PROPOSED RULES
Before an agency may permanently adopt a new or amended section or repeal an 
existing section, a proposal detailing the action must be published in the Texas 
Register at least 30 days before action is taken. The 30-day time period gives 
interested persons an opportunity to review and make oral or written comments on 
the section. Also, in the case of substantive action, a public hearing must be 
granted if requested by at least 25 persons, a governmental subdivision or 
agency, or an association having at least 25 members.
Symbology in proposed amendments. New language added to an existing section is 
indicated by the <nl> code. [Brackets] indicate deletion of existing material 
within a section.

TITLE 1. ADMINISTRATION
PART IV. Office of the Secretary of State
CHAPTER 81.Elections
SUBCHAPTER D.Voting Systems Certification
1 TAC sec.81.62
The Office of the Secretary of State, Elections Division, proposes a new rule, 
sec.81.62, concerning audit logs for automatic tabulating equipment. The new 
rule is proposed to require automatic tabulating equipment to include a 
continuous feed printer dedicated to a real-time audit log for certification in 
the state of Texas. 
Ann McGeehan, Deputy Assistant Secretary of State for Elections, has determined 
that for the first five-year period that this rule is in effect, there will be 
no fiscal implications for state or local governments as a result of enforcing 
or administering the rule. 
Ms. McGeehan has determined also that for each year of the first five years that 
the rule is in effect, the public benefit anticipated as a result of enforcing 
the rule will be to enhance public confidence in the accuracy and security of 
electronic voting systems by requiring automatic tabulation equipment to provide 
a detailed document to facilitate post election review. There will be no effect 
on small businesses. There are no anticipated economic costs to persons who are 
required to comply with the rule as proposed. 
Comments on the proposal may be submitted to Ann McGeehan, Deputy Assistant 
Secretary of State for Elections, Office of the Secretary of State, P.O. Box 
12060, Austin, Texas 78711-2060. 
The rule is proposed 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 122, sec.122.001(c), which authorizes the Secretary of State to 
prescribe additional standards for voting systems. 
The Code, Chapter 122, sec.122.001(c) is affected by this proposed rule.

sec.81.62.Use of Audit Logs in Automatic Tabulation Equipment.
(a) For any voting tabulation device, or any modification to a voting tabulation 
device, to be certified for use in Texas elections, the device shall include a 
continuous feed printer dedicated to a real-time audit log. All significant 
election events and their date and time stamps shall be printed to the audit 
log. 
(b) The definition of "significant election events" in subsection (a) of this 
rule includes but is not limited to: 
(1) error messages and operator response to those messages;
(2) number of ballots read for a given precinct; 
(3) completion of reading ballots for a given precinct; 
(4) input ports used for modem transfers from precincts; 
(5) users logging in and out from election system; 
(6) precincts being zeroed; 
(7) reports being generated; and 
(8) diagnostics of any type being run. 
(c) The audit log for an election shall be retained by the custodian of election 
records for the appropriate preservation period. 
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 June 23, 1998.
TRD-9810044
Clark Kent Ervin
Assistant Secretary of State
Office of the Secretary of State
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 463-5650

TITLE 4. AGRICULTURE
PART I. Texas Department of Agriculture
CHAPTER 3.Boll Weevil Eradication Program
SUBCHAPTER H.Use of Bio-Intensive Controls in Active Boll Weevil
Eradication Zones
4 TAC sec.sec.3.400-3.405
The Texas Department of Agriculture (the department) proposes new sec.3.400-
3.405, concerning the use of bio-intensive controls in active boll weevil 
eradication zones. The new sections are proposed to provide procedures and 
requirements to allow a cotton grower in an active boll weevil eradication 
program to use bio- intensive controls as pest control methods, in accordance 
with the Texas Agriculture Code, Chapter 74, Subchapter D, sec.74.130.
New sec.sec.3.400-3.405 propose a definition of bio-intensive control, 
procedures for requesting to use bio-intensive controls, items to be considered 
by the Texas Boll Weevil Eradication Foundation in reviewing requests, 
recordkeeping and treatment requirements, procedures for appeals of denial of a 
request or withdrawal of approval once given, and requirements for payment of 
costs of bio-intensive controls. 
Katie Dickie Stavinoha, special assistant for producer relations, has determined 
that for the first five-year period the sections are in effect there will be no 
fiscal implications for state or local government as a result of enforcing or 
administering the section. 
Ms. Stavinoha also has determined that for each year of the first five years the 
sections are in effect the public benefit anticipated as a result of enforcing 
the sections will be the ability for cotton growers to have alternative control 
measures in boll weevil eradication zones. There will be no effect on small 
businesses. The anticipated economic cost to persons who will be required to 
comply with the new sections, as proposed, is not determinable at this time. The 
costs to individual growers wishing to use bio-intensive controls will depend on 
the control method selected. . 
Comments on the proposal may be submitted to Katie Dickie Stavinoha, Special 
Assistant for Producer Relations, P. O. Box 12847, Austin, Texas 78711, and must 
be received no later than 30 days from the date of the publication of this 
proposal in the Texas Register.
The new sections are proposed under the Texas Agriculture Code, sec.74.130, 
which directs the commissioner of agriculture to develop and adopt rules to 
allow a cotton grower in an eradication program to use biological, botanical, or 
other non- synthetic pest control methods. 
The codes affected by the proposal are the Texas Agriculture Code, Chapter 74.

sec.3.400.Definitions.
The following words and terms when used in this subchapter, shall have the 
following meanings, unless the context clearly indicates otherwise.
(1) Bio-intensive control -- the use of biologically based pest control tactics 
such as biological controls, resistant host plants, cultural controls, botanical 
insecticides or sterile insect techniques that cause little or no detrimental 
effect on non-target organisms. 
(2) Department -- Texas Department of Agriculture. 
(3) Foundation -- Texas Boll Weevil Eradication Foundation.
(4) Work unit -- That area of cotton within a boll weevil eradication zone 
overseen by a Foundation Field Unit Supervisor. 

sec.3.401.Request for Approval to Use Bio-intensive Control Method(s).
(a) Any cotton producer who wishes to use a bio-intensive control method in an 
active boll weevil eradication zone, other than for fields on which a grower has 
certified organic production, shall request approval in writing from the 
Foundation at least 90 days prior to traditional cotton planting dates in the 
area in which he farms. 
(b) The request shall be considered by the Foundation and shall be granted or 
denied in writing at least 30 days prior to traditional planting time, and if 
approved, certification issued designating the time period for which the 
approval is valid. 
(c) In the request for use of bio-intensive controls, the grower must state: 
(1) the specific locations of the cotton fields; 
(2) the alternative control(s) to be used and its source and availability; 
(3) the expected date of crop planting; 
(4) the duration and timing expected in using the control method(s); 
(5) any scientific or field study trials relevant to the request; 
(6) the expected cost for using the alternative method;
(7) the plan for coordinating the monitoring methods between the Foundation and 
the grower; 
(8) the grower's name, address and phone numbers; and
(9) other pertinent information the grower wishes to be used in determining 
approval for the use of alternative controls. 
(d) In making its decision to grant approval for bio-intensive control methods 
in an active boll weevil eradication program, the Foundation shall consider: 
(1) any and all scientific or field study trials relevant to the requested 
alternative method, giving special attention to studies conducted in similar 
growing regions; 
(2) whether the grower has the fiscal means to pay for the alternative control 
method and pay any assessment; 
(3) the overall progress of the boll weevil eradication program in the area and 
the location of the cotton on which alternative methods are proposed to be used; 
(4) how the use of alternative methods would impact cotton in close proximity to 
the field(s) in question; and 
(5) the recommendation from the Foundation technical committee. 
(e) If a bio-intensive control method is approved by the Foundation in 
accordance with subsection (b) of this section, the grower shall document 
treatment dates and outcomes, and make the records available to the Foundation 
at a pre-determined time, and stay in weekly contact with the Foundation's Field 
Unit Supervisor for his area for updates on weevil numbers trapped and area 
weevil infestation counts. 
(f) If the Foundation disapproves the request to use bio-intensive control 
methods in accordance with subsection (b) of this section, the grower may appeal 
the decision in writing, within 10 days of receipt of the notification of 
disapproval, to the Department and furnish any additional information the grower 
wants considered. The Department shall determine whether the Foundation complied 
with this subchapter in making its decision and rule on the appeal within 15 
days of the receipt of the grower's filing of an appeal. 

sec.3.402.Treatment of Fields Approved for Use of Alternate Control Methods.
The Foundation shall not treat with its regular regimen of chemical applications 
fields for which a grower has been approved to use alternative control methods. 

sec.3.403.Withdrawal of Approval to Use Bio-Intensive Control Methods.
(a) If weevil numbers in traps or field infestations monitored by the Foundation 
in the field(s) approved for bio-intensive control methods exceed those in a 
majority of fields within the Foundation's work unit by 25 percent for any 
period of time during mid-season spraying, the Foundation shall notify the 
grower of this event. 
(b) If, after discussion between the grower and the Foundation, no other 
alternative is available, the grower's approval to use a bio-intensive control 
method shall be withdrawn by the Foundation and notice of withdrawal provided to 
the grower in writing. 
(c) A grower may appeal the withdrawal of the certification to the Department 
within 10 days of receipt of the notice of withdrawal. The grower shall provide 
a notice of the appeal to the Foundation. The Foundation shall not treat the 
grower's field while TDA reviews the appeal. In making its decision on the 
appeal, the Department shall consider the impact the decision will have on the 
overall success of the eradication program in the zone. 

sec.3.404.Payment of Costs of bio-intensive controls.
Under all circumstances, any grower who uses alternative methods for treating 
boll weevils shall pay any additional cost of bio- intensive controls in 
addition to any assessment required to be paid by growers in the zone in 
accordance with the Texas Agriculture Code, Chapter 74, Subchapter D.

sec.3.405.Annual Approval.
A grower must apply for approval annually. 
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 June 24, 1998.
TRD-9810091
Dolores Alvarado Hibbs
Deputy General Counsel
Texas Department of Agriculture
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 463-7541

TITLE 10. COMMUNITY DEVELOPMENT
PART I. Texas Department of Housing and Community Affairs
CHAPTER 21.Introductory Provisions
10 TAC sec.sec.21.1-21.10, 21.20 
(Editor's note: The text of the following sections proposed for repeal will not 
be published. The sections may be examined in the offices of the Texas 
Department of Housing and Community Affairs or in the Texas Register office, 
Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)
The Texas Department of Housing and Community Affairs (the Department) proposes 
the repeal of sec.sec.21.1-21.10 and 21.20, concerning Introductory Provisions. 
The sections are proposed to be repealed in order to discard outdated and 
unnecessary rules as well as comply with Section 167, Article IX, of the General 
Appropriations Act. 
Mr. Larry Paul Manley, Executive Director, has determined that for the first 
five-year period the repeal is in effect there will be no fiscal implications 
for state or local government as a result of enforcing or administering the 
repeal. 
Mr. Larry Paul Manley, Executive Director, has determined that for the first 
five-year period the repeal is in effect the public benefit anticipated as a 
result of enforcing the repeal will be to permit the adoption of new rules for 
the Department. There will be no effect on small businesses. There is no 
anticipated economic cost to persons who are required to comply with the repeal 
as proposed. 
Comments on the proposal may be submitted to Ms. Anne Paddock, Deputy General 
Counsel, Texas Department of Housing and Community Affairs, P. O. Box 13941, 
Austin, Texas 78711-3941 or by fax 512/475-3978 within 30 days of this notice. 
The repeal is proposed pursuant to the authority of the Texas Government Code, 
Chapter 2306; and Section 167, Article IX, of the General Appropriations Act. 
No other codes, articles or statutes are affected by this repeal. 
sec.21.1. Purposes. 
sec.21.2. Definitions.
sec.21.3. Business Offices and Mailing Address of the Agency. 
sec.21.4. Board Meetings. 
sec.21.5. Seal of Agency. 
sec.21.6. Secretary of State Liaison. 
sec.21.7. Delegation of Responsibility. 
sec.21.8. Public Records. 
sec.21.9. Copies and Certificates. 
sec.21.10. Use and Effect.
sec.21.20. Reporting Requirements for Housing Finance Corporations.
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 June 29, 1998.
TRD-9810267
Larry Paul Manley
Executive Director
Texas Department of Housing and Community Affairs
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 475-3726

CHAPTER 25.Board Meetings
10 TAC sec.sec.25.1-25.12 
(Editor's note: The text of the following sections proposed for repeal will not 
be published. The sections may be examined in the offices of the Texas 
Department of Housing and Community Affairs or in the Texas Register office, 
Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)
The Texas Department of Housing and Community Affairs (the Department) proposes 
the repeal of sec.sec.25.1-25.12, concerning Board Meetings. The sections are 
proposed to be repealed in order to discard duplicative and unnecessary rules as 
well as comply with Section 167, Article IX, of the General Appropriations Act. 
Mr. Larry Paul Manley, Executive Director, has determined that for the first 
five-year period the repeal is in effect there will be no fiscal implications 
for state or local government as a result of enforcing or administering the 
repeal. 
Mr. Larry Paul Manley, Executive Director, has determined that for the first 
five-year period the repeal is in effect the public benefit anticipated as a 
result of enforcing the repeal will be to permit the adoption of new rules for 
the Department. There will be no effect on small businesses. There is no 
anticipated economic cost to persons who are required to comply with the repeal 
as proposed. 
Comments on the proposal may be submitted to Ms. Anne Paddock, Deputy General 
Counsel, Texas Department of Housing and Community Affairs, P. O. Box 13941, 
Austin, Texas 78711-3941 or by fax 512/475-3978 within 30 days of this notice.
The repeal is proposed pursuant to the authority of the Texas Government Code, 
Chapter 2306; and Section 167, Article IX, of the General Appropriations Act. 
No other codes, articles or statutes are affected by this repeal. 
sec.25.1.Chairman.
sec.25.2.Executive Administrator.
sec.25.3.Transcript and Minutes.
sec.25.4.Agenda.
sec.25.5.Registration Form.
sec.25.6.Quorum.
sec.25.7.Request for Action by the Board.
sec.25.8.Placing Matters on Agenda.
sec.25.9.Public Hearing Prior to Presentation to Board.
sec.25.10.Presentation to Board without Prior Public Hearing.
sec.25.11.Public Appearances.
sec.25.12.Order of the Hearing.
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 June 29, 1998.
TRD-9810266
Larry Paul Manley
Executive Director
Texas Department of Housing and Community Affairs
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 475-3726

CHAPTER 29.Nonrulemaking Hearings 
10 TAC sec.sec.29.1-29.9 
(Editor's note: The text of the following sections proposed for repeal will not 
be published. The sections may be examined in the offices of the Texas 
Department of Housing and Community Affairs or in the Texas Register office, 
Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)
The Texas Department of Housing and Community Affairs (the Department) proposes 
the repeal of sec.sec.29.1-29.9, concerning Nonrulemaking Hearings. The sections 
are proposed to be repealed in order to discard duplicative and unnecessary 
rules as well as comply with Section 167, Article IX, of the General 
Appropriations Act. 
Mr. Larry Paul Manley, Executive Director, has determined that for the first 
five-year period the repeal is in effect there will be no fiscal implications 
for state or local government as a result of enforcing or administering the 
repeal. 
Mr. Larry Paul Manley, Executive Director, has determined that for the first 
five-year period the repeal is in effect the public benefit anticipated as a 
result of enforcing the repeal will be to permit the adoption of new rules for 
the Department. There will be no effect on small businesses. There is no 
anticipated economic cost to persons who are required to comply with the repeal 
as proposed. 
Comments on the proposal may be submitted to Ms. Anne Paddock, Deputy General 
Counsel, Texas Department of Housing and Community Affairs, P. O. Box 13941, 
Austin, Texas 78711-3941 or by fax 512/475-3978 within 30 days of this notice. 
The repeal is proposed pursuant to the authority of the Texas Government Code, 
Chapter 2306; and Section 167, Article IX, of the General Appropriations Act. 
No other codes, articles or statutes are affected by this repeal. 
sec.29.1.Calling the Hearing.
sec.29.2.Petition for Hearing Other than a Petition for the Adoption of Rules.
sec.29.3.Action on Request for a Hearing.
sec.29.4.Presiding Officer.
sec.29.5.Official Notice.
sec.29.6.Documentary Evidence.
sec.29.7.Evidence in Uncontested Proceedings.
sec.29.8.Admissibility of Prepared Testimony and Exhibits.
sec.29.9.Witnesses Limited.
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 June 29, 1998.
TRD-9810268
Larry Paul Manley
Executive Director
Texas Department of Housing and Community Affairs
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 475-3726

TITLE 16. ECONOMIC REGULATION
PART III. Texas Alcoholic Beverage Commission
CHAPTER 45. Marketing Practices
SUBCHAPTER D. Advertising and Promotion - All Beverages
16 TAC sec.45.109
The Texas Alcoholic Beverage Commission proposes an amendment to sec.45.109 
governing restocking and rotation of alcoholic beverages. The proposed 
amendment, contained in subsection (c) of the rule, seeks to modify the ability 
of industry members to move competitor's products. 
Lou Bright, General Counsel, has determined that for the first five year period 
the rule is in effect, there will be no fiscal implications for state or local 
governments as a result of enforcing or administering the rule. 
Mr. Bright has determined that the public will benefit by this proposed 
amendment in that it allows for a more efficient and economical rotation of 
alcoholic beverage displays in retail stores. Increased efficiency will serve to 
lower operating costs for members of the alcoholic beverage industry. There is 
no anticipated costs to small businesses or other persons subject to this rule 
that are imposed by this amendment. 
Comments should be submitted to Lou Bright, General Counsel, Texas Alcoholic 
Beverage Commission Beverage Commission, P. O. Box 13127, Austin, Texas 78711. 
This amendment is proposed under the Alcoholic Beverage Code, sec.5.31, which 
provides the Alcoholic Beverage Commission with the authority to prescribe and 
publish rules necessary to carry out the provisions of the Alcoholic Beverage 
Code. 
Cross Reference: Alcoholic Beverage Code, sec.102.20, is affected by this 
amendment. 

sec.45.109. Restocking and Rotation of Alcoholic Beverages. 
(a)-(b) (No change.)
(c) Licensees and permittees subject to this rule may, at retail premises, with 
permission of the retailer, organize and construct displays of alcoholic 
beverages they sell<nl>. Notwithstanding the provisions of subsection (b) of 
this section, products of other industry members, arranged in floor or end cap 
displays, may be moved, with the permission of the retailer, in order to perform 
the services allowed by this subsection. Displays constructed under this 
subsection must be accessible to the consumer.<ol> [, provided products of other 
industry members are not altered or disturbed. Such displays must be accessible 
to the consumer.] 
(d)-(e) (No change.)
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 June 24, 1998.
TRD-9810108
Doyne Bailey
Administrator
Texas Alcoholic Beverage Commission
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 206-3204

16 TAC sec.45.111
The Alcoholic Beverage Commission proposes new sec.45.111 governing the ability 
of members of the alcoholic beverage industry to place signs or other 
advertising materials at temporary civic or charitable events. 
Lou Bright, General Counsel has determined that for the first five year period 
the rule is in effect, there will be no fiscal impact for state or local 
government as a result of enforcing the rule. 
Mr. Bright has determined that the public will benefit by this rule because the 
rule allows and encourages greater involvement by members of the alcoholic 
beverage industry in civic and charitable events. There is no anticipated costs 
imposed by this rule on small businesses or persons required to comply with the 
rule. 
Comments may be directed to Lou Bright, General Counsel, Texas Alcoholic 
Beverage Commission, P. O. Box 13127, Austin, Texas 78711. 
This rule is proposed pursuant to Alcoholic Beverage Code, sec.5.31 and 
sec.108.53 which provides the Alcoholic Beverage Commission with the authority 
to prescribe and publish rules necessary to carry out the provisions of the 
Alcoholic Beverage Code. 
Cross Reference: Alcoholic Beverage Code, sec.108.53, is affected by this rule. 

sec.45.111. Advertising Signs at Charitable or Civic Events. 
<nl>(a)<ol> This rule is enacted pursuant to sec.108.53(d) of the Alcoholic 
Beverage Code. 
<nl>(b)<ol> At a charitable or civic event of a temporary nature, members of the 
alcoholic beverage industry may place signs or other advertising materials 
indicating their participation in, or sponsorship of, the charitable or civic 
event. 
<nl>(c)<ol> It is the intent of this rule that any proceeds from signs 
advertising alcoholic beverages be received directly by the charity or civic 
endeavor. 
<nl>(d)<ol> Notwithstanding any other provision of the Alcoholic Beverage Code, 
signs at a charitable or civic event of a temporary nature may be within 200 
feet of the licensed premises of a retailer of alcoholic beverages provided that 
there is no consideration of any kind given directly or indirectly to any 
retailer.
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 June 24, 1998.
TRD-9810110
Doyne Bailey
Administrator
Texas Alcoholic Beverage Commission
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 206-3204

16 TAC sec.45.117
The Texas Alcoholic Beverage Commission proposes an amendment to sec.45.117 
governing gifts and advertising specialties that may be offered by members of 
the distilled spirits and wine industries to retailers and consumers. The 
proposed amendment contained in sec.45.117(d)(2), seeks to change the ability of 
members of the manufacturing and wholesale theirs to provide meeting rooms, 
product samples, and food to members of the retail tier. 
Lou Bright, General Counsel, has determined that for the first five years this 
rule is in effect, there will be no fiscal impact for state or local government 
as a result of enforcing this rule. 
Mr. Bright has determined that the public will benefit by this rule because it 
allows members of the distilled spirits and wine industry to more effectively 
market new products, thereby increasing choices available to consumers. There is 
no anticipated costs imposed by the rule on persons subject to the rule or small 
businesses. 
Comments may be directed to Lou Bright, General Counsel, Texas Alcoholic 
Beverage Commission, P. O. Box 13127, Austin, Texas 78711. 
This amendment is imposed under the authority of the Alcoholic Beverage Code, 
sec.5.31 which provides the Alcoholic Beverage Commission with the authority to 
prescribe and publish rules necessary to carry out the provisions of the 
Alcoholic Beverage Code. 
Cross Reference: Alcoholic Beverage Code, sec.102.07, is affected by this rule. 

sec.45.117. Gifts and Advertising Specialties. 
(a)-(c) (No change.) 
(d) Service provided to retailer. Manufacturers and wholesalers may<nl>:<ol> 
<nl>(1)<ol> service and repair items furnished to retailers under the provisions 
of this rule<nl>; and<ol> 
<nl>(2)<ol> furnish meeting rooms to retailers for purposes of product 
promotions. In no event shall anything be furnished to retailers except samples 
of the manufacturer's or wholesaler's product or food provided as a courtesy in 
accompaniment to such samples. 
(e) (No change.)
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 June 24, 1998.
TRD-9810109
Doyne Bailey
Administrator
Texas Alcoholic Beverage Commission
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 206-3204

TITLE 19. EDUCATION
PART II. Texas Education Agency
CHAPTER 89.Adaptations for Special Populations
SUBCHAPTER CC.Commissioner's Rules Concerning Adult and Community Education
19 TAC sec.89.1311
The Texas Education Agency (TEA) proposes new sec.89.1311, concerning a 
memorandum of understanding (MOU) to provide educational services to released 
offenders. The MOU is between the Texas Department of Criminal Justice (TDCJ) 
and the Texas Education Agency (TEA) to provide educational services to released 
offenders. The MOU is to realize a human service system that offers releasees 
choices and opportunities, within the realm of educational services, to remain 
outside prison and achieve maximum integration in the community. The following 
guiding principles should be considered to accomplish the objectives of this 
memorandum: (1) the releasee will achieve more success outside of prison if a 
support system is in place to promote educational growth;
(2) the releasee may be less likely to become a repeat offender if he/she 
pursues education further; and (3) the releasee must be encouraged to recognize 
the need for increasing his/her educational level to remain in the free world 
and learn to function as a productive citizen. 
Pursuant to the Texas Government Code, sec.508.318, the TDCJ and the TEA shall 
set forth the respective responsibilities of the board and the agency in 
implementing a continuing education program to increase the literacy of 
releasees. 
Joe Wisnoski, coordinator for school finance and fiscal analysis, has determined 
that for the first five-year period the sections are in effect there will be no 
fiscal implications for state or local government as a result of enforcing or 
administering the sections. 
Mr. Wisnoski and Criss Cloudt, associate commissioner for policy planning and 
research, have determined that for each year of the first five years the section 
is in effect the public benefit anticipated as a result of enforcing the section 
will be to ensure services that offer releasees educational choices and 
opportunities to remain outside prison and achieve maximum integration in the 
community. As such, releasees may be less likely to become repeat offenders if 
they pursue education further. In addition, the releasee will likely achieve 
more success outside prison if a support system is in place to promote 
educational growth. There is no anticipated economic cost to persons who are 
required to comply with the sections as proposed. 
Comments on the proposal may be submitted to Criss Cloudt, Policy Planning and 
Research, 1701 North Congress Avenue, Austin, Texas 78701, (512) 463-9701. 
Comments may also be submitted electronically at 
http://www.tea.state.tx.us/rules/commissioner or faxed to (512) 475-3499. All 
requests for a public hearing on the proposed sections submitted under the 
Administrative Procedure Act must be received by the commissioner of education 
not more than 15 calendar days after notice of a proposed change in the sections 
has been published in the Texas Register. 
The new section is proposed under the Texas Government Code, sec.508.318, as 
added by the 75th Texas Legislature, 1997, Chapter 165, sec.12.01, which 
authorizes the Texas Department of Criminal Justice and the Texas Education 
Agency to adopt a memorandum of understanding that establishes the respective 
responsibilities of the board and the agency in implementing a continuing 
education program to increase the literacy of releases.
The proposed new section implements the Texas Government Code, sec.508.318, as 
added by the 75th Texas Legislature, 1997, Chapter 165, sec.12.01. 

sec.89.1311.Memorandum of Understanding to Provide Educational Services to 
Released Offenders.
(a) Purpose. This memorandum of understanding is a non-financial, mutual 
agreement between the Texas Department of Criminal Justice (TDCJ) and the Texas 
Education Agency (TEA). Pursuant to the Texas Government Code, sec.508.318, the 
TDCJ and the TEA shall set forth the respective responsibilities of the board 
and the agency in implementing a continuing education program to increase the 
literacy of releasees. 
(b) Objective. This memorandum of understanding is to realize a human service 
system that offers releasees choices and opportunities, within the realm of 
educational services, to remain outside prison and achieve maximum integration 
in the community. The following guiding principles should be considered to 
accomplish the objectives of this memorandum: 
(1) the releasee will achieve more success outside of prison if a support system 
is in place to promote educational growth; 
(2) the releasee may be less likely to become a repeat offender if he/she 
pursues education further; and 
(3) the releasee must be encouraged to recognize the need for increasing his/her 
educational level to remain in the free world and learn to function as a 
productive citizen. 
(c) Participation. 
(1) The Texas Department of Criminal Justice (TDCJ) will: 
(A) establish a continuing education system to increase literacy for releasee(s) 
in the Day Resource Centers; 
(B) establish a system whereby the TDCJ will inform adult education cooperatives 
of the process and requirements for continued education of the releasee(s); 
(C) provide adult education cooperatives with assessment and educational profile 
information that will facilitate student placement in appropriate programs; 
(D) coordinate with adult education cooperatives in implementing a system for 
identification of student needs and barriers, student referral, outreach 
activities, and releasee's compliance with educational requirements; 
(E) identify resources that assist local adult education cooperatives in 
expanding services for releasees; and 
(F) participate in training necessary to develop the capacity at the local level 
to access and interact effectively with adult education service providers. 
(2) The Texas Education Agency will: 
(A) coordinate with the TDCJ to inform local parole offices of services 
available through the adult education cooperative system in which local school 
districts, junior colleges, and educational service centers provide 
instructional programs throughout the state; 
(B) assist the TDCJ in identifying barriers to provide adult education services 
to released offenders; 
(C) assist local adult education programs in developing the capacity to serve 
the released offender population; 
(D) coordinate with the TDCJ in establishing a referral process between local 
parole offices and local adult education cooperatives whereby releasees will be 
referred to adult education programs; 
(E) assist local adult education cooperatives in providing services to releasees 
in adult education programs on a first-come, first-served basis and to the 
extent the funds and classroom space are available; 
(F) assist local adult education cooperatives in communicating and coordinating 
with local parole offices on prospective students awaiting referral to education 
programs, availability of services, identification of financial resources, and 
other educational programs available for released offenders; 
(G) coordinate with the TDCJ in developing program objectives and collecting 
data to establish educational performance standards for released offenders; 
(H) coordinate with the TDCJ in providing training to assist local parole 
officers with the coordination of adult education services to released 
offenders; and 
(I) monitor program quality and compliance of local adult education programs 
serving released offenders. 
(d) Terms of the memorandum of understanding. This memorandum of understanding 
shall be adopted by rule by each participating agency and shall be effective 
October 1, 1998. The memorandum may be considered for expansion, modification, 
or amendment at any time upon the mutual agreement of the executive officers of 
the named agencies. 
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 June 29, 1998.
TRD-9810230
Criss Cloudt
Associate Commissioner, Policy Planning and Research
Texas Education Agency
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 463-9701

TITLE 22. EXAMINING BOARDS
PART VI. Texas Board of Professional Engineers
CHAPTER 131.Practice and Procedure
SUBCHAPTER B.Application for License
22 TAC sec.131.54
The Texas Board of Professional Engineers proposes an amendment to sec.131.54, 
concerning application for license. 
The section is being amended to clarify that applicants for relicensure must 
submit an entirely new application. 
John R. Speed, P.E., executive director, Texas Board of Professional Engineers, 
has determined that for the first five-year period the section is in effect 
there will no effect for state or local government. 
Mr. Speed also has determined that for each year of the first five years the 
section is in effect the public benefit anticipated as a result of enforcing the 
section will be clarification on relicensure. There will be no effect on small 
businesses. There is no anticipated economic cost to persons who are required to 
comply with the section as proposed. 
Comments on the proposal may be submitted to John R. Speed, P.E., Executive 
Director, Texas Board of Professional Engineers, P.O. Drawer 18329, Austin, 
Texas 78760-8329. 
The amendment is proposed under Texas Civil Statutes, Article 3271a, sec.8(a), 
which provide the Texas Board of Professional Engineers with the authority to 
promulgate rules in accordance with Senate Bill 623.
Texas Civil Statutes, Article 3271a, sec.12 and sec.13 is affected by the 
proposed amendment.

sec.131.54. Applications from Former Texas License Holders. 
(a) (No change.) 
(b) The applicant shall: 
(1) prepare <nl>a new<ol> [an] application form <nl> in its entirety<ol> and 
submit it with <nl>the<ol> current application fee; 
(2) complete all sections of the <nl>new<ol> application form and list all 
employment engagements; 
(3)-(7) (No change.) 
(c)-(d) (No change.) 
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 June 29, 1998.
TRD-9810264
John R. Speed, P.E.
Executive Director
Texas Board of Professional Engineers
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 440-7723

PART XVI. Texas Board of Physical Therapy Examiners
CHAPTER 321.Definitions
22 TAC sec.321.1
The Texas Board of Physical Therapy Examiners proposes an amendment to 
sec.321.1, concerning Definitions. This amendment will eliminate duplication of 
effort by allowing physical therapy aides to record quantitative data in a 
patient's permanent record for tasks delegated by the supervising PT or PTA. The 
document must include the name of the delegating PT or PTA, as well as the name 
of the aide carrying out the task. 
John P. Maline, Executive Director of the Executive Council of Physical Therapy 
and Occupational Therapy Examiners, has determined that for the first five-year 
period the rule is in effect there will be no effect on state or local 
government. 
Mr. Maline also has determined that for each year of the first five years the 
rule is in effect the public benefit anticipated as a result of enforcing the 
rule will be eliminating duplication of effort by the physical therapist or 
physical therapist assistant treating patients. 
Comments on the proposed amendment may be submitted to Nina Hurter, PT 
Coordinator, Texas Board of Physical Therapy Examiners, 333 Guadalupe, Suite 2-
510, Austin, Texas 78701. 
The amendment is proposed under the Physical Therapy Practice Act, Texas Civil 
Statutes, Article 4512e, which provides the Texas Board of Physical Therapy 
Examiners with the authority to adopt rules consistent with this Act to carry 
out its duties in administering this Act. 
Texas Civil Statutes, Article 4512e is affected by this amended section. 

