Trade Adjustment Assistance; Merit Staffing of State Administration and Allocation of Training Funds to States; Proposed Rule, 39198-39209 [E9-18625]

Agencies

• Employment and Training Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 74, Number 149 (Wednesday, August 5, 2009)]
[Proposed Rules]
[Pages 39198-39209]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-18625]



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Part III





Department of Labor





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Employment and Training Administration



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20 CFR Part 618



Trade Adjustment Assistance; Merit Staffing of State Administration and 
Allocation of Training Funds to States; Proposed Rule

Federal Register / Vol. 74 , No. 149 / Wednesday, August 5, 2009 / 
Proposed Rules

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DEPARTMENT OF LABOR

Employment and Training Administration

20 CFR Part 618

RIN 1205-AB56


Trade Adjustment Assistance; Merit Staffing of State 
Administration and Allocation of Training Funds to States; Proposed 
Rule

AGENCY: Employment and Training Administration, Labor.

ACTION: Proposed Rule; request for comment.

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SUMMARY: On February 17, 2009, President Obama signed into law the 
American Recovery and Reinvestment Act of 2009, commonly called the 
Recovery Act, which reauthorized and significantly amended the Trade 
Adjustment Assistance for Workers (TAA) program under the Trade Act of 
1974, as amended (Trade Act). In accordance with those amendments, the 
Employment and Training Administration (ETA) of the Department of Labor 
(Department) is issuing this notice to propose regulations addressing 
how the Department distributes TAA training funds to the States that 
administer the program as agents of the United States. The notice also 
proposes that personnel engaged in TAA-funded functions undertaken to 
carry out the worker adjustment assistance provisions must be State 
employees covered by the merit system of personnel administration 
applicable to personnel engaged in employment security administration.

DATES: Interested persons are invited to submit comments on this 
proposed rule. To ensure consideration, comments must be received on or 
before October 5, 2009. The Department will not consider any comments 
received after the above date.

ADDRESSES: You may submit comments, identified by Regulatory 
Information Number (RIN) 1205-AB56, by any one of the following 
methods:
     Federal e-Rulemaking Portal: https://www.regulations.gov. 
Follow the Web site instructions for submitting comments.
     Mail and hand delivery/courier: Written comments, disk, 
and CD-ROM submissions may be mailed to Thomas M. Dowd, Administrator, 
Office of Policy Development and Research, U.S. Department of Labor, 
200 Constitution Avenue, NW., Room N-5641, Washington, DC 20210.
    Instructions: Label all submissions with RIN 1205-AB56.
    Please submit your comment by only one method. Please be advised 
that the Department will post all comments received on https://www.regulations.gov without making any change to the comments, or 
redacting any information. The https://www.regulations.gov Web site is 
the Federal e-rulemaking portal and all comments posted there are 
available and accessible to the public. Therefore, the Department 
recommends that commenters safeguard any personal information such as 
Social Security Numbers, personal addresses, telephone numbers, and e-
mail addresses included in their comments as such information may 
become easily available to the public via the https://www.regulations.gov Web site. It is the responsibility of the commenter 
to safeguard any such personal information.
    Also, please note that due to security concerns, postal mail 
delivery in Washington, DC may be delayed. Therefore, the Department 
encourages the public to submit comments on https://www.regulations.gov.
    Docket: All comments on this proposed rule will be available on the 
https://www.regulations.gov Web site and can be found using RIN 1205-
AB56. The Department also will make all the comments it receives 
available for public inspection by appointment during normal business 
hours at the above address. If you need assistance to review the 
comments, the Department will provide you with appropriate aids such as 
readers or print magnifiers. The Department will make copies of the 
rule available, upon request, in large print and electronic file on 
computer disk. The Department will consider providing the rule in other 
formats upon request. To schedule an appointment to review the comments 
and/or obtain the rule in an alternative format, contact the Office of 
Policy Development and Research at (202) 693-3700 (this is not a toll-
free number). You may also contact this office at the address listed 
above.

FOR FURTHER INFORMATION CONTACT: Thomas M. Dowd, Administrator, Office 
of Policy Development and Research, U.S. Department of Labor, 200 
Constitution Avenue, NW., Room N-5641, Washington, DC 20210; telephone 
(202) 693-3700 (this is not a toll-free number).
    Individuals with hearing or speech impairments may access the 
telephone number above via TTY by calling the toll-free Federal 
Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION: The preamble to this proposed rule is 
organized as follows:

I. Background--provides a brief description of the development of 
the proposed rule.
II. Rationale for the Proposed Rule--summarizes the reasons for the 
proposed rule.
III. Section-by-Section Review of the Proposed Rule--summarizes and 
discusses the provisions of the proposed regulations.
IV. Administrative Information--sets forth the applicable regulatory 
requirements.

I. Background

    The TAA program, under chapter 2 of title II of the Trade Act, 
provides adjustment assistance (including training, case management and 
reemployment services, income support, job search and relocation 
allowances, a wage supplement option for older workers, and eligibility 
for a health coverage tax credit) for workers whose jobs have been 
adversely affected by international trade. There are two steps for 
workers to obtain program benefits. A group of workers, or specified 
entities, must file, with the Department and the State in which the 
jobs are located, a petition for certification of eligibility to apply 
for TAA benefits and services. (The States administer the TAA program 
as agents of the United States. They do so through a State agency 
designated as the Cooperating State Agency (CSA) in an agreement 
between the Secretary of Labor (Secretary) and the Governor (the 
Governor-Secretary agreement), as required under section 239 of the 
Trade Act. The CSA may also include the State Workforce Agency (if 
different) and other State or local agencies that cooperate in the 
administration of the TAA program, as provided in the Governor-
Secretary agreement. If the Department certifies the petition, based 
upon statutory criteria that test whether the group of workers was 
adversely affected by international trade, then the workers may 
individually apply with the CSA for TAA benefits and services.
    The Trade and Globalization Adjustment Assistance Act of 2009 
(TGAAA), a part of the Recovery Act (Pub. L. 111-5, Div. B, Title I, 
Subtitle I), reauthorized and substantially amended the TAA program by 
amending the certification criteria to expand the types of workers who 
may be certified and by expanding the available program benefits. 
Section 1893 of the TGAAA provides that, for the most part, the TGAAA 
amendments will expire on December 31, 2010. The TGAAA amendments 
generally apply to workers covered under petitions for

