39936 Federal Register /Vol. 63, No. 142/Friday, July 24, … · 2020. 10. 1. · 39938 Federal Register/Vol. 63, No. 142/Friday, July 24, 1998/Rules and Regulations Title: Child

39936 Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Rules and Regulations

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Administration for Children andFamilies

45 CFR Parts 98 and 99

RIN 0970–AB74

Child Care and Development Fund

AGENCY: Administration for Childrenand Families (ACF), HHSACTION: Final rule.

SUMMARY: This final rule implementsthe child care provisions of the PersonalResponsibility and Work OpportunityReconciliation Act (PRWORA) of 1996(Pub. L. 104–193) and incorporatestechnical corrections to PRWORA madeby the Balanced Budget Act of 1997(Pub.L. 105–33). PRWORA appropriatesnew entitlement child care funds undersection 418 of the Social Security Actand requires that these new Federalchild care funds be subject to the ChildCare and Development Block Grant(CCDBG) Act. The CCDBG programwhich was created under the originalCCDBG Act is a discretionary fundprogram. PRWORA also reauthorizedthe CCDBG Act. As PRWORA requiresthat these child care funds beadministered as a unified program, theAdministration for Children andFamilies has named the combined fundsthe Child Care and Development Fund(CCDF). Parts 98 and 99 are the officialregulations for the Child Care andDevelopment Fund.EFFECTIVE DATE: August 24, 1998.FOR FURTHER INFORMATION CONTACT:Barbara Binker, Director, PolicyDivision, Child Care Bureau, HubertHumphrey Building, Room 320F, 200Independence Avenue, SW,Washington, DC 20201, telephone (202)401–5145. Deaf and hearing-impairedindividuals may call the Federal DualParty Relay Service at 1–800–877–8339between 8 a.m. and 7 p.m. Eastern time.SUPPLEMENTARY INFORMATION:

BackgroundSection 103(c) of the Personal

Responsibility and Work OpportunityReconciliation Act of 1996 (PRWORA)repealed the child care programsauthorized under title IV-A of the SocialSecurity Act—AFDC Child Care,Transitional Child Care and At-RiskChild Care. In addition, PRWORAamended section 418 of the SocialSecurity Act to provide new entitlementFederal child care funds and transferredthem to the Lead Agency under theamended Child Care and DevelopmentBlock Grant Act. The funding under

section 418 is now subject to the CCDBGAct. PRWORA also amended theCCDBG Act.

The new statutory provisions,therefore, unified what was afragmented child care subsidy system.The combined and increased fundingbecomes part of a holistic andstreamlined system for child care. Theintegrated entitlement and discretionarychild care funding has a single, unifiedpurpose. The Department of Health andHuman Services has named thecombined funds the Child Care andDevelopment Fund (CCDF), to reflectthis integration of multiple fundingsources. The Department uses the CCDFterminology when corresponding withgrantees and the child care field.

Goals and Purpose of the RuleThe primary goals of this rule are to:

—Amend the CCDBG regulations inlight of the child care amendmentsunder title VI of PRWORA,

—achieve a balance between programflexibility and accountability,

—assure the health and safety ofchildren in child care,

—recognize that child care is a keysupport for work, as envisioned inTANF, and

—clarify, streamline, simplify, andunify the Federal child care program.The major regulatory decisions were

made to assure States have adequateinformation upon which to base theirchild care payments; promote publicinvolvement in the Plan process;strengthen health and safety in childcare by requiring children receivingCCDF subsidies to be age-appropriatelyimmunized; require coordinationbetween child care Lead Agencies andagencies administering TANF, health,education and employment programs;streamline the CCDF application andPlan; and provide clarifications basedon experience operating both theCCDBG program and the now-repealedtitle IV–A programs.

We received relatively few commentsduring the comment period—only some160 organizations and individuals madeapproximately 500 comments, many ofwhich were duplicative. The content ofthe comments lead us to believe that weachieved our goal of reaching balanceamong viewpoints. We made only a fewchanges as a result of comments toadjust the balance among goals. Of thesubstantive changes made, we requirethe Lead Agency to make available tothe public, in advance of the publichearing, the plan it proposes to submitto the Secretary. We require the LeadAgency to provide consumer educationinformation to parents and the generalpublic about health and safety

requirements and about the full range ofproviders available to families. Weclarified that an independent audit of aLead Agency shall be conducted by aState agency that meets the generallyaccepted government auditing standardsor by a public accountant who meets theindependence standards containedtherein. We added provisions regardingtribal consortia in § 98.83. We alsoadded or revised provisions regardingtribal construction at § 98.84 includinga requirement regarding the amount atribe new to the CCDF may spend onconstruction and a provision regardingtreatment of construction planningcosts.

We made other changes to conform tothe technical amendments to PRWORAby Pub. L. 105–33, The Balanced BudgetAct of 1997, primarily in § 98.70 and98.71. Based on comments, we alsomade other minor changes to clarifyproposed language or codify policycontained in the preamble of theproposed rule.

Statutory AuthoritySection 658E of the Child Care and

Development Block Grant Act of 1990requires that the Secretary shall by ruleestablish the information needed in theBlock Grant Plan.

Regulatory Impact AnalysisThis rule has been reviewed by the

Office of Management and Budget(OMB) pursuant to Executive Order12866. Executive Order 12866 requiresthat regulations be reviewed to ensurethat they are consistent with thepriorities and principles set forth in theExecutive Order. The Department hasdetermined that this rule is consistentwith these priorities and principles. Anassessment of the costs and benefits ofavailable regulatory alternatives(including not regulating) demonstratedthat the approach taken is the most cost-effective and least burdensome whilestill achieving the regulatory objectives.

For the most part, the regulationsimplement specific requirements underPRWORA.

We are requiring that children be age-appropriately immunized in order toreceive services under the Child Careand Development Fund. As most Statesalready include immunizations in theirchild care standards and providereligious and medical exemptions fromimmunizations, we do not anticipatethat this rule will have a significantnegative impact on either grantees orfamilies, since grantees will not berequired to provide immunizationsdirectly. The Vaccines for ChildrenProgram, an important component of theChildhood Immunization Initiative (CII),

39937Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Rules and Regulations

provides immunizations to eligiblechildren, including those withoutinsurance coverage, those eligible forMedicaid, and American Indians andAlaska Natives. In addition, every Statereceives grant funds for immunizationactivities, including hiring nurses,expanding clinic hours, assessingcoverage levels, and conductingoutreach. Immunization levels ofchildren 19–35 months of age aremeasured by the National ImmunizationSurvey, the most recent surveyconducted throughout the U.S. thatprovides comparable State vaccinationcoverage estimates.

The immunization provision wasconsidered the most cost-effective andleast burdensome approach because: (1)It helps ensure that vulnerable youngchildren are age-appropriatelyimmunized; (2) immunization of suchchildren is highly cost-effective; and (3)it provides flexibility to grantees indetermining how to implement theprovision.

Regulatory Flexibility AnalysisThe Regulatory Flexibility Act (Pub.

L. 96–354) requires the Federalgovernment to anticipate and reduce theimpact of rules and paperworkrequirements on small businesses andother small entities. The primary impactof this regulation is on State, tribal andterritorial governments. To a lesserextent the regulation could affectindividuals and small businesses.However, the number of smallbusinesses affected should be limited,and the expected economic impact onthese businesses would not be sosignificant that a full regulatoryflexibility analysis is indicated.

The rule contains a number ofprovisions that could result in somedecrease in the regulatory and economicburdens on providers that are smallbusinesses. Because States will berequired to operate their programsunder a more consistent set of programrules, participating providers will face asimpler and more streamlined set ofFederal regulatory requirements.

The providers who would potentiallybe most affected by this rule are in-home providers. These providers aregenerally not operating as smallbusinesses, but as domestic employees;

thus, any impact on them need not bespecifically addressed under this Act.

State, local and tribal governmentsalready have authority to set generalregulatory requirements and health andsafety standards for child careproviders. If States (or other grantees)believe that there is a substantial needfor additional requirements (to protectthe well-being of children in care), weexpect them to act under this generalauthority.

While States generally haveimmunization requirements for childrenin child care, the proposedimmunization provision might result insome additional children being subjectto immunization requirements orstronger requirements for somechildren. However, States haveflexibility in deciding howimmunization requirements are to beimplemented. Our rule does not dictatethat States impose requirements onproviders; rather, States can choose toimpose them on eligible families. Thus,the immunization provision in this ruledoes not necessarily affect smallbusinesses. Further, where States dochoose to impose additionalrequirements on providers related to theimmunization provision, suchrequirements would be basicallyadministrative in nature (e.g.,documentation); we expect the costs ofimmunization to be covered throughother funding sources. Thus, thisprovision would not have a significanteconomic impact on providers.

For these reasons, we certify that thisrule will not have a significanteconomic effect on a substantial numberof small entities, and that a RegulatoryFlexibility Analysis is not required.

Unfunded Mandates Reform Act of1995

Section 202 of the UnfundedMandates Reform Act of 1995 requiresthat a covered agency prepare abudgetary impact statement beforepromulgating a rule that includes anyFederal mandate that may result in theexpenditure by State, local, and Tribalgovernments, in the aggregate, or by theprivate sector, of $100 million or morein any one year.

We have determined that this finalrule will not impose a mandate that will

result in the expenditure by State, local,and Tribal governments, in theaggregate, or by the private sector, of$100 million or more in any one year.Accordingly, we have not prepared abudgetary impact statement, specificallyaddressed the regulatory alternativesconsidered, or prepared a plan forinforming and advising any significantlyor uniquely impacted smallgovernments.

Congressional Review of Regulations

This final rule is not a ‘‘major’’ ruleas defined in Chapter 8 of 5 U.S.C.

Paperwork Reduction Act

Sections 98.16 and 98.81 contain theLead Agency Plan informationrequirements of the ACF–118 and ACF–118–A respectively. Sections 98.70 and98.71 contain the information requiredby both the ACF–800 and ACF–801child care data collections. As requiredby the Paperwork Reduction Act of 1995(44 U.S.C. 3507(d)), the Administrationfor Children and Families submittedthese sections to the Office ofManagement and Budget (OMB) for itsreview. The Pre-Prints, ACF–118 andACF–118–A, have been approved byOMB—OMB Number 0970–0114,expires 5/31/2000. The OMB alsoapproved both data collection forms, theACF–800 (OMB Number 0970–0150,expires 3/31/2000) and the ACF–801(OMB Number 0970–0167, expires 11/30/2000).

Title: State/Territorial Plan Pre-Print(ACF–118) and Tribal Plan Pre-print(ACF–118–A) for the Child Care andDevelopment Fund (Child Care andDevelopment Block Grant).

Description: These legislatively-mandated plans serve as the agreementbetween the Lead Agency and theFederal Government as to how CCDFprograms will be administered inconformance with legislativerequirements, pertinent Federalregulations, and other applicableinstructions and guidelines issued byACF. This information will be used forFederal oversight of the Child Care andDevelopment Fund.

Respondents: State governments andterritories, Tribal organizations.

ANNUAL BURDEN ESTIMATES

Instrument Number of re-spondents

Number of re-sponses perrespondent

Average bur-den hours per

response

Total burdenhours

ACF–118 ........................................................................................................... 56 .5 30 840ACF–118a ......................................................................................................... 243 .5 30 3,645

Estimated Total Annual Burden Hours: 4,485.


Title: Child Care Annual Aggregate Report—ACF–800.Description: This legislatively mandated report collects program and participant data on all children and families

receiving direct CCDF services. Aggregate data will be collected and will be used to determine the scope, type, andmethods of child care delivery, and to provide a report to Congress.

Respondents: States, the District of Columbia, American Samoa, Guam, Northern Mariana Islands, Puerto Rico, andthe U.S. Virgin Islands.





response

Total burdenhours

ACF–800 ........................................................................................................... 56 1 40 2,240

Estimated Total Annual Burden Hours: 2,240.Title: Child Care Quarterly Case Level Report, ACF–801.Description: This legislatively-mandated report collects program and participant data on children and families receiving

direct CCDF services. Disaggregate data will be collected and will be used to determine the participant and programcharacteristics as well as cost and level of child care services. The data will be used to provide a report to Congress.Form ACF 801 represents the data elements to be collected and reported to ACF.

Respondents will be asked to sample the population of families receiving benefits on a monthly basis and submitthe three most current monthly samples to ACF quarterly. States are allowed to submit the data monthly if they chooseto do so. Each monthly sample is drawn independent of the other samples and retained for submission within aquarterly report. ACF is not issuing specifications on how respondents compile overall database(s) from which samplesare drawn. ACF provided respondents sampling specifications which specify a minimum sample size of approximately200 cases. States are allowed to submit their total monthly population.

Respondents: States, the District of Columbia, American Samoa, Guam, Northern Mariana Islands, Puerto Rico, andthe U.S. Virgin Islands.





response

Total burdenhours

ACF–801 ........................................................................................................... 56 4 20 4,360

Estimated Total Annual Burden Hours: 4,360.

The Administration for Children andFamilies considered comments by thepublic on evaluating whether theproposed collections are necessary forthe proper performance of the functionsof ACF, including whether theinformation will have practical utility.Comments regarding specific items arediscussed in the preamble. The quality,usefulness and clarity of the informationto be collected will be enhanced by thetechnical assistance provided and theregional meetings that ACF hasconvened.

Amended Regulations, 45 CFR Part 98We have chosen to present 45 CFR

Part 98 as an amended whole. Webelieve that the publication of the wholetext of Part 98 will facilitateunderstanding of the impact of the

amendments on the regulations that areretained. In addition, we made anumber of other minor editorial changesthroughout the regulations to enhanceclarity, to reflect the change of programname from the Child Care andDevelopment Block Grant (CCDBG) tothe Child Care and Development Fund(CCDF), and to reflect the change from‘‘Grantee’’ to ‘‘Lead Agency’’ for reasonsexplained in this preamble at § 98.2.

We have made the following changesto the regulations.

Title/heading: Part 98.Subparts—A, E and F.Sections—98.1, 98.13, 98.15, 98.43,

98.45, 98.51, 98.52, 98.53, 98.61, 98.62,98.63, 98.64, 98.65, 98.70, 98.71, and98.81.

Definitions: § 98.2 is now analphabetical listing.

Removed: (e), (f), (n), (o), (s), (gg) and(nn).

Added: Child Care and DevelopmentFund (CCDF), Construction,Discretionary Fund, Facility, MajorRenovation, Mandatory Funds,Matching Funds, Modular unit, Realproperty, and Tribal Mandatory Funds.

Assurances and Certifications: § 98.15has been reorganized to reflect thestatute intent that states ‘‘assure’’ theymeet certain requirements and ‘‘certify’’that they meet others.

Tribes: We have consolidated tribalregulations from §§ 98.16(b), 98.17(b)and 98.60(g) into Subpart I.

The following distribution tablesummarizes what has been added,removed, revised and redesignated.

Existing section Action New section

Added ......................................................................... 98.1(a)98.1(a) and (b) ............................................................ Redesignated ............................................................. 98.1(b) and (c).98.1(b)(7) .................................................................... Removed.98.1(b)(8) .................................................................... Redesignated ............................................................. 98.1(c)(7).98.2(a), (j), (q), (mm) .................................................. Revised ...................................................................... 98.2—Alphabetical.98.10(b) and (e) .......................................................... Revised ...................................................................... 98.10(b) and (e).



98.11(a) and (b)(8) ...................................................... Revised ...................................................................... 98.11(a) and (b)(8).98.12(a) and (c) .......................................................... Revised ...................................................................... 98.12(a) and (c).

Added ......................................................................... Introductory.98.13(a) ....................................................................... Revised ...................................................................... 98.13(a) and (b).98.13(b) and (c) .......................................................... Removed.98.13(a)(10) ................................................................ Redesignated ............................................................. 98.13(c).98.13(a)(11) ................................................................ Redesignated ............................................................. 98.13(d).98.14(a-c) .................................................................... Revised ...................................................................... 98.14(a-c).98.15 ........................................................................... See note above. .........................................................98.16(a) ....................................................................... Redesignated ............................................................. Introductory.98.16(a)(1–12) ............................................................ Revised ...................................................................... 98.16(a-l).98.16(a)(13–16) .......................................................... Removed.

Added ......................................................................... 98.16(m-q).98.16(a)(17) ................................................................ Redesignated ............................................................. 98.16(r).98.17(a) ....................................................................... Revised ...................................................................... 98.17(a).98.17(c) ....................................................................... Redesignated ............................................................. 98.17(b).98.20(a) ....................................................................... Revised ...................................................................... 98.20(a).98.21 ........................................................................... Removed.

Added ......................................................................... 98.30(c)(3).98.30(c)(3–5) ............................................................... Redesignated ............................................................. 98.30(c)(4–6).98.30(d) ....................................................................... Removed.98.30(e-g) .................................................................... Redesignated ............................................................. 98.30(d-f).98.31 ........................................................................... Revised ...................................................................... 98.31.98.32 ........................................................................... Revised ...................................................................... 98.32.

Added ......................................................................... 98.32(c).98.33 ........................................................................... Revised ...................................................................... 98.33.98.40(a) ....................................................................... Revised ...................................................................... 98.40(a).98.41(a)(1) .................................................................. Revised ...................................................................... 98.41(a)(1).98.41(c) and (d) .......................................................... Removed.98.41(e-g) .................................................................... Redesignated ............................................................. 98.41(c-e).98.42(d) ....................................................................... Removed.98.43(a) and (b) .......................................................... Revised ...................................................................... 98.43(a) and (b).

Added ......................................................................... 98.43(c).98.43(c) and (d) .......................................................... Redesignated ............................................................. 98.43(d) and (e).98.43(e) and (f) ........................................................... Removed.98.45 ........................................................................... Revised ...................................................................... 98.45.98.50(a) and (c) .......................................................... Revised ...................................................................... 98.50(a) and (c).98.50(d) ....................................................................... Removed.

Added ......................................................................... 98.50(d-f).98.51(a) and (b) .......................................................... Revised ...................................................................... 98.51(a).98.51(c-f) ..................................................................... Removed.98.51(g) ....................................................................... Redesignated ............................................................. 98.51(b).

Added ......................................................................... 98.51(c).98.52(a) and (b) .......................................................... Revised ...................................................................... 98.52(a).98.52(c) ....................................................................... Revised ...................................................................... 98.52(c).98.53 ........................................................................... Revised ...................................................................... 98.53.98.54(a) ....................................................................... Revised ...................................................................... 98.54(a).

Added ......................................................................... 98.54(b)(3).98.60(a), (d) and (f) .................................................... Revised ...................................................................... 98.60(a), (c) and (e).98.60(b) ....................................................................... Removed.98.60(c-f) ..................................................................... Redesignated ............................................................. 98.60(b-e).98.60(h) ....................................................................... Redesignated, Revised .............................................. 98.60(g).98.60(i-j) ...................................................................... Redesignated ............................................................. 98.60(h-i).98.61(a) and (b) .......................................................... Revised ...................................................................... 98.61(a).98.62(a-c) .................................................................... Redesignated ............................................................. 98.61(b-d).

Added ......................................................................... 98.61(e).Added ......................................................................... 98.62(a) and (b).

98.63(a) and (b) .......................................................... Redesignated, Revised .............................................. 98.64(b).Added ......................................................................... 98.63(a-c).

98.64(a-d) .................................................................... Removed.Added ......................................................................... 98.64(a), (c) and (d).

98.65(a) ....................................................................... Revised ...................................................................... 98.65(a).Added ......................................................................... 98.65(f) and (g).

98.67(c) ....................................................................... Revised ...................................................................... 98.67(c).98.70 ........................................................................... Revised ...................................................................... 98.70.98.71 ........................................................................... Revised ...................................................................... 98.71.98.80 Introductory ....................................................... Revised ...................................................................... 98.80.98.80(b) and (f) ........................................................... Revised ...................................................................... 98.80(b) and (f).98.81(a) ....................................................................... Revised ...................................................................... 98.81(a).

Added ......................................................................... 98.81(b).98.81(b) ....................................................................... Redesignated ............................................................. 98.81(c).98.82 Introductory ....................................................... Revised ...................................................................... 98.82 Introductory.98.83(c-f) ..................................................................... Revised ...................................................................... 98.83(c-f).98.83(g) and (h) .......................................................... Removed.



98.83(i) ........................................................................ Redesignated, Revised .............................................. 98.83(g).Added ......................................................................... 98.83(h).Added ......................................................................... 98.84.

98.90(e) ....................................................................... Revised ...................................................................... 98.90(e).98.92(a) ....................................................................... Revised ...................................................................... 98.92(a).98.92(b) ....................................................................... Removed.98.92(c) ....................................................................... Revised ...................................................................... 98.92(b).98.92(d) and (e) .......................................................... Redesignated ............................................................. 98.92(c) and (d).

Added ......................................................................... 98.92(e).

Subpart A—Goals, Purposes andDefinitions

Goals and Purposes (Section 98.1)

This section of the regulationsincludes at § 98.1(a) the goals for theChild Care and Development Fund(CCDF) contained in section 658A of theamended CCDBG Act.

Comment: Two commenters suggestedthe goals include a requirement forparental choice rather than the referenceto a promotion of parental choice.

Response: The goal at § 98.1(a)(2) usesthe language of section 658A of theamended CCDBG Act which is ‘‘topromote parental choice.’’ This goal isoperationalized by other requirements.Lead Agencies which opt to providecare through grants and contracts in thestate child care program are alsorequired to provide certificates toparents seeking child care. Additionally,Lead Agencies are to include in theirprograms a broad range of child careproviders, including center-based care,family child care, in-home care, careprovided by relatives and sectarianchild care providers.

Comment: Two commenters suggestedgoal one include a reference to planningfunctions as well as program and policyfunctions.

Response: Goal one is stated in thestatute as ‘‘to allow each Statemaximum flexibility in developingchild care programs and policies thatbest suit the needs of children andparents within such State.’’ Althoughwe agree with the commenter on theimportance of planning, we believe thegoal at § 98.1(c)(4) of this regulationalready discusses planning for deliveryof services. Furthermore, the discussionat § 98.14 reflects our belief in theimportance of the planning function inthe administration of the CCDF withina State.

Comment: One commenter suggestedgoal five be altered to reflect that health,safety, licensing and regulationsstandards are established by state lawand regulations.

Response: Goal five of the statutealready states ‘‘to assist States inimplementing the health, safety,

licensing and registration standardsestablished in State regulations.’’

Comment: One commenter cited oneof the stated purposes of the CCDF is toincrease quality of child care services.This commenter believed this termshould be defined through reference tospecific standards of quality, such as theNational Association for the Educationof Young Children (NAEYC)accreditation standards.

Response: We have chosen to notdefine quality child care in theseregulations beyond the language foundin section 658G of the Act.

Definitions (Section 98.2)

We adopted the following changes forthis section: an updated definition ofthe Child Care and Development BlockGrant Act; an amended definition of achild care certificate reflecting its use asa required deposit for child careservices; and an amended definition ofrelative child care provider whichincludes great grandparents and siblings(if living in a separate residence) asrelative providers.

We substituted the term ‘‘Child Careand Development Fund (CCDF)’’ for‘‘Block Grant’’ and also defined theconstituent parts of the CCDF:Mandatory Funds, Matching Funds,Discretionary Funds, and TribalMandatory Funds.

In light of the new section 6580(c)(6)of the Act which allows Tribes to useCCDF funds for construction andrenovation of child care facilities, wealso adopted these terms: construction,facility, major renovation, modular unit,and real property.

As proposed, we have replacedseparate terms for ‘‘Grantee’’ and ‘‘LeadAgency’’ with the single term ‘‘LeadAgency.’’ We did this for a number ofreasons. First, there was not ameaningful difference between thoseterms. Second, we wished to removeany ambiguity that could result from theuse of two different terms. Third, wewanted to emphasize the streamlinedadministration of all child careprograms in a State that resulted fromPRWORA. We believe that use of theterm ‘‘Lead Agency’’ conveyed that

sense of unified and expandedresponsibility better than the term‘‘Grantee.’’ Lastly, we wanted to avoidany confusion that could arise when theState uses subgrantees in implementingthe CCDF. We have replaced the specificterm ‘‘Grantee,’’ as formerly defined,with ‘‘Lead Agency’’ throughout theseregulations, although there remain someinstances where the word ‘‘grantee’’appears in its common usage. In thesefinal regulations, we also corrected thedefinition of Lead Agency to include allparts of the definition of grantee whichwere inadvertently omitted in theproposed rule.

Comment: Some commenters on thissection questioned definitions for whichno changes had been proposed. Forexample, commenters questioned thedistinction between a ‘‘child careprovider that receives assistance’’ andan ‘‘eligible child care provider’’ as wellas why the definitions for variousproviders were based on the location ofthe care provided (e.g., in-home care)rather than the nature of the care (e.g.,formal vs. informal), or was based onthe number of providers present (e.g.,group home child care provider).

Response: Because no changes wereproposed for the terms questioned bythe commenters, we refer them to thepreamble discussion for those terms inthe final rule of August 4, 1992. Webelieve that explanation, found at 57 FR34359, adequately addresses theirspecific concerns. Our position, like thedefinitions themselves, remainsunchanged.

Comment: One commenter wanted usto clarify that minor remodeling, withinthe limits set forth in the Act, does notfall under the definition of majorrenovation.

Response: Section 98.54(b)(1)provides that States and others may useCCDF funds for minor remodeling. But,rather than create a separate definitionfor minor remodeling, State LeadAgencies may assume that animprovement or upgrade to a facilitywhich is not specified under thedefinition of major renovation adoptedin this rule may, by default, beconsidered a minor renovation and,


therefore, is allowable under the Act.Lead Agencies are cautioned of thedistinctions at § 98.54(b)(1) and§ 98.54(b)(2) between minor renovationsthat are permissible for sectarianorganizations and those that arepermissible for others.

Comment: Another commenterwanted us to define ‘‘deposit’’ as usedin the definition of child care certificateand suggested several components of adefinition.

Response: Our definition mirrors thelanguage of the Act. We believe that thephrase ‘‘if * * * required of otherchildren’’ is sufficiently limiting of thecommon usage of the word ‘‘deposit’’ asto make the other definitions suggestedby the commenter unnecessary.

Comment: One commenter asked thatwe expand the definition of certificateto include electronic transfers using anATM machine, for example, suggestingthat recordkeeping could be simplifiedand payments to providers made morepromptly.

Response: It is not necessary tochange the definition as suggested. Thedefinition already recognizes that acertificate need not be a check, butcould be an unspecified ‘‘otherdisbursement’’. Electronic transfers maybe considered child care certificates ifthey meet the requirements of § 98.30(c),i.e., issued directly to the parent, of avalue commensurate with the subsidyvalue of other child care services offeredby the Lead Agency, etc.

Comment: A commenter asked thatthe definition of a certificate bebroadened to include a check issued inthe name of both the parent and theprovider, regardless of whether it is sentdirectly to the parent or provider.

Response: It is unclear why thischange was suggested. A check (or otherdisbursement) issued in the name ofboth the parent and the provider wouldmeet the existing definition. The criticalelement is that parents can use such adisbursement with any child careprovider they choose. If the commenteris suggesting that the parent be limitedto only the named provider(s), whichthe parent may not have chosen, then itis not a ‘‘certificate’’ within the meaningof the Act.

Comment: One commenter observedthat we had not proposed a definition of‘‘special needs child’’.

Response: The Lead Agency hascomplete flexibility to define this term.It should be noted that the Lead Agencymay define the term differently forpurposes of prioritizing under § 98.44(b)from the definition it uses for purposesof payment rates as discussed at § 98.43.The use of the term is unchanged sincethe 1992 rule and we are unaware of the

need to regulate a definition for ‘‘specialneeds child’’ now.

Comment: One commenter thoughtthat our definitions somehow limited‘‘informal’’ care to only that careprovided in the child’s own home (i.e.,in-home care) and that this reducedneeded Lead Agency flexibility as wellas limited a family’s options.

Response: We assume that thecommenter understood the regulationsto allow unregulated care only if it isprovided in the child’s own home.There is no such restriction in theseregulations, nor has there been such arestriction in the past. Any child carethat is legal in a jurisdiction, includingcare that the jurisdiction chooses not toregulate, is an option available underthe Act, provided the requirementsdesigned to protect the health and safetyof the child are also met.

Comment: One commenter observedthat the definition of relative is toonarrow and that it would exclude somerelatives as defined in some NativeAmerican cultures, for example, the‘‘hanai’’ system in Hawaii, where familyis informally ‘‘adopted’’ or related.

Response: Any relative who meetsapplicable state and local requirements,if any, may provide care, not just thoselisted in our definition. The definitionis statutory and is provided solely forthe purpose of identifying thoserelatives who may be exempted—but,only if the Lead Agency chooses toexempt them—from the health andsafety requirements at § 98.41. Thedefinition was not created to limit whomay provide care.

Comment: Finally, a commenter notedthat a definition for ‘‘tribalorganization’’ was no longer included inthis section.

Response: The PRWORA amendmentsbroadened the definition of ‘‘tribalorganization’’ to include the following‘‘other organizations’’: (1) A NativeHawaiian organization; and (2) a privatenonprofit organization established forthe purpose of serving youth who areIndian or Native Hawaiian. However,the ‘‘other organizations’’ may onlyreceive Discretionary Funds. Therefore,since not all tribal ‘‘organizations’’ areeligible to receive both parts of theCCDF (Discretionary Funds and TribalMandatory Funds), we initially decidedto omit this definition entirely from thissection and specifically define the newterms for ‘‘other tribal organizations’’ inthe Preamble at § 98.61(c). Thedefinition for tribal organization hasbeen placed back in this section. This isthe same definition used in the priorfinal rule (57 FR 34415, August 4, 1992).Since the ‘‘other tribal organizations’’may only be funded with Discretionary

Funds, they are defined and discussedin the Preamble at Subpart G, Section98.61(c).

Subpart B—General ApplicationProcedures

Lead Agency Responsibilities (Section98.10)

The new statute did not change theresponsibilities of the Lead Agency. Theamended statute at section658D(b)(1)(A), however, expands theCCDF Lead Agency’s ability toadminister the CCDF program throughother agencies. This change broadensthe ability of the Lead Agency toadminister the CCDF program throughgovernmental or non-governmentalentities, not just ‘‘other State agencies’’as provided in the original CCDBG Act.These entities could include localgovernmental agencies and privateorganizations. The new statute and theConference Agreement report (H.R. Rep.No. 725, 104th Cong., 2d Sess. (1996))are silent regarding whether the non-governmental agencies cited in thisstatutory change must be non-profitorganizations, so ACF has not regulatedon the characteristics of the agenciesthrough which the Lead Agency mayadminister the program.

Comment: One Lead Agency askedwhether the ability to administer theprogram through other non-governmental agencies meant that theState child care advisory council couldhave a stronger role in setting standards.

Response: The regulations have neverlimited Lead Agencies from includingothers in the creation of child carepolicy or the setting of State standardsfor child care. However, § 98.11(b)(2)and (8) provide that the Lead Agencyshall continue to promulgate rules andregulations governing the overalladministration of the program and thatall agencies and contractors thatdetermine individual eligibility shall doso according to the rules established bythe Lead Agency.

The change in the regulation is toallow entities other than the LeadAgency to administer the day-to-dayoperation of the program.

Comment: Another Lead Agencyasked us to delete the requirement at§ 98.10(c) which requires consultationwith local governments. Barring that,they asked for definitions of‘‘appropriate representative’’ and ‘‘localgovernment’’.

Response: Congress created therequirement for the Lead Agency to‘‘consult with appropriaterepresentatives of units of generalpurpose local government’’ at section658D of the Act, and hence it can not


be deleted. As States and localitiesdiffer greatly in their governmentalstructures, we believe it is inappropriateto attempt to offer all-encompassingdefinitions for these terms. A LeadAgency may wish to consult its legalcounsel if it is unable to determinewhom it should consult with to meetthis statutory requirement.

Administration Under Contracts andAgreements (Section 98.11)

Under the latest statutoryamendments, the Lead Agency remainsthe single point of contact and retainsoverall responsibility for theadministration of the CCDF program.We have amended this section,however, to reflect the statutory changediscussed at § 98.10 regarding the LeadAgency’s additional flexibility toadminister the program through othergovernmental or non-governmentalagencies.

Further, since we made revisionscorresponding to the addedadministrative flexibility granted to theLead Agency, we also wanted to alignthe wording of this section more closelywith the statute concerning the overall,lead responsibility of the Lead Agency.Thus, we have re-worded theparagraphs in this section that suggestedthat the Lead Agency ‘‘shares’’administration of the program withother entities, because the relationshipbetween the Lead Agency and otherentities through which it administersthe CCDF is not co-equal.

Comment: One commenter wanted usto delete the requirement at § 98.11(b)(2)requiring the Lead Agency to‘‘Promulgate all rules and regulationsgoverning overall administration of thePlan’’ contending that when the CCDFis administered through other entities itshould be up to the other agency topromulgate the rules for that part whichit is administering.

Response: We do not agree that thisprovision should be deleted. The LeadAgency is ultimately responsible for theprogram irrespective of who administersthe day-to-day operations. And, it is theLead Agency against whom penaltieswill be assessed even if caused byactions of a subgrantee. It is because wehold the Lead Agency accountable thatthe provisions in § 98.11 exist.

The requirement for the Lead Agencyto promulgate rules does not precludesubgrantees from suggesting, or evencreating the policy and procedures bywhich the program or a part of theprogram operates. However, thosepolicies and procedures must be issuedunder the auspices (i.e., promulgated) ofthe Lead Agency to ensure that theyconform with the requirements of the

Act and regulations, and the programdescribed by the Lead Agency in thePlan it submits to ACF.

Coordination and Consultation (Section98.12)

Section 658D(b)(1)(D) of the Actrequires the Lead Agency to coordinatethe provision of CCDF child careservices with other Federal, State, andlocal child care and early childhooddevelopment programs. Coordination iscrucial to the successful implementationof child care programs and qualityimprovement activities. The regulationat § 98.12(a) also requires the LeadAgency to coordinate its child careservices with the specific entitiesrequired at § 98.14(a) to be involved inthe CCDF Plan development process:Temporary Assistance for NeedyFamilies (TANF), public health,employment services, and publiceducation.

The statutory changes underPRWORA significantly heighten theneed for enhanced coordinationbetween TANF and child care. TANFimposes increased work requirementsboth regarding the number of TANFfamilies participating in work and thenumber of hours they must work. At thesame time, the guarantee of child carefor families who are in work orapproved education and training andguaranteed Transitional Child Careassistance were eliminated whenPRWORA repealed the title IV–A childcare programs.

Moreover, PRWORA provides newchild care funding. It gives the CCDFLead Agency administrative oversightover both the new funds and the fundsauthorized under the amended ChildCare and Development Block Grant Act.The law requires that States dedicate 70percent of these new funds to the childcare needs of families that receiveassistance under a State program underPart A of title IV of the Social SecurityAct, families that attempt through workactivities to transition from suchassistance, and families that are at riskof becoming eligible for such assistance.Under the new law, Tribes also receiveadditional child care funds and have theoption to operate TANF programs.Tribes that operated tribal programsunder the now-repealed JobOpportunities and Basic Skills Training(JOBS) program, may continue tooperate work programs under the newlycreated Native Employment Worksprogram (NEWP). Considered together,these changes present both anopportunity and a challenge for LeadAgencies to serve the child care needsof TANF families.

It is extremely important that childrenand their families are linked to a systemof continuous and accessible health careservices. An ongoing Departmentalinitiative encourages the linkagebetween child care and health care. InMay 1995, Secretary Shalala initiatedthe Healthy Child Care AmericaCampaign, which encourages States andlocalities to forge linkages between thehealth and child care communities.Recognizing the mutually beneficialroles, we require that the Lead Agency,as part of its health and safetyprovisions, assure that children insubsidized care be age-appropriatelyimmunized. We believe that childrenwill benefit substantially from thisenhanced linkage between child careand health services.

Employment is the goal for mostTANF families and employmentservices are critical to the low-incomeworking families served by the CCDF.Therefore, it is only prudent that theLead Agency coordinate with thoseState agencies that are responsible forproviding employment andemployment-related services. But childcare is also emerging as an importantworkforce development issue for theentire population. As such, we believethat Lead Agencies should undertakepolicies that support and encouragepublic-private partnerships thatpromote high quality child care.

Linkages with education agencies arecrucial to leverage additional servicesand enhance child development. Oneimportant aspect of this linkage is therole played by public schools as acritical on-site resource for child care.Although PRWORA repealed section658H of the Child Care andDevelopment Block Grant Act, whichdirectly addressed before- and after-school child care, in the budget forfiscal years 1997 and 1998 Congressnevertheless set aside $19 millionspecifically to use for before- and after-school child care activities and childcare resource and referral. We, therefore,believe that the repeal of section 658Hshould not result in a lessening ofcoordination with before- and after-school programs. We have includedrequirements to coordinate with publiceducation agencies, both for the purposeof child care planning and development,as well as for more general coordinationinitiatives.

Aside from requiring Lead Agencycoordination with specific entitiesdiscussed above, we also stronglyencourage coordination with otheragencies with potential impact on childcare, including: Head Start collaborativeoffices, child support, child protectiveservices (especially when the Lead


Agency chooses to include childrenreceiving protective services among thefamilies eligible for CCDF subsidies),transportation, National Service, andhousing.

The Head Start comprehensive modelof health, parent involvement, familysupport and education, when linkedwith child care, can provide parents andchildren with quality comprehensivefull day/full year services. Promisingmodels that fund Head Start-eligiblechildren in community-based child careprovided in child care centers andhomes are emerging across the country.We encourage Lead Agencies to exploreand support such efforts.

Partnerships with National Serviceprograms present promisingopportunities for collaborations that canexpand and enhance child care for bothyoung children and school-agedchildren. National Service programshave developed several effective andreplicable models for providing thetools and skills necessary to build thecapacity and sustainability of local childcare programs, involving parents andcommunity volunteers in child careactivities, and enlisting private sectorparticipation in meeting communityneeds, including child care.

The availability of transportation iskey to enabling families to access childcare services and, ultimately, work.Coordination with transportationagencies and planning groups canensure that child care facilities arelocated near major transportation nodesfor easier access and that systems ofpublic transportation support travelpatterns of low-income workers.Alleviating transportation difficultiesfor child care cuts down on travel timeand stress, and allows parents to focuson achieving self-sufficiency throughwork and education.

Child care and child supportenforcement programs serve many of thesame families and have a sharedmission—to promote self-sufficiency offamilies and the well-being of children.As a result, we encourage collaborativeoutreach initiatives between theseprograms. For example, child careprograms can disseminate informationto parents about paternity establishmentand child support enforcement. We alsoencourage the two programs tocoordinate on policy issues. Forexample, the programs have a commoninterest in assuring that the Stateguidelines used to calculate childsupport awards adequately consider thecost of child care.

Coordinating with housing agencies iscrucial for the millions of TANFrecipients and low-income workers whoreceive child care subsidies and reside

in public housing. Locating child carefacilities in or near public housingmakes services more accessible, and canprovide parents with a more stable andfamiliar environment for their children’scare. Lead Agencies can work withpublic housing authorities to identifyopportunities where co-located housingand child care can serve as anemployment or entrepreneurial strategy,and a support service for residents.

We also wish to highlight that theregulation at § 98.12(c), which requiresStates to coordinate, to the maximumextent feasible, with any Indian Tribesthat receive CCDF funds has newmeaning in the context of the changesmade by PRWORA. As we have notedabove, Tribes are eligible to directlyreceive additional child care funding,and to operate TANF as well ascontinue to operate work programs(NEWP)—if the Tribe operated a JOBSprogram in 1994. Nonetheless, the newlaw did not amend section 6580(c)(5),which specifically provides tribalchildren with dual eligibility for bothtribal and State child care programsfunded under CCDF. A broad range ofoptions for implementing and designingprograms is available to both States andTribes. States and Tribes, therefore,have a mutual responsibility toundertake meaningful coordination indesigning child care services for Indianfamilies.

Comment: A few commenters thoughtthat our coordination requirement wasstatutorily unfounded or unnecessarybecause it may fail to include the mostcritical partnerships.

Response: It seems unlikely that aCCDF program could successfully meettwo of the goals of the Act—providingchild care to parents trying to achieveindependence from public assistance,and assisting States in implementingState health, safety and licensingstandards—without involving, at aminimum, the additional agenciesadded at § 98.14 in this rule. In fact,since the inception of the program, wehave been told by Lead Agencies andthe public that coordination withFederal, State, and local child care andearly childhood development programs,and the four additional agencies listedis critical to the ongoing successfuldelivery of quality child care in a State.This requirement recognizes that thecoordinative process helps maximizeexisting resources and avoid duplicativeefforts which can result in more positiveoutcomes for the families and childrenserved by all of the programs involved.

Comment: A number of commenterssuggested other agencies with which theLead Agency should be required tocoordinate, for example, representatives

of the American Academy of Pediatrics,the National Association for theEducation of Young Children, the Statespecial education preschool programadministrator, the early interventionlead agency, and the child welfareagency, among others.

Response: Many Lead Agenciesalready collaborate with some or all ofthe agencies suggested and weencourage others to do so as well.However, we do not believe it isprudent to expand the coordinationrequirement at § 98.14 to include thoseentities with whom many LeadAgencies are already voluntarilycollaborating. We kept our required listto a critical core of agencies. This is notintended to diminish the importance ofother collaboration efforts. It would notbe reasonable to create an all-inclusivelist of potential collaborative agencies.We have confined the regulations to thecore required collaboration.

Comment: Several commenters askedif our intention was to limitcoordination only to governmentalentities. In this regard, others asked thatthe reference to the public educationagency be expanded to specificallyinclude private and sectarian schoolsand early education programs.

Response: Our requirement recognizesthat the impact for the greatest numberof families is likely achieved bycoordination at the State level. Theregulation attempts to maximize thecoordination by including thoseagencies whose activities impact most ofthe eligible or potentially eligiblefamilies in a State. It is not ourintention, however, to limitcoordination to only governmentalentities. And, we encourage LeadAgencies to coordinate with private andsectarian schools and early educationprograms, especially since suchinstitutions and programs are alreadyutilized by many families.

Comment: One commenter thoughtthat use of the phrase ‘‘at a minimum’’in § 98.14(a) weakens the intent ofbroader coordination with additionalentities.

Response: We agree and havereworded the regulation.

Applying for Funds (Section 98.13)The requirements for Tribes applying

for funds have been moved to SubpartI and are discussed there. We haveseparated the tribal requirements inorder that the discussion of tribalrequirements may be more focused andcoherent.

We simplified the application processfor States and Territories in order toreduce the administrative burdens ofduplicative information requests and to


provide budget information in the CCDFPlan, which is a public document.Heretofore, the regulations required anannual ‘‘application,’’ separate from thePlan. This separate applicationindicated the amount of fundsrequested, broken down by proposeduse (e.g., direct services, administration,quality activities, etc.). A Plan thatdescribes the entire child care programin detail is also required, but only onceevery two years. In the past, the Plandid not provide a ‘‘fiscal context’’ forthe program, since it does not includebudgetary information.

In the past, the separate applicationrequested extensive budget information,largely due to the requirements relatedto the now-discontinued 25 percentsetaside of funds for quality and supplybuilding. Because we knew that thebudget data was preliminary, we hadnot required its inclusion in the Plan ormade it subject to the complianceprocess. More importantly, the budgetinformation was not subject to thepublic hearing process.

We believe that the Lead Agency, insetting the goals and objectives of theprogram and in determining how toachieve them, must consider theallocation of funds, as well as theprogram and administrative activitiesthat will be undertaken. We also believethat public knowledge of how fundsmight be allocated among activities andeligible populations is critical to theplanning process. Therefore, we arerequiring the Lead Agency to include inits Plan an estimate of the percent oramount of funds that it will allocate todirect services, quality activities, andadministration. These estimates are forthe public’s consideration in the hearingprocess; they will not be used to awardfunds. At § 98.13(a) we have retainedthe requirement that the Lead Agencyapply for funds. The ACF–696 is theformal vehicle for providing estimates toACF for the purpose of awarding funds.We intend to use the financial formACF–696 to fulfill this requirement, sothat the need for a separate applicationis obviated.

The Plan estimates will be macro-level estimates. That is, the Plan willreflect an estimated amount (orpercentage) of funds that the LeadAgency proposes to use for: all directservices, for all quality activities and foradministration. We will not ask thatthese estimates be broken down intosubcategories as we had in the separateapplication.

Comment: One commenter objected tothe use of estimates thinking that theform for formally requesting funds fromDHHS, which replaces the application

process, was at least two years frombeing utilized.

Response: That form, the ACF–696,was under OMB review when theproposed rule was published and hassince been approved and is already inuse.

Comment: Although our proposal torestructure the application processreceived almost universal support, somecommenters wanted assurances thatStates would not be held accountable ifestimates are incorrect as a result offuture policy or budget changes.Another commenter wanted us torequire that future Plans include acomparison between the amountsestimated in prior Plans with the actualexpenditures for those periods.