sec.321.1.Definitions.
The following words, terms, and phrases, when used in the rules of the Texas 
Board of Physical Therapy Examiners, shall have the following meanings, unless 
the context clearly indicates otherwise.
<nl>(1)<ol> Accredited curriculum in physical therapy education - A body of 
courses in a physical therapy program at a school, college, or university which 
has satisfied the accreditation standards of the Commission on Accreditation for 
Physical Therapy Education. 
<nl>(2)<ol> Accredited physical therapist assistant program - A body of courses 
at a school, college, or university which has satisfied the accreditation 
standards of the Commission on Accreditation for Physical Therapy Education. 
<nl>(3)<ol> Evidence satisfactory to the board - Should all official school 
records be destroyed, sworn affidavits satisfactory to the board must be 
received from three persons having personal knowledge of the applicant's 
physical therapy education. These affidavits will not be used when official 
school records are available. 
<nl>(4)<ol> Foreign-trained applicant - Any applicant whose education is from a 
country outside the United States, the District of Columbia, or Territories of 
the United States. 
<nl>(5)<ol> Hearing - An adjudicative proceeding concerning the issuance, 
denial, suspension, reprimand, revocation of license, after which the legal 
rights of an applicant or licensee are to be determined by the board. 
<nl>(6)<ol> On-site supervision - The physical therapist or physical therapist 
assistant is on the premises and readily available to respond. 
<nl>(7)<ol> Physical therapist assistant - The supervision of the physical 
therapist assistant shall include the following: 
(A) The supervising physical therapist is responsible for and will participate 
in the patient's care. 
(B) The supervising physical therapist must be on call and readily available. 
(C) A current written plan of care will be formulated for each patient by the 
physical therapist. The plan of care shall be revised following periodic 
reevaluations by the physical therapist, not to exceed 30 days. The physical 
therapist is responsible for the content and validity of the discharge summary 
and must sign the discharge summary. 
(D) Each progress note in a patient's chart made by a physical therapist 
assistant must include the name of the supervising physical therapist. 
(E) The physical therapist may assign responsibilities to the physical therapist 
assistant to: 
(i) provide physical therapy services as specified in the written plan of care 
developed by the physical therapist prior to treatment by a physical therapist 
assistant which includes: 
(I) preparing patients, treatment areas, and equipment; 
(II) implementing treatment programs that include therapeutic exercises; gait 
training and techniques; ADL training techniques; administration of therapeutic 
heat and cold; administration of ultrasound; administration of therapeutic 
electric current; administration of ultraviolet; application of traction; 
performance of intermittent venous compression; application of external 
bandages, dressings, and support; performance of goniometric measurement;
(III) modifying treatment techniques as indicated in the plan of care; 
(ii) respond to acute changes in physiological state; 
(iii) teach other health care providers, patients, and families to perform 
selected treatment procedures and functional activities; 
(iv) identify architectural barriers; 
(v) interact with patients and families in a manner which provides the desired 
psycho-social support by: 
(I) recognizing his own reaction to illness and disability; 
(II) recognizing patients' and families' reactions to illness and disability; 
(III) respecting individual cultural, religious, and socioeconomic differences 
in people; 
(IV) utilizing appropriate communicative processes; 
(vi) demonstrate appropriate and effective written, oral, and nonverbal 
communication with patients and their families, colleagues, and the public; 
(vii) recognize his own strengths and limitations and interpret for others his 
scope and function; 
(viii) demonstrate safe, ethical, and legal practice; 
(ix) understand basic concepts related to the health care system, including 
multidisciplinary team approach, quality care, governmental agencies, private 
sector, role of other health care providers, health care facilities, issues, and 
problems; 
(x) understand basic principles of levels of authority and responsibility, 
planning, time management, supervisory process, performance evaluations, 
policies and procedures, and fiscal consideration (provider and consumer). 
(F) The physical therapist assistant may not: 
(i) specify and/or perform definitive (decisive, conclusive, final) evaluative 
and assessment procedures; however, physical therapist assistants may screen 
patients designated by the physical therapist by gathering information using a 
uniform predetermined format and reporting the findings on all patients screened 
to the physical therapist. Further intervention will be determined by the 
physical therapist; 
(ii) alter a plan of care or goals; 
(iii) recommend wheelchairs, orthoses, prostheses, other assistive devices, or 
alterations to architectural barriers to persons; 
(iv) sign progress notes which include assessments used to design or modify 
patient care.
<nl>(8)<ol> Physical therapy - The evaluation, examination, and utilization of 
exercises, rehabilitative procedures, massage, manipulations, and physical 
agents including, but not limited to, mechanical devices, heat, cold, air, 
light, water, electricity, and sound in the aid of diagnosis or treatment. 
Physical therapists may perform evaluations without referrals. Physical therapy 
practice includes the use of modalities, procedures, and tests to make 
evaluations. Physical therapy practice includes, but is not limited to the use 
of: Electromyographic (EMG) Tests, Nerve Conduction Velocity (NCV) Tests, 
Thermography, Transcutaneous Electrical Nerve Stimulation (TENS), bed traction, 
application of topical medication to open wounds, sharp debridement, provision 
of soft goods, inhibitive casting and splinting, Phonophoresis, Iontophoresis, 
and biofeedback services. 
<nl>(9)<ol> Physical therapy aide - All rules governing the direction of the 
physical therapist assistant are further modified for the physical therapy aide. 
(A) The physical therapist or physical therapist assistant is responsible for 
the supervision of the physical therapy aide. 
(B) The physical therapy aide may support physical therapy activities within the 
scope of on-the-job training and with on-site supervision by a physical 
therapist or physical therapist assistant within reasonable proximity of the 
physical therapy aide. The physical therapist or physical therapist assistant 
must interact with the patient regarding the patient's condition, progress 
and/or achievement of goals during each treatment session. 
(C) The physical therapy aide may not: 
(i) evaluate, assess, and/or initiate physical therapy treatment including 
exercise instruction; or 
(ii) write or sign physical therapy documents in the permanent record. 
<nl>However, an aide may record quantitative data for tasks delegated by the 
supervising PT or PTA. Any document reflecting aide activities must identify the 
aide and the supervising PT or PTA.<ol> 
<nl>(10)<ol> Supervision-The delegation and continuing direction by a person or 
persons responsible for the practice of physical therapist, physical therapist 
assistant, or physical therapy aide as specified in the Physical Therapy 
Practice Act.
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 June 25, 1998.
TRD-9810162
John P. Maline
Executive Director
Texas Board of Physical Therapy Examiners
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 305-6900

CHAPTER 343.Contested Case Procedures
22 TAC sec.343.3
The Texas Board of Physical Therapy Examiners proposes amendments to sec.343.3, 
Referral Requirements and Exceptions to Referral Requirements. These amendments 
are necessary to correct errors made in filing adopted changes in December 1997. 
Staff filed the adoption document erroneously, and were not able to withdraw the 
action prior to adoption. 
John P. Maline, Executive Director of the Executive Council of Physical Therapy 
and Occupational Therapy Examiners, has determined that for the first five-year 
period the rule is in effect there will be no effect on state or local 
government. 
Mr. Maline also has determined that for each year of the first five years the 
rule is in effect the public benefit anticipated as a result of enforcing the 
rule will be rules that accurately reflect Board decisions. 
Comments on the proposed rule may be submitted to Nina Hurter, PT Coordinator, 
Texas Board of Physical Therapy Examiners, 333 Guadalupe, Suite 2-510, Austin, 
Texas 78701. 
The amendment is proposed under the Physical Therapy Practice Act, Texas Civil 
Statutes, Article 4512e, which provides the Texas Board of Physical Therapy 
Examiners with the authority to adopt rules consistent with this Act to carry 
out its duties in administering this Act. 
Texas Civil Statutes, Article 4512e is affected by this amended section.

sec.343.3. Referral Requirement and Exceptions to Referral Requirement. 
(a) Definitions. The following words and terms, when used in the section, shall 
have the following meanings, unless the context clearly indicates otherwise. 
(1) (No change.) 
(2) Emergency medical care - Bona fide emergency services provided after the 
sudden onset of a medical condition manifesting itself by acute symptoms of 
sufficient severity, including severe pain, such that the absence of immediate 
medical attention could reasonably be expected to result in: placing the 
patient's health in serious jeopardy; serious impairment to bodily functions; or 
serious dysfunction of any bodily organ or part.[For a physical therapist, the 
emergency medical care must be provided within 24 hours from the sudden onset of 
acute symptoms or 72 hours from the time the injury occurred.] 
(3) (No change.) 
(b)-(d) (No change.) 
(e) Conditions for treatment without referral: 
(1) (No change.) 
(2) <nl>The physical therapy provided must not be for more than 20 treatment 
sessions or 30 consecutive calendar days, whichever occurs first. At the 
conclusion of this time or treatment, the physical therapist must confer with 
the referring healthcare personnel before continuing treatment; <ol> [For all 
episodes of physical therapy subsequent to that which was initiated by the 
referral, the physical therapist treats the patient for not more than 20 
treatment sessions or 30 consecutive calendar days, whichever occurs first, 
whereupon the physical therapist must confer with the referring practitioner in 
order to continue the current episode of treatment.] 
(3)-(4) (No change.) 
(f)-(h) (No change.) 
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 June 25, 1998.
TRD-9810163
John P. Maline
Executive Director
Texas Board of Physical Therapy Examiners
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 305-6900

CHAPTER 344.Administrative Fines and Penalties
22 TAC 344.1
The Texas Board of Physical Therapy Examiners proposes new sec.344.1, 
Administrative Fines and Penalties. This new rule will allow the Board to impose 
monetary penalties for violations of the Board's rules on licensees and non-
exempt physical therapy facilities. 
John P. Maline, Executive Director of the Executive Council of Physical Therapy 
and Occupational Therapy Examiners, has determined that for the first five-year 
period the rule is in effect there will be no effect on state or local 
government. 
Mr. Maline also has determined that for each year of the first five years the 
rule is in effect the public benefit anticipated as a result of enforcing the 
rule will be greater protection due to increased enforcement capabilities for 
the Board. 
Comments on the proposed rule may be submitted to Nina Hurter, PT Coordinator, 
Texas Board of Physical Therapy Examiners, 333 Guadalupe, Suite 2-510, Austin, 
Texas 78701. 
The new rule is proposed under the Physical Therapy Practice Act, Texas Civil 
Statutes, Article 4512e, which provides the Texas Board of Physical Therapy 
Examiners with the authority to adopt rules consistent with this Act to carry 
out its duties in administering this Act. 
Texas Civil Statutes, Article 4512e is affected by this new section.

sec.344.1. Administrative Fines and Penalties.
(a) Any physical therapist or physical therapist assistant who violates any 
provision of these rules, or any provision of the Physical Therapy Practice Act 
shall be, at the discretion of the Board, subject to the following penalties. 
(1) The Board may impose suspension or revocation of a license, or other 
disciplinary action including probation, tutorial hours and additional 
education; 
(2) The Board may assess fines, not to exceed $200 for each day of the offense, 
based on the following schedule:
(A) first offense: $100 - $1,000
(B) subsequent offense: $200 - $5,000 
(b) Any facility providing physical therapy services in violation of the Texas 
Physical Therapy Practice Act, shall be, at the discretion of the Board, subject 
to the following penalties.
(1) The Board may impose suspension or revocation of a facility registration, or 
other disciplinary action; 
(2) The Board may assess fines, not to exceed $200 for each day of the offense, 
based on the following schedule:
(A) first offense: $200 - $3,600
(B) subsequent offense: $200 - $10,000 
(c) Assessment of the penalties will follow procedures as established in 
sec.343.41, Agreed Orders. The nature and amount of the penalty shall be based 
on: 
(1) the seriousness of the violation, including nature, circumstances, extent, 
and gravity of any prohibited act, and hazard or potential hazard created to the 
health, safety, or economic welfare of the public; 
(2) the economic harm to property or the environment caused by the violation; 
(3) the history of previous violations; 
(4) the amount necessary to deter future violations;
(5) efforts to correct the violation; and 
(6) any other matter that justice may require. 
(d) The provisions of subsections (a)-(c) of this section shall not be construed 
so as to prohibit other appropriate civil or criminal action and remedy and 
enforcement under other laws. 
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 June 25, 1998.
TRD-9810164
John P. Maline
Executive Director
Texas Board of Physical Therapy Examiners
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 305-6900

PART XXIII. Texas Real Estate Commission
CHAPTER 535.Provisions of the Real Estate License Act
SUBCHAPTER I.Licenses
22 TAC sec.535.92 
The Texas Real Estate Commission (TREC) proposes an amendment to sec.535.92, 
concerning license renewals for real estate licensees. The amendment would 
permit a real estate licensee to renew a license in active status prior to the 
completion of mandatory continuing education (MCE). Under the current section, 
failure to complete the MCE requirements prevents a licensee from practicing 
until the required courses have been taken. If the licensee is a broker, those 
salespersons sponsored by the broker also are unable to practice. A licensee 
applying for renewal of an active license without first having completed the MCE 
courses would be required within 60 days after the license is renewed to pay an 
additional fee of $200 and to complete the required courses. The section would 
obligate TREC to notify the licensee of the requirement to pay the fee and 
complete the MCE courses. Those courses completed after renewal of the license 
would not, however, satisfy the licensee's MCE obligations for the subsequent 
license renewal. Failure to complete the courses or pay the fee timely would be 
grounds for disciplinary action. TREC was authorized by Senate Bill 1100, 75th 
Legislature (1997), to adopt a rule permitting such license renewals. 
Don Dudley, director of licensing and education, has determined that for the 
first five-year period the section is in effect there will be fiscal 
implications for the state as a result of enforcing or administering the 
section. Mr. Dudley has estimated that TREC will receive an increase of $85,000 
per year in filing fees for each year of the first five year period after the 
proposed section is in effect. There are no anticipated fiscal implications for 
local government, and there is no anticipated impact on local or state 
employment as a result of implementing the sections. 
Mr. Dudley also has determined that for each year of the first five years the 
section as proposed is in effect the public benefit anticipated as a result of 
enforcing the section will be the elimination of hardships due to licensees' 
failure timely to complete MCE courses required for a license renewal. There 
will be no effect on small businesses. Licensees who renew their licenses on an 
active basis prior to the completion of required MCE courses would be obligated 
to pay an additional fee of $200. A licensee could alternatively renew a license 
on an inactive basis and satisfy the MCE requirements before returning to active 
status without incurring the $200 fee. 
Comments on the proposal may be submitted to Mark A. Moseley, General Counsel, 
Texas Real Estate Commission, P.O. Box 12188, Austin, Texas 78711-2188. 
The amendment is proposed under Texas Civil Statutes, Article 6573a, sec.5(h), 
which authorize the Texas Real Estate Commission to make and enforce all rules 
and regulations necessary for the performance of its duties. 
The statute that is affected by this section is Texas Civil Statutes, Article 
6573a. 

sec.535.92.Renewal: Time for Filing; Satisfaction of Mandatory Continuing 
Education Requirements.
(a)-(g) (No change.) 
(h) <nl>Notwithstanding any provisions of the Act to the contrary, when<ol>[If] 
a licensee files a timely application to renew a <nl> current<ol> license <nl>in 
an active status and has satisfied all requirements other than the completion 
of<ol> [but has not satisfied] applicable MCE requirements, the commission shall 
<nl>renew the current license and notify<ol> [advise] the <nl>licensee<ol> 
[applicant] <nl> in writing that if licensee does not complete the required 
number of MCE hours prior to the expiration date of the current license, the 
licensee must pay an additional fee of $200 and complete the required number of 
MCE hours within 60 days after the date the commission renews the license<ol> 
[of the number of MCE hours required to renew the license and the time for 
satisfying MCE requirements]. <nl>If the required MCE courses are not completed 
prior to the expiration date of the current license, the licensee shall complete 
the required number of hours of MCE courses and pay the additional fee within 60 
days after the date the commission renews the license<ol> [If MCE requirements 
have not been satisfied by the expiration date of the existing license, the 
commission shall place the license in an inactive status]. <nl> MCE courses 
completed after expiration of the current license under this provision may not 
be applied to the following renewal of the license. <ol> Original applications 
and return to active status are subject to MCE requirements imposed by the Act. 
(i) - (k) (No change.)
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 June 23, 1998.
TRD-9810022
Mark A. Moseley
General Counsel
Texas Real Estate Commission
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 465-3900

TITLE 25. HEALTH SERVICES
PART I. Texas Department of Health
CHAPTER 29.Purchased Health Services
SUBCHAPTER L.General Administration
25 TAC sec.29.1118
(Editor's note: The text of the following section proposed for repeal will not 
be published. The section may be examined in the offices of the Texas Department 
of Health or in the Texas Register office, Room 245, James Earl Rudder Building, 
1019 Brazos Street, Austin.)
Subject to the approval of the State Medicaid Director, the Texas Department of 
Health (department) proposes the repeal of sec.29.1118 and new sec.29.1118 
concerning provider re-enrollment or provider contract or agreement 
modification. The section proposed for repeal regarding certification and 
recertification will be replaced by the proposed new section which contains the 
new legislative requirements for provider re-enrollment. 
The proposed new rule affects providers of services in the Medicaid program who 
currently have a signed provider agreement with an agency operating part of the 
Medicaid program. Section 2.07 of Senate Bill 30, enacted by the 75th 
Legislature, 1997, requires the Health and Human Services Commission (HHSC) to 
develop a new provider contract for health care services that contains 
provisions designed to strengthen the HHSC's ability to prevent provider fraud 
under the Texas Medicaid program. Senate Bill 30 also requires that, after the 
development of the new provider contract, the HHSC and each agency operating 
part of the Texas Medicaid program by rule shall require each provider who 
enrolled in the program before completion of the new contract to re-enroll in 
the program under the new contract or modify the provider's existing contract to 
comply with the requirements of the new contract. This process should enable the 
HHSC to better prevent provider fraud in the Texas Medicaid program through the 
new contract provisions. Those agencies that are operating part of the Texas 
Medicaid program who re-enroll providers will also be able to gather updated 
information on the providers in the program which will enhance the ability of 
the HHSC, in cooperation with agencies operating part of the Medicaid program, 
to prevent fraud in the program. 
Joe Moritz, Health Care Financing Budget Director, has determined that for the 
first five-year period the section is in effect, there will be no net fiscal 
implications for state and local government as a result of enforcing or 
administering the section. The new contract provisions may result in savings to 
the State of Texas some time in the future but those potential savings cannot be 
quantified at this time. 
Mr. Moritz also has determined that for each year of the first five years the 
section is in effect, the public benefit anticipated as a result of enforcing 
the section will be additional provisions and information available to the HHSC 
to prevent provider fraud in the Texas Medicaid program, potentially resulting 
in savings to the State of Texas. There may be incidental costs to providers in 
complying with this new rule, such as secretarial or other administrative time 
in completing a new application for those agencies that choose to re-enroll 
providers and managerial time in reviewing the application or amended contract. 
Otherwise, there will be no costs to small businesses or persons complying with 
the rule as proposed. There will be no adverse economic effect on small 
businesses. There is no anticipated impact on local employment. Comments on the 
proposal may be submitted to Genie DeKneef, Program Administrator V, Health Care 
Financing, Texas Department of Health, 1100 West 49th Street, Austin, Texas 
78756-3168, (512) 338-6509. Comments will be accepted for 30 days following 
publication of this proposal in the Texas Register. 
The repeal is proposed under the Human Resources Code, sec.32.021 and Government 
Code sec.531.021, which provide the Health and Human Services Commission with 
the authority to propose rules to administer the state's medical assistance 
program and is submitted by the Texas Department of Health under its agreement 
with the Health and Human Services Commission to operate the purchased health 
services program and as authorized under Chapter 15, sec.1.07, Acts of the 72nd 
Legislature, First Called Session (1991). 
The repeal affects Chapter 32 of the Human Resources Code.
sec.29.1118. Certification and Recertification.
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 June 29, 1998.
TRD-9810271
Susan K. Steeg
General Counsel
Texas Department of Health
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 458-7236

The new section is proposed under the Human Resources Code, sec.32.021 and 
Government Code sec.531.021, which provide the Health and Human Services 
Commission with the authority to propose rules to administer the state's medical 
assistance program and is submitted by the Texas Department of Health under its 
agreement with the Health and Human Services Commission to operate the purchased 
health services program and as authorized under Chapter 15, sec.1.07, Acts of 
the 72nd Legislature, First Called Session (1991). 
The new section affects Chapter 32 of the Human Resources Code. 

sec.29.1118. Provider Re-enrollment or Provider Contract or Agreement 
Modification.
(a) No later than September 1, 1999, a provider who is enrolled in the Medicaid 
program who wants to continue to participate in the program must, in accordance 
with instructions from an agency operating part of the Medicaid program, either 
re-enroll in the Medicaid program under a new contract or agreement approved by 
the Health and Human Services Commission or modify the provider's existing 
contract or agreement using language approved by the Health and Human Services 
Commission. 
(b) A provider enrolled in the Medicaid program who does not re-enroll in the 
program under the new contract or agreement or modify the existing provider 
contract or agreement in accordance with the instructions of an agency operating 
part of the Medicaid program by September 1, 1999, does not retain eligibility 
to participate in the Medicaid program. 
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 June 29, 1998.
TRD-9810269
Susan K. Steeg
General Counsel
Texas Department of Health
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 458-7236

CHAPTER 35.Pharmacy Services
SUBCHAPTER G.Pharmacy Claims
25 TAC sec.35.701
Subject to the approval of the State Medicaid Director, The Texas Department of 
Health (department) proposes an amendment to sec.35.701, concerning the 
submission of claims to the Vendor Drug Program for the correct quantity of 
drugs. This amendment clarifies existing rules regarding billing for claims as 
prescribed and dispensed. 
The department proposes to clarify its policies concerning billing only for the 
quantity of drug actually dispensed in order to prevent abuse in the Texas 
Vendor Drug Program, by addressing the practice of partially filling 
prescriptions and billing for the entire amount. 
The amendment would require Medicaid providers to dispense the quantity 
prescribed or ordered by the physician, except as limited by the policies and 
procedures described in the department's Pharmacy Provider Handbook and to 
submit claims for the amount actually dispensed where actual quantity dispensed 
deviates from the physician's prescription.
Joe Moritz, Health Care Financing Budget Director, has determined that for the 
first five year period the section is in effect, there will be no fiscal 
implications to state or local government as a result of implementing the 
sections as proposed. 
Mr. Moritz also has determined that for each year of the first five years the 
section is in effect, the public benefit anticipated as a result of implementing 
the section will be improved provider understanding of billing policies and 
prevention of incorrect billings that might result in overpayments to providers. 
There will be no impact on small businesses. There are no anticipated economic 
costs to persons who are required to comply with the section as proposed. There 
is no anticipated impact on the local employment.
Comments on the proposal may be sent to Patricia Gladden, Director of Standards 
and Procedures, Bureau of Vendor Drug, 1100 West 49th Street, Austin, Texas 
78756-3168, (512) 338-6967. Comments will be accepted for 30 days following the 
publication date of this proposal in the Texas Register. 
This amendment is proposed under the Human Resources Code, sec.32.021 and Texas 
Government Code Chapter 531, which provides the Health and Human Services 
Commission with the authority to adopt rules to administer the State's medical 
assistance program, and are submitted by the Texas Department of Health under 
its agreement with the Health and Human Services Commission to operate the 
purchased health services program and as authorized under the Chapter 15, 
sec.1.07, Acts of the 72nd Legislature, First Called Session (1991). The 
amendment affects Chapter 32 of the Human Resources Code.

sec.35.701. Pharmacy Claims. 
(a) (No change.) 
(b) <nl>Providers must dispense the quantity prescribed or ordered by the 
physician except as limited by the policies and procedures described in Texas 
Department of Health's Pharmacy Provider Handbook. Where actual quantity 
dispensed deviates from the physicians' prescription, the provider must bill for 
the amount actually dispensed. The quantity<ol> [Quantity] of drugs [, as 
prescribed by the physician, always] must be entered in the metric decimal 
quantity field. The quantity shown as the metric decimal quantity unit must be 
calculated after referencing the pricing unit shown in the Texas Drug Code 
Index. 
(c)-(d) (No change.) 
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 June 29, 1998.
TRD-9810270
Susan K. Steeg
General Counsel
Texas Department of Health
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 458-7236

PART II. Texas Department of Mental Health and Mental Retardation
CHAPTER 409.Medicaid Programs
SUBCHAPTER C.Fraud and Abuse and Recovery of Benefits
25 TAC sec.409.69
The Texas Department of Mental Health and Mental Retardation (TDMHMR) proposes 
new sec.409.69 of Chapter 409, Subchapter C, governing Fraud and Abuse and 
Recovery of Benefits, which concerns the re-enrollment of providers in the Texas 
Medicaid program under a new contract to provide services or the amendment of 
the providers' existing contracts to provide services under the Medicaid 
program. This new section affects providers of services in the Medicaid program 
who currently have a signed provider agreement with TDMHMR. Section 2.07 of 
Senate Bill 30, enacted by the 75th Legislature, requires that the Health and 
Human Services Commission (commission) develop a new provider contract for 
health care services that contains provisions designed to strengthen the 
commission's ability to prevent provider fraud under the Texas Medicaid program. 
Senate Bill 30 also requires that, after the development of the new provider 
contract, the commission and each agency operating part of the Texas Medicaid 
program by rule shall require each provider who enrolled in the program before 
completion of the new contract to re-enroll in the program under the new 
contract or modify the provider's existing contract to comply with the 
requirements of the new contract. This process should enable the commission and 
TDMHMR to better prevent provider fraud in the Texas Medicaid program through 
the new contract provisions. If TDMHMR re-enrolls providers, it will also be 
able to gather updated information on those providers in the program, which will 
enhance the ability of the commission, in cooperation with TDMHMR, to prevent 
fraud in the program. 
Don Green, chief financial officer, has determined that for each year during the 
first five-year period that the section will be in effect, there will be no net 
fiscal implications for state or local government as a result of enforcing or 
administering the new section. The new contract provisions may result in savings 
to the State of Texas some time in the future but those potential savings cannot 
be quantified at this time. 
Ernest McKenney, director, Medicaid Administration, has determined that for each 
year during the first five-year period the section will be in effect, the public 
benefit anticipated as a result of adopting the proposed section will be 
additional provisions and information available to the commission and TDMHMR to 
prevent provider fraud in the Texas Medicaid program, potentially resulting in 
savings to the State of Texas. There may be incidental costs to providers in 
complying with this new section, such as administrative and managerial time in 
reviewing and completing a new application or amended contract. Otherwise, there 
will be no costs to persons complying with the section as proposed. There will 
be no adverse economic effect on small businesses because of the minimal cost 
associated with compliance. 
A public hearing will be held at 8:30 a.m., July 30, 1998, in auditorium of the 
main TDMHMR Central Office building (Building 2), 909 West 45th Street, Austin, 
Texas, to accept oral and written testimony concerning the proposal. Persons 
requiring an interpreter for the deaf or hearing impaired should notify Sheila 
Wilkins, Office of Policy Development, at least 72 hours prior to the hearing by 
calling (512) 206-4516. 
Questions about the proposal may be directed to Ron Gernsbacher, Medicaid 
Administration, Texas Department Mental Health and Mental Retardation, P.O. Box 
12668, Austin, TX 78711-2668 (512) 206-5752. 
Comments on the proposal may be submitted to Linda Logan, director, Policy 
Development, Texas Department Mental Health and Mental Retardation, P.O. Box 
12668, Austin, TX 78711-2668, within 30 days of publication of this notice.
The new section is proposed under the Texas Health and Safety Code, 
sec.532.015(a), which provides TDMHMR with broad rulemaking authority; and Human 
Resources Code, sec.32.021, and Government Code, sec.531.021, which provide the 
commission with the authority to administer federal medical assistance funds and 
administer the state's medical assistance program. Senate Bill 509 of the 74th 
Texas Legislature clarifies the commission's authority to delegate the operation 
of all or part of a Medicaid program to a health and human service agency. The 
commission has designated TDMHMR as the operating agency for selected Medicaid 
programs. Section 2.07 of Senate Bill 30 of the 75th Texas Legislature requires 
that Medicaid providers re-enroll under a new contract or agreement or modify 
their existing contract or agreement by September 1, 1999, to continue 
participating in the Medicaid Program. 
The new section is proposed under the Texas Human Resources Code, sec.32.021, 
Texas Government Code, sec.531.021, and Texas Health and Safety Code, 
sec.532.015(a). 

sec.409.69.Provider Re-enrollment or Provider Contract or Agreement 
Modification.
(a) No later than September 1, 1999, a provider enrolled in the Medicaid program 
who wants to continue to participate in the program must, in accordance with 
instructions from the department, either re-enroll in the Medicaid program under 
a new contract or agreement approved by the Health and Human Services Commission 
or modify the provider's existing contract or agreement using language approved 
by the Health and Human Services Commission. 
(b) A provider enrolled in the Medicaid program who does not re-enroll in the 
program under the new contract or agreement or modify the existing provider 
contract or agreement in accordance with the instructions from the department by 
September 1, 1999, does not retain eligibility to participate in the Medicaid 
program. 
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 June 29, 1998.
TRD-9810224
Charles Cooper
Chairman, Texas MHMR Board
Texas Department of Mental Health and Mental Retardation
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 206-4516

TITLE 34. PUBLIC FINANCE
PART IV. Employees Retirement System of Texas
CHAPTER 87.Deferred Compensation
34 TAC sec.sec.87.1, 87.3, 87.5, 87.11, 87.15, 87.17, 87.21
The Employees Retirement System of Texas (ERS) proposes amendments to 
sec.sec.87.1, 87.3, 87.5, 87.11, 87.15, 87.17, and 87.21, concerning the 
deferred compensation plan. The amendments are being proposed in order to 
reflect changes in federal law which require deferred compensation funds to be 
placed in trust for the exclusive benefit of plan participants and 
beneficiaries. Amendments to sec.87.1 also include the numbering of definitions 
as required by the Texas Register. 
William S. Nail, Deputy Executive Director and General Counsel, ERS, has 
determined that for the first five-year period the rules are in effect, there 
will be no fiscal implications for state or local government as a result of 
enforcing these rules. 
Mr. Nail also has determined that for each year of the first five years the 
rules are in effect the public benefit anticipated as a result of enforcing the 
rules will be greater protection for deferred compensation funds. There will be 
no effect on small businesses. There are no anticipated economic costs to 
persons who are required to comply with the rule amendments as proposed. 
Comments on the proposed rule amendments may be submitted to William S. Nail, 
General Counsel, Employees Retirement System of Texas, P.O. Box 13207, Austin, 
Texas 78711-3207. 
The amendments are proposed under Government Code, sec.609.508, which provides 
the board of trustees the authority to adopt any rules necessary to administer 
the deferred compensation plan. 
Government Code sec.609.508 is affected by these proposed amendments. 

