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VETS Final Rule

Funding Formula for Grants to States [05/17/2005]

[PDF Version]

Volume 70, Number 94, Page 28401-28407


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Part IV





Department of Labor





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Veterans' Employment and Training Service



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20 CFR Part 1001



Funding Formula for Grants to States; Final Rule


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DEPARTMENT OF LABOR

Veterans' Employment and Training Service

20 CFR Part 1001

RIN 1293-AA11

 
Funding Formula for Grants to States

AGENCY: Veterans' Employment and Training Service (VETS), Department of 
Labor.

ACTION: Final rule.

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SUMMARY: The Department of Labor is issuing a final rule to implement 
section 4(a)(1) of Public Law 107-288, the Jobs for Veterans Act (Act), 
which amends 38 U.S.C. 4102A. This final rule establishes formula 
criteria for making funds available for veterans' employment services 
and the Transition Assistance Program (TAP). This rule replaces the 
Interim Final Rule and covers the second phase-in year of fiscal year 
2005 and the permanent program beginning in fiscal year 2006.

DATES: This final rule takes effect June 16, 2005.

FOR FURTHER INFORMATION CONTACT: Paul Robertson, Legislative Analysis 
Division, VETS, U.S. Department of Labor, Room S-1325, 200 Constitution 
Avenue NW., Washington, DC 20210, or by e-mail at 
robertson.paul@dol.gov or call 202-693-4714.


SUPPLEMENTARY INFORMATION: The Preamble to this Final Rule is organized 
as follows:

I. Background--provides a brief description of the development of 
the Final Rule.
II. Authority--cites the statutory provisions for the Final Rule.
III. Section-by-Section Review of the Rule--summarizes pertinent 
aspects of the regulatory text, describes its purposes and 
application, and summarizes and responds to comments received on the 
Notice of Proposed Rulemaking published July 6, 2004 (69 FR 40724).
IV. Administrative Information--sets forth the applicable 
information as required by law.

    This Final Rule is published following a 60-day comment period 
during which comments were received from three individuals/
organizations. Those comments are addressed in the appropriate sections 
of this Final Rule. We are grateful for the effort a concerned 
individual took to submit comments through Regulations.gov. We 
appreciate the commenter's interest in programs serving veterans. 
However, because the comments do not specifically relate to the 
provisions of this Rule, we will not address them in this Preamble.

I. Background

    The President signed the Jobs for Veterans Act (Pub. L. 107-288) 
into law on November 7, 2002. The Act amends title 38 of the United 
States Code to revise and improve employment, training, and placement 
services furnished to veterans. This rule implements the provisions of 
38 U.S.C. 4102A(c) as amended by section 4 of the Act that establishes 
a new funding formula for making funds available to each State, with an 
approved State Plan, to support the Disabled Veterans Outreach Program 
(DVOP) and the Local Veterans Employment Representative (LVER) 
programs. Additionally, funding will be made available to support TAP 
and respond to exigent circumstances.
    Congress allowed for the phasing in of the new statutory funding 
formula ``over the three fiscal-year period'' beginning in fiscal year 
(FY) 2003, which started on October 1, 2002 (38 U.S.C. 
4102A(c)(2)(B)(ii)). Because of the late enactment of the law, funding 
for year one of the phase-in had already occurred by the date of 
enactment. Congress intended that the formula be phased-in and fully 
implemented by the beginning of fiscal year 2006, which is October 1, 
2005. The phase-in provision was not intended to delay the anticipated 
date of full implementation of the formula.
    In order to adhere to the implementation expectations of Congress, 
the phase-in process began in fiscal year 2004, through publication of 
an Interim Final Rule amending 20 CFR part 1001 on June 30, 2003 (68 FR 
39000). The Interim Final Rule set forth the funding criteria to be 
used in fiscal year 2004. In order to ensure full public comment and 
adequate public notice of the new funding criteria applicable after 
fiscal year 2004, the Interim Final Rule was set to expire on September 
30, 2004, and the Department committed to issuing a Notice of Proposed 
Rulemaking to establish the funding formula to be used in fiscal year 
2005 and the future.
    Accordingly, on July 6, 2004, a Notice of Proposed Rulemaking with 
a request for comments was published in the Federal Register, at 69 FR 
40724. The Notice of Proposed Rulemaking used the same formula and data 
sources as the Interim Final Rule for making allocations among States. 
We thoroughly reviewed every comment on the proposed rule received 
during the comment period. These comments are summarized and responded 
to in section III of this Preamble.
    This Final Rule applies the same funding criteria and data sources 
as that established in the Notice of Proposed Rulemaking and the 
Interim Final Rule. These criteria were used as the basis for 
allocating Fiscal Year 2005 funds (initially made available under a 
series of Continuing Resolutions) among the States. By so doing we were 
able to continue funding these programs without harm to the States or 
to veterans seeking services.

