Use of Non-LSC Funds, Transfers of LSC Funds, Program Integrity; Cost Standards and Procedures
| Published date | 07 October 2020 |
| Citation | 85 FR 63209 |
| Record Number | 2020-20600 |
| Section | Rules and Regulations |
| Court | Legal Services Corporation |
Federal Register, Volume 85 Issue 195 (Wednesday, October 7, 2020)
[Federal Register Volume 85, Number 195 (Wednesday, October 7, 2020)]
[Rules and Regulations]
[Pages 63209-63216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20600]
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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: Final rule.
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SUMMARY: This final rule revises two regulations of the Legal Services
Corporation (LSC. The first is 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. It makes technical and stylistic updates to the rule
without any substantive changes. The second is cost standards and
procedures to make technical and stylistic updates and to add authority
for LSC to question and disallow costs for violations of restrictions
in the LSC Act involving public funds.
DATES: This final rule is effective on November 6, 2020.
FOR FURTHER INFORMATION CONTACT: Mark Freedman, Senior Associate
General Counsel, Legal Services Corporation, 3333 K Street NW,
Washington, DC 20007, (202) 295-1623 (phone), [email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
All Federal Register documents for this rulemaking, comments
submitted, and other related materials are published on LSC's
rulemaking website at www.lsc.gov/rulemaking.
A. Part 1610
The Legal Services Corporation Act (LSC Act or Act), 42 U.S.C.
2996-2996l, and the riders on LSC's annual appropriations
(Appropriations), Public Law 104-134, title V (1996) (as adopted by
reference thereafter through Public Law 105-119, tit. V (1998), with
modifications), set restrictions on recipients of grants from LSC for
the delivery of civil legal aid (recipients). The Act and
Appropriations also extend some of these restrictions to the use of
recipients' non-LSC funds. LSC implements most of these restrictions 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. This Final Rule
makes several technical changes to part 1610 to improve clarity. These
changes do not alter the operation and application of part 1610.
B. Part 1630
Section 1006(b)(1)(a) of the LSC Act states that LSC ``shall have
the authority to insure the compliance of recipients and their
employees with the provisions of this title and the rules, regulations,
and guidelines promulgated pursuant to this title . . . .'' 42 U.S.C.
2996e(b)(1)(a).
Pursuant to that authority, part 1630 provides cost standards and
procedures as part of grant administration and oversight that are
similar to the Uniform Guidance for federal grants provided by the
Office of Management and Budget at 2 CFR part 200. Part 1630 also
authorizes LSC to question or disallow costs for violations of the LSC
rules or restrictions.
Corresponding with part 1610, Sec. 1630.16 authorizes LSC to
question and disallow costs when a recipient uses non-LSC funds in
violation of the restrictions on non-LSC funds. This Final Rule updates
Sec. 1630.16 to make two changes: (1) Improve the coordination between
this section and the restrictions on non-LSC funds in part 1610; and
(2) expand this section to eliminate a gap that omits from part 1630
the use of public funds without
[[Page 63210]]
authorization of the public funder for activities restricted by the LSC
Act.
II. Procedural History of This Rulemaking
On August 12, 2019, LSC published a Notice of Proposed Rulemaking
(NPRM or Proposed Rule) at 84 FR 39787 proposing changes to 45 CFR part
1610--Use of Non-LSC Funds and to a related provision of 45 CFR part
1630--Cost Standards and Procedures. The Proposed Rule sets forth a
detailed regulatory history of part 1610, 45 CFR 1630.16, and the basis
for commencing this rulemaking. LSC received four comments on the
Proposed Rule.
LSC had stated that the Proposed Rule did not contain any
substantive changes to either rule. However, comments to the Proposed
Rule identified that it would, in fact, make one substantive change to
Sec. 1630.16 to close an unexplained gap in the coverage of the rule.
Upon reviewing the comments, LSC agreed and published a Further Notice
of Proposed Rulemaking (FNRPM) in the Federal Register at 85 FR 7518 to
provide clear notice of that substantive change and to provide
opportunity for public comment on it. LSC did not change the proposed
language for Sec. 1630.16 from the Proposed Rule or otherwise propose
new or additional changes beyond those which were identified in the
Proposed Rule. Rather, LSC requested comments on the substantive change
in the Proposed Rule identified by comments. LSC received four comments
on the FNPRM.
Based on review of the comments received during both public comment
periods, LSC has made minor changes to the proposed language in part
1610, for added clarity, and has made no changes to the proposed
language for Sec. 1630.16. On July 27, 2020, LSC Management presented
this Final Rule to the Operations and Regulations Committee (Committee)
of the LSC Board of Directors (Board). On that date, the Committee
voted to recommend that the Board adopt this Final Rule. On July 28,
2020, the Board voted to adopt this Final Rule.
