ADOPTED RULES
An agency may take final action on a section 30 days after a proposal has been 
published in the Texas Register. The section becomes effective 20 days after the 
agency files the correct document with the Texas Register, unless a later date 
is specified or unless a federal statute or regulation requires implementation 
of the action on shorter notice.
If an agency adopts the section without any changes to the proposed text, only 
the preamble of the notice and statement of legal authority will be published. 
If an agency adopts the section with changes to the proposed text, the proposal 
will be republished with the changes.

TITLE 1. ADMINISTRATION
PART IV. Office of the Secretary of State
CHAPTER 81.Elections
SUBCHAPTER F.Political Parties
1 TAC sec.sec.81.117, 81.121
The Office of the Secretary of State, Elections Division, adopts amendments to 
sec.sec.81.117 and 81.121, concerning primary election funding. Section 81.117 
is amended to raise the amount of a services contract requiring Secretary of 
State approval from $500 to $1000, which is consistent with other amounts 
requiring Secretary of State approval. Section 81.121 is amended to reflect the 
compensation of workers who annotate voter registration lists prior to election 
day, and to set limits for compensation for early ballot board workers when the 
ballot board is reconvened to count late ballots.
The amendments to sec.sec.81.117 and 81.121 are adopted without changes to the 
proposed text as published in the January 30, 1998, issue of the Texas Register 
(23 TexReg 689).
The amended rules are adopted to set funding amounts and limits on compensation 
from the primary fund, in accordance with the Texas Election Code (the "Code"), 
sec.173.001. 
The amended rules are adopted with an effective date of March 9, 1998, under the 
Texas Government Code, sec.2001.036(a)(2). The Secretary finds that an immediate 
effective date is necessary to ensure that personnel working in the March 10, 
1998 primary elections have compensation provisions in place for annotating 
voter registration lists prior to election day, and for early ballot board 
workers who reconvene to count late ballots under sec.87.005 of the Election 
Code. 
No comments were received regarding adoption of the amended rules. 
The amended rules are adopted under the Code, Chapter 31, Subchapter A, sec. 
31.003, which provides the Secretary of State with authority to promulgate rules 
to obtain uniformity in the interpretation and application of the Code, and 
under the Code, Chapter 173, sec.173.006, which authorizes the Secretary of 
State to adopt rules consistent with the Election Code that reduce the cost of 
the primary elections or facilitate the holding of the elections within the 
amount appropriated by the legislature for that purpose.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803185
Clark Kent Ervin
Assistant Secretary of State
Office of the Secretary of State
Effective date: March 9, 1998
Proposal publication date: January 30, 1998
For further information, please call: (512) 463-5650

TITLE 4. AGRICULTURE
PART I. Texas Department of Agriculture
CHAPTER 9.Seed Quality
4 TAC sec.9.4
The Texas Department of Agriculture (the department) adopts an amendment to sec. 
9.4, concerning the tolerances for seed testing under the Texas Seed Law with 
change to the proposed text as published in the December 26, 1997 issue of the 
Texas Register(22 TexReg 12643). The word "tuber" was inadvertently left out of 
the fifth sentence behind nutsedge. The sentence should read as follows: "The 
tolerance of one nutsedge tuber will be allowed in the 50 pound sample". This 
change only effects the form and not the substance of the amendment. The 
amendment is adopted to add nutsedge tubers to the listing of noxious weed seed 
where the Association of Official Seed Analysts testing tolerances will not be 
applied for enforcement purposes. 
No comments were received regarding the adoption of the amendment. 
The amendment is adopted under the Texas Agriculture Code, sec.61.002, which 
provides the Texas Department of Agriculture with the authority to adopt rules 
as necessary for the efficient enforcement of the Texas Seed Law. 

sec.9.4.Procedures and Tolerances.
The Texas Department of Agriculture hereby adopts by reference Rules for Testing 
Seeds of the Association of Official Seed Analysts, as to procedures, methods, 
and tolerances for seed testing, except that in enforcement, no tolerance will 
be allowed for balloonvine, serrated tussock, or itchgrass. A tolerance of one 
will be allowed for cocklebur. A tolerance of one will be allowed for nutsedge 
tubers in a two pound sample. If nutsedge tubers are found in excess of the 
tolerance, an additional 50 pounds will be required for testing. The tolerance 
of one nutsedge tuber will be allowed in the 50 pound sample. The tolerance 
allowed for pure live seed will be the same as for germination. A laboratory 
test used for labeling purposes must be made by the Texas Department of 
Agriculture, the official state seed laboratory of another state, or a 
Registered Seed Technologist/Society of Commercial Seed Technologist member 
laboratory. Information relative to obtaining copies of the material adopted by 
reference may be obtained by writing the Texas Department of Agriculture, Seed 
Quality Program, P. O. Box 629, Giddings, Texas 78942. A copy is also available 
for public inspection at the Texas Department of Agriculture, Seed Quality, W. 
H. (Bill) Pieratt Building, Giddings, Texas.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 5, 1998.
TRD-9803254
Dolores Alvarado Hibbs
Deputy General Counsel
Texas Department of Agriculture
Effective date: March 25, 1998
Proposal publication date: December 26, 1997
For further information, please call: (512) 463-7541

TITLE 10. COMMUNITY DEVELOPMENT
PART I. Texas Department of Housing and Community Affairs
CHAPTER 53.HOME Investment Partnerships Program
10 TAC sec.sec.53.50-53.57, 53.59-53.60, 53.62
The Texas Department of Housing and Community Affairs (Department) HOME 
Investment Partnerships (HOME) Program is adopting amendments to HOME Program 
Rules sec.sec.53.50-53.57, 53.59, 53.60, and 53.62, with changes, concerning the 
requirements for application and distribution of funds available under federal 
and state laws and regulations for the HOME Program. The proposed amendments 
were published in the November 7, 1997, issue of the Texas Register (22 TexReg 
10871). The amendments are adopted with changes and will not be republished. 
The adoption of the amendments will define new terms used in the program and 
redefine existing terms for consistency with the U.S. Department of Housing and 
Urban Development regulations and Department policies; clarify language and 
program requirements for consistency throughout the rules; create a more 
complete process for awarding funds directly; and make the processes for 
deobligation of funds and amending contracts more efficient. 
During the public comment period the Department received comments both in 
writing and at the public hearing from one CHDO, three nonprofit organizations 
or associations, two for-profit developers, one unit of local government and one 
consultant. The public's comments and the Department's responses follow:
Comments 
One respondent was against removing the 35% CHDO set-aside. 
Four respondents expressed concern that the proposed amendment to sec.53.53 
would limit applications from CHDOs or other nonprofit organizations to one, yet 
allow multiple applications per region from statewide developers. 
Four respondents were against the change requiring all rehabilitation to meet 
Section 8 Housing Quality Standards, local codes, and State of Texas Minimum 
Rehabilitation Standards. 
One respondent was concerned about the proposed expansion in the types of 
organizations and entities that could qualify as eligible applicants under the 
Special Needs set-aside. 
Four respondents were against making other types of nonprofit organizations 
eligible for HOME funds and one respondent supported the proposed amendment.
One respondent supported the addition of a category for extremely low-income 
households. However, one respondent expressed concern that requiring assistance 
to extremely low-income households would hinder a project; projects cannot cover 
operating expenses or debt service when targeting extremely low-income 
households. 
One respondent recommended adding the requirement that all housing developed 
with HOME funds comply with the Americans with Disabilities Act, the 
Rehabilitation Act of 1973 and HUD regulations governing this Act, and the Fair 
Housing Act; that those who do not comply be barred from participation in the 
program for a specific period of time; and that all new single family homes and 
all multifamily projects incorporate the elements of universal design into 
construction.
Four respondents were against adding for-profit developers to those eligible for 
Homebuyer Assistance. One respondent supported the TDHCA Down Payment Assistance 
Program, and its use with for-profit entities. 
Three respondents expressed concerned that the change in sec.53.56 indicates 
that the Department will not consider rural housing need when evaluating 
applications. One respondent commented that predevelopment loans are needed. 
One respondent suggested that loan repayment guidelines should be in the rules. 
Responses 
The comment regarding the 35% CHDO set-aside refers to and remains eligible 
under HTF. The HOME Program's federally required 15% CHDO set-aside remains 
unaltered. 
In response to the concern over changes to sec.53.53, the HOME Program's rules, 
as amended, will not prohibit nonprofit organizations with a multiregional 
target area from submitting multiple applications. The Board clarified that an 
applicant with multiregional target areas may submit more than one application 
per region, limiting the award amount per activity to $500,000. The Board also 
changed the terms "application amount" to "award amount" in parts one and two of 
this Section. 
The change regarding rehabilitation standards is required by the federal HOME 
Program's Final Rule under 24 CFR Part 92.251 which states that "housing that is 
constructed or rehabilitated with HOME funds must meet all applicable local 
codes, rehabilitation standards, ordinances, and zoning ordinances at the time 
of project completion..." 
In response to the concern regarding applicants eligible to apply under the 
Special Needs Set-Aside, the Department feels that entities who meet the 
requirements as eligible applicants and have a documented history of working 
with special needs populations should be eligible to apply for the HOME Program 
special needs set-aside. The Department does review all applications for 
organizational capacity and program design and will eliminate applications that 
are deemed unacceptable in design or unfeasible. 
The HOME federal regulations do not identify certain nonprofit organizations as 
eligible and therefore, the Department does not. In evaluating applications, the 
Department will consider the applicant's housing related experience.
The State Legislature requires the Department to set as a goal, the provision of 
targeting 15% of the Department's housing funds to projects serving the 
extremely low-income population. The Department does not expect rental housing 
developments to reserve 100% of its units for households at or below 30% of area 
median family income. 
The Department currently exceeds the requirements of the Fair Housing Law as 
applicable to the HOME Program. HOME has adopted Accessible Housing Standards 
applicable to new construction of single and multifamily development. 
Homebuyer assistance is used in conjunction with interim construction assistance 
which is an eligible activity for for-profit organizations. Therefore, the 
Department allowed for profit-developers to apply for homebuyer assistance 
alone. For-profit organizations can provide experience that other applicants may 
not possess, thus resulting in a more successful program. 
The change in sec.53.56 refers to the distribution of funds by and within each 
activity. The Department will still consider rural housing needs in the scoring 
of applications, under Description of Need. 
In response to the interest expressed by one commenter in predevelopment loans, 
predevelopment loans are still an eligible activity in the HOME rules. Loan 
repayment schedules are recommended by the Underwriting Department on a case by 
case basis, and therefore can not be included in the HOME Program's rules. 
The amended sections are proposed pursuant to Title II of the Cranston-Gonzales 
National Affordable Housing Act of 1990, (42 United States Code sec.sec.12701-
12839) and 24 Code of Federal Regulations, Part 92. The proposed rule amendments 
are pursuant to the authority at Texas Government Code, Chapter 2306, as 
amended. 

sec.53.50. Scope. 
The rules in this chapter apply to the use and distribution of HOME Investment 
Partnerships Program (HOME) funds. The United States Department of Housing and 
Urban Development (HUD) through the HOME Program provides funds to the State 
pursuant to Title II of the Cranston-Gonzalez National Affordable Housing Act of 
1990 (42 United States Code sec.sec.12701-12839), as may be amended, and HUD 
regulations at 24 Code of Federal Regulations (CFR) Part 92, as may be amended. 
The State's HOME Program is designed to: 
(1) focus on the areas with the greatest housing need described in the State 
Consolidated Plan; 
(2) provide funds for home ownership and rental housing through acquisition, new 
construction, rehabilitation, reconstruction, tenant-based rental assistance, 
and pre-development loans; 
(3) promote partnerships among all levels of government and the private sector, 
including non-profit and for-profit organizations; and 
(4) provide low, very low, and extremely low income Texans with affordable, 
decent, safe and sanitary housing. 

sec.53.51. Definitions.
The following words and terms, when used in this chapter, shall have the 
following meanings, unless the context clearly indicates otherwise. 
(1) Board - The governing board of the Texas Department of Housing and Community 
Affairs. 
(2) CFR - Code of Federal Regulations. 
(3) C/MIS - Cash Management Information System established by HUD. 
(4) Community Housing Development Organization (CHDO) - A private nonprofit 
organization that satisfies the requirements of 24 CFR 92.2, as certified by the 
Department. 
(5) Consolidated Plan - The State Consolidated Plan prepared in accordance with 
24 CFR Part 91, as may be amended, which describes the needs, resources, 
priorities and proposed activities to be undertaken with respect to certain HUD 
programs and is subject to approval annually by HUD.
(6) Cooperating Entity - An eligible applicant that the lead applicant has 
designated in its application to carry out certain functions in the HOME 
Program. The responsibilities of the cooperating entity must be specified in a 
Memorandum of Understanding signed by the lead applicant and the cooperating 
entity, and submitted with the application. 
(7) Demonstration Fund - A reserve fund for use alone or in combination and 
coordination with other programs administered by the Department. This Fund will 
be available for out of cycle applications, innovative programs brought to the 
Department for consideration and emergency programs. Additionally, this fund may 
be used with other programs administered by the Department as outlined in the 
Consolidated Plan, such as the Down Payment Assistance Program, the Contract for 
Deed Program, the Weatherization Program and the Low Income Housing Tax Credit 
Program, as approved by the Board.
(8) Department - The Texas Department of Housing and Community Affairs. 
(9) Expenditure - Approved expense evidenced by documentation submitted by the 
Recipient to the Department for purposes of drawing funds from HUD's C/MIS for 
work completed, inspected and certified as complete, and as otherwise required 
by the Department. 
(10) Extremely Low Income Families - Families whose annual incomes do not exceed 
30% of the median income of the area, as determined by HUD, with adjustments for 
family size. 
(11) Homebuyer Assistance - A form of assistance to non-profit organizations, 
for profit housing organizations, sole proprietors, CHDOs, units of general 
local government and public housing agencies to provide funds to eligible 
homebuyers for the acquisition of affordable housing. 
(12) HOME - The HOME Investment Partnerships Program pursuant to 42 United 
States Code sec.sec.12701-12839 and HUD regulations at 24 CFR Part 92, as may be 
amended, and the rules promulgated hereunder. 
(13) HUD - The United States Department of Housing and Urban Development, or its 
successor. 
(14) Interim Construction Assistance - A form of assistance to make funds 
available to HOME eligible applicants including non-profit organizations, CHDOs, 
units of general local government, for-profit housing organizations, sole 
proprietors and public housing agencies for the purpose of constructing 
affordable housing units. 
(15) Joint Venture- An agreement between a lead applicant and a cooperating 
entity formed to administer or implement a HOME program. Each applicant must be 
eligible to apply for HOME funds as defined by sec.53.52(a) of this title 
(relating to Applicant Requirements). Each applicant or Joint Venture must sign 
a Memorandum of Understanding which outlines the responsibilities of each 
participant in the implementation of HOME Program activities. 
(16) Lead Applicant - An eligible applicant designated in a HOME application to 
assume contractual liability and legal responsibility as the recipient executing 
the written agreement with the Department. 
(17) Low-Income Families - Families whose annual incomes do not exceed 80% of 
the median income of the area, as determined by HUD, with adjustments for family 
size. 
(18) Match - Eligible forms of non-federal contributions to a program or project 
in accordance with 24 CFR 92.220, as may be amended.
(19) NOFA - Notice of Funding Availability, published in the Texas Register. 
(20) Owner-Occupied Housing Assistance - A form of assistance to nonprofit 
organizations, CHDOs, units of general local government and public housing 
agencies for the purpose of rehabilitating or reconstructing existing owner-
occupied housing. 
(21) Participating Jurisdiction (PJ) - Any state or unit of general local 
government, including consortia as specified in 24 CFR 92.101, as may be 
amended, designated by HUD in accordance with 24 CFR 92.105, as may be amended.
(22) Program - Funding provided in the form of a contract to an eligible 
applicant for the purpose of administering more than one Project or assisting 
more than one household. 
(23) Program Income - Gross income received by the Department or program 
administrators directly generated from the use of HOME funds or matching 
contributions as further described in 24 CFR Part 92.2. 
(24) Project - A site or an entire building (including a manufactured housing 
unit), or two or more buildings, together with the site or sites on which the 
building or buildings are located, that are under common ownership, management, 
and financing and are to be assisted with HOME funds, under a commitment by the 
owner, as a single undertaking under 24 CFR Part 92.2, as may be amended. 
(25) Recipient - A sole proprietor, general or limited partnership, trust, firm, 
corporation, association, cooperative or other entity described in sec.53.52(a) 
of this title (relating to Applicant Requirements), and that is approved by the 
Department to administer a HOME Program subject to the terms and conditions of 
these rules.
(26) Rental Housing Development - A form of assistance available to nonprofit 
organizations, CHDOs, units of general local government, for-profit housing 
development organizations and sole proprietors and public housing agencies for 
the acquisition, new construction, reconstruction or rehabilitation of multi-
family or single family rental housing, or conversion of commercial property to 
rental housing. 
(27) Rural Area - A project located within an area which:
(A) is situated outside the boundaries of a PMSA or MSA; or
(B) is situated within the boundaries of a PMSA or MSA if it has a population of 
not more than 20,000 and does not share boundaries with an urbanized area; or 
(C) is located in an area that is eligible for funding by Texas Rural 
Development (TxRD). 
(28) Special Needs - Those individuals or categories of individuals determined 
by the Department to have unmet housing needs consistent with 42 USC sec.12701 
et seq., as may be amended, and as provided in the Consolidated Plan. 
(29) Tenant-Based Rental Assistance (TBRA) - A form of rental assistance to 
nonprofit organizations, CHDOs, units of general local government, and public 
housing agencies in which the assisted tenant may move from a dwelling unit with 
a right to continued assistance. 
(30) Unit of General Local Government - A city, town, county, or other general 
purpose political subdivision of the State; a consortium of such subdivisions 
recognized by HUD in accordance with 24 CFR Part 92.101;as may be amended, and 
any agency or instrumentality thereof that is established pursuant to 
legislation and designated by the chief executive to act on behalf of the 
jurisdiction. An urban county is considered a unit of general local government 
under the HOME Program. 
(31) Very Low-Income Families - Low-income families whose annual incomes do not 
exceed 50% of the median family income for the area as established by HUD, with 
adjustments for family size. 

sec.53.52. Applicant Requirements.
(a) Eligible Applicants. The following organizations or entities are eligible to 
apply for HOME eligible activities: 
(1) nonprofit organizations; 
(2) CHDOs; 
(3) units of general local government; 
(4) for-profit entities and/or sole proprietors; and
(5) public housing agencies. 
(b) Ineligible Applicants: Previously funded Recipient(s) whose HOME funds have 
been partially or fully deobligated during the twelve (12) months prior to the 
current funding cycle; applicants who have not satisfied all threshold 
requirements described in sec.53.52(c) of this title (relating to Applicant 
Requirements); applicants who have submitted incomplete applications; or as 
otherwise barred by the Department. 
(c) Threshold requirements: An applicant must satisfy each of the following 
requirements in order to be eligible to apply for HOME funding.
(1) provide evidence of its ability to carry out the Program in the areas of 
financing, acquiring, rehabilitating, developing or managing affordable housing 
developments, 
(2) demonstrate fiscal, programmatic, and contractual compliance on previously 
awarded Department contracts or loan agreements,
(3) resolve any previous audit findings and outstanding monetary obligations 
with the Department, 
(4) demonstrate reasonable HOME Program expenditure and project performance on 
open contract(s), as determined through program monitoring. Evidence of 
expenditure and project identification is submitted with the application, and is 
reconciled with the Department's C/MIS reports during the application review 
process; and 
(5) demonstrate satisfactory performance otherwise required by the Department 
and set out in the application guidelines.

sec.53.53. Application Limitations. 
An eligible applicant may apply for several eligible activities provided that 
the total amount requested does not exceed the funding limits established in 
this section. The Department reserves the right to reduce the amount requested 
in an application based on program/project feasibility, underwriting analysis, 
and/or availability of funds:
(1) Award amount for Owner-Occupied Housing Assistance, Homebuyer Assistance, 
Tenant-Based Rental Assistance, and Interim Construction Assistance shall not 
exceed $500,000 per activity, except as otherwise allowed by the Board. 
(2) Award amount for Rental Housing Development shall not exceed $1,000,000, 
except as otherwise allowed by the Board. 
(3) Per unit subsidy for all HOME-assisted housing may not exceed the per-unit 
dollar limits established by HUD under sec.221(d)(3) of the National Housing Act 
which are applicable to the area in which the housing is located. 

sec.53.54. Program Restrictions.
(a) Owner-Occupied Housing Assistance: Assisted homeowners must be low-income 
and must occupy the property as their principal residence. Housing assisted with 
HOME funds must meet all applicable local codes and standards, and, at a 
minimum, Section 8 Housing Quality Standards or Colonia Housing Quality 
Standards, as applicable, and Minimum Rehabilitation Standards as provided by 
the Department. In addition, housing that is reconstructed or rehabilitated with 
HOME funds must meet all applicable local codes, rehabilitation standards, 
ordinances, and zoning ordinances in accordance with 24 CFR 92.251(a), as may be 
amended. 
(b) Homebuyer Assistance: HOME funds utilized for Homebuyer Assistance are 
subject to the Department's recapture restrictions as approved by HUD in the 
Consolidated Plan and as outlined in the application guidelines. The eligible 
uses for Homebuyer Assistance are down-payment assistance, closing cost 
assistance, gap financing, and homebuyer counseling. The total assistance 
provided per eligible homebuyer may not exceed $5,000, unless otherwise allowed 
by the Board. 
(c) Rental Housing Development: Owners of rental units assisted with HOME funds 
must comply with income and rent restrictions pursuant to HOME rules and 
guidelines and keep the units affordable for a period of time, depending upon 
the amount of HOME assistance provided. Housing assisted with HOME funds must 
meet all applicable local codes and standards, and, at a minimum, Section 8 
Housing Quality Standards or Colonia Housing Quality Standards, as applicable, 
and Minimum Rehabilitation Standards as provided by the Department. In addition, 
housing that is newly constructed or rehabilitated with HOME funds must meet all 
applicable local codes, rehabilitation standards, ordinances, and zoning 
ordinances in accordance with 24 CFR 92.251(a), as may be amended.
(d) Tenant-Based Rental Assistance: Recipients must comply with 24 CFR 92.211 
and 92.216, as may be amended. 
(e) Interim Construction Assistance: Newly constructed housing must meet all 
applicable local codes, Section 8 Housing Quality Standards, ordinances, and 
zoning ordinances in accordance with 24 CFR 92.251(a), as may be amended. An 
eligible applicant that applies for Interim Construction Assistance may also 
apply for Homebuyer Assistance. 
(f) CHDO Pre-Development Loans: The Department may set-aside up to 10% of the 
CHDO 15% Set-Aside for pre-development loans in accordance with 24 CFR 92.301, 
as may be amended. Funds for pre-development loans are available only when 
provided in conjunction with a Rental Housing Development application and may 
only be used for activities such as project-specific technical assistance, site 
control loans, and project-specific seed money. Pre-development loans must be 
repaid from construction loan proceeds or other project income. In accordance 
with 24 CFR 92.301, as may be amended, the Department may elect to waive pre-
development loan repayment, in whole or in part, if there are impediments to 
project development that the Department determines are reasonably beyond the 
control of the CHDO. 

sec.53.55. Prohibited Activities. 
In accordance with 24 CFR 92.214, as may be amended, HOME funds may not be used 
to: 
(1) provide a project reserve account for replacements or increases in operating 
costs, or operating subsidies; 
(2) provide TBRA for existing Section 8 Programs; 
(3) provide non-federal matching contributions for other programs; 
(4) provide assistance to Public Housing Agency owned or leased projects; 
(5) carry out Public Housing Modernization; 
(6) provide pre-payment of low-income housing mortgages under 24 CFR Part 248, 
as may be amended; 
(7) provide assistance to a project previously assisted with HOME funds during 
the period of affordability; 
(8) provide funds to reimburse an applicant for acquisition costs for a property 
already owned by the applicant, and 
(9) pay for any cost that is not eligible under 24 CFR sec.sec.92.206-92.209. 

sec.53.56. Distribution of Funds. 
In accordance with 24 CFR 92.201(b)(1), as may be amended, the Department will 
make every effort to distribute HOME funds throughout the state according to the 
Department's assessment of the geographic distribution of housing needs, as 
identified in the Consolidated Plan. The Department will take into consideration 
the non-metropolitan share of the state's total population and objective 
measures of rural housing need, such as poverty and substandard housing when 
allocating funds by region. Applicants may submit applications for programs or 
projects located in a PJ, however, the Department will give priority for funding 
to non-participating jurisdictions. If funds remain in a region or activity 
after all non-PJ applications that meet or exceed threshold have been funded, 
then the funds may be transferred to another region or activity, or the 
Department may consider funding PJ applications that meet or exceed threshold. 
The Department may distribute HOME funds by direct award or through competition. 
(1) CHDO Set-Aside: In accordance with 24 CFR 92.300, as may be amended, not 
less than 15% of the HUD-provided HOME allocation will be set aside by the 
Department for CHDO eligible activities, specifically where the CHDO will 
perform the role of developer, owner, or sponsor. Funded CHDO applicants for 
set-aside activities are eligible for a proportionate amount of the available 
operating expenses. The sum of all sub-allocations must not be less than the 15% 
requirement. If an insufficient number of qualified applications are received by 
the deadline, the Department reserves the right to hold additional competitions 
in order to meet federal set-aside requirements. 
(2) Special Needs Set-Aside: In accordance with the Consolidated Plan, funds 
will be available to eligible applicants, as defined in sec.53.52(a) of this 
title (relating to Applicant Requirements), with a documented history of working 
with special needs populations and with relevant housing related experience. 
Applicants may submit applications for: Owner-Occupied Housing Assistance, 
Homebuyer Assistance, Tenant-Based Rental Assistance, Interim Construction 
Assistance, and Rental Housing Development. If an insufficient number of 
qualified applications are received, the Department reserves the right to 
transfer funds remaining in the set-aside to another eligible activity.
(3) Redistribution. In an effort to commit HOME funds in a timely manner, the 
Department may reallocate funds set-aside in the Consolidated Plan, in its own 
discretion, to other regions or activities if: (1) the Department fails to 
receive a sufficient number of applications from a particular region or 
activity, (2) no applications are submitted for a region, or (3) applications 
for a region or activity do not meet or exceed the minimum standards or scores, 
as applicable. 
(4) Marginal Applications. When the remainder of the allocation within a region 
or program set-aside in the Consolidated Plan is insufficient to completely fund 
the next ranked application in the region or activity, it is within the 
discretion of the Department to: 
(A) fund the next ranked application for the partial amount, reducing the scope 
of the application proportionally or 
(B) transfer the remaining funds to other regions or programs.
(5) HOME Demonstration Fund. The Department, with Board approval, may reserve 
HOME funds to combine and coordinate with other programs administered by the 
Department as outlined in the Consolidated Plan, or for housing activities the 
Department is permitted to fund under applicable law. 

sec.53.57. Allocation Plan. 
The allocation plan will be based on the funding recommendations in the 
Consolidated Plan. 

sec.53.59. Process for Direct Awards.
(a) As funds become available, the Department may consider funding applications 
submitted outside of a funding cycle. 
(b) Selection Procedures for Direct Awards. 
(1) The proposed program/project design in the application must comply with all 
applicable HOME requirements or regulations established in 24 CFR Part 92, as 
may be amended, and in these rules. Applicants with program/project designs that 
do not comply with such requirements will not be considered for funding. 
(2) Rental project applications must receive an underwriting analysis by the 
Department. A site visit may be conducted as part of the HOME Program 
feasibility and underwriting analysis. 
(3) Applications that meet or exceed a minimum score of 60% of the total HOME 
Program score established for the respective activities are considered for 
funding. 
(4) Applicants will be notified in writing at least seven days prior to the date 
of the Board meeting, including its committees, of the status of their 
application. 
(5) Applications receiving a favorable staff recommendation are then presented 
to the Board for approval.

sec.53.60. Process for Awards made by Competition.
(a) The Department will publish a NOFA in the Texas Register. The NOFA will 
establish a deadline for receiving applications and indicate the approximate 
amount of available funds. 
(b) Selection Procedures for Owner Occupied Housing Assistance, Homebuyer 
Assistance, and Tenant-Based Rental Assistance. 
(1) The proposed program design in the application must comply with all 
applicable HOME requirements or regulations established in 24 CFR Part 92, as 
may be amended, and in these rules. Applicants with program designs that do not 
comply with such requirements are disqualified. Disqualified applicants are 
notified in writing. 
(2) Applications are ranked from highest scores to lowest in their respective 
regions or activity according to the average of three HOME Program scores. CHDO 
Set-Aside scores are ranked from highest to lowest in each CHDO-eligible 
activity on a statewide basis. 
(3) Applications that meet or exceed a minimum score of 60% of the total HOME 
Program score established for the respective activities are considered for 
funding. 
(4) Applicants will be notified in writing at least 7 days prior to the date of 
the Board meeting, including its committees, of the status of their application. 
(5) Applications receiving a favorable staff recommendation are then presented 
to the Board for approval, pending the availability of HOME funds for each 
activity. 
(6) In event of a tie between two or more applicants, the Department, with Board 
approval, reserves the right to determine which application will receive funding 
based on housing need factors and feasibility of the proposed project identified 
in the application. 
(c) Selection Procedures for Rental Housing Development and Interim Construction 
Assistance: 
(1) Applications are reviewed by the Department to ensure that the proposed 
rental housing project or the proposed interim construction program meets 
applicable HOME requirements. Applications with program designs that do not 
comply with HOME requirements are disqualified. Disqualified applicants are 
notified in writing. 
(2) Applications that meet or exceed a minimum score of 60% of the total HOME 
Program scoring points established for each Rental Assistance and Interim 
Construction Assistance program are considered for further processing. 
Applicants not meeting or exceeding the minimum score established in this 
section are disqualified and are notified in writing.
(3) Applications meeting or exceeding the minimum HOME Program requirements 
established in sec.53.60(c)(2) of this title (relating to Process for Awards 
made by Competition) must receive an underwriting analysis by the Department. A 
site visit may be conducted as part of the HOME Program feasibility and 
underwriting analysis. Applicants must receive recommendation for approval from 
the Department to be considered for HOME funding by the Board. 
(4) Applicants will be notified in writing at least 7 days prior to the date of 
the Board meeting of the status of their application.
(5) Applications receiving a favorable staff recommendation are then presented 
to the Board for approval, pending the availability of HOME funds for such 
activity. 
(6) In event of a tie between two or more applicants, the Department, with Board 
approval, reserves the right to determine which application will receive funding 
based on housing need factors and feasibility of the proposed project identified 
in the application. 
(7) Board approval for the award of HOME Rental Housing Development funds is 
conditional upon a completed loan closing.

sec.53.62. Program Administration. 
(a) Agreement. Upon approval by the Board, applicants receiving HOME funds shall 
enter into, execute, and deliver to the Department all written agreements 
between the Department and Recipient, including land use restriction agreements 
and compliance agreements as required by the Department.
(b) Amendments. The Department, acting by and through its Executive Director or 
his/her designee, may authorize, execute, and deliver modifications and/or 
amendments to any HOME written agreement provided that any such modification 
and/or amendment does not increase the dollar amount by more than 25 percent of 
the original award. Modifications and/or amendments that increase the funding 
amount in excess of 25 percent will be presented to the Board for approval. 
(c) Deobligation. 
(1) The Department reserves the right to deobligate funds in the following 
situations: 
(A) Recipient has any unresolved compliance issues on existing or prior 
contracts with the Department; 
(B) Recipient fails to set-up programs/projects or expend funds in a timely 
manner; 
(C) Recipient defaults on any agreement by and between Recipient and the 
Department; 
(D) Recipient misrepresents any facts to the Department during the HOME 
application process, award of contracts, or administration of any HOME contract; 
(E) Recipient's inability to provide adequate financial support to administer 
the HOME contract or withdrawal of significant financial support.
(F) Recipient is not in compliance with 24 CFR Part 92, as may be amended, or 
these rules. 
(G) Recipient declines funds. 
(2) When the Department determines that funds are to be deobligated, the 
following procedures will apply: 
(A) Recipient is notified in writing that the Department is recommending the 
deobligation of funds for the identified reasons defined in sec.53.62(c) of this 
title (relating to Program Administration). 
(B) Recipient has 30 days from the date of the letter to respond to the notice. 
(C) If the Department does not receive a response from the Recipient within 
thirty days or if the Recipient does not appeal the deobligation decision, the 
Recipient is notified in writing that the funds are deobligated and procedures 
to close the contract will begin. 
(D) If the Recipient responds within thirty days, and requests to appeal the 
decision, the Department will take the following steps: 
(i) The Department will review pertinent documentation; including the 
Recipient's response, investigation reports and findings. 
(ii) If the Department determines, after the review, that the Recipient's funds 
should be deobligated, the Recipient is notified in writing of the Department's 
recommendations to deobligate funds. 
(iii) The Recipient is notified of the date, location, and time of the Board 
meeting at which time a determination will be made by the Board. 
(iv) The Department makes a recommendation to the Board for deobligating funds; 
and the Recipient may make an appeal to the Board at this time. 
(v) Upon approval by the Board, the Recipient is notified in writing that the 
funds are deobligated and procedures to close the contract will begin. 
(3) The Department, with approval of the Board, may elect to reassign funds to 
the next funding cycle for award to new applicants or reallocate surrendered or 
deobligated funds to any of the following: 
(A) An entity within the same target area, to continue the program as originally 
designed; or 
(B) The Recipient with the highest expenditure rate for the same activity in the 
same region; or 
(C) The next ranked eligible applicant within the current funding cycle, if the 
applicant is prepared to start the program in a timely manner; or 
(D) With Board approval, reallocated funds may be awarded to any other eligible 
applicant or recipient to administer any activity of the HOME Program. 
(4) The amount of deobligated funds awarded to a Recipient may not exceed the 
maximum limits established in sec.53.53 of this title (relating to Application 
Limitations). 
(d) Waiver. Upon determination of good cause, the Department, upon approval of 
the Board, may waive all or any part of these rules that are within the 
discretion of the State. 
(e) Additional Funds. In the event the Department receives additional funds from 
HUD, the Department, with Board approval, may elect to distribute funds to other 
Recipients.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803402
Larry Paul Manley
Executive Director
Texas Department of Housing and Community Affairs
Effective date: March 29, 1998
Proposal publication date: November 7, 1997
For further information, please call: (512) 475-3726