II. Authority

    The statutory authority for this Final Rule is 38 U.S.C. 
4102A(c)(2)(B), as amended by the Jobs for Veterans Act, enacted 
November 7, 2002, as Public Law 107-288.

III. Section-by-Section Review of the Rule

A. Funding Formula--Basic Grant

    The Act requires the Secretary to make funds available to each 
State, upon approval of an ``application'' (i.e., a State Plan), to 
support the DVOP and LVER programs designed to provide employment 
services to veterans and transitioning servicemembers (38 U.S.C. 
4102A(c)(2)(B)). The Act further allows the Secretary to use such 
criteria as the Secretary may establish in regulation, including 
civilian labor force and unemployment data in determining the funding 
levels (38 U.S.C. 4102A(c)(B)(i), as amended by the Act). The statute 
requires that the amount of funding available to each State reflect the 
ratio of: (1) The total number of veterans residing in the State who 
are seeking employment; to (2) the total number of veterans seeking 
employment in all States (38 U.S.C. 4102A(c)(B)(i)(I) and (II)). 
Additionally, the Act permits the Secretary to establish minimum 
funding levels and hold-harmless criteria, in order to mitigate the 
impact upon States whose funding levels may be significantly affected 
by the implementation of the new formula (38 U.S.C. 4102A(c)(B)(iii)).
    The Act states that the use of this formula will be phased-in over 
the three fiscal-year period beginning October 1, 2002. Since the 
statute was not enacted until November 7, 2002, after the beginning of 
fiscal year 2003, we interpret this to mean that the first phase-in 
year for the funding formula was fiscal year 2004, which began on 
October 1, 2003. This will only allow a two-year phase-in period, 
fiscal years 2004 and 2005, instead of the three years as contemplated 
by the statute. To give the States the maximum phase-in period 
possible, an Interim Final Rule was published on June 30, 2003, which 
expired September 30, 2004. This Final Rule replaces the Interim Final 
Rule and