Response: As we said in the proposedrule, we recognize that these areestimates and, as such, will not besubject to compliance actions. Similarly,approval of a Plan will not be withheldbased on the Lead Agency’s allocationof funds among activities, unless thePlan indicates that the requirements foradministrative cost or qualityexpenditures will be violated.

We considered the suggestedrequirement to compare past estimateswith actual expenditures for the sameperiod but rejected it for a number ofreasons. First, such a requirementwould call into question our assertionthat the estimates supplied in the Planare, in fact, estimates and that ACF willnot take compliance actions based onthem. Second, because expenditureperiods for funds overlap Plan periodsa full statement of actual expenditureswould not be forthcoming until severalyears after the original estimate, whenthe persons responsible for the estimatesmay no longer be in a position to be‘‘accountable’’ to the public for thoseestimates. Lastly, interested parties canalways request that the Lead Agencymake public its spending on variousactivities. In any event, the Lead Agencyis already required to provideinformation on the actual use anddistribution of funds to ACF, pursuantto section 658K of the Act.

We continue to request the variouscertifications and assurances that arerequired by other statutes or regulationsand that apply to all applicants forFederal financial assistance,specifically:

• Pursuant to 45 CFR part 93,Standard Form LLL (SF–LLL), whichassures that the funds will not be usedfor lobbying purposes. (Tribalapplicants are not required to submitthis form.)

• Pursuant to 45 CFR 76.600, anassurance (including any required

forms) that the grantee provides a drug-free workplace.

• Pursuant to 45 CFR 76.500,certification that no principals havebeen debarred.

• Assurances that the grantee willcomply with the applicable provisionsregarding nondiscrimination at 45 CFRpart 80 (implementing title VI of theCivil Rights Act of 1964, as amended),45 CFR part 84 (implementing section504 of the Rehabilitation Act of 1973, asamended), 45 CFR part 86(implementing title IX of the EducationAmendments of 1972, as amended) and45 CFR part 91 (implementing the AgeDiscrimination Act of 1975, asamended).

Section 98.13 requires the LeadAgency, not the Chief Executive Officer,to supply the requested information.Since the Chief Executive Officerdesignates the Lead Agency, we feel thatit is unnecessary for the Chief ExecutiveOfficer to thereafter apply for fundingeach year. This change gives granteesthe flexibility to simplify theapplication process further.

In summary, the CCDF applicationprocess for States and Territoriesconsists of the two-year CCDF Plan asrequired in § 98.17 and such otherinformation as may be specified by theSecretary. For the second year of thePlan, the Lead Agency uses the ACF–696 to provide ACF with its estimates offunds needed quarterly—there is nolonger a separate ‘‘application’’ neededfrom States and Territories in thesecond year of the Plan period.

Comment: One commenter objected todiscontinuing the separate applicationbecause it contained information on themix of certificates and grants/contractswhich could be used to monitor a LeadAgency’s compliance with Section658(c)(2)(A) of the Act concerning theavailability of certificates.

Response: The regulations at § 98.13never required that the Lead Agency’sapplication provide information on theuse of certificates. In the past, policyProgram Instructions requested suchinformation to ensure that LeadAgencies met the statutory requirementto provide certificates. This wasnecessary because some Lead Agencieshad never provided certificates prior tothe CCDBG Act and the Act required allLead Agencies to have a certificateprogram in place by October 1, 1992.ACF looked to the information in theapplication as a indication of the LeadAgency’s compliance with thisrequirement.

In the years since that deadline,certificates have become an integral partof every Lead Agency’s program, in factmany State programs are totally


certificate-based. We are satisfied thatall Lead Agencies are in conformitywith this provision of the Act. It shouldbe noted that Lead Agencies arerequired to report to ACF the actualnumbers of children receivingcertificates per § 98.71(b)(2).

Plan Process (Section 98.14)Section 658D(b) of the Act requires

the Lead Agency in developing the Planto: (1) Coordinate the provision ofservices with Federal, State and localchild care and early childhooddevelopment programs; (2) consult withappropriate representatives of localgovernments; and (3) hold at least onehearing in the State with sufficient timeand statewide notification to provide anopportunity for the public to commenton the provision of child care services.

In amending the CCDBG Act torequire that the Lead Agency provide‘‘sufficient time and Statewidedistribution’’ of the notice of hearing,Congress established a higher standardfor public comment than previouslyexisted in the Act. Affording the publica meaningful opportunity to commenton the provision of child care servicesadvances public participation, LeadAgency accountability and the overallgoals of welfare reform. Accordingly, wehave established a minimum 20-daynotice-of-hearing requirement at§ 98.14(c). That is, the Lead Agencymust allow a minimum of 20 days fromthe date of the statewide distribution ofthe notice of the hearing before holdingthe hearing. Many Lead Agencies haveongoing planning processes with broadcommunity involvement that conveneregularly during the year. We applaudsuch broad participatory approaches asthey are especially responsive tochanging needs and these approachesmay fulfil the requirements of § 98.14.

Comment: Some commenterspreferred the previous requirement for‘‘adequate notice’’ for public hearingsand were unaware of problems orinadequacies of that process. Othersargued for a longer notice period and arequirement for additional hearings in aState.

Response: Congress clearlyenvisioned something different from theexisting ‘‘adequate notice’’ processwhen it amended the Act to require‘‘sufficient time and statewidedistribution’’ of the public hearingnotice. We also have received reportsthat some Lead Agencies provide suchshort notice of hearings as to effectivelypreclude broad public participation.

In the interest of State flexibility, wehave established only a minimumamount of time—20 days—that thepublic should be notified of the hearing.

However, we encourage Lead Agenciesto consider providing longer lead timesthat would allow the public more timeto prepare for hearings, especially whenonly a single hearing is held in theState. Although the Act requires theLead Agency to hold only one publichearing, the Lead Agency may, ofcourse, hold additional public hearings.Because of technological changes whichmight allow for public comment via theInternet or linking sites across a Statevia satellite, we have not regulated anadditional number of hearings that mustbe held since Lead Agencies may findother approaches for public input thatare equally effective and less costly thanadditional hearings.

As stated in the proposed rule, weconsidered establishing regulationsaround the newly added statutorylanguage that requires ‘‘statewidedistribution of the notice of hearing.’’Clearly, the expanded Child Care andDevelopment Fund potentially impactsa much wider segment of the populationthan may have been the case under theCCDBG. In light of the stronger statutorylanguage about public hearings, weconsidered, for example, a regulation torequire the Lead Agency to employspecific media in publicizing its hearingor to ensure that specific portions of thepopulation be potentially exposed to thehearing notice.

We rejected these and otheralternatives as restricting Stateflexibility. Nevertheless, we remainconcerned that some Lead Agencies maynot respond to the heightened statutoryrequirement. We, therefore, require theLead Agency to describe how itachieved statewide distribution of thenotice of hearing in its description ofthe hearing process required in the Planby § 98.16(e). We received no commentson this proposal.

Similarly, we have not established aspecific requirement concerning writtencomments from the public as suggestedby some commenters. We believe,however, that a meaningful publiccomment process must consider writtencomments from persons ororganizations, especially those who areunable to attend a hearing.

At § 98.14(c)(2) we require that thepublic hearing be held before the Planis submitted to ACF, but no earlier thannine months prior to the effective dateof a Plan. We recognize that States mayhave established public commentmechanisms that coincide with theirbudgetary cycle but not within ourusual time frames for public hearingsand Plan submittal. Therefore, we wishto clarify our intention in this area.

ACF does not believe that the publichearing is held for the purposes of

‘‘approving’’ the Plan as it will besubmitted, but rather to solicit publiccomment and input into the servicesthat will be provided through the CCDF.For this reason, we have created aflexible process that does not create anundue burden on Lead Agencies, yetinsures that the statutorily requiredpublic input is obtained.

The Plan that is submitted to ACFmust reflect the program that will beconducted and must incorporate anychanges to the program that the LeadAgency chooses to adopt as a result ofthe input received during the publichearing. We advise the Lead Agency toretain a copy of the draft Plan that itmade available for public comment infulfillment of this requirement. We alsoremind Lead Agencies that substantivechanges in their programs, after theirPlans are submitted to ACF, must bereflected by amending the Plan per§ 98.18(b).

Comment: A few commenterssuggested that the Lead Agency berequired to specifically respond tocomments raised at the public hearingor at least to those comments on thePlan that are submitted in writing,others suggested that the Lead Agencybe required to provide a summary of allcomments received on the Plan.

Response: We decline to require LeadAgencies to summarize or respond tocomments received during the publichearing process. The Act does notsuggest such a requirement and it isunclear what would result from it. Wealso believe that this would be anespecially resource-intensive activity forthe Lead Agency which would notnecessarily further the goals of the Act.

Comment: Some commenters objectedto any regulation around public inputstating that they had ongoingmechanisms for coordination or input,such as quarterly child care steeringcommittee meetings, others felt that aState legislative or budget hearingwould fulfill the requirement. Stillothers argued that the public hearingsare poorly attended or not helpful.

Response: At section 658D(b)(2) of theAct, Congress clearly ties together thehearing and the State Plan with theexpectation that the public be affordedan opportunity to comment on thecontent of that Plan. The Act requires ahearing ‘‘to provide the public anopportunity to comment on theprovision of child care services underthe State plan.’’

Ongoing mechanisms, such as thosesuggested by the commenters may, infact, meet the requirements of the Actwhen they allow for the public tocomment on the provision of servicesunder the State Plan. Some legislative


oversight or budget hearings, incontrast, may not meet this statutoryrequirement if they do not allow forpublic comment (i.e., the public is notafforded an opportunity to comment aswhen only the State Administrator orlegislators are allowed as witnesses).Similarly, a single state budget hearingheld for the purpose of discussing theentire State budget may not afford anyopportunity to specifically address childcare services in the State, especially inthe detail set forth in the Plan, asrequired by the Act. It is not theauspices under which the hearing isheld that is important, but whether thehearing allows for the necessary publicinput required by the Act.

Regarding attendance or participationat public hearings in the past, webelieve that public hearings, designedfor broad public participation and heldwith sufficient notification cannevertheless become meaningful forumsfor State child care policy discussions,especially in future years.

Comment: A few commentersobjected to the requirement that thehearing be held no earlier than 9 monthsprior to submission of the Plan to ACFas unnecessarily prescriptive.

Response: We maintain that therequirement that hearings be held noearlier than 9 months before the Plan issubmitted to ACF is a balancedapproach which allows the Lead Agencyto conduct its hearing up to a full yearin advance of the effective date of thePlan. Allowing complete latitude insetting the date for the public hearingmight make the hearing requirementless meaningful and creates adisconnect—the further from theeffective date of the Plan that thehearing is held.

Comment: A number of commentersargued that the child care Plan must bemade available before the public hearingis held for there to be meaningful publicinput. They suggested varioustimeframes and formats for makingPlans available.

Response: We agree that meaningfulpublic comment on the ‘‘provision ofchild care services under the State plan’’as required by the Act is hampered, ifnot impossible, without knowledge ofthe contents of that Plan. For example,the Act now requires the Lead Agencyto provide ‘‘detailed descriptions’’ ofvarious child care policies such asparental access, parental complaints,and payment rates among others. Inorder to meaningfully comment, thepublic must know what those policiesare. We believe this can only beaccomplished by providing the publicwith the Plan that the Lead Agencyproposes to submit to ACF. Therefore, at

§ 98.14(c)(3) we are requiring that theLead Agency make the Plan available inadvance of the required hearing.

We decline to regulate on thetimeframes or formats for making thePlan available to the public but remindLead Agencies of their obligations underthe Americans with Disabilities Act foraccessibility of public information.

Comment: One commenter asked forflexibility in the format of the Plan thatis to be submitted to the public inadvance of the hearing suggesting thatvarious topics such as parent fees,eligibility and payments rates bepresented, but not necessarily in theformat of the preprint that ACF requires.

Response: We agree that the Plan thatis presented in advance of the publichearing need not be in the format of thepreprint. However, as a practical matter,this may be the easiest format for theLead Agency to use. That is because theAct requires comments on child careservices under the ‘‘State plan’’—therequirements for which are outlined at§ 98.16. As long as all of the elementsof the Plan as described at § 98.16 areprovided in advance of the hearing, thenthe requirement is satisfied. We notethat many of the Plan elements, such asmost of the newly statutorily-required‘‘detailed descriptions’’ probably willnot change from Plan to Plan, hence thepreprint format may not be asburdensome as the commenterimagines.

Comment: A number of commentersopposed having amendments to the Plansubject to the public hearing. They alsoobjected to applying the hearingrequirement to those Plans which wereto become effective on October 1, 1997.

Response: The proposed rule neitherrequired nor suggested that Planamendments are subject to a publichearing. As has been the policy sincethe inception of the program, this finalrule also does not require a publichearing for amendments to approvedCCDF Plans. Although an amendment tothe Plan is not subject to the Federalregulatory hearing requirement, werecognize that State rules or LeadAgency practice may, nevertheless,require a hearing or public commentperiod or both.

The preamble to the proposed ruleprovided that the new CCDF Plans dueto ACF in 1997 were subject to thestatutory requirements—not theproposed regulatory requirements—for ahearing i.e., at least one hearing withsufficient time and statewidedistribution of the notice. Although thatissue is now moot we wish to reiteratethat both the public hearing and thecoordination and consultation processesmust be undertaken each time the entire

Plan is required to be submitted. Theregulations provide that the entire Planis only required to be submitted at thebeginning of each Plan biennium.

As discussed above at § 98.12, webelieve that ongoing coordination andconsultation processes are vital to thedesign of a successful program.Therefore, at § 98.14(a) we haveincluded a minimum list of Stateagencies with which the Lead Agencymust coordinate the provision ofservices under the CCDF.

The requirement to coordinate withspecific agencies includes a provisionthat the Lead Agency describe the‘‘results’’ of the coordination. In theproposed rule, we did not elaborate onthis requirement as we thought it self-evident. Because we did not givecontext to this requirement, somecommenters ascribed purposes orexpectations that we did not intend.Therefore, we wish to elaborate on thispart of the coordination requirement.

Prior to this rule Lead Agencies wererequired to provide a ‘‘description’’ ofthe coordination and collaborativeprocesses they engaged in during thepreparation of the State Plan. Thisdescription in the Plans, however, wasfrequently merely a list of agencies withwhich the Lead Agency had met. Oftenthese descriptions did not change overlong periods, or the dates of themeetings listed remained unchangedfrom Plan to Plan. The ‘‘description’’gave the impression that there was littleprogress resulting from the coordinativeefforts of the Lead Agencies—that littlewas happening. We knew this to be aninaccurate picture.

The Plan is not just a publicdocument describing the State’sapproach to child care for the purposeof its hearing process. It also serves asa guide for other Lead Agencies aboutpromising practices, differentapproaches to common problems andcan be an indicator of issues that othersmay face in the future. Because of themultiple uses of the State Plan, wewanted the ‘‘description’’ of thecoordinative effort to more accuratelyreflect what we knew was the reality inthe States. No other purpose iscontemplated or intended in asking thatthe Plan reflect the ‘‘results’’ of thecoordination activities.

We recognize that coordination maynot have quantifiable results, especiallyin the short term. Because coordinationis an ongoing process, an explanation ofthe intended outcomes of a LeadAgency’s current and plannedcoordination activities would be anappropriate ‘‘results’’. Similarly, acompilation of the useful lessonslearned from the coordination activities


would meet our intent in asking that the‘‘results’’ be described in the State Plan.

Additional comments relating to thecoordination and consultationrequirement and processes areaddressed in the discussion at § 98.12

Assurances and Certifications (Section98.15)

The PRWORA amendments made anumber of changes to the assurancesunder the CCDBG. In several instancesthe term ‘‘assure’’ was replaced by theterm ‘‘certify.’’ Also, as described below,the amendments changed the content oftwo of the former assurances and someassurances were eliminated.

While ACF believes that there is nopractical difference between anassurance or certification, when both aregiven in writing, we have grouped theassurances together at § 98.15(a) and thecertifications together at § 98.15(b).

Regarding specific substantivechanges, the new section 658E(c)(2)(D)of the Act replaces the former assuranceregarding consumer education. Thecorresponding regulatory amendment at§ 98.15(b)(3) uses the statutory languagerequiring the Lead Agency to certify it‘‘will collect and disseminate to parentsof eligible children and the generalpublic, consumer education informationthat will promote informed child carechoices.’’

The new section 658E(c)(2)(E) doesnot contain prior language requiringLead Agencies to have in place aregistration process for unregulated careproviders that provided care to childrenreceiving subsidized care under theCCDBG Act. We, therefore, removed theassurance formerly found at § 98.15(i).We note, however, that the Lead Agencyhas the flexibility to continue tomaintain a registration process forproviders if it chooses. This process hasenabled States to maintain an efficientpayment system. In addition it hasprovided a means to transmit relevantinformation, such as health and safetyrequirements and trainingopportunities, to providers who mightotherwise be difficult to reach.

The Act also revises the requirementthat providers meet all licensing andregulatory requirements applicableunder State and local law. The revisedrequirement at § 98.15(b)(4) mirrors thenew statutory language that there be ‘‘ineffect licensing requirements applicableto child care services provided withinthe State.’’

For tribal programs, the amendmentsspecifically provide that, ‘‘in lieu of anylicensing and regulatory requirementsapplicable under State and local law,the Secretary, in consultation withIndian tribes and tribal organizations,

shall develop minimum child carestandards (that appropriately reflecttribal needs and available resources)that shall be applicable to Indian tribesand tribal organizations receivingassistance under this subchapter’’(section 658E(c)(2)(E)(ii)). ACF is in theprocess of arranging those consultations.

The PRWORA deleted requirementsformerly found in the statute at section658E(c)(2)(H), (I), and (J). Theseprovisions, which related to reportingreductions in standards, reviewing Statelicensing and regulatory requirements,and non-supplantation were deleted.

Finally, § 98.15(a)(6) requires thatStates provide an assurance that theyhave not reduced their level of effort infull-day/full-year child care services ifthey use pre-Kindergarten (pre-K)expenditures to meet the MOErequirement. Comments relating to thisassurance, and the use of pre-K in theCCDF in general, are discussed furtherat § 98.53.

Comment: One commenter suggestedstrengthening the certification at§ 98.15(b)(3) by requiring that theconsumer education be providedthrough community-basedorganizations. The commenter alsowanted us to clarify that such consumereducation be made available to thegeneral public throughout the State.

Response: We agree that community-based organizations may, in fact, be thebest way of providing consumereducation as discussed at § 98.33.However, in the interests of Stateflexibility, we decline to limit the LeadAgency’s options so narrowly. We notethat the certification already requiresdissemination of consumer educationmaterials ‘‘to the general public’’ and itis our expectation that such materialsare widely made available and notlimited just to families applying for orreceiving CCDF subsidies.

Comment: Another commenter askedthat the certification at § 98.15(b)(7) beclarified to define equal access as alsomeaning timely payment of the providerby the State. The commenter wanted acertification that payments to providerswould be processed within a state-established timeframe, claiming thatlengthy delays in payment madeproviders reluctant or unwilling toaccept subsidized children, therebyeffecting equal access.

Response: We agree that the LeadAgency should establish timelypayment processing standards for thereasons stated by the commenter.However, there is no statutory basis forrequiring such standards and we declineto change the regulation.

Comment: One commenter noted that§ 98.15(a)(5) contained an incorrectcitation.

Response: We have corrected thecitation to read, ‘‘pursuant to § 98.30(f).’’

Plan Provisions (Section 98.16)We have amended § 98.16 to reflect

changes in the Plan resulting fromPRWORA. For example, we havedeleted the language on registration andthe calculation of base-year level-of-effort previously found at § 98.16(a)(13), (14) and (16). We substituted forthem the statutory requirements for theLead Agency to provide detaileddescriptions of its parental complaintsprocess at § 98.16(m) and its proceduresfor parental access at § 98.16(n).Similarly, we have modified somelanguage to reflect new statutorylanguage. For example, § 98.16(h) nowdiscusses the additional purposes forwhich funds may be used, and § 98.16(l)now requests the summary of facts uponwhich payment rates were determined,including the conduct of a market ratesurvey. Section 98.16(c) has beenexpanded to identify the entitydesignated to receive private donatedfunds pursuant to § 98.53(f). We havealso modified the language at§ 98.16(g)(2) to reflect broader flexibilityconcerning the use of in-home care. Wereceived many comments on theseprovisions. Those comments are moreappropriately discussed in the relatedsections that follow.

We take this opportunity to correctthe wording of § 98.16(j), formerly§ 98.16(a)(10), concerning health andsafety requirements. We have removedthe word ‘‘minimum’’ here since thelegislation contains no suchqualification, nor do our regulationslimit the flexibility to establish suchrequirements. We note that § 98.41remains unaffected by this correctionsince that section did not include theuse of the word ‘‘minimum.’’

We have also required at § 98.16(p)that the Lead Agency include in theCCDF Plan the definitions or criteriaused to implement the exception toTANF work requirement penalties thatapplies when a single custodial parentwith a child under age six hasdemonstrated an inability to locateneeded child care. Among others, thedefinitions or criteria would include‘‘appropriate child care,’’ and‘‘affordable child care arrangements.’’We elaborate on this requirement, andthe many comments received about it,in the discussion of consumer educationat § 98.33.

Finally, § 98.16(q)(1) provides that theLead Agency describe State efforts toensure that pre-K programs, for which


any Federal matching funds areclaimed, meet the needs of workingparents. At § 98.16(q)(2) we codified theprovision found in the preamble of theproposed rule at § 95.53. This sectionprovides that, should the Lead Agencyuse public pre-K funds to meet morethan 10% of either the MOE or theMatching requirements, the Plan willreflect this. The Plan must also describehow the State will coordinate its pre-Kand child care services to expand theavailability of child care when the LeadAgency uses public pre-K funds to meetmore than 10% of either the MOE or theMatching requirements. Theserequirements are discussed at § 98.53.

The Administration on Children willissue appropriate amendments to theState CCDF plan preprint (ACF–118)and the Tribal CCDF plan preprint(ACF–118A) in Program Instructions,which will also provide guidance onwhen Lead Agencies would be requiredto submit amendments. The ProgramInstructions will take into considerationappropriate lead times forimplementation.

Comment: One commenter objected toincluding TANF definitions in the Statechild care Plan because then the childcare Plan would have to be amendedevery time TANF changed itsdefinitions.

Response: Including TANFdefinitions in the child care Plan is notburdensome because those TANFdefinitions are unlikely to changefrequently over the two-year life of thePlan. In any event, changes to the TANFdefinitions would not appear to be a‘‘substantial change’’ in the CCDFprogram. Hence, an amendment to thePlan would not be required as discussedin the preamble to the 1992 rule at 57FR 34367. We repeat that the purpose ofthis provision is for public educationabout the requirements upon, andoptions available to, low-incomeworking parents as discussed in thepreamble at § 98.33.

Comment: Another commenter feltthat States should not have to ‘‘justify’’limits on in-home care in the Plan. Shesuggested that a listing of the limits onin-home care and the policy reasons forthose limits should be sufficient.

Response: We agree. It was not ourintent to make States justify the limitsthey place on in-home care. Rather, wewant the Plan to reflect their basis fordoing so, in order for the public andACF to better understand the State’spolicy. We have accordingly changedthe wording of the regulation. Thepreamble discussion at § 98.30 remainsessentially the same as we did not usethe word ‘‘justify’’ in that discussion of

in-home care, from which the Planrequirement is derived.

Comment: A commenter observed thatthe statute does not require that theLead Agency itself maintain the recordsof substantiated parental complaints,but rather requires the State to maintainsuch records.

Response: We agree and have changedthe wording of § 98.16(m) to reflect therequirement as discussed at § 98.32.

Period Covered by Plan (Section 98.17)

The statute was amended at section658E(b) to eliminate the three-yearinitial period for State Plans. The ruleprovides that all Lead Agencies forStates, Territories, and Tribes mustsubmit new Plans every two yearsbeginning with the Plans for FederalFiscal Years 1998 and 1999.

Comment: One commenter observedthat two years is too short a period formeaningful comprehensive planningand that such a period may not coincidewith State legislative sessions. Thecommenter asked for the ability toprepare longer range plans, such as 3 to5 year plans, with provision for annualupdates.

Response: We agree that a longer planperiod might better suit some LeadAgencies’ planning cycles. However,this requirement is statutory.

Subpart C—Eligibility for Services

A Child’s Eligibility for Child CareServices (Section 98.20)

General eligibility. The amendedstatute at 658P(4)(B) expands thedefinition of ‘‘eligible child’’ to includefamilies whose income does not exceed85 percent of the State median incomefor a family of the same size. Therefore,§ 98.20(a)(2) reflects that change.

We retained the State flexibility at§ 98.20(a)(1)(ii) regarding the option toserve dependent children age 13 andover who are physically or mentallyincapacitated or under courtsupervision. States may elect to servechildren age 13 or older who arephysically or mentally incapacitated orunder court supervision up to age 19, ifthey include the age limit in their CCDFPlan.

Foster care and protective services.Grantees have the flexibility to includefoster care in their definition ofprotective services in their CCDF Plan,pursuant to § 98.16(f)(7), and thusprovide child care services to childrenin foster care in the same manner inwhich they provide services to childrenin protective services.

A child in a family that is receiving,or needs to receive, protectiveintervention is eligible for child care

subsidies if he or she remains in his orher own home even if the parent is notworking, in education or in training. Inthese instances, child care serves thechild’s needs as much or more than theparent’s needs. Likewise, child careservices may also be necessary when achild is placed in foster care. Therefore,if Lead Agencies do not include fostercare in their definition of protectiveservices, they must tie eligibility forCCDF child care of children in fostercare to the status of the foster parent’swork, education or training.

Comment: One commenter suggestedthat the option to include foster carewithin the definition of protectiveservices should be included in theregulatory section.

Response: We agree. Therefore, weamended § 98.20(a)(3)(ii) and§ 98.16(f)(7) to ensure that Statescarefully consider inclusion of thisoption when developing andimplementing their CCDF Plan.

Comment: Most commenters werepleased that children in foster carecould be eligible for child care servicessince many States do not differentiatebetween foster care and child protectiveservices. However, some commentersfelt that we should include foster carein the regulatory definition of eligiblechild so that all children in foster carewould be eligible.

Response: The statute did notspecifically provide for foster care as aneligibility criteria. As states havevarying policies regarding services forchildren in foster care and protectiveservices, we have not included fostercare in the regulatory definition. Ratherwe will allow States flexibility indetermining if, and how, they will servechildren in foster care and protectiveservices. Therefore, a State mustindicate its intention of providing childcare services to children in foster care—on the same basis as children inprotective services—by including fostercare in their definition of protectiveservices in the CCDF Plan.

Comment: Several commentersbelieved that the child’s eligibility forchild care services should not be basedon the income of the foster parents.

Response: States continue to have theflexibility to consider a child in fostercare as a family of one, for purposes ofdetermining income eligibility under§ 98.20, on a case-by-case basis.

Respite care. We further clarified thatrespite child care is allowable for onlybrief, occasional periods in excess of thenormal ‘‘less than 24 hour period’’ ininstances where parent(s) of children inprotective services—including fosterparents where the Lead Agency hasdefined families in protective services to


include foster care families—need relieffrom caretaking responsibilities. Forexample, a child care arrangement bysomeone other than the custodial parentfor one weekend a month to give reliefto the custodial parent(s) of children inprotective services is acceptable. Webelieve that this kind of respite childcare, if necessary for support to familieswith children in protective services,would be an acceptable use of CCDFfunds.

If a State or Tribe uses CCDF funds toprovide respite child care service, i.e.,for more than 24 consecutive hours, tofamilies receiving protective services(including foster care families whendefined as protective services families),the CCDF Plan must include a statementto that effect in the definition ofprotective services. We note thisdefinition of ‘‘respite child care’’ maydiffer from how States or Tribes defineit for other purposes (e.g., childwelfare). Thus, respite child care mustbe specified in the Lead Agency’s Planif it is to be considered an allowableexpenditure under CCDF.

Comment: Several commenters feltthat States should be required toprovide respite care for children withdisabilities.

Response: Since respite care isprovided to give parents time off fromparenting, rather than care to allow theparent to participate in work or ineducation or training, the CCDF cannotbe used for respite care for childrenwith disabilities unless the child alsoneeds or is receiving protective services.

Subpart D—Program Operations (ChildCare Services)—Parental Rights andResponsibilities

Parental Choice (Section 98.30)

Cash as a certificate. Since welfarereform has raised issues about methodsof paying for child care, we wish toprovide clarification with respect tochild care certificates provided in theform of cash. In defining the term‘‘certificate,’’ the statute at 658P(2) says,‘‘The term’’ child care certificate’ meansa certificate (that may be a check orother disbursement) that is issued by aState or local government * * * directlyto a parent who may use such certificateonly as payment for child care servicesor as a deposit for child care services ifsuch a deposit is required of otherchildren being cared for by theprovider.’’

With a certificate or two-party check,the Lead Agency can ensure that moneyis paid to a provider who meetsapplicable health and safetyrequirements. This is not the case whena Lead Agency provides cash to a

parent. We strongly discourage a cashsystem, because providers must meethealth and safety standards, and webelieve that the use of cash can severelycurtail the Lead Agency’s ability toconform with this statutoryrequirement.

If, nevertheless, a Lead Agencychooses to provide cash, it must be ableto demonstrate that: (1) CCDF fundsprovided to parents are spent inconformity with the goals of the childcare program as stated at section 658Aof the Act, i.e., that the money is usedfor child care; and (2) that child careproviders meet all applicable licensingand health and safety standards, asrequired by section 658E(c)(2) (E) and(F) of the Act. Lead Agencies, therefore,may wish to consider having parentswho receive cash attest that the fundswere used for child care and to identifythe provider. Such a statement wouldhelp assure that the funds wereexpended as intended by the statute andlessen the possibilities for fraud.Finally, Lead Agencies are remindedthat they must establish procedures toensure that all providers, includingthose receiving cash payments fromparents, meet applicable health andsafety standards.

Comment: One commenter wasconcerned that we ‘‘stronglydiscourage’’ the use of cash. She felt thatthis stifled State innovation in pilotingnew service delivery systems and rancounter to the purposes of PRWORA ininstilling personal responsibility. Inrecognizing that providing cash canonly be successful with intense parentand provider education, the commenterargued for State flexibility to experimentwithout sanctions from ACF.

Response: We appreciate thecommenter’s thoughtful approach to thequestion of providing cash. Like thecommenter, we believe that withoutappropriate safeguards, such as intenseconsumer education and the provisionsdiscussed above, the provision of cashmay not fulfill the goals of eitherPRWORA or the CCDBG Act. While wecontinue to discourage the use of cash,we recognize that the Lead Agencyretains the flexibility to use it.

Availability of certificates. Wereceived an unexpectedly large numberof comments on our proposedclarification concerning the availabilityof certificates; many with stronglyargued positions. Some commentsfavored the clarification, but mostopposed it.

Even though we proposed no changesto the regulatory language at this Part,the comments revealed a fundamentalbelief that we were proposing to lessenthe emphasis on parental choice. That is

not the case. However, because of thedepth of reaction around this topic, wehave decided to withdraw the proposedclarification rather than try to explain itagain in different words. Therefore,concerning the availability ofcertificates, the preamble to the 1992Final Rule continues to apply and theregulatory language remains unchanged.

In-home care. Child careadministrators have faced a number ofspecial challenges in monitoring thequality of care and the appropriatenessof payments to in-home providers. Forthat reason, we give Lead Agenciescomplete latitude to impose conditionsand restrictions on in-home care. Wehave revised § 98.16(g)(2) to require thatLead Agencies, in their CCDF Plans,specify any limitations on in-home careand the reasons for those limitations.

The Lead Agency must continue toallow parents to choose in-home childcare. However, since this care isprovided in the child’s own home it hasunique characteristics that deservespecial attention. In-home care isaffected by interaction with other lawsand regulations. For example, in-homeproviders are classified as domesticservice workers under the Fair LaborStandards Act (FLSA) (29 U.S.C. Section206(a)) and are therefore covered underminimum wage. As employees, in-homechild care providers are also subject totax requirements. In highlighting thesespecial considerations, we also note thatwhenever the FLSA and other workerprotections apply, ACF is committed tomaintaining the integrity of theseprotections. A strong commitment towork, and therefore to workerprotections, is critical to welfare reform.

We are mindful that in-home careplays a valid and important role inmeeting the needs of working parents,and that many participants insubsidized care programs rely on suchcare to meet their family needs. Accessto care that meets the needs ofindividual families is criticallyimportant to parents and children, toschools and the workplace, and to othercommunity institutions that interfacewith the family. While in-home carerepresents only a small proportion of allavailable care in most communities, itmay be the best or only option for somefamilies and may prove valuable,necessary and cost-effective whencompared to other options. There are anumber of situations in which in-homecare may be the most practical solutionto a family’s child care needs. Forexample, the child’s own home may bethe only practical setting in rural areasor in areas where transportation isparticularly difficult. Employees whowork nights, swing shifts, rotating shifts,


weekends or other non-standard hoursmay experience considerable difficultyin locating and maintaining satisfactorycenter-based or family day carearrangements. Part-time employeesoften find it more difficult to make childcare arrangements than do those whowork full-time. Similarly, families withmore than one child or children of verydifferent ages might be faced withmultiple child care arrangements if in-home care were unavailable. Manyfamilies also believe that very youngchildren are often best served in theirown homes. Given the general scarcityof school-age child care in manycommunities, in-home care may enablesome families to avoid latchkeysituations before school, after school,and when school is not in session. Formany families, in-home care by relativesalso reflects important cultural valuesand may promote stability, cohesionand self-sufficiency in nuclear andextended families.

We urge child care administrators toconsider the capacity of local child caremarkets to meet existing demand andthe role that in-home care may play inthe ability of parents to manage workand family life. Although in-home caredoes not represent a large share of thenational supply, it fills an importantniche in the structure and functioning oflocal child care markets by extendingthe ability of parents to care for childrenwithin their own families, closing gapsin the supply of community facilities,and creating a bridge between adult careand self- or sibling-care as children nearadolescence.

Some Lead Agencies may choose tolimit in-home care because of costfactors. For example, a State mightdetermine that minimum wagerequirements result in payments for in-home care serving only one or twochildren that are much higher than thepayments for other categories of care.Therefore, the Lead Agency could electto limit in-home care to families inwhich three or more children requirecare. The payment to the in-homeprovider would then be similar to thepayment for care of the three childrenin other settings. This ability to limit in-home care allows Lead Agencies torecognize the same cost restraints thatfamilies whose care is unsubsidizedmust face.

However, since in-home care hasproven to be an important resource, weexpect Lead Agencies to consider familyand community circumstances carefullybefore limiting its availability. For thatreason, CCDF Plans must specify anylimitations placed on in-home care andthe reasons for those limitations.

ACF recognizes that giving LeadAgencies complete latitude to imposeconditions and restrictions on in-homecare may affect parents’ ability to makesatisfactory child care arrangements andthus their ability to participate in work,education or training. We also recognizethe challenges of implementing healthand safety requirements in the child’sown home, monitoring in-homeproviders, and complying with Federalwage and tax laws governing domesticworkers.

Comment: Several commentersthought we were interpreting the FLSAand, therefore, wanted the discussionabout it deleted. Others wanted us tosay that in-home child care providerswere independent business contractorsand not domestic employees.

Response: We have not interpretedthe FLSA: we have simply restated theFLSA’s characterization of in-homechild care providers as domestic serviceworkers. ACF cannot determine that in-home child care providers are to beconsidered independent businesscontractors.

Interpreting the FLSA, and other wageand tax laws, is the responsibility ofother Federal agencies, such as theDepartment of Labor, the Department ofthe Treasury and the Social SecurityAdministration, as noted by several ofthe commenters. While we have notregulated that the minimum wage mustbe paid to in-home providers, as somecommenters thought, we would beextremely remiss in not alerting LeadAgencies to the existence and possibleapplicability of other laws. Nor can weignore violations of those laws simplybecause their enforcement is thepurview of another Federal agency.

We continue to work with theresponsible Federal agencies to helpclarify issues around the use of in-homechild care providers and will work withthe other appropriate Federal agenciesto provide guidance to Lead Agencies.We also recognize that there have beeninstances where the Federal or Stateagency responsible for determining theapplicability of the FLSA and theminimum wage requirements havereached very different conclusions inseemingly similar cases. Therefore, weencourage Lead Agencies to work withthe appropriate local representatives ofthe other Federal agencies to resolve orclarify the State-specific questions theymay have regarding the applicability ofother laws and regulations.

Comment: One tribe wanted us toexempt tribes from paying the minimumwage to in-home providers.

Response: As discussed above, ACFdoes not determine the applicability of

the FLSA and cannot make exceptionsto it.

Comment: One commenter wanted usto define in-home child care providersas any legally-exempt provider who isotherwise not regulated but who isspecially authorized to provide care inthe child’s home or in the provider’shome.

Response: It is unclear why it wouldbe useful to define in-home care in thisway. As discussed above, the uniquecharacteristic of in-home is its location,not the regulatory status of the care.

Comment: One commenter wanted usto require that in-home providers meethealth and safety requirements. Anothercommenter wanted us to state thatFederal law does not require that CCDFsubsidies be given to parents orproviders known to be operatinginconsistently with applicable laws andregulations. In this vein, the commentersuggested that we encourage LeadAgencies to require providerdocumentation of compliance withapplicable laws, such as workercompensation, unemploymentcompensation, income tax withholdingfor employees.

Response: In-home care must meet therequirements established by the LeadAgency for protecting the health andsafety of children pursuant to § 98.41.In-home care, as a category of care, isnot exempt from health and safetystandards. And, relatives who providein-home care are not exempt fromhealth and safety requirements unlessthe Lead Agency specifically chooses toexempt them, as provided for at§ 98.41(a)(1)(ii)(A).

The regulations at § 98.54(a)(2)require that CCDF funds ‘‘shall beexpended in accordance with applicableState and local laws.’’ Payments made toparents or providers who are not incompliance with applicable laws aresubject to disallowance in accordancewith § 98.66.

Comment: Several commenters statedthat the Lead Agency should have theability to define limits and regulate theuse of in-home care as they see fit andthat no further requirements, beyond thedescription of the limits, should beimposed.

Response: This comment mirrors ourpolicy. The Lead Agency has completeflexibility to define the limits andregulate the use of in-home care. As apoint of clarification, while the LeadAgency may impose limits on the use ofin-home care, it cannot flatly prohibitthe use of in-home care. In-home careremains an option that must be offeredto parents, pursuant to § 98.30(e),subject to the limits established by theLead Agency.


Parental Access (Section 98.31)We have amended the regulations at

§§ 98.31 and 98.16(n) to reflect the newstatutory requirement at section658E(c)(2)(B) that Lead Agencies have ineffect procedures to ensure unlimitedparental access and to provide adetailed description of thoseprocedures. We have also amended§ 98.15(b)(1) to reflect the statutorychange to certify, rather than assure,that procedures are in effect to ensureunlimited access.

Comment: One commenter asked thatwe clarify this requirement as it relatesto parents who have limited contact orcustody rights as a result of a courtorder. The commenter suggested thatLead Agency procedures may restrictaccess to only those persons identifiedin the provider’s records as authorizedto remove the child(ren) from thefacility.

Response: We agree that the LeadAgency should address these situationsand should establish their procedures inlight of court ordered restricted parentalcontact or custody. However, we do notbelieve that it is necessary to revise thewording of the regulation nor do webelieve that Congress intended that wecreate such a detailed Federalrequirement on the Lead Agency.

Parental Complaints (Section 98.32)We have added paragraph (c) to the

regulations at § 98.32 and amended§ 98.16 by adding paragraph (m) toreflect the new statutory requirements at658E(c)(2)(C) on parental complaints.Under the changes, Lead Agencies mustprovide a detailed description of how arecord of substantiated parentalcomplaints is maintained and madeavailable to the public on request. Wehave also amended the regulation at§ 98.15(b)(2) to reflect the requirementof the statute at 658E(c)(2)(C) that a LeadAgency ‘‘certify’’ rather than ‘‘assure’’that it will maintain a record ofsubstantiated parental complaints.

Comment: Some commentersquestioned whether the Lead Agencyhad to maintain the record ofsubstantiated complaints, since thisfunction may occur at another part ofState government.

Response: We corrected the languageof this section to reflect that it is theState, but not necessarily the LeadAgency, that must maintain the recordof substantiated complaints and makeinformation regarding such parentalcomplaints available to the public onrequest. However, in the Plan, the LeadAgency must, nevertheless, provide thedetailed description of how such arecord is maintained and madeavailable.

Comment: One commenter, insupporting the requirement,recommended that any substantiatedcomplaint, whether submitted by aparent or by someone else, be included.

Response: We agree that informedparental decisions would be enhancedby making all complaints, irrespectiveof their source, available to the public.And, we encourage the Lead Agency tomake all substantiated complaintsavailable to the public on request.However, the Act requires only that arecord of substantiated parentalcomplaints must be maintained.Parental complaints may includesubstantiated complaints whichoriginate with persons acting in locoparentis, for example a foster parent orother guardian, not just a biological oradoptive parent.

Comment: Another commenter wasconcerned about the release ofconfidential, libelous and/orinappropriate material in the fulfillmentof this requirement. The commentervoiced the expectation that we wouldensure that the State created verystructured procedures for maintainingand guaranteeing that only substantiatedcomplaints are released to the public.

Response: The requirement clearlystates that only substantiatedcomplaints are to be released. As westated above, we do not believe thatCongress intended for us to createdetailed Federal requirements here.States have the flexibility to create theirown procedures in this area, providedthe required statutory outcome isachieved.

Consumer Education (Section 98.33)We have amended the regulation at

§§ 98.33 and 98.15(b)(3) to reflect thestatutory requirement at section658E(c)(2)(D) that the Lead Agency‘‘certify’’ that it ‘‘will collect anddisseminate to parents of eligiblechildren and the general public,consumer education information thatwill promote informed child carechoices.’’ It is important to emphasizethat the use of the words ‘‘collect anddisseminate’’ is more proactive andforceful than the former requirementthat consumer education ‘‘be madeavailable’’ to parents and the public. Wealso believe that by changing thewording, Congress wished to emphasizethe importance of consumer educationas a service to be provided by LeadAgencies. This emphasis is also stressedby the third goal of the CCDF, listed atsection 658A(b) of the amended CCDBGstatute, ‘‘to encourage States to provideconsumer education information to helpparents make informed choices aboutchild care.’’ Moreover, the amendment

to the reporting requirements at section658K(a)(2)(D)—reflected in the revisedregulations at § 98.71(b)(3)—requiresLead Agencies to report annually on themanner in which consumer educationinformation was provided to parentsand the number of parents that receivedsuch information.

The statute previously specified thetype of consumer education informationthat the Lead Agency had to provide:‘‘licensing and regulatory requirements,complaint procedures, and policies andpractices relative to child care serviceswithin the State.’’ The statute now isless prescriptive. Consumer educationinformation is defined as that which‘‘will promote informed child carechoices.’’ Thus, the statute leaves it upto the Lead Agency to determine thetype of information that will help thepublic and parents make informed childcare choices.

In the comments to the proposed rule,however, we received numerouscomments advising us to strengthen theconsumer education requirement. Twothemes arose from the comments. Onefrequently voiced comment was thatparents need to be informed that the fullrange of providers is available to them,especially when they receivecertificates. Included in the full range ofproviders are sectarian and religiousproviders, and we take this opportunityto remind Lead Agencies that suchproviders must be available to parents.The second theme we heard was thatparents need to be aware of theimportance of health and safetystandards, and the extent to whichvarious categories of care or types ofproviders provide health and safetyprotections for children.

Additionally, in a report issued inFebruary 1998 by the Office of InspectorGeneral of the Department of Health andHuman Services, it was noted, ‘‘Goodconsumer education is critical tomaking the child care market functionproperly. If parents are not able to makeinformed choices, their access to themarket is limited. Further, if parentsdemand safe and quality care, providersare more likely to supply it.’’ The studyreport, ‘‘States’ Child Care CertificatePrograms: an Early Assessment ofVulnerabilities and Barriers’’ (OEI–05–97–00320), which makes note ofCongress’ strengthening of the consumereducation requirements in the CCDBGAct, has recommended that ACF takesteps to help States improve theirconsumer education efforts.

We weighed these comments and thenew Inspector General report againstcomments we received which generallyopposed any regulations at all on any ofthe provisions we proposed and those


that wanted consumer educationprovisions in addition to the twoaddressed above. We believe thatinformed parental choice—which is thereason for the consumer educationprovisions—is supported by theinformation suggested by these twocomments. We have, therefore,reworded the regulation at § 98.33(a).That section now specifies that LeadAgencies must certify that consumereducation information given to parentsso they can exercise their right to choosethe type of care that best meets theirneeds must, at a minimum, includeinformation about the full range ofproviders available and on health andsafety requirements. States havediscretion in developing the content ofthe consumer information materials inthese two areas; the regulations onlyrequire that they be addressed.

