ``welfare-related services.'' While we believe in granting Tribes broad flexibility to design their programs and have left key definitions up to the discretion of the Tribes, we believe there is a need for Federal guidance on the definition of ``administrative costs.'' The approach in this rule is a compromise between a Federal and tribal definition. It sets a Federal framework that specifies some items that must be considered ``administrative costs,'' but does not attempt to fully define the term. We believe this framework is important. First, as the comments we received demonstrate, there is no common view of the meaning of this term. If we left this matter entirely to tribal discretion, we could expect a diversity of approaches, and Tribes might be subject to widely different penalty standards. Also, some Tribes might define the term so narrowly as to substantially undermine the intent of the administrative cost cap provisions. The philosophy underlying the administrative cost cap is clear: in order to protect needy families and children, it is critical that the substantial majority of TANF funds go towards helping needy families. The Amount of the Administrative Cost Cap Comments: Almost all respondents requested the flexibility to negotiate a higher administrative cap either over the course of the entire three-year grant or for the initial start-up year(s). There were widespread comments attesting to the fact that although states have operated similar programs in the past and have invested heavily in an infrastructure to support the program, no such opportunity has existed for Tribes. Tribes will initially have extensive administrative costs while they develop the required infrastructure and data systems to manage the program, and some small Tribes may also experience economy of scale problems. Tribes believe that the 20 percent limitation provided for in the NPRM is overly restrictive and unrealistic, and they furthermore maintain that any cap should not have as its basis the state cap. Response: Although we do not believe that the administrative cap proposed in the draft regulations was either arbitrary or paternalistic, we believe that a negotiated and graduated administrative cost cap would recognize that Indian tribes do not have the same sorts of resources as are available to States and therefore should be allowed to claim more administrative costs, especially in the initial operation and administration of a TANF program. There is no provision for start-up funds in the legislation, which compels Tribes to use funds from their Tribal Family Assistance Grant for that purpose. It is critical to the establishment and effective and efficient operation of any viable social service program that a solid infrastructure be developed from the beginning. TANF is the first comprehensive social services program that Tribes will operate. Therefore, Tribes with little or no infrastructure will need to create or strengthen their infrastructure in order to ensure a viable operating base for the program. Due to the uniqueness of TANF, even those Tribes with more sophisticated infrastructures will need to enhance and/or make substantial changes in their infrastructures to allow for the changes necessary to operate the TANF program effectively. In most grant and contract programs Tribes are provided funds for planning, setup costs, contract support funds, and indirect costs to offset the lack of a tax base and other sources of funding to support Tribal programs. PRWORA provides no funding for Tribes to develop the necessary infrastructure to operate a TANF program. Furthermore, program development and administrative activities (e.g., conference travel, home visits, procurement of goods and services, meetings with state and local TANF staff, etc.) are generally more expensive for Tribes than for state or local governments because of the distance from urban centers for most tribes, as well as the lack of transportation and public services. Recognizing the unique administrative burdens on Tribes who have never been in the position of operating these programs, and who need to build an infrastructure capable of operating the Tribal TANF program, we have revised this section to allow ACF to negotiate with each Tribal TANF applicant individually for each year of a program's operation, a negotiated administrative cap for the first year not to exceed 35 percent, a negotiated administrative cap for the second year not to exceed 30 percent, and a negotiated administrative cap for all subsequent years of operation (that is, any and all years of program operation after the first two years) not to exceed 25 percent. Our negotiations will be based on, but not limited to, a Tribe's TANF funding level, the economic conditions and resources available to the Tribe, the relationship of the Tribe's administrative cost allocation proposal to the overall purposes of TANF, and a demonstration of the Tribe's administrative capability. We believe that this graduated cap meets the intent of the law, yet provides Tribal TANF programs with additional funds to develop the necessary infrastructure to be successful in operating the Tribal TANF program. After the first two years of funding, each Tribal TANF grantee will be required to [[Page 8495]] expend at least 75 percent of its grant on direct service and benefits. If a Tribe's administrative costs exceed the 25 percent limit (or 35 percent in the first year or 30 percent in the second year of operations), the penalty for misuse of funds (refer to Sec. 286.195) will apply. The penalty will be in the amount spent on administrative costs in excess of the administrative cap for that particular year of operation. We will take an additional penalty in the amount of five percent of the TFAG if we find that a Tribe has intentionally exceeded the administrative cap limit. See discussion of Sec. 286.200. Section 286.55 (Section 286.45 in the NPRM) What Types of Costs Are Subject to the Administrative Cost Limit on Tribal Family Assistance Grants? Just as with the State TANF program, we considered not proposing a Federal definition of ``administrative costs.'' That option had appeal because: (1) It is consistent with the philosophy of a block grant; (2) we took a similar approach in some other policy areas (