[Federal Register Volume 64, Number 203 (Thursday, October 21, 1999)]
[Rules and Regulations]
[Pages 56669-56675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27431]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 203 / Thursday, October 21, 1999 /
Rules and Regulations
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DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 246
RIN 0584-AC64
Special Supplemental Nutrition Program for Women, Infants and
Children (WIC): Food and Nutrition Services and Administration Funding
Formulas Rule
AGENCY: Food and Nutrition Service, USDA.
ACTION: Final rule.
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SUMMARY: This final rule amends both the food and the nutrition
services and administration (NSA) funding formulas to improve the
effectiveness of WIC funds distribution now that WIC is in a relatively
stable funding environment. The amended food funding formula helps to
ensure food funds are allocated to State agencies that can utilize the
funds to maintain current participation as well as to direct funds, as
available, to State agencies that are receiving a smaller portion of
funding relative to their proportion of the WIC eligible population
than other State agencies. The amended NSA funding formula simplifies
the funding formula by deleting obsolete components and revising
existing components to more equitably distribute funds among State
agencies.
EFFECTIVE DATE: This rule is effective October 1, 1999.
SUPPLEMENTARY INFORMATION:
Background
Proposed Rule
The Food and Nutrition Service (FNS) published a proposed rule on
October 13, 1998 in the Federal Register (63 FR 54629) outlining the
revisions of the food and nutrition services and administration funding
formulas for WIC. The proposed rule provided for a 90-day comment
period, which ended on January 11, 1999. Two hundred twenty-two comment
letters were received from a variety of sources, including State and
local agencies, Members of Congress, advocacy groups and other public
interest groups. FNS has given all comments careful consideration in
the development of this final rule and would like to thank all
commenters who responded to the proposal.
Need for Revisions to the WIC Funding Formulas
The WIC Program has consistently demonstrated its effectiveness in
promoting the health and nutritional well being of low-income women,
infants and children at nutritionally related medical or dietary risk.
The WIC Program has grown and changed significantly during the past few
years. However, as growth has plateaued, FNS believes that it is
appropriate to change both the NSA and food funding formulas to enhance
their effectiveness at distributing funds fairly and equitably among
WIC State agencies in an environment in which appropriations are
relatively stable.
The WIC Program is a fixed grant program, not a Federal entitlement
program, and is not guaranteed unlimited funds. WIC State agencies must
manage within a finite appropriation level. However, State agencies
have considerable latitude to manage program costs to accommodate
variable funding levels.
The formulas in this rule better provide State agencies with the
equal opportunity to serve eligible persons who apply for benefits.
Currently, State agency funding levels are not necessarily proportional
to their WIC eligible population. The revised formulas are intended to
allocate funds more fairly among State agencies under a relatively
stable funding environment.
Nutrition Services and Administration (NSA) Funding Formula
The current WIC NSA funding formula became effective April 1, 1988.
The objectives of the formula were to ensure a reasonable measure of
funding stability while providing funding levels that enabled
equivalent services to participants across State agencies and to
promote incentives for reducing food costs so that more persons may be
served.
The current NSA formula is, however, complicated and requires a
tremendous amount of data collection--some of which may no longer be
needed or has little impact on the actual allocation of funds. Further,
some data are not available in time to permit issuance of final grants
at the beginning of the fiscal year. As a result, FNS feels that the
current NSA funding formula is no longer the most efficient and
effective means of distributing NSA funds.
Current NSA Provisions--General
The WIC regulations at 7 CFR 246.16 (c)(2) set forth both the NSA
funding requirements as established in Section 17 (h) of the Child
Nutrition Act of 1966 (42 U.S.C. 1786(h)) and the process by which NSA
funds are allocated to State agencies. The current NSA funding formula
meets the legislative requirements by: (1) Establishing a ``target''
NSA funding level, referred to as parity, that each State agency should
receive as its fair share NSA grant; (2) preserving stability by
guaranteeing, to the extent funds are available, the prior year NSA
grant level, and then gradually moving State agencies to their parity
target level; and (3) addressing the varying needs of each State agency
by allocating regional discretionary funds based on regional and
National priorities.
The following is a discussion of each provision, as proposed,
comments received on the proposal, and an explanation of the provisions
set forth in this final rule.
Current NSA Parity Component
The current parity target level is based primarily on the number of
participants projected to be served by State agencies. Using food grant
levels allocated for the current fiscal year, FNS projects the number
of participants each State agency is expected to serve taking into
consideration its State-reported per participant food costs and
inflation. In addition to projected participation, three adjustments
are made to this participation-based formula to recognize factors
believed to affect the cost of Program administration. These include:
(a) Economies of scale--recognizes the higher per participant costs
associated with smaller participation levels (currently an adjustment
is made at three levels: 5,000 or fewer
[[Page 56670]]
participants; 5,001-15,000 participants; and more than 15,000
participants);
(b) Salary differentials--considers the differential salary levels
paid within each State for employees in Public Administration, Health
and Social Services; and
(c) Targeting of benefits to high-risk participants--considers the
proportion of Priority I participants served by the State agency.