sec. 87.1. Definitions.
The following words and terms, when used in this chapter, shall have the 
following meanings, unless the context clearly indicates otherwise. 
<nl>(1)<ol> Account - A record that a qualified vendor uses to account for 
deferrals and investment income on a participant-by-participant basis. 
<nl>(2)<ol> Agency coordinator - An employee of a state agency who has been 
designated by the agency to perform certain administrative functions with 
respect to the plan. 
<nl>(3)<ol> Basic pension plan - The retirement program in which an employee 
must participate. 
<nl>(4)<ol> Board of trustees - The Board of Trustees of the Employees 
Retirement System of Texas. 
<nl>(5)<ol> Call-in day - The first five working days of the month. 
<nl>(6)<ol> Change agreement - A contract signed by a participant to request 
certain changes concerning the participant's deferrals, investment income, and 
participation in the plan. 
<nl>(7)<ol> Data collection center - A private entity used by the State Treasury 
Department to collect information from state depositories regarding deposits of 
state funds. 
<nl>(8)<ol> Day - A calendar day. 
<nl>(9)<ol> DCP - Deferred compensation plan. 
<nl>(10)<ol> Deferral - The amount of compensation the receipt of which a 
participant has agreed to defer under the plan. 
<nl>(11)<ol> Distribution agreement - A contract signed by a participant or 
beneficiary indicating the disposition of the participant's deferrals and 
investment income. 
<nl>(12)<ol> Disclosure form - A document completed by a vendor representative 
and signed by both the representative and an employee disclosing the rate of 
return, fees, withdrawal penalties, and payout options for the qualified 
investment product selected. 
<nl>(13)<ol> Emergency withdrawal application - A form completed by a 
participant requesting the full or partial distribution of the participant's 
deferrals and investment income because of a sudden and unforeseeable emergency. 
<nl>(14)<ol> Employee - A person who provides services as an officer or employee 
to a state agency. 
<nl>(15)<ol> Executive director - The executive director of the Employees 
Retirement System of Texas. 
<nl>(16)<ol> FDIC - The Federal Deposit Insurance Corporation or its successor 
in function. The FDIC consists of two funds, the Savings Association Insurance 
Fund (SAIF), which insured savings associations and savings banks, and the Bank 
Insurance Fund (BIF), which insures commercial banks. 
<nl>(17)<ol> Fee - The term includes a fee, penalty, charge, assessment, market 
value adjustment, forfeiture, or service charge. 
<nl>(18)<ol> Gross income - The total of: 
(A) the present value of salary or wages; 
(B) plus the present value of longevity pay, hazardous duty pay, imputed income, 
special duty pay, and benefit replacement pay; and 
(C) minus the present value of contributions to the Employees Retirement System, 
the Teacher Retirement System, the Optional Retirement Program, and the TexFlex 
program administered by the Employees Retirement System. 
<nl>(19)<ol> Home office - The primary location at which a qualified vendor 
maintains its files and other records concerning the vendor's participation in 
the plan and the participants whose deferrals and investment income have been 
invested in the vendor's qualified investment products. The term is usually 
equivalent to the vendor's headquarters. 
<nl>(20)<ol> Inactive qualified vendor - A qualified vendor is an inactive 
qualified vendor if: 
(A) no new deferrals have been invested in any of the vendor's qualified 
investment products for 12 consecutive months; and 
(B) a transfer of deferrals or investment income to any of the vendor's 
qualified investment products has not occurred for 12 consecutive months. 
<nl>(21)<ol> Includes - A term of enlargement and not of limitation or exclusive 
enumeration. The use of the term does not create a presumption that components 
not expressed are excluded. 
<nl>(22)<ol> Includible compensation - Compensation from a state agency that is 
includible in a participant's gross income under the Internal Revenue Code of 
1986. The term excludes deferrals. 
<nl>(23)<ol> Investment income - The interest, capital gains, and other income 
earned through the investment of deferrals in qualified investment products. 
<nl>(24)<ol> Investment product - The term includes a life insurance product, 
fixed or variable rate annuity, mutual fund, certificate of deposit, money 
market account, or passbook savings account. A vendor's investment product that 
is in any respect different from another investment product of the same vendor 
is a different investment product. 
<nl>(25)<ol> NCUA - National Credit Union Administration, a United States 
Government Agency which regulates, charters and insures deposits of the nation's 
federal credit unions. Shares and deposits in credit unions are insured by the 
NCUSIF as detailed in this section. 
<nl>(26)<ol> NCUSIF - National Credit Union Share Insurance Fund, is 
administered by the NCUA as detailed in this section and insures members' share 
and deposit accounts at federally insured credit unions. 
<nl>(27)<ol> Non-filer - A qualified vendor which does not ensure that the plan 
administrator receives a quarterly report by the due date specified in 
sec.87.19(d)(1) of this title (relating to Reporting and Recordkeeping by 
Qualified Vendors). 
<nl>(28)<ol> One-time election form - A form completed by a participant 
requesting the full distribution of deferred compensation funds with a total 
balance that does not exceed the dollar limit under Internal Revenue Code of 
1986, sec.457(e)(9) as of the date of the election. 
<nl>(29)<ol> Participant - A current, retired, or former employee who either has 
elected to defer a portion of the employee's current compensation or has a 
balance in a qualified investment product. 
<nl>(30)<ol> Participation agreement - A contract signed by an employee agreeing 
to defer the receipt of part of the employee's compensation in accordance with 
the plan and containing certain information regarding vendors, qualified 
investment products, and other matters. 
<nl>(31)<ol> Plan - The deferred compensation program of the State of Texas that 
is governed by the Internal Revenue Code of 1986, sec.457, and authorized by 
<nl>Chapter 609, Government Code<ol> [Texas Civil Statutes, Article 6252-3g]. 
This plan is a continuation of the plan previously administered by the 
Comptroller of Public Accounts.
<nl>(32)<ol> Plan administrator - The Board of Trustees of the Employees 
Retirement System of Texas or its designee. 
<nl>(33)<ol> Product approval notice - A written notice from the plan 
administrator to a vendor informing the vendor that a particular investment 
product has been approved for participation in the plan. 
<nl>(34)<ol> Product contract - A contract between a qualified vendor and the 
plan administrator concerning the participation of one of the vendor's 
investment products in the plan. 
<nl>(35)<ol> Product type - A categorization of an investment product according 
to its relevant characteristics. Examples of product types are life insurance 
products, mutual funds, certificates of deposit, savings accounts and annuities. 
<nl>(36)<ol> Qualified investment product - An investment product concerning 
which the plan administrator and the sponsoring qualified vendor have signed a 
product contract. 
<nl>(37)<ol> Qualified vendor - A vendor with whom the plan administrator has 
signed a vendor contract. The term includes a qualified vendor's officers and 
employees. 
<nl>(38)<ol> Separation from service - A termination of the employment 
relationship between a participant and the participant's employing state agency, 
as determined in accordance with the agency's established practice. The term 
excludes a paid or unpaid leave of absence. 
<nl>(39)<ol> State agency - A board, commission, office, department, or agency 
in the executive, judicial, or legislative branch of state government. The term 
includes an institution of higher education as defined by the Education Code, 
sec.61.003, other than a public junior college. 
<nl>(40)<ol> Transfer - The redemption of deferrals and investment income from a 
qualified investment product for investment in another qualified investment 
product. 
<nl>(41)<ol> Trust - The deferred compensation trust fund established to hold 
and invest deferrals and investment income under the plan for the exclusive 
benefit of participants and their beneficiaries. 
<nl>(42)<ol> Trustee - The Board of Trustees of the Employees Retirement System 
of Texas. 
<nl>(43)<ol> Vendor - An insurance company, bank, savings and loan association, 
credit union, or mutual fund distributor that sells investment products. The 
term includes a vendor's officers and/or employees. 
<nl>(44)<ol> Vendor contract - A contract between the plan administrator and a 
vendor concerning the vendor's participation in the plan. 
<nl>(45)<ol> Vendor representative - An agent, independent agent, independent 
contractor, or other representative of a vendor who is not an employee or 
officer of the vendor.

sec.87.3.Administrative and Miscellaneous Provisions. 
(a) (No change.) 
(b) Participation by state agencies in the plan. 
(1)-(2) (No change.) 
(3) Agency coordinators. An agency coordinator is responsible for: 
(A)-(D) (No change.) 
(E) monitoring the annual deferral limits for each plan participant to ensure 
the maximum annual deferral limit of the lesser of <nl>$8,000<ol> [$7,500] (as 
adjusted) or 25% of the participant's gross income is not exceeded; 
(F)-(P) (No change.) 
(c) (No change.) 

sec.87.5.Participation by Employees.
(a)-(d) (No change.) 
(e) Participants with existing life insurance products. When a participant has 
deferrals and investment income in a life insurance product, the State of Texas 
<nl>, or effective January 1, 1999, the trust<ol>: 
(1) retains all of the incidents of ownership of the life insurance product; 
(2) is the sole beneficiary of the life insurance product; 
(3) is not required to transfer the life insurance product to the participant or 
the participant's beneficiary; and 
(4) is not required to pass through the proceeds of the product to the 
participant or the participant's beneficiary. 
(f) Normal maximum amount of deferrals. 
(1) (No change.) 
(2) The normal maximum amount of deferrals is equal to the lesser of 
<nl>$8,000<ol> [$7,500] (as periodically adjusted in accordance with Internal 
Revenue Code sec.457(e)(15)) or 33 1/3% of a participant's includible 
compensation. Mathematically, the preceding is equivalent to the lesser of 
<nl>$8,000<ol> [$7,500] (as adjusted) or 25% of the participant's gross income. 
(3) (No change.) 
(4) The participant's employing agency will monitor the annual deferral limits 
for each plan participant to ensure the maximum annual deferral limit of the 
lesser of <nl>$8,000<ol> [$7,500] (as adjusted) or 25% of a participant's gross 
income is not exceeded. If a participant makes deferrals in excess of the normal 
maximum annual deferral limit and is not participating under the catch-up 
provision, the following actions will be taken. 
(A) Upon notification by the participant's agency, the vendor will return to the 
participant's agency the amount of deferrals in excess of the normal plan 
limits, that is, the lesser of <nl>$8,000<ol> [$7,500] (as adjusted) or 25% of 
the participant's gross income without any reduction for fees or other charges.
(B) Upon receipt of the funds, the participant's agency will reimburse the 
participant through its payroll system. 
(g) Catch-up exception to the normal maximum amount of deferrals. 
(1)-(7) (No change.) 
(8) No participant shall be permitted to participate in any catch-up provision 
during or after the calendar year in which the participant reaches normal 
retirement age. If a participant makes deferrals in excess of the normal plan 
limits under the catch-up provision during or after the calendar year in which 
the participant reaches normal retirement age, the following actions will be 
taken. 
(A) Upon notification by the participant's state agency, the vendor will return 
to the participant's state agency, the amount of deferrals in excess of the 
normal plan limits, that is, the lesser of <nl>$8,000<ol> [$7,500] (as adjusted) 
or 33 1/3% of includible compensation without any reduction for fees or other 
charges. 
(B) (No change.) 
(h)-(k) (No change.) 
(l) Ownership of deferrals and investment income. [A participant's deferrals and 
investment income are the property of the State of Texas until the deferrals and 
investment income are actually distributed to the employee.] 
<nl>(1)<ol> A participant's deferrals and investment income are the property of 
the State of Texas until the deferrals and investment income are actually 
distributed to the employee. 
<nl>(2)<ol> Effective January 1, 1999, in accordance with Chapter 609, 
Government Code and Internal Revenue Code sec.457(g), all amounts currently and 
hereafter held under the plan, including deferrals and investment income, shall 
be held in trust by the Board of Trustees for the exclusive benefit of 
participants and their beneficiaries and may not be used for or diverted to any 
other purpose, except to defray the reasonable expenses of administering the 
plan. In its sole discretion, the Board of Trustees may cause plan assets to be 
held in one or more custodial accounts or annuity contracts that meet the 
requirements of Internal Revenue Code sec.sec.457(g) and 401(f). In addition, 
effective January 1, 1999, the Board of Trustees does hereby irrevocably 
renounce, on behalf of the State of Texas and participating state agencies, any 
claim or right which it may have retained to use amounts held under the plan for 
its own benefit or for the benefit of its creditors and does hereby irrevocably 
transfer and assign all plan assets under its control to the Board of Trustees 
in its capacity as the trustee of the trust created hereunder. Adoption of this 
rule shall constitute notice to vendors holding assets under the plan to change 
their records effective January 1, 1999, to reflect that assets are held in 
trust by the Board of Trustees for the exclusive benefit of the participants and 
beneficiaries. Failure of a vendor to change its records on a timely basis may 
result in the expulsion of the vendor from the plan. 
(m) Market risk and related matters. 
(1) The plan administrator, <nl>the trustee,<ol> an employing state agency, or 
an employee of the preceding are not liable to a participant if all or part of 
the participant's deferrals and investment income are diminished in value or 
lost because of: 
(A) market conditions; 
(B) the failure, insolvency, or bankruptcy of a qualified vendor; or 
(C) the plan administrator's initiation of a transfer in accordance with the 
sections in this chapter. 
(2) (No change) 
(n) (No change)

sec.87.11. Advertising Material and Solicitation.
(a)-(c) (No change.) 
(d) General requirements for solicitation. 
(1)-(4) (No change.) 
(5) A qualified vendor or vendor representative may not state, represent, or 
imply that its qualified investment product is endorsed or recommended by the 
plan administrator, <nl>the trustee,<ol> a state agency, the State of Texas, or 
an employee of the foregoing. 
(6)-(9) (No change.) 
(e) (No change.)

sec.87.15. Transfers. 
(a)-(c) (No change.) 
(d) Procedures for making a transfer of all deferrals and investment income from 
a qualified investment product. 
(1)-(2) (No change.) 
(3) If a check is used to make a transfer, this paragraph applies. 
(A) The qualified vendor must make the check payable to the State of Texas <nl>, 
or effective January 1, 1999, the trust,<ol> and promptly send the check to the 
plan administrator. 
(B)-(E) (No change.) 
(4) (No change.) 
(e) Procedures for making a transfer of less than all deferrals and investment 
income from a qualified investment product. 
(1) (No change.) 
(2) If the plan administrator initiates a transfer, this paragraph applies. 
(A) (No change.) 
(B) The qualified vendor must make the check payable to the State of Texas <nl>, 
or effective January 1, 1999, the trust,<ol> and promptly send the check to the 
plan administrator. 
(C)-(H) (No change.) 
(3) If a participant initiates a transfer, this paragraph applies. 
(A)-(B) (No change.) 
(C) After receiving notification of a transfer from the plan administrator, a 
qualified vendor shall issue a check payable to the State of Texas <nl>, or 
effective January 1, 1999, the trust,<ol> in an amount equal to the transfer. 
The vendor shall ensure that the plan administrator receives the check no later 
than the 30th day after the vendor receives notification of the transfer. 
(D)-(F) (No change.) 
(f) (No change.) 
(g) Transfers into life insurance products. 
(1) (No change.)
(2) When a participant chooses to transfer deferrals and investment income to an 
existing replacement life insurance product within the same vendor, the State of 
Texas <nl>, or effective January 1, 1999, the trust<ol>: 
(A) retains all of the incidents of ownership of the life insurance product; 
(B) is the sole beneficiary of the life insurance product; 
(C) is not required to transfer the life insurance product to the participant or 
the participant's beneficiary; and 
(D) is not required to pass through the proceeds of the product to the 
participant or the participant's beneficiary. 
(h) (No change.)

sec.87.17.Distributions.
(a)-(j) (No change.) 
(k) Emergency withdrawals. 
(1)-(8) (No change.) 
(9) If the plan administrator approves a participant's request for an emergency 
withdrawal, the participant must agree to cease all deferrals, except deferrals 
to life insurance products, to both this plan and the <nl>Texa$aver 401(k)<ol> 
[TexaSaver] plan for a twelve month period following the approval. 
(10) (No change.) 
(l)-(t) (No change.) 
(u) Federal withholding and reporting requirements. 
(1) (No change.) 
(2) A qualified vendor shall file an application for authorization to act as 
agent of the State of Texas <nl>, or effective January 1, 1999, the plan,<ol> 
with the District Director of the Internal Revenue Service Center where the 
qualified vendor files its returns. The application shall include Form 2678 - 
Employer Appointment of Agent under Section 3504 of the Internal Revenue Code, 
which shall be supplied by the plan administrator, and shall be completed and 
filed in accordance with the instructions set forth in Internal Revenue Service 
Publication 1271. The qualified vendor shall promptly furnish to the plan 
administrator a copy of such vendor's letter of authorization from the Internal 
Revenue Service approving the appointment of the qualified vendor as agent. 
(3)-(6) (No change.)

sec.87.21.Remedies.
(a)-(d) (No change.) 
(e) A qualified vendor's failure to act. 
(1) A qualified vendor shall reimburse the State of Texas <nl>, or effective 
January 1, 1999, the trust,<ol> for a financial loss that results from the 
vendor's failure to process a request for a transfer in a reasonable time, not 
to exceed 30 days. 
(2) (No change.) 
(f)-(h) (No change.) 
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 June 19, 1998.
TRD-9809873
Sheila W. Beckett
Executive Director
Employees Retirement System of Texas
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 867-3336

TITLE 37. PUBLIC SAFETY AND CORRECTIONS
PART III. Texas Youth Commission
CHAPTER 97.Security and Control
SUBCHAPTER A.Security and Control
37 TAC sec.97.9
(Editor's note: The text of the following section proposed for repeal will not 
be published. The section may be examined in the offices of the Texas Youth 
Commission or in the Texas Register office, Room 245, James Earl Rudder 
Building, 1019 Brazos Street, Austin.)
The Texas Youth Commission (TYC) proposes the repeal of sec.97.9, concerning 
search. This section is being repealed to allow for the adoption of a new 
replacement section. 
Terry Graham, Assistant Deputy Executive Director for Financial Support, has 
determined that for the first five-year period the repeal as proposed is in 
effect there will be no fiscal implications for state or local government as a 
result of enforcing or administering the repeal. 
Mr. Graham also has determined that for each year of the first five years the 
repeal is in effect the public benefit anticipated as a result of enforcing the 
repeals will be adoption of an updated rule. There will be no effect on small 
businesses. There is no anticipated economic cost to persons who are required to 
comply with the repeal as proposed. 
Comments on the proposal may be submitted to Gail Graham, Policy and Manuals 
Manager, Texas Youth Commission, 4900 North Lamar, P.O. Box 4260, Austin, Texas 
78765. 
The repeal is proposed under the Human Resources Code, sec.61.034, which 
provides the Texas Youth Commission with the authority to make rules appropriate 
to the accomplishment of its functions. 
The proposed repeal implements the Human Resource Code, sec.61.034.
sec.97.9.Search.
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 June 25, 1998.
TRD-9810159
Steve Robinson
Executive Director
Texas Youth Commission
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 424-6244

37 TAC sec.97.9
The Texas Youth Commission (TYC) proposes new sec.97.9, concerning search. The 
new section, applicable to youth committed to TYC and held in a residential 
facility, will require that strip searches, be based on reasonable belief that 
the youth is carrying contraband. Body cavity searches will be conducted only 
with specific authorization.
Terry Graham, Assistant Deputy Executive Director for Financial Support, has 
determined that for the first five-year period the section is in effect there 
will be no fiscal implications for state or local government as a result of 
enforcing or administering the section.
Mr. Graham also has determined that for each year of the first five years the 
section is in effect the public benefit anticipated as a result of enforcing the 
section will be increased protection for youth housed in residential facilities 
and staff. There will be no effect on small businesses. There is no anticipated 
economic cost to persons who are required to comply with the section as 
proposed. No private real property rights are affected by adoption of this rule. 
Comments on the proposal may be submitted to Gail Graham, Policy and Manuals 
Manager, Texas Youth Commission, 4900 North Lamar, P.O. Box 4260, Austin, Texas 
78765. 
The new section is proposed under the Human Resources Code, sec.61.034, which 
provides the Texas Youth Commission with the authority to adopt policies and 
make rules appropriate to the proper accomplishment of its functions. 
The proposed rule implements the Human Resource Code, sec.61.034. 

sec.97.9.Search.
(a) Purpose. The purpose of this rule is to establish requirements for searching 
Texas Youth Commission (TYC) youth, their property, and youth rooms in order to 
detect contraband. 
(b) Applicability. Requirements in this rule are consistent with (GAP) sec.93.1 
of this title (relating to Basic Youth Rights). 
(c) Designated staff may conduct a search of a TYC youth or a youth's room in a 
residential facility other than the youth's home, for the purpose of finding and 
seizing contraband. 
(d) Room searches and pat down searches to detect and deter possession of 
contraband or to protect persons may be conducted with or without probable cause 
so long as searches are conducted in a reasonable manner. 
(1) Searches will be conducted in accordance with the following rules. 
(A) Searches may be unannounced and irregularly timed. 
(B) Searches are to be conducted no more frequently than necessary to control 
possession by youth of unauthorized items or to recover missing or stolen 
property. 
(C) Two staff members must be in attendance for searches. 
(D) Staff will follow precautionary guidelines in accordance with Workplace 
Guidelines. 
(2) The presence of the youth whose property is being searched is preferable for 
all room searches. 
(e) Strip searches including visual inspection of body cavities and/or manual 
inspection of the mouth will be conducted in accordance with paragraphs (1)-(4) 
of this subsection. Strip searches: 
(1) will be based on reasonable belief that the youth is carrying contraband or 
other prohibited material. Reasonable belief is not required when youth returns 
from contact with the general public or from outside the facility; 
(2) shall take place in a private setting that aids in the avoidance of 
unnecessary force, embarrassment, or indignity to the youth; 
(3) may be conducted by juvenile correctional officers. Any staff conducting 
strip search must be of the same sex as the youth and must be trained personnel; 
and
(4) Police, other law enforcement officers, detention workers, and duly 
designated agents of the court may assist TYC staff in such a search if 
necessary. 
(f) Body cavity searches refers to manual or instrument inspection of body 
cavities including the vagina or rectum, but excluding the mouth. Body cavity 
searches: 
(1) may occur only on probable cause that the youth possesses contraband; and 
(2) only with the authorization of the superintendent; and 
(3) shall be conducted only by medical personnel; and 
(4) shall take place in a private setting that aids in the avoidance of 
unnecessary force, embarrassment, or indignity to the youth.
(g) Searches of rooms, searches of youth being admitted to facilities, and 
searches of youth after visitation may be conducted routinely. Documentation of 
routine searches is not required unless unauthorized items are seized. Searches 
other than the routine searches named herein shall be documented. At all times 
when unauthorized items are seized from a youth, the search and disposition of 
items shall be documented. Also see (GAP) sec.97.11 of this title (relating to 
Control of Unauthorized Items Seized). 
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 June 25, 1998.
TRD-9810158
Steve Robinson
Executive Director
Texas Youth Commission
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 424-6244

TITLE 40. SOCIAL SERVICES AND ASSISTANCE
PART I. Texas Department of Human Services
CHAPTER 79.Legal Services
The Texas Department of Human Services (DHS) proposes to amend sec.sec.79.1901, 
79.1906, 79.1914, 79.1917, 79,1919, 79.2003, 79.2009, and 79.2011, concerning 
introduction and legal basis, advance notice of hearing, recessing the hearing, 
effect of an administrative determination of intentional program violation, 
court actions in relation to administrative disqualification, determination and 
disposition of intentional program violations, referral of food stamp and aid to 
families with dependent children (AFDC) intentional program violation claims to 
administrative disqualification hearing officer, and collection action on food 
stamp and aid to families with dependent children (AFDC) intentional program 
violation claims, in its Legal Services chapter. The purpose of the amendments 
is to update the existing rules to bring them into compliance with the name 
change of Aid to Families with Dependent Children (AFDC) to Temporary Assistance 
for Needy Families (TANF), and 7 CFR 273.16(4) Scheduling of Hearing.
Eric M. Bost, commissioner, has determined that for the first five-year period 
the proposed sections will be in effect there will be no fiscal implications for 
state or local governments as a result of enforcing or administering the 
sections. 
Mr. Bost also has determined that for each year of the first five years the 
sections are in effect the public benefit anticipated as a result of enforcing 
the sections will be that the rules will be updated and in compliance with 7 CFR 
273.16(4). The proposed rules change the term AFDC to TANF and amend state rules 
to coincide with federal regulations as related to administrative 
disqualification hearing procedures. These changes are primarily technical in 
nature and have no impact on small businesses. There is no anticipated economic 
cost to persons who are required to comply with the proposed sections.
Questions about the content of this proposal may be directed to Barbara Stegall 
at (512) 438-4878 in DHS's Hearings Department. Written comments on the proposal 
may be submitted to Supervisor, Rules and Handbooks Unit-295, Texas Department 
of Human Services E-205, P.O. Box 149030, Austin, Texas 78714-9030, within 30 
days of publication in the Texas Register.

SUBCHAPTER T.Administrative Fraud Disqualification Hearings
40 TAC sec.sec.79.1901, 79.1906, 79.1914, 79.1917, 79.1919
The amendments are proposed under the Human Resources Code, Title 2, Chapters 22 
and 31, which provides the department with the authority to administer public 
and financial assistance programs. 
The amendments implement the Human Resources Code, sec.sec.22.001-22.030 and 
sec.sec.31.001-31.0325. 

sec.79.1901.Introduction and Legal Basis.
A household member becomes ineligible to participate in the Food Stamp program 
and/or <nl>Temporary Assistance for Needy Families (TANF) <ol>[Aid to Families 
with Dependent Children (AFDC)] program if a state or federal court or 
administrative agency determines he has committed an intentional program 
violation<nl>, in Food Stamps/Aid to Families with Dependent Children 
(AFDC)/TANF<ol>. 

sec.79.1906.Advance Notice of Hearing.
(a) The hearing officer sends the household member an advance notice of the 
hearing in sufficient time to allow receipt at least 30 calendar days before the 
scheduled hearing date. The notice is sent <nl>first class and <ol>[by] 
certified mail, return-receipt requested, and marked <nl> "return service 
requested" <ol>["do not forward, address-correction requested"] to the address 
where the household member last received benefits. Delivery is not restricted to 
the addressee. The notice specifies the charges against the household member and 
a summary of the evidence (including how and where it may be examined). <nl>If 
the notice is returned showing a new address, it will be resent and the normal 
due process rules will be reapplied.<ol> 
(b) Advance notice requirements are met when the certified mail [receipt] is 
returned showing the notice was delivered <nl> or refused. If the household 
member fails to appear and the returned receipt for certified mail has not been 
returned or the first class mail is returned as undeliverable, the hearing will 
be conducted<ol>[, delivery of the notice was refused, or the notice was 
unclaimed. The hearing is held as scheduled unless the hearing officer grants a 
postponement]. 
[(c) <p<ol> Advance notice requirements are not met when the notice is returned 
showing that the household member moved and there is no forwarding address or if 
there is a new address.] 
(1) If the returned notice shows a new address, another notice is mailed 
following the procedures in subsection (a) of this section, and the 90-day time 
requirement for issuing a decision begins again with the date that the second 
notice is mailed. 
(2) If the <nl>household member claims non-receipt of notice of the hearing, he 
has 30 days after the date of the written notice of the hearing decision to 
claim good cause for not appearing at the hearing. In all other instances, the 
household member has ten days to claim good cause for not appearing. If the 
household member is found to have committed an intentional program violation but 
a hearing officer later determines that good cause existed for not appearing, 
the previous decision shall no longer be valid and a new hearing will be 
conducted <ol>[notice is returned showing that the household member has moved 
and there is no forwarding address, the hearing officer dismisses the case 
without prejudice].

sec.79.1914.Recessing the Hearing.
(a) If the household member, the investigator, or the hearing officer requests 
to have the Food Stamp or <nl>Temporary Assistance for Needy Families (TANF) 
<ol>[Aid to Families with Dependent Children (AFDC)] record at the hearing, the 
hearing may be recessed to obtain the record. The household member may question 
or refute any additional testimony or evidence after a recess. 
(b) (No change.) 

sec.79.1917.Effect of an Administrative Determination of Intentional Program 
Violation.
(a) If a hearing officer finds that a household member committed an intentional 
program violation, the household member is disqualified from the Food Stamp 
and/or <nl>Temporary Assistance for Needy Families (TANF) <ol>[Aid to Families 
with Dependent Children (AFDC)] programs for the following periods. 
(1) <nl>TANF <ol>[AFDC]. The person is disqualified: 
(A)-(D) (No change.) 
(2) (No change.) 
(b) The disqualification period does not depend upon the amount of benefits 
involved. The disqualification period set at the time of the hearing is 
applicable <nl>regardless of current eligibility <ol>[only against months in 
which the household member would otherwise be eligible]. The household member 
may not: 
(1)-(2) (No change.) 
(c)-(e) (No change.) 

sec.79.1919.Court Actions in Relation to Administrative Disqualification.
(a) The <nl>temporary assistance for needy families (TANF) <ol>[aid to families 
with dependent children (AFDC)] and food stamp federal regulations provide for a 
court of appropriate jurisdiction to order an individual disqualified from 
participating in the program for the time periods described in sec.79.1917 of 
this title (relating to Effect of an Administrative Determination of Intentional 
Program Violation). 
(b)-(c) (No change.) 
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 June 23, 1998.
TRD-9810038
Glenn Scott
General Counsel, Legal Services
Texas Department of Human Services
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 438-3765

SUBCHAPTER U.Fraud Involving Recipients
40 TAC sec.sec.79.2003, 79.2009, 79.2011
The amendments are proposed under the Human Resources Code, Title 2, Chapters 22 
and 31, which provides the department with the authority to administer public 
and financial assistance programs. 
The amendments implement the Human Resources Code, sec.sec.22.001-22.030 and 
sec.sec.31.001-31.0325. 

sec.79.2003.Determination and Disposition of Intentional Program Violations.
(a) The Texas Department of Human Services (DHS) determines the existence of 
intentional program violations; refers cases for investigation, administrative 
hearings, and prosecution; takes collection action[,] and ensures clients' 
rights according to applicable Texas criminal statutes and the following: 
(1) <nl>Temporary Assistance for Needy Families (TANF) - as provided in Personal 
Responsibility and Work Opportunity Act (PL 104-193), and Chapter 31 Human 
Resources Code. <ol>[Aid to Families with Dependent Children (AFDC) Program - 45 
Code of Federal Regulations sec.233.20 
(a) (13)(B), sec.235.110, sec.235.112, and sec.235.113.] 
(2)-(3) (No change.) 
(b) Individuals found to have committed an intentional program violation in the 
food stamp and/or <nl>TANF <ol>[AFDC] programs either through an administrative 
disqualification hearing or by a court of appropriate jurisdiction, or who have 
signed a waiver of right to an administrative disqualification hearing, or on 
the basis of a plea of guilty or nolo contendere or otherwise in cases referred 
for prosecution in a state or federal court are ineligible to participate in the 
program for <nl>12 <ol>[six] months for the first violation, <nl>24 <ol>[12] 
months for the second violation, and permanently for the third violation. In 
<nl>TANF <ol>[AFDC] cases, DHS does not take the needs of the disqualified 
individual into account during the period he is disqualified when determining 
the assistance unit's need and amount of assistance. DHS considers any resources 
and income of the disqualified individual as available to the assistance unit. 
DHS does not disqualify an individual from the <nl>TANF <ol>[AFDC] program 
unless the overissuance of benefits resulting from the intentional violation 
occurred in the month of October 1988 or later. 
(c) Disqualified individuals are ineligible for <nl>TANF <ol>[AFDC] Medicaid 
benefits during the disqualification period. However, they may qualify for and 
receive benefits under provisions of Chapter 2 of this title (relating to the 
Medically Needy Program) or under provisions of Chapter 4 of this title 
(relating to the Medical Programs for Children and Pregnant Women). 
(d)-(e) (No change.) 

sec.79.2009.Referral of Food Stamp and <nl>Temporary Assistance for Needy 
Families (TANF) <ol>[Aid to Families with Dependent Children (AFDC)] Intentional 
Program Violation Claims to Administrative Disqualification Hearing Officer.
(a) If the investigator has documented evidence to substantiate that an 
individual in a food stamp or <nl>TANF <ol>[AFDC] household has committed an 
intentional program violation, an administrative disqualification hearing may be 
held. 
(b)-(d) (No change.) 

