Reauthorization of the Temporary Assistance for Needy Families Program, 37454-37483 [06-5743]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES
• Administration for Children and Families
• Children and Families Administration

[Federal Register Volume 71, Number 125 (Thursday, June 29, 2006)]
[Rules and Regulations]
[Pages 37454-37483]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-5743]



[[Page 37453]]

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Part IV





Department of Health and Human Services





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Administration for Children and Families



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45 CFR Parts 261, et al.



Reauthorization of the Temporary Assistance for Needy Families Program; 
Interim Final Rule

Federal Register / Vol. 71, No. 125 / Thursday, June 29, 2006 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 261, 262, 263, 265

RIN 0970-AC27


Reauthorization of the Temporary Assistance for Needy Families 
Program

AGENCY: Administration for Children and Families (ACF), Department of 
Health and Human Services (HHS).

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule implements the statutory changes 
enacted in the reauthorization of the Temporary Assistance for Needy 
Families (TANF) program in the Deficit Reduction Act of 2005. This 
legislation reauthorizes the TANF program through fiscal year (FY) 2010 
with a renewed focus on work, program integrity and strengthening 
families through healthy marriage promotion and responsible fatherhood. 
The interim final rule addresses the work and program integrity changes 
of the new law.

DATES: Effective Date: June 29, 2006.
    Comment Date: Comments due on or before August 28, 2006.

ADDRESSES: You may submit your comments in writing to the Office of 
Family Assistance (OFA), Administration for Children and Families, 5th 
Floor East, 370 L'Enfant Promenade, SW., Washington, DC 20447 or hand 
deliver to OFA/ACF, 5th Floor East, 901 D St., SW., Washington, DC 
20447. You may download an electronic version of the interim final rule 
at https://www.regulations.gov and may download a copy and transmit 
written comments electronically via the Internet at: https://
www.regulations.acf.hhs.gov.

FOR FURTHER INFORMATION CONTACT: Robert Shelbourne, Director, Division 
of State TANF Policy, Office of Family Assistance, ACF, at (202) 401-
5150.

SUPPLEMENTARY INFORMATION:

I. Comment Procedures

    Instructions: All comments received, including any personal 
information provided, will be posted without change to https://
www.regulations.acf.hhs.gov. Also, comments will be available for 
public inspection Monday through Friday 8:30 a.m. to 5 p.m. at 901 D 
St., SW., 5th Floor, Washington, DC.
    We will not consider comments received beyond the 60-day comment 
period in modifying the interim final rule. To make sure your comments 
are fully addressed, we suggest the following:
     Be specific;
     Address only issues raised by the rulemaking discretion 
exercised in the interim final rule, not the changes to the law itself;
     Explain reasons for any objections or recommended changes;
     Propose appropriate alternatives; and
     Reference the specific section of the interim final rule 
being addressed.

II. Background

    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996 (PRWORA) (Pub. L. 104-193) created the Temporary Assistance for 
Needy Families (TANF) block grant that fundamentally transformed 
welfare from a cash benefits program to a program focused on work and 
temporary assistance. Under TANF, adults receiving assistance are 
expected to engage in work activities and develop the capability to 
support themselves before their time-limited assistance runs out. 
States are required to assist recipients in making the transition to 
employment. Also, they are expected to meet work participation rates 
and other critical program requirements in order to maintain their full 
Federal funding and avoid penalties.
    The PRWORA legislation also dramatically changed intergovernmental 
relationships, giving States and Tribes broad flexibility to set 
eligibility rules and decide what types of benefits and services to 
provide clients. States and Tribes have used this flexibility to try 
new, far-reaching initiatives that effectively addressed the needs of 
families. PRWORA limited Federal regulatory authority, but added new 
responsibility for tracking State performance and imposing penalties 
when States fail to comply with program requirements.
    TANF has been a truly remarkable example of a successful Federal-
State partnership. Millions of parents have left welfare for work, 
reducing the TANF rolls by nearly 60 percent, from about 4.4 million 
families in August 1996 to just 1.9 million families in September 2005. 
But the decline in the caseload is just part of the story. During this 
period there were also great improvements in a range of outcomes for 
low-income families and children:
     The percentage of never-married mothers who work outside 
the home for wages increased nearly 30 percent, from 49.3 percent in 
1996 to 63.1 percent in 2004.
     The child poverty rate fell from 20.5 percent in 1996 to 
17.8 percent in 2004, reflecting 1.4 million fewer children living in 
poverty.
     During this same period, the poverty rate among African 
American children declined from 39.9 percent to 33.2 percent, and the 
poverty rate among Hispanic children declined from 40.3 percent to 28.9 
percent.
     Although the poverty rate has increased some since 2000 as 
a result of the most recent recession, the surge in job creation over 
the past two years portends favorably for renewed improvement in 
poverty rates.
    But, if we are to succeed in achieving the full purposes of TANF, 
there is still much to be done. Even with the dramatic results States 
have achieved, there are still far too many clients that are denied the 
opportunities of work and preparation for work. In FY 2005, only 30 
percent of those required to work were participating in work activities 
for sufficient hours to count toward the work participation rate. 
States have been less effective in placing clients with multiple 
barriers in work, including those with mental health issues, addiction, 
developmental or learning disabilities, limited English proficiency, 
and those subject to domestic violence. While the average wages of 
clients entering the workforce are above the minimum wage, they are 
still too low to ensure family well-being. More effective models of 
post-employment supports that lead to career development and wage 
progression are needed. Our clients also need programs that sustain and 
keep families together and programs that enable low-income, non-
custodial fathers to help their families financially.

