[Federal Register Volume 63, Number 36 (Tuesday, February 24, 1998)]
[Rules and Regulations]
[Pages 9087-9126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4407]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 63, No. 36 / Tuesday, February 24, 1998 /
Rules and Regulations
[[Page 9087]]
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DEPARTMENT OF AGRICULTURE
Food and Consumer Service
7 CFR Parts 210 and 226
Child and Adult Care Food Program:
Improved Targeting of Day Care Home Reimbursements
RIN 0584-AC42
AGENCY: Food and Consumer Service, USDA.
ACTION: Final rule.
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SUMMARY: This final rule amends the Child and Adult Care Food Program
regulations governing reimbursement for meals served in family day care
homes by incorporating changes resulting from the Department's review
of comments received on a January 7, 1997, interim rule. These changes
and clarifications involve: The appropriate use of school and census
data for making tier I day care home determinations; documentation
requirements for tier I classifications; tier II day care home options
for reimbursement, including use of child care vouchers; calculating
claiming percentages/blended rates using attendance and enrollment
lists; and procedures for verifying household applications of children
enrolled in day care homes. This final rule also amends the National
School Lunch Program regulations to facilitate tier I day care home
determinations by requiring school food authorities to provide
elementary school attendance area information to sponsoring
organizations. These revisions implement in final form the provisions
of the Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 to target higher CACFP reimbursements to low-income children
and providers.
EFFECTIVE DATE: April 27, 1998.
FOR FURTHER INFORMATION CONTACT: Mr. Robert M. Eadie, Policy and
Program Development Branch, Child Nutrition Division, Food and Consumer
Service, Department of Agriculture, 3101 Park Center Drive, Room 1007,
Alexandria, Virginia 22302, or telephone (703) 305-2620.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be economically significant
and was reviewed by the Office of Management and Budget under Executive
Order 12866.
Regulatory Flexibility Act
This rule has been reviewed with regard to the requirements of the
Regulatory Flexibility Act (5 U.S.C. 601-612). This rule is expected to
have a significant impact on a substantial number of small entities.
Specifically, it will impact day care homes classified as tier II day
care homes. Additional discussion of this impact is contained in the
Economic Impact Analysis following this rule.
Executive Order 12372
The Child and Adult Care Food Program (CACFP) and the National
School Lunch Program (NSLP) are listed in the Catalog of Federal
Domestic Assistance Under No. 10.559 and 10.555, respectively, and are
subject to the provisions of Executive Order 12372, which requires
intergovernmental consultation with State and local officials (7 CFR
part 3015, subpart V, and final rule related notice published at 48 FR
29114, June 24, 1983).
Unfunded Mandate Reform Act
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.
104-4, 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 UMRA, the Food
and Consumer Service 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 UMRA generally requires the Food and
Consumer Service to identify and consider a reasonable number of
regulatory alternatives and adopt the least costly, more 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 UMRA) for State, local, and 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 UMRA.
Paperwork Reduction Act
This final rule contains information collection requirements which
are subject to review by the Office of Management and Budget (OMB)
under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The
final rule contains changes to the information collection requirements
that were not included in the interim rule. Specifically, the final
rule contains changes based on recent day care home participation data
and on information contained in a recent study, and a requirement that
school food authorities provide, upon request, elementary school
attendance area information for schools in which 50 percent or more of
enrolled children have been certified eligible for free or reduced
price meals. In accordance with section 3507(d) of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501 et seq.) the information
collection or recordkeeping requirements included in this final rule
have been submitted for approval to OMB. When OMB notifies us of its
decision, we will publish a document in the Federal Register providing
notice of the assigned OMB control number or, if approval is denied,
providing notice of what action we plan to take.
Title: Child and Adult Care Food Program: Improved Targeting of Day
Care Home Reimbursements.
Description: Under this final rule, some existing recordkeeping
activities contained in 7 CFR parts 210 and 226 would be affected. The
OMB control numbers are 0584-0006 and 0584-0055, respectively.
Description of Respondents: State agencies, school food authorities
and sponsoring organization of family day care homes.
Estimated Annual Recordkeeping Burden: Changes in the annual burden
[[Page 9088]]
hours and participation figures from the interim rule are based on
recent participation data and information contained in a recent study,
Early Childhood and Child Care Study, Profile of Participants in the
CACFP: Final Report, Volume 1, prepared in May of 1997. Specifically,
adjustments were made in the number of National School Lunch Program
State Agencies (SA), the number of sponsoring organizations of family
day care homes, and the annual frequency of sponsoring organization's
recordkeeping requirements. In addition, an adjustment was made to the
projected number of households of tier II children who complete and
submit an application. The use of this data results in the deletion of
23,813 reporting hours and the addition of 12,208 recordkeeping burden
hours from the burden hours used in the interim rule estimate of burden
hours to the Child and Adult Care Food Program.
The final rule also requires that school food authorities provide,
when available and upon request by Child and Adult Care Food Program
sponsoring organizations, elementary school attendance area information
for schools in which 50 percent or more of enrolled children have been
certified eligible for free or reduced price meals. This provision was
not specifically addressed in the interim rule because the Department
assumed that attendance area information would be publicly available to
sponsoring organizations. However, given the importance of attendance
area information in making tier 1 day care home determinations using
school data, and commenter concern regarding the availability of
attendance area information, the final rule requires school food
authorities to provide this information. The final rule does not
require the creation or collection of new data, but rather the
provision, upon request, of attendance area information that already
exists, thereby imposing a minimal burden. The inclusion of this
provision results in the addition of 39,752 reporting burden hours to
the burdens for the National School Lunch Program.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. This rule is intended to have 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 section of this preamble.
Prior to any judicial challenge to the provisions of this rule or the
application of its provisions, all applicable administrative procedures
must be exhausted. In the CACFP: (1) Institution appeal procedures are
set forth in 7 CFR 226.6(k); and (2) disputes involving procurement by
State agencies and institutions must follow administrative appeal
procedures to the extent required by 7 CFR 226.22 and 7 CFR part 3015.
This rule implements in final form the amendments set forth under
sections 708(e) (1) and (3) of the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 (PRWORA), Pub. L. 104-193, which
was enacted on August 22, 1996. In accordance with section 708(k)(3)(A)
of PRWORA, the Department published an interim rule, instead of a
proposed rule, on January 7, 1997 (62 FR 889). Due to errors contained
in the preamble and regulatory text of the rule published on January 7,
1997, the Department published a correction document on February 6,
1997 (62 FR 5519), and extended the original 90-day comment period to
120 days, through May 7, 1997.
Among other things, this final rule amends Sec. 210.9(b)(20) of the
National School Lunch Program regulations to require that school food
authorities provide, when available and upon request by CACFP
sponsoring organizations, elementary school attendance area information
for schools in which 50 percent or more of enrolled children have been
determined eligible for free or reduced price meals. This provision was
not specifically addressed in the interim rule published on January 7,
1997 (62 FR 889) because the Department assumed that such information
would be publicly available to sponsoring organizations. However, a
number of sponsoring organizations have expressed concern about their
ability to obtain this information. Attendance area information is
essential to making tier I day care home determinations using school
data, an option specifically required by the PRWORA amendments. In
addition, the requirement to provide attendance area information only
pertains to those school food authorities in which such information
already exists, thereby imposing a minimal burden. For these reasons,
the Administrator of the Food and Consumer Service has determined, in
accordance with 5 U.S.C. 553(b)(3)(B), that it is impracticable and
contrary to the public interest to take prior public comment and that
good cause therefore exists for promulgating this provision in the
final rule without prior public notice and comment.
In addition, this final rule amends Sec. 226.15(f) to include
criteria on the appropriate use of school and census data for making
tier I day care home determinations. These criteria place primary
emphasis on the use of elementary school free and reduced price
enrollment data. The preamble to the interim rule expressed the
Department's strong preference for school data over census data, stated
several reasons for this preference, and indicated that the Department
would subsequently issue guidance for use by sponsoring organizations
in making tier I day care home determinations. The Department issued
this guidance on March 10, 1997. Because the criteria were not set
forth in the interim rule, there was no opportunity for formal public
comment. However, sponsoring organizations have made their initial tier
I determinations in accordance with the criteria set forth in the March
10 guidance, and in this final rule. For this reason, the Administrator
of the Food and Consumer Service has determined, in accordance with 5
U.S.C. 553(b)(3)(B), that it is impracticable and contrary to the
public interest to take prior public comment and that good cause
therefore exists for promulgating this provision in the final rule
without prior public notice and comment.
The final rule is being published based on comments received on the
interim rule, in accordance with the requirement contained in section
708(k)(3)(B) of PRWORA. The Department anticipates that it may later
propose additional changes to address issues that arise after
implementation of the two-tiered reimbursement structure on July 1,
1997.
Background
This rule implements in final form the amendments set forth under
sections 708(e) (1) and (3) of the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 (PRWORA), Public Law 104-193,
which was enacted on August 22, 1996. In accordance with section
708(k)(3)(A) of PRWORA, the Department published an interim rule,
instead of a proposed rule, on January 7, 1997 (62 FR 889).
In addition to requiring that an interim rule be published by
January 1, 1997, section 708(k)(3)(B) of PRWORA also required the
Department to publish a final rule on these provisions by July 1, 1997.
These extremely short timeframes limited the Department's ability to
benefit from public input in the development of the interim or final
rule. Thus, although the Department allowed 120 days for public comment
on the interim rule, the requirement to
[[Page 9089]]
publish a final rule by the date for implementation of the two-tiered
system (July 1, 1997) meant that the final rule could not reflect any
knowledge gained by the Department, State agencies, or sponsoring
organizations in operating the two-tiered system.
The Department recognizes the importance of State and local-level
input in developing effective program regulations that carry out the
intent of PRWORA while minimizing administrative burden. Therefore, the
Department is interested in receiving comments on implementation and
operation during the first year of the two-tiered system. Based on the
comments received, the Department may develop, at a later date, a
proposed rule to implement any needed changes within the statutory
framework.
In an effort to improve the targeting of benefits to low-income
children, PRWORA establishes a two-tiered system for reimbursing meals
served in family day care homes participating in the Child and Adult
Care Food Program (CACFP), effective July 1, 1997. Under this system,
tier I day care homes are those that are located in low-income areas or
those in which the provider's household income is at or below 185
percent of the Federal income poverty guidelines. All meals served to
enrolled children in tier I day care homes are reimbursed at
essentially the same rates as prior to the two-tiered system, as
adjusted for inflation, regardless of the income levels of enrolled
children's households. Tier II day care homes are those which do not
meet the location or provider income criteria for a tier I day care
home. All meals served in tier II day care homes are reimbursed at
lower rates, unless the provider elects to have the sponsoring
organization identify children from income-eligible households. In that
case, meals served to identified income-eligible children are
reimbursed at the tier I rates.
The Department received 713 comments on the interim rule published
in the Federal Register on January 7, 1997. Of these, 21 were from
State agencies administering the CACFP or National School Lunch Program
(NSLP); 140 from sponsoring organizations of day care homes; 352 from
day care home providers; 5 from advocacy groups; 192 from parents and
other members of the general public; and 3 from others, including one
from a State Representative, one from a public school system, and one
from a school administrator's association.
In general, commenters were opposed to the changes made to the
CACFP by Public Law 104-193. Of the commenters, 583 specifically
expressed concern about the negative impact they anticipate that these
provisions will have on child care and, therefore, on children,
including: (1) Potentially significant dropout of providers from the
CACFP, which could result in an increase in the number of
``underground,'' unlicensed day care homes; (2) a possible increase in
day care rates if tier II providers choose to ``pass along'' the effect
of lost meal reimbursement to parents in the form of higher day care
rates; (3) a potential decrease in the quality of meals served to
children in CACFP day care homes, due to the lower reimbursement rates;
and (4) an overall decrease in available quality child care at a time
when new work requirements resulting from welfare reform necessitate an
increased supply. Instead of the two-tiered reimbursement system set
forth in PRWORA, 103 commenters suggested that budgetary savings could
be achieved by maintaining one set of rates, but by lowering them. Only
three commenters expressed support for the two-tiered reimbursement
system.
Several of the concerns expressed by commenters were addressed in
the economic impact analysis, which was published as an appendix to the
interim rule (62 FR 904). Overall, it is expected that non-low-income
providers and parents will bear most of the costs resulting from the
two-tiered reimbursement system--as was the intent of PRWORA. First, as
a result of the two-tiered reimbursement system, the annual rate of
growth of the number of day care home providers participating in the
CACFP is expected to decline. This anticipated decline in the annual
rate of growth is attributed to a combination of decreased incentive
for non-low-income providers to join the program, due to the lower
reimbursement rates, and an increase in the number of these providers
leaving the program. Similarly, the decreased CACFP reimbursements may
cause some currently regulated and sponsored homes not only to drop out
of the CACFP, but also to consider moving out of licensed care
altogether.
As noted by some of the commenters, providers who remain in the
program and operate tier II day care homes will most likely respond to
their decrease in revenues from the CACFP through some combination of
raising child care fees, absorbing the loss, and reducing their
operating costs. Though many factors influence a provider's response,
including the competitiveness of the child care market in which the
provider operates, affected providers (tier II) will probably choose to
pass some of their revenue loss on to their clientele, primarily non-
low-income parents, through higher child care fees. To cut operating
costs, tier II providers may also change their management practices
relating to food service and developmental opportunities and materials.
Providers may decide that certain snacks under the old, higher CACFP
reimbursements will not be served under the new, lower rates, such as
an afternoon snack. Providers might also respond by decreasing meal
portions, although by specifying minimum serving sizes, CACFP
regulations limit the extent to which this could be done. Among other
comparisons, the CACFP study mandated by section 708(l)(1)(E) of PRWORA
will compare the nutritional quality of meals served in post-tiering
tier II day care homes with the quality of meals served in those day
care homes before tiering.
The comments received on the provisions of the interim rule, and
the Department's response to them, are discussed in greater detail in
the preamble that follows. Although the Department carefully considered
all of the comments received, many of the changes recommended by
commenters are not feasible under the language of PRWORA. Any
provisions that are not discussed in the preamble to this final rule
were not addressed by commenters, and are retained as set forth in the
interim rule. However, in several cases, the preamble addresses
provisions on which the Department received no comments, in order to
bring to readers' attention certain significant provisions of PRWORA
and the interim rule.
Tier I Day Care Homes
Definition
The interim rule, in Sec. 226.2, defined a ``tier I day care home''
as:
(a) A day care home that is operated by a provider whose
household meets the income standards for free or reduced-price
meals, as determined by the sponsoring organization based on a
completed free and reduced price application, and whose income is
verified by the sponsoring organization of the home in accordance
with Sec. 226.23(h)(6);
(b) A day care home that is located in an area served by a
school enrolling elementary students in which at least 50 percent of
the total number of children enrolled are certified eligible to
receive free or reduced price meals; or
(c) A day care home that is located in a geographic area, as
defined by FCS based on census data, in which at least 50 percent of
the children residing in the area are members of households which
meet the income standards for free or reduced price meals.
The definition promulgated in the interim rule was based on the
definition
[[Page 9090]]
of ``tier I family or group day care home'' contained in section
17(f)(3)(A)(ii)(I) of the National School Lunch Act (NSLA), as amended
by section 708(e)(1) of Public Law 104-193.
No comments were received on the definition of ``tier I day care
home'' as added by Sec. 226.2 of the interim rule. Therefore, this
final rule retains the definition of ``tier I day care home'' as set
forth in the interim rule.
Provision of Area Data
Unless a provider demonstrates that household income meets the free
or reduced price eligibility standards, a sponsoring organization must
use elementary school or census data--referred to collectively in this
preamble as ``area data''--to qualify the day care home as a tier I day
care home. Section 708(e)(3) of PRWORA amended section 17(f)(3) of the
NSLA to set forth requirements pertaining to the provision of area data
for use in making tier I day care home determinations.
School Data
Based on the provisions of PRWORA, the interim rule added
Sec. 210.9(b)(20) to the NSLP regulations to require that school food
authorities provide (by March 1, 1997, and by December 31 each year
thereafter) the State agency that administers the NSLP with a list of
all elementary schools under their jurisdiction in which 50 percent or
more of enrolled children have been determined eligible for free or
reduced price meals as of the last operating day of October. Similarly,
Sec. 210.19(f) as added by the interim rule requires each State agency
that administers the NSLP to provide (by March 15, 1997, and by
February 1 each year thereafter) the State agency that administers the
CACFP with a list of all elementary schools in the State in which 50
percent or more of enrolled children have been determined eligible for
free or reduced price meals. Section 210.19(f) also requires the State
agency that administers the NSLP to provide the list to any sponsoring
organization that requests it. In addition, Sec. 226.6(f) as amended by
the interim rule requires the State agency that administers the CACFP
to provide its sponsoring organizations with this list of elementary
schools by April 1, 1997, and by February 15 each year thereafter.
The Department received 64 comments concerning the provision of
elementary school free and reduced price enrollment data for the CACFP.
Of these, five commenters objected to the requirements because they
believe that they place an unnecessary burden on school food
authorities and/or NSLP State agencies. For example, two commenters
pointed out that this requirement is unrelated to the administration of
the NSLP. The Department agrees that provision of these data is not
directly related to administration of the NSLP, and is cognizant of the
modest administrative burden it may place on State and local entities.
Nevertheless, section 17(f)(3)(E)(ii) of the NSLA, as amended by
section 708(e)(3) of PRWORA, explicitly requires that NSLP State
agencies annually provide this data in order to facilitate tier I day
care home classifications in the CACFP. Despite commenters who
indicated that this is a new reporting burden, Sec. 210.8(c) of the
NSLP regulations previously required that school food authorities
report the total number of enrolled free, reduced price, and paid
children to the NSLP State agency on the October claim for
reimbursement. In order to submit this data, school food authorities
must already consolidate the enrollment data submitted by individual
schools. In addition, while there was no prior Federal requirement that
school food authorities report the names of participating schools to
the State agency, many States already collected this information.
Finally, although PRWORA required NSLP State agencies to provide the
list directly to sponsoring organizations upon request, the interim
rule requires that NSLP State agencies also provide it to CACFP State
agencies, which will provide it to all sponsoring organizations. We
expect that this requirement will reduce the number of requests
received by NSLP State agencies from sponsoring organizations, thereby
further minimizing the burden associated with this provision. Finally,
the burden is also minimized due to the fact that more than three-
fourths of States operate the CACFP out of the same State agency as the
NSLP.
In addition, two commenters recommended that the annual February 15
date by which the CACFP State agency must provide the list of schools
to sponsoring organizations be changed to April 1 or April 15, in order
to provide the CACFP State agency additional time to assemble the data
and distribute it to sponsoring organizations. While the interim rule
requires that the CACFP State agency provide the school data to
sponsoring organizations by February 15, which is only two weeks after
its receipt from the NSLP State agency, the form in which the data is
received from the NSLP State agency should not require any work by the
CACFP State agency beyond duplicating and mailing the data to
sponsoring organizations. In the Department's opinion, two weeks is
sufficient time to perform this task. Furthermore, it is critical that
the data be provided in as timely a manner as possible after receipt by
the CACFP State agency, so that sponsoring organizations are able to
make their tiering determinations with current information.
Therefore, this final rule makes no change to Secs. 210.9(b)(20)
and 210.19(f) regarding the requirement that school food authorities
and NSLP State agencies, respectively, provide free and reduced price
enrollment data for use by CACFP sponsoring organizations. In addition,
no change is being made to the February 15 annual date by which the
CACFP State agency must provide sponsoring organizations with the
school data, contained in Sec. 226.6(f)(9).
Sixteen commenters on the interim rule indicated that the free and
reduced price enrollment data used in the CACFP should be based on a
month other than October. These commenters expressed concerns that
requiring October data will impose a new reporting burden on school
food authorities and NSLP State agencies, and that data from another
month would be more reflective of schools' free and reduced price
enrollment. With regard to whether data from another month would more
accurately reflect the free and reduced price enrollment of schools,
five commenters recommended specific months that should be used instead
of October, including January, March, May and June. Four commenters
recommended that each NSLP State agency decide on the appropriate month
for provision of data. In addition, 12 commenters questioned whether
sponsoring organizations could themselves obtain updates of free and
reduced price enrollment data from school food authorities or
individual schools more frequently than annually, and one commenter
recommended that NSLP State agencies provide updated data to sponsoring
organizations on a monthly basis. Finally, 185 commenters expressed
concern about the accuracy of the school data provided.
The Department continues to believe that October data accurately
reflects the free and reduced price enrollment of schools, and also
imposes the least burden on school food authorities. Nevertheless, in
response to commenter concerns, this final rule permits NSLP State
agencies to establish the list of schools on free and reduced price
data on data from a month other than October.
At a minimum, PRWORA and the interim rule require that free and
reduced price enrollment data be
[[Page 9091]]
provided to sponsoring organizations on an annual basis. In the
interests of minimizing any burden associated with provision of this
data, and the potential for administrative confusion which could result
from monthly fluctuations in the data, this final rule does not require
that data be provided more frequently than annually, and permits State
agencies to update the list of schools more frequently only under
unusual circumstances.
The circumstances under which State agencies may update the list
help address commenters' concerns regarding the accuracy of the data
provided. If, for example, free and reduced price data for a newly
opened school becomes available after the list has already been
provided, it would be logical for the NSLP State agency to provide to
the CACFP State agency and requesting sponsoring organizations the new
data for this particular school, and any other schools affected by its
opening. Similarly if, after the list of schools is provided, it is
discovered that data provided by a particular school food authority is
several years old, the NSLP State agency should provide new data on
those schools. However, this means that routine monthly fluctuations in
a school's free and reduced price data may not be used to qualify or
disqualify a home from tier I status after its initial determination of
eligibility has been made. Although PRWORA and the interim rule
explicitly allow a State agency to change a tier I determination if
information becomes available indicating that a home is no longer in a
qualified area, this should be done only when there has been a
substantial, sustained shift in an area's socioeconomic makeup, not
when there are minor fluctuations in a school's free and reduced price
enrollment from one month to the next. In order to ensure that all
sponsoring organizations (whose service areas often overlap) have equal
access to any updated information, and to help ensure the integrity of
the data provided, sponsoring organizations will not be permitted to
use free and reduced price information obtained directly from local
school food authorities without the express prior consent of the State
agency administering the CACFP. Sponsoring organizations that become
aware of particular circumstances that they believe would warrant the
issuance of new data should notify the CACFP State agency, which can
communicate with the NSLP State agency as necessary.
Accordingly, this final rule amends Secs. 210.9(b)(20) and
210.19(f) to permit NSLP State agencies to base the list of free and
reduced price schools for the CACFP on data as of the last operating
day of the preceding October, or another month specified by the NSLP
State agency. In order to accommodate NSLP State agencies which select
a month other than October, Sec. 210.9(b)(20) is also amended by adding
language to clarify that school food authorities must annually provide
the list of schools to the NSLP State agency by December 31, or, if
data is based on a month other than October, within 60 calendar days
following the end of the selected month. Similarly, Sec. 210.19(f) is
amended by adding language that NSLP State agencies must annually
provide the list of schools to the CACFP State agency by February 1, or
within 90 calendar days following the end of the month designated by
the NSLP State agency if data is based on a month other than October.
In addition, Sec. 226.6(f)(9) is amended to clarify that the CACFP
State agency must annually provide the list of schools to sponsoring
organizations by February 15, or within 15 calendar days of receipt of
the list from the NSLP State agency if data is based on a month other
than October. Section 210.19(f) is further amended in this final rule
to permit NSLP State agencies to provide updated free and reduced price
enrollment data on individual schools, but only when unusual
circumstances render the initial data obsolete.
In addition, the Department received 272 comments which expressed
concern about the availability or accessibility of elementary school
attendance area information, which is necessary for sponsoring
organizations to obtain in order to be able to use the free and reduced
price enrollment data.
