Use of Non-LSC Funds, Transfers of LSC Funds, Program Integrity; Cost Standards and Procedures

 
CONTENT
Federal Register, Volume 84 Issue 155 (Monday, August 12, 2019)
[Federal Register Volume 84, Number 155 (Monday, August 12, 2019)]
[Proposed Rules]
[Pages 39787-39793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16822]
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LEGAL SERVICES CORPORATION
45 CFR Parts 1610 and 1630
Use of Non-LSC Funds, Transfers of LSC Funds, Program Integrity;
Cost Standards and Procedures
AGENCY: Legal Services Corporation.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This proposed rulemaking would revise the Legal Services
Corporation's (LSC or Corporation) regulations addressing the use of
non-LSC funds by LSC recipients and the requirement that recipients
maintain program integrity with respect to other entities that engage
in LSC-restricted activities, and also providing cost standards for LSC
grants and permits LSC to question costs when a recipient uses non-LSC
funds in violation of LSC rules. LSC proposes technical and stylistic
updates to both rules without any substantive changes.
DATES: Comments must be received by October 11, 2019.
ADDRESSES: You may submit comments by any of the following methods:
     Federal Rulemaking Portal: Follow the instructions for
submitting comments.
     Email: [email protected]. Include ``Part 1610
Rulemaking'' in the subject line of the message.
     Fax: (202) 337-6519.
     Mail: Mark Freedman, Senior Associate General Counsel,
Legal Services Corporation, 3333 K Street NW, Washington, DC 20007,
ATTN: Part 1610 Rulemaking.
     Hand Delivery/Courier: Mark Freedman, Senior Associate
General Counsel, Legal Services Corporation, 3333 K Street NW,
Washington, DC 20007, ATTN: Part 1610 Rulemaking.
    Instructions: LSC prefers electronic submissions via email with
attachments in Acrobat PDF format. LSC will not consider written
comments sent to any other address or received after the end of the
comment period.
FOR FURTHER INFORMATION CONTACT: Mark Freedman, Senior Associate
General Counsel, Legal Services Corporation, 3333 K Street NW,
Washington, DC 20007; (202) 295-1623 (phone), (202) 337-6519 (fax), or
[email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
    The Legal Services Corporation Act (LSC Act or Act), 42 U.S.C.
2996-2996l, and LSC's annual appropriation, Public Law 116-6 (2019),
impose restrictions and requirements on the use of LSC and non-LSC
funds by recipients of grants from LSC for the delivery of civil legal
aid. LSC implemented those restrictions and requirements on non-LSC
funds through part 1610 of title 45 of the Code of Federal Regulations.
Part 1610 also contains the program integrity rule, which requires
objective integrity and independence between a recipient and any entity
that engages in LSC-restricted activities.
    LSC's last major substantive revisions of part 1610 occurred in
1996 and 1997 when Congress passed major new statutory restrictions on
LSC recipients. 61 FR 63749, Dec. 2, 1996; 62 FR 27695, May 21, 1997.
Since then, LSC has made two technical updates to part 1610 as part of
rescinding or substantively revising other rules--parts 1627
(Subgrants) and 1642 (Attorneys' Fees). 82 FR 10273, Feb. 10, 2017; 75
FR 21506, Apr. 26, 2010. LSC has identified several technical changes
to update the rule and improve clarity. LSC does not propose any
substantive changes to the rule because LSC has not encountered
compliance or oversight problems with the operation of the rule.
    LSC's cost standards rule appears at 45 CFR part 1630. Section
1630.16 authorizes LSC to question costs when a recipient uses non-LSC
funds in violation of part 1610. LSC proposes to update that provision
to better reference part 1610. LSC does not propose any substantive
changes to the rule.
II. Regulatory Background
    In 1974, the LSC Act established requirements and restrictions on
LSC recipients and on their use of LSC funds. Public Law 93-355, 88
Stat. 378. As amended, section 1010(c) of the Act extends many of the
restrictions to recipients' use of non-LSC funds, with specific
exceptions. See 42 U.S.C. 2996i(c). Generally, the restrictions apply
to LSC funds and private funds but not to most uses of public or tribal
funds or to separately funded public defender programs. In the 1970s,
LSC adopted regulations implementing most of the restrictions (e.g.,
part 1613 regarding criminal proceedings). Other restrictions apply
directly from the Act
[[Page 39788]]
without implementing regulations (e.g., the restriction on abortion
proceedings at 42 U.S.C. 2996f(b)(8)). In 1976, as part of the initial
set of regulations, LSC created part 1610 to govern when LSC
restrictions apply to the use of non-LSC funds by recipients. 41 FR
25899, June 23, 1976.