III. Discussion of Comments and Regulatory Provisions
LSC received four comments on the initial Proposed Rule. These
comments generally supported the Proposed Rule. The National Legal Aid
& Defender Association's Civil Council and Regulations Committee
(NLADA) responded to the Proposed Rule globally and section-by-section.
NLADA generally agreed with LSC that the proposed changes to part 1610
would improve clarity without making substantive changes. NLADA
objected to the proposed changes to Sec. 1630.16 that would close the
unexplained enforcement gap. NLADA also noted that the Proposed Rule
said that LSC was not proposing any substantive changes to parts 1610
or 1630. NLADA recommended retaining the current language, with the
gap.
The Northwest Justice Project (NJP), a recipient of LSC funds,
responded to ``agree[ ] in significant part with the comments submitted
by [NLADA]'' and to ``identify one item on which [NJP] differ[s] from
NLADA.'' Like NLADA, NJP objected to closing the enforcement gap in
Sec. 1630.16. Unlike NLADA, NJP objected to the regrouping of the
restrictions in the definitions of part 1610.
The American Bar Association's Standing Committee on Legal Aid and
Indigent Defendants (SCLAID) submitted a comment that ``agree[d] with
and support[ed]'' NLADA's comments. The National Association of IOLTA
Programs (NAIP) submitted a comment asking LSC to either retain the gap
in Sec. 1630.16 or provide an additional comment period for that
substantive change.
LSC received four comments to the FNRPM regarding the substantive
change to Sec. 1630.16. NLADA, SCLAID, NJP, and NAIP all submitted
comments opposing the proposal to eliminate the gap in Sec. 1630.16.
LSC now responds to the comments to both the Proposed Rule and the
FNPRM. Because SCLAID and NJP largely joined the comments of NLADA, the
discussion will only mention SCLAID or NJP when their comments differ
from those of NLADA.
IV. Section-by-Section Discussion of Proposed Changes and Comments
A. Part 1610--Use of Non-LSC Funds, Transfers of LSC Funds, Program
Integrity
LSC proposed reorganizing part 1610 into four subparts to improve
the organization and coherence of the rule. No comments discussed this
change or raised any objections to it. LSC will adopt the proposed four
subparts in the final rule.
1. Subpart A--General Provisions
Sec. 1610.1 Purpose. LSC proposed several changes to state the
purpose of the rule more clearly and accurately. NLADA commented that
the proposed edits ``improve clarity, and we have no concerns . . . .''
LSC is adopting this section with no changes.
Sec. 1610.2 Definitions. LSC proposed reorganizing, rewriting, and
adding to the definitions to improve clarity in the rule. The comments
addressed individual definitions, which are discussed, in turn, below.
Sec. 1610.2(a) Use of funds. LSC proposed introducing and defining
new terms for ``authorized'' and ``unauthorized'' uses of funds to more
clearly apply the statutory restrictions that refer to the ``purposes
for which [non-LSC funds] are provided'' by public or tribal funders.
NLADA commented that ``[t]his new definition is an improvement in that
it is written with greater brevity and does not lose any clarity or
meaning.'' NJP, on the other hand, criticized this definition as part
of its objection to the changes in Sec. 1630.16. NJP stated that
``[a]dding `any unauthorized use' implies extremely broad authority of
LSC to regulate how a recipient is using public funds.'' NJP
misunderstood these definitions. The terms ``authorized use'' and
``unauthorized use'' are defined by the ``purposes for which those
funds were provided,'' as stated in the current rule. Nothing in these
proposed definitions would provide LSC with any new or different
authority to regulate a recipient's use of public funds as compared
with the current rule.
NLADA expressed concern that the list of examples provided in the
definition might be read narrowly and stated that it ``should be
explicit that [the list of examples] is in fact not exhaustive.'' NLADA
also had a concern that the labels in the examples for limited purposes
or general purposes are unclear, undefined, and not self-evident. LSC
agrees and has modified the definition to state that the examples are
not exhaustive and to remove the terms limited purposes and general
purposes.
Sec. 1610.2(b) Derived from. No comments addressed this
definition.
Sec. 1610.2(c) Non-LSC funds. LSC proposed reorganizing and
grouping together the definitions of the three types of non-LSC funds:
Private funds, public funds, and tribal funds. NLADA commented that LSC
could ``improve clarity by listing the definition for private funds
last instead of first.'' LSC will retain the order of these definitions
with the private funds first because it tracks the logical order of the
application of the restrictions in Sec. 1610.4 to private funds,
public funds, and tribal funds, and it does not cause significant
confusion.