First, many commenters suggested methods of classifying tier I day
care homes which would greatly reduce, or even eliminate the need for
attendance area information. For example, 38 commenters suggested that
State agencies be given the authority to qualify larger geographic
areas, such as cities or school districts, as tier I areas, thus
eliminating the need for individual elementary school attendance area
information for those areas. Similarly, six commenters suggested using
data from the elementary school geographically closest to the provider,
instead of data from the school serving the provider. Finally, 15
commenters recommended that sponsoring organizations be permitted to
accept a provider's self-declaration of the elementary school serving
the day care home as sufficient proof of the home's location in the
school attendance area. Several of these commenters also recommended
that sponsors be required to verify provider self-declarations through
obtaining elementary school attendance information for a sample of
their providers.
Although the Department appreciates commenters' suggestions and
recognizes that they potentially would reduce the burden of obtaining
attendance area information, none of the suggested alternatives is
permissible under the provisions of PRWORA. Due to the definition
contained in section 17(f)(3)(A)(ii)(I) of the NSLA, as added by
section 708(e)(1) of PRWORA, which describes a ``tier I day care home''
in part as a day care home ``served by a school enrolling elementary
students,'' it would be contrary to the law to permit larger geographic
areas to qualify as tier I areas, or to use data from the elementary
school geographically closest to a provider's home. In addition, as
discussed in a memorandum issued on April 25, 1997, a sponsor may not
rely on a provider's self-declaration of elementary school attendance
area for making a tier I determination. To comply with the law and the
interim rule, a sponsor must independently substantiate and document
any attendance area information obtained from its providers.
(Additional discussion of provider self-declaration of elementary
school attendance areas may be found later in this preamble under
``Documentation Requirements.'')
In addition, 62 of the commenters indicated that obtaining
elementary school attendance area information for schools with a free
and reduced price enrollment of 50 percent or more is burdensome and
difficult for sponsoring organizations. Another of the concerns,
expressed by nine commenters, was that school districts will not
release attendance area information to sponsoring organizations due to
concerns about liability for erroneous tier I classifications made
using school data. In addition, 11 commenters indicated that there is
no attendance area information available for some school districts, and
50 commenters indicated a concern that sponsoring organizations will
have difficulty keeping up with school boundaries because they change
frequently. Finally, 42 commenters suggested that NSLP State agencies
be required to provide attendance area information, either directly to
sponsoring organizations or through the CACFP State agency, along with
the list of elementary schools in which 50 percent or more of enrolled
children are determined eligible for free or reduced price meals. Many
of these commenters indicated that NSLP State agency provision of
attendance area information would eliminate
[[Page 9092]]
duplication of effort by sponsoring organizations, and ensure that the
information obtained and used by sponsors is consistent.
When the interim rule was drafted, it was assumed that attendance
area information would be publicly available to sponsoring
organizations. In response to concerns expressed on this issue after
publication of the interim rule, the Department issued a memorandum on
February 10, 1997, in which NSLP State agencies were asked to urge
their local school food authorities to make attendance area information
available to sponsoring organizations upon their request.
Requiring NSLP State agencies to collect attendance area
information from all elementary schools in the State with 50 percent or
more of enrolled children identified as eligible for free or reduced
price meals would, in most cases, place a substantial burden on NSLP
State agencies. In addition, the Department believes it is unnecessary
to impose an additional information collection requirement on NSLP
State agencies when the information that sponsoring organizations need
to make tier I day care home determinations is usually maintained by
the local school district, and not by the NSLP State agency. Although
NSLP State agencies are required by PRWORA and the interim rule to
collect data from school food authorities regarding schools with 50
percent or more free and reduced price enrollees, attendance area
information for individual schools is significantly more complex and
varied.
However, given the significant commenter concern regarding the
availability of attendance area information, this final rule requires
school food authorities to provide elementary school attendance area
information, when it is available for the schools under their
jurisdiction, upon request by sponsoring organizations. We are
requiring that the information be provided ``when it is available'' in
recognition of the fact that not all school districts have distinct
attendance areas attached to each of their elementary schools. The
Department wishes to emphasize that it does not intend for school food
authorities to create new information, but rather to provide sponsoring
organizations only with attendance area information that already
exists.
With regard to commenter concerns about a school district's
liability if erroneous tier I day care home classifications are made
based on school data, school districts should be assured, as previously
indicated in our February 10, 1997, memorandum, that they will not be
held financially or otherwise liable by FCS for erroneous tier I
classifications, whether due to a sponsoring organization's misuse of
attendance area information, or due to an inadvertent error by the
school district when providing the information. Conversely, sponsoring
organizations will not be liable for erroneous information obtained
from school food authorities as long as the sponsoring organization
takes action to correct misclassifications made with erroneous school
data as soon as it learns of the errors.
As indicated above, many commenters expressed concern that
sponsoring organizations will have difficulty maintaining up-to-date
boundary information because boundaries for some schools change
frequently. The Department recognizes that changes to a school's
boundaries made during a school year may not be immediately known by
the sponsor. However, the Department expects sponsoring organizations
to make reasonable efforts to use current boundary information when
making tier I determinations with school data. Therefore, this final
rule requires that sponsoring organizations obtain current attendance
area information at a minimum on an annual basis, for use in
classifying new day care homes that enter the program. However, as
discussed above with regard to changes in a school's percentage of free
and reduced price enrollment from year to year, the Department does not
expect sponsoring organizations to routinely reclassify tier I day care
homes before the three-year period has expired based on shifts in an
elementary school's boundaries.
Accordingly, this final rule amends Sec. 210.9(b)(20) by adding the
requirement that school food authorities provide elementary school
attendance area information, upon request by sponsoring organizations,
when it is available for the schools under their jurisdiction. In
addition, Sec. 226.15(f) is amended by adding the requirement that when
making tier I day care home determinations based on school data,
sponsoring organizations shall use attendance area information that has
been obtained, or verified with appropriate school officials to be
current, within the last school year.
Census Data
Section 708(e)(3) of PRWORA amended section 17(f)(3)(E)(i) of the
NSLA to require that the Secretary provide each CACFP State agency with
appropriate census data showing the areas of the State in which at
least 50 percent of children are from households meeting the income
standards for free or reduced price meals. In addition,
Sec. 226.6(f)(9) as amended by the interim rule requires CACFP State
agencies to make the census data available to sponsoring organizations.
A special tabulation of data showing, for each census block group
in the country, the percentage of children age 0-18 who are from
households meeting the income standards for free or reduced price meals
has been used for determining area eligibility for the Summer Food
Service Program (SFSP) since 1994. By January 1997, the Department had
provided this special tabulation to all CACFP State agencies that do
not also administer the SFSP. In addition, since the CACFP defines a
child as age 12 and under, a special tabulation of census data for
children ages 0-12 was provided to all CACFP State agencies in March
1997. Because the 0-12 tabulation was not initially made available to
State agencies, they were instructed that they could permit sponsoring
organizations to use either of the special tabulations for determining
tier I day care home eligibility for the purposes of implementation.
However, after September 30, 1997, all sponsoring organizations must
use the special tabulation of census data for children ages 0-12 since
that data corresponds with the definition of ``child'' in the CACFP.
No comments were received concerning the provision of census data.
Therefore, this final rule retains the requirement contained in
Sec. 226.6(f) as added by the interim rule that State agencies provide
sponsoring organizations census data.
Making Tier I Day Care Home Determinations
By requiring that school and census data ultimately be provided to
sponsoring organizations, PRWORA places the responsibility for
determining which day care homes are eligible as tier I day care homes
on sponsoring organizations. This is accomplished by applying the
school or census data provided by the CACFP State agency, or by
determining and verifying that the households of day care home
providers are eligible for free or reduced price meals.
Appropriate Use of Area Data
With regard to using area data for making tier I day care home
determinations, the preamble to the interim rule expressed the
Department's strong preference that sponsoring organizations use
elementary school free and reduced price eligibility data over
[[Page 9093]]
census data in making tier I day care home determinations. The preamble
also stated several reasons for this preference, and indicated that the
Department would issue subsequent guidance for use by sponsoring
organizations in making tier I day care home determinations.
The Department issued guidance on the use of elementary school and
census data for making tier I day care home determinations in the form
of a March 10, 1997, memorandum, well in advance of the April 1, 1997,
regulatory deadline at Sec. 226.6(f)(2) for sponsors' submission of
management plan amendments which detailed their system for making tier
I determinations. That guidance indicated that, because it is typically
more recent and more representative of a given area's current
socioeconomic status, school data must be consulted first when using
area data to try to qualify a day care home as a tier I day care home.
The only exceptions to this rule are in cases in which busing, or other
``district-wide'' bases of attendance, such as magnet or charter
schools, result in school data not being representative of an
attendance area, or when attendance areas are not used by the school
district. In these cases, census data should generally be consulted by
sponsoring organizations instead of school data.
In addition, the guidance indicated that if, after reasonable
efforts are made, a sponsoring organization is unable to obtain local
elementary school attendance area information, as discussed above, the
sponsor may use census data to determine a day care home's eligibility
as a tier I day care home. The Department did not attempt to define
``reasonable efforts,'' but rather provided discretion to State
agencies to provide additional guidance in this area to sponsoring
organizations.
Finally, the guidance delineated circumstances in which sponsoring
organizations may consult census data after having consulted school
data which fails to support a tier I determination. These circumstances
were: (1) Rural areas with geographically large elementary school
attendance areas; or (2) other areas in which an elementary school's
free and reduced price enrollment is above 40 percent. This approach
enables sponsoring organizations to identify ``pockets of poverty''
with higher concentrations of low-income children which are not evident
when only consulting the list of schools with 50 percent or more of
enrolled children determined eligible for free or reduced price meals.
The March 10 guidance pointed out, however, that NSLP State agencies
were only required by Sec. 210.19(f), as amended by the interim rule,
to provide a list of elementary schools in the State in which at least
50 percent of enrolled children are determined eligible for free or
reduced price meals.
The Department received 166 comments on the appropriate use of
school and census data, all of which indicated that there should be no
restrictions on the use of school or census data for making tier I day
care home determinations. Thirty-one of these commenters indicated
their belief that PRWORA does not indicate a preference for one data
source over another. Forty commenters indicated that the Department's
policy restricting the use of census data to specific circumstances was
contrary to what they believed to be PRWORA's intent to serve the
maximum number of low-income children. Eleven commenters objected to
the Department's position that school data should not generally be used
in cases with significant student busing or other district-wide bases
of attendance, such as magnet schools. Two commenters indicated that
CACFP policy should not be based on comparisons to the SFSP because the
programs are very different.
The Department prefers school data over census data because, in
most cases, school data is more capable of accurately documenting an
area's current socioeconomic status. Thus, placing primary reliance on
school data for making tier I day care home determinations on the basis
of area data is necessary to achieve the targeting goals of PRWORA. In
addition, section 17(f)(3)(E)(ii)(II) of the NSLA, as amended by
section 708(e)(3) of PRWORA, requires that in determining ``whether a
home qualifies as a tier I family or group day care home under
subparagraph (A)(ii)(I),'' State agencies and sponsoring organizations
``shall use the most current available data at the time of the
determination.'' Subparagraph (A)(ii)(I) of section 17(f)(3) of the
NSLA encompasses all of the methods (i.e., elementary school data,
census data, and provider's household income) for making tier I
determinations. In most instances, free and reduced price applications
are collected annually by elementary schools. Therefore, these data are
a far more recent statement of individual and aggregate economic
circumstances than census data, which was collected in 1990.
One hundred twenty-two commenters expressed concern that elementary
school free and reduced price data does not necessarily accurately
reflect an area's economic circumstances. These commenters cited
several reasons, including that many low-income families choose not to
apply for school meal benefits, and therefore, are not included in the
school data. Although it is true that not all eligible households
submit free and reduced price school meal applications on behalf of
their school-age children, studies such as the National Evaluation of
School Nutrition Programs (Abt Associates, 1983) have demonstrated that
low-income households are more likely to apply on behalf of their
elementary-age children than low-income households with older children.
In addition, the special tabulation of census block group data is based
on data submitted by a sample drawn from one out of every six American
households. As such, it provides an excellent basis for generalizing
about poverty at the national, State, and county levels. However, the
average census block group includes approximately 400 housing units
containing about 900 persons, and the one in six income sample is drawn
randomly from all census block groups, not equally from within each
block group. As a result, there is no way of predicting how many
households within a particular block group completed and returned the
household income questionnaire to the Bureau of the Census. The average
number of households in a block group with school-age children which
returned the questionnaire is unlikely to be greater than the average
number of households with children enrolled in the local elementary
school. Thus, census data for a particular block group is typically
less accurate than school data.
Despite the shortcomings of census data, the Department believes
that its inclusion in the law as a potential source for documenting a
day care home's eligibility as a tier I day care home was purposeful
and logical. There are, as noted above, certain circumstances in which
school data does not more accurately portray the surrounding area's
socioeconomic status than census data. In addition, if an area's
socioeconomic makeup has not changed substantially since the census
data were collected in 1990, there may also be other circumstances,
such as rural and urban ``pockets of poverty,'' in which census block
group data can appropriately identify an eligible portion of an
otherwise ineligible elementary school attendance area.
With regard to commenter objections to the Department's position
that school data should not generally be used in cases with significant
student busing or
[[Page 9094]]
other district-wide bases of attendance, the Department would like to
reiterate that it promulgated this policy because in cases with
district-wide bases of attendance, the school data does not necessarily
reflect the household income levels of a particular geographic area.
However, the March 10 guidance was not intended to require that,
whenever busing occurred, census data would have to be used. Pupil
busing might be used for a small portion of the student population and
might not affect the elementary school data's ability to accurately
portray an area's household income levels. Rather, the guidance was
intended to underscore the Department's strong belief that Congress
intended sponsoring organizations to utilize area data which best
portrays the current household income levels of the area in which a
particular day care home is located. Each community's situation may be
potentially unique, and the State agency is in the best position to
determine when busing or other circumstances have diminished the school
data's ability to accurately portray an area's current household income
levels. In addition, although the two programs are different in many
operational respects, the Department believes that basing the CACFP
policy on that for the SFSP is warranted in this situation due to the
programs' similarities in establishing eligibility based on geographic
areas.
Therefore, despite the concerns expressed by commenters, the
Department continues to believe that school data is preferable to
census data in the majority of cases, and that the policy set forth in
the March 10 memorandum is consistent with the intent of Pub. L. 104-
193 to utilize the best available data on aggregate socioeconomic
conditions in order to better target CACFP benefits to low-income
areas. Therefore, this final rule incorporates the criteria on the
appropriate use of school and census data for making tier I day care
home determinations set forth in the March 10, 1997, memorandum.
When making tiering determinations based on area data, sponsoring
organizations are expected to make reasonable efforts to ensure that
day care homes located within the geographic limits of an eligible
school attendance area or census block group are classified as tier I
homes only when appropriate. That is, if a sponsoring organization
believes that a segment of an otherwise eligible elementary school
attendance area is non-needy, the sponsoring organization must take
additional steps to ensure that homes within the attendance area have
been appropriately classified. For example, although sponsors should
consult school data first in most circumstances, it is possible that
some socioeconomically diverse school attendance areas which meet the
50 percent threshold might include substantial segments which are well
above the criteria for free or reduced price meals. In such cases, in
accordance with the law's intent to target higher meal reimbursements
to low-income children and providers, it would be necessary for the
sponsor to consult census data as well as to determine which part of
the elementary school attendance area should be classified as tier I.
If a review of the census block group data confirms the sponsoring
organization's belief that a segment of an otherwise eligible school
attendance area is, in fact, above the criteria for free or reduced
price meals, the sponsoring organization must reclassify the homes in
that area as tier II day care homes, unless the individual providers
can document tier I eligibility on the basis of their household income.
Finally, in order to comply with the March 10 memorandum, 12
commenters requested that NSLP State agencies be required to provide
free and reduced price enrollment data on all elementary schools in the
State, or at least for all schools with 40 percent or more free or
reduced price enrollment, instead of the currently required 50 percent.
The Department will not impose a requirement on NSLP State agencies
beyond the explicit requirement in section 708(e)(3) of PRWORA that
they annually provide a list of elementary schools with 50 percent or
more free or reduced price enrollment. However, as indicated in
guidance issued by the Department on May 16, 1997, the CACFP State
agency can request that the NSLP State agency provide data for schools
with between 40 and 49 percent free and reduced price enrollment, or
even data for all elementary schools in the State. In fact, we are
aware that several NSLP State agencies have already provided the
additional data. However, sponsoring organizations which do not have
access to data for schools below 50 percent may consult census data to
attempt to qualify day care homes located in identifiable ``pockets of
poverty'' as tier I day care homes. There may also be some limited
circumstances in which using census data is appropriate to identify
``pockets of poverty'' even when elementary school free and reduced
price enrollment is below 40 percent. In both of these circumstances,
however, sponsors must first receive State agency approval to ensure
that determinations are made using the data, whether school or census,
that is most reflective of an area's current household income levels.
Accordingly, this final rule amends Sec. 226.15(f) to include the
above-described criteria on the appropriate use of school and census
data for making tier I day care home determinations.
Verification of Providers' Household Income
The definition of ``tier I day care home'' contained in section
17(f)(3)(A)(ii)(I) of the NSLA, as amended by section 708(e)(1) of
Public Law 104-193, and as added to Sec. 226.2 by the interim rule,
requires that a day care home that qualifies as a tier I day care home
on the basis of the provider's household income must have this income
verified by the sponsoring organization. Therefore, the interim rule
added to Sec. 226.23(h)(6) the requirement that sponsoring
organizations conduct verification of the provider's household income,
for all day care homes that qualify as tier I day care homes on this
basis, prior to approving the home as a tier I day care home. This
verification must be performed in accordance with the verification
performed for ``pricing programs'' in Sec. 226.23(h)(2)(i), and
consists of verifying the income information provided on the
application by collecting documentation from the household, such as pay
stubs or income tax statements.
The Department received 115 comments on the verification
requirements for tier I day care homes. Of these, 71 commenters
specifically objected to the verification requirements for tier I day
care homes because they believe that the requirements are too
burdensome. The Department received 44 comments which suggested that
verification be conducted on a sample of applications, as currently
required in the NSLP, instead of on all applications. Several of these
commenters recommended that the sample consist of 3 percent of all
applications; one commenter suggested a 50 percent sample. Three
commenters supported more stringent verification than that required in
the interim rule; for example, one commenter wanted pricing
verification conducted on the applications of households of children
enrolled in tier II day care homes. Finally, 17 commenters questioned
how to perform the verification, or requested additional guidance,
because sponsoring organizations of day care homes are unfamiliar with
this type of verification. Seven commenters made recommendations
concerning verification procedures.
[[Page 9095]]
The Department recognizes that verification of all applications for
providers whose homes qualify as tier I homes on the basis of their
household income places an additional administrative burden on
sponsoring organizations. However, given the significant financial
benefit associated with classification of a day care home as a tier I
day care home, in the form of tier I reimbursements for meals served to
all children enrolled in the home, Congress determined that it was
necessary to impose these requirements to ensure that day care homes
that are classified as tier I homes on the basis of household income
are truly low-income, despite their location in an area which would not
qualify them for tier I status. Thus, the explicit language of section
17(f)(3)(A)(ii)(I), as added by section 708(e)(1) of PRWORA, which
defines a ``tier I day care home'' as one which is operated by a
``provider whose household meets the income eligibility guidelines . .
. and whose income is verified by the sponsoring organization of the
home,'' requires that all day care homes qualifying as tier I day care
homes on the basis of the provider's household income have income
verified prior to participation as a tier I home. Conducting
verification on only a sample of the applications, as recommended by
commenters, would not meet the requirements of PRWORA. In addition,
income verification is an important control for ensuring accurate
tiering determinations.
In response to concerns expressed by sponsoring organizations and
State agencies about how to perform the required verification for
providers whose day care homes qualify as tier I homes on the basis of
household income, the Department issued verification guidance for day
care homes on May 14, 1997. This guidance was based on the verification
guidance issued for the School Nutrition Programs, which is also used
by CACFP day care centers.
Therefore, this final rule makes no changes to the requirements for
verification of the income information for providers qualifying as tier
I day care homes on the basis of their household income contained in
the definition of ``tier I day care home,'' and in Sec. 226.23(h)(6) as
added by the interim rule.
Misclassification of Tier I Day Care Homes
Based on the fact that there is a significant financial benefit
associated with the classification of a day care home as a tier I day
care home, Sec. 226.14(a) as amended by the interim rule requires State
agencies to assess overclaims against sponsoring organizations which
misclassify day care homes as tier I day care homes, unless the
misclassification is determined to be inadvertent under guidance issued
by FCS.
The Department received 66 comments on assessing overclaims for
misclassification of day care homes. Of these, 16 commenters requested
that the first six months or one year of implementation be considered a
``grace period'' during which overclaims for misclassification are not
assessed against sponsoring organizations except in cases of fraud.
Twenty-four commenters suggested that the amount under which an
overclaim can be ``disregarded'' in the CACFP, which is currently $100,
be increased. Several of these commenters recommended that the
disregard amount be based on a percentage of the sponsor's
administrative budget. In addition, 12 commenters requested
clarification or expressed concern that sponsoring organizations should
not be assessed overclaims for reclassifications made by the State
agency, in accordance with Sec. 226.6(f)(9) as amended by the interim
rule, based on information to which the sponsor could not reasonably
have had access prior to the reclassification by the State agency.
Finally, nine commenters requested guidance on how the Department will
define ``inadvertent'' errors.
In accordance with the preamble to the interim rule, the Department
issued guidance on assessing overclaims for improper tier I day care
home classifications on August 6, 1997.
With regard to commenters' concerns that overclaims not be assessed
for reclassifications made by the State agency based on information to
which the sponsor could not reasonably have had access prior to the
reclassification by the State agency, the Department wishes to stress
that assessing an overclaim in such a situation would not be in
accordance with the regulation or the August 6, 1997, guidance. In
these situations, the sponsoring organization would be directed by the
State agency to correct a home's determination, but an overclaim for
the previous classification would likely not be appropriate.
In addition, this rule does not authorize a ``grace period'' during
which State agencies would not have to assess overclaims against
sponsors except in cases of fraud. This regulation and the guidance
provided in support of this regulation do not require the establishment
of a claim when the misclassification is inadvertent. The Department
does not intend for State agencies to assess overclaims for every
tiering misclassification made by sponsors. As the guidance emphasizes,
State agencies need not assess overclaims for occasional or inadvertent
errors, but rather for widespread or recurring misclassifications, or a
systemic problem that may indicate improper management by the sponsor.
Finally, any change to the disregard amount must first be considered in
a proposed rule. Thus, the Department cannot implement commenters'
recommendations that the current disregard amount in the regulations at
Sec. 226.8(e) be changed in this final rule, but will monitor the
impact of the two-tiered reimbursement structure on administrative
payments and, if warranted, may include a change in a future proposed
rulemaking.
Therefore, this final rule makes no changes to the language in
Sec. 226.14(a) as amended by the interim rule.
Length of Determinations
Based on section 17(f)(3)(E)(iii) of the NSLA, as amended by
section 708(e)(3) of PRWORA, Sec. 226.6(f)(9) as amended by the interim
rule requires that determinations of a day care home's eligibility as a
tier I day care home be valid for three years if based on school data,
or until more recent data are available if based on census data. In
addition, Sec. 226.6(f)(9) indicates that a sponsoring organization,
the State agency, or FCS may change the determination if information
becomes available indicating that a home is no longer in a qualified
area.
The Department received 17 comments on the length of tier I
determinations. Of these, 12 commenters requested that the Department
clarify that State agencies should not routinely require annual
redeterminations of tiering status. In contrast, three commenters
supported annual redeterminations. Finally, several commenters
indicated that sponsors must have access to any information used by
State agencies to reclassify a home's status.
The Department agrees with commenters who indicated that
redeterminations of a day care home's eligibility as a tier I day care
home based on school area data should not routinely occur on an annual
basis. Guidance issued by the Department on March 12, 1997, clarified
that the State agency should not require that redeterminations be made
more frequently than the standards set forth in the law (i.e., three
years if based on school data, and until more recent data are available
if based on census data)
[[Page 9096]]
except in situations in which there is substantial, sustained
socioeconomic change, not minor fluctuations in school data.