sec.79.2011.Collection Action on Food Stamp and <nl> Temporary Assistance for 
Needy Families (TANF)<ol> [Aid to Families with Dependent Children (AFDC)] 
Intentional Program Violation Claims.
(a)-(d) (No change.) 
(e) If the household against which collection action has been initiated for 
repayment of an intentional program violation claim is currently participating 
in the program and does not respond to the written demand letter within 10 days 
of the date the notice is mailed, DHS will reduce the household's food stamp 
allotment and/or <nl>TANF <ol>[AFDC] grant. If a nonparticipating household 
against which collection action has been initiated fails to respond to the first 
demand letter, DHS sends additional demand letters at reasonable intervals, 
until: 
(1)-(3) (No change.) 
(f)-(h) (No change.) 
(i) If the investigator interviews the person suspected of committing an 
intentional program violation and the person expresses that he does not want to 
have an administrative disqualification hearing and is willing to repay the 
overissuance, the following policies and procedures apply.
(1) (No change.) 
(2) By signing the waiver of hearing and repayment agreement forms, the 
recipient agrees that he does not want a hearing, that he will repay the 
overissuance, and that he understands that he will be disqualified from 
receiving food stamps and/or <nl>TANF/Aid to Families with Dependent Children 
(AFDC) <ol>[AFDC] for a period of time determined by whether it is the first, 
second, or third offense. In some cases, the client may be given an opportunity 
to waive his right to a hearing through direct mail contact. 
(3)-(4) (No change.) 
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 June 23, 1998.
TRD-9810039
Glenn Scott
General Counsel, Legal Services
Texas Department of Human Services
Earliest possible date of adoption: August 9, 1998
For further information, please call: (512) 438-3765

PART XIX. Texas Department of Protective and Regulatory Services
CHAPTER 700. Child Protective Services
SUBCHAPTER C. Eligibility for Child Protective Services
40 TAC sec.700.316
The Texas Department of Protective and Regulatory Services (TDPRS) proposes an 
amendment to sec.700.316, concerning eligibility requirements for Title IV-E, 
MAO, and state-paid foster care, in its Child Protective Services (CPS) chapter. 
The purpose of the amendment is to allow CPS to provide up to 3 and 1/2 months 
of transitional state-paid foster care assistance to youth and completed high 
school (usually in May), but who are not able to move into a college dormitory 
until August or September. Obtaining short-term housing in these situations can 
be difficult, as current CPS policy requires that paid foster care end the month 
the youth graduates from high school. 
Cindy Brown, Budget and Analysis Division Director, has determined that for the 
first five-year period the proposed section will be in effect there will be 
fiscal implications for state government as a result of enforcing or 
administering the section. The effect on state government for the first five-
year period the amendment will be in effect is an estimated additional cost of 
$291,006 for fiscal year 1999; $296,826 for fiscal year 2000; $302,763 for 
fiscal year 2001; $308,817 for fiscal year 2002; and $314,993 for fiscal year 
2003. These will be no fiscal implications for local government. 
Ms. Brown also has determined that for each year of the first five years the 
section is in effect the public benefit anticipated as a result of enforcing the 
section will be placement services that better meet the needs of individual 
youth. Youth will have a greater likelihood of following through with their 
college and vocational goals because they have a continuity of stable living 
arrangement before they begin their higher educational or vocational program. 
There will be no effect on small businesses because there is no cost to small 
businesses in terms of employees, labor, or sales. There is no anticipated 
economic cost to persons who are required to comply with the proposed section.
Questions about the content of the proposal may be directed to Janet Luft at 
(512) 438-5442 in TDPRS's Child Protective Services section. Written comments on 
the proposal may be submitted to Supervisor, Rules and Handbooks Unit-285, Texas 
Department of Protective and Regulatory Services E-205, P.O. Box 149030, Austin, 
Texas 78714-9030, within 30 days of publication in the Texas Register. 
The amendment is proposed 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. In addition, the amendment is proposed under 
Public Law No. 96-272, Title I, which authorizes the department to administer 
foster-care and adoption assistance programs provided for under the Social 
Security Act, Title IV-E. 
The amendment is also proposed 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; 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; 
grants authority to contract to that department; and establishes the 
department's rulemaking authority. 
The amendment implements 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. 

sec.700.316. Eligibility Requirements for Title IV-E, MAO, and State-Paid Foster 
Care Assistance. 
The child must meet all of the following criteria to be eligible for Title IV-E, 
Medical Assistance Only (MAO), or state-paid foster care assistance. 
(1)-(2) (No change.) 
(3) Age if attending school. A youth's eligibility for foster care assistance 
can be extended until the end of the month of his graduation from high school or 
the end of the month of his completion of vocational or technical training 
classes when the conditions specified in subparagraph (A) of this paragraph are 
satisfied or when the conditions specified in subparagraphs (B) or <nl>(C)(i) 
<ol>[(C)] of this paragraph are satisfied in addition to the conditions in 
subparagraph (A) of this paragraph. 
(A) General conditions. The youth must: 
(i)-(ii) (No change.) 
(iii) be scheduled to: 
(I) (No change.) 
(II) graduate from high school before or during the month of his 20th birthday 
as specified in subparagraph <nl>(C)(i)<ol> [
(C)] of this paragraph. 
(B) (No change.) 
(C) Special condition affecting state-paid foster-care assistance. 
<nl>(i)<ol> A youth who is scheduled to graduate from high school after his 19th 
birthday is eligible to receive state-paid foster-care assistance from the 
beginning of the first full month following his 18th birthday until the end of 
the month of his graduation or withdrawal, as long as the youth is scheduled to 
graduate from high school before or during the month of his 20th birthday. 
<nl>(ii)<ol> If a youth has been accepted for admission to a college or 
vocational program that does not begin immediately, the youth's eligibility for 
state-paid foster care assistance can be extended for a period not to exceed 3 
and 1/2 months following the end of the month in which the youth graduated from 
high school or completed the GED. In these situations, the youth qualifies for 
state-paid foster care assistance at a level of care (LOC) 1. 
(4)-(8) (No change.)
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 June 29, 1998.
TRD-9810238
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

SUBCHAPTER R. Cost-finding Methodology for 24-Hour Child-care Facilities
40 TAC sec.sec.700.1803-700.1806
The Texas Department of Protective and Regulatory Services (TDPRS) proposes 
amendments to sec.sec.700.1803-700.1806, concerning definition of allowable and 
unallowable costs, allowable costs, unallowable costs, and costs not included in 
recommended payment rates, in its Child Protective Services chapter. The purpose 
of the amendments is to create one set of cost principles and guidelines for 
both residential child care contractors and purchase-of-service contractors. The 
basis of the principles and guidelines is found in the federal circulars. 
Cindy Brown, Budget and Analysis Division Director, has determined that for the 
first five-year period the proposed sections will be in effect there will be no 
fiscal implications for state or local government as a result of enforcing or 
administering the sections. 
Ms. Brown also has determined that for each year of the first five years the 
sections are in effect the public benefit anticipated as a result of enforcing 
the sections will be that residential child care contractors will have one set 
of rules for cost reporting and expenditures. Purchase-of-service contractors 
will no longer have differences between federal circulars and TDPRS's rules, 
unless the state specifically desires to be more restrictive than federal 
guidelines. There will be no effect on small businesses because those small 
businesses which are currently contracting with TDPRS have been required to be 
in compliance with the relevant federal regulations under the terms of their 
contracts with TDPRS. There is no anticipated economic cost to persons who are 
required to comply with the proposed sections for similar reasons.
Questions about the content of the proposal may be directed to Nancy Kimble at 
(512) 833-3405 in TDPRS's Contract Administration Division. Written comments on 
the proposal may be submitted to Supervisor, Rules and Handbooks Unit-237, Texas 
Department of Protective and Regulatory Services E-205, P.O. Box 149030, Austin, 
Texas 78714-9030, within 30 days of publication in the Texas Register. 
The amendments are proposed 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, and 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. 

sec.700.1803. Definition of Allowable and Unallowable Costs.
[(a)] General information. The Texas Department of Protective and Regulatory 
Services (TDPRS) defines allowable and unallowable costs in order to identify 
the reasonable expenses that a prudent and cost effective provider must incur to 
provide the 24-hour child-care services specified in the provider's contract or 
agreement with TDPRS. The primary objective of TDPRS's cost-reporting system is 
to determine a fair and reasonable reimbursement rate for a prudent and cost 
effective provider. To achieve this objective, TDPRS compiles a rate base that 
includes only information about allowable costs. <nl>TDPRS reimburses its 
residential child care contractors only for costs which are allowable, 
reasonable, necessary, and properly allocated to the specific contract. The cost 
principles, guidelines, and definitions for allowable and unallowable costs for 
cost-reporting purposes (such as rate setting) and for expenditure purposes are 
the same. Those guidelines are published in sec.sec.732.240 and 732.242-732.256 
of this title (relating to Contract Administration). <ol>[When TDPRS classifies 
a particular type of expense as unallowable, the classification means only that 
TDPRS will not include the expense in the rate base because the department does 
not consider the expense reasonable and necessary to provide contracted 
services. The classification does not mean that individual providers must not 
make these expenditures.
[(b) Definitions. The following words and terms, when used in this subchapter, 
shall have the following meanings, unless the context clearly indicates 
otherwise.] 
[(1) "Allowable costs" are expenses that are reasonable and necessary in the 
normal conduct of operations relating to child-care services in a 24-hour, 
residential child-care facility. To the extent possible, TDPRS includes only 
allowable costs in the rate base. The key terms in this definition and in the 
definition of unallowable costs are further explained as follows.] 
[(A) "Reasonable" refers to the amount expended. An amount is reason- able if it 
does not exceed the cost that a prudent and cost effective operator seeking to 
contain costs would incur.] 
[(B) "Necessary" refers to the relationship of the cost to the provision of 
child-care services. A cost is necessary if it is usual and customary in the 
operation of a 24-hour child-care facility, and if it satisfies all of the 
following conditions.] 
[(i) The cost is not listed as an unallowable cost in sec.700.1805 and 
sec.700.1806 of this title (relating to Unallowable Costs and Costs Not Included 
in Recommended Payment Rates).] 
[(ii) The cost is not unallowable under other federal, state, or local laws or 
regulations.] 
[(iii) The cost is not for personal or other activities that are not 
specifically related to the provision of child-care services in a 24- hour 
child-care facility.] 
[(iv) The cost bears a significant relationship to the provision of 24-hour 
child-care services. PRS considers the relationship significant if eliminating 
the expenditure would adversely affect the health, safety, or welfare of 
children in the facility.] 
[(v) The cost is incurred in the purchase of materials, supplies, or services 
provided directly to the children or staff of individual 24- hour child-care 
facilities in the conduct of normal operations relating to child-care services.] 
[(C) Expenses incurred "in the normal conduct of operations relating to 24-hour 
child-care services" include but are not limited to the following types of 
special expenses.] 
[(i) Expenses for facilities, materials, supplies, and services. The allowable 
portion of expenses for facilities, materials, supplies, and services that are 
used both for providing 24-hour child-care services and for other purposes. 
Whenever otherwise allowable costs can be attributed partially to personal or 
other business interests and partially to child-care services, the portion 
attributed to child-care services may be allowed on a pro rata basis if the 
attribution is well-documented.]
[(ii) Expenses in related-party transactions. In related-party transactions, the 
allowable cost to the 24-hour child-care facility is the cost to the related 
party. Allowable costs in related-party transactions are limited to the lesser 
of the actual purchase price paid by the related party or the usual and 
customary charge for comparable goods or services. Two or more individuals or 
organizations constitute related parties whenever they are affiliated or 
associated in a manner that entails some degree of legal control or practical 
influence of one over the other. The affiliation or association may be based on 
common ownership, past or present mutual interests in child care or other types 
of enterprises, or family ties. Allowable costs that result from arm's-length 
transactions involving unrelated parties are not affected by the provisions of 
this clause.] 
[(2) "Third-party payors" are reimbursement sources other than the provider, 
including county agencies, parents, insurance, and state or federal agencies.] 
[(3) "Unallowable costs" are expenses that are not reasonable and necessary in 
the normal conduct of operations relating to child-care services in a 24-hour, 
residential child-care facility. To the extent possible, PRS does not include 
unallowable costs in the rate base.]

sec.700.1804. Allowable Costs. 
<nl>The cost principles for allowable costs are found in sec.sec.732.240 and 
732.242-732.256 of this title (relating to Contract Administration). <ol>[The 
following list of allowable costs is designed to function as a general guide and 
to clarify certain key expense areas. The list is not comprehensive, and the 
absence of a particular cost does not necessarily mean that the cost is not 
allowable.] 
[(1) Compensation of 24-hour child-care facility employees. This cost includes 
compensation only of those employees who provide services directly to the 
residents or staff of a 24-hour child-care facility in the normal conduct of 
operations relating to resident care. Compensation includes the following 
elements.] 
[(A) Wages and salaries. This includes deferred compensation, overtime pay, 
incentive pay and bonuses, and any other monies subject to withholding taxes and 
Federal Insurance Contributions Act (FICA) deductions.] 
[(B) Payroll taxes and insurance. This includes FICA and other social security 
contributions, unemployment compensation insurance, and workers' compensation 
insurance.] 
[(C) Employee benefits. This includes employer-paid health, life, accident, and 
disability insurance for employees; employer contributions to employee 
retirement accounts; uniform and clothing allowances; and housing and meals 
provided to employees as a part of the employment contract.] 
[(2) Compensation of outside consultants who provide direct services to 
residents or staff of a 24-hour child-care facility.] 
[(3) Routine child-care expenses. This includes expenses for recreational fees 
and supplies, clothing expenses that are not covered by a third-party payor, 
allowances (except for amounts paid from a child's trust fund), personal-care 
supplies, laundry, linen, housekeeping, personal educational supplies, and gifts 
for children.] 
[(4) Dietary services expenses. This includes expenses for food, food- related 
supplies, kitchen equipment, and depreciation of kitchen equipment.] 
[(5) Therapy expenses. This includes the cost and depreciation of supplies for 
therapy.] 
[(6) Central-office overhead expenses. A facility may use an indirect rate that 
has been approved by the federal government to allocate these expenses. If a 
facility does not have an approved indirect rate, it must develop a reasonable 
method of allocation.] 
[(7) Building, equipment, and capital expenses. This includes expenses for the 
rental, lease, and depreciation of buildings and equipment, land and leasehold 
improvements, taxes, insurance, utilities, maintenance, and interest.] 
[(A) Depreciation and amortization expense. Property owned by the provider, and 
improvements to owned, leased, or rented property valued at more than $500 at 
the time of purchase, must be depreciated or amortized using the straight-line 
method. The minimum useful lives to be assigned to depreciable property are as 
follows:] 
[(i) buildings: 30 years, with a minimum salvage value of 10% or a use-fee 
formula specified by Texas Department of Protective and Regulatory Services 
(PRS) based on an approved appraisal;] 
[(ii) building equipment, buildings and grounds improvements and repairs, 
furniture and appliances, and power equipment and tools used for buildings and 
grounds maintenance: minimum schedules consistent with Estimated Useful Lives of 
Depreciable Hospital Assets, published by the American Hospital Association; 
and] 
[(iii) transportation equipment used for the transport of residents or of 
materials and supplies utilized by the 24-hour child-care facility: a minimum of 
three years for passenger automobiles; five years for light trucks and vans; and 
seven years for buses, with a minimum salvage value of 10%.] 
[(B) Rental and lease expense. Rental and lease expense paid to a related party 
is limited to the lower of the cost to the related party or organization; or the 
cost to the provider; or the price of comparable services, facilities, or 
supplies purchased in an arm's-length transaction. This includes rental and 
lease expenses for buildings, transportation equipment, building equipment, 
furniture, and so forth.] 
[(C) Interest expense. Interest expense is allowable on loans for the 
acquisition of allowable items, subject to all of the requirements governing 
allowable costs and to the following additional requirements:] 
[(i) the loan must be evidenced in writing; and] 
[(ii) the loan must be made in the name of the provider as maker or co-maker of 
the note.] 
[(D) Interest expense on related-party loans. Interest expense on related-party 
loans is limited to the lesser of:] 
[(i) the interest expense to the provider, which is the expense to the related 
party; or] 
[(ii) the prevailing national average prime interest rate during the year in 
which the loan contract is concluded, as the rate is reported by the U. S. 
Department of Commerce's Bureau of Economic Analysis in the Survey of Current 
Business and the Business Conditions Digest.] 
[(E) Tax expense. This includes ad valorem taxes, real and personal property 
taxes, motor vehicle registration fees, sales taxes, Texas corporate franchise 
taxes, and organization filing fees.] 
[(F) Insurance expense. This includes expenses for building, grounds, and 
contents insurance; facility fire and casualty insurance; professional liability 
and malpractice insurance; and transportation-equipment insurance.]
[(G) Utilities expense. This includes expenses for natural gas, electricity, 
water, waste water, garbage collection, and telephone service.] 
[(8) Client transportation expenses. These expenses are limited to costs 
directly related to providing transportation for 24-hour child- care residents. 
They include rental, lease, and contract costs for transportation equipment; 
depreciation; purchased transportation; and operating and maintenance costs. 
Mileage is allowed when:] 
[(A) adequately documented,] 
[(B) related to the delivery of services for which PRS has contracted, and] 
[(C) the cost per mile does not exceed the current reimbursement rate set by the 
legislature for state employee travel.] 
[(9) Business and professional association dues. This expense is limited to dues 
for associations primarily devoted to child care.] 
[(10) Outside training expenses. These expenses are limited to the direct costs 
of training personnel who provide direct child-care services to the facility's 
residents. Direct costs of training include expenses for transportation, meals, 
lodging, and tuition and registration fees. The training must:] 
[(A) take place in the continental United States, and] 
[(B) relate directly and primarily to child care.] 
[(11) Expenses for nonprescription drugs and medical supplies that do not have 
to be administered by medically trained personnel.] 
[(12) Expenses for prescription medications. Expenses for prescription 
medications not covered by Medicaid, Early and Periodic Screening, Diagnosis, 
and Treatment (EPSDT) Medicaid, or paid by county reimbursements, parents, 
insurance, or any other third-party payor.] 
[(13) Expenses for providing 24-hour on-call services. Expenses for providing 
24-hour on-call medical, psychiatric, and nursing services for clients in levels 
of care V and VI. These are the expenses associated with a plan, agreement, or 
contract to provide 24-hour on-call medical, psychiatric, and nursing services 
for clients in levels of care V and VI. These expenses exclude the actual costs 
of treatment and all costs paid by third-party payors.] 
[(14) Medical and dental expenses. Allowable medical and dental expenses are 
those that are considered medically necessary (not cosmetic) and that are not 
covered by Medicaid, EPSDT Medicaid, or paid by county reimbursements, parents, 
insurance, or any other third-party payor. "Medically necessary" refers to the 
need for medical services in an amount and frequency sufficient, according to 
accepted standards of medical practice, to preserve health and life and to 
prevent future impairment. Prior approval by the department is necessary for 
those medical and dental expenses that are not considered medically necessary 
but have been determined by a physician (M.D., D.O., or psychiatrist) as 
necessary for the emotional well being of the child.] 
[(15) The value of in-kind donations. The value of in-kind donations includes 
only the depreciation of the value of donated buildings and donated vehicles 
used exclusively for the provision of 24-hour child care services. The 
historical cost used to depreciate buildings must be consistent with an 
appraisal by an independent third-party appraiser or the documented historical 
cost to the donor. The historical cost used to depreciate vehicles must be 
consistent with the National Automobile Dealer's Association (NADA) listings or 
the documented historical cost to the donor. For additional information, see 
paragraph (7)(A) of this section.] 
[(16) Educational expenses. Allowable educational expenses are those that are 
not reimbursed or provided by a state agency, county agency, the local school 
district, or any other third-party payor. Allowable expenses include:] 
[(A) educational expenses for facilities that provide educational services to 
children who reside in emergency shelters and children who must attend an on-
facility educational program due to health, safety, and quality of services 
reasons as determined by the local school district's Admission, Review, and 
Dismissal (ARD) Committee. A copy of the local school district's document 
describing the ARD decision must be included in the child's record and 
maintained at the on-facility school. These education expenses include:] 
[(i) textbooks and salary costs for teachers and teachers' that are in excess of 
the district's Texas Education Agency (TEA) allocation aides for which the local 
school district bills the facility. The excess costs must be determined 
necessary by the ARD Committee and documented in the student's Individual 
Educational Plan (IEP).] 
[(ii) expenses for the rental, lease, and depreciation of buildings and 
equipment used to provide educational services, as well as related utility, 
insurance, tax, and maintenance expenses, including compensation of staff for 
facility maintenance. These expenses include the costs of buildings and 
equipment in buildings or spaces within a building that are used for both 
educational and noneducational purposes. When a building or a space within a 
building is used for both educational and noneducational purposes, the portion 
of building and equipment expenses directly related to providing educational 
services in that building or space is allowed on a pro rata basis. The provider 
must clearly document the proportion of use for educational purposes.]
[(iii) teaching aid supplies.] 
[(B) course enrollment and testing fees for obtaining a general equivalency 
diploma.] 
[(C) educational enrichment expenses not paid for by a state agency, county 
agency, the local school district, Foster Parent Associations, Child Welfare 
Boards, parents, or other similar third-party payors. Allowable educational 
enrichment expenses are those expenses that would normally be paid for by the 
parents of a child and are directly related to school-sponsored events. 
Allowable educational enrichment expenses include tutors, class rings, 
cheerleader uniforms, and other similar items used for extra-curricular 
activities related to school- sponsored events.] 
[(D) expenses for vocational or farm programs that are not part of the 
structured educational program, less any revenue earned by the facility from 
those programs.] 

sec.700.1805. Unallowable Costs. 
<nl>The cost principles for unallowable costs are found in sec.sec.732.240 and 
732.242-732.256 of this title (relating to Contract Administration). <ol>[The 
following list is designed to function as a general guide to the types of 
unallowable costs frequently included in cost reports. The list is not 
comprehensive, and the absence of a particular cost does not necessarily mean 
that the cost is allowable.] 
[(1) Advertising expenses. Advertising expenses are unallowable. However, the 
Texas Department of Protective and Regulatory Services (PRS) treats the 
following expenses as allowable exceptions: advertisements to recruit employees, 
yellow-page listings that require no more than one column-inch of page space, 
and pamphlets or brochures published to meet statutory or regulatory 
requirements or to inform the public about the provider's 24-hour child-care 
program.] 
[(2) Allowances for bad debts, and other similar accounts.] 
[(3) Business expenses and expenses for activities unrelated to providing the 
24-hour services for which PRS has contracted.] 
[(4) Political and charitable contributions.] 
[(5) Corporate headquarters expenses that are not directly related to providing 
services or supplies to support the normal operations and child-care services of 
a 24-hour child-care facility.] 
[(6) Depreciation expenses that are not based on the straight-line method of 
depreciation as specified in sec.700.1804(7)(A) of this title (relating to 
Allowable Costs).] 
[(7) Building depreciation expenses based on less than a 30-year life as 
specified in sec.700.1804(7)(A)(i) of this title (relating to Allowable Costs).]
[(8) Vehicle depreciation expenses based on less than the life of the vehicle as 
specified in sec.700.1804(7)(A)(iii) of this title (relating to Allowable 
Costs).] 
[(9) Discounts for administrative reasons; courtesy, cash, trade, and quantity 
discounts; rebates; and any other discounts granted to the provider.] 
[(10) Dues and fees for membership in organizations whose primary purposes are 
not related to the services for which PRS has contracted.] 
[(11) Entertainment expenses, except for entertainment reported as an employee 
benefit.] 
[(12) Expenses that are not the legal obligation of the provider.] 
[(13) Fees and travel expenses for the corporation or association board of 
directors.] 
[(14) Partnership or corporation filing fees.] 
[(15) Fines and other penalties for violations of statutes or ordinances; 
penalties for late payment of taxes, utilities, mortgages, or loans; and other 
similar penalties.] 
[(16) Franchise fees.] 
[(17) Premiums for life insurance in which the beneficiary is the provider 
organization, unless life insurance is required in a loan agreement related to 
child care.] 
[(18) Contributions to self-insurance funds that do not represent payments on 
current liabilities.] 
[(19) Premiums for insuring items of unallowable cost.] 
[(20) Interest expenses on loans for assets not related to the delivery of 
services for which PRS has contracted. In general, interest expenses must be 
reduced or offset by interest income. However, interest income from funded 
depreciation accounts or qualified pension funds must not be used to offset 
interest expenses.] 
[(21) Personal compensation and personal expenses not related to the delivery of 
24-hour child-care services.] 
[(22) Expenses for the purchase of facilities, supplies, or services from 
parties or organizations related to the provider, to the extent that these 
expenses exceed the lower of:]
[(A) the cost to the related party or organization; or] 
[(B) the price of comparable services, facilities, or supplies purchased in an 
arm's-length transaction.] 
[(23) Rental or lease expenses on items not related to the delivery of services 
for which PRS has contracted.] 
[(24) Federal, state, and local income taxes; and all taxes levied on assets not 
related to the delivery of services.] 
[(25) Transportation expenses for vehicles that are not generally suited for 
functions related to 24-hour child-care services.] 
[(26) Expenses that are not adequately documented.] 
[(27) Forms of compensation that are not clearly enumerated in dollar amounts or 
that represent distributions of profit.] 
[(28) Expenses related to college enrollment and attendance.] 
[(29) Medical and dental expenses, including medications that were paid for by a 
third-party payor or covered by Medicaid and EPSDT Medicaid.] 
[(30) Hospitalization expenses.]

sec.700.1806. Costs Not Included in Recommended Payment Rates. 
<nl>Information concerning costs not included in recommended payment rates is 
found in sec.732.256 of this title (relating to Unallowable Costs). 
<ol>[Although the Texas Department of Protective and Regulatory Services (PRS) 
has the authority to require providers to report the following costs, PRS does 
not include them in its recommended payment rates. The department captures these 
costs for statistical purposes only.] 
[(1) The value of in-kind donated items, including depreciation and amortization 
of the value of the donations, except those described as allowable costs in 
sec.700.1804(15) of this title (relating to Allowable Costs).] 
[(2) The values assigned to the services of unpaid workers or volunteers.] 
[(3) Fund-raising, promotional, and public-relations expenses.] 
[(4) Educational expenses for those facilities that educate in an on- facility 
school those children for whom no Admission, Review, and Dismissal (ARD) 
Committee determination about attendance (based on health, safety, and quality 
of service reasons) has been made. These expenses include:] 
[(A) compensation for administrators, teachers, and teachers' aides for 
providing educational services;] 
[(B) expenses for textbooks and teaching aid supplies;] 
[(C) the rental, lease, and depreciation of buildings and equipment used to 
provide educational services, as well as related utility, insurance, tax, and 
maintenance expenses. This expense also includes compensation of staff for 
facility maintenance.] 
[(D) the costs of buildings or spaces within a building that are used for both 
educational and noneducational purposes. When a building or a space within a 
building is used for both educational and noneducational purposes, the portion 
of building and equipment expenses directly related to providing educational 
services in that building or space is unallowable on a pro rata basis.] 
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 June 29, 1998.
TRD-9810247
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

CHAPTER 725. General Licensing Procedures
The Texas Department of Protective and Regulatory Services (TDPRS) proposes 
amendments to sec.sec.725.1001, 725.2006, 725.2036, 725.2046, concerning 
definitions, submission and acceptance of application and application fees, 
restriction and posting for registered family homes, and regulations for 
registered family homes; and proposes new sec.725.1808 and sec.725.1809, 
concerning posting of the probation notice and application returned as 
incomplete, in its General Licensing Procedures chapter. The purpose for the 
amendments to sec.725.1001 and sec.725.2046 is to define primary caretaker and 
to clarify that the registered caregiver must be the primary caretaker in the 
home as stipulated in the Human Resources Code, sec.42.002(9). The purpose of 
new sec.725.1808 is to require that the probation notice be posted in the 
facility or family home so that parents and others can view it. The purpose of 
the amendment to sec.725.2006 and new sec.725.1809 is to show the correct 
address for submitting requests for appeals of a denied application and to 
establish that an applicant must wait a period of one year to reapply if three 
pervious applications have been received by licensing staff and returned as 
incomplete within one year. The purpose of the amendment to sec.725.2036 is to 
ensure that Licensing Division notices of inspection results are posted in the 
registered family home for parents to see. 
Cindy Brown, Budget and Analysis Division Director, has determined that for the 
first five-year period the proposed sections will be in effect there will be no 
fiscal implications for state or local government as a result of enforcing or 
administering the sections. 
Ms. Brown also has determined that for each year of the first five years the 
sections are in effect the public benefit anticipated as a result of enforcing 
the sections will be to ensure that parents are allowed to see notices of 
noncompliances and probation and for applicants to plan appropriately before 
caring for children. This will affect all registered family homes who operate 
small businesses. If the registrant wishes to work outside the home and have 
another resident of the home assume the responsibilities of the caretaker, a new 
registration may be requested at a cost of $35. If applications are returned as 
complete within 30 days, no additional application fee is required. If the 
applicant must wait a period of one year to reapply, this may affect the 
applicant's ability to earn income from child care for one year. As TDPRS does 
not know how the registrant will choose to arrange to provide care, it cannot 
estimate the costs. TDPRS believes these rules will not have fiscal costs for 
very many registrants as reading the statute would have led most applicants to 
operate their own homes. 
Questions about the content of the proposal may be directed to Mary Panella at 
(512) 438-3246 in TDPRS's Licensing Division. Written comments on the proposal 
may be submitted to Supervisor, Rules and Handbooks Unit-283, Texas Department 
of Protective and Regulatory Services E-205, P.O. Box 149030, Austin, Texas 
78714-9030, within 30 days of publication in the Texas Register . 

