Recipient Fund Balances, 21700-21703 [2015-08948]

Agencies

• LEGAL SERVICES CORPORATION

[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Proposed Rules]
[Pages 21700-21703]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08948]


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LEGAL SERVICES CORPORATION

45 CFR Part 1628


Recipient Fund Balances

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would revise the Legal Services Corporation 
(LSC or Corporation) regulation on recipient fund balances to provide 
the Corporation with more discretion to grant a recipient's request for 
a waiver to retain a fund balance in excess of 25% of its annual LSC 
support. This proposed rule would also provide that recipients that 
face extraordinary and compelling circumstances may submit a waiver 
request to retain a fund balance in excess of 25% of their annual LSC 
support prior to the submission of their annual audited financial 
statements.

DATE:  Comments must be submitted by May 20, 2015.

ADDRESSES: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: 1628rulemaking@lsc.gov. Include ``Comments on 
Revisions to Part 1628'' in the subject line of the message.
     Fax: (202) 337-6519, ATTN: Part 1628 Rulemaking.
     Mail: Stefanie K. Davis, Assistant General Counsel, Legal 
Services Corporation, 3333 K Street NW., Washington, DC 20007, ATTN: 
Part 1628 Rulemaking.
     Hand Delivery/Courier: Stefanie K. Davis, Assistant 
General Counsel, Legal Services Corporation, 3333 K Street NW., 
Washington, DC 20007, ATTN: Part 1628 Rulemaking.
    Instructions: Electronic submissions are preferred via email with 
attachments in Acrobat PDF format. Written comments sent to any other 
address or received after the end of the comment period may not be 
considered by LSC.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or sdavis@lsc.gov.

SUPPLEMENTARY INFORMATION:

I. Regulatory Background

    LSC issued its first instruction on recipient fund balances in 1983 
to implement what is now the Corporation's longstanding objective of 
ensuring the timely expenditure of LSC funds for the effective and 
economical provision of high quality legal assistance to eligible 
clients. 48 FR 560, 561, Jan. 5, 1983. Later that year, LSC published a 
redrafted version titled Instruction 83-4, Recipient Fund Balances 
(``Instruction''). 48 FR 49710, 49711, Oct. 27, 1983. The Instruction 
limited the ability of recipients to carry over LSC funds that remained 
unused at the end of the fiscal year. Id. Specifically, the Instruction 
provided that, in the absence of a waiver granted by the Corporation, a 
recipient's end-of-year fund balance in excess of 10% of its total 
annual LSC support must be repaid to LSC. Id. The Instruction also

[[Page 21701]]

prohibited a recipient from ever retaining a fund balance in excess of 
25% of its annual support, thereby limiting the Corporation's waiver 
granting authority to fund balance amounts of 25% or less of a 
recipient's annual support. Id.
    In 1984, LSC substantially adopted the Instruction in a regulation 
published at 45 CFR part 1628. 49 FR 21331, May 21, 1984. Part 1628 
remained unchanged until 2000, when LSC promulgated revisions in 
response to public comments and staff advice indicating that the rule 
was ``more strict'' than the fund balance requirements of most federal 
agencies. 65 FR 66637, 66638, Nov. 7, 2000. The revisions provided the 
Corporation with more discretion to grant a recipient's request for a 
waiver to retain a fund balance of up to 25% of its annual support. Id. 
at 66637. In addition, for the first time, the rule authorized the 
Corporation to exercise its discretion to grant a recipient's request 
for a waiver to retain a fund balance in excess of 25% of its annual 
support. Id. The Corporation reasoned that, by allowing for waivers to 
retain that amount, ``[t]he recipient can better plan and find the best 
use for the funds, rather than being forced into a hasty expenditure 
simply to avoid the limitation on the carryover of fund balances.'' Id. 
at 66640. The rule, however, limited the situations justifying a 
recipient's request to retain more than 25% of its annual support to 
``three specific circumstances when extraordinary and compelling 
reasons exist for such a waiver,'' currently listed in Sec.  1628.3(c). 
Id. at 66638. These extraordinary and compelling circumstances were 
restricted to the following situations when a recipient received income 
derived from its use of LSC funds: ``(1) An insurance reimbursement; 
(2) the sale of real property; and (3) the receipt of monies from a 
lawsuit in which the recipient was a party.'' Id. at 66639. Although 
the Operations and Regulations Committee (Committee) ``considered using 
a standard of `extraordinary and compelling' for these waivers with the 
three specific circumstances discussed as examples,'' it ultimately 
decided ``that more guidance was required to avoid erosion of the 
standard,'' and the three circumstances became exclusive limitations, 
not mere examples. Id. at 66640. The LSC Board of Directors (Board) 
adopted the revisions to part 1628 on November 20, 1999, and the 
revised rule has been in effect since December 7, 2000. Id. at 66637-
38.
    On April 12, 2015, the Committee voted to recommend that the Board 
publish this NPRM in the Federal Register for notice and comment. On 
April 14, 2015, the Board accepted the Committee's recommendation and 
voted to approve publication of this NPRM.

