[Code of Federal Regulations]
[Title 7, Volume 4]
[Revised as of January 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR246.16]

[Page 376-382]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER II--FOOD AND NUTRITION SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 246_SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS 
AND CHILDREN--Table of Contents
 
                    Subpart E_State Agency Provisions
 
Sec. 246.16  Distribution of funds.

    (a) General. This paragraph describes the timeframes for 
distribution of appropriated funds by the Department to participating 
State agencies and the authority for the Secretary to use appropriated 
funds for evaluation studies and demonstration projects.
    (1) Authorized appropriations to carry out the provisions of this 
section may be made not more than 1 year in advance of the beginning of 
the fiscal year in which the funds shall become available for 
disbursement to the State agencies. The funds shall remain available for 
the purposes for which appropriated until expended.
    (2) In the case of appropriations legislation providing funds 
through the end of a fiscal year, the Secretary shall issue to State 
agencies an initial allocation of funds provided under such

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legislation not later than the expiration of the 15-day period beginning 
on the date of the enactment and subsequent allocation of funds shall be 
issued not later than the beginning of each of the second, third and 
fourth quarters of the fiscal year.
    (3) Allocations of funds pursuant to paragraph (a)(2) of this 
section shall be made as follows: The initial allocation of funds to 
State agencies shall include not less than \1/3\ of the appropriated 
amounts for the fiscal year. The allocation of funds to be made not 
later than the beginning of the second and third quarters shall each 
include not less than \1/4\ of the appropriated amounts for the fiscal 
year.
    (4) In the case of legislation providing funds for a period that 
ends prior to the end of a fiscal year, the Secretary shall issue to 
State agencies an initial allocation of funds not later than the 
expiration of the 10-day period beginning on the date of enactment. In 
the case of legislation providing appropriations for a period of not 
more than 4 months, all funds must be allocated to State agencies except 
those reserved by the Secretary to carry out paragraph (a)(6) of this 
section.
    (5) In any fiscal year unused amounts from a prior fiscal year that 
are identified by the end of the first quarter of the fiscal year shall 
be recovered and reallocated not later than the beginning of the second 
quarter of the fiscal year. Unused amounts from a prior fiscal year that 
are identified after the end of the first quarter of the fiscal year 
shall be recovered and reallocated on a timely basis.
    (6) Up to one-half of one percent of the sums appropriated for each 
fiscal year, not to exceed $5,000,000, shall be available to the 
Secretary for the purpose of evaluating Program performance, evaluating 
health benefits, providing technical assistance to improve State agency 
administrative systems, preparing reports on program participant 
characteristics, and administering pilot projects, including projects 
designed to meet the special needs of migrants, Indians, rural 
populations, and to carry out technical assistance and research 
evaluation projects for the WIC Farmers' Market Nutrition Program.
    (b) Distribution and application of grant funds to State agencies. 
Notwithstanding any other provision of law, funds made available to the 
State agencies for the Program in any fiscal year will be managed and 
distributed as follows:
    (1) The State agency shall ensure that all Program funds are used 
only for Program purposes. As a prerequisite to the receipt of funds, 
the State agency shall have executed an agreement with the Department 
and shall have received approval of its State Plan.
    (2) Notwithstanding any other provision of law, all funds not made 
available to the Secretary in accordance with paragraph (a)(6) of this 
section shall be distributed to State agencies on the basis of funding 
formulas which allocate funds to all State agencies for food costs and 
NSA costs incurred during the fiscal year for which the funds had been 
made available to the Department. Final State agency grant levels as 
determined by the funding formula and State agency breastfeeding 
promotion and support expenditure targets will be issued in a timely 
manner.
    (3) When may I transfer funds from one fiscal year to another?
    (i) Back spend authority. The State agency may back spend into the 
prior fiscal year up to an amount equal to one percent of its current 
year food grant and one percent of its current year NSA grant. Food 
funds spent back may be used only for food costs incurred during the 
prior fiscal year. NSA funds spent back may be used for either food or 
NSA costs incurred during the prior fiscal year. With prior FNS 
approval, the State agency may also back spend food funds up to an 
amount equal to three percent of its current year food grant in a fiscal 
year for food costs incurred in the prior fiscal year. FNS will approve 
such a request only if FNS determines there has been a significant 
reduction in infant formula cost containment savings that affected the 
State agency's ability to maintain its participation level.
    (ii) Spend forward authority. (A) The State agency may spend forward 
NSA funds up to an amount equal to one percent of their total grant (NSA 
plus food grants) in any fiscal year. These