[[Page 39199]]

certification filed on or after May 18, 2009, and before January 1, 
2011. To incorporate into regulations the substantial changes to the 
TAA program, the Department proposes creating a new 20 CFR part 618, 
which will implement the entirety of the TAA program, including the 
changes made by the TGAAA amendments.
    This will be done through two rulemakings. This first rulemaking 
addresses the allocation of TAA training funds to the States and merit 
staffing of State administration of the program. (The TGAAA uses the 
term ``apportion'' when discussing the dividing of training funds among 
the States, but this proposed rule uses the term ``allocation'' to 
avoid confusion, since customarily the Office of Management and Budget 
``apportions'' appropriated funds to the Department, which 
``allocates'' them to the States.) The Department plans a second 
rulemaking that will implement the remainder of the TAA program.
    The Department published two Notices of Proposed Rulemaking (NPRMs) 
in 2006 that were part of a rulemaking process to implement the 
amendments made by the Trade Adjustment Assistance Reform Act of 2002 
(Pub. L. 107-210). The Department first published a NPRM covering TAA 
program benefits and administration (71 FR 50760, Aug. 25, 2006), and 
soon thereafter published a NPRM covering the Alternative Trade 
Adjustment Assistance for Older Workers (ATAA) program (71 FR 61618, 
Oct. 18, 2006). Then, Congress, in the Continuing Appropriations 
Resolution, 2007 (Pub. L. 110-5), the Consolidated Appropriations Act, 
2008 (Pub. L. 110-161), and the Omnibus Appropriations Act, 2009 (Pub. 
L. 111-8), explicitly prohibited the Department from finalizing or 
implementing these proposed regulations until the Trade Act was 
reauthorized. However, the substantial amendments made by the TGAAA 
rendered the two 2006 NPRMs obsolete, and therefore the Department 
withdrew them on June 9, 2009 (74 FR 27262).

II. Rationale for the Proposed Rule

Merit Staffing

    This rulemaking proposes that a State must, after a transition 
period, engage only State government personnel to perform TAA-funded 
functions undertaken to carry out the worker adjustment assistance 
provisions of the Trade Act and must apply to such personnel the 
standards for a merit system of personnel administration, in accordance 
with Office of Personnel Management (OPM) regulations at 5 CFR Part 
900, Subpart F. These OPM regulations specify the merit system 
standards required for certain Federal grant programs, and have long 
been required for personnel administering Unemployment Insurance (UI) 
(section 303(a)(1) of the Social Security Act) and Wagner-Peyser Act-
funded Employment Service (ES) programs in the States (20 CFR 652.215). 
Under this proposed rule, TAA-funded personnel would be subject to the 
same State merit system requirements applicable to personnel 
administering the UI and ES programs in a State. The purpose of this 
proposed requirement is to promote consistency, efficiency, 
accountability, and transparency in the administration of the TAA 
program.
    The merit system standards contained in 5 CFR 900.603 are as 
follows:

    (a) Recruiting, selecting, and advancing employees on the basis 
of their relative ability, knowledge, and skills, including open 
consideration of qualified applicants for initial appointment.
    (b) Providing equitable and adequate compensation.
    (c) Training employees, as needed, to assure high quality 
performance.
    (d) Retaining employees on the basis of the adequacy of their 
performance, correcting inadequate performance, and separating 
employees whose inadequate performance cannot be corrected.
    (e) Assuring fair treatment of applicants and employees in all 
aspects of personnel administration without regard to political 
affiliation, race, color, national origin, sex, religious creed, age 
or handicap and with proper regard for their privacy and 
constitutional rights as citizens. This ``fair treatment'' principle 
includes compliance with the Federal equal employment opportunity 
and nondiscrimination laws.
    (f) Assuring that employees are protected against coercion for 
partisan political purposes and are prohibited from using their 
official authority for the purpose of interfering with or affecting 
the result of an election or a nomination for office.

    From 1975, when the Department began administering the TAA program, 
until 2005, the Governor-Secretary agreements required that TAA-funded 
administrative functions be carried out exclusively by staff subject to 
these merit system standards. In 2005, the Governor-Secretary 
agreements were modified to exempt from the merit system standards 
personnel engaged in the administration of the TAA program, other than 
those personnel who also were engaged in administering the UI and ES 
programs. This proposed rule would restore what had been the long-
standing practice of using merit staffed personnel to administer the 
TAA program.
    Requiring the use of State merit staff is particularly appropriate 
given the nature of the TAA program. The TAA program is a complex 
entitlement program that requires that the States, acting as agents of 
the United States, make substantive determinations about the services 
and benefits that are to be provided to workers. Section 239 of the 
Trade Act specifically provides that the States are agents of the 
United States in administering TAA, which is distinct from the 
relationship under other Federally-funded workforce investment 
programs, such as Title I of the Workforce Investment Act of 1998 
(WIA). Under these other programs, there is a grantor-grantee 
relationship under which the Department allocates funds to the States 
to perform public purposes, but the States have considerable discretion 
in how they carry out those purposes. In contrast, the Trade Act 
establishes a principal-agent relationship, under which the Department 
directs State program administration.
    This principal-agent relationship is established because, unlike 
participants in WIA-funded workforce investment programs, workers under 
the TAA program are legally entitled to receive Federally-funded 
services and benefits if they meet exclusively Federal eligibility 
criteria. The wide range of benefits and services to which a worker may 
be entitled under the TAA program, each of which requires a separate 
determination based on distinct criteria, and are subject to continuing 
eligibility, includes the payment of income support (trade readjustment 
allowances (TRA)); the payment of wage supplements under ATAA and 
reemployment trade adjustment assistance (RTAA); the payment of job 
search and relocation allowances; and the approval of and enrollment in 
training and the issuance of waivers of the training requirement as a 
condition of TRA. The TGAAA added a requirement to provide employment 
and case management services to eligible TAA-certified workers, 
underscoring Congress' recognition that the proper provision of these 
services is essential to ensure that workers receive the full range of 
benefits and services to which they are entitled. The TGAAA also added 
the RTAA benefit, enhanced other benefits and services, and expanded 
group eligibility for the TAA program. These features add complexity 
and additional challenges to the administration of the TAA program.
    The other major State entitlement program overseen by the 
Department is the UI program, which is administered by State merit 
staff, as required as a