Currently, eighty percent of funds available for allocation through
the parity component are allocated in accordance with projected
participation, adjusted by the economy of scale factor. This is done on
the basis of administrative grant per participant (AGP) rates that are
adjusted for the higher per participant costs associated with smaller
participation levels (15,000 or fewer participants per month). Twenty
percent of funds available for the parity grant component are allocated
on the basis of differential salary levels and service to Priority I
participants.
Proposed ``Fair Share'' Component
Renaming the Parity Component. The term ``parity'' is used to
describe the basic concept of gradually moving State agencies to a
funding level that represents their respective ``fair share'' of
available funds. FNS believes that the term ``fair share'' better
describes the purpose and intent of this component and, therefore,
proposed that the current ``parity'' component be renamed the ``NSA
fair share'' component. This change would also provide continuity with
terminology used in the food funding formula.
The majority of commenters addressing this issue agreed to change
the term ``parity'' to ``fair share''--only two commenters disagreed
with the change. The provision remains unchanged from the proposed
rule.
Food Cost Data Used in Calculating Projected Participation. The NSA
funding formula projects the number of participants to be served by
each State agency by dividing the current year food grant level by the
State-reported per participant food cost, adjusted for inflation. Prior
to fiscal year 1999, the data used was the closed-out per participant
food cost data for the 12-month period beginning in July and ending in
June prior to the fiscal year for which the grants are being
calculated. Closed-out food cost data is usually available 150 days
after the report month. Therefore, the closed-out food cost data for
June is not available to FNS until late November, at which time the
final grants could be calculated for release on January 1.
To allow for the calculation of final WIC grants at the beginning
of the fiscal year, FNS proposed that April through March closed-out
food cost data be used. As is currently done, an inflation adjustment
would be applied to the food cost data to more accurately project
actual food costs and to adjust for inflationary increases that may
occur during the remainder of the fiscal year. While other time frames
were considered for use, it was felt that a 12-month base of food cost
data was necessary to take into consideration seasonal fluctuations of
food prices. While the current regulations do not address the specific
months of food cost data used in the calculations, FNS wanted to obtain
comments concerning the change in the time frames.
Based on lengthy deliberations, it was concluded that we had the
statutory authority to use April through March closed out food cost
data for the calculation of fiscal year 1999 grants. WIC State agencies
were very supportive of this change, which allowed final grants to be
issued on October 1, 1998.
This change was further supported in the comments received on this
provision in the proposed rule. Although the time frame for the closed-
out food costs will now be April through March, the final rule will
continue to be silent on the actual dates used in the calculation for
the funding formula.
Economy of Scale/Bands. As noted above, NSA costs are affected by
economy of scale. There are certain fixed administrative costs in the
delivery of program benefits incurred by a State agency that do not
vary regardless of the size of the caseload. Therefore, State agencies
with larger participation levels are able to realize reductions in
administrative expenditures per person (AEP) as these fixed costs are
spread among more participants. Smaller State agencies, particularly
Indian Tribal Organizations (ITOs), have comparatively higher costs per
participant. Although the current NSA funding formula includes a size-
adjusted cost factor, other alternatives and adjustment factors were
examined to determine if the current adjustments adequately recognize
the various range of administrative expenditures for State agencies of
differing sizes.
The proposed rule recommended retention of the current bands until
updated NSA cost information needed to determine new band sizes is
available. It was felt that the data upon which the AEP bands are
currently based remains the best available. However, more research and
analysis is needed to understand how economies of scale actually affect
WIC NSA costs, what specific costs are most influenced, the
participation level(s) at which economies of scale vary and how much
allowance should be made at each of those levels.
Commenters were asked to provide suggestions as to how economies of
scale can be objectively and fairly determined for future
consideration. While no commenters provided concrete suggestions, the
majority of commenters were in agreement that the current bands should
be retained until further analysis could be conducted. FNS will study
the economies of scale (bands) as part of its commitment to improve the
data used in the funding formulas. Additionally, the General Accounting
Office (GAO) is conducting a three-year study on WIC NSA costs which
may provide additional data that can be utilized in determining
appropriate band sizes and adjustment factors. Therefore, until FNS'
further analysis is completed and appropriate baseline data is
available, we will continue to use the current bands of 5,000 or fewer;
5,001 to 15,000; and over 15,000. The corresponding percent adjustment
between bands will also be retained.