TITLE 22. EXAMINING BOARDS
PART XXI. Texas State Board of Examiners of Psychologists
CHAPTER 461.General Rulings
22 TAC sec.461.19
The Texas State Board of Examiners of Psychologists adopts an amendment to Board 
Rule sec.461.19, concerning Standardized Complaint Form, without changes to the 
proposed text as published in the January 9, 1998, issue of the Texas Register 
(23 TexReg 313). 
The rule is being amended to clarify and simplify the procedure used by the 
general public to file a complaint, including all necessary information. The 
amendment will clarify and simplify the procedure used by the general public to 
file a complaint and include all necessary information. 
No comments were received regarding adoption of the amendment. 
The amendment is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803079
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

22 TAC sec.461.20
The Texas State Board of Examiners of Psychologists adopts new sec.461.20, 
concerning Complaint Disposition, without changes to the proposed text as 
published in the January 9, 1998, issue of the Texas Register (23 TexReg 314). 
The rule is being adopted to identify the steps taken by the Agency in 
processing, investigating and disposing of complaints in compliance with sec.25B 
of the Psychologists' Licensing Act. 
The new rule will expedite the complaint process, make more efficient use of the 
Board's resources and keep the public and licensees informed of the complaint 
process. 
No comments were received regarding the adoption of the new rule. 
The new rule is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803080
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

The Texas State Board of Examiners of Psychologists adopts new sec.461.20, 
concerning Complaint Disposition, without changes to the proposed text as 
published in the January 9, 1998, issue of the Texas Register (23 TexReg 314). 
The rule is being adopted to identify the steps taken by the Agency in 
processing, investigating and disposing of complaints in compliance with sec.25B 
of the Psychologists' Licensing Act. 
The new rule will expedite the complaint process, make more efficient use of the 
Board's resources and keep the public and licensees informed of the complaint 
process. 
No comments were received regarding the adoption of the new rule. 
The new rule is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803081
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

22 TAC sec.461.21
The Texas State Board of Examiners of Psychologists adopts an amendment to Board 
Rule sec.461.21, concerning Complaint Investigation, without changes to the 
proposed text as published in the January 9, 1998, issue of the Texas Register 
(23 TexReg 314). The rule is being amended to ensure that the Board's complaint 
process is in compliance with the statutory mandate of sec.25B of the 
Psychologists' Licensing Act. 
The amendment will ensure that the Board's complaint process is in compliance 
with the statutory mandate of sec.25B of the Psychologists' Licensing Act. No 
comments were received regarding adoption of the amendment.
The amendment is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803082
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

22 TAC sec.461.30
The Texas State Board of Examiners of Psychologists adopts new sec.461.30, 
concerning Monitoring of Licensees, without changes to the proposed text as 
published in the January 9, 1998, issue of the Texas Register (23 TexReg 315). 
The rule is being adopted to make the rules more accessible and easily 
understood by licensees and the public. 
The new rule will clearly identify which division of the Board's office is 
responsible for the monitoring of licensees ordered to perform certain acts by 
the Board, thereby ensuring that those who are required to perform certain acts 
by the Board are providing the best services possible to the general public. 
No comments were received regarding the adoption of the new section. 
The new section is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803083
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

22 TAC sec.461.31
The Texas State Board of Examiners of Psychologists adopts new sec.461.31, 
concerning Abolition Date for Psychological Associate Advisory Committee Set for 
September 1, 2005; Board Review of Psychological Associate Advisory Committee, 
without changes to the proposed text as published in the January 9, 1998, issue 
of the Texas Register (23 TexReg 315). 
The rule is being adopted to ensure compliance with the statutory mandate of 
Texas Government Code, sec.2110.001-2110.008 and the continued existence of the 
Psychological Associate Advisory Committee through the Sunset date set for the 
Agency. 
The new rule will ensure that the Psychological Associate Advisory Committee is 
not abolished by operation of law pursuant to Texas Government Code, 
sec.2110.008, and ensure for annual review as required by sec.2110.004. 
No comments were received regarding the adoption of the new section. 
The new section is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803084
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

CHAPTER 463.Applications
22 TAC sec.463.5
The Texas State Board of Examiners of Psychologists adopts an amendment to 
sec.463.5, concerning Application File Requirements, without changes to the 
proposed text as published in the January 9, 1998, issue of the Texas Register 
(23 TexReg 316). 
The rule is being amended to establish a temporary license for Licensed 
Specialists in School Psychology in compliance with sec.15A of the 
Psychologists' Licensing Act while ensuring that all such licensees meet minimal 
standards of competency and ensuring the protection of the public consumer of 
psychological services. An additional change is being made to bring paragraph 
(7) in compliance with Attorney General Letter Opinion 96-147. 
The amendment will ensure that the Board is in compliance with the mandate of 
sec.15A of the Psychologists' Licensing Act by creating a mechanism for 
temporary licensure of Licensed Specialist in School Psychology applicants who 
hold a substantially equivalent license in another jurisdiction, as well as 
ensuring compliance with the Psychologists' Licensing Act in general. 
No comments were received regarding adoption of the amendment.
The amendment is adopted under Texas Civil Statutes, 4512c, which provide the 
Texas State Board of Examiners of Psychologists with the authority to promulgate 
rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803085
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

CHAPTER 466.Procedure
22 TAC sec.466.43
The Texas State Board of Examiners of Psychologists adopts the repeal of 
sec.466.43, concerning Complaints Review Committee, without changes to the 
proposed text published in the January 9, 1998, issue of the Texas Register (23 
TexReg 317). 
This rule is being repealed in order to identify the steps taken by the Agency 
in processing, investigating and disposing of complaints in compliance with 
sec.25B of the Psychologists' Licensing Act. 
The repeal of this rule will expedite the complaint process, make more efficient 
use of the Board's resources and keep the public and licensees informed of the 
complaint process. 
No comments were received regarding repeal of the rule.
The repeal is adopted under Texas Revised Civil Statutes, 4512c, which provide 
the Texas State Board of Examiners of Psychologists with the authority to 
promulgate rules consistent with the Statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998
TRD-9803086
Sherry L. Lee
Executive Director
Texas State Board of Examiners of Psychologists
Effective date: March 23, 1998
Proposal publication date: January 9, 1998
For further information, please call: (512) 305-7700

TITLE 25. HEALTH SERVICES
PART II. Texas Department of Mental Health and Mental Retardation
CHAPTER 409.Medicaid Programs
SUBCHAPTER L.Mental Retardation Local Authority (MRLA) Pilot Program
25 TAC sec.sec.409.501, 409.503, 409.505, 409.507, 409.509, 409.511, 409.513, 
409.515
The Texas Department of Mental Health and Mental Retardation (TDMHMR) adopts new 
sec.sec.409.501, 409.503, 409.505, 409.507, 409.509, 409.511, 409.513, and 
409.515 of Chapter 409, Subchapter L, governing Mental Retardation Local 
Authority Program. Sections 409.501, 409.503, 409.505, 409.507, 409.509, 
409.511, 409.513, and 409.515 are adopted with changes to the proposed text as 
published in the December 12, 1997, issue of the Texas Register (22 TexReg 
12243). 
TDMHMR adopts the new subchapter in response to House Bill 2377 of the 74th 
Texas Legislature, codified at sec.533.0355 of the Texas Health and Safety Code, 
which allows the department to implement a pilot project to study an authority 
structure for service delivery at the local or regional level through a pilot 
mental health or mental retardation authority. This subchapter is also adopted 
in response to Senate Concurrent Resolution 55 of the 74th Texas Legislature 
which requires the State Medicaid Office to apply for a federal waiver to allow 
a consumer-directed pilot program for persons with mental retardation and other 
developmental disabilities. The State Medicaid Office, Texas Health and Human 
Services Commission, has delegated the authority to operate this pilot program 
to TDMHMR. The Mental Retardation Local Authority (MRLA) Program will be 
implemented on April 1, 1998, contingent on the approval of a waiver request 
submitted by TDMHMR to the Health Care Financing Administration.
Minor changes in the text were made throughout the subchapter to consolidate 
information, use consistent terminology, provide or correct references, and 
correct grammatical usage. The term "legally authorized representative" was 
added at all appropriate locations. Section 409.501 was modified on adoption to 
clarify that persons who are enrolled in HCS or HCS-O waiver services will 
become enrolled in the MRLA waiver. Section 409.501 was also changed to clarify 
that persons who are enrolled in HCS or HCS-O waiver services who are moving to 
the pilot counties will be enrolled in the MRLA waiver. Section 409.503 was 
revised on adoption to explain the difference between case management and 
service coordination in the MRLA program. The provisions for the delivery of day 
habilitation were expanded in sec.409.503(b)(4) to allow for exceptions noted by 
the service planning team. The term "interdisciplinary" was changed to "service 
planning" in sec.409.503(b)(6). Section 409.505(b)(9) was revised to include the 
limit of the amount of respite services available to individuals. The terms 
"client" and "consumer" were replaced with the term "individual" throughout 
section 409.505. The eligibility section was reorganized and expanded to include 
the requirement that the plans of care cannot exceed the amount authorized in 
the HCS program. Section 409.507 was modified on adoption to delete information 
duplicated in the utilization review section (sec.409.511). Section 
409.507(g)(3) was changed to address expressed concerns about a program provider 
being penalized for the mistake of a local mental retardation authority. Section 
409.509 was revised to include more specific language on completing forms to 
reinstate authorization for payments during gaps in level-of-care coverage. The 
department modified the reconsideration processes outlined in sec.409.511 to 
include a method for providers to complain to the state authority regarding a 
local authority's decision. The section also includes provider notification of 
changes in levels-of-need. Section 409.511(b)(2) changed "Individual Service 
Plan" to "Person-Directed Plan." Section 409.513 was changed on adoption to 
reflect that individual's legally authorized representative(s) could also make 
choices about individual service providers and to emphasize that these providers 
must meet the criteria outlined in sec.409.513(b)(1)-(2). A reference was 
changed in sec.409.515(b) from sec.409.507 to sec.409.511. 
Oral and written testimony regarding the new subchapter was offered at a public 
hearing conducted on January 7, 1998. One commenter testified. During the 
comment period, the department received comments from three private citizens and 
the following organizations: the Private Providers Association of Texas, Austin; 
Educare, Austin; Concept Six, Austin; Doubletree Residential Services, Austin; 
and Parent Association for the Retarded of Texas, Austin. While all commenters 
offered recommendations regarding modification(s) to the language of the rule, 
no commenter was specifically for or against the proposal.
One provider complimented the department on the open and inclusive process used 
in the development of the pilot waiver. 
Two providers expressed concerns about the fiscal impact and the economic 
analysis because they felt small business revenues would be negatively impacted 
by the pilot. The department responds that the administrative reimbursement rate 
will cover the provider's cost for support services and that any loss of 
potential revenue will be offset by a reduction of workload for the provider.
Another commenter inquired about the use of acronyms throughout the rule.
The department responds that long phrases or titles are spelled out prior to 
their use as acronyms in the rule. Another commenter asked why even numbers, 
e.g., sec.409.504, were not included in the rules. The department responds that 
it proposed the rules in this way so that as the pilot developed, other rule 
sections could be inserted as necessary. One commenter felt the program name 
"Mental Retardation Local Authority Pilot Waiver Program" was too cumbersome. 
The department responds that it has simplified the name to "Mental Retardation 
Local Authority Program." 
Another commenter expressed concerns about the general principle of turning case 
management\service coordination over to the mental retardation authority (MRA). 
The role of the local authority as a service coordinator is a fundamental part 
of the pilot program and essential to testing the authority's role and the ad 
hoc committee on mental retardation and managed care recommendations that had 
been designed by numerous stakeholders over an extended period of time. The 
authorities' capacity to provide service coordination will be carefully 
evaluated throughout the pilot. 
Regarding sec.409.503, one commenter questioned why respite was not available in 
foster/companion settings. The department responds that respite is an integral 
service included in the foster care model and thus is not included as a separate 
individual plan of care (IPC) service. Another commenter suggested that the 
department put an upper limit on the amount of respite services.
The department responds that it has included limits in revised rule language.
One commenter questioned what the department meant by saying services were 
intended to supplement natural community supports. The department responds that 
the intent of this program is to provide an array of services in addition to the 
services available to persons in their community. Other community services, such 
as public transportation or medical services, should be used before waiver 
services are used. For example, the reason services such as physician services 
are not included as waiver services is because Medicaid recipients can access 
these services by using their Medicaid Identification Card. 
Two commenters questioned the constitution and role of the interdisciplinary 
team that develops the IPC. The department responds that it has changed the term 
to "service planning team", and that the composition of this team depends on the 
individual's needs at any given time. The team will always include the 
individual and the individual's legally authorized representative. The 
provider's role in the service planning team has been developed by the 
implementation workgroups. The provider's role would be helpful for enrolled 
individuals but may not be appropriate at the point of initial application. For 
example, an applicant may not have selected a program provider at the time the 
first IPC is developed. The process for enrollment into the program will be more 
fully described in rules that will be proposed this spring. 
Regarding sec.409.505(b)(1), one commenter wanted the term "legally authorized 
representative" to be added. The department responds that the service planning 
team, which includes the individual and the individual's legally authorized 
representative, is responsible for developing the plan of care.
Four commenters questioned the process of reviewing and updating the plan of 
care and were concerned about repercussions from mistakes made by the mental 
retardation authority. The department responds that it has clarified the rule 
language in sec.409.511 to include provisions for program provider notice of 
changes in level-of-need or the service plan. The department has also added more 
detail relating to program provider's requests for reconsideration reviews when 
they disagree with the local authority. 
One commenter suggested that the word "disrupted" should be changed to 
"delayed." The department responds that it has substituted the word "withheld" 
in place of the word "disrupted" in sec.409.507(g)(3). 
Four comments were received regarding the eligibility cap outlined in 
sec.409.505(b)(3). The department responds it agrees that the eligibility cap is 
a crucial issue but that the same statewide eligibility cap should apply to the 
pilot counties. The department will continue to work with consumers, advocates 
and providers to determine when and if the cap should be enforced.
Seven comments addressed the role of service coordination in sec.409.505(b) both 
by the mental retardation authority and the providers. The department responds 
that the role of service coordination by the authorities is a key element of the 
pilot. Implementation workgroups are developing processes to ensure that service 
coordination will meet the needs of all stakeholders. Since the term "service 
coordination" will be used for the pilot, all references to "case management" 
have been changed to "service coordination." Although providers will continue to 
provide administrative activities which support the individual in day-to-day 
services, these activities will not be listed on the plans of care. These 
administrative activities will be reimbursed through a monthly administrative 
fee paid in addition to the fees for services rates. Case management activities 
are being billed by the mental retardation authority through targeted case 
management. Providers that are not satisfied with the quality of the service 
coordination are encouraged to contact the local or state authority for 
resolution. The rule language was clarified to specifically outline formal and 
informal review processes for level-of-need and level of service decisions. The 
department is committed to studying the future of case management as it evolves 
into service coordination. 
Regarding sec.409.503(b)(5), one commenter stated that the "legally authorized 
representative" should be added to the sentence, "Any person receiving supported 
employment must have an identified need and desire for employment." The 
department responds that it disagrees, preferring to leave the choice up to the 
person who will perform the work. 
Regarding sec.409.505(c), the department agreed with one commenter's request to 
add the phrase "or the individual's legally authorized representative."
Another commenter requested that "legally authorized representative" be added to 
sec.409.505(d). The department responds that it has added language allowing an 
authorized representative of an individual to request a fair hearing on behalf 
of that individual. 
One commenter suggested adding the phrase "or designee" to the last sentence of 
sec.409.507(c)(1)(B). The department responds that it disagrees and has not 
changed the rule language. One comment on sec.409.507(c)(1)(B)(i) suggested that 
the definition of challenging behavior be refined. Concerning the same clause, 
another commenter stated that any one of the characteristics should be 
considered dangerous, and that the criteria should not require all 
characteristics to be present. The department responds that the challenging 
behavior should meet all of the criteria of this section. The department will 
continue to work with provider groups to develop further instructions for the 
rule criteria for levels-of-need for all programs that use the LON process. 
Regarding sec.409.507(c)(3), one commenter felt that the rule language should 
specify the department's deadline for assigning a level-of-need. The department 
responds that it disagrees. The department will clarify its time frames for 
processing paperwork for all program's levels-of-need and place this in the 
appropriate provider manual. 
Four comments were received about the liability of the provider in the event the 
MRA did not complete a timely level-of-care assessment form or IPC revision. The 
department responds that language was added to clarify that the provider would 
be paid for all bona fide services delivered. 
Regarding emergency services, two commenters stated that the rule should address 
emergency services on the IPC. The department responds that minor revisions to 
the IPC are better covered under procedural guidelines. 
Regarding sec.409.509(b), (c), and (d), one commenter felt there were potential 
conflicts with other sections of the rules that stated that providers would not 
be penalized for the mistakes an MRA might make in updating the IPC. The 
department responds that language in this section was modified to remove the 
potential conflict(s) regarding mistakes. 
Another commenter did not like the term "Purpose Code E." The department 
responds that the term, "Purpose Code E", was removed from the rule language. 
Regarding sec.409.511(b)(3), two commenters noted the absence of language 
regarding notification of the provider when reconsideration of level-of-need 
decisions occur. The department responds that numerous changes were made to the 
rule to ensure that consumers, providers, and mental retardation authorities 
would be notified of reconsideration reviews. Rule changes also incorporated 
language to specify who may request reconsideration reviews regarding level-of-
need and plan-of-care changes. 
Regarding sec.409.513(b), one commenter requested that the individual's legally 
authorized representative also be authorized to select preferred service 
providers. The department responds that the language was modified to include the 
individual's legally authorized representative. 
The new subchapter is adopted under the Health and Safety Code, sec.532.015(a), 
which provides the Texas Mental Health and Mental Retardation Board with broad 
rulemaking authority; and under the provisions of Texas Government Code, which 
provides the Texas Health and Human Services Commission with the authority to 
administer federal medical assistance funds.

sec.409.501.Description of the Mental Retardation Local Authority (MRLA) 
Program.
(a) The MRLA program is a pilot program that is limited to certain geographic 
areas of the state in accordance with a waiver approved by Health Care Financing 
Administration (HCFA) pursuant to sec.1915(c) of the Social Security Act. The 
counties included in the MRLA program are: Lubbock, Cochran, Crosby, Hockley, 
Lynn, Travis, and Tarrant. 
(b) The Home and Community-based Services (HCS) program and Home and Community-
based Services-OBRA (HCS-O) program will no longer be available in the 
geographic locations noted in sec.409.501(a) after the MRLA program is 
implemented. 
(c) Only program providers that are certified by Texas Department of Mental 
Health and Mental Retardation (TDMHMR) to provide MRLA program services may 
receive Medicaid payments for these services. Certification of local mental 
retardation authorities (MRAs) that are operating as MRLA program providers will 
be based upon the results of reviews conducted by TDMHMR. All other program 
providers will be certified based upon the recommendation of the MRA having 
jurisdiction in the service area(s) in which the program provider operates.
(d) An individual who, on the effective date of the MRLA program, is enrolled in 
the HCS or HCS-O program and is a resident of one the counties listed in 
sec.409.501(a) will be automatically enrolled. Enrollment of any other 
individuals in the MRLA program must be approved by TDMHMR. 
(e) After the effective date of the MRLA pilot program, an individual who is 
enrolled in the HCS or HCS-O program while a resident of a county other than one 
listed in sec.409.501(a) and who becomes a resident of a county listed in 
sec.409.501(a) may enroll in the MRLA program with the approval of TDMHMR.

sec.409.503. Service Components of the MRLA Program.
(a) Case management as defined in sec.409.201 of this title (relating to 
Definitions) will be referred to in this subchapter as "service coordination" 
and is not a reimbursable service under the MRLA program. Service coordination 
must be provided to all enrolled individuals in the MRLA program by the local 
mental retardation authority (MRA) and is reimbursed in accordance with Chapter 
409, Subchapter F, of this title (relating to Case Management Program 
Requirements). 
(b) MRLA program service components are selected for inclusion in a person's 
Individual Plan of Care (IPC) to supplement rather than replace that 
individual's natural community supports. MRLA program service components are 
selected based on assessments which identify specific services and supports 
necessary for the individual to continue living in the community and prevent the 
individual's admission to institutional services. The following service 
components are available to all individuals enrolled in the MRLA program, unless 
indicated otherwise: 
(1) Counseling and therapies, consisting of physical therapy, occupational 
therapy, speech and language pathology, audiology, social work, psychology, and 
dietary services, may be provided according to the IPC. 
(2) Nursing care may be provided in accordance with the IPC. 
(3) Residential assistance in the individual's residence does not include room 
and board and may be provided in accordance with the IPC in one of the following 
three ways: 
(A) supported home living for individuals who are living in their own homes or 
the homes of their natural families;
(B) foster/companion care for individuals who are living in the home of a MRLA 
foster family provider or with a paid companion; or
(C) residential support for individuals who reside in homes where paid staff of 
the program provider provide assistance on a scheduled shift basis. 
(4) Day habilitation may be provided to individuals in accordance with their 
IPCs. Day habilitation must be provided separately from services funded by any 
other source including, but not limited to, public educational services, 
rehabilitative services for persons with mental illness, programs funded by the 
Texas Department of Human Services (TDHS), or programs funded by a state 
rehabilitation agency. Day habilitation is provided outside the individual's 
residence six or more hours per day, five days per week unless justified and 
documented as contraindicated by the service planning team.
(5) Supported employment is provided in conjunction with day habilitation and 
will be paid for up to an IPC year maximum of $3,000 per individual. An IPC year 
is defined by the begin and end dates of the plan. Supported employment payment 
is available only if documentation verifies that supported employment services 
have been denied or are otherwise unavailable to the individual through either 
the state rehabilitation agency or the public educational agency. Any person 
receiving supported employment must have an identified need and desire for 
employment. 
(6) Adaptive aids may be provided up to a maximum of $10,000 per IPC year per 
individual. The individual's service planning team must approve the provision of 
all adaptive aids. Adaptive aids costing in excess of $500 require the 
recommendation of a licensed professional. 
(7) Minor home modifications may be provided up to a life-time limit of $7,500 
per individual. After the $7,500 limit has been reached, persons are eligible 
for up to an additional $300 per IPC year for maintenance of home modifications 
that enhance accessibility. 
(8) Dental services may be provided according to the IPC up to a maximum of 
$1,000 per individual per IPC year. 
(9) Respite care may be provided for individuals who are living in the homes of 
their natural or adoptive family. Respite care is not a reimbursable service for 
individuals who are receiving MRLA foster/companion care or residential support. 
Respite may be provided in an individual's residence or in an approved setting 
outside of the individual's residence. Reimbursement for respite care provided 
in a setting other than the individual's residence includes payment for room and 
board. The maximum annual reimbursement per IPC year is equal to 30 multiplied 
by the daily reimbursement rate for respite care. 
(c) A program provider must retain in an individual's record the results and 
recommendations of individualized assessments documenting a current need for 
each service component included in the IPC. IPCs must be developed and updated 
in accordance with person-directed planning principles and with sec.409.505 of 
this title (relating toEligibility Criteria).

sec.409.505. Eligibility Criteria. 
(a) To be determined eligible by TDMHMR for MRLA program services, an applicant 
must: 
(1) meet the eligibility requirements for Medicaid services as set forth in 
sec.409.101(a) (relating toEligibility Criteria for the Home and Community-based 
Services Program (HCS); and 
(2) meet the: 
(A) ICF/MR I, V, or VI level-of-care criteria as determined by TDMHMR according 
to applicable state and federal regulations and documented on a current level-
of-care (LOC) assessment form and be next on the referral list to receive MRLA 
services; or 
(B) ICF/MR I, V, VI, or VIII level-of-care criteria and be part of the targeted 
population eligible for the HCS-O program in accordance with Chapter 409 
Subchapter E of this title; or 
(C) be an individual enrolled in the HCS or HCS-O program immediately prior to 
enrollment in the MRLA program; and 
(3) live in the geographic area defined in sec.409.501(a) (relating to 
Description of the Mental Retardation Local Authority (MRLA) Pilot Program); and 
(4) have an IPC with an annual cost of services which does not exceed 100% of 
the estimated annualized per capita cost for ICF/MR services. If an individual's 
IPC exceeds 100% of the estimated annualized per capita cost for ICF/MR 
services, the individual will be eligible for MRLA program services if TDMHMR 
approves reimbursement and the IPC cost does not exceed 125% of the annual 
ICF/MR reimbursement rate paid to a small ICF/MR, as defined in 1 TAC 
sec.355.456 (relating to Rate Setting Methodology), for the individual's level 
of need as it would be assigned under sec.406.204(b) of this title (relating to 
Level-of-Care Determination and Level-of-Need Assignment) or 125% of the 
estimated annualized per capita cost for ICF/MR services, whichever is greater; 
and 
(5) be an individual who is not enrolled in another Medicaid 1915(c) waiver 
program, other than HCS or HCS-O at the time of enrollment.
(b) An applicant who meets the criteria described in subsection (a) of this 
section must have an IPC developed by an appropriately constituted service 
planning team. The team must include a service coordinator from the mental 
retardation authority (MRA) and the individual and/or the individual's legally 
authorized representative. 
(1) The individual's initial IPC is submitted by the MRA and approved by TDMHMR. 
Revisions and updates to the initial IPC are submitted by the MRA and approved 
by TDMHMR. 
(2) The IPC must be updated by the MRA at least annually. Revisions and updates 
to subsequent plans of care made by the MRA are reviewed and approved by TDMHMR. 
(c) Any individual whose MRLA program services have been terminated, suspended, 
or reduced with the approval of TDMHMR, or the individual's legally authorized 
representative, may request a reconsideration review by the MRA. A request for a 
reconsideration review must be submitted to the designated individual at the MRA 
and received within 90 days from the date of the notice of termination, 
suspension, or reduction of MRLA program services. 
(d) Any individual whose request for eligibility for the MRLA program is denied 
or is not acted upon with reasonable promptness, or whose MRLA program services 
have been terminated, suspended, or reduced by TDMHMR, is entitled to a fair 
hearing conducted by the Texas Department of Human Services (TDHS) in accordance 
with 40 TAC sec.79.1101 et seq., except that a request for a fair hearing must 
be submitted to the TDMHMR Office of Medicaid Administration and received within 
90 days from the date of the notice of denial of eligibility for the MRLA 
program or notice of termination, suspension, or reduction of MRLA program 
services. Another person may request a fair hearing on behalf of an individual. 
(e) Enrollment in the MRLA program is limited to the number of individuals 
approved by HCFA and allocated to each MRA. 
(f) Individuals who enter the MRLA program from the HCS program will retain the 
HCS IPC in effect at the time of transfer to the MRLA program. The effective 
date of the individual's IPC established for the HCS or HCS-O program will not 
be changed. Any modifications or billing against the MRLA IPC will take into 
consideration previous billing against the HCS or HCS-O IPC. At the time of 
transition to the MRLA program, the only portion of the IPC that mustbe modified 
for HCS consumers will be the deletion of case management from the IPC. 

sec.409.507. Payment Category Assignment and Provider Claims Payment. 
(a) Payment to program providers for supported home living, counseling and 
therapies, respite, and nursing is based upon the unit reimbursement rate for 
the specific service component. 
(b) TDMHMR will reimburse program providers the actual cost of minor home 
modifications, adaptive aids, and dental services in accordance with the waiver 
request as approved by HCFA and limits noted in sec.409.503 of this title 
(relating to Service Components of the MRLA Program), the MRLA provider 
agreement, the individual's IPC, and provider manual. 
(c) Reimbursement for MRLA foster/companion care, residential support, and day 
habilitation is based upon the individual's payment category assignment and the 
reimbursement rate for the specific service component provided.
(1) The payment category for an individual is based upon a level-of-need (LON) 
assignment approved by TDMHMR as part of the level-of-care determination 
according to sec.406.203 of this title (relating to Eligibility and Review). LON 
assignments are derived from the service level score obtained from the 
administration of the Inventory for Client and Agency Planning (ICAP) to the 
individual and from selected items on the level-of-care assessment form. 
(A) An individual is assigned one of the following five levels of need: 
(i) An intermittent LON (LON 1) is assigned if the ICAP service level score 
equals 7, 8, or 9; 
(ii) A limited LON (LON 5) is assigned if the ICAP service level score equals 4, 
5, or 6; 
(iii) An extensive LON (LON 8) is assigned if the ICAP service level score 
equals 2 or 3; 
(iv) A pervasive LON (LON 6) is assigned if the ICAP service level score equals 
1; or 
(v) A "pervasive plus" LON (LON 9) is assigned when the level-of-care assessment 
form documents an intervention code of 2 on at least one of Items 70-73. 
(B) The LON assignment may be modified to take into account extraordinary 
service needs that result from unusual behavioral challenges. The LON for these 
individuals combines ICAP service level scores and needs identified on selected 
items on the level-of-care assessment form. A LON that does not directly 
correspond to the ICAP service level score will be subject to utilization review 
by TDMHMR. 
(i) Individuals who have very challenging behaviors that require a behavior 
intervention program that includes constant preventive actions by additional 
program provider staff will be assigned the next higher LON from the original 
level. Additional staff may assist in the supervision of other individuals. 
Individuals originally assigned a pervasive LON will retain that assignment. 
Very challenging behaviors have the following characteristics:
(I) The behavior presents a danger to the individual or to others; 
(II) The behavior warrants individualized objectives which include written 
intervention procedures; 
(III) The frequency of the behavior is reduced only with constant staffing and a 
highly structured environment; 
(IV) The behavior is difficult or impossible for a single staff person to 
control when it occurs; 
(V) The behavior precludes some activities and an environment that cannot be 
structured. The interventions used to control the behavior require regular 
documentation, monitoring, and revisions as needed to meet the needs of the 
individual; and 
(VI) The level-of-care assessment form indicates an intervention code of 1 on at 
least one of Items 70-73. 
(ii) Individuals who have extremely challenging behaviors which pose a risk of 
harm to themselves or others and who require constant one-to-one staff 
supervision, 16 hours per day while the individual is awake, will be assigned a 
pervasive plus LON. Extremely challenging behaviors have the following 
characteristics: 
(I) the behavior may be life-threatening; 
(II) the behavior warrants the highest priority of individualized objectives 
which include a written record of every occurrence of the behavior;
(III) the frequency of the behavior is difficult to reduce;
(IV) the consequences of the behavior are difficult to minimize; and 
(V) the level-of-care assessment form indicates an intervention code of 2 on at 
least one of the Items 70-73. 
(2) The MRA completes the initial and subsequent ICAP assessments, enters the 
resulting service level score on the level-of-care assessment form, and 
completes the remainder of the level-of-care assessment form. Information 
entered on the level-of-care assessment form must represent the individual's 
current status. The completed level-of-care assessment form is submitted to 
TDMHMR. 
(3) TDMHMR reviews and approves LON assignments. 
(4) TDMHMR performs annual reevaluations of LON assignments in conjunction with 
annual reevaluations of ICF/MR LOC. 
(5) MRAs requesting a change to a higher LON at times other than the annual 
reevaluation must retain supporting documentation describing the changes in the 
individual's needs. 
(d) Units of service must be provided and documented according to the IPC. 
(e) The program provider must submit reimbursement requests in accordance with 
TDMHMR's procedures and accept TDMHMR's payment as payment in full for waiver 
services. 
(f) Room and board are not included in the reimbursement rate to program 
providers except in the case of respite care provided in a residence other than 
the individual's own home or family home. 
(g) The program provider is not entitled to payment if: 
(1) the individual is ineligible for the MRLA program, Medicaid benefits, or is 
an inpatient of a hospital, nursing facility, or ICF/MR; 
(2) TDMHMR has not authorized the individual's enrollment on the Approval of 
Application for Enrollment form; 
(3) services were delivered during gaps in the coverage period for the IPC. 
Coverage periods are defined by the begin and end dates on the IPC. Payments by 
TDMHMR to a program provider will not be withheld in the event the MRA 
erroneously fails to submit an enrolled individual's IPC for renewal and the 
program provider continues to provide services in accordance with the most 
recent IPC as approved by TDMHMR; 
(4) the initial claim for service is not received by TDMHMR within 95 calendar 
days from the end of the month of service or within 30 days of notification of 
approval of enrollment by TDMHMR, whichever is later; 
(5) the program provider bills for services not included in the IPC during the 
time the services were provided; or 
(6) the service billed was not provided. 
(h) Reimbursement for foster/companion care and residential support are not made 
for the day of discharge from the MRLA program.

sec.409.509.Gaps in Level-of-Care Coverage.
(a) To reinstate authorization for payment for days when services were delivered 
to an enrolled individual without a current LOC determination, the MRA shall 
electronically submit to TDMHMR a new LOC assessment form for each period of 
time for which there was a lapsed level-of-care. The MRA must keep on file: 
(1) a photocopy of the most recent LOC assessment form approved by either TDMHMR 
or TDHS for the enrollment of the individual or for a continued stay review; 
(2) a new LOC assessment form identical to the form mentioned in paragraph (1) 
of this subsection for each period of time for which there was a lapsed LOC 
including: 
(A) The letter "E" is marked as the purpose code for item 16, which indicates 
that a gap in level of care coverage has occurred; 
(B) the beginning and ending dates of the period for which no valid LOC existed 
are written in the comment section; 
(C) a physician's signature certifying that the person required an ICF/MR LOC 
during that time period; and 
(D) the physician's initials in the comment section acknowledging the request 
for authorization for payment; and 1 
(3) a completed verification statement. 
(b) There must be a current IPC in place for the period of time for which 
payment is sought. 
(c) Payment will not be approved for periods of time for which an LOC has been 
denied by TDMHMR or TDHS. 
(d) Payments by TDMHMR to a program provider will not be withheld in the event 
the MRA erroneously fails to submit an enrolled individual's LOC for renewal and 
the program provider continues to provide services in accordance with the most 
recent IPC as approved by TDMHMR. 
(e) LOCs that are used to reinstate authorization for payment may not be used to 
establish initial program eligibility or to enroll a individual into the MRLA 
program.