[[Page 39200]]

condition of receipt of UI administrative grants under 42 U.S.C. 
503(a)(1). The TAA and UI programs are integrally related. TRA, the 
Federally funded income support provided under the TAA program, is a UI 
benefit payable after exhaustion of other forms of UI, and is subject 
to many of the same or similar requirements and procedures that apply 
to State UI. Indeed, the TRA weekly benefit amount is based on the 
State UI weekly benefit amount, and review of all determinations with 
respect to TAA entitlements (such as training, TRA and job search and 
relocation) must be conducted in the same manner and to the same extent 
as UI determinations under State law. The determination of an 
individual's entitlement to a publicly-funded benefit, such as TRA (a 
type of unemployment insurance), is an ``inherently governmental'' 
function, as defined in Office of Management and Budget (OMB) Circular 
No. A-76 (Revised) (68 FR 32134, May 29, 2003).
    It is imperative that where individual entitlement to services and 
benefits exists, there be consistency in the application of eligibility 
criteria and the treatment of workers nationally, and where the TAA 
program permits variation based upon State law, that there be 
consistency statewide. The Department believes that statewide 
consistency is best achieved by administering the TAA program through 
merit staff who are hired, trained and employed by one or two State 
agencies under the same merit system (the Governor-Secretary agreements 
provide that a State must designate a lead agency, though other 
agencies may assist in the provision of TAA benefits and services) and 
receive the same guidance and are accountable to the same State agency 
or agencies. Non-merit staff personnel employed outside of the State 
agency, often by several different employers that are either local 
agencies or non-profits, are subject to varying procedures and work 
rules, as well as different and potentially conflicting obligations to 
their actual employers, which is more likely to produce an inconsistent 
application of the eligibility criteria for the various TAA benefits 
and services.
    Similarly, placing administrative responsibility with the merit 
staffed personnel of one or two State agencies, rather than with 
personnel from a number of different entities and contractors with 
differing internal rules and practices, promotes efficiency and makes 
it easier to hold the State agencies accountable to address or remedy 
administrative issues that may arise. For example, a State agency is in 
a better position than a locally-based administrative structure to 
detail staff to areas in the State where their services are most needed 
in response to the layoff events that may trigger TAA eligibility and 
require services to large numbers of TAA workers. Focusing 
responsibility on State agencies also makes it easier for the public to 
know who administers the program and thereby further promotes 
accountability and transparency.
    State personnel serving under a merit system are non-partisan 
public servants who are directly accountable to government entities. 
The standards for their performance and their determinations on the use 
of public funds require that decisions be made in the best interest of 
the public and of the population to be served. The use of a State merit 
system is further intended to ensure that the administrative personnel 
meet objective professional qualifications, provide fair treatment to 
participants, comply with strict government standards on the use of 
personal information, and perform in a setting where decisions are made 
in accordance with high standards of public transparency. The 
Department believes that these features of a State merit system are 
appropriate to apply to the statewide administration of the TAA 
program.
    Under the amendments made by TGAAA, for the first time the TAA 
program will be able to devote its own funds to the provision of 
employment and case management services. The Department intends to 
ensure that these and other TAA-funded services are provided in a high 
quality and in-depth manner. TAA-certified workers currently receive 
many services, including supportive services and other wrap-around 
services that are funded and provided under other programs for which 
TAA-certified workers also qualify. The Department will continue to 
encourage the provision of services to TAA-certified workers by such 
other programs in order to supplement TAA-funded services. In fact, the 
Governor-Secretary agreements require coordination with activities 
carried out under WIA to help ensure that a comprehensive array of 
services is available to TAA-certified workers.
    The proposed merit staffing requirement would apply only to TAA-
funded functions undertaken to carry out the worker adjustment 
assistance provisions of the Trade Act. Thus, while the merit staffing 
requirement would apply to the approval of training, it would not 
extend to training providers. The requirement also would not prohibit a 
State from outsourcing ``non-inherently governmental'' functions 
ancillary to program administration, such as the provision of 
information technology support or janitorial services for State TAA 
staff. Unemployment Insurance Program Letter No. 12-01, Outsourcing of 
Unemployment Compensation Administrative Functions (Dec. 28, 2000), 66 
FR 1696 (Jan. 9, 2001), and its Change 1 (Nov. 26, 2007) applies this 
principle to the outsourcing of State UI activities, and the proposed 
rule would apply this principle to the outsourcing of State TAA 
activities.
    The authority the Department relies upon in proposing the merit 
staffing requirement is found in section 239 of the Trade Act and is 
the same authority under which the Department establishes the 
requirements of and executes the Governor-Secretary agreements. Section 
239 establishes the Department's role as principal in the principal-
agent relationship with the States, sets a number of conditions that 
must be included in the Governor-Secretary agreements and grants the 
Secretary broad authority to assure the proper and efficient 
functioning of the TAA program. Section 239(a)(1) provides that the 
States are agents of the United States in operating the program. The 
Department has the responsibility to ensure that, as its agents, the 
States administer the program in the most effective, efficient, 
consistent and transparent manner possible. For the reasons stated in 
this section, the Department has concluded that these goals can best be 
accomplished through the use of State merit staff.
    Other provisions in section 239 also provide authority for the 
Department's proposed rule. Section 239(a)(4) requires the States to 
``cooperate with the Secretary and with other State and Federal 
agencies in providing payments and services'' under the program, which 
affords the Secretary authority to ensure that payments and services 
are administered in a consistent and efficient manner through State 
merit staff. Section 239(e) requires coordination of employment 
services between the TAA and WIA programs ``on such terms and 
conditions as are established by the Secretary,'' which affords the 
Secretary the authority to establish merit staffing as a requirement 
for TAA-funded employment and case management services and in the 
approval of training. Section 239(e) also instructs the Department to 
consult with the States on how to administer the provisions of sections 
235 and 236 of the Trade Act and title I of the WIA. The Department has 
consulted with and continues to consult with the States on merit 
staffing of State TAA

[[Page 39201]]