While Lead Agencies have flexibilityin providing consumer education, ACFstrongly encourages Lead Agencies topromote informed child care choices byoffering information about: the variouscategories of care; the Lead Agency’scertificate system; the rates for thevarious categories of care; the sliding feescale; a checklist of what to look for inchoosing quality care; providers withwhom the Lead Agency has contracts forcare; the licensing regulations that someproviders must meet; the State’s policyregarding substantiated complaints byparents that is available upon request asrequired by § 98.32; and local resourceand referral agencies that can assistparents in choosing appropriate childcare.

The best child care arrangements aredeveloped in one-on-one consultationwith trained or experienced counselors.Professional help with locating childcare is time- and cost-efficient for bothfamilies and Lead Agencies. Thus, itmay be in the Lead Agency’s interest toinvest in strategies such as co-locationof child care resource and referralcounselors in work development officesor agencies. Economists make theargument that good consumerinformation is critical to making thechild care market function more likeother markets. Moreover, experience hasshown that printed materials alone maynot always be a sufficient informationsource, particularly if parents have lowliteracy skills.

Comment: Several commenterswanted us to require that consumereducation specifically includeinformation about the availability ofsectarian providers and that parentsmay use certificates with religiousproviders.

Response: It was partly in response tothese comments that we expanded the

requirement for consumer education tonow include information about the fullrange of providers available to parents.As the ‘‘full range of providers’’includes sectarian and religiousproviders, we do not believe it isnecessary to specify them—or othertypes of providers—in regulation. Sincecertificates, by definition, may be usedwith any provider, including sectarianproviders, it seems unnecessary to bemore prescriptive.

Exception to individual penalties inthe TANF work requirement. Title I ofthe PRWORA amends Title IV–A of theSocial Security Act and replaces the Aidto Dependent Children (AFDC) with anew block grant program entitledTemporary Assistance for NeedyFamilies, or TANF. The new section407(e)(2) addresses an exception to thework requirement in the TANF programand provides that a State may notreduce or terminate TANF assistance toa single custodial parent who refuses towork when she demonstrates aninability to obtain needed child care fora child under six, because of one ormore of the following reasons:

(1) Unavailability of appropriate childcare within a reasonable distance fromthe individual’s home or work site;

(2) Unavailability or unsuitability ofinformal child care by a relative orunder other arrangements;

(3) Unavailability of appropriate andaffordable formal child carearrangements.

The TANF penalty exceptionunderscores the pivotal role of childcare in supporting work and alsorecognizes that the unavailability ofappropriate, affordable child care cancreate unacceptable hardships onchildren and families. Since Congressprovided that the new Mandatory andMatching child care funding betransferred to the Lead Agency underthe CCDF and also provided that at least70 percent of the new funding must bespent on families receiving temporaryassistance, in transition from publicassistance, or at risk of becomingeligible for public assistance, the LeadAgencies will be playing a critical rolein providing the child care necessary tosupport the strong work provisionsfound in TANF. It is therefore criticalthat CCDF Lead Agencies helpdisseminate information about theTANF exception. Knowledge of thisexception, at least on the part of parentswho receive TANF, will be veryimportant in promoting informed childcare choices.

Therefore, we require that LeadAgencies include information about it inthe consumer education informationthey provide to TANF recipients. This

responsibility entails informing parentsthat: (1) TANF benefits cannot bereduced or terminated for parents whomeet the conditions as specified in thestatute and as defined by the TANFagency; and (2) assistance receivedduring the time an eligible parentreceives the exception will counttoward the time limit on Federalbenefits stipulated by the statute atsection 408(a)(7).

In order for a Lead Agency to complywith this requirement, it will need tounderstand how the TANF agencydefines and applies the terms of thestatute to determine that the parent hasa demonstrated inability to obtainneeded child care. The elements thatrequire definition consist of:‘‘appropriate child care,’’ ‘‘reasonabledistance,’’ ‘‘unsuitability of informalcare,’’ and ‘‘affordable child carearrangements.’’

In our pre-regulatory consultations,some groups urged us not only to ensurethat the CCDF agency disseminatesinformation about the TANF penaltyexception but to regulate the content ofthe definitions or criteria used todetermine if a family is unable to obtainneeded child care. The approach wehave taken in this rule providesflexibility and strikes an appropriatebalance between the roles of the CCDFand TANF agencies. We recognize theauthority and flexibility of the TANFprogram to define the terms establishedby the statute. However, we stronglyencourage TANF agencies to define‘‘appropriate care,’’ at a minimum, ascare that meets the health and safetystandards of the CCDF program,specified at § 98.41.

We are requiring, under § 98.12 of theregulations, that Lead Agenciescoordinate with TANF programs toensure, pursuant to § 98.33(b), thatTANF families with young children willbe informed of their right not to besanctioned if they meet the criteria setforth in the statute and Plan. As part ofthis coordination, at § 98.16(p) we arerequiring that the Lead Agency includein its Plan the definitions or criteria theTANF program has adopted inimplementing this exception to thework requirement.

The new section 409(a)(11) of the SSAspecifies that if the TANF programsanctions parents who are eligible forthis exception to the individualpenalties associated with the TANFwork requirements, it may incur apenalty of up to five percent of its grant.Therefore, coordination between theLead Agency and the TANF program inthis matter serves the best interests bothof the recipients of TANF benefits andthe service agencies themselves. ACF


issued proposed rules on the TANFpenalty provisions on November 20,1997.

Comment: We received few commentsin support of our proposal to requireLead Agencies to provide informationregarding the TANF penalty provisions.Most commenters observed that this wasa TANF, not a child care issue, and thatthe notice was an administrative notice,not consumer education. Otherssuggested that, in singling out TANFfamilies, this provision merelycontinues the stigma associated withwelfare.

Response: We respect thecommenters’ views. And, we havechanged the requirement so that theinformation on the penalty provisionneed only be given to TANF families—not all families. We have also amendedthe regulation to recognize that otheragencies, not necessarily the LeadAgency, may provide the information.

In light of the pressures of workparticipation requirements on the TANFagency, and ultimately on TANFfamilies, we believe that TANF familiesneed strong reinforcement of their rightto safe, affordable and appropriate care.Informed consumer education meansthat parents must not feel that they mustaccept any child care, especially carethat they believe threatens the well-being of their child.

Comment: Some commenterssuggested that Lead Agencies should berequired to provide consumer educationonly through child care resource andreferral (CCR&R) agencies.

Response: While CCR&Rs may be thebest providers of consumer educationinformation, there is no statutory basisfor limiting State flexibility in this way.

Comment: Several commentersobjected to including the TANF penaltydefinitions or criteria in the CCDF Plan,arguing that these belonged moreappropriately in the TANF Plan.

Response: A State’s definition of‘‘appropriate child care,’’ ‘‘reasonabledistance,’’ etc., is germane to theprovision of child care in a State. And,it is the overall provision of child carein a State that the CCDF Plan isintended to present to the public.Because there is no fixed format for aTANF plan, the definitions may not beincluded there and thus may not be partof the TANF 45 day notice process.Therefore, these definitions and criteriamay not become publicly known. We donot believe that the requirement iseither burdensome or excessive sincethe TANF agency must develop thecriteria and definitions in order toimplement that program.

Subpart E—Program Operations (ChildCare Services)—Lead Agency andProvider Requirements

Compliance With Applicable State andLocal Regulatory Requirements (Section98.40)

We have amended the regulations at§ 98.40(a) to reflect a change in Section658E(c)(2)(E)(i) of the Act. Theamendment requires Lead Agencies tocertify that they have in effect licensingrequirements applicable to child careservices, and to provide a detaileddescription of those requirements and ofhow they are effectively enforced. Thischange is also reflected in §§ 98.15 and98.16. The statute notes, however, thatthese licensing requirements need notbe applied to specific types of providersof child care services.

Because amendments to section658P(5)(B) have eliminated therequirement for registration ofunlicensed providers serving familiesreceiving subsidized child care, we havedeleted the former regulation§ 98.40(a)(2) requiring registration. Thischange, however, does not prevent LeadAgencies from continuing to registerunlicensed or unregulated providers,and we encourage them to do so. ThoseLead Agencies that choose not to havea registration process will be required tomaintain a list of providers. We discussthis in more detail at § 98.45.

Health and Safety Requirements(Section 98.41)

Section 658E(c)(2)(F) of the Actrequires a Lead Agency to certify thatthere are in effect within the State,under State and local law, requirements,designed to protect the health and safetyof children, that are applicable toproviders serving children receivingCCDF assistance. The applicablerequirements set forth in the Actinclude ‘‘the prevention and control ofinfectious diseases (includingimmunizations).’’

Section 658E(c)(2)(F) further provides,however, that nothing in the health andsafety requirements shall be construedto require the establishment ofadditional health and safetyrequirements for child care providersthat are subject on the date of enactmentof the Act, under State and local law, tohealth and safety requirements in thecategories described in the Act. Theregulations at § 98.41(a) reflect theprohibition against establishingadditional requirements if existingrequirements comply with the Act.

As proposed originally on May 11,1994 (59 FR 24510) and again in 1997on July 23, 1997 (62 FR 39647), weamended the regulation at § 98.41(a)(1)

to require that States and Territoriesinclude as part of their health and safetyprovisions for the control andprevention of infectious diseases (byreference or otherwise) the latestrecommendations for childhoodimmunizations of their respective Stateor territorial public health agency.

Based on comments received on themost recent proposed rule, however, wemodified the final rule at § 98.41(a) todelete language that, unintentionally,could have caused some commenters tobelieve that ACF was exceeding the Act.Specifically, we deleted language thatrelated to establishing immunizationrequirements. Based on anothercomment, we also revised the rule toclarify that immunizations are not theonly focus of the statutory requirementon the prevention and control ofinfectious diseases.

The immunization regulation at§ 98.41(a)(1) applies only to States andTerritories. Consistent with theamended Act, which requires theSecretary to consult with Tribes andtribal organizations to developminimum child care standards that areapplicable to Tribes and tribalorganizations that receive CCDF funds,we have not extended the immunizationrequirement to Tribes and tribalorganizations due to the anticipateddevelopment of tribal health and safetystandards.

Until tribal health and safetystandards are issued, however, LeadAgencies for Tribes and tribalorganization must meet the three basichealth and safety requirements specifiedin the Act and these amendedregulations, including the basicregulation on the prevention and controlof infectious diseases (includingimmunizations). They do not, however,have to meet the specific immunizationrequirement that applies to States andTerritories under these final rules. Weanticipate that tribal immunizationrequirements will be considered in theconsultation on the development of theminimum child care standards withIndian Tribes and tribal organizations.

While many State and territorialpublic health agencies adopt therecommendations of the AdvisoryCommittee on Immunization Practices(ACIP) of the Centers for Disease Controland Prevention (CDC), we wish toemphasize that this amendment to theregulations does not impose Federalstandards for immunization. Rather, itallows the individual State or Territoryto apply its own immunizationrecommendations or standards tochildren receiving CCDF services. AllStates and Territories haverecommendations or standards


regarding immunization of individualchildren.

The immunization provision at§ 98.41(a)(1) is intended to ensure thatStates address the statutory provision onimmunization as part of the statutorily-mandated CCDF health and safetystandards.

Currently 22 percent of children inthe U.S. under the age of two are notage-appropriately immunized. Since alarge percentage of children receivingchild care assistance are under fiveyears of age, we believe that theimmunization requirement will have apositive impact in reducing theincidence of infectious diseases amongpreschool age children. Surveys oflicensed child care facilities indicatethat the majority of States require someproof of immunizations for childrenenrolled in licensed or regulated childcare centers and family day care homes.However, individual States differ intheir specific requirements andregulatory approaches, andrequirements for the immunization ofchildren in child care settings that areexempt from licensure or otherregulatory provisions vary widely.

Vaccines are the most cost-effectiveway to prevent childhood diseases.Nationally, approximately $13.00 issaved in direct medical costs for everydollar spent on the measles/mumps/rubella (MMR) vaccine, $29.00 is savedfor every dollar spent on the diphtheria/tetanus/pertussis (DTP) vaccine, and$6.00 is saved for every dollar spent onthe oral polio vaccine (OPV).

In requiring children to be age-appropriately immunized, weconsidered that parents may not alwaysbe able to access immunizations easily.However, a number of nationalinitiatives are under way to promoteimmunizations for all children. Inresponse to disturbing gaps in theimmunization rates for young childrenin America, a comprehensive ChildhoodImmunization Initiative (CII) wasdeveloped. CII addresses five areas:—Improving immunization services for

needy families, especially in publichealth clinics;

—Reducing vaccine costs for lower-income and uninsured families,especially for vaccines provided inprivate physician offices;

—Building community networks toreach out to families and ensure thatyoung children are vaccinated asneeded;

—Improving systems for monitoringdiseases and vaccinations; and

—Improving vaccines and vaccine use.The CDC and its partners in the

public and private sectors are working

to build a comprehensive vaccinationdelivery system. The goals of the CII areto ensure that at least 90 percent of alltwo-year-olds receive each of the initialand most critical doses, to reducediseases preventable by childhoodvaccination to zero, and put in place asystem to sustain high immunizationcoverage. Since 1994, the NationalImmunization Survey (NIS) has beenused to provide immunization coverageestimates for all 50 States and 28 largeurban areas.

As part of the efforts in the CII,immunization programs on the Stateand local level are collaborating withWIC programs (Special SupplementalFood Program for Women, Infants, andChildren) to focus on children’simmunization. For example, local WICclinics check the immunization recordsof WIC participants, assist families tofind a primary health care provider, andprovide immunization information. On-site immunization services aresometimes also provided at local WICclinics.

On September 30, 1996, the CDCawarded funds ranging from $130,000 to$250,000, to education agencies in fourStates (New York, South Dakota, WestVirginia, and Wisconsin) to deliverimmunization services to preschool-aged children in health centers atelementary schools. Over the past fouryears, welfare reform waivers weregranted to 18 States to allow them torequire parents to immunize theirchildren as a condition of receivingassistance.

Lead Agencies for the CCDF have theflexibility to determine the method theywill use to implement the immunizationcomponent of these regulations. Forexample, they may require parents toprovide proof of immunization as partof the initial eligibility determinationand again at redetermination, or theymay require child care providers tomaintain proof of immunization forchildren enrolled in their care. LeadAgencies have the option to exempt thefollowing groups:

• Children who are cared for byrelatives (defined as grandparents, greatgrandparents, siblings—if living in aseparate residence—aunts and uncles);

• Children who receive care in theirown homes;

• Children whose parents object onreligious grounds; and

• Children whose medical conditioncontraindicates immunization.

While families are taking thenecessary actions to comply with theimmunization requirements, LeadAgencies shall establish a grace periodduring which children can continue toreceive child care services—unless, in

keeping with the statutory provisionsapplicable to the CCDF, existing State orlocal law regarding immunizationsrequired for the particular child caresetting would not allow for such aperiod.

Finally, we encourage all LeadAgencies to consider requirements thatprovide for documenting regularupdates of a child’s immunizations.

Section 98.30(f)(2) and (3) prohibitany health and safety requirements fromhaving the effect of limiting parentalaccess or choice of providers, or ofexcluding a significant number ofproviders. We do not think these newimmunization requirements will havesuch an effect. Rather, we are convincedthat, when applied to all providers, theywill have the effect of enhancingparental choice of providers, since allproviders will have the samerequirements. More importantly,however, the requirements will promotebetter health for children, their families,and the public.

Pursuant to section 658P(5)(B) of theamended Act, we have added ‘‘greatgrandparents, and siblings (if suchproviders live in a separate residence)’’to the list of relatives who, at Stateoption, may be exempted from thehealth and safety requirements at§ 98.41(e) and to the definition of‘‘eligible child care provider’’ at § 98.2.

We received many comments on therevised health and safety provisionsfrom all types of commenters who madea wide variety of observations. Severalcommenters, including three LeadAgencies, expressed their unqualifiedsupport for the immunization provision.A number of States who wrote tocomment on other provisions in theproposed rule were silent regarding theproposal, as were a couple of Stateorganizations. Other States expressedsupport of the principle of assuring thatvery young children are age-appropriately immunized. They,however, had various concerns aboutthe proposed amendments to the ruleconcerning health and safety provisionsas noted in the comments below. SomeStates and State organizations supportedan alternate approach as noted below. Anumber of children’s organizationssupported the provision, but asked for itto be strengthened as noted below.

Comment: Some commenters said thatthe proposed rule exceeded theauthority granted to the Secretary underPRWORA and did not respectcongressional intent regarding the Act.The commenters did not identify whichstatutory provisions they believed wereexceeded. Additionally, however, theypointed to the proposed State optionsfor exempting children receiving CCDF


services as evidence that ACF, not theState, was establishing a health andsafety standard.

Response: The statutory languageregarding the establishment of healthand safety requirements for childrenserved by the CCDF essentially wasunchanged by PRWORA. The statuteclearly requires the State to establishhealth and safety standards in threeareas. One of those areas, the controland prevention of infectious diseases,specifically includes immunizations inhealth and safety requirements for childcare. We think that the commenters mayhave focused on the provision at658E(c)(2)(F) that states, ‘‘Nothing inthis [provision] shall be construed torequire the establishment of additionalhealth and safety requirements for childcare providers that are subject to healthand safety requirements in thecategories described [in the Act] on thedate of enactment of this subchapterunder State or local law.’’

The rule we adopted does not violatethis caveat to the health and safetyrequirements of the Act. ACF is notrequiring States to establish additionalstandards regarding immunization forchildren receiving CCDF services wherethose standards exist for all children(CCDF-subsidized or not) in a categoryof care. Rather, we are ensuring thatStates follow the statutorily-mandatedrequirement, which specificallyincludes immunizations. The statuterequires immunizations in the case ofall care available to children receivingCCDF services—not just to thosecaregivers who are subject to existingState requirements regardingimmunization of children in child caresettings. The regulation clarifies thatimmunizations must be part of thehealth and safety standards for allproviders.

We revised the final rule to delete thephrase that might inadvertently have ledsome to conclude that the regulationexceeded the statute by seeming torequire new State immunizationstandards. The provision now indicatesthat Lead Agencies shall assure that theState’s existing immunization standardsapply to all children receiving servicesunder the CCDF.

Further, the exemption optionsshould not be considered as evidencethat ACF is requiring specific health andsafety standards. Rather, the optionsreflect recognition of the State’sauthority to determine the content ofhealth and safety standards and toexempt statutorily specified relativesfrom the health and safety requirementgenerally.

Comment: Several commenterssuggested that ACF adopt an alternate

approach to the immunizationrequirement. Specifically, theysuggested that instead ACF adopt aprovision requiring a State to describein its CCDF Plan its efforts to increaseimmunization rates in relationship totheir child care programs and withrespect to outreach to children ininformal care.

Response: The alternative proposeddoes not serve the objective of assuringthat the statutory provision is met.

Comment: Several States opposed theCCDF rule regarding immunizations onthe grounds that they already haverequirements regarding immunizationsin child care settings.

Response: As explained in theresponse to the first comment in thissection, where a State has rules forimmunization of children in child caresettings, these rules do not imposeadditional or different requirements.These rules apply in instances where aState has not established the statutorilyrequired health and safetyimmunization requirements for aparticular child care setting.

Comment: Two commenters notedthat the requirement for a grace periodfor families to have their childrenreceiving CCDF services age-appropriately immunized could conflictwith existing State rules regardingchildren entering child care. They askedfor the rule to take into accountinstances where States have existingimmunization standards for child caresettings that do not allow for a graceperiod.

Response: In the 1994 proposed rule,when we only encouraged States to havea grace period and recommended thatHead Start guidelines for animmunization grace period of 90 daysbe considered, we received a significantnumber of comments asking that weincorporate a grace period into theCCDF rule on immunization. In 1994, anoverwhelming majority of commentsopposed tying the immunizationrequirement to initial eligibility. Theview was that requiring immunizationsto be up to date before the child carecould start would be a barrier toworking. Commenters at that timevoiced concern that many low-incomeparents might not immediately be ableto acquire the necessary immunizationsand could therefore lose access tocrucial child care services.

A significant number of commentersin 1994 recommended that westrengthen the language to requireGrantees to establish a grace period aspart of the immunization requirement.With welfare reform’s stronger emphasison work, we believe that the graceperiod is even more critical than we

envisioned in 1994. We, therefore,retained the provision on the graceperiod. States should understand,however, that the provision at Section658E(c)(3)(F), which is reflected at§ 98.41(a) of these regulations, wouldapply. That provision prohibits theestablishment of new or additionalstandards if they exist for a particularchild care setting. We believe that thecomplete regulation at § 98.41(a)adequately conveys the principle, sothat no special modification of the ruleregarding the grace period is needed.

Comment: Some States commentedthat the issue of immunizations is amuch larger issue than just for childrenreceiving CCDF subsidies. Some of thesecommenters observed that in caresettings that States do not regulate therecould be children who are not requiredto be immunized because they are notreceiving CCDF services and not subjectto other rules regarding immunization.One commenter specifically noted thatthe CCDF provision fragments efforts ofStates that are seeking to develop acomprehensive immunization plan.

Response: The fact that theimmunization issue is a bigger issuethan just within the CCDF should notargue against using the CCDBG statutoryrequirements in order to assist with theneed for very young children to be age-appropriately immunized. We do notbelieve that this rule will conflict withany other State initiative to immunizeyoung children. We encourage all Statesto coordinate all child care and publichealth services in order to foster animportance linkage to fulfillingimmunization needs.

Comment: Some States commentedthat they saw difficulties inadministering, tracking, or monitoringthe immunization requirement. Therewere comments indicating thatassumptions were being made that acumbersome verification process wouldbe required of Lead Agencies.

Response: As we indicated in thepreamble to the proposed rule and inthe preamble above, we have notimposed implementation requirementsfor this provision. States have theflexibility to implement the provision ina manner that is not burdensome. LeadAgencies are not required to provideimmunizations directly to childrenreceiving child care services. Nor areLead Agencies required to cover the costof the vaccines.

We anticipate that Lead Agencieswould incur most of the administrativeburden during the initial child careapplication process when follow-up isneeded on children whoseimmunizations are not current.However, this burden should be greatly


reduced as a result of the ChildhoodImmunization Initiative. Under thisinitiative, States will receive funds thatcan be used to develop statewideinformation systems which remindparents when immunizations are due.Lead Agencies for the CCDF shouldwork with their State immunizationprogram to develop comprehensiveimmunization registries that will assistin the implementation of the child careimmunization requirement.

To help ease the burden during theinitial application process, LeadAgencies could consider: incorporatingtracking and follow-up into existingredetermination procedures; flagging thefiles of children who are not yetimmunized and allowing parents tosubmit documentation by mail; orincluding proof-of-immunizationinformation in the periodic report thatproviders are already required to submitto the Lead Agency. These processescould be considered for both regulatedand unregulated providers.

States may also find that providingparents with educational materials onthe importance of immunization canplay a key role in reducingadministrative burdens. While manyparents are aware that immunizationsare needed by school age, they may notrealize that children should receivemost vaccines before their secondbirthday.

Comment: One commenter stated thatadding more specificity to only theimmunization part of the CCDF healthand safety standard on prevention andcontrol of infectious diseases could sendan unintended message that havingimmunization provisions alone wouldfulfill that statutory provision. Thecommenter suggested that to ensure abalance there should be more rulesregarding the scope and structure of thestatutory standard. Another commentersuggested that ACF require or encouragecriminal background checks ofproviders of CCDF services.

Response: We agree with thecommenter that the statutory provisionencompasses more than immunizations.The law says that the State’s standardsin this area shall includeimmunizations. The law would not beunderstood to consist only of the aspectof immunization in the prevention andcontrol of infectious diseases. Not alldiseases can be prevented byimmunizations. However, there is aspecific mention of immunization inthat provision in the Act that in ourexperience has not been addressed byall States in implementing theprovision, while other ‘‘prevention andcontrol’’ issues were addressed in atleast some minimal way in State Plans.

Based on the comment, we reviewed theregulatory language and revised theregulation to make it less likely to beinterpreted as the commenter did butdid not further regulate the statutorylanguage.

With respect to criminal backgroundchecks, ACF considers such checks tofall under the building and physicalpremises safety standard in the statute.Unlike the statutory requirement onprevention and control of infectiousdiseases, which specifically mentionsimmunizations, the statute does notspecify any particular component thatwould be part of the provision onbuilding and physical premises safety.Therefore, we do not propose to furtherregulate that health and safetyprovision. We would agree with thecommenter that it is appropriate toencourage States to adopt criminalbackground checks as part of their effortto meet CCDF health and safetystandards.

Comment: Some commenters statedthat there should be no exemptionoption to requiring immunizations forchildren receiving relative and in-homecare. Several recommended that therequirement be implemented withoutany possible exemptions.

Response: The Act and regulationsallow Lead Agencies the option toexempt grandparents, greatgrandparents, siblings (if the siblinglives in a residence other than thechild’s home), aunts and uncles fromhealth and safety requirements.Although this exemption is allowable bystatute, the statute does not requireStates to make the exemption; Statesmay choose to require relativecaregivers to meet the sameimmunization requirements asestablished for other providers.

In allowing an exemption for in-homecare, we considered that these childrenare not cared for in a communicablegroup setting but in the privacy of theirown home, and therefore would be at amore limited risk of contracting diseasesor spreading diseases than they wouldbe if in a group care setting withchildren from different families. Wetherefore think the in-home exemptionoption is an appropriate reflection of thestatutory scope of the health and safetyrequirement.

Finally, the regulation reflects thebasic exemption provisions (religiousand medical reasons) that States applyto child care settings and school settingswhere States have set immunizationstandards. The regulation allows theState similar flexibility in implementingthe statutorily-mandated CCDF healthand safety requirements where it doesnot have existing immunization

requirements for all children in a caresetting. States have the flexibility todetermine which of the optionalexemptions to allow. However, theymay not expand the exemptions beyondthe categories outlined in the preambleand regulation.

Comment: One commenter from anIndian Tribe said that when a child isin foster care, the foster care homeshould be considered the child’s homefor the purpose of the exemption optionregarding in-home care.

Response: We agree with thecommenter. A foster care home wouldbe considered the foster child’s homefor the purpose of the CCDFimmunization exemption optionregarding in-home care. The State maychoose to include in-home care in afoster home in the exemption for in-home care, or it may choose to notinclude it. Tribes and tribalorganizations are reminded that the ruleon immunizations does not apply totribal child care, however, since ACF iscollaborating with Tribes to developtribal-specific health and safetystandards.

Comment: One commenter said thatACF should require States to follow theimmunization recommendations of theCDC, not the requirements of their ownState health agency, with respect tothese regulations.

Response: As we stated in thissection, while many State and territorialpublic health agencies adopt therecommendations of the AdvisoryCommittee on Immunization Practices(ACIP) of the CDC, we wish toemphasize that this regulation does notimpose Federal standards forimmunization. Rather, it allows theindividual State or Territory to apply itsown immunization recommendations orstandards to children receiving CCDFservices.

Comment: A few commenters saidthey thought that the immunizationregulation does not reach children in‘‘informal care arrangements.’’ One ofthem observed that black childrenwould be disproportionately under-served by the requirement, becauseblack families tend to use adisproportionate amount of informalcare. One of the commenters said thatthe rule would not reach children wherethe provider does not receive directpayment.

Response: With the exception of thefour optional exceptions that theregulation gives States the flexibility toadopt independently of each other, theimmunization component of the CCDFhealth and safety requirements must befollowed. To the extent relative or in-home care is considered to be


‘‘informal’’ and a State exercises itsoption to exempt those settings from theimmunization regulation, a child inthose settings would not be required tobe age-appropriately immunized underthe CCDF. ACF strongly encouragesStates to take full advantage of therequirement to see to it that theimmunization needs of very youngchildren are met. Unless a State choosesto exempt care in one of the specifiedsettings from CCDF immunizationprovisions, however, it must have amechanism for carrying out theprovision, no matter how its paymentsystem is organized.

Comment: A number of commentersstated with varying emphases theirperception that the immunization ruleplaces burdens on parents or providersand could be a deterrent to parents orproviders using or participating inCCDF services.

Response: As explained above, thereis an array of resources and approachesavailable to States to ensure access toimmunizations by parents as well asState flexibility to design a process forimplementation of the rule that is notburdensome on providers. To meet theneeds of individual States to design themost appropriate method of meeting therule, ACF intentionally left flexibility inthe regulation. We encourage States toensure that the requirement is met in amanner that both fulfills the statute andthe rule as well as places minimumburdens on families or the supply of allcategories and types of care.

Comment: Two commenters raisedissues relating to the possible adverseside effects of immunizations. Theyrequested that States exempt childrenreceiving CCDF services fromimmunization after parents havereceived information about the risks andchoose not to immunize their children.

Response: All immunizationproviders are required to inform parentsof potential side effects. Only a veryminute fraction of children receivingimmunizations experience harmful sideeffects attributable to immunizations,and the National Vaccine InjuryCompensation Program (NVICP) isavailable to assist families whosechildren have been harmed. Informationon the NVICP is available on 1–800–338–2382. On balance, families that donot appropriately immunize theirchildren place them in greater harmthan the immunizations do. Therefore,we do not agree with therecommendation to allow anotherexemption to the immunizationregulation for children receiving CCDFservices.

Comment: A few commenters notedthat for effective implementation of the

rule, States should be required toprovide information—to parents ofCCDF-eligible children and tounregulated providers of services tochildren receiving CCDF subsidies—about both the necessity forimmunizations and how to access freeimmunizations. One commenter offeredthe idea of mandating linkages betweenthe child care subsidy system andpublic health clinics and other healthprofessionals. One commenter askedthat States be required to coordinatewith their State public health agency.

Response: We concur that effectiveimplementation would require States toensure parents and unregulatedproviders have access to the kind ofinformation described by thecommenter. In keeping with the overallobjective of these revised rules toachieve a balance between flexibilityand accountability, ACF believes thatregulation on this point is not necessary.It is inherent for meeting the rule.Moreover, nearly all States participatein the Secretary’s successful HealthyChild Care America campaign. Thiscampaign has a goal of linking childcare providers with the healthcommunity and is one of the manyvenues for coordination between thechild care community and the healthcommunity.

Additionally, this final rule includestwo requirements that will enhancecoordination and informationalactivities concerning immunizationunder the CCDF. First, with respect toState-level coordination, the final rule at§ 98.14(a) requires that CCDF LeadAgencies shall coordinate with the Stateagency responsible for public health,including the agency responsible forimmunizations. Second, based on alarge number of comments on consumereducation, we adopted at § 98.33 aspecific requirement that the LeadAgency will collect and disseminateconsumer education information thatwill promote informed child carechoices, including information abouthealth and safety. We considerimmunization information to be animportant part of such health and safetyinformation.

Further, developing partnershipsbetween the child care and healthcommunity will help facilitate theimmunization process and ensure thatthe health needs of children andfamilies are being met. We encourageStates to utilize existing service deliverysystems and networks to assist parentsin meeting immunization requirements.

The President’s ChildhoodImmunization Initiative recognizes theimportant role of States and localorganizations in identifying their

particular needs. In 1992, the Federalgovernment began helping States designindividually tailored ImmunizationAction Plans. Outreach consultants ineach region assist States, localorganizations, and health professionalsin enhancing and expandingpartnerships with public and privateorganizations. For more information onpartnerships with State and localimmunization programs, contact theState Health Department or the CDC’sNational Immunization Program,Program Operations Branch at 404–639–8215.

Comment: One commenter said Statesshould be required to certify thateffective procedures are in place toensure that child care providers complywith immunization requirements.

Response: We believe that theregulation at § 98.41(d) suffices. Itrequires Lead Agencies to certify thatprocedures are in effect to ensure thatchild care providers of services forwhich assistance is provided under theCCDF comply with all applicable healthand safety standards described in§ 98.41(a). We think that the provisiondoes not require modification to coverimmunizations, to the extent that a LeadAgency, in implementing theimmunization requirement at § 98.41(a)places requirements on providers. Weremind commenters that theimmunization rule gives Lead Agenciesimplementation flexibility.

Comment: One commenter stated thatthe categories of relatives who areexempt from CCDF health and safetystandards should be left up to the LeadAgency.

Response: Our response remains asstated in the Final Rule of August 4,1992, that the intent of the statute wasto give grantees the option to exemptcertain relatives from the health andsafety requirements that all other CCDFchild care providers must meet. Theamended statute extends this exemptionto great grandparents and siblings (ifliving in a separate residence) and wehave amended the regulationsaccordingly. There is no statutoryauthority to extend this exemption toother types or categories of providers.

Sliding Fee Scales (Section 98.42)For a further discussion of

copayments, see Section 98.43.

Equal Access (Section 98.43)The Act requires Lead Agencies to

certify that payment rates are sufficientto provide access to child care servicesfor eligible families that are comparableto those provided to families that do notreceive subsidies. Section 658E(c)(4)(A)requires the Lead Agency to provide a


summary of the facts relied on todetermine that its payment rates aresufficient to ensure equal access.

The regulation at § 98.43(b) requires aLead Agency to show that it consideredthe following three key elements indetermining that its child care programprovides equal access for eligiblefamilies to child care services:

1. Choice of the full range ofcategories and types of providers, e.g.,the categories of center-based, group,family, in-home care, and types ofproviders such as for-profit and non-profit providers, sectarian providers,and relative providers as alreadyrequired by § 98.30.

2. Adequate payment rates, based ona local market survey conducted noearlier than two years prior to theeffective date of the current Plan; and

3. Affordable copayments.These elements must be addressed in

the summary of facts submitted in aLead Agency’s biennial Plan, pursuantto § 98.16(l).

Comment: Some commenters felt thatLead Agencies should simply berequired to summarize the facts theyrelied on in setting payment rates,without addressing the three keyelements mentioned above.

Response: Lead Agencies are free toinclude additional facts they used indetermining rates that ensure equalaccess. As discussed below, we areconvinced that a Lead Agency cannotestablish rates that ensure equal accesswithout reference to the three requiredelements.

1. Full range of providers. All workingparents, regardless of income, need thefull range of categories of care and typesof providers from which they maychoose their child care services. This isbecause child care needs varyconsiderably according to the child’sage and special needs, the parents’ workschedule, provider proximity, culturalvalues and expectations. Therefore, webelieve that the statutory requirement ofequal access means that low-incomeworking parents receiving CCDF-subsidized care must have a full rangeof the categories and types of providersfrom which to choose care that theybelieve best meets their needs and thoseof their children. This element helpssecure the parental choice requirementsat § 98.30 which already require thatparents who receive certificates beafforded such variety.

2. Adequate payment rates. PRWORAeliminated the requirement that, inestablishing payment rates, the LeadAgency take into account variations inthe cost of providing care in differentcategories of care, to different agegroups, and to children with special

needs. While eliminating therequirement for different payment ratesfor different categories of care, Congressadded a requirement that Lead Agenciesprovide ‘‘a summary of the facts reliedon by the State to determine that suchrates are sufficient to ensure such[equal] access.’’

The statute indicates that if familiesreceiving child care subsidies under theCCDF are to have equal access to childcare, the payment rates established by aLead Agency should be comparable tothose paid by families who are noteligible for subsidies. In other words,the payment rates should reflect thechild care market. Although therequirement for specified rate categorieshas changed, the reality remains that themarket reflects differences along severaldimensions, and we do not believe thatCongress expected Lead Agencies toestablish a single payment rate for alltypes of child care and all childrenirrespective of age.

The focus of PRWORA on workfurther highlights the need for CCDFLead Agencies, which now are requiredby statute to administer the newMandatory and Matching Funds, toestablish payment rates that supportwork. Child care is often the majorfactor which determines whetherfamilies are able to work—and access toa variety of child care arrangements isnecessary both to support today’sincreasingly diverse workforce andworkplace demands, and to ensure thatthe healthy development of children isnot compromised.

The major variable in the charges forchild care is the age of the child,especially the added expense of caringfor infants and very young children.And, payments that do not realisticallyreflect the charges of caring for veryyoung children will frustrate the abilityof families to work. Under PRWORA,many more families with infants andpre-school-aged children will berequired to participate in work activitiesfor longer hours per week. In providingthe exception to the individual penaltiesunder TANF for single custodial parentswith a child under age six who cannotobtain needed child care, Congressrecognized the special difficulties oflocating affordable care for youngchildren.

We anticipate that market rate surveyswill also show variations in rates amongcategories of care, and we expect anysignificant variations to be reflected inthe Lead Agency’s payments.

A system of child care payments thatdoes not reflect the realities of themarket makes it economically infeasiblefor many providers to serve low-incomechildren—undermining the statutory

and regulatory requirements of equalaccess and parental choice. Experiencewith the now repealed title IV–A childcare programs and the CCDBG suggeststhat providers limited their enrollmentof children with subsidies because thesubsidy payments were too low.Similarly, failing to compensateproviders timely or not reimbursingthem for days when children are absentalso causes providers to refuse care tochildren with subsidies.

Section 98.43(c) prohibits differentpayment rates based on a family’seligibility status or circumstances. Thisprovision means that the Lead Agencymay not establish payments for TANFfamilies that differ from the paymentsfor child care for the working poor, orfor families in education or training, forexample. We believe that use ofdifferent payment rates, based on aneligibility status, precludes thestatutorily-required equal access tochild care for families receiving CCDFsubsidies. Additionally, differentpayment rates would frustrate one of themain intents in amending the Act in1996—to have a unified child caresystem with a single set of rules. Thispurpose would be undercut if differentpayment rates based on eligibilitycriterion were permitted.

If payments for child care are to besufficient to provide equal access tochild care services in the open market,then the payments must be establishedin the context of market conditions. Weare convinced that a survey of marketrates is essentially the onlymethodologically sound way for LeadAgencies to ascertain whether thepayment rates they establish provideequal access.

A market survey must be conductedin the context of reasonably currentmarket conditions to ensure that thepayment rates continue to provide equalaccess. Therefore, the regulations at§§ 98.43(b)(2) and 98.16(l) require abiennial market rate survey conductedno earlier than two years prior to theeffective date of the currently approvedPlan.

Surveys should not be a burden toStates, which were required to conductmarket surveys in the past. States havehad a number of years’ experience withthe survey process. States havecomplete flexibility to design suchsurveys; we have not proposed a surveymethodology. We note, however, thatsurveys may not be appropriate forestablishing payments for children withspecial needs due to their need forservices on a highly individualizedbasis and the effect of the Americanswith Disabilities Act on providers’charges.


In establishing payment rates wesuggest a benchmark for States toconsider. Payments established at leastat the 75th percentile of the marketwould be regarded as providing equalaccess. States have already recognizedthat rates set at the 75th percentile—thepayment level formerly required in thetitle IV–A child care programs—provideequal access. Comparisons of past StateCCDBG and IV–A child care plansrevealed that the majority of States usedthe same payment rate—the 75thpercentile IV–A rate—for both programeven though there was not arequirement to pay at the 75thpercentile for CCDBG-funded care, onlythe requirement that CCDBG ratesprovide equal access. This samerequirement continues unchanged inthese regulations for the CCDF.

Comment: We received manycomments about the requirement for amarket survey; more comments favoredthe requirement than opposed it. Mostof those favoring it wanted an annualsurvey or additional requirementsaround the timing of the survey orimplementation of the survey results.

Response: While we concur with thecommenters that it would be ideal toconduct surveys more frequently, webelieve that a biennial survey balancesseveral considerations: that the ratesreasonably reflect the state of themarket, that Lead Agencies haveflexibility in designing andimplementing the survey to establishrates, and that the administrativeburden and expense of conducting thesurvey should be minimized. The LeadAgency may conduct a complete surveymore frequently; it may also conducttargeted subsamples in specific areas asfrequently as it deems necessary.However, we choose not to require morethan a biennial survey.

Comment: Those commenters whoopposed the requirement maintainedthat ACF had no authority to require asurvey; that the statute’s onlyrequirement is for ‘‘the facts relied on bythe State to determine’’ that rates aresufficient to ensure equal access.

Response: An executive branchagency charged with administering astatutory program has general authorityto interpret the statutory provisions asneeded in its administration of theprogram. As discussed above, we areconvinced that a survey of market ratesis the only methodologically sound wayfor Lead Agencies to ascertain whetherthe rates established are realistic, thusproviding the statutorily requiredaccess.

Comment: A number of thoseopposing the survey requirement said itstifled State initiative in setting rates.

For example, one commenter said thatrelying on frequent reports fromresource and referral agencies or theState licensing bureau of providershortages and making quick adjustmentsto rates to develop more capacity ineffected areas would be a better, moreresponsive alternative to biennialsurveys. Another commenter suggestedusing computer modeling in lieu of asurvey.

Response: A survey, in that it reflectsmarket realities, is an essential andcritical factor—but not the only factor—that must be considered when the LeadAgency establishes rates. It is becausesurvey findings are so central tounderstanding and gauging what levelof payment might provide equal accessthat we have made the requirement.

However, we are concerned thatcommenters may have assumedrestrictions we did not intend, and havenot created, in requiring a survey. And,we caution Lead Agencies, providers,and others against narrowly interpretingour survey requirement. For example, assuggested, up-to-the-minute vacancydata from CCR&Rs or licensing bureauscould be used in conjunction withmarket rate survey information to makequick and frequent adjustments to thepayments to providers. In setting oradjusting rates, we remind LeadAgencies of the general principle thatFederal subsidy funds can not pay morefor services than is charged to thegeneral public for the same service.

Computer modeling or simulation stillneeds to be based on some parametersreflective of market realities if it is toproduce rates that provide equal access.Although many commenters whoopposed the survey requirement seemedto imply that the realities of the marketcould be ignored in setting rates thatprovide equal access, no plausiblealternatives to the survey were offered.

Nevertheless, we will remain open toalternative methodologies to surveysand revisit this regulation in light ofadvancing technologies. At this time,however, we believe that a survey is anessential part of the ‘‘facts’’ upon whichpayment rates are established.

Comment: A few commentersobserved that surveys may not producerates where there are few, if any,providers of certain care, such as innon-traditional hours.

Response: As discussed above, thesurvey is not the only determinant ofrates, it is just one of the many ‘‘facts’’to be considered. Clearly, States havethe flexibility to establish rates for carethat is needed.

Comment: One commenter suggestedthat a standard index, such as the rateof inflation, be used to adjust rates

gathered two, three, or four years in thepast in lieu of a biennial survey.

Response: Use of a standard indexalone, such as the Consumer Price Index(CPI) or other measures of inflation, isnot an accurate indicator of actualprovider charges in the child caremarket. The use of broad indices, suchas the CPI could vastly underestimatechanges in the child care market. Forexample, in a large urban area thedemand for child care may drive upchild care charges faster than the broadinflation indices would suggest. WhileStates are free to use such adjustmentsin conjunction with surveys, especiallyin years when a survey is notconducted, they should be used with anunderstanding of their limitations.

Comment: One commenter observedthat the 75th percentile is a term heldover from days of IV–A child care (andas such was repealed by PRWORA).Another called the 75th percentile anarbitrary limit with no basis in fact orstatute.

Response: We have used the 75thpercentile as a reference point againstwhich the Lead Agency can judge if itspayment rates afford equal access. Itmust be presumed that a rate thatprovides access to at least three-quartersof all care does, in fact, provide equalaccess. We have not, however, requiredthat payments be set at the 75thpercentile, hence, it cannot becharacterized as an arbitrary limit.

It should be noted, for example, thatLead Agencies have greater flexibilityunder these regulations to recognize andcompensate higher quality child carefacilities and providers, including thosethat have obtained nationally or locallyrecognized accreditation or specialcredentials, than they had under thetitle IV–A regulations that limitedpayments to the 75th percentile.

Comment: A number of commenterswanted it clarified in the preamble thatLead Agencies can pay rates higher thanthe 75th percentile.

Response: Lead Agencies may payrates higher than the 75th percentile aswe have not established the 75thpercentile as the payment standard orlimit. Rather, rates established at the75th percentile would be considered toensure equal access, although such ratesmay be too low to purchase some childcare services, for example, where thereare acute shortages during non-traditional hours.

Comment: Several commenters urgedACF to require that payment ratesreflect variations for different categoriesof care.

Response: When establishing rates,we expect that the Lead Agency willtake into account survey results


showing variations in charges fordifferent categories of care. But, becausethere may be other facts that the LeadAgency considers, we believe such aprescriptive requirement wouldcontradict the intent of the statute.

Comment: A number of commenterswanted us to clarify whether providerscan charge amounts above the paymentrates established by the Lead Agency;and if so, how this might deny equalaccess.

Similarly, a few commenters wanteda clarification of how a combination oflow payment rates and high copaymentscan limit or deny equal access.