    Starting in the 1980s, Congress imposed additional restrictions on
recipients through riders on LSC's annual appropriation (Appropriations
Restrictions). In 1996, Congress enacted a major new set of
restrictions and requirements on recipients in LSC's FY 1996
appropriation. Public Law 104-134, 110 Stat. 1321 (1996). Unlike the
Act restrictions, most of the Appropriations Restrictions applied to
the use of public funds. Id. at Section 504(d). Congress incorporated
those restrictions in LSC's FY 1997 and FY 1998 appropriations with
some modifications. Public Law 104-208, 110 Stat. 3009 (1996); Public
Law 105-119, 111 Stat. 2440 (1997). Thereafter, Congress has
incorporated those restrictions in each annual appropriation for LSC
through reference to LSC's FY 1998 appropriation. E.g., Public Law 116-
6 (2019). Congress has also made some modifications to those
restrictions in other LSC appropriations acts or in other statutes.
E.g., Section 533, Public Law 111-117, 123 Stat. 3034 (2009) (removing
the restriction on attorneys' fees). In 1996 and 1997 LSC implemented
the new restrictions through rulemaking. LSC also updated part 1610 to
specify which restrictions apply to which categories of non-LSC funds
and under what circumstances. 61 FR 63749, Dec. 2, 1996. LSC has
continued to update the regulations regarding the restrictions as
Congress has modified them.
    In 1997, LSC revised part 1610 in response to litigation
challenging the application of the Appropriations Restrictions to non-
LSC funds. The United States District Court for the District of Hawaii
had issued a preliminarily injunction against specific applications of
part 1610 to the use of non-LSC funds by recipients. Legal Aid Soc'y of
Haw. v. Legal Services Corp., 961 F. Supp. 1402, 1422 (D. Haw. 1997).
The Court found that part 1610 failed to provide recipients with
alternative avenues to use non-LSC funds for protected First Amendment
activities. In response, LSC adopted a revised part 1610 in 1997 to
address the District Court's concerns. 62 FR 27695, May 21, 1997. The
revised rule permitted LSC grantees to provide non-LSC funds to other
organizations for restricted activities and required LSC grantees to
maintain program integrity with respect to any entities engaged in LSC-
restricted activities. The revised rule also included a section on how
the restrictions applied to transfers of LSC funds, which were
functionally equivalent to subgrants subject to other requirements in
45 CFR part 1627. The District Court lifted the injunction and the
regulation was upheld as facially valid by the U.S. Courts of Appeals
for the Second Circuit and the Ninth Circuit. Velazquez v. Legal
Services Corp., 164 F.3d 757 (2d Cir. 1999), aff'd on other grounds,
531 U.S. 533 (2001); Legal Aid Soc'y of Haw. v. Legal Services Corp.,
145 F.3d 1017 (9th Cir. 1998); Legal Aid Soc'y of Haw. v. Legal
Services Corp., 981 F. Supp. 1288, 1291-92 (D. Haw. 1997).
    In 2010, Congress removed the restriction on attorneys' fees that
it had imposed in 1996. Section 533, Public Law 111-117, 123 Stat. 3034
(2009). LSC rescinded the regulation on attorneys' fees, 45 CFR 1642,
and removed references to that restriction in part 1610. 75 FR 21506,
Apr. 26, 2010.
    In 2017, LSC adopted significant revisions to the subgrants rule at
45 CFR 1627. 82 FR 10273, Feb. 10, 2017. As part of that rulemaking,
LSC updated and moved the transfer provisions from then-Sec.  1610.7
into the revised subgrants rule and renumbered provisions within part
1610 as needed.
    On April 8, 2018, the Committee approved Management's proposed
2018-2019 rulemaking agenda, which included revising part 1610 as a
Tier 2 rulemaking item. LSC intends to improve understanding of the
rule through the revisions in this Notice of Proposed Rulemaking and
through other references, such as the Table of LSC Restrictions and
Other Funding Sources that LSC publishes at https://www.lsc.gov/lsc-restrictions-and-funding-sources>.
    On January 17, 2019, LSC Management presented the Operations and
Regulations Committee with a Justification Memo requesting authority to
initiate rulemaking on part 1610. On January 17, 2019, the Committee
voted to recommend that the Board authorize rulemaking. On January 18,
2019, the Board authorized LSC to begin rulemaking. On [ ], the
Committee voted to recommend that the Board authorize publication of
this NPRM in the Federal Register for notice and comment. On [ ], the
Board accepted the Committee's recommendation and vote to approve
publication of this NPRM.
III. Discussion of Proposed Changes
A. Part 1610--Use of Non-LSC Funds and Program Integrity
    Overall note. None of the changes in the rule will change the
substance, application, or scope of the rule.
    Organizational note. LSC proposes to reorganize part 1610 into four
subparts to improve the organization and coherence of the rule.
    Subpart A will contain provisions generally applicable to all of
part 1610 and will state requirements that apply to all activities of
recipients regardless of the source of the funding used.