SUBCHAPTER A. Definitions
40 TAC sec.725.1001
The amendment is proposed 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.725.1001. Definitions. 
The following words and terms, when used in this chapter, shall have the 
following meanings, unless the context clearly indicates otherwise: 
(1)-(18) (No change.) 
<nl>(19)<ol> Primary caretaker - The person who takes care of children in the 
caretaker's home. 
<nl>(20)<ol> [(19)] Regular care - Care that is provided at least four hours a 
day, three or more days a week, for more than nine consecutive weeks. 
<nl>(21)<ol> [(20)] Religious organization - A church, synagogue, or other 
religious institution whose purpose is to support and serve the propagation of 
truly held religious beliefs. 
<nl>(22)<ol> [(21)] State of Texas or state - Does not include political 
subdivisions of the state. 
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 June 29, 1998.
TRD-9810239
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

SUBCHAPTER S. Administrative Procedures
40 TAC sec.725.1808, sec.725.1809
The new sections are proposed under the Human Resources Code, Title 2, Chapter 
42, which authorizes the department to administer general child-placing and 
child care licensing programs. 
The new sections implement the Human Resources Code, sec.sec.42.001-42.077. 

sec.725.1808. Posting of the Probation Notice. 
(a) This section applies to all facilities and family homes regulated by the 
Texas Department of Protective and Regulatory Services (TDPRS) as listed in the 
Human Resources Code, Chapter 42. 
(b) TDPRS's Probation Notice form must be posted during the probation period in 
a prominent place where parents and others may view it. Information about the 
non-compliances, the corrections needed, and the conditions of probation are 
included in the letter of notification from TDPRS. The facility/family home must 
make the letter of notification available to parents and others who request to 
read it. 
(c) TDPRS's Probation Notice form will be provided by TDPRS to the facility or 
family home when the facility or family home is being placed on probation. The 
facility or family home will be advised of the time frame for posting the notice 
at the time the notice is provided. 

sec.725.1809. Application Returned as Incomplete. 
If three applications are returned as incomplete within a period of one year, an 
applicant may not reapply until one year from the date the last application was 
returned as incomplete. This section applies to applications for licenses, 
certifications, registrations, and listings. 
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 June 29, 1998.
TRD-9810240
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

40 TAC sec.725.1810
The Texas Department of Protective and Regulatory Services (TDPRS) proposes new 
sec.725.1810, concerning administrative penalties, in its General Licensing 
Procedures chapter. The purpose of the new section is to outline the conditions 
under which an administrative penalty will be assessed. This is a new 
enforcement tool in sec.42.078 of the Human Resources Code (Administrative 
Penalty). TDPRS is withdrawing from consideration the proposal of administrative 
penalties in sec.725.2048 which appeared in the May 8, 1998, issue of the Texas 
Register because of an error in subsection (a)(1) and to renumber the section. 
The reference to sec.725.4020 has been corrected to sec.725.4020(f) and 
sec.725.4020(g) in that subsection. The section number has been changed to make 
it clear that this rule applies to all licensed and registered facilities and 
homes.
Cindy Brown, Budget and Analysis Division Director, has determined that for the 
first five-year period the proposed section will be in effect there will be 
fiscal implications for state or local government as a result of enforcing or 
administering the section. The amount cannot be determined at this time. The 
cost to state government will depend upon the number of violations for which 
penalties are assessed, and the number of those which are appealed. 
Ms. Brown also has determined that for each year of the first five years the 
section is in effect the public benefit anticipated as a result of enforcing the 
section will be in the form of increased compliance with child care regulations, 
and therefore increased protection for children in out-of-home care. This will 
affect all registered family homes who operate small businesses. There is a 
maximum amount of fines stipulated in the statute based upon number of children 
in care. Larger businesses will be penalized more because fines will be assessed 
based upon the number of children in care. Thus the fines will have a greater 
impact on facilities that have more children in care. There is an anticipated 
economic cost to persons who are required to comply with the proposed section. 
Maximum fine amounts are stipulated in law. Estimated costs cannot be determined 
at this time. Costs to facilities and family homes would depend on the number of 
days of violations according to the schedule of penalties in these sections. 
Questions about the content of the proposal may be directed to Mary Panella at 
(512) 438-3246 in TDPRS's Licensing Division. Written comments on the proposal 
may be submitted to Supervisor, Rules and Handbooks Unit-230, Texas Department 
of Protective and Regulatory Services E-205, P.O. Box 149030, Austin, Texas 
78714-9030, within 30 days of publication in the Texas Register. 
The new section is proposed under the Human Resources Code, Title 2, Chapter 42, 
which authorizes the department to administer general child-placing and child 
care licensing programs and specifically sec.42.078 HRC which mandates rules for 
administrative penalties. 
The new section implements the HRC, sec.42.078. 

sec.725.1810. Administrative Penalties. 
(a) Administrative penalties are fines imposed against a facility or family 
home, licensed or registered, when that facility or family home violates Chapter 
42 of the Human Resources Code (HRC) or a rule or order adopted under that 
chapter. Nonmonetary, administrative penalties or remedies including, but not 
limited to, corrective action plans, probation, and evaluation periods shall be 
imposed, when appropriate, before monetary penalties. The Texas Department of 
Protective and Regulatory Services (TDPRS) may proceed to suspension, probation 
or revocation without imposing administrative penalties in any instance in 
which, in TDPRS's opinion, the violation is serious enough to warrant such 
action. 
(1) Fines may be assessed for repeated, but less serious, violations, within a 
three- month period, of those standards identified in sec.725.4020 (f) and (g) 
of this title (relating to Judicial Review) which pose a risk to the health and 
safety of children when violated, but where the violations were not serious 
enough to warrant more severe nonmonetary sanctions. 
(2) Fines may be assessed for failure to comply with any corrective action plan 
after time limits for correction have expired.
(b) Penalty assessment shall be based on the day the facility/family home is 
notified that a repeated violation has been cited or any corrective action plan 
has not been implemented. The ending period for the fine shall be the date the 
facility notifies TDPRS the violation has been corrected, unless a subsequent 
site visit determines no proper correction has been made. 
(c) When notified of the penalty, it shall be the responsibility of the 
facility/family home to notify TDPRS when the violation is corrected. If 
necessary, a site visit by TDPRS staff may be made within seven calendar days to 
confirm that the violation has been corrected. 
(d) Each day a violation continues or occurs is a separate violation for 
purposes of imposing a penalty. The penalty for a violation may be in an amount 
not to exceed the following limits, based on the number of children receiving 
care at the facility or family home at the time of the violation: 
Figure: 40 TAC sec.725.1810(d) 
(e) The amount of the penalty shall be based on: 
(1) the seriousness of the violation, including the nature, circumstances, 
extent, and gravity of any prohibited acts and the hazard or potential hazard 
created to the health, safety, or economic welfare of the public; 
(2) the history of previous violations; 
(3) the amount necessary to deter future violations; and 
(4) efforts to correct the violation. 
(f) In determining the amount of the penalty, the primary consideration shall 
always be the actual or potential harm posed to children in care by the 
violation, and the number of children exposed to that actual or potential harm. 
(g) Monetary penalties shall not be assessed for violations of clerical errors 
or standards which do not clearly apprise the facility or family home of the 
action required by the standard. 
(h) Upon determination that a violation has occurred, the executive director may 
issue a recommendation on the imposition of a penalty, including a 
recommendation on the amount of the penalty. 
(i) Within 14 days after the date the recommendation is issued, the executive 
director shall give written notice of the recommendation to the person owning or 
operating the facility. The notice may be given by certified mail. The notice 
must include a brief summary of the alleged violation and a statement of the 
amount of the recommended penalty and must inform the person that the person has 
a right to a hearing on the occurrence of the violation, the amount of the 
penalty, or both the occurrence of the violation and the amount of the penalty. 
(j) Within 20 days after the date the person receives the notice, the person in 
writing may accept the determination and recommended penalty of the executive 
director, or may make a written request for a hearing on the occurrence of the 
violation, the amount of the penalty, or both the occurrence of the violation 
and the amount of the penalty. 
(k) If the person accepts the determination and recommended penalty of the 
executive director or fails to respond to the notice in a timely manner, the 
executive director shall issue an order and impose the recommended penalty. 
(l) If the person requests a hearing, the executive director shall set a hearing 
and give notice of the hearing to the person. The hearing shall be held by an 
administrative law judge of the State Office of Administrative Hearings. The 
administrative law judge shall make findings of fact and conclusions of law and 
issue a final decision finding that a violation has occurred and imposing a 
penalty or finding that no violation occurred. 
(m) The notice of the administrative law judge's order given to the person under 
Chapter 2001, Government Code, must include a statement of the right of the 
person to judicial review of the order. 
(n) Within 30 days after the date the administrative law judge's order becomes 
final as provided by sec.2001.144, Government Code, the person shall: 
(1) pay the amount of the penalty; 
(2) pay the amount of the penalty and file a petition for judicial review 
contesting the occurrence of the violation, the amount of the penalty, or both 
the occurrence of the violation and the amount of the penalty; or 
(3) without paying the amount of the penalty, file a petition for judicial 
review contesting the occurrence of the violation, the amount of the penalty, or 
both the occurrence of the violation and the amount of the penalty. 
(o) Within the 30-day period, a person who acts under subsection (n)(3) of this 
section may: 
(1) stay enforcement of the penalty by: 
(A) paying the amount of the penalty to the court for placement in an escrow 
account; or 
(B) giving to the court a supersedeas bond that is approved by the court for the 
amount of the penalty and that is effective until all judicial review of the 
order is final; or 
(2) request the court to stay enforcement of the penalty by: 
(A) filing with the court a sworn affidavit of the person stating that the 
person is financially unable to pay the amount of the penalty and is financially 
unable to give the supersedeas bond; and 
(B) giving a copy of the affidavit to the executive director by certified mail. 
(p) On receipt of a copy of an affidavit under subsection (o)(2) of this 
section, the executive director may file with the county, within five days after 
the date the copy is received, a contest to the affidavit. The court shall hold 
a hearing on the facts alleged in the affidavit as soon as practicable and shall 
stay the enforcement of the penalty on finding that the alleged facts are true. 
The person who files an affidavit has the burden of proving that the person is 
financially unable to pay the amount of the penalty and to give a supersedeas 
bond. 
(q) If the person does not pay the amount of the penalty and the enforcement of 
the penalty is not stayed, the executive director may refer the matter to the 
attorney general for collection of the amount of the penalty. 
(r) Judicial review of the order: 
(1) is instituted by filing a petition as provided by Subchapter G, Chapter 
2001, Government Code; and 
(2) is under the substantial evidence rule. 
(s) If the court sustains the occurrence of the violation, the court may uphold 
or reduce the amount of the penalty and order the person to pay the full or 
reduced amount of the penalty. If the court does not sustain the occurrence of 
the violation, the court shall order that no penalty is owed. 
(t) When the judgment of the court becomes final, the court shall proceed under 
this subsection. If the person paid the amount of the penalty and if that amount 
is reduced or is not upheld by the court, the court shall order that the 
appropriate amount plus accrued interest be remitted to the person. The rate of 
the interest is the rate charged on loans to depository institutions by the New 
York Federal Reserve Bank, and the interest shall be paid for the period 
beginning on the date the penalty was paid and ending on the date the penalty is 
remitted. If the person gave a supersedeas bond and if the amount of the penalty 
is reduced, the court shall order the release of the bond after the person pays 
the amount . 
(u) A penalty collected under this section shall be sent to the comptroller for 
deposit in the general revenue fund. 
(v) All proceedings under this section are subject to Chapter 2001, Government 
Code. 
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 June 29, 1998.
TRD-9810242
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

SUBCHAPTER U. Day Care Licensing Procedures
40 TAC sec.sec.725.2006, 725.2036, 725.2046
The Texas Department of Protective and Regulatory Services (TDPRS) proposes 
amendments to sec.sec.725.1001, 725.2006, 725.2036, 725.2046, concerning 
definitions, submission and acceptance of application and application fees, 
restriction and posting for registered family homes, and regulations for 
registered family homes; and proposes new sec.725.1808 and sec.725.1809, 
concerning posting of the probation notice and application returned as 
incomplete, in its General Licensing Procedures chapter. The purpose for the 
amendments to sec.725.1001 and sec.725.2046 is to define primary caretaker and 
to clarify that the registered caregiver must be the primary caretaker in the 
home as stipulated in the Human Resources Code, sec.42.002(9). The purpose of 
new sec.725.1808 is to require that the probation notice be posted in the 
facility or family home so that parents and others can view it. The purpose of 
the amendment to sec.725.2006 and new sec.725.1809 is to show the correct 
address for submitting requests for appeals of a denied application and to 
establish that an applicant must wait a period of one year to reapply if three 
pervious applications have been received by licensing staff and returned as 
incomplete within one year. The purpose of the amendment to sec.725.2036 is to 
ensure that Licensing Division notices of inspection results are posted in the 
registered family home for parents to see. 
Cindy Brown, Budget and Analysis Division Director, has determined that for the 
first five-year period the proposed sections will be in effect there will be no 
fiscal implications for state or local government as a result of enforcing or 
administering the sections. 
Ms. Brown also has determined that for each year of the first five years the 
sections are in effect the public benefit anticipated as a result of enforcing 
the sections will be to ensure that parents are allowed to see notices of 
noncompliances and probation and for applicants to plan appropriately before 
caring for children. This will affect all registered family homes who operate 
small businesses. If the registrant wishes to work outside the home and have 
another resident of the home assume the responsibilities of the caretaker, a new 
registration may be requested at a cost of $35. If applications are returned as 
complete within 30 days, no additional application fee is required. If the 
applicant must wait a period of one year to reapply, this may affect the 
applicant's ability to earn income from child care for one year. As TDPRS does 
not know how the registrant will choose to arrange to provide care, it cannot 
estimate the costs. TDPRS believes these rules will not have fiscal costs for 
very many registrants as reading the statute would have led most applicants to 
operate their own homes. 
Questions about the content of the proposal may be directed to Mary Panella at 
(512) 438-3246 in TDPRS's Licensing Division. Written comments on the proposal 
may be submitted to Supervisor, Rules and Handbooks Unit-283, Texas Department 
of Protective and Regulatory Services E-205, P.O. Box 149030, Austin, Texas 
78714-9030, within 30 days of publication in the Texas Register . 
The amendments are proposed under the Human Resources Code, Title 2, Chapter 42, 
which authorizes the department to administer general child-placing and child 
care licensing programs. 
The amendments implement the Human Resources Code, sec.sec.42.001-42.077. 

sec.725.2006. Submission and Acceptance of Application <nl> and Application 
Fees<ol>. 
(a) Each governing body planning to operate a facility <nl> or family home 
<ol>[subject to licensing or certification] must complete and send an 
application to licensing staff. 
(b) <nl>Applicants for licensure as facilities <ol>[Facilities] <nl>and 
registered family homes <ol>[subject to licensing] must attach a non-refundable 
$35 application fee [plus a $35 provisional license fee] to the department's 
Licensing Fee Schedule and send these to the department. <nl>The applicant for a 
license must also include a $35 fee for a provisional license if the applicant 
is eligible for a provisional license. <ol>The provisional license fee may be 
refunded if the department does not issue the provisional license. 
(c)-(d) (No change.) 
(e) Within <nl>21 calendar days <ol>[15 workdays] of receiving the application, 
the department notifies the applicant in writing that: 
(1)-(2) (No change.) 
(f) The applicant may authorize the department by telephone to change or add to 
an incomplete application. Staff making the changes must date and initial them 
and send the applicant a copy with the letter notifying <nl> the person 
<ol>[him] that the application is complete and accepted for filing. 
(g) Within <nl>two <ol>[2] months of the date that a completed application is 
accepted for filing, the department decides to issue or deny a license<nl>, 
registration, certification, or listing<ol>.
(h) [The applicant may appeal any dispute about the amount of time the 
department took to decide that an application was complete or to approve or deny 
an application.] To appeal <nl>a denial<ol>, the applicant must submit a written 
request within 30 days after the department's time limit expires. The applicant 
must send the request stating the nature of the dispute to the <nl>Docket Clerk, 
Legal Services Division, Mail Code E-611, Texas Department of Protective and 
Regulatory Services, P.O. Box 149030, Austin, Texas 78714 <ol>[director of 
licensing]. [If the department exceeded the time limit without establishing good 
cause, the appeal is decided in the applicant's favor. In this case, the 
department must reimburse the application fee.] 

sec.725.2036. <nl>Restrictions <ol>[Restriction] <nl>and Posting of Notices for 
Registered Family Homes<ol>.
(a)-(b) (No change.) 
<nl>(c)<ol> The letter or compliance evaluation form from the most recent 
licensing inspection or investigation, including any restrictions or corrective 
action, must be posted for at least two months from the date the letter or form 
was received, in a prominent place where parents and others may view it, if the 
notification includes a requirement for posting.

sec.725.2046. Regulations for Registered Family Homes.
(a)-(d) (No change.) 
<nl>(e)<ol> The registered caregiver must be the primary caretaker of the 
children in the registered family home, as defined in sec.725.1001(19) of this 
title (relating to Definitions). The primary caretaker must be in the home when 
children are receiving care in that home and must be responsible for the 
children on a daily basis.
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 June 29, 1998.
TRD-9810241
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

CHAPTER 732. Contracted Services
SUBCHAPTER L. Contract Administration
The Texas Department of Protective and Regulatory Services (TDPRS) proposes 
amendments to sec.sec.732.240, 732.242-732.252, and 732.254-732.256, concerning 
general principles of allowable and unallowable costs, start-up costs, employee 
compensation, consumable supplies, food expenses, equipment, depreciation and 
use allowances, transportation of clients, insurance, rental costs, space 
rental, renovations and remodeling, telephone, professional fees, and 
unallowable costs; and proposes the repeal of sec.732.241, concerning allowable 
costs for cost reimbursement contracts and for developing unit rates, in its 
Contracted Services chapter. The purpose of the amendments and repeal is to 
create one set of cost principles and guidelines for both residential child care 
contractors and purchase- of-service contractors. The basis of the principles 
and guidelines is found in the federal circulars. 
Cindy Brown, Budget and Analysis Division Director, has determined that for the 
first five-year period the proposed sections will be in effect there will be no 
fiscal implications for state or local government as a result of enforcing or 
administering the sections. 
Ms. Brown also has determined that for each year of the first five years the 
sections are in effect the public benefit anticipated as a result of enforcing 
the sections will be that residential child care contractors will have one set 
of rules for cost reporting and expenditures. Purchase-of-service contractors 
will no longer have differences between federal circulars and TDPRS's rules, 
unless the state specifically desires to be more restrictive than federal 
guidelines. There will be no effect on small businesses because those small 
businesses which are currently contracting with TDPRS have been required to be 
in compliance with the relevant federal regulations under the terms of their 
contracts with TDPRS. There is no anticipated economic cost to persons who are 
required to comply with the proposed sections for similar reasons.
Questions about the content of the proposal may be directed to Nancy Kimble at 
(512) 833-3405 in TDPRS's Contract Administration Division. Written comments on 
the proposal may be submitted to Supervisor, Rules and Handbooks Unit-237, Texas 
Department of Protective and Regulatory Services E-205, P.O. Box 149030, Austin, 
Texas 78714-9030, within 30 days of publication in the Texas Register. 

40 TAC sec.sec.732.240, 732.242-732.252, 732.254-732.256
The amendments are proposed 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, and 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. 

sec.732.240. <nl>General Principles of <ol>Allowable <nl> and Unallowable 
<ol>Costs.
<nl>(a)<ol> The Texas Department of Protective and Regulatory Services (TDPRS) 
reimburses its contractors only for costs (both direct and indirect) which are 
allowable, reasonable, necessary, and properly allocated to the specific 
contract. The cost guidelines, principles, and definitions for allowable and 
unallowable costs (both direct and indirect) for purposes of preparing budgets, 
for expenditure purposes, and for cost-reporting purposes are the same. Those 
guidelines are published in federal and state regulations. Contractors receiving 
Title IV-E funding are required to be in compliance with 45 Code of Federal 
Regulations (CFR) Part 74 and 48 CFR Part 31 regarding the use and expenditure 
of Title IV-E funds. Contractors receiving Title IV-B funding are required to be 
in compliance with 45 CFR Part 92 regarding the use and expenditure of Title IV-
B funds. All purchased client services contractors (both for-profits and 
nonprofits) are required to be in compliance with Office of Management and 
Budget (OMB) Circular A-110 (Uniform Administrative Requirements for Grants and 
Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit 
Organizations) and this section and sec.sec.732.242-732.256 of this title 
(relating to Contract Administration) regarding the guidelines for use and 
expenditure of funds received from TDPRS, which consist of federal and/or state 
revenues. If the contractor is a governmental entity, the contractor shall 
remain in compliance with OMB Circular A- 87 (Cost Principles for State and 
Local Governments). If the contractor is either a for-profit entity or a 
nonprofit entity, the contractor is required to be in compliance with OMB 
Circular A-122 (Cost Principles for Nonprofit Organizations). In the event of 
any conflict or contradiction between or among the regulations referenced in 
this subsection, the regulations shall control in the following order of 
precedence: 
<nl>(1)<ol> federal regulations - for Title IV-E funding, 45 CFR Part 74 and 48 
CFR Part 81; for Title IV-B funding, 45 CFR Part 92; 
<nl>(2)<ol> federal OMB circulars - OMB Circular A-110 and either OMB Circular 
A-87 or OMB Circular A-122, as applicable; 
<nl>(3)<ol> state regulations - sec.732.240 of this title (relating to General 
Principles of Allowable and Unallowable Costs) and sec.sec.732.242- 732.256 of 
this title (relating to Contract Administration); and 
<nl>(4)<ol> any other applicable departmental regulations. 
<nl>(b)<ol> [(a)] Only those items that represent an actual cash outlay<nl>, an 
accrued expense paid within 90 days of incurrence, <ol>or <nl>the compensation 
for the use of buildings, other capital <ol> improvements, and equipment on hand 
through a use allowance or depreciation [that reflect a use charge or 
depreciation charge on a contractor-owned building or fixed equipment] are 
allowable. The value of donated goods or services (in-kind) are not allowable 
<nl>(i.e., unallowable)<ol>. However, [a contractor may budget a use charge or] 
depreciation <nl>or a use allowance<ol> [charge] on a donated building<nl>, 
donated capital improvements,<ol> or [on] donated equipment subject to ownership 
requirements and/or donor-imposed conditions <nl>is allowable<ol>. 
<nl>Contractors shall not use revenues from TDPRS to finance activities other 
than those activities specifically allowable under their contract with TDPRS. 
Unallowable uses of contract revenues from TDPRS include, but are not limited 
to, interfund loans/transfers, interdepartmental loans/transfers, intercompany 
loans/transfers, and employee loans not considered salary advances.<ol>
<nl>(c)<ol> [(b)] Costs <nl>budgeted, expended, used, and/or <ol>reported by a 
contractor and/or paid by <nl>TDPRS <ol>[the department] must be [reasonable, 
allowable, properly allocated, and] consistent with generally accepted 
accounting principles <nl> (GAAP), which are those principles approved by the 
<ol>[as published by the Account Principles Board,] American Institute of 
Certified Public Accountants <nl>(AICPA)<ol>. <nl>Internal Revenue Services 
(IRS) laws and regulations do not necessarily apply in the preparation of 
budgets, the expenditure and/or use of funds received from the department, 
and/or the reporting of costs to TDPRS. In cases where there are differences 
between TDPRS's rules, GAAP, IRS, or other authorities, TDPRS's rules take 
precedence.<ol>
<nl>(d)<ol> The <nl>contractor's <ol>accounting system must include an accurate 
and consistent method for gathering statistical information that properly 
relates the costs incurred to the units of service rendered. 
<nl>(e)<ol> [(c)] The contractor is responsible for designing and implementing 
fiscal policies and ensuring that financial data <nl>are <ol>[is] collected, 
recorded, and analyzed as part of the delivery of service under a contract with 
<nl>TDPRS<ol> [the department]. 
<nl>(f)<ol> Costs incurred under less-than-arms-length (related-party) 
transactions are allowable only up to the cost to the related party (see OMB 
Circulars A-87 and A-122). However, the cost must not exceed the price of 
comparable services, equipment, facilities, or supplies that could be purchased 
or leased elsewhere. The purpose of this principle is twofold: to avoid the 
payment of a profit factor to the contractor through the related organization 
(whether related by common ownership or control), and to avoid payment of 
artificially-inflated costs which may be generated from less-than-arms-length 
bargaining. The related organization's costs include all reasonable costs, 
direct and indirect, incurred in the furnishing of services, equipment, 
facilities, and supplies to the contractor. The intent is to treat the costs 
incurred by the related organization as if they were incurred by the contractor 
itself. An exception is provided to the general rule applicable to related 
organizations and applies if the contractor demonstrates by convincing evidence 
to the satisfaction of TDPRS that certain criteria have been met. Those criteria 
are: 
<nl>(1)<ol> The related organization is a bona fide separate corporation and not 
merely an operating division of the contractor's organization. 
<nl>(2)<ol> A majority of the related organization's business activity of the 
type carried on with the contractor is transacted with other organizations not 
related to the contractor or the related organization by common ownership or 
control and there is an open, competitive market for the type of services, 
equipment, facilities, or supplies furnished by the related organization. In 
determining whether the business activities are of a similar type, it is 
important also to consider the scope of the business activity. The requirement 
that there be an open, competitive market is intended to assure that the item 
supplied has a readily discernible price that is established through arms-length 
bargaining by well-informed buyers and sellers. 
<nl>(3)<ol> The charge to the contractor is in line with the charge of such 
services, equipment, facilities, or supplies in the open, competitive market and 
no more than the charge made under comparable circumstances to others by the 
related organization for such services, equipment, facilities, or supplies. 
<nl>(g)<ol> In determining whether a contractor is related to a supplying 
organization, the tests of common ownership and control are to be supplied 
separately. Related to a contractor means that the contractor to a significant 
extent is associated or affiliated with, has control of, or is controlled by the 
organization furnishing the services, equipment, facilities, or supplies. Common 
ownership exists if an individual or individuals posses any ownership or equity 
in the contractor and the supplying organization. Control exists if an 
individual or an organization has the power, directly or indirectly, to 
significantly influence or direct the actions or policies of an organization or 
institution. If the elements of common ownership or control are not present in 
both organizations (i.e., the contractor and the supplying organization), then 
the organizations are deemed not to be related to each other. The existence of 
an immediate family relationship will create an irrebuttable presumption of 
relatedness through control or attribution of ownership or equity interests 
where the significance tests are met. The following persons are considered 
immediate family: husband and wife; natural parent, child, and sibling; adopted 
child and adoption parent; stepparent, stepchild, stepsister, and stepbrother; 
father-in-law, mother-in-law, sister-in-law, brother-in-law, son-in-law, and 
daughter-in-law; grandparent and grandchild; uncles and aunts by blood or 
marriage; nephews and nieces by blood or marriage; and first cousins by blood or 
marriage. 
<nl>(1)<ol> A determination as to whether an individual (or individuals) or 
organization possesses ownership or equity in the contractor and the supplying 
organization, so as to consider the organizations related by common ownership, 
will be made on the basis of the facts and circumstances in each case. This rule 
applies whether the contractor or supplying organization is a sole 
proprietorship, partnership, corporation, trust or estate, or any other form of 
business organization, proprietary or nonprofit. In the case of a nonprofit 
organization, ownership or equity interest will be determined by reference to 
the interest in the assets of the organization, for example, a reversionary 
interest provided for in the articles of incorporation of a nonprofit 
organization.
<nl>(2)<ol> The term control includes any kind of control, whether or not it is 
legally enforceable and however it is exercisable or exercised. It is the 
reality of the control which is decisive, not its form or the mode of its 
exercise. The facts and circumstances in each case must be examined to ascertain 
whether legal or effective control exists. Since a determination made in a 
specific case represents a conclusion based on the entire body of facts and 
circumstances, such determination should not be used as a precedent in other 
cases unless the facts and circumstances are substantially the same. 
Organizations, whether proprietary or nonprofit, are considered to be related 
through control to their directors in common. 
<nl>(h)<ol> Disclosure of all less-than-arms-length (related-party) transactions 
is required for all costs budgeted, expended, used, and/or reported by the 
contractor, including related-party transactions occurring at any level in the 
contractor's organization. The contractor must make available, upon request, 
adequate documentation to support the costs incurred by the related party. Such 
documentation could include an identification of the related organization's 
total costs, the basis of allocation of direct and indirect costs to the 
contractor, and other business entities served. If a contractor fails to provide 
adequate documentation to substantiate the cost to the related organization, 
then the cost is unallowable. 
<nl>(i)<ol> Direct costing must be used whenever reasonably possible. Direct 
costing means that costs, direct or indirect, incurred for the benefit of, or 
directly attributable to, a specific business component must be directly charged 
to that particular business component. For direct costs as defined in OMB 
Circulars A-122 and A-87, direct costing is required. For indirect costs as 
defined in OMB Circulars A- 122 and A-87, it is necessary to allocate these 
costs either directly or as a pool of costs across those business components 
sharing in the benefits of those costs. If cost allocation is necessary, 
contractors must use reasonable methods of allocation and must be consistent in 
their use of allocation methods across all program areas and business entities 
in which the contractor has an interest (see OMB Circulars A- 87 and A-122). 
<nl>(1)<ol> Each employee is required (see OMB Circulars A-122 and A-87) to have 
time sheets. Time sheets must be prepared at least monthly and must coincide 
with one or more pay periods. Time sheets must account for the total activity 
for which the employee is compensated and which is required to fulfill the 
employee's obligation to the contractor. If an employee performs only one 
function and only performs that one function for one contract/program area, then 
that employee's time sheet can include the minimum information: name, date, 
beginning time, ending time, total time worked, appropriate signature(s), and 
accounting for paid and unpaid leave time. 
<nl>(2)<ol> Direct care staff must be directly costed between program areas 
(business components) based upon their time sheets (not a time study). If a 
direct care employee performs more than one function, performs one function for 
more than one contract/program area, and/or performs more than one function for 
more than one contract/program area, the time sheets must account for those 
different functions and/or contracts/program areas. These time sheets should be 
the documentation for the percentages of salaries budgeted to the various 
contracts. In other words, if a counselor works on a contractor's nonresidential 
contract and for one or more of the contractor's residential contracts, the 
percentage of that counselor's salary in the nonresidential budget should be 
based upon the results of time sheets for a recent historical period prior to 
the submission of the budget. The actual amounts charged to the nonresidential 
contract for that counselor should be based upon the counselor's time sheets 
during the contract period, with a reconciliation to the contract's budget. If 
the actual counselor's time is less than that budgeted, the contractor is 
reimbursed based upon the actual time. If the actual counselor's time is more 
than that budgeted, the contractor is reimbursed based upon the budgeted amount. 
The counselor's time sheets for that contract period then become the basis for 
the estimates used for the next year's contract budget. 
<nl>(3)<ol> Any cost allocation method should be a reasonable reflection of the 
actual business operations. Allocation methods that do not reasonably reflect 
the actual business operations and resources expended toward each unique 
business entity are not acceptable. An indirect allocation method approved by 
some other department, program, or governmental entity is not automatically 
approved by TDPRS. The purpose of cost allocation of shared indirect costs is to 
ensure that those costs are properly and accurately recorded within each program 
area, so that each program receives its fair share of those shared indirect 
costs which benefit that program and so that each program's costs are properly 
identified (direct and indirect). There are three basic methods for allocating 
shared (pooled) indirect costs: units of service, cost-to-cost, and functional. 
<nl>(A)<ol> In order to use the units-of-service cost allocation method, each of 
your program areas would have to deliver the same type of services (i.e., 
equivalent services) and would have to be measured with the same units of 
service (i.e., equivalent units). If your program areas (business components) do 
not have equivalent units of equivalent services, you must use a cost-to-cost or 
functional allocation method for shared indirect costs that are not directly 
chargeable to a specific program area (business component). 
<nl>(B)<ol> Cost-to-cost allocation methods merely calculate a program's 
percentage of a specified cost basis and use that percentage to then calculate 
that program's share of indirect costs. Shared indirect costs are always 
allocated first to each program area, then any unallowable shared indirect costs 
are removed from (or separately reported for) each program area for purposes of 
contracting with TDPRS. In this manner, it is ensured that 100% (and only 100%) 
of the total shared indirect costs have been allocated across the various 
program areas. The specific cost bases for a cost-to-cost allocation methodology 
include: salaries; salaries, payroll taxes and employee benefits; salaries and 
contract labor; salaries, payroll taxes, employee benefits, and contract labor; 
all direct program costs; and all direct program costs minus building costs. 
These shared indirect costs must be allocated across all the program areas which 
benefit from these shared indirect costs. If there are some shared indirect 
costs that benefit only a portion of the corporation's program areas, then an 
allocation method must be used to properly allocate that subset of the total 
shared indirect costs to those program areas benefiting from those shared 
indirect costs. In such complex financial systems, these subsets of shared 
indirect costs become part of the basis for allocating the shared administration 
costs benefiting all program areas. For example, if a contractor has a subset of 
shared indirect costs that only benefits the contractor's residential programs, 
that subset could be allocated based upon units of service. When allocating on a 
cost-to-cost basis those shared indirect costs benefiting all program areas 
(business components) for the contractor, the cost basis for each of the 
contractor's residential programs would include the residential program's direct 
care costs and its allocated share of the subset of shared indirect costs. 
<nl>(C)<ol> Functional cost allocation for an administrative staff person can be 
based upon a time study. Time studies can only be used to allocate 
administrative time and cannot be used to allocate direct care time. In other 
words, if an administrative employee also performs direct care duties, that 
employee must have time sheets (not a time study) to document his/her direct 
care time. 
<nl>(i)<ol> The baseline for allocation using a time study can be calculated 
upon time sheets recording daily time/effort for an entire month. 
<nl>(ii)<ol> Daily time sheets are then completed for a randomly-selected period 
throughout the remainder of the fiscal year. That "randomly- selected period" 
could be a randomly-selected week each quarter, randomly-selected two days per 
month, or other time period which would result in time sheets representing at 
least 20 days per year, in addition to the baseline. 
<nl>(iii)<ol> A contractor can use the results of the baseline time study for 
allocating the employee's salary for the remainder of the year and make any 
necessary adjustments required from the results of the randomly-selected periods 
during the last month of the year or a contractor can allocate the employee's 
salary each month based upon the results of that month's time study.
<nl>(iv)<ol> A contractor must have its time study methodology and procedures in 
writing. 
<nl>(D)<ol> Other shared indirect costs may be more accurately allocated based 
upon a functional methodology rather than a cost-to-cost allocation method. 
<nl>(i)<ol> Maintenance staff costs could be functionally allocated, based upon 
the percentage (or dollar amounts) of work orders performed for the various 
program areas. 
<nl>(ii)<ol> If one program pays its employees weekly and another program pays 
its employees monthly, payroll costs could be functionally allocated based upon 
each program's pro rata share of the number of payroll checks issued. 
<nl>(4)<ol> Each cost allocation method will be reviewed on a case-by- case 
basis in order to ensure that the allocated costs fairly and reasonably 
represent the operations of the contractor. If in the course of an audit it is 
determined that the cost allocation method does not fairly and reasonably 
represent the operations of the contractor, then an adjustment to the allocation 
method will be made. 
<nl>(5)<ol> Cost allocation methods must be clearly and completed documented in 
the contractor's workpapers, with details as to how pooled costs are allocated 
to each segment (component) of the business entity, for both contracted and 
noncontracted programs. 