Response: A payment rate whichprovides for equal access does notnecessarily provide access to everyprovider, irrespective of the provider’scharge. There is no statutory basis forpreventing a family from choosing aparticular provider whose chargesexceed the Lead Agency’s payment rate.Nor is there an obligation on the part ofthe Lead Agency to pay an amount thatis higher than the rate it determined issufficient to provide equal access. Incases such as these, some States havecreated a contractual requirement thatthe provider will not charge the familythe difference between its usual chargeand the Lead Agency’s rate. By offeringthe provider speedy, assured payments,the Lead Agency has been able toconvince the providers to accept thisstipulation.

The statute requires that the paymentrate alone must ‘‘be sufficient to provideequal access.’’ We separately discuss thequestion of copayments below.

Comment: One commenter said thatmarket rates should reflect currentmarket conditions on a sub-state basis,rather than on a statewide basis.

Response: We believe that surveyswill reflect appreciable sub-statevariations in rates, if any, which theState must then consider in establishingits rates.

Comment: One commenter wanted itclarified that children with disabilitieswould not be adversely affected by aLead Agency’s payment rates.

Response: Payments for child careservices for children with disabilitiesmust also provide for equal access.

3. Affordable copayments. The thirdessential element of equal access is thatany copayment or fee paid by the parentis affordable for the family and slidingfee scales should not be designed in away that limits parental choice. Wewish to emphasize that Lead Agencieshave flexibility in establishing theirsliding fee scales. However, in our view,copayment scales that require a low-income family to pay no more than tenpercent of its income for child care, no

matter how many children are in care,will help ensure equal access.

Recent reports by the Census Bureauindicate that families with incomebelow the poverty level pay adisproportionate share of their income—18 percent—for child care; whereasfamilies above the poverty level payonly seven percent of their income forchild care. The size of the fee paid bya low-income working parent can becrucial in determining whether she andher family become, and remain, self-sufficient. When devising the fee scaleLead Agencies should try to ensure thatsmall wage increases do not trigger largeincreases in copayments, lestcontinuation on the path to self-sufficiency be jeopardized for anyfamily. The size of a fee increase is anespecially important considerationbecause recent changes in the FoodStamp, housing assistance, Medicaid,SSI, and the Earned Income Creditprograms may also affect the resourcesnow available to a low-income workingfamily.

Recent studies have shown that somechild care providers are unwilling toaccept children from families thatreceive subsidies for child care becausethe rates are too low. Faced with sucha situation, a parent must seek care froma relative or other provider who perhapsaccepts the child unwillingly and isunable to provide quality child care.Fifty-five percent of low-income parentsuse informal care arrangements,whereas only 21% of non-poor familiesdo. The options to low-income familiesin selecting child care are limited to ahigher degree by financial constraintsthan are the options for families withhigher income. If, in addition to lowrates, the family must pay a high feefrom an already limited income, thefamily can hardly be said to be on theway to total self-support. And in sucha situation, a family cannot be said tohave equal access to child care. Thelimited access to providers for theselow-income families also tends topromote unevenness of care, and this isan additional hazard to the child’sdevelopment.

There is a relatively low supply ofchild care for infants, for children withdisabilities and for children of parentswho work during non-traditional hours.For families in these categories, acombination of low payments and highfees can limit the choice to an evengreater extent, because they encourageparents to choose less expensive andlower quality child care, or even not toaccept the subsidy at all.

Sliding fee scales must continue to bebased on family size and income, as§ 98.42(b) has not changed. We note that

this regulation provides Lead Agencieswith the flexibility to take additionalelements into consideration whendesigning their fee scales, such as thenumber of children in care. However, aswas stated in the preamble to theregulations published on August 4,1992, basing fees on the cost or categoryof care is not allowed (57 FR 34380).Similarly, multiple fee scales based onfactors such as a family’s eligibilitystatus would be precluded.

Comment: A number of Statesindicated that there is no statutory basisfor limiting the fee to ten percent of afamily’s income, or that such a limit isunnecessarily prescriptive.

Response: We would agree with thecomments if the regulations, in fact,established a limit on copayments. Theydo not.

Lead agencies have the flexibility toset the copayment. We have suggested,not required, that a family’s fee be nomore than ten percent of its income.This benchmark is offered as a referencepoint for Lead Agencies to considerwhen designing fee structures foraffordable care.

Comment: A few commenters felt thatten percent should be the upper limitcharged as a fee or observed that anyfee, however low, can be a deterrent toself-sufficiency to families below thepoverty level. Others thought that thereference to a ten percent copay seemedto conflict with the Lead Agency’s rightto waive the fee.

Response: As indicated above, the tenpercent of family income is offered as abenchmark, not a limit on the LeadAgency.

A family is required by the statute atsection 658E(c)(5) to share in the cost ofsubsidized child care, unless the LeadAgency waives the fee pursuant to§ 98.42(c) and § 98.20(a)(3)(ii). Thosesections allow copayments to be waivedfor those whose income is at or belowthe poverty level and for children inprotective services on a case-by-casebasis. The State has flexibility indeciding the amount of the fee chargedand whether to waive the fee.

Comment: One State commented thata State should be allowed tocategorically waive the fee if a familyreceives TANF.

Response: The fee can be waived, ata State’s option, only if a TANF family’sincome is at or below the poverty level.If TANF families’ incomes are always ator below poverty, then the State cancategorically waive the fee. In contrast,fees may be waived for child care inprotective services cases only on a case-by-case basis.


Comment: One commenter thoughtthe preamble should define‘‘affordable.’’

Response: As in 1992, we decline toestablish a regulatory standard for‘‘affordability.’’ However, as discussedabove, we feel that a fee that is no morethan 10 percent of a family’s incomewould generally be considered to be anaffordable copayment.

We decided, again, not to prescribe adefinition for ‘‘affordable’’ because wefelt that any definition wouldunnecessarily undermine a LeadAgency’s ability to establish servicepriorities, be administratively difficultto monitor and enforce, and precludethe variation that is inherent in thenature of block grants.

Comment: Several commenters askedthat the Lead Agency have the authorityto categorically waive the fee forprotective services and foster care, andnot just on a case-by-case basis.

Response: We do not believe that it isconsistent with the intent of the statuteto categorically waive the fee forprotective services or foster care cases.However, we recognize that the natureof protective service cases can bedifferent, and that in an individual caseit might further the purpose of thestatute to increase the availability ofchild care. Therefore, § 98.20(a)(3)(ii)gives Lead Agencies the authority towaive income eligibility and fees forchildren in protective custody on a case-by-case basis, or after consultation withan appropriate protective servicesworker.

As discussed in the preamble to theregulations published on August 4,1992, there is a basic distinctionbetween protective services cases andfoster care cases. However, as discussedin the preamble to § 98.20 in the 1992regulations, Lead Agencies have theflexibility to treat foster care cases as afamily of one and thus effectivelyreduce or eliminate the fee in mostfoster care cases (57 FR 34369), but notcategorically.

Comment: Several commentersbelieved there is a contradictionbetween the ten percent benchmark andthe regulation that gives Lead Agenciesthe flexibility to waive copayments ona case-by-case basis for families at orbelow the poverty level or for childrenin protective services.

Response: These policies are notcontradictory, nor are we implying thata fee of ten percent of a family’s incomeis appropriate for every very low-income family, since such a fee mighteffectively prevent many low-incomefamilies from taking advantage of thechild care subsidy. We view ten percentas the appropriate upper limit for co-

payments; and as stipulated in theregulations, a Lead Agency can waivethe co-payment for families at or belowthe poverty level (§ 98.42(c)), or forchildren in protective services(§ 98.20(a)(3)(ii)).

Priority for Child Care Services (Section98.44)

Although we proposed no changes tothis section, we received a number ofcomments regarding serving childrenwith disabilities which indicated a needto provide some clarification aboutpriority for children with ‘‘specialneeds.’’

As we stated in the 1992 preamble, forthe purpose of prioritizing services,States have the flexibility to definechildren with ‘‘special needs’’ in theCCDF Plan. ‘‘Special needs’’ can meangroups other than children withphysical or mental disabilities. Statescan and do prioritize services forchildren of teen parents, homelesschildren and other groups by providingdefinitions in the CCDF Plan. Refer to57 FR 34382 for a detailed discussion ofthe three contexts in which the term‘‘special needs’’ is used in theseregulations.

List of Providers (Section 98.45)Any Lead Agency not having a

registration process must maintain a listof the names and addresses of allunregulated providers. It is essentialthat Lead Agencies have some simple,standardized system to record thenames and addresses of unlicensedproviders in order to pay them and toprovide them with pertinentinformation about health and safetyregulations and training.

The regulations no longer specificallyrequire Lead Agencies to have aregistration process for providers notlicensed or regulated under State orlocal law before paying them for childcare services. However, Lead Agenciesshould note that they may continuesuch a system, and we stronglyencourage them to do so.

Comment: A number of commentersopposed requiring States to maintain alist of providers and felt States shouldbe given options.

Response: We know that States havedeveloped various processes forregistering unregulated providers andthat maintaining a list of these providersis essential to effectively managing theirchild care program. We do not expectStates to set up a separate list if theircurrent system provides the means toidentify and communicate withunregulated providers.

Comment: Other commenters wantedthe regulation strengthened to require

the State to make the list of providersavailable to all parents as a means ofproviding them with more possibilitiesfor care.

Response: Many unregulatedproviders are providing care for friendsor relatives, and may not be providingchild care services to the public. Someunregulated providers who are in thechild care business, but exempt fromState licensing, may want their namesincluded on a list given to families.However, others may not. These areState and local government decisions.We will not regulate further regardingthe list of providers.

Subpart F—Use of Block Grant Funds

Child Care Services (Section 98.50)

The 70 percent requirement. Section418(b)(2) of the PRWORA specificallyrequires the State to ensure that not lessthan 70 percent of the funds received bythe State under this section of thestatute are used to provide child careassistance to families who are receivingassistance under a State program underPart A of title IV of the Social SecurityAct, families who are attemptingthrough work activities to transition offof such assistance program and familiesthat are at risk of becoming dependenton such assistance program. By statute,the 70 percent requirement applies onlyto the Mandatory and Matching Funds.Further, the amended statute at658E(c)(2)(H) requires the State todemonstrate in its CCDF Plan themanner in which the State will meet thespecific child care needs of thesefamilies. These statutory provisions arefound in these regulations at § 98.50(e)and (f).

Comment: Several commenters notedthat in the Plan provisions we ask theLead Agency to ‘‘describe’’ how it willmeet the child care needs of the familiesspecified at § 98.50(e), whereas at§ 98.50(f) we require the Lead Agency to‘‘specify’’ how they will meet thoseneeds.

Response: We do not believe theterms are inconsistent. The statute asksthat States ‘‘demonstrate the manner inwhich the State will meet the specificchild care needs’’ of those families. Webelieve that a description would provideStates the opportunity to presentspecific information which woulddemonstrate how they are serving thispopulation.

Serving other low-income workingfamilies. Section 658E(c)(3)(D) directsthe State to ensure that a ‘‘substantialportion’’ of the amounts available (aftera State has complied with the 70percent requirement discussed above) isused to provide assistance to low-


income working families other thanthose who are receiving assistance,transitioning off assistance or at risk ofbecoming dependent on assistanceunder Part A of title IV of the SocialSecurity Act. The amounts in questioninclude the remaining Mandatory andMatching Funds (provided underSection 418) as well as the DiscretionaryFunds.

Since the income level for eligiblefamilies is increased in the statute to 85percent of the State median income, itis clear that Congress intended for childcare assistance to be available to morelow-income working families than werepreviously eligible. We believe,however, that families whose income isless than 85 percent of the State medianincome may well be at risk of becomingdependent on assistance. Thus the twopopulations overlap.

The regulation at § 98.50(e) providesthe statutory description of the familieswho are to be served under the 70percent provision. In addition § 98.50(f)requires the State, pursuant to thestatute, to describe in its Plan how theState will meet the needs of thesefamilies. We believe, based on ourconsultations, that the circumstances oflow-income working families (whoseincome is below 85 percent of the Statemedian income) are generally nodifferent than the families specificallymentioned in these regulations and thuswould expect that they would be treatedsimilarly. If a State elects to have aspecific description of at-risk families, itcould, for example, be included whendefining very low income or inproviding additional terminologyrelated to conditions of eligibility orpriority in the CCDF Plan.

Comment: Some commenters relatedthe ‘‘substantial portion’’ requirement tothe 70% requirement and are concernedthat there is very little funding for low-income working families.

Response: As noted above, the 70%requirement applies only to theMandatory and Matching Funds. Statesmust then use a ‘‘substantial portion’’ ofany remaining Mandatory and Matchingfunds as well as a ‘‘substantial portion’’of Discretionary funds to serve familieswhose incomes are below 85% of SMI.

Comment: Several commenters notedthat § 98.50(d) was inconsistent with§ 98.52(a) in that it addressed funds thatwere awarded rather than expended.

Response: We have corrected§ 98.50(d) to be consistent with ourintent that the administrative costs bebased on amounts expended. Refer toAdministrative Costs (§ 98.52) for amore detailed discussion of this issue.

Activities to Improve the Quality ofChild Care (Section 98.51)

Not less than four percent. Section658G of the CCDBG Act directs that aState that receives CCDF funds shall usenot less than four percent of the amountof such funds for activities that aredesigned to provide comprehensiveconsumer education to parents and thepublic, activities to increase parentalchoice, and activities designed toimprove the quality of child care andavailability of child care (such asresource and referral services). We referto this requirement collectively as‘‘Activities to Improve the Quality ofChild Care.’’ Section 98.51(a) providesthat the not less than four percentrequirement for quality applies to theaggregate amount of expenditures (i.e.,Discretionary, Mandatory, and both theFederal and State share of Matchingfunds); it need not be appliedindividually to each of the componentfunds. Section 98.51(a) also providesthat the four percent requirementapplies to the funds expended, ratherthan the total of funds that are availablebut not used. Lead Agencies, however,have the flexibility to spend more thanfour percent on quality activities.Section 98.51(c) provides that thequality expenditure requirement doesnot apply to the maintenance-of-effortexpenditures required by § 98.53(c) inorder to claim from the Matching Fund.

The regulations at § 98.51(a)(1) arebased on the broad statutory language,while § 98.51(a)(2) keeps, as examples,the options for specific activitiesformerly contained in the Act. Resourceand referral programs, grants or loans toassist in meeting state and localstandards, monitoring of compliancewith licensing and regulatoryrequirements, training, andcompensation are allowable qualityactivities under this minimum fourpercent requirement. We will continueto collect, in the Plan, descriptions ofactivities to improve the quality of childcare services. We encourage LeadAgencies to evaluate the success of theirefforts to improve quality and we willdisseminate promising practices.

Comment: Some commenters wantedus to remove from § 98.51(a)(2)(i) thewords ‘‘operating directly’’ as they feltthat resource and referral can be donemost effectively at the community levelrather than by state government.

Response: We agree that localresource and referral activities areimportant to child care services.However, by removing the words‘‘operating directly,’’ we would bereducing the options available to theState. Therefore we have retained the

wording in the regulation in order toensure State flexibility in deliveringthose services.

Administrative Costs (Section 98.52)

Section 658E(c)(3)(C) of the amendedAct limits the amount of funds availablefor the administrative costs of the CCDFprogram to ‘‘not more than five percentof the aggregate amount of fundsavailable to the State.’’ Section 98.52(a)provides that the five percent limitationon administrative costs applies to thefunds expended, rather than to the totalof funds that are available but notgranted or used. Thus, Lead Agenciesmay not use five percent of the totalfunds available to them foradministrative costs unless they use allthe available funds including MatchingFunds.

This provision also makes clear thatthe five percent limitation applies to thetotal Child Care and Development Fund.The five percent limitation need not beapplied individually to each of thecomponent funds—the Discretionary,Mandatory, and Matching (including theState share) Funds. We believe thisflexibility will streamline the overalladministration of the Fund. Thelimitation does not apply to themaintenance-of-effort expendituresrequired by § 98.53(c) in order to claimfrom the Matching Fund.

Section 98.52(a) lists administrativeactivities and is derived from the priorregulations as modified by the PRWORAamendments and the ConferenceAgreement (H.R. Rep. 104–725 at 411).While the statute does not defineadministrative costs, it does preclude‘‘the costs of providing direct services’’from any definition of administrativecosts.

The Conference Agreement specifiesthat the following activities ‘‘should notbe considered administrative costs’’:

(1) Eligibility determination andredetermination;

(2) Preparation and participation injudicial hearings;

(3) Child care placement;(4) The recruitment, licensing,

inspection, reviews and supervision ofchild care placements;

(5) Rate setting;(6) Resource and referral services;(7) Training [of child care staff]; and(8) The establishment and

maintenance of computerized child careinformation systems.

The regulation’s list of administrativeactivities at § 98.52(a) omits thefollowing three activities that werelisted as administrative costs in the1992 CCDBG rule: determiningeligibility, establishing and operating acertificate program, and developing


systems. ‘‘Establishing and operating acertificate program’’ was not specificallylisted by Congress as a non-administrative cost. However, weomitted this activity because thecomponents of a certificate programwould not be considered to beadministrative costs under theConference Agreement exclusions. Forexample, certificate programs mustdetermine and redetermine eligibility,provide the public with informationabout the program, develop andmaintain computer systems, placechildren, offer resource and referralservices, etc.—all items which theConference Agreement lists as notadministrative costs. All costs, then, ofthese three activities: determiningeligibility, establishing and operating acertificate program, and developingsystems, are now considered non-administrative costs.

While these regulations reflect theConference Agreement language, we arenevertheless concerned that States willmisinterpret the intent of the changeand re-direct a disproportionate amountof expenditures on these redesignatedactivities rather than on direct servicesto children. We wish to emphasize thatservices to children is the purpose forwhich the CCDF was created. Therefore,we would not expect a large increase incosts to activities that are not directservices to children. We will closelymonitor such expenditures to determineif States are overspending for suchactivities at the expense of services. Asone method of monitoring, the requiredCCDF financial reporting form, theACF–696, separately collects theamounts that are expended ondetermining eligibility, establishing andoperating a certificate program, anddeveloping systems. If we determinethat there are problems, we reserve theright to re-visit the policy and regulatein the future.

Lastly, we clarify in § 98.52(c) that thenon-Federal expenditures required ofthe State in order to meet itsmaintenance-of-effort threshold forreceiving matching funds are not subjectto the five percent limitation onadministrative costs. Nevertheless,audits of State reports of maintenance-of-effort expenditures should indicatethat administrative expendituresincluded in those MOE amounts arereasonable, necessary for carrying outthe services provided, and consistentwith other provisions of law.

Comment: Many commenters objectedto applying the five percentadministrative limitation to the amountsexpended, rather than to the amountsallocated to the State, saying thatadministrative costs might be incurred

in one year for expenditures that occurin another.

Response: We have clarified § 98.52(a)to reflect that the limit applies to theamounts expended from the totalallocated, not to the amounts expendedin a single fiscal year. We understandthat it might be necessary to use morefunds for administration during theinitial start-up of an activity, or that theperiod when administrative costs areincurred may not coincide with whenthe funds are actually liquidated. And,the provision was not intended to limitLead Agency flexibility in the shortterm.

The choice of the word ‘‘expend’’ inthe regulation, rather than ‘‘available’’as in the statute or ‘‘allocated’’ as in thecomment, is meant to address only onesituation. Section 98.52(a) is meant toensure that when a State that does notexpend—within the applicabletimeframes provided for at § 98.60—thefull amounts allocated to it, the Statedoes not receive a windfall inadministrative cost allowances. Forexample, two States are each allocateda total of $100 million in the CCDF. Atthe end of the expenditure periods,State A has spent $50 million whileState B has expended all $100 million.It would be unfair to allow both Statesto receive $5 million in administrativeallowances since State B’s program (interms of dollars expended) is twice thesize of State A’s.

Comment: Some felt that the tone ofthis section was threatening. Theyobjected to the suggestion of furtherregulations in this area if Lead Agencyreports indicate disproportionateexpenditures on the activities that hadbeen redesignated as non-administrativecosts, i.e., determining eligibility,establishing and operating a certificateprogram, and developing systems.

Response: We did not intend tothreaten Lead Agencies. The preamblediscussion is intended to reflect ourobligations to taxpayers for prudentmanagement of the resources Congresshas allotted for the purpose of providingchild care services.

Comment: One commenter observedthat there was no definition of‘‘implementation’’ in § 98.52(a)(1) andwas concerned that some might makejudgments about when implementationbegan or ended.

Response: Implementation in thiscontext refers to the ongoing conduct orexecution of the program and does notimply a fixed period or a process witha beginning and/or ending date. Itwould be incorrect, for example, for anauditor to determine thatimplementation of an activity hadended.

Comment: One commenter, notingthat the regulations clearly provide thatthe 5% administrative cap did not applyto State MOE, stated that the preamblethen clouded the issue by suggestingthat ACF would monitor MOE reports inrelation to administrative expenditures.

Response: In the preamble to theproposed rule, we did not proposespecifically to monitor MOEexpenditures. Rather, we did expressthe expectation that audits of the CCDFprogram should indicate thatadministrative expenditures containedin MOE amounts would be reasonable,necessary for carrying out the servicesprovided, and consistent with otherprovisions of law.

Administrative costs for Tribes. Wehave specifically noted at § 98.52(b) thatthe five percent cap on administrativecosts does not apply to Tribes, and tribalorganizations; it applies only to theentities defined as ‘‘States.’’ Tribes,however, are subject to the requirementsat § 98.83(g) regarding limits onadministrative expenditures.

Matching Fund Requirements (Section98.53)

Terminology and generalrequirements. In this section we haveused the phrase ‘‘expenditures in theState’’ to encompass not only localexpenditures on child care but alsoprivate, donated funds that meet therequirements at § 98.53(e)(2), asexplained below. Whenever the term‘‘State funds,’’ ‘‘State expenditures’’ or‘‘non-Federal expenditures’’ is used itshould be understood to include State,local or permissible private donatedfunds that meet these requirements andare expended for allowable child carepurposes. And, the language of§ 98.53(e) reflects this.

Section 418(a)(2)(C) of the SocialSecurity Act creates a two-part matchingrequirement. First, a State must expendan amount that at least equals itsallowable expenditures for the title IV–A child care programs during 1994 or1995, whichever is greater. We refer tothis amount as the ‘‘maintenance-of-effort’’ (MOE) threshold.

Changes to PRWORA contained inP.L. 105–33 provide that for fiscal years1998 and after, a State’s expenditures inexcess of its MOE threshold, up to amaximum determined by the statute, arematched at the applicable year’s Federalmedical assistance percentage (FMAP)rate. (For FY 1997, state expenditureswere matched at the 1995 FMAP rate.)The total amount that can be matchedrises each year and is equal to the sumappropriated for that year, less theamounts of the Mandatory Fund, thetribal allocation and the allocation for


technical assistance. The maximum tobe matched for each State is its share ofthat total based upon the proportion ofthe State’s children under age 13 to thenational total of children under age 13,based on the best data available to theSecretary for the second preceding year.

Section 98.53(c) lists the requirementsthat States must meet if they wish toclaim Federal Matching Funds. Insummary, this section requires that theState obligate all of its Mandatory Fundsby the end of the fiscal year (FY) theyare granted. Mandatory Funds need notbe obligated before Matching Funds areclaimed, provided that all MandatoryFunds will be obligated by the end ofthat FY. Second, they must expendState-only dollars in an amount thatequals the State’s MOE thresholddescribed at § 98.53(c)(1). And third,they must obligate the Federal and Stateshare of the Matching Fund by the endof the FY.

Comment: Some commenters thoughtthat there was a point beyond whichMatching funds would no longer beavailable to them and wanted us toclarify that as long as the State meets thestatutory requirements that theMatching funds would be availablethroughout the fiscal year.

Response: Matching funds areavailable throughout the fiscal year, anddisbursements to the State are based onthe ACF–696s submitted by the LeadAgency. Those non-Federalexpenditures (exceeding the MOEthreshold) for which the State wishes toclaim monies from the Matching Fundmust be obligated before the end of thefiscal year.

State expenditures allowable for MOEand Federal Matching funds. Stateexpenditures on any activity or servicethat meets the goals of the CCDBG Actand that is described in the approvedCCDF Plan, if appropriate, may be usedto meet the MOE requirement or may beclaimed for Federal Matching funds(§ 98.53(b) and (c)(2)). For MOE, theseregulations offer greater flexibility thanwe offered in our interim guidanceprovided in our Program Instruction,ACYF–PI–CC–96–17, dated October 30,1996. However, as provided at§ 98.53(d), the same expenditure stillmay not be counted for both MOE andmatch purposes.

Under these regulations, States willhave flexibility to define child careservices, so long as those services meetthe requirements of the statute. Forexample, State expenditures for childcare for those populations previouslyserved by the title IV–A or CCDBG childcare programs would be eligible forFederal match. Similarly, Stateinvestments in child care through the

use of State funds to expand Head Startprograms or to otherwise enhance thequality or comprehensiveness of full-day/full-year child care would also beeligible for Federal Matching fundssince these activities meet the goals ofthe Act.

Sections 98.53(e) and (f) containadditional qualifications on whatconstitutes an expenditure in the Statefor purposes of this Part. Thesequalifications are the same thatgenerally apply to Federal programs thatprovide for matching Stateexpenditures, with two importantclarifications.

First, § 98.53(e)(1)(i) allows a publicagency, other than the Lead Agency, tocertify its expenditures as eligible forFederal match. This provision allowsStates, for example, to use pre-Kexpenditures to meet the MOErequirement (when the regulatoryprovisions for use of pre-K funds aremet) and/or receive Federal Matchingfunds. The second clarification, at§ 98.53(f), concerns the treatment ofprivate donated funds. It providesgreater flexibility than previouslyoffered as interim guidance under ACFProgram Instruction, ACYF–PI–CC–96–17, dated October 30, 1996.

Regarding the MOE requirements, thesame State expenditure may be used tomeet both the CCDF and TANF MOErequirements provided the expendituremeets the requirements of bothprograms. However, the amount of StateCCDF MOE expenditures that maycount for TANF MOE purposes islimited to the amount of the State’sshare of expenditures for the programsdescribed at section 418(a)(1)(A) of theSocial Security Act (i.e., the nowrepealed title IV–A child care programs)for FY 1994 or FY 1995, whichever isgreater.) Section 409(a)(7)(B)(iv)(IV)specifically provides that Stateexpenditures used to meet the CCDFMOE requirement—and/or for whichCCDF Matching funds were received—may be included in meeting the TANFMOE requirement up to the amount setat section 418(a). Any additional Stateexpenditures for child care in excess ofthe amount of the CCDF MOErequirement, and for which CCDFMatching funds are not claimed, mayalso be counted in meeting the TANFMOE requirement when theexpenditures meet the requirements ofTANF.

In addition, pursuant to section409(a)(7)(B)(iv)(I) of PRWORA, Stateexpenditures for child care may not beincluded as part of the State MOE forTANF if the funds originated with theFederal government. Hence, Federalfunds transferred from TANF to the

CCDF would not count towards theTANF MOE. Further, those funds couldnot be used to receive CCDF Matchingfunds under the general rule Federalfunds may not be used as a matchwithout statutory authority.

Comment: Several commentersobjected to the prohibition on using in-kind expenditures for State match,contending that this runs counter to theregulations for the pre-TANF title IV–Aprograms on which much of the CCDFfunding is now based.

Response: The pre-TANF title IV–Aprograms did not allow for theunlimited use of in-kind match as thecomments suggest. Only a small part ofthe total JOBS funding (that part equalto the State’s WIN or WINDemonstration allotment for fiscal year1987) could be matched with in-kindcontributions. The match rate for thesefunds was 90%; meaning the State’sshare was only 10%. The SocialSecurity Act, at section 403(l)(1)(B),specifically provided for in-kindcontributions in this limited instanceonly.

There is no indication that Congresscontemplated the use of in-kind match,either in the CCDBG Act or the childcare provisions in PRWORA. In fact, inspecifying that the Secretary shallreimburse expenditures, the provisionprecludes the claiming of in-kindmatch.

Comment: One commenter askedwhether State expenditures forKindergarten services could be countedin meeting the MOE requirement orclaimed for match.

Response: Compulsory Stateeducation services cannot be used tomeet the MOE requirement or to claimmatching funds. Non-compulsoryservices are subject to the limits at§ 98.53(h).

Comment: One commenter asked forclarification of the relationship betweenchild care expenditures used to meet theTANF MOE requirement and used toclaim CCDF matching funds. Thecommenter observed that Section409(a)(7)(B)(iv) of the Act precludedusing the same State expenditure forclaiming CCDF Matching funds and formeeting the TANF MOE requirement.

Response: That section in the Act wasamended by the Balanced Budget Act of1997 to allow certain State expendituresto be used to claim CCDF Matchingfunds and be used to meet the TANFMOE requirement. We updated theabove discussion to reflect thosechanges. Use of the same expenditurefor both purposes is subject to certainqualifications discussed above.

Use of a private agency to receivedonated funds. Historically, private


donations to State-level programs havebeen very limited; locally controlleddonations have been somewhat moreprevalent. Frequently cited reasons forthis lack of public support for seeminglyworthwhile programs have includedsuspicion of government, in general,especially government outside theimmediate community, coupled withregulations that appeared to limit theState’s ability to assure the donor thatthe donated funds will be used in aspecific area or for the donor’s intendedpurpose.

At a time when child care programsface increased demands, and Statebudgets face constraints, we havereexamined prior ACF policies ondonated funds. We have tried torespond to the issues that we were toldhave inhibited private donations in thepast by including in the definition ofState expenditures donated funds thatmeet the qualifications at § 98.53(e)(2),even though such funds are not underdirect State control. The regulations at§ 98.53(f) provide that private donatedfunds need not be transferred to orunder the administrative control of theLead Agency to be eligible for Federalmatch. Instead they may be donated tothe entity designated by the State toreceive donated funds. Both the LeadAgency and the entity designated by theState to receive donated funds must,however, certify that the donated fundsare available and eligible for Federalmatch. In addition to this dualcertification requirement, we want toensure Lead Agency accountability forfunds that may not be under its directcontrol. Therefore, the fiscal reportingform, the ACF 696, requires that theLead Agency separately report theamount of private donated funds it usesas match. And finally, Lead Agenciesshould be aware that private donatedfunds used as match are also subject tothe audit requirements at § 98.65.

This rule will allow Lead Agencies tocooperate more closely with variousorganizations, foundations, andassociations that already support highquality child care and related activities.It will also allow the Lead Agency toleverage private funds in order to servemore families, while working withinState and Federal budget restrictions.

We also take this opportunity toclarify the regulation at § 98.53(e)(2)(i)which requires that private funds bedonated without restriction on their usefor a specified individual, organization,facility or institution. Under thisclarification a donor could designate aspecific geographic location for thereceipt of funds. Such a geographicspecification can be broad, such aswithin the limits of a specific city, or

extremely narrow, such as a singleneighborhood. Such geographicspecification is possible whenever fundsare donated, whether the funds aredonated to the Lead Agency or to anentity specially designated to receiveprivate donations.

Lead Agencies will be asked toidentify the entity that is designated toreceive private donated funds and thepurposes for which those donated fundsare expended in their Plan, pursuant to§ 98.16(c)(2).

Comment: Several commenterswanted us to limit the use of pre-K andor donated funds to only those Statesthat had used such funding prior to FY1997.

Response: It is not clear why thecommenters proposed such a limitation.The regulation is designed to give LeadAgencies additional flexibility inmaximizing child care funding whileensuring ongoing commitments toexisting programs. We see no benefit tolimiting the use of pre-K or donatedfunds as suggested.

Comment: The same commenterswanted us to require that States submitquarterly reports listing the entitiesreceiving donated funds and the uses ofthose funds.

Response: We have required that theLead Agency identify in its Plan thesingle entity designated to receivedonated funds and the allowable childcare services for which the funds will beused. We believe that additionalrequirements, such as those proposedwould be burdensome for the LeadAgency and serve no useful purpose inlight of the policy that provides for asingle entity to receive donated funds.

Comment: Several commenterssuggested that individual programs orproviders would be accepting donatedfunds.

Response: We want to clarify that theregulation provides for the designationof a single entity in each State to receivedonated funds. We settled on this for anumber of reasons. First, it would beburdensome for the Lead Agency tohave to deal with hundreds ofindividual providers or programs allclaiming to have receive donated fundswhich are allowable. Since the LeadAgency is ultimately responsible for theallowability of the donated funds wedid not want to create such a burden onthem. More importantly, we did notwant to create a mechanism whereinindividual programs, providers orjurisdictions might be forced to competewith each other for donated funds. Nordid we want to create a situationwherein the Lead Agency might tie theavailability of certificates, grants orcontracts to a jurisdiction, provider or

program’s ability to attract donatedfunds. We believe that allowing for thedesignation of only a single entity toreceive donated funds, at least initially,is a reasonable policy choice.

Claims for pre-K expenditures forMOE and match purposes. Many Statesfund pre-K programs for young children.These are important early childhoodservices that contribute to schoolreadiness. Expenditures for State-funded public pre-K services to childrenfrom families who meet the CCDFeligibility criteria (as outlined in thePlan) may meet the requirements forallowable child care servicesexpenditures for MOE and matchpurposes. The pre-K program must meeteach of the following four conditions:

• Attendance in the pre-K programmust not be mandatory.

• The pre-K program must meetapplicable standards of State, local ortribal law.

• The pre-K program must allowparental access.

• The pre-K program must not beFederally funded (unless funded with‘‘exempt’’ Federal funds for matchingpurposes), and its State funding may notbe used as basis for claiming otherFederal funding.

In addition, pre-K expendituresclaimed may be only for those familieswho are at or below 85 percent of theState median income (SMI) (or lowerSMI established as the CCDF eligibilitycriterion by the Lead Agency) and whomeet other State eligibility criteria.

During our consultations we heard thefull range of issues around allowingStates to use their pre-K expenditures tomeet the matching and MOErequirements of the CCDF. We cameaway from those consultations withsome reservations about the use of pre-K expenditures, but we also came awaywith increased respect for theimportance of these programs.

A chief concern to working parents isthat many pre-K services are only part-day and or part-year and such programsmay not serve the family’s real needs.Some have expressed concerns that anexcessively broad approach to countingpre-K expenditures might result in a realreduction in full-day child care servicesto potentially eligible working families.The potential exists for a State with asufficiently large pre-K program todivert all state funds away from otherchild care programs and fulfill its MOEand Matching requirements solelythrough pre-K expenditures. On theother hand, allowing pre-K expendituresto be counted toward MOE or matchcould provide a critical incentive forStates to more closely link their pre-Kand child care systems. This could


result in a coordinated system thatwould better meet the needs of workingfamilies for full-day/full-year servicesthat prepare children to enter schoolready to learn. We struggled with theseissues and considered variousalternative approaches to counting pre-K expenditures in the CCDF.

In the end, we decided on a policythat attempts to balance concerns aboutthe use of pre-K expenditures inmeeting CCDF requirements. At§ 98.53(h)(3) and (4) we have addressedour concerns about balance byestablishing a maximum amount ofState expenditures for pre-K servicesthat can be claimed for match or MOE.Expenditures for pre-K programs mayconstitute no more than 20% of theState’s expenditures which are matched.Similarly, expenditures for pre-Kprograms may constitute no more than20% of the State’s expenditures countedin fulfilling the MOE requirement.However, if a State intends to fulfillmore than 10% of either its MOE ormatching requirements with pre-Kexpenditures, its CCDF Plan must reflectthat intent. Additionally, if a Stateintends to fulfill more than 10% ofeither the MOE or matching requirementwith pre-K expenditures, the CCDF Planmust describe how the State willcoordinate its pre-K and child careservices to expand the availability ofchild care. We established the 20%limits because they approximate theproportion of pre-school age childrennationwide currently receiving servicesunder the CCDBG. (This level alsoapproximates the average monthlyproportion of pre-school age children ofJOBS participants who received childcare assistance in the past.)

States may count only those pre-Kexpenditures that meet the criteria asallowable child care services explainedabove (i.e., attendance is not mandatory,the program meets applicable standards,allows parental access, serves CCDFeligible families as provided in the Plan,etc.). The Lead Agency is required toseparately report on the ACF–696 theamount of pre-K expenditures it claimsas match or uses to meet the MOErequirement.

In addition, for MOE purposes,§ 98.53(h)(1) provides that States cannotreduce their level of effort in full-day/full-year child care services if they usepre-K expenditures to meet the MOErequirement. And, States are required toprovide an assurance of this, pursuantto § 98.15(a)(6). This requirementreflects the fact that although the statuteeliminated the non-supplantationrequirement formerly found at section658E(c)(2)(J) of the CCDBG Act, anothernon-supplantation requirement was

created by section 418(a)(2)(C) of theSocial Security Act. That non-supplantation requirement—the MOErequirement—requires States tocontinue to spend at least the sameamount on child care services that theyspent on the repealed title IV–A childcare programs, in order to receive thenew Matching Fund. Such a provisionwould be meaningless if States usedMOE expenditures for services that werenot responsive to the real child careneeds of working families that the CCDFwas intended to assist, i.e., the State‘‘buys out’’ with pre-K expenditures thefull-day/full-year child care services itpreviously provided under title IV–A. Inthe interest of State flexibility we havenot otherwise regulated on the types ofservices that may be counted in meetingthe MOE requirement and, as discussedbelow, have eased the burden on theState in calculating the amount of pre-K expenditures that may be used tomeet the MOE and matchingrequirements.

In contrast, there is not a similarrequirement if pre-K expenditures areclaimed for match. Since the MatchingFund is ‘‘new money’’ it is not subjectto the same requirements thatexpenditures used to meet a non-supplantation (MOE) requirement mustmeet. However, §§ 98.16(q) and98.53(h)(2) require that States describein their CCDF Plan any efforts they willundertake to ensure that pre-K programsmeet the needs of working parents ifpre-K expenditures are claimed formatch. Our different treatment of pre-Kexpenditures in the MOE and matchingrequirements, then, reflects a balancebetween the principles of non-supplantation and state flexibility.

Furthermore, ACF will permit Statesto use a different method for calculatingthe amount of pre-K services claimed forboth MOE and matching purposes thanwas required under the former title IV–A child care programs. Under the nowrepealed title IV–A child care programs,ACF required States wishing to claimFederal match for their pre-Kexpenditures to base their claim on thenumber of title IV–A-eligible (orpotentially eligible) children whoactually participated in the pre-Kprogram. As many school districts didnot have the information to identifywhether pre-K participants weremembers of IV–A-eligible families, itwas difficult for States to claim Federalmatching funds for these programs. Infact, only a handful of States claimedFederal Match under title IV–A for theirpre-K expenditures. In our consultationswe were asked to loosen this child-by-child approach to counting pre-Kexpenditures.

In the interest of easing administrativeburdens on the Lead Agency, we haveadopted the following policy towardcalculating pre-K expenditures forpurposes of claiming MOE andMatching funds. For pre-K expendituresto be claimed, States must ensure thatchildren receiving pre-K services meetthe eligibility requirements establishedin the CCDF Plan. In cases where Statesdo not have child specific information,however, they must develop a soundmethodology for estimating thepercentage of children served in the pre-K program who are also CCDF-eligible.Expenditure claims must reflect theseestimates.

Although the methodology should bedocumented, we will not require thatthe methodology be submitted to ACFfor prior review or approval. Indocumenting their methodology, LeadAgencies are reminded of therequirement at § 98.67(c), whichprovides that fiscal control andaccounting procedures must besufficient to permit the tracing of fundsto a level of expenditure adequate toestablish that such funds have not beenused in violation of the Act orregulations.

Comment: Some commenters arguedagainst any restriction on the amount ofpre-K that could be used to satisfy theMOE requirement saying that Statesmay lower or end investments in pre-Kbecause of the limit. Others agreed withthe 20% cap, while still others wanteda lower cap or the exclusion of pre-Kfrom meeting the MOE requirement.

Response: We anticipated thesereactions and specifically requestedcomments on the pre-K limit in theproposed rule. However, none of thecommenters who argued for unrestricteduse of pre-K addressed our concernsabout ‘‘buying-out’’ existing child careservices with pre-K programs. Theargument that a State may limit pre-K isnot convincing since States usually fundpre-K for a variety of programmaticreasons—not because it may be anallowable match for another program.

This regulation still gives States moreflexibility than in the past and opensnew sources of match not heretoforeavailable. Accordingly, as a matter ofbalance, we have retained a reasonablelimit on using State pre-K expendituresto meet the MOE requirement.

Comment: Some commenters objectedto linking the use of pre-K to meet theMOE requirement with maintainingexpenditures on full-day/full-year childcare services. They felt that the increasein TANF recipients accepting part-timeemployment will affect the need for fullday/full year care.


Response: We do not believe that trueeconomic self-sufficiency is readilyachievable through part-timeemployment. While part-timeemployment of families may haveincreased at the outset of TANF, theoperation of time limits on those samefamilies will require increased hours ofemployment just to maintain incomelevels when their TANF benefits cease.We believe, then, that it is prudent toretain this requirement at this time.

Comment: A commenter asked if weintended to limit pre-K programs tofamilies at or below 85% of the State’smedian income (SMI).

Response: We did not intend to limitState’s ability to provide pre-K to allfamilies, regardless of their income.However, only expenditures for thoseservices provided to families at or below85% of the SMI (i.e., whatever limit theLead Agency establishes as theeligibility criteria for CCDF-fundedchild care) may be counted in meetingthe CCDF MOE requirement or toreceive Matching funds. We haverevised the discussion above to makethis point more clearly.

Family fees and the matching fund.Section 98.53(g)(2) clarifies that familycontributions to the cost of care asrequired by § 98.42 are not consideredeligible State expenditures under thissubpart. This policy is based on the factthat family fees are not Stateexpenditures.

Restrictions on Use of Funds (Section98.54)

Section 103(c) of the PersonalResponsibility and Work OpportunityReconciliation Act of 1996 (PRWORA)repealed the three title IV–A child careprograms—the AFDC child careprogram, the Transitional Child Careprogram and the At-Risk Child Careprogram. However, in appropriatingnew child care funds under section 418of the Social Security Act, the PRWORAprovides that these funds must be spentin accordance with the provisions of theChild Care and Development BlockGrant Act as amended. This requirementis incorporated into § 98.54(a). Thissection also provides that TANF fundsthat are transferred to the Lead Agencyunder the provision of the new section404(d) of the Social Security Act aretreated as Discretionary Funds for thepurposes of § 98.60.

Other Federal funds expended forchild care, unless transferred to the

Lead Agency, are not required to bespent in accordance with the amendedCCDBG Act. This means, for example,that child care provided with title XXfunds or TANF funds that are nottransferred to the Lead Agency might besubject to different requirements.However, ACF cautions States about theadministrative and policy problemsassociated with operating a variety ofFederally-funded child care programs,e.g., one program subject to CCDBGrequirements and others not. Theamendments to the CCDBG Actcontained in the PRWORA are intendedto create a single child care programwith consistent standards andrequirements and to counteract thefragmentation and conflictingrequirements that had arisen underprior law.

We have also added a new section at§ 98.54(b)(3) which clarifies the specialprovisions on use of funds forconstruction that apply to Tribes andtribal organizations under the PRWORAamendments.

Comment: One commenter felt thatallowing expenditures for minorremodeling for non-sectarian providers,while limiting such expenditures forsectarian providers to only thoseinstances where remodeling was neededto meet health and safety requirements,would increase the workload of theLead Agency, in that it will be necessaryto track the nature of an organizationrequesting funds for minor remodeling.

Response: We did not propose anychange in this regulation which hasbeen in effect since 1992. The regulationimplements section 658F(b) which doesrequire that Lead Agencies distinguishbetween sectarian and non-sectarianproviders in providing CCDF funds forminor remodeling. Nevertheless, we areunaware that this provision has beenburdensome on Lead Agencies.

Subpart G—Financial Management

Availability of Funds (Section 98.60)

Section 418 of the Social Security Act,which was added by PRWORA, requiresthat all Federal child care fundsappropriated therein be spent inaccordance with the provisions of theamended Child Care and DevelopmentBlock Grant. In consolidating theFederal child care programs under asingle set of eligibility requirements,Congress nevertheless instituted threefunding sources. We have chosen to

refer to the combined funding as theChild Care and Development Fund—CCDF. This term recognizes thedifferent sources of Federal moniesflowing into child care but the commonpurposes for which they may beexpended.

Section 418 of the Social Security Actappropriates Federal funds for the 50States, the District of Columbia andIndian Tribes in the form of formulagrants which we refer to as theMandatory Fund. A specified amount ofFederal funds is also made availableunder a different formula to the 50States and the District of Columbia tomatch their allowable child careexpenditures. We refer to this amount asthe Matching Fund. Section 658B of theChild Care and Development BlockGrant (CCDBG) Act authorizes funds toStates, Tribes and Territories accordingto a third formula. We refer to the fundsauthorized under the CCDBG Act asDiscretionary Funds. The formulas forallocating each of the Funds andrequirements unique to each Fund arediscussed at §§ 98.61, 98.62 and 98.63.