Salary and Priority I Participant Targeting Component. The combined
salary and targeting component determines 20 percent of a State
agency's NSA fair share target level. In an effort to simplify the
funding formula and to delete obsolete components, both the salary and
targeting components were analyzed to determine whether they have a
significant and appropriate impact on the final NSA grant allocations.
Salary Component. Salary data were incorporated into the current
funding formula in recognition that salary costs represent by far the
most significant contributor to WIC NSA costs. Additionally, due to
regional variations in labor costs, similar levels of service have
different salary costs. The salary data used to compute differential
salary levels for State agencies includes average annual salaries for
government workers provided by the Bureau of Labor Statistics (BLS). As
previously determined by FNS, the salary level for a GS-9, step I in
the Federal Government's General Schedule pay scale is used for those
State agencies and territories for which BLS data is unavailable. The
most current data available from BLS usually reflects average salary
levels paid two years prior to the applicable fiscal year for which
funds are allocated.
[[Page 56671]]
FNS recognizes that the salary component is a controversial area
and that there are strong opinions and arguments supporting both the
inclusion and deletion of the salary component in the NSA funding
formula. The proposed rule retained the current salary component, which
would continue to equal 10 percent of the NSA fair share component of
the NSA funding formula. However, comments on whether the current
salary factor contributes to an appropriate and fair allocation of NSA
funds were welcomed.
As anticipated, there were many comments on this provision. The
majority of the commenters thought this provision should be retained.
These commenters generally stated that the salary component is needed
due to their States' higher cost of living and that salaries constitute
the largest component of administrative budgets. However, States
opposing the provision argued that the BLS data does not accurately
reflect the cost of salaries paid to WIC staff and that many other
factors, such as a state's geography or multilingual needs, affect the
cost of providing services. Therefore, they believe it would be more
appropriate to make grant adjustments based on these other factors when
determining NSA funding needs.
After much consideration of this provision, FNS has decided to
retain the current salary component. The salary component would
continue to equal 10 percent of the NSA fair share component of the NSA
funding formula. The provision is reflected at revised
Sec. 246.16(c)(2)(i) of program regulations.
Targeting Component. The targeting component was originally
designed to provide an incentive for targeting benefits to the highest
risk participants, Priority I women and infants, as defined in current
program regulations at Sec. 246.7 (e)(4)(i). At the time it was
incorporated into the NSA funding formula in 1988, the food funding
formula also included a targeting component. In a time when WIC was not
able to meet the need for program benefits of the highest risk
individuals, targeting funds to those State agencies that were serving
a greater proportion of high-risk individuals was a necessary
objective. Now, however, based on estimates derived from State-reported
participation data, nationwide, virtually all fully eligible infants
are receiving services through the WIC Program and most fully eligible
women are participating at some point during their pregnancies.
Therefore, FNS proposed that the targeting component be deleted since
it is no longer needed to encourage and support service to Priority I
participants.
The majority of commenters supported the deletion of the targeting
component. Reasons cited by the commenters to support deletion included
simplification, the effect on the overall NSA grant is negligible, and
that it would promote consistency with the food funding formula, which
deleted its targeting component in 1994. Therefore, the final rule
retains the provision to delete the targeting component. This deletion
is reflected at revised Sec. 246.16(c)(2)(i) of program regulations.
The deletion of the targeting components allows 100 percent of the NSA
fair share funds to be allocated based on projected participation
levels, adjusted for State agency size and salaries (90 percent) and
salary differentials (10 percent).
NSA Stability Funds
Throughout the deliberations on the possible revisions to the NSA
funding formula, it was recognized that a critical aspect of NSA
funding is the stability component. The stability grant helps to
guarantee, to the extent funds are available, some measure of funding
continuity that acknowledges that State agencies have fixed NSA costs
that are relatively stable from year to year and are necessary for
continued Program operations. In the event that available funding is
insufficient to fund State agencies at their stability funding level,
each State agency experiences a pro-rata reduction to its grant, as is
done with the food funding formula.
The stability component was continued in the proposed rule, with
modification. The modification concerned the use of discretionary
funding decisions when calculating the State agency's NSA stability
grant level. Currently, discretionary funds become a permanent part of
a State agency's stability grant the following year. Over time,
discretionary funding decisions made by FNS may have unnecessarily
inflated the grant allocations provided to particular States due to
additional funding allocated for large one-time capital expenditures.
Therefore, FNS proposed changes to the stability, or base, grant
calculation to eliminate consideration of discretionary funding (or, as
described below, ``operational adjustment'' funding) allocations made
in the prior fiscal year.