II. LSC Consideration of Potential Revisions to Part 1628

    During the nearly 15-year period since part 1628 was last revised, 
LSC grantees have experienced various unexpected occurrences outside of 
those listed in Sec.  1628.3(c) that caused them to accrue fund 
balances in excess of 25% of their annual support. These occurrences 
have included an end-of-year transfer of assets from a former grantee 
to a current grantee, a natural disaster that resulted in a significant 
infusion of use-or-lose disaster relief funds from non-LSC sources, and 
receipt of a large attorneys' fees award in an LSC-funded case near the 
end of the fiscal year. In each of these situations, LSC determined 
that part 1628 currently prevents some recipients with legitimate 
reasons for having fund balances exceeding 25% of their annual LSC 
support from seeking and obtaining needed waivers.
    On January 22, 2015, LSC staff presented the Committee with a 
proposal to consider revising part 1628 to address the difficulties 
faced by recipients that encounter these types of occurrences, yet are 
unable to justify a waiver request to retain a balance in excess of 25% 
of their annual support under the current standards. The Committee 
authorized LSC management to add the matter to the Committee's 
rulemaking agenda so that it may address this issue. In addition, the 
Committee requested that LSC consider whether the rule's 10% and 25% 
caps on fund balance carryovers are still appropriate in light of the 
most recently available data on recipient waiver requests.
    LSC first considered revising part 1628 to allow recipients to 
request, and the Corporation to grant, waivers to retain fund balances 
in excess of 25% of annual support in extraordinary and compelling 
circumstances not covered by the current rule. Current Sec.  1628.3(c) 
is limited to three circumstances where a recipient receives an 
infusion of derivative income, or income derived from the recipient's 
use of LSC funds. As discussed above, however, recent situations have 
included the sudden infusion of non-derivative, use-or-lose income 
under other circumstances that significantly disrupted grantee 
expenditure plans. As a result, LSC staff determined that the list of 
extraordinary and compelling circumstances in Sec.  1628.3(c) should be 
illustrative, rather than limited, so that recipients that encounter 
truly unforeseeable scenarios can avoid having to make the difficult 
choice between returning large portions of unused balances and 
hurriedly spending funds before the end of the fiscal year. LSC staff 
similarly determined that such circumstances should include situations 
where a grantee is incapable of expending its existing LSC funds as 
originally planned due to a natural disaster or other catastrophic 
event, as opposed to only situations where new income is received. 
Therefore, the Corporation proposes providing an illustrative list of 
extraordinary and compelling circumstances justifying waivers to retain 
a fund balance in excess of 25% of a recipient's annual support. LSC 
believes that this proposed revision will allow grantees to devise more 
organized and efficient spending plans when faced with unexpected 
events that are not listed in current Sec.  1628.3(c). Providing 
recipients with sufficient time to plan for the expenditure of unused 
funds in excess of 25% of their annual support would also advance the 
Corporation's policy of ensuring effective and economical provision of 
high quality legal assistance to eligible clients.
    LSC next considered revising part 1628 to provide that a recipient 
may submit a waiver request prior to submitting its annual audited 
financial statements. Section 1628.4(a) currently provides that a 
recipient may request a waiver within 30 days of the submission of its 
annual audited financial statements. The preamble to the 2000 rule, 
however, states that ``[t]his rule does not preclude the recipient's 
request for a Corporation action on a waiver prior to the close of the 
fiscal year, it simply does not require the Corporation to provide for 
advance approval.'' 65 FR 66637, 66640, Nov. 7, 2000. LSC staff 
determined that incorporating the current preamble language on 
permitting waiver requests prior to the close of the fiscal year into 
the regulatory text of part 1628 would benefit grantees by allowing 
them to seek assurance that they will not have to return or spend a 
large portion of excess LSC funds by the end of the fiscal year, 
thereby enabling them to plan for the following fiscal year with 
greater certainty.
    LSC staff also found that limiting early approvals to requests for 
waivers to retain balances in excess of 25% of annual support would be 
proper in light of the unique and significant burdens on financial 
planning faced by recipients that experience extraordinary and 
compelling circumstances. In addition, because a recipient's estimate 
of the fund balance it anticipates accruing by the end of the fiscal 
year may end up