Sec. 1610.2(d) Restrictions. LSC proposed regrouping the
restrictions on non-LSC funds into three new categories: Extended
restrictions, standard restrictions, and limited restrictions. Those
categories align with
[[Page 63211]]
the application of different restrictions to different types of non-LSC
funds. This definition would replace the current groupings of
restrictions by statutory source (i.e., the LSC Act or the LSC
Appropriations). NLADA did not comment directly on the revised
definitions, but it referred to them in a comment to Sec. 1610.4 that
``NLADA also believes the structure of the proposed Sec. 1610.4, which
breaks down how different restrictions apply to different non-LSC
funds[,] provides greater clarity.''
NLADA agreed with LSC's proposal to delete the current Sec.
1610.4(d) that discusses the financial eligibility requirements in part
1611. NLADA agreed with LSC that part 1611 ``does not apply to any non-
LSC funds'' and suggested that LSC add part 1611 to the list of limited
restrictions that do not apply to non-LSC funds.
LSC agrees that adding a reference to part 1611 will add to the
clarity of the rule. Unlike the restrictions in the rule, part 1611 is
not a statutory prohibition expressing Congressional disfavor toward
specific activities. Rather, part 1611 sets out a requirement regarding
client eligibility that applies only to the LSC funds. As such, adding
part 1611 in the definition of limited restrictions would cause
confusion. Instead, LSC has added a new Sec. 1610.4(f) stating that
part 1610 does not apply to part 1611 and, thus, does not apply the
requirements of part 1611 to the use of non-LSC funds.
NJP objected to the reorganization of the restrictions in these
definitions and stated that, ``dividing the restrictions and
prohibitions into three categories of Extended, Standard, and Limited
is entirely unhelpful and creates confusion.'' NJP recommended keeping
the current groupings by statute (i.e., LSC Act or LSC Appropriation)
because ``LSC recipients have always understood the distinction between
LSC Act funding restrictions and the appropriations act entity
restrictions and their exceptions.''
LSC will retain the proposed definitions because they add clarity
by grouping the restrictions in the way that Congress has applied them
to different types of non-LSC funds. This approach best furthers the
purpose of the rule to explain and apply these restrictions to each
type of non-LSC funds. Furthermore, the definitions in the existing
rule that group the restrictions by statutory source introduced
confusion because each statute contains restrictions that apply
differently to different types of non-LSC funds. The LSC Act contains
restrictions on recipients that do not apply to non-LSC funds (e.g.,
section 1007(b)(11) regarding assisted suicide activities), that apply
to some non-LSC funds (e.g., section 1007(b)(1) regarding fee
generating cases), and that apply to all non-LSC funds (e.g., section
1006(e)(1) prohibiting the intentional identification of a recipient
with the campaign of any candidate for public or political party
office). Similarly, most of the restrictions in LSC's Appropriations
apply to public and private funds, but some do not apply to any non-LSC
funds (e.g., section 504(e) permitting the use of non-LSC funds to
comment on public rulemaking).
NJP also noted that, ``LSC oddly references 1608 as a standard
restriction, when in fact it applies in part to both LSC funds and
entities (i.e., 1608.5).'' NJP is correct that part 1608 contains
multiple restrictions, some of which apply to all funds of a recipient
while others do not. That combination of different restrictions on
different types of funds in one rule exemplifies one of the problems
with the current definitions. The rule includes part 1608 as an LSC Act
restriction and make no mention of Sec. 1608.5 or other provisions of
part 1608 that apply more broadly to non-LSC funds than most of the
other LSC Act restrictions. The proposed rule addressed that problem by
including some part 1608 restrictions in the definition of standard
restrictions and the remaining part 1608 restrictions in the proposed
Sec. 1610.3 addressing other requirements. In the final rule, LSC
added language to the definition of standard restrictions to make that
distinction about part 1608 clearer.
NLADA recommended moving to the definition of extended restrictions
the references to three restrictions in parts 1608 and 1612 from the
proposed Sec. 1610.3(b), (d), and (f). LSC agrees that those
restrictions are better placed in the Sec. 1610.2(d) definitions.
Because those restrictions apply to non-LSC funds differently than the
restrictions in the proposed definitions for extended, standard, and
limited restrictions, LSC has added them in a new, fourth, definition
for ``other restrictions,'' as discussed with the comments on Sec.
1610.3. LSC has also added a parallel provision at Sec. 1610.4(e)
addressing the application of these three other restrictions to non-LSC
funds.
Sec. Sec. 1610.2(e)-(h). None of the comments addressed these
proposed definitions, which LSC has adopted without change in the final
rule.