The majority of the commenters agreed that the NSA base funding
level should be the prior year formula calculated grant prior to any
discretionary funding adjustments. Commenters agreed that this change
would eliminate the impact of large discretionary allocations made to
States for one-time capital expenditures. Revised Sec. 246.16(c)(2)(ii)
reflects the provision as proposed, which provides each State agency a
base funding level equal to its NSA grant from the previous year prior
to any operational adjustment funding allocations for that year. As is
currently the case, each State agency's base funding level would be
reduced by a pro-rata share if insufficient funds were available.
As a result of this change in the calculation of the NSA base
funding level, we believe the term stability no longer accurately
reflects this component of the NSA funding formula. Therefore, the term
NSA base funding level will be used, and represents the State agency's
prior year formula calculated grant before any operational adjustment
funding allocations are made. This change is reflected in the final
rule in Sec. 246.2 of program regulations, from which is deleted the
definition of stability funds, and also in Sec. 246.16 (c)(2) from
which are deleted references to the term stability and the concept of
stability funding.
NSA Residual Funds
Currently, after NSA stability grants are determined, any remaining
funds available for allocation are referred to as residual funds and
are distributed according to Sec. 246.16(c)(2)(ii) of current program
regulations. Residual funds represent funding that either: (1) Helps to
cover NSA costs associated with increases in projected participation,
or (2) moves State agencies closer to their parity, or, under the
revised regulations, their fair share target funding level. The fair
share for NSA funds is an administrative grant per person (AGP) for
each projected participant, adjusted for factors that affect NSA costs.
FNS proposed that priority for residual funds should be given only
to State agencies below their NSA fair share target funding level. The
fair share principle, which is participant-based, represents the amount
of NSA funds needed by a State agency to support current participation
projections based on the food grant the State agency will receive. The
part of the current regulatory provision that provides funds on the
basis of increased participation countervails the fair share objective
by allocating funds to State agencies that are already over their fair
share funding level.
Therefore, FNS proposed that the NSA formula grant for each State
agency be calculated based on each State agency's fair share target
funding level, which considers the difference between the estimated
cost of projected
[[Page 56672]]
participation (NSA fair share target level) and the prior year NSA base
funding level. If a State agency's NSA fair share target funding level
is greater than its base funding level, the State agency would be
eligible to receive additional NSA funds proportionate to their
respective shortfall from the fair share target funding level.
Only 15 comments were received with respect to this provision. Over
half the commenters supported the deletion of the component of the NSA
funding formula regulations that distributes NSA funding based on
increases in projected participation. Those in support of deletion
cited simplification as the primary justification. Therefore, FNS
retains the provision as proposed as reflected in revised
Sec. 246.16(c)(2)(iii). As a result of this deletion, the term
``residual funds'' is deleted from Sec. 246.2--Definitions.
Discretionary Funds
The success of the WIC Program is due in large part to the
flexibility of the program to accommodate individual State needs and
initiatives. As the WIC Program continues to change and mature, the
responsiveness of the Program to meet State agencies' varying needs and
provide for program innovation becomes more critical.
Section 246.16(c)(2)(iii) currently requires that ten percent of
each State agency's total NSA grant level be subtracted and aggregated
by FNS region to form FNS regional discretionary funding pools. In FY
1999, these pools amounted to over $100 million nationally. Each FNS
regional office then allocates the discretionary funds back to State
agencies within the region on the basis of the varying needs of State
agencies and national guidelines. Through the regional allocation of
discretionary administrative funds, the funding process can satisfy
many of the administrative and structural needs not accounted for in
the NSA funding formula (e.g., one-time acquisition costs for
management information systems).
FNS considered the discretionary funding allocation process and the
actual use of these funds. As a result of these considerations, it was
determined that the term ``discretionary'' does not fully represent or
accurately describe the use of these funds, and that many State
agencies must use these funds for operational costs. Therefore, FNS
proposed to change the name ``discretionary'' funds to ``operational
adjustment'' (OA) funds. It was felt that this change will help clarify
that the use of the funds are for both capital investments as well as
operational activities, and that, in many cases, the funds are a
critical part of a State agency's WIC grant and are needed to support
ongoing operations.
All commenters on this proposal agreed to change the name
``discretionary'' funds to ``operational adjustment'' funds. The
commenters felt that the new term better describes how the funds are
used. Therefore, this provision of the final rule will stand as
proposed.
The degree to which FNS regions have been inconsistent in the
methodology used to award discretionary fund allocations and the
adherence to national guidelines was also considered. While some
regions have used a competitive process to award the majority of
available discretionary funds, other regions simply returned a large
portion of the available discretionary funds to the State agencies in
their region according to the distribution allocated through the
funding formula. This inconsistency has caused concern as funding for
projects becomes more competitive and funding levels for the program
are being scrutinized. Further, FNS regions that include large State
agencies that contribute significant amounts of funding to the regional
fund have more flexibility than regions with smaller State agencies.