sec.409.511. Utilization Review.
(a) TDMHMR may conduct a utilization review prior to authorization of MRLA 
program reimbursement in any circumstance, including, but not limited to, the 
following: 
(1) the MRA submits an initial, revised, or renewal IPC having an annual cost 
exceeding 100% of the estimated annualized average per capita cost for ICF/MR 
services; 
(2) the program provider reports to the MRA an increase in an individual's LON 
either at the time of the annual eligibility reevaluation or at any other time; 
(3) the MRA reports that the individual's LON is 9 (Pervasive Plus); and/or 
(4) the MRA reports a LON for the individual which appears inconsistent with 
other clinical or service provision evidence/history about the individual. 
(b) TDMHMR will not approve reimbursement in the circumstances set forth in 
subsection (a)(1)-(3) of this section until the MRA has submitted documentation 
supporting the request.
(1) In order for reimbursement to be approved by the TDMHMR, the MRA must submit 
documentation which demonstrates the following, as appropriate:
(A) that the IPC services proposed for the individual are derived from 
assessments of the individual's needs, are necessary to prevent the individual 
from being institutionalized, and support rather than replace the individual's 
natural community supports; and 
(B) that the proposed initial or revised LON assignment reflects the 
individual's current service level need which is expected to continue for at 
least 12 months. 
(2) Information submitted to TDMHMR by the MRA must include the Person-Directed 
Plan containing the service planning team deliberations and conclusions and, as 
applicable, documentation of assessments or interventions by qualified 
psychologists or other professional staff/consultants; staff requirements to 
conduct behavioral intervention plans; medical and physical assessment results 
and recommendations; time sheets of assigned service providers; and any other 
documentation providing support of the LON assignment or the level of IPC 
services. 
(3) TDMHMR will notify the MRA and the program provider of the approval or 
disapproval of the requested LON or the level of service delivery. TDMHMR will 
establish the effective date of approved requests. If additional documentation 
is requested by TDMHMR, the program provider must assist the MRA in providing 
the requested information to the MRA within five working days of receipt of the 
request. 
(c) The program provider may request a reconsideration of TDMHMR's decision by 
submitting a written request to TDMHMR, office of Medicaid Administration, 
within 10 days of the date of notification of the department's decision. The 
request will be considered and the program provider will be notified in writing 
of the results of TDMHMR's reconsideration within 10 working days of receipt of 
the request. 
(d) TDMHMR will conduct periodic retrospective reviews. Based on such reviews, 
TDMHMR may recoup or deny payment to a program provider. Payments may be 
recouped from the effective date of the level of care assessment form. 

sec.409.513.Other Program Provider Requirements.
(a) Program providers must comply with requirements of the Omnibus Budget 
Reconciliation Act of 1990, 42 United States Code sec.1396a(w)(1), regarding 
advanced directives under state plans for medical assistance. 
(b) Program providers are required to provide services using individuals 
preferred by the individual, or the individual's legally authorized 
representative, provided that the individuals who will provide services: 
(1) meet minimum provider qualifications; and 
(2) are willing to deliver the service(s) within the direct service portion of 
the modeled MRLA rates. 

sec.409.515. Provider's Right to Administrative Hearing.
(a) A program provider may request an administrative hearing in accordance with 
Subchapter B of this chapter (relating to Adverse Actions), if TDMHMR takes or 
proposes to take the following action: 
(1) vendor hold; 
(2) contract termination; 
(3) recoupment of payments made to the program provider; or 
(4) denial of a program provider's request for payment.
(b) If the basis of an administrative hearing requested under subsection (a) is 
a dispute regarding a level-of-need assignment, the program provider may receive 
an administrative hearing only if reconsideration was requested by the program 
provider in accordance with sec.409.511 of this title (Relating to Utilization 
Review). 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803124
Charles M. Cooper
Chairman, Texas MHMR Board
Texas Department of Mental Health and Mental Retardation
Earliest possible date of adoption: April 19, 1998
For further information, please call: (512) 206-4516

PART V. Center for Rural Health Initiatives
CHAPTER 500.Executive Committee for the Center for Rural Health Initiatives
SUBCHAPTER D.Texas Rural Physician Assistant Loan Reimbursement Program
25 TAC sec.sec.500.103, 500.107
The Center for Rural Health Initiatives (Center) adopts amendments to 
sec.500.103 and sec.500.107, concerning the Texas Rural Physician Assistant Loan 
Reimbursement Program, which provides loan reimbursement to physician assistants 
employed in rural medically underserved or rural health professional shortage 
areas. The amendments are adopted without changes to the proposed text as 
published in the December 19, 1997, issue of the Texas Register (22 TexReg 
12385) and will not be republished. 
The purpose of adopting the amendments is to implement House Bill 2099, 75th 
Legislature, 1997, which eliminates the requirement that recipients of loan 
reimbursement under the program be graduates of accredited Texas physician 
assistant programs. The amendment makes program funds available to graduates of 
accredited in-state and out-of-state physician assistant programs who are also 
providing primary health care services in rural Texas counties designated as 
health professional shortage and/or medically underserved areas. 
No comments were received regarding adoption of the amendments. 
The amendments are adopted under the Health and Safety Code, Chapter 106, 
Subchapter C, which authorizes the Executive Committee of the Center for Rural 
Health Initiatives to adopt rules to administer the Center's program.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803332
Laura Jordan
Executive Director
Center for Rural Health Initiatives
Effective date: March 26, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 479-8891

SUBCHAPTER E.Texas Health Service Corps Program
25 TAC sec.sec.500.201, 500.203, 500.205, 500.207, 500.209, 500.211, 500.213, 
500.215, 500.217
The Center for Rural Health Initiatives (Center) adopts new sec.sec.500.201, 
500.203, 500.205, 500.207, 500.209, 500.211, 500.213, 500.215, and 500.217, 
concerning the Texas Health Service Corps Program, with minor changes to the 
proposed text as published in the December 19, 1997, issue of the Texas Register 
(22 TexReg 12386). The new sections provide stipends to resident physicians in 
Texas primary care residency programs who establish a legal obligation to 
provide physician services in medically underserved areas in Texas. The new 
sections establish the purpose and administration of the program; provide 
definitions; specify the means for disseminating information and the center's 
responsibility to conduct research, collect data and make reports; establish the 
procedures for registering medically underserved areas and resident physicians 
for the program and matching resident physicians with qualifying areas; 
establish the eligibility requirements and selection process for resident 
physicians; and establish the procedures for awarding stipends. 
During the comment period from December 19, 1997, to January 19, 1998, the 
Center received one comment on the proposed rules. This commenter supported the 
proposed rules and made non-substantive, editorial suggestions for improving the 
clarity of the rule text. These editorial clarifications were incorporated into 
the adopted rules. During the comment period, the Center also received an 
inquiry, unrelated to the proposed rules, concerning how a resident physician 
and community already matched would go about applying for the program. The 
proposed rules did not provide instructions for matched physicians and 
communities. To provide this instruction, a new item was inserted within 
sec.500.211(c), and proposed subsection (c) became subsection (d). 
The new sections are adopted under the Health and Safety Code, Chapter 106, 
Subchapter C, which authorizes the Executive Committee of the Center for Rural 
Health Initiatives to adopt rules to administer the Center's programs.

sec.500.201. Purpose, Administration, and Delegation of Powers and Duties. 
(a) The Texas Health Service Corps is a physician recruitment program for 
medically underserved areas in Texas. The purpose of the Texas Health Service 
Corps Program is to encourage physicians trained in the primary care specialties 
to establish and maintain practices in medically underserved areas in Texas. To 
accomplish this goal, the program provides stipends to resident physicians who 
enter into a contract with the Center for Rural Health Initiatives. The contract 
requires the physician, upon completion of residency training, to provide 
services in a medically underserved area of Texas for at least one year for each 
year that the physician receives the stipend. 
(b) The Center for Rural Health Initiatives, or its successor or successors, 
shall administer the Texas Health Service Corps Program. 
(c) The Executive Committee of the Center for Rural Health Initiatives delegates 
to the executive director the necessary powers, duties, and functions to 
administer the Program. 

sec.500.203.Definitions. 
The following words and terms, when used in this subchapter, shall have the 
following meanings, unless the context clearly indicates otherwise:
(1) Center - The Texas Center for Rural Health Initiatives established by the 
Omnibus Health Care Rescue Act passed by the 71st Session of the Texas 
Legislature. 
(2) Executive Committee - The nine member governing body of the Center for Rural 
Health Initiatives appointed by the governor, lieutenant governor and speaker. 
(3) Medically Underserved Community - A community located within a whole county 
HPSA or whole county MUA. 
(4) Primary Care Specialty - A medical specialty in family practice, general 
internal medicine, general pediatric medicine, or general obstetrics and 
gynecology. 
(5) Program - The Texas Health Service Corps Program established within Health 
and Safety Code, Subchapter E, Chapter 106, by the 75th Session of the Texas 
Legislature. 
(6) Resident Physician - A medical graduate of an accredited allopathic or 
osteopathic medical school within the United States of America who is enrolled 
in an accredited residency training program in Texas. 
(7) Rural County - Any county within Texas that is not designated as a 
Metropolitan Statistical Area by the United States Bureau of the Census. 
(8) Service Obligation - A defined period of time during which a physician must 
provide physician services to repay a previous loan, grant, scholarship, or 
stipend. 
(9) Stipend - A maximum payment of $15, 000 per year paid to a resident 
physician selected to participate in the Program. 
(10) Whole County Health Professional Shortage Area (HPSA) - Any whole county in 
Texas recommended by the Texas Department of Health to the Office of Shortage 
Designation, Bureau of Primary Health Care, of the United States Department of 
Health and Human Services, or its successors, as having a shortage of primary 
health care physicians. The degree-of-shortage designations, also determined by 
the United States Department of Health and Human Services, range from groups one 
to four, with one representing the highest degree of shortage and the areas with 
the greatest need for primary care physicians.
(11) Whole County Medically Underserved Area (MUA) - Any whole county in Texas 
identified as being designated as a Medically Underserved Area by the Office of 
Shortage Designation, Bureau of Primary Care, of the United States Department of 
Health and Human Services, or its successors, as an area with a demonstrated 
shortage of personal health services. Areas with the lowest Index of Medical 
Underservice (IMU) score, also determined by the United States Department of 
Health and Human Services, are the most severely medically underserved areas and 
the areas with the greatest need for personal health services. 

sec.500.205. Dissemination of Information, Research, Data Collection, and 
Reports. 
(a) The Center shall disseminate information about the Texas Health Service 
Corps Program to all interested parties. The center shall publish and send 
information about the program to Texas medical schools, Texas primary care 
residency programs, appropriate state agencies, interested physician 
professional associations and,, upon request, to individuals. 
(b) The center shall conduct field research, collect information, and prepare 
statistical and other reports relating to the need for the program.

sec.500.207.Requirements for Registering Medically Underserved Communities. 
(a) A health care entity located in a county designated as a whole county 
medically underserved area (MUA) and/or a whole county health professional 
shortage area (HPSA) is eligible to register to participate in the Program. 
(b) The Center ranks eligible communities for program participation. The Center 
ranks communities as having a greater need for primary care physicians if the 
county in which the community is located is rural. The Center may consider other 
factors in ranking the community, including, but not limited to, factors such as 
the county's MUA score or HPSA degree of shortage designation. The Center 
assigns the most favorable rating to the communities the Center determines to 
have the greatest need for primary care physicians. 
(c) Communities register for the program by completing a Texas Health Service 
Corps Program Community Registration Form, or other form designated by the 
Center, during the annual registration period specified by the Center.
(d) If a community is accepted into the Program and the physician matched with 
the community is either receiving a stipend or serving the resulting stipend 
obligation,, the community is ineligible to re-register for participation until 
the physician has fulfilled the obligation. 

sec.500.209. Requirements for Registering Eligible Resident Physicians. 
(a) A resident physician is eligible to register for participation in the Texas 
Health Service Corps Program if the physician: 
(1) is enrolled in an accredited Texas residency program in a primary care 
specialty; 
(2) is participating in an accredited Texas primary care residency program that 
holds an institutional permit to practice medicine in Texas from the Texas State 
Board of Medical Examiners; 
(3) has not defaulted on any educational loans; and 
(4) does not have a service obligation to any entity; or, 
(5) is a fourth year medical student who will meet the requirements provided in 
paragraphs (l)-(4) of this subsection, by June 30 in the year of application. 
(b) Eligible physicians register for the program by completing a Texas Health 
Service Corps Program Physician Registration Form, or other form designated by 
the Center, during the annual registration period specified by the Center. 
(c) The Center may rank physician applicants by the type of primary care 
specialty the physician has selected or by the number of years remaining to 
complete the residency program. 
(d) A physician receiving assistance under any local, state, or federal 
educational loan repayment or incentive program is ineligible to receive a 
stipend under this program. A physician with any service obligation to any 
entity also is ineligible to receive a stipend. 

sec.500.211.Matching Eligible Communities with Eligible Resident Physicians. 
(a) The Center sends the ranked profiles of all registered resident physicians 
to all the registered communities, and the ranked profiles of all registered 
communities to the registered resident physicians at a time designated annually 
by the Center. 
(b) Upon receipt of the profiles, eligible communities and eligible physicians 
may contact each other to determine if the community is suitable for the 
physician and the physician is suitable for the community. Once a match between 
a community and a physician is made, the community and the physician jointly 
complete a Texas Health Service Corps Program Joint Application and submit it to 
the Center no later than June 30 of each year.
(c) Resident physicians and communities making a match prior to initiating the 
registration process may both jointly register and apply simultaneously. The 
Center will not distribute the ranked profiles of these matched resident 
physicians and communities to the pool of unmatched ranked registered resident 
physicians and communities. 
(d) In July of each year, the Center reviews the joint applications and awards 
the stipends to the resident physicians matched with the communities ranked as 
having the greatest need for a primary care physician. 

sec.500.213.Contractual Requirements for Matched Communities and Resident 
Physicians. 
(a) A resident physician selected to receive a stipend from the Texas Health 
Service Corps Program must enter into a written contract with the Center for 
Rural Health Initiatives before the award is received. The contract between the 
resident physician and the Center for Rural Health Initiatives must specify 
that: 
(1) within 90 days of completion of the residency program for first board 
eligibility, the physician must initiate a medical practice to provide physician 
services, as defined by the contract, in a medically underserved area for one 
year for each year that the physician received the stipend; 
(2) the physician must not discriminate against patients seeking care based on 
their ability to pay or whether payment is made through Medicaid or Medicare; 
(3) the physician must accept Medicare assignment and make every attempt to 
enroll as a provider in the Medicare and Texas Medicaid Programs unless 
enrollment is denied by either the Medicare or Texas Medicaid Programs; 
(4) the physician must cooperate with the Center in its efforts to collect 
information and data relevant to the program; 
(5) the physician must keep the Center informed of all changes in address and 
phone number during the practice obligation period;
(6) if the physician does not provide physician services in the medically 
underserved area, provides the services for less than the required term, or is 
determined ineligible to participate in the program after receiving program 
funds, within 90 days from the date of completion of the residency program, the 
physician is liable to the state for payment of an amount that is a total of: 
(A) the total amount of the stipend the physician has received;
(B) interest on the total amount for the period beginning on the date the 
physician signed the contract and ending on the date the physician repays the 
amount of the stipend computed at a rate equal to the sum of: 
(i) the auction average rate quoted on a bank discount basis for 26-week 
treasury bills issued by the United States government, as published by the 
Federal Reserve Board, for the week preceding the week in which the contract is 
signed; and 
(ii) 5.0%; and 
(iii) the state's reasonable expenses incurred in obtaining payment, including 
reasonable attorney's fees; and 
(7) the center must report a physician whose repayment account is delinquent, or 
who fails to repay his or her cash obligation, to the Texas State Board of 
Medical Examiners for appropriate action; and
(b) The contract must include any and all other provisions determined necessary 
by the Center for the effective and efficient administration of the Program. 

sec.500.215. Awarded Stipends. 
(a) Stipends are awarded beginning with July of the year in which the joint 
application was received, reviewed, and selected for Program participation. The 
Center may renew awards annually, based on the resident physician's submission 
of a noncompetitive renewal application The Center may withdraw a stipend if the 
Center determines the resident physician is no longer eligible to qualify for 
participation in the program. 
(b) The number of stipends awarded annually is determined by the amount of funds 
available for the program each year. 
(c) A physician is not eligible for a stipend for a period longer than is 
ordinarily and customarily required for completion of residency training for 
first board eligibility in the chosen primary care specialty.
(d) The maximum amount of the stipend is $15,000 per year. The Center makes 
stipend payments to the resident physicians on a quarterly basis for the 
previous quarter, beginning in October and followed by payments in January, 
April and July, until the ordinary and customary period required to complete the 
chosen residency has ended. 

sec.500.217.Provision for Effective and Efficient Administration of the Program.
The Executive Director of the Center for Rural Health Initiatives has the 
administrative authority to establish policies if unusual or exceptional 
circumstances arise concerning either eligible communities or eligible 
physicians and those circumstances are not adequately addressed by the rules 
contained within this subchapter. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803333
Laura Jordan
Executive Director
Center for Rural Health Initiatives
Effective date: March 26, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 479-8891

SUBCHAPTER F.Medically Underserved Community-State Matching
Incentive Program
25 TAC sec.sec.500.301, 500.303, 500.305, 500.307, 500.309, 500.311, 500.313, 
500.315, 500.317, 500.319, 500.321, 500.323, 500.325, 500.327
The Center for Rural Health Initiatives (Center) adopts new sec.sec.500.301, 
500.303, 500.305, 500.307, 500.309, 500.311, 500.313, 500.315, 500.317, 500.319, 
500.321, 500.323, 500.325 and 500.327, concerning the Medically Underserved 
Community-State Matching Incentive Program which will provide assistance to 
communities in recruiting primary care physicians to high need areas. Sections 
500.307 and 500.313 are adopted with changes to the proposed text as published 
in the December 19, 1997, issue of the Texas Register (22 TexReg 12388). 
Sections 500.301, 500.303, 500.305, 500.309, 500.311, 500.315, 500.317, 500.319, 
500.321, 500.323, 500.325 and 500.327 are adopted without changes and will not 
be republished.
In 1997 the 75th Legislature adopted Senate Bill 913, which transferred the 
Medically Underserved Community-State Matching Incentive Program to the Center 
from the Texas Department of Health. New Subchapter F is added to comply with 
the statutory provisions of Senate Bill 913. The Texas Board of Health will soon 
consider repeal of 25 TAC sec.sec.39.61 - 39.75 relating to Medically 
Underserved Community - State Matching Incentive Program. The new rules (adopted 
as Subchapter F) are basically the same rules adopted by the Texas Department of 
Health with statutory changes mandated by the 75th Texas Legislature. 
The new sections will implement the Medically Underserved Community-State 
Matching Incentive Program as established by the Health and Safety Code, Chapter 
106, which directs the Center to allocate funds to qualified community groups in 
medically underserved areas to cover certain costs of establishing physicians' 
practices. These sections define the purpose of the program, and the eligibility 
criteria for contributing communities, and participating physicians; establish 
procedures for applying for funds and the prioritization of need among eligible 
applicant communities; establish specifications for matching fund contracts, 
including requirements for community contributions of funds; and specify 
reporting and monitoring requirements. 
The Executive Director of the Center for Rural Health Initiatives has the 
administrative authority to establish policies if unusual or exceptional 
circumstances arise concerning either eligible communities or eligible 
physicians and those circumstances are not adequately addressed by the rules 
contained within this subchapter. 
The Executive Committee reviewed and approved publication of the proposed rules 
for the Medically Underserved Community-State Match Incentive Program at its 
October meeting. During the 30-day comment period, from December 19, 1997, to 
January 19, 1998, the Center received one comment on the proposed rules. The 
commenter made non-substantive, editorial suggestions for improving the clarity 
of the rule text. The editorial clarifications were incorporated into the 
adopted rules. 
The commenter also made one substantive comment regarding sec.500.307(2) 
(relating to Physicians Eligibility Criteria), which states: "have successfully 
completed a primary care residency program approved by the Accreditation Council 
on Graduate Medical Education or the American Osteopathic Association within ten 
years of his or her application to this program;". The commenter proposed 
including a provision that does not limit physician eligibility to those with 
less the ten post-residency years, but allows these types of applicants to be 
given priority consideration. In discussion with Senator Sibley's office, 
sponsor of the bill, the Senator's staff concurs with the proposed modification, 
to allow maximum flexibility with program implementation. Therefore, 
sec.500.307(2) now reads as follows: "have successfully completed a primary care 
residency program approved by the Accreditation Council on Graduate Medical 
Education or the American Osteopathic Association; a physician with less than 
ten post-residency years will be given priority." 
The new sections are adopted under the Health and Safety Code, Chapter 106, 
Subchapter C, which authorizes the Executive Committee of the Center for Rural 
Health Initiatives to adopt rules to administer the Center's programs. 

sec.500.307. Physician Eligibility Criteria. 
To qualify for participation in this program, a physician must: 
(1) hold a current, unrestricted license as a physician from the Texas State 
Board of Medical Examiners; 
(2) have successfully completed a primary care residency program approved by the 
Accreditation Council on Graduate Medical Education or the American Osteopathic 
Association; a physician with less than ten post-residency years will be given 
priority. 
(3) have contracted with an eligible community (that has made a financial 
commitment of at least the minimum contribution level) to provide primary care 
in the supporting community for at least two years;
(4) have never defaulted on nor currently owe a refund on any state, federal, or 
local student financial aid; 
(5) have authorized a credit check and background check, the results of which 
are satisfactory to the sponsoring community; and 
(6) have never been convicted of a felony.

sec.500.313. Evaluation of Application. 
(a) The Executive Committee of the Center delegates to the executive director 
the necessary powers, duties and functions to administer this program. 
(b) The Center shall review each complete application to determine program 
eligibility, to prioritize community need among applicants, and to make 
recommendations for funding. 
(c) An application in which the physician has less than ten post-residency years 
will be given priority. 
(d) An application which contains false information included to increase the 
likelihood of receiving funding shall be denied consideration for the duration 
of the application period. 
(e) An applicant which has filed bankruptcy is not eligible.
(f) The Center may renegotiate the amount of matching funds to be awarded to any 
applicant. 
(g) The Center may limit award amounts based on the availability of funds. 
(h) The executive director of the Center may waive provisions of these rules if 
necessary to address unusual or exceptional community or physician eligibility 
issues. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803334
Laura Jordan
Executive Director
Center for Rural Health Initiatives
Effective date: March 26, 1998
Proposal publication date: Decmber 19, 1997
For further information, please call: (512) 479-8891

TITLE 28. INSURANCE
PART I. Texas Department of Insurance
CHAPTER 1. General Administration
SUBCHAPTER A. Rules of Practice and Procedure 
Rule Making Procedures
28 TAC sec.1.205
The Texas Department of Insurance adopts an amendment to sec.1.205, concerning 
final action for rule proposals where a hearing or meeting is requested or 
required. The amended section is adopted without changes to the proposed text as 
published in the January 30, 1998, issue of the Texas Register (23 TexReg 717). 
The amendment is necessary to streamline rulemaking procedures within the 
department and to provide greater uniformity. The previous rule could be read to 
require that the Commissioner of Insurance take action on a proposed rule, other 
than a rule proposed under the Government Code, Chapter 2001, at the public 
hearing on the rule rather than taking such proposal under advisement. Numerous 
department rules are proposed under the Insurance Code, Article 5.96, rather 
than under the Government Code, Chapter 2001. The amendment remedies the prior 
rule's language and ensures that full and thorough dialogue and deliberation are 
allowed to take place prior to the time that Article 5.96 rules are adopted. It 
also ensures that a separately noticed and convened public hearing is not 
necessary merely to adopt a proposed Article 5.96 rule which has already been 
the subject of the public hearing and comment process. The amendment will ensure 
that the Commissioner of Insurance may take under advisement, at the conclusion 
of a public hearing, an agency rule other than a rule adopted under the 
Government Code, Chapter 2001. This will eliminate an artificial and unnecessary 
distinction between rules adopted under the Government Code and those adopted 
under the Insurance Code, Article 5.96 and will also eliminate delay in the 
rulemaking process. 
No comments were received regarding adoption of this amendment. 
The amendment is adopted under the Insurance Code, Article 1.03A. Article 1.03A 
provides that the Commissioner of Insurance may adopt rules and regulations to 
execute the duties and functions of the Texas Department of Insurance as 
authorized by statute. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803398
Caroline Scott
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 29, 1998
Proposal publication date: January 30, 1998
For further information, please call: (512) 463-6327

CHAPTER 21. Trade Practices
SUBCHAPTER M. Mandatory Benefit Notice Requirements
28 TAC sec.sec.21.2101-21.2106
The Commissioner of Insurance adopts new Subchapter M, sec.sec.21.2101 - 
21.2106, concerning mandatory benefit notice requirements. Section 21.2103 is 
adopted with one change to the proposed text as published in the January 2, 
1998, issue of the Texas Register (23 TexReg 50). Sections 21.2101, 21.2102, and 
21.2104 - 21.2106 are adopted without changes to the proposed text and will not 
be republished.
These new sections are necessary to implement legislation enacted by the 75th 
Legislature, codified at Texas Insurance Code Articles 21.52G (relating to 
coverage for hospital stays following performance of a mastectomy and certain 
related procedures)(HB 349), 21.53F (relating to coverage of certain tests for 
detection of prostate cancer)(SB 258), and 21.53F (relating to coverage for 
minimum inpatient stay in a health care facility and postdelivery care following 
the birth a of child)(HB 102). Under Insurance Code Article 21.52G, sec.3 (HB 
349), minimum in-patient care for a mastectomy or lymph node dissection is 
required if a health benefit plan includes coverage for the treatment of cancer. 
If a health benefit plan includes diagnostic medical procedures, Insurance Code 
Article 21.53F, sec.3 (SB 258) requires a diagnostic examination for the 
detection of prostate cancer. If a health benefit plan includes coverage for 
maternity or childbirth, Insurance Code Article 21.53F, sec.4 (HB 102) requires 
a minimum in-patient or postdelivery care following the birth. Each of these 
statutes requires that a notice be sent to covered persons notifying them of 
these coverages. This subchapter specifies the requirements for notices to be 
sent to enrollees of health benefit plans, informing the enrollees of benefits 
for in-patient care for mastectomy services, prostate cancer examinations, and 
in-patient care for maternity and childbirth coverage. To accomplish this 
implementation, the rules add a new Subchapter M, in which the contents, timing, 
and format of the required notices are specified. 
The definition of health benefit plan regarding minimum in-patient care for 
maternity and childbirth coverage includes small employer plans. Small employer 
plans are included in the inpatient maternity and childbirth coverage because 
the minimum inpatient maternity stay is required by federal law, pursuant to the 
Newborns' and Mothers' Health Protection Act of 1996, Pub. L. No 104-204, tit. 
VI, sec.sec.601-606. In order to maintain regulatory authority over health 
benefit plans in the State of Texas, the commissioner is required to implement 
the provisions of the Health Insurance Portability and Accessibility Act 
(HIPAA), which was amended to include the Newborns' and Mothers' Health 
Protection Act. Thus, small employer plans are necessarily included in the 
definition of health benefit plan for the inpatient maternity and childbirth 
coverage. 
The definition of health benefit plan regarding prostate cancer examination 
includes large employer plans. Insurance Code Article 21.53F, sec.2(b)(2) (SB 
258) excludes from the definition of health benefit plan those plans that are 
written under Chapter 26 of the Insurance Code. During the same legislative 
session in which SB 258 was passed, Chapter 26 was amended by HB 1212 to add 
large employer plans, whereas previously it had contained only small employer 
plans. A determination has been made that the Legislature, by excluding health 
benefit plans under Chapter 26 from Article 21.53F, sec.2(B)(2) (SB 258), 
intended only to exclude small employer plans from the mandated prostate cancer 
examination coverage. If health benefit plans for both large and small employer 
plans under Chapter 26 were excluded from coverage under Article 21.53F (SB 
258), very few group plans would be included in the prostate cancer examination 
coverage. The Legislature obviously did not intend to mandate prostate cancer 
examination coverage only to exclude most plans from compliance. Rather, the 
Legislature intended to exempt only small employer plans from the coverage 
provided in Article 21.53F (SB 258). 
Section 21.2103 as adopted differs in one respect from the proposed section, 
based on the need to correct a clerical error. In sec.21.2103(b), the department 
has corrected reference to sec.21.2106 of this "article" to reference to 
sec.21.2106 of this "title". 
These sections set forth the specific requirements for the notices required to 
be sent to enrollees. Section 21.2101 states the purpose of the rule and 
identifies by date of issuance or renewal health benefit plans to which the 
sections apply. Section 21.2102 defines the terms used in this subchapter. 
Specifically, health benefit plan is defined as it applies to each specific 
mandated benefit. 
Section 21.2103 provides the circumstances under which a certain notice must be 
delivered. For the in-patient mastectomy and the in-patient maternity and 
childbirth notices, prohibited acts by a carrier must be included. A carrier is 
allowed to use substantially similar language, rather than the forms provided, 
to satisfy this subchapter. Specifically, any dollar limitation placed on the 
inpatient maternity benefit by a carrier providing an indemnity product should 
be disclosed via a substantially similar notice. If a health benefit plan 
provides coverage or benefits that trigger more than one of the mandated 
benefits addressed by this subchapter, the required notices may be combined into 
one notice. 
Section 21.2104 requires that the notices be in at least 10 point type. Section 
21.2105 sets forth the dates by which the required notices must be provided in 
cases of existing health benefit plans, and for new enrollees under new and 
existing health benefit plans, and how the notices are to be delivered. Section 
21.2106 provides forms that satisfy the notice requirement of this subchapter. 
No comments were received on this new subchapter. 
Subchapter M, sec.sec. 21.2101-21.2106 is adopted under the Insurance Code 
Articles 21.52G, sec.5 (relating to coverage for hospital stays following 
performance of a mastectomy and certain related procedures)(HB 349), 21.53F, 
sec.4 (relating to coverage of certain tests for detection of prostate 
cancer)(SB 258), and 21.53F, sec.7 (relating to coverage for minimum inpatient 
stay in health care facility and postdelivery care following birth of child)(HB 
102); the Health Insurance Portability and Accountability Act of 1996 (HIPAA); 
the Newborns' and Mothers' Health Protection Act of 1996, and the Insurance Code 
Articles 26.04, 3.95-15, and 1.03A. The Insurance Code Article 21.52G (HB 349) 
as added by the 75th Legislature, implements mandated coverage for in-patient 
mastectomy coverage. Under the Insurance Code Article 21.52G, sec.5, health 
benefit plans must provide written notice to each enrollee in accordance with 
rules adopted by the commissioner. The Insurance Code Article 21.52F (SB 258), 
as added by the 75th Legislature, implements mandated coverage for prostate 
cancer examination. Under the Insurance Code Article 21.53F, sec.4, health 
benefit plans must provide written notice to each enrollee in accordance with 
rules adopted by the commissioner. The Insurance Code Article 21.52F (HB 102), 
as added by the 75th Legislature, implements mandated coverage for inpatient 
maternity and childbirth benefits. Under the Insurance Code Article 21.53F, 
sec.7, health benefit plans must provide written notice to each enrollee in 
accordance with rules adopted by the commissioner. The minimum requirements of 
federal law for inpatient maternity benefits are contained in HIPAA, as amended 
by the Newborns' and Mothers' Health Protection Act. Inclusion of small employer 
plans in the inpatient maternity and childbirth benefits are necessary to meet 
the minimum requirements of federal law. The Insurance Code Articles 26.04 and 
3.95-15, as amended by the 75th Legislature, instructs the commissioner to adopt 
rules to meet the minimum requirements of federal law and regulations. The 
Insurance Code Article 1.03A provides that the Commissioner of Insurance may 
adopt rules and regulations to execute the duties and functions of the Texas 
Department of Insurance only as authorized by a statute. 

sec.21.2103. Notices. 
(a) Prescribed notices consist of the following: 
(1) For a health benefit plan that provides coverage and/or benefits for the 
treatment of breast cancer, a carrier shall issue a notice which includes the 
language provided in Figure 1 of subsection (b) of sec.21.2106 of this title 
(relating to Forms, Form Number 349 Mastectomy). 
(2) For a health benefit plan that provides coverage and/or benefits for 
diagnostic medical procedures, a carrier shall issue a notice which includes the 
language provided in Figure 2 of subsection (b) of sec.21.2106 of this title 
(relating to Forms, Form Number 258 Prostate).
(3) For a health benefit plan that provides coverage and/or benefits for 
maternity, including benefits for childbirth, a carrier shall issue a notice 
which includes the language provided in Figure 3 of subsection (b) of 
sec.21.2106 of this title (relating to Forms, Form Number 102 Maternity).
(4) If the health benefit plan described in paragraph (3) of this subsection 
includes benefits and/or coverage for in-home postdelivery care, the following 
language, or substantially similar language, shall be inserted immediately 
before the "Prohibitions" portion of the notice language at Figure 3 of 
subsection (b) of sec.21.2106 of this title (relating to Forms): "Since we 
provide in-home postdelivery care, we are not required to provide the minimum 
number of hours outlined above unless (a) the mother's or child's physician 
determines the inpatient care is medically necessary or (b) the mother requests 
the inpatient stay." 
(b) In lieu of the prescribed notices outlined in subsection (a) of this 
section, a carrier may opt to provide notices with substantially similar 
language rather than the notices contained in subsection (b) of sec.21.2106 of 
this title. The substantially similar language must be in a readable and 
understandable format, and must include a clear, complete and accurate 
description of these items in the following order: 
(1) a heading in bold print and all capital letters indicating the information 
in the notice relates to mandated benefits, 
(2) a statement that the notice is being provided to advise the enrollee of the 
appropriate coverage(s)/benefit(s), including the carrier's complete licensed 
name, 
(3) a heading in bold print describing the benefit/coverage being provided, for 
example, Examinations for Detection of Prostate Cancer,
(4) a description of the benefit/coverage for which the notice is being 
provided, 
(5) for the notice required by subsections (a)(1) and (3) of this section, the 
heading "Prohibitions" in bold print, followed by a summary of the prohibited 
acts by a carrier in providing the benefit/coverage for which the notice is 
being provided, and 
(6) a statement identifying the carrier, and providing a phone number and 
address to which an enrollee may direct questions regarding the 
coverage(s)/benefit(s) for which the notice is being provided. 
(c) If a health benefit plan provides coverage and/or benefits of more than one 
of the required notices described in subsection (a) of this section, the carrier 
may combine the language of the required notices into one notice. 
(d) If, before the effective date of these rules, a carrier has provided 
notice(s) to its enrollees that contains the information required by the notices 
described in this subchapter, such notices shall be deemed to comply with the 
requirements of this subchapter as to those enrollees.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803399
Caroline Scott
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 29, 1998
Proposal publication date: January 2, 1998
For further information, please call: (512) 463-6327