Accordingly, in response to commenter concern, this final rule
amends Sec. 226.6(f)(9) and 226.15(f) to clarify that State agencies
should not routinely require annual redeterminations of the tiering
status of day care homes based on updated elementary school data.
Documentation Requirements
As discussed above, PRWORA and the interim rule clearly place the
responsibility for making tiering determinations on the sponsoring
organization. The interim rule amended Sec. 226.15(e)(3) to require
sponsoring organizations to collect and maintain documentation
sufficient to support their tier I determinations.
The Department received 15 comments on the documentation
requirements contained in the interim rule. Specifically, these
commenters supported permitting State agencies and/or sponsoring
organizations to accept a provider's self-declaration of the elementary
school serving the day care home as sufficient documentation of the
provider's residence in a particular elementary school attendance area.
In addition to the requirements discussed above, the interim rule
amended Sec. 226.6(f)(2) to require each sponsoring organization to
submit an amendment to its management plan by April 1, 1997, describing
its system for making tier I day care home classifications, subject to
review and approval by the State agency. Further, sponsoring
organizations are ultimately liable for classifications which are not
supported with proper documentation. State agencies must evaluate the
documentation used by sponsoring organizations to classify day care
homes as tier I homes as part of the review required by Sec. 226.6(l).
Finally, Sec. 226.14(a) requires State agencies to assess overclaims
against sponsoring organizations for improper classifications, unless
the misclassification is determined to be inadvertent under guidance
issued by the Department.
As stated in guidance issued by the Department on April 25, 1997, a
sponsoring organization's system of classifying a day care home as a
tier I home on the basis of elementary school data may involve a
sponsoring organization requesting that each provider identify the
elementary school serving the home. However, for the purpose of making
a tier I determination, a sponsoring organization may not rely on a
provider's self-declaration that it is located within a particular
elementary school's attendance area. To comply with PRWORA and the
regulations, a sponsor must independently substantiate and document
attendance area information obtained from its providers with official
source documentation. Most commonly, sponsors would obtain an official
school-boundary identifying map, match provider addresses to the map's
boundaries, and retain the map as documentation. If such maps were
unavailable, the sponsor might instead contact school officials to
verify the attendance area of the schools serving its providers and
document the results of this contact, either with a letter from school
officials to the sponsor, or with a memorandum to the files detailing
the information provided by school officials and the name of the
official(s) consulted.
These documentation requirements are necessary in order to ensure
that tier I classifications are being made in accordance with PRWORA,
and to ensure that sponsoring organizations, and not the individual
providers, are making tiering determinations, as required by PRWORA.
This is especially important given the significant financial benefit to
a provider associated with classifying a day care home as a tier I
home.
Accordingly, in order to further clarify the documentation
requirements for tier I day care home determinations, this final rule
amends Sec. 226.15(e)(3) to indicate that sponsoring organizations must
document tier I determinations based on school data with official
source documentation obtained from the school, as discussed above.
Tier II Day Care Homes
Definition
Section 226.2 as amended by the interim rule defines a ``tier II
day care home'' as a day care home that does not meet the criteria for
a tier I day care home. This definition is based on language contained
in section 17(f)(3)(A)(iii) of the NSLA, as amended by Sec. 708(e)(1)
of PRWORA.
No comments were received on the definition of ``tier II day care
home'' as added by Sec. 226.2 of the interim rule. Therefore, this
final rule retains the definition of ``tier II day care home'' as added
by the interim rule.
Election by Providers
In contrast to tier I day care homes, in which all meals served are
reimbursed at the same rates (tier I), meals served in tier II day care
homes may be eligible for two levels of reimbursement--the tier I rates
for meals served to identified income-eligible children, and tier II
rates, which are lower, for meals served to all other children.
Sections 17(f)(3)(A)(iii) (II) and (III) of the NSLA, as amended by
PRWORA, clearly give day care home providers, and not their sponsoring
organizations, the authority to elect whether income-eligible children
are identified by the sponsoring organization. The interim rule amended
sections 226.6(f)(2) and 226.18(b)(11) to require that sponsoring
organizations inform providers of day care homes classified as tier II
day care homes of the options available to them under PRWORA with
regard to whether income-eligible children are identified or not. The
approach that providers select determines if, and how, sponsors are to
establish the eligibility of children enrolled in tier II day care
homes.
After publication of the interim rule, the Department received
several questions concerning the reimbursement approaches available to
tier II day care homes. In response to these questions, the Department
issued a memorandum on June 2, 1997, to clarify these provisions and to
resolve any confusion on this issue created by the interim rule. The
following explanation restates the information contained in the June 2,
1997, memorandum.
Under the first approach set forth in PRWORA and discussed in the
interim rule, a day care home provider may elect to have its sponsoring
organization attempt to identify all income-eligible children enrolled
in the day care home. In that case, for all meals served to enrolled
children who are determined by the sponsoring organization to meet the
criteria for free or reduced price meals (i.e., they are from
households with incomes at or below 185 percent of the Federal income
poverty guidelines), the home receives the tier I rates of
reimbursement. Meals served to all other enrolled children are
reimbursed at the tier II rates of reimbursement, which are lower.
If a provider selects this first approach, the sponsoring
organization may establish the eligibility of enrolled children in
several ways. First, a child may be identified as income-eligible based
on the sponsoring organization's receipt of a completed free and
reduced price application which demonstrates that the household's
income is at or below 185 percent of the Federal income poverty
guidelines. (The Department acknowledges that the term
[[Page 9097]]
``income eligibility statement'' more accurately describes the purpose
of such a form in day care homes. However, this rule refers to ``free
and reduced price applications,'' instead of ``income eligibility
statements,'' in order to maintain consistency with the terminology
contained in Sec. 226.23.) In addition, PRWORA also expanded, for tier
II day care homes only, the categorical eligibility options found in
section 9(d)(2) of the NSLA to include other Federal or State supported
child care or other benefit programs with income eligibility limits at
or below 185 percent of poverty. Meals served to a child who is a
member of a household which participates in, or is subsidized under,
such a program would also be eligible for tier I rates of
reimbursement. The categorically eligible programs used to demonstrate
the eligibility of children enrolled in tier II homes include those
programs identified in section 9(d)(2) of the NSLA (i.e., food stamps,
certain state programs for Temporary Assistance for Needy Families, and
the Food Distribution Program on Indian Reservations), as well as any
qualifying Federal programs identified by the Department, or State
programs identified by the State agency. (Section 226.23(e) of the
regulations, which contains the categorically eligible programs
identified in section 9(d)(2) of the NSLA, still contains references to
Aid to Families with Dependent Children (AFDC), which was eliminated
pursuant to PRWORA and replaced by the program for Temporary Assistance
for Needy Families (TANF). The Department will issue a future
rulemaking to incorporate the provisions of PRWORA concerning TANF into
the CACFP regulations.)
To facilitate the use of expanded categorical eligibility in tier
II day care homes, Sec. 226.6(f)(10) as amended by the interim rule
requires that State agencies provide all sponsoring organizations, on
an annual basis, a list of State-funded programs which meet the
criteria for expanded categorical eligibility. In addition, on March
18, 1997, the Department provided to State agencies a list of Federal
programs that meet the criteria. As indicated in the preamble to the
interim rule, we expect that the process of identifying eligible
programs will be ongoing at both the Federal and State levels,
especially at first. This may necessitate that the list of eligible
programs be updated more frequently than annually, as qualifying
programs are identified.
Children from households participating in, or subsidized under, one
of these programs could be identified by the sponsor in two ways.
First, instead of providing income information on the free and reduced
price application furnished by the sponsoring organization, the
household could identify itself as participating in, or subsidized
under, one of the categorically eligible programs listed on the
application. Alternatively, a free and reduced price application would
not be necessary for those children for whom the sponsoring
organization or provider knows, on the basis of documented proof, to be
categorically eligible for tier I reimbursement. This could occur when
a provider receives payment for a child's care in the form of a
subsidized voucher (and the voucher program has been identified by the
Department or State agency as meeting the income criteria for
categorically eligible programs); when the household provides the
sponsor or provider with an official letter issued by the welfare or
other office documenting the household's participation in a qualifying
program, such as the National School Lunch Program; or when the
sponsoring organization has legitimate access, for reasons unrelated to
the CACFP, to eligibility information for another qualifying program.
In these cases, a copy of the child's voucher, or other documentation
by the sponsor of the child's participation in the other qualifying
program, would be an acceptable alternative to completion of the free
and reduced price application. Thus, when a provider elects the first
option, the eligibility of each enrolled child may be established by
submission of income information on a free and reduced price
application, categorical eligibility information on a free and reduced
price application, or with a copy of a voucher or other documentation
available to the provider or sponsor.
When a household completes a free and reduced price application
identifying itself as participating in, or subsidized under, one of the
categorically eligible programs, Sec. 226.23(e)(1)(iv) and the
definition of ``Documentation'' in Sec. 226.2 as amended by the interim
rule require that such households provide the name of the enrolled
child, the name of the qualifying program, and the household's case
number for the program, along with the signature of an adult member of
the household. Several commenters asked for clarification of the
documentation requirements when the categorically eligible program in
which the household participates does not issue case numbers to
participants. Since not all programs issue case numbers, sponsors may
accept a household's identification on the free and reduced price
application of its participation in an approved Federal or State
identified categorically eligible program as sufficient documentation
for categorically eligible programs that do not utilize case numbers.
Though they are not required to do so for free and reduced price
applications collected in tier II day care homes, sponsors may verify
households' participation in these programs through contact with
officials of the categorically eligible program.
The only partial exception to this rule involves the Head Start
Program. Because of the restrictions on Head Start categorical
eligibility contained in Sec. 9(b)(6)(A)(iii) of the NSLA, the
sponsoring organization may not simply accept the household's self-
identification of a child as a Head Start participant. Specifically,
the NSLA limits Head Start categorical eligibility to Federally funded,
income-eligible participants. Because parents of Head Start
participants likely will not know whether their children are in
Federally funded slots, the sponsoring organization must obtain
documentation from the Head Start grantee which certifies that the
child is: (1) Enrolled in a Federally funded Head Start slot; and (2)
is from a household which meets Head Start's low-income criteria. The
Department will issue a rulemaking in the near future to codify this
provision of the law. However, sponsoring organizations and State
agencies must comply with this provision in the meantime because it is
explicitly contained in the law.
The second approach set forth in PRWORA recognizes that some day
care providers may not want any of the households of the children in
their care to receive free and reduced price applications, a fact
pointed out by many commenters on the interim rule. Under this
approach, the provider may elect to have the sponsor identify only
categorically eligible children, under the expanded categorical
eligibility provision, and receive tier I rates of reimbursement for
the meals served to these children. In this case, as described above,
the sponsor would identify only those children whom the sponsoring
organization or provider knows, on the basis of documented proof, to be
categorically eligible for tier I benefits, and would have on file only
copies of vouchers or other proof of participation in an eligible
program rather than free and reduced price applications.
The Department would like to emphasize that the above two
approaches to identifying income-eligible children would not permit a
provider to selectively identify for its
[[Page 9098]]
sponsoring organization those children whom the provider suspects or
believes may be income-eligible, based on the provider's personal
estimate of a household's socioeconomic status, and have its sponsoring
organization send applications only to those households. The only time
that a ``selective identification'' approach may be used is when either
the sponsor or provider already possesses documented evidence of the
child's or household's participation in, or subsidy under, a
categorically eligible program. In these cases, the documentary
evidence may be used to establish eligibility in lieu of an
application. If a provider selects the first approach discussed above,
then all enrolled children for whom the sponsor or provider does not
already possess documentation of categorical eligibility would receive
applications. Under the second approach above, no applications would be
distributed.
In addition, the Department would like to point out that the
interim rule required free and reduced price applications to be
distributed even when a voucher, or other documented evidence was being
used to establish a child's categorical eligibility. Subsequent to the
publication of the interim rule, the Department reconsidered its
position and concluded that the clear intent of PRWORA is to facilitate
identification of income-eligible children in tier II homes by
providing an approach under which a tier II day care home may receive
tier I rates of reimbursement for eligible children without the
distribution of applications to households. The Department's June 2,
1997, memorandum clarified this method, and this final rule removes
references in Sec. 226.23(e)(1)(i) to this requirement.
The preamble to the interim rule specifically requested comments on
the appropriateness of the use of direct certification to establish an
enrolled child's eligibility for tier I rates of reimbursement in a
tier II day care home, and indicated that the use of direct
certification in day care homes may be addressed in a future proposed
rulemaking based on the nature of these comments. Direct certification,
which is not permitted under the interim rule, is another method of
establishing eligibility without the use of free and reduced price
applications. The Department received 15 comments on the use of direct
certification in tier II day care homes. Of these, 14 commenters
supported direct certification, and one opposed it. Many of these
commenters noted that direct certification reduces the paperwork
associated with eligibility determinations, and several commenters also
recommended that direct certification be included in this final rule,
instead of in a future proposed rulemaking.
Under a system of direct certification, sponsoring organizations
would contact the welfare (or other qualifying program) office directly
and submit a list of children enrolled in their day care homes. From
that list, the welfare office would identify children whose households
are participating in the welfare program. It has been the Department's
experience in the School Nutrition Programs, because of time and
staffing constraints, that social service agencies may be reluctant to
respond to these types of requests even from public entities such as
school food authorities. Given that many areas are served by several
sponsoring organizations that would want eligibility information for
direct certification from the same local social service agency, it is
possible that social service agencies would not be willing, or able, to
handle all of these requests.
The key issue surrounding direct certification, however, involves
access to information and household confidentiality. Eligibility
information could only be released for programs which permit sharing of
confidential information for purposes of determining eligibility in
CACFP. A social service agency (or other government entity) may have
significant concerns about sharing confidential information on
households' eligibility. Therefore, the Department remains convinced
that, if necessary, the appropriate place to address direct
certification is in a proposed rulemaking, and not in this final rule.
Finally, under the third approach for tier II day care homes set
forth in PRWORA, providers may choose to receive tier II reimbursements
for all meals served to enrolled children. This approach recognizes
those situations in which the provider believes it to be unlikely that
any households of children in care will be income eligible for tier I
reimbursements. In this case, the sponsoring organization will not
collect any free and reduced price applications from the households of
enrolled children, nor will it identify categorically eligible children
based on provider or sponsor knowledge. Essentially, tier II homes
whose providers elect this approach will operate exactly as they did
before implementation of the two-tiered reimbursement structure, except
that they will receive lower rates of reimbursement.
Accordingly, this final rule amends Sec. 226.23(e)(1) to clarify
the procedures for determining the income eligibility of children
enrolled in tier II day care homes, particularly with respect to the
use of vouchers or other documents in lieu of free and reduced price
applications, as discussed above. In addition, Sec. 226.18(b)(11) is
amended to specify the three options for reimbursement available to
providers of tier II day care homes. Finally, Sec. 226.23(e)(1)(iv) and
the definition of ``Documentation'' contained in Sec. 226.2 are amended
to indicate that households identifying themselves as participating in,
or subsidized under, a categorically eligible program need only provide
the program's case number if applicable.
Confidentiality of Household Income Information
The interim rule amended Sec. 226.23(e)(1)(i) to require that
sponsoring organizations keep eligibility information concerning
individual households confidential. Specifically, sponsoring
organizations are prohibited from making this information available to
day care home providers. The interim rule does, however, permit
sponsoring organizations to inform tier II day care homes of the number
of identified income-eligible children, but not the names of these
children. As discussed in the preamble to the interim rule, these
requirements were promulgated to carry out the clear intent of PRWORA
to protect the confidentiality of the households of children enrolled
in day care homes.
The preamble to the interim rule specifically requested comments on
how best to balance the confidentiality of the households of enrolled
children with the needs of tier II day care home providers. The
Department received 230 comments on this provision. Of these, 175
commenters expressed their belief that day care providers need to know
the eligibility status of each child in their care, so that they can
know the exact amount that should be in their reimbursement check each
month. Many of these commenters also indicated their belief that the
confidentiality of households can be protected as long as the
sponsoring organization does not release specific income information
from individual households, but only whether or not children in those
households have been determined eligible. Others expressed concern that
a check on fiscal accountability will be lost if providers do not know
how much their sponsors should pay them. Three commenters indicated
that providers will leave the program if they cannot know the exact
amount to expect in their reimbursement payment. In addition,
[[Page 9099]]
seven commenters recommended that sponsors be permitted to include a
parent waiver of confidentiality on the free and reduced price
application distributed to households. Finally, 31 commenters expressed
their support for the interim rule, under which providers are not
permitted to know the eligibility status of enrolled children.
Unlike the households of children participating in other Child
Nutrition Programs, households whose children are in care in CACFP day
care homes do not apply to the home in order to obtain food benefits.
Rather, the primary purpose of applying to the day care home is to
secure care for their children. Although the children receive the
nutritional benefits of the meals provided through the CACFP, the
direct financial benefits associated with applying for meals go to
participating providers and sponsoring organizations. The household
receives only an indirect financial benefit in that the provider's
receipt of higher meal reimbursements helps to keep overall day care
fees lower. Thus, the Department strongly believes that it would be
irresponsible to compromise the confidentiality of these households
solely for the administrative convenience of providers or sponsoring
organizations.
Further, while it might be convenient for providers to have
information on the income status of the households of children in care,
it is not necessary for the purposes of administering the Program. In
accordance with PRWORA, the sponsoring organization has the
responsibility for using the eligibility information to file
reimbursement claims with the State agency, and for subsequently paying
each provider based on the number of meals served in the home.
Many commenters expressed concern that under the interim rule
providers will have no way of ensuring that their reimbursement
payments are correct, as mentioned above. The Department recognizes
that provider payments must be reliable and accurate. The Department
fully expects that State agencies are already examining sponsor payment
procedures during administrative reviews to ensure proper payments. In
addition, providers who believe that their payments are incorrect may
also bring the matter to the attention of the State agency. If a State
agency receives repeated complaints from a particular sponsor's
providers, it would be appropriate to conduct a special review of that
sponsor.
With regard to whether free and reduced price applications may
contain a household waiver of confidentiality which would permit
sponsoring organizations to divulge the eligibility status of enrolled
children, the Department strongly discourages such a practice due to
PRWORA's emphasis on household confidentiality. However, if a State
agency chooses to distribute an application which includes a household
confidentiality waiver statement, or allows its sponsoring
organizations to do so, this final rule requires that the form also
include a statement informing the household that its participation in
the program is not in any way dependent upon signing the waiver. Thus,
a household may complete the application and choose not to have the
information released to the day care home provider.
Accordingly, this final rule amends Sec. 226.23(e)(1)(i) to require
that applications that include a household confidentiality waiver
statement must also include a statement informing the household that
its participation in the program is not dependent upon signing such a
waiver.
Finally, the Department would like to point out, as several
commenters did, that this provision will not affect the ability of all
tier II day care homes with identified income-eligible children to
calculate their reimbursement payments, but rather only those tier II
day care homes with identified income-eligible children whose
sponsoring organizations select the actual count method for reimbursing
their homes. For those tier II day care homes whose sponsors select
either claiming percentages or blended rates, knowing the claiming
percentage or blended rate will enable providers to calculate the
precise amount of the reimbursement they will receive each month.
(Additional discussion of the reimbursement methods available to
sponsoring organizations is contained in the ``Meal Counting and
Claiming Procedures'' section of the preamble below.)
At this time, the Department is not aware of any alternative to the
system set forth in the interim rule that would protect the
confidentiality of households. Therefore, this final rule retains the
provision in the interim rule that prohibits sponsoring organizations
from making free and reduced price eligibility information concerning
individual households available to day care home providers.
With regard to the process of distributing and collecting free and
reduced price applications from the households of children enrolled in
tier II day care homes, the Department received 90 comments. Of these,
25 commenters indicated that this activity was burdensome for
sponsoring organizations. Nineteen commenters expressed their concern
that the households will not return completed applications because they
have no financial incentive to do so. In addition, 35 commenters wanted
providers to be involved in the process of distributing and/or
collecting free and reduced price applications from the households of
enrolled children, indicating their belief that provider involvement
will facilitate return of the statements. Four commenters requested
that the applications collected for the first year be valid through
September 30, 1998, in order to coincide with the fiscal year.
The Department would like to point out that PRWORA's inclusion of
``expanded categorical eligibility'' for use in tier II day care homes,
as previously discussed in this preamble, is one method which is
intended to simplify the income eligibility determination process, and
thus, encourage the return of completed applications by households. In
addition, under the interim rule, as well as guidance issued by the
Department on January 24, 1997, it is permissible for sponsors to have
their day care home providers distribute free and reduced price
applications to individual households of enrolled children, as long as
the completed forms are returned by the households directly to the
sponsor. If sponsoring organizations choose to have their providers
distribute applications to the households of enrolled children, the
Department recommends and would anticipate that providers will take the
opportunity to explain the purpose of the form and to stress the
importance of the household completing the form and returning it to the
sponsor. This type of procedure could facilitate the household's return
of eligibility information to the sponsoring organization, while at the
same time maintaining the confidentiality of the income information
provided by the households. However, the Department would also like to
point out that either State agencies or sponsors which believe that
providers should not have any role in the process of distributing
applications to households may prohibit such activity.
Several of the commenters who indicated that providers should be
involved in the process of distributing and/or collecting free and
reduced price applications recommended that sponsors be allowed to
inform providers which of the households of enrolled children have
returned applications. Providers, in turn, could periodically urge
those households that had not returned the forms to do so. Although
[[Page 9100]]
actual income information on individual households would not be
released under such a scenario, the Department has serious concerns
about this procedure and believes that simply knowing a household has
returned a free and reduced price application may lead to assumptions
about a family's income status. Therefore, the Department issued
guidance on March 12, 1997, informing State agencies and sponsors that
sponsors may not be permitted to inform their providers about which of
the households of enrolled children have returned applications, as it
would be inconsistent with the confidentiality provision of
Sec. 226.23(e)(1)(i).
Finally, as indicated above, four commenters recommended that free
and reduced price applications collected during implementation be valid
through September 30, 1998, to coincide with the fiscal year. In order
to facilitate sponsors' implementation of the two-tiered reimbursement
system, the Department already has permitted free and reduced price
applications which were collected from households between March 1,
1997, and June 30, 1997, to be effective for a one-year period
beginning July 1, 1997. Depending on when the applications were
actually collected by sponsoring organizations, the information on the
applications could be as much as 16 months old when they expire on July
1, 1998. Therefore, although sponsors may collect applications before
the end of the one-year period that begins July 1, 1997, in order to
have redeterminations coincide with the fiscal year cycle, free and
reduced price applications which become effective upon implementation
of the two-tiered system on July 1, 1997, may not be valid for more
than a one-year period. This requirement helps ensure that individual
eligibility determinations are based on up-to-date information, and is
also consistent with policy in the other Child Nutrition Programs.
Meal Counting and Claiming Procedures
The two-tiered structure of reimbursement set forth under PRWORA
necessitates new meal counting and claiming procedures for use by
sponsoring organizations and those tier II day care homes in which
there are a mix of income-eligible and non-income-eligible children.
The interim rule amended Sec. 226.13(d) to set forth three methods
by which sponsoring organizations may reimburse their tier II day care
homes with a mix of income-eligible and non-income-eligible children--
actual meal counts, claiming percentages, and blended rates. The
interim rule permits sponsoring organizations to select which of the
three methods they will use, though each sponsor must use only one
method for all of its homes, and may change this method no more
frequently than annually. In addition, if a sponsoring organization
selects claiming percentages or blended rates, the interim rule
requires that they be recalculated for each home at least every six
months, unless the State agency requires the sponsor to recalculate a
home's claiming percentage or blended rate before the required
semiannual recalculation because it has reason to believe that a home's
percentage of income-eligible children has changed significantly or was
incorrectly established in the previous calculation.