Justification for Interim Final Rule

    The Administrative Procedure Act requirements for notice of 
proposed rulemaking do not apply to rules when the agency finds that 
notice is impracticable, unnecessary, or contrary to the public 
interest. We find proposed rulemaking impracticable and contrary to the 
public interest because it would fragment the implementation of the 
Deficit Reduction Act's (DRA) (Pub.L. 109-171) work requirements. The 
DRA clearly states that implementation of certain work requirement 
changes will be effective October 1, 2006. In particular, the statute 
strengthens the existing work requirements by extending work 
participation requirements to families with an adult receiving 
assistance in a separate State program and recalibrating the caseload 
reduction credit by updating the base year from FY 1995 to FY 2005. The 
law

[[Page 37455]]

also directs the Secretary of Health and Human Services to define work 
activities and determine who is a work-eligible individual, and these 
provisions are critical to the timely implementation of work 
requirements. In particular, without Federal definitions for work 
activities, States could define some activities so broadly that they 
render the new work provisions meaningless, thereby delaying 
implementation of meaningful reform. Moreover, such a practice would 
perpetuate existing disparities in State definitions and undermine the 
equitable treatment of States. In addition, States would be required to 
establish work participation verification procedures regarding 
activities that would not yet be defined in regulation. Therefore, 
States might have to revise their procedures substantially once final 
regulations were published. Thus, issuing regulations regarding all 
aspects of work requirements simultaneously is necessary to implement 
the intent of the law and promote the public interest. Under an interim 
final rule, States would know how to plan their programs and take 
necessary steps to implement the new requirements.
    Further, in the Deficit Reduction Act of 2005, Congress explicitly 
allows HHS to issue these regulations on an interim final basis. Thus, 
the policies reflected in this interim final rule are effective 
immediately. We will consider all germane comments received during the 
comment period. With one exception, States must comply with these 
requirements by October 1, 2006, or be subject to potential penalties 
during FY 2007. The exception relates to the new penalty created by the 
Deficit Reduction Act of 2005 for States that fail to establish and 
maintain procedures to verify reported work participation data. While 
States are required by the statute and this rule at Sec.  261.63 to 
submit a Work Verification Plan by September 30, 2006, we will hold 
States accountable for failure to maintain adequate internal controls 
and work verification procedures only for conduct that occurs after 
October 1, 2007.

III. The Deficit Reduction Act of 2005

    On February 8, 2006, the President signed the Deficit Reduction Act 
of 2005 (Pub. L. 109-171). It includes provisions to reauthorize TANF 
and build on this program's success. The new law addresses the needs of 
families by maintaining the program's overall funding and basic 
structure, while focusing increased efforts on building stronger 
families through work, job advancement, and research on healthy 
marriage and responsible fatherhood programs. It retains funding at 
$16.5 billion each year for block grants to States and Tribes; $319 
million a year through FY 2008 for supplemental grants to certain 
States with high population growth and historically low welfare 
payments; and $2 billion over five years for the Contingency Fund for 
needy States. It also creates a $150 million a year research, 
demonstration, and technical assistance fund for competitive grants to 
strengthen family formation, promote healthy marriages, and support 
responsible fatherhood.
    The Deficit Reduction Act of 2005 maintains State flexibility and 
many provisions of PRWORA, but includes important changes to improve 
the effectiveness of the program. The law strengthens work 
participation requirements by recalibrating the caseload reduction 
credit so that States only receive credit for additional caseload 
reductions after FY 2005. Families in separate State programs for whom 
funds are claimed to meet the ``maintenance of effort'' (MOE) 
requirements are now included in the work participation rate 
calculation and other data collection requirements. The law also 
requires the Secretary to provide additional direction and oversight on 
how to count and verify allowable work activities, to clarify who is a 
work-eligible individual and to ensure that State internal control 
procedures will result in accurate and consistent work participation 
information. The Deficit Reduction Act of 2005 also creates a new 
penalty for States that fail to establish and maintain procedures to 
verify reported work participation data. This interim final rule 
implements these statutory changes and the next phase of welfare reform 
by helping more low-income families enter the workforce and succeed at 
work.
    Under PRWORA, we interpreted the limitation on Federal authority to 
allow us to regulate in two situations: (1) Where Congress explicitly 
directed the Secretary to regulate; and (2) where Congress charged HHS 
with enforcing penalties. In the latter situation, we promulgated 
regulations to set out the criteria we would use in carrying out our 
authority to assess penalties. The Deficit Reduction Act of 2005 does 
not alter the general restriction on Federal regulatory authority at 
Section 417 of the Social Security Act, and so we are continuing this 
overall policy. However, the law did explicitly direct HHS to regulate 
on certain aspects of the work participation requirements.
    The TANF final rule (64 FR 17720, April 12, 1999) reflects PRWORA's 
strong focus on moving recipients to work and self-sufficiency, and on 
ensuring that welfare is a short-term, transitional experience, not a 
way of life. The rule encourages and supports State flexibility, 
innovation, and creativity while holding States accountable for moving 
families toward self-sufficiency. In developing this interim final 
rule, we have sought to implement the new requirements of the Deficit 
Reduction Act of 2005 in a way that does not impinge on a State's 
ability to design effective and responsive programs. Indeed, most 
States have demonstrated a tremendous commitment to the TANF work goals 
and objectives, using creativity and ingenuity to help families 
succeed.
    Nevertheless, some observers, and the Government Accountability 
Office (GAO) in particular, have noted that the flexibility provided to 
States to define work activities for themselves has led to inconsistent 
definitions across States as well as inconsistent measurement of work 
participation. In their 2005 report ``Welfare Reform: HHS Should 
Exercise Oversight to Help Ensure TANF Work Participation Is Measured 
Consistently Across States'' (GAO-05-821), GAO noted that the wide 
range of work activity definitions used across States makes it 
difficult to compare work participation across States. Similarly, some 
States have used this flexibility to authorize a wide variety of 
activities to advantage themselves compared to other States. In 
particular, some activities included by some States under some work 
activities do not appear to effectively address barriers to work or 
enhance the job readiness of clients.
    As a result of concerns about the inconsistency of work measures 
among States, the Deficit Reduction Act of 2005 requires us to issue 
this regulation to define each work activity category. As we discuss in 
detail later, under our definitions States retain the flexibility to 
engage clients in appropriate activities, tailored to their needs. But 
we restrict certain practices that some States have used under our 
prior rules, particularly those activities that do not improve job 
skills or enhance an individual's employability.
    We also provide guidance to States on our expectations for 
verifying and documenting actual hours of participation. We do this 
through preamble language with examples, as well as through general 
regulatory language that outlines internal control principles that 
derive from government auditing standards. The basic premise of this 
approach is that public officials are accountable for establishing and 
maintaining effective internal control systems to ensure that laws and 
regulations are followed; that program