TITLE 30. ENVIRONMENTAL QUALITY
PART I. Texas Natural Resource Conservation Commission
CHAPTER 70.Enforcement
SUBCHAPTER A.Enforcement Generally
30 TAC sec.70.4
The Texas Natural Resource Conservation Commission (commission) adopts the 
repeal of sec.70.4, concerning Annual Enforcement Report. The repeal is adopted 
without changes to the proposed text as published in the October 3, 1997, issue 
of the Texas Register (22 TexReg 9852). The purpose of the action is to respond 
to recent legislative action and to help make certain internal commission 
operations more efficient. This action is part of the commission's 
implementation of House Bills (HBs) 1133 and 1367, 75th Legislature, 1997.
EXPLANATION OF THE ADOPTED RULE. The repeal removes current sec.70.4, which 
requires the executive director to prepare an annual report of enforcement 
actions for the previous fiscal year. The section was created during the 
commission's initial consolidation of its procedural rules and was derived from 
previous sec.337.10. The commission adopted sec.337.10 under its broad 
rulemaking authority on May 24, 1995. 
Recent legislative action created a specific statutory requirement for the 
compilation and reporting of information on the commission's enforcement 
actions. House Bills 1133 and 1367, 75th Legislature, 1997, added a new 
sec.5.123 to the Texas Water Code, which requires the commission to prepare an 
electronic report on its enforcement actions. The report must describe the 
enforcement actions for each type of regulatory program and include: the number 
of inspections; the number of notices of violations; the number of enforcement 
actions; the type of enforcement actions; the amount of penalties assessed, 
deferred, or collected; and any other information the commission determines is 
relevant. The report must be provided to the governor, lieutenant governor, and 
speaker of the house of representatives. The commission will make the electronic 
report available to the general public via the commission's world wide web site. 
Therefore, because of the new statutory requirement, the commission believes 
that the separate requirements in current sec.70.4 are no longer necessary. In 
addition, the repeal will make the commission's internal processes for 
developing the enforcement report more efficient and result in a report that can 
be more easily provided to the state's leadership and the general public. The 
report will be in an electronic format and it will be easily accessible and 
reproducible to the general public via the world wide web. Wherever possible, 
the commission will ensure that the electronic report contains links to related 
information so that additional information will be readily available. Any 
additional information can still be obtained on a case-by-case basis in 
accordance with the Public Information Act. 
The commission did not prepare a regulatory impact analysis for this rule under 
Texas Government Code, sec.2001.0225. This rule concerns internal agency 
operations and requires no action on the part of regulated entities. Therefore, 
the commission has determined that this rule does not meet the definition of 
major environmental rule, or the applicability requirements, as provided by 
sec.2001.0225. 
TAKINGS IMPACT ASSESSMENT. The commission has prepared a takings impact 
assessment for this rule under Texas Government Code, sec.2007.043. The 
following is a summary of that assessment. The specific purpose of this rule is 
to make agency operations with regard to the development of an annual 
enforcement report more efficient. The rule will substantially advance these 
specific purposes by repealing an unnecessary regulation. Promulgation and 
enforcement of this rule will not burden private real property which is the 
subject of the rule because it concerns commission procedural rules. The 
following exception to the application of Texas Government Code, Chapter 2007, 
applies to this rule: the action imposes no greater burden than is necessary to 
achieve the health and safety purpose. 
COASTAL MANAGEMENT PROGRAM CONSISTENCY REVIEW. The commission has reviewed the 
rule and found that it is neither identified in Coastal Coordination Act 
Implementation Rules, 31 TAC sec.505.11, relating to Actions and Rules Subject 
to the Coastal Management Program (CMP), nor will it affect any 
action/authorization identified in Coastal Coordination Act Implementation 
Rules, 31 TAC sec.505.11. Therefore, the rule is not subject to the CMP. 
HEARING AND COMMENTERS. A public hearing on the proposed rule was held in Austin 
on November 3, 1997. The comment period closed November 3, 1997. An individual 
submitted oral testimony in opposition to the proposal on behalf of the 
following: Clean Water Action; East Texas Community Network; the Environmental 
Defense Fund; Henry, Lowerre, Johnson, Hess & Frederick; and the Texas Center 
for Policy Studies (Henry, Lowerre). No written comments were received. The 
commenter focused on the enforcement related reporting by the commission 
required by HBs 1133 and 1367 and objections to elimination of current 30 TAC 
sec.70.4. 
Henry, Lowerre objected to the statement in the preamble that the proposed 
rulemaking would be a streamlining effort. The commenter specifically noted the 
HBs 1133 and 1367 were not streamlining bills. 
The commission agrees that the 75th Legislature did not consider HBs 1133 and 
1367 to be "streamlining" legislation. However, the statute will have a 
streamlining effect on commission operations because it allows the agency to 
provide the information electronically rather than in hard copy. The commission 
was referring to this impact on operations in the preamble. 
Henry, Lowerre commented that policy decisions are required under HBs 1133 and 
1367 which need to be consistent from year to year. The commenter further stated 
that Texas law requires policy decisions to be made through rulemaking. Finally, 
the commenter stated that any policy decisions should be open to public comment, 
and therefore the commission should not repeal the rule but rather amend it to 
conform with the statute. 
The commission believes that the statute is sufficiently clear with respect to 
the type of information that should be reported and how that information will be 
provided. Therefore, the commission does not believe that specific rules are 
necessary for stating policy concerning the enforcement report. In addition, the 
repeal of sec.70.4 is consistent with the commission's regulatory reform goal of 
eliminating unnecessary rules. As noted, the commission believes that the 
statute is clear with respect to the type of enforcement information that is to 
be reported, and that a separate rule is not necessary. The commission notes 
that the repeal will not result in less information being available from the 
agency. 
Regarding the consistency issue raised by the commenter, the commission believes 
that in order to maintain the reporting consistency necessary for the meaningful 
comparisons required by the statute, the commission must continue to report its 
data in the same manner as it collects the information using existing data 
systems. Therefore, the commission will not change current data collection 
systems or report the information in different program formats than those that 
are currently designed. 
Henry, Lowerre commented that additional enforcement data are kept by the 
commission that should be included in the Annual Enforcement Report. In 
particular, the commenter noted data required to be reported by grant agreements 
with the EPA. 
The commission reports enforcement information to both the legislature and the 
EPA using the same format. That information was made available in the current 
electronic annual report through links on the World Wide Web, and the commission 
intends to include this additional information with the annual report each year. 
In addition, any information not provided as part of, or in conjunction with, 
the annual report can be requested through the Texas Public Information Act. 
STATUTORY AUTHORITY. The repeal is adopted under Texas Water Code, sec.5.103, 
and Texas Health and Safety Code, sec.382.017. Section 5.103 requires the 
commission to adopt rules any time it is repealing any agency statement of 
general applicability that describes its procedure or practice requirements. 
Section 382.017 provides the commission with the authority to adopt its rules. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803328
Kevin McCalla
Director, Legal Division
Texas Natrual Resource Conservation Commission
Effective date: March 26, 1998
Proposal publication date: October 3, 1997
For further information, please call: (512) 239-1966

CHAPTER 330. Municipal Solid Waste
SUBCHAPTER A. General Information
30 TAC sec.330.2
The Texas Natural Resource Conservation Commission (commission) adopts an 
amendment to sec.330.2, concerning Definitions. The amendment is adopted without 
changes to the proposed text as published in the December 5, 1997, issue of the 
Texas Register (22 TexReg 12006) and will not be republished.
EXPLANATION OF ADOPTED RULE. The amendment implements legislative changes to 
Health and Safety Code, sec.361.560(3), regarding the definition of medical 
waste. House Bill 1644, 74th Legislature (1995), excluded from the definition of 
medical waste that medical waste produced on farmland and ranchland as defined 
in Agriculture Code, sec.252.001(6); and House Bill 956, 75th Legislature 
(1997), excluded from the definition those artificial, nonhuman materials 
removed from a patient and requested by the patient, including but not limited 
to orthopedic devices and breast implants. 
FINAL REGULATORY IMPACT ANALYSIS. The commission has reviewed the rulemaking in 
light of the regulatory analysis requirements of the Texas Government Code 
sec.2001.0225 and has determined that the rulemaking is not subject to 
sec.2001.0225 because it does not meet the definition of a "major environmental 
rule" as defined in the act, and it does not meet any of the four applicability 
requirements listed in sec.2001.0225(a). No comments on the proposal were 
received. 
TAKINGS IMPACT ASSESSMENT. The commission has prepared a Takings Impact 
Assessment for this rule pursuant to Texas Government Code Annotated 
sec.2007.043. The following is a summary of that assessment. The specific 
purpose of the rule amendment is to revise the definition of medical waste to 
conform with legislative changes to the definition. The rule amendment 
substantially advances the specific purpose by incorporating the legislative 
changes into the definition of medical waste. Promulgation and enforcement of 
this rule amendment will not affect or create a burden on private real property 
because the amendment is only to revise the definition of medical waste by 
providing some legislatively-mandated exclusions. The exclusions will make the 
existing rule less stringent primarily by reducing the management standards for 
medical waste produced on certain farmlands and ranchlands. 
COASTAL MANAGEMENT PROGRAM CONSISTENCY REVIEW. The commission has reviewed the 
rulemaking and determined that it is not an action that may adversely affect a 
coastal natural resource area that is subject to the Coastal Management Program 
(CMP). The rule does not govern any of the actions that must be subject to the 
goals and policies of the CMP, pursuant to 31 TAC sec.505.11. 
COMMENTS. The proposed rule was published in the December 5, 1997, issue of the 
Texas Register (22 TexReg 12006), with a 30-day comment period which closed on 
January 5, 1998. No comments were received. 
STATUTORY AUTHORITY. The amendment is adopted under Texas Water Code, sec.5.103, 
which provides the commission with the authority to adopt any rules necessary to 
carry out its powers and duties under the Texas Water Code and other laws of the 
State of Texas; and the Solid Waste Disposal Act (Act), Texas Health and Safety 
Code, sec.361.024, which provides the commission with the authority to adopt 
rules consistent with the policy and purposes of the Act, and sec.361.560(3), 
which is the amended definition of medical waste. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 5, 1998.
TRD-9803251
Kevin McCalla
Director, Legal Division
Texas Natural Resource Conservation Commission
Effective date: March 25, 1998
Proposal publication date: December 5, 1997
For further information, please call: (512) 239-1970

TITLE 34. PUBLIC FINANCE
PART I. Comptroller of Public Accounts
CHAPTER 3.Tax Administration
SUBCHAPTER V.Franchise Tax
34 TAC sec.3.545
The Comptroller of Public Accounts adopts an amendment to sec.3.545, concerning 
extensions without changes to the proposed text as published in the October 17, 
1997, issue of the Texas Register (22 TexReg 10249). 
Subsections (a)-(d) of this section have been amended to require a taxpayer to 
base its extension payment on the amount of tax reported as due on the previous 
annual report as of May 14 of the current year, in accordance with Senate Bill 
861, 75th Legislature, 1997. 
No comments were received regarding adoption of the amendment. 
This amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
The amendment implements the Tax Code, sec.171.202.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803382
Martin Cherry
Chief, General Law
Comptroller of Public Accounts
Effective date: March 29, 1998
Proposal publication date: October 17, 1997
For further information, please call: (512) 463-4062

34 TAC sec.3.549
The Comptroller of Public Accounts adopts an amendment to sec.3.549, concerning 
taxable capital: apportionment, with changes to the proposed text as published 
in the December 26, 1997, issue of the Texas Register (22 TexReg 12702). 
Amendments have been made in accordance with legislation enacted by the 75th 
Legislature, 1997. A provision has been added for revenues from trademarks, 
franchises, and licenses. A provision has been added for receipts from services 
performed by a defense readjustment project in a defense economic readjustment 
zone. Also, language has been added for receipts from services similar to that 
found in sec.3.557, concerning earned surplus: apportionment, for purposes of 
providing consistent language in the apportionment rules. 
A correction was made to subsection (e)(30)(B). The use of the word "allocate" 
is incorrect and is being replaced with "apportion." 
No comments were received regarding adoption of the amendment. 
This amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
The amendment implements the Tax Code, sec.171.103 and sec.171.106.

sec.3.549. Taxable Capital: Apportionment.
(a) Effective date. The provisions of this section apply to franchise tax 
reports originally due on or after January 1, 1988. 
(b) Definitions. The following words and terms, when used in this section, shall 
have the following meanings, unless the context clearly indicates otherwise. 
(1) Capital asset-Any asset, other than an investment, which is held for use in 
the production of income, and is subject to depreciation, depletion, or 
amortization. 
(2) Commercial domicile-The principal place from which the trade or business of 
the entity is directed. 
(3) Investment-Any non-cash asset not a capital asset and not held as inventory 
or proceeds from the sale of inventory. 
(4) Generally accepted accounting principles (GAAP) method of accounting-That 
method of accounting defined under sec.3.547 of this title (relating to Taxable 
Capital: Accounting Methods). 
(5) Gross receipts-All revenues that would be recognized annually under a 
generally accepted accounting principles method of accounting, without deduction 
for the cost of property sold, materials used, labor performed, or other costs 
incurred, unless otherwise specifically provided for in this section or the Tax 
Code, Chapter 171. 
(6) Legal domicile-The legal domicile of a corporation is its state of 
incorporation. The legal domicile of a partnership or trust is the principal 
place of business of the partnership or trust. The principal place of business 
of a partnership or trust is the location of its day-to-day operations. Where 
the day-to-day operations are conducted equally or fairly evenly in more than 
one state, the principal place of business is the commercial domicile. 
(7) Location of payor-The legal domicile of the payor.
(8) Revenue-Except as otherwise specifically provided for in this section or the 
Tax Code, Chapter 171, revenue means the value of inflows of economic resources 
from separate legal entities for delivering or producing goods, rendering 
services, or carrying out other activities that constitute the entity's 
operations. 
(c) Apportionment formula. Unless otherwise required under the Tax Code, this 
section, or the rules applicable under the Tax Code, Chapter 171, a 
corporation's taxable capital is apportioned to this state to determine the 
amount of franchise tax due by multiplying the corporation's taxable capital by 
a fraction, the numerator of which is the corporation's gross receipts from 
business done in this state and the denominator of which is the corporation's 
gross receipts from its entire business. Corporations whose taxable capital is 
derived, directly or indirectly, from the sale of services to or on behalf of a 
regulated investment company as defined by the Internal Revenue Code, 
sec.851(a), should refer to the Tax Code, sec.171.106(c), relating to the 
apportionment of gross receipts from services for regulated investment 
companies. 
(d) General rules for reporting gross receipts. 
(1) A corporation filing an annual report must report 12 months of gross 
receipts based on the business done by the corporation during its last 
accounting period that ends in the year before the year in which the tax is due 
or, if there is no such accounting period then, for the accounting period ending 
December 31 of the previous calendar year. 
(2) When a corporation changes its accounting period ending date, gross receipts 
for the 12-month period ending with the new accounting period end must be used 
in calculating the percentage of business done in this state. 
(3) A corporation filing an initial report must report gross receipts based on 
its activities beginning on the day the corporation files its Texas charter or 
is granted a certificate of authority to do business in Texas or the date that a 
foreign corporation begins doing business in Texas, whichever is earlier, and 
ending on the last accounting period ending date that is at least six months 
after the beginning date and at least 60 days before the original due date of 
the initial report; or if there is no such date, then ending on the last day of 
a calendar month that is nearest to the corporation's first year of business in 
Texas. 
(4) A corporation must report gross receipts based solely on its own financial 
condition. Consolidated reporting is prohibited. 
(5) A corporation whose taxable capital is less than $1 million may report its 
gross receipts according to the method used in the corporation's most recent 
federal income tax return originally due on or before the date the franchise tax 
report is originally due. To determine if taxable capital is less than $1 
million, the corporation must apply the accounting methods used in computing 
that federal income tax return unless another method is required under a 
specific provision of this title or the Tax Code, Chapter 171. See sec.3.547 of 
this title (relating to Taxable Capital: Accounting Methods) for information on 
accounting methods or changes in accounting methods.
(6) Close and S corporations should see sec.3.548 of this title (relating to 
Taxable Capital: Close and S Corporations) for information on using the 
accounting methods used on the corporation's federal income tax return. 
(7) A corporation may not change its accounting methods used to calculate gross 
receipts more often than once every four years without express written consent 
of the comptroller, unless the provisions of the Tax Code, sec.171.111, apply 
due to an election under that section. 
(8) Survivors of mergers occurring between the day on which the tax is based and 
January 1 of the year the report is due should refer to sec.3.565 of this title 
(relating to Survivors of Mergers) for information on reporting gross receipts 
for survivors of mergers. 
(9) Revenues coming into the hands of a receiver of a corporation in 
receivership are gross receipts of the corporation. 
(10) Except as otherwise provided under the Tax Code, sec.171.112, a corporation 
is required to use the same accounting methods in computing gross receipts as it 
uses in computing surplus. Accounting methods are those methods of allocating 
the cost, benefit, or expense of an asset or liability to accounting periods. 
(e) Treatment of specific items in computing gross receipts.
(1) Agency reimbursements. Reimbursements from the principal to a corporation 
acting as its agent for charges incurred by the agent on behalf of the 
principal, if the reimbursement does not exceed actual expenses paid to a third 
party, are not gross receipts. 
(2) Bad debt recoveries. Bad debt recoveries are not gross receipts. 
(3) Capital assets and investments. Net gains and losses from sales of 
investments and capital assets must be added together to determine the total 
receipts from such transactions. 
(A) If the combination of net gains and losses results in a net loss, the 
corporation must report zero gross receipts from such transactions.
(B) If the combination of net gains and losses results in a net gain and both 
Texas and out-of-state sales have occurred, a separate calculation of net gains 
and losses on Texas sales must be made. If the Texas net gain is greater than 
the total net gain, the Texas net gain to report equals the total net gain. Net 
gain on sale of intangibles held as capital assets or investments is apportioned 
to the location of the payor. Examples of intangibles include, but are not 
limited to, stocks, bonds, commodities, futures contracts, patents, copyrights, 
licenses, trademarks, franchises, goodwill, and general receivable rights. 
(4) Cash or trade discounts. Cash or trade discounts are not gross receipts. 
(5) Club membership fees. Club membership fees are Texas receipts if the place 
where the club's employees or agents perform the service of providing access to 
the club benefits is in Texas. 
(6) Commissions of stockbrokers. Commissions of a stockbroker for services 
performed in buying and selling on the stock exchanges are apportioned on the 
basis of the percentage of such services performed in Texas and the percentage 
performed in other states. 
(7) Computer services and programs. Receipts from the sale of computer software 
services are apportioned to the location of where the services are performed. 
Receipts from the sale of a computer program (as the term "computer program" is 
defined in sec.3.308 of this title (relating to Computers- Hardware, Software, 
Services and Sales) are receipts from the sale of an intangible asset and are 
apportioned to the legal domicile of the payor. 
(8) Condemnation proceeds. Condemnation proceeds resulting from the taking of 
property, except to the extent the proceeds exceed the net book value of the 
property, are not gross receipts. Amounts exceeding the net book value of the 
property are gross receipts apportioned based on the location of the property 
condemned. 
(9) Debt forgiveness. Revenues realized by the debtor when the creditor releases 
the debtor from indebtedness is a gross receipt apportioned to the legal 
domicile of the creditor. 
(10) Debt retirement. Gains on the retirement of a corporation's own 
indebtedness, such as the purchase by a corporation of its own bonds at a 
discount, are gross receipts and are apportioned to the corporation's state of 
incorporation. 
(11) Demurrage charges. Demurrage charges for the detention or storage of 
equipment used in the transportation of goods and merchandise in interstate 
commerce are Texas receipts to the extent that the detention or storage occurs 
within Texas. 
(12) DISC/FSC. A DISC (Domestic International Sales Corporation) or a FSC 
(Foreign Sales Corporation) is treated the same as any other corporation doing 
business in Texas, except that a commission DISC or FSC may elect to use the 
percentage of Texas business of its parent which does business in Texas. 
Receipts from the sale of tangible personal property by a corporation to a DISC 
or FSC located in Texas are not Texas receipts if the tangible personal property 
flows uninterrupted from the selling corporation to a foreign purchaser outside 
of Texas. If a DISC or FSC assembles, packages, repackages, modifies, stores, or 
otherwise takes physical delivery of tangible personal property in Texas, the 
receipts from the sale of the tangible personal property are Texas receipts to 
the selling corporation. 
(13) Dividends and interest. 
(A) Dividends and/or interest received from a corporation are apportioned to the 
state of incorporation of the payor. 
(B) Dividends and/or interest received from a national bank are apportioned to 
Texas if the bank's principal place of business is in Texas. See the Tax Code, 
sec.171.1031, concerning apportionment of dividends and/or interest received by 
banking corporations and savings and loan associations.
(C) Dividends and/or interest received from the United States Treasury on United 
States government debt instruments are not Texas receipts, but are receipts 
everywhere. 
(D) Dividends and/or interest received from Government National Mortgage 
Association (GNMA), Federal National Mortgage Association (FNMA), and Federal 
Home Loan Mortgage Corporation (FHLMC) mortgage-backed securities or 
certificates are apportioned based on the location of the payor. When the payor 
cannot be determined, 15.78% of the interest or dividend will be considered a 
Texas receipt. 
(E) Dividends and/or interest from any other source are apportioned to the legal 
domicile of the payor. 
(F) Dividends in excess of the payor's accumulated earnings since acquisition or 
origination (liquidating dividends) are considered a return of capital and are 
not gross receipts to the receiving corporation.
(14) Equity earnings. Equity earnings of a subsidiary or investee corporation 
are not gross receipts to the receiving corporation.
(15) Exchanges of property. Exchange agreements for the exchange of real or 
personal property held for sale in the ordinary course of business for similar 
property to be held for the same purpose do not constitute gross receipts. 
(16) Purchase discounts and allowances. Returns, discounts, and allowances 
granted to a purchaser are not gross receipts to the purchaser even if refunds 
are given in cash. 
(17) Federal enclave. All receipts from a corporation's sales, services, leases, 
or other business activities transacted on a federal enclave located in Texas 
are Texas receipts unless otherwise excepted. 
(18) Foreign dividend gross-ups. Foreign dividend gross-ups permitted under the 
Internal Revenue Code are not gross receipts. 
(19) Freight charges. Reimbursements to the seller from the customer for freight 
charges paid to a third party for goods and merchandise shipped to a customer 
are not gross receipts when the charges are entered as a separate item on the 
sales invoice, if the reimbursement does not exceed actual expenses paid to a 
third party. 
(20) Health care supplies and food. Deductions from Texas receipts for sales of 
health care supplies and food exempted from sales and use tax by the Tax Code, 
sec.151.313 or sec.151.314(a), will be allowed only for the initial sale of 
items shipped from a location outside Texas directly to a purchaser in Texas. 
The deduction does not apply when the manufacturer ships the items from outside 
Texas to an outlet or storage facility in Texas and later sells them. 
(21) Insurance proceeds. 
(A) Business interruption insurance proceeds are gross receipts when the 
proceeds are to replace lost net profits, and are apportioned to the legal 
domicile of the payor of the proceeds. 
(B) Fire and casualty insurance proceeds in excess of the net book value of the 
damaged or destroyed property are gross receipts and are apportioned to the 
location of the damaged or destroyed property. 
(C) Any gain resulting from life insurance proceeds paid on the death of a 
corporate officer or other key personnel is a gross receipt and is apportioned 
to the legal domicile of the payor of the proceeds. 
(22) Intercorporate expense allocations. Expense allocations by a corporation 
among one or more related corporations (other than allocations of income taxes 
for consolidated return purposes), whether labeled as management fees, 
administrative overhead, interest, or accounting and legal services, are gross 
receipts to the parent corporation regardless of whether cash is actually 
received from the subsidiaries or related corporations, unless an agency 
relationship exists. 
(23) Intercorporate receipts. Receipts from intercorporate sales, leases, and 
charges for services rendered between a parent and subsidiary, or between 
related corporations are gross receipts to the corporation which makes the sale, 
lease, or renders the service. 
(24) Intercorporate tax allocations. Allocations by a parent or holding company 
among its subsidiaries of income tax liability for the purposes of filing a 
consolidated return are not gross receipts to the parent or holding company. 
(25) Leases and subleases. 
(A) Receipts from the lease or sublease of real property are apportioned to the 
location of the property. 
(B) Receipts from the lease or sublease of tangible personal property are 
apportioned to the location of the property. If the property is in Texas only 
part of the year, lease payments are apportioned based on the number of days 
spent at the respective locations. If the amount of receipts due under the lease 
is based on mileage, then the apportionment is based on the number of miles in 
Texas divided by the number of miles everywhere. 
(C) When a lump sum is charged for property leased or subleased but only a 
portion of which is in Texas, the apportionment of receipts is based on the 
rental value of each item of property. If the rental value of each item cannot 
be determined, the apportionment is based on the cost of each item to the lessor 
(or sublessor). 
(D) Receipts from the lease or sublease of a vessel engaging in commerce are 
apportioned to Texas based on the number of days engaged in commerce in Texas 
waters divided by the number of days engaged in commerce everywhere. 
(E) If a lease, sublease, or rental of real or tangible personal property is 
treated as a sale under GAAP, the receipts from the transaction are apportioned 
in the same manner as a sale. Any portion of the payments designated as interest 
by the contracting parties is interest receipts. 
(26) Litigation awards. Revenues realized from litigation awards are gross 
receipts with the following exception. Those litigation awards consisting of a 
recovery of compensatory damages for fire or other casualty losses on property 
are gross receipts to the extent the recovery exceeds the net book value of the 
property. Litigation awards are apportioned to the legal domicile of the payor 
of the proceeds provided that a litigation award for receipts that are otherwise 
subject to a specific apportionment rule is subject to the specific rule. For 
example, if a vendor sued to recover on the sales of goods in Texas to a 
Delaware corporation, a judgment for the amount of the sales would not convert 
the receipts from Texas receipts to Delaware receipts. Subsection (f)(2) and (7) 
of this section is controlling for judgments, compromises, or settlements 
related to natural gas production. 
(27) Loan principal. The principal of a loan received or repaid is not a gross 
receipt. 
(28) Newspapers. All revenues, including out-of-state advertisements, of a 
newspaper transacting its primary business activities within Texas constitute 
Texas receipts, except revenues from the sale of newspapers outside Texas. 
(29) Partnerships and joint ventures. 
(A) Receipts reflecting the corporation's share of the net profit from a 
partnership or joint venture, for partnership or joint venture periods ending 
during the 12 months ending on the date upon which the tax is based, are 
apportioned to the principal place of business of the partnership or joint 
venture. A partnership's principal place of business is the location of its day-
to-day operations. Effective for reports originally due on or after January 1, 
1992, where a partnership's day-to-day operations are conducted equally or 
fairly evenly in more than one state, then its principal place of business is 
its commercial domicile. If the corporation's share is a loss, there are zero 
receipts from the partnership or joint venture. 
(B) The corporation's share of the gross receipts of a partnership or joint 
venture may be used as gross receipts if allowed as revenue under GAAP. The 
receipts must be apportioned based on normal apportionment rules (e.g., location 
of payor for dividends and interest, place where service is performed, etc.) as 
though the partnership did not exist and the receipts passed through it directly 
to the corporation. This method is not allowed for corporations using the 
federal income tax method. 
(30) Patents, copyrights, and other intangibles.
(A) Receipts from the use of intangible rights. 
(i) Revenues from a patent are included in Texas receipts to the extent the 
patent is utilized in production, fabrication, manufacturing, or other 
processing in Texas. 
(ii) Revenues from a copyright are included in Texas receipts to the extent the 
copyright is utilized in printing or other publication in Texas. 
(iii) For reports due prior to January 1, 1998, revenues received by the owner 
of a trademark, franchise, and license are apportioned to the location of payor. 
For reports due on or after January 1, 1998, revenues received by the owner of a 
trademark, franchise, or license are included in Texas receipts to the extent 
used in Texas. In regard to the sale/licensing of computer programs, paragraph 
(7) of this subsection is controlling. 
(B) Sales. Sales of intangibles are apportioned based on the location of payor. 
(31) Radio/television. All revenues of a radio or television operation which 
broadcasts or transmits from stations in Texas constitute Texas receipts, even 
though some of the listening or viewing audiences are outside Texas, except 
revenues from programs filmed or otherwise developed by a station in Texas which 
are sold or leased to the national media for broadcasting or transmitting by the 
national media. 
(32) Real property. Receipts from the sale, lease, or sublease of real property 
are apportioned to the location of the property.
(33) Regulatory agency. Temporary or bonded rate increases of a public utility 
corporation are gross receipts. 
(34) Sales and services. When a transaction involves elements of both a sale of 
tangible personal property and a service, but there is no documentation showing 
separate charges for the sale and service elements, the comptroller may 
determine the amounts allocable to each based on fair values or on the basis of 
any available evidence. 
(35) Sales returns and allowances. Sales returns and allowances allowed by a 
seller are not gross receipts. They are allowed as a reduction of gross 
receipts. 
(36) Sales taxes. State or local sales taxes collected by a seller are not gross 
receipts when the tax is imposed on the customer. However, discounts on sales 
taxes allowed a seller do constitute gross receipts to the seller. 
(37) Service procurement. Receipts for the procurement of services are 
apportioned to the place where the service procurement is performed. 
(38) Services. Service receipts are apportioned to the location where the 
service is performed. If services are performed inside and outside Texas, such 
receipts are Texas receipts on the basis of the fair value of the services 
rendered in Texas. Corporations that have taxable capital that is derived, 
directly or indirectly, from the sale of services to or on behalf of a regulated 
investment company should refer to the Tax Code, sec.171.106(c), for information 
on apportionment of such taxable capital. Receipts from services performed by a 
defense readjustment project in a defense economic readjustment zone are not 
Texas receipts. 
(39) Stocks. Receipts from the sale of securities are apportioned based on the 
location of payor. When securities are sold over a stock exchange and the buyer 
cannot be determined, 6.5% of the net gain (or gross sales price, if the 
securities were inventory) is a Texas receipt. Receipts from the issuance by a 
corporation of its capital stock, are not gross receipts. 
(40) Subsidies/grants. Subsidies or grants received by a corporation from a 
governmental agency are gross receipts, except when the funds are required to be 
expended dollar for dollar (i.e., passed through) to third parties on behalf of 
the agency. Receipts from a governmental subsidy or grant are apportioned in the 
same manner as the item to which the subsidy/grant was attributed. For example, 
if a corporation qualifies for a grant to conduct research for the government, 
the receipts from that grant would be considered receipts from a service and 
would be apportioned to the location where the research is performed. 
(41) Tangible personal property. Examples of transactions involving the sale of 
tangible personal property and which result in Texas receipts include, but are 
not limited to, the following: 
(A) the sale of tangible personal property which is delivered in Texas to a 
purchaser. Delivery is complete upon transfer of possession or control of the 
property to the purchaser, an employee of the purchaser, or to transportation 
vehicles leased or owned by the purchaser. F.O.B. point, location of title 
passage, or other conditions of the sale are not relevant to the determination 
of Texas gross receipts; 
(B) the sale of tangible personal property delivered in Texas to an employee or 
transportation agent of an out-of-state purchaser. A carrier is an employee or 
agent of the purchaser if the carrier is under the supervision and control of 
the purchaser with respect to the manner in which goods are transported; 
(C) the sale and delivery in Texas of tangible personal property which is loaded 
into a barge, truck, airplane, vessel, tanker, or any other means of conveyance 
leased and controlled or owned by the purchaser of the property. The sale of 
tangible personal property which is delivered in Texas to an independent 
contract carrier, common carrier, or freight forwarder hired by a purchaser of 
the property results only in gross receipts everywhere if the carrier transports 
or forwards the property to the purchaser outside this state; 
(D) the sale of tangible personal property with delivery to a common carrier 
outside Texas and shipment by that common carrier to a purchaser in Texas; 
(E) the sale of oil or gas to an interstate pipeline company, with delivery in 
Texas; 
(F) the sale of tangible personal property which is delivered in Texas to a 
warehouse or other storage facility owned or leased by the purchaser;
(G) the sale of tangible personal property which is delivered to and stored in a 
warehouse or other storage facility in Texas at the purchaser's request, as 
opposed to a necessary delay in transit, even though the property is 
subsequently shipped outside Texas; 
(H) the drop shipment of tangible personal property in Texas. A drop shipment is 
a shipment of tangible personal property from a seller directly to a purchaser's 
customer, at the request of the purchaser, without passing through the hands of 
the purchaser. This results in Texas gross receipts for the seller and the 
purchaser; 
(I) sales to which the throwback rule applies. For reports due on or after 
October 2, 1984, each sale of tangible personal property shipped from this state 
to a purchaser in another state in which the seller is not subject to taxation 
is thrown back to Texas as a Texas receipt (i.e., the throwback rule). This 
subparagraph will control if it conflicts with any other provision of this rule. 
Another state means a state of the United States, the District of Columbia, 
Puerto Rico, or any territory or possession of the United States. Subject to 
taxation means constitutional nexus. The seller need not pay tax to the other 
state; it only has to have enough contact with the other state that the other 
state could tax the seller. If the seller is doing business, has a certificate 
of authority, or is incorporated in the other state, the seller is subject to 
taxation in that state. Voluntarily collecting or paying tax to another state, 
by itself, is not enough contact to make sales to the other state non-Texas 
receipts. A corporation which performs any of the activities listed in 
sec.3.546(c) of this title (relating to Taxable Capital: Nexus) for taxation of 
taxable capital in the other state will be considered subject to taxation in the 
other state. The selling corporation must have nexus in the other state during 
the accounting year upon which the tax is based. The corporation has the burden 
of proving it is subject to taxation in the other state. 
(42) Tax refunds. Tax refunds are not gross receipts. However, interest awarded 
on tax refunds are gross receipts. 
(43) Telephone company receipts. All receipts for calls of a telephone company 
in Texas are Texas receipts, except for receipts from interstate calls. 
(44) Transactions in Texas waters. Receipts from transactions occurring in Texas 
waters are Texas receipts. The dividing line between Texas waters and 
international waters is established at 10.359 statute miles or nine nautical 
miles from the Texas coastline. 
(45) Transportation companies. Transportation companies must report Texas 
receipts from transportation services by: 
(A) including receipts derived from the transportation of goods or passengers in 
intrastate commerce; or 
(B) multiplying total transportation receipts by total mileage in transporting 
goods and passengers picked up and delivered within Texas (in intrastate 
commerce) divided by total mileage everywhere. 
(46) Unrealized gains and losses. Unrealized gains and losses recorded on 
foreign currency transactions or translations, marketable security investments 
or reclassification of marketable security investments, are not gross receipts. 
(47) Trusts. Distributions to the beneficiaries of a trust are apportioned based 
on the legal domicile of the trust. See subsection (b)(6) of this section 
regarding the legal domicile of a trust. 
(f) Natural gas production. 
(1) Revenues realized by a producer of gas that relate to the price of gas 
produced and taken by the purchaser pursuant to the terms of a contract for the 
sale of gas are gross receipts and are apportioned to Texas if the gas is 
delivered in Texas. 
(2) Revenues realized by a producer of gas in connection with any judgment, 
compromise, or settlement agreement relating to the recovery of the contract 
price of gas produced are gross receipts and are apportioned to Texas to the 
extent the contract specified delivery in Texas. 
(3) Revenues realized by a producer of gas from payments by a purchaser under a 
contract for the sale or purchase of gas to be produced, if the gas is never 
produced and delivered to the purchaser pursuant to that contract, are gross 
receipts and are apportioned to the legal domicile of the payor. 
(4) Revenues realized by a producer of gas from breach of contract litigation 
awards, reimbursements for litigation-related expenses (e.g., documented 
attorney's fees or court costs), or interest (agreed upon by the parties, 
determined by or from the records of the producer, or an amount ordered by a 
court) are gross receipts and are apportioned to the legal domicile of the 
payor. 
(5) Revenues realized by a producer of gas for payments made by a purchaser to 
terminate a gas purchase contract are gross receipts and are apportioned to the 
legal domicile of the payor. 
(6) Revenues realized by a producer of gas for payments made by a purchaser to 
amend any provision in the gas purchase contract are gross receipts and are 
apportioned to the legal domicile of the payor. Any revenues realized by a 
producer as a result of an amended provision affecting the price of the gas sold 
will be recognized as receipts from the sales of gas and apportioned to Texas if 
delivery is in Texas. 
(7) Those revenues realized by a producer of gas from a judgment, compromise, or 
settlement among several claims, where there was a pricing dispute and any other 
issue associated with a gas sales/purchase contract, that is less than the full 
amount sought by the producer shall be prorated based upon the documented 
amounts due under the contract for each issue according to the records of the 
producer. 
(A) Those revenues attributed to pricing disputes or otherwise attributed to 
sales of gas shall be apportioned in accordance with paragraphs (1) and (2) of 
this subsection. For example, a settlement of $100,000 for a pricing dispute of 
$25,000 and an amount of $225,000 for failure to pay for gas not taken, would 
result in receipts of $10,000 from gas sales (100,000 x 25,000/250,000) and 
receipts from other business of $90,000 (100,000 x 225,000/250,000).
(B) For purposes of this subsection, records of the producer shall include, but 
are not limited to: 
(i) the contracts and settlement agreements; 
(ii) accounting entries, including entries reflecting receivables and payables; 
(iii) court pleadings; and 
(iv) worksheets, including calculations reflecting settlement amounts. Whenever 
it is necessary to determine receipts from sales of gas under this subsection, 
the greatest weight shall be given to the records in the order they are listed 
in this subparagraph. This agency hereby certifies that the rule as adopted has 
been reviewed by legal counsel and found to be a valid exercise of the agency's 
legal authority. Issued in Austin, Texas, on 03/09/98. MARTIN E. CHERRY Chief, 
General Law Section Comptroller of Public Accounts 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803384
Martin Cherry
Chief, General Law
Comptroller of Public Accounts
Effective date: March 29, 1998
Proposal publication date: December 26, 1997
For further information, please call: (512) 463-4062