The preamble to the interim rule requested comments on the
``reimbursement categories'' method set forth in the law and discussed
in the preamble, but not included as an option in the interim rule due
to the Department's opinion that it does not offer any distinct
advantages over claiming percentages and blended rates. Under the
``reimbursement categories'' method, sponsoring organizations would
either: (1) Establish multiple reimbursement rates within the range
defined by the tier I and tier II rates, and then assign a home one of
these rates based on the percentage of income-eligible children in the
home; or (2) using only the tier I and tier II rates, reimburse all
meals served in homes with 50 percent or more income-eligible children
at the tier I rates, and all homes with less than 50 percent income-
eligible children at the tier II rates. (The preamble to the interim
rule describes the ``reimbursement categories'' method in more detail.)
In addition, the interim rule also requested suggestions on other
systems of meal counting and claiming that would not place an undue
burden on day care home providers or sponsors, but would provide for
reimbursement payments that accurately reflect the income level of the
households of enrolled children.
The interim rule also amended Sec. 226.13(d) to set forth the meal
counting requirements for day care homes. Under these regulations,
providers of tier II day care homes whose sponsoring organization uses
the actual count method of reimbursement are required to record and
submit to the sponsoring organization the number and types of meals
served each day to each enrolled child by name. Providers whose
sponsoring organization uses either claiming percentages or blended
rates must submit the total number of meals served, by type, to
enrolled children.
The Department received 62 comments on the meal counting and
claiming provisions. Of these, 25 commenters commented on whether a
State agency could require all sponsoring organizations in the State to
use the same method for reimbursing tier II day care homes with a mix
of income-eligible and non-income-eligible children: 19 commenters
opposed the State selecting one method for all sponsors; six commenters
supported it. Several commenters who supported State agency selection
of the reimbursement method indicated that allowing sponsoring
organizations to select the method would promote unhealthy competition
among sponsoring organizations. Many commenters also indicated that
State agencies already require providers to keep actual daily meal
counts. These commenters believed that such requirements would
necessarily force sponsoring organizations to utilize actual counts,
thus depriving them of a meaningful choice of reimbursement method.
In response to commenter concern on this issue, the Department
would like to reiterate that the choice of reimbursement method is the
sponsoring organization's, and not the State agency's. In accordance
with Sec. 226.13(d)(3) as added by the interim rule, each sponsoring
organization selects the method--either actual counts, claiming
percentages, or blended rates--for reimbursing its tier II day care
homes with a mix of income-eligible and non-income-eligible children.
As discussed in the preamble to the interim rule, the Department
decided to allow sponsoring organizations maximum flexibility by
permitting them to select the reimbursement method in order to
accommodate the varying levels of management sophistication among
sponsors. State agencies may not require all sponsors in the State to
use the same method.
With regard to commenters' concern that permitting sponsoring
organizations to select the method of reimbursement would promote
unhealthy competition among sponsoring organizations, none of the
methods offers a financial advantage over the other to providers.
Providers will choose, as they do now, the sponsoring organization
whose services best meet their needs. The Department expects that this
decision will be based on a variety of factors, and not exclusively the
reimbursement method used by the sponsor.
[[Page 9101]]
However, State agencies may require--and many already do, for the
purpose of monitoring compliance with licensing requirements concerning
the number and ages of children in care, or for integrity or other
purposes--that day care home providers maintain actual daily meal
counts by child. When a State agency institutes such a requirement,
sponsoring organizations still may select either actual counts,
claiming percentages, or blended rates as the method they use to
reimburse their tier II day care homes with a mix of income-eligible
and non-income-eligible children. Sponsors selecting claiming
percentages or blended rates will only use total meal counts by type of
meal (i.e., breakfast, lunch/supper, supplement), rather than the daily
meal counts by child, to calculate a home's reimbursement. Perhaps most
significantly, use of claiming percentages or blended rates offers the
additional advantage that sponsoring organizations do not have to
immediately assess the eligibility status of each newly enrolled child
in a day care home. Eligibility determinations for children new to a
home need only be done by the time the recalculation of the claiming
percentage or blended rate is necessary, which is at least every six
months.
In addition, 14 commenters on the meal counting and claiming
provisions indicated their belief that sponsoring organizations should
only be required to recalculate each home's claiming percentage or
blended rate on an annual basis, rather than semiannually as required
in the interim rule. Most of these commenters pointed out that PRWORA
required only annual recalculation. Four commenters indicated that
requiring recalculation on a semiannual basis would add unnecessary
paperwork for sponsoring organizations. Finally, two commenters
indicated that any integrity concerns surrounding annual
redeterminations of claiming percentages or blended rates were already
adequately addressed in Sec. 226.13(d)(3) as added by the interim rule,
which permits State agencies to require sponsoring organizations to
recalculate the claiming percentage or blended rate at any time, as
discussed above.
Several commenters were concerned, as mentioned above, that PRWORA
and the interim rule were in conflict because PRWORA requires annual
redeterminations of claiming percentages or blended rates, while the
interim rule requires semiannual redeterminations. The Department would
like to point out that section 17(f)(3)(A)(iii)(IV) of the NSLA, as
amended by section 708(e)(1) of PRWORA, sets forth two possible
alternatives that may be used by the Secretary for simplified meal
counting and claiming, and also gives the Secretary the authority to
develop his own simplified procedures. While the alternative of
claiming percentages/blended rates as set forth in PRWORA does indicate
that the claiming percentage or blended rate be set on an annual basis,
PRWORA does not require the Secretary to use either of these specific
alternatives. In selecting claiming percentages and blended rates, and
by requiring that recalculations be made on a semiannual basis, the
discretion provided to the Secretary in PRWORA was being exercised.
Among the reasons for requiring semiannual recalculations was the
Department's concern, as discussed in the preamble to the interim rule,
that the simplified methods set forth in PRWORA, including claiming
percentages and blended rates, do not adequately capture the frequent
enrollment changes that are common in many day care homes. Despite one
commenter's belief that the policy for recalculations in day care homes
should be consistent with that for CACFP centers, the enrollment
changes in day care homes affect the claiming percentage or blended
rate much more dramatically than enrollment changes in centers do,
simply because of the smaller number of children enrolled in a family
day care home. Requiring that the claiming percentages and blended
rates be recalculated on a semiannual, rather than annual, basis helps
balance the need to account for the effects of these enrollment changes
by ensuring more current numbers with the Department's desire to
minimize administrative burden on sponsors. In addition, the Department
is also concerned about the potential for abuse with claiming
percentages and blended rates. Again, requiring semiannual instead of
annual recalculations, as well as providing the State agency the
authority to require a sponsoring organization to perform
recalculations any time it has reason to believe that a home's
percentage of income-eligible children has changed significantly or was
incorrectly established in the previous calculation, will help minimize
the potential for abuse associated with this method. Finally, despite
commenters who indicated their belief that providing State agencies the
authority to require recalculations would adequately address integrity
concerns, the Department believes that requiring semiannual
recalculations, in conjunction with providing State agencies this
authority, is much more effective in promoting program integrity and
maximizing the accuracy of the claiming process.
In response to the request in the interim rule for comments on the
``reimbursement categories'' method, as well as any alternative methods
of reimbursement, the Department received five comments. Two commenters
supported the reimbursement categories method. In addition, two
commenters recommended the reimbursement categories method discussed in
the preamble to the interim rule under which a tier II day care home
would receive tier I rates of reimbursement for all meals served as
long as at least 50 percent of enrolled children were determined
eligible for free or reduced price meals. Finally, one commenter
recommended that three tiers of reimbursement be instituted, with the
middle tier applicable for all tier II homes with a mix of income-
eligible and non-income-eligible children.
These comments did not persuade the Department to relinquish its
concerns about the accuracy, complexity, and integrity of the
alternative methods of reimbursement. The Department continues to hold
the position that neither of the reimbursement categories methods
described in PRWORA is acceptable as a means of reimbursing tier II day
care homes with a mix of income-eligible and non-income-eligible
children, since they are much less accurate in accomplishing the law's
goal of targeting reimbursements to low-income children than either
claiming percentages or blended rates.
Accordingly, this final rule makes no change in the requirement set
forth in the interim rule that sponsoring organizations that select
claiming percentages or blended rates as the method for reimbursing
their tier II day care homes perform recalculations of the percentages
or rates on at least a semiannual basis.
When a sponsoring organization chooses claiming percentages or
blended rates for reimbursing its tier II day care homes with a mix of
income-eligible and non-income-eligible children, Sec. 226.13(d)(3)(ii)
as added by the interim rule requires that the claiming percentage or
blended rate be based on ``one month's data concerning the number of
enrolled children determined eligible for free or reduced price
meals.'' (This provision of the regulations was corrected in a docket
published in the Federal Register on February 6, 1997 (62 FR 5519)).
The preamble to the corrected interim rule
[[Page 9102]]
discussed two methods available to sponsoring organizations for making
these calculations--attendance lists and enrollment lists--and
requested comments on whether both of these alternative methods should
continue to be permitted in the final rule.
The sponsoring organization, after having determined the income
eligibility of enrolled children, uses the information on the
attendance or enrollment list to calculate the home's claiming
percentage or blended rate. As discussed in the preamble to the interim
rule, the primary difference between attendance and enrollment lists is
that attendance lists produce weighted results of participation. That
is, an attendance list shows, whether based on days or meals, the rate
of participation of each child, by name, in the home in the month. In
contrast, an enrollment list provides no measure of the rate of
participation: a child who participates only one day during the month
is counted the same for purposes of the calculation as a child who
participates every day during the month. As indicated in the preamble
to the interim rule, though the attendance list may impose an
additional burden on the sponsor and its day care homes, it provides a
higher level of accuracy than an enrollment list. Furthermore, an
attendance list based on meals, rather than days, is an actual count of
meals provided, by child, for one month, therefore providing the most
accurate results on which to base the home's claiming percentage or
blended rate.
The Department received three comments on the use of attendance and
enrollment lists. Two commenters indicated a preference for attendance
lists over enrollment lists. One commenter suggested that each State
agency be permitted to decide which method all sponsors in the State
will use, instead of sponsors. Since sponsoring organizations have the
choice of which method to use for reimbursing their tier II day care
homes with a mix of income-eligible and non-income-eligible children,
sponsors choosing claiming percentages or blended rates also may select
which method--either attendance list or enrollment list--to use in
calculating claiming percentages or blended rates for their homes. The
Department believes that permitting sponsoring organizations to select
the method, instead of the State agency, will provide flexibility to
sponsoring organizations, in recognition of their varying sizes and
levels of management sophistication. Therefore, this final rule retains
both attendance lists and enrollments lists as the methods for
sponsoring organizations to use in calculating claiming percentages or
blended rates for their homes. In light of the limited commenter input,
the Department will attempt to gather information based on operating
experience from State and local program administrators concerning the
ramifications of allowing sponsors to choose either method, and may
consider proposing changes in this area in a future rulemaking.
In addition, questions were raised subsequent to the publication of
the interim rule regarding how to define ``attendance'' and
``enrollment'' for the purposes of making these calculations. The
Department would like to clarify that, for the purposes of calculations
made using either an attendance list or an enrollment list, sponsoring
organizations and providers may consider a child ``in attendance'' or
``enrolled'' only when the child: (1) Is officially enrolled for care
(i.e., the provider has the requisite enrollment paperwork for the
child); (2) is present in the home for the purpose of child care; and
(3) has eaten at least one meal with the other children in care during
the claiming period. Thus, the difference between the two methods is
not a function of a difference in definitions; rather, it is that an
attendance list reflects weighted participation (i.e., the frequency of
either the child's attendance or the number of meals eaten by the
child) and is, therefore, a more mathematically accurate portrayal of
the home's meal service during the month.
Accordingly, Secs. 226.13(d)(3)(ii) and (iii) are amended by adding
specific reference to attendance lists and enrollment lists as the
methods available to sponsoring organizations for calculating each
home's claiming percentage or blended rate. In addition, in order to
ensure consistency of application among all sponsoring organizations,
this final rule amends Sec. 226.2 to include the above-discussed
definition of enrollment/attendance under the current definition of
``enrolled child.''
Administrative Funds for Sponsoring Organizations
In accordance with Sec. 226.12(a), during any fiscal year,
administrative payments for sponsoring organizations may not exceed the
lesser of: (1) Actual expenditures for the costs of administering the
Program less income to the Program; or (2) the amount of administrative
costs approved by the State agency in the sponsoring organization's
budget; or (3) the sum of the products obtained by multiplying each
month the number of homes administered by the sponsoring organization
by a set of fixed reimbursement rates. In addition, Sec. 226.12(a) of
the regulations indicates that ``during any fiscal year, administrative
payments to a sponsoring organization may not exceed 30 percent of the
total amount of administrative payments and food service payments for
day care home operations.'' The interim rule did not make any changes
to the regulations concerning administrative payments, including the
requirement limiting a sponsor's administrative funds.
Nevertheless, the Department received 14 comments on this provision
of the regulations, all of which expressed concern that lower food
service payments resulting from the two-tiered reimbursement system
will result in some sponsoring organizations being reimbursed for less
than their full cost of administering the Program because of the 30
percent cap. Most commenters suggested changing the maximum limit on
administrative payments to a figure higher than 30 percent. Some
recommended that this regulatory provision be ``suspended'' until such
time as its impact on sponsoring organization operations can be
determined. In addition, 28 commenters indicated that sponsoring
organizations need additional administrative funds to effectively
administer the two-tiered reimbursement system. Finally, six commenters
requested that State agencies continue to be required to make
administrative fund advances available to sponsoring organizations, a
former requirement of State agencies which was made optional under
section 708(f) of Pub. L. 104-193.
No changes were made by the interim rule to the provision limiting
administrative payments to 30 percent of administrative and food
service payments because it is the Department's position that the
current limitation on administrative payments is reasonable. Further,
the current limitation on administrative payments, by maintaining an
appropriate balance between the amount spent by sponsoring
organizations on administrative and program meal expenses, helps
achieve the Program goal of serving meals to enrolled children within
reasonable fiscal limits. The Department recognizes that a limited
number of sponsoring organizations, such as those with few homes, a
high percentage of tier II day care homes, and a high percentage of
non-income-eligible children in these homes, may be affected by this
limitation under the two-tiered
[[Page 9103]]
reimbursement system. However, at this time the Department does not
foresee that this possible consequence of the law will be widespread
enough to warrant changing or suspending the current limitation. The
study mandated by section 708(l) of PRWORA requires the Department to
monitor the number of sponsoring organizations in the CACFP and
consider whether changes need to be proposed in a future rulemaking.
Absent such evidence, the Department is unwilling to make a change to
the administrative reimbursement limit. For similar reasons, it is
premature for the Department to propose any change to the current
administrative rates paid to sponsors.
As indicated above, section 708(f) of Pub. L. 104-193 amended
section 17(f) of the NSLA to make payment of advances to CACFP
institutions, including administrative advances to sponsoring
organizations of day care homes, optional. Although this provision of
PRWORA is already in effect due to its nondiscretionary nature, the
Department will make a conforming change to include this provision in
the regulations in a future rulemaking. Due to this legislative
provision, it is beyond the authority of the Department to require that
State agencies continue to make advances available to sponsors.
Therefore, sponsoring organizations should address concerns regarding
advances to their State agencies.
Accordingly, this final rule makes no changes to the regulations
governing administrative payments, including the requirement in
Sec. 226.12(a) regarding the limitation on administrative payments to
sponsoring organizations.
Verification Requirements for Tier II Homes
As discussed in the preamble to the interim rule, no changes were
made to the verification requirements for State agencies. Because day
care homes are considered ``nonpricing programs'' (i.e., there is no
separate identifiable charge made for meals served to participants),
State agencies must follow the provisions of Sec. 226.23(h)(1), for
``nonpricing programs,'' to verify the applications of day care home
providers'' own children, as well as the applications of households of
children enrolled in tier II day care homes. This section requires that
State agencies review all free and reduced price applications on file
to ensure that: (1) The application has been correctly and completely
executed by the household; (2) the sponsoring organization has
correctly determined and classified the eligibility of enrolled
children; and (3) the sponsoring organization has accurately reported
to the State agency the number of enrolled children who meet the
criteria for free or reduced price eligibility and the number who do
not. This section also permits State agencies to conduct additional
verification to determine the validity of information supplied by
households on the application, in accordance with Sec. 226.23(h)(2),
the verification procedures for ``pricing programs.'' In addition,
State agencies may conduct the required verification in conjunction
with the reviews required by Sec. 226.6(l).
The Department received two comments on the verification
requirements for applications collected from the households of children
enrolled in tier II day care homes. Commenters expressed concern
regarding the burden associated with a State agency review of all
applications on file, and suggested that State agencies instead be
required to review a sample of the applications.
The Department recognizes that the requirement at Sec. 226.23(h)(1)
that a State agency review all of the applications maintained by a
sponsoring organization could place a significant burden on a State
agency, especially when the State agency is conducting a review of a
large sponsoring organization with a large number of tier II day care
homes for which applications have been collected. Since the
verification required for applications collected from the households of
children enrolled in tier II day care homes does not include
verification of the income information provided by the households (or,
for categorically eligible children, confirmation of participation in
the categorically eligible programs) as discussed above, it is the
Department's position that conducting the required verification on less
than 100 percent of the applications strikes a balance between the need
for detecting widespread or significant problems and the burden of
reviewing all applications on file. Unlike most child care centers or
sponsoring organizations of centers, the total number of applications
for a sponsoring organization of day care homes may be quite large.
Therefore, this final rule requires State agencies to conduct
verification, in accordance with Sec. 226.23(h)(1), only of the
applications for enrolled children in those tier II day care homes that
are selected for inclusion in the required review of the sponsoring
organization, in accordance with Secs. 226.6(l) (1) and (2), instead of
for all of the sponsor's tier II day care homes. However, to help
ensure that widespread or significant problems are identified, this
final rule requires State agencies to ensure that the homes selected
for review are representative of the sponsor's proportion of tier I,
tier II, and tier II day care homes with a mix of income-eligible and
non-income-eligible children, and that at least 10 percent of all
applications on file in the sponsorship are reviewed as part of the
State agency's review. The review requirements for sponsoring
organizations and their day care homes are set forth in Sec. 226.6(l).
This rule also adds language to clarify that these verification
requirements also apply to situations in which vouchers or other
documentation are used in lieu of applications, in which case the State
agency would review the voucher or other documentation on file.
Finally, the interim rule does not require sponsoring organizations
to perform pricing program verification of income eligibility
information for children enrolled in day care homes. However, the
Department has been asked whether sponsoring organizations have the
authority to verify the income information provided by the households
of children enrolled in day care homes if they have reason to question
the validity of the information. In order to help ensure Program
integrity and appropriately targeted reimbursement rates, it is the
Department's opinion that sponsoring organizations should have this
authority.
Accordingly, this final rule amends Sec. 226.23(h)(6) to explicitly
provide sponsoring organizations the authority to conduct pricing
verification of the income information provided by the households of
children enrolled in day care homes. In addition, this final rule
amends Sec. 226.23(h)(1) to require State agencies to conduct
nonpricing verification only for the applications of enrolled children
in day care homes that are included in the required review of the
sponsoring organization.
Other Amendments
This rule also makes technical changes to the definition of
``Documentation'' in Sec. 226.2, and to Secs. 226.23(e)(1) (i) and
(iv), to include amendments which were made to these sections in an
interim rule published on May 1, 1997 (62 FR 23613), but inadvertently
eliminated from the Code of Federal Regulations when the January 7,
1997, interim rule (62 FR 889) on the two-tiered reimbursement system
went into effect on July 1, 1997.
List of Subjects
7 CFR Part 210
Breakfast, Children, Food assistance programs, Grant program--
Social
[[Page 9104]]
programs, Lunch, Meal Supplements, Nutrition, Reporting and
recordkeeping requirements, School Nutrition Program, Surplus
agricultural commodities.
7 CFR Part 226
Day care, Food assistance programs, Grant programs--health,
infants, and children, Records, Reporting and recordkeeping
requirements, Surplus agricultural commodities.
Accordingly, the interim rule amending 7 CFR parts 210 and 226
which was published at 62 FR 889 on January 7, 1997, is adopted as a
final rule with the following changes:
PART 210--NATIONAL SCHOOL LUNCH PROGRAM
1. The authority citation for part 210 continues to read as
follows:
Authority: 42 U.S.C. 1751-1760, 1779.
2. In Section 210.9, paragraph (b)(20) is revised to read as
follows:
Sec. 210.9 Agreement with State agency.
* * * * *
(b) Annual agreement. * * *
(20) No later than March 1, 1997, and no later than December 31 of
each year thereafter, provide the State agency with a list of all
elementary schools under its jurisdiction in which 50 percent or more
of enrolled children have been determined eligible for free or reduced
price meals as of the last operating day the preceding October. The
State agency may designate a month other than October for the
collection of this information, in which case the list must be provided
to the State agency within 60 calendar days following the end of the
month designated by the State agency. In addition, each school food
authority shall provide, when available for the schools under its
jurisdiction, and upon the request of a sponsoring organization of day
care homes of the Child and Adult Care Food Program, information on the
boundaries of the attendance areas for the elementary schools
identified as having 50 percent or more of enrolled children certified
eligible for free or reduced price meals.
* * * * *
3. In Sec. 210.19, paragraph (f) is revised to read as follows:
Sec. 210.19 Additional responsibilities.
* * * * *
(f) Cooperation with the Child and Adult Care Food Program. On an
annual basis, the State agency shall provide the State agency which
administers the Child and Adult Care Food Program with a list of all
elementary schools in the State participating in the National School
Lunch Program in which 50 percent or more of enrolled children have
been determined eligible for free or reduced price meals as of the last
operating day of the previous October, or other month specified by the
State agency. The first list shall be provided by March 15, 1997;
subsequent lists shall be provided by February 1 of each year or, if
data is based on a month other than October, within 90 calendar days
following the end of the month designated by the State agency. The
State agency may provide updated free and reduced price enrollment data
on individual schools to the State agency which administers the Child
and Adult Care Food Program only when unusual circumstances render the
initial data obsolete. In addition, the State agency shall provide the
current list, upon request, to sponsoring organizations of day care
homes participating in the Child and Adult Care Food Program.
PART 226--CHILD AND ADULT CARE FOOD PROGRAM
1. The authority citation for part 226 continues to read as
follows:
Authority: Secs. 9, 11, 14, 16, and 17, National School Lunch
Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 1765, and 1766).
2. In Sec. 226.2:
a. Paragraphs (b), (c), and (d) of the definition of
``Documentation'' are revised; and
b. The definition of ``Enrolled child'' is amended by adding a
sentence at the end.
The revisions and addition read as follows:
Sec. 226.2 Definitions
* * * * *
Documentation means: * * *
(b) For a child who is a member of a food stamp or FDPIR household
or an AFDC assistance unit, ``documentation'' means the completion of
only the following information on a free and reduced price application:
(1) The name(s) and appropriate food stamp, FDPIR or AFDC case
number(s) for the child(ren); and
(2) The signature of an adult member of the household; or
(c) For a child in a tier II day care home who is a member of a
household participating in a Federally or State supported child care or
other benefit program with an income eligibility limit that does not
exceed the eligibility standard for free or reduced price meals:
(1) The name(s), appropriate case number(s) (if the program
utilizes case numbers), and name(s) of the qualifying program(s) for
the child(ren), and the signature of an adult member of the household;
or
(2) If the sponsoring organization or day care home possesses it,
official evidence of the household's participation in a qualifying
program (submission of a free and reduced price application by the
household is not required in this case); or
(d) For an adult participant who is a member of a food stamp or
FDPIR household or is an SSI or Medicaid participant, as defined in
this section, ``documentation'' means the completion of only the
following information on a free and reduced price application:
(1) The name(s) and appropriate food stamp or FDPIR case number(s)
for the participant(s) or the adult participant's SSI or Medicaid
identification number, as defined in this section; and
(2) The signature of an adult member of the household.
Enrolled child means * * * In addition, for the purposes of
calculations made by sponsoring organizations of family day care homes
in accordance with Secs. 226.13(d)(3)(ii) and 226.13(d)(3)(iii),
``enrolled child'' (or ``child in attendance'') means a child whose
parent or guardian has submitted a signed document which indicates that
the child is enrolled for child care; who is present in the day care
home for the purpose of child care; and who has eaten at least one meal
during the claiming period.