    Subpart B will contain the prohibitions on the use of non-LSC funds
by recipients and related provisions.
    Subpart C will contain the program integrity requirements.
    Subpart D will contain accounting and compliance provisions.
1. Subpart A--General Provisions
Sec.  1610.1 Purpose
    LSC proposes to change the phrase ``implement statutory
restrictions on the use of non-LSC funds'' to ``implement restrictions
and requirements on the use of non-LSC funds'' to state the purpose of
the rule more accurately. LSC proposes to delete the phrase ``to ensure
that no LSC funded entity shall engage in any restricted activities''
because that overstates the purpose of the rule.
    LSC also proposes to replace the reference to ``objective integrity
and independence'' with a reference to ``program integrity'' consistent
with the title of the rule. A new definition of program integrity in
Sec.  1610.2 will explain that program integrity requires objective
integrity and independence as provided in the renumbered Sec.  1610.8
(currently Sec.  1610.7).
Sec.  1610.2 Definitions
    LSC proposes to restructure the definitions section to improve
clarity, comprehensibility, and readability. LSC proposes to list terms
logically rather than alphabetically and to group related terms
together.
1610.2(a) Use of Funds
    LSC proposes replacing the definition of purpose prohibited by the
LSC Act with new definitions of restrictions in Sec.  1610.2(d) and
with the new Sec.  1610.3.
    LSC proposes adding a new definition for use of funds. The current
rule does not define use of funds, which appears in the prohibition in
Sec.  1610.3. Additionally, the current Sec.  1610.4 discusses using
funds ``in accordance with the purposes [or specific purposes] for
which they were provided.'' LSC
[[Page 39789]]
proposes adding a definition of use of funds and two subdefinitions for
authorized use of funds and unauthorized use of funds. The
subdefinition of use of funds incorporates the purpose for which the
funds were provided and includes examples typical of the kind of
purposes grantees encounter. These proposed terms would then be used in
the revised prohibition in the new Sec.  1610.4, which replaces the
current Sec. Sec.  1610.3 and 1610.4.
1610.2(b) Derived From
    LSC proposes replacing the definition of activity prohibited by or
inconsistent with Section 504 with new definitions of restrictions in
Sec.  1610.2(d) and the new Sec.  1610.3.
    LSC proposes adding a new definition for derived from. The current
rule uses the term derived from in the definitions of types of non-LSC
funds, but it does not provide a definition of that term. LSC proposes
a definition and an example consistent with how LSC applies the current
rule.
1610.2(c) Non-LSC Funds
    LSC proposes to group together in one paragraph the categories of
non-LSC funds from the current rule: Private, public, IOLTA, and
tribal, which currently appear in Sec.  1610.2(c), (e), (f), and (h).
IOLTA refers to funds collected through interest on lawyers' trust
account programs, commonly referred to as IOLTA or IOLA programs. The
new definitions propose technical adjustments to the text and one new
example. The new definitions also include IOLTA funds as a type of
public funds to replace the current rule's separate listing of them as
a different category of funds that are treated as public funds.
1610.2(d) Restrictions
    LSC proposes moving the definition of non-LSC funds to Sec.
1610.2(c) with technical updates. LSC proposes adopting a new
definition of restrictions with three new categories to better organize
the restrictions: extended restrictions, standard restrictions, and
limited restrictions. These categories group the restrictions based on
how they apply to non-LSC funds rather than by statutory source as the
current rule does. They replace the definitions in Sec.  1610.2(a) and
(b). The proposed approach simplifies the language of the prohibition
in the new Sec.  1610.3 and the exceptions in the new Sec.  1610.4. In
each category, the individual restrictions are stated more clearly and
organized by a descriptive name rather than by citation to a regulation
or statute. LSC also proposes to cite the implementing regulation for
each restriction without additional citation to statutes, except for
restrictions that have no implementing regulation. The proposed rule
adds as a limited restriction the prohibition in the Appropriations
Restrictions on using appropriated LSC funds to file or pursue a
lawsuit against LSC.
    Lastly, LSC proposes moving to a new Sec.  1610.3 the references to
three regulations that currently appear in Sec.  1610.2(b): 45 CFR
parts 1620, 1635, and 1636. Those regulations do not prohibit
activities as restrictions. Instead they set additional requirements
involving priorities, timekeeping, and reporting.
1610.2(e) Restricted Activity
    LSC proposes moving the definition of private funds to Sec.
1610.2(c)(1) with technical updates. LSC proposes adding a new
definition of restricted activity as a companion term to the definition
of restrictions.
1610.2(f) Program Integrity
    LSC proposes to move the definition of public funds to Sec.
1610.2(c)(2) with technical updates. LSC proposes adding a new
definition of program integrity to link the reference to program
integrity in the title of the regulation with the provisions governing
program integrity in subpart C.
1610.2(g) Transfer
    LSC proposes to remove the definition of transfer in Sec.