34 TAC sec.3.555
The Comptroller of Public Accounts adopts an amendment to sec.3.555, concerning 
earned surplus: computation with changes to the proposed text as published in 
the October 17, 1997, issue of the Texas Register (22 TexReg 10249).
The amendment reflects changes in the franchise tax enacted by Senate Bill 861, 
75th Legislature, 1997. Subsection (b)(4) provides for an updated definition of 
the Internal Revenue Code. 
No comments were received regarding adoption of the amendment. 
A correction was made to subsection (b)(2) of this section. The word "chapter" 
is being used in place of "section". 
A correction was also made to subsection (h) of this section. Subsection (h) has 
been revised to include a reference to investments in defense economic 
readjustment zones, in accordance with House Bill 226, 75th Legislature, 1997.
This amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
The amendment implements the Tax Code, sec.171.001 et. seq.

sec.3.555.Earned Surplus: Computation.
(a) Effective date. The provisions of this section apply to franchise tax 
reports originally due after January 1, 1992. 
(b) Definitions. The following words and terms, when used in this section, shall 
have the following meanings, unless the context clearly indicates otherwise. 
(1) Business loss-A negative amount after apportionment and allocation but 
before any deductions for solar energy devices under the Tax Code, sec.171.107, 
or investment in an enterprise zone under the Tax Code, sec.171.1015. 
(2) Corporation-An entity subject to franchise tax under the Tax Code, Chapter 
171. 
(3) Dividends from a subsidiary, associate, or affiliate that does not transact 
a substantial portion of its business or maintain a substantial portion of its 
assets in the United States-Dividends treated as gross income from sources 
without the United States under the Internal Revenue Code, sec.862, and 
dividends received from United States corporations that would satisfy the 80% 
foreign business requirements of Internal Revenue Code, sec.861(c)(1). 
(4) Internal Revenue Code- 
(A) For reports originally due on or after January 1,1998, the Internal Revenue 
Code (IRC) of 1986 in effect for the tax year beginning on or after January 1, 
1996, and before January 1, 1997. 
(B) For reports originally due on or after January 1, 1996 and before January 1, 
1998, the Internal Revenue Code of 1986 in effect for the tax year beginning on 
or after January 1, 1994, and before January 1, 1995. 
(C) For reports originally due on or after January 1, 1992, and before January 
1, 1996, the Internal Revenue Code of 1986 in effect for the tax year beginning 
on or after January 1, 1990, and before January 1, 1991 (1990 IRC). 
(D) The franchise tax law requires that the 1990 IRC be used for reports 
originally due prior to January 1, 1996. Because of this requirement, there may 
be differences between federal taxable income reported for federal income tax 
purposes and reportable federal taxable income for franchise tax purposes for 
franchise tax reports originally due prior to 1996. To the extent that such 
differences exist, the 1990 IRC must be used to report the differences for 
reports originally due on or after January 1, 1996. For example, if a 
corporation was denied any portion of an IRC sec.179 deduction on an asset in 
computing taxable earned surplus on a franchise tax report due prior to January 
1, 1996 (because the sec.179 deduction exceeded the $10,000 limit allowed under 
the 1990 IRC), the corporation will be allowed to compute depreciation on the 
asset based on the 1990 IRC (i.e., the corporation may depreciate the asset 
based on the $10,000 sec.179 deduction allowed under the 1990 IRC) for reports 
originally due on or after January 1, 1996. 
(5) Schedule C special deductions-The special deductions allowed in computing 
federal taxable income as listed in column (c) of Form 1120 of the Department of 
the Treasury Internal Revenue Service. Any limitations on Schedule C deductions 
imposed for federal income tax purposes will apply in computing such deductions 
for earned surplus. 
(c) Accounting methods. In computing earned surplus, a corporation is deemed to 
have made an election to use the same methods used in filing its federal income 
tax return. 
(d) Jobs and other credits. A corporation required to reduce or forego 
deductions in order to claim credits for federal income tax purposes cannot 
deduct any amount from reportable federal taxable income based on the reduced or 
foregone deductions. For example: 
(1) if a corporation, in computing federal taxable income, reduces the deduction 
for salaries and wages in order to claim a federal jobs credit, reportable 
federal taxable income is computed without adjustment of the federal deduction 
for salaries and wages; 
(2) if a corporation elects, for federal income tax purposes, to take a foreign 
tax credit instead of a deduction for foreign income or profits taxes, 
reportable federal taxable income is computed without a deduction for such 
taxes. 
(e) Consolidated income tax returns. For the purposes of this section, if a 
corporation joins in filing a consolidated federal income tax return, the 
corporation must compute its earned surplus as though no consolidated federal 
income tax return were filed. Therefore, taxable income, compensation, and other 
items must be computed as though a separate federal income tax return had been 
filed by the corporation. For example, the corporation must eliminate all 
dividends received from members of the consolidated group with which the 
corporation filed a consolidated federal income tax return. No special or overt 
election is required for purposes of this dividend elimination. If the 
comptroller determines that transactions between members of a controlled group 
of corporations are not entered into on an arm's-length basis, the comptroller 
may distribute or allocate income and deductions as necessary to prevent 
franchise tax avoidance provided such adjustments are authorized by applying the 
principles in Internal Revenue Code, sec.482, and regulations thereunder. 
(f) Deductions. In computing earned surplus for each reporting period, a 
corporation may take Schedule C deductions, deductions under the Internal 
Revenue Code, sec.78 or 951-964, and other items deducted in computing earned 
surplus only to the extent each item is included in computing reportable federal 
taxable income. 
(g) Business losses. 
(1) A business loss which is carried forward to a report year must be deducted 
from apportioned plus allocated taxable earned surplus after any allowable 
deductions for enterprise zone projects or solar energy devices.
(2) A business loss which is carried forward to a successive year must be 
applied to the extent of apportioned plus allocated taxable earned surplus in 
that succeeding year. 
(3) A corporation may not convey, assign, or transfer a business loss to another 
entity including, but not limited to, by merger.
(h) Deductions for solar energy devices, investments in enterprise zones, and 
investments in defense economic readjustment zones. 
(1) A corporation that elects to take a deduction from apportioned earned 
surplus for solar energy devices under the Tax Code, sec.171.107, a deduction 
for investments in enterprise zones under the Tax Code, sec.171.1015, or a 
deduction for investments in defense economic readjustment zones, may not claim 
a deduction from taxable capital for such item. 
(2) A deduction from apportioned earned surplus for solar energy devices, 
investments in enterprise zones, or investments in defense economic readjustment 
zones may not reduce apportioned earned surplus below zero. Any unused 
deductions may not be carried over to a subsequent report.
(i) Officer and director compensation. Regarding the add-back of compensation of 
officers or directors of corporations, managers of limited liability companies, 
and directors and executive officers of banking corporations see sec.3.558 of 
this title (relating to Earned Surplus: Officer and Director Compensation). 
(j) Temporary credit on net taxable earned surplus. 
(1) A corporation which qualifies and properly elects a temporary credit from 
net taxable earned surplus under the Tax Code, sec.171.111, may take the credit 
as a reduction of the tax due on earned surplus. See sec.3.559 of this title 
(relating to Earned Surplus: Temporary Credit). 
(2) If the temporary credit is elected on a report, the corporation must pay an 
additional tax of 0.2% of net taxable capital in addition to the franchise tax 
due under the Tax Code, sec.171.002. This additional tax is added to tax 
otherwise due before the provisions of the Tax Code, sec.171.002(d), are 
applied. In other words, if the amount of tax due after adding this additional 
tax is less than $100, then no tax is owed for the reporting period. 
(k) Federal obligations. 
(1) Dividends and interest received from federal obligations are not included in 
earned surplus or gross receipts for earned surplus purposes.
(2) For purposes of this subsection, the term "federal obligations" means: 
(A) stocks and other direct obligations of, and obligations unconditionally 
guaranteed by, the United States government and United States government 
agencies; and 
(B) direct obligations of United States government-sponsored agencies. 
(3) The following words and terms, when used in this subsection, shall have the 
following meanings, unless the context clearly indicates otherwise. 
(A) Obligation-Any bond, debenture, security, mortgage-backed security, pass-
through certificate, or other evidence of indebtedness of the issuing entity. 
The term "obligation" does not include a deposit, a repurchase agreement, a 
loan, a lease, a participation in a loan or pool of loans, a loan collateralized 
by an obligation of an agency of the United States government or a loan 
guaranteed by an agency of the United States government. 
(B) United States government-Any department and ministry of the federal 
government including the 12 Federal Reserve Banks. The definition of United 
States government does not include state or local governments or commercial 
enterprises owned in whole or in part by the United States government. In 
addition, the term does not include local government entities or commercial 
enterprises whose obligations are guaranteed by the United States government.
(C) United States government agency-An instrumentality of the United States 
government whose obligations are fully and explicitly guaranteed as to the 
timely payment of principal and interest by the full faith and credit of the 
United States government. These agencies include the Government National 
Mortgage Association (GNMA), the Veterans Administration (VA), the Federal 
Housing Administration (FHA), the Farmers Home Administration (FmHA), the 
Export-Import Bank (Exim Bank), the Overseas Private Investment Corporation 
(OPIC), the Commodity Credit Corporation (CCC), and the Small Business 
Administration (SBA). 
(D) United States government-sponsored agency-Agencies originally established or 
chartered by the United States government to serve public purposes specified by 
the United States Congress but whose obligations are not explicitly guaranteed 
by the full faith and credit of the United States government. These agencies 
include the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National 
Mortgage Association (FNMA), the Farm Credit System, the Federal Home Loan Bank 
System, and the Student Loan Marketing Association (SLMA).
(l) 52-53 week accounting year end. A corporation which uses a 52-53 week 
accounting year end and has an accounting year ending the first four days of 
January of the year during which the annual report is originally due may use the 
preceding December 31 as the date through which taxable earned surplus is 
computed. 
(m) Allocated taxable earned surplus. See the Tax Code, sec.171.1061, regarding 
the allocation of certain taxable earned surplus to this state.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803381
Martin Cherry
Chief, General Law
Comptroller of Public Accounts
Effective date: March 29, 1998
Proposal publication date: October 17, 1997
For further information, please call: (512) 463-4062

34 TAC sec.3.561
The Comptroller of Public Accounts adopts an amendment to sec.3.561, concerning 
enterprise zones, without changes to the proposed text as published in the 
December 26, 1997, issue of the Texas Register (22 TexReg 12704). 
Updates have been made to some of the examples in the rule. The rule has also 
been amended to cover the franchise tax benefits applicable to defense economic 
readjustment zones. These readjustment zones were created by legislation enacted 
by the 75th Legislature, 1997. Senate Bill 226 provided for reductions to 
apportioned taxable capital and apportioned earned surplus for qualifying 
investments in readjustment zones that are similar to the reductions allowed for 
qualifying investments in enterprise zones. The legislation also allowed 
corporations designated as readjustment projects to exclude from Texas receipts 
a receipt from a service performed in a readjustment zone. Definitions of 
readjustment projects and readjustment zones have been added to the rule. 
References to the Texas Department of Commerce have been changed to the Texas 
Department of Economic Development in accordance with Senate Bill 932 enacted by 
the 75th Legislature, 1997. 
No comments were received regarding adoption of the amendment. 
This amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
The amendment implements the Tax Code, sec.sec. 171.1015, 171.1016, 171.103, and 
171.1032.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803385
Martin Cherry
Chief, General Law
Comptroller of Public Accounts
Effective date: March 29, 1998
Proposal publication date: December 26, 1997
For further information, please call: (512) 463-4062

34 TAC sec.3.568
The Comptroller of Public Accounts adopts an amendment to sec.3.568, concerning 
changes in corporate organization, without changes to the proposed text as 
published in the December 26, 1997, issue of the Texas Register (22 TexReg 
12707). 
The amendment is in response to recent legislation which requires that certain 
entities seeking to dissolve or withdraw from Texas must first obtain from the 
comptroller a certificate that franchise taxes have been paid. The amendment 
also corrects references and citations to other sections and statutes.
No comments were received regarding adoption of the amendment. 
This amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
The amendment implements Senate Bill 555, 75th Legislature, 1997.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803386
Martin Cherry
Chief, General Law
Comptroller of Public Accounts
Effective date: March 29, 1998
Proposal publication date: December 26, 1997
For further information, please call: (512) 463-4062

34 TAC sec.3.575
The Comptroller of Public Accounts adopts an amendment to sec.3.575, concerning 
annual extensions/electronic funds transfer without changes to the proposed text 
as published in the October 17, 1997, issue of the Texas Register (22 TexReg 
10250). 
Subsections (b), (c), (d) and (f) have been amended to require a taxpayer to 
base its extension payment on the amount of tax reported as due on the previous 
annual report as of May 14 of the current year, in accordance with Senate Bill 
861, 75th Legislature, 1997. 
No comments were received regarding adoption of the amendment. 
This amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
The amendment implements the Tax Code, sec.171.202.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803383
Martin Cherry
Chief, General Law
Comptroller of Public Accounts
Effective date: March 29, 1998
Proposal publication date: October 17, 1997
For further information, please call: (512) 463-4062

TITLE 37. PUBLIC SAFETY AND CORRECTIONS
PART XI. Texas Juvenile Probation Commission
CHAPTER 343.Standards for Juvenile Pre-Adjudication Secure Detention Facilities
37 TAC sec.343.8, sec.343.9
The Texas Juvenile Probation Commission adopts an amendments to sec.343.8, 
concerning population in pre-adjudication secure detention facilities, and 
sec.343.9, concerning security and control in juvenile detention facilities. 
Sections 343.8 and sec.343.9 are adopted without changes as published in the 
January 23, 1998 issue of the Texas Register (23 TexReg 529) and will not be 
republished.
The amendments are proposed in an effort to clarify and improve TJPC standards. 
Adoption of these amendments will establish guidelines with respect to exceeding 
rated capacity and steps to be taken in such cases and will establish guidelines 
for coordinating with law enforcement under certain circumstances.
No public comments were received regarding adoption of these amendments.
The amendments are adopted under Texas Human Resource Code, sec.141.042, which 
provides the Texas Juvenile Probation Commission with the authority to adopt 
reasonable rules that provide minimum standards for juvenile boards and that are 
necessary to provide adequate and effective probation services.
No other code or article is affected by the amendment. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803068
Vicki Spriggs
Executive Director
Texas Juvenile Probation Commission
Effective date: March 23, 1998
Proposal publication date: January 23, 1998
For further information, please call: (512) 424-6681

CHAPTER 344.Standards on Juvenile Post-Adjudication Secure
Correctional Facilities
37 TAC sec.344.8
The Texas Juvenile Probation Commission adopts an amendment to sec.344.8 
concerning security and control in secure post-adjudication juvenile residential 
facilities. Section 344.8 is adopted without changes as published in the January 
23, 1998, issue of the Texas Register (23 TexReg 529) and will not be 
republished.
The amendment is proposed in an effort to clarify and improve TJPC standards. 
Adoption of this amendment will establish guidelines regarding security and 
control in secure post-adjudication juvenile residential facilities and 
coordination with law enforcement under certain circumstances. 
No public comments were received regarding adoption of this amendment.
The amendment is adopted under Texas Human Resource Code, sec.141.042, which 
provides the Texas Juvenile Probation Commission with the authority to adopt 
reasonable rules that provide minimum standards for juvenile boards and that are 
necessary to provided adequate and effective probation services.
No other code or article is affected by the amendment. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 3, 1998.
TRD-9803069
Vicki Spriggs
Executive Director
Texas Juvenile Probation Commission
Effective date: March 23, 1998
Proposal publication date: January 23, 1998
For further information, please call: (512) 424-6681

TITLE 40. SOCIAL SERVICES AND ASSISTANCE
PART I. Texas Department of Human Services
CHAPTER 15.Medicaid Eligibility
The Texas Department of Human Services (DHS) adopts amendments to 
sec.sec.15.100, 15.415, 15.435, and 15.455, adopts new sec.15.417 and 
sec.15.430, and adopts the repeal of sec.sec.15.430-15.434 in its Medicaid 
eligibility chapter. The amendment to sec.15.435 and new sec.sec.15.417 and 
15.430 are adopted with changes to the proposed text as published in the 
December 19, 1997, issue of the Texas Register (22 TexReg 12441). The amendments 
to sec.sec.15.100, 15.415, and 15.455, and the repeal of sec.sec.15.430-15.434 
are adopted without changes to the proposed text and will not be republished. 
The amendments and new sections are justified to add long term care Medicaid 
eligibility rules covering transfers of assets and trusts, as required by Public 
Law 103-66. 
The amendments and new sections will function by ensuring that agency rules will 
be in compliance with federal law. 
During the public comment period, DHS received comments from The Arc of Texas, 
The Law Office of Renee C. Lovelace, and the Texas Chapter of the National 
Academy of Elder Law Attorneys. 
A public hearing was held on February 5, 1998, at the request of The Arc of 
Texas. The commenters included two individuals and representatives of the 
following organizations: The Arc of Texas and the Texas Chapter of the National 
Academy of Elder Law Attorneys. A summary of the comments and the department's 
responses follows. 
Comment concerning sec.15.417(f)(1)(C) and (2)(C): Several commenters requested 
a clarification of the treatment of distributions from special needs and pooled 
trusts. 
Response: DHS agrees with their requests and is adding language to 
sec.15.417(f)(1)(C) and sec.15.417(f)(2)(C) to clarify that a disbursement from 
the trust is counted as income to the client only if it would ordinarily be 
counted as income. DHS already defines exclusions of payments used for medical 
and social services in rules on income (sec.15.100 and sec.15.460(b)), so those 
exclusions will not be repeated in sec.15.417; however, DHS will add cross 
references to exclusions involving medical and social services to the trust 
material in its procedural handbook. 
Comment concerning sec.15.417(e)(2): A commenter requested that the rule be 
deleted as it is in conflict with state law. 
Response: The proposed rule was taken directly from the Health Care Financing 
Administration's State Medicaid Manual, which is the federal policy manual for 
the Medicaid program. Therefore, the rule will be adopted as proposed.
Comment concerning sec.15.417(e)(3): A commenter suggested a clarification 
regarding irrevocability of trusts. 
Response: DHS agrees and has added language to clarify that the circumstance 
must occur during the client's lifetime. 
Comment concerning sec.15.417(g)(3): A commenter suggested a clarification 
regarding undue hardship. 
Response: DHS agrees and has added language to clarify that, before a client 
requests a waiver of the trust provisions on the grounds of undue hardship, he 
must make a reasonable effort to recover the assets placed in trust.
Comment concerning sec.15.430(e)(10): A commenter suggested a clarification on 
when a transfer of assets penalty may be assessed. 
Response: DHS agrees and has added language to clarify that a penalty may result 
from any additional transfer of assets that occurs after a client is certified 
for Medicaid. 
Comment concerning sec.15.430(d)(3): The commenter pointed out that the 
exception trusts discussed in sec.15.417(f) are not required to meet the 
"actuarially sound" basis for distributions from "sole benefits" trusts. 
Response: DHS agrees and has added language to sec.15.430(d)(3) to exempt the 
trusts discussed in sec.15.417(f). 
Since the proposal, subsection (r) of sec.15.435 was adopted by federal mandate 
in the December 26, 1997, issue of the Texas Register (22 TexReg 12793). DHS is 
adopting sec.15.435 with changes to include new subsection (r).

SUBCHAPTER A.General Information
40 TAC sec.15.100
The amendment is adopted under the Human Resources Code, Title 2, Chapters 22 
and 32, which authorizes the department to administer public and medical 
assistance programs, and under Texas Government Code sec.531.021, which provides 
the Health and Human Services Commission with the authority to administer 
federal medical assistance funds. 
The amendment implements sec.sec.22.001-22.030 and sec.sec.32.001-32.042 of the 
Human Resources Code.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803388
Glenn Scott
General Counsel, Legal Services
Texas Department of Human Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER D.Resources
40 TAC sec.sec.15.415, 15.417, 15.430, 15.435
The new and amended sections are adopted under the Human Resources Code, Title 
2, Chapters 22 and 32, which authorizes the department to administer public and 
medical assistance programs, and under Texas Government Code sec.531.021, which 
provides the Health and Human Services Commission with the authority to 
administer federal medical assistance funds. 
The sections implement sec.sec.22.001-22.030 and sec.sec.32.001-32.042 of the 
Human Resources Code

sec.15.417.Trusts--August 11, 1993, and After.
(a) Introduction. 
(1) The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66) revised policy 
concerning trusts established on or after August 11, 1993, using the client's 
assets. The trust provisions apply to all Medical Assistance Only (MAO) clients, 
whether institutionalized or community-based. However, the penalty period for 
transfers of assets into irrevocable trusts applies only to institutional care 
and home/community-based waiver services. 
(2) A trust includes any legal instrument, device, or arrangement which may not 
be called a trust under state law, but which is similar to a trust. That is, it 
involves a grantor who transfers property to an individual or entity with 
fiduciary obligations with the intention that it be held, managed, or 
administered by the individual or entity for the benefit of the grantor or 
others. This can include (but is not limited to) escrow accounts, investment 
accounts, pension funds, irrevocable burial trusts, and other similar entities 
managed by an individual or entity with the fiduciary obligations. 
(3) The characteristics of the trust include the following:
(A) the trust was established on or after August 11, 1993;
(B) the client's assets were used to form all or part of the corpus of the 
trust. The policy in this section does not apply to trusts established by a will 
in which the client is the beneficiary; 
(C) the trust was established by: 
(i) the client; 
(ii) the client's spouse; 
(iii) any person, including a court or administrative body, with legal authority 
to act on behalf of or in place of the client or client's spouse; or 
(iv) any person, including a court or administrative body, acting upon the 
direction or the request of the client or the client's spouse.
(4) If the client's assets comprise only part of the corpus, the trust policies 
apply to that portion of corpus consisting of the client's former assets. 
(b) Treatment of trusts. 
(1) The following policy applies to trusts without regard to: 
(A) the purpose for which the trust is established; 
(B) whether the trustee, or similar person or entity, has or exercises any 
discretion under the trust; 
(C) any restrictions on when or whether distributions can be made from the 
trust; or 
(D) any restrictions on the use of distributions from the trust. 
(2) This means that any trust which meets the basic requirements outlined in 
previous sections can be counted in determining eligibility for Medicaid. No 
clause or requirement in the trust, no matter how specifically it applies to 
Medicaid, or other federal or state programs (that is, an exculpatory clause), 
precludes a trust from being considered under the rules of this section. While 
exculpatory clauses, use clauses, trustee discretion, or restrictions on 
distributions do not affect a trust's countability, they do have an impact on 
how the various components of specific trusts are treated. 
(c) Payments from a trust. 
(1) Payments to or on behalf of the client. 
(A) Payments are considered to be made to the client when any amount from the 
trust, including an amount from the corpus or income produced by the corpus, is 
paid directly to the client, or to someone acting on his behalf, such as a 
guardian or legal representative. 
(B) Payments made for the benefit of the client are payments of any sort, 
including an amount from the corpus or income produced by the corpus, paid to 
another entity so that the client derives some benefit from the payment. For 
example, such payments could include purchase of clothing or other items, such 
as a radio or television for the client. Such payments could also include 
payment for services the client may require or care, whether medical or 
personal, that the client may need. Payments to maintain a home would also be 
payments for the benefit of the client. 
(C) A payment to or for the benefit of the client is counted under trust 
provisions only if such a payment is ordinarily counted as income. For example, 
payments made on behalf of a client for medical care are not counted in 
determining income eligibility. Thus, such payments are not counted as income 
under the trust provision. 
(2) Circumstances under which payments can or cannot be made. 
(A) In determining whether payments can or cannot be made from a trust, any 
restrictions on payments, such as use restrictions, exculpatory clauses, or 
limits on trustee discretion, that may be included in the trust must be 
considered. 
(B) When a trust provides, in some manner, that a payment can be made, even 
though that payment may be sometime in the future, the trust is treated as 
providing that payment can be made from the trust. 
(d) Revocable trusts. 
(1) The corpus is an available resource. 
(2) Payments from the corpus or income generated by the corpus, to or for the 
benefit of the client, excluding payments for medical/social services, are 
income. 
(3) Payments, from the corpus or income generated by the corpus, for any other 
purpose are a transfer of assets. 
(e) Irrevocable trusts. 
(1) If there are any circumstances under which payment from an irrevocable trust 
could be made to or for the benefit of the client, then:
(A) the portion of the corpus, or income generated by the corpus, from which 
payment could be made is a countable resource; 
(B) payments made to or for the benefit of the client, except medical and social 
services, are countable income; and 
(C) payments for any other purpose are a transfer of assets.
(2) Although termed irrevocable, a trust which provides that the trust can only 
be modified or terminated by a court is a revocable trust because the client or 
his responsible party can petition the court to amend or terminate the trust. 
(3) Although termed irrevocable, a trust that will terminate if a certain 
circumstance occurs during the lifetime of the client, such as the client 
leaving the nursing facility and returning home, is a revocable trust. 
(4) If there are no circumstances under which payments from some portion or all 
of an irrevocable trust, or income generated by the trust, could be made 
available to a client, then the corpus, or portion of the corpus, and the 
generated income are considered a transfer of assets. The date of transfer is 
the date the trust was established, or if terms of the trust foreclose payment 
to the client at a later date, the date payment is foreclosed to the client. The 
value of the trust, for calculating the penalty period, includes any payments 
made from the trust for whatever purpose, after the date the trust was 
established, or if later, the date payment to the client was foreclosed. If 
funds were added to that portion of the trust after these dates, including 
interest earned by the trust, the addition of those funds is considered to be a 
new transfer of assets, effective on the date the funds are added to the trust. 
Thus, in treating portions of a trust which cannot be paid to a client, the 
value of the transferred amount is no less than its value on the date of 
establishment or foreclosure, and may be greater if funds were added to the 
trust after that date. 
(f) Exception trusts. The Omnibus Budget Reconciliation Act of 1993 identifies 
three types of trusts which are exceptions to the trust provisions stated in 
subsections (a) - (e) of this section. These exceptions apply only to trusts 
established on or after August 11, 1993. 
(1) Special needs trust. 
(A) A special needs trust is a revocable or irrevocable trust established with 
the assets of a client under age 65 who meets the Supplemental Security Income 
(SSI) program's disability criteria. The trust must be established for the 
client's benefit by his parent, grandparent, legal guardian, or a court. The 
trust must include a provision that the state is designated as the residuary 
beneficiary to receive, at the client's death, funds remaining in the trust 
equal to the total amount of Medicaid paid on his behalf. This trust exception 
continues even after a client becomes age 65 if he continues to meet the 
disability criteria for the SSI program. However, additions or augmentations to 
the trust after the client becomes age 65 are a transfer of assets. 
(B) The trust is not counted as a resource. 
(C) Any distribution to or for the benefit of the client from corpus or income 
generated by the trust, except payments for medical and social services, is 
countable income. A payment to or for the benefit of the client is counted under 
trust provisions only if such payment is ordinarily counted as income. 
(D) Transfer-of-assets provisions do not apply when such a trust is established. 
However, if assets are transferred to another party from the corpus or income 
generated by the corpus, then the policy in sec.15.430 of this title (relating 
to Transfer of Assets) applies. 
(2) Pooled trust. 
(A) A pooled trust is a revocable or irrevocable trust containing the assets of 
a client who meets SSI's definition of disability and which satisfies the 
following conditions: 
(i) it was established and is managed by a non-profit association;
(ii) a separate account is maintained for each beneficiary, but, for investment 
and management purposes, the accounts may be pooled; 
(iii) accounts in the trust are established solely for the benefit of clients 
who meet SSI's disability criteria, and the trusts are established by a parent, 
grandparent, or legal guardian of such individuals, by a court, or by the 
disabled individuals themselves; and 
(iv) the trust must include a provision that, to the extent that amounts 
remaining in a client's account at his death are not retained by the trust, the 
state is reimbursed in an amount equal to the total amount Medicaid paid on the 
client's behalf. 
(B) The trust is not counted as a resource. 
(C) Any distribution to or for the benefit of the client from corpus or income 
generated by the trust, except payments for medical and social services, is 
countable income. A payment to or for the benefit of the client is counted under 
trust provisions only if such payment is ordinarily counted as income. 
(D) Transfer-of-assets provisions do not apply when such a trust is established. 
If the client's portion of the assets in the trust are transferred to another 
party, then the policy in sec.15.430 of this title (relating to Transfer of 
Assets) applies. 
(3) Qualified income trust (QIT). 
(A) A QIT is an irrevocable trust established for the benefit of a client and/or 
his spouse, the corpus of which is composed only of his income (including 
accumulated income). The trust must include a provision that the state is 
designated as the residuary beneficiary to receive, at the client's death, funds 
remaining in the trust equal to the total amount of Medicaid paid on his behalf. 
(B) Characteristics are as follows: 
(i) the trust must be irrevocable; 
(ii) the trust must contain only the client's income. If resources are placed in 
the trust, it is not a QIT. However, some banks may require nominal deposits, 
$10 to $20, to establish a financial account to fund the trust. Nominal amounts 
of the client's resources, or another party's funds, may be used to establish 
the account without invalidating the trust or being counted as gift income to 
the client. Once the trust account is established, however, only the client's 
income should be directed to the trust account;
(iii) the income does not have to be directly deposited into the trust. However, 
the income for which the trust is established must be deposited into the trust 
during the month it is received by the client; and
(iv) the trust may be established with any or all sources of a client's income, 
but an entire income source must be deposited. For example, the trust may be 
established for a client's private pension income, but not his Social Security 
income. If a trust is established with only half of the pension income, it is 
not a QIT. 
(C) The trust is not counted as a resource. 
(D) Income directed to the trust is disregarded from countable income when 
testing eligibility for institutional or home/community-based waiver services. 
Income must be directed to the trust account during the calendar month in which 
it is received. Any source of non- exempt/non-excludable income which is not 
directed to the QIT account during the calendar month of receipt is countable 
income for that month. If countable income exceeds the institutional income 
limit, the client is income-ineligible for the month. Applicants may not be 
certified for any calendar month(s) in which they are income- ineligible. For 
active clients, restitution is requested in the amount of the vendor payment for 
any calendar month(s) in which they are income-ineligible. Income directed to 
the trust is not disregarded in determining eligibility for SSI or non-
institutional medical assistance programs (Qualified Medicare Beneficiaries, 
Special Low-Income Medicare Beneficiaries, or 1929(b)). Income paid from the 
trust for applied income for institutional or home/community-based waiver 
services or to purchase other medical services for the client is not countable 
income for eligibility purposes. Income paid from the trust directly to the 
client or otherwise spent for his benefit is countable income for eligibility 
purposes. The client cannot use income from the trust to purchase eligibility 
for any home/community-based waiver. For example, he cannot purchase other 
medical services to fulfill his service plan in order to meet the 95% Medicaid 
cost-ceiling to qualify for the Community Based Alternatives Waiver. If the 
trustee directs to the trust account different sources of income than called for 
in the QIT, but directs entire sources and countable income remains within the 
institutional income limit, eligibility is not affected. 
(E) If the trust instrument requires that the income placed in the trust must be 
paid out of the trust for institutional or home/community-based waiver services 
provided to the client, there is no transfer of assets because the client 
receives fair market value for the income that was placed into the trust. 
However, if there is no such requirement or the income is not used for the 
client's care, transfer of assets provisions apply. The income must be paid out 
by the end of the month following the month funds were placed in the trust to 
avoid transfer provisions. Because transfer-of-assets are not imposed for 
transfers of assets between spouses, QIT provisions that allow payments to or 
for the benefit of the client's spouse do not result in a transfer of assets 
penalty. 
(F) Institutional care applied income and community-based care co-pay 
calculations are based on the client's total income (income directed to the 
trust as well as income not directed to the trust), less the standard applied 
income deductions. Costs of trust administration are not budgeted in the applied 
income calculation; however, legal and accounting fees necessary to maintain the 
trust can be paid from the trust without incurring a transfer penalty. 
(G) The income placed in a QIT will be disregarded for eligibility purposes for 
the first month that the client has a valid signed trust and enough income is 
placed in the account to reduce the remaining income below the eligibility 
limit.
(g) Undue hardship. 
(1) When application of the trust provisions would work an undue hardship, those 
provisions do not apply. Undue hardship exists when application of the trust 
provisions would deprive the client of medical care so that his health or his 
life would be endangered. Undue hardship also exists when application of the 
trust provisions would deprive the client of food, clothing, shelter, or other 
necessities of life. 
(2) Undue hardship does not exist if a client is inconvenienced or must restrict 
his lifestyle but is not at risk of serious deprivation. Undue hardship relates 
to hardship to the client, not relatives or responsible parties of the client. 
(3) Before requesting a waiver of the trust provisions on the grounds of undue 
hardship, the client must make reasonable efforts to recover assets placed in 
trust, such as petitioning the court to dissolve the trust. If a client claims 
undue hardship, DHS must make a decision on the situation as soon as possible 
but within 30 days of receipt of the request for a waiver of the trust policy. 
The client has the right to appeal an adverse decision on undue hardship.