* * * * *
3. In Sec. 226.6, paragraph (f)(9) is amended by removing the
second sentence of the paragraph and by adding a new sentence in its
place, and by adding a new sentence at the end to read as follows:
Sec. 226.6 State agency administrative responsibilities.
* * * * *
(f) * * *
(9) * * * The State agency shall provide the list to sponsoring
organizations by April 1, 1997, and by February 15 of each year
thereafter, unless the State agency that administers the National
School Lunch Program has elected to base data for the list on a month
other than October, in which case the State agency shall provide the
list to sponsoring organizations within 15 calendar days of its receipt
from the State agency that administers the National School Lunch
Program. * * * The State agency shall not routinely require annual
redeterminations of the tiering status of tier I day care homes based
on updated elementary school data.
* * * * *
4. In Sec. 226.13:
[[Page 9105]]
a. Paragraph (d)(3)(ii) is amended by adding a new sentence after
the first sentence; and
b. The first sentence of paragraph (d)(3)(iii) is revised.
The addition and revision read as follows:
Sec. 226.13 Food service payments to sponsoring organizations for day
care homes.
* * * * *
(d) * * *
(3) * * *
(ii) * * * Sponsoring organizations shall obtain one month's data
by collecting either enrollment lists (which show the name of each
enrolled child in the day care home), or attendance lists (which show,
by days or meals, the rate of participation of each enrolled child in
the day care home).* * *
(iii) Determine a blended per-meal rate of reimbursement, not less
frequently than semiannually, for each such day care home by adding the
products obtained by multiplying the applicable rates of reimbursement
for each category (tier I and tier II) by the claiming percentage for
that category, as established in accordance with paragraph (d)(3)(ii)
of this section.* * *
* * * * *
5. In Sec. 226.15:
a. Paragraph (e)(3) is revised; and
b. Paragraph (f) is amended by adding seven new sentences after the
second sentence, and by adding a new sentence at the end.
The additions and revision read as follows:
Sec. 226.15 Institution provisions.
* * * * *
(e) * * *
(3) Documentation of: The enrollment of each child at day care
homes; information used to determine the eligibility of enrolled
providers' children for free or reduced price meals; information used
to classify day care homes as tier I day care homes, including official
source documentation obtained from school officials when the
classification is based on elementary school data; and information used
to determine the eligibility of enrolled children in tier II day care
homes that have been identified as eligible for free or reduced price
meals in accordance with Sec. 226.23(e)(1).
* * * * *
(f) * * * When using elementary school or census data for making
tier I day care home determinations, a sponsoring organization shall
first consult school data, except in cases in which busing or other
bases of attendance, such as magnet or charter schools, result in
school data not being representative of an attendance area's household
income levels. In these cases, census data should generally be
consulted instead of school data. A sponsoring organization may also
use census data if, after reasonable efforts are made, as defined by
the State agency, the sponsoring organization is unable to obtain local
elementary school attendance area information. A sponsoring
organization may also consult census data after having consulted school
data which fails to support a tier I day care home determination for
rural areas with geographically large elementary school attendance
areas, for other areas in which an elementary school's free and reduced
price enrollment is above 40 percent, or in other cases with State
agency approval. However, if a sponsoring organization believes that a
segment of an otherwise eligible elementary school attendance area is
above the criteria for free or reduced price meals, then the sponsoring
organization shall consult census data to determine whether the homes
in that area qualify as tier I day care homes based on census data. If
census data does not support a tier I classification, then the
sponsoring organization shall reclassify homes in segments of such
areas as tier II day care homes unless the individual providers can
document tier I eligibility on the basis of their household income.
When making tier I day care home determinations based on school data, a
sponsoring organization shall use attendance area information that it
has obtained, or verified with appropriate school officials to be
current, within the last school year. * * * The State agency shall not
routinely require annual redeterminations of the tiering status of tier
I day care homes based on updated elementary school data.
* * * * *
6. In Sec. 226.18, paragraph (b)(11) is amended by adding a new
sentence at the end of the paragraph to read as follows:
Sec. 226.18 Day care home provisions.
* * * * *
(b) * * *
(11) * * * These options include: electing to have the sponsoring
organization attempt to identify all income-eligible children enrolled
in the day care home, through collection of free and reduced price
applications and/or possession by the sponsoring organization or day
care home of other proof of a child or household's participation in a
categorically eligible program, and receiving tier I rates of
reimbursement for the meals served to identified income-eligible
children; electing to have the sponsoring organization identify only
those children for whom the sponsoring organization or day care home
possess documentation of the child or household's participation in a
categorically eligible program, under the expanded categorical
eligibility provision contained in Sec. 226.23(e)(1), and receiving
tier I rates of reimbursement for the meals served to these children;
or receiving tier II rates of reimbursement for all meals served to
enrolled children.
* * * * *
7. In Sec. 226.23:
a. Paragraph (e)(1)(i) is amended by removing the third sentence
and adding a new sentence in its place, by adding the words ``or
FDPIR'' after the words ``food stamp'' each time they appear in the
sixth sentence, and by adding a new sentence to the end;
b. Paragraph (e)(1)(iv) is revised;
c. A new paragraph (e)(1)(vi) is added;
d. Paragraph (h)(1) is revised; and
e. Paragraph (h)(6) is amended by adding a new sentence to the end.
The additions and revision read as follows:
Sec. 226.23 Free and reduced price meals.
* * * * *
(e)(1) * * *
(i) * * * At the request of a provider in a tier II day care home,
sponsoring organizations of day care homes shall distribute
applications for free and reduced price meals to the households of all
children enrolled in the home, except that applications need not be
distributed to the households of enrolled children that the sponsoring
organization determines eligible for free and reduced price meals under
the circumstances described in paragraph (e)(1)(vi) of this section. *
* * If a State agency distributes, or chooses to permit its sponsoring
organizations to distribute, applications to the households of children
enrolled in tier II day care homes which include household
confidentiality waiver statements, such applications shall include a
statement informing households that their participation in the program
is not dependent upon signing the waivers.
* * * * *
(iv) If they so desire, households applying on behalf of children
who are members of food stamp or FDPIR households or AFDC assistance
units may apply under this paragraph rather than under the procedures
described in paragraph (e)(1)(ii) of this section. In
[[Page 9106]]
addition, households of children enrolled in tier II day care homes who
are participating in a Federally or State supported child care or other
benefit program with an income eligibility limit that does not exceed
the eligibility standard for free and reduced price meals may apply
under this paragraph rather than under the procedures described in
paragraph (e)(1)(ii) of this section. Households applying on behalf of
children who are members of food stamp or FDPIR households; AFDC
assistance units; or for children enrolled in tier II day care homes,
other qualifying Federal or State program, shall be required to
provide:
(A) For the child(ren) for whom automatic free meal eligibility is
claimed, their names and food stamp, FDPIR, or AFDC case number; or for
the households of children enrolled in tier II day care homes, their
names and other program case numbers (if the program utilizes case
numbers); and
(B) The signature of an adult member of the household as provided
for in paragraph (e)(1)(ii)(G) of this section. In accordance with
paragraph (e)(1)(ii)(F) of this section, if a case number is provided,
it may be used to verify the current certification for the child(ren)
for whom free meal benefits are claimed. Whenever households apply for
children not receiving food stamp, FDPIR, or AFDC benefits; or for tier
II homes, other qualifying Federal or State program benefits, they must
apply in accordance with the requirements set forth in paragraph
(e)(1)(ii) of this section.
* * * * *
(vi) A sponsoring organization of day care homes may identify
enrolled children eligible for free and reduced price meals (i.e., tier
I rates), without distributing free and reduced price applications, by
documenting the child's or household's participation in or receipt of
benefits under a Federally or State supported child care or other
benefit program with an income eligibility limit that does not exceed
the eligibility standard for free and reduced price meals.
Documentation shall consist of official evidence, available to the tier
II day care home or sponsoring organization, and in the possession of
the sponsoring organization, of the household's participation in the
qualifying program.
* * * * *
(h) * * *
(1) Verification procedures for nonpricing programs. Except for
sponsoring organizations of family day care homes, State agency
verification procedures for nonpricing programs shall consist of a
review of all approved free and reduced price applications on file. For
sponsoring organizations of family day care homes, State agency
verification procedures shall consist of a review only of the approved
free and reduced price applications (or other documentation, if
vouchers or other documentation are used in lieu of free and reduced
price applications) on file for those day care homes that are required
to be reviewed when the sponsoring organization is reviewed, in
accordance with the review requirements set forth in section 226.6(l)
of this Part. However, the State agency shall ensure that the day care
homes selected for review are representative of the proportion of tier
I, tier II, and tier II day care homes with a mix of income-eligible
and non-income-eligible children in the sponsorship, and shall ensure
that at least 10 percent of all free and reduced price applications (or
other documentation, if applicable) on file for the sponsorship are
verified. The review of applications shall ensure that:
(i) The application has been correctly and completely executed by
the household;
(ii) The institution has correctly determined and classified the
eligibility of enrolled participants for free or reduced price meals
or, for family day care homes, for tier I or tier II reimbursement,
based on the information included on the application submitted by the
household;
(iii) The institution has accurately reported to the State agency
the number of enrolled participants meeting the criteria for free or
reduced price meal eligibility or, for day care homes, the number of
participants meeting the criteria for tier I reimbursement, and the
number of enrolled participants that do not meet the eligibility
criteria for those meals; and
(iv) In addition, the State agency may conduct further verification
of the information provided by the household on the approved
application for program meal eligibility. If this effort is undertaken,
the State agency shall conduct this further verification for nonpricing
programs in accordance with the procedures described in paragraph
(h)(2) of this section.
* * * * *
(6) * * * Sponsoring organizations of day care homes may verify the
information on applications submitted by households of children
enrolled in day care homes in accordance with the procedures contained
in paragraph (h)(2)(i) of this section.
Dated: February 13, 1998.
Shirley R. Watkins,
Under Secretary, Food, Nutrition and Consumer Services.
Economic Impact Analysis
1. Title
Child and Adult Care Food Program: Improved Targeting of Day Care
Home Reimbursements.
2. Statutory Authority
Personal Responsibility and Work Opportunity Reconciliation Act of
1996 (Pub. L. 104-193)
3. Rulemaking Background
The interim and final rules amend the Child and Adult Care Food
Program (CACFP) regulations governing reimbursement for meals served in
family or group day care homes by incorporating provisions of the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996
(Pub. L. 104-193). These provisions better target assistance to low
income children by reducing the reimbursement for meals served to
children who do not qualify for low-income subsidies. Specifically,
this rule develops a two tier reimbursement structure for meals served
to children enrolled in family or group day care homes. Under this
structure, the level of reimbursement for meals served to enrolled
children will be determined by: (1) The location of the day care home;
(2) the income of the day care provider; or (3) the income of each
enrolled child's household. The rules target CACFP meal reimbursement
payments to low-income children and the day care home providers who
serve them, where low-income is defined as not exceeding 185 percent of
the Federal income poverty guidelines. The rules retain essentially
near-current reimbursement rates for meals served to children by
providers residing in low-income areas or served by providers who are
low-income. Near-current reimbursements will also be retained for meals
served to children who are identified as low-income even if the
provider neither resides in a low-income area nor is low-income. Meals
served to all other children will be reimbursed at the lower rates,
although the lower rates are still high enough that participation in
CACFP is expected to remain strong and new day care homes will continue
to join CACFP. The interim rule became effective July 1, 1997; the
final rule becomes effective 60 days after publication in the Federal
Register.
[[Page 9107]]
4. Motivation for Statutory Changes and Summary of Findings
Until 1978, eligibility for free and reduced price meals in the
Child and Adult Care Food Program (CACFP) was based on essentially the
same income thresholds and procedures as those used in the National
School Lunch Program: children in households at or below 130 percent of
the Federal income poverty guidelines were eligible to have meals
served to them reimbursed at the ``free'' (highest) rate while children
in households with incomes above 130 but not exceeding 185 percent of
the guidelines were eligible to have their meals reimbursed at the
``reduced price'' (middle) rate. In 1978, about 70 percent of CACFP
enrolled children were from households at or below 185 percent of the
Federal income poverty guidelines. The Child Nutrition Amendments of
1978 (Pub. L. 95-627) eliminated individual free and reduced price
eligibility determinations (means tests) in CACFP day care homes, which
substantially reduced program burden, and established a single
reimbursement rate for each type of meal served in day care homes.
Public Law 95-627 made no comparable changes to CACFP day care centers.
The day care home meal reimbursement rates were set (by rulemaking)
slightly below the rates used for meals served to children in CACFP
centers with documented incomes below 130 percent of the Federal income
poverty guidelines (``free'' rates). The burden reduction and single
rates in day care homes had the effect of promoting program growth.
However, that growth turned out to be primarily among non-needy
children (above 185 percent of Federal income poverty guidelines). By
the late 1980's, just 30 percent of children in CACFP day care homes
were from households with incomes at or below 185 percent of the
Federal income poverty guidelines, and by 1995, the proportion had
fallen to 22 percent. Public Law 95-627's elimination of individual
means testing in CACFP day care homes thus produced a program at odds
with the Child Nutrition Program's historical focus of targeting higher
benefits to low-income children.
The President and Congress proposed to re-target benefits in CACFP
day care homes by retaining the current day care home rates for meals
served to low-income children and establishing new, lower rates for
meals served to the non-needy. The Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 (Pub. L. 104-193) sought to re-
target benefits but, to keep program administration burdens down, did
not call for a reinstatement of individual means testing of all day
care home participants. Public Law 104-193 effectively retained the
current meal reimbursements for meals served in tier I CACFP day care
homes, i.e., day care homes operated by low income providers or located
in low income areas. In all other CACFP day care homes, tier II homes,
a lower rate was established, as these children are less likely to be
low income. Public Law 104-193 provides for low income children in tier
II day care homes by allowing the higher meal reimbursements to be
claimed for all meals served to the children in tier II homes who are
individually means tested and found to be needy. These changes, along
with others called for by Public Law 104-193, are being implemented by
this rule and the interim rule. Public Law 104-193's two tier rate
structure is estimated to produce a six year savings of $1.7 billion
(fiscal years 1997-2002).
Despite the reduction in reimbursement rates, the numbers of tier I
and tier II day care homes participating in the CACFP are both expected
to grow, although at slower rates than projected before Public Law 104-
193. That CACFP day care home participation is expected to remain
strong is important since welfare reform will lead more low-income
parents to enter the workforce, which will increase the demand for day
care. Tier I homes will continue to effectively receive the pre-Public
Law 104-193 reimbursement rates. While the reimbursements available to
tier II homes have been reduced--CACFP weekly revenue for an average
tier II home with no documented low income children will drop from $82
to $41--CACFP meal reimbursements still represent another source of
income for day care homes and in many cases will provide ample
incentive to participate in the CACFP. Some would-be tier II providers
will find that the lower rates offer insufficient incentive to remain
in the CACFP and will leave the program; however, FCS expects that most
tier II providers will remain in the CACFP and accommodate the reduced
rates through some combination of absorbing the loss, raising child
care fees, and making cost-saving operational changes. In addition,
there is about a 20 percent annual turnover of homes offering day care
services, and these homes regularly offer a fresh group of homes that
will probably choose to participate in the CACFP.
Other CACFP organizations are also affected by Public Law 104-193
and this rulemaking. Organizations that sponsor day care homes
(sponsors), which have agreements with State CACFP agencies to operate
the CACFP in day care homes have new burdens due to the two tier
system. The new sponsor burdens are associated with classifying day
care homes as tier I or tier II, determining whether children in tier
II homes have incomes below 185 percent of the Federal income poverty
guidelines, informing homes of their new rights and responsibilities
under this rule, and performing the other administrative duties imposed
by this rule. The Department estimates that for sponsors considered as
a group, the new, recurring burdens (one-time implementation burdens
were not estimated) will represent an average increase of about 2
percent over current burden levels. However, as with any average, some
sponsors will realize more than a 2 percent increase in recurring
burden (while others will realize less than a 2 percent increase). In
addition, implementation burdens during the first year or two of
tiering may be significant. State CACFP agencies will see a noticeable
increase in recurring burden associated with complying with new tiering
related sponsor review requirements, providing sponsors with school and
census area-eligibility information, and providing sponsors tiering
related technical assistance. State agencies administering the NSLP and
school districts also have new responsibilities under this rulemaking,
although these responsibilities do not entail substantial new burdens.
5. Comparison of Final Analysis With Interim Analysis
The final analysis makes few technical changes to the interim
analysis (in terms of numbers used and assumptions made). All technical
changes are based on new CACFP program data, a recently completed study
of the CACFP, or comments received on the interim analysis. Updating
the analysis with the new program and study data produces improved cost
and burden estimates. The changes significantly decrease the total
Federal savings expected from the two tier system, with projected six
year savings, fiscal years 1997-2002, declining from $2.2 to $1.7
billion. Essentially no changes have been made to the analysis'
assessment of the effects that the two tier system will have on
particular providers, parents, and children.
New CACFP program data was used to update several numbers in the
analysis, including the number of CACFP participating day care homes
(DCHs), the number of DCH sponsors,
[[Page 9108]]
and the average number of DCHs served by sponsors. These updates have a
negligible effect on the findings of the analysis.
Since the publication of the interim analysis on January 1, 1997,
the Food and Consumer Service has completed the Early Childhood and
Child Care Study \1\ (ECCCS). The ECCCS is a nationally representative
evaluation of the CACFP and includes household income data for DCH
providers and children enrolled in DCHs. The data on provider's and
enrolled children's household incomes are appreciably different from
the figures used in the interim analysis. ECCCS found that 38 percent
of DCH providers are low-income while only 22 percent of children
enrolled in DCHs are low-income. The interim analysis, based on the
best data available at that time, indicated that 22 percent of DCH
providers and 30 percent of DCH enrolled children were low-income,
which understated the number of low-income providers and overstated the
number of low-income DCH children. Together with the provider income
data, the income data for DCH enrolled children indicate that low-
income providers will probably serve a substantial number of non-low-
income children, since 38 percent of providers are low-income while
only 22 percent of DCH enrolled children are.
The ECCCS income data have several implications for the analysis.
The provider data imply there are more low-income providers than
estimated in the interim analysis. This change increases the percentage
of DCH meals that will be reimbursed at the higher meal reimbursement
rates and is the piece of data responsible for improving the accuracy
of the estimate of Federal savings from tiering. The increased
percentage of low-income providers also has implications for sponsor
burdens. Since sponsors are responsible for identifying which DCHs are
eligible for the higher reimbursement rates (tier I) and for verifying
the DCHs' tier I eligibility, the increased proportion of DCHs eligible
for the higher rates will increase the burden on sponsors for making
DCH tier I eligibility determination burdens.
The final analysis is organized nearly the same as the interim, and
the analytic section appearing in the interim analysis (numbered 6 in
the final analysis and 4 in the interim) has effectively been left
unchanged. Section 3, Rulemaking Background, in the final analysis is
the same as Section 3, Background, in the interim analysis. Sections 4
and 5, Motivation for Statutory Changes and Summary of Findings and
Comparison of Final Analysis with Interim Analysis, respectively, are
new to the final analysis. Section 7, Requirements for Regulatory
Analyses, as Established by Regulatory Flexibility Act, is an expanded
version of the corresponding section in the interim analysis (numbered
5 there) and now includes a discussion of comments received on the
interim analysis. Portions of the analytic section were altered to
ensure that the analysis accurately describes the two tier system
established by the interim and final rules. Since most changes made by
the final rule are minor, these changes did not effect significant
changes to the analysis. However, three changes made by the final rule
are worth noting because they change burden estimates. These changes
concern sponsors' income documentation requirements for low-income
children in tier II DCHs, requirements for State agency reviews of low-
income documentation during States' reviews of sponsors, and the
requirement that school food authorities (SFAs) provide sponsors with
school attendance area boundary information.
The final rule attempts to mitigate sponsor burdens on income
determination by allowing sponsors to establish the low-income status
of a DCH enrolled child through official evidence, in the sponsor's or
provider's possession, that the child's household participates in a
Federal or State benefits program with an income eligibility limit not
exceeding 185 percent of the Federal income poverty guidelines. This
change reduces burden for sponsors by allowing them to establish
eligibility for children for whom they have such information without
having to contact the children's households to ask for evidence of low-
income status.
The final rule also lessens review requirements for State reviews
of sponsors' documentation for low-income children. The interim rule
required States, as part of sponsor reviews, to verify that the income
application (or other acceptable documentation) for every child
classified by the sponsor as low-income is complete and supports the
eligibility determination made by the sponsor. The final rule lessens
the documentation review burden for States by requiring that States
review at least 10 percent of all applications on file with a sponsor,
where application refers to whatever documentation establishes the
income-eligibility of a child. The final rule stipulates that States
draw the 10 percent of applications from those DCHs the State must
review as part of its sponsor review, but if those DCHs provide less
than 10 percent of all applications, then States must draw additional
applications until the 10 percent requirement is met.
The third change made by the final rule concerns provision of
school attendance area boundary information. The interim rule assumed
this information would be readily available, since it is public
information and public schools are public institutions. A number of
commenters told FCS that the information is not readily available.
Boundary information is essential for sponsors to accurately determine
whether a DCH should be approved for the higher meal reimbursement
rates based on whether the DCH is circumscribed by the attendance area
of a school with at least 50 percent of its enrollment approved for
free or reduced price meals. The final rule, recognizing sponsors'
critical need for this information, requires SFAs to provide boundary
information on school attendance areas when sponsors request it. This
represents a new burden for SFAs.
Responses to comments received on the interim analysis are located
in Section 7, Requirements for Regulatory Analyses, as Established by
Regulatory Flexibility Act. There was one quantitative change that
resulted from the comments. The average wage rate assumed for sponsors,
which was used to estimate the financial burden of tiering on sponsors,
was increased. The interim analysis had assumed that a staff level
employee would be responsible for performing the new burdens, but
commenters caused FCS to reconsider that assumption. The final analysis
assumes an average sponsor wage rate that is twice the figure used in
the interim analysis, which reflects the new assumption that the
tiering burdens will require involvement at the sponsor staff level up
through sponsor management.
6. Cost/Benefit Assessment of Economic and Other Effects Benefits
The need to reduce overall Federal expenditures has prompted a
review of many programs and led to the legislative decision to improve
the targeting of CACFP benefits to low-income children. To accomplish
targeting of benefits, the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 establishes two tiers of day care homes and
reimbursement rates. Under tiering, any DCH located in a low-income
area or operated by a low-income provider is eligible for tier I
status, where low-income areas are determined by local school or census
data, subject to
[[Page 9109]]
restrictions on how the data may be used. All meals served in tier I
DCHs are reimbursed at the higher set of reimbursement rates. All DCHs
not qualifying for tier I are tier II DCHs. Meals served in tier II
DCHs are reimbursed at the lower set of rates, with the exception that
meals are reimbursed at the higher set of rates when served to children
whom the DCH sponsor documents as being low-income.
The initial establishment of the Child Care Food Program (CCFP) in
November 1975 required both types of CCFP providers, day care centers
and DCHs, to make individual eligibility determinations based on each
participating child's household size and income. Meal reimbursement
rates paid to sponsors for meals served in DCHs were based on each
enrolled child's documented eligibility for free, reduced price or paid
meals. In order to be a DCH, which denotes a CCFP participating home in
this analysis, a home has always had to (1) meet State licensing
requirements, or be approved by a State or local agency and (2) be
sponsored by an organization that assumes responsibility for ensuring
the DCH's compliance with Federal and State regulations (these
licensing and sponsorship requirements are still in effect).
In the years following establishment of the program, concerns were
raised that the paperwork and recordkeeping requirements were creating
barriers to DCH participation in the CCFP. In 1978, Pub. L. 95-627
eliminated free and reduced price eligibility determinations for
individual children in DCHs (but left unchanged day care centers'
individual eligibility determination requirements), and established a
single reimbursement rate for each type of meal served in DCHs
(lunches/suppers, breakfasts, and supplements). These changes
encouraged day care providers' participation in the CCFP by reducing
their administrative paperwork burden. The Omnibus Budget
Reconciliation Act of 1981 added the requirement of a means test for
providers to claim reimbursements for meals served to their own
children in care. With this sole exception, all DCHs continued to
receive the same reimbursements for all meals served to children in
care, regardless of each child's income.