FNS recognizes that regions have various funding resources and needs
and, for most regions, the process employed for discretionary funds
allocation is a mutually acceptable one in which the State agencies and
the regions are satisfied with the process. These views were reflected
in the proposed rule, which allowed up to 10 percent of the total
regional NSA funds to be used for OA funding (formerly discretionary
fund) allocations. However, regions would be given the authority to
withhold less than 10 percent of the total regional NSA funds available
if deemed appropriate for that region's needs.
The majority of commenters agreed with the proposal that OA
allocations should be equal to up to 10 percent of the total regional
NSA funds and that regions should be given the authority to withhold
less than ten percent if deemed appropriate. Commenters believe that
this allows the FNS regions to make decisions based on the needs of WIC
State agencies. The final provision will stand as proposed and is
reflected in revised Sec. 246.16(c)(2)(iv) of program regulations.
Food Funding Formula
Current Food Funding Provisions--General
The current food funding formula, finalized on October 6, 1994, was
developed for use during a time of participation growth and annual
increases in WIC appropriations. The primary objectives were to: (1)
Provide a greater share of funds to State agencies receiving
comparatively less than their fair share of funds; (2) simplify the
food funding formula and delete obsolete components; and (3) provide
for a level of stability for State agencies. While the current food
funding formula has met those objectives, WIC has now entered a time in
which, at least for the foreseeable future, significant increases in
appropriations are not likely. The emphasis must now be placed on
shifting available funds among State agencies to reflect changes in
distribution of the eligible population and to reach the maximum number
of participants possible with available program resources.
The following is a discussion of each provision, as proposed, and
an explanation of the provisions set forth in this final rule:
Current Food Stability Component
The stability component of the current food funding formula
provides that each State agency receive its prior year food grant,
adjusted for full inflation, contingent on available resources. If
funding is inadequate to fund all State agencies at this level, each
State agency would receive a reduced stability grant based on a pro-
rata reduction of funds.
The current stability component, in a stable funding environment,
results in little if any additional funding to assist State agencies
that, for historical reasons or due to demographic shifts, do not have
a share of WIC funding proportionate to their share of the eligible WIC
population. These State agencies are considered to be ``under fair
share''. Therefore, FNS proposed that the stability component of the
food funding formula be modified to allow some funds to be available to
allocate to under fair share State agencies to further the objective of
funding equity among State agencies. In a relatively stable funding
environment, mechanisms must be in place to allow for some movement of
funds to correspond to shifts in eligible populations, and the ability
of State agencies to fully utilize available funding to maximize
participation.
[[Page 56673]]
Proposed Stability Component
Long consideration was given to stability food funding and whether
full inflation should be guaranteed. Concerns were raised that if State
agencies were not funded with full inflation, prior fiscal year
participation levels may not be sustained, thereby forcing some State
agencies to cut caseload. This concern, however, was countered by the
objective of making available, to the extent possible, additional
funding to under-fair-share State agencies. This would provide those
States the opportunity to add participants to bring them closer to the
level of service provided by State agencies that have received
allocations at or above their fair share.
After exploring options available, FNS proposed to modify
Sec. 246.16(c)(3)(ii) to redefine stability as the prior-year food
grant level, without any initial adjustments for inflation. Any funds
remaining after guaranteeing prior year-end grant levels would be
split. Fifty percent of the remaining funding would be provided for an
inflation allowance based on the fair share funding level allocated
with the new year appropriation instead of the prior year grant levels
currently used in the formula. The remaining 50 percent would be
allocated to under-fair-share State agencies to bring them closer to
their fair share level. The funds subject to the 50/50 split would
include current year appropriated funds and unspent recoverable funds
from the prior fiscal year.
These changes to the stability component would help to ensure that
even in a funding environment in which the program receives only a
modest increase above prior year grant levels, State agencies with less
than their fair share of funds would continue to receive a greater
increase in funding relative to over fair share State agencies.
To determine the amount of funds allocated to each State agency,
FNS proposed that State agencies would initially receive their prior
year end food grant as their stability grant. As is currently done, if
funds are insufficient to fund all State agencies at the prior year end
grant level, each State agency would receive a pro-rata reduction to
its grant. If funds are available in excess of prior year-end grant
levels, 50 percent of such funds would be made available to each State
agency for inflation. FNS proposed that an inflation allowance be
calculated based on the difference between each State agency's inflated
appropriated fair share grant level and their appropriated fair share
grant level. The remaining 50 percent of available funds would be
allocated to under-fair-share State agencies proportionate to their
shortfall from their fair share target funding level. Once all State
agencies have received their target food inflation level, 100 percent
of all available funds would be allocated to under fair share State
agencies. If sufficient funding is available to fund inflation and all
under fair share State agencies up to their fair share target levels of
funding, additional funds would be allocated according to Sec. 246.16
(c)(3)(iii)(B) to any State agency requesting additional food funds.