sec.15.430. Transfer of Assets.
(a) Introduction. 
(1) The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) (P.L. 103-66) 
revised policy for transfers of assets that occur on or after August 11, 1993, 
when an uncompensated value remains.
(2) The penalty for transfers of assets affects payments for institutional 
facility services (nursing facility care, intermediate care facility for 
mentally retarded (ICF/MR) vendor services, care in state schools, and care in 
institutions for mental diseases) and eligibility for home/community-based 
waiver services. Both the client and the service provider are notified of the 
penalty period. 
(3) Except for state school clients, institutional clients remain eligible for 
all other Medicaid benefits and continue to receive monthly identification forms 
for the length of the penalty period. For state school clients, Medicaid 
eligibility is denied for any penalty period resulting from an uncompensated 
transfer of assets. This is because the only benefit received is vendor 
payments. 
(4) If a home/community-based waiver client's Medicaid eligibility requires 
receipt of waiver services, then the client is ineligible for all Medicaid 
benefits for the length of the penalty period. Denial of home/community-based 
waiver services based on an uncompensated transfer does not disqualify the 
client for pure Qualified Medicare Beneficiary (QMB) or Specified Low-Income 
Medicare Beneficiary (SLMB) benefits. If all eligibility criteria for QMB or 
SLMB are met, the Texas Department of Human Services (DHS) staff certify the 
client for TP 23 or TP 24, as appropriate. 
(5) Clients in the community who are eligible for Medicaid may transfer assets 
without penalty, provided they do not become institutionalized or apply for 
home/community-based waiver services. Transfers do not affect eligibility for 
QMB or SLMB benefits. 
(6) In spousal situations, if assets are transferred to a third party before 
institutionalization or by the community spouse, DHS does not include the 
uncompensated amount of the transfer in calculating the protected resource 
amount or countable resources upon application for Medicaid.
(b) Definitions. The following words and terms, when used in this chapter, have 
the following meanings unless the context clearly indicates otherwise. 
(1) Client - "Client" includes the client himself, as well as: 
(A) the client's spouse; 
(B) a person, including a court or administrative body, with legal authority to 
act in place of or on behalf of the client or client's spouse; and 
(C) any person, including a court or administrative body, acting at the 
direction or upon the request of the client or the client's spouse. 
(2) Assets - "Assets" include all income and resources of the client and of his 
spouse. This includes income or resources which the client or his spouse is 
entitled to but does not receive because of any action by: 
(A) the client or his spouse; 
(B) a person, including a court or administrative body, with legal authority to 
act in place of or on behalf of the client or his spouse; or 
(C) any person, including a court or administrative body, acting at the 
direction or upon the request of the client or his spouse. Examples of actions 
which would cause income or resources not to be received are: irrevocably 
waiving pension income, waiving the right to receive an inheritance, not 
accepting or accessing injury settlements, and tort settlements which are 
diverted by the defendant into a trust or similar device to be held for the 
benefit of the plaintiff. 
(c) Transfer of income. 
(1) The client may incur a transfer penalty by transferring income on or after 
August 11, 1993. Transfers of income include: 
(A) waiving the right to receive an inheritance even in the month of receipt; 
(B) giving away a lump sum payment even in the month of receipt; or 
(C) irrevocably waiving all or part of federal, state, or private pensions or 
annuities. 
(2) The date of transfer is the date of the actual change in income, if on or 
after August 11, 1993. Interspousal transfers of income are permitted (for 
example, obtaining a court order to have community property pension income paid 
to a community spouse). 
(3) Because revocable waivers of pension benefits can be revoked and the 
benefits reinstated, no uncompensated value is developed, and no transfer-of-
assets penalty is incurred. Such waivers are subject to the utilization-of-
benefits policy, and the client must apply for reinstatement of the full pension 
amount or he is ineligible for all Medicaid benefits.
(d) Exceptions to transfers of assets. 
(1) Transfer of the client's home does not result in a penalty when the title is 
transferred to his: 
(A) spouse, who lives in the home (the transfer penalty applies when the 
community-based spouse transfers the home without full compensation);
(B) minor or disabled child (a disabled child must meet Social Security 
Administration disability criteria); 
(C) sibling who has equity interest in the home and has lived there for at least 
one year before the client's institutionalization; or 
(D) son or daughter (other than a disabled or minor child) who lived in the home 
for at least two years before the client's institutionalization and provided 
care that prevented institutionalization. To substantiate this claim, there must 
be a written statement from the client's attending physician or a professional 
social worker familiar with the case documenting the care provided by the son or 
daughter. 
(2) Assets, including the client's home, may be transferred without resulting in 
a penalty when: 
(A) transferred to the client's spouse or to another for the sole benefit of 
that spouse, or from the client's spouse to another for the sole benefit of that 
spouse; 
(B) transferred to the client's child, or to a trust (including an exception 
trust described in sec.15.417(f) of this title (relating to Trusts--August 11, 
1993, and After)) established solely for the benefit of the client's child. The 
child must meet Social Security Administration disability criteria; 
(C) transferred to a trust, including an exception trust as specified in 
sec.15.417(f) of this title (relating to Trusts--August 11, 1993, and After), 
established for the sole benefit of an individual under 65 years of age who is 
disabled as defined under SSI; 
(D) satisfactory evidence exists that the client intended to dispose of the 
resource at fair market value; 
(E) satisfactory evidence exists that the transfer was exclusively for some 
purpose other than to qualify for Medicaid; 
(F) imposition of a penalty would cause undue hardship; 
(G) a client changes a joint bank account to establish separate accounts to 
reflect correct ownership of and access to funds; or 
(H) a client purchases an irrevocable funeral arrangement or assigns ownership 
of an irrevocable funeral arrangement to a third party.
(3) In determining whether an asset was transferred for the sole benefit of a 
spouse, child, or disabled individual, there must be a written instrument of 
transfer, such as a trust document, which legally binds the parties to a 
specified course of action and which clearly sets out the conditions under which 
the transfer was made, as well as who can benefit from the transfer. The 
instrument or document must provide for the spending of the funds involved for 
the benefit of the individual on a basis that is actuarially sound based on the 
life expectancy of the individual involved. When the instrument or document does 
not so provide, there can be no exemption from the penalty. Exception trusts 
created under sec.15.417(f) of this title (relating to Trusts--August 11, 1993, 
and After) are exempt from the actuarially sound distribution provisions of this 
section. 
(4) The situations in sec.15.430(d)(1)-(3) of this title (relating to Transfer 
of Assets) are the only situations in which an uncompensated transfer does not 
result in a penalty for institutional care or home/community-based waiver 
services. Under the transfer provisions of OBRA 1993, the home is not an 
excluded resource for institutional clients. Therefore, if the home of an 
institutionalized client is transferred, unless the transfer meets one of the 
criteria in sec.15.430(d)(1)-(3) of this title (relating to Transfer of Assets), 
it could affect payment for the client's institutional care. 
(e) Look-back period. 
(1) Penalties may be assessed for transfers occurring on or after the look-back 
date. Penalties cannot be assessed for time frames prior to the look-back 
period. 
(2) The law provides for a 36-month look-back period for most uncompensated 
transfers of assets. However, there is a 60-month look-back period, except for 
exception trusts specified in sec.15.417(f) of this title (relating to Trusts--
August 11, 1993, and After) for: 
(A) any payment from the corpus or income generated by the corpus of a revocable 
trust that is not given to the client; and 
(B) an irrevocable trust, for that portion of the corpus or income earned by the 
corpus, from which no payment could be made to the client under any 
circumstance. The date of the transfer of this type of trust is the later of the 
date the trust is established or the date on which payment is foreclosed to the 
client. 
(3) The look-back period is 36 months (or 60 months) from the later of the date 
of: 
(A) institutionalization; or 
(B) Medicaid application. 
(4) When a client is already a Medicaid recipient before entering a nursing 
facility (NF), intermediate care facility for mentally retarded (ICF-MR), state 
school, or institution for mental diseases (IMD), the look-back period begins 
with institutional entry.
(5) When a client applies and is certified for Medicaid more than once because 
of multiple institutional stays or periods of ineligibility, the look-back date 
is based on the later of the earliest application for Medicaid or the initial 
entry into the facility. 
(6) When a client applies for a home/community-based waiver program, the look-
back period is 36 months or 60 months from the later of the date: 
(A) of application for waiver services (completed, signed application form is 
received in DHS office); or 
(B) after application that the client transfers assets. 
(7) When a client applies for institutional care or a home/community- based 
waiver but is not certified and then reapplies, a new look-back period is based 
on the latest application. 
(8) When a client applies and is certified for a home/community-based waiver 
program, subsequently is denied, and reapplies for waiver services, the initial 
look-back period is still in effect. 
(9) When a look-back period is established, the client is certified, and then 
moves from an institutional program to a home/community-based waiver program or 
vice-versa, the initial look-back period is still in effect. This is true even 
when there is a gap in eligibility periods. 
(10) Any additional transfers of assets that occur after the client is certified 
for Medicaid may be assessed a penalty. 
(f) Calculation of penalty period. 
(1) There is no limit to the penalty period under OBRA 1993. The penalty period 
is determined by dividing the uncompensated value of all assets transferred by 
the average monthly cost of nursing facility care for a private pay patient. 
(2) Fractional remainders are rounded down. This penalty period calculation 
applies to the transfer of both income and resources.
(3) The same penalty period calculation is used for clients who apply for 
home/community-based waiver programs. Penalty periods continue to run if a 
client moves from an institutional program to a home/community-based waiver 
program or vice-versa. 
(4) The penalty period begins the month of transfer. However, a new penalty 
period cannot be imposed while a previous penalty period is still in effect. 
Therefore, the penalty periods assessed under OBRA 1993 rules for multiple 
transfers that overlap run separately but consecutively.
(5) If a penalty period ends and a subsequent transfer occurs, a new penalty 
period is established effective the month of the subsequent transfer. This means 
there may be a gap between penalty periods. 
(6) When multiple transfers occur during the look-back period in such a way that 
the penalty periods for each overlap, the transfers are treated as a single 
event. The uncompensated values are lumped together and divided by the average 
monthly rate for a private-pay patient in a nursing facility. If multiple 
transfers occur in such a way that the penalty periods do not overlap, then the 
transfers are treated as separate events and the penalty periods are calculated 
separately. 
(g) Apportioning penalty periods between spouses. 
(1) When a spouse transfers an asset that results in a penalty for the client, 
the penalty period must, in certain instances, be apportioned between the 
spouses. Both spouses must be eligible for Medicaid institutional services or 
home/community-based waiver services during the same time period for 
apportionment to occur. Apportionment occurs when: 
(A) the spouse is institutionalized and is Medicaid eligible; or 
(B) the spouse would be eligible for home/community-based waiver services; and 
(C) some portion of the penalty against the client remains at the time the above 
conditions are met. 
(2) When one spouse is no longer subject to a penalty (for example, the spouse 
no longer receives institutional or home/community-based waiver services, or the 
spouse dies), the remaining penalty period applicable to both spouses must be 
served by the remaining spouse. 
(h) Return of transferred asset. 
(1) For transfers occurring on or after August 11, 1993, if the transferred 
asset is subsequently returned to the client, the transfer is nullified and the 
penalty period is erased retroactive to the month of transfer. The asset is 
treated as though never transferred, and is excluded or counted, as appropriate, 
in determining the client's eligibility for those months in which the asset was 
in someone else's possession. In spousal cases, if the client/spouse transferred 
an asset before the client entered the nursing facility and the asset is 
returned after institutionalization, the protected resource amount (PRA) must 
also be recalculated. 
(2) For a penalty period to be nullified, all of the asset in question or its 
fair market value must be returned to the client. When only part of an asset or 
its equivalent value is returned, the penalty period can be reduced but not 
eliminated. For example, if only half the value of the asset is returned, the 
penalty period can be reduced by one-half. Payment on the principal of a note is 
the return of a transferred asset and reduces the penalty accordingly. 
(i) Spouse-to-spouse transfers under spousal impoverishment provisions. 
(1) There are no restrictions on interspousal transfers occurring from the date 
of institutionalization to the date of the MAO application; the reason is that 
at application and through-out the initial eligibility period, (12 full months 
following the medical effective date) the combined countable resources of the 
couple are considered in determining eligibility. For the same reason, 
interspousal transfers are also permitted before institutionalization. A penalty 
can result when the community spouse transfers assets to a third party, not for 
the sole benefit of either spouse. 
(2) To remain eligible at the end of the initial eligibility period, the 
institutionalized spouse must reduce resources to which he has access at least 
to the resource limit. If the institutionalized spouse chooses, he may, during 
the initial eligibility period, transfer resources from his name to the 
community spouse's name with no penalty applied to the transfer. The transfer-
of-assets policy applies only to transfer of assets for less than fair market 
value to individuals other than the community spouse if not for the sole benefit 
of that spouse. 
(3) Transfer penalties apply when the community spouse transfers his separate 
property before institutionalization, or after institutionalization but before 
the MAO certification. Transfer penalties apply when the community spouse 
transfers community property both before and after institutionalization, if not 
for the sole benefit of the spouse. 
(j) Compensation. Compensation, in the form of funds, real property, or 
services, must actually have been provided to the client. Future compensation 
does not satisfy the compensation requirement except for annuities which are 
actuarially sound. Compensation, however, may be in the form of payment or 
assumption of a legal debt owed by the individual making the transfer. 
Compensation is not allowed for services that would be normally provided by a 
family member (such as house painting or repairs, mowing lawns, grocery 
shopping, cleaning, laundry, preparing meals, transportation to medical care). 
The client must provide valid receipts for financial expenditures or written 
statements from the people who were paid to provide the services. If the client 
receives additional cash compensation that was not a part of the transfer 
agreement from the party who received the transferred asset, the uncompensated 
value of the transferred asset must be reduced by the amount of the additional 
compensation and as of the date the compensation is received. Cash compensation 
includes direct payments to a third party to meet the client's food, shelter, or 
medical expenses, including nursing facility bills, incurred after the date of 
the transfer. Compensation for a transferred asset must be provided according to 
terms of an agreement established on or before the date of transfer. This 
agreement must have been established exclusively for purposes other than 
obtaining or retaining eligibility for Medicaid services. 
(k) Client participation in transfers. Any action by the client's co- owner(s) 
to eliminate the client's ownership interest or control of a joint asset, with 
or without the client's consent, is a transfer of assets. Placing another 
person's name on an account or other asset that results in limiting the client's 
control of an asset (right to dispose) is a transfer of assets. 
(l) Rebuttal procedures. 
(1) Notification of opportunity for rebuttal. If any amount of uncompensated 
value exists, DHS advises the client or responsible party of the amount of 
uncompensated value and the length of the penalty period. The penalty period 
applies unless the client provides convincing evidence that the disposal was 
solely for some purpose other than to obtain Medicaid services. If, within the 
periods specified in this paragraph, the client or responsible party makes no 
effort to rebut the presumption that the transfer was solely to obtain Medicaid 
services, DHS will assume that the presumption is valid. The rebuttal period is 
five workdays after oral notification (by DHS to the client) and seven workdays 
after written notification. 
(2) Rebuttal of the Presumption. Transfer-of-assets statutes presume that all 
transfers for less than fair market value are to obtain Medicaid services. The 
client or responsible party is responsible for providing convincing evidence 
that the transaction in question was exclusively for some other purpose. To 
rebut the presumption, the client or responsible party must provide a written 
statement and any relevant documentation to substantiate his statement. The 
statement, oral or written, must include at least the following: 
(A) purpose for transferring the asset; 
(B) attempts to dispose of the asset at fair market value;
(C) reason for accepting less than fair market value for the asset; 
(D) means of or plan for self-support after the transfer; and 
(E) relationship to the person to whom the asset was transferred.
(m) Undue Hardship. 
(1) A client may claim undue hardship when imposition of a transfer penalty 
would result in discharge to the community and/or inability to obtain necessary 
medical services so that his life is endangered. Undue hardship also exists when 
imposition of a transfer penalty would deprive the client of food, clothing, 
shelter, or other necessities of life. Undue hardship relates to hardship to the 
client, not the relatives or responsible parties of the client. Undue hardship 
does not exist when imposition of the transfer penalty merely causes the client 
inconvenience or when imposition might restrict his lifestyle but would not put 
him at risk of serious deprivation. 
(2) Undue hardship may exist when any one of the following conditions specified 
in subparagraphs (A) - (C) of this paragraph exists:
(A) location of the receiver of the asset is unknown to the client, or other 
family members, or other interested parties, and the client has no place to 
return in the community and/or receive the care required to meet his needs; 
(B) client can show that physical harm may come as a result of pursuing the 
return of the asset, and the client has no place to return in the community 
and/or receive the care required to meet his needs; or 
(C) receiver of the asset is unwilling to cooperate with the client and DHS, and 
the client has no place to return in the community and/or receive the care 
required to meet his needs. 
(3) If a client claims undue hardship, DHS must make a decision on the situation 
as soon as possible but within 30 days of receipt of the request for a waiver of 
the penalty. The client has the right to appeal an adverse decision on undue 
hardship.

sec.15.435. Liquid Resources.
(a)-(f) (No change.) 
(g) Promissory notes, loans, and property agreements. 
(1) A negotiable, secured promissory note, loan, or property agreement is a 
countable resource. Negotiable means that the owner (lender) has the legal right 
to sell the instrument (for valuable consideration, i.e. cash) to anyone. 
Secured means the instrument identifies a particular asset of at least equal 
value to the face value of the instrument that can be reclaimed by the seller, 
should the instrument fall into default. The owner also possesses a transferable 
interest in the instrument that can be converted to cash and could be subject to 
a transfer of assets penalty if not retained or spent down properly. The terms 
of the loan may be in writing or be an oral agreement. If the agreement is oral, 
the client is responsible for furnishing a statement of facts of the agreement 
signed by the second party. Real property, sold or exchanged for a negotiable 
note, is not a transfer for less than fair market value if the note is secured 
by the original property or by another redeemable resource of equal or greater 
value. A formal written loan agreement is a form of promissory note. 
(2) A negotiable non-secured promissory note, loan, or property agreement is a 
countable resource and a potential transfer of assets. Non-secured means the 
seller has no recourse to reclaim the original or like resource should the 
purchaser cease payments. By not securing the note, the seller has purposefully 
reduced the value of the note. The actual fair market value of the note should 
be determined and the difference between the actual market value of the note and 
the value of the original resource is a transfer of assets for less than fair 
market value. The actual fair market value of the note remains a countable 
resource. Normal transfer of assets rebuttal policy applies. If payments on the 
note are being made, the interest is considered as income. Payment on the 
principal reduces the transfer penalty. The transfer penalty period is 
recalculated at each annual review. If the expiration of the penalty period 
falls before the next scheduled annual review, a special review should be 
scheduled accordingly. 
(3) A non-negotiable promissory note, loan, or property agreement is not a 
countable resource because it has no marketable value. Non- negotiable means the 
seller cannot sell or transfer ownership interest in the note, causing the note 
to have no market value. Therefore, the dollar value of the original resource is 
considered to be transferred for less than fair market value, subject to normal 
transfer of asset penalties, if the instrument was created within the look-back 
period. If payments are being received, the transfer penalty must be reduced 
based on the amount of principal received. Both the principal and interest are 
considered as income in the month received. The transfer penalty period is 
recalculated at each annual review. If the expiration of the penalty period 
falls before the next scheduled annual review, a special review should be 
scheduled accordingly. Normal transfer of assets rebuttal policy applies. 
(4) When determining the value of a negotiable promissory note, loan, or 
property agreement, the outstanding principal balance is the countable value 
unless the client furnishes reliable evidence from a knowledgeable source that 
the instrument cannot be sold for the amount of the outstanding principal 
balance. A knowledgeable source is someone recognized as being in the business 
of purchasing notes. 
(5) If a client furnishes evidence to establish a lesser value on a note, the 
market value established by the knowledgeable source is the countable value of 
the resource. However, if the client/responsible party placed any 
restrictions/encumbrances (such as creating a note with interest due of less 
than the market value at the time the note was made or the note becomes paid in 
full at the time of the client's death), then the difference in the current 
market value and the outstanding principal balance is a transfer of assets for 
less than fair market value. 
(6) Although the seller/client keeps title to the original property until the 
promissory note, loan, or property agreement is paid in full, the original 
property is not counted as a resource (the value of the negotiable instrument is 
the resource). The property is not available while the buyer is making a good 
faith effort (making scheduled payments) in fulfilling the contractual 
obligation. Policy concerning these resources is specified in sec.15.455(e)(7) 
of this title (relating to Unearned Income). 
(7) A note cannot be excluded under the $6,000/6.0% policy specified in 
sec.15.443 of this title (relating to Resources Essential to Self- support (Real 
and Personal Properties). This exclusion applies only to real property, or a 
degree of interest in real property, such as mineral rights. 
(h)-(q) (No change.) 
(r) Payments from Susan Walker vs. Bayer Corporation lawsuit. Effective August 
5, 1997, Public Law 105-33 excludes payments made in the class settlement of the 
Susan Walker vs. Bayer Corporation lawsuit. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803389
Glenn Scott
General Counsel, Legal Services
Texas Department of Human Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

40 TAC sec.sec.15.430-15.434
The repeals are adopted under the Human Resources Code, Title 2, Chapters 22 and 
32, which authorizes the department to administer public and medical assistance 
programs, and under Texas Government Code sec.531.021, which provides the Health 
and Human Services Commission with the authority to administer federal medical 
assistance funds. 
The repeals implement sec.sec.22.001-22.030 and sec.sec.32.001-32.042 of the 
Human Resources Code.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803390
Glenn Scott
General Counsel, Legal Services
Texas Department of Human Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER E.Income
40 TAC sec.15.455
The amendment is adopted under the Human Resources Code, Title 2, Chapters 22 
and 32, which authorizes the department to administer public and medical 
assistance programs, and under Texas Government Code sec.531.021, which provides 
the Health and Human Services Commission with the authority to administer 
federal medical assistance funds. 
The amendment implements sec.sec.22.001-22.030 and sec.sec.32.001-32.042 of the 
Human Resources Code. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803391
Glenn Scott
General Counsel, Legal Services
Texas Department of Human Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

PART XIX. Texas Department of Protective and Regulatory Services
CHAPTER 700.Child Protective Services
SUBCHAPTER E.Intake
40 TAC sec.700.523
The Texas Department of Protective and Regulatory Services (TDPRS) adopts new 
sec.700.523, without changes to the proposed text as published in the December 
19, 1997, issue of the Texas Register (22 TexReg 12452). The amendments to 
sec.700.110 and sec.700.112, which were proposed at the same time, will not be 
adopted. The justification for the new section is to implement Section 75 of SB 
359, state legislation which was enacted in 1997, regarding removal of certain 
investigation information from records. The rule requires timely notification to 
former alleged perpetrators of the right to request removal of role information 
and the provision of a form on which to request removal of the information; 
establishes procedures for requesting removal of role information and states 
that a request that does not meet the procedures will be denied; requires that 
the requester will be informed of the denial in a timely manner; addresses the 
processing of the removal of the information after a properly made request is 
received; and establishes the actions TDPRS will take if a request for release 
of the information is received after a properly made request for removal of role 
information is received.
The new section will function by providing former alleged perpetrators with a 
timely, efficient and adequate response to their requests that certain 
information be removed from department records. 
During the public comment period, TDPRS received a comment from an individual 
stating that it is important to retain the record even though role information 
on one or more former alleged perpetrators has been removed from the record. Due 
to this comment, TDPRS is not adopting the amendments to sec.700.110 and 
sec.700.112. 
The new section is adopted under the Human Resources Code, Title 2, Subtitle D, 
Chapter 40, which provides the department with the authority to propose and 
adopt rules to comply with state law and implement departmental programs; and 
under the Texas Family Code, Chapters 261 and 264, which authorizes the 
department to provide services to alleviate the effects of child abuse and 
neglect. 
The new section implements the Human Resources Code, Chapter 40, and the Texas 
Family Code, Chapters 261 and 264. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803197
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER G.Services for Families
The Texas Department of Protective and Regulatory Services (TDPRS) adopts 
amendments to sec.sec.700.701 and 700.705; adopts the repeal of sec.sec.700.702-
700.704; and adopts new sec.sec.700.702-700.704, without changes to the proposed 
text as published in the December 19, 1997, issue of the Texas Register (22 
TexReg 12453).
The justification for the amendments, repeals, and new sections are to 
reorganize the family preservation and reunification services descriptions. 
Also, moderate family preservation services and two types of intensive 
reunification services are added. 
The amendments, repeals, and new sections will function by ensuring compliance 
with Legislative mandates. 
No comments were received regarding adoption of the amendments, repeals, and new 
sections. 

40 TAC sec.700.701, sec.700.705
The amendments are adopted under the Texas Family Code, Title 5, Chapters 261 
and 264, which authorizes the department to provide services to alleviate the 
effects of child abuse and neglect. The amendments are also adopted under the 
Human Resources Code (HRC), Chapter 40, which describes the services authorized 
to be provided by the Texas Department of Protective and Regulatory Services; 
and authorizes the department to enter into agreements with federal, state, or 
other public or private agencies or individuals to accomplish the purposes of 
the programs authorized by the HRC; and grants authority to contract to that 
department. 
The amendments implement the HRC, Chapter 40, which authorizes the department to 
enter into agreements with federal, state, or other public or private agencies 
or individuals to accomplish the purposes of the programs authorized by the HRC 
and which authorizes the department to enter into contracts as necessary to 
perform any of its powers or duties.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 9, 1998.
TRD-9803340
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

40 TAC sec.sec.700.702-700.704
The repeals are adopted under the Texas Family Code, Title 5, Chapters 261 and 
264, which authorizes the department to provide services to alleviate the 
effects of child abuse and neglect. The repeals are also adopted under the Human 
Resources Code (HRC), Chapter 40, which describes the services authorized to be 
provided by the Texas Department of Protective and Regulatory Services; and 
authorizes the department to enter into agreements with federal, state, or other 
public or private agencies or individuals to accomplish the purposes of the 
programs authorized by the HRC; and grants authority to contract to that 
department. 
The repeals implement the HRC, Chapter 40, which authorizes the department to 
enter into agreements with federal, state, or other public or private agencies 
or individuals to accomplish the purposes of the programs authorized by the HRC 
and which authorizes the department to enter into contracts as necessary to 
perform any of its powers or duties.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803341
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

40 TAC sec.sec.700.702-700.704
The new sections are adopted under the Texas Family Code, Title 5, Chapters 261 
and 264, which authorizes the department to provide services to alleviate the 
effects of child abuse and neglect. The new sections are also adopted under the 
Human Resources Code (HRC), Chapter 40, which describes the services authorized 
to be provided by the Texas Department of Protective and Regulatory Services; 
and authorizes the department to enter into agreements with federal, state, or 
other public or private agencies or individuals to accomplish the purposes of 
the programs authorized by the HRC; and grants authority to contract to that 
department. 
The new sections implement the HRC, Chapter 40, which authorizes the department 
to enter into agreements with federal, state, or other public or private 
agencies or individuals to accomplish the purposes of the programs authorized by 
the HRC and which authorizes the department to enter into contracts as necessary 
to perform any of its powers or duties. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803342
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: May 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER A.Standards for Child-Placing Agencies
40 TAC sec.720.26, sec.720.65
The amendments are adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendments implement the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803198
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

CHAPTER 720.24-Hour Care Licensing
The Texas Department of Protective and Regulatory Services (TDPRS) adopts 
amendments to sec.sec.720.29, 720.31, 720.120, 720.243, 720.305, 720.326, 
720.425, 720.426, and 720.916 in its 24-Hour Care Licensing chapter. The 
amendments to sec.sec.720.243, 720.326, 720.426, and 720.916 are adopted with 
changes to the proposed text published in the December 19, 1997, issue of the 
Texas Register (22 TexReg 12459). The amendments to sec.sec.720.29, 720.31, 
720.120, 720.305, and 720.425 are adopted without changes to the proposed text 
and will not be republished. The justification for the amendments is to (1) 
require child care facilities, child-placing agencies, and foster parents in 
agency homes to inform children, at admission, about the facility's or home's 
policies and practices in the use of restraint; and (2) require child care 
facilities, child-placing agencies, and foster parents in agency homes to 
refrain from monitoring children's mail and telephone calls unless the need for 
such monitoring is specifically established in the child's service or treatment 
plan. If need is established, the amendments require review and re-evaluation of 
the need by professional staff monthly. The Preparation for Adult Living (PAL) 
Youth Leadership Committee recommended the development of these rules. 
The amendments will function by ensuring that children's rights to privacy in 
mail and telephone calls are protected. Such protection fosters children's sense 
of self-esteem and self-worth and contributes to the development of responsible 
independence and autonomy. At the same time, the amendments permit protection 
when there is a need established in the child's service or treatment plan. The 
sections will also ensure that children are aware of the facility's policies and 
practices in using restraint to manage problem behavior. This may help children 
in the management of their own behavior. It will also inform children about the 
limits placed by TDPRS rules and the facility's own policies on the use of 
restraint. This will enable children to better evaluate when a complaint about 
improper use of restraint is appropriate. 
During the comment period, TDPRS received two comments from a caseworker and 
administrator of a child care facility providing basic care. Both comments 
pointed out that child care facilities that do not provide specialized services 
also do not have available a psychiatrist, psychologist, or master's level 
social worker. Restrictions on residents' mail and telephone calls are, as the 
proposal recognizes, sometimes necessary to protect the child and other children 
in care. However, it would be costly for basic care facilities to have to hire 
or contract with specialized staff to make determinations and evaluate 
monitoring plans. It may not be in the best interest of the children to have to 
do so since persons contracted with solely for this service would have little 
knowledge about or contact with a specific child. Sections sec.sec.720.243, 
720.326, 720.426, and 720.916 have been amended to permit determinations in 
independent foster family and foster group homes providing basic care, 
institutions providing basic care, halfway houses, and therapeutic camps by 
staff who meet the qualifications for assessing admissions and developing 
service plans. For emergency shelters, the determinations may be made by the 
licensed administrator.
40 TAC sec.720.29, sec.720.31
The amendments are adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendments implement the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803200
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