administration. Finally, new section 239(i), added by the TGAAA, 
directs the Secretary to require each cooperating State and cooperating 
State agency ``to implement effective control measures and to 
effectively oversee the operation and administration'' of the TAA 
program, which the Department again has determined can be best carried 
out by requiring the use of State merit staff.
    To facilitate the implementation of the State merit staffing 
requirement in an orderly manner, and to assure that the staffing 
changes proposed in this rule do not disrupt the provision of services 
to eligible workers, the proposed rule allows for a transition period. 
The proposed rule requires the use of merit staff to carry out 
functions other than employment and case management services by July 1, 
2010. As explained below in the ``Allocation'' section of this 
preamble, the Department intends to issue a final rule on or before 
February 17, 2010. Thus, the States would have at least four and one-
half months to meet this requirement after the promulgation of the 
final rule. Recognizing that employment and case management services 
are a newly funded TAA function and that such services may have been 
provided through arrangements with other programs in the past, the 
proposed rule provides a longer transition period for merit staffing 
such services and requires the use of merit staff to carry out those 
services beginning October 1, 2010.
    The proposed rule permits the three States (Michigan, Colorado and 
Massachusetts) that are currently exempted from ES merit staffing 
requirements to continue to use non-State and non-merit staff 
authorized under those exemptions to administer functions under the TAA 
program, except that TRA must continue to be administered by State 
merit staff, as currently required under the Governor-Secretary 
Agreement. The Department proposes this exception because ES staff may 
administer TAA, which in turn can make it difficult for a State that 
does not use State merit staff for the ES program to also use State 
merit staff for the TAA program. This exception will prevent the 
complications that might arise in those States that are exempted from 
ES merit staffing requirements if they attempt to require both State 
merit staff and non-State or non-merit staff to perform similar 
functions within the same ES agency.
    In sum, given the nature of the TAA program as a complex 
entitlement program administered by the States as agents of the 
Department, the objectives of ensuring consistency, efficiency, 
accountability and transparency in the administration of the program 
can best be achieved by restoring the requirement that the program be 
administered by State merit staff. In so doing, the proposed rule 
advances the ultimate goal of the TAA program to provide effective 
benefits and services that will help trade-impacted workers obtain 
reemployment.

Allocation of Training Funds to States

    This proposed rule also provides for the Department's allocation of 
training funds to the States. Section 1828(a) of the TGAAA amended 
section 236(a)(2) of the Trade Act to increase the annual statutory 
``cap'' on TAA training funds and to set forth the terms under which 
the Department distributes these funds to the States. Section 1828(c) 
of the TGAAA added a new section 236(g)(1) to the Trade Act directing 
the Department to issue ``such regulations as may be necessary to carry 
out the provisions of subsection (a)(2)'' on or before February 17, 
2010. This NPRM proposes the regulations referred to in section 
236(g)(1).
    Before the TGAAA, the TAA program was most recently reauthorized in 
the Trade Adjustment Assistance Reform Act of 2002 (Pub. L. 107-210), 
which expanded program coverage and increased the training cap from $80 
million to $220 million to provide training for the newly covered 
workers. The TGAAA amendments further increased the cap to $575 million 
for each of fiscal years (FY) 2009 and 2010, and provided a cap of 
$143,750,000 for the period from October 1 to December 31, 2010. The 
Conference Report on the Recovery Act, H.R. Rep. No. 111-16, entitled 
Making Supplemental Appropriations for Job Preservation and Creation, 
Infrastructure Investment, Energy Efficiency and Science, Assistance to 
the Unemployed, and State and Local Fiscal Stabilization, for the 
Fiscal Year Ending September 30, 2009, and for Other Purposes 
(Conference Report), made clear that Congress increased the cap on 
training funds not only because of the expanded program coverage but 
also because training funds have at times been insufficient. H.R. Rep. 
No. 111-16, p. 672.
    The process by which training funds are allocated has also evolved 
over recent years. Before FY 2004, the Department allocated TAA 
training funds to the States entirely through a request process. States 
were not provided with any initial annual allocation of funds; instead, 
all distributions of TAA training funds were made in response to State 
requests. States would submit requests on an as-needed basis, but, 
because the requests typically far outstripped available training 
funds, the training funds regularly ran out early in the fiscal year. 
Once the TAA training funds were exhausted, States would request 
National Emergency Grant (NEG) funds under section 173 of the WIA to 
enable them to continue to enroll trade-affected workers in approved 
training. The uncertainty of the funding process made it difficult for 
the States to anticipate how much funding they would receive, and 
therefore made it difficult for the States to plan and manage 
resources. Thus, this process proved to be inefficient, protracted, and 
cumbersome.
    To address these problems, beginning with FY 2004, the Department 
issued annual guidance establishing a formula for allocating TAA 
training funds to the States. The Department first issued a specific 
funding formula for TAA training funds in Training and Employment 
Guidance Letter (TEGL) No. 6-03 (Oct. 1, 2003), and after a change in 
the weighting of the factors used in the formula for FY 2005, the 
formula remained the same through the beginning of FY 2009. The 
Department's formula-based methodology for State TAA funding initially 
allocated 75 percent of the Department's appropriation of a fiscal 
year's training funds and held the remaining 25 percent in reserve. The 
reserve funds could be accessed by States that had expended at least 50 
percent of their allocation, or otherwise demonstrated need. Each year, 
a TEGL described the formula for allocating the 75 percent initial 
distribution ($165 million) among the States. After FY 2005, the 
formula did not change from year to year, and the Department issued a 
TEGL each year as a reminder to the States and to indicate that the 
formula for that fiscal year would use data from the more current time 
periods. The TEGL on this topic for FY 2009 was TEGL No. 4-08 (Oct. 28, 
2008).
    Under the old formula, the Department allocated one-half of the 
funds based on accrued training expenditures, as reflected in the 
previous 2\1/2\ years' reported data, and allocated the other one-half 
based on the average number of training participants for the same 
reporting period. The Department calculated a State's percentage of 
total training expenditures by taking the State's average total 
expenditures over the previous 2\1/2\ years and dividing that number by 
the average national training expenditures during the same time period. 
Each State was assigned a weight representing each State's share of the 
national TAA activity. The weight was used to

[[Page 39202]]