Sec. 1610.3 Other requirements on non-LSC funds. LSC proposed
moving the content of the current Sec. 1610.3 to Sec. 1610.4. In its
place, LSC proposed creating a new section cross-referencing other LSC
regulations that contain restrictions and requirements that apply to
non-LSC funds in ways that are different than the restrictions listed
in the definitions in Sec. 1610.2(d). The proposed Sec. 1610.3 states
that those regulations, not part 1610, address how they apply to the
use of non-LSC funds. For example, Sec. 1608.4 prohibits the use of
any political test or qualification by a recipient without regard to
which funds are used.
NLADA agreed with this approach to four of the referenced
requirements. As to the other three, NLADA stated that they are more
properly characterized as restrictions and suggested moving them to the
definition of extended restrictions in Sec. 1610.2(d). LSC agrees with
NLADA that those three restrictions should appear with the other
restrictions in Sec. 1610.2(d), but disagrees that they should be
classified as extended restrictions because they are not based on the
funds used (e.g., Sec. 1608.4 prohibiting use of any political test or
qualification). Therefore, rather than add them to the extended
restrictions definition, LSC has instead moved them to a new definition
for other restrictions in Sec. 1610.2(d)(4). As discussed in the
summary of Sec. 1610.2(d), these changes also address NJP's comments
about confusion regarding some of the restrictions included in this
section in the Proposed Rule.
LSC retained the reference to the other four regulations in Sec.
1610.3 because they are not restrictions. Rather, they are affirmative
requirements that apply regardless of the source of the funds used
(e.g., part 1635--Timekeeping). LSC also updated the title and language
in this section to make clear that part 1610 does not alter the way
that the referenced regulations apply these requirements to non-LSC
funds.
2. Subpart B--Use of Non-LSC Funds
Sec. 1610.4 Prohibitions on the use of non-LSC funds. The Proposed
Rule relocated and restated the application of the restrictions to non-
LSC funds from Sec. 1610.3 to the new Sec. 1610.4 using the new
definitions in Sec. 1610.2. NLADA stated that the new structure of
this section ``provided greater clarity'' and the use of the new
definitions is an ``improvement.'' NJP disagreed with the new approach
for the reasons stated in the discussion of the definition of
restrictions in Sec. 1610.2(d). LSC decided to retain the proposed
definitions and restructuring in this section because they more
accurately present the ways that the different restrictions apply to
different types of non-LSC funds in the LSC Act and Appropriations.
[[Page 63212]]
LSC added two new paragraphs to Sec. 1610.4 in the final rule.
First, LSC added a new Sec. 1610.4(e) to correspond with the new
definition for other restrictions in Sec. 1610.2(d)(4), as discussed
with the comments to that definition and Sec. 1610.3. The new section
explains that parts 1608 and 1612, which implement the other
restrictions, govern how they apply to non-LSC funds. Second, as
discussed in reference to Sec. 1610.2(d), LSC added a new Sec.
1610.4(f) stating that part 1610 does not apply to the financial
eligibility requirements of part 1611.
Sec. 1610.5 Grants, subgrants, donations, and gifts made by
recipients. The proposed rule clarified the application of part 1610 to
the non-LSC funds of entities receiving grants, subgrants, donations,
or gifts from recipients, consistent with recent revisions to parts
1627 and 1630. NLADA generally approved of these changes and stated
that ``adding the references to Sec. 1627 [sic] and Sec. 1630
[sic]increases clarity and ease of use in the larger regulatory
framework.''
NJP expressed concern about the second clause of Sec. 1610.5(c)
regarding non-LSC funds provided by recipients to other entities. LSC
decided to eliminate that proposed clause because it is not necessary.
Entities that receive non-LSC funds from an LSC recipient through any
of these mechanisms are not LSC recipients themselves under the LSC Act
or regulations (unless they otherwise receive LSC funds through a grant
or subgrant). Thus, the LSC restrictions do not apply to those entities
or to their use of those non-LSC funds.
Sec. 1610.6 Exceptions for public defender programs and criminal
or related cases. LSC proposed restructuring this section and NLADA
stated that it ``applauds LSC's efforts to improve clarity for this
section.''
Sec. 1610.7 Notification to non-LSC funders and donors. LSC moved
this section from Sec. 1610.5 and proposed minor edits for clarity.
NLADA stated that it ``believes these edits improve clarity, and we
have no concerns as it relates to the revisions in this section.''
3. Subpart C--Program Integrity
Sec. 1610.8 Program integrity of recipient. LSC renumbered this
section and added language to clarify that program integrity requires
that the recipient does not subgrant LSC funds to an entity that
engages in restricted activities. NLADA commented that ``this is an
important clarification and an improvement on the current section.''