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covers the second phase-in year of fiscal year 2005 and the permanent 
program beginning in fiscal year 2006. It applies the same funding 
criteria and data sources as that established in the Notice of Proposed 
Rulemaking and the Interim Final Rule. These criteria were used as the 
basis for allocating Fiscal Year 2005 funds (initially made available 
under a series of Continuing Resolutions) among the States.
1. Basic Grant Funding Formula and Data and Methodology
    We are using the same data sources as those used in the FY 2004 
formula established by the Interim Final Rule. The ratio of the number 
of veterans seeking employment in each State to the number of veterans 
seeking employment in all States is best determined using data 
collected through the Current Population Survey (CPS) and the Local 
Area Unemployment Statistics (LAUS), both of which are administered by 
the Bureau of Labor Statistics (BLS). We are using LAUS data to 
determine the number of unemployed persons in the civilian labor force 
because LAUS data are considered to be the most reliable data on the 
levels of general unemployment at the State level; and the Office of 
Management and Budget (OMB) requires Agencies allocating Federal funds, 
that include unemployment as a factor, to use LAUS as the indicator of 
unemployment unless the authorizing statute specifies otherwise (OMB 
Statistical Policy Directive 11). We are using the CPS data to 
determine the number of veterans in the civilian labor force because 
the CPS is considered to be the most reliable source of data on the 
levels of veteran participation in the civilian labor force at the 
State level. A subset of the CPS data on veterans in the civilian labor 
force does provide State level estimates of the number of unemployed 
veterans. However, because the sample size of the unemployed veteran 
subgroup at the State level is so small, these estimates are subject to 
large sampling errors. Therefore, the funding levels would be subject 
to undue variability/volatility if that subset of the CPS data were 
used alone to determine the number of unemployed veterans at the State 
level.
    Because LAUS data are based on the total unemployment level for a 
State, we concluded that LAUS data are the best available measure of 
persons who are seeking work. Accordingly, we concluded the number of 
veterans seeking employment in each State can be best determined by 
using a ratio of the general unemployment level in each State compared 
to the general unemployment level in all States (LAUS for the 
individual States/LAUS for all States), in combination with the number 
of veterans in the civilian labor force in each State compared to the 
number of veterans in the civilian labor force in all States (CPS for 
the individual States/CPS for all States). The result of these two 
ratios is averaged and converted to a single ratio of the number of 
veterans seeking employment in each State compared to the number of 
veterans seeking employment in all States. Three-year averages of the 
CPS and LAUS data are used in calculating the funding formula to 
stabilize the effect of annual fluctuations in the data in order to 
avoid undue fluctuations in the annual amounts allocated to States.
    We received one comment on the use of these data sources in 
response to the issuance of the Notice of Proposed Rulemaking. The 
commenter expressed the concern that the ``number of unemployed 
persons'' is different than that required by the Act. They offer 
``[t]he term `veterans seeking employment' could refer to veterans who 
are seeking employment because (1) they are unemployed and receiving 
Unemployment Insurance (UI) benefits; (2) they are out of work, but 
don't qualify for UI benefits; (3) they are looking for a better job 
than their current job; or (4) they are preparing for separation from 
the service.''
    Response: All individuals, including veterans, who are classified 
in LAUS as unemployed are considered to be seeking employment, both 
those who receive UI benefits and those who do not qualify for UI 
benefits (items 1 and 2, as specified in the comment). Thus, these two 
groups also are considered in the formula through the use of LAUS data. 
Currently, there is no valid data source that collects and measures 
those individuals who are looking for a better job than their current 
one (item 3, as specified in the comment). However, since these 
individuals are employed, they are considered a part of the civilian 
labor force and thus are included in the formula. Individuals who are 
preparing for separation from military service are not part of the 
civilian labor force nor are they veterans (item 4, as specified in the 
comment). Therefore they are properly omitted from the formula. It is 
noted that separating servicemembers may be served and are served 
through the Transition Assistance Program (TAP) and funding for 
services to those individuals is provided in this Final Rule through 
amounts made available for TAP services based on a State's plan. 
Therefore, no change is being made.
    The same commenter suggested that rather than use ``LAUS data for 
the total number of unemployed persons in each State, VETS should work 
with the Employment and Training Administration to ensure that States 
report data regarding their veterans more consistently in all DOL 
administered programs.''
    Response: OMB Statistical Policy Directive 11 requires any federal 
agency allocating federal funds that include unemployment as a factor 
to use LAUS as the indicator of unemployment, unless the authorizing 
statute specifies otherwise. Additionally, it has been determined by 
the BLS that LAUS data are the most reliable data for determining 
unemployment at the State level. While we agree that the availability 
of a more reliable source of information on unemployed veterans would 
be desirable, we submit that in the absence of such a data source we 
must use the most reliable data currently available. Accordingly, no 
change is being made.
    An additional comment by the same commenter expressed an opinion 
that the use of a three-year average is contrary to the express intent 
of the Act. They further stated, ``The change in the prior funding 
formula was made in order to ensure that the nation's resources for 
serving veterans are allocated in proportion to the nation's veterans 
who are seeking employment. The Act authorizes only the use of a hold-
harmless criteria and minimum funding levels.''
    Response: In our view, the Secretary is clearly authorized to 
include the 3-year average criterion in the formula established under 
38 U.S.C. 4102A(c)(2)(B). The Secretary is authorized to use ``such 
criteria as the Secretary may establish'' within the parameters of that 
section (i.e., the required data sources and ratio). The 3-year average 
criterion is used for sound statistical reasons. The State level data 
employed in the funding formula on the number of veterans in the 
civilian labor force are based entirely on the CPS. The State level 
data employed in the funding formula on the number of unemployed 
individuals are based upon the LAUS data, which are based partially on 
the CPS. All CPS data are derived from a survey that is conducted with 
a statistical sample of households. Like all data derived from 
statistical samples, the results of the CPS include sampling error. 
Therefore, the CPS results for a given State can vary from one year to 
the next simply due to the sampling error, without any change occurring 
in the underlying labor force characteristic being measured.
    When the funding formula methodology was under development, funding 
allocations for basic grants were