determine a State's unadjusted base allocation for a fiscal year. This 
weight was calculated by using each of two factors as half of the total 
for the final weight each State receives. A State's unadjusted base 
allocation for a fiscal year was calculated by multiplying the State's 
weight against the training funds being allocated. Therefore, if a 
State represented 10 percent of the national participation and 
expenditures, the State weight would be 10 percent and the State would 
receive 10 percent of the $165 million as an unadjusted base 
allocation. If a State had an allocation of less than $100,000, the 
funds allocated for it were redistributed to the other States, and that 
State had to apply for reserve funding as needed.
    The formula included a hold harmless feature, under which the 
initial allocation to a State was held to at least 85 percent of the 
amount the State received in its initial allocation for the prior 
fiscal year. TEGL No 6-03 introduced the hold harmless feature with the 
creation of the formula in order to minimize fluctuations in State 
funding from year to year which, as explained above, made it hard for 
States to plan and manage resources. Although the hold harmless feature 
was an attempt to ensure funding stability while States were becoming 
accustomed to the new methodology, it has proven to be problematic. In 
some instances, States have had atypically large layoffs one year, 
leading to high TAA training activity and expenditures that year and 
high initial allocations in the following fiscal year. Then, if a 
State's TAA activity decreased considerably the following fiscal year, 
the 85 percent hold harmless provision prevented the formula from 
properly adjusting the amount of funding needed by the State. Because 
these States were allocated more than they needed, other States could 
receive inadequate initial training allocations that they exhausted 
relatively early each fiscal year. The Trade Act, as amended by the 
TGAAA, still includes a hold harmless provision, but at a much lower 
level of 25 percent of the prior year's allocation, thus addressing the 
problem just described. Once the funds to make up the hold harmless 
amount are distributed, and the amounts from those States whose 
allocations were less than $100,000 are added back to the remaining 
pool of funds, the remaining funds are allocated among those States 
whose unadjusted allocation was at or above the hold harmless amount 
using the same formula.
    The Department has very limited authority to move money between 
States once the funds are distributed. The Department is allowed to 
reclaim unexpended training funds from a State, with the State's 
agreement, and to redistribute those funds to other States only within 
a current fiscal year. This means that if a State is allocated FY 2009 
training funds, those funds may be returned to the Department and 
provided to another State only during FY 2009. After the end of the 
fiscal year, the Department has no authority to redistribute any unused 
funds received from a State. Training funds are available for State 
expenditure in the fiscal year in which they are obligated and in the 
two following fiscal years, per section 245(b) of the Trade Act. 
Training funds that are not expended by the end of the third fiscal 
year must be returned to the U.S. Treasury, as required by section 
241(b) of the Trade Act.
    The TGAAA prescribes a process for allocating training funds. 
Although the process described in the statute is similar in many 
respects to the process just described, it will require some 
significant changes to the Department's methodology.
    The Omnibus Appropriations Act, 2009 (Pub. L. 111-8) provided 
increased TAA funding which will be used for a FY 2009 supplemental 
distribution to the States and other purposes. The Department issued a 
Change 1 to TEGL No. 04-08 to explain the formula methodology used to 
develop this supplemental distribution and describe the process for 
States to request additional TAA program reserve funds for training.
    Section 236(a)(2)(B)-(E) of the Trade Act, as amended by the TGAAA, 
now establishes a methodology for distributing TAA training funds:

    (B)(i) The Secretary shall, as soon as practicable after the 
beginning of each fiscal year, make an initial distribution of the 
funds made available to carry out this section, in accordance with 
the requirements of subparagraph (C).
    (ii) The Secretary shall ensure that not less than 90 percent of 
the funds made available to carry out this section for a fiscal year 
are distributed to the States by not later than July 15 of that 
fiscal year.
    (C)(i) In making the initial distribution of funds pursuant to 
subparagraph (B)(i) for a fiscal year, the Secretary shall hold in 
reserve 35 percent of the funds made available to carry out this 
section for that fiscal year for additional distributions during the 
remainder of the fiscal year.
    (ii) Subject to clause (iii), in determining how to apportion 
the initial distribution of funds pursuant to subparagraph (B)(i) in 
a fiscal year, the Secretary shall take into account, with respect 
to each State--
    (I) The trend in the number of workers covered by certifications 
of eligibility under this chapter during the most recent 4 
consecutive calendar quarters for which data are available;
    (II) The trend in the number of workers participating in 
training under this section during the most recent 4 consecutive 
calendar quarters for which data are available;
    (III) The number of workers estimated to be participating in 
training under this section during the fiscal year;
    (IV) The amount of funding estimated to be necessary to provide 
training approved under this section to such workers during the 
fiscal year; and
    (V) Such other factors as the Secretary considers appropriate 
relating to the provision of training under this section.
    (iii) In no case may the amount of the initial distribution to a 
State pursuant to subparagraph (B)(i) in a fiscal year be less than 
25 percent of the initial distribution to the State in the preceding 
fiscal year.
    (D) The Secretary shall establish procedures for the 
distribution of the funds that remain available for the fiscal year 
after the initial distribution required under subparagraph (B)(i). 
Such procedures may include the distribution of funds pursuant to 
requests submitted by States in need of such funds.
    (E) If, during a fiscal year, the Secretary estimates that the 
amount of funds necessary to pay the costs of training approved 
under this section will exceed the dollar amount limitation 
specified in subparagraph (A), the Secretary shall decide how the 
amount of funds made available to carry out this section that have 
not been distributed at the time of the estimate will be apportioned 
among the States for the remainder of the fiscal year.

    Thus, the amended Trade Act requires the Secretary to make an 
initial distribution of training funds equal to 65 percent of the 
training cap, holding 35 percent in reserve to be distributed to States 
on an as-needed basis. Section 236(a)(2)(C)(ii) establishes four 
factors that the Secretary must take into account in allocating this 
initial distribution. These factors are: (1) The trend in the number of 
workers covered by certifications of eligibility during the most recent 
four consecutive calendar quarters for which data is available; (2) the 
trend in the number of workers participating in training during the 
most recent four consecutive calendar quarters for which data is 
available; (3) the number of workers estimated to be participating in 
TAA-approved training during the fiscal year; and (4) the amount of 
funding estimated to be necessary to provide approved training during 
the fiscal year. Section 236(a)(2)(C)(ii) also permits the Secretary to 
use ``such other factors as the Secretary considers appropriate 
relating to the provision of approved training.'' The Department has 
decided not to propose any new factors at this time but will revisit 
this issue in the future as it gains experience operating

[[Page 39203]]