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NSA funds spent forward may be used only for NSA costs incurred in the 
next fiscal year. Any food funds that the State agency converts to NSA 
funds pursuant to paragraph (f) of this section (based on projected or 
actual participation increases during a fiscal year) may not be spent 
forward into the next fiscal year. With prior FNS approval, the State 
agency may spend forward additional NSA funds up to an amount equal to 
one-half of one percent of its total grant. These funds are to be used 
in the next fiscal year for the development of a management information 
system, including an electronic benefit transfer system.
    (B) Funds spent forward will not affect the amount of funds 
allocated to the State agency for any fiscal year. Funds spent forward 
must be the first funds expended by the State agency for costs incurred 
in the next fiscal year.
    (iii) Reporting requirements. In addition to obtaining prior FNS 
approval for certain spend forward/back spending options, the State 
agency must report to FNS the amount of all funds it already has or 
intends to back spend and spend forward. The spending options must be 
reported at closeout.
    (c) Allocation formula. State agencies shall receive grant 
allocations according to the formulas described in this paragraph. To 
accomplish the distribution of funds under the allocation formulas, 
State agencies shall furnish the Department with any necessary financial 
and Program data.
    (1) Use of participation data in the formula. Wherever the formula 
set forth in paragraphs (c)(2) and (c)(3) of this section require the 
use of participation data, the Department shall use participation data 
reported by State agencies according to Sec. 246.25(b).
    (2) How is the amount of NSA funds determined? The funds available 
for allocation to State agencies for NSA for each fiscal year must be 
sufficient to guarantee a national average per participant NSA grant, 
adjusted for inflation. The amount of the national average per 
participant grant for NSA for any fiscal year will be an amount equal to 
the national average per participant grant for NSA issued for the 
preceding fiscal year, adjusted for inflation. The inflation adjustment 
will be equal to the percentage change between two values. The first is 
the value of the index for State and local government purchases, as 
published by the Bureau of Economic Analysis of the Department of 
Commerce, for the 12-month period ending June 30 of the second preceding 
fiscal year. The second is the best estimate that is available at the 
start of the fiscal year of the value of such index for the 12-month 
period ending June 30 of the previous fiscal year. Funds for NSA costs 
will be allocated according to the following procedure:
    (i) Fair share target funding level determination. For each State 
agency, FNS will establish, using all available NSA funds, an NSA fair 
share target funding level which is based on each State agency's average 
monthly participation level for the fiscal year for which grants are 
being calculated, as projected by FNS. Each State agency receives an 
adjustment to account for the higher per participant costs associated 
with small participation levels and differential salary levels relative 
to a national average salary level. The formula shall be adjusted to 
account for these cost factors in the following manner: 90 percent of 
available funds shall provide compensation based on rates which are 
proportionately higher for the first 15,000 or fewer participants, as 
projected by FNS, and 10 percent of available funds shall provide 
compensation based on differential salary levels, as determined by FNS.
    (ii) Base funding level. To the extent funds are available and 
subject to the provisions of paragraph (c)(2)(iv) of this section, each 
State agency shall receive an amount equal to 100 percent of the final 
formula-calculated NSA grant of the preceding fiscal year, prior to any 
operational adjustment funding allocations made under paragraph 
(c)(2)(iv) of this section. If funds are not available to provide all 
State agencies with their base funding level, all State agencies shall 
have their base funding level reduced by a pro-rata share as required by 
the shortfall of available funds.
    (iii) Fair share allocation. Any funds remaining available for 
allocation for NSA after the base funding level required by paragraph 
(c)(2)(ii) of this section has been completed and subject