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goals and objectives are met; that resources are safeguarded; and that 
reliable data are obtained, maintained, and fairly disclosed. Under 
this principle, when a State reports hours of participation for a 
family, it is reasonable to expect that there is supporting 
documentation that the reported activities are real and were actually 
performed for the hours claimed. We also recognize the need to be 
careful in establishing documentation requirements so that we do not 
return to an eligibility-focused culture, where paperwork receives more 
attention than moving individuals into self-sufficiency.
    Unsubsidized employment is the primary goal of TANF. A growing body 
of evidence suggests that more TANF recipients may be working than many 
believe, and that State-reported TANF data on reasons for case closure 
may be persistently understating the role of employment. More 
specifically, States report that less than 20 percent of case closures 
are due to employment, while nearly half of all cases are closed due to 
reasons such as ``failure to cooperate,'' ``voluntary closure,'' or 
``other'' unspecified reasons. In contrast, an HHS-funded synthesis 
report of welfare leaver studies conducted by the Urban Institute found 
that somewhat over half of families leaving welfare do so as a result 
of employment (Final Synthesis Report of Findings from ASPE ``Leavers'' 
Grants, November, 2001). Many closures that are, in fact, due to 
employment are coded by the States as ``failure to cooperate'' or as 
some other category because at the point of closure, the State agency 
often is unaware that the client became employed. This undercount in 
administrative data may occur because some recipients obtain 
employment, but do not immediately notify the TANF agency. As a result, 
individuals miss out on other employment-supporting benefits for which 
they may be eligible and States miss families that they could count 
toward the participation rates.
    Part of the success of State efforts is that many recipients want 
to work and get jobs on their own. The new requirements set forth in 
the Deficit Reduction Act of 2005 will ensure that TANF agencies know 
whether their clients are employed so that they can properly address 
the needs of families moving to self-sufficiency and count them in the 
work participation rates. The new requirements will also help ensure 
that TANF agencies know whether families that left welfare were 
employed prior to case closure so that these families can be counted 
toward the work participation rate.
    New hires information contained in the National Directory of New 
Hires (NDNH) may help solve these problems. The NDNH information can 
help identify those who are employed but whose employment is unknown to 
the TANF agency. We will continue to work with State agencies to 
provide the NDNH information and to identify effective verification and 
documentation practices. If State TANF agencies use the NDNH regularly 
and base their participation rate data on verified employment matches, 
they will improve the accuracy and consistency of information on which 
work participation rates are calculated.
    In keeping with the President's New Freedom Initiative, we 
encourage States to make every effort to engage individuals with 
disabilities in work activities. Disabled individuals on TANF caseloads 
are capable of participating in productive work activities and deserve 
an opportunity to become self-sufficient through work. Under the TANF 
statute, such families are included in the work participation rate 
calculation. It is important that every effort is made to serve the 
full range of TANF recipients that can work and benefit from work 
activities and supports. States are encouraged to explore the 
capabilities of all TANF recipients to learn what they can do rather 
than focusing on their limitations. States may explore new ways to 
implement work activities like specialized work experience sites that 
help families attain the necessary work skills to improve their ability 
to obtain employment. In fact, in the definition of ``work-eligible 
individual'' in Sec.  261.2, we encourage States to work with parents 
who receive Supplemental Security Income (SSI) and whose children are 
TANF recipients by giving them the option to include such families when 
they meet participation requirements. We are hopeful this increased 
State flexibility will give States the incentive to broaden their 
efforts in working with disabled individuals to give them every 
opportunity to enter the workforce.
    Of course, States must continue to comply with the civil rights 
laws, including those enumerated at 408(d) of the Social Security Act, 
when implementing the new work requirements. Section 408(d) expressly 
states that any program or activity receiving Federal TANF funds is 
subject to: (1) The Age Discrimination Act of 1975; (2) Section 504 of 
the Rehabilitation Act of 1973 (Section 504); (3) the Americans with 
Disabilities Act of 1990 (ADA); and (4) Title VI of the Civil Rights 
Act of 1964. These laws are also referenced in the regulations at 45 
CFR 260.35. For information about the application of civil rights laws 
in the context of TANF, visit the Office for Civil Rights (OCR) Web 
site at https://www.hhs.gov/ocr. Among other things, the Web site 
contains OCR guidance entitled Civil Rights Laws and Welfare Reform--An 
Overview and Technical Assistance for Caseworkers on Civil Rights Law 
and Welfare Reform and Prohibition Against Discrimination on the Basis 
of Disability in the Administration of TANF and other information on 
how to contact OCR headquarters and regional offices for further 
information and technical assistance. Additional information, including 
fact sheets and discrimination complaint forms, is also located on the 
OCR Web site or may be obtained by calling OCR toll free at 800-368-
1019, TDD 800-537-7697.

IV. Regulatory Provisions

    The Deficit Reduction Act of 2005 requires relatively modest 
changes to existing TANF regulations at 45 CFR Parts 261, 262, 263 and 
265. Thus, this interim final rule reflects primarily the changes to 
the original TANF rules required by the new statutory provisions. In 
the preamble, we discuss only the regulatory sections that are being 
revised or newly established. We do not make any changes to either 45 
CFR part 260, General TANF Provisions or to 45 CFR part 264, Other 
Accountability Provisions.
    Note that we use the term ``we'' throughout the regulatory text and 
preamble. The term ``we'' means the Secretary of the Department of 
Health and Human Services or any of the following individuals or 
agencies acting on his behalf: the Assistant Secretary for Children and 
Families, the Regional Administrators for Children and Families, the 
Department of Health and Human Services, and the Administration for 
Children and Families. Likewise, the term ``Act'' refers to the Social 
Security Act, as amended. We use the term ``The Deficit Reduction Act 
of 2005'' (Pub. L. 109-171) when we refer to the new law. States, the 
Territories, and the District of Columbia are all subject to the TANF 
requirements, but for the ease of the reader, hereinafter, a reference 
to States means this entire group. Tribal TANF programs are not 
affected by this rule; the Deficit Reduction Act of 2005 does not amend 
section 412 of the Social Security Act that authorizes Tribal TANF 
programs.
    For the convenience of readers, where we make major changes to a 
regulatory section or to a subpart, we republish the

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section or subpart in its entirety, rather than just the changes. This 
makes the provisions easier to understand and gives context to the 
regulatory changes.