1610.2(g) because the rule no longer uses that term. In 2017, LSC moved
all the provisions of the rule regarding transfers to the revised
subgrants rule at 45 CFR part 1627. 82 FR 10273, Feb. 10, 2017.
1610.2(h) Tribal Funds
    LSC proposes to move the definition of tribal funds to Sec.
1610.2(c)(3) with technical updates.
Sec.  1610.3 Requirements That Apply to All Funds
    LSC proposes to move most of Sec.  1610.3 to the new Sec.  1610.4.
LSC proposes to create a new Sec.  1610.3 to address regulations that
implement requirements on non-LSC funds differently from the other
restrictions covered in the new Sec.  1610.4. Three of these
regulations are moved into this section from the current Sec.
1610.2(b): 45 CFR parts 1620, 1635, and 1636. LSC also proposes to add
other regulations that fit into this category but do not appear in the
current part 1610: Part 1644, Sec.  1612.7(a) and (b), and the
provisions of part 1608 that are currently grouped with other
provisions of part 1608 in Sec.  1610.2(a). This new section references
existing restrictions in other regulations that apply to some uses of
non-LSC funds. It does not create new restrictions on non-LSC funds
beyond the provisions of those other regulations.
Subpart B--Use of Non-LSC Funds
    LSC proposes replacing the current Sec. Sec.  1610.3, 1610.4, and
1610.6 with new Sec. Sec.  1610.4, 1610.5, and 1610.6.
Sec.  1610.4 Prohibitions on the Use of Non-LSC Funds
    The current Sec.  1610.3 prohibits the use of non-LSC funds for any
restricted activities unless permitted by Sec. Sec.  1610.4, 1610.6, or
1610.7. LSC proposes to relocate the substance of Sec.  1610.3 to the
introductory paragraph of Sec.  1610.4(a) and consolidate the substance
of existing Sec.  1610.4 into paragraph (a). The prohibitions stated in
the new Sec.  1610.4 will be subject to exceptions in Sec. Sec.  1610.5
and 1610.6. Section 1610.6 will remain Sec.  1610.6.
    The reference in Sec.  1610.3 to exceptions in Sec.  1610.7 is
outdated. It refers to the pre-2017 version of the rule in which Sec.
1610.7 addressed transfers of LSC funds. In 2017, LSC moved those
provisions into the subgrants rule at 45 CFR part 1627. 82 FR 10273,
Feb. 10, 2017. The new Sec.  1610.4 will reference a new Sec.  1610.5,
which cross-references the subgrant provisions in part 1627.
    Section 1610.4 will map each type of restriction with each category
of non-LSC funds and, when applicable, use the newly defined terms for
authorized and unauthorized use of non-LSC funds.
    Additionally, Sec.  1610.4(c) will state that the limited
restrictions do not apply to the use of non-LSC funds. Although not a
prohibition, this paragraph enables the rule to provide a more complete
picture of the relationship of the restrictions to the uses of
different types of non-LSC funds.
    LSC proposes to delete the current Sec.  1610.4(d) as unnecessary
and potentially confusing. LSC adopted this section to make clear that
part 1610 did not apply the financial eligibility requirements at 45
CFR part 1611 to non-LSC funds. However, part 1611 does not appear in
the current rule or the proposed rule as one of the restrictions
addressed by part 1610. Part 1611 states only that it applies to the
use of LSC funds, and nothing in part 1610 or any other LSC regulation
applies it to any other funds of a recipient.
[[Page 39790]]
Sec.  1610.5 Grants, Subgrants, Donations, and Gifts Made by Recipients
    LSC proposes moving the current Sec.  1610.4 to the new Sec.
1610.7. LSC proposes to add a new Sec.  1610.5 to address three
different issues. First, in 2017, LSC moved the transfer of LSC funds
provisions of part 1610 to the revised subgrants rule at 45 CFR part
1627. 82 FR 10273, Feb. 10, 2017. The proposed Sec.  1610.5(a) directs
the reader to part 1627 for application of the restrictions to the LSC
funds and non-LSC funds of a subrecipient with a subgrant described in
part 1627.
    Second, Sec.  1610.5(b) will note that 45 CFR part 1630 prohibits
using LSC funds for donations or gifts. LSC proposes adding this
paragraph as an aid to the reader.
    By contrast, Sec.  1610.5(c) will explain that grants, subgrants,
donations, or gifts provided by a recipient entirely with non-LSC funds
normally are not subject to part 1610. The preamble to the rule in 1997
explains that transfers of non-LSC funds are not subject to the
restrictions. It does not state so in the rule because in 1997 LSC
determined doing so would be superfluous. 62 FR 27695, 27697, May 21,
1997. LSC now proposes adding it to the rule because the topic comes up
frequently and LSC prefers to address it in the rule text instead of
the preamble.