40 TAC sec.720.33
The Texas Department of Protective and Regulatory Services (TDPRS) adopts an 
amendment to sec.720.33, with changes to the proposed text as published in the 
November 14, 1997, issue of the Texas Register (22 TexReg 11064). 
The justification for the amendment is to require child-placing agencies that 
cease operation to notify the Texas Department of Health (TDH), Bureau of Vital 
Statistics, and to send closed adoption records to the Bureau or to another 
child-placing agency. 
The amendment will function by ensuring that child-placing agencies that close 
will make appropriate arrangements for the maintenance of adoption records. It 
will also ensure that an adoption agency that closes informs TDH's Bureau of 
Vital Statistics of the closing and of the location of adoption records so the 
Bureau can respond to inquiries from birth families, adoptees, and adoptive 
families. 
Two comments were received regarding adoption of the amendment. TDPRS's adoption 
program specialist and the Office of the Director of the Bureau of Vital 
Statistics commented that the Texas Family Code permits closed adoption agencies 
to transfer records either to the Bureau or to another licensed child-placing 
agency, and requested that TDPRS make it clear that this option is open to the 
agencies. The Bureau also wanted TDPRS to include a provision requiring the 
agencies to notify them of the location of the records. The Bureau will write 
its own rules after the Adoption Registry is transferred to it, and TDPRS wants 
to be consistent with the Bureau's requirements. As a result, the amendment is 
revised to include the option for records and to require notification. 
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements HRC, Chapters 40 and 42. 

sec.720.33. Client Records.
The child-placing agency must: 
(1)-(8) (No change.) 
(9) transfer adoption records to the Texas Department of Health, Bureau of Vital 
Statistics, or to another licensed child-placing agency if the agency ceases 
operation. The transfer must occur within the time frame specified by the 
Bureau. An adoption agency that ceases operation must inform the Bureau, in 
writing, of the closing and of the location of the adoption records. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803206
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: November 14, 1997
For further information, please call: (512) 438-3765

40 TAC sec.720.52
The Texas Department of Protective and Regulatory Services (TDPRS) adopts an 
amendment to sec.720.52, without changes to the proposed text as published in 
the December 19, 1997, issue of the Texas Register (22 TexReg 12463). 
The justification for the amendment is to require child-placing agencies to 
obtain a verified check of the paternity registry as part of exercising due 
diligence to locate an absent parent. 
The amendment will function by ensuring that the rights of birth fathers who 
register with the paternity registry and the validity of adoption actions are 
protected. 
No comments were received regarding adoption of the amendment. 
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42, and the Family Code, 
sec.sec.102.009, 160.251, 160.255, 161.002, and 161.009. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803207
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

40 TAC sec.720.64
The repeal is adopted under the Human Resources Code (HRC), Chapters 40 and 42, 
which describes the department's regulatory and rulemaking authority. 
The repeal implements the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803199
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER B.Standards for Agency Homes
40 TAC sec.720.120
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803201
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

CHAPTER 720.24-Hour Care Licensing
The Texas Department of Protective and Regulatory Services (TDPRS) adopts 
amendments to sec.sec.720.137, 720.207, 720.363, 720.367, 720.370, 720.374, 
720.511, 720.533, and 720.534, in its 24-Hour Care Licensing chapter. The 
amendments to sec.sec.720.363 and 720.367 are adopted with changes to the 
proposed text as published in the December 19, 1997, issue of the Texas Register 
(22 TexReg 12463). The amendments to sec.sec.720.137, 720.207, 720.370, 720.374, 
720.511, 720.533, and 720.534 are adopted without changes to the proposed text 
and will not be republished. The justification for the amendments is to make it 
clear that the use of mechanical restraint is permitted only in institutions 
serving mentally retarded children, residential treatment centers, and foster 
family and foster group homes meeting the requirements to serve children with 
autistic-like behavior and the use of seclusion is only permitted in residential 
treatment centers. The amendments also clarify that, when mechanical restraint 
and seclusion are permitted, authorization from the physician, psychiatrist, or 
psychologist (as specified for the type of facility) must be obtained for use of 
the intervention with the individual child prior to use of mechanical restraint 
or seclusion. The authorization must also include the specific circumstances 
under which the intervention can be used. 
The amendments will function by protecting the health, safety, and well-being of 
children in residential child care from unauthorized use of mechanical restraint 
or seclusion. During the comment period, one internal comment was received 
relating to clarification of sec.sec.720.363(d)(2)(C) and 720.367(c)(2)(C). The 
change was incorporated, adding "in the agency home" to make it clear that if 
restraint is authorized by a child-placing agency for a child, the caregivers 
must be trained before the child is placed in the agency home.
SUBCHAPTER C.Standards for Habilitative and Therapeutic Agency Homes
40 TAC sec.720.137
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803208
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER D.Standards for Habilitative and Therapeutic Family Homes
40 TAC sec.720.207
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803209
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER E.Standards for Foster Family Homes
40 TAC sec.720.243
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42.

sec.720.243. Children's Rights and Privileges.
(a) The foster family must allow privacy for each child. Children's mail 
(including electronic mail), incoming and outgoing, must not be opened or read 
and children's telephone calls, incoming and outgoing, must not be monitored by 
foster parents unless the need for such restriction is documented in the child's 
record. If restrictions continue longer than one month, the restrictions must be 
re-evaluated at least monthly. Reasons for the continued restriction must be 
explained to the child and documented in the child's record. For independent 
foster family homes providing basic care, the need for restrictions must be 
determined and any re-evaluation must be conducted by a person who meets at 
least the qualifications for developing the intake study and the service plan, 
as specified in sec.720.236(b) of this title (relating to Intake Study). For 
independent foster family homes licensed to provide therapeutic or habilitative 
care, the need for restrictions must be determined and any re-evaluation must be 
conducted by a psychiatrist, licensed psychologist, or master's level social 
worker. 
(b)-(i) (No change.) 
(j) Physical holding as a form of restraint shall be used only when necessary to 
protect the child from injury to self or others. The use of physical holding and 
the length of time used shall be recorded in the child's case record. Mechanical 
restraints shall not be used. At admission, the foster parents must explain to 
children able to comprehend the information, the home's policies and practices 
on the use of restraint. The explanation must include who can do a restraint, 
the things caregivers must first try to do to defuse the situation and avoid the 
use of restraint, the kinds of situations in which restraint may be used, the 
types of restraints authorized by the home, what a child needs to do to end the 
use of a restraint, and the way to report an inappropriate restraint. This 
explanation must be documented in the child's record. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803202
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER F.Standards for Foster Group Homes
40 TAC sec.720.305, sec.720.326
The amendments are adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendments implement the HRC, Chapters 40 and 42. 

sec.720.326. Children's Rights and Privileges in an Independent Foster Group 
Home.
(a) The staff of the foster group home must allow privacy for each child. 
Children's mail (including electronic mail), incoming and outgoing, must not be 
opened or read and children's telephone calls, incoming and outgoing, must not 
be monitored by foster parents unless the need for such restriction is 
documented in the child's record. If restrictions continue longer than one 
month, the restrictions must be re-evaluated at least monthly. Reasons for the 
continued restriction must be explained to the child and documented in the 
child's record. For independent foster group homes providing basic care, the 
need for restrictions must be determined and any re-evaluation must be conducted 
by a person who meets at least the qualifications for developing the intake 
study and the service plan specified in sec.720.320(b) of this title (relating 
to Intake Study in the Independent Foster Group Home). For independent foster 
group homes licensed to provide therapeutic or habilitative care, the need for 
restrictions must be determined and any re-evaluation must be conducted by a 
psychiatrist, licensed psychologist, or master's level social worker. 
(b)-(n) (No change.) 
(o) At admission, the foster parents must explain to children able to comprehend 
the information, the home's policies and practices on the use of restraint. The 
explanation must include who can do a restraint, the things caregivers must 
first try to do to defuse the situation and avoid the use of restraint, the 
kinds of situations in which restraint may be used, the types of restraints 
authorized by the home, what a child needs to do to end the use of a restraint, 
and the way to report an inappropriate restraint. This explanation must be 
documented in the child's record. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803203
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER G.Standards for Habilitative and Therapeutic Group Homes Responsible 
to a Child-Placing Agency and for Independent Habilitative and Therapeutic Group 
Homes
40 TAC sec.sec.720.363, 720.367, 720.370, 720.374
The amendments are adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendments implement the HRC, Chapters 40 and 42. 

sec.720.363.Child Care, Development, and Training Standards for Habilitative 
Group Homes Responsible to a Child Placing Agency.
(a)-(c) (No change.) 
(d) Children's Rights. 
(1) (No change.) 
(2) If the agency's policies permit the use of restraint, this must be limited 
to emergency use of personal restraint. 
(A) Restraining measures must not be used as punishment, as a substitute for 
effective treatment or program, or for the caregiver's convenience.
(B) If restraining measures are used, only such force as is reasonable and 
necessary may be used. 
(C) If the agency authorizes the use of restraint for a child, caregivers must 
be trained in the type of restraint authorized before the child is placed in the 
agency home. 
(D) Personal restraint may be used only when a child's behavior endangers 
himself or others. 
(E) The child must be released from personal restraint as soon as he is no 
longer a danger to himself or others. 
(F) Any use of personal restraint must be documented in the child's record, 
including: 
(i) the date and time the caregiver began using the restraint and the name of 
the caregiver using it; 
(ii) a description of the specific behaviors necessitating the use of the 
restraint; 
(iii) the type of restraint used and the length of time the child was 
restrained; and 
(iv) any injury the child sustained as a result of the incident or the use of 
restraint. 
(G) The use of personal restraint must be evaluated as part of the next service 
plan review. The agency must consider alternative strategies to handle the 
behavior that required using personal restraint. This evaluation and 
instructions to caregivers concerning alternative strategies must be documented 
in the child's record. 
(H) Except as permitted in Chapter 720, Subchapter S of this title (relating to 
Standards for Child Care Facilities Serving Children with Autistic-like 
Behavior), mechanical restraints, seclusion, or placing a child in a locked room 
must not be used in an agency home. Protective devices may only be used when 
prescribed by a physician. 
(e) (No change.) 

sec.720.367. Child Care, Development, and Training Standards for Therapeutic 
Group Homes Responsible to a Child-Placing Agency.
(a)-(b) (No change.) 
(c) Residents' Rights. 
(1) (No change.) 
(2) If the agency's policies permit the use of restraint, this must be limited 
to emergency use of personal restraint. 
(A) Restraining measures must not be used as punishment, as a substitute for 
effective treatment or program, or for the caregiver's convenience.
(B) If restraining measures are used, only such force as is reasonable and 
necessary may be used. 
(C) If the agency authorizes the use of restraint for a child, caregivers must 
be trained in the type of restraint authorized before the child is placed in the 
agency home. 
(D) Personal restraint may be used only when a child's behavior endangers 
himself or others. 
(E) The child must be released from personal restraint as soon as he is no 
longer a danger to himself or others. 
(F) Any use of personal restraint must be documented in the child's record, 
including: 
(i) the date and time the caregiver began using the restraint and the name of 
the caregiver using it; 
(ii) a description of the specific behaviors necessitating the use of the 
restraint; 
(iii) the type of restraint used and the length of time the child was 
restrained; and 
(iv) any injury the child sustained as a result of the incident or the use of 
restraint. 
(G) The use of personal restraint must be evaluated as part of the next service 
plan review. The agency must consider alternative strategies to handle the 
behavior that required using personal restraint. This evaluation and 
instructions to caregivers concerning alternative strategies must be documented 
in the child's record. 
(H) Except as permitted in Chapter 720, Subchapter S, of this title (relating to 
Standards for Child Care Facilities Serving Children with Autistic-like 
Behavior), mechanical restraints, seclusion, or placing a child in a locked room 
must not be used in an agency home. Protective devices may only be used when 
prescribed by a physician. 
(d) (No change.) 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803210
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER H.Consolidated Standards for 24-Hour Care Facilities
40 TAC sec.720.425, sec.720.426
The amendments are adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendments implement the HRC, Chapters 40 and 42. 

sec.720.426. Child Care.
(a)-(l) (No change.) 
(m) Staff must allow each child privacy. Children's mail (including electronic 
mail), incoming and outgoing, must not be opened or read and children's 
telephone calls, incoming and outgoing, must not be monitored by facility staff 
unless the need for such restriction is documented in the child's record. If 
restrictions continue longer than one month, the restrictions must be re-
evaluated at least monthly. Reasons for the continued restriction must be 
explained to the child and documented in the child's record. For institutions 
providing basic care, halfway houses, and therapeutic camps, the need for 
restrictions must be determined and any re-evaluation must be conducted by a 
person who meets at least the qualifications for developing the admission 
assessment and the service plan specified in sec.720.440 of this title (relating 
to Program Staff--Institutions Providing Basic Child Care), sec.720.540 of this 
title (relating to Program Staff--Halfway Houses), and sec.720.550 of this title 
(relating to Program Staff--Therapeutic Camps). For institutions serving 
mentally retarded children and residential treatment centers, the need for 
restrictions must be determined and any re-evaluation must be conducted by a 
psychiatrist, licensed psychologist, or master's level social worker.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803204
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

40 TAC sec.sec.720.511, 720.533, 720.535
The amendments are adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendments implement the HRC, Chapters 40 and 42. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803211
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER M.Standards for Emergency Shelters
40 TAC sec.720.916
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42. 

sec.720.916. Children's Rights.
(a) The staff of the emergency shelter must allow privacy for each child. 
Children's mail (including electronic mail), incoming and outgoing, must not be 
opened or read and children's telephone calls, incoming and outgoing, must not 
be monitored by facility staff unless the need for such restriction is 
documented in the child's record. If restrictions continue longer than one 
month, the restrictions must be re-evaluated at least monthly. Reasons for the 
continued restriction must be explained to the child and documented in the 
child's record. The need for restrictions must be determined and any re-
evaluation must be conducted by the licensed child care administrator.
(b)-(m) (No change.) 
(n) At admission, the facility must explain to children able to comprehend the 
information, the facility's policies and practices on the use of restraint. The 
explanation must include who can do a restraint, the things caregivers must 
first try to do to defuse the situation and avoid the use of restraint, the 
kinds of situations in which restraint may be used, the types of restraints 
authorized by the facility, what a child needs to do to end the use of a 
restraint, and the way to report an inappropriate restraint. This explanation 
must be documented in the child's record. 
(o) The emergency shelter may place children in a locked room only until they 
can be taken for immediate medical treatment. The emergency shelter must 
document in the child's record any seclusion of a child. 
(p) The emergency shelter must not allow children in care to act as or be 
employed as staff. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 4, 1998.
TRD-9803205
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

CHAPTER 725.General Licensing Procedures
SUBCHAPTER S.Administrative Procedures
40 TAC sec.725.1801
The Texas Department of Protective and Regulatory Services (TDPRS) adopts 
amendments to sec.sec.725.1801, 725.2027, and 725.4051, without changes to the 
proposed text as published in the December 19, 1997, issue of the Texas Register 
(22 TexReg 12472). The justifications for the amendments are: (1) to set a 
specific fee of $2.00 for conducting a background and criminal history check. 
The setting of a fee was required by the 75th Legislature in the Human Resources 
Code, sec.42.057(c). TDPRS was further required to set the amount at a level not 
to exceed the administrative costs TDPRS incurs in conducting the background and 
criminal history checks; (2) to set specific guidelines for the denial or 
revocation of a license, certificate, registration, or listing based on criminal 
or abuse/neglect background; (3) to establish guidelines for release of 
information about a specific penal code offense or abuse/neglect central 
registry match to the employer or other necessary entities where circumstances 
require a release to employers, family homes, facilities, and accrediting 
organizations prior to the release hearing; and (4) to update the rule allowing 
rehabilitation for offenses to be consistent with the statutory requirement for 
not granting licenses, registrations, or listings to operators convicted of 
those offenses. 
The amendments will function by increasing protection for children in out-of-
home care. Persons with a criminal or abuse/neglect background will be 
identified and the information released to employers, facilities, family homes, 
and accrediting organizations when necessary to safeguard children. 
During the comment period, TDPRS received two comments regarding the charge of 
$2.00 to conduct a background and criminal history check. The commenters thought 
that the cost was too high, especially for larger centers where as many as 50 
child care staff may be employed. TDPRS is charging this fee as a partial 
reimbursement for the cost incurred in conducting the searches. The authority to 
charge a fee is granted in the Human Resources Code, sec.42.056(c). The $2.00 
fee for conducting a background and criminal history check under this section 
does not exceed the administrative costs TDPRS incurs in conducting these 
checks. 
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority.
The amendment implements the HRC, Chapters 40 and 42.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803343
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER U.Day Care Licensing Procedures
40 TAC sec.725.2027
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803344
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER OO.Appeals of Licensing Staff Decisions
40 TAC sec.725.4020
The Texas Department of Protective and Regulatory Services (TDPRS) adopts an 
amendment to sec.725.4020, with changes to the proposed text published in the 
October 17, 1997, issue of the Texas Register (22 TexReg 10268). 
The justification for the amendment is to require a facility or family home to 
cease operation during the time of judicial appeal if the revocation or denial 
of the license, listing or registration is based on violations which pose a risk 
to the health and safety of children. The amendment also lists the standards 
violations which pose a risk to the health and safety of children and states 
that a court may issue an injunction to allow operation pending an appeal if the 
rule violations do not pose such a risk. 
The amendment will function by increasing protection for children in out-of-home 
care. 
During the public comment period, TDPRS received a comment from an operator of a 
child care facility. Concern was raised about the wording of the rule, 
indicating that a violation of any of the standards listed would mean automatic 
revocation. Although it is possible that one serious non-compliance of the 
standards listed could result in immediate revocation, there are a series of 
adverse actions possible and procedural safeguards are provided. 
This rule speaks only to the recent legislative change providing for a 
requirement for a facility/home to close during the judicial appeal. Other rules 
address the procedural safeguards for licenses, certificates, registrations, and 
listings. For example, prior to denial or revocation action being taken against 
a facility/home, due process has been afforded to the provider through offering 
an informal administrative review (sec.725.2024), an appeal hearing held by an 
administrative law judge (sec.725.4001), and an opportunity to request a 
rehearing (sec.725.4018). As noted in sec.725.2019, corrective or adverse action 
is part of a continuum or progressive discipline. Additional procedures are 
found in this rule chapter which will give a complete understanding of the 
licensing adverse actions. 
The amendment is adopted under the Human Resources Code, Title 2, Chapter 42, 
which authorizes the department to administer general child-placing and child 
care licensing programs. 
The amendment implements the Human Resources Code sec.sec.42.001- 42.077.

sec.725.4020. Judicial Review.
(a)-(b) (No change.) 
(c) A person may not continue to operate a facility or family home during an 
appeal of a license, listing, or registration denial or revocation if the 
violation on which the revocation or denial is based posed a risk to the health 
and safety of children. At the time of the notification of the denial or 
revocation, the department shall notify the facility or family home of the 
violation(s) which posed a risk to health and safety and advise the facility or 
family home that it may not operate during the judicial appeal if the 
department's action is sustained by the Administrative Law Judge. 
(d) A person who has been notified by the department that the facility or home 
may not operate under this section may seek injunctive relief from a district 
court in Travis County or in the county in which the facility or home is located 
to allow operation while the appeal is pending.
(e) The court may grant injunctive relief against the department'saction only if 
the court finds that the child-care operation does not pose a health or safety 
risk to children. 
(f) For day care facilities and family homes, the department has determined that 
violations of the following standards pose a risk to the health and safety of 
children: 
(1) Registered Family Homes. 
(A) sec.715.102 (e) and (g) of this title (relating to Caregiver 
Qualifications); 
(B) sec.715.103 (a)-(c) of this title (relating to People in the Home); 
(C) sec.715.104 of this title (relating to the Number of Children in Care); 
(D) sec.715.106 (a) and (d)(1), (3), and (4) of this title (relating to Health 
and Safety); 
(E) sec.715.107 (a), (b), and (d) of this title (relating to Child Care). 
(2) Kindergartens and Nursery Schools. 
(A) sec.715.202 (e) of this title (relating to General Administration);
(B) sec.715.205 (f) of this title (relating to Director Qualifications); 
(C) sec.715.206 of this title (relating to Director Responsibilities);
(D) sec.715.207 (e), (g)-(l), (n), and (o) of this title (relating to Staff 
Qualifications and Responsibilities); 
(E) sec.715.209 of this title (relating to Staff-Child Ratio);
(F) sec.715.210 (c) of this title (relating to Space); 
(G) sec.715.215 of this title (relating to Fire); 
(H) sec.715.216 of this title (relating to Sanitation);
(I) sec.715.217 of this title (relating to Safety); 
(J) sec.715.219 of this title (relating to Illness or Injury);
(K) sec.715.220 of this title (relating to Medications);
(L) sec.715.223 (b) and (e) of this title (relating to Food Service); 
(M) sec.715.224 (a) and (b)(2) and (5)-(7) of this title (relating to 
Operation); 
(N) sec.715.225 of this title (relating to Discipline and Guidance); 
(O) sec.715.226 of this title (relating to Children with Need for Special Care); 
(P) sec.715.227 of this title (relating to Water Activities);
(Q) sec.715.228 of this title (relating to Transportation).
(3) Schools: Grades Kindergarten and Above. 
(A) sec.715.302 (e) of this title (relating to General Administration);
(B) sec.715.305(c) of this title (relating to Director Qualifications);
(C) sec.715.306 of this title (relating to Director Responsibilities);
(D) sec.715.307(d), (f)-(k), (m), and (o) of this title (relating to Staff 
Qualifications and Responsibilities); 
(E) sec.715.309 of this title (relating to Staff-Child Ratio);
(F) sec.715.310(c) of this title (relating to Space); 
(G) sec.715.315 of this title (relating to Fire); 
(H) sec.715.316 of this title (relating to Sanitation);
(I) sec.715.317 of this title (relating to Safety); 
(J) sec.715.319 of this title (relating to Illness or injury);
(K) sec.715.320 of this title (relating to Medications);
(L) sec.715.323(b) and (e) of this title (relating to Food Service); 
(M) sec.715.324(a) and (b)(2) and (5)-(7) of this title (relating to Operation); 
(N) sec.715.325 of this title (relating to Discipline and Guidance); 
(O) sec.715.326 of this title (relating to Children with Need for Special Care); 
(P) sec.715.327 of this title (relating to Water Activities);
(Q) sec.715.328 of this title (relating to Transportation).
(4) Day Care Centers. 
(A) sec.715.406(c) and (d) of this title (relating to Parental Communication); 
(B) sec.715.407 of this title (relating to Personnel Restrictions for Criminal 
History); 
(C) sec.715.408(b)(2)(A) of this title (relating to Director Qualifications and 
Responsibilities); 
(D) sec.715.409(c)(1)(A)-(D) and (c)(3)-(5) of this title (relating to Staff 
Qualifications and Responsibilities); 
(E) sec.715.415 of this title (relating to Discipline and Guidance); 
(F) sec.715.417 of this title (relating to Child/Staff Ratios and Groupings); 
(G) sec.715.418 of this title (relating to Night Care);
(H) sec.715.419 of this title (relating to Additional Requirements for Children 
under 18 Months Old); 
(I) sec.715.420(a), (b), (d), and (g) of this title (relating to Field Trips); 
(J) sec.715.421 of this title (relating to Water Activities);
(K) sec.715.422 of this title (relating to Transporting Children); 
(L) sec.715.423 of this title (relating to Safety); 
(M) sec.715.424 of this title (relating to Sanitation);
(N) sec.715.425 of this title (relating to Fire, Fire Safety, and Emergency 
Precautions); 
(O) sec.715.426(a), (e), and (f) of this title (relating to Illness and Injury); 
(P) sec.715.427 of this title (relating to Medications).
(5) Group Day Care Homes. 
(A) sec.715.605(b) of this title (relating to Director Qualifications);
(B) sec.715.606 of this title (relating to Director Responsibilities);
(C) sec.715.607(c) and (f)-(m) of this title (relating to Staff Qualifications 
and Responsibilities); 
(D) sec.715.609 of this title (relating to Staff-Child Ratio);
(E) sec.715.614 of this title (relating to Fire); 
(F) sec.715.615 of this title (relating to Sanitation);
(G) sec.715.616 of this title (relating to Safety); 
(H) sec.715.618 of this title (relating to Illness or Injury);
(I) sec.715.622(a) and (b) of this title (relating to Food Service); 
(J) sec.715.624(a) and (b)(2) and (5)-(7) of this title (relating to Operation); 
(K) sec.715.625 of this title (relating to Discipline and Guidance); 
(L) sec.715.626 of this title (relating to Infant and Toddler Care); 
(M) sec.715.627 of this title (relating to Children with Need for Special Care); 
(N) sec.715.628 of this title (relating to Night Care);
(O) sec.715.629 of this title (relating to Water Activities);
(P) sec.715.630 of this title (relating to Transportation).
(6) Drop-In Care Centers. 
(A) sec.715.702(d) and (e) of this title (relating to General Administration); 
(B) sec.715.705(f) of this title (relating to Director Qualifications);
(C) sec.715.706 of this title (relating to Director Responsibilities);
(D) sec.715.707(c), (e)-(j), (l), and (m) of this title (relating to Staff 
Qualifications and Responsibilities); 
(E) sec.715.709 of this title (relating to Staff-Child Ratio);
(F) sec.715.710(c) of this title (relating to Space); 
(G) sec.715.715 of this title (relating to Fire); 
(H) sec.715.716 of this title (relating to Sanitation);
(I) sec.715.717 of this title (relating to Safety); 
(J) sec.715.719 of this title (relating to Illness or Injury);
(K) sec.715.720 of this title (relating to Medications);
(L) sec.715.723(a), (b), and (e) of this title (relating to Food Service and 
Nutrition); 
(M) sec.715.724(a) and (c)(2) and (5)-(7) of this title (relating to Operation); 
(N) sec.715.725 of this title (relating to Discipline and Guidance); 
(O) sec.715.726(a) of this title (relating to Infant Care);
(P) sec.715.727 of this title (relating to Children with Need for Special Care); 
(Q) sec.715.728 of this title (relating to Night Care);
(R) sec.715.729 of this title (relating to Transportation).
(g) For residential child-care facilities, child-placing agencies, and agency 
homes, the department has determined that violations of the following standards 
pose a risk to the health and safety of children: 
(1) Child-Placing Agencies. 
(A) sec.720.29(a)(1)-(3) of this title (relating to Children's Rights); 
(B) sec.720.30(a)(1) and (3)-(7) and (b)(3)-(5) of this title (relating to 
Medical and Dental Care); 
(C) sec.720.31(a)(2)(B)-(C), (3)-(5) and (8), and (b)(1)-(6) and (8)-(9) of this 
title (relating to Problem Management); 
(D) sec.720.32(2) and (4) of this title (relating to Serious Incident Reports); 
(E) sec.720.33(5) of this title (relating to Client Records);
(F) sec.720.35(1)-(6) of this title (relating to General Personnel 
Requirements); 
(G) sec.720.38(b) of this title (relating to Foster Parent and Agency Home 
Child-Care Staff); 
(H) sec.720.39(b)(3) and (c)(3)(A) of this title (relating to Training 
Requirements); 
(I) sec.720.41(c)(1), (d), (e), and (g) of this title (relating to Substitute 
Care Intake); 
(J) sec.720.42(b)-(d) of this title (relating to Substitute Care Placement); 
(K) sec.720.43(e) of this title (relating to Initial Service Plan); 
(L) sec.720.45(b)(4) of this title (relating to Subsequent Placement); 
(M) sec.720.47(b)(4)-(5), (c), and (d)(2)-(3) of this title (relating to Foster 
Care Study); 
(N) sec.720.48(a)-(d) of this title (relating to Foster Home Verification); 
(O) sec.720.49(a), (b), and (d) of this title (relating to Foster Home 
Management); 
(P) sec.720.52(b)(1) and (4), (c), and (d) of this title (relating to Birth 
Parent Preparation); 
(Q) sec.720.53(b) of this title (relating to Adoptive Child Preparation); 
(R) sec.720.55(b)(1) and (4) and (c)(2), (4), and (5) of this title (relating to 
Required Information); 
(S) sec.720.56(d) of this title (relating to Pre-Placement Requirements); 
(T) sec.720.57(c)-(e) and (g) of this title (relating to Adoptive Placement 
Requirements); 
(U) sec.720.58(a)(2), (b), and (e) of this title (relating to Pre-Adoption 
Consummation Activities); 
(V) sec.720.66 of this title (relating to Serious Incident Reporting 
Requirements); 
(W) sec.720.67(1), (2), (5)(A)-(C), (H), and (I) of this title (relating to 
Requirements: Health, Social, Educational, and Genetic History Report). 
(2) Agency Homes. 
(A) sec.720.117(a), (c), (e), and (f) of this title (relating to Foster Family 
Qualifications); 
(B) sec.720.118(a)(1)-(2) and (c) of this title (relating to Admission); 
(C) sec.720.120(c), (d), and (e)(2) of this title (relating to Children's 
Rights); 
(D) sec.720.121(a)-(b) of this title (relating to Nutrition);
(E) sec.720.122(a)-(b) of this title (relating to Environment);
(F) sec.720.123(1) and (3) of this title (relating to Medical);
(G) sec.720.125(a)-(b) of this title (relating to Emergency Reports); 
(H) sec.720.126(a)-(b) of this title (relating to Other Requirements). 
(3) Habilitative and Therapeutic Agency Homes. 
(A) sec.720.131(a) of this title (relating to Personnel Staffing Standards for 
Habilitative Agency Homes); 
(B) sec.720.133(c)(1), (d)(1)(A)-(F) and (2) and (e)(2) of this title (relating 
to Child Care, Development, and Training Standards for Habilitative Agency 
Homes); 
(C) sec.720.134(a) of this title (relating to Buildings, Grounds, and Equipment 
Standards for Habilitative Agency Homes); 
(D) sec.720.135(a) of this title (relating to Personnel Standards for 
Therapeutic Agency Homes); 
(E) sec.720.137(c) (1)(A)-(E) and (G) and (2) and (d) of this title (relating to 
Child Care, Development, and Training Standards for Therapeutic Agency Homes). 
(4) Habilitative and Therapeutic Family Homes. 
(A) sec.720.201(a) of this title (relating to Personnel - Staffing for 
Habilitative Family Homes); 
(B) sec.720.203(c)(1), (d)(1)(A), (B), (D)-(F), (H), (2), and (e)(2) of this 
title (relating to Child Care, Development, and Training Standards for 
Habilitative Family Homes); 
(C) sec.720.204(a)-(b) of this title (relating to Buildings, Grounds, and 
Equipment Standards for Habilitative Family Homes); 
(D) sec.720.205(a) of this title (relating to Personnel Standards for 
Therapeutic Family Homes); 
(E) sec.720.207(c) (1)(A)-(B), (D)-(F), (H), (2)-(3), and
(d) of this title (relating to Child Care, Development, and Training Standards 
for Therapeutic Family Homes). 
(5) Foster Family Homes. 
(A) sec.720.231(a), (c), (d), and (g) of this title (relating to 
Qualifications); 
(B) sec.720.233(a), (c), and (d) of this title (relating to Reports and 
Records); 
(C) sec.720.234(d) and (e) of this title (relating to Other Requirements); 
(D) sec.720.235(e) of this title (relating to Admission Policies); 
(E) sec.720.243(h)(1), (2), (4), (5), and (8)-(10), (i), and (j) of this title 
(relating to Children's Rights and Privileges); 
(F) sec.720.244(b)(1) and (3), and (c)-(e) of this title (relating to Medical 
and Dental Care); 
(G) sec.720.245 of this title (relating to Nutrition); 
(H) sec.720.246 of this title (relating to Health and Safety);
(I) sec.720.247(a) of this title (relating to Environment).
(6) Foster Group Homes. 
(A) sec.720.302(a), (c), and (e)-(g) of this title (relating to Requirements for 
Home Responsible to Child-Placing Agency); 
(B) sec.720.303(a), (c)(3), (d)-(f), and (h) of this title (relating to Staffing 
and Training); 
(C) sec.720.305(f)-(h) of this title (relating to Children's Rights and 
Privileges); 
(D) sec.720.306 (a)(1), (3), and (6) of this title (relating to Medical and 
Dental Care); 
(E) sec.720.307(2)-(3) of this title (relating to Nutrition);
(F) sec.720.308(a), (c), and (d) of this title (relating to Health and Safety); 
(G) sec.720.309(a) of this title (relating to Environment);
(H) sec.720.310 of this title (relating to Food Preparation, Storage, and 
Equipment); 
(I) sec.720.311(a)-(b) of this title (relating to Reports and Records); 
(J) sec.720.312(a) of this title (relating to Other Requirements);
(K) sec.720.316(a) and (c)-(f) of this title (relating to Personnel Requirements 
for Independent Foster Group Homes); 
(L) sec.720.317(a), (c), and (d) of this title (relating to Staffing of 
Independent Foster Group Homes); 
(M) sec.720.318(c) of this title (relating to Training of Staff in Independent 
Foster Group Homes); 
(N) sec.720.319(a), (b), (f), and (g) of this title (relating to Admission 
Policies of Independent Foster Group Homes); 
(O) sec.720.326(l)(1)-(2), (4)-(5) and (7)-(9), and (m)-(n) of this title 
(relating to Children's Rights and Privileges in an Independent Foster Group 
Home); 
(P) sec.720.327(d), (e), and (f)(1), (3), and (6) of this title (relating to 
Medical and Dental Care in the Independent Foster Group Home); 
(Q) sec.720.328(3) of this title (relating to Nutrition);
(R) sec.720.330(a), (c), and (d) of this title (relating to Health and Safety in 
the Independent Foster Group Home); 
(S) sec.720.331(a) of this title (relating to Environment of the Independent 
Foster Group Home); 
(T) sec.720.332 of this title (relating to Food Preparation, Storage, and 
Equipment in the Independent Foster Group Home); 
(U) sec.720.335(a), (c), (d), (g), and (h) of this title (relating to Emergency 
Reports and Records in the Independent Foster Group Home). 
(7) Habilitative and Therapeutic Group Homes Responsible to a Child- Placing 
Agency and for Independent Habilitative and Therapeutic Group Homes. 
(A) sec.720.368(a) of this title (relating to Personnel Staffing Standards for 
Independent Habilitative Group Homes); 
(B) sec.720.370(c)(1), (d)(1)(A)-(F) and (H), (d)(2), and (e)(2) of this title 
(relating to Child Care, Development, and Training Standards for Independent 
Habilitative Group Homes); 
(C) sec.720.371(a) and (b) of this title (relating to Buildings, Grounds, and 
Equipment Standards for Independent Habilitative Group Homes);
(D) sec.720.372(a) of this title (relating to Personnel Standards for 
Independent Therapeutic Group Homes); 
(E) sec.720.374(c)(1)(A)-(B), (D)-(F), (H), and (c)(2)-(3) of this title 
(relating to Child Care, Development, and Training Standards for Independent 
Therapeutic Group Homes). 
(8) 24-Hour Care Facilities. 
(A) sec.720.402(c) of this title (relating to Governing Body); 
(B) sec.720.403(a) of this title (relating to General Administration);
(C) sec.720.406(b), (d), and (e) of this title (relating to Administrative 
Reports and Records); 
(D) sec.720.408(c), (d), and (f) of this title (relating to Personnel Policies 
and Practices); 
(E) sec.720.410(d) and (e) of this title (relating to Volunteers);
(F) sec.720.411(a)(1) and (b) of this title (relating to General Staffing); 
(G) sec.720.414(a)-(c) of this title (relating to Staff-Child Ratio); 
(H) sec.720.415(a)(2), (b), and (c) of this title (relating to Training and 
Orientation); 
(I) sec.720.417(d) and (e) of this title (relating to Admission Procedures); 
(J) sec.720.423(b)-(f) of this title (relating to Problem Management); 
(K) sec.720.424(a)-(b) of this title (relating to Restraining Measures); 
(L) sec.720.425(a)-(c) of this title (relating to Personal Restraint); 
(M) sec.720.426(a) of this title (relating to Child Care);
(N) sec.720.427(a)-(d), (f), (h), (k), (l)(1), (p), (q), and (r)(2) of this 
title (relating to Medical and Dental Care); 
(O) sec.720.428(a) and (e) of this title (relating to Nutrition);
(P) sec.720.429(a) and (c)-(f) of this title (relating to Health and Safety); 
(Q) sec.720.430 (b)-(d) of this title (relating to Environment);
(R) sec.720.431(a)-(c) of this title (relating to Transportation);
(S) sec.720.432(b) of this title (relating to Food Preparation, Storage, and 
Equipment); 
(T) sec.720.441(a)-(b) of this title (relating to Staff-child Ratio- 
Institutions Providing Basic Child Care); 
(U) sec.720.446(a), (d), and (e) of this title (relating to Problem Management: 
Institutions Providing Basic Child Care); 
(V) sec.720.447 of this title (relating to Restraining Measures: Institutions 
Providing Basic Child Care); 
(W) sec.720.449 of this title (relating to Environment - Institutions Providing 
Basic Child Care); 
(X) sec.720.502(a)-(d) of this title (relating to Staff-Child Ratio - 
Institutions Serving Mentally Retarded Children); 
(Y) sec.720.508(a)-(b) of this title (relating to Problem Management - 
Institutions Serving Mentally Retarded Children); 
(Z) sec.720.509(a)-(b) of this title (relating to Restraining Measures - 
Institutions Serving Mentally Retarded Children); 
(AA) sec.720.510 of this title (relating to Protective Devices - Institutions 
Serving Mentally Retarded Children);
(BB) sec.720.511(a)-(d) of this title (relating to Mechanical Restraint - 
Institutions Serving Mentally Retarded Children);
(CC) sec.720.514(a)-(b) of this title (relating to Health and Safety - 
Institutions Serving Mentally Retarded Children);
(DD) sec.720.515(c) of this title (relating to Environment - Institutions 
Serving Mentally Retarded Children); 
(EE) sec.720.522(a)-(c) of this title (relating to Staff Child Ratio - 
Residential Treatment Centers); 
(FF) sec.720.523(a) and (c) of this title (relating to Training - Residential 
Treatment Centers); 
(GG) sec.720.530(a)-(b) of this title (relating to Problem Management - 
Residential Treatment Centers); 
(HH) sec.720.531 of this title (relating to Restraining Measures - Residential 
Treatment Centers); 
(II) sec.720.532 of this title (relating to Protective Devices - Residential 
Treatment Centers); 
(JJ) sec.720.533(a)-(d) of this title (relating to Mechanical Restraint - 
Residential Treatment Centers);
(KK) sec.720.534(a)-(k) of this title (relating to Seclusion - Residential 
Treatment Centers); 
(LL) sec.720.536 of this title (relating to Health and Safety - Residential 
Treatment Centers); 
(MM) sec.720.537 of this title (relating to Environment - Residential Treatment 
Centers); 
(NN) sec.720.541(a)-(b) of this title (relating to Staff-Child Ratio - Halfway 
Houses);
(OO) sec.720.546 of this title (relating to Problem Management - Halfway 
Houses); 
(PP) sec.720.547 of this title (relating to Restraining Measures - Halfway 
Houses);
(QQ) sec.720.549(b)(1)-(2) of this title (relating to Environment - Halfway 
Houses);
(RR) sec.720.551(a)-(e) of this title (relating to Staff-Child Ratio - 
Therapeutic Camps);
(SS) sec.720.556 of this title (relating to Problem Management - Therapeutic 
Camps);
(TT) sec.720.557 of this title (relating to Restraining Measures - Therapeutic 
Camps); 
(UU) sec.720.559(a)-(b) of this title (relating to Medical and Dental Care -
Therapeutic Camps); 
(VV) sec.720.560(a)-(b) of this title (relating to Environment - Therapeutic 
Camps); 
(WW) sec.720.571(a), (f), and (g) of this title (relating to Facilities 
Providing Care for Children and Adults);
(XX) sec.720.572 of this title (relating to Texas Department of Health - Minimum 
Standards of Environmental Health for Texas Department of Protective and 
Regulatory Services Licensed Therapeutic Camps - Permanent Camps);
(YY) sec.720.573 of this title (relating to Texas Department of Health - Minimum 
Standards of Environmental Health for Texas Department of Protective and 
Regulatory Services Licensed Therapeutic Camps - Primitive or Wilderness Camps);
(ZZ) sec.720.574 of this title (relating to Additional Minimum Standards for 
Institutions Serving Mentally Retarded Children with Primary Medical Needs). 
(9) Emergency Shelters. 
(A) sec.720.902(d) and (e) of this title (relating to Governing Body 
Responsibilities); 
(B) sec.720.905(a), (c), (e), (f), (i), and (j) of this title (relating to 
Reports and Records); 
(C) sec.720.907(a), (e), and (f) of this title (relating to Administrator 
Qualifications and Responsibilities); 
(D) sec.720.908(b) and (c) of this title (relating to Staffing);
(E) sec.720.909(a), (b)(2), and (c) of this title (relating to Qualifications 
and Responsibilities); 
(F) sec.720.910(c)(3) of this title (relating to Training);
(G) sec.720.912(a)-(c) and (i)-(k) of this title (relating to Admission 
Policies);
(H) sec.720.914(b)(2) of this title (relating to Children's Records); 
(I) sec.720.915(c) and (d) of this title (relating to Daily Care); 
(J) sec.720.916(l)(1)-(3) and (5)-(9), (m), and (n) of this title (relating to 
Children's Rights); 
(K) sec.720.917(b)-(g) of this title (relating to Medical and Dental Care); 
(L) sec.720.918(4) of this title (relating to Nutrition);
(M) sec.720.920(a), (c), and (d) of this title (relating to Health and Safety); 
(N) sec.720.921(a), (c), and (g) of this title (relating to Environment); 
(O) sec.720.922 of this title (relating to Food Preparation, Storage, and 
Equipment). 
(10) Child-Care Facilities Serving Children with Autistic-like Behavior. 
(A) sec.720.1501(a) and (c) of this title (relating to Staffing);
(B) sec.720.1502(b) of this title (relating to Training);
(C) sec.720.1504(c)(2) of this title (relating to Treatment Plan); 
(D) sec.720.1505(a)-(c), (d)(1)-(2), (f), (g), (h)(1) and
(3), and (i)-(l) of this title (relating to Behavior Therapy);
(E) sec.720.1506(a)-(j) of this title (relating to Medical Therapy); 
(F) sec.720.1507(a)-(d), (e)(1)-(4), and (f)-(k) of this title (relating to 
Mechanical Restraint). 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803349
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: October 17, 1998
For further information, please call: (512) 438-3765