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initially estimated based upon the CPS and LAUS data for the most 
recent year, as suggested by the commenter. These initial estimates 
clearly indicated that ``statistical noise'' due to sampling error 
would have introduced a disruptive pattern of unnecessary annual 
fluctuations in funding levels, in addition to the desirable shifts in 
funding attributable to changes in the labor force characteristics 
being measured. Further development suggested that the three-year 
average provided the best available means of capturing the underlying 
labor force trends, while suppressing the year-to-year statistical 
variation. BLS staff members with specialized expertise related to the 
CPS and LAUS data sources were consulted during the development of this 
approach and concurred that the approach and its underlying rationale 
are technically sound. Based upon this technical foundation, it was 
concluded that this approach enables each State, and the workforce 
development system as a whole, to respond to relevant labor force 
changes in the most orderly manner. Therefore, the three year average 
is retained in the Final Rule.
    One commenter pointed out that State Plans are prepared in response 
to estimated allocation amounts based upon a projection of the 
appropriation for a given fiscal year. This commenter requested 
clarification regarding the policies to be followed if: (a) The actual 
appropriation was higher than the projection; and (b) The actual 
appropriation was lower than the projection by a small amount.
    Response: In response to these comments, we have revised Sec.  
1001.150. A new paragraph (d) sets forth the criteria that the 
Secretary will apply when the appropriation varies from the projection.
    Projecting an appropriation amount for each fiscal year is central 
to the process prescribed by the Act for calculating and awarding basic 
grants for veterans' employment services to State Workforce Agencies. 
At the National level, the funding formula prescribed by the Act is 
applied to the projected appropriation amount in order to calculate the 
estimated amounts of the basic grant allocations for each State. At the 
State level, in turn, these estimated basic grant allocation amounts 
provide the fiscal foundation for the preparation of State Plans.
    The sequence of activities undertaken to estimate basic grant 
allocation amounts and to prepare State Plans involve application of 
staff effort and consume calendar time on the part of the State and 
Federal agencies involved in this process. Further, in recent years, 
the timing of the enactment of appropriations generally has made it 
expedient to award grants to State agencies as soon as possible after 
the appropriations are enacted and administrative allotments have been 
completed. Therefore, paragraph (d) of Sec.  1001.150 provides that, if 
the actual appropriation varies from the projection, the Secretary will 
make every reasonable effort to avoid recalculating the estimated basic 
grant allocation amounts, in order to maintain the delivery of services 
to veterans and to minimize the administrative workload required to 
recalculate grant allocations and to revise State Plans. For all these 
reasons, upon enactment of an appropriation, it is the Department's 
intent to proceed by awarding the estimated basic grant allocation 
amounts to State agencies, unless the difference between the projection 
and the appropriation creates a compelling reason to do otherwise. The 
Department is able to cover small shortfalls between the appropriation 
and the projection by adjusting the funds set aside for TAP workload 
and exigent circumstances.
    Paragraph (d)(2) provides that if the actual appropriation exceeds 
the projection, the Secretary will determine whether the higher 