Part 261--Ensuring That Recipients Work

Section 261.2 What definitions apply to this part?

    Under the original TANF rule, we chose not to define work 
activities to provide maximum flexibility to States so they could 
design and carry out the welfare reform programs that best met the 
individual needs to help families find work and become self-sufficient. 
We simply listed the 12 work activities in 45 CFR 261.30 in the order 
they appear in the Act. However, we indicated in the preamble of the 
final TANF rule, that we were ``concerned that different TANF 
definitions [of work activities] could affect the vulnerability of 
States to penalties for failure to meet the participation rate.'' As we 
noted, ``to the extent possible, we want to ensure an equitable and 
level playing field for the States.'' We also explained that we would 
``carefully assess the types of programs and activities States 
develop'' and ``if necessary at some time in the future, we will 
initiate further regulatory action.''
    We are now convinced that the flexibility we initially allowed 
States to define work activities results in inconsistent work 
participation measurement and that disparities in State definitions 
undermine the principle of equitable treatment. For example, several 
States count job search, job readiness activities, and vocational 
educational training as part of a work experience or community service 
program. In some instances, it appears that States integrated these 
activities into work experience or community service to avoid various 
limitations on some TANF work activities, such as the statutory six-
week limitation on counting job search and job readiness assistance. 
Some States also count participation in otherwise unallowable 
educational activities as part of an allowable TANF work activity. 
Thus, defining work activities is necessary to maintain the integrity 
of the TANF work participation requirements. Unless we define the work 
activities, States with narrow definitions would be at a disadvantage 
in meeting the participation requirements compared to States with 
broader definitions.
    Furthermore, the Deficit Reduction Act of 2005 requires the 
Secretary to promulgate regulations to ensure consistent measurement of 
work participation rates. The law specifically requires us to determine 
whether an activity of a recipient of assistance may be treated as a 
work activity. We are defining each of the allowable work activities to 
promote consistency in the measurement of work participation rates and 
thus treat States fairly.
    Section 407(d) of the Social Security Act specifies 12 separate and 
distinct activities. Thus, we have attempted to draft definitions that 
are, as far as possible, mutually exclusive from one another. Because 
the list of countable activities is provided by statute, we do not have 
the regulatory authority to add additional activities. Our definitions 
follow the order that the work activities are listed in Sec.  261.30 of 
this part and section 407(d) of the Social Security Act for ease of 
reference when referring to the nine core work activities that count 
for the first 20 hours of required work and the three activities that 
can only count as participation after the 20-hour requirement is met.
    We would like to emphasize that these definitions delineate what 
constitutes each activity for the work participation rate but they in 
no way change the requirement that individuals must participate for a 
specified number of hours to count in the participation rate. 
Generally, that requirement is for an individual to participate for an 
average of 30 hours per week in the month with the exception that a 
single custodial parent of a child under six must participate for an 
average of only 20 hours per week in a month. To count in the two-
parent rate, the parents must participate for a combined total of at 
least 35 or 55 hours, depending on whether they receive federally 
funded child care. States continue to have the flexibility to assign an 
individual to a combination of activities, for example blending school 
and work or training and work or job search and community service, to 
reach the hours needed to count a family in the work participation 
rate. Please refer to the regulations in subpart C of part 261 and the 
preamble explanation of that subpart for more a more detailed 
discussion of the hours and activities requirements.
    Below, we discuss the rationale for the definitions that are 
included in Sec.  261.2.
    Unsubsidized employment means full- or part-time employment in the 
public or private sector that is not subsidized by TANF or any other 
public program.
    The determination of whether or not employment is subsidized 
depends on whether the employer, rather than the recipient, receives a 
subsidy. If an employer receives a direct subsidy for hiring a 
recipient from TANF or other public funds, that recipient would be 
considered to be in subsidized public or private sector employment. 
This definition does not apply to recipients whose employers claim a 
tax credit for hiring economically disadvantaged workers. While such 
tax credits are designed to foster the employment of low-income 
workers, traditionally they have not been treated as ``subsidized 
employment'' in the context of welfare.
    All TANF recipients in unsubsidized employment are, by definition, 
receiving a subsidy--their TANF assistance grant. The receipt of this 
grant, however, does not constitute subsidized employment, as long as 
the employer receives no direct subsidy for employing the recipient. 
Recipients in unsubsidized employment also may receive work-related 
subsidies, such as child care, transportation, and other support 
services.
    Self-employment may count as unsubsidized employment. Self-
employment may include, but is not limited to, domestic work and the 
provision of child care. As we explain in the preamble to Sec.  261.60, 
a State may not count more hours toward the participation rate for a 
self-employed individual than the number derived by dividing the 
individual's self-employment income (gross income less business 
expenses) by the Federal minimum wage.
    We are defining both subsidized private sector employment and 
subsidized public sector employment as employment for which the 
employer receives a subsidy from TANF or other public funds to offset 
some or all of the wages and costs of employing a recipient. Subsidized 
employment differs from unsubsidized employment in that the employer 
receives a subsidy. It differs from work experience in that the 
participant is paid wages and receives the same benefits as a non-
subsidized employee who performs similar work.
    There are several ways to operate a subsidized employment program. 
One approach is to use TANF funds that would otherwise be paid as 
assistance to reimburse some or all of an employer's costs for the 
wages, benefits, and/or the additional costs of employment-related 
taxes and insurance. (Under the Aid to Families with Dependent Children 
(AFDC) program, this approach was called ``work supplementation'' or 
``grant diversion.'')
    A second model is one in which a third party acts as the employer 
of record during the trial period, like a temporary staffing agency. 
For example, a private, for-profit organization may