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to the provisions of paragraph (c)(2)(iv) of this section shall be 
allocated to bring each State agency closer to its NSA fair share target 
funding level. FNS shall make fair share allocation funds available to 
each State agency based on the difference between the NSA fair share 
target funding level and the base funding level, which are determined in 
accordance with paragraphs (c)(2)(i) and (c)(2)(ii) of this section, 
respectively. Each State agency's difference shall be divided by the sum 
of the differences for all State agencies, to determine the percent 
share of the available fair share allocation funds each State agency 
shall receive.
    (iv) Operational adjustment funds. Each State agency's final NSA 
grant shall be reduced by up to 10 percent, and these funds shall be 
aggregated for all State agencies within each FNS region to form an 
operational adjustment fund. The Regions shall allocate these funds to 
State agencies according to national guidelines and shall consider the 
varying needs of State agencies within the region.
    (v) Operational level. The sum of each State agency's stability, 
residual and operational adjustment funds shall constitute the State 
agency's operational level. This operational level shall remain 
unchanged for such year even if the number of Federally-supported 
participants in the program at such State agency is lower than the 
Federally-projected participation level. However, if the provisions of 
paragraph (e)(2)(ii) of this section are applicable, a State agency will 
have its operational level for NSA reduced in the immediately succeeding 
fiscal year.
    (3) Allocation of food benefit funds. In any fiscal year, any 
amounts remaining from amounts appropriated for such fiscal year and 
amounts appropriated from the preceding fiscal year after making 
allocations under paragraph (a)(6) of this section and allocations for 
nutrition services and administration (NSA) as required by paragraph 
(c)(2) of this section shall be made available for food costs. 
Allocations to State agencies for food costs will be determined 
according to the following procedure:
    (i) Fair share target funding level determination. (A) For each 
State agency, FNS will establish a fair share target funding level which 
shall be an amount of funds proportionate to the State agency's share of 
the national aggregate population of persons who are income eligible to 
participate in the Program based on the 185 percent of poverty 
criterion. The Department will determine each State agency's population 
of persons categorically eligible for WIC which are at or below 185% of 
poverty, through the best available, nationally uniform, indicators as 
determined by the Department. If the Commodity Supplemental Food Program 
(CSFP) also operates in the area served by the WIC State agency, the 
number of participants in such area participating in the CSFP but 
otherwise eligible to participate in the WIC Program, as determined by 
FNS, shall be deducted from the WIC State agency's population of income 
eligible persons. If the State agency chooses to exercise the option in 
Sec. 246.7(c)(2) to limit program participation to U.S. citizens, 
nationals, and qualified aliens, FNS will reduce the State agency's 
population of income eligible persons to reflect the number of aliens 
the State agency declares no longer eligible.
    (B) The Department may adjust the respective amounts of food funds 
that would be allocated to a State agency which is outside the 48 
contiguous states and the District of Columbia when the State agency can 
document that economic conditions result in higher food costs for the 
State agency. Prior to any such adjustment, the State agency must 
demonstrate that it has successfully implemented voluntary cost 
containment measures, such as improved vendor management practices, 
participation in multi-state agency infant formula rebate contracts or 
other cost containment efforts. The Department may use the Thrifty Food 
Plan amounts used in the Food Stamp Program, or other available data, to 
formulate adjustment factors for such State agencies.
    (ii) Prior year grant level allocation. To the extent funds are 
available, each State agency shall receive a prior year grant allocation 
equal to its final authorized grant level as of September 30 of the 
prior fiscal year. If funds are not available to provide all State 
agencies

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with their full prior year grant level allocation, all State agencies 
shall have their full prior year grant level allocation reduced by a 
pro-rata share as required by the shortfall of available funds.
    (iii) Inflation/fair share allocation. (A) If funds remain available 
after the allocation of funds under paragraph (c)(3)(ii) of this 
section, the funds shall be allocated as provided in this paragraph 
(c)(3)(iii). First, FNS will calculate a target inflation allowance by 
applying the anticipated rate of food cost inflation, as determined by 
the Department, to the prior year grant funding level. Second, FNS will 
allocate 80 percent of the available funds to all State agencies in 
proportionate shares to meet the target inflation allowance. Third, FNS 
will allocate 20 percent of the available funds to each State agency 
which has a prior year grant level allocation, as determined in 
paragraph (c)(3)(ii) of this section and adjusted for inflation as 
determined in this paragraph (c)(3)(iii), which is still less than its 
fair share target funding level. The amount of funds allocated to each 
State agency shall be based on the difference between its prior year 
grant level allocation plus target inflation funds and the fair share 
funding target level. Each State agency's difference shall be divided by 
the sum of the differences for all such State agencies, to determine the 
percentage share of the 20 percent of available funds each State agency 
shall receive. In the event a State agency declines any of its 
allocation under either this paragraph (c)(3)(iii) or paragraph 
(c)(3)(ii) of this section, the declined funds shall be reallocated in 
the percentages and manner described in this paragraph (c)(3)(iii). Once 
all State agencies receive allocations equal to their full target 
inflation allowance, any remaining funds shall be allocated or 
reallocated, in the manner described in this paragraph (c)(3)(iii), to 
those State agencies still under their fair share target funding level.
    (B) In the event funds still remain after completing the 
distribution in paragraph (c)(3)(iii)(A) of this section, these funds 
shall be allocated to all State agencies including those with a 
stability allocation at, or greater than, their fair share allocation. 
Each State agency which can document the need for additional funds shall 
receive additional funds based on the difference between its prior year 
grant level and its fair share allocation. State agencies closest to 
their fair share allocation shall receive first consideration.
    (iv) Migrant services. At least \9/10\ of one percent of 
appropriated funds for each fiscal year shall be available first to 
assure service to eligible members of migrant populations. For those 
State agencies serving migrants, a portion of the grant shall be 
designated to each State agency for service to members of migrant 
populations based on that State agency's prior year reported migrant 
participation. The national aggregate amount made available first for 
this purpose shall equal \9/10\ of one percent of all funds appropriated 
each year for the Program.
    (v) Special provisions for Indian State agencies. The Department may 
choose to adjust the allocations and/or eligibles data among Indian 
State agencies, or among Indian State agencies and the geographic State 
agencies in which they are located when eligibles data for the State 
agencies' population is determined to not fairly represent the 
population to be served. Such allocations may be redistributed from one 
State agency to another, based on negotiated agreements among the 
affected State agencies approved by FNS.
    (4) Adjustment for new State agencies. Whenever a State agency that 
had not previously administered the program enters into an agreement 
with the Department to do so during a fiscal year, the Department shall 
make any adjustments to the requirements of this section that are deemed 
necessary to establish an appropriate initial funding level for such 
State agency.
    (d) Distribution of funds to local agencies. The State agency shall 
provide to local agencies all funds made available by the Department, 
except those funds necessary for allowable State agency NSA costs and 
food costs paid directly by the State agency. The State agency shall 
distribute the funds based on claims submitted at least quarterly by the 
local agency. Where the State agency advances funds to local agencies, 
the State agency shall ensure that

