Final TANF Rule as published in the Federal Register 4/12/1999

17790 Federal Register / Vol. 64, No. 69 / Monday, April 12, 1999 / Rules and Regulations
it would also subject States with similar
achievement levels to very different
penalties. For example, with a 40percent
participation rate, a State that
reaches 35 percent would be subject to
a full penalty, but a State that reaches
38 percent would be subject to less than
half the penalty. Although most
commenters opposed having a threshold
at all, believing that any threshold is
arbitrary, many suggested that if we
found it essential to have one, it should
be set significantly lower. Most
recommended a threshold of 50 to 75
percent. A few commenters suggested a
lower threshold for the two-parent rate
than for the overall rate.
After reviewing those comments and
analyzing preliminary data, we have set
the threshold at 50 percent. We chose
this threshold both because it was the
most widely recommended alternative
level and because we believe it is a
logical standard. Requiring States to
reach at least half of the target rate
draws a clear line between achievers
and nonachievers. We think it is
reasonable not to grant penalty
reduction to States that are closer to a
participation rate of zero than they are
to achieving the requirement.
Under the final rules, we will reduce
the penalty for any qualifying State in
direct proportion to the State’s level of
achievement above a threshold of 50
percent. To achieve this, we will
compute a ratio whose numerator is the
difference between the participation rate
a State actually achieved and the
applicable threshold rate and whose
denominator is the difference between
the applicable required participation
rate and the applicable threshold rate.
In the final rule, we have also
clarified that the applicable required
participation rate and the applicable
threshold both reflect any caseload
reduction credit that the State receives
pursuant to subpart D of part 261. In
other words, the standard against which
we judge the degree of noncompliance
recognizes that Congress wanted States
to get credit for the caseload reductions
they achieve, as long as they are not due
to eligibility changes. If we did not
include this clarification, the threshold
standard for some States could actually
be higher than the target (i.e., full
compliance) rate provided under the
statute.
For example, assume a State’s
adjusted target rate (i.e., after applying
its caseload reduction credit) equals 30
percent. Further assume the State
achieved 18 percent, which exceeds the
threshold of 15 percent (one half of 30
percent) by 3 percentage points. The 3
percentage points equal 20 percent of 15
percent, the difference between the
required rate and the threshold.
Therefore, we would reduce the penalty
amount by 20 percent.
Commenters also urged us to consider
a wide range of alternative means of
measuring noncompliance. On the
whole, they urged us to give States
credit for their level of effort, rather than
looking specifically to a percentage of
the participation rate. One commenter
offered that, if the purpose of penalties
is to give States a strong incentive to
take the requirements seriously rather
than to punish those that fail, then a
broader view of State achievement is in
order. In particular, several commenters
suggested variations of the following
alternative factors for determining
penalty reduction:
• An increase in a State’s caseload (in
either the current year or prior year);
• Improvement in a State’s
performance over the prior year;
• Increase in the number of
participants in countable work activities
in a State, or in the number of
participants in work activities but below
the required number of hours to count
for participation; and
• The extent to which a State
exceeded the overall rate, even though
it missed the two-parent rate.
Some also suggested that we should
recognize a combination of alternatives,
perhaps without even specifying a
comprehensive list in the regulation.
One set of extensive comments on this
issue put forward an argument for
treating any penalty reduction factors
that we adopt in a formulaic way so that
a State’s penalty liability is clear.
Although this can make for a complex
provision, we have responded to this
concern by adding some detail to the
final rule. We believe that this formula
will help States foresee the possible
fiscal consequences of their policy
decisions.
We considered all these alternatives
measures from the perspective that our
primary interest in the participation
rates is to encourage work. As a result,
we have modified the regulations to
include as our third measure of
noncompliance an adjustment factor
that reflects a State’s success in
engaging additional recipients in
countable work activities. The factor
rewards a State that increases the
number of individuals it engages in
work by at least 15 percent over the
previous fiscal year. If the number of
individuals engaged in work decreases,
the State would not be eligible for a
penalty reduction, beyond the
proportional reduction for failing only
the two-parent rate. For this calculation,
we will use the average monthly
participation data, just as we do in
calculating the participation rates
themselves.
We calculate the adjustment factor by
dividing the change in the average
number of individuals the State has
engaged in work by 15 percent of the
number it engaged in work the prior
year. For example, if the State engaged
an average of 2,000 individuals each
month in the prior year, and 2,400
individuals in the current year, we
would divide 400 (the change) by 300
(15 percent of 2,000, the prior year’s
average monthly number engaged in
work). This would result in an
adjustment factor of 1.33. In other
words, in the example, the State’s
increase in participants exceeded 15
percent of the prior year’s level by one
third. Thus, under these rules, the
State’s penalty reduction would
increase by one third, compared to the
reduction it would have received if it
had achieved only a 15-percent
increase.
We chose to tie the adjustment factor
to a 15-percent increase to approximate
the average annual increase in the
overall participation rate.
We based the adjustment factor on an
increase in the number of participants
in work instead of on an increase in the
percentage of participants in work for
two reasons. First, the proportional
reduction above the threshold already
takes a percentage of participants into
account through the increase in the
participation rate. Second, commenters
made a persuasive argument that
measuring individuals would reward
States that actually showed greater
success with work, where participation
percentages would be affected by
caseload changes that might have
nothing to do with work or the State’s
efforts to engage individuals in work.
Readers will note that, in addition to
the threshold, the adjustment factor also
serves as a trigger for penalty reduction;
the State must have an adjustment factor
above zero to qualify for penalty
reduction beyond the proportional
reduction for failing only the two-parent
rate. We needed to cut off the
adjustment factor at zero because a
negative number would actually
increase the penalty above the amount
described in § 261.50, which we have no
authority to do. We then linked the
presence of an adjustment factor to
further penalty reduction because we
did not want to reward a State with a
decrease in the number of working
recipients more than a State with a
small increase (under 15 percent) in the
number engaged in work.
Finally, we adjust the penalty
reduction on the basis of whether the
State failed both participation rates in