Public Law 106-224

On June 20, 2000, President Clinton signed the Agricultural Risk Protection Act of 2000 (Pub. L. 106-224)... 

Pub. L. 106-224 amended a number of provisions in the Richard B. Russell National School Lunch Act (NSLA) and the Child Nutrition Act of 1966. Attached is guidance to assist in the initial implementation of the provisions affecting Section 17 of the NSLA, the Child and Adult Care Food Program (7 U.S.C. 1766). Due to the complexity of the legislative changes, the guidance is limited. Regulations codifying the legislative changes and their implementation will be published as soon as possible.

Until implementing regulations are published, program changes must be implemented based on the attached guidance. Implementation of the statutory provisions based on this guidance is extremely important. USDA expects State agencies to share information in this guidance with CACFP institutions and facilities as soon as possible, carefully highlighting those changes affecting those organizations. State agencies, institutions and facilities will be given reasonable time to comply with any future implementation changes made in guidance or regulations.

Changes to CACFP Mandated by Public Law 106-224

 1.  Definition of "Institution"

Section 243(a)(2) of Pub. L. 106-224 amended section 17(a)(2) of the NSLA providing a restructured definition of the term "Institution." Sponsoring organizations of centers are added to the statutory definition. These expanded definitions of "Institution" and "Sponsoring Organization" are already contained in the CACFP regulations at 7 CFR 226.2.

Section 243(a)(8) of Pub. L. 106-224 amended section 17(a)(6) of the NSLA to mandate four new criteria that institutions must meet to be eligible for program participation. A description of these criteria and a discussion of how State agencies should implement the provisions follow:

• Institutions determined ineligible to participate in any other publicly-funded program for violating that program’s requirements are ineligible to participate in CACFP.

State agencies should implement this provision by immediately requiring all institutions that apply or reapply for CACFP to certify that the institution has not been disqualified from participation in any other publicly-funded program for violating that program’s requirements. "Publicly-funded program" means any program or grant funded by Federal, State, or local government. More complete guidance will be provided in future regulations.

Minimum Federal staffing standards for monitors will be addressed in forthcoming regulations. We encourage State agencies to continue using their own staffing standards for monitors until that time.

Sponsors must immediately develop or review their policies on outside employment of their CACFP employees. General principles to consider in approving outside employment would include likely schedule conflicts with CACFP responsibilities and duties and ethical or conflict-of-interest issues. One approach a sponsor may use would be to require that any outside employment be approved in advance by the sponsor, allowing a case-by-case consideration of the appropriateness of any job. State agencies should provide guidance to sponsors on developing outside employment policies. State agencies should use sponsors’ management plans to determine CACFP responsibilities of each employee. In addition, during reviews, State agency reviewers should monitor sponsors’ implementation of this provision.

Those sponsors making an initial application to participate in CACFP after June 20, 2000, must meet any bonding requirements imposed by applicable State law, regulation, or policy. Bonding requirements must be met for an organization’s application to be considered complete. In States where bonding requirements exist, State agencies must ensure that all applicant organizations are made aware of this new requirement in the application process.

The statutory language specifically describes administrative capability for an applicant institution as having business experience and management plans in place that are appropriate for operating the program. In addition, FNS has provided guidance to State agencies through the CACFP Management Improvement Training, held in 1999 and 2000 in various locations throughout the country, on how to determine whether an applicant institution meets these three conditions. We encourage State agencies to review materials that were provided during the training as questions arise in the implementation of this provision. In particular, we recommend that State agency staff review the "Management Plan Evaluation Guide - Handout C" that was provided in the Session I module of the training. This guide contains useful information on evaluating applicant institutions for financial viability, organizational capability, and internal controls.

This provision eliminates the "moving toward tax exemption status" that was previously allowed by the NSLA and current CACFP regulations (7 CFR Part 226). Section 17(d)(1)(B)(ii) of the NSLA specifically exempts family and group day care homes from these requirements. State agencies must promptly notify institutions that are affected by this change. The date of enactment of the law, June 20, 2000, is the pivotal date which affects State agency action on an institution’s application for participation, as discussed below:

• Institutions that were approved for participation prior to June 20, 2000:

1. must receive tax exempt status by October 1, 2000; or

2. must be terminated by the State agency; and

3. terminations under this provision may not be appealed.

• Institutions that applied for participation on or after June 20, 2000:

1. must have tax exempt status at the time of application; or
   

2. must be terminated by the State agency; and
   

3. terminations under this provision may not be appealed.

Although this provision is effective immediately, the developmental work required of State agencies in establishing criteria to evaluate an eligible sponsor’s application will take time. In the meantime, State agencies should begin developing reasonable criteria. When developing criteria on unmet needs, we encourage State agencies to consider any unique characteristics that exist within the State. Examples of such uniqueness might include pockets of populations that speak a different language or dialect, major changes in employment resulting in a significant loss or gain of jobs, or geographical remoteness.

State agencies should note that a criterion requiring a sponsor to administer a minimum number of homes would not be acceptable. The law now requires a State agency to reject the application of any sponsor which is not financially viable, and it is the sponsor’s financial viability—not the fact that it has not recruited a particular number of homes—that must be evaluated by the State agency. A new sponsoring organization with no non-CACFP sources of administrative funding would clearly need to sponsor a higher number of homes to be "financially viable" than would a multi-purpose community organization which could pay for some of the costs of administering CACFP out of other resources.