appropriation creates a compelling reason to recalculate the States' 
basic grants by reapplying the formula to the amount of funds so 
appropriated. If there is no compelling reason to recalculate, the 
increased amount available for basic grants will be retained as 
undistributed funds, separate from the funds retained for TAP workload 
and other exigencies. The intent will be to award these undistributed 
basic grant funds to States during the applicable fiscal year as basic 
grant supplements, in response to circumstances that arise during that 
fiscal year. Similarly, paragraph (d)(3) provides that if the 
appropriation falls below the projection, the Secretary will determine 
whether the lower appropriation creates a compelling reason to 
recalculate the States' basic grants. If awarding States the estimated 
allocation amounts for basic grants would reduce the level of 
unallocated funds below the threshold amount required for TAP and other 
exigencies, a compelling reason to recalculate would exist. Therefore, 
the basic grant allocation amounts will be recalculated in response to 
a reduced appropriation to the extent that it is necessary to do so to 
assure the availability of sufficient funding for TAP workload and 
other exigencies. In cases where the appropriation is insufficient to 
meet the hold-harmless provisions, we will follow the procedure 
outlined in section 1001.152(d).
2. Minimum Funding Levels and Hold-Harmless Criteria
    The Act authorizes the Secretary to establish hold-harmless 
criteria and minimum funding levels (38 U.S.C. 4102A(c)(2)(B)(iii)). 
This Final Rule establishes a hold-harmless rate of eighty percent for 
the second phase-in year (fiscal year 2005) to mitigate the impact of 
the most significant reductions to States' prior funding levels. This 
is the same rate as that set forth in the Interim Final Rule for Fiscal 
Year 2004. With the eighty percent hold-harmless during fiscal year 
2005 each State will be provided no less than eighty percent of its 
previous year's allocation. The eighty percent hold-harmless rate will 
allow the reduction of funding, to those States impacted, to be 
implemented incrementally. After the funding phase-in period is 
completed in fiscal year 2005, a ninety percent hold-harmless rate will 
be applied, ensuring each State will receive at least ninety percent of 
their previous year's allocation. This will align the hold-harmless 
level with the hold-harmless level established by Section 6 of the 
Wagner-Peyser Act (29 U.S.C. 49e (b)(2)). In addition to the hold-
harmless provisions in any year, a State minimum funding level of 0.28 
percent (.0028) of the prior year's total funding level for all States 
will be applied, meaning that no State may receive less than that 
amount. This is the same percentage applied in Section 6 of the Wagner-
Peyser Act (29 U.S.C. 49e(b)(3)).
    One commenter, noting that State Plans are prepared in response to 
estimated basic grant allocations based upon a projection of the 
appropriation for a given fiscal year, requested clarification of the 
policy that the Department would follow if the actual appropriation 
fell so far below the projection that sufficient funding was not 
available to comply with the 90 percent hold-harmless provision.
    Response: In response to this comment, a new paragraph (d) has been 
added to Sec.  1001.152. Section 1001.152 provides that two basic steps 
would be followed in this instance. In the first step, the Department 
would confirm or refine, as appropriate, the accuracy of the States' 
estimates of TAP workload and would reserve sufficient funds from the 
total amount available for allocation to the States for that purpose. 
Beyond TAP workload, no funds would be reserved for exigent 
circumstances because the shortfall in the