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contract with a welfare agency and serve as the employer of record 
while the participant works for a private-sector company for a trial 
period. The organization receives a fee from the TANF or other public 
agency (and employers) to cover the participant's salary and support 
services, including on-site follow-up for both employers and employees. 
The total amount of the payment to the private, for-profit organization 
depends on how successful it is in placing and keeping employees in 
jobs.
    Supported work for individuals with disabilities, as defined under 
the Rehabilitation Act of 1973 (29 U.S.C. 705(35)), also could be 
counted as subsidized employment. Supported work for individuals with 
disabilities means work in an integrated setting (i.e., where people 
with and without disabilities work in the same place) for wages 
consistent with those paid to non-disabled workers with similar job 
functions. The workers with disabilities may receive individualized 
services such as, but not limited to, transportation, family support, 
or additional supervision. To the extent that supported work also 
includes intensive on-site training activities, it may be counted as 
on-the-job training, discussed below.
    Regardless of the approach, the employer is subject to the 
requirements of the Fair Labor Standards Act (FLSA) and, as a result, 
must pay the participant wages that equal or exceed the applicable 
Federal or State minimum wage. We recommend that States generally limit 
the duration of subsidized employment programs to six to twelve months; 
however, longer durations may be appropriate for supported employment 
of individuals with disabilities, as long as they are justified by an 
individualized needs assessment.
    During this trial period in which the costs of employment are being 
subsidized, the employer should provide necessary training, guidance, 
and direction to an employee. At the end of the subsidy period, the 
employer is expected to retain the participant as a regular employee 
without receiving a subsidy. States should not allow employers to 
recycle TANF recipients in subsidized employment slots, thereby 
reducing their competitive labor costs.
    We considered whether to regulate the rate of reimbursement to 
employers and the duration of a subsidized employment position. We 
decided against specifying limits because States should have the 
flexibility to design a program that meets their needs and the needs of 
the individuals they serve. However, the goal of subsidized employment 
should be to prepare participants for and move them into unsubsidized 
employment.
    Receipt of employment subsidies provided through the tax code, 
including Federal tax credits, such as the Work Opportunity Tax Credit 
(WOTC) and the Welfare-to-Work Tax Credit (WWTC), does not make 
subsidized employment of an otherwise unsubsidized job for purposes of 
this definition. These tax credits subsidize employers who hire welfare 
recipients or other hard-to-employ groups. TANF agencies, however, may 
not know whether employers use such tax credits and employers may not 
file for them until well after they have hired recipients. We consider 
participants supported by Federal tax credits only to be in 
``unsubsidized employment.''
    Subsidized private or public sector employment also does not 
include ``on-the-job training'' programs, where employers are 
subsidized to offset the costs of training. (See the discussion of on-
the-job training below.)
    Work experience (including work associated with the refurbishing of 
publicly assisted housing) if sufficient private sector employment is 
not available means a work activity, performed in return for welfare, 
that provides an individual with an opportunity to acquire the general 
skills, training, knowledge, and work habits necessary to obtain 
employment. The purpose of work experience is to improve the 
employability of those who cannot find unsubsidized employment. This 
activity must be supervised by an employer, work site sponsor, or other 
responsible party daily. Work experience programs are sometimes called 
``workfare'' because participants continue to receive their TANF grant.
    Some existing State work experience programs include activities 
that fall outside this definition. For example, several States count 
job search, job readiness activities, and vocational educational 
training as part of a work experience program. In some instances, it 
appears that States integrated these activities into work experience to 
avoid various limitations, such as the six-week limitation on counting 
job search and job readiness assistance. We will not permit these 
practices under this interim final rule.
    Work experience participants continue to receive their TANF grant 
while they are taking part in work and training activities similar to 
those of paid employees. They do not receive wages or compensation. 
Nonetheless, they may be considered employees for the purpose of the 
Fair Labor Standards Act (FLSA). According to the Department of Labor's 
May 1997 guidance, ``How Workplace Laws Apply to Welfare Recipients,'' 
``[w]elfare recipients in `workfare' arrangements, which required 
recipients to work in return for their welfare benefits, must be 
compensated at the minimum wage if they are classified as `employees' 
under the Fair Labor Standard Act's (FLSA) broad definition.'' The FLSA 
applies if there is an employment relationship between an employer and 
an employee. But the FLSA uses a broader definition than is often used 
for tax or unemployment purposes. To ``employ'' under the FLSA, means 
to ``suffer or permit to work.'' If recipients engaged in work 
experience activities are ``employees'' under the FLSA definition, they 
must be compensated at the applicable minimum wage. The FLSA's overtime 
pay (for over 40 hours in a work week), child labor, and recordkeeping 
requirements also apply.
    The TANF assistance and benefits that these work experience 
participants receive are not considered wages for Social Security 
purposes, nor are they considered taxable income for purposes of the 
Federal income tax or the Earned Income Tax Credit. However, a State 
might consider a participant in work experience to be an employee of 
the State for purposes of workers' compensation coverage.
    We considered whether to regulate the duration of a traditional 
work experience position. We decided against specifying limits. States 
should have the flexibility to design programs that meet both their 
needs and those of the individuals they serve. However, the goal of 
work experience should be to prepare participants for and move them 
into unsubsidized employment or other program activities that can help 
in this transition.
    On-the-job training (OJT) means training in the public or private 
sector that is given to a paid employee while he or she is engaged in 
productive work and that provides knowledge and skills essential to the 
full and adequate performance of the job. On-the-job training must be 
supervised by an employer, work site sponsor, or other responsible 
party daily.
    In this type of activity, States may subsidize the employer to 
offset the cost of the training provided to the participant. Upon 
satisfactory completion of the training, we expect the employer to 
retain the participant as a regular employee without receiving a 
subsidy.
    As noted under the discussion of subsidized employment, ``supported 
employment'' as defined under the

[[Page 37459]]