4. Subpart D--Accounting and Compliance
Sec. 1610.9 Accounting. LSC renumbered this section and added text
to improve clarity. NLADA stated that it ``believes the revisions
improve upon the current text and adds clarity.'' NLADA also suggested
that LSC make clear that this section applies to all of part 1610 and
incorporates the definitions of restricted activities appearing in
Sec. 1610.2(d). LSC has added language to emphasize those points.
Sec. 1610.10 Compliance. LSC proposed adding this new section to
cross reference the cost requirements of part 1630 that apply to the
use of non-LSC funds in violation of these restrictions. NLADA
commented that it ``believes a cross-reference to Sec. 1630.16 is a
good idea, and we endorse adding this section.'' NLADA's concerns about
changes to Sec. 1630.16 are addressed in the discussion of that
section.
B. 45 CFR Part 1630--Cost Standards and Procedures
Section 1630.16 authorizes LSC to question and disallow costs when
a recipient uses non-LSC funds in violation of the restrictions on non-
LSC funds. The Proposed Rule and the FNPRM proposed rewriting Sec.
1630.16 regarding costs charged to non-LSC funds in violation of the
restrictions on non-LSC funds. The proposed language would add clarity
by referring directly to the prohibitions in revised Sec. Sec. 1610.3
and 1610.4. The proposed language would also eliminate an enforcement
gap in the current rule, which restates all the restrictions on non-LSC
funds except for one: Use of public funds for activities restricted by
the LSC Act without authorization of the public funder (``unauthorized
use of public funds''). That omission, for which no explanation appears
in the regulatory history, makes this section inconsistent with Sec.
1010(c) of the LSC Act and the substantive restrictions on non-LSC
funds stated in both the current and the proposed versions of part
1610. The Proposed Rule revised this section to eliminate that
unexplained gap while retaining the authorization for recovery of LSC
funds in an amount not to exceed the amount of non-LSC funds used in
violation of the restrictions set out in the LSC Act and
Appropriations, as incorporated in part 1610.
Section 1010(c) of the LSC Act states that funds from non-LSC
sources ``shall not be expended by recipients for any purpose
prohibited by this title'' and provides an exception for public or
tribal funds when recipients are ``expending them in accordance with
the purposes for which they are provided . . . .'' The existing Sec.
1630.16 incorporates all restrictions on non-LSC funds in the Act and
Appropriations except for omitting the reference in section 1010(c) of
the Act to the restrictions on unauthorized use of public funds. By
contrast, both the existing part 1610 and the revisions to part 1610
contain all of the section 1010(c) restrictions without exception. The
proposed language for this section would eliminate the gap by referring
to part 1610 for the substantive determination of whether any non-LSC
funds were used in violation of the restrictions.
By eliminating the gap, the proposed language would also resolve
the inconsistency across parts 1630, 1606, and 1623. If a recipient
violates one of the restrictions, then part 1630 authorizes LSC to
question and disallow the costs from the LSC grant. Depending on the
severity of the violation, LSC may also suspend funding from the LSC
grant pursuant to part 1623, impose a sanction through reducing funding
by up to 10% of the LSC grant pursuant to part 1606, or terminate the
LSC grant in part or in full pursuant to part 1606. The gap in Sec.
1630.16 creates the only situation in which any option is unavailable.
If a recipient makes unauthorized use of public funds for an LSC Act
restricted activity, then LSC can suspend, reduce, or terminate funding
but not use the least severe option to disallow costs.
Because elimination of the gap would substantively change the
section, LSC specifically requested public comment on that change in
the FNPRM and stated that comments opposing the change must address
three issues, identified below. LSC received comments from NLADA,
SCLAID, NAIP, and NJP. The responses to the comments are grouped by the
three issues. Generally, all four comments opposed the change. For the
reasons set out below, LSC disagrees with the comments and has adopted
in the final rule the language for Sec. 1630.16 as set out in the
proposed rule.
1. Identify a Valid Purpose for the Gap Consistent With the Statutory
Restrictions
None of the comments identified a valid purpose for the gap
consistent with the clear language of section 1010(c) of the LSC Act
prohibiting use of public funds for activities restricted by the Act
unless engaging in those restricted activities is ``in accordance with
the purposes for which [the public funds] are provided . . . .'' The
comments either disregard the language in Sec. 1010(c) of the LSC Act
or ask LSC
[[Page 63213]]
to disregard it. NLADA cites to floor statements by multiple senators
that the LSC Act restrictions will not affect public funds without
mentioning the caveat in the Act that the public funds must be used for
the purpose for which they were provided. Those floor statements cannot
override the explicit text of the Act, nor does NLADA argue that they
should in part 1610 or in the enforcement options set forth in parts
1606 and 1623.