The day care portion of the CCFP (The CCFP was renamed the Child
and Adult Care Food Program (CACFP) in 1989 when an adult day care
component was added.) has experienced dramatic growth in both DCH
participation and Federal government costs. From fiscal year 1986 to
fiscal year 1996, the number of participating DCHs increased from
82,000 to 194,000, an increase of 134 percent. During the same period,
meal reimbursements in nominal dollars increased from around $190
million to about $750 million, a 280 percent increase.2,3
Program growth has occurred primarily among non-low-income children:
table 1 shows the proportion of low-income DCH participants decreased
rapidly after individual eligibility determinations were eliminated in
1978. The table shows that the proportion of DCH children with
household incomes below 130 percent of the Federal income poverty
guidelines decreased by 33 percentage points between 1977 and 1982, by
an additional 9 between 1982 and 1986, and by 5 more between 1986 and
1995. During the same periods the percentage of non-low-income children
(above 185 percent of poverty) increased 46, 7, and 7 percentage
points, respectively. Although the 1995 data was not available until
after the interim rule was published, the marked growth in the
proportion of non-low-income enrollment in DCHs between 1977 and 1986
was sufficient to serve as the impetus for Pub. L. 104-193's better
targeting of DCH benefits to low-income children.
[GRAPHIC] [TIFF OMITTED] TR24FE98.000
[[Page 9110]]
The 1986 Study of the Child Care Food Program (CCFP Study) \2\
found that approximately 70 percent of the children enrolled in DCHs in
1986 were non-needy (i.e., they lived in households with incomes about
185 percent of Federal income poverty guidelines). The 1995 Early
Childhood and Child Care Study (ECCCS), completed after the passage of
Pub. L. 104-193 and publication of the interim rule, validated the
potential for re-targeting; it found that in 1995, 78 percent of
children enrolled in DCHs were non-needy. The establishment of a two
tier reimbursement system offers the potential for re-focusing Federal
child care benefits on children who are needy.
The two tier reimbursement rate structure is expected to effect
significant Federal budgetary savings. The six year projected savings
(fiscal years 1997-2002) are approximately $1.7 billion (see table 4).
The savings would result from (1) a reduction in the reimbursement
rates for meals served in tier II (non-low-income) DCHs and (2) a
projected decrease in the rate of growth in the number of day care
homes participating in the CACFP. The projected decrease in the rate of
growth in the number of DCHs means the number of DCHs projected to
exist in the future (under post-Pub. L. 104-193 CACFP conditions) is
smaller than the number that were projected under pre-Pub. L. 104-193
CACFP conditions. Fewer DCHs produce savings by eliminating the meal
reimbursements that would have been paid for meals served in the day
care homes and by eliminating the administrative payments that sponsors
would have received for sponsoring these day care homes (the tiering
system leaves unchanged sponsors' per-home administrative reimbursement
rates). The estimated savings assume that in fiscal years 1997-2002
approximately 45 percent of DCH meals will be reimbursed at the higher
rates. The 45 percent assumption follows from the ECCCS finding that 38
percent of providers qualify for tier I based on income, as well as
from assumptions concerning the number of providers eligible for tier I
solely on the basis of their residing in low-income areas and
assumptions about the number of documented low-income children enrolled
in tier II DCHs (the 45 percent derivation is explained in detail near
the end of Section 6, Area III, Part a, Tiering Determination Burden)
The reduction in reimbursement rates for meals served to children
in tier II DCHs who are not documented income-eligible would result in
savings of approximately $1.4 billion over the next six years (fiscal
years 1997-2002). Rates for all meals served to these children--
lunches/suppers, breakfasts, and supplements--would decrease as shown
in table 2. The rate change would result in a savings of about $0.64
for every lunch or supper served during fiscal year 1998, the first
full fiscal year in which the new two tier system will be in effect.
The lunch/supper savings would increase to about $0.70 per meal by
fiscal year 2002. Breakfast savings would range from almost $0.56 per
meal served in fiscal year 1998 to $0.60 in fiscal year 2002, and
supplement savings would range from about $0.35 cents in fiscal year
1998 to about $0.38 cents in fiscal year 2002.
[GRAPHIC] [TIFF OMITTED] TR24FE98.001
[[Page 9111]]
The growth of day care home participation in the CACFP is projected
to slow as a result of the two tier rate structure, as some would-be
providers are expected to perceive the program as offering insufficient
financial incentive and/or being too administratively burdensome,
relative to the financial benefits. A decline in homes' participation
would cause a decline in the rate of growth of sponsor administrative
payments and meals served (growth would persist, albeit at a slower
rate). As shown in table 3, it is estimated that in fiscal year 1998,
the first full year of tiering, 18 million fewer meals will be served
than would have been served under the current reimbursement rate
structure (due to a slower growth rate in day care home participation).
The six year effect (fiscal years 1997-2002) of this projected decline
in growth is a decrease in the number of meals served by 314 million,
which is measured relative to the number projected under pre-July 1,
1997 reimbursement rates. The six year (fiscal years 1997-2002)
projected savings from this slowing of program growth is approximately
$300 million, measured in nominal dollars.
[GRAPHIC] [TIFF OMITTED] TR24FE98.002
Costs
The interim and final rules promulgate the two tier CACFP meal
reimbursement system specified in Pub. L. 104-193. This system was
designed to reduce Federal child care subsidies to providers and
parents who are not low-income. Tiering will result in a projected $1.7
billion in Federal savings over the next six fiscal years through (1)
lower meal reimbursement payment rates for non-low-income DCH providers
and non-low-income children and (2) secondary savings stemming from the
lower rates, including the decrease in the growth rate of the number of
day care homes participating in the CACFP. The non-low-income providers
will likely pass some of their revenue loss on to their clientele
(primarily non-low-income parents) through higher child care fees. Non-
low-income providers and parents will thus bear most of the costs
resulting from the projected $1.7 billion reduction in Federal
expenditures--as was the intent of Pub. L. 104-193. In addition to
these fiscal costs, operating the two tier system will place new
administrative burdens (costs) on DCH sponsors, State CACFP and State
National School Lunch Program (NSLP) agencies, and NSLP school food
authorities. The following analysis will show these administrative
costs are minor in comparison with the costs to non-low-income
providers and parents.
BILLING CODE 3410-30-U
[[Page 9112]]
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BILLING CODE 3410-30-C
[[Page 9113]]
The costs of tiering to DCH providers will be addressed first and
followed by a discussion of costs to families whose children are in
tier II DCHs. The new administrative burdens that tiering imposes on
DCH sponsors will then be discussed and followed by an examination of
the administrative costs for CACFP State agencies, NSLP State agencies,
and NSLP school food authorities.
Implementation and use of the tiering system will have both one-
time implementation costs and periodically recurring costs for the
entities discussed above. The implementation costs will depend highly
on the specifics of the State and local CACFP procedures currently in
place and on which of the reimbursement options DCH providers choose
and which of the claiming options DCH sponsors choose. For these
reasons, implementation costs will vary greatly across States and
localities. Because of the lack of information on these current
practices, quantification of the implementation costs, within a
reasonable degree of accuracy, is precluded. It is recognized that
these costs may be significant, especially for State CACFP agencies
(sponsors will need more technical assistance). The recurring costs are
more evident and quantifiable, and what follows is a discussion of the
recurring costs the affected entities will incur.
I. Costs to Providers
For CACFP providers the costs of tiering will have an
administrative burden component, but will be primarily financial, due
to the lower meal reimbursement rates, and will fall on providers
operating tier II DCHs. Virtually all tier II DCHs will experience a
decrease in CACFP reimbursements; the majority of the $1.7 billion in
projected savings is due to lower reimbursements to non-mixed tier II
DCHs (a mixed tier II DCH is a tier II DCH where at least one child in
care is documented income-eligible; meals served to such children are
reimbursed at the higher rates). Non-mixed tier II DCHs comprise an
estimated 48 percent of all DCHs (see Costs to Sponsors for
explanation). For the average non-mixed tier II DCH, the July 1, 1997
tier II rate decrease will cause weekly CACFP revenues to decline 50
percent, from $82 to $41,\3\ which follows directly from the average
DCH's weekly meal mix footnoted in table 3 and the meal reimbursements
shown in table 2. Since the average DCH has an attendance of about 7
children \1\ this $41 decrease ($82-$41) represents about $5.80 per
child. Although this is a significant decrease, the $41 a week
represents income that would have to be completely or nearly completely
replaced by increases in child care fees if the day care home dropped
out of the CACFP; therefore, the $41 is sufficiently attractive for
most tier II providers to stay in the program and for new providers to
continue joining.
a. Potential Tier II Provider Responses to Lower CACFP
Reimbursements. Providers of tier II DCHs will most likely respond to
decreased CACFP revenues through some combination of raising fees,
absorbing the loss, recruiting low-income children, providing care for
more children, and reducing operating costs. Studies of the day care
market corroborate this. They find that in general providers will not
try to pass all of the CACFP loss on to the families they serve,\4\ \5\
but rather employ some of these other options as well.
The amount which existing non-low-income providers can pass on
through higher fees will depend on the character of their local day
care market. Tier II providers in markets that are competitive on the
basis of fee will be discouraged from passing all of the loss on to
parents, as they need to keep fees approximately in line with the local
going rate to retain their customers.\5\ Providers in less competitive
markets, such as those where there is a child care shortage, will be
able to raise fees and pass most of their loss along to parents. An
example of a fee competitive market is one where there are several day
care homes operating in a moderate income neighborhood, all having
nearly equal appeal to parents and nearly equal fees, but with only a
few of the homes being tier II DCHs (the rest being non-CACFP homes or
tier I DCHs). Although the tier II DCH providers would be tempted to
raise fees in response to the CACFP reimbursement rate decrease, the
non-CACFP and tier I DCHs would probably leave their fees unchanged;
their doing so may cause the tier II DCHs to leave their fees unchanged
as well. Empirical data on the relative extent of these two market
scenarios is unavailable. However, because the markets affected by
tiering serve mostly non-low-income families who, if fees are raised,
would probably choose to pay higher fees to stay with their current
provider (i.e., they will pay what is necessary to secure high quality
care), fee competitive markets may be the less common variety.
Data from the 1990 Profile of Child Care Settings Study \4\ (PCCS)
and the 1976 National Day Care Home Study \6\ (NDCH) provide
information on the likelihood that providers will respond to decreased
CACFP reimbursements by absorbing the loss or providing care for more
children. The PCCS and NDCH studies indicate that most tier II CACFP
providers are not in a position to completely absorb a significant
portion of the reduction in meal reimbursements and still make a
profit. The 1976-80 NDCH study found that homes like DCHs (sponsored
and licensed) do not make even moderate operating surpluses (profits)--
the mean net hourly wage for providers in licensed, sponsored homes was
$1.92 (in 1976 dollars), 83 percent of the 1976 minimum wage rate of
$2.30 per hour (all DCHs are sponsored and licensed, but not all
sponsored, licensed homes are DCHs, i.e., participate in the CACFP).
The PCCS study suggests that providers' economic situation may have
even worsened since the NDCH study: PCCS found that in real dollars,
fees for licensed, sponsored homes decreased between the period 1976-80
and 1990. Thus, the PCCS data suggests that providers in sponsored
homes, such as DCHs, do not have much of an operating surplus to buffer
a cut in subsidies. Other PCCS findings indicate that most providers
will not consider taking more children into care as a means of
increasing revenues to offset the decrease in CACFP reimbursements.
PCCS found that most providers of sponsored, licensed homes are
operating near their legal capacity and that over half of all such
providers surveyed indicated they are unwilling to take more children
into care.
b. Most Probable Provider Responses to Lower CACFP Reimbursements.
The PCCS and NDCH data, and the data suggesting that some day care
markets may discourage the raising of fees \5\ imply that in general
tier II providers will respond to decreased meal reimbursements by
reducing operating costs; absorbing a small portion of the decrease;
and raising fees a modest amount, but will not respond by providing
care for more children.
c. Effects on Non-Mixed Tier II Providers. Tier II providers who
respond to decreased CACFP revenues by noticeably reducing operating
costs or sharply raising fees may, however, only exacerbate their
income shortage, as parents may be unwilling to accept the providers'
decreased child care expenditures (reduced operating costs) or higher
fees and could respond by moving their children to other providers,
which would decrease the original provider's income until replacement
children could be found. However, given that fees for DCHs (i.e.,
licensed and sponsored providers) tend to be higher than those found in
unlicensed day care homes,\6\ \7\ parents
[[Page 9114]]
who patronize DCHs have demonstrated a willingness to pay a premium for
licensed care and are therefore less likely to be sensitive to an
increase in provider fees.
The new reimbursement rates will have a significant economic impact
on non-mixed tier II DCHs. Based on Food and Consumer Service (FCS)
program data \3\ and projected increases in the food at home series of
the Consumer Price Index, when DCH reimbursement rates are first tiered
on July 1, 1997 the weighted average per meal rate for non-mixed tier
II DCHs will drop from the tier I level of $1.01 down to $0.50, a 50
percent decrease. The July 1, 1997 rate cut will cause the average non-
mixed tier II DCH's weekly CACFP revenues to decline from $82 to $41, a
$41 decrease (a 50 percent decline), where the average DCH serves an
average weekly meal mix of 20 breakfasts, 31 lunches/suppers, and 31
supplements \3\ to seven children.\1\ These estimates incorporate the
dynamic nature of the licensed day care market, where the annual
provider turnover rate is approximately 20 percent: They assume that
lowering the meal reimbursement rates will decrease the incentive for
day care homes to join the CACFP and also increase the rate of
departure for existing DCHs. Numerically, this translates into the
expectation that the lower rates will cause the annual rate of growth
in DCHs to decrease from just below 5 percent to just below 2.5
percent.
d. Effects on Mixed Tier II Providers. --Although minor in
comparison with non-mixed tier II CACFP revenue decreases, tiering's
actual meal count system will place a new administrative burden on some
portion of the sub-group of mixed tier II providers (an estimated 10
percent of DCHs are mixed tier II) whose sponsors require them to use
an actual meal counts system (some providers already keep such counts).
There will be no new burden for providers whose sponsors opt for either
of the ``simplified'' meal counts systems (as explained in the Costs to
Sponsors, Sponsor Meal Claiming Burden section). In an actual counts
system, the mixed tier II DCHs would provide the sponsor, for each
child in care, the number of reimbursable meals the child was served,
by meal type and would also identify each child by name. This reporting
requirement represents an increase in burden over the current system
where some providers only record and provide sponsors with the total
number of reimbursable meals served, by meal type. Few DCHs are
expected to incur this burden, however, as this system is burdensome
for the sponsors; it is being assumed that only 5 percent of sponsors
will choose an actual count system, and that in addition, all such
sponsors will be small--serving no more than 50 DCHs, on average only
32 (see the Costs to Sponsors, Sponsor Meal Claiming Burden section).
The estimated weekly provider burden associated with an actual count
system in an average DCH (serving 7 children \1\ and operating 5 days a
week \1\) is 35 minutes, which assumes a burden of 1 minute per child
per day. The estimated annual burden for such a home is therefore 29
hours. This translates into an annual fiscal impact of $154 per
provider. This calculation assumes that providers of licensed,
sponsored care are making about $5.30 per hour for their services
($5.30 is an inflation adjusted version of the NDCH study \6\ finding
that providers of sponsored, licensed homes earned an average of $1.92
per hour in 1976).
e. Effects of Tiering on Potential CACFP Day Care Home Providers.
The two tier system may affect whether new day care home providers
choose to participate in the CACFP. A provider who attempts to qualify
for tier I based on provider's income must supply income data or other
evidence showing the provider's household income is at or below 185
percent of the Federal income poverty guidelines before the sponsor can
approve the DCH for tier I. While seemingly a simple requirement,
anecdotal evidence from sponsors and State agencies suggests that some
providers who previously claimed an income below 185 percent of the
Federal income poverty guidelines (required to claim reimbursements for
meals served to providers' own children in care) are withdrawing from
the CACFP altogether over this requirement. This suggests that some
providers who begin offering child care after July 1, 1997 (effective
date of the two tier system) may also choose not to join the CACFP due
to this requirement.
For potential CACFP providers who begin offering child care after
July 1, 1997 and who never experienced the pre-Pub. L. 104-193 rates,
the $41 per week (about $2,000 per year) available to an average
unmixed tier II DCH will be seen as a welcome source of additional
income, and many of these would-be tier II providers will join the
CACFP. However, $41 is not as attractive as the pre-Pub. L. 104-193
level of $82, and it is therefore expected that new, would-be tier II
providers will join the CACFP at a slower rate.
II. Costs to Families
Tiering imposes few costs on low-income families. One cost, limited
to low-income families with children in mixed tier II DCHs, is their
being asked to provide household income information. Although the
families are not obligated to provide this information it is expected
that most will. Providing this information consumes time and could
lessen a family's privacy. Sponsors have the authority to verify the
income information at a later time, in which case the family would be
contacted and asked to submit supporting documentation for the income
figures provided, representing a second burden and an intrusion on
family privacy. Despite being authorized to conduct income
verifications, few sponsors are expected to do so in light of the
associated burden. As explained below, there may also be a limited
number of low-income families with children in non-mixed tier II DCHs;
these families will experience costs similar to those described below
for non-low-income families.
Tiering is intended to reduce subsidies to non-low-income families,
which as previously stated, is the intent of Pub. L. 104-193. The
reduction has potential cost implications for these families. The Costs
to Providers section explained that providers will likely respond to
the decrease in CACFP reimbursements through some combination of
reducing operating expenses, raising fees, and absorbing the loss. At
one extreme of the day care market, an area not fee-competitive in
which DCH providers have the freedom to increase fees to completely
offset the reduced reimbursements, raising fees to offset the
reimbursement cut would increase fees by about $5.80 a week per child.
This would represent a 9 percent increase over the average weekly fees,
$70, that parents of non-low-income children currently pay for care
($70 is an inflation-adjusted version of the CCFP Study's figure of
$49).\2\ At the other extreme of the day care market, a highly fee
competitive setting, fees would remain unchanged. Although empirical
data on the relative extent of these market types is unavailable, data
from the Costs to Providers section suggest that the non-competitive
market type may be more common: First, the markets affected by tiering
are serving non-low-income families who, if fees are raised, would
probably choose to pay the higher fees to stay with their current
provider; and second, families patronizing DCHs, which tend to charge
higher fees than unlicensed providers, have already demonstrated a
willingness to pay more for the higher quality of licensed care.
a. Competitive Markets. In child care markets where providers need
to hold
[[Page 9115]]
fees down to retain customers, providers are constrained to react to
the rate decrease through some mixture of absorbing the cut and cutting
operating costs. The providers being considered here are primarily
those operating non-mixed tier II DCHs, the group that will experience
the greatest tiering related CACFP revenue drop. To cut costs, these
tier II providers may change their management practices relating to
food service and developmental opportunities and materials, among other
potential changes. Although intended as cost cutting measures, some of
these changes could have effects on the children in care. In the area
of developmental opportunities and materials, lower reimbursements may
leave providers somewhat less able to afford the games, books, audio or
video tapes, etc. that were attainable when CACFP reimbursements were
covering a greater proportion of food expenses. There are also a number
of areas in food service where providers could reduce costs, and these
would impact children in tier II DCHs. One way to reduce costs would be
deciding that certain snacks or meals served under the old, higher
CACFP reimbursements will not be served under the new, lower rates,
such as an afternoon snack. Providers might also respond by decreasing
meal portions, although by specifying minimum serving sizes, CACFP
regulations limit the extent to which this could be done. Other means
of cutting food service costs could include replacing more expensive
ingredients and food items with less expensive ones. While purchasing
lower quality items and ingredients may have detrimental nutritional
implications, substituting something more affordable could also
represent a nutritional improvement if wise choices are made, i.e.,
purchasing an alternate, more affordable and more healthful combination
of foods rather than purchasing a lower-quality version of the same
food. The CACFP study mandated by Pub. L. 104-193 will compare the
nutritional quality of meals served in post-tiering tier II DCHs with
the quality of meals served in those DCHs before tiering, among other
pre/post-tiering comparisons.
If a tier II provider decides to cut operating costs, a family may
find the resulting conditions unacceptable and seek another provider.
The search for a new provider entails costs in the time and potential
for lost wages spent finding a new provider. There is also the
potential for subsequent transportation and added inconvenience costs
if the more suitable providers are not as conveniently located as the
original caregiver (although they might also be more convenient). It is
also possible that providers constrained to hold fees down will exit
the child care market, which would also require a family to find
another provider.
Under the fee competitive market scenario just considered, which
primarily affects non-low-income families, there is the potential that
some of the low-income children in mixed tier II DCHs will experience
some of the same costs the children in non-mixed tier II DCHs will
experience. Although some of the meals served in a mixed tier II DCH
will be eligible for the higher reimbursement rates, others will not.
If the provider is constrained to not raise fees to recoup the
decreased reimbursements for the non-low-income families, the provider
will experience a net decrease in revenue. As discussed above, the
provider will likely respond to this net decrease by either reducing
operating costs or absorbing the loss. Reducing operating costs would
affect the low-income children in care. However, FCS believes only 10
percent of all DCHs will be mixed and that only a portion of these
mixed homes are in competitive fee markets (where providers are
constrained to keep fees down); under these conditions, few low-income
children would be affected.
b. Non-Competitive Markets.--In the other child care market being
considered, where providers are not as constrained to hold fees down,
providers will likely respond to the rate decrease primarily through
increased fees. As suggested earlier in this section, because tiering
mainly affects non-low-income families who will likely choose to pay
increased provider fees, this type of market may be more common than
the competitive fee variety. In non-fee competitive markets, families
can respond to increased fees by either paying the higher fees, moving
their children to more affordable providers, or dropping out of the
labor force (fully or in part) to care for their children. Each choice
has different costs for families. In cases where the parents elect not
to move the child, the parents will be assuming greater responsibility
for food costs than under the previous system where the Federal
Government was performing that function (the intent of Pub. L. 104-
193). In the case where the provider raises fees enough to completely
offset the reduced reimbursements, fees could increase by about $5.80 a
week per child, representing a 9 percent increase over pre-tiering
average fees.\2\ In the second case, where the parents move a child to
achieve lower fees, the child may have to break established
relationships with the current provider and other children in care. The
third alternative, dropping out of the labor force, would presumably
occur rarely, as the raising of fees will primarily affect higher
income families who will probably choose to absorb the increase.
c. Effects of Tiering on Child Care Choices.--Studies show that
child care regulations enforce practices beneficial to childhood
development,\6\ but the preceding discussion on the relationship
between lower meal reimbursements and higher fees implies that under
tiering the number of families choosing sponsored, licensed care may
decrease. The 1976-80 NDCH Study compared fees among unlicensed
providers; licensed but unsponsored providers; and providers who are
both licensed and sponsored. The study found that providers who are
both licensed and sponsored had the highest fees. In the years since
that study, fees charged by licensed and sponsored providers have
decreased until equaling the fees charged by licensed but unsponsored
providers.\4\ This equaling of fees in licensed homes coincided with
the post-1978 rapid growth of DCHs. CACFP reimbursements---available
only to sponsored, licensed homes---may have played a role in bringing
down fees charged by licensed, sponsored providers to equal fees of
licensed, unsponsored providers, which suggests that tiering's lowering
of CACFP rates may cause licensed, sponsored fees to rise. Even if the
post-1978 decline in licensed, sponsored provider fees is attributable
to other factors, it is likely (as discussed in the Costs to Providers
section) that decreased CACFP reimbursements will cause licensed,
sponsored providers to raise fees, at least in some markets, which may
shift children into more affordable, possibly unlicensed homes.
