80 FR 43966 - Recipient Fund Balances

LEGAL SERVICES CORPORATION

Federal Register Volume 80, Issue 142 (July 24, 2015)

This final rule revises the Legal Services Corporation (LSC or Corporation) regulation on recipient fund balances to give the Corporation 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 final rule also provides that recipients facing a fund balance in excess of 25% of their annual LSC support may submit a waiver request prior to submitting their annual audited financial statements.

[Federal Register Volume 80, Number 142 (Friday, July 24, 2015)]
[Rules and Regulations]
[Pages 43966-43968]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-18138]


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LEGAL SERVICES CORPORATION

45 CFR Part 1628


Recipient Fund Balances

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This final rule revises the Legal Services Corporation (LSC or 
Corporation) regulation on recipient fund balances to give the 
Corporation 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 final rule also provides that recipients facing a fund balance in 
excess of 25% of their annual LSC support may submit a waiver request 
prior to submitting their annual audited financial statements.

DATES: This final rule is effective August 24, 2015.

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 [email protected].

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 recipients' ability 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 must repay to LSC any funds retained at the end of the fiscal 
year in excess of 10% of its total annual LSC support. Id. The 
Instruction also 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 LSC 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 that the rule was ``more 
strict'' than the fund balance requirements of most federal agencies. 
65 FR 66637, 66638, Nov. 7, 2000. The revised rule 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 LSC support. 
Id. at 66637.

[[Page 43967]]

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 LSC 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,'' 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.
    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 prevented 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 part 1628's standards. The Committee 
authorized LSC management to add the matter to the Committee's 
rulemaking agenda.
    As required by the LSC Rulemaking Protocol, LSC staff prepared an 
explanatory rulemaking options paper, accompanied by a proposed rule 
amending part 1628. On April 12, 2015, the Committee voted to recommend 
that the Board publish the notice of proposed rulemaking (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 the NPRM in the Federal Register. 80 FR 21700, Apr. 20, 
2015. The comment period remained open for thirty days and closed on 
May 20, 2015.
    On July 16, 2015, the Committee considered the draft final rule for 
publication and voted to recommend its adoption publication to the 
Board. On July 18, 2015, the Board adopted the final rule and approved 
its publication.
    Material regarding this rulemaking is available in the open 
rulemaking section of LSC's Web site at http://www.lsc.gov/about/regulations-rules/open-rulemaking. After the effective date of this 
rule, those materials will appear in the closed rulemaking section of 
LSC's Web site at http://www.lsc.gov/about/regulations-rules/closed-rulemaking.

II. Section-by-Section Discussion of Comments and Regulatory Provisions

    LSC received two comments during the public comment period. One 
comment was submitted by an LSC recipient, the Northwest Justice 
Project (NJP). The other comment was submitted by the non-LSC-funded 
nonprofit National Legal Aid and Defender Association (NLADA) through 
its Civil Policy Group and Regulations and Policy Committee. Both 
commenters were generally supportive of LSC's proposed changes to part 
1628.

Section 1628.3 Policy

    LSC proposed 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 support. LSC staff determined that the 
list of extraordinary and compelling circumstances should be 
illustrative, rather than exhaustive, so that recipients that encounter 
truly unforeseeable situations 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. Whereas 
existing Sec.  1628.3(c) is limited to three circumstances where a 
recipient receives a sudden infusion of income, the new section expands 
the types of situations that the Corporation, in its discretion, may 
consider to be extraordinary and compelling circumstances. The new 
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, such as being 
forced to temporarily shut down operations. The 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 proposed to make a 
minor revision to Sec.  1628.3(d) to reflect the proposed redesignation 
of certain paragraphs in Sec.  1628.4.
    Comments: Both commenters expressed strong support of the revisions 
to Sec.  1628.3.

Section 1628.4 Procedures

    LSC proposed to add a new Sec.  1628.4(d) to expressly allow 
recipients that expect to have a fund balance in excess of 25% of their 
annual support at the end of the fiscal year to submit a waiver request 
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 as Sec.  1628.4(e), (f), (g), and (h). The 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. It will also 
require recipients that receive early approval to later submit updated 
information consistent with the requirements of Sec.  1628.4(a) to 
confirm the actual fund balance amount to be retained by the recipient, 
as determined by reference to its annual 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. The 
recipient must later provide confirmation of the actual amount of 
excess funds it has retained. Finally, LSC proposed to revise the 
introductory text of paragraph (a), as well as paragraphs (a)(2) and 
(a)(3), for clarity and readability.

[[Page 43968]]

    Comments: Both commenters were supportive of LSC's proposal to 
allow recipients with fund balances in excess of 25% of annual support 
to submit waiver requests prior to the submission of their annual audit 
reports. NLADA recommended that LSC further revise Sec.  1628.4 to also 
allow recipients expecting to have fund balances in excess of 10% and 
up to 25% of their annual LSC support to submit early waiver requests. 
NLADA reasoned that this would allow recipients seeking such waivers to 
plan for the next fiscal year with greater certainty. NJP, on the other 
hand, expressed support for continuing the standard waiver request 
process for recipients with fund balances that do not exceed 25% of 
annual support. NJP stated that, in its experience, such requests are 
more than likely to be approved and that using annual audit report 
information to draft them assures that the amount approved for 
retention is equal to the final audited carryover.
    Response: As stated in the preamble of the NPRM, LSC staff found 
that limiting early approvals to waiver requests for fund balances in 
excess of 25% of annual support was proper in light of the unique and 
significant financial planning burdens faced by recipients that 
experience extraordinary and compelling circumstances causing them to 
accrue substantial amounts of unused funds. Furthermore, while the 
Corporation will continue to apply the heightened standard of 
``extraordinary and compelling circumstances'' to requests to retain 
fund balances in excess of 25% of annual support, it will maintain the 
less burdensome standard of ``special circumstances'' for requests to 
retain fund balances that do not exceed 25% of annual support. 
Therefore, LSC believes that recipients seeking to retain fund balance 
amounts in excess of 10% and up to 25% of annual support would not 
benefit significantly from the minimal level of additional assurance 
that allowing the early submission of waiver requests may potentially 
provide. In addition, recipients that receive early approvals of such 
requests would later have to provide confirmation of the actual amount 
of excess funds they accrued when they submit their annual audited 
financial statements. LSC believes that the additional time and effort 
required by this process would not be justified by the small amount of 
additional assurance that it may provide.

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 amends 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% 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 by revising paragraphs (a) introductory text, 
(a)(2) and (3), and (d) to 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: July 20, 2015.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2015-18138 Filed 7-23-15; 8:45 am]
 BILLING CODE 7050-01-P