Approximately 99 percent of the 194 commenters on this provision
were strongly opposed to the 50/50 split. The majority of commenters
felt the 50/50 split was seriously flawed and strongly supported the
original 80/20 split, i.e., 80 percent for inflation, 20 percent for
under fair share State agencies, that was discussed during meetings
between FNS and its State and local partners. Only two commenters
favored the 50/50 split and one commenter suggested a 60/40 split of
the remaining funds. Additionally, approximately 99 percent of the
commenters opposed the calculation of inflation based on the fair share
target funding level. The commenters were in support of calculating
inflation based on prior year grants.
The primary reason cited by the commenters supporting the 80/20
split was that the 50/50 split would provide too few funds to State
agencies for inflation. Commenters felt strongly that the 50/50
distribution of funds could lead to reductions in current participation
levels in over-fair-share State agencies.
The commenters were equally concerned with the methodology used to
calculate inflation. Of those responding to this provision, it was
unanimously agreed upon that basing inflation levels on each State
agency's fair share target grant level would further threaten to reduce
the funds to over-fair-share States and would jeopardize current
participation levels.
FNS is persuaded by the concerns raised by commenters on this
aspect of the proposed rule. Therefore, this final rule provides at
Sec. 246.16(c)(3)(iii) that if funds are available in excess of prior
year-end grant levels, 80 percent of such funds would be made available
to each State agency for inflation. An inflation allowance will be
calculated based on the prior year-end grant. The remaining 20 percent
of available funds would be allocated to under-fair-share State
agencies proportionate to their shortfall from their fair share target
funding level.
Many commenters recommended that the term ``prior year grant'' be
used instead of ``stability'' funding. It was felt that the term
``stability'' connotes ``adequate'' funding, which may not be the case.
Commenters also felt for clarity we should identify this funding level
as what it is, which is the prior year grant.
FNS concurs with this suggestion. Therefore, the final rule uses
the term ``prior year grant'' instead of ``stability funding'' and
Secs. 246.2 and 246.16(c)(3)(iii) are modified accordingly.
Adjustments for Higher Cost Areas
In calculating the fair share target food level for State agencies,
current regulations permit an adjustment for the higher cost of food
for State agencies located outside of the 48 contiguous States and the
District of Columbia. This adjustment is done to ensure that the share
of funds received by these State agencies is adequate to serve their
share of the eligible population given their higher costs. Currently,
five State agencies receive this adjustment. Current regulations allow
for these adjustments after a State agency demonstrates that it has
successfully implemented voluntary cost containment measures, such as
improved vendor management practices, participation in multi-state
agency infant formula rebate contracts or other cost containment
efforts.
FNS believes that the current adjustments and conditions under
which adjustments may be applied are consistent with program objectives
and consistent with high cost adjustments available to States in the
National School Lunch Program and the School Breakfast Program. No
comments were received on this component of the funding formula.
Therefore, the final rule reflects no changes at
Sec. 246.16(c)(3)(i)(B).
Food Spending Performance Standard
The current food spending performance standard was implemented in
fiscal year 1995. Failure to meet this standard results in an
adjustment of the current year grant. The current standard requires
each State agency to expend at least 97 percent of its food grant.
Typically, State agencies cannot spend 100 percent of their WIC grants
due to factors that are inherent to the program. For example, because
the federal grant is the only source of funds for WIC in most states,
State agencies must exercise caution to ensure that they do not spend
more than their federal grant. In addition, because State agencies must
estimate the value of vouchers and checks to distribute food benefits,
they cannot determine the program's actual
[[Page 56674]]
food costs until the vouchers and checks have been redeemed and
processed.
While FNS recognizes that the structure of the program may cause
some State agencies to have difficulty meeting this expenditure
standard, the majority of State agencies should be able to expend at
least 97 percent of its food funds in a stable funding environment. No
comments were received on this provision of the proposed rule.
Therefore, the 97 percent food spending performance standard will be
retained in this final rule at Sec. 246.16(e)(2)(i) and the obsolete
references to the performance standards for fiscal years 1995-1997 will
be deleted.
Eligibility Data
Data on the number of individuals estimated to be income eligible
for program benefits is produced annually at the national level. State-
level estimates of income-eligible infants and children are produced
using similar data. These estimates, in turn, are used to estimate the
fair share funding levels for WIC food grants.
Much consideration was given as to the reliability and accuracy of
the income eligible data. Current regulations stipulate at
Sec. 246.16(c)(3)(i) that the income eligible data be calculated by FNS
using the best available, nationally uniform, indicators. FNS continues
to believe that the current methodology is the best available data and
proposes no changes at this time. However, FNS will reevaluate the
method for estimating the potential eligible population if new data
sources or methods become available that could improve the current
estimation process.