Rehabilitation Act of 1973 (29 U.S.C. 705(35)), may be counted as OJT 
if it includes significant on-site training in the knowledge and skills 
essential to the full and adequate performance of the job. For example, 
a State Vocational Rehabilitation agency may provide a client with an 
onsite ``job coach'' who teaches job skills in the context of 
productive work. If ``supported employment'' includes an employer 
subsidy and other supportive services but does not include on-site 
training, it should be counted as subsidized employment.
    We defined OJT as a component of employment, whether unsubsidized 
or subsidized. However, some elements of training may involve 
specialized preparation to prepare participants for a specific position 
with an employer and do not constitute employment. Such training may be 
more akin to vocational educational training. While we have tried to 
define work activities so that they do not overlap, OJT combines some 
elements of subsidized employment, vocational education and other forms 
of training. We are interested in receiving comments about whether we 
should broaden the definition beyond paid employment to include other 
aspects of training.
    Job search and job readiness assistance means the act of seeking or 
obtaining employment, preparation to seek or obtain employment, 
including life skills training, and substance abuse treatment, mental 
health treatment, or rehabilitation activities for those who are 
otherwise employable. Job search and job readiness assistance 
participants should be supervised on an ongoing basis no less 
frequently than daily. Readers should refer to Sec.  261.34 (which is 
not revised in this interim final rule) for a discussion of the time 
limitations that apply to this activity.
    ``Job search and job readiness assistance'' is a single component 
for Federal participation standards. The ``job search'' aspect of this 
component is largely self-explanatory and we define it as ``the act of 
seeking or obtaining employment,'' which should encompass all 
reasonable job search initiatives. As such, ``job search'' includes 
making contact with potential employers, whether by telephone, in 
person or via the Internet, to learn of suitable job openings, applying 
for vacancies, and interviewing for jobs.
    Our definition of ``job readiness assistance'' comprises two types 
of activities. The first is preparation necessary for an individual to 
seek or obtain employment. This includes activities such as preparing a 
resume or job application, training in interviewing skills, instruction 
in work place expectations (including instruction on appropriate attire 
and behavior on the job), and training in effective job seeking, as 
well as life skills training. The second is substance abuse treatment, 
mental health treatment, or rehabilitation activities for those who are 
otherwise employable. Such treatment or therapy must be determined to 
be necessary and certified by a qualified medical or mental health 
professional. Some individuals in the TANF caseload are capable of 
getting and keeping a job but for a substance abuse, mental heath, or 
other condition that treatment or rehabilitation activities would 
resolve. We have included these services as part of our definition to 
help such individuals make the transition from welfare to work.
    As with other work activities, a State may only count an 
individual's actual hours of participation in substance abuse 
treatment, mental health treatment, or rehabilitation activities and 
must document those hours as required at Sec. Sec.  261.60 and 261.61. 
If an individual does not have sufficient hours in substance abuse 
treatment, mental health treatment, or rehabilitation activities alone 
to count in the participation rate, he or she may still be counted in 
the calculation of the State's work participation rate by combining 
them with other allowable activities. Individuals in substance abuse 
treatment, mental health treatment, or rehabilitation activities are 
subject to the same hours requirements to count for participation that 
individuals in any other activities must meet. Please refer to 
Sec. Sec.  261.31 and 261.32 for more details about the number of hours 
needed to count a family in the participation rates.
    Our goal in incorporating substance abuse treatment, mental health 
treatment, and rehabilitative activities for those who are otherwise 
employable into this interim final rule is to ensure that States can 
meet the needs of all individuals in their caseloads struggling to 
escape welfare dependency. We are interested in receiving comments 
about our approach in this area.
    For substance abuse treatment, mental health treatment or 
rehabilitation activities that are not part of job search and job 
readiness assistance, States should be advised that a portion of those 
activities may count toward the work participation rate. If a portion 
of substance abuse treatment, mental health treatment or rehabilitation 
service meets a common-sense definition of work, then the hours 
associated with that work activity may count under the appropriate work 
category, such as work experience. For example, a State may place an 
individual who is otherwise able to work but for the need to reinforce 
substance abuse treatment into a special program in which a single 
provider coordinates work and treatment in a halfway house environment. 
As part of that treatment program, the individual also fulfills 
assigned supervised, documented work responsibilities for the benefit 
of all the residents, such as preparing meals, housecleaning, or 
scheduling group activities. In that case, the State may report the 
hours the individual was in the work portion of the program, i.e., 
performing work that meets the requirements of these rules. The time 
the individual spent in the treatment component does not count in the 
work category.
    Some States currently incorporate as part of job search and job 
readiness assistance programs that would fall outside our new 
definition. For example, at least one State incorporates activities 
``that are essential to the health, safety and welfare of families,'' 
including activities associated with a child's dental checkups, 
immunization, and school attendance. Parenting skills training or 
participating in Head Start is part of the definition in more than one 
State. Another State includes personal care during recovery from a 
medical problem, bed rest, hospitalization, and activities that promote 
a healthier lifestyle, such as smoking cessation. These are valuable 
and important things for a family to address or may be medically 
appropriate, but they do not constitute work or direct preparation for 
work. Thus, these activities may not count as job search and job 
readiness assistance. Only programs that involve seeking and preparing 
for work can meet this definition.
    Current State definitions of job search and job readiness also 
include one or more of the other eleven countable work activities. For 
example, one State lists remedial education and English as a Second 
Language (ESL) as part of job search and job readiness. These 
activities more closely fit our definition of job skills training 
directly related to employment or education directly related to 
employment and should be counted under those activities, as 
appropriate.
    Some States have asked us what constitutes a week for the 
limitations on counting no more than six weeks per fiscal year of job 
search and job readiness assistance, no more than four of which may be 
consecutive. We believe that the most commonly understood and simplest 
way to answer this question is to use the ordinary

[[Page 37460]]