Sec.  1610.6 Exceptions for Public Defender Programs and Criminal or
Related Cases
    LSC proposes to reorganize and rename Sec.  1610.6 for clarity.
    First, LSC proposes to remove an obsolete reference to Sec.
1610.7(a). That reference was added in 1996 along with the transfer
section in Sec.  1610.7. 61 FR 63749, 63751, Dec. 2, 1996. In 2017 LSC
moved the transfer provisions to the subgrants rule at 45 CFR part
1627. 82 FR 10273, Feb. 10, 2017. LSC proposes to delete the reference
instead of updating it because the reference is no longer necessary.
The changes to both this paragraph and part 1627 make clear that these
exceptions apply to both recipients and part 1627 subrecipients.
    LSC also proposes to reorganize this section to state first the two
types of programs to which these exceptions apply. The rule then lists
the four restrictions subject to these exceptions with improved
citations consistent with the proposed revisions to Sec.  1610.2.
    LSC has issued two advisory opinions determining that Sec.  1610.6
applies to three specific situations involving a statutory right to
counsel paid for by the government in non-criminal proceedings. LSC
found that each situation was sufficiently fact specific, so LSC does
not currently propose revising this section. Rather, LSC will continue
to review questions about the application of this section on a case-by-
case basis. We summarize the opinions here for reference.
    EX-2009-1001 found that Sec.  1610.6 applies to appointments when a
state provides a statutory right to counsel paid by the government for
low-income parents in family court child protective proceedings
involving allegations of abuse or neglect.
    AO-2016-005 addressed two situations. First, it found that Sec.
1610.6 applies to paid statutory appointments for individuals charged
with criminal acts who are mental health patients for whom the state
seeks to impose involuntary medical treatment. The statute provides a
right to counsel paid by the government to represent these individuals
in hearings regarding involuntary medication plans intended to restore
them to competency to stand trial in their criminal cases.
    In the second situation, AO-2016-005 found that Sec.  1610.6
applies to paid statutory appointments to represent individuals in
hearings regarding involuntary commitment to a medical facility for
mental health treatment or involving release from such a facility after
either involuntary or voluntary commitment.
Sec.  1610.7 Notification to Non-LSC Funders and Donors
    LSC proposes renumbering Sec.  1610.7 as Sec.  1610.8. LSC proposes
replacing Sec.  1610.7 with the current Sec.  1610.5, rewriting this
section in active rather than passive voice, and updating the
description of the exception in Sec.  1610.7(b) for ``contributions of
less than $250.'' In 1996, LSC based the $250 exception on the Internal
Revenue Service's (IRS) requirement that donors who contribute $250 or
more to a charity must obtain documentation of the contribution. 61 FR
63749, 63751, Dec. 2, 1996. The IRS has explained that this requirement
applies to ``each single contribution of $250 or more'' and that
``[s]eparate contributions of less than $250 will not be aggregated.''
IRS Publication 1771. Consistent with our 1996 intent to adopt the same
approach as the IRS regarding small individual contributions, LSC
proposes updating the exception in Sec.  1610.7(b) to apply to
``receipt of any single contribution of less than $250.''
Subpart C--Program Integrity
Sec.  1610.8 Program Integrity of Recipient
    LSC proposes moving Sec.  1610.8 to a new Sec.  1610.9. LSC
proposes renumbering existing Sec.  1610.7 as Sec.  1610.8 within the
new subpart C of the rule.
    LSC proposes to add a reference to subgrants of LSC funds to Sec.
1610.8(a)(2). Originally in 1996, this paragraph referenced a
``transfer of LSC funds,'' which was addressed in Sec.  1610.7 and
functionally identical to a subgrant in 45 CFR part 1627. 61 FR 63749,
63752, Dec. 2, 1996. In 2017, LSC removed the words ``transfer of'' as
part of the rulemaking moving all transfer provisions to part 1627 and
eliminating the use of the term ``transfer'' to refer to subgrants. 82
FR 10273, 10275, Feb. 10, 2017. LSC did not intend to change the
meaning of this section. To make that clear, LSC proposes adding the
term ``subgrant of LSC funds'' and reference to part 1627 where the
words ``transfer of LSC funds'' appeared in the 1997 to 2017 version of
the rule.
    In Sec.  1610.8(a)(3), LSC proposes rewording the third sentence
from passive to active voice to improve clarity.
    Additionally, LSC proposes technical changes to the current Sec.
1610.7(b), renumbered Sec.  1610.8(b). LSC proposes to remove language
about the program integrity certifications first required in 1997 after
adoption of the rule, but not the annual requirement. 62 FR 27695,
27698, May 21, 1997. LSC proposes keeping the language about annual
certifications.
IV. Subpart D--Accounting and Compliance
Sec.  1610.9 Accounting
    LSC proposes to renumber Sec.  1610.8 to Sec.  1610.9(a) and reword
this paragraph from passive to active voice to improve clarity.