sec.732.242. Start-up Costs.
<nl>(a)<ol> Start-up costs (or pre-award costs) and policies are discussed in 
Office of Management and Budget (OMB) Circulars A-110, A- 87, and A-122. Start-
up costs are those reasonable and necessary preparation costs incurred by a 
contractor in the period of developing the contractor's ability to deliver 
services. Start-up costs can be incurred prior to the beginning of a newly-
formed business and/or prior to the beginning of a new contract or program for 
an existing business. Allowable start-up costs include, but are not limited to, 
employee salaries, utilities, rent, insurance, employee training costs, and any 
other allowable costs incident to the start-up period. Start-up costs do not 
include capital purchases, which are purchased assets meeting the criteria for 
depreciation. Any costs properly identifiable as organization costs or 
capitalizable as construction costs must be appropriately classified as such and 
excluded from start-up costs. If a business or corporation never commences 
actual operations or if the new contract/program never delivers services, the 
start-up costs are unallowable. 
<nl>(b)<ol> [(a)] Contractors with cost reimbursement contracts that are 
expanding into a new service area or are just beginning to provide services may, 
if allowed by program-specific policy and with appropriate <nl> Texas Department 
of Protective and Regulatory Services (TDPRS)<ol> [PRS] approvals, budget and 
bill for start-up costs. Hiring and orienting staff, purchasing equipment and 
supplies, and recruiting eligible clients are included. 
<nl>(c)<ol> [(b)] If a contractor who requires start-up costs does not receive 
required licensure and/or certification to provide contracted services within 30 
days after the effective date of the contract, no start-up costs are allowed. 
<nl>(d)<ol> [(c)] Every effort should be made to contract with contractors that 
will not require <nl>TDPRS<ol> [the department] to provide start-up costs. 
<nl>(e)<ol> Start-up costs are to be amortized using the straight-line method 
over a period of not less than 60 months. 

sec.732.243. Employee Compensation. 
<nl>(a)<ol> Employee compensation costs (or compensation for personal services) 
must be calculated in compliance with Office of Management and Budget (OMB) 
Circulars A-87 and A-122. 
<nl>(b)<ol> [(a)] A contractor must: 
(1) compensate employees according to policy, program, and procedures that 
effectively relate individual compensation to the person's contribution to 
performance of the contract work; result in internally consistent, equitable 
treatment of employees; and effectively relate compensation paid within the 
organization to that paid for similar services outside the organization. 
(2) review and approve salaries by position or function. 
(3) not provide retroactive salary increases or future increases unless the 
contract specifically allows for increases. 
(4) keep time sheets on part-time employees or employees who devote a portion of 
their time to the contract. 
(5) provide job descriptions when required by the Texas Department of Protective 
and Regulatory Services <nl>(TDPRS)<ol> [(PRS)] and only hire or promote people 
who meet job qualifications. 
<nl>(c)<ol> [(b)] A contractor must not bill and receive reimbursement from 
funding sources for more than 100% of an employee's total salary or work time. 
<nl>(d)<ol> [(c)] Contractors substantially engaged in activities other than the 
services for which <nl>TDPRS<ol> [PRS] is contracting must provide compensation 
for employees engaged in contract services that is comparable to compensation 
for other comparable contractor activities. The contractor also must provide 
compensation to employees that is considered reasonable and comparable to the 
compensation paid for similar work in the labor market in which the contractor 
competes for the kind of employees involved. 
<nl>(e)<ol> [(d)] Overtime is allowable as a cost to <nl>TDPRS<ol> [the 
department] only under the following conditions: 
(1) When necessary to cope with emergencies, such as those resulting from 
accidents, natural disasters, or temporary, unavoidable situations. 
(2) When periodically paying overtime to current staff will cost the department 
less than hiring temporary or additional staff.
(3) When services are required to meet client needs and no substitute direct 
service staff are available. 
<nl>(f)<ol> [(e)] Overtime is reimbursable subject to allowability and budget 
limitations of the contract. 
<nl>(g)<ol> [(f)] Merit raises or other additional compensation reimbursed by 
<nl>TDPRS<ol> [the department] and instituted by a contractor must meet the 
following requirements: 
(1) Incentive compensation must be reasonable. 
(2) Payment is made according to an agreement entered into in good faith between 
the contractor and <nl>its <ol>[his] employees before the services are rendered 
or according to an established plan that the contractor follows. 
<nl>(h)<ol> [(g)] A contractor must determine <nl> its <ol>[his] 
responsibilities and comply with applicable state and federal laws and 
regulations to include the following: 
(1) Workers' compensation-questions may be addressed to a qualified local 
insurance agency, the State Board of Insurance, or the State Industrial Accident 
Board. 
(2) F.I.C.A. - questions may be addressed to IRS. 
(3) Federal unemployment taxes - questions may be addressed to IRS. 
(4) State unemployment taxes - questions may be addressed to the Texas 
<nl>Workforce<ol> [Employment] Commission. 
<nl>(i)<ol> [(h)] A contractor may be reimbursed for budget costs incurred by 
<nl>its <ol>[his] employees (who are providing services under the contract) for 
travel including mileage, food, and lodging costs) and travel-related expenses 
in a cost reimbursement contract. However, the budget for the cost reimbursement 
contract must follow the requirements in <nl>sec.732.239 of this title (relating 
to Budget Changes), sec.732.240 of this title (relating to General Principles of 
Allowable and Unallowable Costs), and sec.sec.732.242-732.256 of this title 
(relating to Contract Administration)<ol> [sec.sec.732.239 through 732.256 of 
this title (relating to) Budget Changes, Allowable Costs, Allowable Costs for 
Reimbursement Contracts and for Developing Unit Rates, Start-up Costs, Employee 
Compensation, Consumable Supplies, Food Expenses, Equipment Depreciation and Use 
Allowances, Transportation of Clients, Insurance, Rental Costs, Space Rental, 
Renovations and Remodeling, Janitorial Services, Telephone, Professional Fees, 
and Unallowable Costs)]. 
(1) Certification of travel. The contractor must certify that travel expenses 
were incurred by staff while performing official contract business. The purpose 
for the trip, points of departure and arrival, and times of departure and 
arrival must be specified. 
(2) Mileage. <nl>Allowable <ol>[Budgeting and agency] reimbursement for mileage 
<nl>is <ol>[are] computed on a per mile rate, not exceeding the <nl>current 
mileage reimbursement rate set by the Texas Legislature for state employee 
travel <ol>[state mileage rate currently in effect]. For audit purposes, 
contractors must keep copies of travel forms that <nl>TDPRS <ol>[PRS] approved 
in writing. Contractors may reimburse staff at rates in excess of those 
currently in effect for state employees if the contractor pays the difference. 
<nl> TDPRS <ol>[PRS] will not pay for the difference in mileage rate.
(3) Food and lodging. <nl>Costs for staff food may be reimbursed either on a 
per-diem rate or an actual cost basis, with the results of either method not 
exceeding the current per-diem rate set by the Texas Legislature for state 
employee travel. Costs for staff lodging must not exceed the per-night rate set 
by the Texas Legislature for state employee travel. Reimbursement must be 
substantiated by adequate documentation. <ol>[Budgeting and contractor 
reimbursement may be accomplished using either a per diem or cost-incurred 
basis. Only one method may be used for each trip.
[(A) Per diem rate - Budgeting and reimbursement is computed on a per diem rate 
not to exceed the state per diem rate currently in effect. Reimbursement must be 
substantiated by adequate documentation.] 
[(B) Cost-incurred basis - Budgeting and reimbursement using this method must be 
substantiated by receipts documenting the expenses claimed. The costs must be 
reasonable.]
(4) Other <nl>travel-related <ol>expenses. All other travel-related expenses, 
such as air fare and taxi fare, may be budgeted and are allowed on a cost-
incurred basis if these costs are reasonable, necessary, and substantiated by 
adequate documentation. 
(5) Volunteer travel. Travel for volunteers may be paid, if appropriate. Travel 
to and from home is not included, but travel on agency business is. 
(6) Out-of-state travel. Out-of-state travel may be budgeted. The purpose and 
destination must be stated and the contract manager's previous approval is 
required <nl>for all contracts with the exception of residential child care 
contracts<ol>. The determination of allowability of out-of-state travel is based 
upon a comparison of total costs for similar or comparable travel purposes 
available within the state. 

sec.732.244. Consumable Supplies.
<nl>(a)<ol> The contractor must follow Office of Management and Budget (OMB) 
Circulars A-110, A-87, and A-122, as applicable, in calculating the costs of 
consumable supplies (or materials and supplies). 
<nl>(b)<ol> [(a)] A consumable supply is defined as any article costing less 
than $50 per unit and having a useful life of less than <nl>one <ol>[1] year. 
Items meeting the cost standard but having a greater useful life expectancy are 
not considered consumable supplies as long as the cost of control and 
recordkeeping required on such items is reasonable in relationship to their 
value. 
<nl>(c)<ol> [(b)] Consumable supplies charged by a contractor as a direct cost 
must include only the materials and supplies actually used to carry out the 
contract, and due credit must be given for any excess materials or supplies 
retained or returned to vendors. 

sec.732.245. Food Expenses. 
<nl>(a)<ol> Food costs for clients are considered direct costs. Contractors must 
follow Office of Management and Budget (OMB) Circulars A-87 and A-122, as 
applicable, in calculating food costs for clients. 
<nl>(b)<ol> [(a)] Food expenses for clients may be budgeted in the contract. 
Staff meals may be reimbursed through the contract, if eating at a facility with 
the clients is a condition of employment. Food costs paid for by any other 
source, federal or state, are included in the total <nl>budget <ol>but are not 
reimbursable under the contract. This section does not apply to the food 
services program. 
<nl>(c)<ol> [(b)] Contractors that charge staff for their meals may reimburse 
these staff members on a fringe benefit basis, and this reimbursement may be 
budgeted as such. When staff must pay on a meal-by-meal basis, the staff may 
continue to pay in this manner and submit a bill similar to travel 
reimbursement. In either instance, the <nl>Texas Department of Protective and 
Regulatory Services <ol>[department] reimburses the contractor for reasonable 
costs incurred. Accountability by the contractor must be maintained for each 
meal.

sec.732.246. Equipment. 
(a)-(g) (No change.) 
(h) If equipment purchased through a cost reimbursement contract is stolen, 
lost, vandalized, or misused, the contractor must immediately notify the 
department in writing. The department may require the contractor to repair or 
replace the equipment at <nl>its <ol>[his] expense or to reimburse the 
department for the state and federal share of the residual value of the 
equipment. 
(i) (No change.) 

sec.732.247. Depreciation and Use Allowances.
<nl>(a)<ol> Contractors must follow Office of Management and Budget (OMB) 
Circulars A-110, A-87, and A-122, as applicable, in calculating depreciation and 
use allowances. 
<nl>(b)<ol> [(a)] Contractors may be compensated for certain costs related to 
the use of buildings, capital improvements, and usable equipment through 
depreciation or use allowance. Contractors may not use allowance or depreciation 
for the cost of land. Depreciation or use allowance on assets donated by third 
parties is allowable, subject to ownership requirements and donor conditions. 
However, any limitations on the amount of depreciation that would be applicable 
to the donor also apply to the recipient organization. 
<nl>(c)<ol> [(b)] A contractor must not combine or change depreciation and use 
allowance methodologies unless the department approves in advance. The contract 
manager decides on the appropriateness of the combination of a use allowance and 
depreciation applicable to a single asset. The decision considers the amount of 
depreciation previously charged, the estimated useful life remaining, the effect 
of any increased maintenance charges or decreased efficiency due to age, and any 
other factors pertinent to the use of the asset. 
<nl>(d)<ol> [(c)] A contractor electing to depreciate a particular class of 
assets is not allowed depreciation, rental, or a use charge on any assets that 
have been fully depreciated. 
<nl>(e)<ol> [(d)] A contractor must exclude from the computation of use 
allowance and/or depreciation the cost or any portion of the cost of buildings 
and equipment borne by or donated by the federal government, no matter where the 
title was originally vested or where it presently resides. 
<nl>(f)<ol> [(e)] "Acquisition cost" means the net invoice unit price of an item 
of equipment, including the cost of any modifications, attachments, accessories, 
or auxiliary apparatus necessary to make it usable for the purpose for which it 
is acquired. Ancillary charges, such as taxes, duty, protective in-transit 
insurance, freight, and installation, must be included in or excluded from the 
acquisition cost according to the contractor's regular written accounting 
practices. If the property is acquired with a trade-in the acquisition cost of 
the new property is the amount expended for the property plus the acquisition 
cost of the property traded in less the amount of depreciation-to-date of trade-
in for the property. Fully depreciated property has a book value of zero when 
traded in. 
<nl>(g)<ol> [(f)] Charges for use allowances or depreciation must be supported 
by adequate contractor property records, and physical inventories must be taken 
at least once every <nl>two <ol>[2] years (a statistical sampling basis is 
acceptable) to ensure that assets exist and are usable and needed. When the 
depreciation method is followed, adequate depreciation records indicating the 
amount of depreciation taken each period must also be maintained. Records must 
be kept in the contractor's books of account. 
<nl>(h)<ol> [(g)] The following methods are used to compute use allowances: 
(1) For buildings and improvements, an annual rate of no more than 2% of 
acquisition cost is computed. The entire building must be treated as a single 
asset; the building's components (plumbing, heating, air conditioning, and so 
on) cannot be segregated from the building's shell. 
(2) In those cases where the institution maintains current records on usable 
equipment on hand, an annual rate of not more than 6-2/3% of acquisition cost is 
computed. 
(3) When no equipment records are maintained, the contractor must justify a 
reasonable estimate of the acquisition cost of usable equipment which may be 
used to compute the use allowance at an annual rate of no more than 6-2/3% of 
the estimate. 
<nl>(i)<ol> [(h)] The method of depreciation a contractor uses to assign the 
cost of an asset (or group of assets) to accounting periods must reflect the 
pattern of consumption of the asset during its useful life. Depreciation expense 
for any time period is the portion of the acquisition/depreciable basis of the 
property assigned to that time period. The acquisition cost/depreciable basis of 
the property is divided by the number of years of estimated useful-service life 
of the property to compute the depreciation expense per year (straight line 
method [with no salvage value]). <nl>The minimum useful lives to be assigned to 
depreciable property are as follows: <ol>[The number of years of estimated 
useful life of property is based on the Department of Treasury, Internal Revenue 
Services policies on depreciation for tax purposes.
<nl>(1)<ol> buildings: 30 years, with a minimum salvage value of 10%; 
<nl>(2)<ol> transportation equipment: a minimum of three years for passenger 
automobiles (including minivans), with a minimum salvage value of 10%; five 
years for light trucks and vans, with a minimum salvage value of 10%; and seven 
years for buses and airplanes, with a minimum salvage value of 10%. The 
estimated life of a previously owned (used) vehicle is the longer of the number 
of years remaining in the vehicle's depreciable life or three years. 
<nl>(A)<ol> Luxury automobiles are defined as passenger automobiles (which 
include automobiles and minivans) and light trucks and vans (up to 15-passenger 
vans), with an historical cost at the time of purchase or a market value at 
execution of the lease exceeding $30,000 when purchased or leased prior to 
January 1, 1997. Buses are excluded from the definition of luxury vehicles. For 
vehicles leased or purchased on or after January 1, 1997, luxury vehicles are 
defined as a base value of $30,000 with 2% being added (using the compound 
method) to the base value each January 1 beginning January 1, 1998. Any amount 
above the definition of a luxury vehicle stated above is an unallowable cost. 
When a passenger vehicle's cost exceeds the definition of a luxury vehicle 
stated above, the historical cost is reduced to the amount determined by the 
definition of a luxury vehicle. When a passenger vehicle's market value at the 
execution of the lease exceeds the amount determined by the definition of a 
luxury vehicle stated above, the allowable lease payment is limited to the lease 
amount for a vehicle with a base value as determined above, with adequate 
supporting documentation maintained by the contractor. 
<nl>(B)<ol> Specialized equipment added to a vehicle to assist a client should 
be depreciated separately from the vehicle. Wheelchair lifts have an estimated 
useful life of four years; and 
<nl>(3)<ol> all other depreciable assets, either based upon policies on 
depreciation for tax purposes of the Department of Treasury, Internal Revenue 
Service, or minimum schedules consistent with Estimated Useful Lives of 
Depreciable Hospital Assets, <nl>published by the American Hospital 
Association.<ol> 
<nl>(j)<ol> Effective with their corporate fiscal year ending in 1997, 
residential child care contractors are required to depreciate purchases made 
during their corporate fiscal years ending in 1998 and thereafter of any single 
asset valued at $1,000 or more and with an estimated useful life of more than 
one year at the time of purchase.
<nl>(k)<ol> [(i)] The contractor must maintain adequate property records. The 
straight line [(with no salvage value)] method of computing depreciation must be 
used and must be consistently applied for any specific asset or class of assets 
and result in equitable charges. 

sec.732.248. Transportation of Clients. 
<nl>A contractor must follow Office of Management and Budget (OMB) Circulars A-
87 and A-122, as applicable, in calculating transportation costs. <ol>A 
contractor may use one of the following options to place client transportation 
costs in the contract budget: 
(1)-(3) (No change.) 

sec.732.249. Insurance. 
<nl>A contractor must follow Office of Management and Budget (OMB) Circulars A-
110, A-87, and A-122, as applicable, in calculating insurance costs.<ol> The 
contractor must adhere to the following: 
(1)-(5) (No change.) 

sec.732.250. Rental Costs. 
<nl>Rental costs are discussed in Office of Management and Budget (OMB) 
Circulars A-110, A-87, and A-122. <ol>Rental costs may be charged against the 
contract budget, but must be reasonable in light of rental costs of comparable 
property, if any; market conditions in the area; alternatives available; and the 
type, life expectancy, condition, and value of the property leased. The only 
limitations are as follows: 
(1)-(3) (No change.) 

sec.732.251. Space Rental. 
<nl>(a)<ol> A contractor must follow Office of Management and Budget (OMB) 
Circulars A-110, A-87, and A-122, as applicable in calculating rental costs. 
<nl>(b)<ol> [(a)] The contractor must specify the number of square feet and the 
cost per square foot of its rental space. The total area must be reasonable for 
the number of staff and clients served. A copy of the lease agreement must be 
made available to the department's contract manager. 
<nl>(c)<ol> [(b)] When a contracted program shares a facility with other 
programs, the contractor must allocate the cost on the basis of square footage 
used in each program. This allocation applies to rent, utilities, maintenance 
services and supplies (including custodian's salary), repairs, insurance, and 
other related costs. Under certain circumstances, other allocation bases may be 
used, but only if square footage is inappropriate.

sec.732.252. Renovations and Remodeling. 
A contractor may not <nl>be reimbursed by the Texas Department of Protective and 
Regulatory Services for <ol>[budget] renovations and remodeling costs unless the 
department specifically approves. <nl>A contractor must follow Office of 
Management and Budget (OMB) Circulars A-87 and A-122, as applicable, in 
calculating the costs of renovations and remodeling.<ol>

sec.732.254. Telephone. 
The contractor must specify the number of lines, monthly base rate, and 
estimated monthly long distance charges <nl>in its budget<ol>. For billing 
purposes, all long distance charges must be fully documented to show 
applicability to the contract. 

sec.732.255. Professional Fees. 
<nl>Contractors must follow Office of Management and Budget (OMB) Circulars A-87 
and A-122, as applicable, in calculating professional service fees. 
<ol>Contractors may budget the following: 
(1)-(4) (No change.) 
[(5) Audit fees if the department requires the audits.] 

sec.732.256. Unallowable Costs. 
<nl>In addition to those costs defined as allowable costs by Office of 
Management and Budget (OMB) Circulars A-110, A-87, and A-122, <ol>[Contractors] 
<nl>residential child care contractors <ol>may not budget <nl> nor be reimbursed 
for the following <ol>costs <nl>under contracts with the Texas Department of 
Protective and Regulatory Services <ol>[for the following]: 
<nl>(1)<ol> Values assigned to the services of unpaid workers or volunteers. 
<nl>(2)<ol> Client educational expenses for those facilities that educate in an 
onsite school those children for whom no Admission, Review, and Dismissal (ARD) 
Committee determination about attendance (based on health, safety, and quality 
of service reasons) has been made. These expenses include: 
<nl>(A)<ol> compensation for administrators, teachers, and teachers' aides for 
providing client educational services; 
<nl>(B)<ol> expenses for textbooks and teaching aid supplies; 
<nl>(C)<ol> the lease and/or depreciation (or use allowance) of buildings and 
equipment used to provide client educational services, as well as related 
utilities, insurance, tax, and maintenance expenses. This expense also includes 
compensation of staff for facility maintenance; and
<nl>(D)<ol> the costs of buildings or spaces within a building that are used for 
both client educational and noneducational purposes. When a building or a space 
within a building is used for both client educational and noneducational 
purposes, the portion of building and equipment expenses directly related to 
providing client educational services in that building or space is unallowable 
on a pro rata basis. 
<nl>(3)<ol> Hospitalization expenses for clients. 
<nl>(4)<ol> Medical and dental expenses (including medications) for clients paid 
for by a third-party payor or covered by Medicaid and/or EPSDT Medicaid. 
<nl>(5)<ol> Expenses related to college enrollment and/or attendance. 
<nl>(6)<ol> Premiums for life insurance in which the beneficiary is the 
contractor, unless life insurance is required in a loan agreement related to 
residential child care services. 
<nl>(7)<ol> Any expenses for the corporation or association board of directors, 
with the exception of errors and omissions insurance (i.e., liability). 
[(1) Advertising costs for anything other than the recruitment of staff, 
procurement of scarce items, or disposal of scrap or surplus materials.] 
[(2) Bad debts.] 
[(3) Bidding or proposal costs.] 
[(4) Capital expenditures.] 
[(5) Contingencies.] 
[(6) Contributions and donations by the contractor.] 
[(7) Entertainment costs.] 
[(8) Excess facility costs.] 
[(9) Fines and penalties.] 
[(10) Interest costs and investment counsel costs.] 
[(11) Fund raising costs.] 
[(12) Losses on other grants or contracts.] 
[(13) Organization or reorganization costs.] 
[(14) Public information service, except as specified in the contract.] 
[(15) Publication costs.]
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 June 29, 1998.
TRD-9810248
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

40 TAC sec.732.241
(Editor's note: The text of the following section proposed for repeal will not 
be published. The section may be examined in the offices of the Texas Department 
of Protective and Regulatory Services or in the Texas Register office, Room 245, 
James Earl Rudder Building, 1019 Brazos Street, Austin.)
The repeal is proposed 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, and 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 repeal implements 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. 
sec.732.241. Allowable Costs for Cost Reimbursement Contracts and for Developing 
Unit Rates.
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 June 29, 1998.
TRD-9810249
C. Ed Davis
Deputy Director, Legal Services
Texas Department of Protective and Regulatory Services
Proposed date of adoption: October 1, 1998
For further information, please call: (512) 438-3765

TITLE 43. TRANSPORTATION
PART I. Texas Department of Transportation
CHAPTER 2. Environmental Policy
SUBCHAPTER B. Memoranda of Understanding with Natural Resource Agencies
43 TAC sec.2.24
(Editor's note: The text of the following section proposed for repeal will not 
be published. The section may be examined in the offices of the Texas Department 
of Transportation or in the Texas Register office, Room 245, James Earl Rudder 
Building, 1019 Brazos Street, Austin.)
The Texas Department of Transportation proposes the repeal of sec.2.24, 
concerning Memorandum Of Understanding with the Texas Historical Commission and 
the Texas Antiquities Committee, and new sec.2.24, concerning Memorandum Of 
Understanding with the Texas Historical Commission. 
EXPLANATION OF PROPOSED REPEAL AND NEW SECTION 
Transportation Code, sec.201.607, requires the department to adopt a Memorandum 
of Understanding (MOU) with each state agency that has responsibilities for the 
protection of the natural environment, the preservation of the natural 
environment, or for the preservation of historic or archeological resources. 
Section 201.607 also requires the department to adopt the memoranda and all 
revisions by rule and to periodically evaluate and revise the memoranda. In 
order to meet the legislative intent and to ensure that historic and 
archeological resources are given full consideration in accomplishing the 
department's activities, the department has evaluated the memorandum adopted in 
1992 and finds it necessary to propose the repeal of sec.2.24 and the 
simultaneous proposed adoption of new sec.2.24 in a revised form. New sec.2.24 
describes procedures providing for Texas Historical Commission (THC) review of 
Texas Department of Transportation projects which have the potential to affect 
cultural resources within the jurisdiction of THC. 
New sec.2.24 describes the purpose of the new section, including implementing 
provisions of Texas Transportation Code, sec.201.607, and the rules for 
coordination of state-assisted transportation projects, Title 43, Texas 
Administrative Code, sec.sec.2.40-2.51, which underline the need for and 
importance of comprehensive environmental coordination for all transportation 
projects. Section 2.24 also provides definitions for words and terms used in the 
MOU. Subsection (a) explains the purpose of the MOU, including a statement of 
TxDOT policy regarding the identification of environmental impacts of TxDOT 
projects; the basis for project decisions; public input; the use of a systematic 
interdisciplinary approach in project development; and the intention to strive 
for environmentally sound transportation activities. The MOU provides a formal 
mechanism by which THC may review TxDOT projects. 
Subsection (b) provides the authority for this Memorandum of Understanding under 
Texas Transportation Code, sec.201.607, which directs TxDOT to adopt MOUs with 
appropriate environmental resource agencies including THC. 
Subsection (c) provides definitions for this section. 
Subsection (d) outlines the responsibilities of the department and THC. The 
department's responsibilities include planning and designing safe, efficient, 
effective and environmentally sensitive transportation facilities; the timely 
and efficient construction of transportation facilities; and the ongoing 
maintenance of transportation facilities. THC serves as the State Historic 
Preservation Office in Texas, which includes reviewing federally assisted, 
licensed or permitted undertakings for their effects to archeological and 
historic resources, regulating the disposition and management of State 
Archeological Landmarks and issuing permits for the taking, excavation, 
restoration or study of State Archeological Landmarks. 
Subsection (e) contains a new provision for early project planning for cultural 
resources which provides for implementation of TxDOT's commitment to performing 
early identification of cultural resources located within the area of potential 
effects of proposed transportation projects, implementing alternative methods, 
techniques, and other strategies that are reasonable and feasible and that will 
enhance efficiency in complying with cultural resource laws, and to providing 
the public and interested parties with opportunities to provide input and 
express their views concerning potential impacts to historic properties. 
Subsection (f) contains procedures for coordination regarding archeological 
resources as required by state and federal statutes and regulations (13 TAC 
Chapter 26 and 36 CFR Part 800) including provisions for the identification of 
archeological sites, the requirements for archeological surveys, provisions for 
determining site significance through archeological eligibility testing, 
provisions for archeological excavation/data recovery, a process for dealing 
with archeological sites found after award of contract, and provisions for 
artifact recovery and curation. 
Subsection (g) contains procedures for coordination regarding historic 
properties as required under state and federal statutes and regulations (13 TAC 
Chapter 26 and 36 CFR Part 800), including provisions for a consideration of 
historic properties during early project development. 
Subsection (h) outlines provisions for the identification of historic properties 
as required by state and federal laws and regulations (13 TAC Chapter 26 and 36 
CFR Part 800) and for an evaluation of the historic significance of these 
properties. 
Subsection (i) provides for assessing and mitigating effects for these historic 
properties as required under state and federal statutes and regulations (13 TAC 
Chapter 26 and 36 CFR Part 800). Subsection (j) concerns the environmental 
document and public involvement. 
Subsection (k) provides for dispute resolution as required under state and 
federal laws and regulations. 
Subsection (l) provides for the review and update of this memorandum by January 
1, 2002. 
FISCAL NOTE 
Frank J. Smith, Director, Finance Division, has determined that for the first 
five-year period the new section is in effect, there will not be fiscal 
implications for state or local governments as a result of enforcing or 
administering the new section. There are no anticipated economic costs for 
persons required to comply with the section as proposed. 
Dianna F. Noble, P.E., Director, Environmental Affairs Division, has certified 
that there will be no significant impact on local economies or overall 
employment as a result of enforcing or administering the new section. 
PUBLIC BENEFIT 
Ms. Noble has also determined that for each year of the first five years the 
section is in effect the public benefit anticipated as a result of enforcing the 
new section will be increased coordination and communication between the 
department and THC resulting from implementation of the memorandum of 
understanding, ensuring that the state's cultural resources are preserved to the 
fullest extent possible and enhanced where practicable and ensuring 
comprehensive environmental coordination for all transportation projects 
including a full consideration of historic properties and archeological sites in 
a manner consistent with federal and state laws, regulations and guidelines. 
There will be no effect on small businesses. 
PUBLIC HEARING 
Pursuant to the Administrative Procedure Act, Government Code, Chapter 2001, the 
Texas Department of Transportation and the Texas Historical Commission will 
conduct a joint public hearing to receive comments concerning the proposed new 
chapter. The public hearing will be held at 1:30 p.m. on July 28, 1998, in the 
first floor hearing room of the Dewitt C. Greer State Highway Building, 125 East 
11th Street, Austin, Texas and will be conducted in accordance with the 
procedures specified in 43 TAC sec.1.5. Those desiring to make comments or 
presentations may register starting at 1:00 p.m. Any interested persons may 
appear and offer comments, either orally or in writing; however, questioning of 
those making presentations will be reserved exclusively to the presiding officer 
as may be necessary to ensure a complete record. While any person with pertinent 
comments will be granted an opportunity to present them during the course of the 
hearing, the presiding officer reserves the right to restrict testimony in terms 
of time and repetitive content. Organizations, associations, or groups are 
encouraged to present their commonly held views and identical or similar 
comments through a representative member when possible. Comments on the proposed 
text should include appropriate citations to sections, subsections, paragraphs, 
etc. for proper reference. Any suggestions or requests for alternative language 
or other revisions to the proposed text should be submitted in written form. 
Presentations must remain pertinent to the issues being discussed. A person may 
not assign a portion of his or her time to another speaker. A person who 
disrupts a public hearing must leave the hearing room if ordered to do so by the 
presiding officer. Persons with disabilities who plan to attend this meeting and 
who may need auxiliary aids or services such as interpreters for persons who are 
deaf or hearing impaired, readers, large print or Braille, are requested to 
contact Eloise Lundgren, Director, Public Information Office, 125 East 11th 
Street, Austin, Texas 78701-2483, 512/463-8588 at least two working days prior 
to the hearing so that appropriate services can be provided. 
SUBMITTAL OF COMMENTS 
Written comments on the proposed repeal and new section may be submitted to 
Dianna F. Noble, P.E., Director of Environmental Affairs, 125 East 11th Street, 
Austin, Texas 78701-2483. The deadline for receipt of comments will be 5:00 p.m. 
on August 10, 1998. 
STATUTORY AUTHORITY 
The repeal is proposed under Transportation Code, sec.2001.101, 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, sec.201.607, which requires that the 
department adopt memoranda of understanding with each agency that has 
responsibility for the protection of the natural environment or the preservation 
of the natural environment or for the preservation of historic or archeological 
resources and that these memoranda and all revisions be adopted as rules.
No statutes, articles, or codes are affected by this proposed repeal.
sec.2.24. Memorandum of Understanding with the Texas Historical Commission and 
the Texas Antiquities Committee. 
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 June 29, 1998.
TRD-9810231
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 463-8630