definition of a week: seven consecutive days. Whether the State starts 
counting an individual's participation on a Monday, a Wednesday or any 
other day, a week ends seven days later, regardless of how many hours 
the individual participated in the course of those seven days. If an 
individual participates for more than four consecutive weeks or a total 
of six weeks in a fiscal year, the State may not count those hours 
toward the participation rate.
    Community service programs mean structured programs in which TANF 
recipients perform work for the direct benefit of the community under 
the auspices of public or nonprofit organizations. We limit community 
service programs to projects that serve a useful community purpose. 
This includes programs in fields such as health, social service, 
environmental protection, education, urban and rural redevelopment, 
welfare, recreation, public facilities, public safety, and child care. 
Community service programs must be designed to improve the 
employability of recipients not otherwise able to obtain employment and 
must be supervised on an ongoing basis no less frequently than daily. A 
State agency shall take into account, to the extent possible, the prior 
training, experience, and skills of a recipient in making appropriate 
community service assignments.
    This definition limits the activity to what many commonly think of 
as ``community service.'' It excludes, for example, activities such as 
participation in a substance abuse treatment program, mental health and 
family violence counseling, life skills classes, parenting classes, job 
readiness instruction, and caring for a disabled household member, 
which while important and beneficial, are not primarily directed to 
benefiting the greater community. As we stated in the preamble to the 
original final TANF rule (64 FR 17778, April 12, 1999), ``The fact that 
something has value or is integral to a countable activity does not 
necessarily mean it can count as participation.'' We reaffirm that 
perspective under this interim final rule.
    Community service programs must include structured activities that 
both provide a community service and also improve the employability of 
participants. Some existing State community service programs allow and 
count unstructured activities that are undertaken with little or no 
supervision. One State, for example, considers shoveling a neighbor's 
sidewalk or helping a friend with errands to be community service. 
Another State counts serving as a foster parent as a community service. 
Although these activities benefit the community, they do not 
necessarily involve real supervision or help an individual move toward 
self-sufficiency. Unlike other work activities, Congress added the term 
``programs'' after community service, suggesting that allowable 
activities should involve structure and supervision. Thus, shoveling 
sidewalks would meet this criterion only if done as part of a 
neighborhood maintenance program undertaken by a public or nonprofit 
agency. In such an environment, this activity would not only address 
unmet community needs, but also would help participants develop basic 
works skills, improve work habits, and help move participants toward 
employment.
    In addition, community service programs do not include activities 
that meet the definition of another allowable TANF work activity. 
Several States, for example, count job search and job readiness 
activities, and vocational educational training as part of a community 
service program. Doing so effectively avoids statutory limitations on 
these allowable TANF work activities, such as the six-week limitation 
on counting ``job search and job readiness'' activities, the 12-month 
limitation on vocational educational training, and the 30-percent limit 
on counting individuals in vocational educational training. Some States 
also count participation in otherwise unallowable educational 
activities as community service. Under our definition, States may not 
define countable community service programs so broadly as to circumvent 
statutorily-imposed restrictions on other TANF activities.
    We recognize that there may be instances in which other activities 
are embedded within the community service activity. For example, an 
individual providing clerical support might attend computer training 
classes as part of the community service if the assigned activity 
requires it. Short-term training or similar activities may be counted 
as community service as long as such activities are of limited duration 
and are a necessary or regular part of the community service. 
Activities that are not an integral part of community service cannot 
count. For example, substance abuse treatment may be a prerequisite for 
participation in work activities, but it does not count under community 
service because it is not an integral part of the community service 
activity.
    Examples of programs and activities that fit under our definition 
of community service include, but are not limited to, work performed 
for a school (e.g., serving as a teacher's aide), Head Start program 
(e.g., helping as a parent volunteer), church (e.g., preparing meals 
for the needy), or government/nonprofit agency (e.g., providing 
clerical support), as well as participation in volunteer organizations 
such as Americorps, Volunteers in Service to America (VISTA), or 
private volunteer organizations.
    Vocational educational training (not to exceed 12 months with 
respect to any individual) means organized educational programs that 
are directly related to the preparation of individuals for employment 
in current or emerging occupations requiring training other than a 
baccalaureate or advanced degree. Vocational educational training 
participants should be supervised no less frequently than daily.
    Vocational educational training programs should be limited to 
activities that give individuals the knowledge and skills to perform a 
specific occupation. Under AFDC and the Job Opportunities and Basic 
Skills (JOBS) Training programs, basic and remedial education, 
education in English proficiency, and postsecondary education were 
statutorily authorized activities. However, PRWORA did not include 
these activities as separate work activities. Although they may help 
prepare individuals for employment, they are generally not considered 
vocational education or training and Congress purposely concentrated 
the TANF work activities on those focused on employment.
    Some existing State vocational educational training programs allow 
other educational activities such as basic skills, language training, 
and postsecondary education leading to a baccalaureate or advanced 
degree. We are explicitly restricting these practices to prevent the 
use of the term ``vocational educational training'' from covering 
virtually any educational activity. In particular, the TANF program was 
not intended to be a college scholarship program for postsecondary 
education. Programs authorized by the Higher Education Act of 1965 (and 
subsequent amendments) support these longer-term educational 
activities. In contrast, activities such as basic education and 
language training qualify as education directly related to employment.
    Some States count education leading to a high school diploma as 
vocational educational training. Although vocational education is often 
provided in high school, minor parents attending high school, even if 
in a vocational education track, should be counted as

[[Page 37461]]