    LSC also proposes to add new Sec. Sec.  1610.9(b) and (c) to state
in the rule the longstanding requirements for recipients to create and
maintain policies, procedures, and documentation. Pursuant to this
rule, the cost standards at 45 CFR part 1630, and the LSC Accounting
Guide, recipients separately track and account for LSC funds and non-
LSC funds. Whenever a recipient claims to use non-LSC funds to
permissibly engage in a restricted activity, the recipient must
document that it charged the costs to those non-LSC funds.
    Similar language appears in other regulations, including parts
1636, 1637, and 1638. LSC proposes to add the language here to improve
consistency among the regulations.
Sec.  1610.10 Compliance
    LSC proposes adding this new section to connect part 1610 with the
section of
[[Page 39791]]
the costs standards rule that permits LSC to disallow LSC funds when a
recipient uses non-LSC funds in violation of the currently stated in
Sec.  1610.3. LSC also proposes to update Sec.  1630.16 to better
cross-reference part 1610.
Part 1630--Cost Standards and Procedures
Sec.  1630.16 Applicability to Non-LSC Funds
    LSC proposes technical changes to this section to improve clarity.
Section 1630.16 provides that if a recipient uses non-LSC funds in
violation of the rule stated in Sec.  1610.3, then LSC can disallow an
equivalent amount of LSC funds. The current Sec.  1630.16(a) and (b)
attempt to restate the prohibition in Sec.  1610.3 rather than
reference it. LSC proposes to remove those paragraphs and replace them
with a new Sec.  1630.16(a) that will reference the new Sec. Sec.
1610.3 and 1610.4. LSC proposes to renumber Sec.  1630.16(c) as Sec.
1630.16(b) and change the last sentence from passive voice to active
voice.
List of Subjects
45 CFR Part 1610
    Grant programs--law, Legal services.
45 CFR Part 1630
    Accounting, Government contracts, Grant programs--law, Hearing and
appeal procedures, Legal services, Questioned costs.
    For the reasons set forth in the preamble, the Legal Services
Corporation proposes to amend 45 CFR chapter XVI as follows:
0
1. Revise part 1610 to read as follows:
PART 1610--USE OF NON-LSC FUNDS; PROGRAM INTEGRITY
Subpart A--General Provisions
Sec.
1610.1 Purpose.
1610.2 Definitions.
1610.3 Requirements that apply to all funds.
Subpart B--Use of Non-LSC Funds
1610.4 Prohibitions on the use of non-LSC funds.
1610.5 Grants, subgrants, donations, and gifts made by recipients.
1610.6 Exceptions for public defender programs and criminal or
related cases.
1610.7 Notification to non-LSC funders and donors.
Subpart C--Program Integrity
1610.8 Program integrity of recipient.
Subpart D--Accounting and Compliance
1610.9 Accounting.
1610.10 Compliance.
    Authority: 42 U.S.C. 2996g(e).
Subpart A--General Provisions
Sec.  1610.1  Purpose.
    This part is designed to implement restrictions and requirements on
the use of non-LSC funds by LSC recipients and to set requirements for
each LSC recipient to maintain program integrity with respect to any
organization that engages in LSC-restricted activities.
Sec.  1610.2  Definitions.
    (a) Use of funds means the expenditure of funds by an LSC
recipient.
    (1) Authorized use of funds means any use of funds within the
purpose for which the funds were provided, including:
    (i) Limited purposes such as providing legal services for victims
of domestic violence regardless of income or financial resources;
    (ii) General purposes such as providing any civil legal services to
people with household incomes below 200% of the Federal Poverty
Guidelines; and
    (iii) Any purposes for funds provided without any instructions from
the donor or grantor regarding the use of the funds.
    (2) Unauthorized use of funds means any use of funds that is not an
authorized use as defined in paragraph (a)(1) of this section.
    (b) Derived from means the recipient obtained the funds either
directly from the source or as the result of a series of grants and
subgrants (or similar arrangements) originating from the source and
maintaining the character and purpose designated by the source. For
example, a state provides public funds to a private, non-LSC-funded
statewide legal aid entity to distribute as grants for civil legal
services subject to rules set by the state. The statewide legal aid
entity subgrants some of those public funds to an LSC recipient to
provide services in six counties subject to the state rules. The
subgranted funds remain public funds under this rule because they are
derived from public funds.
    (c) Non-LSC funds means funds derived from any source other than
LSC.
    (1) Private funds means funds that are derived from any source
other than LSC or the other categories of non-LSC funds in this
section. Examples of private funds are donations from individuals or
grants that do not qualify as public funds or tribal funds in this
section.
    (2) Public funds means funds that are:
    (i) Derived from a Federal, State, or local government or
instrumentality of a government; or
    (ii) Derived from Interest on Lawyers' Trust Account (IOLTA or
IOLA) programs established by State court rules or legislation that
collect and distribute interest on lawyers' trust accounts.