the new formula. The proposed rule authorizes the Department to add 
factors at its discretion through administrative guidance published for 
comment.
    The Department proposes to assign each of these factors an equal 
weight, but the proposed rule authorizes the Department to change the 
weights through administrative guidance published for comment. As under 
the old formula, the Department will determine the national total and 
each State's percentage of the national total for each factor. Using 
each State's percentage of each of these weighted factors, the 
Department will determine the unadjusted percentage that the State will 
receive of the amount available for base allocations. The percentages 
for all the States will total 100 percent of $373,750,000, which is 65 
percent of the training cap.
    The Department does not yet have experience using several of the 
statutory factors in the funding formula. Similarly, the Department 
cannot accurately predict how the TGAAA's expansion of program coverage 
to include workers in service industries and workers in firms producing 
component parts will have on the data that States provide, nor for the 
impact on their funding needs. Because the Department has little 
experience working with these four factors in the new funding formula, 
the Department has determined that, for the time being, it is best to 
weight each factor equally. The Department proposes to administer the 
program with equally weighted factors until the TGAAA amendments sunset 
on December 31, 2010 under section 1893 of the TGAAA. The Department 
believes that by the sunset of the TGAAA amendments, it will have had 
enough experience using the new funding formula to determine whether it 
is appropriate to change the weights of the existing four factors or to 
add factors. Any change to the weights of the four statutory factors or 
additions of factors will be made through administrative guidance 
published for comment.
    The Trade Act, as amended by the TGAAA, includes a hold harmless 
feature, but at a much lower level than the Department has been using. 
While the initial allocation to a State has been at least 85 percent of 
the amount the State received in its initial distribution in the prior 
fiscal year, the statute now requires that a State's initial allocation 
be at least 25 percent of the amount the State received in its initial 
allocation for the prior fiscal year. Considering the challenges with 
the 85 percent hold harmless feature noted earlier, the Department 
proposes to limit the hold harmless feature to the minimum statutory 
level of 25 percent.
    It has been the Department's practice that, if a State's initial 
allocation is less than $100,000, that State's allocation is 
reapportioned to the other States. If a State has an initial allocation 
of less than $100,000, it may request reserve funds in order to obtain 
the limited TAA funding that the State requires. The proposed rule 
continues this practice, because it imposes no hardship. The Department 
is able to quickly process the relatively small requests for reserve 
funds made by these States.
    The proposed rule provides that, after the unadjusted allocations 
are calculated, the allocations to States whose unadjusted allocations 
were less than their hold harmless amounts are adjusted to their hold 
harmless amount. The funds used for that adjustment are subtracted from 
the total funds available for distribution. Next, the funds that become 
available from those States whose unadjusted allocation is less than 
$100,000 are added back into the total funds available. The amount 
remaining after those subtractions and additions is distributed among 
the remaining States, the States whose unadjusted allocations were as 
much or more than their hold harmless amounts using the same formula to 
recalculate the allocations.
    One alternative to the $100,000 threshold would be to provide each 
State a minimum initial allocation. For example, the Department could 
allocate to each State its hold harmless amount without applying a 
$100,000 threshold, and then subtract the sum total of those hold 
harmless amounts from the remaining initial allocation funds before 
running the calculations outlined above for those remaining funds. This 
would reduce the amount that is allocated proportionately according to 
State need while ensuring a few States would receive initial 
allocations that otherwise would not. Another alternative would be to 
set a certain minimum initial allocation, which would be the same 
dollar amount for all States, then increase to their hold harmless 
amounts the States whose hold harmless amounts are higher than the 
fixed minimum amount. The remaining initial allocation monies then 
would be allocated by formula. The Department welcomes public comments 
on its proposal and the suggested alternatives and any other 
alternatives commenters wish to suggest.
    The amended Trade Act establishes the reserve level of funds at 35 
percent of the total appropriated to the program, a higher level than 
the Department's previous 25 percent reserve. These funds will be held 
in reserve, as they have in the past, to be distributed to States on an 
as-needed basis and are designed to provide funding to those States 
that experience high activity levels that cannot be addressed with the 
funds received in the initial allocation.
    The amended Trade Act requires the Department to make the initial 
distribution to States ``as soon as practicable after the beginning of 
each fiscal year,'' and requires that 90 percent of a fiscal year's 
training funds be distributed to the States by July 15 of that fiscal 
year. In order for the Department to meet the July 15 deadline, we 
propose to address any reserve requests received before June 1, and 
after all reserve requests are satisfied, to distribute the remaining 
training funds using the same process used for initial allocations. Any 
requests for reserve funds received after June 1 will be funded from 
the remaining (10 percent) reserve funds.
    In accordance with section 235A of the Trade Act, the Department 
will also provide an additional 15 percent of the amount allocated for 
training for TAA administration and employment and case management 
services, as well as an additional $350,000 to each State specifically 
for employment and case management services.

III. Section-by-Section Review of the Proposed Rule

Subpart H--Administration by Applicable State Agencies

Merit Staffing (Sec.  618.890)
    Paragraph (a) of proposed Sec.  618.890 requires that a State apply 
to personnel engaged in TAA-funded functions undertaken to carry out 
the worker adjustment assistance provisions of the Trade Act the merit 
system of personnel administration applicable to personnel covered 
under 5 CFR part 900, subpart F, which applies to, among other 
agencies, State UI and ES agencies.
    The Department recognizes that this requirement must be implemented 
in such a way as to minimize any disruption in services to trade-
impacted workers. Accordingly, rather than an immediate conversion to 
merit staffing, proposed paragraphs (b)(1) and (b)(2) provide a 
transition period for States to transition to the merit system.
    Proposed paragraph (b)(1) requires that activities related to 
employment and case management services be administered by merit-
staffed State personnel no later than October 1, 2010. Proposed 
paragraph (b)(2) requires that the other TAA activities be administered 
by merit-staffed State personnel by July 1, 2010.

[[Page 39204]]

    Paragraph (c) of proposed Sec.  618.890 provides an exemption from 
the merit staffing requirement for the three States the Secretary has 
exempted from the ES merit staffing requirement: Colorado, 
Massachusetts, and Michigan. The exemption is, however, limited. The 
exemption would not apply to the State's administration of TRA, which 
would remain subject to the merit staffing requirement. Further, to the 
extent that these States provide TAA-funded services using staff of a 
State agency other than the ES, the ES exemption would not apply, and 
staff of these agencies would have to be merit staffed.
    Proposed paragraph (d) provides that the requirements of paragraph 
(a) do not prohibit a State from outsourcing functions that are not 
inherently governmental, as defined in OMB Circular No. A-76 (Revised).

