to determine the rehabilitation potential of a handicapped individual or to render him fit to engage in a gainful occupation.

(b) Federal financial participation will also be available in expenditures for the following additional vocational rehabilitation services provided to individuals found eligible under § 401.20: (1) Business and occupational licenses.

(2) Tools, equipment and initial stocks (including livestock) and supplies; equipment and initial stocks and supplies for vending stands. "Equipment" as used here includes, in the case of shelters, only those for a business undertaking which are customarily furnished by the operator of a like undertaking occupying premises under short-term lease.

(3) Placement services.

a

(c) Federal financial participation will not be available in any expenditure made, either directly or indirectly, on behalf of a handicapped individual, for the purchase of any land, or for the purchase or erection of any building. This exclusion with respect to buildings does not apply to shelters as described in paragraph (b) (2) of this section.

(d) The State may, if it so elects, retain legal title to any or all of the goods listed in paragraphs (a) (4) and (b) (2) of this section.

§ 401.62

Small business enterprises.

Federal financial participation will be available in expenditures made under the State plan for the acquisition of equipment, and initial stocks (including livestock) and supplies for small business enterprises (including vending stands) and, effective July 1, 1966, for management services and supervision provided to such small business enterprises. "Equipment" as used herein includes, in the case of shelters, only those for a business undertaking which are customarily furnished by the operator of a like undertaking occupying premises under a short-term lease. Federal financial participation will not be available in any expenditure for the purchase or rental of any land, nor for the purchase, rental, or erection of any building. This exclusion with respect to buildings does not apply to shelters as described in the second sentence of this section.

§ 401.63

Establishment of public and

other nonprofit rehabilitation facilities.

Federal financial participation will be available in expenditures made under the State plan for the establishment of public and other nonprofit rehabilitation facilities: Provided, however, That Federal financial participation will not be available in any expenditures for the purchase or rental of any land or buildings in connection with the establishment of such facilities.

§ 401.64 Establishment of public and other nonprofit workshops.

Federal financial participation will be available in expenditures made under the State plan for the establishment of public and other nonprofit workshops: Provided, however, That Federal financial participation will not be available in any expenditures for the purchase or rental of any land or buildings in connection with the establishment of such workshops.

Federal financial participation will be available in expenditures under the State plan for administration. Administration includes, among other things: Program planning, development and control; research; interpretation of the program to the public; personnel administration; use of advisory committees; and staf development, including educational leave. All expenditures for administration in which Federal financial participation is claimed must be subject to the administrative or supervisory control of the State agency, or, if performed by some other agency of the State, must be subject to such terms of a cooperative arrangement as will serve to assure consistency with the State agency's policies and objectives.

of the State in carrying out the overall coordinating, fiscal, and administrative functions of the State Government; and (c) such costs are extra, identifiable, and readily ascertainable either by segregation or as a prorata share of the cost of such goods, facilities, or services. § 401.67 Insurance and taxes.

Federal financial participation will be available in expenditures made under the State plan for (a) the State or local rehabilitation agency's share of costs in employee benefit programs, such as retirement, group life and hospitalization insurance; (b) workmen's compensation; c) burglary, robbery, and fire insurance, if permitted by the State, and reasonably necessary to protect funds in transit or in the custody of State or local agency personnel; (d) motor vehicle liability costs, where the State accepts responsibility for such loss; and (e) Federal, State, and local taxes, if the State or local rehabilitation agency is legally obligated to pay such taxes, and provided that all comparable agencies in the State are uniformly treated.

§ 401.68 Costs of office space.

(a) Federal financial participation will be available in expenditures made under the State plan for costs of office space for State or local rehabilitation agencies that are incurred (1) for paying rent and service and maintenance costs in privately owned buildings; (2) in meeting the costs of service and maintenance in lieu of rent in publicly owned buildings; (3) in meeting rental charges in federally and municipally owned buildings, where the municipality is not administering the vocational rehabilitation program locally; (4) in making necessary repairs and alterations to either privately or publicly owned buildings; and (5) for monthly rental charges, based on the cost of initial construction or purchase of State or locally owned buildings.