[[Page 21702]]

being higher or lower than the recipient's actual fund balance at the 
time it submits its audited financial statements, LSC staff determined 
that recipients that receive approval of a waiver request prior to 
submitting their audited financial statements must submit updated 
information consistent with the requirements of Sec.  1628.4(a) after 
the submission of their audited financial statements. Accordingly, an 
advance approval would be, in effect, an approval of the reasons for a 
waiver and of the proposed amount to be retained, but the recipient 
must later provide confirmation of the actual amount of excess funds it 
has accrued. LSC therefore proposes revising the rule to provide that 
recipients that face extraordinary and compelling circumstances may 
submit a waiver request to retain a fund balance in excess of 25% of 
their annual support prior to the submission of their annual audited 
financial statements, and that the Corporation may, in its discretion, 
grant approval of such requests pending confirmation of the actual 
amount to be retained once the audited financial statements are 
finalized.
    The Corporation also considered revising part 1628 to require LSC 
management to provide notice to the Board of any decision to grant a 
waiver in excess of 25% of a recipient's annual support. LSC is 
retaining the ``extraordinary and compelling circumstances'' standard 
for granting such waivers, and anticipates that recipients will 
continue to seek such waivers only in circumstances where they 
experience extreme events that prevent them from expending more than 
25% of their annual LSC support. Furthermore, the granting of LSC 
funding and exercising discretion with regard to carryover, suspension 
or termination of such funding has been and should remain a management, 
not a Board, function. The Corporation will continue to exercise its 
discretion with the same good faith and fidelity to the objective of 
ensuring the timely expenditure of LSC funds as it has done since part 
1628 was last revised in 2000. Therefore, LSC proposes to retain its 
current policy of leaving discretion to grant waivers to retain excess 
recipient fund balances with LSC management.
    Finally, pursuant to the Committee's request, LSC considered 
whether the rule's 10% and 25% caps on fund balance carryover amounts 
should be adjusted in accordance with recent trends in waiver requests. 
LSC's Office of Compliance and Enforcement (OCE) provided LSC staff 
with statistics on all waiver requests that have been submitted to the 
Corporation over the last six years. After analyzing the data, LSC 
decided as a policy matter that the respective percentage caps are set 
at the appropriate levels. According to the statistics, the average 
annual number of waiver requests to retain a fund balance that exceeds 
10% of a recipient's LSC support is easily manageable by OCE. 
Furthermore, waiver requests to retain a balance in excess of 25% of 
LSC support are exceedingly rare, and the Corporation does not expect a 
significantly greater number of such requests if the proposed revisions 
to part 1628 are adopted. LSC believes that the current percentage caps 
on carryover amounts are necessary to ensure that recipients are 
spending their grants on providing legal services, while offering an 
appropriate amount of flexibility to retain unused fund balances. The 
Corporation therefore proposes retaining the current percentage cap 
amounts, but requests comments on whether to change them.

III. Discussion of the Proposed Changes

Sec.  1628.3 Policy

    LSC proposes to revise Sec.  1628.3(c) to eliminate the language 
limiting the extraordinary and compelling circumstances in which LSC 
may grant a recipient's request for a waiver to retain a fund balance 
that exceeds 25% of its annual LSC support. Whereas existing Sec.  
1628.3(c) is limited to three circumstances where a recipient receives 
a sudden infusion of income, the proposed section expands the types of 
situations that the Corporation, in its discretion, may consider to be 
extraordinary and compelling circumstances. The proposed section adds 
the example of a natural disaster to illustrate a situation where a 
recipient would be unable to expend its current LSC grant for reasons 
other than the receipt of new funds. The proposed section also adds the 
example of ``a payment from an LSC-funded lawsuit, regardless of 
whether the recipient was a party to the lawsuit.'' This revision makes 
clear that a recipient may request a waiver to retain a fund balance in 
excess of 25% of its annual support when it receives an award as the 
result of a court decision in an LSC-funded case, even if the recipient 
was not named as a party to the action.
    LSC also proposes to make a minor revision to Sec.  1628.3(d) to 
reflect the proposed redesignation of certain paragraphs in Sec.  
1628.4.

