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

Federal Register / Vol. 64, No. 69 / Monday, April 12, 1999 / Rules and Regulations
You will note that the definition we have
proposed does not directly address case
management or eligibility determination. We
understand that, in many instances, the same
individuals may be performing both
activities. In such cases, to the extent that a
worker’s activities are essentially
administrative in nature (e.g., traditional
eligibility determinations or verifications),
the portion of the worker’s time spent on
such activities will be treated as
administrative costs, along with any
associated indirect (or overhead) costs.
However, to the extent that a worker’s time
is essentially spent on case-management
functions or delivering services to clients,
that portion of the worker’s time can be
charged as program costs, along with
associated indirect (or overhead) costs.
In the preamble, we also indicated
that we expected administrative costs
incurred by subgrantees, contractors,
community service providers, and third
parties to be part of the administrative
cost cap and that we would determine
such costs in the same way as agency
costs. Specifically, we said:
We have not included specific language in
the proposed rule about treatment of costs
incurred by subgrantees, contractors,
community service providers, and other third
parties. Neither the statute nor the proposed
regulations make any provision for special
treatment of such costs. Thus, the
expectation is that administrative costs
incurred by these entities would be part of
the total administrative cost cap. In other
words, it is irrelevant whether costs are
incurred by the TANF agency directly or by
other parties.
We realize this policy may create
additional administrative burdens for the
TANF agency and do not want to
unnecessarily divert resources to
administrative activities. At the same time,
we do not want to distort agency incentives
to contract for administrative or program
services. In seeking possible solutions for this
problem, we looked at the JTPA approach
(which allows expenditures on services that
are available ‘‘off-the-shelf’’ to be treated
entirely as program costs), but did not think
that it provided an adequate solution. We
thought that too few of the service contracts
under TANF would qualify for simplified
treatment on that basis.
We welcomed comments on how to
deal with this latter dilemma, as well as
comments on our overall approach. We
had discussed this issue thoroughly
during our pre-NPRM consultations, but
thought this was a policy area where no
single, clear solution existed.
(b) Overview of Comments
About one-third of all respondents to
the NPRM submitted comments on our
administrative cost provisions. A
substantial majority of these comments
came from representatives of State or
local governments, but we also received
comments from unions, community
organizations, advocacy groups,
national associations, business groups,
and Congress. We received comments
from a significant majority of the States.
Commenters generally opposed both
the breadth of the proposed
‘‘administrative cost’’ definition and the
scope of its application. To some extent,
unions, community organizations, legal
aid and advocacy groups were an
exception to this general rule.
Comments from these groups tended to
be more supportive of the proposed
rule. However, they expressed concern
about the impact of these policies on the
amount of resources that would be
available for direct benefits to needy
families and the potential impacts of the
proposed rules on a State’s decisions
about program administration, staffing,
and contracting. One argued for more
specific exclusions from the definition
(including costs associated with the
delivery of program services and
overhead) out of concern about the
effect of a tight cap on case manager
pay.
To deal with the number and
complexity of responses on this issue,
we have decided to cluster the
comments into the following five
general categories: (1) the actual
definition (including issues about the
appropriateness of a Federal definition,
adopting definitions from other
programs, the treatment of eligibility
determination and case management
costs, and the treatment of automated
data processing costs); (2) the treatment
of costs incurred on contracted services;
(3) general questions about the
calculation of the two caps; (4) specific
issues related to how we determine
whether a State has exceeded the MOE
cap on expenditures of State MOE
funds; and (5) specific issues related to
how we determine whether a State has
exceeded the Federal cap (including
whether the appropriate base for
computing the Federal cap is the pretransfer
or post-transfer grant amount).
As you will notice from the
discussion that follows, regardless of
where they appear in the rule, the
administrative cost issues are closely
connected to each other. For example, if
we have a prescriptive definition of
administrative cost, this policy would
exacerbate concerns about the negative
effects of requirements for
subcontractors to track such costs in the
same way as TANF agencies.
Although few commenters directly
addressed the combined effects of the
proposed policies, we considered the
combined effect of all these provisions
in drafting our responses.
The subject area that received the
most attention from commenters was
17809
the proposed definition. Commenters
disagreed about whether there should be
a Federal definition, suggested
alternative definitions that we could
adopt, argued for exclusion of case
management and eligibility
determination costs, raised some issues
about the treatment of automated data
processing costs, and posed a few
miscellaneous questions.
(c) Federal Definition
Comment: A relatively small number
of commenters spoke directly to the
question of whether there should be a
Federal definition of administrative
costs. The commenters’ views were
mixed, although more argued against a
Federal definition than for one.
Among the arguments put forth in
support of a definition were: the value
of having comparable approaches
among TANF jurisdictions; the
importance of protecting benefits for
needy families especially in light of the
elimination of constraints that had
existed under the former AFDC
program; and the importance of having
a meaningful and real Federal limitation
on administrative costs.
Those opposed to a Federal definition
argued that: (1) it should be the State’s
prerogative to define administrative
costs; (2) we had no authority to define
‘‘administrative costs’’; or (3) we could
defer to State definitions and choose to
regulate at some subsequent date if we
found that States were not adhering to
the statutory limits.
Response: While we do believe in
granting States broad flexibility to
design their programs and have left key
definitions up to the discretion of the
States, we also believe that there is a
need for Federal guidance on the
definition of ‘‘administrative costs.’’ The
approach in this rule is a compromise
between a Federal and State definition.
It sets a Federal framework that
specifies some items that must be
considered ‘‘administrative costs,’’ but
does not attempt to fully define the
term.
We believe this framework is
important. First, as the comments we
received demonstrate, there is no
common view of the meaning of this
term. If we left this matter entirely to
State discretion, we could expect a
diversity of approaches, and States
might be subject to widely different
penalty standards. Also, the fear of a
penalty might lead some States to define
the term so narrowly as to substantially
undermine the intent of the
administrative cost cap provisions.
We disagree with the comment that
we lack the authority to define
‘‘administrative costs.’’ We have