Both the Mandatory and DiscretionaryFunds are 100 percent Federal Funds—no match is required to use these Funds.Section 418(a)(2)(C) of the SocialSecurity Act, however, makes theavailability of Matching Fundscontingent on a State’s child careexpenditures.

We have deleted the regulationformerly at § 98.60(g) concerning start-up planning costs associated with theinitial implementation of the CCDBGand have redesignated the remainingregulations. All of the States beganoperating a CCDBG program in FY 1991,therefore the regulation at § 98.60(g) isobsolete since the time frames forobligating and expending start-up fundshave passed. We recognize that therestill may be Tribes that wish to begin aCCDF program and for which thequestion of start-up funds still applies.Accordingly, we have addressed theavailability of funds for planningpurposes for new Tribal Lead Agenciesat § 98.83(h) in subpart I.

We have also clarified the wording of§ 98.60(f) to indicate that 31 CFR part205 applies only to State Lead Agencies.

Obligation period/liquidation periods.The following table shows theobligation and liquidation periods forthe various Funds and the maintenance-of-effort (MOE) requirements.

These funds Must be OBLIGATED by the end of the AND, must be LIQUIDATED by the end of the

Discretionary .................................. 2nd FY ........................................................................ 3rd FY.Mandatory (State) .......................... 1st FY—only if Matching is requested ....................... NA, no limit.Mandatory (Tribes) ......................... 2nd FY ........................................................................ 3rd FY.


These funds Must be OBLIGATED by the end of the AND, must be LIQUIDATED by the end of the

Matching ......................................... 1st FY ......................................................................... 2nd FY.MOE ............................................... 1st FY, and expended in that FY ............................... NA, must be liquidated in 1st FY.

The PRWORA amended the CCDBGAct to require States and Territories toobligate their Discretionary allotmentsin the fiscal year in which they arereceived, or in the succeeding fiscalyear. These amendments return thestatutory language to its status beforethe Juvenile Justice and DelinquencyPrevention Amendments of 1992 (Pub.L. 102–586). Since the final regulationswhich would have incorporated thechanges from the Juvenile Justice andDelinquency Prevention Amendmentsof 1992 were never published, nochange is needed in the regulatorylanguage.

The FY 1997 Health and HumanServices appropriation (Pub. L. 104–208) changed the date that the CCDFDiscretionary Funds will becomeavailable from September 30 of thefiscal year in which the funds areappropriated to October 1 of thefollowing fiscal year. As a result, whenexisting regulatory language is applied,States and Territories have two fullfiscal years to obligate their CCDFDiscretionary Funds, instead of the yearand a day which resulted under earlierappropriations. States and Territoriescontinue to have until the end of thethird fiscal year to liquidate these funds.

Section 418(b)(1) of the SocialSecurity Act provides that theMandatory Fund is available withoutfiscal year limitation. However, section418(a)(2)(C) of the Social Security Act,which describes the conditions forreceiving Matching Funds, indicatesthey are paid to a State for expendituresthat exceed the State’s Mandatory grantand MOE level, and are only availableon an annual basis. Moreover, section418(a)(2)(D) of the Social Security Actrequires that Matching Funds that arenot used in the fiscal year be madeavailable for redistribution in thefollowing fiscal year. Therefore, a Statewishing to claim Matching Funds mustobligate its Mandatory Funds before theend of the fiscal year for which theMandatory Funds are awarded. Statesnot wishing to claim Federal MatchingFunds have no obligation or liquidationdeadline for their Mandatory Funds.

Also, the amount of a State’s MOErequirement must be obligated andliquidated before the end of the fiscalyear for which Matching Funds areawarded. Non-Federal expenditures(exceeding the MOE threshold) forwhich the State wishes to claim monies

from the Matching Fund must also beobligated before the end of the fiscalyear for which they are awarded.

The same obligation and liquidationperiods that apply to the StateDiscretionary Funds apply to the tribalfunds. While the FY 1997 appropriationchanged the date Discretionary Fundsbecome available, under the revisionTribes will continue to have two fullyears to obligate the child care fundsthey receive. Further, under theseregulations, Tribes will receive anadditional year to liquidate these Funds.Retaining the previous regulationswould have had the consequence ofproviding three full years to obligateand liquidate tribal child care grants.

The amendments to the DiscretionaryFund under PRWORA for the first timeprovide that tribal funds are subject toreallotment. The two-year approach toobligation will encourage Tribes to planfor the timely commitment of funds and,at the same time, make uncommittedfunds available on a timely basis tothose Tribes that are in need ofadditional child care monies.

Section 98.60(d)(3) lists the obligationand liquidation periods for States thatreceive Matching Funds. In order toaccommodate the redistributionrequired by section 418(a)(2)(D) of theSocial Security Act, the regulationrequires that Matching Funds must beobligated in the fiscal year in whichthey are granted and liquidated withintwo years.

Returned Funds. As a result of thechanges made by PRWORA and thechange in the date of availability of theCCDF Discretionary Funds made by theFY 1997 HHS appropriation, § 98.60(g)requires that funds returned to the LeadAgency after the end of the applicableobligation period must be returned tothe Federal government. Under thisprovision, however, and as previousregulations permitted, funds returnedduring the obligation period may be re-obligated for activities specified in thePlan, provided they are obligated by theend of the obligation period. Thisprovision was inadvertently deleted inthe proposed rule but has been addedback in the final rule at section98.61(g)(1). The re-obligation of fundswill not result in any extension of theobligation period.

The 1992 regulations allowed Statesto follow State or local law orprocedures regarding funds returnedafter the end of the obligation period.

The provision was applicable only towhat now are the Discretionary Fundspart of the CCDF. It recognized thatalthough section 685J(c) of the Actprovided for a two-year obligationperiod for those funds, the Departmentsof Labor, Health and Human Servicesand Related Agencies AppropriationsAct, 1991 (Pub. Law 101–517) providedthat FY 1991 funds became available onSeptember 7, 1991. The impact of thatappropriation was that CCDBG funds(now called Discretionary Funds) wereavailable for obligation only for barelyover a year, instead of for two full years.The now-superseded provisionregarding returned funds reflectedACF’s desire that States not be put inthe position of having to makepremature decisions regardingobligations in a new program due to atruncated obligation period. Also, ourreasoning for the former provisionincluded the consideration that, eventhough the Act contained a reallotmentprovision for these funds, thereappeared to be little likelihood that theStates would return them forredistribution since they were 100percent Federal funds.

The FY 1992 HHS appropriation (Pub.Law 102–170) moved the availability ofCCDBG funds to the last day of the fiscalyear, and the CCDBG funds continued tobe paid on the last day of the fiscal yearin subsequent years, until theDepartments of Labor, Health andHuman Services and Related AgenciesAppropriations Act, 1997 (Pub. Law104–208) again changed the date of theavailability of these funds. The 1997appropriation provides that, startingwith the FY 1998 Discretionary Funds,Discretionary Funds will be madeavailable on the first day of each fiscalyear. The result of this change is thatthere now will be two full years toobligate Discretionary Funds.

Further, the regulations at the former§ 98.60(h) would have beeninappropriate to the new Mandatory andMatching Funds provided underPRWORA. The law, at section 418 of theSocial Security Act, requiresredistribution of the Matching Funds toother States, if the State to which theywere granted does not use them in thefiscal year in which they are granted.Also, the Secretary must determine theamount of Matching Funds available forredistribution by the end of the firstquarter of the fiscal year following the


year the grant was awarded. The lawlinks use of Matching Funds to use ofthe Mandatory Funds—and, as providedin the regulations at § 98.60, MandatoryFunds must be obligated in the year inwhich they are granted if a Staterequests Matching Funds. Unlike theDiscretionary and Mandatory Funds, theMatching Funds are not 100 percentFederal funds, and there seems to be agreater possibility that some of thesefunds would be returned forredistribution. Thus, the formerreturned funds regulations would nothave been workable for these funds, andwere changed.

Comment: Although not addressed inthe proposed regulations, manycommenters objected to our policy ofallocating Discretionary and MandatoryFunds on a quarterly basis, rather thanas a single grant at the beginning of thefiscal year. They felt that such a policyshould be applicable to matching grantprograms only, not to entitlements tothe States, such as the Discretionary andMandatory Funds.

Response: The Office of Managementand Budget has determined that each ofthe individual CCDF funds are to beapportioned to the States quarterly. Wenote that other non-matching grantprograms, such as title XX, are alsosubject to such quarterlyapportionments.

Comment: Some commenterssuggested that we allow unlimitedobligation and expenditure periods forTribal Mandatory funds, citing theunlimited periods for State Mandatoryfunds (if the State does not useMatching funds).

Response: We have kept the proposedobligation and liquidation time framesfor Tribal Mandatory funds. Althoughthere is a statutory exception for StateMandatory funds to the normal one-yearobligation period (unless the State usesMatching funds), Tribal Mandatoryfunds are not analogous to StateMandatory funds and have no suchstatutory exception. Furthermore, in thepast, a significant number of Tribes havereturned funds to the Federal Treasury.Therefore, we believe that the requiredobligation/liquidation time frames arereasonable and necessary to ensure thatfunds are used in a timely manner.

Comment: Several commenterswanted us to revise § 98.60(d)(5)(ii) toallow Interagency agreements and orcontracts between government entitiesat the same level to constituteobligations.

Response: We had not proposed anychange to this regulation which hasbeen in effect since 1992. This issue isaddressed in the preamble to the 1992regulations at 57 FR 34395 and that

discussion reflects our continuedposition.

As a practical matter, funds that aretransferred to another part of Stategovernment, either at the same level, orat a lower level, simply do not reflectthe same real fiscal commitment offunds to the CCDF program as occurswhen funds are transferred to a thirdparty.

Comment: One commenter observedthat § 98.60(d)(6)—regarding obligatingfunds using a certificate—is problematicbecause the amount of funds that maybe actually used by the family cannot beknown with certainty as the family mayuse fewer hours of care than wasindicated on the certificate. Thecommenter wanted to eliminate therequirement to include the amount offunds on the certificate.

Response: This provision isunchanged from the 1992 final rule andthis situation was addressed in thepreamble at 57 FR 34395. Without anamount it is unclear how the commenterwould determine how much wasobligated.

Stating an amount on the certificatefulfills the obligation requirement, yet,as explained in the 1992 preamble, theLead Agency can nevertheless makeadjustments to reflect the actual use offunds, reobligating if within theobligation period, to ensure theliquidation of funds within theprescribed period.

Comment: One commenter,understanding the necessity to recoverfraudulently received payments,suggested that § 98.60(i) reflect aminimum threshold under whichrecovery would not be necessary. Forexample, if the administrative expenseof recovery exceeded the amountfraudulently received.

Response: As we stated in the 1992preamble at 57 FR 34397, any paymentsnot made in accordance with the Act,regulation or approved State Plan maynot be charged to the program and willbe disallowed pursuant to § 98.66.Should a State choose not to pursuefraudulent payments because to do somay not be cost-effective, the amount ofthat fraudulent payment may not becharged to the CCDF.

Allotments From the DiscretionaryFund (Section 98.61)

The allotment formulas for theDiscretionary Fund are unchanged fromthe original formulas for the CCDBG andare discussed in the 1992 preamble at 57FR 34397.

In response to an amendment tosection 658P(14) of the CCDBG Act, wehave added a provision allowing forDiscretionary Fund grants to a Native

Hawaiian Organization and to a privatenonprofit organization established forthe purpose of serving Indian or NativeHawaiian youth. This provision isdiscussed below.

Data sources for tribal allotments. TheCCDBG Act requires the Secretary toobtain the most recent data andinformation necessary, from eachappropriate Federal agency, todetermine State funding allotments.There is no similar statutoryrequirement for determining tribalallotments.

In past years, ACF used two separatedata sources to calculate tribal childcounts: the Bureau of Indian Affairs’(BIA) Indian Service Population andLabor Force Estimates Report, publishedbiennially, and the 1990 Census (forAlaska-specific data). These datasources are addressed in the CCDBGFinal Rule (45 CFR 98 and 99, publishedAugust 1992).

In the proposed rule, ACF discusseda new self-certification process for tribalchild counts used to calculate tribalallotments under the Child Care andDevelopment Fund. This approachaffords Tribes the opportunity to selecta data source, or utilize a method forcounting tribal children, which mostaccurately reflects its child population.

In addition, the child count data willbe available with minimal lag time andwill more accurately reflect the naturalfluctuations in child population. Withdata sources used and discussed in the1992 CCDBG Final Rule, it can take 2 to3 years for changes in population (suchas reaching a child population of 50) tobe reflected.

Finally, this approach supports thePresident’s April 29, 1994, mandate toFederal agencies reaffirming thegovernment-to-government relationshipbetween Tribes and the Federalgovernment and directing agencies todesign solutions and tailor Federalprograms, in appropriate circumstances,to address specific or unique needs oftribal communities.

Beginning with funding available inFY 1998, ACF implemented a new self-certification method for tribal childcounts. In the proposed rule, we statedthat self-certified counts for FY 1998would continue to include childrenunder age 16, consistent with the agecategory in the BIA Report.Furthermore, we proposed that forfunds available in FY 1999, tribal childcount declarations would include onlychildren under age 13, in accordancewith the CCDBG statute, therebyallowing a one-year transitional periodfor Tribal Lead Agencies to plan for aself-certified child count of childrenunder age 13.


We have slightly modified thisapproach in this regulation to continueto permit self-certification of tribal childcounts to include children under age 16for funds which become available in FY1999. While we fully embrace self-certification of tribal child counts, basedon the practical experience inimplementing this approach for FY 1998tribal grant awards we believe that moretime is necessary for some tribalgrantees to plan for counting childrenunder age 13.

This additional time is particularlyimportant since Tribes will no longer beable to use the data in the BIA Report,and there is no frequently publishednational data source which providescounts of children under age 13 for allcurrent or potential CCDF tribalgrantees. However, despite theextension of the transition period, westill plan to require self-certification ofchildren under age 13 beginning in FY2000.

Each year ACF will issue instructionsfor Tribes to follow in submitting theirself-certified child counts. Each tribalgrantee and each Tribe participating ina consortium will be required to submita child count declaration signed by thegoverning body of the Tribe or anindividual authorized to act on behalf ofthe applicant Tribe or organization.

Grants to a Native Hawaiianorganization and a private nonprofitorganization serving Indian or NativeHawaiian youth. Section 658P(14) of theamended CCDBG Act adds the followingsecond definition to the term ‘‘tribalorganization’’ which are potentiallyeligible for Discretionary Funds:

‘‘Other organizations—Such term includesa Native Hawaiian Organization, as definedin section 4009(4) of the Augustus F.Hawkins-Robert T. Stafford Elementary andSecondary School ImprovementAmendments of 1988 and a private nonprofitorganization established for the purpose ofserving youth who are Indians or NativeHawaiians.’’

Section 4009(4) of the Augustus F.Hawkins-Robert T. Stafford Elementaryand Secondary School ImprovementAmendments of 1988 defines a NativeHawaiian Organization as:

‘‘A private nonprofit organization thatserves the interests of Native Hawaiians, andis recognized by the Governor of Hawaii forthe purpose of planning, conducting, oradministering programs (or parts ofprograms) for the benefit of NativeHawaiians.’’

No other changes were made in theAct with respect to Native Hawaiians orNative Hawaiian Organizations (NHOs)or private nonprofit organizations(PNOs) established for the purpose ofserving youth who are Indians or Native

Hawaiians; nor is the ConferenceAgreement instructive as toCongressional intent. However, giventhe statutory language, we provide at§ 98.61(e) that only a single NHO and asingle PNO will be funded.

Several options were considered forallocating funds in accordance with thisexpanded definition of tribalorganization. We considered, forexample, treating NHOs and PNOs inthe same manner for allocation purposesas other tribal organizations (i.e., a baseamount plus a per child amount, or onlya per child amount).

Based on an analysis of the statute,however, we believe the Congressintended for an NHO and a PNO to betreated differently from Indian Tribesand tribal organizations which areeligible to receive CCDF funding. CCDFfunds are awarded on a formula basis toall eligible Tribes and consortia.However, only a single NHO and asingle PNO are to be awarded grants.Determination of those entities requiresa discretionary grant process rather thanthe formula basis used for Indian Tribesand tribal consortia.

Eligible NHOs and PNOs, as well asthe States, are reminded that under§ 98.80(d), Indian children continue tohave dual eligibility to receive servicesfunded by CCDF. Indian children andNative Hawaiian children will continueto be eligible for services providedunder a grant awarded to a NHO or PNOand from the State of Hawaii (or otherState in the case of a PNO awarded toa grantee not located in Hawaii).

Therefore, through a grant award to aNHO and a PNO, additional child careservices (from the Discretionary Fund)are available to children who arecurrently eligible to be served under aState CCDF program. A more detailedexplanation of dual eligibility isprovided in the Preamble at Subpart I.

For these reasons, up to $2 million isreserved from the total amount reservedfor Tribes under the Discretionary Fundfor two grants each fiscal year. Webelieve that such an amount issubstantial enough to meaningfullyserve populations that may have beenunder-served in the past, withoutjeopardizing existing tribal programs.

Allotments From the Mandatory Fund(Section 98.62)

Section 418(a) of the Social SecurityAct creates a capped entitlement for the50 States and the District of Columbia.The amounts allotted to each State andthe District are based on the Federalshare of expenditures for child careunder prior programs under title IV–Aof the Social Security Act (i.e., theAFDC/JOBS, Transitional and At-Risk

Child Care programs) in FY 1994, FY1995, or the average of FY 1992–1994,whichever is greatest. Before funds areallocated to the individual States, one-quarter of one percent of the total isreserved for the provision of technicalassistance and up to two percent isreserved for grants to Tribes.

For Indian Tribes and tribalorganizations we have chosen toallocate Mandatory Funds solelyaccording to the number of Indianchildren in each Tribe’s service area.That is, unlike the Discretionary Fund,there is no base amount provided toTribes under the Mandatory Fund.

We chose this approach in response totribal arguments for increased fundingfor direct services. We agree that tribalchild care programs would especiallybenefit from additional service funds,and we did not wish to divert any newfunds into non-service activities. Tribeshave the flexibility to expend their baseamount on administration or directservices, including quality activities.However, we are concerned that manylarge consortia already receivesubstantial sums of base amountmonies. According to the programreports from those consortia, it appearsthat these large base amounts often donot translate into direct child careservices for tribal children. We do notbelieve that tribal children wouldbenefit from augmenting the existingbase amount in lieu of direct child careservices.

Lastly, we listed the 13 entities inAlaska that are eligible to receiveMandatory Funds pursuant to theamended section 419(4)(B) of the SocialSecurity Act. We listed those eligibleentities in this section of the regulationrather than have two differentdefinitions of Tribes at § 98.2.

Allotments From the Matching Fund(Section 98.63)

As provided in the statute, allotmentsto each of the 50 States and the Districtof Columbia are based on the formulaused to distribute funds under the now-repealed At-Risk child care program.The Matching Fund consists of theamount remaining from a fiscal year’sappropriation under section 418(a)(3) ofthe Social Security Act after reservingamounts for technical assistance and forTribes and awarding Mandatory Funds.

Reallotment and Redistribution ofFunds (Section 98.64)

The provisions for reallotment andredistribution of Discretionary fundsremain essentially unchanged from the1992 regulations. The reallotment/redistribution process is described at 57FR 34401, August 4, 1992. However, the


OMB-approved form ACF–696 now asksthe State to indicate if it wants anyDiscretionary Funds that might bereallotted. Discretionary Funds will bereallotted only to those States thatrequest them. Therefore, the provisionformerly at § 98.64(b)(2)(iv) thatreturned to the Federal government anyreallotted funds that a State ‘‘does notaccept’’ is deleted as unnecessary.

Section 418(a)(2)(D) of the SocialSecurity Act, which was amended afterthe proposed rule was published in July1997, now provides for theredistribution of Federal MatchingFunds which are allotted to a State, butnot used. This new provision is nowadded to the regulations at § 98.64(c)(2).We have adopted the statutory term‘‘redistribute’’ when discussing theMatching Fund in the regulation.However, we believe that the term iscomparable to the ‘‘reallotment’’ of theDiscretionary Funds and have thereforeadopted a comparable process. Forexample, at § 98.64(c)(3) we haveapplied the language from thereallotment process at § 98.64(b)(2) todescribe the same limits on the amountsof unobligated Matching grants that willbe redistributed to other States thatcurrently apply to the DiscretionaryFund. That is, no redistribution will bemade to States if the total to beredistributed is less than $25,000. Norwill any grant be made to an individualState if it would be less than $500. Asprovided in the statute, redistribution ofthe Matching Funds will be based on aformula similar to that used for theoriginal allotments to the 50 States andthe District of Columbia.

Section 98.64(c)(1) provides thatMatching Funds allotted to a State, butnot obligated by the end of that fiscalyear, be redistributed to the other Stateswhich did obligate all of the MatchingFunds allocated to them. UnusedMatching Funds, then, would be madeavailable only to those States whichdemonstrated their ability to use theentire amount already granted to them.According to the statute, such Statesmust request the redistributed funds;the Funds will not automatically beredistributed to all qualifying States. Weconsidered redistributing unusedMatching Funds among each of the 50States and the District of Columbia,including the States that returned themoney being reallotted. We rejected thatapproach since it raised the possibilitythat States which were unable to use allof their funds in one year would againbe unable to use them in the followingyear. This would result in fundsreverting to the Federal Treasury ratherthan being used to assist families.

Sections 98.64(c)(3) and (4) providethat States use the regular financialreporting form, ACF–696, instead of aseparate notification from the State.These provisions allow for a simplifiedprocess by which States can both notifyus of any unobligated Matching Fundsavailable for redistribution and requestredistributed Matching Funds.

Section 98.64(c)(6) reflects thestatutory language that redistributedMatching Funds are to be considered aspart of the grant for the fiscal year inwhich the redistribution occurs, not asa part of the grant for the year in whichthe funds were first awarded. This is incontrast to reallotment of DiscretionaryFunds; for Discretionary Funds theobligation period is based on the awardyear and is not extended.

An amendment to section 658O of theAct provides for the reallotment of tribalDiscretionary Funds. That amendment,at 658O(e)(4), requires the Secretary toreallot any portion of a tribal grant thatshe determines ‘‘is not being used in amanner consistent with the provision of[the Act].’’

Although the statutory languageseems to suggest that the Secretary maymake a determination which is separateand apart from the usual audit practiceon the manner of use of funds by Tribes,there is no discussion in the ConferenceAgreement to indicate such aninterpretation. Furthermore, we believethat Congress would have been moreexplicit if it desired the Secretary tocreate a separate audit or investigatoryprocess. Therefore, § 98.64(d) providesfor a reallotment process that parallelsthe State process. That is, we willdetermine the amounts to be reallottedbased upon reports submitted by theTribes, pursuant to paragraph (d)(1) ofthis section. Each Tribe must submit areport to the Secretary indicating eitherthe amount of funds from the previousyear’s grant it will be unable to obligatetimely pursuant to § 98.64(d), or that itwill obligate all funds in a timelymanner. The reports must be submittedeach year by a deadline established bythe Secretary. Unless notified otherwise,this deadline will be April 1, and thereports may be in the form of a letter.We chose the April 1st deadline toallow the Secretary the necessary timeto reallot the funds and to allow Tribesthe necessary time to obligate suchfunds on a timely basis. While theproposed rule included the April 1deadline in the regulatory languageitself, we decided in the final regulationto leave flexibility to accommodate anychanges that might be necessary as weimplement the reallotment procedures.

We will reallot funds that Tribesindicate are available for reallotment to

the other Tribes, in proportion to theiroriginal allotment, if the total amountavailable for reallotment is $25,000 ormore. If the total amount is less than$25,000, we will not reallot these funds;instead, they will revert to the FederalTreasury. It is administrativelyimpractical for the Department to issuesmall awards. Likewise, the Secretarywill not award any reallotted funds toa Tribe if its individual grant award isless than $500, as it is administrativelyimpractical to do so.

If a Tribe does not submit areallotment report by the deadline forreport submittal, we will determine thatthe Lead Agency does not have anyfunds available for purposes of thereallotment. If a report is postmarkedafter the deadline established by theSecretary (April 1, unless notifiedotherwise), we will not reallot theamount of funds reported to be availablefor reallotment; instead, such funds willrevert to the Federal Treasury. Aspreviously discussed, late reports do notallow the Secretary sufficient time toreallot the funds nor do they allow theTribes sufficient time to obligate suchfunds timely as required by § 98.64(d).We anticipate the Secretary will reallotfunds made available for reallotmentwithin a month of the deadline forreceipt of reallotment reports. Reallottedfunds must meet the same programmaticand financial requirements as fundsmade available to Tribes in their initialallotments.

The statute, and hence theregulations, remain unchangedregarding the reallotment ofDiscretionary Funds to the Territories.That is, there is no reallotment ofTerritorial Discretionary Funds.

Comment: A number of commentersquestioned why the regulation did notspecifically reflect the statute regardingthe timing of the determination andredistribution of returned Matchingfunds.

Response: Section 418(a)(2)(D) of theSocial Security Act provides that theSecretary shall make a determination‘‘not later than the end of the firstquarter of the subsequent fiscal year’’whether Matching funds are availablefor redistribution. And, that anyredistribution ‘‘shall be made as close aspracticable to the date’’ on which thatdetermination is made.

Because this is a requirement on theSecretary, we did not believe it isnecessary to include it in the regulation.We will follow the timeframes providedfor in the Act.

Comment: One commenter suggestedthat the obligation and liquidationperiods for reallotted Matching Fundsshould start from the time the funds are


reallotted, not at the beginning of thefiscal year in which the reallotmenttakes place.

Response: The requirement isstatutory and the statute does notprovide for extending the programperiod of reallotted Matching Funds.

Comment: Another commenter askedhow States will know that Matchingfunds are available for redistribution,and noted that the regulation fails tostate when a request for redistributedMatching funds is to be made by theState.

Response: We did not want to createa cumbersome, time-consuming processfor redistributing Matching funds.Therefore, we did not propose theseparate step of notifying States of theavailability of redistributed funds.Rather, the required quarterly ACF–696referred to in the regulation asks if theState wishes to request redistributedMatching funds, should any becomeavailable. This request is to becompleted in the quarter preceding thefinal quarter in a fiscal year, asdescribed in the instructions to theACF–696 published as ProgramInstruction ACYF–CC–PI–05, datedSeptember 26, 1997. We believe thatthis process will best expedite theredistribution of Matching Funds,should any become available. Thisprocess should also allow us to meet thetime requirements in the Act onredistribution, thereby maximizing theamount of time that remains in the fiscalyear for the State to obligate theredistributed Matching funds.

Comment: One commenter suggestedthat instead of redistributing returnedState Discretionary funds to otherStates, those funds should be reallottedto the Tribes in the State that returnsthem.

Response: As discussed in thepreamble to the 1992 rule at 57 FR34401, Tribes are not eligible to receiveState funds made available forreallotment.

Comment: Several commentersobjected to the proposed dollarthresholds required for reallotment toTribes. In the proposed rule, we usedthe same thresholds for Tribes as forStates—$25,000 for the total amountavailable for reallotment and $500 for anindividual grant award. Commentersargued that the thresholds for Tribesshould be lower, given the smaller sizeof tribal grant awards.

Response: Based on these comments,we considered lowering the dollarthreshold for Tribes in the finalregulation. However, after discussingthe administrative burden of smallgrants with ACF fiscal staff we decidedto keep the $25,000 and $500 thresholds

because it is administrativelyimpractical for the Department to issueand track grant awards for smalleramounts.

Audits and Financial Reporting (Section98.65)

Commenters were almost universallyopposed to our proposed regulatoryinterpretation of the amended section658K of the Act. They pointed out thatour interpretation of ‘‘an entity that isindependent of the State’’ wasinconsistent with section 7501(a)(8) ofthe Single Audit Act Amendments of1996. That section defines anindependent auditor as an ‘‘externalState or local government auditor whomeets the independence standardsincluded in generally acceptedgovernment auditing standards.’’ Wehave, therefore, amended the regulationto reflect that State auditors who meetthe generally accepted auditingstandards issued by the ComptrollerGeneral, including public accountantswho meet such independencestandards, may perform the requiredaudits. We also corrected certainreferences, such as replacing thereference to OMB Circular A–128 witha reference to OMB Circular A–133,which was issued to replace A–128 afterour proposed rule was published.

Subpart H—Program ReportingRequirements

Reporting Requirements (Section 98.70)

Section 658K(a) of the amended Actrequires each State receiving Child Careand Development Fund funding tosubmit two reports: monthly case-leveldata for families (reported quarterly)and annual aggregate data. Territoriesare considered States for reportingpurposes. The first annual aggregatereport was required to be submitted byDecember 31, 1997, and annuallythereafter.

Comment: Several commentersrequested a delay in the submission ofthe first case record report (ACF–801)due to the changes made by thetechnical amendments to the law. Theyalso requested that States be allowed tosubmit data monthly rather thanquarterly.

Response: ACF recognizes theserequests as justifiable. Therefore, asindicated at § 98.70, we extended thedue date for the first quarterlysubmission (ACF–801) from February15, 1998 to August 30, 1998. We alsoallow States to submit data monthlyrather than quarterly. If they choose tosubmit data monthly, the first reportedmonth, April 1998, is due 90 days later

by July 30, 1998, with following reportsevery 30 days thereafter.

Section 658L of the Act requires theSecretary to prepare a report to Congressevery two years summarizing the dataand information required at section658K of the Act and § 98.71 of theregulation.

Section 658O(c)(2)(C) of the Actspecifies that Tribes will report onprograms and activities under CCDF.We require Tribes to submit annualaggregate data appropriate to tribalprograms as they have previously in theCCDBG program.

Principles for data reporting. Theamended Act significantly revised thereporting requirements for all child careservices. As a result, ACF developedprinciples to guide the implementationof reporting requirements. ACF, inconcert with the Lead Agencies, will:

1. Meet the statutory mandate for datareporting;

2. Streamline data collection andreporting procedures from the previousfour programs into a single integratedprogram;

3. Build on data collection systemsfrom the former four child careprograms;

4. Apply flexibility in phasing in theimplementation of the data collectionrequirements;

5. Apply flexibility in meeting dataneeds outside the Federal requirements;

6. Provide technical assistance toLead Agencies in the design of new orrevised data collection systems andreporting processes, encouraginglinkages to TANF information systemsand to other relevant Federal reportingsystems;

7. Provide sampling specifications toLead Agencies as part of the datacollection process;

8. Provide technical assistance toLead Agencies in the design and use ofdata for the development of programperformance measures; and

9. Commit to making the data usefulfor Lead Agencies.

Content of the Reports (Section 98.71)

For States and territories. Consistentwith the requirements of section 658Kof the amended Act, we require Statesto collect monthly samples of case-levelfamily data which are reported to ACFquarterly, or monthly if the Statechooses to do so. To provide foradequate time for the approval processfor sampling plans, we require at§ 98.70(a)(3) that States submit theirsampling plan to ACF for approval 60days prior to the submission of the firstreport. States are not precluded fromsubmitting case-level data for the entirepopulation of families served under the


CCDF. Specific aggregate information isrequired in the annual report.

Cost of Care. Although the statuterequires that cost of care information beprovided in both the case-level andaggregate reports (658K(a)(1)(B)(ix) and658K(a)(2)(B)), we will collect thisinformation through the case-levelreport only and we will compile theinformation into the aggregate. This willeliminate duplicative reporting for theannual aggregate report.

Section 658K(a)(2)(C) requires that thenumber of payments made throughvarious methods by types of providersbe reported annually. Most States payproviders monthly; a few pay morefrequently. If the statutory language isnarrowly interpreted, States would berequired to report as many as 12–24payments or more for each subsidizedchild throughout the year. Because thisinformation would be of limited value,we are regulating at § 98.71(b)(2) thatthe Lead Agency’s report reflect thenumber of children served by paymentmethod and primary type of providerduring the final month of the reportperiod only (or for the last month ofservice for those children leaving theprogram before the end of the reportperiod). Changes in payment method orprimary provider type over the reportperiod should be ignored and only thelast arrangement reported.

Comment: Several commentersrequested that ACF include informationabout child care provider auspice orsponsorship in the reportingrequirements, noting that the definitionssection of these regulations (§ 98.2)refers to the type of provider as non-profit, sectarian, and relative providersand that the statute uses the word‘‘types’’.

Response: Section 658K of the CCDBGAct as amended by the PRWORAspecifically designates the child caredata items which Congress mandated. InSection 658K(a)(1)(B)(vii), the statutestates that quarterly case-level datashould be collected on the ‘‘type ofchild care in which the child wasenrolled (such as family child care,home care, or center-based care).’’Additionally, Section 658K(a)(2)(A) ofthe amended statute requires LeadAgencies to report aggregate informationabout the number of child careproviders that received funding ‘‘asseparately identified based on the typesof providers listed in section 658P(5).’’Section 658P(5) specifically mentionscenter-based, group home, family childcare, and relative care.

Although these statutory referencesseem to conflict with the term ‘‘types ofproviders’’ listed in § 98.2 of the rule,ACF has decided that it is not

inherently inconsistent to use a differentstatutory definition for reportingpurposes. Congress entertained muchdiscussion around reportingrequirements. Their strong need forspecific child care data can be inferredfrom their resolve to include specificreporting elements in the statute.Additionally, even though recenttechnical amendments slightly revisedthe reporting requirements, no specificdirection was given in the technicalamendments to collect informationbased on sponsorship.

During the time reporting procedureshave been under development, ACF hasconsulted with program administratorsand system/information managementspecialists at the State level, as well asthe American Public WelfareAssociation and the NationalAssociation of Child Care Resource andReferral Agencies. We have learned thatmost State information systems are builton payment systems, rather thanprovider identification systems, such aslicensing programs might maintain.Requiring the collection of auspice orsponsorship information wouldrepresent a significant informationcollection burden for States which is notspecifically authorized by the statute.

Program sponsorship is a difficultelement to collect. However, we dorecognize the interest of someorganizations to learn about differentsponsoring agents and toward that endwe will include sponsorship as anoptional data reporting element whenthese are developed in the future.

Comment: Several commentersrequested that ACF not collect SocialSecurity Number (SSN) as a caseidentifier. One commenter in particularargued that the collection of SocialSecurity numbers may have a chillingeffect on immigrant families wishing toapply for child care services.

Response: ACF is requiring thecollection of SSN as a case identifierbecause it is necessary for gathering theaggregate data needed for research tiedto TANF, employment and other child-related programs. Legal immigrants whowork are entitled to receive child caresubsidies. Therefore, requesting them toprovide SSN is not a deterrent. Illegalimmigrants are prevented from workingby law and would not need subsidizedchild care.

Comment: A commenter objected tothe collection of average hours of careper month and suggested that we allowStates that collect the data weekly to beable to report weekly averages.

Response: The technical amendmentsto the law require the change inreporting the hours of care from weeklyto monthly. Uniform reporting

requirements dictate that data bereported by all States in the samemanner to avoid confusion in dataanalysis. Therefore, all States shouldreport monthly hours. States that collectthe data weekly should transform thedata into monthly data. We will providetechnical assistance in how to performthis calculation.

Comment: Several commentersobjected to the collection of ‘‘reasons forcare’’ item because it is not in the lawand puts an additional burden on theStates.

Response: The ‘‘Reason for Care’’ dataelement has previously been collectedin the old CCDBG and JOBS/AFDC childcare programs and the collection of thisdata does not represent a new burdenfor the States. ACF will continue tocollect ‘‘reasons for care,’’ i.e. working,training/education, or protectiveservices because it best informs Stateand Federal planning and policy efforts.In addition, since the State has theoption of not requiring income data forchildren in protective services, thesecases need to be identified to determineif the missing data is appropriate. Wewill provide technical assistance toStates experiencing difficulties with thisdata element.

Comment: One commenterrecommended using the Census Bureaustandards for reporting race.

Response: We have changed our racedefinitions to comply with the newOMB guidelines (Federal Register of 10/30/97) for Census Bureau reporting ofrace. Under these new guidelines, wewill divide the child race element intotwo questions:Child Ethnicity

1. Hispanic or Latino2. Not Hispanic or Latino

andChild Race

1. American Indian or Alaska Native2. Asian3. Black or African American4. Native Hawaiian or Other Pacific

Islander5. White

On the second question, respondentswill be allowed to report more than onecategory.

Information concerning child caredisregards is required by the statute at658K(a)(2)(C); however, disregards, ifused, would be provided under theTANF programs, not child careprograms. As a result, information onthe use of the disregard will be collectedthrough TANF reporting procedures,since TANF agencies can collect thisinformation more reliably.

Comment: One commenter wasconcerned that child care disregardinformation would not be collected by


TANF since it is not required by statute.They also were concerned that someStates may elect to spend a lot of TANFfunds on child care without transferringthe funds to CCDF.

Response: We have coordinated datacollection efforts with the TANFprogram. The proposed TANFregulations require information aboutthe child care disregard, as well as childcare information for families thatreceive child care through TANFfunding.

Comment: Several commentersrequested that ACF collect someadditional items that are not required bythe statute but are important forunderstanding the program andimprovement of program management.The suggested elements included itemssuch as disability status and number ofweeks of care each month.

Response: Requiring the collection ofsuch items is important, but representsa significant increase in the reportingburden on the States. ACF has decidedagainst adding these items as requiredelements to avoid requiring anadditional burden on the States.However, because we recognize theimportance of such items, we willconsider these and other importantitems, as we develop optional datareporting elements, with input from theStates, in the future.

To have a complete picture of childcare services in the States, quarterlycase-level data and annual aggregateinformation will be collected on allfunds of the Child Care andDevelopment Fund, includingDiscretionary Funds (which include anyfunds transferred from the TANF BlockGrant), Mandatory Funds, and Federaland State Matching Funds, as well asfunds used for Maintenance-of-Effort(MOE). For States that choose to poolCCDF funds with non-CCDF funds (e.g.title XX, or State or local funds not partof the CCDF MOE or Match) we willallow reporting and/or sampling on allchildren served by the pooled funds, butwill require States to indicatepercentages of CCDF and non-CCDFfunds in the pool of funds. Detailedinstructions on how to constructsampling frames for States with pooledfunds will be included in the samplingspecifications developed by ACF.Technical assistance will be provided toStates regarding collecting data acrossfunding streams.

Additionally, States have indicated adesire to compare data which are not apart of the mandatory reportingrequirements. To meet this need and tomake the available child care data moreuseful to State planning efforts, theDepartment will collaborate with States

regarding a set of standardized optionaldata elements. The reporting of thesedata elements will not be required ofany grantee.

We have provided additionalinformation to Lead Agenciesconcerning specific reportingrequirements, approved datadefinitions, reporting formats, samplingspecifications for the quarterly case-level report, and the submission processin ACYF–PI–CC–97–08, datedNovember 25, 1997 and in ACYF–PI–CC–98–01, dated January 25, 1998. Inthis final rule, for ease of reference, weconformed the regulatory language at§§ 98.71(a)(1), (6), (7), and (10) to mirrorthe data collection elements of the ACF–801, Child Care Quarterly Case Record(OMB Number 0970–0167).

For Tribes. Tribes are neither requiredto submit the aggregate annual reportnor the new case-level quarterly reportas States are. Instead, Tribes willcontinue annually to submit the ACF–700 which is currently in use. They willinclude information on all childrenserved under the Discretionary andTribal Mandatory funds. As of fiscalyear 2000, Tribes will no longer berequired to submit the second page ofthe ACF–700 (fiscal programmatic datafor CCDBG funds). Fiscal informationfor Tribes will be collected on a separatetribal financial reporting form.

Subpart I—Indian TribesThis Part addresses requirements and

procedures for Indian Tribes and tribalorganizations applying for or receivingCCDF funds. In light of unique tribalcircumstances, Subpart I balancesflexibility for Tribes with the need toensure accountability and quality childcare for children.

Subpart I specifies the extent to whichgeneral regulatory requirements apply toTribes. In accordance with § 98.80(a), aTribe shall be subject to all regulatoryrequirements in Parts 98 and 99, unlessotherwise indicated. Subpart I listsgeneral regulatory requirements thatapply to Tribes. It also identifiesrequirements that do not apply toTribes.

Most programmatic issues that applyto Tribes are consolidated in Subpart I.However, financial management issuesthat apply to Tribes, including theallotment formulas and underlying datasources, are addressed separately inSubpart G—Financial Management.

Tribes have the option to consolidatetheir CCDF funds under a planauthorized by the Indian Employment,Training and Related ServicesDemonstration Act of 1992 (Pub.L. 102–477). This law permits tribalgovernments to integrate a number of

their federally funded employment,training, and related services programsinto a single, coordinatedcomprehensive program.

Senate Committee Report language forthat Act prohibits the creation of newregulations for tribal programs operatingunder the 102–477 initiative (S. Rep.No. 188, 102 Cong. 2d Sess. (1992)),therefore ACF is not promulgating anyadditional regulations for the IndianEmployment, Training and RelatedServices application and plan process.ACF does publish annual programinstructions providing directions forTribes wishing to consolidate CCDFfunds under an Indian Employment,Training and Related Services plan. TheDepartment of the Interior has leadresponsibility for administration of P.L.102–477 programs.

General Procedures and Requirements(Section 98.80)

Demonstrations from Consortia. Theregulation at § 98.80(c)(1) provides thata consortium must adequatelydemonstrate that each participatingTribe authorizes the consortium toreceive CCDF funds on its behalf. Thisdemonstration is required once everytwo years through the two-year tribalCCDF Plan. It is the responsibility ofeach consortium to inform ACF, throughan amendment to its Plan, of anychanges in membership during the Planperiod.

Consortia can demonstrate members’agreement to participate in a number ofways. A resolution is acceptable. Wewill also accept an agreement signed bythe tribal leader or evidence that a triballeader participated in a vote adopting aconsortium agreement.

Comment: Several commentersrecommended a one-time or ‘‘standing’’resolution from each consortiummember which will remain in effectuntil rescinded.

Response: The purpose of thedemonstration is to show that themember has authorized the consortiumto act on its behalf. We have notchanged this requirement because it isa measure designed to provideaccountability to the individualmembers. We recognize the challengesof obtaining demonstrations,particularly in rural areas in Alaska dueto seasonal work activities, but as astanding requirement Tribes shouldnow be aware in advance that it will beneeded and we will remind granteesabout the demonstration requirementwell before the Plan due date.

Special requirements for AlaskaNative grantees. By statute (section 419of the Social Security Act), onlyspecified Alaska Native entities may


receive Tribal Mandatory Funds. TheMetlakatla Indian Community of theAnnette Islands Reserve and the 12Alaska Native Regional NonprofitCorporations are eligible to receiveTribal Mandatory Funds. The lawprovides that Discretionary Funds,however, will continue to be availableto all the eligible Alaska Native entitiesthat could apply under old CCDBGrules.

For purposes of Discretionaryfunding, Alaska Native RegionalNonprofit Corporations, which areeligible to apply on behalf of theirconstituent villages, will need todemonstrate agreement from eachconstituent village.

In the absence of such demonstrationof agreement from a constituent village,the Corporation will not receive the per-child amount or the base amountassociated with that village. Thischanges the policy stated in thepreamble to the final rule issued August4, 1992 (57 FR 34406). The formerpolicy permitted Alaska Native RegionalNonprofit Corporations to receive theper-child amount (but not the baseamount) for a constituent village in theabsence of a demonstrated agreementfrom the village that the Corporationwas applying for funding on its behalf.Since all other tribal consortia arerequired to demonstrate agreement fromtheir member Tribes in order to receiveDiscretionary funding, this changemakes the funding requirementsconsistent for all consortia grantees.

For purposes of Tribal MandatoryFunds, since the statute specificallycited the 12 Alaska Native RegionalNonprofit Corporations as eligibleentities, demonstrations are not requiredby member villages for these entities tobe funded.

Since the law provides that onlydesignated Alaska Native entities mayreceive the Tribal Mandatory Funds,there is a difference between whichAlaska Native entities can be directgrantees for the two tribal parts of theCCDF. Our analysis indicates, however,that each of the Alaska tribal entitiesthat are eligible to receive DiscretionaryFunds is served by one of the 12 AlaskaNative Regional Nonprofit Corporationsthat by law can be direct grantees for theTribal Mandatory Funds. In instanceswhere there are different Alaska Nativegrantees for the two parts of the fund,we strongly encourage grantees to worktogether to ensure a coordinated tribalchild care system in Alaska.

Dual eligibility. Under § 98.80(d),Indian children continue to have dualeligibility to receive child care servicesfunded by CCDF. Section 6580(c)(5) ofthe Act mandates that, for child care

services funded by CCDF, the eligibilityof Indian children for a tribal programdoes not affect their eligibility for aState program. To receive services undera program, the child must still meet theother specific eligibility criteria of thatprogram.