All commenters addressing this section were in support of continued
work in estimating the potential eligible data. FNS is committed to
ensuring that WIC eligibles estimates are developed using the best data
and methods available. In prior years the agency has devoted
substantial resources to research and analysis of data sources and
technical approaches to eligibles estimation, and the estimation
approaches have been improved as a result of these efforts. We fully
anticipate that such efforts will continue and FNS will continue to
update and improve the estimation process over time.
Executive Order 12866
This rule has been determined to be significant under Executive
Order 12866, and has been reviewed by the Office of Management and
Budget. An impact analysis statement has been prepared and is available
upon request.
Public Law 104-4
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2
U.S.C. 1531 et seq.) establishes requirements for Federal agencies to
assess the effects of their regulatory actions on State, local, and
tribal governments and the private sector. Under section 202 of the
UMRA (2 U.S.C. 1532), FNS generally must prepare a written statement,
including a cost-benefit analysis, for proposed and final rules with
``Federal mandates'' that may result in expenditures to State, local,
or tribal governments, in the aggregate, or to the private sector, of
$100 million or more in any one year. When such a statement is needed
for a rule, section 205 of the UMRA (2 U.S.C. 1535) generally requires
FNS to identify and consider a reasonable number of regulatory
alternatives and adopt the least costly, most cost-effective or least
burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, or tribal
governments or the private sector of $100 million or more in any one
year. Thus, this rule is not subject to the requirements of sections
202 and 205 of the UMRA.
Regulatory Flexibility Act
This final rule has been reviewed with regard to the requirements
of the Regulatory Flexibility Act (5 U.S.C. 601-612). Shirley R.
Watkins, Under Secretary, Food, Nutrition and Consumer Services, has
certified that this rule will not have a significant economic impact on
a substantial number of small entities. This rule affects how FNS
calculates food and NSA grant allocations for State agencies. State
agencies are not small entities under the Regulatory Flexibility Act.
Paperwork Reduction Act
This final rule does not contain reporting or record keeping
requirements subject to approval by the Office of Management and Budget
under section 3507 of the Paperwork Reduction Act of 1995 (44 U.S.C.
3507).
Executive Order 12372
The Special Supplemental Nutrition Program for Women, Infants and
Children (WIC) is listed in the Catalog of Federal Domestic Assistance
Programs under No. 10.557. For the reasons set forth in the final rule
in 7 CFR, part 3015, subpart V, and related Notice (48 FR 29114), this
program is included in the scope of Executive Order 12372 which
requires intergovernmental consultation with State and local officials.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. This rule is intended to have a preemptive effect
with respect to any State or local laws, regulations or policies which
conflict with its provisions or which would otherwise impede its full
implementation. This rule is not intended to have retroactive effect
unless so specified in the Effective Date paragraph of this preamble.
Prior to any judicial challenge to the provisions of this rule or the
applications of its provisions, all applicable administrative
procedures must be exhausted (7 U.S.C 6912(e)).
List of Subjects in 7 CFR Part 246
Food assistance programs, Food donations, Grant programs--Social
programs, Indians, Infants and children, Maternal and child health,
Nutrition education, Public assistance programs, WIC, Women.
For reasons set forth in the preamble, 7 CFR part 246 is amended as
follows:
PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS
AND CHILDREN
1. The authority citation for part 246 continues to read as
follows:
Authority: 42 U.S.C. 1786.
Sec. 246.2 [Amended]
2. In Sec. 246.2, the definitions of Residual funds and Stability
funds are removed.
3. In Sec. 246.16:
a. Paragraph (c)(2)(i) is revised.
b. Paragraph (c)(2)(ii) is revised.
c. Paragraphs (c)(2)(iii) and (c)(2)(iv) are redesignated as
paragraphs (c)(2)(iv) and (c)(2)(v), respectively, and a new paragraph
(c)(2)(iii) is added.
d. Newly redesignated paragraph (c)(2)(iv) is revised.
e. Newly redesignated paragraph (c)(2)(v) is amended by removing
the words ``discretionary funds'' and adding, in their place, the words
``operational adjustment funds''.
f. The heading of paragraph (c)(3)(i) and the first sentence of
paragraph (c)(3)(i)(A) are revised.
g. Paragraph (c)(3)(ii) is revised.
h. The heading of paragraph (c)(3)(iii)and paragraph (c)(3)(iii)(A)
are revised.
i. The first sentence of paragraph (e)(2)(i) is revised.
[[Page 56675]]
The revisions and an addition read as follows:
Sec. 246.16 Distribution of funds.
