Congress mulls delaying rules on transfer of funds to states.

WASHINGTON -- Congress is considering postponing the effective date of new regulations the Treasury Department released last week that are designated to govern the annual transfer of about $150 billion in federal funds to states.

The regulations, published last week in the Federal Register, are scheduled to take effect Oct. 24. However, it is unclear whether Congress will be able to postpone the rules before adjourning for the year early next week.

Mandated by the Cash Management Improvement Act of 1990, the new regulations will, among other things, dictate who will receive the interest earned on federal funds.

They are designed to stop states from drawing funds before they actually use the money and to stop federal agencies from sitting on funds that states are entitled to receive.

The rules are aimed to make the flow of funds between federal agencies and states more efficient and equitable, officials say. But they also say that regulations will have a profound effect on many states' accounting systems.

Congress is considering postponing the regulations because both federal and state officials say many states need more time to prepare to comply.

"States still have some more work to do on this. They aren't out there sitting on go," said Helena Sims, director of the Washington, D.C., office of the National Association of State Auditors, Comptrollers and Treasurers, which supports a postponement.

The Treasury, which wrote and will enforce the regulations, also supports pushing back the Oct. 24 effective date. "States need more time. We support the legislation that would extend the starting date," said a Treasury spokesman.

"However, should Congress not act before Oct. 24, Treasury is mandated by statute to implement the new regulations," the department said in a statement when the regulations were released.

The House has already passed a bill that would postpone the effective date of the regulations, and the Senate is waiting to vote on its own version of the bill.

However, Congress is scheduled to adjourn early next week and not reconvene until January. This will give lawmakers only a few days to work out a final agreement on a postponement plan.

Under current law, states must pay interest on federal funds beginning Oct. 24. But the law stipulates that states have until the end of their current fiscal year or July 1, whichever comes later, to figure out how to make the necessary calculations.

Each state is required to sign an agreement with the federal government stipulating how that interest will be calculated. State accounting systems are highly varied, so it would have been virtually impossible to require states to comply in a uniform way, officials said.

States would then be required to pay that calculated interest retroactive to Oct. 24.

"We wanted to come up with a fair way to exchange funds without anyone missing out on investment opportunities," Ms. Sims said.

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