(b) All expense for office space must be based on an actual rental charge or a monthly rental rate that is a reasonable approximation of actual cost over a longrun period. Federal financial participation is available only for periods when the State or local agency occupies the space, and where the rate for any type of cost or combination does not exceed comparable rental in the particular community. Whenever the total charges for service and maintenance in lieu of rent

in publicly owned buildings (paragraph (a) (2) of this section), or the monthly rental charge based on the cost of initial construction or purchase of publicly owned buildings (paragraph (a) (5) of this section), exceed 75 per centum of the comparable rental, Federal financial participation will be available only upon special justification by the State agency.

§ 401.69 State and local funds.

In order to receive the Federal share of expenditures under the State plan, expenditures from State or local funds under such plan equal to the State's share must be made. The State's share shall be the difference between the Federal share (see §§ 401.72 and 401.92) and 100 per centum.

(a) For the purposes of this section, "State or local funds" means (1) funds made available by appropriation directly to the State or local rehabilitation agency, funds made available by allotment or transfer from a general departmental appropriation, or funds otherwise made available to the State or local rehabilitation agency by any unit of State or local government; (2) contributions by private organizations or individuals, which are deposited in the account of the State or local rehabilitation agency in accordance with State law, for expenditure by, and at the sole discretion of, the State or local rehabilitation agency: Provided, however, That such contributions earmarked for meeting the State's share for providing particular services, for serving certain types of disabilities, for providing services for special groups which are identified on the basis of criteria which would be acceptable for the earmarking of public funds, or for carrying on types of administrative activities so identified, may be deemed to be State funds, if permissible under State law; or (3) contributions by private organizations or individuals, deposited in the account of the State or local rehabilitation agency in accordance with State law, which are earmarked, under a condition imposed by the contributor, for meeting (in whole or in part) the State's share for establishing a particular workshop or rehabilitation facility, if permissible under State law: Provided, however, That such funds may be used to earn Federal funds only with respect to expenditures for establishing the particular workshop or re

habilitation facility for which the contributions are earmarked.

(b) To the extent that the State or local funds are of the type described in paragraph (a)(3) of this section, Federal financial participation shall be available in expenditures by a State after August 3, 1954, if, with respect to expenditures prior to July 1, 1965, the Commissioner has included the amount of such expenditure in computing a Federal grant certified prior to July 1, 1965, for payment, and if, with respect to expenditures after June 30, 1964, the Commissioner finds that such expenditures will serve a useful program purpose and that Federal funds are available in the light of other program needs.

(Interpret and apply Department of Health, Education, and Welfare Appropriation Act, 1965, Public Law 88-605, Title II, 78 Stat. 967)

§ 401.70 Waiver of Statewideness.

If the approved State plan provides for activities to be carried out in one or more political subdivisions through local financing, Federal financial participation will be available in expenditures made under the State plan for vocational rehabilitation services and administration in connection with such activities in accordance with the provisions of this subpart, except that funds made available to the State agency by such political subdivisions of the State (including funds contributed to such a subdivision by a private agency, organization or individual) may be earmarked for use within a specific geographical area or for a specific facility or for the benefit of a group of individuals with a particular disability, provided that nothing in this paragraph shall authorize the further earmarking of funds for a particular individual or for members of a particular organization.

ALLOTMENT AND PAYMENT

§ 401.71 Allotment of Federal funds for vocational rehabilitation services.

(a) For each fiscal year each State shall be entitled to an allotment of an amount bearing the same ratio to the amount authorized by the act to be appropriated for that fiscal year for making grants to States for meeting the cost of vocational rehabilitation services under section 2 of the act as the product of the population of the State and the square of its allotment percentage bears to the sum of the corresponding products

for all States, subject to the provisions in paragraph (b) of this section.

(1) Population, as applied to any State, means the population of that State as determined by the most recent official estimates of the Bureau of the Census available to the Commissioner preceding the fiscal year for which Federal grant funds are appropriated, except that for fiscal year 1966 population should be determined on the basis of such estimates available to the Commissioner on November 8, 1965.