SUBCHAPTER PP.Release Hearings
40 TAC sec.725.4051
The amendment is adopted under the Human Resources Code (HRC), Chapters 40 and 
42, which describes the department's regulatory and rulemaking authority. 
The amendment implements the HRC, Chapters 40 and 42.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803345
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

SUBCHAPTER KKK.Adoptive Home Screening
40 TAC sec.sec.725.6070-725.6072
The Texas Department of Protective and Regulatory Services (TDPRS) adopts new 
sec.sec.725.6070-725.6072 in its General Licensing Procedures chapter. New 
sec.725.6071 and sec.725.6072 are adopted with changes to the proposed text as 
published in the December 19, 1997, issue of the Texas Register (22 TexReg 
12474). New sec.725.6070 is adopted without changes to the proposed text and 
will not be republished. The new sections are adopted in new Subchapter KKK, 
Adoptive Home Screening. 
The justification for the new sections is to include minimum standards for 
adoptive home screenings and minimum qualifications for persons who may perform 
the screenings to protect children placed for adoption. The new sections also 
implement legislation passed in the 75th Legislative Session that requires TDPRS 
to adopt rules providing minimum requirements for adoptive home screenings and 
minimum qualifications for persons who may perform adoptive screenings. The new 
sections will function by protecting the health, safety, and welfare of children 
placed for adoption. It is anticipated that adoptive home screenings performed 
by qualified persons prior to the placement of a child in an adoptive home will 
ensure that children are appropriately cared for in a safe and healthy home 
environment. 
During the comment period, TDPRS received one comment from an individual. The 
individual, an independent adoption consultant, noted that sec.720.6072, 
Qualifications to Perform an Adoptive Home Screening, did not include provisions 
for a Licensed Master Social Worker (LMSW) licensed during the two-year period 
which permitted persons without a master's degree in social work to qualify on 
the basis of other education and experience. Inclusion of this qualification is 
supported by the director of the Texas Department of Health Social Worker Board 
of Examiners. The qualification has been added to the rule by adding paragraph 
(a)(2), which specifies licensure as a LMSW as an alternative to the master's 
degree. As a result, the references in subsections (a) and (b) have been changed 
from paragraphs (1) and (2) to paragraphs (1), (2), and (3). 
In addition, to correct a typographical error, TDPRS is changing the rule number 
of sec.720.6071 to sec.725.6071 and sec.720.6072 to sec.725.6072. The new 
sections are adopted under the Texas Family Code, 162.0025 which requires the 
agency to promulgate rules for minimum requirements for adoptive home screenings 
and the Human Resource Code (HRC), Chapters 40 and 42, which describes the 
department's regulatory and rulemaking authority. The new sections implement 
HRC, Chapters 40 and 42 and Texas Family Code sec.162.0025.

sec.725.6071. Adoptive Home Screening Update. 
(a) If a child has not been placed with the adoptive applicants within six 
months of the time the adoptive home screening is completed, the adoptive home 
screening must be brought up-to-date within the 30-day period before a child is 
placed in the home. The written update must include: 
(1) review and any required updating of each category of information in the 
adoptive home screening; and 
(2) documentation of at least one visit to the adoptive home within the six 
months prior to placement. 
(b) If a family screened for the adoption of one child plans to adopt another 
child (either in addition to or instead of the child for whom the screening was 
done), an adoptive home screening update must be done relating to the needs of 
the specific child the family is planning to adopt before the child is placed in 
the home. 

sec.725.6072. Qualifications to Perform an Adoptive Home Screening. 
(a) Persons performing an adoptive home screening must have one of the 
qualifications specified in paragraphs (1)-(3) of this subsection:
(1) a master's degree in social work or a human services field from an 
accredited college or university or licensure as a Licensed Master Social Worker 
and at least two years of supervised child-placing experience. The degree must 
include the following: 
(A) a minimum of nine credit hours in graduate level courses that focus on 
family and individual function and interaction; and 
(B) at least 350 hours of formal, supervised field placement or practicum with a 
social service or human services agency; or 
(2) licensure as a Licensed Masters Social Worker (LMSW) and at least two years 
of supervised child-placing experience; or 
(3) a master's degree in a human services field and at least three years of 
supervised child-placing experience. 
(b) A person with a bachelor's degree from an accredited college or university 
may collect the information and prepare the adoptive home screening. The 
evaluation and sign-off on the adoptive home screening must be done by a person 
meeting the qualifications outlined in subsection (a) of this section.
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803348
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Effective date: April 1, 1998
Proposal publication date: December 19, 1997
For further information, please call: (512) 438-3765

TITLE 43. TRANSPORTATION
PART I. Texas Department of Transportation
CHAPTER 31.Public Transportation
The Texas Department of Transportation adopts amendments to sec.sec.31.3, 31.11, 
31.13, and 31.49 concerning state transit funding and coordination of services. 
Section 31.3 is adopted with changes to the proposed text as published in the 
December 5, 1997, issue of the Texas Register (22 TexReg 12030). Sections 31.11, 
31.13 and 31.49 are adopted without changes and will not be republished.
EXPLANATION OF ADOPTED AMENDMENTS House Bill 3443, 75th Legislature, 1997, 
amended Transportation Code, sec.sec.456.001, 456.006, 456.007, 456.022,
456.024, and 456.041 relating to state financial assistance to public 
transportation systems in urbanized areas. Senate Bill 370, sec.1.28, 75th 
Legislature, 1997, added Transportation Code, sec.455.0015, requiring the 
department to consider and include the public transportation needs of clients of 
health and human service agencies in planning and funding activities. These 
amendments incorporate the legislative changes in the public transportation 
administrative rules. Amended sec.31.3 adds and revises definitions. This 
section has been changed to number the definitions in accordance with the Texas 
Register style. Amended sec.31.11 revises the formula for distribution of funds 
for transit systems in urbanized areas in accordance with the provisions of 
House Bill 3443 and provides that state assistance can be used for any transit-
related activity. Designated recipients located in an urbanized area that 
includes one or more transit authorities that received state transit funding 
during the fiscal biennium ending August 31, 1997 cannot receive funding under 
this section or sec.31.13 of this title (relating to Discretionary Program) 
which exceeds the amount the designated recipient received during the fiscal 
biennium ending August 31, 1997. 
Amended sec.31.13 requires that the transit provider certify that federal funds 
are not available in order to conform with the provisions of House Bill 3443. 
To comply with statutory requirements, contained in sec.1.28 of Senate Bill 370, 
75th Texas Legislature, 1997, that the department will consider and include the 
transportation needs of the clients of health and human services agencies, 
amended sec.31.49 provides that the department will: integrate client 
transportation needs in the planning and programming processes defined in Title 
43, Texas Administrative Code, Chapter 15, Subchapter A, relating to 
Transportation Planning, and encourage metropolitan planning organizations to do 
the same; require applicants for state or federal funding to provide evidence of 
coordination efforts which, to the maximum extent feasible, includes using the 
existing network of transportation providers to address identified needs; and 
encourage, to the maximum extent possible, state health and human services 
agencies to participate in transportation planning and programming activities. 
RESPONSE TO COMMENTS No oral or written comments were received on the proposed 
amendments. 

SUBCHAPTER A.General
43 TAC sec.31.3
STATUTORY AUTHORITY The amendments are adopted under Transportation Code, 
sec.201.101, which provides the Texas Transportation Commission with the 
authority to establish rules for the conduct of the work of the Texas Department 
of Transportation , and more specifically, Transportation Code, Chapters 455 and 
456, which authorize the department to carry out the provisions of the those 
laws governing public transportation roles and responsibilities.

sec.31.3. Definitions. 
The following words and terms, when used in this chapter, shall have the 
following meanings, unless the context clearly indicates otherwise: 
(1) Accident - Any event involving the revenue service operation of a rail fixed 
guideway system as a result of which an individual dies or suffers bodily injury 
and immediately receives medical treatment away from the scene of the event; or 
a collision, derailment, or fire that results in property damage in excess of 
$100,000. Injuries, deaths, or property damage that occur when a rail fixed 
guideway system is not in revenue service are excluded. 
(2) Administrative expenses - Include, but are not limited to, general 
administrative expenses such as salaries of the project director, secretary, and 
bookkeeper, marketing expenses, insurance premiums or payments to a self-
insurance reserve, office supplies, facilities and equipment rental, or standard 
overhead rates. 
(3) Allocation - A preliminary distribution of grant funds which represents the 
maximum amount to be made available to a contractor during the fiscal year, 
subject to the contractor's completion of and compliance with all application 
requirements, rules, and regulations applicable to the specific funding program. 
(4) APTA guidelines - The "Manual for the Development of Rail Transit System 
Safety Program Plans' published by the American Public Transit Association on 
August 20, 1991, and subsequent revisions. 
(5) Assistant executive director - The assistant executive director for 
multimodal transportation for the department. 
(6) Associate executive director - The associate deputy director of planning and 
policy for the department. 
(7) Authority - A metropolitan or regional authority as created under Texas 
Civil Statutes, Article 1118x or Article 1118y, or a city transit department 
created under Texas Civil Statutes, Article 1118z, by a municipality having a 
population of not less than 200,000 according to the most recent federal census. 
(8) Capital expenses - Include the acquisition, construction, and improvement of 
public transit facilities and equipment needed for a safe, efficient, and 
coordinated public transportation system. 
(9) Commission - The Texas Transportation Commission.
(10) Common rule - Title 49, Code of Federal Regulations, Part 18, Uniform 
Administrative Requirements for Grants and Cooperative Agreements with State and 
Local Governments. 
(11) Contractor - A recipient of public transportation funds through a contract 
with the department. 
(12) Department - The Texas Department of Transportation.
(13) Designated recipient - An authority, a municipality that is not included in 
an authority, a local governmental body, or a nonprofit entity providing rural 
public transportation services, that receives federal or state public 
transportation money through the department or the Federal Transit 
Administration, or its successor. 
(14) Director - The director of public transportation for the department. 
(15) District - One of the 25 districts of the department having responsibility 
for administration of public transportation programs in their area. 
(16) District engineer - The chief executive officer in charge of a district of 
the department. 
(17) Equipment - Tangible, nonexpendable, personal property having a useful life 
of more than one year and an acquisition cost of $5,000 or more per unit. 
(18) Executive director - The chief executive officer of the department. 
(19) Federally funded project - A public transportation project which is being 
funded in part under the provisions of the Federal Transit Act, as amended (49 
United States Code sec.5301, et seq.) the Federal-Aid Highway Act of 1973, as 
amended (23 United States Code sec.101, et seq.), or other federal program for 
funding public transportation. 
(20) Fiscal year - The state accounting period of 12 months which begins on 
September 1 of each calendar year and ends on August 31 of the following 
calendar year. 
(21) FTA - The Federal Transit Administration, an agency of the United States 
Department of Transportation. 
(22) Hazardous condition - A condition that may endanger human life or property, 
including an unacceptable hazardous condition. 
(23) Individual - A person, including a passenger, trespasser, employee, or 
other bystander. 
(24) Investigation - A process to determine the probable cause of an accident or 
an unacceptable hazardous condition, including a review by the department, or 
its agent, of a rail transit agency's determination of the probable cause of an 
accident or an unacceptable hazardous condition.
(25) Like-kind exchange - The trade-in or sale of transit vehicles before the 
end of their useful life to acquire a replacement vehicle of like kind. 
(26) Local funds - Money from the purchase of service agreements, contract 
income, advertising revenue, local tax receipts, and private donations, in-kind 
contributions, and passenger revenue, notwithstanding any statutory requirement 
to apply that money to offset operating deficits.
(27) Local governmental entity - Any local unit of government including a city, 
town, village, municipality, county, city transit department, metropolitan 
transit authority, or regional transit authority. 
(28) Local public bodies - Include cities, counties, and other political 
subdivisions of states; public agencies and instrumentalities of one or more 
states, municipalities, and political subdivisions of states.
(29) Local share requirement - The amount of funds which is required and is 
eligible to match federally funded projects for the improvement of public 
transportation. 
(30) Net operating expenses - Those expenses that remain after operating 
revenues are subtracted from eligible operating expenses.
(31) Nonprofit organization - A corporation or association determined by the 
Secretary of the Treasury of the United States to be an organization described 
by Title 26 United States Code sec.501(c), which is exempt from taxation under 
26 United States Code sec.501(a) or sec.101, or one which has been determined 
under state law to be nonprofit and for which the state has received 
documentation certifying the status of the nonprofit organization. 
(32) Nonurbanized areas - Used synonymously with rural and small urban areas and 
defined as any area outside an urbanized area, as designated by the United 
States Census Bureau. 
(33) Obligated funds - Monies made available under a valid, unexpired contract 
between the department and a public transportation contractor. 
(34) Operating expenses - Costs directly related to system operations. At a 
minimum, fuel, oil, replacement tires, replacement parts which do not meet the 
criteria for capital items, maintenance and repairs, drivers' and mechanics' 
salaries and fringe benefits, dispatcher salaries, and licenses must be 
considered operating expenses. 
(35) Private - Nonpublic bodies which are municipalities or other political 
subdivisions of the state; are not public agencies or instrumentalities of one 
or more states; are not Indian tribes (except private nonprofit corporations 
formed by Indian tribes); are not public corporations, boards, or commissions 
established under the law of any state; or are not subject to control by public 
authority, state or municipal. 
(36) Project - The public transportation activities to be carried out by a 
contractor as described in their application for funding.
(37) Public transportation - Transportation of passengers and their hand-carried 
packages or baggage on a regular or continuing basis by means of surface or 
water conveyance, including fixed guideway or underground transportation or 
transit vehicle, but excluding services provided by aircraft, taxicabs, 
ambulances, or emergency vehicles. 
(38) Rail fixed guideway system - Any light, heavy, or rapid rail system, 
monorail, inclined plane, funicular, trolley, or automated guideway that: 
(A) is included in FTA's computation of fixed guideway route miles or receives 
funding under FTA's formula program for urbanized areas (49 U.S.C. sec.5336); 
and 
(B) is not regulated by the Federal Railroad Administration.
(39) Rail transit agency - The entity operating the rail fixed guideway system. 
(40) Real property - Land, including land improvements, structures, and 
appurtenances thereto, excluding movable machinery and equipment.
(41) Revenues - Fares paid by riders, including those who are later reimbursed 
by a human service agency or other user-side subsidy arrangement. Fares include 
subscription service fees which may or may not be collected on-board a transit 
vehicle. Payments made directly to the transportation system by a human service 
agency are not considered to be revenues. 
(42) Ridesharing activities - Transportation provided by rubber-tired vehicles 
that carry no fewer than 10 nor more than 15 passengers and that are operated on 
a nonprofit basis. 
(43) RPT (rural public transportation) - A generic term used to identify 
contractors who provide service in nonurbanized areas. 
(44) Rural transit district - A political subdivision of the state which 
provides and coordinates rural public transportation within its boundaries in 
accordance with the provisions of the House Bill 2588, 74th Legislature, 1995. 
(45) Safety - Freedom from danger, including freedom from unintentional as well 
as intentional acts. 
(46) Security - Freedom from intentional danger, including criminal acts such as 
muggings, rapes, robberies, or terrorist acts, such as bombings, releases of 
poisonous gases, or kidnappings. 
(47) Service expansion - The implementation or enhancement of public 
transportation services in a geographic area. Examples include, but are not 
limited to, initiating service in an area previously unserved by any public 
transportation contractor, offering more frequent service within a contractor's 
service area, and implementing a new mode of public transportation services 
(such as rail service in what was previously a bus only system or fixed-route 
services in what was previously a demand-response system). 
(48) State data center - A program operated by Texas A & M University to compile 
and issue demographic and other data. 
(49) Unacceptable hazardous condition - A particular kind of hazardous condition 
determined by using the hazard resolution matrix contained in the American 
Public Transit Association's guidelines hazard resolution matrix. 
(50) Uniform grant and contract management standards - The standards contained 
in the Texas Administrative Code, Title 1, Chapter 5, Subchapter A, concerning 
uniform grant and contract management standards for state agencies. 
(51) Urban transit district - In accordance with the provisions of House Bill 
2588, 74th Legislature, 1995, a local governmental body or a political 
subdivision of the state which operates a public transportation system in an 
urbanized area with a population between 50,000 and 200,000, according to the 
most recent federal census. 
(52) Urbanized area - A core area and the surrounding densely populated area 
with a population of 50,000 or more, with boundaries fixed by the United States 
Census Bureau. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803280
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Effective date: March 26, 1998
Proposal publication date: December 5, 1997
For further information, please call: (512) 463-8630

SUBCHAPTER B.State Programs
43 TAC sec.sec.31.11, 31.13
STATUTORY AUTHORITY The amendments are adopted under Transportation Code, 
sec.201.101, which provides the Texas Transportation Commission with the 
authority to establish rules for the conduct of the work of the Texas Department 
of Transportation , and more specifically, Transportation Code, Chapters 455 and 
456, which authorize the department to carry out the provisions of the those 
laws governing public transportation roles and responsibilities.

sec.31.11. Formula Program. 
(a) Purpose. Transportation Code, Chapter 456 requires the commission to 
allocate, at the beginning of each fiscal biennium, certain appropriated amounts 
from the public transportation fund on the basis of a prescribed formula. This 
section sets out the policies, procedures, and requirements for that formula 
allocation. 
(b) Formula allocation. At the beginning of each state fiscal biennium, an 
amount equal to the amount appropriated from all sources to the commission by 
the legislature for that biennium for public transportation, other than federal 
funds and amounts specifically appropriated for coordination, technical support, 
or other costs of administration, will be allocated to designated recipients. 
(1) The commission will allocate those funds as follows.
(A) Fifty percent of the funds available under this section will be allocated to 
municipalities that are designated recipients or transit providers in urbanized 
areas that have a population of not less than 50,000 according to the most 
recent federal census and that are not served by an authority, as that term is 
defined in sec.31.3 of this title (relating to Definitions) and to designated 
recipients that received state transit funding during the fiscal biennium ending 
August 31, 1997, that are not served by an authority but located in urbanized 
areas that have a population of not less than 50,000 according to the most 
recent federal census and that include one or more authorities. Any local 
governmental entity having the power to operate or maintain a public 
transportation system, except for an authority, as that term is defined in 
sec.31.3 of this title (relating to Definitions), may receive formula program 
funds described in paragraph (2) of this subsection. The commission will 
distribute the money allocated under this paragraph as follows. 
(i) Ten percent of the total amount will be distributed to designated recipients 
for state or federally assisted public transportation projects in urbanized 
areas, each with a population of not less than 50,000, according to the most 
recent federal census, selected by the commission.
(ii) Ninety percent of the total amount will be distributed to designated 
recipients operating public transportation services in urbanized areas, each 
with a population of not less than 50,000, according to the most recent federal 
census and receiving funds in accordance with sec.5307 of the Federal Transit 
Act (49 United States Code sec.5307). The monies will be distributed in a ratio 
of the amount received by that entity during the preceding fiscal biennium, less 
any amount returned by the entity at the end of the first year of the preceding 
fiscal biennium, to the total amount received by all entities during the 
preceding fiscal biennium. However, designated recipients located in an 
urbanized area that includes one or more transit authorities that received state 
transit funding during the fiscal biennium ending August 31, 1997 cannot receive 
funding under this section or sec.31.13 of this title (relating to Discretionary 
Program) which exceeds the amount the designated recipient received during the 
fiscal biennium ending August 31, 1997. 
(B) (No Change.)
(2) Funds allocated under this section and any local funds may be used for any 
transit-related activity except that a designated recipient not included in a 
transit authority but located in an urbanized area that includes one or more 
transit authorities may use funds to provide:
(A) 65% of the local share requirement for federally financed projects for 
capital improvements; 
(B) 50% of the local share requirement for projects for operating expenses and 
administrative costs; 
(C) 50% of the total cost of a public transportation capital improvement, if the 
designated recipient certifies that federal money is unavailable for the 
proposed project and the commission finds that the proposed project is vitally 
important to the development of public transportation in the state; and 
(D) 65% of the local share requirement for federally financed planning 
activities. 
(c) Unobligated funds. Any money under this section that the designated 
recipient has not applied for before the November commission meeting in the 
second year of a state fiscal biennium shall be administered by the commission 
under the discretionary program described in sec.31.13 of this title (relating 
to Discretionary Program). 
(d) Application. To receive funds allocated under this section, a designated 
recipient must first submit an application, in the form prescribed by the 
department, to the director which shall include certification that the proposed 
public transportation project is consistent with continuing, cooperating, and 
comprehensive regional transportation planning implemented in accordance with 
the Federal Transit Act of 1964 (49 United States Code sec.5301 et seq.) and the 
Federal-Aid Highway Act of 1973 (49 United States Code sec.1602a). (Federal 
approval of a proposed public transportation project shall be accepted as a 
determination that all federal planning requirements have been met). 
(e) Project evaluation. In evaluating a project under this section, the 
department shall consider the need for fast, safe, efficient, and economical 
public transportation and the approval of the federal FTA, or its successor. 
(f) Reporting requirements. A designated recipient that receives funds allocated 
under this section shall submit to the department, on the format prescribed by 
the department, quarterly reports which include the following information: 
operating cost per passenger; operating cost per revenue mile; fare recovery 
rate; average vehicle occupancy; on-time performance; the number of accidents 
per 100,000 vehicle miles; and the number of total miles between mechanical road 
calls. The reports shall be submitted based on calendar quarters and shall be 
provided to the department within 45 days of the end of the calendar quarter. 

sec.31.13.Discretionary Program. 
(a) (No Change.)
(b) Discretionary allocation. The commission will allocate funds to a local 
governmental entity, except an authority as that term is defined in sec.31.3 of 
this title (relating to Definitions), or a private nonprofit organization which 
has the power to operate or maintain a public transportation system. Funds may 
be used for: 
(1) the same purposes as described in sec.31.11(b)(2) of this title (relating to 
Formula Program); and 
(2) for 80% of the cost of capital expenditures associated with ridesharing 
activities. 
(c) Application. To receive funds under this section, applicants must first 
submit an application, in the form prescribed by the department, to the 
director. The application must include: 
(1) a description of the project, including estimates of the population that 
would benefit from the project and the anticipated date of project completion; 
(2) a statement of the estimated cost of the project, including estimates of the 
federally financed portions of the project costs; and 
(3) certifications that:
(A) local funds are available for local share requirements if required under 
sec.31.11(b)(2) of this title (relating to Formula Program) and subsection 
(b)(2) of this title and that the proposed project is consistent with 
comprehensive regional transportation plans (federal approval of a proposed 
public transportation project shall be accepted as a determination that all 
federal planning requirements have been met); 
(B) federal funds are not available as described under sec.31.11(b)(2)(C) of 
this title; 
(C) equipment furnished by the applicant in connection with ridesharing 
activities will be used primarily for commuting purposes; 
(D) ridesharing activities will be operated on a nonprofit basis without state 
subsidies and with accountability in operating the van pool equipment; and 
(E) any funding available through the United States Department of Transportation 
to participate in the capitalized portion of state and locally supported 
ridesharing activities may be applied for and utilized to supplement the 
availability of local resources for the recapitalization of van pool equipment.
(d) Project evaluation. In evaluating a project under this section, the 
department shall consider the need for fast, safe, efficient, and economical 
public transportation and the approval of the federal FTA, or its successor. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803281
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Effective date: March 26, 1998
Proposal publication date: December 5, 1997
For further information, please call: (512) 463-8630

SUBCHAPTER D.Program Administration
43 TAC sec.31.49
STATUTORY AUTHORITY The amendments are adopted under Transportation Code, 
sec.201.101, which provides the Texas Transportation Commission with the 
authority to establish rules for the conduct of the work of the Texas Department 
of Transportation , and more specifically, Transportation Code, Chapters 455 and 
456, which authorize the department to carry out the provisions of the those 
laws governing public transportation roles and responsibilities.

sec.31.49. Transportation Needs of Clients of Health and Human Service Agencies 
and Coordination of Services. 
(a) Purpose. This section describes requirements for addressing the 
transportation needs of clients of health and human service agencies and for the 
coordination of services between recipients of state and federal public 
transportation grant funds and other transportation operators. 
(b) Planning for client transportation. 
(1) The department will consider and will encourage metropolitan planning 
organizations to consider the transportation needs of persons who are clients of 
health and human services agencies in the planning processes performed under 
Chapter 15, Subchapter A, of this title (relating to Transportation Planning). 
(2) An applicant for state or federal financial assistance under this chapter 
must submit evidence of coordination efforts to the department. Such evidence 
must include a certification that, whenever possible, and to the maximum extent 
feasible, the existing network of transportation providers, and in particular 
the fixed route components of public transportation systems, will be used to 
meet the client transportation requirements of the state's social service 
agencies and their clients. 
(3) The department will encourage, to the maximum extent possible, state health 
and human services agencies to base their transportation funding decisions on 
the recommendations that result from the: 
(A) planning processes described under paragraph (1) of this subsection; and 
(B) evidence of coordination efforts submitted under paragraph (2) of this 
subsection. 
(c) Standards. Contractors shall at all times coordinate the provision of public 
transportation services with other transportation operators, both public and 
private, in the local area. Contractors shall furnish the department copies of 
any coordination agreements or other documents that demonstrate a good faith 
effort to reduce duplication of effort while improving the efficiency and 
effectiveness of transit services to the public. The department may suggest 
coordination efforts and may direct state and federal grant funding towards that 
end. 
This agency hereby certifies that the adoption has been reviewed by legal 
counsel and found to be a valid exercise of the agency's legal authority. 
Filed with the Office of the Secretary of State on March 6, 1998.
TRD-9803282
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Effective date: March 26, 1998
Proposal publication date: December 5, 1997
For further information, please call: (512) 463-8630