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appropriation would be the primary exigent circumstance to be 
addressed.
    In the second step, the Department would apply proportionally the 
remaining balance available for basic grant allocations to the States 
for that fiscal year. The proportion would be calculated by dividing 
the remaining balance available for basic grant allocations by the 
total estimated basic grant allocations for that fiscal year. The 
proportion resulting from that calculation would be applied to each 
State's estimated basic grant allocation to calculate the amount to be 
awarded. For example, if the balance available was 79% of the total 
estimated basic grant allocations, each State would be awarded 79% of 
its estimated basic grant allocation for that fiscal year.

B. Other Funding Criteria

    In addition to requiring the Secretary to use civilian labor force 
and unemployment data in establishing States' funding levels, the Act 
states that the Secretary ``shall make available to each State * * * an 
amount of funding * * * using such criteria as the Secretary may 
establish in regulation * * *'' (38 U.S.C. 4102A(c)(2)(B)(i)). 
Accordingly, the rule provides that in addition to the amount awarded 
based on the basic grant funding formula, described in section IV.A.1 
of this document, the Secretary may distribute up to four percent of 
the total amount available for allocation based on TAP workload and 
exigent circumstances (38 U.S.C. 4102, 4102A(b), and 10 U.S.C. 1141).
    A commenter asked us to clear up a perceived inconsistency between 
the Preamble statement that ``* * * the Secretary may distribute up to 
four percent of the total amount available for allocation'' in 
reference to Sec.  1001.151(a) which states that ``[f]our percent of 
the total amount at the national level will be available'' for TAP and 
exigencies.
    Response: The intent of the regulation is to provide that the 
Secretary has authority to use ``up to four percent of the total amount 
available for allocation will be available for distribution based on 
Transition Assistance Program (TAP) workload and other exigencies.'' To 
avoid any confusion, the regulation has been revised accordingly. The 
funds set aside for TAP are available for programs in States and 
overseas.
1. Transition Assistance Program (TAP) Workload
    The Act requires the Secretary to implement programs to ease the 
transition of servicemembers to civilian careers (38 U.S.C. 4102. See 
also 10 U.S.C. 1141). TAP workshops provide such employment services 
for transitioning servicemembers. Because active military personnel are 
not included in the CPS civilian labor force data, or in the LAUS 
unemployment data, the level of need for TAP workshops is not reflected 
in the funding formula for the basic grants. Therefore, supplemental 
funding is needed in order to ensure adequate funding is available to 
provide TAP workshops. In the Final Rule, the allocation to the States 
for TAP workshops is proportional to each State's TAP workload as 
identified in its State Plan. Policy guidance was provided to States to 
assist them in determining the amounts needed for this additional 
workload, which is calculated on a per-workshop basis as identified in 
the State Plan.
    We received one comment supporting the method for allocating TAP 
workshop funds.
2. Exigent Circumstances
    Supplemental funding will be made available for exigencies, 
including but not limited to, needs based on sharp or unanticipated 
fluctuations in State unemployment levels and services to transitioning 
servicemembers (as required by the Act). Economic and unemployment 
conditions projected at the time of the grant application may not 
reflect actual conditions. In such cases, program needs may warrant 
additional funding. These funds will be made available based on need.

IV. Administrative Information

Regulatory Flexibility and Regulatory Impact Analysis

    The Regulatory Flexibility Act of 1980, as amended in 1996 (5 
U.S.C. chapter 6), requires the Federal government to anticipate and 
minimize the impact of rules and paperwork requirements on small 
entities. ``Small entities'' are defined as small businesses (those 
with fewer than 500 employees, except where otherwise provided), small 
non-profit organizations (those with fewer than 500 employees, except 
where otherwise provided), and small governmental entities (those in 
areas with fewer than 50,000 residents). We have assessed the potential 
impact of this rule on small entities. This rule implements reforms to 
the funding of the State operated veterans' employment and training 
services and transitional assistance programs for separating 
servicemembers. Because the rule affects only the distribution of 
appropriated funds among the States, we have determined that the rule 
will not have a significant impact on a substantial number of small 
governments or other small entities. We are transmitting a copy of our 
certification to the Chief Counsel for Advocacy for the Small Business 
Administration. In addition, while these rules govern the distribution 
and administration of funds appropriated by Congress, the rules 
themselves do not result in an annual effect on the economy of 
$100,000,000 or more; a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions; or significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based enterprises. Accordingly, under the 
Small Business Regulatory Enforcement Fairness Act (SBREFA) (5 U.S.C. 
Chapter 8), the Department has determined that these are not ``major 
rules,'' as defined in 5 U.S.C. 804(2).

Paperwork Reduction Act

    This Final Rule does not require any information to be collected, 
therefore is not subject to review by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995.