    (3) Tribal funds means funds that are derived from an Indian tribe
or from a private nonprofit foundation or organization for the benefit
of Indians or Indian tribes.
    (d) Restrictions means the prohibitions or limitations on the use
of LSC funds by a recipient and on the use of non-LSC funds as
described in this part. LSC has three categories of restrictions:
Extended, standard, and limited. The restrictions appear in 45 CFR
parts 1600 through 1644, in the LSC Act at 42 U.S.C. 2996-2996l and in
the sections of LSC's annual appropriation (Appropriations
Restrictions) that incorporate the restrictions enacted in Sec.  504 of
Title V in Public Law 104-134, 122 Stat. 1321-50 (1996), as
incorporated through Public Law 105-119, tit. V, Sec.  502(a)(2), 111
Stat. 2440, 2510 (1998) and subject to modifications in other statutes.
    (1) Extended restrictions are the restrictions on:
    (i) Abortion litigation (other abortion activities are subject to a
standard restriction)--Section 504(a)(14) of the Appropriations
Restrictions;
    (ii) Aliens (representation of non-U.S. citizens)--45 CFR part
1626;
    (iii) Class actions--45 CFR part 1617;
    (iv) Evictions from public housing involving illegal drug
activities--45 CFR part 1633;
    (v) Lobbying in general--45 CFR 1612.3, subject to the limitations
and exceptions in Sec.  1612.5 (activities that are not lobbying) and
Sec.  1612.6 (exceptions for non-LSC funds that are a limited
restriction);
    (vi) Prisoner litigation--45 CFR part 1637;
    (vii) Redistricting or census--45 CFR part 1632;
    (viii) Solicitation of clients--45 CFR part 1638;
    (ix) Training on prohibited topics--45 CFR 1612.8; and
    (x) Welfare reform--45 CFR part 1639.
    (2) Standard restrictions are the restrictions on:
    (i) Abortion activities (other than abortion litigation subject to
an extended restriction)--42 U.S.C. 2996f(b)(8);
    (ii) Criminal proceedings--45 CFR part 1613;
    (iii) Draft registration violations (violations of Military
Selective Service Act) or military desertion--42 U.S.C. 2996f(b)(10);
    (iv) Desegregation of schools--42 U.S.C. 2996f(b)(9);
[[Page 39792]]
    (v) Fee-generating cases--45 CFR part 1609;
    (vi) Habeas corpus (collaterally attacking criminal convictions)--
45 CFR part 1615;
    (vii) Organizing--45 CFR 1612.9;
    (viii) Persistent incitement of litigation and other activities
prohibited by rules of professional responsibility for attorneys--
Section 42 U.S.C. 2996f(a)(10); and
    (ix) Political activities--the provisions of 45 CFR part 1608 that
are stated as restrictions on the use of LSC funds (other provisions of
part 1608 are addressed in Sec.  1610.3).
    (3) Limited restrictions are the restrictions on:
    (i) Lobbying permitted with non-LSC funds (upon government request,
in public rulemaking, or regarding state or local funding of the
recipient)--45 CFR 1612.6;
    (ii) Assisted suicide, euthanasia, and mercy killing--45 CFR part
1643; and
    (iii) Use of appropriated LSC funds to file or pursue a lawsuit
against LSC--Section 506 of the Appropriations Restrictions.
    (e) Restricted activity means an activity prohibited or limited by
the restrictions.
    (f) Program integrity means that a recipient is maintaining
objective integrity and independence from any organization that engages
in restricted activities, as required by subpart C of this part.
Sec.  1610.3  Requirements that apply to all funds.
    The following requirements apply to all activities of a recipient
regardless of the funding used for the activity to the extent provided
in the referenced regulation.
    (a) Client identity and statement of facts--45 CFR part 1636.
    (b) Demonstrations, picketing, boycotts, or strikes--45 CFR
1612.7(a).
    (c) Disclosure of case information--45 CFR part 1644.
    (d) Political activities--the provisions of 45 CFR part 1608 other
than those stated as restrictions on the use of LSC funds (which are
standard restrictions).
    (e) Priorities for the provision of services--45 CFR part 1620.
    (f) Rioting, civil disturbances, or violations of injunctions--45
CFR 1612.7(b).
    (g) Timekeeping--45 CFR part 1635.
Subpart B--Use of Non-LSC Funds
Sec.  1610.4  Prohibitions on the use of non-LSC funds.
    Non-LSC funds may not be used by recipients for restricted
activities as described in this section, subject to the exceptions in
Sec. Sec.  1610.5 and 1610.6 of this part.
    (a) Extended restrictions. The extended restrictions apply to the
following uses of non-LSC funds:
    (1) Private funds--any use of private funds;
    (2) Public funds--any use of public funds; and
    (3) Tribal funds--any unauthorized use of tribal funds.