Instead, the comments erroneously interpreted the proposed rule as
changing how LSC would determine whether a recipient has violated an
LSC Act restriction. NLADA summarized the criticism as follows: ``To
parse out the words `in accordance with the purposes for which they are
provided' as a restricting clause, allowing LSC to interpret the intent
of public funders, potentially even contrary to that specific public
funder's interpretation of their own conditions, would go against the
statutory intent of the LSC Act.'' None of the comments point to any
language in the proposed rule that support this contention about how
LSC would handle that determination. Furthermore, the proposed changes
to this section and to part 1610 are entirely consistent with NLADA's
suggested reading of section 1010(c) that ``even though public funds
might be given for a purpose disallowed by the provisions of the LSC
Act, LSC recipients would still be free to receive funds and spend them
`in accordance with the purposes for which they are provided.' ''
Similarly, NLADA observed that the district court in National
Center for Youth Law v. Legal Services Corp., 749 F. Supp. 1013 (N.D.
Cal. 1990) (Center for Youth Law), held that LSC may not ``review de
novo a state agency's determination of eligibility for a state legal
services grant program and supplant the state's decision with its
own.'' Nothing in the current or proposed rules contemplates LSC acting
contrary to the holding in Center for Youth Law. The decision only
addressed LSC's lack of authority to overrule a public funder's stated
decision about the purpose of its grant to a recipient. Nothing in the
decision limits LSC's authority to enforce Sec. 1010(c) of the Act
when, in fact, a recipient uses public funds in violation of a
restriction in the LSC Act and does so contrary to the purposes for
which they were provided.
SCLAID agreed with NLADA's comments and stated that the proposed
revisions to this section ``appear to shift'' to LSC inquiries into the
purpose of public funds when ``[i]n the past, LSC has referred
questions about the authorized use of non-LSC funds to the entity that
granted the funds.'' Nothing in the proposed rule addressed or changed
how LSC handles those determinations. The inquiries into the purpose of
public funds that are required by section 1010(c) of the Act appear in
the existing part 1610 and are unchanged in these revisions to part
1610.
SCLAID also expressed concern about shifting to LSC ``the decision
to recoup funds [that in the past] has been left to the entity that
granted the funds.'' Nothing in the proposed rule would ``shift to
LSC'' any responsibility from a public funder regarding oversight of
its grant or decisions it makes regarding recoupment of public funds.
Rather, this section deals with separate authority for LSC to disallow
costs based on a violation of the restrictions in the LSC Act or
Appropriations through a recipient's use of private, public, or tribal
funds. This section of part 1630 exists, in part, out of respect for
the independence of public funders from LSC. LSC does not expect and
cannot compel other funders to take actions to respond to the use of
their funds in violation of the LSC restrictions.
SCLAID also stated that it ``believes legal aid programs around the
country should be able to receive funds from sources other than LSC
without examination or regulation by LSC.'' SCLAID's policy goal
directly conflicts with section 1010(c) of the LSC Act, which requires
LSC to determine ``the purposes for which [public and tribal funds] are
provided'' if recipients use those funds for activities restricted by
the LSC Act. Congress, not LSC, decided to include in the LSC Act both
that condition on the use of non-LSC funds and LSC's obligation to
enforce it.
NJP expressed the concern that ``[t]he language as written
potentially applies to any unauthorized use of public funds regardless
of whether the use of those funds violates a restriction.'' NJP stated
that the proposed language would have that effect because it authorizes
a questioned or disallowed cost based on a violation of Sec. 1610.4.
NJP is mistaken. Under the Proposed Rule, a violation of Sec. 1610.4
and a corresponding disallowed cost under Sec. 1630.16 always requires
that the recipient has engaged in one of the restricted activities set
out in the Sec. 1610.2(d) definitions.
NJP provided an example of paying for a laptop with public funds
that are not available for that purchase. NJP incorrectly concluded
that the proposed rule would authorize LSC to disallow costs due to a
violation of Sec. 1610.4 in that situation. To the contrary, because
NJP's example does not include activities covered by one of the
restrictions defined in the proposed Sec. 1610.2(d), it does not
violate the prohibition in the proposed Sec. 1610.4 and would not
support a questioned or disallowed cost under the proposed Sec.
1630.16.