STATUTORY AUTHORITY 
The new section is proposed under Transportation Code, sec.2001.101, 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, sec.201.607, which requires that the 
department adopt memoranda of understanding with each agency that has 
responsibility for the protection of the natural environment or the preservation 
of the natural environment or for the preservation of historic or archeological 
resources and that these memoranda and all revisions be adopted as rules.
No statutes, articles, or codes are affected by this proposed new section. 

sec.2.24. Memorandum of Understanding with the Texas Historical Commission. 
(a) Purpose. 
(1) It is the policy of the Texas Department of Transportation (TxDOT) to: 
(A) identify the environmental impacts of TxDOT transportation projects, to 
coordinate these projects with applicable state and federal agencies, and 
reflect these investigations and coordination in the environmental documentation 
for each project; 
(B) base project decisions on a balanced consideration of the need for a safe, 
efficient, economical, and environmentally sound transportation system; 
(C) receive input from the public through the public involvement process; 
(D) utilize a systematic interdisciplinary approach as an essential part of the 
development process for transportation projects; and 
(E) strive for environmentally sound transportation activities through 
appropriate avoidance, treatment or mitigation, where feasible and prudent, in 
coordination with appropriate resource agencies. 
(2) In order to pursue this policy, the Texas Department of Transportation and 
the Texas Historical Commission (THC) have agreed to develop this Memorandum of 
Understanding (MOU), which will supersede the MOU which became effective on 
October 16, 1992. 
(3) It is the intent of this MOU to provide a formal mechanism by which THC may 
review TxDOT projects which have the potential to affect cultural resources 
within the jurisdiction of THC in order to assist TxDOT in making 
environmentally sound decisions, and to develop with TxDOT a system by which 
information developed by TxDOT and THC may be exchanged to their mutual benefit. 
Unless otherwise specified in this MOU, all definitions in 13 TAC Chapter 26, 
Rules of Practice and Procedures for the Antiquities Code of Texas, Texas 
Historical Commission, will be used. 
(b) Authority. 
(1) The Texas Transportation Code, sec.201.607, directs TxDOT to adopt MOUs with 
appropriate environmental resource agencies, including THC. The rules for 
coordination of state-assisted transportation projects found in sec.sec.2.40-
2.51 of this title (relating to Environmental Review and Public Involvement for 
Transportation Projects), underline the need for and importance of comprehensive 
environmental coordination for all transportation projects. 
(2) This MOU complements a Programmatic Agreement (PA) that TxDOT executed with 
the Federal Highway Administration (FHWA), the Texas State Historic Preservation 
Officer (TSHPO), and the Advisory Council on Historic Preservation (Council) in 
December of 1995. The PA delineates the process by which the signatory parties 
agree to carry out the National Historic Preservation Act, sec.106 (16 U.S.C. 
470f) for federally assisted, permitted and licensed transportation projects 
within the state. 
(c) Definitions. The following words and terms, when used in this section, shall 
have the following meanings, unless the context clearly indicates otherwise. 
(1) Antiquities Code of Texas (ACT) - The state statute that designates the 
Texas Historical Commission as the legal custodian of all cultural resources, 
historic or prehistoric, within the public domain of the state, the body which 
issues antiquities permits, in accordance with 13 TAC Chapter 26 and as provided 
in ACT sec.191.054 and 191.091-098. The Texas Historical Commission assumed 
these responsibilities from the Texas Antiquities Committee which was abolished 
under Senate Bill 365, enacted by the 74th Legislature in 1995. 
(2) Antiquities permit - A permit issued by the Texas Historical Commission in 
order to regulate the taking, alteration, damage, destruction, salvage, 
archeological survey, testing, excavation and study of state archeological 
landmarks including prehistoric and historic archeological sites, and the 
preservation, protection, stabilization, conservation, rehabilitation, 
restoration, reconstruction, or demolition of historic structures and buildings.
(3) Area of potential effects - The geographic area or areas within which an 
undertaking may cause changes in the character or use of historic properties, if 
any such properties exist, as defined in 36 CFR Part 800. 
(4) Cultural resources - A general term referring to buildings, structures, 
objects, sites, and districts more than 50 years of age with the potential to 
have significance in local, state, or national history. 
(5) Eligibility - A site's eligibility for the National Register of Historic 
Places as set forth in 36 CFR Part 800, or for designation as a State 
Archeological Landmark, as set forth in 13 TAC Chapter 26. 
(6) Historic property - Any prehistoric or historic district, site, building, 
structure, or object which is included or eligible for inclusion in the National 
Register of Historic Places, as defined in 36 CFR Part 800, or meets the 
requirements for designation as a State Archeological Landmark as set forth in 
13 TAC Chapter 26. (This term is used interchangeably with "significant 
properties" and "significant cultural resources.") 
(7) National Register - The National Register of Historic Places (NRHP), which 
is the nation's inventory of historic places maintained by the U.S. Secretary of 
the Interior. (Historic properties included in or eligible for inclusion must 
meet National Register criteria for evaluation, as defined in 36 CFR Part 60.) 
(8) State Archeological Landmark (SAL) - Archeological and historic properties 
as defined in Subchapter D of the Antiquities Code of Texas (ACT) and identified 
in accordance with 13 TAC Chapter 26. 
(d) Responsibilities. 
(1) Texas Department of Transportation. The responsibilities of TxDOT pertain 
primarily to its functions as a transportation agency, and include: 
(A) planning and designing safe, efficient, effective, and environmentally 
sensitive transportation facilities while avoiding, minimizing, or compensating 
for impacts to cultural resources to the fullest extent practicable; 
(B) the timely and efficient construction of transportation facilities, in a 
manner consistent with approved plans and agreements which TxDOT has executed 
regarding the protection of significant cultural resources; and 
(C) ongoing maintenance to provide safe, efficient, and environmentally sound 
transportation facilities for the traveling public. 
(2) Texas Historical Commission. The responsibilities of THC relate primarily to 
its functions as a cultural resource agency, and include: 
(A) serving as the State Historic Preservation Office in Texas with 
responsibility under 36 CFR Part 800 - the regulations implementing sec.106 of 
the National Historic Preservation Act (16 U.S.C. 470f); 
(B) reviewing federally assisted, licensed, or permitted undertakings with the 
potential to affect properties included in or eligible for inclusion in the 
National Register of Historic Places; 
(C) providing assistance to agencies in their efforts to comply with the sec.106 
process; 
(D) regulating the disposition and management of State Archeological Landmarks 
which are affected by non-federal undertakings, as described in the Antiquities 
Code of Texas and 13 TAC Chapter 26; and 
(E) issuing permits for the taking, excavation, restoration, or study of State 
Archeological Landmarks as provided in ACT, sec.sec.191.054 and 191.091-098. 
(e) Early project planning for cultural resources. 
(1) TxDOT is committed to performing early identification efforts for cultural 
resources located within the area of potential effects of proposed 
transportation projects and initiating THC coordination during the early 
planning stages of these projects, when the widest range of alternatives is open 
for consideration. 
(2) TxDOT is committed to implementing, in consultation with THC, alternative 
methods, techniques, and other strategies that are reasonable and feasible and 
that will enhance efficiency in complying with cultural resource laws. These 
include, but are not limited to, a programmatic approach to coordination of 
selected types of cultural resources, geoarcheological research to reduce 
archeological liabilities, development of significance standards, and 
alternative mitigation strategies. When implemented, with the concurrence of 
THC, such alternative strategies will replace the procedures set forth in this 
MOU. 
(3) TxDOT is also committed to providing the public and interested parties with 
opportunities to provide input and express their views concerning potential 
project impacts to historic properties, and will ensure that cultural resource 
issues are incorporated into its regular public participation programs carried 
out under the National Environmental Policy Act (42 USC 4321-4347 et seq.), and 
sec.sec.2.42-2.43 of this title (relating to Highway Construction Projects-
Federal Aid, and Highway Construction Projects-State Funds), as far as 
practicable. 
(4) Cultural resource investigations by consultants.
(A) TxDOT has the right to perform cultural resource investigations using staff 
or consultants who meet the professional standards of 13 TAC Chapter 26, and as 
required by 36 CFR Part 800. 
(B) Cultural resource surveys, investigations, permit applications, and other 
work performed by consultants shall be coordinated with THC through TxDOT's 
Environmental Affairs Division. 
(f) Procedures for coordination regarding archeological resources. Survey and 
eligibility testing of archeological resources performed by the archeological 
staff of TxDOT's Environmental Affairs Division will not require an antiquities 
permit. All other archeological investigations shall require an antiquities 
permit. TxDOT and THC will consult to discuss the feasibility and benefits of 
TxDOT submitting a compilation of survey and test excavation results to THC in 
an annual or biannual report. 
(1) Identification. 
(A) TxDOT will undertake sufficient background research to determine which 
proposed projects require archeological surveys. Background research may include 
a search of records and files at THC and/or the Texas Archeological Research 
Laboratory (TARL), gathering information on soils, and a geomorphic history of 
the projects. 
(B) Based on the results of background research, TxDOT will identify projects 
requiring coordination and/or archeological investigation for archeological 
resources. 
(C) TxDOT will identify projects which are not believed to require individual 
coordination for archeological sites and will provide THC with a list of such 
projects on a monthly basis. 
(2) Archeological surveys. 
(A) All projects, and portions of projects, recommended for survey by TxDOT 
during the initial phase of coordination will be subject to archeological survey 
using the methods agreed upon between TxDOT and THC in conformance with 36 CFR 
Part 800. 
(B) An archeological survey will be conducted by a TxDOT professional 
archeological staff member or other archeologist who meets the state and federal 
standards. Surveys may be limited to an evaluation of existing impacts or 
stratigraphic integrity when these are sufficient to determine that any sites 
present are unlikely to be eligible. 
(C) When the archeological survey has been completed, TxDOT will submit the 
results of the survey to THC in a report of investigations, and request THC's 
review of the report. With its request for review, TxDOT will include: 
(i) details of the results of the survey, including project description, 
anticipated project impact, and existing disturbance in the project area; 
(ii) environmental data on topography, soils, land use, survey methodology, 
survey results, and recommendations; 
(iii) the project location plotted on 7.5' Series USGS quadrangle maps; 
(iv) descriptions of any sites found; 
(v) submission of electronic or paper copies of archeological site survey forms 
to TARL; and 
(vi) recommendations regarding whether the site(s) merit archeological testing 
or archeological monitoring. 
(D) THC will respond within 30 days of receipt of the TxDOT request for review 
of the survey results and recommendations. The response will include: 
(i) a statement of concurrence or non-concurrence with the results of the 
survey; and 
(ii) any other comments relevant to the archeological resources which could be 
affected by the project. 
(E) TxDOT will include the results of the archeological survey and 
recommendations in the environmental document for the project, as far as 
practicable. 
(3) Archeological eligibility testing phase. 
(A) All sites and portions of sites recommended for eligibility testing by THC 
will be subject to archeological testing, using the methods agreed upon in 
writing by TxDOT and THC. 
(B) THC may send a representative to observe any or all of the testing 
procedures. 
(C) At the completion of testing, TxDOT will prepare a formal report of the 
results of testing. 
(i) For sites affected by federal undertakings, the report will include 
recommendations regarding eligibility for the NRHP, as described in 36 CFR Part 
800. 
(ii) For sites affected by non-federal undertakings, the report will include 
recommendations regarding the significance of the site and whether designation 
as a State Archeological Landmark is warranted, in accordance with ACT, 
sec.sec.191.091-092, and 13 TAC Chapter 26. 
(D) TxDOT will send the testing report to THC with a request for review. 
(E) In accordance with 36 CFR Part 800, THC will respond to the report within 30 
days of receipt of TxDOT's request for review. The response will include: 
(i) a statement of concurrence or non-concurrence with the results of the 
archeological testing and recommendations contained in the TxDOT request for 
review; and 
(ii) a determination of the site's eligibility for listing in the National 
Register of Historic Places, or for designation as a State Archeological 
Landmark. 
(4) Archeological excavation/data recovery. 
(A) All sites and portions of sites determined to be eligible for the NRHP (for 
federal undertakings) or eligible for designation as a State Archeological 
Landmark (for non-federal undertakings) based on consultation with THC during 
the survey phase or testing phase, will be subject to data recovery in 
conformance with a data recovery plan approved by THC. 
(B) TxDOT, in consultation with THC, will develop a data recovery plan for each 
eligible site on a case-by-case basis, in accordance with 36 CFR Part 800 for 
federal undertakings and ACT sec.191 for non-federal undertakings. Final data 
recovery plans must be approved by THC prior to their implementation. 
(C) Results of data recovery will be published as required by 36 CFR Part 800 
and/or ACT sec.191. 
(D) All data recovery will be performed under an antiquities permit. 
(5) Archeological sites found after award of contract. 
(A) When previously unknown archeological remains are encountered after award of 
contract, TxDOT will immediately suspend construction or any other activities 
that would affect the site. 
(B) A TxDOT archeologist will examine the remains and report the findings to THC 
within 48 hours of the examination. The Federal Highway Administration (FHWA) 
and/or TxDOT will enter consultations regarding the disposition of the site or 
sites for federal undertakings, as required by 36 CFR Part 800, or as required 
by the Texas Antiquities Code for state funded projects. 
(C) TxDOT and THC will prepare a plan of action to determine eligibility or 
significance, and/or mitigate the effects on the site or sites. 
(D) TxDOT may continue construction in the affected area upon approval of THC. 
(6) Artifact recovery and curation. 
(A) Artifact recovery. 
(i) The type and quantity of artifacts to be recovered will be detailed in the 
scope of work and will be selected to address the research questions. 
(ii) Artifacts or analysis samples (such as soil samples) that are recovered 
from survey, testing, or data recovery investigations by TxDOT or their 
contracted agents that address the research questions must be cleaned, labeled, 
and processed in preparation for long-term curation. 
(iii) To ensure proper care and curation, recovery methods must conform to 36 
CFR Part 800, 13 TAC Chapter 26, and Council of Texas Archeologists (CTA) 
guidelines, as applicable. 
(B) Artifact curation. 
(i) TxDOT or its permitted contractor may temporarily house artifacts and 
samples during laboratory analysis and research, but upon completion of the 
analysis, all artifacts must be transferred to a permanent curatorial facility 
in accordance with the terms of the antiquities permit. 
(ii) Artifacts and samples will be placed at the Texas Archeological Research 
Laboratory or some regional artifact curatorial repository which fulfills 36 CFR 
Part 79, the ACT, or CTA Curation Standards, as approved by THC. When 
appropriate, TxDOT will consult with THC to identify collections or portions of 
collections that do not have identifiable value for future research or public 
interpretation. This information may serve as the basis for future consultation 
between TxDOT and THC regarding the disposition of such collections or portions 
of collections. Final approval regarding the disposition of collections will be 
made by THC. 
(iii) TxDOT is responsible for the curatorial preparation of all artifacts so 
that they are acceptable to the receiving curatorial repository and fulfill 36 
CFR Part 79 and 13 TAC Chapter 26, as approved by THC. 
(g) Procedures for coordination regarding historic properties, early project 
development. For purposes of this subsection and subsections (h) and (i) of this 
section, the term historic properties will refer only to non-archeological 
historic properties. 
(1) Early in the project development process, TxDOT will determine whether 
federally assisted, licensed, or permitted transportation projects (federal 
projects) constitute undertakings under 36 CFR Part 800. In consultation with 
THC, it has been determined that certain types of projects do not require 
individual coordination and may be included in a monthly report. These projects 
involve culverts and other structures and objects which lack engineering, 
architectural or historical merit and projects which have a minimal potential to 
affect historic properties if such are present in the area of potential effects. 
TxDOT will notify THC of all such projects in a monthly report. The monthly 
report will include a summary of each project that is sufficient to allow THC to 
determine if more information is needed. THC will have 30 days to approve the 
monthly report or to request additional information concerning any of the 
projects on the list. 
(2) Early in the project development process, TxDOT will review its non-federal 
transportation projects and other activities occurring on any of the lands of 
the State of Texas (state projects) to determine whether they have the potential 
to affect properties 50 years of age or older under the terms of the ACT, 13 TAC 
Chapter 26. Effects include the removal, alteration, or renovation of one or 
more contributing elements to a historic property. TxDOT will notify THC of 
state projects which will not have an effect on any properties 50 years of age 
or older in a monthly report. The monthly report will include a summary of each 
project that is sufficient to allow THC to determine if more information is 
needed. THC will have 30 days to approve the monthly report or to request 
additional information concerning any of the projects on the list. 
(3) If TxDOT determines that a federal project constitutes an undertaking as 
defined in 30 CFR Part 800, or that a state project has the potential to affect 
a historic property, TxDOT will then individually coordinate the project with 
THC, except as noted in this MOU, in accordance with the provisions provided in 
subsequent sections of this agreement. 
(h) Identification and evaluation of historic properties. 
(1) For state and federal projects requiring individual THC coordination, TxDOT 
will identify properties 50 years of age or more that will be affected by state 
projects or that are located within the area of potential effects for federal 
projects. TxDOT will conduct a search of available records, including listings 
of Registered Texas Historic Landmarks, State Archeological Landmarks, and 
properties listed in the National Register as well as local historic property 
survey files on record at THC. THC will render all reasonable assistance to 
TxDOT in performing record searches on potentially historic properties. 
(2) TxDOT will conduct field surveys for all projects except those which qualify 
for inclusion on a monthly list. These surveys will be conducted in order to 
locate properties 50 years of age or more or properties that may otherwise be 
eligible for inclusion on the National Register of Historic Places or which may 
qualify as SALs. If no such properties are identified, the following procedures 
will apply. 
(A) For state projects, the project will be added to the monthly report 
coordinated with THC as described in this MOU. 
(B) For federal projects, TxDOT will inform THC in accordance with 36 CFR Part 
800. 
(3) If the identification efforts reveal properties 50 years of age or more, 
TxDOT will evaluate the significance of each property to determine if the 
property: 
(A) qualifies as a SAL as defined by ACT, sec.191.092, for state projects; or 
(B) is eligible for inclusion in the National Register, or is a contributing 
element of a National Register eligible or listed district, for federal 
projects. 
(4) If a state or federal project has the potential to affect a bridge-class 
structure more than 50 years of age and the structure is included in the State 
Historic Bridge Inventory (SHBI) that has been formally accepted by THC, the 
following procedures apply. 
(A) If the structure has been determined not historically significant under the 
SHBI, TxDOT will coordinate with appropriate local entities to determine if the 
structure has local interest or significance. If no local interest or 
significance is identified, TxDOT will add the project to the monthly report. If 
TxDOT or THC identifies local interest or significance in these structures, 
TxDOT will individually coordinate the project with THC following the procedures 
set forth under this paragraph. 
(B) If the bridge-class structure has been determined historically significant 
under the SHBI, TxDOT will individually coordinate the project with THC 
following the procedures set forth under this paragraph. 
(5) If a state or federal project has the potential to affect a bridge-class 
structure more than 50 years of age that has not been included in a SHBI that 
has been formally accepted by THC, TxDOT will assess the significance of the 
structure to determine if it has potential engineering, architectural, or 
historic merit. 
(A) In consultation with THC, bridge-class structures of types determined to 
have no potential merit will include, but not be limited to, common-type 
structures with no distinguishing features and those structures which have been 
substantially altered or widened within the past 50 years. When TxDOT determines 
that a bridge has no potential engineering, architectural or historic merit, 
TxDOT will add the project to the monthly report. 
(B) When TxDOT determines that a bridge has potential engineering, 
architectural, or historic merit, TxDOT will individually coordinate the project 
with THC following the procedures set forth under this paragraph. 
(C) If a state or federal project has the potential to cause an adverse effect 
to properties 50 years of age or more, as far as practicable, TxDOT will seek 
information and input concerning the historic significance of these properties 
from local entities, such as county historical commissions, local governments, 
city preservation officers, and neighborhood associations, that are likely to 
have knowledge of, or an interest in these properties. 
(D) TxDOT will coordinate with THC early in the project planning process to 
determine the historic significance of properties identified as 50 years of age 
or older that will be affected by state projects or that are located within the 
area of potential effects for federal projects. For state projects, TxDOT will 
initiate coordination with THC no later than 60 days prior to the contract bid 
opening for construction, as required by ACT, sec.191.098 and 13 TAC sec.26.22, 
or for federal projects, coordination for historic significance will follow 36 
CFR Part 800 to ensure proper care and curation. 
(E) For each project coordinated with THC, TxDOT will provide: 
(i) a project description and scope; 
(ii) a map showing the location of the project as well as all properties 50 
years of age or older documented through identification efforts; 
(iii) a statement detailing the efforts and methodology used to identify 
potentially historic buildings and structures in the project area; 
(iv) documentation on each identified property, including at least one 
photograph of the property, the address if known, an architectural description, 
and date of construction (estimated or known), and any known local, state or 
national historical designations; 
(v) a statement of historic significance for each identified property, 
including: 
(I) for a state project, whether the property qualifies as a SAL; 
(II) for a federal project, whether each property 50 years of age or more is 
eligible for inclusion in the National Register, including information as to 
whether the property is a contributing element of a National Register listed 
historic district or may be a contributing element of a potential National 
Register district; 
(vi) results of any coordination with interested parties concerning the 
significance of identified properties; and 
(vii) the results of TxDOT's historic significance evaluation for each 
identified property. 
(F) THC will respond within 30 days of receipt of TxDOT's request for review of 
individual projects as follows. 
(i) For a state project, THC response will indicate whether the project will 
require an historic structures permit for a SAL or whether THC or another party 
intends to institute SAL proceedings for a property previously not designated a 
SAL in accordance with 13 TAC sec.sec.26.11, 26.12 and 26.22, and ACT, 
sec.191.098. If THC does not respond within 30 days, TxDOT will assume that THC 
has no objection, and TxDOT will proceed with the project without further 
coordination with THC regarding historic property issues. 
(ii) For a federal project, all coordination with THC will follow the provisions 
of 36 CFR Part 800. 
(i) Assessing and mitigating effects. TxDOT will assess the effects of state and 
federal projects on properties determined to qualify as SALs for state projects 
and on properties determined to be listed or eligible for inclusion in the 
National Register for federal projects. TxDOT will then consult with THC using 
the following procedures. 
(1) For a state project, TxDOT will consult with THC to determine if a historic 
structures permit is required for any proposed removals, alterations, or 
renovations to SALs or to properties on which THC decides to institute SAL 
proceedings in accordance with 13 TAC sec.26.22 and ACT, sec.191.098. 
(2) For a federal project, TxDOT will apply the criteria of effect and consult 
with THC for a determination of effect in accordance with the provisions set 
forth in 36 CFR Part 800. 
(3) TxDOT will, to the maximum extent practicable, provide an early opportunity 
for the public and interested parties to receive information and to express 
their views on projects when a historic property may be negatively affected by a 
transportation project. 
(4) TxDOT will also consult with THC to seek ways to avoid, minimize, or 
mitigate any negative effects on historic properties caused by federal and state 
projects in accordance with the following procedures. 
(A) State project. TxDOT shall take THC comments into account when projects will 
have an effect on properties that are determined to qualify as SALs or other 
properties that are listed or determined eligible for listing in the National 
Register. TxDOT will apply for historic structure permits for all projects that 
alter, renovate, or remove SALs or other properties on which THC has instituted 
SAL proceedings, following the procedures delineated in 13 TAC sec.26.22 and 
ACT, sec.191.098. 
(B) Federal project. TxDOT will follow the consultation procedures set out in 36 
CFR Part 800. 
(j) Environmental document and public involvement. TxDOT will include 
information on its efforts to identify archeological sites and historic 
properties, to determine the effects of projects on archeological sites and 
historic properties, and to mitigate any negative effect on these sites or 
properties in the environmental document, if one is prepared, and will include 
this information in public involvement activities to the maximum extent 
practicable.
(k) Dispute Resolution. 
(1) If THC and TxDOT cannot reach agreement on any plans or actions carried out 
pursuant to this agreement, THC and TxDOT will consult to resolve the objection. 
(2) If THC and TxDOT cannot reach a compromise solution or otherwise resolve the 
objection through consultation, either TxDOT or THC may choose to invoke the 
dispute resolution provisions which are set forth in paragraph (3) of this 
subsection. 
(3) When these dispute resolution provisions are invoked, if TxDOT and THC 
cannot resolve their disagreement, the two agencies will resolve their dispute 
in accordance with the procedures established under state and federal rules. 
(A) Federal undertakings will follow the dispute resolution procedures as 
stipulated in 36 CFR Part 800. 
(B) State projects will follow the procedures provided in 13 TAC Chapter 26. 
(1) Review of MOU. This memorandum shall be reviewed and updated by January 1, 
2002, and by every fifth year from that date, as provided for in Transportation 
Code, sec.201.607. 
Filed with the Office of the Secretary of State on June 29, 1998.
TRD-9810232
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 463-8630

CHAPTER 4. Employee Practices
SUBCHAPTER F. Employee Training and Education
43 TAC sec.sec.4.61, 4.63, 4.64
The Texas Department of Transportation proposes amendments to sec.sec.4.61, 
4.63, and 4.64, concerning the department's employee training and education 
program. 
EXPLANATION OF PROPOSED AMENDMENTS 
Government Code, sec.656.048 requires state agencies to adopt rules relating to 
the eligibility of the department's administrators and employees for training 
and education supported by the state agencies and the obligations assumed by the 
administrators and employees on receiving the training and education. These 
sections are amended to reflect organizational changes within the department. 
Section 4.61 is amended to include definitions for district, district engineer, 
division, division director, and office director to reflect who will be making 
the decision concerning the education assistance programs. The definition for 
senior management team has been deleted to reflect the elimination of the 
positions in the department. 
Sections 4.63 and 4.64 have been amended to allow the district engineer, 
division director, office director, or administrator to nominate for, approve 
participation in, and determine eligibility in the program instead of the 
management team member. The district engineer, division director, or office 
director were part of the management team, but the term "management team" is no 
longer being used. The appropriate district engineer, division director, office 
director, or administrator may also approve the type of institution and receive 
credit verification. The director of Human Resources Division may approve an 
extension in the full-time master's program. Amendments also reflect the 
reorganization of the Training, Quality and Development Division as a section 
within the Human Resources Division. 
FISCAL NOTE 
Frank J. Smith, Director, Finance Division, has determined that for the first 
five-year period the amendments are in effect, there will be no fiscal 
implications for state or local governments as a result of enforcing or 
administering the amendments. There are no anticipated economic costs for 
persons required to comply with the amended sections as proposed. 
Cathy Williams, Director, Human Resources Division has certified that there will 
be no significant impact on local economies or overall employment as a result of 
enforcing or administering the amendments. 
PUBLIC BENEFIT 
Cathy Williams has also determined that for each year of the first five years 
the amendments are in effect the public benefit anticipated as a result of 
enforcing or administering the amendments is to clarify who in the department 
makes decisions concerning the education programs. There will be no effect on 
small businesses. 
SUBMITTAL OF COMMENTS 
Written comments on the proposed amendments may be submitted to Cathy Williams, 
Director, Human Resources Division, Texas Department of Transportation, 125 East 
11th Street, Austin, Texas 78701-2483. The deadline for receipt of comments will 
be 5:00 p.m. on August 10, 1998. 
STATUTORY AUTHORITY 
The amendments are proposed 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, Chapter sec.656.048 which requires state 
agencies to adopt rules relating to the eligibility of the department's 
administrators and employees for training and education and the obligations 
assumed by the administrators and employees on receiving the training and 
education. 
No statutes, articles, or codes are affected by these proposed amendments.

sec.4.61. Definitions. 
The following words and terms, when used in this subchapter, shall have the 
following meanings, unless the context clearly indicates otherwise. 
<nl>(1)<ol> Assistance - Financial aid provided by the department to its 
employees for education expenses. 
<nl>(2)<ol> Department - The Texas Department of Transportation. 
<nl>(3)<ol> District - One of 25 geographical areas, managed by a district 
engineer, in which the department conducts its primary work activities. 
<nl>(4)<ol> District engineer - The chief administrative officer in charge of a 
district of the department. 
<nl>(5)<ol> Division director - The chief administrative officer of a division 
of the department. 
<nl>(6)<ol> Employee - An individual employed with the department in either a 
full-time or part-time position, not including contract employees. 
<nl>(7)<ol> Executive director - The executive director of the department. 
<nl>(8)<ol> Hardship - A serious or catastrophic illness, family emergency, or 
extenuating circumstances beyond the control of the student which preclude the 
student from being reasonably expected to comply with the terms of an education 
assistance agreement. 
[Management team member - A senior management team member, district engineer, 
division director, or special office director.
<nl>(9)<ol> Office director - The chief administrative officer of a specialized 
organizational unit of the department which is headquartered in Austin. 
<nl>(10)<ol> Part-time position - An individual employed with the department and 
working between 20 and 39 hours per week. 
<nl>(11)<ol> Professional development requirement - Education and/or technical 
training required for an employee to progress higher in that employee's career 
ladder, or meet increased skill demands of the employee's job assignment. 
<nl>(12)<ol> Program Selection Committee - The committee, approved by the 
executive director, that selects the employees who will participate in the 
department-sponsored <nl>full-time <ol>master's program. 
<nl>(13)<ol> Prospective duty assignment - A department job assignment that may, 
with reasonable probability, become available in the foreseeable future to an 
employee. 
[Senior management team member - The executive director, director of staff 
services, or a deputy executive or assistant executive director.] 
<nl>(14)<ol> Training - Activities designed to improve employee job performance 
and job-related skills by achieving specific, measurable, predetermined learning 
objectives. 