(2) The allotment percentage for any State shall be 100 per centum less that percentage which bears the same ratio to 50 per centum as the per capita income of such State bears to the per capita income of the United States (i.e., the 50 States and the District of Columbia), except that the allotment percentage shall in no case be more than 75 per centum or less than 333 per centum, and the allotment percentage for Puerto Rico, the Virgin Islands, and Guam shall be 75 per centum.

(3) The allotment percentage shall be promulgated by the Secretary between July 1 and August 31 of each evennumbered year, on the basis of the average of the per capita incomes of the States and of the United States (i.e., the 50 States and the District of Columbia) for the three most recent consecutive years for which satisfactory data are available from the Department of Commerce. Such promulgation shall be conclusive for each of the 2 fiscal years in the period beginning July 1 next succeeding such promulgation.

(b) The allotment to any State for any fiscal year, as computed under paragraph (a) of this section, which is less than the amount such State was entitled to receive for the fiscal year ending June 30, 1965, pursuant to section 2 of the act as then in effect, as the Federal share of its expenditures under its State plan for vocational rehabilitation services, shall be increased to that amount. The amount which a State was entitled to receive for fiscal year 1965, pursuant to the preceding sentence, shall be determined on the basis of such information, including reports from the State, as the Vocational Rehabilitation Administration had on November 8, 1965. The total of any increases required under this paragraph shall be derived by proportionately reducing the allotment of each of the States whose allotments were not subject to the increase, but with such

adjustments as may be necessary to prevent the allotment of any State from being thereby reduced to less than the amount the State was entitled to receive for the fiscal year ending June 30, 1965, pursuant to section 2 as then in effect.

(c) Additional allotments are made in accordance with Congressional authorizations. The authorization for additional allotments under the Department of Health, Education, and Welfare Appropriation Act, 1966 (Public Law 89156), was superseded by the later-enacted Vocational Rehabilitation Act Amendments of 1965 (Public Law 89-333).

(d) (1) Within the limits of the allotments and additional allotments to States for grants for vocational rehabilitation services under section 2 of the act, the Commissioner shall, as authorized by the Congress, make allocations among the States which may be used only for paying the Federal share of expenditures for the establishment of workshops or rehabilitation facilities where, and to the extent that, the State funds used for such expenditures are derived from private contributions conditioned on use for a specified workshop or facility. (See § 401.69.) No part of the allotment to any State for grants under section 2 of the act for any fiscal year other than the allocation to such State pursuant to this paragraph may be used for these purposes.

(2) The allocations to the States for any fiscal year shall be made initially on the basis of population, with such adjustments as may be necessary to make available to each State an allocation of $25,000 or such other standard minimum amount as the Commissioner may find necessary to support a useful establishment project in each State.

(3) The Commissioner may make reallocations for any fiscal year from time to time of amounts released by the States or determined by the Commissioner not to be reasonably expected to be used by the States within the fiscal year. Additional allocations may be made to States which have need of them as evidenced by approvable project proposals. Priority for additional allocations shall be given on the basis of national, State and local program needs, with due regard for the importance of promoting a nationwide distribution of workshops and rehabilitation facilities of high quality. A State's allocation as increased or decreased pursuant to this subparagraph shall be its allocation for the fiscal year.

(e) Where the State plan designates separate agencies to administer (or supervise the administration of) the part of the plan under which vocational rehabilitation services are provided for the blind, and the rest of the plan, respectively, the division of the State's allotment pursuant to paragraphs (a) and (b) of this section and the State's allocation pursuant to paragraph (d) of this section between such agencies is a matter for State determination.

(Interpret and apply Department of Health, Education, and Welfare Appropriation Act, 1965, Public Law 88-605, Title II, 78 Stat. 967; and Department of Health, Education, and Welfare Appropriation Act, 1966, Public Law 89-156, Title II, 79 Stat. 596)

§ 401.72 Payments from allotments.

(a) Except as provided in paragraph (b) of this section, the Commissioner shall pay to each State an amount equal to the Federal share of the cost of vocational rehabilitation services under its approved State plan, including the cost of administration of the plan. The Federal share for each State for the fiscal year ending June 30, 1967, and each subsequent fiscal year, shall be 75 percent. For the fiscal year ending June 30, 1966, the Federal share for each State shall be its Federal share in effect for the fiscal year ending June 30, 1965, plus one-half of the difference between that share and 75 percent.