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each local agency has funds to cover immediate disbursement needs, and 
the State agency shall offset the advances made against incoming claims 
as they are submitted to ensure that funding levels reflect the actual 
expenditures reported by the local agency. Upon receipt of Program funds 
from the Department, the State agency shall take the following actions:
    (1) Distribute funds to cover expected food cost expenditures and/or 
distribute caseload targets to each local agency which are used to 
project food cost expenditures.
    (2) Allocate funds to cover expected local agency NSA costs in a 
manner which takes into consideration each local agency's needs. For the 
allocation of NSA funds, the State agency shall develop an NSA funding 
procedure, in cooperation with representative local agencies, which 
takes into account the varying needs of the local agencies. The State 
agency shall consider the views of local agencies, but the final 
decision as to the funding procedure remains with the State agency. The 
State agency shall take into account factors it deems appropriate to 
further proper, efficient and effective administration of the program, 
such as local agency staffing needs, density of population, number of 
persons served, and availability of administrative support from other 
sources.
    (3) The State agency may provide in advance to any local agency any 
amount of funds for NSA deemed necessary for the successful commencement 
or significant expansion of program operations during a reasonable 
period following approval of a new local agency, a new cost containment 
measure, or a significant change in an existing cost containment 
measure.
    (e) Recovery and reallocation of funds. (1) Funds may be recovered 
from a State agency at any time the Department determines, based on 
State agency reports of expenditures and operations, that the State 
agency is not expending funds at a rate commensurate with the amount of 
funds distributed or provided for expenditures under the Program. 
Recovery of funds may be either voluntary or involuntary in nature. Such 
funds shall be reallocated by the Department through application of 
appropriate formulas set forth in paragraph (c) of this section.
    (2) Performance standards. The following standards shall govern 
expenditure performance.
    (i) The amount allocated to any State agency for food benefits in 
the current fiscal year shall be reduced if such State agency's food 
expenditures for the preceding fiscal year do not equal or exceed 97 
percent of the amount allocated to the State agency for such costs. Such 
reduction shall equal the difference between the State agency's 
preceding year food expenditures and the performance expenditure 
standard amount. For purposes of determining the amount of such 
reduction, the amount allocated to the State agency for food benefits 
for the preceding fiscal year shall not include food funds expended for 
food costs incurred under the spendback provision in paragraph (b)(3)(i) 
of this section or conversion authority in paragraph (g) of this 
section. Temporary waivers of the performance standard may be granted at 
the discretion of the Department.
    (ii) Reduction of NSA grant. FNS will reduce the State agency's NSA 
grant for the next fiscal year if the State agency's current fiscal year 
per participant NSA expenditure is more than 10 percent higher than its 
per participant NSA grant. To avoid a reduction to its NSA grant level, 
the State agency may submit a ``good cause'' justification explaining 
why it exceeded the applicable limit on excess NSA expenditures. This 
justification must be submitted at the same time as the close-out report 
for the applicable fiscal year. Good cause may include dramatic and 
unforeseen increases in food costs, which would prevent a State agency 
from meeting its projected participation level.
    (iii) Spend forward funds. If any State agency notifies the 
Department of its intent to spend forward a specific amount of funds for 
expenditure in the subsequent fiscal year, in accordance with paragraph 
(b)(3)(ii) of this section, such funds shall not be subject to recovery 
by the Department.
    (f) How do I qualify to convert food funds to NSA funds based on 
increased participation? (1) Requirements. The State agency qualifies to 
convert food