Similarly, the decreased CACFP reimbursements might cause some
currently licensed and sponsored providers to consider moving out of
licensed care. Therefore, the possibility that CACFP rates will no
longer encourage the placement of children in licensed care is another
cost that tiering may bring to non-low-income children and even some
low-income children.
d. Intended Effect of Tiering.--An important fact is that tiering
almost exclusively affects families with incomes above 185 percent of
the Federal income poverty guidelines (non-low-income), as intended by
Pub. L. 104-193. The only low-income families potentially affected by
tiering will be those with children in tier II DCHs. This presumably
encompasses few families,
[[Page 9116]]
as it is believed, as mentioned earlier, that (1) only 10 percent of
all DCHs will be mixed (having both non-low-income and documented low-
income children in care) and that only 30 percent of the children in an
average mixed DCH will be low-income (see Tier II Household Income-
Eligibility Determination Burden under Costs to Sponsors); and (2) that
the clear majority of low-income children will be in tier I DCHs.
Similarly, the providers affected by tiering will presumably be all
non-low-income, since providers with incomes below 185 percent of the
Federal income poverty guidelines are eligible for Tier I status. The
Federal income poverty guidelines are designed to take into account
family size, so that a given household will qualify for low-income
status at a lower income level than will a household that has more
children.
Although the reimbursement decrease for tier II DCHs is
significant, the $41 a week in CACFP reimbursements that the average
non-mixed tier II DCH would receive under tiering represents income
that would have to be completely or nearly completely replaced by
increases in child care fees if the day care home were to drop out of
the CACFP altogether; therefore, the reimbursements available to tier
II DCHs are sufficient for most tier II providers to stay in the
program and for new providers to continue joining. These reimbursements
will continue to assist providers with offering healthful, nutritious
meals to participating children.
III. Costs to Sponsors
The two tier structure will impose several new administrative
burdens on organizations that sponsor DCHs, including determining and
documenting which DCHs and children are entitled to receive the higher
set of reimbursement rates; verifying the income of all providers who
qualify for tier I status based on provider income; determining which
providers qualify for tier I based on area-eligibility; and collecting
and reporting separate tier I and tier II meal, enrollment, and
provider counts and other information on DCHs.
a. Tiering Determination Burden. All sponsors will be responsible
for determining whether each of their DCHs is tier I or II. A sponsor
can approve a DCH for tier I status if the DCH is located in a low-
income area or the provider is low-income. A low-income area is defined
as one in which the local elementary school has at least one-half of
its enrollment approved for free or reduced price NSLP lunches, or an
area in which at least one-half of the resident children are low
income, according to the most recent census data.
The interim and final rules establish procedures for acceptable
uses of census and school data when approving DCHs for tier I on the
basis of geographic eligibility. The rules establish school data as the
preferred data source. FCS prefers school data over census data
because, in most cases, school data is more capable of accurately
documenting current household income levels in an area. Because it is
collected on an annual basis, school enrollment data more accurately
measures current economic conditions of the current population, whereas
significant changes can occur to an area's economic health (e.g., local
recession or new employment opportunities) and the income levels of an
area's population (through demographic shifts) between the times census
data is collected. Since it is more representative of current income
levels, establishing it as the preferred data source is necessary for
consistency with the targeting goals of Pub. L. 104-193, which states
that sponsors ``shall use the most current available data at the time
of determination,'' where data refers to elementary school data, census
data, and provider household income data.
Sponsors are to use school data to approve a DCH for tier I by area
eligibility except when a school's attendance is primarily determined
by something other than geographic proximity, which is true of most
magnet schools and most schools in districts where substantial amounts
of bussing takes place. When attendance is drawn in this manner, it
almost always breaks the link between the percentage of enrollment
approved for free or reduced price meals and household income levels in
the school's attendance area, which makes school data inappropriate, in
such instances, for making area-based tier I determinations. The final
rule also directs sponsors to use census data for approving as tier I
providers who reside in areas not circumscribed by school attendance
areas. In all other efforts to classify DCHs for tier I by area-
eligibility, sponsors must first use school data. If school data is
used, but fails to support an area-based tier I classification,
sponsors may then attempt to classify the DCH for tier I using census
data if the DCH is either (1) circumscribed by a school attendance area
where the school's free and reduced price enrollment is at least 40
percent of total enrollment or (2) circumscribed by a geographically
large, rural school attendance area. Except for these two cases and
situations where free and reduced price enrollment data does not
reflect household income levels in a school's attendance area, sponsors
must first receive State agency approval before using census data to
classify DCHs as tier I by area eligibility. If a sponsor uses school
data and determines that a DCH is located in an eligible enrollment
area, but knows that some segments of that enrollment area are clearly
non-needy--average income levels are well above the criteria for free
and reduced price meals--then the sponsor must consult census data to
determine whether the DCH operates in an eligible segment of the
enrollment area before approving the DCH for tier I based on school
data (eligible segment: census data show that at least 50 percent of
the children live in households at or below 185 percent of the Federal
income poverty guidelines). DCHs located in clearly non-needy areas
within what are otherwise eligible attendance areas are not eligible
for tier I via area eligibility.
FCS has attempted to establish procedures for the use of area data
that meet the statutory requirements for low-income area data but do
not place undue burden on sponsors and other involved organizations.
State NSLP agencies will provide sponsors with lists of all State
elementary schools in which at least 50 percent of enrollment is
approved for free or reduced price meals (documented income below 185
percent of Federal income poverty guidelines). In addition, State CACFP
agencies will provide sponsors with tabulations of census block group
data showing the proportion of free or reduced price eligible children
(income below 185 percent of Federal income poverty guidelines) in each
block group. To determine attendance area boundaries for these 50
percent schools, sponsors may request attendance boundary information
from the school districts, and school districts are required by the
final rule to furnish the boundary information whenever boundaries
exist for the schools in question. Sponsors must devise some method to
determine which of their DCHs operate in eligible school attendance
areas. Sponsors could do this by locating DCHs on a street map that
also shows boundaries of eligible attendance areas; by telephoning the
school district and being told by a school official whether a
particular DCH is located in an eligible attendance area; by using
geographic information systems software to create electronic street
maps showing eligible attendance areas and DCH locations; or by any
other means that allow a sponsor to independently determine whether a
[[Page 9117]]
DCH is located in an eligible attendance area. Although school
boundaries may change during the 3 years of tier I eligibility
following a school-data based tier I determination, and sponsors are to
use the most recent boundary information when making determinations for
DCHs just entering the CACFP and DCHs whose tier I eligibility status
is about to expire, the final rule informs sponsors that in general,
area-eligibility re-determinations should not be made when attendance
area boundaries change during the 3 year eligibility period following a
school-based tier I determination. Discouraging these re-determinations
reduces sponsors' determination burdens and provides school-area
approved DCHs a greater sense of predictability.
In the case of census data, sponsors can readily obtain block group
boundary information from the U.S. census bureau in hard copy or
electronic format. The methods that sponsors could use to demonstrate a
DCH is located in a census-eligible block group are analogous to the
methods described for school data. Census based determinations are
valid until more recent census data becomes available.
A sponsor can also approve a DCH for tier I status if the DCH
provider can demonstrate low-income status (i.e., income no more than
185 percent of the Federal income poverty guidelines). If a sponsor
finds a provider to be low-income, the sponsor must verify the
provider's household income before formally approving the DCH for tier
I status. Sponsors must annually re-determine every Tier I eligibility
determination based on a provider's income. Because verification of
this kind is a non-trivial burden to sponsors, it is expected that
whenever possible sponsors will approve providers for tier I on the
basis of area eligibility. Area eligibility determinations offer
sponsors the added benefit of being valid for three years when school
data is used and until more recent data is available when census data
is used, which would not exceed ten years.
The verification that sponsors will perform on income-approved tier
I providers consists of obtaining pay stubs, tax returns, or some other
form of independent income documentation to establish that the
information provided on providers' tier I income applications is
accurate. This type of verification is also known as ``pricing-
program'' verification. The interim and final rules mandate this
verification to protect the government against providers' financial
incentive to qualify for tier I; the average tier I provider would
receive 41 more dollars a week in CACFP meal reimbursements in 1998
than would the average non-mixed tier II provider (as was explained in
the Costs to Providers section).
Collecting corroborating income documentation from providers for
tier I income eligibility verifications represents an increase over pre
Pub. L. 104-193 CACFP DCH application review requirements, which were
established by the Omnibus Budget Reconciliation Act of 1981, Pub. L.
97-35. Pub. L. 93-35 eliminated CACFP DCH meal reimbursements for
providers' own children in care, unless a provider submits an
application demonstrating low-income status. Sponsors are not required
to obtain supporting income information for these applications and
typically make eligibility determinations based on the application
information alone. Under the interim and final rules, providers will
submit two types of income applications, which have different sponsor
verification requirements. The first type will be submitted by
providers seeking to qualify for tier I, so that, if approved for tier
I, all meals served in the applying provider's home, including those to
the provider's own children in care, would be reimbursed at the higher
rates. The second type of application would be submitted by providers
approved for tier I by area eligibility seeking to claim meals served
to their own children in care. Pub. L. 104-193 does not supersede Pub.
L. 97-35, so the requirement that a DCH provider demonstrate low-income
status in order to claim meals served to the provider's own children
remains in effect. For income applications for tier I status, Pub. L.
104-193 requires that pricing program verification (collection of
substantiating income documentation) be performed. For applications
from area-approved tier I providers seeking to claim meals served to
their own children, sponsors will continue to approve these
applications based on application content alone, which entails no new
burden for sponsors.
Estimating sponsors' tiering determination burden requires first
estimating the percentage of DCHs that are eligible for tier I based
either on provider's household income or area-eligibility. The analysis
does this by first estimating the percentage who are eligible on the
basis of provider household income (and possibly also eligible on the
basis of area) and then estimating the percentage of DCHs that are
eligible on the basis of area exclusively. The ECCCS study, which was
completed after the interim rule and analysis were published on January
7, 1997, finds that 38 percent of current DCH providers have household
incomes low enough to be income eligible for tier I. Empirical data on
the percentage of DCHs eligible for tier I on the basis of area alone
is unavailable, as was the case for the interim rule. The figure used
in this analysis, 4 percent of all DCHs, is comparable to the 6 percent
figure used in the interim analysis.
The final rule's assumption that 4 percent of all DCHs are eligible
for tier I by area, but not by income, like the 6 percent assumption in
the interim analysis, is a consequence of the constraints imposed by
(1) the percentage of meals reimbursed at the higher rates that will be
consumed by documented low-income children in mixed tier II DCHs and
(2) the percentage of providers eligible for tier I on the basis of
income (and possibly area too). Constraint number 1 is considered
first. The interim analysis assumed that few DCHs would be mixed tier
II and, based on program knowledge, chose 10 percent of all DCHs as
being mixed tier II. The interim analysis also assumed that 40 percent
of mixed tier II DCHs' enrollments would be low-income. These two
assumptions implied that documented low-income children in mixed tier
II DCHs would consume nearly 4 percent of all DCH meals, which would
all be reimbursed at the higher rates. The final analysis retains the
10 percent assumption, but assumes that 30, not 40, percent of mixed
DCHs' enrollments will be documented low-income. The lowering of this
percentage reflects the ECCCS finding that only 22 percent of the 1995
DCH enrollment is low-income, down from the CCFP study finding that 30
percent of the 1986 DCH enrollment was low-income. The preceding
implies that documented low-income children in mixed tier II DCHs will
consume about 3 percent of all DCH meals, which will all be reimbursed
at the higher rates.
Having determined the contribution made by documented low-income
children in mixed tier II DCHs to the percentage of total DCH meals
reimbursed (and knowing they will be reimbursed at the higher rates),
and also knowing the percentage of providers who are income-eligible
for tier I (constraint number 2), the percentage of area-eligible, non-
income-eligible tier I DCHs can be derived. The ECCCS finding that 38
percent of DCH providers are low income together with the higher
reimbursement meals attributable to documented income-eligible children
in mixed tier II DCHs imply that 41 percent of all DCH meals will be
reimbursed at the higher rates. The only other DCH meals that will be
[[Page 9118]]
reimbursed at the higher rates are meals served in area-eligibility
approved tier I DCHs with non-income-eligible. As stated above, the
interim analysis assumed that 6 percent of all DCHs are area-eligible
for tier I, but not income eligible. Given that the final rule assumes
a higher proportion of DCHs will be income-eligible, the percentage of
DCHs assumed area-eligible, but not income-eligible, has been reduced
to 4 percent. Together with the income-eligible tier I DCHs and the
documented low-income children in mixed tier II DCHs, the 4 percent
implies that sponsors will be approving 42 percent of all DCHs for tier
I and also that 45 percent of all DCH meals will be reimbursed at the
higher rates.
Thirty-eight percent out of the 42 percent of DCHs that are
eligible for tier I are eligible by income, but it is very likely that
a substantial proportion of them (income-eligible) reside in low-income
areas, which would make them area-eligible also. The burden of
conducting pricing program income verifications on providers who apply
for tier I on the basis of income and the interim rule's requirement
that classifications based on providers' household incomes be re-
determined annually will presumably cause sponsors to approve DCHs for
tier I on the basis of area eligibility, rather than income, whenever
possible. It was therefore assumed that one-half of the income-eligible
DCHs will be approved for tier I on the basis of area eligibility
rather than income (19 percent of all DCHs), which together with the 4
percent of tier I DCHs that are only area-eligible implies that 23
percent of all DCHs will be approved for tier I by area eligibility.
The remaining one-half of tier I income-eligible DCHs, 19 percent of
all DCHs, will be approved on the basis of income.
The dynamic nature of the DCH market will increase sponsors'
tiering determination burdens. Data from the CCFP Study indicates the
DCH market has an annual provider turnover rate of approximately 20
percent.\2\ This volatility will lead sponsors to make more tiering
determinations than would be necessary for a stable DCH population. See
section e: Quantification of New Burdens for Sponsors for the
quantification of sponsors' tiering determination burden.
b. Household Income-Eligibility Determination Burden on Sponsors.
Meals served in tier II DCHs are reimbursed at the lower set of
reimbursement rates. However, meals served to low-income children in
tier II DCHs are eligible to be reimbursed at the higher set of rates,
but sponsors must first document these children's low-income status
before the higher rates can be claimed. The final rule provides tier II
DCH providers who wish to secure higher meal reimbursements for low-
income enrolled children (making the DCHs ``mixed'' tier II) two
options for identifying them and documenting their low-income status.
The interim and final rules direct sponsors to conduct all aspect of
income-eligibility determinations and prohibits DCH providers from
taking part, to protect the confidentiality of the household income
information.
One option gives DCHs the opportunity to identify a portion of
enrolled income-eligible children without ever asking the children's
households to provide income information. Under this option, sponsors
use whatever documentation they or their DCHs providers have on file
that constitutes official evidence that a child's household
participates in or is subsidized by a State or Federal benefits program
with an income eligibility limit at or below 185 percent of the Federal
income poverty guidelines. The other option supplements the preceding
option's income determination activities with income applications sent
to households of enrolled children. Under this option sponsors
distribute income applications to households of the enrolled children
for whom the sponsor lacks official evidence that the household
participates in an applicable Federal or State benefits program. Tier
II DCH providers receive the higher set of meal reimbursement rates for
all meals served to children from households that complete the
application, return it to the sponsor, and demonstrate on it that the
household's income is at or below 185 percent of the Federal income
poverty guidelines, as well as households for which official evidence
exists documenting the households' income eligibility.
Sponsors must maintain supporting documentation for all children
approved for the higher set of meal reimbursement rates. At least
annually, sponsors must re-determine the eligibility of all children
previously deemed income-eligible and also give all children previously
deemed not income-eligible another opportunity to demonstrate low-
income status. For the purposes of this analysis, it is assumed that
sponsors will meet the annual re-determination requirement by cycling
through each of their mixed DCHs once a year and making income-
eligibility determinations on all children currently enrolled at that
time. Sponsors must also make income-eligibility determinations for
children who enter a mixed tier II DCH after the sponsor has made its
annual income-eligibility determinations for that DCH. The schedule
that sponsors will use to perform these latter income determinations is
determined by the sponsor's choice of meal claiming system. Although it
is providers who decide whether the sponsor must make income-
eligibility determinations for enrolled children, sponsors decide which
meal count system the sponsor and all its DCHs will use. The meal count
system chosen determines the schedule on which income-eligibility
determinations are made for children who enter mixed DCHs after the
annual eligibility re-determination review has occurred. Sponsors can
choose between an actual counts system and a ``simplified'' counts
version. Each of these systems and its associated income-eligibility
determination schedule is described below.
The final rule does not prescribe any additional income eligibility
determination requirements, beyond annual re-determinations, for
sponsors using an actual counts system. Rather, the provider's
incentive structure under this system will determine the income-
eligibility determination schedule used. In this system, providers of
mixed tier II DCHs must report the number of meals served to each child
by type and identify each child by name. Sponsors then use income-
eligibility information to determine which set of reimbursements each
child's meals are entitled to, with meals served to documented income-
eligible children entitled to reimbursement at the higher rates. With
reimbursements being determined on a per-child basis in actual meal
count systems, providers of mixed tier II DCHs have the incentive to
maximize the number of documented income-eligible children in their
care. A provider can do this by directing its sponsor to make an
eligibility determination on each new child upon the child's entering
the provider's DCH. Assuming that most providers in actual count
systems will behave in this manner, sponsors in these systems will be
making income-eligibility determinations on an irregular, ongoing
basis.
The final rule prescribes the income-eligibility determination
schedule that sponsors employing simplified counting must use to
determine the income-eligibility of children who enter mixed tier II
DCHs outside the sponsor's annual income-eligibility determination
cycle. The schedule requires that at least semi-annually, sponsors make
income-eligibility determinations on all
[[Page 9119]]
children who enter a mixed DCH in the prior 6 months. Given that
sponsors are already required to annually re-determine eligibility,
sponsors using a simplified counting system will likely perform income-
eligibility determinations twice a year: annual re-determinations at
the beginning of the year and a second determination at mid-year for
those children who entered a mixed DCH sometime in the preceding 6
months.
The two meal count systems will require sponsors to make near equal
numbers of eligibility determinations; the burdens are expected to be
equal. See section e: Quantification of Burdens for the burden
estimates.
c. Data Collection and Reporting Burden for Sponsors. Tiering will
place several new reporting requirements on sponsors. Sponsors will now
have to annually collect and report to their State CACFP agency
separate enrollment counts for tier I and tier II DCHs and an
enrollment count for documented income-eligible children in mixed tier
II DCHs (those DCHs serving at least one documented low-income child).
Sponsors must also annually report the number of tier I and tier II
DCHs they sponsor, as well as other information about their DCHs.
Finally, in the management plan that every sponsor submits to its CACFP
State agency, the sponsor will now have to include a description of how
it will make DCH tiering determinations.
d. Sponsor Meal Claiming Burden. Under tiering, sponsors will have
new burdens related to meal counting and claiming. Before tiering,
sponsors were only required to claim meals by meal type (breakfasts,
lunches, suppers, and supplements). Under tiering, sponsors will have
to claim meals both by reimbursement category (higher/lower set of
rates) and, within each category, by meal type. The claiming of meals
served in tier I and non-mixed tier II DCHs remains straightforward. It
simply entails separating claims submitted by tier I and non-mixed tier
II DCHs, which amounts to categorizing the meals, and then, within each
category, summing meal counts by type. In contrast, claiming for mixed
DCHs requires that for each mixed DCH sponsors split out the meals by
reimbursement category, which will typically be a more time consuming
process than claiming for non-mixed DCHs. After the meals from mixed
DCHs are separated by category, the meals are summed within each
category by meal type. The method that sponsors use to split out mixed
tier II DCH claims depends on whether the sponsor is using an actual or
simplified meal counting system, as described below.
As previously noted, in an actual count system, mixed tier II DCHs
record the number of meals served to each attending enrolled child, by
meal type, and provide the sponsor with a claim that lists the meals
served to each child by type and identifies each child by name. In such
a system, the sponsor splits the meals into reimbursement categories by
determining the appropriate reimbursement category for each child's
meals based on the child's income eligibility status---the reason each
child is identified by name. In contrast, in a simplified count system,
the sponsor splits the counts into the two reimbursement categories by
applying either blended rates or claiming percentages to the provider's
aggregated counts (both blended rates and claiming percentages produce
identical fiscal claims). In the case of claiming percentages, a
sponsor computes, for each DCH, the number of meals of each type
entitled to the higher reimbursements by multiplying the total number
of meals claimed of that type by the proportion of children in that DCH
who have been determined income-eligible (the remaining meals are
reimbursed at the lower set of rates). The procedure for blended rates
is essentially the same. In simplified count systems, the semi-annual
collection of income information described in section b: Household
Income-Eligibility Determination Burden is used to update the claiming
percentages/blended rates for each DCH at least every six months. The
updated claiming percentages/blended rates reflect the proportion of
income eligible children in the DCH.
Simplified counting is less burdensome to sponsors than an actual
count system. Actual counts require the sponsor to compare the
provider's meal claim against a list of the DCH's income-eligible
children to identify which children's meals are entitled to the higher
rate. The sponsor then groups meals by reimbursement category and
finally, sums by type within each category to produce an aggregated
count of meals by category and by type. In contrast, to reach the same
result in a simplified system, the sponsor need only multiply the
aggregate meal counts by the DCH's claiming percentages/blended rates.
Because of the relative ease of meal claiming in a simplified counts
system, it is expected that only 5 percent of all sponsors will opt for
actual counts and that all will be small sponsors (serving no more than
50 DCHs). In response to the interim rule, several commenters mentioned
that some State agencies already require their DCHs to operate actual
count systems and suggested that sponsors in these States were
constrained to opt for an actual count system. This is not completely
accurate. The final rule prohibits States from mandating which meal
count systems sponsors use, but at the same time does not infringe on
States right to establish additional recordkeeping requirements for
their sponsors and DCHs, provided those requirements do not conflict
with Federal regulations. Even if a State requires its DCHs to maintain
actual counts, a DCH's sponsor is not compelled to opt for an actual
counts system; the sponsor could still chose a simplified count system.
In this scenario the sponsor would either direct its DCHs to report
meals by type and to retain the actual count records at the DCH, or
allow the DCHs to submit their actual count records, in which case the
sponsor, when preparing its claim, would simply disregard all
information except meal totals by type.
e. Quantification of New Burdens for Sponsors. To quantify the
effects of this interim rule on sponsors, the 194,000 DCHs \3\ were
distributed across the 1,200 DCH sponsors \3\ according to previous
studies of the CACFP, and current DCH program data. Doing this enables
the scaling of burden estimates according to sponsor size (the number
of DCHs a sponsor serves), which produces more precise burden
estimates. The first step in creating this structure, was dividing the
approximately 1,200 current sponsors into three groups, as shown in
table 5: (1) Small sponsors which serve no more than 50 DCHs, on
average about 32 DCHs; (2) medium sponsors which serve between 51 and
300 DCHs, on average about 220; (3) large sponsors which serve more
than 300 DCHs, on average about 420.\2\ \3\
[[Page 9120]]
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Based on these definitions, 50 percent of all sponsors are small in
size and account for 10 percent of all DCHs; 30 percent are of medium
size and account for 41 percent of all DCHs; and 20 percent are large
and account for 49 percent of all DCHs.\2\ \3\ Next, based on DCH
providers' and enrolled children's income data, from ECCCS and other
assumptions discussed above under Tiering Determination Burden, it was
estimated that 42 percent of all DCHs will be approved for tier I; 48
percent will be tier II, and 10 percent will be mixed tier II, as shown
in table 6. Finally, it was assumed that 30 percent of sponsors will
serve at least one mixed tier II DCH.
[GRAPHIC] [TIFF OMITTED] TR24FE98.005
The estimates for new sponsor burden are presented in table 7.
Shown are estimates for the annual burden hours imposed on each sponsor
category, and the percentage of sponsors affected within each sponsor
category. Of the listed burdens, only Meal Claiming recurs periodically
(monthly). The other burdens occur only once or twice a year (with the
exception of household income determinations in an actual meal count
system, but the number of sponsors involved is minimal, 5 percent of
total, i.e., 60). The estimates make the assumption that economies of
scale are realized only for Meal Claiming burdens, where the recurring
nature of the burden would presumably give larger sponsors sufficient
incentive to establish efficient meal claiming systems.