Executive Order 12866, Regulatory Planning and Review

    The Department of Labor has determined that this rule is a 
``significant regulatory action.'' However, it is not an economically 
significant rule, and therefore, does not fall under the cost/benefit 
assessment provisions of section 6(a)(3)(C) of Executive Order 12866. 
While this rule affects the distribution among States of funds 
appropriated by Congress, the rule itself will not materially alter the 
rights and obligations of the State recipients, particularly in light 
of the hold-harmless provisions included in the rule. Furthermore, the 
rule itself will not: materially alter the budgetary impact of 
entitlements, grants, user fees, or loan programs; have an annual 
effect on the economy of $100 million or more, or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities; create a serious 
inconsistency, or otherwise interfere with an action taken or planned 
by another agency. The rule may raise novel legal or policy issues 
arising out of legal mandates, the President's priorities, or the 
principles set forth in Executive Order 12866, therefore it has been 
submitted to OMB for review.

[[Page 28406]]

Unfunded Mandates

    Executive Order 12875--This rule does not create an unfunded 
Federal Mandate upon any State, local, or tribal government.
    Unfunded Mandate Reform Act of 1995--This rule does not include any 
Federal mandate that may result in increased expenditures by State, 
local and tribal governments in the aggregate of $100 million or more, 
or increased expenditures by the private sector of $100 million or 
more.

Executive Order 13132, Federalism

    We have assessed this rule under Executive Order 13132 and found 
that it will not have substantial direct effects on the States or the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government, within the meaning of the Executive Order.

Executive Order 12988

    This rule has been drafted and reviewed in accordance with 
Executive Order 12988, Civil Justice Reform, and will not unduly burden 
the Federal court system. The rule has been written so as to minimize 
litigation and provide a clear legal standard for affected conduct, and 
has been reviewed carefully to eliminate drafting errors and 
ambiguities.

Effective Date

    This final rule is effective June 16, 2005.

List of Subjects in 20 CFR Part 1001

    Employment, Grant Programs, Labor, Reporting and Record Keeping 
Requirements, Veterans.

0
For the reasons set forth in the preamble, 20 CFR chapter IX is amended 
as set forth below.

PART 1001--SERVICES FOR VETERANS

0
1. The authority for part 1001, subpart F continues to read as follows:

    Authority: Sec. 4(a), Pub. L. 107-288; 38 U.S.C. 4102A.

0
2. Part 1001 is amended by revising subpart F to read as follows:

Subpart F--Formula for the Allocation of Grant Funds to State Agencies

1001.150 Method of calculating State basic grant awards.
1001.151 Other funding criteria.
1001.152 Hold-harmless criteria and minimum funding level.

Subpart F--Formula for the Allocation of Grant Funds to State 
Agencies.


Sec.  1001.150  Method of calculating State basic grant awards.