sec.4.63. Education Programs. 
(a) (No change.) 
(b) Eligibility. 
(1) Education Assistance Program. To be eligible for participation in an 
associate's, baccalaureate, master's, or doctorate degree program under the 
educational assistance program an employee must meet the following requirements 
before assistance is granted: 
(A)-(E) (No change.) 
(F) seek enrollment and participation in a field of study that: 
(i)-(ii) (No change.) 
(iii) meets minimum requirements for a profession other than the employee's 
current job field in which the department anticipates staffing needs <nl>and the 
employee has demonstrated an aptitude through job performance <ol>, provided 
that the employee receives the [appropriate senior management team member's] 
approval <nl>of the appropriate district engineer, division director, office 
director, or administrator who has consulted with the Director of the Human 
Resources Division<ol> [based upon the employee's aptitude demonstrated through 
job performance (The Management Team Member in consultation with the Director, 
Human Resources Division, will verify it is outside the employee's job field.)]; 
and 
(G) have [a management team member's] approval <nl> of the appropriate district 
engineer, division director, office director, or administrator<ol> for 
associate, baccalaureate, and master degree programs and the executive 
director's approval if the employee is seeking a doctoral degree. 
(2) Full-time Master's Program. An employee may apply for an in-house 
competitive program in which the employee who is selected receives funds for 
tuition, fees, books, and supplies plus salary compensation while pursuing a 
master's degree on a full-time basis and completing an assigned research project 
approved by the Program Selection Committee which is related to the department's 
functions. The master's program duration is four semesters including the summer 
semester in which the course work and the report/thesis must be completed. An 
extension may be granted if the employee's approved degree program requires 
additional time to complete. To be eligible for the program an employee must 
meet the following requirements before assistance is granted: 
(A)-(G) (No change.) 
(H) be nominated by the employee's <nl>district engineer, division director, 
office director, or administrator<ol> [management team member]; and 
(I) be selected by the Program Selection Committee based on qualifications and 
field or work experience. 
(3) Non-degree program. Eligibility requirements do not apply when a full-time 
employee is not pursuing a degree, but is taking one or more classes as a 
requirement of the employee's position or is pursuing a general equivalency 
diploma, except that <nl>the appropriate district engineer, division director, 
office director, or administrator<ol> [a management team member] must approve 
the request. 
(c) Continued eligibility. 
(1) Education Assistance Program. 
(A) In order to maintain eligibility, an employee must: 
(i) be enrolled at least two of three semesters during the annual school year 
unless granted permission in writing to miss a semester or semesters by the 
appropriate <nl>district engineer, division director, office director, or 
administrator<ol> [senior management team member ] with the written permission 
stored in the local file and a copy sent to the Training, Quality and 
Development <nl>Section of the Human Resources <ol> Division; 
(ii)-(iii) (No change.) 
(B) Upon approval of an employee's <nl>district engineer, division director, 
office director, or administrator<ol> [management team member], an employee may 
change his or status from full-time to part-time in order to accommodate class 
scheduling. 
(C) The employee's <nl>appropriate district engineer, division director, office 
director, or administrator<ol> [management team member] will reconsider the 
employee's participation in the program each semester. 
(i) Participation during a particular semester may be denied based on 
extraordinary work requirements as determined by the <nl>appropriate district 
engineer, division director, office director, or administrator<ol> [senior 
management team member]. This interruption will not be considered a failure to 
remain active in the program. 
(ii) The department will deny further participation if the employee does not 
meet the requirements of subparagraph (A) of the paragraph or sec.4.64(a) of 
this title, or if the <nl>appropriate district engineer, division director, 
office director, or administrator<ol> [management team member] determines that 
the employee's participation in a degree program adversely affects the 
employee's job performance. 
(2) Full-time Master's Program. 
(A) In order to maintain eligibility in the full-time Master's Program, an 
employee must: 
(i) be enrolled continuously in an institution in a course of instruction 
leading towards a master's degree in the approved major field of study for four 
semesters which include the summer semester unless the <nl> director of the 
Human Resources Division<ol> [Assistant Executive Director for Human Resources 
Management] waives this requirement because the student demonstrated hardship, 
or the employee's approved degree plan calls for an additional semester(s); and 
(ii) obtain a passing grade in each course except as provided in sec.4.64(d)(2) 
of this title. 
(B) The department will deny further participation if the employee does not meet 
the requirements of subparagraph (A) of this paragraph or sec.4.64(a) of this 
title. 
(3) (No change.) 
(d) Type of institution. 
(1) (No change.) 
(2) If granted permission by the <nl>district engineer, division director, 
office director, or administrator<ol> [management team member] to attend a 
private institution, the employee must earn as many credits at an available 
public institution that are transferable to keep the overall costs as low as 
possible. 
(3) (No change.) 
(e)-(f) (No change.) 

sec.4.64. Employee Obligations. 
(a) Obligation. 
(1) (No change.) 
(2) Credit Verification. Each semester, an employee must provide grade reports 
to the <nl>appropriate district engineer, division director, office director, or 
administrator<ol> [management team member] for verification that full credit was 
received for courses taken. 
(b) (No change.) 
(c) Cancellation and suspension. 
(1) Cancellation. 
(A) The department will cancel the employee's participation in the Education 
Assistance Program and Non-Degree Program and require the student to repay in 
accordance with sec.5.10 of this title (relating to the Collection of Debts) all 
funds associated with the assistance, received from the department under 
sec.4.63 of this title (relating to Education Programs) if the student: 
(i)-(iv) (No change.) 
(v) fails to complete the full-time Master's Program in four semesters unless an 
extension is granted based on the approved degree program by the <nl>director of 
the Human Resources Division<ol> [Assistant Executive Director for Human 
Resources Management]. 
(B) (No change.) 
(2) (No change.) 
(d) Repayment. 
(1) Education Assistance and Non-Degree Program. 
(A) (No change.) 
(B) In repayment situations, the Education Assistance Program Coordinator in the 
Training, Quality, and Development <nl>Section of the Human Resources<ol> 
Division will work with the district/division/[special] office and the [Budget 
and] Finance Division to determine the requirements. Employees will follow the 
repayment schedule set by the department. 
(2)-(7) (No change.) 
(8) Resumption of eligibility. If the department cancels an employee's 
participation in the Education Assistance <nl>Program<ol> [Agreement], non-
degree Program <nl>or<ol> [and] Master's Program, the employee will no longer be 
eligible for assistance under sec.4.63 of this title unless the employee has 
fully repaid the department in accordance with subsection (d) of this section 
and: 
(A) the student demonstrates that the cancellation was due to hardship; or 
(B) it has been at least three years since the department canceled the 
employee's participation in the Education Assistance <nl>Program <ol> 
[Agreement]. 
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 June 29, 1998.
TRD-9810233
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 463-8630

CHAPTER 5. Finance
SUBCHAPTER C. Hardship Financing for Utility Adjustments, Relocations, and 
Removals
43 TAC sec.sec.5.21-5.29
The Texas Department of Transportation proposes new sec.sec.5.21-5.29, 
concerning hardship financing for utility adjustments, relocations, and 
removals. 
EXPLANATION OF PROPOSED NEW SECTIONS 
House Bill 1898, 75th Legislature, 1997, amended Transportation Code, 
sec.sec.203.092 and 203.093, and added Transportation Code, sec.203.0921 to 
enable the department to finance a utility relocation which is not eligible for 
state reimbursement when a short-term financial condition exists which prevents 
the utility from being able to fund the relocation. By financing these utility 
adjustments, the department will be able to complete its highway projects in a 
more timely manner and allow displaced utilities to maintain continuous service 
to the public during highway construction. 
New sec.5.21, Purpose and Scope, sets forth the purpose of the new sections, 
which is to prescribe a process to finance utility relocations that are not 
eligible for state participation under Transportation Code, Chapter 203, 
Subchapter E. 
New sec.5.22, Definitions, defines words and terms used in the subchapter.
New sec.5.23, Ineligible Payments, details expenses which are not eligible for 
financing under the subchapter. 
New sec.5.24, Pre-application Procedures, outlines the requirements for a 
memorandum of understanding which must be entered into prior to applying for 
financing under the subchapter. Such an agreement is required by Transportation 
Code, sec.203.0921(a)(4). 
New sec.5.25, Application, sets forth the requirements for an application to the 
commission for financing. It contains a list of items which must be included on 
or attached to the application. The application will enable the commission to 
determine that the financing meets the established criteria under the 
subchapter. 
New sec.5.26, Commission Approval, provides criteria which must be met before 
the commission may approve the requested financing. The commission must make a 
determination that the relocation is essential for the timely completion of the 
project, continuous service to the utility's customers is essential to the 
public well-being or to the local economy, a factual basis exists which 
establishes that the utility has a hardship, and the utility has the ability to 
reimburse the amount financed plus interest. These criteria are prescribed by 
statute. 
New sec.5.27, Reimbursement Agreement, describes the form of the reimbursement 
agreement and contains a list of minimum terms which must be included in the 
agreement. This section implements the requirements of the statute and further 
provides safeguards to ensure repayment of state funds. 
New sec.5.28, Release of Funds, explains how and under what circumstances state 
funds will be released to the utility's contractor or alternatively, to the 
department's contractor. It details the final billing and retainage on partial 
billing. 
New sec.5.29, Repayment and Default, prescribes details of how total costs are 
determined, the circumstances under which indirect costs will be included, and 
the results of default. 
FISCAL NOTE 
Frank J. Smith, Director, Finance Division, has determined that for each year of 
the first five-year period the new sections are in effect, there will be fiscal 
impact of $120,000 in FY 1999, $219,000 in FY 2000, $288,000 in FY 2001, 
$336,000 in FY 2002, and $360,000 in FY 2003 of interest revenue to the state 
and interest expense to local governments as a result of enforcing or 
administering the new sections. There are no anticipated economic costs for 
persons required to comply with the sections as proposed. 
Mr. Smith also has certified that there will be no significant impact on local 
economies or overall employment as a result of enforcing or administering the 
new sections. 
PUBLIC BENEFIT 
Mr. Smith has determined that for each year of the first five years the new 
sections are in effect, the public benefit anticipated as a result of the rules 
will be the avoidance of delaying highway construction activities with a 
projected total contract amount of $48,000,000. There will be no effect on small 
businesses. 
SUBMITTAL OF COMMENTS 
Written comments on the proposed new sections may be submitted to Frank J. 
Smith, Director, Finance Division, 125 East 11th Street, Austin, Texas 78701-
2483. The deadline for receipt of comments will be 5:00 p.m. on August 10, 1998. 
STATUTORY AUTHORITY 
The new sections are proposed 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, sec.203.095, which provides the Texas 
Transportation Commission with the authority to establish rules to implement 
Transportation Code, Chapter 203, Subchapter E.
No statutes, articles, or codes are affected by the proposed new sections.

sec.5.21. Purpose and Scope. 
This subchapter prescribes a process to enable the department to complete its 
highway projects in a timely manner and allow displaced utilities to maintain 
continuous service to the public during highway construction. In compliance with 
Transportation Code, Chapter 203, Subchapter E, this subchapter provides 
policies and procedures to enable the state to finance a utility relocation 
which is not eligible for state reimbursement when a short-term financial 
condition exists which prevents the utility from being able to fund the 
relocation.

sec.5.22. Definitions. 
The following words and terms, when used in this subchapter, shall have the 
following meanings unless the context clearly indicates otherwise.
(1) Cash and near-cash assets - All currency, negotiable instruments, bank 
deposits, savings deposits, certificates of deposit, and all other accounts and 
marketable financial securities which the utility owns and could convert to 
currency within one year. 
(2) Commission - The Texas Transportation Commission. 
(3) Completion of work - That point in time at which operational capability is 
restored to the utility facility. 
(4) CPA - A certified public accountant, licensed to practice in Texas. 
(5) Department - The Texas Department of Transportation. 
(6) Elective betterment - Any expansion, enlargement, or design enhancement 
which is not required to comply with current statutes or codes and which is not 
necessitated by highway construction requirements or technological obsolescence. 
(7) Executive director - The executive director of the department. 
(8) Hardship - A short term financial condition which prevents a utility from 
being able to pay for the cost of a relocation or adjustment to its facilities 
in full or in part at the time of relocation, or if paid at that time, would 
adversely affect the utility's ability to operate or provide essential services 
to its customers. 
(9) Interest at six percent per annum - A daily accrual of interest calculated 
by multiplying the accumulated balance of the total amount expended or advanced 
under this subsection plus any prior accrued interest less any payments received 
by a daily interest factor calculated by dividing six percent per annum by 360 
days per financial year. 
(10) Security - Pledges of revenues, account balances, and/or other assets, 
other methods of guarantee or surety, or pledges to raise utility rates or 
taxes, which are sufficient to provide for timely payment of the amount financed 
under this subchapter plus accrued interest. 
(11) Short term financial condition - A financial condition existing for no more 
than three years prior to the utility relocation and which is expected to exist 
for no more than three years after the utility relocation. 
(12) Utility - A publicly, privately, or cooperatively owned utility that 
provides telephone, telegraph, communications, electric, gas, heating, water, 
railroad, storm sewer, sanitary sewer, or pipeline service. 
(13) Year - Except as required by Transportation Code, Section 203.0921(b), to 
be defined by agreement between the department and the utility as either a 
calendar year or the state fiscal year or the utility's fiscal year. 

sec.5.23. Ineligible Payments. 
The following expenses are not eligible for financing under this subchapter: 
(1) refinancing or restructuring existing debt; and 
(2) elective betterments. 

sec.5.24. Pre-Application Procedures. 
Prior to applying for financing under this subchapter, a utility must enter into 
a memorandum of understanding in a form prescribed by the department 
establishing that: 
(1) appropriate safeguards are in place to ensure that relocation work 
activities are conducted safely in full compliance with applicable law and 
utility construction standards; 
(2) relocation work can be coordinated between the department and the utility in 
a manner that will ensure that any disruption of utility service is minimized; 
(3) all contractors and/or subcontractors selected for relocation work 
activities will be qualified to perform the relocation activities; and 
(4) there exists a factual basis for the commission findings required under 
sec.5.26 of this title (relating to Commission Approval).

sec.5.25. Application. 
(a) A utility desiring to obtain financing under this subchapter shall submit an 
application to the department in a form prescribed by the department. 
(b) The application must contain a statement that the utility agrees to enter 
into a reimbursement agreement pursuant to sec.5.27 of this title (relating to 
Reimbursement Agreement) and to secure the payment of the reimbursement 
including interest. 
(c) The application must contain or be accompanied by: 
(1) audited or unaudited financial statements, certified by a CPA, covering the 
prior three years, or the period of time the utility has operated if shorter 
than three years; 
(2) a five year anticipated annual revenue projection statement; 
(3) a statement of hardship consisting of either: 
(A) an explanation of the short term financial condition which would prevent a 
utility from being able to pay the cost of the relocation in full or in part at 
the time of the relocation; or 
(B) an explanation of the adverse affect on the utility's ability to operate or 
provide essential services to its customers if the adjustment is paid at the 
time of the relocation; 
(4) the total estimated cost of the proposed utility adjustment; 
(5) the amount being requested; 
(6) the source of repayment and citation of the legal authority to pledge 
selected revenues; 
(7) the financing plan for repaying the total amount of the loan, plus interest; 
(8) any special request for repayment terms, structure of payments, or 
considerations that reflect the particular needs of the utility; 
(9) a statement explaining other attempts at obtaining financing; 
(10) the utility's bond rating (if applicable); 
(11) evidence that sufficient time is not available to obtain financing 
elsewhere; 
(12) a credit report, including the utility's default history on other loans; 
and 
(13) a summation of judgments, liens, pending litigation, or outstanding claims 
against the utility. 
(d) The executive director may request further information, data, or 
explanations as may reasonably be needed to complete and evaluate the 
application. 

sec.5.26. Commission Approval.
(a) The commission may approve the requested financing if it determines that: 
(1) relocation is essential for timely completion of a state highway system 
improvement project or an off-system bridge project necessitated by safety 
concerns; 
(2) continuous service to the utility's customers is essential to the public 
well-being or to the local economy; 
(3) a factual basis exists which reasonably establishes that the utility has a 
hardship; and 
(4) the utility has the ability to reimburse the amount to be financed by the 
department, with accrued interest at a rate of six percent per annum within five 
years from the completion of the relocation, in spite of the hardship. 
(b) In making the determination of whether or not to approve the financing, the 
commission may consider, among other things, the availability of funding. 

sec.5.27. Reimbursement Agreement.
(a) If the financing is approved by the commission, the utility may enter into a 
written agreement with the department. 
(b) The agreement shall be in a form prescribed by the department and shall at a 
minimum include the following terms: 
(1) an agreement to complete the reimbursement within five years from the 
completion of work; 
(2) an agreement to accrue and reimburse interest from the date of completion of 
work through the date of final payment; 
(3) the terms under which the utility will secure the payment of the 
reimbursement, if applicable; 
(4) an agreement that the utility will notify the department immediately of any 
events or circumstances which may reasonably jeopardize timely reimbursement; 
(5) an agreement that the department may audit the utility's books and records 
as the department may determine is necessary so long as any amount of 
reimbursement and interest remains outstanding; 
(6) other terms and conditions necessary to protect the public safety and 
safeguard public funds; and 
(7) other terms and conditions which are mutually agreed upon. 
(c) If no agreement is entered into under this section, the utility shall 
reimburse the department the amount expended by the department for the 
relocation within 30 days of completion of work. 

sec.5.28. Release of Funds.
(a) When a utility adjustment or relocation is accomplished by the department's 
contractor under a general highway construction contract, funds will be 
obligated and paid directly to the contractor in accordance with the 
department's standard accounting and payment procedures. 
(b) When a utility adjustment or relocation is accomplished by the utility's 
contractor, payments will be made directly to the contractor at not less than 
monthly intervals upon submission of a billing in a form acceptable to the 
department. Upon completion of work, a final billing in a form acceptable to the 
department will be submitted detailing all costs associated with the adjustment 
or relocation and all partial payments made to date. Retainage in the amount of 
five percent of each partial billing will be withheld pending submission of a 
final billing to the department upon completion of work. 

sec.5.29. Repayment and Default.
(a) The total cost of the utility relocation shall be determined by the 
department's cost accounting procedures. All direct costs associated with the 
relocation will be accumulated. When utility adjustment work is included in the 
highway construction contract under sec.5.28 of this title (relating to Release 
of Funds), indirect administrative costs will be included unless the utility is 
part of a political subdivision of the state or a nonprofit corporation or 
cooperative. 
(b) If the utility fails to meet a scheduled payment under the requirements of 
the agreement and sec.5.27 of this title (relating to Reimbursement Agreement), 
the department will declare the utility to be in default and will commence 
collection proceedings in accordance with sec.5.10 of this title (relating to 
Collection of Debts). 
(c) A utility that is declared in default is ineligible for further funding 
under this subchapter until full reimbursement has been made of the outstanding 
loan amount plus accrued interest charges. 
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 June 29, 1998.
TRD-9810234
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 463-8630

CHAPTER 6. State Infrastructure Bank
SUBCHAPTER D. Department and Commission Action
43 TAC sec.6.32
The Texas Department of Transportation proposes an amendment to sec.6.32, 
concerning commission action. 
EXPLANATION OF PROPOSED AMENDMENTS 
Section 350 of the Federal National Highway System Designation Act of 1995 (Pub. 
L. No. 104-59) provides that federal funds are available for the provision of 
financial assistance to eligible transportation projects through a state 
infrastructure bank. Transportation Code, Chapter 222, Subchapter D created a 
state infrastructure bank to provide financial assistance for urgently needed 
transportation systems. 
The state infrastructure bank's operating rules currently require applications 
for financial assistance from the bank to be subject to a two step commission 
approval process. This process is cumbersome for applications for small amounts 
of funds, which generally do not involve large, complex projects, or a complex 
financing structure, requiring a more extensive examination by the department 
and the commission before a financial assistance decision is made. 
The amendments to sec.6.32 would allow the commission to approve applications 
for financial assistance in the amount of $250,000 or less using a one step 
approval process. Any such approval would still be subject to the project 
requirements, considerations, and determinations required for other 
applications. The amendments would also provide the commission with the 
discretion to require these small loan applications to be subject to the two 
step approval process if the complexity or size of the project, the type of 
infrastructure or asset, or the complexity of the project's and the applicant's 
financial status requires it. 
FISCAL NOTE 
Frank J. Smith, Director, Finance Division, has determined that for the first 
five-year period the amended section is in effect, there will be no fiscal 
implications for state or local governments as a result of enforcing or 
administering the amended section. There are no anticipated costs for persons 
required to comply with the section as proposed. 
Mr. Smith has certified that there will be no significant impact on local 
economies or overall employment as a result of enforcing or administering the 
amended section. 
PUBLIC BENEFIT 
Mr. Smith has also determined that for each year of the first five years the 
amended section is in effect, the public benefit anticipated as a result of 
enforcing or administering the amended section will be to streamline the 
approval process for applications for financial assistance that do not involve 
complex projects or financing, thereby maximizing the financial benefits of the 
state infrastructure bank and the efficiency of the state's transportation 
system. There will be no effect on small businesses. 
SUBMITTAL OF COMMENTS 
Written comments on the proposed amendment to sec.6.32 may be submitted to Frank 
J. Smith, Director, Finance Division, Texas Department of Transportation, 125 
East 11th Street, Austin, Texas 78701-2483. The deadline for receipt of comments 
will be 5:00 p.m. on August 10, 1998. 
STATUTORY AUTHORITY 
The amendment is proposed 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, Chapter 222, Subchapter D, which requires the 
commission to, by rule, implement the subchapter and establish eligibility 
criteria for an entity applying for financial assistance from the state 
infrastructure bank. 
No statutes, articles, or codes are affected by the proposed amendment.

sec.6.32. Commission Action.
(a) (No change.) 
<nl>(b)<ol> Small loan applications. 
<nl>(1)<ol> Applications for financial assistance in the amount of $250,000 or 
less may be approved by the commission without going through both the 
preliminary and final approval processes prescribed in subsections (c) and (e) 
of this section. These applications may be approved by the commission using one 
final approval process. 
<nl>(2)<ol> All considerations, determinations, and project requirements 
prescribed in subsections (c)-(e) and (h) of this section must be complied with 
prior to any final approval of applications under this subsection, with the 
exception of the negotiation process prescribed in subsection (c)(3) of this 
section, which may be completed after final approval. These applications are 
also subject to subsections (f) and (g) of this section. 
<nl>(3)<ol> The commission may require small loan applications to be subject to 
both the preliminary and final approval steps of this section. In making this 
determination, the commission will consider the complexity and size of the 
project, the type of infrastructure or asset involved, and the complexity of the 
project's and the applicant's financial status. 
<nl>(c)<ol> [(b)] Preliminary approval. 
(1) Considerations. Prior to granting preliminary approval of an eligible 
project, the commission will consider: 
(A) whether the project is on the state highway system; 
(B) transportation need for and anticipated public benefit of the project; 
(C) the present and projected financial condition of the bank; 
(D) potential social, economical, and environmental impacts; 
(E) conformity with the purposes of the bank; and 
(F) evidence of local public support. 
(2) Project requirements. The commission may grant preliminary approval to a 
project for bank financing if it finds that: 
(A) the project is consistent with the Statewide Transportation Plan and, if 
appropriate, with the metropolitan transportation plan developed by a 
metropolitan planning organization; 
(B) if the project is in a Clean Air Act non-attainment area, the project will 
be consistent with the Statewide Transportation Improvement Plan, with the 
conforming plan and Transportation Improvement Program (TIP) for the 
metropolitan planning organization in which the project is located (if 
necessary), and with the State Implementation Plan; 
(C) the project will improve the efficiency of the state's transportation 
systems; 
(D) the project will expand the availability of funding for transportation 
projects or reduce direct state costs; and 
(E) the application shows that the project and the applicant are likely to have 
sufficient revenues to assure repayment of the financial assistance according to 
the terms of the agreement. In making this finding, the commission will 
consider: 
(i) the probable ability of any pledged revenues to meet all obligations of the 
project and to repay the financial assistance to the bank; 
(ii) management of the project; 
(iii) adequacy of working capital and operating funds; 
(iv) collateral and other guarantees of repayment; 
(v) how quickly the financial assistance will be repaid; and 
(vi) the presence of credit insurance or other guarantees. 
(3) Authorized actions. By granting preliminary approval, the commission 
authorizes the executive director to negotiate: 
(A) the project's limits, scope, definition, design, and any other factors which 
might impact the financing of the project; 
(B) the amount, type and timing of disbursements of financial assistance; 
(C) interest rates including subsidies; 
(D) fees; 
(E) charges; 
(F) repayment schedules; 
(G) term to maturity of any financial assistance; 
(H) collateral securing the financial assistance; 
(I) appropriate covenants applicable to the financial assistance; 
(J) default provisions; and 
(K) all other provisions necessary to complete an agreement under Subchapter E 
of this chapter. 
<nl>(d)<ol> [(c)] Social, economical, and environmental impact. 
(1) Prior to receiving final approval under subsection <nl> (e)<ol> [(d)] of 
this section, the department or the applicant shall complete a study of the 
social, economical, and environmental impact of the project, consistent with the 
spirit and intent of the National Environmental Policy Act, Title 42, United 
States Code, sec.sec.4321 et seq., and Title 23, United States Code, sec.109(h), 
and shall provide for public involvement and meet all other requirements of 
Chapter 2, Subchapter C of this title (relating to Environmental Review and 
Public Involvement For Transportation Projects). 
(2) For a project not on the state highway system, the applicant shall be 
responsible for completing required studies of social, economical, and 
environmental impacts unless the applicant and the department agree otherwise. 
If the department agrees to be responsible for these studies, then any costs 
will be charged according to the department's local participation agreement. 
(3) For a project on the state highway system, the department shall be 
responsible for completing required studies of social, economical, and 
environmental impacts with any costs to be charged to the project. 
<nl>(e)<ol> [(d)] Final approval. Subsequent to preliminary approval under 
subsection <nl>(c)<ol> [(b)] of this section, the completion of negotiations 
under subsection <nl>(c)<ol> [(b)] (3) of this section, and the approval of the 
social, economical, and environmental impact required by subsection <nl>(d)<ol> 
[(c)] of this section, the commission may grant final approval if it determines 
that: 
(1) providing financial assistance will protect the public safety and prudently 
provide for the protection of public funds while furthering the purposes of this 
chapter; and 
(2) the project will provide for all reasonable and feasible measures to avoid, 
minimize, or mitigate for adverse environmental impacts. 
<nl>(f)<ol> [(e)] Postponement. The commission may postpone final approval if it 
finds that the current or projected financial condition of the bank warrants 
this action. 
<nl>(g)<ol> [(f)] Contingencies. The commission may make its preliminary or 
final approval contingent upon the applicant making changes, levying taxes, 
performing other acts, or maintaining certain conditions necessary to provide 
for adequacy of repayments. 
<nl>(h)<ol> [(g)] Order of approval or disapproval. Approval or disapproval of 
the project, whether preliminary or final, shall be by written order of the 
commission, and shall include the rationale, findings, and conclusions on which 
approval or disapproval is based. 
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 June 29, 1998.
TRD-9810235
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 463-8630

CHAPTER 15. Transportation Planning and Programming
SUBCHAPTER F. State Park Roads
43 TAC sec.15.60
The Texas Department of Transportation proposes an amendment to sec.15.60, 
concerning state park roads. 
EXPLANATIONS OF PROPOSED AMENDMENTS 
The amended section is necessary to update and clarify the applicable rules 
implementing state and federal laws and regulations concerning the construction 
and maintenance of state park roads and support facilities in and adjacent to 
state parks, fish hatcheries and wildlife management areas. 
House Bill 9, sec.1.02, 72nd Legislature, First Called Session, 1991, gave the 
responsibility for the design, construction, and maintenance of roads and 
support facilities in and adjacent to state parks to the Texas Department of 
Transportation. House Bill 1359, sec.1.02, 74th Legislature, 1995, amended the 
previous legislation to include roads and support facilities in and adjacent to 
state fish hatcheries and state wildlife management areas. Pursuant to these 
sections, the department maintains a memorandum of agreement with the Texas 
Parks and Wildlife Department to outline the respective responsibilities of each 
agency for the development of projects for the subject roads. 
Subsection (a) is amended to define a state park road as a public road, under 
the jurisdiction of the department or the Texas Parks and Wildlife Department, 
with title or lease in the name of the State of Texas, located in or adjacent to 
a state park, state fish hatchery or state wildlife management area or support 
facility. Subsection (a) is also amended to include definitions of state 
wildlife management area, state fish hatchery, and support facility. 
Subsection (b) has been deleted in it's entirety as it is no longer needed after 
the passage of House Bill 1359. 
Subsection (c) is amended to update the language consistent with House Bill 
1359. 
FISCAL NOTE 
Frank J. Smith, Director, Finance Division, has determined that for the first 
five-year period the amended section is in effect, there will be no fiscal 
implications for state or local governments as a result of enforcing or 
administering the amendments. There are no anticipated economic costs for 
persons required to comply with the amendments as proposed. 
Robert L. Wilson, Director, Design Division, has certified that there will be no 
significant impact on local economies or overall employment as a result of 
enforcing or administering the amendments. 
PUBLIC BENEFIT 
Mr. Wilson has also determined that for each year of the first five years the 
section is in effect the public benefit anticipated as a result of enforcing or 
administering the amendments will be better maintenance of state park roads and 
support facilities. There will be no effect on small businesses. 
SUBMITTAL OF COMMENTS 
Written comments on the proposed amendment to sec.15.60 may be submitted to 
Robert L. Wilson, Director, Design Division, 125 East 11th Street, Austin, Texas 
78701-2483. The deadline for receipt of comments will be 5:00 p.m. on August 10, 
1998. 
STATUTORY AUTHORITY 
The amendment to sec.15.60 is proposed 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.
No statutes, articles, or codes are affected by these proposed amendment.

sec.15.60. State Park Roads.
(a) Definition. The following words and terms, when used in this section, shall 
have the following meanings, unless the context clearly indicates otherwise. 
(1)-(2) (No change.) 
(3) State park - A park administered by the Texas Parks and Wildlife Department 
[or other qualified state agency, and] with title <nl>or lease<ol> in the name 
of the State of Texas. 
(4) State park road - A public road [within a state park, or a segment of the 
state highway system, designated by the commission as a state park road,] which 
is located in or adjacent to a state park,<nl> state fish hatchery, state 
wildlife management area or support facility and is under the jurisdiction and 
control of the department or the Texas Parks and Wildlife Department with title 
or lease in the name of the State of Texas <ol>. 
<nl>(5)<ol> <nl>State fish hatchery - A fish hatchery administered by the Texas 
Parks and Wildlife Department with title or lease in the name of the State of 
Texas<ol>. 
<nl>(6)<ol> <nl>State wildlife management area - A wildlife management area 
administered by the Texas Parks and Wildlife Department with title or lease in 
the name of the State of Texas. <ol>
<nl>(7)<ol> <nl>Support facility - A facility such as, but not limited to, a 
headquarters or regional office that supports the operation of state parks, 
state fish hatcheries, or state wildlife management areas and with title or 
lease in the name of the State of Texas.<ol> 
[(b) Upon request by a state agency or county government, the department may 
construct and maintain a designated park road connecting a state to a segment of 
the state highway system if:] 
[(1) estimated traffic patterns justify the connection of such a facility;] 
[(2) all necessary environmental clearance, environmental mitigation, and right 
of way are furnished at no cost to the department; and] 
[(3) funds are available from a commission designated program.] 
<nl>(b)<ol> [(c)] In accordance with <nl>House Bill 1359, sec.1.02, 74th 
Legislature, 1995<ol> [sec.1.02, House Bill 9, 72nd Legislature, First Called 
Session], for <nl>state park <ol> [public] roads located <nl>in and adjacent 
to<ol> [within a] state <nl>parks<ol> [park], <nl>state fish hatcheries and 
state wildlife management areas, and roads for support facilities for parks, 
fish hatcheries, and wildlife management areas<ol>, the department will: 
(1) coordinate with <nl>Texas Parks and Wildlife Department<ol> [appropriate 
state agencies having jurisdiction over state park properties] for the design, 
construction, and maintenance of subject roads; 
(2) provide through <nl>memorandum<ol> [memoranda] of agreement with <nl>Texas 
Parks and Wildlife Department<ol> [appropriate state agencies] for the 
respective responsibilities in developing and completing state park road 
projects in accordance with state law; and
(3) [identify in such memoranda of agreement the costs/expenses associated with 
the respective activities of the parties involved and] amend <nl>such memorandum 
of<ol> [the] agreement as appropriate on a five year basis unless the <nl>Texas 
Parks and Wildlife Department<ol> [appropriate state agency with jurisdiction 
over the state park] does not desire to extend the terms of the agreement.
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 June 29, 1998.
TRD-9810236
Bob Jackson
Acting General Counsel
Texas Department of Transportation
Earliest possible date of adoption: August 10, 1998
For further information, please call: (512) 463-8630