* * * * *
(c) * * *
(2) * * *
(i) Fair share target funding level determination. For each State
agency, FNS will establish, using all available NSA funds, an NSA fair
share target funding level which is based on each State agency's
average monthly participation level for the fiscal year for which
grants are being calculated, as projected by FNS. Each State agency
receives an adjustment to account for the higher per participant costs
associated with small participation levels and differential salary
levels relative to a national average salary level. The formula shall
be adjusted to account for these cost factors in the following manner:
90 percent of available funds shall provide compensation based on rates
which are proportionately higher for the first 15,000 or fewer
participants, as projected by FNS, and 10 percent of available funds
shall provide compensation based on differential salary levels, as
determined by FNS.
(ii) Base funding level. To the extent funds are available and
subject to the provisions of paragraph (c)(2)(iv) of this section, each
State agency shall receive an amount equal to 100 percent of the final
formula-calculated NSA grant of the preceding fiscal year, prior to any
operational adjustment funding allocations made under paragraph
(c)(2)(iv) of this section. If funds are not available to provide all
State agencies with their base funding level, all State agencies shall
have their base funding level reduced by a pro-rata share as required
by the shortfall of available funds.
(iii) Fair share allocation. Any funds remaining available for
allocation for NSA after the base funding level required by paragraph
(c)(2)(ii) of this section has been completed and subject to the
provisions of paragraph (c)(2)(iv) of this section shall be allocated
to bring each State agency closer to its NSA fair share target funding
level. FNS shall make fair share allocation funds available to each
State agency based on the difference between the NSA fair share target
funding level and the base funding level, which are determined in
accordance with paragraphs (c)(2)(i) and (c)(2)(ii) of this section,
respectively. Each State agency's difference shall be divided by the
sum of the differences for all State agencies, to determine the percent
share of the available fair share allocation funds each State agency
shall receive.
(iv) Operational adjustment funds. Each State agency's final NSA
grant shall be reduced by up to 10 percent, and these funds shall be
aggregated for all State agencies within each FNS region to form an
operational adjustment fund. The Regions shall allocate these funds to
State agencies according to national guidelines and shall consider the
varying needs of State agencies within the region.
* * * * *
(3) * * *
(i) Fair share target funding level determination. (A) For each
State agency, FNS will establish a fair share target funding level
which shall be an amount of funds proportionate to the State agency's
share of the national aggregate population of persons who are income
eligible to participate in the Program based on the 185 percent of
poverty criterion. * * *
* * * * *
(ii) Prior year grant level allocation. To the extent funds are
available, each State agency shall receive a prior year grant
allocation equal to its final authorized grant level as of September 30
of the prior fiscal year. If funds are not available to provide all
State agencies with their full prior year grant level allocation, all
State agencies shall have their full prior year grant level allocation
reduced by a pro-rata share as required by the shortfall of available
funds.
(iii) Inflation/fair share allocation. (A) If funds remain
available after the allocation of funds under paragraph (c)(3)(ii) of
this section, the funds shall be allocated as provided in this
paragraph (c)(3)(iii). First, FNS will calculate a target inflation
allowance by applying the anticipated rate of food cost inflation, as
determined by the Department, to the prior year grant funding level.
Second, FNS will allocate 80 percent of the available funds to all
State agencies in proportionate shares to meet the target inflation
allowance. Third, FNS will allocate 20 percent of the available funds
to each State agency which has a prior year grant level allocation, as
determined in paragraph (c)(3)(ii) of this section and adjusted for
inflation as determined in this paragraph (c)(3)(iii), which is still
less than its fair share target funding level. The amount of funds
allocated to each State agency shall be based on the difference between
its prior year grant level allocation plus target inflation funds and
the fair share funding target level. Each State agency's difference
shall be divided by the sum of the differences for all such State
agencies, to determine the percentage share of the 20 percent of
available funds each State agency shall receive. In the event a State
agency declines any of its allocation under either this paragraph
(c)(3)(iii) or paragraph (c)(3)(ii) of this section, the declined funds
shall be reallocated in the percentages and manner described in this
paragraph (c)(3)(iii). Once all State agencies receive allocations
equal to their full target inflation allowance, any remaining funds
shall be allocated or reallocated, in the manner described in this
paragraph (c)(3)(iii), to those State agencies still under their fair
share target funding level.
* * * * *
(e) * * *
(2) * * *
(i) The amount allocated to any State agency for food benefits in
the current fiscal year shall be reduced if such State agency's food
expenditures for the preceding fiscal year do not equal or exceed 97
percent of the amount allocated to the State agency for such costs. * *
*
* * * * *
Dated: October 13, 1999.
Shirley R. Watkins,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 99-27431 Filed 10-20-99; 8:45 am]
BILLING CODE 3410-30-P