This provision was in the originalAct, and it was not affected by therecent PRWORA amendments.Regulations at § 98.20(b)(1) continue toprovide that Lead Agencies mayestablish eligibility requirements, inaddition to Federal eligibilityrequirements, so long as they do not‘‘discriminate against children on thebasis of race, national origin, ethnicbackground, sex, religious affiliation, ordisability.’’ As a result, States cannothave a blanket policy of refusing toprovide child care services to Indianchildren.

At the same time, tribal CCDFprograms are a valuable source of childcare for Indian children, includingchildren whose families receive TANFassistance. In particular, a Tribe thatoperates its own TANF or work program(or both) will have an important role inpromoting self-sufficiency for its low-income families, including theprovision of adequate child care.However, Indian children have dualeligibility for CCDF child care servicesregardless of whether a Tribe operatesits own TANF or work program.Therefore, we encourage States andTribes to work closely together inplanning for child care services.Coordination of child care resourceswill be needed to meet the child careneeds of eligible Indian families.

Eligibility. Under § 98.80(f), TribalLead Agencies continue to have theoption of using either the State’s medianincome or the tribal median income indetermining eligibility for services. Indetermining eligibility for servicespursuant to § 98.20(a)(2), a tribalprogram may use either: (1) up to 85percent of the State median income fora family of the same size; or (2) up to85 percent of the median income for afamily of the same size residing in thearea served by the tribal grantee.

Application and Plan Procedures(Section 98.81)

Section 98.81 contains applicationand Plan requirements for Tribes andtribal consortia. In accordance with§ 98.81(a), Tribes must apply for fundspursuant to § 98.13, except that therequirement at § 98.13(b)(2) does notapply.

A Tribal Lead Agency must submit aCCDF Plan, as described at § 98.16, withthe additions and exceptions describedin § 98.81(b).

Section 98.81(b)(2) requiresdefinitions of ‘‘Indian child’’ and‘‘Indian reservation or tribal servicearea’’ for purposes of determiningeligibility.

Section 98.81(b)(4) requiresinformation necessary for determiningthe number of children for fundallocation purposes and grant eligibilityrequirements (i.e., the requirement thata Tribe must have at least 50 childrenunder 13 years of age in order to directlyapply for funding). The preamblediscussion to Subpart G summarizes thedata sources used to determine tribalallotments.

Other changes in Plan provisions aremore fully discussed in related sectionsunder Subpart I.

Comment: In the proposed rule wehad included a new requirement thatTribes include a tribal resolution orsimilar demonstration which identifiesthe Tribal Lead Agency. A tribal leaderresponded to the proposed newrequirement by stating that since hesigns the Plan materials, a resolutionidentifying the Tribal Lead Agencyshould not be required.

Response: We understand that sometribal grantees may be required toinclude a resolution accompanying theirPlan in order to comply with their owntribal regulations and/or procedures.However, as the commenter pointed out,since a grantee must identify the TribalLead Agency in its Plan, a resolution isnot necessary. We agree with thiscomment and have eliminated thisproposed requirement in the final rule.

Comment: Commenters asked if thefinancial reporting form could serve asthe CCDF application for Tribes.

Response: Although the financialform ACF–696 and the CCDF Plan willserve as the application for States andterritories, at this time Tribes arerequired to report financial informationon the SF–269 form and do not use theACF–696. ACF is developing a CCDFfinancial form specifically for Tribes.When this form is finalized it, alongwith the CCDF plan, will serve as theapplication for Tribes. However, sincethis form has not yet been developed,for years when the CCDF biennial Planis due, the Plan itself will serve as theapplication. However, in non-Planyears, ACF will issue a ProgramInstruction which describes basicinformation that must be provided on anannual basis, including the self-certifiedchild count, to apply for funds.

Coordination (Section 98.82)Tribal Lead Agencies must meet the

coordination requirements at §§ 98.12and 98.14 and the planningrequirements at § 98.14—including the


public hearing requirement at § 98.14(c).A Tribe must distribute notice of thehearing throughout its service area(rather than statewide).

Prior to the publication of newregulations, Tribal Lead Agencies werenot required to coordinate with agenciesresponsible for health education,employment services or workforcedevelopment, and the State or tribalTANF agency, specified at § 98.14(a)(1).Although it was not a specificrequirement in the Plan, during the pre-regulatory period ACF encouragedTribal Lead Agencies to coordinate withthese agencies.

We recognize that the agencies withwhich each Tribal Lead Agencycoordinates may differ according to itsown unique circumstances. We alsorecognize that child care is an essentialpart of a Tribe’s self-sufficiency andworkforce development efforts. Inaddition, the quality of child carebenefits greatly from close coordinationwith the public health and educationcommunities.

Therefore, in recognition of theseimportant program linkages, in the finalregulation Tribal Lead Agencies arerequired to meet the requirements at§ 98.14(a)(1) to coordinate CCDFactivities with tribal agenciesresponsible for health education,employment services or workforcedevelopment, and a Tribe’s TANFagency, if the Tribe is administering itsown TANF program.

Comment: A few commentersindicated that they were not operatingtheir own TANF programs and inquiredwhether there was a specific mandatefor coordination with State TANFagencies.

Response: Tribal Lead Agencieswhich are not administering their ownTANF programs are not required, butare strongly encouraged to coordinatetheir program activities with the StateTANF agency.

Requirements for Tribal Programs(Section 98.83)

In recognition of the unique socialand economic circumstances of manytribal communities, Tribal LeadAgencies are exempt from a number ofthe CCDF requirements which apply toState Lead Agencies.

Administrative costs. Based on inputfrom several tribal organizations andtribal representatives, and as proposed,we are providing greater flexibility forTribal Lead Agencies by exemptingthem from the five percentadministrative cost cap at § 98.52(a).Therefore, instead of enforcing thestatutory five percent Stateadministrative cost limit, a 15 percent

administrative limit for Tribal LeadAgencies was recommended by severaltribal organizations during the course ofour pre-drafting consultations toaccount for the varying infrastructuralcapabilities of many Indian Tribes.Tribal Lead Agencies may not expendmore than 15 percent of the aggregateCCDF funds for administrative activities(including amounts used forconstruction and renovation inaccordance with section § 98.84, but notincluding the base amount providedunder section § 98.83(e)).

Section 98.52(a) provides a list ofadministrative activities which aresubject to the 15 percent cost limitation.The preamble discussion of § 98.52(a)provides an additional discussion ofrelated activities which are notconsidered administrative activities forpurposes of the 15 percent cost cap.

Through the list of activities whichare not considered administrative costs,the exemption from the five percentState administrative cost cap, and thebase amount under the DiscretionaryFund, we believe Tribal Lead Agencieswill have sufficient flexibility indetermining their administrative and/orindirect costs to run effective CCDFprograms.

We recognize that many Federalprograms permit Indian Tribes andtribal organizations to include anindirect costs rate in their grant awards.Indirect costs are administrative coststhat cannot be easily charged to aspecific program. Among other things,these generally include: the cost ofaccounting services, personnel services,and general administration of theorganization. Since the cost of theseitems cannot be easily assigned to aprogram that a grantee is operating, theindirect cost rate is applied to thegrantee’s direct costs to determine theamount the grantee will be able torecover from the program for thegrantee’s total indirect costs.

An indirect cost rate is arrived atthrough negotiation between an IndianTribe or tribal organization and theappropriate Federal agency. Agreementsvary from Tribe to Tribe. For example,some agreements may apply the indirectcost rate to salaries and wages only;others may apply the indirect cost rateto salaries, wages, and fringe benefitsonly.

Indirect costs, as determined by anindirect cost agreement or costallocation plan pursuant to § 98.55, areidentified at § 98.52(a)(6) as anallowable administrative expense fortribal grantees. Tribal Lead Agencies arereminded that regardless of theirnegotiated indirect cost rates,

administrative costs may not exceed the15 percent cost limitation at § 98.83(g).

Comment: A few commenters statedthat a 15 percent administrative costlimit was too restrictive.

Response: The 15 percent limit isdesigned to provide Tribes greaterflexibility than States which must meeta five percent administrative cost limitwhich was mandated by statute. Thepreamble discussion of § 98.52(a)provides an additional discussion ofrelated activities which are notconsidered administrative activities forpurposes of the 15 percent cost cap.Through these additional activities, theexemption from the five percent Stateadministrative cost cap, and the baseamount under the Discretionary Fund,we believe Tribal Lead Agencies willhave sufficient flexibility in determiningtheir administrative and/or indirectcosts to run effective CCDF programs.

Comment: Several commentersrequested that we adopt the followingpercentages: 63.75 for direct child careservices; and 36.25 for child careservices, activities to improve theavailability and quality of child care,and/or administrative costs.

Response: Prior to the passage ofPRWORA, the 63.75/36.25 percentagesapplied to exempt Tribal Lead Agencies.While this policy previously appliedonly to exempt Tribes, following thepassage of PRWORA we extended it toapply to all Tribes during an interimperiod since the law was silent onadministrative costs for Tribes. In aSeptember 19, 1996 letter invitingTribes to apply for Tribal MandatoryFunds and in ACF Program InstructionsACYF–PI–CC–97–03 and ACYF–PI–CC–97–04 we clearly indicated that this wasan interim policy and that we intendedto regulate on this issue. For the reasonsgiven in this preamble, we have notretained the policy.

Comment: We received a commentasking why the administrative cost limitfor Tribes at proposed § 98.83(g) appliedto CCDF funds that were ‘‘provided’’while the administrative cost limit forStates at § 98.52 applied to CCDF fundsthat were ‘‘expended’’.

Response: We revised theadministrative cost limit for Tribes at§ 98.83(g) from the language in theproposed rule to more closely parallelthe administrative cost limit for States at§ 98.52. The revised § 98.83(g) requiresthat not more than 15 percent of theaggregate CCDF funds expended by theTribal Lead Agency from each fiscalyear’s allotment (including amountsused for construction and renovation inaccordance with § 98.84, but notincluding the base amount providedunder § 98.83(e)) shall be expended for


administrative costs. We are using‘‘expended’’ rather than ‘‘provided’’ toprevent a Tribal Lead Agency that doesnot expend its full allocation fromreceiving a windfall in administrativecost allowances. The revised languagealso clarifies that the administrative costlimit applies to the amounts expendedfrom the total allocated, not to theamounts expended in a single fiscalyear.

Exempt Tribes. We realize that manysmaller tribal grantees do not have theinfrastructure in place to support certainrequirements. As a result, we areexempting Lead Agencies of smallerTribes and tribal organizations (withtotal CCDF allocations less than anamount established by the Secretary)from certain requirements specified at§ 98.83(f). Exempt tribal grantees are notrequired to comply with the fourpercent quality requirement at § 98.51(a)or to run a certificate program. Non-exempt tribal grantees are required tocomply with these requirements.

The dollar threshold for determiningwhich Tribes are exempt is establishedby the Secretary. Until Tribes arenotified otherwise, the threshold is setat $500,000. In other words, Tribal LeadAgencies with total CCDF allocationsless than $500,000 in a fiscal year willbe considered exempt (any unobligatedor unliquidated funds from prior fiscalyears are not included in determiningexempt/non-exempt status). Tribal LeadAgencies with allocations equal to orgreater than $500,000 are non-exempt.

In the proposed rule, we proposedthat the threshold would be set toinclude as non-exempt all Tribes whichwere non-exempt prior to PRWORA.However, due to increasedappropriations, this approach wouldhave greatly increased the number ofnon-exempt Tribes. As an alternative,we have chosen a reasonable dollarthreshold ($500,000) that, while morethan the dollar amount that wasmentioned in the proposed rule($460,000), would still move someTribes to a non-exempt category.

The increased number of non-exemptTribes reflects the increased child carefunding provided directly to Tribesunder PRWORA. Since the exemptionwas originally intended to recognize thedifficulty of meeting all requirementswith a small grant amount, we believeit is reasonable for a Tribe with a grantof $500,000 or higher to meet the fourpercent quality and certificate programrequirements.

Comment: We received commentsrequesting the elimination of theexempt/non-exempt distinction. Thesecommenters encouraged us to provide

Tribal Lead Agencies with increasedflexibility by making all Tribes exempt.

Response: We are keeping theexempt/non-exempt distinction sincewe believe grantees with large grantallocations should be subject to the fourpercent minimum quality and certificateprogram requirements. While weappreciate the need for Lead Agencyflexibility, the need for quality childcare and parental choice for Indianchildren is paramount.

Particularly given the increasedallocation of funds for child careprograms under the CCDF, we believe itis vitally important that the tribalgrantees with larger grants establish ormaintain certificate programs so that thefamilies they serve may select from arange of providers: center-based; grouphome; family child care; in-home orother providers. Many of the largertribal grantees already operate certificateprograms. Likewise, the four percentminimum quality provision will help toensure that Tribal Lead Agencies makethe necessary investments for quality.We believe the Tribal Lead Agencieswith larger grants can play a leadershiprole in providing parental choice andproviding quality care.

Furthermore, in FY 1998, a few Statesreceived CCDF grant awards which weresmaller than the largest tribal grantaward. These State Lead Agencies,regardless of size, must comply with allthe CCDF requirements including thefour percent minimum quality provisionand the requirement to run a certificateprogram. As a result, we believe it isappropriate to require Tribes with largergrants to meet these requirements.

Comment: One commenter requestedclarification on funding amountsrequired for quality activities.

Response: While we stronglyencourage exempt Tribal Lead Agenciesto expend CCDF funds on qualityactivities, they are not required to meetthis provision. For non-exempt TribalLead Agencies subject to the qualityexpenditure requirement at § 98.51(a),not less than four percent of the‘‘aggregate funds expended’’ by the LeadAgency shall be expended for qualityactivities. For purposes of thisrequirement, the ‘‘aggregate fundsexpended’’ by the Tribal Lead Agencyincludes amounts used for constructionand renovation in accordance with§ 98.84 but does not include the baseamount provided under § 98.83(e).

Comment: Several commentersrecommended that Tribes should not besubject to § 98.43(b)(2) which requires amarket rate survey as one of the threeelements in determining equal access.The commenters stated that moreflexible methodologies should be

permitted for tribal grantees. Forexample, one commenter’s Tribecurrently establishes payment ratesbased on their State’s market rate surveybecause their tribal service area isincluded in this market rate survey.

Response: In the final regulation, wehave not exempted Tribal LeadAgencies from the requirement at§ 98.43(b)(2) that their payment rates bebased on a market rate survey. However,a Tribal Lead Agency may base itspayment rates on the State’s market ratesurvey rather than conducting its ownsurvey if their service area is includedin the State’s survey. As noted at§ 98.16(l), Tribal Lead Agencies mustadequately describe the method used toensure equal access.

While we are providing moreflexibility for Tribal Lead Agenciesregarding market rate surveys, westrongly encourage tribal CCDF granteesto survey their local providers in orderto establish a payment rate which is anaccurate reflection of the child caremarket on their reservation or tribalservice area.

70 percent requirement. Section418(b)(2) of the Social Security Actprovides that States ensure that not lessthan 70 percent of the total amount ofthe State Mandatory and Matchingfunds received in a fiscal year be usedto provide child care assistance tofamilies receiving assistance under aState program under Part A of title IV ofthe Social Security Act, families whoare attempting through work activitiesto transition from such assistance, andfamilies at risk of becoming dependenton such assistance. The provision atsection 418(b)(2) does not apply toTribal Lead Agencies. Nonetheless,Tribes have a responsibility to ensurethat their child care services provide abalance in meeting the needs of familieslisted in section 418(b)(2) and the childcare needs of the working poor.

Since Tribes may apply for bothTribal Mandatory Funds andDiscretionary Funds, they are receivingincreased CCDF grant awards—compared to amounts received prior toPRWORA—to provide direct child careservices. Also, as we pointed out in ourdiscussion on dual eligibility of tribalchildren, Tribes now have the optionunder title IV of the Social Security Actto operate their own TANF programs.Additionally, Tribes that operated atribal Job Opportunities and Basic SkillsTraining (JOBS) program in 1994 maychoose to continue a tribal workprogram. Whatever the mixture of childcare, TANF, and work services a Tribechooses to administer, child careservices should be designed to ensurethat all eligible families receive a fair


share of services within the tribalservice area.

Base amount. A base amount isincluded in tribal grant awards underthe Discretionary Fund. As referenced at§ 98.83(e), the base amount of any tribalgrant is not subject to the administrativecosts limitation at § 98.83(g) or thequality expenditure requirement at§ 98.51(a).

The base amount for each tribal grantmay be used for any activity consistentwith the purposes of the CCDF,including the administrative costs ofimplementing a child care program. Forexamples of administrative costs, referto § 98.52(a).

Lead agency. Tribal grantees, likeStates, must designate a Lead Agency toadminister the CCDF. If a tribal granteeapplies for both Tribal MandatoryFunds and Discretionary funds, theprograms must be integrated andadministered by the same Lead Agency.

Consortia. If a Tribe participating in aconsortium arrangement elects toreceive only part of the CCDF (e.g.,Discretionary Funds), it may not join adifferent consortium to receive the otherpart of the CCDF (Tribal MandatoryFunds), or apply as a direct grantee toreceive the other part of the fund. Inorder to receive CCDF program services,individual tribal consortium membersmust remain with the consortium theyhave selected for the fiscal year inwhich they are receiving any part ofCCDF funds. However, an Alaska Nativevillage that must receive TribalMandatory Funds indirectly through anAlaska Native Regional NonprofitCorporation may still apply directly forDiscretionary Funds.

Section 98.83(c)(1) requires that atribal consortium include in its two-yearCCDF Plan a brief description of thedirect child care services being providedfor each of its participating Tribes. Weincluded this provision for threereasons: (1) It helps ensure that servicesare being delivered to the memberTribes; (2) since in some cases consortiareceive sizeable base amounts, it willprovide documentation of the actualservices being delivered to memberTribes through consortia arrangements;and (3) it provides the opportunity forpublic comment, as part of the publichearing process required by § 98.14(c),on the services provided to memberTribes.

Comment: One commenter wasinterested in how ACF would treat anindividual consortium member thatdecided to drop out of its authorizedCCDF consortium arrangement prior tothe end of the fiscal year.

Response: We strongly encourageTribes to closely evaluate their child

care needs and eligibility for CCDFservices before choosing to enter into aconsortium arrangement. If a situationarises where a Tribe decides it mustrelinquish its membership in aconsortium prior to the end of the fiscalyear, the CCDF funds which wereawarded to the consortium on behalf ofthe departing member Tribe will remainwith the tribal consortium. Theconsortium may use these funds toprovide direct child care services toother consortium members for theduration of the fiscal year. The finalregulations codify this policy at§ 98.83(c)(4).

Child care standards. Section658E(c)(2)(E)(ii) of the Act requires thedevelopment of minimum child carestandards for Indian Tribes and tribalorganizations. Based on input fromtribal leaders and tribal child careadministrators, we are developing aprocess for Tribes to establish minimumchild care standards that appropriatelyreflect tribal needs and availableresources. Until the minimum standardsare developed, Tribes must have ineffect tribal and/or State licensingrequirements applicable to child careservices pursuant to § 98.40. Tribesmust also have in place requirementsdesigned to protect the health and safetyof children in accordance with § 98.41of the regulations, including, but notlimited to: (1) The prevention andcontrol of infectious diseases (includingimmunization); (2) building andphysical premises safety; and (3)minimum health and safety trainingappropriate to the provider setting.

Comment: We received commentsabout the process for developing theminimum child care standards, andabout the need for flexibility under thestandards in light of unique tribal needsand resources.

Response: The Child Care Bureauinvited tribal leaders to consult withACF officials on this issue in specialfocus groups at the Tribal Child CareConference in April 1997. In addition,on March 26, 1997, a ‘‘Request forComments on the Development ofMinimum Tribal Child Care Standards’’was published in the Federal Register.We are continuing to consult with tribalofficials regarding the development ofthese standards. Regarding the need forflexibility, we recognize unique tribalcircumstances and the fact that manyTribes have already developed theirown standards. We are committed to anapproach that considers both the needfor flexibility as well as the statutorymandate to develop minimumstandards.

Planning costs for initial plan. Section98.83(h) provides that CCDF funds are

available for costs incurred by a TribalLead Agency only after the funds aremade available by Congress for Federalobligation unless costs are incurred forplanning activities related to thesubmission of an initial CCDF Plan.Federal obligation of funds for planningcosts is subject to the actual availabilityof the appropriation.

Construction and Renovation (Section98.84)

Upon requesting and receivingapproval from the Secretary of theDepartment of Health and HumanServices, a Tribal Lead Agency may useamounts from its CCDF allocation forconstruction and major renovation ofchild care facilities (pursuant to section6580(c)(6) of the Act and regulations at§ 98.84(a)).

Under the final rule, these paymentscould cover costs of amortizing theprincipal and paying interest on loansfor construction and major renovation.As was also recognized in the HeadStart procedures for construction andrenovation, which allow use of funds topay for principal and interest on loans,loans are an essential part of manyconstruction and renovation projects.

The regulation at § 98.84(b) reflectsthe statutory requirement that, to beapproved by the Secretary, a request touse CCDF funds for construction ormajor renovation must be made inaccordance with uniform proceduresdeveloped by the Secretary. Theseuniform procedures were provided toTribal Lead Agencies via programinstructions ACYF–CC–PI–05, issuedAugust 18, 1997, and ACYF–PI–CC–97–06 issued November 4, 1997. TheAdministration for Children andFamilies’ Regional Offices haveresponsibility for approval ofconstruction/renovation applications.

By statute (and § 98.84(b)), suchrequests must demonstrate that: (1)Adequate facilities are not otherwiseavailable to enable the Tribal LeadAgency to carry out child care programs;(2) the lack of such facilities will inhibitthe operation of child care programs inthe future; and (3) the use of funds forconstruction or major renovation willnot result in a decrease in the level ofchild care services provided by theTribal Lead Agency as compared to thelevel of services provided by the TribalLead Agency in the preceding fiscalyear. In light of the requirement that aTribe cannot reduce the level of childcare services, a Tribal Lead Agencyshould plan in advance for anticipatedconstruction and renovation costs.

Section 98.84(c) allows Tribal LeadAgencies to use CCDF funds forreasonable and necessary planning costs


associated with assessing the need forconstruction or renovation or forpreparing a request, in accordance withthe uniform procedures established byprogram instruction, to spend CCDFfunds on construction or majorrenovation. This section of the rule alsoaddresses the use of CCDF funds to payfor the costs of an architect, engineer, orother consultant.

The regulation at § 98.84(d) requiresTribal Lead Agencies which receiveapproval from the Secretary to useCCDF funds for construction or majorrenovation to comply with specifiedrequirements in 45 CFR Part 92 and anyadditional requirements established byprogram instruction. Title 45 CFR Part92 does not generally apply to the ChildCare and Development Fund. However,we made specified sections which dealwith the special circumstances ofconstruction and renovation applicablefor those purposes.

The ACF has an interest in propertythat is constructed or renovated withCCDF funds. This interest takes the formof restrictions on use and disposition ofthe property. The Federal interest also ismanifested in the requirement that ACFreceive a share of the proceeds from anysale of property. These requirementsregarding Federal share and the use anddisposition of property are found at 45CFR 92.31(b) and (c).

Title requirements at 45 CFR 92.31(a)provide that title to a facilityconstructed or renovated with CCDFfunds vests with the grantee uponacquisition.

Title 45 CFR 92.22 concerns costprinciples and allowable costrequirements. Consistent with these costprinciples, reasonable fees and costsassociated with and necessary to theconstruction or renovation of a facilityare payable with CCDF funds, butrequire prior, written approval fromACF.

Title 45 CFR 92.25 governs programincome. Program income derived fromreal property constructed or renovatedwith CCDF funds must be deductedfrom the total allowable costs of thebudget period in which it wasproduced.

All facility construction andrenovation transactions must complywith the procurement procedures in 45CFR 92.36, and must be conducted in amanner to provide, to the maximumextent practicable, open and freecompetition.

Tribal Lead Agencies must alsocomply with any additionalrequirements established by programinstruction. These requirements mayinclude, but are not limited to,requirements concerning: the recording

of a Notice of Federal Interest inproperty; rights and responsibilities inthe event of a grantee’s default on amortgage; insurance and maintenance;submission of plans, specifications,inspection reports, and other legaldocuments; and modular units.

The definition of ‘‘facility’’ at § 98.2allows Tribal Lead Agencies to useCCDF funds for the construction orrenovation of modular units as well asreal property.

The definitions of ‘‘facility,’’‘‘construction,’’ and ‘‘major renovation’’are the same definitions used in HeadStart construction and renovationprocedures. While a Tribal Lead Agencymust request approval from theSecretary before spending CCDF fundson construction or major renovation,approval is not necessary for minorrenovation pursuant to section 658F(b)of the Act and regulations at § 98.84(f).For Tribal Lead Agencies, minorrenovation includes all renovation otherthan major renovation or construction.

Section 98.84(e) requires that, in lieuof obligation and liquidationrequirements at § 98.60(e), Tribal LeadAgencies must liquidate CCDF fundsused for construction or majorrenovation by the end of the secondfiscal year following the fiscal year forwhich the grant is awarded. This givesTribal Lead Agencies three years toliquidate funds approved by theSecretary for use on construction ormajor renovation with no separateobligation period. This separateobligation/liquidation requirementshould allow sufficient time forconstruction and renovation projects.

Amounts used for construction andmajor renovation are not consideredadministrative costs for the purpose ofthe 15 percent administrative cost limitunder § 98.83(g). We do not believe thatCongress intended for us tounnecessarily limit a Tribal LeadAgency’s ability to use CCDF funds onconstruction and renovation projectswhich meet the requirements necessaryfor Secretarial approval.

The ACF will transfer funds to beused for construction and majorrenovation to a separate grant award tobe used specifically for construction orrenovation activities. This approach isnecessary to track the exact amount offunds spent on construction orrenovation.

Finally, the new statutory provisionallowing tribal construction with CCDFfunds provides an opportunity for tribalgrantees to leverage resources for qualityfacilities and services by coordinatingwith their Tribe’s Head Start program.

Comment: We received commentsobjecting to the proposal at § 98.84(c)

that would have prohibited a TribalLead Agency from using CCDF funds topay for the costs of an architect,engineer, or other consultant until afterthe Lead Agency’s construction/renovation application was approved bythe Secretary. The commenters arguedthat the application procedures requireconstruction/renovation plans andspecifications as part of an application,and, unless Tribes are allowed to useCCDF funds, many Tribes would beunable to pay for the costs of architects,engineers, or consultants necessary todevelop these plans and specifications.

Response: We eliminated theprohibition against the use of CCDFfunds to pay for consultants prior toapplication approval. As revised,§ 98.84(c) allows a Tribal Lead Agencyto use CCDF funds to pay for the costsof an architect, engineer, or otherconsultant for a project that issubsequently approved by the Secretary.If the project later fails to gainSecretarial approval, the Tribal LeadAgency must pay for the architectural,engineering or consultant costs usingnon-CCDF funds. This approach allowsTribes access to the expertise necessaryto prepare an application and launch aconstruction/renovation project. At thesame time, it protects the Federalgovernment from paying for consultantcosts on a project that is not approvable.This revised policy is consistent withprogram instruction ACYF–CC–PI–05,issued August 18, 1997. We stronglyencourage Tribes to involve ACFRegional Office staff early in thedevelopment of their construction/renovation applications.

Comment: We received questionsregarding how the requirement at§ 98.84(b)(3) would apply to newgrantees. Under this provision (as wellas the Act), use of funds for constructionand renovation cannot result in adecrease in the Tribe’s level of childcare services compared to the precedingfiscal year. However, a new tribalgrantee has no existing level of servicesto maintain.

Response: Since § 98.84(b)(3) does notapply to a new grantee (i.e., one that didnot receive CCDF funds the precedingfiscal year), we added § 98.84(g) toaddress the amount of CCDF funds thata new grantee can use for constructionor renovation. This section allows a newtribal grantee to spend no more than anamount equivalent to its TribalMandatory allocation on construction/renovation. A new tribal grantee mustspend an amount equivalent to itsDiscretionary allocation on activitiesother than construction or renovation(i.e., direct services, quality activities, oradministrative costs).


The CCDF program is primarilydesigned to provide direct child careservices. Authority for construction andrenovation was added as an amendmentunder the PRWORA. The statutoryprovision that prohibits a decrease inthe level of child care services clearlyindicates that Congress intended forconstruction and renovation activitiesonly to be in addition to direct services.Limiting the amount of CCDF funds thata new tribal grantee may spend onconstruction or renovation to theamount of the Tribal Mandatoryallocation is consistent withCongressional intent.

Comment: One commenter objected tothe definition for major renovation.Section 98.2 defines ‘‘major renovation’’as: (1) Structural changes to thefoundation, roof, floor, exterior or load-bearing walls of a facility, or theextension of a facility to increase itsfloor area; or (2) extensive alteration ofa facility such as to significantly changeits function and purpose, even if suchrenovation does not include anystructural change. The commenterobjected to the second part of thisdefinition, arguing that some projectsmay change the function and purpose ofa facility (e.g., from a community centerto a child care center) but only involvesmall, non-structural renovations thatshould not require an applicationseeking Secretarial approval.

Response: We did not revise thedefinition—which has also been used bythe Head Start program. Projects thatinvolve extensive alteration that changethe function and purpose of the facilityare potentially large and expensive andshould therefore be subject toSecretarial approval. However, in orderfor a project that does not involvestructural change to be considered majorrenovation under the definition at§ 98.2, it must involve both: (1)Extensive alteration, and (2) a change inthe function and purpose of the facility.Therefore, if a renovation project is notextensive (and does not involvestructural change), the project wouldnot be considered major renovationeven if it changes the function andpurpose of the facility.

Comment: We received a question asto whether non-exempt Tribal LeadAgencies could count construction andrenovation costs as quality expendituresfor purposes of meeting the four percentminimum quality requirement at§ 98.51(a).

Response: Construction andrenovation costs cannot be counted asquality expenditures for purposes of thefour percent minimum qualityrequirement. Quality activities such asthose described at § 98.51(a)(2) (resource

and referral, provider loans, monitoring,training and technical assistance) areessential to the well-being of children inchild care. The size of grant awardsreceived by non-exempt Tribal LeadAgencies is sufficient to allow theseTribes to meet the four percentminimum quality requirement throughactivities other than construction orrenovation.

Comment: We received a questionregarding whether the costs of itemssuch as parking lots, playgroundequipment, furniture, and kitchenequipment are considered to beconstruction/renovation costs?

Response: The regulations at § 98.2define ‘‘construction’’ and ‘‘majorrenovation’’ for purposes of determiningwhat activities are allowable under theCCDF and when prior approval from theSecretary is necessary.

However, these definitions do notdirectly address the question of whatcosts should be considered as part of theconstruction and renovation project.This question is relevant in at least threecircumstances: (1) When ensuring thatconstruction and renovation costs willnot result in a decrease in the level ofchild care services in accordance with§ 98.84(b)(3); (2) when providing anestimate of construction and renovationcosts as required by the uniformprocedures established by programinstruction; and (3) when determiningwhich costs should come from theseparate grant award for constructionand renovation.

For these three purposes, § 98.84(h)provides that a construction andrenovation project that requires andreceives the approval of the Secretarymust include as construction andrenovation costs the following: (1)Planning costs as allowed at § 98.84(c);(2) labor, materials and servicesnecessary for the functioning of thefacility; and (3) initial equipment, asdiscussed below, for the facility. Allsuch costs must be identified in theTribal Lead Agency’s construction orrenovation application to the Secretaryand, to the extent that CCDF funds areused, must be paid for using theseparate grant award for constructionand renovation.

Under this framework, the cost of theconstruction or renovation projectincludes items which are not part of theactual facility itself, but which arenecessary for the functioning of thefacility (such as a parking lot or fence)when the item is part of a largerconstruction or renovation project thatrequires and receives approval by theSecretary.

Equipment, as used above, meansitems which are tangible,

nonexpendable personal propertyhaving a useful life of more than fiveyears. The intent of the five-yearthreshold is to include as constructionand renovation costs only equipmentthat remains useful for an extendedperiod of time, such as playgroundequipment, furniture, and kitchenequipment. Current operating expensesor items that are consumed in use (suchas food, paper, books, toys or disposablehousekeeping items) are not consideredconstruction or renovation costs.

This relatively broad definition ofconstruction and renovation costsemphasizes the importance ofconsidering all costs when planningconstruction and renovation projects.The alternative approach, to excludeitems such as playgrounds, parking lotsand equipment from construction andrenovation costs, would haveunderestimated the true costs ofconstructing or renovating a child carefacility. A new or newly renovatedfacility requires the proper equipment tobe operational. Furthermore, a facilitymust be constructed or renovated in amanner that ensures the health andsafety of children in care, consistentwith § 98.41(a)(2) of the regulations.

Equipment and other costs are onlyconsidered part of the construction orrenovation costs, however, if they areincluded as part of a larger constructionor renovation project that requires andreceives approval by the Secretary.Costs of allowable activities (e.g.,purchase of equipment necessary tobring a facility into compliance withhealth and safety standards) that are notpart of a larger construction orrenovation project as defined at § 98.2should be considered qualityimprovement costs—not construction orrenovation costs.

Subpart J—Monitoring, Non-complianceand Complaints

Penalties and Sanctions (Section 98.92)

We have amended paragraphs (1) and(2) of § 98.92(a), because the statutoryamendments changed the penalty for aLead Agency found to have failed tosubstantially comply with the statute,the regulations, or its own Plan. We alsohave deleted the former § 98.92(b) asredundant due to the statutoryamendments. Section 658I(b)(2)(A)(ii) ofthe Act gives the Secretary the option todisallow improperly expended funds orto deduct an amount equal to or lessthan an improperly expended amountfrom the administrative portion of theLead Agency’s allotment for thefollowing fiscal year. The Secretary canalso impose a penalty that is acombination of these two options.


As proposed, we also added a newregulation at paragraph (b)(2) toestablish a penalty on the Lead Agencyfor: (1) a failure to implement any partof the CCDF program in accordancewith the Act or regulations or its Plan;or (2) a violation of the Act orregulations. Such penalty would beinvoked when a failure or violation bythe Lead Agency does not result in aclearly identifiable amount ofimproperly expended funds. Forexample, the failure to provide thereports required under subpart H or theinappropriate limitation of access to aparticular type of provider in violationof the parental choice provisions ofSubpart D do not result in a clearlyidentifiable amount of improperlyexpended funds. Hence, the penalties atparagraph (a) could not be applied.However, our stewardship of theprogram since its creation indicates theneed for a more effective means ofensuring conformity with the statuteand regulations than is offered by theexisting regulations. Section658I(b)(2)(B) of the CCDBG Act providesfor an ‘‘additional sanction’’ if theSecretary finds there has been non-compliance with the Plan or anyrequirement of the program.

Because a failure or violation whichwould cause the penalty under§ 98.92(b)(2) to be imposed may nothave an amount of improperlyexpended funds associated with it, weneeded to determine what amount ofpenalty should be imposed. Weconsidered the range of TANF penaltiesfound at section 409 of the SocialSecurity Act and decided to use theTANF penalty provisions for failure toreport at section 409(a)(2) as that wasmost analogous to the potential CCDFnon-compliance. Accordingly,§ 98.92(b)(2) provides that a penaltyequal to four percent of the annualDiscretionary allotment will bewithheld no earlier than the second fullquarter following the quarter in whichthe Lead Agency was notified of thepotential penalty.

The TANF penalties includeprovisions for good cause and correctiveaction, and we have included similarprovisions in § 98.92(b)(2). We believethat both provisions are good policy asthe goal of the new provision is toachieve compliance with CCDFrequirements, not punishment. If thereis sufficient reason for not complying, orif the Lead Agency will comply withouta penalty, the purpose is met withoutthe imposition of a penalty. The penaltywill not be applied if the Lead Agencycorrects the failure or violation beforethe penalty is to be applied or if itsubmits a plan for corrective action that

is accepted by the Secretary. Waiting atleast one full quarter before applying thepenalty provides sufficient time toremedy the situations which weenvision would cause the penalty to beinvoked. The Lead Agency may, duringthat time, show cause to the Secretarywhy the amount of the penalty, ifimposed, should be reduced.

The paragraphs formerly located at§ 98.92(d) and (e) are relocated at§ 98.92(c) and (d), respectively. We haveadded a new § 98.92(e) providing that itis at the Secretary’s sole discretion tochoose the penalty to be imposed.

Comment: While a few commentssupported the need for the new penaltyat § 98.92(b)(2), most opposed it statingthat there is no basis for it in thePRWORA statute.

Response: As we stated in thepreamble, the statutory basis for thepenalty at § 98.92(b)(2) is section658I(b)(2)(B) of the original CCDBG Actwhich provides for an ‘‘additionalsanction’’ if the Secretary finds therehas been non-compliance with the Planor any requirement of the program. Ourexperience since the beginning of theprogram indicated the need for such anadditional sanction.

Comment: Many of the samecommenters objected to the use of thephrase ‘‘failed to properly implement’’in the regulation, saying that it made theentire process subjective with only theSecretary deciding what was ‘‘proper’’.

Response: We agree that the use of theword ‘‘proper’’ gave the appearance of asubjective process, and we haveeliminated it. It is not the intent of theregulation to second-guess how LeadAgencies implement the program,especially in light of the enormousflexibility they have. Rather, thisregulation is specifically designed forthose clear-cut instances wherein theAct, regulations, or Plan have not beenfollowed, but for which there is not anamount of funds that are ‘‘misspent’’ asa result.

Comment: One commenter objected tothe provision which allows theSecretary not to apply the penalty if theLead Agency corrects the failure orviolation or submits an acceptable planfor corrective action. The commenterwanted the penalty to be applied in allcases.

Response: As our goal is compliancewith the requirements and notpunishment, we believe it is good policyto forgive a penalty if the Lead Agencycorrects the non-compliance without apenalty through corrective action. Wealso believe that Lead Agencies shouldbe able to demonstrate that specialcircumstances, such as natural disastersor other circumstances beyond their

control, prevent compliance and thusthe penalty should be reduced. Webelieve that such instances will be rare.

List of Subjects

45 CFR Part 98

Child care, Grant program—socialprograms, Parental choice, Reportingand record keeping requirements.

45 CFR Part 99

Administrative practice andprocedure, Child care, Grant program—social programs.

(Catalog of Federal Domestic AssistancePrograms: 93.575, Child Care andDevelopment Block Grant; 93.596, Child CareMandatory and Matching Funds)

Dated: March 16, 1998.

Olivia A. Golden,Assistant Secretary for Children and Families.

Approved: June 10, 1998.

Donna E. Shalala,Secretary, Department of Health and HumanServices.

For the reasons set forth in thepreamble, Parts 98 and 99 of Subtitle Aof Title 45 of the Code of FederalRegulations are amended as follows:

1. Part 98 is revised as follows:

PART 98—CHILD CARE ANDDEVELOPMENT FUND


Sec.98.1 Goals and purposes.98.2 Definitions.98.3 Effect on State law.

Subpart B—General Application Procedures

98.10 Lead Agency responsibilities.98.11 Administration under contracts and

agreements.98.12 Coordination and consultation.98.13 Applying for funds.98.14 Plan process.98.15 Assurances and certifications.98.16 Plan provisions.98.17 Period covered by plan.98.18 Approval and disapproval of plans

and plan amendments.


98.20 A child’s eligibility for child careservices.


98.30 Parental choice.98.31 Parental access.98.32 Parental complaints.98.33 Consumer education.98.34 Parental rights and responsibilities.


Subpart E—Program Operations (Child CareServices)—Lead Agency and ProviderRequirements

98.40 Compliance with applicable State andlocal regulatory requirements.

98.41 Health and safety requirements.98.42 Sliding fee scales.98.43 Equal access.98.44 Priority for child care services.98.45 List of providers.98.46 Nondiscrimination in admissions on

the basis of religion.98.47 Nondiscrimination in employment on

the basis of religion.

Subpart F—Use of Child Care andDevelopment Funds

98.50 Child care services.98.51 Activities to improve the quality of

child care.98.52 Administrative costs.98.53 Matching Fund requirements.98.54 Restrictions on the use of funds.98.55 Cost allocation.

Subpart G—Financial Management98.60 Availability of funds.98.61 Allotments from the discretionary

fund.98.62 Allotments from the mandatory fund.98.63 Allotments from the matching fund.98.64 Reallotment and redistribution of

funds.98.65 Audits and financial reporting98.66 Disallowance procedures.98.67 Fiscal requirements.

Subpart H—Program ReportingRequirements98.70 Reporting requirements.98.71 Content of reports.

Subpart I—Indian Tribes

98.80 General procedures andrequirements.

98.81 Application and Plan procedures.98.82 Coordination.98.83 Requirements for tribal programs.98.84 Construction and renovation of child

care facilities.

Subpart J—Monitoring, Non-Complianceand Complaints

98.90 Monitoring.98.91 Non-compliance.98.92 Penalties and sanctions.98.93 Complaints.

Authority: 42 U.S.C. 618, 9858.


§ 98.1 Goals and purposes.(a) The goals of the CCDF are to:(1) Allow each State maximum

flexibility in developing child careprograms and policies that best suit theneeds of children and parents withinthe State;

(2) Promote parental choice toempower working parents to make theirown decisions on the child care thatbest suits their family’s needs;

(3) Encourage States to provideconsumer education information to help

parents make informed choices aboutchild care;

(4) Assist States to provide child careto parents trying to achieveindependence from public assistance;and

(5) Assist States in implementing thehealth, safety, licensing, and registrationstandards established in Stateregulations.

(b) The purpose of the CCDF is toincrease the availability, affordability,and quality of child care services. Theprogram offers Federal funding toStates, Territories, Indian Tribes, andtribal organizations in order to:

(1) Provide low-income families withthe financial resources to find andafford quality child care for theirchildren;

(2) Enhance the quality and increasethe supply of child care for all families,including those who receive no directassistance under the CCDF;

(3) Provide parents with a broad rangeof options in addressing their child careneeds;

(4) Strengthen the role of the family;(5) Improve the quality of, and

coordination among, child careprograms and early childhooddevelopment programs; and

(6) Increase the availability of earlychildhood development and before- andafter-school care services.

(c) The purpose of these regulations isto provide the basis for administrationof the Fund. These regulations providethat Lead Agencies:

(1) Maximize parental choice throughthe use of certificates and through grantsand contracts;

(2) Include in their programs a broadrange of child care providers, includingcenter-based care, family child care, in-home care, care provided by relativesand sectarian child care providers;

(3) Provide quality child care thatmeets applicable requirements;

(4) Coordinate planning and deliveryof services at all levels;

(5) Design flexible programs thatprovide for the changing needs ofrecipient families;

(6) Administer the CCDF responsiblyto ensure that statutory requirements aremet and that adequate informationregarding the use of public funds isprovided; and

(7) Design programs that provideuninterrupted service to families andproviders, to the extent statutorilypossible.

§ 98.2 Definitions.For the purpose of this part and part

99:The Act refers to the Child Care and

Development Block Grant Act of 1990,

section 5082 of the Omnibus BudgetReconciliation Act of 1990, Pub. L. 101–508, as amended and codified at 42U.S.C. 9858 et seq.