Subpart I--Allocation of Training Funds to States

Annual Training Cap (Sec.  618.900)
    Proposed Sec.  618.900 implements section 236(a)(2)(A) of the Trade 
Act which caps the amount of TAA training funds available in each 
fiscal year.
    Proposed paragraph (a) states that training funds for fiscal years 
2009 and 2010 are limited to $575 million annually. Proposed paragraph 
(b) states training funds for the period between October 1 and December 
31, 2010 will not exceed $143.75 million.
Distribution of the Initial Allocation of Training Funds (Sec.  
618.910)
    Proposed Sec.  618.910 implements the initial distribution of TAA 
training funds requirements in section 236(a)(2)(B) and section 
236(a)(C)(ii) of the Trade Act.
    Proposed paragraph (a) provides that the initial allocation of 
training funds to the States will be 65 percent of the available 
training funds for a given fiscal year, as required by section 
236(a)(2)(C)(i) of the Trade Act.
    Proposed paragraph (b) provides that the Department will make an 
initial allocation of training funds to the States as soon as is 
practicable after the beginning of each fiscal year. The Department 
often does not have full budget authority at the beginning of each 
fiscal year and often operates under a continuing resolution for some 
period during the fiscal year. As a result, proposed paragraph (b) also 
provides that the full initial allocation for a State may not be 
available at the beginning of a particular fiscal year. The Department 
will announce the States' full initial allocation at the beginning of 
each fiscal year based on the applicable training cap, but the 
Department will not be able to distribute the full amount of the 
initial allocation until it receives a full year's appropriation. 
Finally, proposed paragraph (b) provides that should the full year's 
appropriated amount of training funds be less than the training cap, 
then the initial allocation will be based on the amount appropriated.
    Proposed paragraph (c) implements the hold harmless provision, 
required by section 236(a)(2)(C)(iii) of the Trade Act. Congress set 
the TGAAA's hold harmless provision to require that a State receive no 
less than 25 percent of its previous fiscal year's initial allocation. 
This is lower than the Department's practice of using a hold harmless 
percentage of at least 85 percent. Congress wanted the allocation of 
these funds to be more responsive to economic conditions, which can 
change rapidly, even within a single fiscal year (H.R. Rep. No. 111-16, 
pp. 672-73). Although intended to help States better plan their 
training needs, the Department's higher hold harmless percentage led to 
inequitable distributions of training funds. The lower hold harmless 
percentage will allow the Department to more nimbly respond to the 
changing economic needs among the States. Proposed paragraph (c) 
proposes a hold harmless percentage of the statutory minimum, that is, 
25 percent, except as provided in proposed paragraph (d) of proposed 
Sec.  618.910, for States with very limited or no TAA needs.
    Proposed paragraph (d) provides that a State whose unadjusted 
initial allocation is less than $100,000 will not receive an initial 
allocation, and its initial allocation amount will be allocated instead 
to other States. A State that does not receive an initial distribution 
may apply for reserve funds to obtain the training funding that it 
requires. Reserve funds will be distributed in accordance with proposed 
Sec.  618.920(b). Proposed paragraph (d) reflects the Department's 
practice, and is based on a determination that TAA training fund use of 
less than $100,000 in any fiscal year represents only sporadic TAA 
activity within a State; it is best to serve States that need 
relatively small amounts of training funds with a reserve funding 
request.
    Proposed paragraph (e) explains the process through which the 
initial allocation of training funds is made. In order for the 
Department to distribute the initial allocation properly it must factor 
in the hold harmless provision (proposed Sec.  618.910(c)), the 
$100,000 threshold (proposed Sec.  618.910(d)), and the initial 
allocation factors (proposed Sec.  618.910(f)).
    Proposed paragraph (e)(1) provides that the Department begins the 
process of determining each State's initial allocation by applying the 
four factors in proposed Sec.  618.910(f), as required by section 
236(a)(2)(C)(ii) of the Trade Act. Applying these factors results an 
unadjusted initial allocation for each State.
    Proposed paragraph (e)(2) provides that the Department then applies 
to the unadjusted initial allocation the hold harmless provision of 
proposed Sec.  618.910(c). Proposed paragraph (e)(2)(i) provides that a 
State whose unadjusted allocation is less than its hold harmless 
amount, but is $100,000 or more, will have its allocation adjusted 
upward to meet the hold harmless amount (25 percent of its last year's 
allocation). If a State's unadjusted allocation is less than $100,000, 
the State will receive no initial allocation. Those funds will be 
shared among other States. (States that receive no initial allocation 
may apply for reserve funds.)
    Proposed paragraph (e)(2)(ii) provides that a State whose 
unadjusted allocation is no less than its hold harmless amount will 
receive its hold harmless amount and a recalculated share of remaining 
initial allocation funds.
    Proposed paragraph (e)(3) provides that the initial allocation 
funds remaining after the adjusted initial allocations are made to 
those States receiving only their hold harmless amounts, will be 
distributed among the States with unadjusted initial allocation that 
were no less than their hold harmless amounts. The Department 
reallocates the remaining funds by applying the factors listed in 
proposed Sec.  618.910(f) and by repeating the calculations in proposed 
paragraphs (c)-(e).
    Proposed paragraph (f)(1) describes the four factors that the 
Department will use in determining the amount of the initial 
distribution to the States. The Trade Act requires the consideration of 
these four factors.
    Proposed paragraphs (f)(1)(i) through (iv) list the four factors. 
Proposed paragraph (f)(1)(i) identifies as the first factor the trend 
in the number of workers covered by certifications of eligibility 
during the most recent four consecutive calendar quarters for which 
data is available. The trend will be established by assigning a greater 
weight to the most recent quarters, giving those quarters a larger 
share of the factor. The Department, under TEGL No. 04-08, Change 1, 
assigns weights of 40 percent for the most recent quarter, 30 percent 
to the next most recent quarter, 20

[[Page 39205]]