When the State agency’s criteria are in place, as part of its initial application to participate, a new sponsoring organization will be required to justify the need for its services in its initial application by showing that it proposes to provide benefits to areas, providers, or children that have a need for Program coverage. As always, FNS makes itself available to consult and discuss this provision as State agencies develop their criterion.

Until regulations are published, State agencies are obligated to continue to adhere to the monitoring requirements in 7 CFR 226.6(l). In addition, State agencies must ensure that sponsors implement the new statutory monitoring provisions described above no later than October 1, 2000, or beginning with their next review cycle if that begins prior to October 1, 2000.

 5.  Parental Notification Requirements

This provision is effective immediately for new children as they are enrolled. For children that are already enrolled in the program, parent notification must be provided by September 20, 2000. The information should be provided at a minimum in English and in the second most frequently spoken language within the State or locality.

We strongly recommend that State agencies provide any technical assistance that may be needed by sponsoring organizations or CACFP facilities in order to meet these requirements. FNS has developed a brochure containing basic program information that can be used to meet the notification requirement. The name and telephone number of the sponsor and the State agency must be added. This publication will be available in both English and Spanish, and will be provided in bulk quantities to State agencies in the near future. We will contact you as soon as the brochure is ready for shipment.

• Section 243(b) amended section 17(d)(4) of the NSLA to require USDA to develop, in consultation with State agencies and sponsoring organizations, a list of allowable reimbursable administrative expenses for CACFP sponsoring organizations.

We are in the process of revising FNS Instruction 796-2, Financial Management - Child and Adult Care Food Program. The revised instruction will contain a list of allowable administrative expenses for sponsoring organizations based on principles established in USDA Uniform Federal Assistance Regulations (7 CFR Part 3015) and applicable OMB circulars (in particular, A-87 and A-122). State agencies and sponsors, through their representatives on the Management Improvement Task Force, will have an opportunity to comment on the list. In this regard, however, commenters should note that we are obligated to utilize well-established principles of cost allowability in Part 3015 and OMB circulars which are not subject to change through this exercise.

State agencies must implement the restrictions on center sponsors’ administrative funds retention no later than October 1, 2000. This should allow for an orderly transition at the beginning of the new budget cycle for FY 2001. When evaluating a sponsoring organization’s proposed budget, States should consider how effectively the sponsoring organization’s proposed allocations support all aspects of program operations. State agencies should also consider the effects of geography on the sponsoring organization’s cost of doing business, the types of centers the sponsor oversees, and the total amount of reimbursement due to each center.

We will address implementation of these provisions in regulations.

 8.  Funds Recovery Procedures

It has always been the position of FNS to prohibit the repayment of overclaims with reimbursements for meals. Furthermore, as stated at Section 226.14(a) of the CACFP regulations, institutions have had the right to appeal any disallowance and demand for repayment before the State agency proceeds. However, the provision that allows institutions to repay debts over one or more years does represent a change to the current FNS policy, and it must be implemented immediately. Pertinent regulatory provisions are discussed below.

• Section 226.14(a) gives State agencies authority to recover funds that were improperly claimed. This paragraph states in part, "State agencies shall disallow any portion of a claim for reimbursement and recover any payment to an institution not properly payable under this part."
  

• USDA Uniform Federal Assistance Regulation at 7 CFR Part 3015 and OMB Circulars Nos. A-87 and A-122 provide guidelines that prohibit the use of Federal reimbursement funds for repayment of debts resulting from overclaims. In addition, FNS Instruction 796-2, Rev. 2, at (VII)(A)(1) requires that allowable costs "must represent an actual operating/administrative cost incurred in the normal course of conducting the program." In our revision of this instruction, we will clarify, through the use of examples, the prohibition on the use of Federal reimbursement funds to repay debts.

State agencies should ensure that this policy is in place by the beginning of FY 2001.

Descriptive criteria that are specified in the statutory language at section 17(p)(3) of the NSLA qualify the State of Delaware. Beginning October 1, 2001, Delaware may begin operations, thus becoming the third State, in addition to Iowa and Kentucky, to operate a for-profit demonstration project, which was made permanent by the Child Nutrition Reauthorization Act of 1998 (Pub. L. 105-336).

Additional annual funding of $1 million for fiscal years 1999-2003 enables FNS to provide CACFP Management Improvement Training as an ongoing process. New provisions that have been mandated by Pub. L. 106-224 will be incorporated into the training materials that were used to train State agencies from September 1999 to January 2000.

This provision clarifies that the statutory authority of USDA to withhold State administrative expense (SAE) funds from State agencies for failure to properly administer the program specifically includes the failure to provide sufficient training, technical assistance, and monitoring of CACFP. This provision heightens the importance of training, assisting, and monitoring CACFP institutions and facilities. Broad sanction authority, based on the previous statutory language, is found at 7 CFR 235.11(b) which allows FNS to recover, withhold, or cancel payment of up to one hundred percent of State administrative expenses for failure of a State agency to comply with child nutrition program regulations, including part 226 (CACFP regulations). We will make revisions to the current regulatory language accordingly.

We have addressed these provisions in separate memoranda to the four named States. In the near future, we will solicit applications from State agencies that want to make this additional meal reimbursement available to at-risk afterschool care centers in their State. In our communication to State agencies, we will describe the criteria that States must address in their applications, and the method by which FNS will select the two qualifying States.

Due to the complexity of this issue, we provided guidance in a separate memorandum, dated July 6, 2000.

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