ACF means the Administration forChildren and Families;

Application is a request for fundingthat includes the information requiredat § 98.13;

Assistant Secretary means theAssistant Secretary for Children andFamilies, Department of Health andHuman Services;

Caregiver means an individual whoprovides child care services directly toan eligible child on a person-to-personbasis;

Categories of care means center-basedchild care, group home child care,family child care and in-home care;

Center-based child care providermeans a provider licensed or otherwiseauthorized to provide child careservices for fewer than 24 hours per dayper child in a non-residential setting,unless care in excess of 24 hours is dueto the nature of the parent(s)’ work;

Child care certificate means acertificate (that may be a check, or otherdisbursement) that is issued by a granteedirectly to a parent who may use suchcertificate only as payment for childcare services or as a deposit for childcare services if such a deposit isrequired of other children being caredfor by the provider, pursuant to § 98.30.Nothing in this part shall preclude theuse of such certificate for sectarian childcare services if freely chosen by theparent. For the purposes of this part, achild care certificate is assistance to theparent, not assistance to the provider;

Child Care and Development Fund(CCDF) means the child care programsconducted under the provisions of theChild Care and Development BlockGrant Act, as amended. The Fundconsists of Discretionary Fundsauthorized under section 658B of theamended Act, and Mandatory andMatching Funds appropriated undersection 418 of the Social Security Act;

Child care provider that receivesassistance means a child care providerthat receives Federal funds under theCCDF pursuant to grants, contracts, orloans, but does not include a child careprovider to whom Federal funds underthe CCDF are directed only through theoperation of a certificate program;

Child care services, for the purposesof § 98.50, means the care given to aneligible child by an eligible child careprovider;

Construction means the erection of afacility that does not currently exist;

The Department means theDepartment of Health and HumanServices;


Discretionary funds means the fundsauthorized under section 658B of theChild Care and Development BlockGrant Act. The Discretionary funds wereformerly referred to as the Child Careand Development Block Grant;

Eligible child means an individualwho meets the requirements of § 98.20;

Eligible child care provider means:(1) A center-based child care provider,

a group home child care provider, afamily child care provider, an in-homechild care provider, or other provider ofchild care services for compensationthat—

(i) Is licensed, regulated, or registeredunder applicable State or local law asdescribed in § 98.40; and

(ii) Satisfies State and localrequirements, including those referredto in § 98.41 applicable to the child careservices it provides; or

(2) A child care provider who is 18years of age or older who provides childcare services only to eligible childrenwho are, by marriage, bloodrelationship, or court decree, thegrandchild, great grandchild, sibling (ifsuch provider lives in separateresidence), niece, or nephew of suchprovider, and complies with anyapplicable requirements that governchild care provided by the relativeinvolved;

Facility means real property ormodular unit appropriate for use by agrantee to carry out a child careprogram;

Family child care provider means oneindividual who provides child careservices for fewer than 24 hours per dayper child, as the sole caregiver, in aprivate residence other than the child’sresidence, unless care in excess of 24hours is due to the nature of theparent(s)’ work;

Group home child care providermeans two or more individuals whoprovide child care services for fewerthan 24 hours per day per child, in aprivate residence other than the child’sresidence, unless care in excess of 24hours is due to the nature of theparent(s)’ work;

Indian Tribe means any Indian Tribe,band, nation, or other organized groupor community, including any AlaskaNative village or regional or villagecorporation as defined in or establishedpursuant to the Alaska Native ClaimsSettlement Act (43 U.S.C. § 1601 et seq.)that is recognized as eligible for thespecial programs and services providedby the United States to Indians becauseof their status as Indians;

In-home child care provider means anindividual who provides child careservices in the child’s own home;

Lead Agency means the State,territorial or tribal entity designatedunder §§ 98.10 and 98.16(a) to which agrant is awarded and that is accountablefor the use of the funds provided. TheLead Agency is the entire legal entityeven if only a particular component ofthe entity is designated in the grantaward document.

Licensing or regulatory requirementsmeans requirements necessary for aprovider to legally provide child careservices in a State or locality, includingregistration requirements establishedunder State, local or tribal law;

Liquidation period means theapplicable time period during which afiscal year’s grant shall be liquidatedpursuant to the requirements at § 98.60.;

Major renovation means: (1) structuralchanges to the foundation, roof, floor,exterior or load-bearing walls of afacility, or the extension of a facility toincrease its floor area; or (2) extensivealteration of a facility such as tosignificantly change its function andpurpose, even if such renovation doesnot include any structural change;

Mandatory funds means the generalentitlement child care funds describedat section 418(a)(1) of the SocialSecurity Act;

Matching funds means the remainderof the general entitlement child carefunds that are described at section418(a)(2) of the Social Security Act;

Modular unit means a portablestructure made at another location andmoved to a site for use by a grantee tocarry out a child care program;

Obligation period means theapplicable time period during which afiscal year’s grant shall be obligatedpursuant to § 98.60;

Parent means a parent by blood,marriage or adoption and also means alegal guardian, or other person standingin loco parentis;

The Plan means the Plan for theimplementation of programs under theCCDF;

Program period means the timeperiod for using a fiscal year’s grant anddoes not extend beyond the last day toliquidate funds;

Programs refers generically to allactivities under the CCDF, includingchild care services and other activitiespursuant to § 98.50 as well as qualityand availability activities pursuant to§ 98.51;

Provider means the entity providingchild care services;

The regulation refers to the actualregulatory text contained in parts 98 and99 of this chapter;

Real property means land, includingland improvements, structures and

appurtenances thereto, excludingmovable machinery and equipment;

Secretary means the Secretary of theDepartment of Health and HumanServices;

Sectarian organization or sectarianchild care provider means religiousorganizations or religious providersgenerally. The terms embrace anyorganization or provider that engages inreligious conduct or activity or thatseeks to maintain a religious identity insome or all of its functions. There is norequirement that a sectarianorganization or provider be managed byclergy or have any particular degree ofreligious management, control, orcontent;

Sectarian purposes and activitiesmeans any religious purpose or activity,including but not limited to religiousworship or instruction;

Services for which assistance isprovided means all child care servicesfunded under the CCDF, either asassistance directly to child careproviders through grants, contracts, orloans, or indirectly as assistance toparents through child care certificates;

Sliding fee scale means a system ofcost sharing by a family based onincome and size of the family, inaccordance with § 98.42;

State means any of the States, theDistrict of Columbia, theCommonwealth of Puerto Rico, theVirgin Islands of the United States,Guam, American Samoa, theCommonwealth of the Northern MarianaIslands, and includes Tribes unlessotherwise specified;

Tribal mandatory funds means thechild care funds set aside at section418(a)(4) of the Social Security Act. Thefunds consist of between one and twopercent of the aggregate Mandatory andMatching child care funds reserved bythe Secretary in each fiscal year forpayments to Indian Tribes and tribalorganizations;

Tribal organization means therecognized governing body of anyIndian Tribe, or any legally establishedorganization of Indians, including aconsortium, which is controlled,sanctioned, or chartered by suchgoverning body or which isdemocratically elected by the adultmembers of the Indian community to beserved by such organization and whichincludes the maximum participation ofIndians in all phases of its activities:Provided, that in any case where acontract is let or grant is made to anorganization to perform servicesbenefiting more than one Indian Tribe,the approval of each such Indian Tribeshall be a prerequisite to the letting ormaking of such contract or grant; and


Types of providers means the differentclasses of providers under each categoryof care. For the purposes of the CCDF,types of providers include non-profitproviders, for-profit providers, sectarianproviders and relatives who providecare.

§ 98.3 Effect on State law.(a) Nothing in the Act or this part

shall be construed to supersede ormodify any provision of a Stateconstitution or State law that prohibitsthe expenditure of public funds in or bysectarian organizations, except that noprovision of a State constitution or Statelaw shall be construed to prohibit theexpenditure in or by sectarianinstitutions of any Federal fundsprovided under this part.

(b) If a State law or constitutionwould prevent CCDF funds from beingexpended for the purposes provided inthe Act, without limitation, then Statesshall segregate State and Federal funds.

Subpart B—General ApplicationProcedures

§ 98.10 Lead Agency responsibilities.The Lead Agency, as designated by

the chief executive officer of the State(or by the appropriate Tribal leader orapplicant), shall:

(a) Administer the CCDF program,directly or through other governmentalor non-governmental agencies, inaccordance with § 98.11;

(b) Apply for funding under this part,pursuant to § 98.13;

(c) Consult with appropriaterepresentatives of local government indeveloping a Plan to be submitted to theSecretary pursuant to § 98.14(b);

(d) Hold at least one public hearing inaccordance with § 98.14(c); and

(e) Coordinate CCDF servicespursuant to § 98.12.

§ 98.11 Administration under contractsand agreements.

(a) The Lead Agency has broadauthority to administer the programthrough other governmental or non-governmental agencies. In addition, theLead Agency can use other public orprivate local agencies to implement theprogram; however:

(1) The Lead Agency shall retainoverall responsibility for theadministration of the program, asdefined in paragraph (b) of this section;

(2) The Lead Agency shall serve as thesingle point of contact for issuesinvolving the administration of thegrantee’s CCDF program; and

(3) Administrative andimplementation responsibilitiesundertaken by agencies other than theLead Agency shall be governed by

written agreements that specify themutual roles and responsibilities of theLead Agency and the other agencies inmeeting the requirements of this part.

(b) In retaining overall responsibilityfor the administration of the program,the Lead Agency shall:

(1) Determine the basic usage andpriorities for the expenditure of CCDFfunds;

(2) Promulgate all rules andregulations governing overalladministration of the Plan;

(3) Submit all reports required by theSecretary;

(4) Ensure that the program complieswith the approved Plan and all Federalrequirements;

(5) Oversee the expenditure of fundsby subgrantees and contractors;

(6) Monitor programs and services;(7) Fulfill the responsibilities of any

subgrantee in any: disallowance undersubpart G; complaint or complianceaction under subpart J; or hearing orappeal action under part 99 of thischapter; and

(8) Ensure that all State and local ornon-governmental agencies throughwhich the State administers theprogram, including agencies andcontractors that determine individualeligibility, operate according to the rulesestablished for the program.

§ 98.12 Coordination and consultation.The Lead Agency shall:(a) Coordinate the provision of

services for which assistance isprovided under this part with theagencies listed in § 98.14(a).

(b) Consult, in accordance with§ 98.14(b), with representatives ofgeneral purpose local governmentduring the development of the Plan; and

(c) Coordinate, to the maximumextent feasible, with any Indian Tribesin the State receiving CCDF funds inaccordance with subpart I of this part.

§ 98.13 Applying for Funds.The Lead Agency of a State or

Territory shall apply for Child Care andDevelopment funds by providing thefollowing:

(a) The amount of funds requested atsuch time and in such manner asprescribed by the Secretary.

(b) The following assurances orcertifications:

(1) An assurance that the Lead Agencywill comply with the requirements ofthe Act and this part;

(2) A lobbying certification thatassures that the funds will not be usedfor the purpose of influencing pursuantto 45 CFR part 93, and, if necessary, aStandard Form LLL (SF–LLL) thatdiscloses lobbying payments;

(3) An assurance that the Lead Agencyprovides a drug-free workplace pursuantto 45 CFR 76.600, or a statement thatsuch an assurance has already beensubmitted for all HHS grants;

(4) A certification that no principalshave been debarred pursuant to 45 CFR76.500;

(5) Assurances that the Lead Agencywill comply with the applicableprovisions regarding nondiscriminationat 45 CFR part 80 (implementing title VIof the Civil Rights Act of 1964, asamended), 45 CFR part 84(implementing section 504 of theRehabilitation Act of 1973, as amended),45 CFR part 86 (implementing title IX ofthe Education Amendments of 1972, asamended) and 45 CFR part 91(implementing the Age DiscriminationAct of 1975, as amended), and;

(6) Assurances that the Lead Agencywill comply with the applicableprovisions of Public Law 103–277, PartC—Environmental Tobacco Smoke, alsoknown as the Pro-Children Act of 1994,regarding prohibitions on smoking.

(c) The Child Care and DevelopmentFund Plan, at times and in such manneras required in § 98.17; and

(d) Such other information asspecified by the Secretary.

§ 98.14 Plan process.In the development of each Plan, as

required pursuant to § 98.17, the LeadAgency shall:

(a)(1) Coordinate the provision ofservices funded under this Part withother Federal, State, and local child careand early childhood developmentprograms, including such programs forthe benefit of Indian children. The LeadAgency shall also coordinate with theState, and if applicable, tribal agenciesresponsible for:

(A) Public health, including theagency responsible for immunizations;

(B) Employment services/workforcedevelopment;

(C) Public education; and(D) Providing Temporary Assistance

for Needy Families.(2) Provide a description of the results

of the coordination with each of theseagencies in the CCDF Plan.

(b) Consult with appropriaterepresentatives of local governments;

(c)(1) Hold at least one hearing in theState, after at least 20 days of statewidepublic notice, to provide to the publican opportunity to comment on theprovision of child care services underthe Plan.

(2) The hearing required by paragraph(c)(1) shall be held before the Plan issubmitted to ACF, but no earlier thannine months before the Plan becomeseffective.


(3) In advance of the hearing requiredby this section, the Lead Agency shallmake available to the public the contentof the Plan as described in § 98.16 thatit proposes to submit to the Secretary.

§ 98.15 Assurances and certifications.(a) The Lead Agency shall include the

following assurances in its CCDF Plan:(1) Upon approval, it will have in

effect a program that complies with theprovisions of the CCDF Plan, and that isadministered in accordance with theChild Care and Development BlockGrant Act of 1990, as amended, section418 of the Social Security Act, and allother applicable Federal laws andregulations;

(2) The parent(s) of each eligible childwithin the area served by the LeadAgency who receives or is offered childcare services for which financialassistance is provided is given theoption either:

(i) To enroll such child with a childcare provider that has a grant or contractfor the provision of the service; or

(ii) To receive a child care certificateas defined in § 98.2;

(3) In cases in which the parent(s),pursuant to § 98.30, elects to enroll theirchild with a provider that has a grant orcontract with the Lead Agency, thechild will be enrolled with the eligibleprovider selected by the parent to themaximum extent practicable;

(4) In accordance with § 98.30, thechild care certificate offered to parentsshall be of a value commensurate withthe subsidy value of child care servicesprovided under a grant or contract;

(5) With respect to State and localregulatory requirements (or tribalregulatory requirements), health andsafety requirements, payment rates, andregistration requirements, State or local(or tribal) rules, procedures or otherrequirements promulgated for thepurpose of the CCDF will notsignificantly restrict parental choicefrom among categories of care or typesof providers, pursuant to § 98.30(f).

(6) That if expenditures for pre-Kindergarten services are used to meetthe maintenance-of-effort requirement,the State has not reduced its level ofeffort in full-day/full-year child careservices, pursuant to § 98.53(h)(1).

(b) The Lead Agency shall include thefollowing certifications in its CCDFPlan:

(1) In accordance with § 98.31, it hasprocedures in place to ensure thatproviders of child care services forwhich assistance is provided under theCCDF, afford parents unlimited accessto their children and to the providerscaring for their children, during thenormal hours of operations and

whenever such children are in the careof such providers;

(2) As required by § 98.32, the Statemaintains a record of substantiatedparental complaints and makesinformation regarding such complaintsavailable to the public on request;

(3) It will collect and disseminate toparents of eligible children and thegeneral public, consumer educationinformation that will promote informedchild care choices, as required by§ 98.33;

(4) There are in effect licensingrequirements applicable to child careservices provided within the State (orarea served by Tribal Lead Agency),pursuant to § 98.40;

(5) There are in effect within the State(or other area served by the LeadAgency), under State or local (or tribal)law, requirements designed to protectthe health and safety of children that areapplicable to child care providers thatprovide services for which assistance ismade available under the CCDF,pursuant to § 98.41;

(6) In accordance with § 98.41,procedures are in effect to ensure thatchild care providers of services forwhich assistance is provided under theCCDF comply with all applicable Stateor local (or tribal) health and safetyrequirements; and

(7) Payment rates for the provision ofchild care services, in accordance with§ 98.43, are sufficient to ensure equalaccess for eligible children tocomparable child care services in theState or sub-State area that are providedto children whose parents are noteligible to receive assistance under thisprogram or under any other Federal orState child care assistance programs.

§ 98.16 Plan provisions.A CCDF Plan shall contain the

following:(a) Specification of the Lead Agency

whose duties and responsibilities aredelineated in § 98.10;

(b) The assurances and certificationslisted under § 98.15;

(c)(1) A description of how the CCDFprogram will be administered andimplemented, if the Lead Agency doesnot directly administer and implementthe program;

(2) Identification of the entitydesignated to receive private donatedfunds and the purposes for which suchfunds will be expended, pursuant to§ 98.53(f);

(d) A description of the coordinationand consultation processes involved inthe development of the Plan, includinga description of public-privatepartnership activities that promotebusiness involvement in meeting child

care needs pursuant to § 98.14(a) and(b);

(e) A description of the public hearingprocess, pursuant to § 98.14(c);

(f) Definitions of the following termsfor purposes of determining eligibility,pursuant to §§ 98.20(a) and 98.44:

(1) Special needs child;(2) Physical or mental incapacity (if

applicable);(3) Attending (a job training or

educational program);(4) Job training and educational

program;(5) Residing with;(6) Working;(7) Protective services (if applicable),

including whether children in fostercare are considered in protectiveservices for purposes of child careeligibility; and whether respite care isprovided to custodial parents ofchildren in protective services.

(8) Very low income; and(9) in loco parentis.(g) For child care services pursuant to

§ 98.50:(1) A description of such services and

activities;(2) Any limits established for the

provision of in-home care and thereasons for such limits pursuant to§ 98.30(e)(1)(iv);

(3) A list of political subdivisions inwhich such services and activities areoffered, if such services and activitiesare not available throughout the entireservice area;

(4) A description of how the LeadAgency will meet the needs of certainfamilies specified at § 98.50(e).

(5) Any additional eligibility criteria,priority rules and definitionsestablished pursuant to § 98.20(b);

(h) A description of the activities toprovide comprehensive consumereducation, to increase parental choice,and to improve the quality andavailability of child care, pursuant to§ 98.51;

(i) A description of the sliding feescale(s) (including any factors otherthan income and family size used inestablishing the fee scale(s)) thatprovide(s) for cost sharing by thefamilies that receive child care servicesfor which assistance is provided underthe CCDF, pursuant to § 98.42;

(j) A description of the health andsafety requirements, applicable to allproviders of child care services forwhich assistance is provided under theCCDF, in effect pursuant to § 98.41;

(k) A description of the child carecertificate payment system(s), includingthe form or forms of the child carecertificate, pursuant to § 98.30(c);

(l) Payment rates and a summary ofthe facts, including a biennial local


market rate survey, relied upon todetermine that the rates provided aresufficient to ensure equal accesspursuant to § 98.43;

(m) A detailed description of how theState maintains a record of substantiatedparental complaints and how it makesinformation regarding those complaintsavailable to the public on request,pursuant to § 98.32;

(n) A detailed description of theprocedures in effect for affordingparents unlimited access to theirchildren whenever their children are inthe care of the provider, pursuant to§ 98.31;

(o) A detailed description of thelicensing requirements applicable tochild care services provided, and adescription of how such licensingrequirements are effectively enforced,pursuant to § 98.40;

(p) Pursuant to § 98.33(b), thedefinitions or criteria used to implementthe exception, provided in section407(e)(2) of the Social Security Act, toindividual penalties in the TANF workrequirement applicable to a singlecustodial parent caring for a child underage six;

(q)(1) When any Matching fundsunder § 98.53(b) are claimed, adescription of the efforts to ensure thatpre-Kindergarten programs meet theneeds of working parents;

(2) When State pre-Kindergartenexpenditures are used to meet morethan 10% of the amount required at§ 98.53(c)(1), or for more than 10% ofthe funds available at § 98.53(b), or both,a description of how the State willcoordinate its pre-Kindergarten andchild care services to expand theavailability of child care; and

(r) Such other information asspecified by the Secretary.

§ 98.17 Period covered by Plan.(a) For States, Territories, and Indian

Tribes the Plan shall cover a period oftwo years.

(b) The Lead Agency shall submit anew Plan prior to the expiration of thetime period specified in paragraph (a) ofthis section, at such time as required bythe Secretary in written instructions.

§ 98.18 Approval and disapproval of Plansand Plan amendments.

(a) Plan approval. The AssistantSecretary will approve a Plan thatsatisfies the requirements of the Act andthis part. Plans will be approved notlater than the 90th day following thedate on which the Plan submittal isreceived, unless a written agreement toextend that period has been secured.

(b) Plan amendments. ApprovedPlans shall be amended whenever a

substantial change in the programoccurs. A Plan amendment shall besubmitted within 60 days of theeffective date of the change. Planamendments will be approved not laterthan the 90th day following the date onwhich the amendment is received,unless a written agreement to extendthat period has been secured.

(c) Appeal of disapproval of a Plan orPlan amendment.

(1) An applicant or Lead Agencydissatisfied with a determination of theAssistant Secretary pursuant toparagraphs (a) or (b) of this section withrespect to any Plan or amendment may,within 60 days after the date of receiptof notification of such determination,file a petition with the AssistantSecretary asking for reconsideration ofthe issue of whether such Plan oramendment conforms to therequirements for approval under the Actand pertinent Federal regulations.

(2) Within 30 days after receipt ofsuch petition, the Assistant Secretaryshall notify the applicant or LeadAgency of the time and place at whichthe hearing for the purpose ofreconsidering such issue will be held.

(3) Such hearing shall be held not lessthan 30 days, nor more than 90 days,after the notification is furnished to theapplicant or Lead Agency, unless theAssistant Secretary and the applicant orLead Agency agree in writing on anothertime.

(4) Action pursuant to an initialdetermination by the Assistant Secretarydescribed in paragraphs (a) and (b) ofthis section that a Plan or amendmentis not approvable shall not be stayedpending the reconsideration, but in theevent that the Assistant Secretarysubsequently determines that theoriginal decision was incorrect, theAssistant Secretary shall certifyrestitution forthwith in a lump sum ofany funds incorrectly withheld orotherwise denied. The hearingprocedures are described in part 99 ofthis chapter.


§ 98.20 A child’s eligibility for child careservices.

(a) In order to be eligible for servicesunder § 98.50, a child shall:

(1)(i) Be under 13 years of age; or,(ii) At the option of the Lead Agency,

be under age 19 and physically ormentally incapable of caring for himselfor herself, or under court supervision;

(2) Reside with a family whoseincome does not exceed 85 percent ofthe State’s median income for a familyof the same size; and

(3)(i) Reside with a parent or parents(as defined in § 98.2) who are working

or attending a job training oreducational program; or

(ii) Receive, or need to receive,protective services and reside with aparent or parents (as defined in § 98.2)other than the parent(s) described inparagraph (a)(3)(i) of this section.

(A) At grantee option, therequirements in paragraph (a)(2) of thissection and in § 98.42 may be waivedfor families eligible for child carepursuant to this paragraph, ifdetermined to be necessary on a case-by-case basis by, or in consultationwith, an appropriate protective servicesworker.

(B) At grantee option, the provisionsin (A) apply to children in foster carewhen defined in the Plan, pursuant to§ 98.16(f)(7).

(b) Pursuant to § 98.16(g)(5), a granteeor other administering agency mayestablish eligibility conditions orpriority rules in addition to thosespecified in this section and § 98.44 solong as they do not:

(1) Discriminate against children onthe basis of race, national origin, ethnicbackground, sex, religious affiliation, ordisability;

(2) Limit parental rights providedunder Subpart D; or

(3) Violate the provisions of thissection, § 98.44, or the Plan. Inparticular, such conditions or priorityrules may not be based on a parent’spreference for a category of care or typeof provider. In addition, such additionalconditions or rules may not be based ona parent’s choice of a child carecertificate.


§ 98.30 Parental choice.(a) The parent or parents of an eligible

child who receives or is offered childcare services shall be offered a choice:

(1) To enroll the child with an eligiblechild care provider that has a grant orcontract for the provision of suchservices, if such services are available;or

(2) To receive a child care certificateas defined in § 98.2.

Such choice shall be offered any timethat child care services are madeavailable to a parent.

(b) When a parent elects to enroll thechild with a provider that has a grant orcontract for the provision of child careservices, the child will be enrolled withthe provider selected by the parent tothe maximum extent practicable.

(c) In cases in which a parent electsto use a child care certificate, suchcertificate:


(1) Will be issued directly to theparent;

(2) Shall be of a value commensuratewith the subsidy value of the child careservices provided under paragraph (a)(1)of this section;

(3) May be used as a deposit for childcare services if such a deposit isrequired of other children being caredfor by the provider;

(4) May be used for child care servicesprovided by a sectarian organization oragency, including those that engage inreligious activities, if those services arechosen by the parent;

(5) May be expended by providers forany sectarian purpose or activity that ispart of the child care services, includingsectarian worship or instruction;

(6) Shall not be considered a grant orcontract to a provider but shall beconsidered assistance to the parent.

(d) Child care certificates shall bemade available to any parents offeredchild care services.

(e)(1) For child care services,certificates under paragraph (a)(2) ofthis section shall permit parents tochoose from a variety of child carecategories, including:

(i) Center-based child care;(ii) Group home child care;(iii) Family child care; and(iv) In-home child care, with

limitations, if any, imposed by the LeadAgency and described in its Plan at§ 98.16(g)(2).

Under each of the above categories,care by a sectarian provider may not belimited or excluded.

(2) Lead Agencies shall provideinformation regarding the range ofprovider options under paragraph (e)(1)of this section, including care bysectarian providers and relatives, tofamilies offered child care services.

(f) With respect to State and localregulatory requirements under § 98.40,health and safety requirements under§ 98.41, and payment rates under§ 98.43, CCDF funds will not beavailable to a Lead Agency if State orlocal rules, procedures or otherrequirements promulgated for purposesof the CCDF significantly restrictparental choice by:

(1) Expressly or effectively excluding:(i) Any category of care or type of

provider, as defined in § 98.2; or(ii) Any type of provider within a

category of care; or(2) Having the effect of limiting

parental access to or choice from amongsuch categories of care or types ofproviders, as defined in § 98.2; or

(3) Excluding a significant number ofproviders in any category of care or ofany type as defined in § 98.2.

§ 98.31 Parental access.The Lead Agency shall have in effect

procedures to ensure that providers ofchild care services for which assistanceis provided afford parents unlimitedaccess to their children, and to theproviders caring for their children,during normal hours of provideroperation and whenever the childrenare in the care of the provider. The LeadAgency shall provide a detaileddescription of such procedures.

§ 98.32 Parental complaints.The State shall:(a) Maintain a record of substantiated

parental complaints;(b) Make information regarding such

parental complaints available to thepublic on request; and

(c) The Lead Agency shall provide adetailed description of how such recordis maintained and is made available.

§ 98.33 Consumer education.The Lead Agency shall:(a) Certify that it will collect and

disseminate to parents and the generalpublic consumer education informationthat will promote informed child carechoices including, at a minimum,information about

(1) the full range of providersavailable, and

(2) health and safety requirements;(b) Inform parents who receive TANF

benefits about the requirement atsection 407(e)(2) of the Social SecurityAct that the TANF agency make anexception to the individual penaltiesassociated with the work requirementfor any single custodial parent who hasa demonstrated inability to obtainneeded child care for a child under sixyears of age. The information may beprovided directly by the Lead Agency,or, pursuant to § 98.11, other entities,and shall include:

(1) The procedures the TANF agencyuses to determine if the parent has ademonstrated inability to obtain neededchild care;

(2) The criteria or definitions appliedby the TANF agency to determinewhether the parent has a demonstratedinability to obtain needed child care,including:

(i) ‘‘Appropriate child care’’;(ii) ‘‘Reasonable distance’’;(iii) ‘‘Unsuitability of informal child

care’’;(iv) ‘‘Affordable child care

arrangements’’;(3) The clarification that assistance

received during the time an eligibleparent receives the exception referred toin paragraph (b) of this section willcount toward the time limit on Federalbenefits required at section 408(a)(7) ofthe Social Security Act.

(c) Include in the biennial Plan thedefinitions or criteria the TANF agencyuses in implementing the exception tothe work requirement specified inparagraph (b) of this section.

§ 98.34 Parental rights andresponsibilities.

Nothing under this part shall beconstrued or applied in any manner toinfringe on or usurp the moral and legalrights and responsibilities of parents orlegal guardians.

Subpart E—Program Operations (ChildCare Services)—Lead Agency andProvider Requirements

§ 98.40 Compliance with applicable Stateand local regulatory requirements.

(a) Lead Agencies shall:(1) Certify that they have in effect

licensing requirements applicable tochild care services provided within thearea served by the Lead Agency;

(2) Provide a detailed description ofthe requirements under paragraph (a)(1)of this section and of how they areeffectively enforced.

(b)(1) This section does not prohibit aLead Agency from imposing morestringent standards and licensing orregulatory requirements on child careproviders of services for whichassistance is provided under the CCDFthan the standards or requirementsimposed on other child care providers.

(2) Any such additional requirementsshall be consistent with the safeguardsfor parental choice in § 98.30(f).

§ 98.41 Health and safety requirements.(a) Although the Act specifically

states it does not require theestablishment of any new or additionalrequirements if existing requirementscomply with the requirements of thestatute, each Lead Agency shall certifythat there are in effect, within the State(or other area served by the LeadAgency), under State, local or tribal law,requirements designed to protect thehealth and safety of children that areapplicable to child care providers ofservices for which assistance isprovided under this part. Suchrequirements shall include:

(1) The prevention and control ofinfectious diseases (includingimmunizations). With respect toimmunizations, the followingprovisions apply:

(i) As part of their health and safetyprovisions in this area, States andTerritories shall assure that childrenreceiving services under the CCDF areage-appropriately immunized. Thosehealth and safety provisions shallincorporate (by reference or otherwise)the latest recommendation for


childhood immunizations of therespective State or territorial publichealth agency.

(ii) Notwithstanding paragraph(a)(1)(i) of this section, Lead Agenciesmay exempt:

(A) Children who are cared for byrelatives (defined as grandparents, greatgrandparents, siblings (if living in aseparate residence), aunts, and uncles);

(B) Children who receive care in theirown homes;

(C) Children whose parents object toimmunization on religious grounds; and

(D) Children whose medical conditioncontraindicates immunization;

(iii) Lead Agencies shall establish agrace period in which children canreceive services while families aretaking the necessary actions to complywith the immunization requirements;

(2) Building and physical premisessafety; and

(3) Minimum health and safetytraining appropriate to the providersetting.

(b) Lead Agencies may not set healthand safety standards and requirementsunder paragraph (a) of this section thatare inconsistent with the parentalchoice safeguards in § 98.30(f).

(c) The requirements in paragraph (a)of this section shall apply to allproviders of child care services forwhich assistance is provided under thispart, within the area served by the LeadAgency, except the relatives specified inparagraph (e) of this section.

(d) Each Lead Agency shall certifythat procedures are in effect to ensurethat child care providers of services forwhich assistance is provided under thispart, within the area served by the LeadAgency, comply with all applicableState, local, or tribal health and safetyrequirements described in paragraph (a)of this section.

(e) For the purposes of this section,the term ‘‘child care providers’’ does notinclude grandparents, greatgrandparents, siblings (if such providerslive in a separate residence), aunts, oruncles, pursuant to § 98.2.

§ 98.42 Sliding fee scales.

(a) Lead Agencies shall establish, andperiodically revise, by rule, a sliding feescale(s) that provides for cost sharing byfamilies that receive CCDF child careservices.

(b) A sliding fee scale(s) shall bebased on income and the size of thefamily and may be based on otherfactors as appropriate.

(c) Lead Agencies may waivecontributions from families whoseincomes are at or below the povertylevel for a family of the same size.

§ 98.43 Equal access.(a) The Lead Agency shall certify that

the payment rates for the provision ofchild care services under this part aresufficient to ensure equal access, foreligible families in the area served bythe Lead Agency, to child care servicescomparable to those provided tofamilies not eligible to receive CCDFassistance or child care assistance underany other Federal, State, or tribalprograms.

(b) The Lead Agency shall provide asummary of the facts relied on todetermine that its payment rates ensureequal access. At a minimum, thesummary shall include facts showing:

(1) How a choice of the full range ofproviders, e.g., center, group, family,and in-home care, is made available;

(2) How payment rates are adequatebased on a local market rate surveyconducted no earlier than two yearsprior to the effective date of thecurrently approved Plan;

(3) How copayments based on asliding fee scale are affordable, asstipulated at § 98.42.

(c) A Lead Agency may not establishdifferent payment rates based on afamily’s eligibility status orcircumstances.

(d) Payment rates under paragraph (a)of this section shall be consistent withthe parental choice requirements in§ 98.30.

(e) Nothing in this section shall beconstrued to create a private right ofaction.

§ 98.44 Priority for child care services.Lead Agencies shall give priority for

services provided under § 98.50(a) to:(a) Children of families with very low

family income (considering family size);and

(b) Children with special needs.

§ 98.45 List of Providers.If a Lead Agency does not have a

registration process for child careproviders who are unlicensed orunregulated under State, local, or triballaw, it is required to maintain a list ofthe names and addresses of unlicensedor unregulated providers of child careservices for which assistance isprovided under this part.

§ 98.46 Nondiscrimination in admissionson the basis of religion.

(a) Child care providers (other thanfamily child care providers, as definedin § 98.2) that receive assistance throughgrants and contracts under the CCDFshall not discriminate in admissionsagainst any child on the basis ofreligion.

(b) Paragraph (a) of this section doesnot prohibit a child care provider from

selecting children for child care slotsthat are not funded directly (i.e.,through grants or contracts to providers)with assistance provided under theCCDF because such children or theirfamily members participate on a regularbasis in other activities of theorganization that owns or operates suchprovider.

(c) Notwithstanding paragraph (b) ofthis section, if 80 percent or more of theoperating budget of a child careprovider comes from Federal or Statefunds, including direct or indirectassistance under the CCDF, the LeadAgency shall assure that before anyfurther CCDF assistance is given to theprovider,

(1) The grant or contract relating tothe assistance, or

(2) The admission policies of theprovider specifically provide that noperson with responsibilities in theoperation of the child care program,project, or activity will discriminate, onthe basis of religion, in the admission ofany child.

§ 98.47 Nondiscrimination in employmenton the basis of religion.

(a) In general, except as provided inparagraph (b) of this section, nothing inthis part modifies or affects theprovision of any other applicableFederal law and regulation relating todiscrimination in employment on thebasis of religion.

(1) Child care providers that receiveassistance through grants or contractsunder the CCDF shall not discriminate,on the basis of religion, in theemployment of caregivers as defined in§ 98.2.

(2) If two or more prospectiveemployees are qualified for any positionwith a child care provider, this sectionshall not prohibit the provider fromemploying a prospective employee whois already participating on a regularbasis in other activities of theorganization that owns or operates theprovider.

(3) Paragraphs (a)(1) and (2) of thissection shall not apply to employees ofchild care providers if such employeeswere employed with the provider onNovember 5, 1990.

(b) Notwithstanding paragraph (a) ofthis section, a sectarian organizationmay require that employees adhere tothe religious tenets and teachings ofsuch organization and to rulesforbidding the use of drugs or alcohol.

(c) Notwithstanding paragraph (b) ofthis section, if 80 percent or more of theoperating budget of a child careprovider comes from Federal and Statefunds, including direct and indirectassistance under the CCDF, the Lead


Agency shall assure that, before anyfurther CCDF assistance is given to theprovider,

(1) The grant or contract relating tothe assistance, or

(2) The employment policies of theprovider specifically provide that noperson with responsibilities in theoperation of the child care program willdiscriminate, on the basis of religion, inthe employment of any individual as acaregiver, as defined in § 98.2.

Subpart F—Use of Child Care andDevelopment Funds

§ 98.50 Child care services.(a) Of the funds remaining after

applying the provisions of paragraphs(c), (d) and (e) of this section the LeadAgency shall spend a substantialportion to provide child care services tolow-income working families.

(b) Child care services shall beprovided:

(1) To eligible children, as describedin § 98.20;

(2) Using a sliding fee scale, asdescribed in § 98.42;

(3) Using funding methods providedfor in § 98.30; and

(4) Based on the priorities in § 98.44.(c) Of the aggregate amount of funds

expended (i.e., Discretionary,Mandatory, and Federal and State shareof Matching Funds), no less than fourpercent shall be used for activities toimprove the quality of child care asdescribed at § 98.51.

(d) Of the aggregate amount of fundsexpended (i.e., Discretionary,Mandatory, and Federal and State shareof Matching Funds), no more than fivepercent may be used for administrativeactivities as described at § 98.52.

(e) Not less than 70 percent of theMandatory and Matching Funds shall beused to meet the child care needs offamilies who:

(1) Are receiving assistance under aState program under Part A of title IV ofthe Social Security Act,

(2) Are attempting through workactivities to transition off suchassistance program, and

(3) Are at risk of becoming dependenton such assistance program.

(f) Pursuant to § 98.16(g)(4), the Planshall specify how the State will meet thechild care needs of families described inparagraph (e) of this section.

§ 98.51 Activities to improve the quality ofchild care.

(a) No less than four percent of theaggregate funds expended by the LeadAgency for a fiscal year, and includingthe amounts expended in the Statepursuant to § 98.53(b), shall beexpended for quality activities.

(1) These activities may include butare not limited to:

(i) Activities designed to providecomprehensive consumer education toparents and the public;

(ii) Activities that increase parentalchoice; and

(iii) Activities designed to improvethe quality and availability of child care,including, but not limited to thosedescribed in paragraph (2) of thissection.

(2) Activities to improve the quality ofchild care services may include, but arenot limited to:

(i) Operating directly or providingfinancial assistance to organizations(including private non-profitorganizations, public organizations, andunits of general purpose localgovernment) for the development,establishment, expansion, operation,and coordination of resource andreferral programs specifically related tochild care;

(ii) Making grants or providing loansto child care providers to assist suchproviders in meeting applicable State,local, and tribal child care standards,including applicable health and safetyrequirements, pursuant to §§ 98.40 and98.41;

(iii) Improving the monitoring ofcompliance with, and enforcement of,applicable State, local, and tribalrequirements pursuant to §§ 98.40 and98.41;

(iv) Providing training and technicalassistance in areas appropriate to theprovision of child care services, such astraining in health and safety, nutrition,first aid, the recognition ofcommunicable diseases, child abusedetection and prevention, and care ofchildren with special needs;

(v) Improving salaries and othercompensation (such as fringe benefits)for full-and part-time staff who providechild care services for which assistanceis provided under this part; and

(vi) Any other activities that areconsistent with the intent of thissection.

(b) Pursuant to § 98.16(h), the LeadAgency shall describe in its Plan theactivities it will fund under this section.

(c) Non-Federal expenditures requiredby § 98.53(c) (i.e., the maintenance-of-effort amount) are not subject to therequirement at paragraph (a) of thissection.

§ 98.52 Administrative costs.(a) Not more than five percent of the

aggregate funds expended by the LeadAgency from each fiscal year’sallotment, including the amountsexpended in the State pursuant to§ 98.53(b), shall be expended for

administrative activities. Theseactivities may include but are notlimited to:

(1) Salaries and related costs of thestaff of the Lead Agency or otheragencies engaged in the administrationand implementation of the programpursuant to § 98.11. Programadministration and implementationinclude the following types of activities:

(i) Planning, developing, anddesigning the Child Care andDevelopment Fund program;

(ii) Providing local officials and thepublic with information about theprogram, including the conduct ofpublic hearings;

(iii) Preparing the application andPlan;

(iv) Developing agreements withadministering agencies in order to carryout program activities;

(v) Monitoring program activities forcompliance with program requirements;

(vi) Preparing reports and otherdocuments related to the program forsubmission to the Secretary;

(vii) Maintaining substantiatedcomplaint files in accordance with therequirements of § 98.32;

(viii) Coordinating the provision ofChild Care and Development Fundservices with other Federal, State, andlocal child care, early childhooddevelopment programs, and before-andafter-school care programs;

(ix) Coordinating the resolution ofaudit and monitoring findings;

(x) Evaluating program results; and(xi) Managing or supervising persons

with responsibilities described inparagraphs (a)(1)(i) through (x) of thissection;

(2) Travel costs incurred for officialbusiness in carrying out the program;

(3) Administrative services, includingsuch services as accounting services,performed by grantees or subgrantees orunder agreements with third parties;

(4) Audit services as required at§ 98.65;

(5) Other costs for goods and servicesrequired for the administration of theprogram, including rental or purchase ofequipment, utilities, and office supplies;and

(6) Indirect costs as determined by anindirect cost agreement or costallocation plan pursuant to § 98.55.

(b) The five percent limitation atparagraph (a) of this section appliesonly to the States and Territories. Theamount of the limitation at paragraph (a)of this section does not apply to Tribesor tribal organizations.

(c) Non-Federal expenditures requiredby § 98.53(c) (i.e., the maintenance-of-effort amount) are not subject to the fivepercent limitation at paragraph (a) ofthis section.


§ 98.53 Matching fund requirements.(a) Federal matching funds are

available for expenditures in a Statebased upon the formula specified at§ 98.63(a).

(b) Expenditures in a State underparagraph (a) of this section will bematched at the Federal medicalassistance rate for the applicable fiscalyear for allowable activities, asdescribed in the approved State Plan,that meet the goals and purposes of theAct.

(c) In order to receive Federalmatching funds for a fiscal year underparagraph (a) of this section:

(1) States shall also expend an amountof non-Federal funds for child careactivities in the State that is at leastequal to the State’s share ofexpenditures for fiscal year 1994 or1995 (whichever is greater) undersections 402(g) and (i) of the SocialSecurity Act as these sections were ineffect before October 1, 1995; and

(2) The expenditures shall be forallowable services or activities, asdescribed in the approved State Plan ifappropriate, that meet the goals andpurposes of the Act.

(3) All Mandatory Funds are obligatedin accordance with § 98.60(d)(2)(i).

(d) The same expenditure may not beused to meet the requirements underboth paragraphs (b) and (c) of thissection in a fiscal year.

(e) An expenditure in the State forpurposes of this subpart may be:

(1) Public funds when the funds are:(i) Appropriated directly to the Lead

Agency specified at § 98.10, ortransferred from another public agencyto that Lead Agency and under itsadministrative control, or certified bythe contributing public agency asrepresenting expenditures eligible forFederal match;

(ii) Not used to match other Federalfunds; and

(iii) Not Federal funds, or are Federalfunds authorized by Federal law to beused to match other Federal funds; or

(2) Donated from private sourceswhen the donated funds:

(i) Are donated without anyrestriction that would require their usefor a specific individual, organization,facility or institution;

(ii) Do not revert to the donor’sfacility or use; and

(iii) Are not used to match otherFederal funds;

(iv) Shall be certified both by thedonor and by the Lead Agency asavailable and representing expenditureseligible for Federal match; and

(v) Shall be subject to the auditrequirements in § 98.65 of theseregulations.

(f) Donated funds need not betransferred to or under theadministrative control of the LeadAgency in order to qualify as anexpenditure eligible to receive Federalmatch under this subsection. They maybe given to the entity designated by theState to receive donated funds pursuantto § 98.16(c)(2).

(g) The following are not counted asan eligible State expenditure under thisPart:

(1) In-kind contributions; and(2) Family contributions to the cost of

care as required by § 98.42.(h) Public pre-kindergarten (pre-K)

expenditures:(1) May be used to meet the

maintenance-of-effort requirement onlyif the State has not reduced itsexpenditures for full-day/full-year childcare services; and

(2) May be eligible for Federal matchif the State includes in its Plan, asprovided in § 98.16(q), a description ofthe efforts it will undertake to ensurethat pre-K programs meet the needs ofworking parents.

(3) In any fiscal year, a State may usepublic pre-K funds for up to 20% of thefunds serving as maintenance-of-effortunder this subsection. In any fiscal year,a State may use other public pre-Kfunds for up to 20% of the expendituresserving as the State’s matching fundsunder this subsection.

(4) If applicable, the CCDF Plan shallreflect the State’s intent to use publicpre-K funds in excess of 10%, but notfor more than 20%, of either itsmaintenance-of-effort or State matchingfunds in a fiscal year. Also, the Planshall describe how the State willcoordinate its pre-K and child careservices to expand the availability ofchild care.

(i) Matching funds are subject to theobligation and liquidation requirementsat § 98.60(d)(3).

§ 98.54 Restrictions on the use of funds.(a) General. (1) Funds authorized

under section 418 of the Social SecurityAct and section 658B of the Child Careand Development Block Grant Act, andall funds transferred to the Lead Agencypursuant to section 404(d) of the SocialSecurity Act, shall be expendedconsistent with these regulations. Fundstransferred pursuant to section 404(d) ofthe Social Security Act shall be treatedas Discretionary Funds;

(2) Funds shall be expended inaccordance with applicable State andlocal laws, except as superseded by§ 98.3.

(b) Construction. (1) For State andlocal agencies and nonsectarianagencies or organizations, no funds shall

be expended for the purchase orimprovement of land, or for thepurchase, construction, or permanentimprovement of any building or facility.However, funds may be expended forminor remodeling, and for upgradingchild care facilities to assure thatproviders meet State and local childcare standards, including applicablehealth and safety requirements.

(2) For sectarian agencies ororganizations, the prohibitions inparagraph (b)(1) of this section apply;however, funds may be expended forminor remodeling only if necessary tobring the facility into compliance withthe health and safety requirementsestablished pursuant to § 98.41.

(3) Tribes and tribal organizations aresubject to the requirements at § 98.84regarding construction and renovation.

(c) Tuition. Funds may not beexpended for students enrolled ingrades 1 through 12 for:

(1) Any service provided to suchstudents during the regular school day;

(2) Any service for which suchstudents receive academic credit towardgraduation; or

(3) Any instructional services thatsupplant or duplicate the academicprogram of any public or private school.

(d) Sectarian purposes and activities.Funds provided under grants orcontracts to providers may not beexpended for any sectarian purpose oractivity, including sectarian worship orinstruction. Pursuant to § 98.2,assistance provided to parents throughcertificates is not a grant or contract.Funds provided through child carecertificates may be expended forsectarian purposes or activities,including sectarian worship orinstruction when provided as part of thechild care services.

(e) The CCDF may not be used as thenon-Federal share for other Federalgrant programs.

§ 98.55 Cost allocation.

(a) The Lead Agency and subgranteesshall keep on file cost allocation plansor indirect cost agreements, asappropriate, that have been amended toinclude costs allocated to the CCDF.

(b) Subgrantees that do not alreadyhave a negotiated indirect rate with theFederal government should prepare andkeep on file cost allocation plans orindirect cost agreements, as appropriate.