    (b) Standard restrictions. The standard restrictions apply to the
following uses of non-LSC funds:
    (1) Private funds--any use of private funds;
    (2) Public funds--any unauthorized use of public funds; and
    (3) Tribal funds--any unauthorized use of tribal funds.
    (c) Limited restrictions. The limited restrictions do not apply to
the use of non-LSC funds.
Sec.  1610.5  Grants, subgrants, donations, and gifts made by
recipients.
    (a) Subgrants in which a recipient provides LSC funds or LSC-funded
resources as some or all of a subgrant to a subrecipient are governed
by 45 CFR part 1627. That rule states how the restrictions apply to the
subgrant and to the non-LSC funds of the subrecipient, which can vary
with different types of subgrants.
    (b) Donations and gifts using LSC funds are prohibited by 45 CFR
part 1630.
    (c) Grants, subgrants, donations, or gifts provided by a recipient
and funded entirely with non-LSC funds are not subject to this part,
unless the source of the funds does not authorize the use of its funds
for those purposes.
Sec.  1610.6   Exceptions for public defender programs and criminal or
related cases.
    The following restrictions do not apply to:
    (a) A recipient's or subrecipient's separately funded public
defender program or project; or
    (b) Criminal or related cases accepted by a recipient or
subrecipient pursuant to a court appointment:
    (1) Criminal proceedings--45 CFR part 1613;
    (2) Actions challenging criminal convictions--45 CFR part 1615;
    (3) Aliens--45 CFR part 1626;
    (4) Prisoner litigation--45 CFR part 1637.
Sec.  1610.7   Notification to non-LSC funders and donors.
    (a) No recipient may accept funds from any source other than LSC
unless the recipient provides the source of the funds with written
notification of LSC prohibitions and conditions that apply to the
funds, except as provided in paragraph (b) of this section.
    (b) LSC does not require recipients to provide written notification
for receipt of any single contribution of less than $250.
Subpart C--Program Integrity
Sec.  1610.8   Program integrity of recipient.
    (a) A recipient must have objective integrity and independence from
any organization that engages in restricted activities. A recipient
will be found to have objective integrity and independence from such an
organization if:
    (1) The other organization is a legally separate entity;
    (2) The other organization receives no subgrant of LSC funds from
the recipient, as defined in 45 CFR part 1627, and LSC funds do not
subsidize restricted activities; and
    (3) The recipient is physically and financially separate from the
other organization. Mere bookkeeping separation of LSC funds from other
funds is not sufficient. LSC will determine whether sufficient physical
and financial separation exists on a case-by-case basis and will base
its determination on the totality of the facts. The presence or absence
of any one or more factors will not be determinative. Factors relevant
to this determination shall include but will not be limited to:
    (i) The existence of separate personnel;
    (ii) The existence of separate accounting and timekeeping records;
    (iii) The degree of separation from facilities in which restricted
activities occur, and the extent of such restricted activities; and
    (iv) The extent to which signs and other forms of identification
that distinguish the recipient from the organization are present.
    (b) Each recipient's governing body must certify to LSC on an
annual basis that the recipient is in compliance with the requirements
of this section.
Subpart D--Accounting and Compliance
Sec.  1610.9   Accounting.
    (a) Recipients shall account for funds received from a source other
than LSC as separate and distinct receipts and disbursements in a
manner directed by LSC.
    (b) Recipients shall adopt written policies and procedures to
implement the requirements of this part.
    (c) Recipients shall maintain records sufficient to document the
expenditure
[[Page 39793]]
of non-LSC funds for any restricted activities and to otherwise
demonstrate compliance with this part.
Sec.  1610.10   Compliance.
    In addition to all other compliance and enforcement options, LSC
may recover from a recipient's LSC funds an amount not to exceed the
amount improperly charged to non-LSC funds, as provided in Sec.
1630.16 of this chapter.
PART 1630--COST STANDARDS AND PROCEDURES
0
2. The authority citation for part 1630 continues to read as follows:
    Authority:  42 U.S.C. 2996g(e).
0
3. Revise Sec.  1630.16 to read as follows:
Sec.  1630.16   Applicability to non-LSC funds.
    (a) No cost may be charged to non-LSC funds in violation of
Sec. Sec.  1610.3 or 1610.4 of this chapter.
    (b) LSC may recover from a recipient's LSC funds an amount not to
exceed the amount improperly charged to non-LSC funds. The review and
appeal procedures of Sec. Sec.  1630.11 and 1630.12 govern any decision
by LSC to recover funds under this paragraph.
    Dated: August 1, 2019.
Mark Freedman,
Senior Associate General Counsel.
[FR Doc. 2019-16822 Filed 8-9-19; 8:45 am]
 BILLING CODE 7050-01-P