percent to the third most recent quarter, and 10 percent to the oldest 
quarter. The Department proposes not to codify these weights in 
regulation because it needs flexibility to change these weights quickly 
as the Department gains experience.
    Proposed paragraph (f)(1)(ii) identifies as the second factor the 
trend in the number of workers participating in training during the 
most recent four consecutive calendar quarters for which data is 
available. The trend will be established by assigning a greater weight 
to the most recent quarters, giving those quarters a larger share of 
the factor. The Department currently assigns weights by quarter for 
this factor in the same percentages as it does for the first factor.
    Proposed paragraph (f)(1)(iii) identifies as the third factor the 
number of workers estimated to be participating in training during the 
fiscal year. This estimate will be calculated by dividing the weighted 
average number of training participants for the State determined in 
proposed paragraph (f)(1)(ii) by the sum of the weighted averages for 
all States and multiplying the resulting ratio by the projected 
national average of training participants for the fiscal year, using 
the estimates underlying the Department's most recent budget submission 
or update.
    Proposed paragraph (f)(1)(iv) identifies as the fourth factor the 
amount of funding estimated to be necessary to provide approved 
training during the fiscal year. This estimate will be calculated by 
multiplying the estimated number of participants in proposed paragraph 
(f)(1)(iii) by the average training cost for the State. The average 
training cost will be calculated by dividing total training 
expenditures for the most recent four quarters by the average number of 
training participants for the same time period.
    Proposed paragraph (f)(2) provides that the Department may use such 
other factors as it considers appropriate related to the provision of 
training. At this time the Department does not propose to consider any 
additional factors other than those listed in Sec.  618.910(f)(1)(i)-
(iv). We invite the public to suggest additional factors and reasons 
for using them. The Department proposes to reserve the right to add 
additional factors in the future as described in paragraph (f)(4).
    Proposed paragraph (f)(3) provides that the Department will assign 
an equal weight to each of the four factors listed in proposed Sec.  
618.910(f)(1). For each of these weighted factors, the Department will 
determine the national total and each State's percentage of the 
national total. Based on a State's percentage of each of these weighted 
factors, the Department will determine the percentage that the State 
will receive of the amount available for unadjusted allocations. The 
percentages for all States will total 100 percent of the initial 
allocation of funds, 65 percent of the total training funds for a 
fiscal year.
    Proposed paragraph (f)(4) provides the mechanism by which the 
Department will change the weights of the factors or add new factors to 
the funding formula. As the Department gains experience with the 
effects of the equally weighted four factors and with the effects of 
the TGAAA amendments on the patterns of fund use, it will be able to 
determine whether any adjustments to the formula are necessary. At that 
time, the Department may change the weights of the four factors or 
suggest additional factors to better serve the trade-impacted work 
force. Any changes will be made through administrative guidance 
published for comment.
Reserve Fund Distribution (Sec.  618.920)
    Proposed Sec.  618.920 addresses the distribution of the funds that 
remain after the initial distribution to the States, that is, the 
reserve funds.
    Proposed paragraph (a) provides that the remaining 35 percent of 
the total annual training funds would be held in reserve for later 
distribution, as required by section 236(a)(2)(C)(i) of the Trade Act. 
The statute specifically provides that the procedures the Secretary is 
required to establish for the distribution of the funds held in reserve 
may include the distribution of such funds in response to requests made 
by States in need of additional training funds. Reserve funds are 
distributed to the States on an as-needed basis and are designed to 
provide funds to those States that experience large, unexpected layoffs 
that did not receive an initial allocation or otherwise have training 
needs that are not met by their initial allocation. Proposed paragraph 
(a) also provides that reserve funds are not available for 
administrative expenses or for employment and case management services. 
Rather, the Department will provide States an additional 15 percent of 
the amount provided for TAA training for administration and employment 
and case management services.
    Proposed paragraph (b) provides the conditions under which reserve 
funds will be allocated. These conditions are: First, that a State must 
demonstrate either that at least 50 percent of its training funds has 
been expended, or that the it needs more funds to meet unusual and 
unexpected events; and second, that the State must provide a documented 
estimate of its expected funding needs for the remainder of the fiscal 
year.
    Proposed paragraphs (b)(1) through (b)(3) set forth the minimum 
information that a State must include in its analysis of its remaining 
fiscal year funding needs. The Department requires this information in 
order to determine whether there is a real need for funding. The 
analysis must include the average cost of training in the State; the 
expected number of participants in training through the end of the 
fiscal year; and the remaining funds the State has available for 
training. Standard Form (SF) 424 (OMB Approval No. 4040-0004, expires 
March 31, 2012), Application for Federal Assistance, will continue to 
serve as the initial request for reserve funding, and must be sent to 
the appropriate regional office. The ETA 9117 (OMB Approval No. 1205-
0275, expires January 31, 2010), TAA Program Reserve Funding Request 
Form, will continue to serve to provide the supporting information 
needed. Any change to those procedures will be communicated through 
administration guidance.
Second Distribution (Sec.  618.930)
    Proposed Sec.  618.930 provides that at least 90 percent of the 
total training funds for a fiscal year will be distributed to the 
States by July 15 of that fiscal year, as required by section 
236(a)(2)(B)(ii) of the Trade Act. In order to meet this threshold the 
Department will first meet all timely filed acceptable requests for 
reserve funds. To be timely, the Department must receive a reserve fund 
request before June 1. (Any reserve fund requests received on or after 
June 1 will be funded from the funds remaining after the July 15 
distribution.) Any funds left over after all acceptable timely requests 
for reserve funds are satisfied will be distributed to those States 
which received an amount greater than the hold harmless amount 
according to the procedures established in proposed Sec.  618.910.
Insufficient Funds (Sec.  618.940)
    Proposed Sec.  618.940 provides that if, in a given fiscal year, 
the Secretary estimates that the amount of funds necessary to pay for 
approved training will exceed the legislative cap, and therefore there 
will be insufficient funds to meet the needs of all States for the 
year, the Department will decide how the funds remaining in reserve at 
that time will be allocated among the States, as provided by section 
236(a)(2)(E) of the Trade Act. The Department will communicate this 
decision through administrative notice.

[[Page 39206]]

IV. Administrative Information

Regulatory Flexibility Analysis, Executive Order 13272, Small Business 
Regulatory Enforcement Fairness Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. chapter 6, requires 
the Department to evaluate the economic impact of this proposed rule 
with regard to small entities. The RFA defines small entities to 
include small businesses, small organizations, including not-for-profit 
organizations, and small governmental jurisdictions. The Department 
must determine whether the rule imposes a significant economic impact 
on a substantial number of such small entities.
    The Department has determined that this NPRM does not affect a 
substantial number of small entities. As this proposed rule merely 
describes how the Department will allocate to the States training funds 
under the Trade Act, the only entities affected are the States. Because 
the rule does not impact a substantial number of small entities, we 
need not determine whether its economic impact is significant.
    This analysis is also applicable under Executive Order 13272; for 
those purposes as well the Department certifies that this proposed rule 
does not impose a significant economic impact on a substantial number 
of small entities.
    The Department has also determined that this rule is not a ``major 
rule'' for purposes of the Small Business Regulatory Enforcement 
Fairness Act of 1996, as amended (SBREFA), Public Law 104-121. SBREFA 
requires agencies to take certain actions when a ``major rule'' is 
promulgated. SBREFA defines a ``major rule'' as one that will have an 
annual effect on the economy of $100 million or more; that will result 
in a major increase in costs or prices for, among other things, State 
or local government agencies; or that will significantly and adversely 
affect the business climate.
    The proposed rule will also not result in a major increase in costs 
or prices for States or local government agencies; just the opposite, 
in fact, as the rule governs the distribution of certain funds to the 
States. Finally, this proposed rule will not have an annual effect on 
the economy of $100 million or more.
    Therefore, because none of the definitions of ``major rule'' apply, 
in this instance, we determine that this proposed rule is not a ``major 
rule'' for SBREFA purposes.

Executive Order 12866

    Executive Order 12866 requires that for each ``significant 
regulatory action'' proposed by the Department, the Department conduct 
an assessment of the proposed regulatory action and provide OMB with 
the proposed regulation and the requisite assessment prior to 
publishing the regulation. A significant regulatory action is defined 
to include an action that will have an annual effect on the economy of 
$100 million or more, as well as an action that raises a novel legal or 
policy issue. As discussed in the SBREFA analysis, this proposed rule 
will not have an annual effect on the economy of $100 million or more. 
Ho