Sec.  1628.4 Procedures

    LSC proposes to add a new Sec.  1628.4(d) to expressly allow 
recipients that face extraordinary and compelling circumstances to 
submit a waiver request to retain a fund balance in excess of 25% of 
their annual support prior to the submission of their annual audited 
financial statements. This addition will require existing Sec.  
1628.4(d), (e), (f), and (g) to be redesignated to Sec.  1628.4(e), 
(f), (g), and (h).
    The proposed new Sec.  1628.4(d) will list the written requirements 
for a waiver request to retain a fund balance in excess of 25% of 
annual support. These requirements vary from the ones listed in Sec.  
1628.4(a), which apply only to requests made within 30 days after the 
submission of a recipient's annual audited financial statements. There 
are two reasons for the variation. First, because the annual audited 
financial statement of a recipient requesting an early waiver approval 
would not yet be available to the Corporation, recipients can provide 
only an estimate of the fund balance they anticipate to accrue by the 
time their statements are submitted. Second, because a recipient may 
submit a waiver request either before or after the close of the fiscal 
year, the proposed section will require recipients to provide a ``plan 
for disposing of the excess fund balance,'' as opposed to a plan for 
the ``current fiscal year'' as required by Sec.  1628.4(a). 
Additionally, proposed Sec.  1628.4(d) requires recipients receiving 
approval to later submit updated information consistent with the 
requirements of paragraph (a) to confirm the actual fund balance amount 
to be retained by the recipient, as determined by reference to its 
annual audited financial statements.
    Finally, LSC proposes to revise the introductory text of paragraph 
(a), as well as paragraphs (a)(2) and (3), for clarity and readability.

List of Subjects in 45 CFR Part 1628

    Administrative practice and procedure, Grant programs--law, Legal 
services.
    For the reasons set forth in the preamble, the Legal Services 
Corporation proposes to revise 45 CFR part 1628 as follows:

PART 1628--RECIPIENT FUND BALANCES

0
1. The authority citation for part 1628 is revised to read as follows:

    Authority:  42 U.S.C. 2996g(e).

0
2. Revise paragraphs (c) and (d) of Sec.  1628.3 to read as follows:


Sec.  1628.3  Policy

* * * * *
    (c) Recipients may request a waiver to retain a fund balance in 
excess of 25%

[[Page 21703]]

of a recipient's LSC support only for extraordinary and compelling 
circumstances, such as when a natural disaster or other catastrophic 
event prevents the timely expenditure of LSC funds, or when the 
recipient receives an insurance reimbursement, the proceeds from the 
sale of real property, a payment from a lawsuit in which the recipient 
was a party, or a payment from an LSC-funded lawsuit, regardless of 
whether the recipient was a party to the lawsuit.
    (d) A waiver pursuant to paragraph (b) or (c) of this section may 
be granted at the discretion of the Corporation pursuant to the 
criteria set out in Sec.  1628.4(e).
* * * * *
0
3. Amend Sec.  1628.4 as follows:
0
a. Revise paragraph (a) introductory text and paragraphs (a)(2) and 
(3);
0
b. Redesignate paragraphs (d) through (g) as paragraphs (e) through 
(h); and
0
c. Add new paragraph (d).
    The revisions and additions read as follows:


Sec.  1628.4  Procedures

    (a) A recipient may request a waiver of the 10% ceiling on LSC fund 
balances within 30 days after the submission to LSC of its annual 
audited financial statements. The request shall specify:
* * * * *
    (2) The reason(s) for the excess fund balance;
    (3) The recipient's plan for disposing of the excess fund balance 
during the current fiscal year;\
* * * * *
    (d) A recipient may submit a waiver request to retain a fund 
balance in excess of 25% of its LSC support prior to the submission of 
its audited financial statements. The Corporation may, at its 
discretion, provide approval in writing. The request shall specify the 
extraordinary and compelling circumstances justifying the fund balance 
in excess of 25%; the estimated fund balance that the recipient 
anticipates it will accrue by the time of the submission of its audited 
financial statements; and the recipient's plan for disposing of the 
excess fund balance. Upon the submission of its annual audited 
financial statements, the recipient must submit updated information 
consistent with the requirements of paragraph (a) of this section to 
confirm the actual fund balance to be retained.
* * * * *

    Dated: April 14, 2015.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2015-08948 Filed 4-17-15; 8:45 am]
 BILLING CODE 7050-01-P