(c) Approval of the cost allocationplans or indirect cost agreements is notspecifically required by theseregulations, but these plans andagreements are subject to review.


Subpart G—Financial Management

§ 98.60 Availability of funds.(a) The CCDF is available, subject to

the availability of appropriations, inaccordance with the apportionment offunds from the Office of Managementand Budget as follows:

(1) Discretionary Funds are availableto States, Territories, and Tribes,

(2) Mandatory and Matching Fundsare available to States;

(3) Tribal Mandatory Funds areavailable to Tribes.

(b) Subject to the availability ofappropriations, in accordance with theapportionment of funds from the Officeof Management and Budget, theSecretary:

(1) May withhold no more than one-quarter of one percent of the CCDFfunds made available for a fiscal year forthe provision of technical assistance;and

(2) Will award the remaining CCDFfunds to grantees that have an approvedapplication and Plan.

(c) The Secretary may make paymentsin installments, and in advance or byway of reimbursement, with necessaryadjustments due to overpayments orunderpayments.

(d) The following obligation andliquidation provisions apply to Statesand Territories:

(1) Discretionary Fund allotmentsshall be obligated in the fiscal year inwhich funds are awarded or in thesucceeding fiscal year. Unliquidatedobligations as of the end of thesucceeding fiscal year shall beliquidated within one year.

(2)(i) Mandatory Funds for Statesrequesting Matching Funds per § 98.53shall be obligated in the fiscal year inwhich the funds are granted and areavailable until expended.

(ii) Mandatory Funds for States thatdo not request Matching Funds areavailable until expended.

(3) Both the Federal and non-Federalshare of the Matching Fund shall beobligated in the fiscal year in which thefunds are granted and liquidated nolater than the end of the succeedingfiscal year.

(4) Except for paragraph (d)(5) of thissection, determination of whether fundshave been obligated and liquidated willbe based on:

(i) State or local law; or,(ii) If there is no applicable State or

local law, the regulation at 45 CFR 92.3,Obligations and Outlays (expenditures).

(5) Obligations may include subgrantsor contracts that require the payment offunds to a third party (e.g., subgranteeor contractor). However, the followingare not considered third partysubgrantees or contractors:

(i) A local office of the Lead Agency;(ii) Another entity at the same level of

government as the Lead Agency; or(iii) A local office of another entity at

the same level of government as theLead Agency.

(6) For purposes of the CCDF, fundsfor child care services provided througha child care certificate will beconsidered obligated when a child carecertificate is issued to a family inwriting that indicates:

(i) The amount of funds that will bepaid to a child care provider or family,and

(ii) The specific length of timecovered by the certificate, which islimited to the date established forredetermination of the family’seligibility, but shall be no later than theend of the liquidation period.

(7) Any funds not obligated during theobligation period specified in paragraph(d) of this section will revert to theFederal government. Any funds notliquidated by the end of the applicableliquidation period specified inparagraph (d) of this section will alsorevert to the Federal government.

(e) The following obligation andliquidation provisions apply to TribalDiscretionary and Tribal MandatoryFunds:

(1) Tribal grantees shall obligate allfunds by the end of the fiscal yearfollowing the fiscal year for which thegrant is awarded. Any funds notobligated during this period will revertto the Federal government.

(2) Obligations that remainunliquidated at the end of thesucceeding fiscal year shall beliquidated within the next fiscal year.Any tribal funds that remainunliquidated by the end of this periodwill also revert to the Federalgovernment.

(f) Cash advances shall be limited tothe minimum amounts needed and shallbe timed to be in accord with the actual,immediate cash requirements of theState Lead Agency, its subgrantee orcontractor in carrying out the purpose ofthe program in accordance with 31 CFRpart 205.

(g) Funds that are returned (e.g., loanrepayments, funds deobligated bycancellation of a child care certificate,unused subgrantee funds) as well asprogram income (e.g., contributionsmade by families directly to the LeadAgency or subgrantee for the cost of carewhere the Lead Agency or subgranteehas made a full payment to the childcare provider) shall,

(1) if received by the Lead Agencyduring the applicable obligation period,described in paragraphs (d) and (e) ofthis section, be used for activities

specified in the Lead Agency’s approvedplan and must be obligated by the endof the obligation period; or

(2) if received after the end of theapplicable obligation period describedat paragraphs (d) and (e) of this section,be returned to the Federal government.

(h) Repayment of loans, pursuant to§ 98.51(a)(2)(ii), may be made in cash orin services provided in-kind. Paymentprovided in-kind shall be based on fairmarket value. All loans shall be fullyrepaid.

(i) Lead Agencies shall recover childcare payments that are the result offraud. These payments shall berecovered from the party responsible forcommitting the fraud.

§ 98.61 Allotments from the DiscretionaryFund.

(a) To the 50 States, the District ofColumbia, and the Commonwealth ofPuerto Rico an amount equal to thefunds appropriated for the Child Careand Development Block Grant, lessamounts reserved for technicalassistance and amounts reserved for theTerritories and Tribes, pursuant to§ 98.60(b) and paragraphs (b) and (c) ofthis section, shall be allotted basedupon the formula specified in section658O(b) of the Act.

(b) For the U.S. Territories of Guam,American Samoa, the Virgin Islands ofthe United States, and theCommonwealth of the Northern MarianaIslands an amount up to one-half of onepercent of the amount appropriated forthe Child Care and Development BlockGrant shall be reserved.

(1) Funds shall be allotted to theseTerritories based upon the followingfactors:

(i) A Young Child factor—the ratio ofthe number of children in the Territoryunder five years of age to the number ofsuch children in all Territories; and

(ii) An Allotment Proportion factor—determined by dividing the per capitaincome of all individuals in all theTerritories by the per capita income ofall individuals in the Territory.

(A) Per capita income shall be:(1) Equal to the average of the annual

per capita incomes for the most recentperiod of three consecutive years forwhich satisfactory data are available atthe time such determination is made;and

(2) Determined every two years.(B) Per capita income determined,

pursuant to paragraph (b)(1)(ii)(A) ofthis section, will be applied inestablishing the allotment for the fiscalyear for which it is determined and forthe following fiscal year.

(C) If the Allotment Proportion factordetermined at paragraph (b)(1)(ii) of thissection:


(1) Exceeds 1.2, then the AllotmentProportion factor of the Territory shallbe considered to be 1.2; or

(2) Is less than 0.8, then the AllotmentProportion factor of the Territory shallbe considered to be 0.8.

(2) The formula used in calculating aTerritory’s allotment is as follows:

YCF APF

YCF APFTerritoriest t

t t

××( ) ×

∑amount reserved for

at paragraph(a) of this section.

(ii) For purposes of the formulaspecified at paragraph (b)(2)(i) of thissection, the term ‘‘YCFt’’ means theTerritory’s Young Child factor asdefined at paragraph (b)(1)(i) of thissection.

(iii) For purposes of the formulaspecified at paragraph (b)(2)(i) of thissection, the term ‘‘APFt’’ means theTerritory’s Allotment Proportion factoras defined at paragraph (b)(1)(ii) of thissection.

(c) For Indian Tribes and tribalorganizations, including any AlaskanNative Village or regional or villagecorporation as defined in or establishedpursuant to the Alaska Native ClaimsSettlement Act (43 U.S.C. 1601 et seq)an amount up to two percent of theamount appropriated for the Child Careand Development Block Grant shall bereserved.

(1) Except as specified in paragraph(c)(2) of this section, grants toindividual tribal grantees will be equalto the sum of:

(i) A base amount as set by theSecretary; and

(ii) An additional amount per Indianchild under age 13 (or such similar ageas determined by the Secretary from thebest available data), which isdetermined by dividing the amount offunds available, less amounts set asidefor eligible Tribes, pursuant toparagraph (c)(1)(i) of this section, by thenumber of all Indian children living onor near tribal reservations or otherappropriate area served by the tribalgrantee, pursuant to § 98.80(e).

(2) Grants to Tribes with fewer than50 Indian children that apply as part ofa consortium, pursuant to § 98.80(b)(1),are equal to the sum of:

(i) A portion of the base amount,pursuant to paragraph (c)(1)(i) of thissection, that bears the same ratio as thenumber of Indian children in the Tribeliving on or near the reservation, orother appropriate area served by thetribal grantee, pursuant to § 98.80(e),does to 50; and

(ii) An additional amount per Indianchild, pursuant to paragraph (c)(1)(ii) ofthis section.

(3) Tribal consortia will receive grantsthat are equal to the sum of theindividual grants of their members.

(d) All funds reserved for Territoriesat paragraph (b) of this section will beallotted to Territories, and all fundsreserved for Tribes at paragraph (c) ofthis section will be allotted to tribalgrantees. Any funds that are returned bythe Territories after they have beenallotted will revert to the Federalgovernment.

(e) For other organizations, up to$2,000,000 may be reserved from thetribal funds reserved at paragraph (c) ofthis section. From this amount theSecretary may award a grant to a NativeHawaiian Organization, as defined insection 4009(4) of the Augustus F.Hawkins-Robert T. Stafford Elementaryand Secondary School ImprovementAmendments of 1988 (20 U.S.C.4909(4)) and to a private non-profitorganization established for the purposeof serving youth who are Indians orNative Hawaiians. The Secretary willestablish selection criteria andprocedures for the award of grantsunder this subsection by notice in theFederal Register.

§ 98.62 Allotments from the MandatoryFund.

(a) Each of the 50 States and theDistrict of Columbia will be allocatedfrom the funds appropriated undersection 418(a)(3) of the Social SecurityAct, less the amounts reserved fortechnical assistance pursuant to§ 98.60(b)(1) and the amount reservedfor Tribes pursuant to paragraph (b) ofthis section, an amount of funds equalto the greater of:

(1) the Federal share of its child careexpenditures under subsections (g) and(i) of section 402 of the Social SecurityAct (as in effect before October 1, 1995)for fiscal year 1994 or 1995 (whicheveris greater); or

(2) the average of the Federal share ofits child care expenditures under thesubsections referred to in subparagraph(a)(1) of this section for fiscal years 1992through 1994.

(b) For Indian Tribes and tribalorganizations up to 2 percent of theamount appropriated under section418(a)(3) of the Social Security Act shallbe allocated according to the formula atparagraph (c) of this section. In Alaska,only the following 13 entities shallreceive allocations under this subpart,in accordance with the formula atparagraph (c) of this section:

(1) The Metlakatla Indian Communityof the Annette Islands Reserve:

(2) Arctic Slope Native Association;(3) Kawerak, Inc.;(4) Maniilaq Association;

(5) Association of Village CouncilPresidents;

(6) Tanana Chiefs Conference;(7) Cook Inlet Tribal Council;(8) Bristol Bay Native Association;(9) Aleutian and Pribilof Islands

Association;(10) Chugachmuit;(11) Tlingit and Haida Central

Council;(12) Kodiak Area Native Association;

and(13) Copper River Native Association.(c)(1) Grants to individual Tribes with

50 or more Indian children, and toTribes with fewer than 50 Indianchildren that apply as part of aconsortium pursuant to § 98.80(b)(1),will be equal to an amount per Indianchild under age 13 (or such similar ageas determined by the Secretary from thebest available data), which isdetermined by dividing the amount offunds available, by the number of Indianchildren in each Tribe’s service areapursuant to § 98.80(e).

(2) Tribal consortia will receive grantsthat are equal to the sum of theindividual grants of their members.

§ 98.63 Allotments from the MatchingFund.

(a) To each of the 50 States and theDistrict of Columbia there is allocatedan amount equal to its share of the totalavailable under section 418(a)(3) of theSocial Security Act. That amount isbased on the same ratio as the numberof children under age 13 residing in theState bears to the national total ofchildren under age 13. The number ofchildren under 13 is derived from thebest data available to the Secretary forthe second preceding fiscal year.

(b) For purposes of this subsection,the amounts available under section418(a)(3) of the Social Security Actexcludes the amounts reserved andallocated under § 98.60(b)(1) fortechnical assistance and under§ 98.62(a) and (b) for the MandatoryFund.

(c) Amounts under this subsection areavailable pursuant to the requirementsat § 98.53(c).

§ 98.64 Reallotment and redistribution offunds.

(a) According to the provisions of thissection State and Tribal DiscretionaryFunds are subject to reallotment, andState Matching Funds are subject toredistribution. State funds are reallottedor redistributed only to States as definedfor the original allocation. Tribal fundsare reallotted only to Tribes. Fundsgranted to the Territories are not subjectto reallotment. Any funds granted to theTerritories that are returned after they


have been allotted will revert to theFederal government.

(b) Any portion of a State’sDiscretionary Fund allotment that is notrequired to carry out its Plan, in theperiod for which the allotment is madeavailable, shall be reallotted to otherStates in proportion to the originalallotments. For purposes of thisparagraph the term ‘‘State’’ means the50 States, the District of Columbia, andthe Commonwealth of Puerto Rico. Theother Territories and the Tribes may notreceive reallotted State DiscretionaryFunds.

(1) Each year, the State shall report tothe Secretary either the dollar amountfrom the previous year’s grant that itwill be unable to obligate by the end ofthe obligation period or that all fundswill be obligated during such time. Suchreport shall be postmarked by April 1st.

(2) Based upon the reallotment reportssubmitted by States, the Secretary willreallot funds.

(i) If the total amount available forreallotment is $25,000 or more, fundswill be reallotted to States in proportionto each State’s allotment for theapplicable fiscal year’s funds, pursuantto § 98.61(a).

(ii) If the amount available forreallotment is less than $25,000, theSecretary will not reallot any funds, andsuch funds will revert to the Federalgovernment.

(iii) If an individual reallotmentamount to a State is less than $500, theSecretary will not issue the award, andsuch funds will revert to the Federalgovernment.

(3) If a State does not submit areallotment report by the deadline forreport submittal, either:

(i) The Secretary will determine thatthe State does not have any fundsavailable for reallotment; or

(ii) In the case of a report postmarkedafter April 1st, any funds reported to beavailable for reallotment shall revert tothe Federal government.

(4) States receiving reallotted fundsshall obligate and expend these funds inaccordance with § 98.60. Thereallotment of funds does not extend theobligation period or the program periodfor expenditure of such funds.

(c)(1) Any portion of the MatchingFund granted to a State that is notobligated in the period for which thegrant is made shall be redistributed.Funds, if any, will be redistributed onthe request of, and only to, those otherStates that have met the requirements of§ 98.53(c) in the period for which thegrant was first made. For purposes ofthis paragraph the term ‘‘State’’ meansthe 50 States and the District ofColumbia. Territorial and tribal grantees

may not receive redistributed MatchingFunds.

(2) Matching Funds allotted to a Stateunder § 98.63(a), but not granted, shallalso be redistributed in the mannerdescribed in paragraph (1) of thissection.

(3) The amount of Matching Fundsgranted to a State that will be madeavailable for redistribution will be basedon the State’s financial report to ACF forthe Child Care and Development Fund(ACF–696) and is subject to themonetary limits at paragraph (b)(2) ofthis section.

(4) A State eligible to receiveredistributed Matching Funds shall alsouse the ACF–696 to request its share ofthe redistributed funds, if any.

(5) A State’s share of redistributedMatching Funds is based on the sameratio as the number of children under 13residing in the State to the number ofchildren residing in all States eligible toreceive and that request theredistributed Matching Funds.

(6) Redistributed funds are consideredpart of the grant for the fiscal year inwhich the redistribution occurs.

(d) Any portion of a Tribe’s allotmentof Discretionary Funds that is notrequired to carry out its Plan, in theperiod for which the allotment is madeavailable, shall be reallotted to othertribal grantees in proportion to theiroriginal allotments. States andTerritories may not receive reallottedtribal funds.

(1) Each year, the Tribe shall report tothe Secretary either the dollar amountfrom the previous year’s grant that itwill be unable to obligate by the end ofthe obligation period or that all fundswill be obligated during such time. Suchreport shall be postmarked by adeadline established by the Secretary.

(2) Based upon the reallotment reportssubmitted by Tribes, the Secretary willreallot Tribal Discretionary Fundsamong the other Tribes.

(i) If the total amount available forreallotment is $25,000 or more, fundswill be reallotted to other tribal granteesin proportion to each Tribe’s originalallotment for the applicable fiscal yearpursuant to § 98.62(c).

(ii) If the total amount available forreallotment is less than $25,000, theSecretary will not reallot any funds, andsuch funds will revert to the Federalgovernment.

(iii) If an individual reallotmentamount to an applicant Tribe is lessthan $500, the Secretary will not issuethe award, and such funds will revert tothe Federal government.

(3) If a Tribe does not submit areallotment report by the deadline forreport submittal, either:

(i) The Secretary will determine thatTribe does not have any funds availablefor reallotment; or

(ii) In the case of a report receivedafter the deadline established by theSecretary, any funds reported to beavailable for reallotment shall revert tothe Federal government.

(4) Tribes receiving reallotted fundsshall obligate and expend these funds inaccordance with § 98.60. Thereallotment of funds does not extend theobligation period or the program periodfor expenditure of such funds.

§ 98.65 Audits and financial reporting.(a) Each Lead Agency shall have an

audit conducted after the close of eachprogram period in accordance withOMB Circular A–133 and the SingleAudit Act Amendments of 1996.

(b) Lead Agencies are responsible forensuring that subgrantees are audited inaccordance with appropriate auditrequirements.

(c) Not later than 30 days after thecompletion of the audit, Lead Agenciesshall submit a copy of their audit reportto the legislature of the State or, ifapplicable, to the Tribal Council(s).Lead Agencies shall also submit a copyof their audit report to the HHSInspector General for Audit Services, aswell as to their cognizant agency, ifapplicable.

(d) Any amounts determined throughan audit not to have been expended inaccordance with these statutory orregulatory provisions, or with the Plan,and that are subsequently disallowed bythe Department shall be repaid to theFederal government, or the Secretarywill offset such amounts against anyother CCDF funds to which the LeadAgency is or may be entitled.

(e) Lead Agencies shall provide accessto appropriate books, documents, papersand records to allow the Secretary toverify that CCDF funds have beenexpended in accordance with thestatutory and regulatory requirements ofthe program, and with the Plan.

(f) The audit required in paragraph (a)of this section shall be conducted by anagency that is independent of the State,Territory or Tribe as defined bygenerally accepted government auditingstandards issued by the ComptrollerGeneral, or a public accountant whomeets such independent standards.

(g) The Secretary shall requirefinancial reports as necessary.

§ 98.66 Disallowance procedures.(a) Any expenditures not made in

accordance with the Act, theimplementing regulations, or theapproved Plan, will be subject todisallowance.


(b) If the Department, as the result ofan audit or a review, finds thatexpenditures should be disallowed, theDepartment will notify the Lead Agencyof this decision in writing.

(c)(1) If the Lead Agency agrees withthe finding that amounts were notexpended in accordance with the Act,these regulations, or the Plan, the LeadAgency shall fulfill the provisions of thedisallowance notice and repay anyamounts improperly expended; or

(2) The Lead Agency may appeal thefinding:

(i) By requesting reconsideration fromthe Assistant Secretary, pursuant toparagraph (f) of this section; or

(ii) By following the procedure inparagraph (d) of this section.

(d) A Lead Agency may appeal thedisallowance decision to theDepartmental Appeals Board inaccordance with 45 CFR part 16.

(e) The Lead Agency may appeal adisallowance of costs that theDepartment has determined to beunallowable under an award. A granteemay not appeal the determination ofaward amounts or disposition ofunobligated balances.

(f) The Lead Agency’s request forreconsideration in (c)(2)(i) of thissection shall be postmarked no laterthan 30 days after the receipt of thedisallowance notice. A Lead Agencymay request an extension within the 30-day time frame. The request forreconsideration, pursuant to (c)(2)(i) ofthis section, need not follow anyprescribed form, but it shall contain:

(1) The amount of the disallowance;(2) The Lead Agency’s reasons for

believing that the disallowance wasimproper; and

(3) A copy of the disallowancedecision issued pursuant to paragraph(b) of this section.

(g)(1) Upon receipt of a request forreconsideration, pursuant to (c)(2)(i) ofthis section, the Assistant Secretary orthe Assistant Secretary’s designee willinform the Lead Agency that the requestis under review.

(2) The Assistant Secretary or thedesignee will review any materialsubmitted by the Lead Agency and anyother necessary materials.

(3) If the reconsideration decision isadverse to the Lead Agency’s position,the response will include a notificationof the Lead Agency’s right to appeal tothe Departmental Appeals Board,pursuant to paragraph (d) of thissection.

(h) If a Lead Agency refuses to repayamounts after a final decision has beenmade, the amounts will be offset againstfuture payments to the Lead Agency.

(i) The appeals process in this sectionis not applicable if the disallowance ispart of a compliance review, pursuant to§ 98.90, the findings of which have beenappealed by the Lead Agency.

(j) Disallowances under the CCDFprogram are subject to interestregulations at 45 CFR part 30. Interestwill begin to accrue from the date ofnotification.

§ 98.67 Fiscal requirements.(a) Lead Agencies shall expend and

account for CCDF funds in accordancewith their own laws and procedures forexpending and accounting for their ownfunds.

(b) Unless otherwise specified in thispart, contracts that entail theexpenditure of CCDF funds shallcomply with the laws and proceduresgenerally applicable to expenditures bythe contracting agency of its own funds.

(c) Fiscal control and accountingprocedures shall be sufficient to permit:

(1) Preparation of reports required bythe Secretary under this subpart andunder subpart H; and

(2) The tracing of funds to a level ofexpenditure adequate to establish thatsuch funds have not been used inviolation of the provisions of this part.

Subpart H—Program ReportingRequirements

§ 98.70 Reporting requirements.(a) Quarterly Case-level Report—(1) State and territorial Lead Agencies

that receive assistance under the CCDFshall prepare and submit to theDepartment, in a manner specified bythe Secretary, a quarterly case-levelreport of monthly family case-level data.Data shall be collected monthly andsubmitted quarterly. States may submitthe data monthly if they choose to do so.

(2) The information shall be reportedfor the three-month federal fiscal periodpreceding the required report. The firstreport shall be submitted no later thanAugust 31, 1998, and quarterlythereafter. The first report shall includedata from the third quarter of FFY 1998(April 1998 through June 1998). Statesand Territorial Lead Agencies whichchoose to submit case-level datamonthly must submit their report forApril 1998 no later than July 30, 1998.Following reports must be submittedevery thirty days thereafter.

(3) State and territorial Lead Agencieschoosing to submit data based on asample shall submit a sampling plan toACF for approval 60 days prior to thesubmission of the first quarterly report.States are not prohibited fromsubmitting case-level data for the entirepopulation receiving CCDF services.

(4) Quarterly family case-level reportsto the Secretary shall include theinformation listed in § 98.71(a).

(b) Annual Report—(1) State and territorial Lead Agencies

that receive assistance under CCDF shallprepare and submit to the Secretary anannual report. The report shall besubmitted, in a manner specified by theSecretary, by December 31 of each yearand shall cover the most recent federalfiscal year (October through September).

(2) The first annual aggregate reportshall be submitted no later thanDecember 31, 1997, and every twelvemonths thereafter.

(3) Biennial reports to Congress by theSecretary shall include the informationlisted in § 98.71(b).

(c) Tribal Annual Report—(1) Tribal Lead Agencies that receive

assistance under CCDF shall prepareand submit to the Secretary an annualaggregate report.

(2) The report shall be submitted inthe manner specified by the Secretaryby December 31 of each year and shallcover services for children and familiesserved with CCDF funds during thepreceding Federal Fiscal Year.

(3) Biennial reports to Congress by theSecretary shall include the informationlisted in § 98.71(c).

§ 98.71 Content of reports.(a) At a minimum, a State or territorial

Lead Agency’s quarterly case-levelreport to the Secretary, as required in§ 98.70, shall include the followinginformation on services provided underCCDF grant funds, including FederalDiscretionary (which includes anyfunds transferred from the TANF BlockGrant), Mandatory, and MatchingFunds; and State Matching andMaintenance-of-Effort (MOE) Funds:

(1) The total monthly family incomefor determining eligibility;

(2) County of residence;(3) Gender and month/year of birth of

children;(4) Ethnicity and race of children;(5) Whether the head of the family is

a single parent;(6) The sources of family income,

from employment (including self-employment), cash or other assistanceunder the Temporary Assistance forNeedy Families program under Part A oftitle IV of the Social Security Act, cashor other assistance under a Stateprogram for which State spending iscounted toward the maintenance ofeffort requirement under section409(a)(7) of the Social Security Act,housing assistance, assistance under theFood Stamp Act of 1977; and otherassistance programs;

(7) The month/year child careassistance to the family started;


(8) The type(s) of child care in whichthe child was enrolled (such as familychild care, in-home care, or center-basedchild care);

(9) Whether the child care providerinvolved was a relative;

(10) The total monthly child carecopayment by the family;

(11) The total expected dollar amountper month to be received by theprovider for each child;

(12) The total hours per month ofsuch care;

(13) Social Security Number of thehead of the family unit receiving childcare assistance;

(14) Reasons for receiving care; and(15) Any additional information that

the Secretary shall require.(b) At a minimum, a State or

territorial Lead Agency’s annualaggregate report to the Secretary, asrequired in § 98.70(b), shall include thefollowing information on servicesprovided through all CCDF grant funds,including Federal Discretionary (whichincludes any funds transferred from theTANF Block Grant), Mandatory, andMatching Funds; and State Matchingand MOE Funds:

(1) The number of child careproviders that received funding underCCDF as separately identified based onthe types of providers listed in section658P(5) of the amended Child Care andDevelopment Block Grant Act;

(2) The number of children served bypayments through certificates orvouchers, contracts or grants, and cashunder public benefit programs, listed bythe primary type of child care servicesprovided during the last month of thereport period (or the last month ofservice for those children leaving theprogram before the end of the reportperiod);

(3) The manner in which consumereducation information was provided toparents and the number of parents towhom such information was provided;

(4) The total number (withoutduplication) of children and familiesserved under CCDF; and

(5) Any additional information thatthe Secretary shall require.

(c) At a minimum, a Tribal LeadAgency’s annual report to the Secretary,as required in § 98.70(c), shall includethe following information on servicesprovided through all CCDF tribal grantawards:

(1) Unduplicated number of familiesand children receiving services;

(2) Children served by age;(3) Children served by reason for care;(4) Children served by payment

method (certificate/voucher or contract/grants);

(5) Average number of hours of careprovided per week;

(6) Average hourly amount paid forcare;

(7) Children served by level of familyincome; and

(8) Children served by type of childcare providers.

Subpart I—Indian Tribes

§ 98.80 General procedures andrequirements.

An Indian Tribe or tribal organization(as described in Subpart G of theseregulations) may be awarded grants toplan and carry out programs for thepurpose of increasing the availability,affordability, and quality of child careand childhood development programssubject to the following conditions:

(a) An Indian Tribe applying for orreceiving CCDF funds shall be subject toall the requirements under this part,unless otherwise indicated.

(b) An Indian Tribe applying for orreceiving CCDF funds shall:

(1) Have at least 50 children under 13years of age (or such similar age, asdetermined by the Secretary from thebest available data) in order to beeligible to operate a CCDF program. Thislimitation does not preclude an IndianTribe with fewer than 50 children under13 years of age from participating in aconsortium that receives CCDF funds;and

(2) Demonstrate its current servicedelivery capability, including skills,personnel, resources, communitysupport, and other necessarycomponents to satisfactorily carry outthe proposed program.

(c) A consortium representing morethan one Indian Tribe may be eligible toreceive CCDF funds on behalf of aparticular Tribe if:

(1) The consortium adequatelydemonstrates that each participatingTribe authorizes the consortium toreceive CCDF funds on behalf of eachTribe or tribal organization in theconsortium; and

(2) The consortium consists of Tribesthat each meet the eligibilityrequirements for the CCDF program asdefined in this part, or that wouldotherwise meet the eligibilityrequirements if the Tribe or tribalorganization had at least 50 childrenunder 13 years of age; and

(3) All the participating consortiummembers are in geographic proximity toone another (including operation in amulti-State area) or have an existingconsortium arrangement; and

(4) The consortium demonstrates thatit has the managerial, technical andadministrative staff with the ability toadminister government funds, manage aCCDF program and comply with theprovisions of the Act and of this part.

(d) The awarding of a grant under thissection shall not affect the eligibility ofany Indian child to receive CCDFservices provided by the State or Statesin which the Indian Tribe is located.

(e) For purposes of the CCDF, thedetermination of the number of childrenin the Tribe, pursuant to paragraph(b)(1) of this section, shall includeIndian children living on or nearreservations, with the exception ofTribes in Alaska, California andOklahoma.

(f) In determining eligibility forservices pursuant to § 98.20(a)(2), atribal program may use either:

(1) 85 percent of the State medianincome for a family of the same size; or

(2) 85 percent of the median incomefor a family of the same size residing inthe area served by the Tribal LeadAgency.

§ 98.81 Application and Plan procedures.

(a) In order to receive CCDF funds, aTribal Lead Agency shall apply forfunds pursuant to § 98.13, except thatthe requirement at § 98.13(b)(2) does notapply.

(b) A Tribal Lead Agency shall submita CCDF Plan, as described at § 98.16,with the following additions andexceptions:

(1) The Plan shall include the basisfor determining family eligibilitypursuant to § 98.80(f).

(2) For purposes of determiningeligibility, the following terms shall alsobe defined:

(i) Indian child; and(ii) Indian reservation or tribal service

area.(3) The Tribal Lead Agency shall also

assure that:(i) The applicant shall coordinate, to

the maximum extent feasible, with theLead Agency in the State in which theapplicant shall carry out CCDFprograms or activities, pursuant to§ 98.82; and

(ii) In the case of an applicant locatedin a State other than Alaska, California,or Oklahoma, CCDF programs andactivities shall be carried out on anIndian reservation for the benefit ofIndian children, pursuant to § 98.83(b).

(4) The Plan shall include anyinformation, as prescribed by theSecretary, necessary for determining thenumber of children in accordance with§§ 98.61(c), 98.62(c), and 98.80(b)(1).

(5) Plans for those Tribes specified at§ 98.83(f) (i.e., Tribes with small grants)are not subject to the requirements in§ 98.16(g)(2) or § 98.16(k) unless theTribe chooses to include such services,and, therefore, the associatedrequirements, in its program.


(6) The Plan is not subject torequirements in § 98.16(f)(8) or§ 98.16(g)(4).

(7) In its initial Plan, an Indian Tribeshall describe its current servicedelivery capability pursuant to§ 98.80(b)(2).

(8) A consortium shall also providethe following:

(i) A list of participating orconstituent members, includingdemonstrations from these memberspursuant to § 98.80(c)(1);

(ii) A description of how theconsortium is coordinating services onbehalf of its members, pursuant to§ 98.83(c)(1); and

(iii) As part of its initial Plan, theadditional information required at§ 98.80(c)(4).

(c) When initially applying underparagraph (a) of this section, a TribalLead Agency shall include a Plan thatmeets the provisions of this part andshall be for a two-year period, pursuantto § 98.17(a).

§ 98.82 Coordination.Tribal applicants shall coordinate as

required by §§ 98.12 and 98.14 and:(a) To the maximum extent feasible,

with the Lead Agency in the State orStates in which the applicant will carryout the CCDF program; and

(b) With other Federal, State, local,and tribal child care and childhooddevelopment programs.

§ 98.83 Requirements for tribal programs.(a) The grantee shall designate an

agency, department, or unit to act as theTribal Lead Agency to administer theCCDF program.

(b) With the exception of Alaska,California, and Oklahoma, programs andactivities shall be carried out on anIndian reservation for the benefit ofIndian children.

(c) In the case of a tribal grantee thatis a consortium:

(1) A brief description of the directchild care services funded by CCDF foreach of their participating Tribes shallbe provided by the consortium in theirtwo-year CCDF Plan; and

(2) Variations in CCDF programs orrequirements and in child carelicensing, regulatory and health andsafety requirements shall be specified inwritten agreements between theconsortium and the Tribe.

(3) If a Tribe elects to participate in aconsortium arrangement to receive onepart of the CCDF (e.g., DiscretionaryFunds), it may not join anotherconsortium or apply as a direct granteeto receive the other part of the CCDF(e.g. Tribal Mandatory Funds).

(4) If a Tribe relinquishes itsmembership in a consortium at any time

during the fiscal year, CCDF fundsawarded on behalf of the member Tribewill remain with the tribal consortiumto provide direct child care services toother consortium members for that fiscalyear.

(d) Tribal Lead Agencies shall not besubject to the requirements at§§ 98.41(a)(1)(i), 98.44(a), 98.50(e),98.52(a), 98.53 and 98.63.

(e) The base amount of any tribalgrant is not subject to the administrativecost limitation at paragraph (g) of thissection or the quality expenditurerequirement at § 98.51(a). The baseamount may be expended for any costsconsistent with the purposes andrequirements of the CCDF.

(f) Tribal Lead Agencies whose totalCCDF allotment pursuant to §§ 98.61(c)and 98.62(b) is less than an amountestablished by the Secretary shall not besubject to the following requirements:

(1) The assurance at § 98.15(a)(2);(2) The requirement for certificates at

§ 98.30(a) and (d); and(3) The requirements for quality

expenditures at § 98.51(a).(g) Not more than 15 percent of the

aggregate CCDF funds expended by theTribal Lead Agency from each fiscalyear’s (including amounts used forconstruction and renovation inaccordance with § 98.84, but notincluding the base amount providedunder § 98.83(e)) shall be expended foradministrative activities. Amounts usedfor construction and major renovation inaccordance with § 98.84 are notconsidered administrative costs.

(h)(1) CCDF funds are available forcosts incurred by the Tribal LeadAgency only after the funds are madeavailable by Congress for Federalobligation unless costs are incurred forplanning activities related to thesubmission of an initial CCDF Plan.

(2) Federal obligation of funds forplanning costs, pursuant to paragraph(h)(1) of this section is subject to theactual availability of the appropriation.

§ 98.84 Construction and renovation ofchild care facilities.

(a) Upon requesting and receivingapproval from the Secretary, Tribal LeadAgencies may use amounts providedunder §§ 98.61(c) and 98.62(b) to makepayments for construction or majorrenovation of child care facilities(including paying the cost of amortizingthe principal and paying interest onloans).

(b) To be approved by the Secretary,a request shall be made in accordancewith uniform procedures established byprogram instruction and, in addition,shall demonstrate that:

(1) Adequate facilities are nototherwise available to enable the Tribal

Lead Agency to carry out child careprograms;

(2) The lack of such facilities willinhibit the operation of child careprograms in the future; and

(3) The use of funds for constructionor major renovation will not result in adecrease in the level of child careservices provided by the Tribal LeadAgency as compared to the level ofservices provided by the Tribal LeadAgency in the preceding fiscal year.

(c)(1) Tribal Lead Agency may useCCDF funds for reasonable andnecessary planning costs associatedwith assessing the need for constructionor renovation or for preparing a request,in accordance with the uniformprocedures established by programinstruction, to spend CCDF funds onconstruction or major renovation.

(2) A Tribal Lead Agency may onlyuse CCDF funds to pay for the costs ofan architect, engineer, or otherconsultant for a project that issubsequently approved by the Secretary.If the project later fails to gain theSecretary’s approval, the Tribal LeadAgency must pay for the architectural,engineering or consultant costs usingnon-CCDF funds.

(d) Tribal Lead Agencies that receiveapproval from the Secretary to useCCDF funds for construction or majorrenovation shall comply with thefollowing:

(1) Federal share requirements anduse of property requirements at 45 CFR92.31;

(2) Transfer and disposition ofproperty requirements at 45 CFR92.31(c);

(3) Title requirements at 45 CFR92.31(a);

(4) Cost principles and allowable costrequirements at 45 CFR 92.22;

(5) Program income requirements at45 CFR 92.25;

(6) Procurement procedures at 45 CFR92.36; and;

(7) Any additional requirementsestablished by program instruction,including requirements concerning:

(i) The recording of a Notice ofFederal Interest in the property;

(ii) Rights and responsibilities in theevent of a grantee’s default on amortgage;

(iii) Insurance and maintenance;(iv) Submission of plans,

specifications, inspection reports, andother legal documents; and

(v) Modular units.(e) In lieu of obligation and

liquidation requirements at § 98.60(e),Tribal Lead Agencies shall liquidateCCDF funds used for construction ormajor renovation by the end of thesecond fiscal year following the fiscalyear for which the grant is awarded.


(f) Tribal Lead Agencies may expendfunds, without requesting approvalpursuant to paragraph (a) of this section,for minor renovation.

(g) A new tribal grantee (i.e., one thatdid not receive CCDF funds thepreceding fiscal year) may spend nomore than an amount equivalent to itsTribal Mandatory allocation onconstruction and renovation. A newtribal grantee must spend an amountequivalent to its Discretionary allocationon activities other than construction orrenovation (i.e., direct services, qualityactivities, or administrative costs).

(h) A construction or renovationproject that requires and receivesapproval by the Secretary must includeas part of the construction andrenovation costs:

(1) planning costs as allowed at§ 98.84(c);

(2) labor, materials and servicesnecessary for the functioning of thefacility; and

(3) initial equipment for the facility.Equipment means items which aretangible, nonexpendable personalproperty having a useful life of morethan five years.

Subpart J—Monitoring, Non-compliance and Complaints

§ 98.90 Monitoring.(a) The Secretary will monitor

programs funded under the CCDF forcompliance with:

(1) The Act;(2) The provisions of this part; and(3) The provisions and requirements

set forth in the CCDF Plan approvedunder § 98.18;

(b) If a review or investigation revealsevidence that the Lead Agency, or anentity providing services under contractor agreement with the Lead Agency, hasfailed to substantially comply with thePlan or with one or more provisions ofthe Act or implementing regulations, theSecretary will issue a preliminary noticeto the Lead Agency of possible non-compliance. The Secretary shallconsider comments received from theLead Agency within 60 days (or suchlonger period as may be agreed uponbetween the Lead Agency and theSecretary).

(c) Pursuant to an investigationconducted under paragraph (a) of thissection, a Lead Agency shall makeappropriate books, documents, papers,manuals, instructions, and recordsavailable to the Secretary, or any dulyauthorized representatives, forexamination or copying on or off thepremises of the appropriate entity,including subgrantees and contractors,upon reasonable request.

(d)(1) Lead Agencies and subgranteesshall retain all CCDF records, asspecified in paragraph (c) of thissection, and any other records of LeadAgencies and subgrantees that areneeded to substantiate compliance withCCDF requirements, for the period oftime specified in paragraph (e) of thissection.

(2) Lead Agencies and subgranteesshall provide through an appropriateprovision in their contracts that theircontractors will retain and permit accessto any books, documents, papers, andrecords of the contractor that aredirectly pertinent to that specificcontract.

(e) Length of retention period. (1)Except as provided in paragraph (e)(2)of this section, records specified inparagraph (c) of this section shall beretained for three years from the day theLead Agency or subgrantee submits theFinancial Reports required by theSecretary, pursuant to § 98.65(g), for theprogram period.

(2) If any litigation, claim, negotiation,audit, disallowance action, or otheraction involving the records has beenstarted before the expiration of thethree-year retention period, the recordsshall be retained until completion of theaction and resolution of all issues thatarise from it, or until the end of theregular three-year period, whichever islater.

§ 98.91 Non-compliance.

(a) If after reasonable notice to a LeadAgency, pursuant to § 98.90 or § 98.93,a final determination is made that:

(1) There has been a failure by theLead Agency, or by an entity providingservices under contract or agreementwith the Lead Agency, to complysubstantially with any provision orrequirement set forth in the Planapproved under § 98.16; or

(2) If in the operation of any programfor which funding is provided under theCCDF, there is a failure by the LeadAgency, or by an entity providingservices under contract or agreementwith the Lead Agency, to complysubstantially with any provision of theAct or this part, the Secretary willprovide to the Lead Agency a writtennotice of a finding of non-compliance.This notice will be issued within 60days of the preliminary notification in§ 98.90(b), or within 60 days of thereceipt of additional comments from theLead Agency, whichever is later, andwill provide the opportunity for ahearing, pursuant to part 99.

(b) The notice in paragraph (a) of thissection will include all relevantfindings, as well as any penalties or

sanctions to be applied, pursuant to§ 98.92.

(c) Issues subject to review at thehearing include the finding of non-compliance, as well as any penalties orsanctions to be imposed pursuant to§ 98.92.

§ 98.92 Penalties and sanctions.(a) Upon a final determination that

the Lead Agency has failed tosubstantially comply with the Act, theimplementing regulations, or the Plan,one of the following penalties will beapplied:

(1) The Secretary will disallow theimproperly expended funds;

(2) An amount equal to or less thanthe improperly expended funds will bededucted from the administrativeportion of the State allotment for thefollowing fiscal year; or

(3) A combination of the aboveoptions will be applied.

(b) In addition to imposing thepenalties described in paragraph (a) ofthis section, the Secretary may imposeother appropriate sanctions, including:

(1) Disqualification of the LeadAgency from the receipt of furtherfunding under the CCDF; or

(2)(i) A penalty of not more than fourpercent of the funds allotted under§ 98.61 (i.e., the Discretionary Funds)for a Fiscal Year shall be withheld if theSecretary determines that the LeadAgency has failed to implement aprovision of the Act, these regulations,or the Plan required under § 98.16;

(ii) This penalty will be withheld noearlier than the second full quarterfollowing the quarter in which the LeadAgency was notified of the proposedpenalty;

(iii) This penalty will not be appliedif the Lead Agency corrects the failureor violation before the penalty is to beapplied or if it submits a plan forcorrective action that is acceptable tothe Secretary; or

(iv) The Lead Agency may show causeto the Secretary why the amount of thepenalty, if applied, should be reduced.

(c) If a Lead Agency is subject toadditional sanctions as provided underparagraph (b) of this section, specificidentification of any additionalsanctions being imposed will beprovided in the notice providedpursuant to § 98.91.

(d) Nothing in this section, or in§ 98.90 or § 98.91, will preclude theLead Agency and the Department frominformally resolving a possiblecompliance issue without following allof the steps described in §§ 98.90, 98.91and 98.92. Penalties and/or sanctions, asdescribed in paragraphs (a) and (b) ofthis section, may nevertheless be


applied, even though the issue isresolved informally.

(e) It is at the Secretary’s solediscretion to choose the penalty to beimposed under paragraphs (a) and (b) ofthis section.

§ 98.93 Complaints.

(a) This section applies to anycomplaint (other than a complaintalleging violation of thenondiscrimination provisions) that aLead Agency has failed to use itsallotment in accordance with the termsof the Act, the implementingregulations, or the Plan. The Secretary isnot required to consider a complaintunless it is submitted as required by thissection. Complaints with respect todiscrimination should be referred to theOffice of Civil Rights of the Department.

(b) Complaints with respect to theCCDF shall be submitted in writing tothe Assistant Secretary for Children andFamilies, 370 L’Enfant Promenade,S.W., Washington, D.C. 20447. Thecomplaint shall identify the provision ofthe Plan, the Act, or this part that was

allegedly violated, specify the basis foralleging the violation(s), and include allrelevant information known to theperson submitting it.

(c) The Department shall promptlyfurnish a copy of any complaint to theaffected Lead Agency. Any commentsreceived from the Lead Agency within60 days (or such longer period as maybe agreed upon between the LeadAgency and Department) shall beconsidered by the Department inresponding to the complaint. TheDepartment will conduct aninvestigation of complaints, whereappropriate.

(d) The Department will provide awritten response to complaints within180 days after receipt. If a finalresolution cannot be provided at thattime, the response will state the reasonswhy additional time is necessary.

(e) Complaints that are notsatisfactorily resolved throughcommunication with the Lead Agencywill be pursued through the processdescribed in § 98.90.

PART 99—PROCEDURE FORHEARINGS FOR THE CHILD CAREAND DEVELOPMENT FUND

2. The heading of part 99 is revisedto read as set forth above:

3. The authority citation for part 99 isrevised to read as follows:

Authority: 42 U.S.C. 618, 9858.

4. In part 99 make the followingchanges:

a. Remove the words ‘‘Child Care andDevelopment Block Grant’’ and add intheir place, wherever they appear, thewords ‘‘Child Care and DevelopmentFund.’’

b. Remove the word ‘‘Grantees’’ andadd in its place, wherever it appears, thewords ‘‘Lead Agencies.’’

c. Remove the word ‘‘Grantee’’ andadd in its place, wherever it appears, thewords ‘‘Lead Agency.’’

d. Remove the words ‘‘Block GrantPlan’’ and add in their place, whereverthey appear, the words ‘‘CCDF Plan.’’

[FR Doc. 98–19418 Filed 7–23–98; 8:45 am]BILLING CODE 4184–01–P

Documents

39936 Federal Register /Vol. 63, No. 142/Friday, July 24, … · 2020. 10. 1. · 39938 Federal Register/Vol. 63, No. 142/Friday, July 24, 1998/Rules and Regulations Title: Child