By contrast, LSC addressed a situation in 2014 involving public
funds and part 1613, which prohibits providing ``legal assistance with
respect to any criminal proceeding'' and implements that restriction
from section 1007(b)(2) of the Act. LSC discovered that a then-
recipient had used public funds for criminal cases in direct violation
of the state law that provided those funds. The State of Michigan had
provided the recipient with public funds for ``indigent civil legal
assistance'' and prohibited using those funds ``to provide legal
services in relation to any criminal case or proceeding . . . .'' MCL
Sec. Sec. 600.151a and 600.1485(10). When the recipient used those
Michigan public funds for criminal cases, it violated the purposes for
which they were provided by Michigan and did so for an activity
restricted by part 1613 and section 1007(b)(2) of the LSC Act. That
combination of unauthorized use of public funds and doing so for an
LSC-restricted activity resulted in a violation of part 1610 under the
current Sec. 1610.3 and would also do so under Sec. 1610.4 of the
revised rule.
Nonetheless, Sec. 1630.16 did not authorize LSC to disallow costs
in that situation, even though LSC could have imposed harsher penalties
such as a suspension, reduction of funding, partial termination of
funding, or full termination of funding under parts 1606 and 1623. The
proposed Sec. 1630.16 would close this gap so that LSC could disallow
costs if this type of violation occurs in the future, as it already can
do for all other uses of non-LSC funds that violate the restrictions in
the LSC Act or Appropriations.
NAIP also opposed the proposed language for Sec. 1630.16 because
``[c]omity requires that individual IOLTA programs, not LSC, determine
if, when, and to what extent IOLTA funds are used in a manner that is
inconsistent with the purposes for which those funds were granted . . .
.'' Per the decision in Center for Youth Law and as discussed above,
nothing in the proposed rule would change LSC's approach to determining
the purposes for which funds were provided consistent with the grant
award of the public funds, applicable laws and rules, and any
determinations by the funder. Congress mandated that LSC consider the
purpose of the public funds in section 1010(c) of the LSC Act, and both
[[Page 63214]]
the existing and proposed versions of part 1610 contain that
requirement without objection in the comments.
NAIP also stated that IOLTA programs, not LSC, should determine
``what remedial and/or punitive actions are required with respect to
those funds.'' LSC does not propose to interfere with any public
funder's enforcement of the terms of that funder's grant. Rather, the
proposed language in this section provides authority for LSC to
disallow costs when the recipient uses those public funds in violation
of the LSC Act, which Congress has charged LSC to enforce.
2. Explain Why, for the LSC Act Restrictions, Sec. 1630.16 Should Not
Apply to Unauthorized Uses of Public Funds That Violate the LSC Act
While Continuing To Apply to Unauthorized Uses of Tribal Funds That
Violate the LSC Act
Rather than address the inconsistency, all comments instead
recommended that LSC expand the gap so that this section would omit
disallowing costs for recipient uses of both public funds and tribal
funds that violate the restrictions in the LSC Act. LSC agrees that
nothing in the LSC Act justifies treating public funds differently than
tribal funds, but LSC declines the suggestion of expanding the gap
without any justification for the inconsistency with the LSC Act, as
discussed with the responses to Question One.
NLADA suggested that the gap is larger than thought because it
excludes some tribal funds along with public funds. They read the
provision regarding ``tribal funds used for the specific purposes for
which they are provided'' to modify the term ``private funds.'' Thus,
NLADA speculated that it applies only to tribal funds from foundations
(which are private funds) and not to tribal funds from tribes or tribal
governments. SCLAID specifically stated that they agreed with this
interpretation. While NLADA presents a plausible reading of the text,
it still does not provide a reason for treating these types of non-LSC
funds differently in this situation when no such distinction appears in
the LSC Act.
3. Explain Why Sec. 1630.16 Should Not Apply to Unauthorized Uses of
Public Funds That Violate the LSC Act While Continuing To Apply to Any
Uses of Public Funds That Violate the Restrictions in the LSC
Appropriations
NLADA addressed this question by stating that the Appropriations
restrictions apply to public funds without regard to the purpose for
which the funds were provided. By contrast, the restrictions in section
1010(c) of the LSC Act apply to public funds only when a recipient uses
those funds for a purpose other than the purposes for which they were
provided. Thus, the LSC Act restrictions on public funds require an
additional inquiry that does not apply to the Appropriations
restrictions. LSC agrees with that description, but it does not explain
why this gap exists in Sec. 1630.16 regarding costs. Rather, that
difference between the statutes is an element in part 1610 for
determining when different LSC restrictions apply to the use of
different types of non-LSC funds.