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funds to NSA funds based on increased participation in any fiscal year 
in two ways:
    (i) Approved plan. A State agency may submit a plan to FNS to reduce 
average food costs per participant and to increase participation above 
the FNS-projected level for the State agency. If approved, the State 
agency may use funds allocated for food costs to pay NSA costs.
    (ii) Participation increases achieved. The State agency may also 
convert food funds to NSA funds in any fiscal year if it achieves, 
through acceptable measures, increases in participation in excess of the 
FNS-projected level for the State agency. Acceptable measures include 
use of cost containment measures, curtailment of vendor abuse, and 
breastfeeding promotional activities. FNS will disallow the State 
agency's conversion of food funds to NSA funds in accordance with 
paragraph (h) of this section if:
    (A) The State agency increases its participation level through 
measures that are not in the nutritional interests of participants; or
    (B) It is not otherwise allowable under program regulations.
    (2) Limitation. The State agency may convert food funds only to the 
extent that the conversion is necessary--
    (i) To cover NSA expenditures in the current fiscal year that exceed 
the State agency's NSA grant for the current fiscal year and any NSA 
funds which the State agency has spent forward into the current fiscal 
year; and
    (ii) To ensure that the State agency maintains the level established 
for the per participant NSA grant for the current fiscal year.
    (3) Maximum amount. The maximum amount the State agency may convert 
equals the State agency's conversion rate times the projected or actual 
participation increase, as applicable. The conversion rate is the same 
as the per participant NSA grant and is determined by dividing the State 
agency's NSA grant by the FNS-projected participation level. The NSA 
grant used in the calculation equals the initial allocation of current 
year funds plus the operational adjustment funding allocated to the 
State agency for that fiscal year.
    (g) How do I qualify to convert food funds to NSA funds for service 
to remote Indian or Native villages? (1) Eligible State agencies. Only 
State agencies located in noncontiguous States containing a significant 
number of remote Indian or Native villages qualify to convert food funds 
to NSA funds under this paragraph (g) in any fiscal year.
    (2) Limitation. In the current fiscal year, food funds may be 
converted only to the extent necessary to cover expenditures incurred:
    (i) In providing services (including the full cost of air 
transportation and other transportation) to remote Indian or Native 
villages; and
    (ii) To provide breastfeeding support in those areas that exceed the 
State agency's NSA grant for the current fiscal year and any NSA funds 
which the State agency has spent forward into the current fiscal year.
    (h) What happens at the end of the fiscal year in which food funds 
are converted? At the end of the fiscal year, the Department will 
determine the amount of food funds which the State agency was entitled 
to convert to NSA funds under paragraphs (f) and (g) of this section. In 
the event that the State agency has converted more than the permitted 
amount of funds, the Department will disallow the amount of excess 
conversion.
    (i) How do converted funds affect the calculation of my prior year 
food grant and base NSA grant? For purposes of establishing a State 
agency's prior year food grant and base NSA grant under paragraphs 
(c)(2)(i) and (c)(3)(i) of this section, respectively, amounts converted 
from food funds to NSA funds under paragraphs (f) and (g) of this 
section and Sec. 246.14(e) during the preceding fiscal year will be 
treated as though no conversion had taken place.

[50 FR 6121, Feb. 13, 1985, as amended at 52 FR 21237, June 4, 1987; 52 
FR 25190, July 2, 1987; 53 FR 2221, Jan. 27, 1988; 53 FR 25315, July 6, 
1988; 54 FR 18091, Apr. 27, 1989, 54 FR 19486, May 5, 1989; 58 FR 51568, 
Oct. 4, 1993; 59 FR 11504, Mar. 11, 1994; 59 FR 50823, Oct. 6, 1994; 63 
FR 63974, Nov. 18, 1998; 64 FR 56674, Oct. 21, 1999; 64 FR 61016, Nov. 
9, 1999; 64 FR 68000, Dec. 6, 1999; 65 FR 51224, Aug. 23, 2000; 65 FR 
53528, Sept. 5, 2000; 65 FR 77771, Dec. 13, 2000; 65 FR 80281, Dec. 21, 
2000]

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