participating in ``satisfactory attendance at secondary school or in a 
course of study leading to a certificate of general equivalence.'' 
Doing so avoids triggering the lifetime 12-month limit on the use of 
vocational educational training.
    We recognize that there may be instances in which basic skills 
education is embedded within a vocational educational training 
activity. Such basic skills education may be counted as vocational 
educational training as long as it is of limited duration and is a 
necessary or regular part of the vocational educational training. Basic 
skills education of this nature may enhance preparation for the labor 
market by giving participants an opportunity to apply their learning in 
the context of their future jobs.
    Our definition of vocational educational training narrows the scope 
of what counts for this activity to programs that prepare participants 
for a specific trade, occupation, or ``vocation.'' This definition is 
consistent with definitions used in other Federal programs that provide 
vocational education, such as the Carl D. Perkins Vocational and 
Applied Technology Education Act of 1990. Even so, this definition 
could overlap with other TANF work activities that provide training, 
including on-the-job training and job skills training. Since we want to 
define work activities that are mutually exclusive, we are interested 
in comments on how States currently implement this component and 
whether the definition should be broadened.
    Vocational educational training must be provided by education or 
training organizations, which may include, but are not limited to, 
vocational-technical schools, community colleges, postsecondary 
institutions, proprietary schools, non-profit organizations, and 
secondary schools that offer vocational education.
    Under vocational educational training, States may not count 
unsupervised homework time as part of the hours of participation. We 
do, however, permit hours to count where a State structures a 
vocational educational training program to include monitored study 
sessions and it can document the hours of participation.
    Job skills training directly related to employment means training 
and education for job skills required by an employer to provide an 
individual with the ability to obtain employment or to advance or adapt 
to the changing demands of the workplace. Job skills training can 
include customized training to meet the needs of a specific employer or 
it can be general training that prepares an individual for employment. 
This can include literacy instruction or language instruction when such 
instruction is explicitly focused on skills needed for employment or 
combined in a unified whole with job training. Job skills training 
directly related to employment should be supervised on an ongoing basis 
no less frequently than daily.
    Some States include barrier removal activities as job skills 
training, such as substance abuse counseling and treatment, mental 
health services, and other rehabilitative activities. While we 
encourage States to work with individuals in these areas, the 
definition of job skills training focuses on educational or technical 
training that is designed specifically to help individuals move into 
employment.
    Education directly related to employment, in the case of a 
recipient who has not received a high school diploma or a certificate 
of high school equivalency means education related to a specific 
occupation, job, or job offer. This includes courses designed to 
provide the knowledge and skills for specific occupations or work 
settings, but may also include adult basic education and ESL. Where 
required as a prerequisite for employment by employers or occupations, 
this activity may also include education leading to a General 
Educational Development (GED) or high school equivalency diploma. 
Participants in education directly related to employment should be 
supervised on an ongoing basis no less frequently than daily.
    Participants should make ``good or satisfactory progress'' in order 
for their hours to count. This includes a standard of progress 
developed by the educational institution or program in which the 
recipient is enrolled. Good or satisfactory progress should be judged 
by both a qualitative measure of progress, such as grade point average, 
as well as a quantitative measure, such as a time frame within which a 
participant is expected to complete such education. We are interested 
in receiving comments that describe other possible criteria or 
definitions for what constitutes making ``good or satisfactory 
progress.''
    As under other TANF educational activities, States may not count 
unsupervised homework time as part of the hours of participation for 
this activity. We do permit hours to count where a State structures a 
program of education directly related to employment to include 
monitored study sessions and it can document the hours of 
participation.
    Satisfactory attendance at secondary school or in a course of study 
leading to a certificate of general equivalence, in the case of a 
recipient who has not completed secondary school or received such a 
certificate means regular attendance, in accordance with the 
requirements of the secondary school or course of study at a secondary 
school, or in a course of study leading to a certificate of general 
equivalence, in the case of a recipient who has not completed secondary 
school or received such a certificate. The former is aimed primarily at 
minor parents still in high school, whereas the latter could apply to 
recipients of any age. Unlike ``education directly related to 
employment,'' this activity need not be restricted to those for whom 
obtaining a GED is a prerequisite for employment. However, this 
activity may not include other related educational activities, such as 
adult basic education or language instruction unless it is linked to 
attending a secondary school or leading to a GED. Participants in this 
activity should be supervised on an ongoing basis no less frequently 
than daily.
    In addition to regular school attendance at a secondary school or 
in a course of study leading to a certificate of general equivalence, 
participants should be making ``good or satisfactory progress'' for the 
activity to count. This includes a standard of progress developed 
either by the State or by the educational institution or program in 
which the recipient is enrolled. In addition, it must include both a 
qualitative measure of progress, such as grade point average, as well 
as a quantitative measure, such as a time frame within which a 
participant is expected to complete such education. We are interested 
in receiving comments that describe possible criteria or definitions 
for what constitutes making ``good or satisfactory progress.''
    As under other TANF educational activities, States may not count 
unsupervised homework time as part of the hours of participation for 
this activity. We do permit hours to count where a secondary school or 
structured GED program includes monitored study sessions and it can 
document the hours of participation.
    Providing child care services to an individual who is participating 
in a community service program means providing child care to enable 
another TANF recipient to participate in a community service program. 
Participants in this activity should be supervised on an ongoing basis 
no less frequently than daily.
    It does not include providing child care to enable a TANF recipient 
to participate in any of the other eleven allowable work activities. 
Child care

[[Page 37462]]

provided to TANF recipients (and others) in other activities typically 
involves payment for services rendered and would be classified as 
unsubsidized employment. Indeed, providing child care for TANF 
recipients in community service could also be considered under other 
TANF work activities, such as unsubsidized employment, work experience, 
or community service. We are interested in comments that describe how 
this activity differs and might be distinguished from other work 
activities.
    We caution States to implement this activity responsibly. Because 
assistance is time-limited, States should ensure that the activity is 
effective in helping move the provider toward self-sufficiency. 
Training, certification or mentoring will help make the activity 
meaningful and could be a first step toward the provider's employment 
in the child care field.
    The Deficit Reduction Act of 2005 also requires us to include 
families receiving assistance under a separate State program that is 
funded with money counted towards the State's MOE requirement and to 
specify the circumstances under which a parent who resides with a child 
who is a recipient of assistance should be included in the work 
participation rates. The simplest way for us to do this was to use a 
new term, ``work-eligible individual'' to describe anyone whose 
participation in work activities contributes to determining whether the 
family counts in the calculation of the work participation rate. We 
drew the term from the heading to the statutory section with this new 
requirement.
    Thus we define a work-eligible individual as one of two types of 
adults. The first is an adult (or minor child head-of-household) 
receiving assistance under TANF or a separate State program, unless 
excluded. The second is a non-recipient parent living with a child 
receiving assistance, unless the parent is a member of one of three 
excluded groups of parents described below.
    In drafting this provision of the regulations, we considered in 
turn each type of family in which a parent resides with a child 
recipient of assistance to determine whether it was appropriate to 
include that group of families in the calculation of the work 
participation rates. We chose to exclude the following non-recipient 
parents living with a child receiving assistance from the definition of 
work-eligible individual: a minor parent who is not a head-of-household 
(or a spouse of head-of-household); an alien who is ineligible to 
receive assistance due to his or her immigration status; and, at State 
option on a case-by-case basis, a recipient of Supplemental Security 
Income (SSI) benefits. We have excluded these groups because they 
either cannot receive TANF-funded services or it would be inappropriate 
to require them to work. For example, many immigrant families lack a 
work authorization or permit and requiring these adults to work would 
be a violation of their immigration status. In the case of non-
recipient minor parents, we want to encourage them to stay in school 
and complete their education.
    Unless otherwise excluded above, we chose to include all other non-
recipient parents living with a child receiving assistance as work-
eligible individuals. This new language primarily adds child-only cases 
to the work participation rates, but could include some two-parent 
cases where both parents live in the household but one is not part of 
the assistance unit. In particular, it adds families in which non-
recipient pa