SCLAID agreed with NLADA's comments and stated that ``there is no
legislative requirement or history justifying the recovery of funds
from non-LSC sources for activities not authorized by the Act.'' To the
contrary, section 1006(b)(1)(A) of the LSC Act specifically provides
LSC with the authority ``to insure the compliance of recipients and
their employees with the provisions of this title and the rules,
regulations, and guidelines promulgated pursuant to this title . . .
.'' Section 1010(c) of the LSC Act explicitly states that the
restrictions in the LSC Act apply to all non-LSC funds with limited
exceptions. Thus, the LSC Act authorizes LSC to adopt and enforce cost
standards and to question and disallow costs when a recipient violates
the LSC Act restrictions with LSC or non-LSC funds. Furthermore, this
section already provides LSC with authority to disallow costs based on
the use of private or tribal funds in violation of the LSC Act or on
the use of any non-LSC funds in violation of the Appropriations. The
proposed change simply adds the use of public funds in violation of the
LSC Act to harmonize this section with the statutory restrictions and
their enforcement throughout the LSC regulations.
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 amends 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 Other Requirements on recipients' 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. The following non-exhaustive
list provides examples of some of the types of purposes that a grantor,
donor, or other might identify.
(i) A grant stating that the funds provided are available to
support legal services for victims of domestic violence regardless of
income or financial resources are authorized for those purposes;
(ii) A grant stating that the funds provided are available to
support any civil legal services to people with household incomes below
200% of the Federal Poverty Guidelines are authorized for those
purposes;
(iii) A private donation stating that the funds are for eviction
work are authorized for that purpose; or
(iv) A private donation without any instructions from the donor or
grantor regarding the use of the funds are available for any purposes.
(2) Unauthorized use of funds means any use of funds that is not an
authorized use as defined above.
[[Page 63215]]
(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. For
example, a state provides public funds to a private, non-LSC-funded
statewide legal aid entity. The statewide legal aid entity subgrants
some of those public funds to an LSC recipient to provide services in
six counties. 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 four categories of restrictions:
Extended, standard, limited, and other. 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 section 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 CFR1612.3, subject to the limitations
and exceptions in 45 CFR 1612.5 (activities that are not lobbying) and
45 CFR 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);
(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 (e.g., the clause of
Sec. 1608.4(b) regarding ``the use of any Corporation funds'') but not
the other provisions of part 1608, which are included in the category
for other restrictions (e.g., Sec. 1608.3(a) prohibiting the use of
``any political test or qualification''). ).
(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.
(4) Other restrictions are the restrictions on:
(i) Demonstrations, picketing, boycotts, or strikes--45 CFR
1612.7(a).
(ii) 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.g., Sec. 1608.3(a) prohibiting the use of
``any political test or qualification'' is an other restriction).
(iii) Rioting, civil disturbances, or violations of injunctions--45
CFR 1612.7(b).
(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 Other requirements on recipients' funds.
The following requirements apply to non-LSC funds as provided in
the referenced regulations. This part neither expands nor limits those
requirements.
(a) Client identity and statement of facts--45 CFR part 1636.
(b) Disclosure of case information--45 CFR part 1644.
(c) Priorities for the provision of services--45 CFR part 1620.
(d) Timekeeping--45 CFR part 1635.
Subpart B--Use of Non-LSC Funds
Sec. 1610.4 Prohibitions on the use of non-LSC funds.
(a) 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.
(b) 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.
(c) 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.
(d) Limited restrictions. The limited restrictions do not apply to
the use of non-LSC funds.
(e) Other restrictions. The other restrictions apply to non-LSC
funds as provided in the referenced regulations. This part neither
expands nor limits those requirements.
(f) Inapplicability to part 1611--financial eligibility. This part
does not
[[Page 63216]]
expand, limit, or otherwise apply to the financial eligibility rules of
45 CFR part 1611.
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) Use of non-LSC funds. Grants, subgrants, donations, or gifts
provided by a recipient and funded entirely with non-LSC funds are not
subject to this part.
Sec. 1610.6 Exceptions for public defender programs and criminal or
related cases.
The following restrictions do not apply to: (1) A recipient's or
subrecipient's separately funded public defender program or project; or
(2) Criminal or related cases accepted by a recipient or subrecipient
pursuant to a court appointment.
(a) Criminal proceedings--45 CFR part 1613;
(b) Actions challenging criminal convictions--45 CFR part 1615;
(c) Aliens--45 CFR part 1626;
(d) 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 of non-LSC funds for any restricted activities as defined
in Subpart A and to otherwise demonstrate compliance with the
requirements of 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 45 CFR
1610.3 or 1610.4.
(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: September 15, 2020.
Mark Freedman,
Senior Associate General Counsel.
[FR Doc. 2020-20600 Filed 10-6-20; 8:45 am]
BILLING CODE P