    (a) In determining the amount of funds available to each State, the 
ratio of the number of veterans seeking employment in the State to the 
number of veterans seeking employment in all States will be used.
    (b) The number of veterans seeking employment will be determined 
based on the number of veterans in the civilian labor force and the 
number of unemployed persons. The civilian labor force data will be 
obtained from the Current Population Survey (CPS) and the unemployment 
data will be obtained from the Local Area Unemployment Statistics 
(LAUS), both of which are compiled by the Department of Labor's Bureau 
of Labor Statistics.
    (c) Each State's basic grant allocation will be determined by 
dividing the number of unemployed persons in each State by the number 
of unemployed persons across all States (LAUS for the individual States 
/ LAUS for all States) and by dividing the number of veterans in the 
civilian labor force in each State by the number of veterans in the 
civilian labor force across all States (CPS for the individual States / 
CPS for all States). The result of these two ratios will be averaged 
and converted to a percentage of veterans seeking employment in the 
State compared to the percentage of veterans seeking employment in all 
States. Three-year averages of the CPS and LAUS data will be used in 
calculating the funding formula to stabilize the effect of annual 
fluctuations in the data in order to avoid undue fluctuations in the 
annual basic grant amounts allocated to States.
    (d) State Plans are prepared in response to estimated basic grant 
allocation amounts prepared by the Department of Labor, based upon a 
projection of the appropriation. Variations from Department of Labor 
projections will be treated as follows:
    (1) If the actual appropriation varies from the projection, the 
Secretary will make every reasonable effort to avoid recalculating the 
estimated basic grant allocation amounts, in order to maintain the 
delivery of services to veterans and to minimize the administrative 
workload required to recalculate grant allocations and to revise State 
Plans. Therefore upon enactment and allotment of an appropriated 
amount, it is the Department's intent to proceed by awarding the 
estimated basic grant allocation amounts to State agencies, unless the 
difference between the projection and the appropriation creates a 
compelling reason to do otherwise.
    (2) If the actual appropriation exceeds the projection, the 
Secretary will determine whether the appropriation and the projection 
is large enough to warrant recalculating the State basic grant amounts. 
In such case, state basic grant amounts will be recalculated in 
accordance with paragraphs (a) through (c) of this section. If it is 
determined that no compelling reason to recalculate exists, the 
increased amount available for basic grants will be retained as 
undistributed funds. These undistributed basic grant funds will be 
retained separately from the funds retained for TAP workload and other 
exigencies, as established by Sec.  1001.151(a). The intent will be to 
award these undistributed basic grant funds to States as basic grant 
supplements, in response to circumstances arising during the applicable 
fiscal year.
    (3) If the actual appropriation falls below the projection, the 
Secretary will determine whether the lower appropriation creates a 
compelling reason to recalculate the State basic grant amounts. If it 
is determined that not recalculating the State basic grant amounts 
would jeopardize the availability of sufficient funding for TAP 
workload and other exigencies, a compelling reason to recalculate would 
exist. In that case, the State basic grant amounts will be recalculated 
under paragraphs (a) through (c) of this section in response to the 
reduced appropriation, to the extent required to assure that sufficient 
funding is available for TAP workload and other exigencies.


Sec.  1001.151  Other funding criteria.

    (a) Up to four percent of the total amount available for allocation 
will be available for distribution based on Transition Assistance 
Program (TAP) workload and other exigencies.
    (b) Funding for TAP workshops will be allocated on a per workshop 
basis. Funding to the States will be provided pursuant to the approved 
State Plan.
    (c) Funds for exigent circumstances, such as unusually high levels 
of unemployment, surges in the demand for transitioning services, 
including the need for TAP workshops, will be allocated based on need.


Sec.  1001.152  Hold-harmless criteria and minimum funding level.

    (a) A hold-harmless rate of 90 percent of the prior year's funding 
level will be applied after the funding formula phase-in period is 
completed (beginning fiscal year 2006 and subsequent years).

[[Page 28407]]

    (b) A hold-harmless rate of 80 percent of the prior year's funding 
level will be applied for fiscal year 2005.
    (c) A minimum funding level is established to ensure that in any 
year, no State will receive less than 0.28 percent (.0028) of the 
previous year's total funding for all States.
    (d) If the appropriation for a given fiscal year does not provide 
sufficient funds to comply with the hold-harmless provision, the 
Department will:
    (1) Update, as appropriate, the States' estimates of TAP workload 
and reserve sufficient funds for that purpose from the total amount 
available for allocation to the States. Beyond TAP workload, no funds 
will be reserved for exigent circumstances because the shortfall in the 
appropriation will be the primary exigent circumstance to be addressed.
    (2) Apply proportionally the remaining balance available for basic 
grant allocations to the States for that fiscal year. The proportion 
will be calculated by dividing the remaining balance available for 
allocation by the total estimated State basic grant allocations for 
that fiscal year. The proportion resulting from that calculation will 
be applied to each State's estimated basic grant allocation to 
calculate the amount to be awarded.

    Signed at Washington, DC, this 11th day of May, 2005.
Charles Ciccolella,
Deputy Assistant Secretary for Veterans' Employment and Training.
[FR Doc. 05-9771 Filed 5-16-05; 8:45 am]

BILLING CODE 4510-79-P