(b) (1) The total of payments to a State under paragraph (a) of this section for any fiscal year may not exceed its allotment under § 401.71 for such year.

(2) Amounts otherwise payable to a State under this section for any fiscal year shall be reduced by the amount (if any) by which expenditures from nonFederal sources (except for expenditures with respect to which the State is entitled to payments under § 401.92) for such fiscal year under such State's approved plan for vocational rehabilitation services are less than such expenditures under such plan for the fiscal year ending June 30, 1965. The expenditures under the State plan for fiscal year 1965, pursuant to the preceding sentence, shall be determined on the basis of such information, including reports from the State, as the Vocational Rehabilitation Administration had on November 8, 1965. If a reduction in payments for any fiscal year is required in the case of a State where separate agencies administer (or supervise the administration of) the part

of the plan under which vocational rehabilitation services are provided for the blind, and the rest of the plan, respectively, such reduction shall be made in direct relation to the amount by which expenditures from non-Federal sources under each part of the plan are less than they were under that part of the plan during the fiscal year ending June 30, 1965.

§ 401.73 Method of computing and making payments.

The method of computing and paying grants for vocational rehabilitation services pursuant to section 2 of the act, and for innovation projects under section 3 of the act, shall be as follows:

(a) Estimates. The Commissioner shall prior to each fiscal quarter or other period prescribed by him, estimate the amount to be paid each State from its allotment for vocational rehabilitation services and its allotment for innovation projects. This estimate will be based on such records of the State and information furnished by it, and such other investigation, as the Commissioner may find necessary.

(b) Payments. The Commissioner shall pay, from the allotment available therefor, the amount so estimated for such period. In making any such payment, such additions and subtractions will be made as the State's accounting for any prior period and audit thereof may indicate as necessary in balancing the Federal-State account for any such prior period. Payments shall be made prior to audit or settlement by the General Accounting Office, shall be made through the disbursing facilities of the Treasury Department, and shall be made in such installments as the Commissioner may determine.

(a) Neither the approval of the State plan nor any payment to the State pursuant thereto shall be deemed to waive the right or duty of the Secretary or Commissioner to withhold funds by reason of the failure of the State to observe, before or after such administrative action, any requirement of the act or of this part.

(b) The final amount to be paid for any period is determinable on the basis of expenditures under the State plan for authorized purposes with respect to which Federal financial participation is authorized. The State assumes absolute

responsibility for the initial application of Federal funds to authorized plan purposes. The State will be required to make transfers and adjustments to discharge its accountability to the Federal Government.

§ 401.75 Interest and refunds.

Interest earned on grants made under the act shall be duly credited to the principal of the grant. All such earnings of interest shall be duly reported. Any amount refunded or repaid to the State shall be credited to the Federal account in proportion to the Federal participation in the expenditures by reason of which such refunds or repayments were made, and such sums shall be considered as granted from the State's allotment. § 401.76 Determining to which fiscal year an expenditure is chargeable. In determining to which Federal fiscal year expenditures are chargeable for the purpose of earning the State's allotment under section 2 or section 3 of the act, State laws and regulations for determining to which State fiscal year and expenditure is chargeable will be followed. In those States which appropriate funds for a biennium and do not distinguish between the separate fiscal years of the biennium, the State laws and regulations for determining to which biennium an expenditure should be charged will be applied in determining to which Federal fiscal year an expenditure is properly chargeable. In those States where the State fiscal year does not coincide with the Federal fiscal year, State laws and regulations for determining to which State fiscal year an expenditure is chargeable will be applied to the Federal fiscal year.

Subpart D-Payment of Costs of Vocational Rehabilitation Services to Disability Beneficiaries From the Social Security Trust Funds

AUTHORITY: The provisions of this Subpart D issued under sec. 336, 79 Stat. 408; 42 U.S.C. 422(d).

SOURCE: The provisions of this Subpart D appear at 31 F.R. 3244, Mar. 1, 1966, unless otherwise noted.