[[Page 9121]]
[GRAPHIC] [TIFF OMITTED] TR24FE98.006
The tiering determinations burden estimates were calculated using
data from ECCCS, which indicate that 38 percent of all DCHs are income-
eligible for tier I; the assumption that 4 percent of all DCH providers
are non-low-income, but area-eligible for tier I; and the assumption
that sponsors will choose to approve tier I income-eligible providers
on the basis of area eligibility whenever possible. Thus, it is assumed
that 23 percent of all DCH providers (one-half of the 38 percent who
are income eligible plus the 4 percent who are only area eligible) will
be approved for tier I using area eligibility information, while the
remaining tier I eligible DCHs (19 percent) will be approved using
provider income information. For the burden estimate, these percentages
were assumed to hold for the average sponsor in each sponsor category
so that, for example, the average small sponsor (serving 32 DCHs) with
its 14.4 tier I homes would approve 7.9 of the 14.4 on the basis of
area eligibility (14.4 * 23%/42%) and the remaining 6.5 DCHs on the
basis of the provider's income (14.4 * 19%/42%). The estimates
incorporate the dynamic nature of the DCH market, which has an annual
provider turnover rate of approximately 20 percent.\2\ This volatility
will require sponsors to make more tiering determinations than would be
necessary for a stable DCH population. Finally, the estimates for area
eligibility assume that sponsors identify income-eligible DCHs using
sponsors' preexisting knowledge of economic conditions in areas where
DCHs reside and that sponsors are thereby able to easily identify DCHs
lying far outside all income-eligible areas. This approach would allow
sponsors to focus their efforts on DCHs with reasonable probabilities
of qualifying for tier I by area eligibility. This analysis assumes
such an approach will be taken and that the average sponsor will
consider 3 homes for low-income area eligibility for every 2 it finds
eligible and approves.
The tier II household income-eligibility determinations estimates
were calculated by estimating the income-eligibility burden associated
with the average DCH and then, for sponsors serving mixed tier II DCHs,
multiplying that figure by the average number of DCHs administered by
sponsors in each of the three size categories.\2\ \3\ The number of
children in care in an average DCH was used as the starting point for
estimating the per-DCH burden.\1\ This figure was then inflated to
account for the fact that on average, there is a 30 percent turnover of
children every 6 months in the average day care home.\8\ This inflated
figure represents the number of children whose households could
potentially submit an application over a year's time. It is assumed
that one-half of households would submit an application, and that of
these households, one-third will be documented income eligible through
official evidence possessed by the sponsor or provider, without having
to submit the application. There is a clear financial incentive for
providers to encourage their low-income families to submit income
information to sponsors. This incentive and providers' close
relationships with parents suggest that providers will attempt to
persuade parents to provide the income information and achieve a high
response rate.
The data collection and reporting burden was calculated assuming
that the average sponsor will spend about 12 hours complying with the
new
[[Page 9122]]
requirements in this area, with 10 of these hours for the new data
related requirements and the remaining 2 for the requirement that each
sponsor now provide a description of its plan for making DCH tiering
determinations in its management plan. The 12 hour burden implies
annual burdens of 4, 15, and 28 hours for small, medium, and large
sponsors, respectively. These estimates are consistent with this burden
being an expansion on the current CACFP requirement that sponsors
report quarterly the number of DCHs served and the DCHs' enrollment and
submit annually a sponsor management plan.
The meal claiming burden was calculated assuming that the monthly
burden resulting from the new meal claiming requirements will be 2
hours for the average sponsor. This weighted average implies a burden
that increases with sponsor size and the number of mixed tier II DCHs
being served. The estimates shown in table 7 make the assumption that
an actual counts system will impose twice the meal claiming burden of a
simplified counts system due to the relative difficulty that sponsors
using actual counts are expected to have in producing meal claims
broken down by reimbursement category and meal type (relative to the
effort required under a simplified counts system). The estimates
further assume that among sponsors using a simplified count system, the
average meal claiming burden for sponsors without any mixed DCHs will
be about one-half the average burden for sponsors serving mixed DCHs.
This assumption is consistent with the lower level of effort required
to process meal claims from non-mixed DCHs. In addition, as described
above, the estimates assume economies of scale so that the burdens are
not directly proportional to the number of DCHs a sponsor serves.
Table 8 translates the burdens displayed in table 7 into fiscal
costs. The fiscal costs were produced by assuming that the weighted
average pay rates for employees responsible for performing the new
sponsor burdens is $15.00 per hour.\9\ The table implies that the
annual increase in administrative costs due to tiering, for the average
small, medium, and large sponsor, are about $600, $3,400, and $5,600
(in 1997 dollars), respectively. These costs represent about one
percent of the total annual administrative payments the average small,
medium, and large sponsor would receive from USDA (in 1997 dollars):
$29 thousand, $158 thousand, and $266 thousand, respectively.
[[Page 9123]]
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IV. Costs to CACFP State Agencies
The costs to CACFP State agencies consist of their being required
to provide sponsors with low-income area eligibility data; increased
requirements for sponsor reviews, particularly auditing sponsors'
documentation for approved income-eligible children; and State
agencies' obligation to provide sponsors with technical assistance. In
terms of area eligibility data, State agencies will be responsible for
providing (1) census data identifying all State census blocks where at
least 50 percent of the children are from low-income households and (2)
an annually updated list of all State elementary schools that have more
than 50 percent of their enrollment certified to receive free or
reduced-price lunches under the NSLP. The agencies' other
responsibility relating to area eligibility data is deciding when to
authorize sponsors to use census data to make area eligibility based
tier I classifications. The final rule states that when sponsors make
area-based tier I classifications, they must first attempt to make the
classification using school data, except when school enrollment
patterns are not based on geographical proximity, in which case
sponsors must make area-eligibility determinations using census data.
If a home does not qualify for tier I based on school data and a
sponsor wishes to use census data, the sponsor must first receive
approval from the State agency, unless the attendance area-bounding the
DCH belongs to a school with at least 40 percent of its enrollment
approved for free or reduced price meals or a school with a
geographically large rural attendance area. In these two special cases,
sponsors may approve DCHs for tier I through census data if the school
data does not support such a classification, otherwise sponsors must
first receive approval from their State
[[Page 9124]]
agency before using census data to approve a DCH for tier I.
For the average State CACFP agency, it is estimated that the
obligation to provide sponsors with elementary school data annually and
census data as it becomes available represents an average annual burden
of 25 hours, which assumes each instance of data transmittal and
subsequent follow-up takes 1 hour. This estimated burden is equivalent
to $450, which assumes a wage rate of $18 per hour, which is based on
information in States' plans for State Administrative Expense funds and
FCS-conducted State Management Evaluations.
Tiering will also increase State agencies' sponsor review
requirements. The final rule requires that as part of their sponsor
reviews, State agencies review the documentation sponsors used to deem
children in tier II DCHs income-eligible as well as the documentation
sponsors used to approve providers for tier I on the basis of income.
State agencies are responsible for ensuring that application forms are
completed correctly; that the stated income on each falls below 185
percent of the Federal income poverty guidelines; that proffered
documentation of participation in a Federal or State benefits program
represents ``official evidence'' of participation in a qualifying
program; and that the incomes of income-approved tier I providers were
properly verified. State agencies are given the option of performing
``pricing program'' verifications on all income documentation, but it
is expected that very few will do so because of the significant time
required to conduct such verifications. The agencies are also
responsible for ensuring that sponsors used the most current data
available for making area eligibility determinations, but are not
required to independently verify the determinations. For the average
State CACFP agency, it is estimated that performing these reviews
amounts to an annual burden of 63 hours, with some States expending
much less than this amount and others much more, depending on the size
and number of sponsors in the State. This estimated burden is
equivalent to $1,134, which assumes a wage rate of $18 per hour.
State CACFP agencies will likely see an appreciable increase in
their training and technical assistance burden as the transition to the
new two tier system is made. Under the new system, State agencies will
have to provide new guidance and training on all new aspects of CACFP
introduced by tiering, for example, DCH tiering determinations, new
meal counting and claiming procedures, and new data reporting
requirements. This burden will likely persist for the first several
years the new system is in place. It is believed that the new training
and technical assistance burdens represents about 10-20 hours of new
burden per sponsor per year for a State agency. For the average State,
this implies an annual burden of between 230 and 460 hours (between
$4,140 and $8,280) for the first several years of tiering and
presumably abating thereafter. The Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 (Pub. L. 104-193) provides some
funds to help State CACFP agencies make the transition. It directs the
Secretary of Agriculture to set aside $5 million of fiscal year 1997
CACFP funds for one-time grants to State CACFP agencies. These grants
must be used to aid States, sponsors, and DCHs with making the
transition to the new system. Pub. L. 104-193 allows each of the 54
State agencies to retain up to 30 percent of its total grant for State
agency use. If all States agencies retained the maximum allowable, a
total of approximately $1.5 million would be retained at the State
level, with the remaining $3.5 million going to DCHs and their
sponsors.
The interim rule added a new requirement to the management plans
that sponsors must submit annually. Now, each sponsor must describe the
approach it will use to make DCH tiering determinations. Reviewing this
component of the plan will presumably place minimal additional burden
on the State agency.
There is the potential that in some States the decreased CACFP
reimbursements will lead to an increase in the State-wide average fee
charged by providers. This increase may have the effect of increasing
State expenditures for subsidized child care, as a State's subsidized
care payments are often based on the average fee that providers in the
State are charging. Being unable to predict a numerical value for the
effect the reimbursement rate cut will have on provider fees, as
discussed previously under Costs to Providers, quantifying this
potential cost to States is precluded. Neither the final nor the
interim rule directs States to increase payments for subsidized child
care.
V. Costs to NSLP State Agencies and NSLP School Food Authorities
Under Pub. L. 104-193, State NSLP agencies are required to annually
provide a list of all State elementary schools in which at least 50
percent of the enrollment is certified to receive free or reduced-price
NSLP lunches. However, these agencies do not currently collect school-
level information. NSLP School Food Authorities (SFAs), which are
generally school districts, are the only entities other than the
schools that collect this data. SFAs are also more able than schools to
provide the data to the NSLP State agency. The interim and final rules
accommodates this situation by directing SFAs to inform their State
NSLP agency of the elementary schools that have at least 50 percent of
their enrollment certified to receive free or reduced-price NSLP
lunches. It is estimated \10\ that roughly 5,000 SFAs will contain the
approximately 11,000 elementary schools meeting this criterion, and
that the annual average reporting burden on an SFA will be roughly 1.5
hours ($12). The NSLP State agencies will receive the lists of
elementary schools from their SFAs, compile and presumably do basic
error checking on them, and pass the compiled listings on to the State
CACFP agencies. It is estimated that the average NSLP State agency
burden associated with this work will be 2.5 hours ($45) annually,
using State CACFP agency wage assumptions.
The final rule also requires SFAs to provide sponsors with
attendance area boundary information for elementary schools where at
least 50 percent of the enrollment is certified eligible for free or
reduced price meals. The requirement applies only to schools with
defined attendance areas, which excludes magnet schools and all other
schools in which attendance is not determined by geographic proximity.
It is assumed that, on average, each of the roughly 5,000 SFAs with at
least one elementary school having at least 50 percent of its
enrollment approved for free or reduced price meals will receive 2
requests annually for attendance area boundary information and that the
average time to meet each request will be 2 hours, for an annual burden
of 4 hours per SFA ($60, using the table 8 wage assumptions).
Comparison of Costs and Benefits
The analysis presented here finds that the DCH tiering structure
established by Pub. L. 104-193 and promulgated by the interim and final
rules will partially accomplish its objective of targeting Federal
child care benefits to low-income children. This targeting will save a
projected $1.7 billion in Federal tax revenues over the next 6 years
(fiscal years 1997-2002). Non-low-income providers (tier II DCHs
providers) and non-low-income families with children in tier II DCHs
will bear most of the costs resulting from the Federal
[[Page 9125]]
government's $1.7 billion savings. Non-low-income households served by
tier I DCHs will be unaffected by tiering. It is possible that some
low-income families with children in tier II DCHs may bear some of the
costs, but States may offset them by opting to increase child care
subsidies. The analysis further finds that while targeting will place
new administrative burdens on sponsors, State CACFP and NSLP agencies,
and NSLP school food authorities, these burdens are relatively modest.
7. Requirements for Regulatory Analyses, as Established by Regulatory
Flexibility Act
The Regulatory Flexibility Act (Pub. L. 96-354) establishes
requirements for analyses of regulatory actions that are expected to
have a significant economic impact on a substantial number of small
entities. Public Law 96-354 was enacted at the urging of small
businesses after repeated claims that uniform application of
regulations regardless of business size was disproportionately damaging
to small entities. It is expected that this rule will have an
economically significant impact on tier II DCH providers due to the
large decrease in reimbursement rates for meals served in those DCHs.
This rule will also affect sponsoring organizations, considered to be
``small organizations'' by Public Law 96-354, although the economic
impact on them is expected to be much less than the effect for DCHs.
The specific effects for sponsors and tier II providers were
discussed under the Costs to Providers and Costs to Sponsors sections
under the Cost/Benefit Assessment of Economic and Other Effects. The
interim and final rules implement, to comply with statute and to meet
the statutory intent of targeting benefits, the programmatic changes
mandated by the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (Public Law 104-193). The rule's only
economically significant impact is the decreased meal reimbursements
for meals served in tier II DCHs. The Food and Consumer Service (FCS)
cannot mitigate this effect other than by making targeting less
accurate, which would be contrary to the spirit of Pub. L. 104-193. The
only other class of small entities affected by this regulatory action
is sponsors. The final analysis finds that the costs sponsors will
incur in meeting the new program requirements established by the
interim and final rules will be about two percent of the payments each
sponsor receives from FCS for operating the CACFP in its DCHs. This
implies that the rules' economic impact on sponsors is generally not
significant and that in the few areas where FCS had discretion, its
choices strike an appropriate balance between adhering to Public Law
104-193's intent to target benefits and making realistic demands of
sponsors.
Public Law 96-354 mandates that the analyses contain ``a summary of
the significant issues raised by the public comments in response to the
initial regulatory flexibility analysis, a summary of the assessment of
the agency of such issues, and a statement of any changes made in the
proposed (final) rule as a result of such comments.'' Six commenters
addressed the interim analysis. The preponderance of their comments
fall into four categories: They think the assumption that 10 percent of
all DCHs will be mixed tier II is too low; they disagree with the
conclusion that the total new costs imposed on sponsors by tiering will
be less than one percent of the administrative funds the sponsors are
paid in a year by FCS; they disagree with the description of tier II
providers' likely responses to lower rates and the ramifications of
those actions; and they disagree with the assumption that only small
sponsors will use actual meal count systems. These areas, plus comments
falling outside them, are considered in turn below.
Five commenters said the analysis underestimated the number of
mixed tier II DCHs, basing their assertions on their own experience as
DCH sponsors. They said the underestimation led FCS to underestimate
sponsor burdens associated with mixed tier II DCHs. FCS has previously
stated that there are no data on which to base an estimate of the
percent of DCHs nationwide that will be mixed tier II. FCS does not
believe it is appropriate to alter its assumption based on a very
limited number of commenters whose own experience in particular
geographic areas suggest that the 10 percent mixed tier II assumption
is too low and who did not substantiate their claims with empirical
data. It is possible that those whose experience is most at odds with
the analysis would be the most motivated to submit comments expressing
their disagreement, and that the experiences of other sponsors might
suggest that the 10 percent assumption is either generally appropriate
or too high. FCS recognizes that effective program administration
requires empirical data on the number of mixed tier II DCHs and is
currently working with the States to obtain that data.
Four commenters indicated the analysis underestimated the total
costs of tiering imposed on sponsors; the interim analysis found that
total new costs would be approximately 1 percent of the total
administrative payments sponsors receive from FCS during a year. The 1
percent figure is the sum of several new costs imposed by tiering. FCS
divided the new burdens/costs imposed on sponsors into four categories.
For each category, FCS estimated to the best of its ability--using
study data, program data, and program knowledge--the burdens/costs
which that category of new burdens/costs would impose on sponsors.
After these estimates were completed, FCS decided the new burdens
needed to be compared to some metric to assess the relative magnitude
of the total new burden. It was decided to compare the sum of the new
burdens to total annual administrative payments made to sponsors, which
produced the 1 percent figure contended by the commenters. FCS did not
assume the new burdens would amount to 1 percent, rather the 1 percent
was the mere summation of several calculations, each to estimate the
new burdens/costs in a particular category. Since commenters asserted
that 1 percent is too low, without being more specific as to what
aspects of the intermediate calculations (burden calculations) are
perceived to be deficient, FCS has decided to retain the burden
estimation procedures used in the interim analysis. FCS did re-consider
the wage rate used for employees of DCH sponsors. Data obtained from
sponsors 9 suggest that the $8 hourly rate used in the
interim analysis is too low, and that an hourly rate of $15 is more
appropriate, which is used in this analysis.
Three commenters were dissatisfied with the discussion of how tier
II providers may respond to the lower reimbursement rates and the
consequences of their response. One commenter argued that the analysis
was wrong in saying that tier II providers may decrease expenditure on
``non-essentials'', such as books and games, because these items are
essential for childhood development. FCS was not making an evaluative
statement on the materials necessary for providing a developmentally
appropriate child care environment, but rather suggesting that some
providers may view such items as non-essential in order to cut costs
and stay in operation. The same commenter argued that tier II providers
are not capable of absorbing a decrease in meal reimbursement rates.
FCS agrees that there would be little profit left if the provider
absorbed the total loss; however, some providers whose income is not
limited to child care may be in a position to absorb a rate cut and may
[[Page 9126]]
choose to do so. Finally both commenters took issue with the statement
that healthier food could be obtained for less money. The commenters
appear to have misinterpreted a statement in the analysis which said
that with decreased tier II meal reimbursements, providers may choose
to buy lower quality food whereby the nutritional quality of the
provider's meals would suffer, but that it is also possible for a
provider to change the types of foods purchased and buy foods that are
less expensive and of a higher nutritional quality than the more
expensive foods purchased previously. The comments interpreted the
statement as saying meals of higher nutritional quality can be obtained
by purchasing cheaper, lower-quality foods. Rather, FCS believes that
higher meal cost does not always result in more nutritious meals.
Two commenters expressed their belief that the interim rule is
incorrect in assuming that only small sponsors will choose actual meal
count systems because some States require sponsors to collect actual
meal counts from DCHs. Under the interim and final rules, States may
require that DCHs keep actual counts and may require that DCHs provide
these counts to their sponsors, but States are prohibited from
directing their sponsors to use an actual counts system, which means
States cannot direct their sponsors to calculate reimbursement amounts
according to DCHs' actual meal count records and the documented income-
eligibility status of each enrolled child. If a sponsor chooses a
simplified count system and is in a State that requires DCHs to submit
actual counts to their sponsors, the sponsor would calculate mixed tier
II DCH reimbursements by applying either claiming percentages or
blended rates to meal count totals by meal type. FCS has no evidence
that an appreciable number of medium and large sponsors would choose to
self-impose the additional burden associated with actual counts when,
compared with simplified count systems, actual counts do not reduce the
probability of sponsors making reimbursement calculation errors; do not
produce, over time, higher payments to DCHs; and do not allow providers
to calculate the reimbursement they are due with any greater accuracy.
Therefore, this analysis retains the interim analysis's assumption that
an insignificant number of medium and large sponsors will opt for an
actual meal count system.
In response to the six comments received on the initial regulatory
flexibility analysis, FCS has made no changes to the final rule.
However, FCS has made changes to the analysis in response to public
comment, including changing the labor wage rate assumptions used to
calculate the costs associated with the new sponsor burdens.
Furthermore, FCS recognizes the need to obtain empirical data on the
number of mixed tier II DCHs in operation and on the characteristics of
sponsors using actual counts systems.
The Pub. L. 96-354 also requires that the final analysis estimate
the types of professional skills necessary to meet the final and
interim rules' reporting and record keeping requirements. The new
reporting and record keeping required by this rule require no skills
beyond those necessary for current program reporting and record keeping
requirements.
Pub. L. 96-354 further requires that analyses describe the steps
taken by the promulgating agency to minimize the economic impact on
small entities. Specifically, the ``analysis shall also contain a
description of the steps the agency has taken to minimize the
significant economic impact on small entities consistent with the
stated objectives of applicable statutes.'' There are no significant
alternatives available to FCS that both (1) accomplish the stated
objectives of Pub. L. 104-193 and (2) minimize any significant economic
impact on small entities. FCS has attempted to adapt the rules based on
comments received in response to the interim rule. Changes made by the
final rule to the interim, in response to comments, were described in
the section title Summary of Changes to Interim Analysis. All three
reduce burdens; two reduce burdens on DCH sponsors, and the third
reduces burdens for State CACFP agencies. All three changes should make
the two tier system easier to implement and administer. In addition,
the preamble to the final rule provides an in-depth discussion of how
the final rule reflects the comments received on the interim rule.
8. References
1. Glantz, Frederic, David T. Rodda, Mary Jo Cutler, William
Rhodes, Marian Wrobel. Early Childhood and Child Care Study. Profile
of Participants in the CACFP (Volume I). Alexandria, VA: U.S.
Department of Agriculture, Food and Consumer Service, Office of
Analysis and Evaluation, July 1997.
2. Glantz, Frederic, Judith Layzer, and Michael Battaglia. Study
of the Child Care Food Program. Alexandria, VA: U.S. Department of
Agriculture, Food and Nutrition Service, Office of Analysis and
Evaluation, August 1988.
3. Department of Agriculture, Food and Consumer Service Program
Information Division, ``Program Information Report.'' August 26,
1996.
4. Kisker, Ellen E., Sandra L. Hoffereth, Deborah A. Phillips,
and Elizabeth Farquhar. A Profile of Child Care Settings: Early
Education and Care in 1990, Volume I. Princeton, NJ: Mathematica
Policy Research, Inc., 1991.
5. Glantz, Frederic. ``Family Day Care Myths and Realities.''
October 1989, Paper Presented at the October 1989 meeting of the
Association for Public Policy Analysis and Management, Washington,
DC.
6. Fosburg, Steven, Judith D. Singer, Barbara Dillon Goodson,
Donna Warner, Nancy Irwin, Lorelei R. Brush, Janet Grasso. Family
Day Care in the United States: National Day Care Home Study Summary
of Findings. DHHS Publication No. (OHDS) 80-30282. Washington, D.C.:
U.S. Department of Health and Human Services, 1981.
7. Kisker, Ellen Eliason, Valarie A. Piper. Participation in the
Child and Adult Care Food Program: New Estimates and Prospects for
Growth. Alexandria, VA: U.S. Department of Agriculture, Food and
Nutrition Service, Office of Analysis and Evaluation, April 1993.
8. Hoffereth, Sandra L., April Brayfield, Sharon Deich, and
Pamela Holcomb. National Child Care Survey, 1990. Washington, DC:
Urban Institute, 1991.
9. Selected sponsor data from FCS's Virginia CACFP Regional
Office Administered Program (ROAP).
10. Mathematica Policy Research, Inc., Special Tabulations of
the School Nutrition Dietary Assessment Study data. Alexandria, VA:
U.S. Department of Agriculture, Food and Consumer Service, Office of
Analysis and Evaluation, February 1995.
Approved:
Dated: July 31, 1997.
William E. Ludwig,
Administrator, Food and Consumer Service.
Dated: October 7, 1997.
Stephen B. Dewhurst,
Director, Office of Budget and Program Analysis.
Dated: October 10, 1997.
Keith Collins,
Chief Economist.
Dated: October 31, 1997.
Shirley R. Watkins,
Under Secretary for Food, Nutrition and Consumer Services.
[FR Doc. 98-4407 Filed 2-23-98; 8:45 am]
BILLING CODE 3410-30-U
