(a) Obligation by end of grant year

Effective for fiscal year 2007 and subsequent fiscal years, funds from a grant award made to a State for a fiscal year pursuant to section 300ff-28(a)(1) or 300ff-28(a)(2)(F) of this title, or under section 300ff-29a or 300ff-30 of this title, are available for obligation by the State through the end of the one-year period beginning on the date in such fiscal year on which funds from the award first become available to the State (referred to in this section as the “grant year for the award”), except as provided in subsection (c)(1).

(b) Supplemental grants; cancellation of unobligated balance of grant award

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Effective for fiscal year 2007 and subsequent fiscal years, if a grant award made to a State for a fiscal year pursuant to section 300ff-28(a)(2)(F)(ii) of this title, or under section 300ff-29a or 300ff-30 of this title, has an unobligated balance as of the end of the grant year for the award—

(1) the Secretary shall cancel that unobligated balance of the award, and shall require the State to return any amounts from such balance that have been disbursed to the State; and

(2) the funds involved shall be made available by the Secretary as additional amounts for grants pursuant to section 300ff-29a of this title for the first fiscal year beginning after the fiscal year in which the Secretary obtains the information necessary for determining that the balance is required under paragraph (1) to be canceled, except that the availability of the funds for such grants is subject to section 300ff-28(a)(2)(H) of this title as applied for such year.

(c) Formula grants; cancellation of unobligated balance of grant award; waiver permitting carryover

(1) In general

Effective for fiscal year 2007 and subsequent fiscal years, if a grant award made to a State for a fiscal year pursuant to section 300ff-28(a)(1) or 300ff-28(a)(2)(F)(i) of this title has an unobligated balance as of the end of the grant year for the award, the Secretary shall cancel that unobligated balance of the award, and shall require the State to return any amounts from such balance that have been disbursed to the State, unless—

(A) before the end of the grant year, the State submits to the Secretary a written application for a waiver of the cancellation, which application includes a description of the purposes for which the State intends to expend the funds involved; and

(B) the Secretary approves the waiver.

(2) Expenditure by end of carryover year

With respect to a waiver under paragraph (1) that is approved for a balance that is unobligated as of the end of a grant year for an award:

(A) The unobligated funds are available for expenditure by the State involved for the one-year period beginning upon the expiration of the grant year (referred to in this section as the “carryover year”).

(B) If the funds are not expended by the end of the carryover year, the Secretary shall cancel that unexpended balance of the award, and shall require the State to return any amounts from such balance that have been disbursed to the State.

(3) Use of cancelled balances

In the case of any balance of a grant award that is cancelled under paragraph (1) or (2)(B), the grant funds involved shall be made available by the Secretary as additional amounts for grants under section 300ff-29a of this title for the first fiscal year beginning after the fiscal year in which the Secretary obtains the information necessary for determining that the balance is required under such paragraph to be canceled, except that the availability of the funds for such grants is subject to section 300ff-28(a)(2)(H) of this title as applied for such year.

(4) Corresponding reduction in future grant

(A) In general

In the case of a State for which a balance from a grant award made pursuant to section 300ff-28(a)(1) or 300ff-28(a)(2)(F)(i) of this title is unobligated as of the end of the grant year for the award—

(i) the Secretary shall reduce, by the same amount as such unobligated balance (less any amount of such balance that is the subject of a waiver of cancellation under paragraph (1)), the amount of the grant under such section for the first fiscal year beginning after the fiscal year in which the Secretary obtains the information necessary for determining that such balance was unobligated as of the end of the grant year (which requirement for a reduction applies without regard to whether a waiver under paragraph (1) has been approved with respect to such balance); and

(ii) the grant funds involved in such reduction shall be made available by the Secretary as additional funds for grants under section 300ff-29a of this title for such first fiscal year, subject to section 300ff-28(a)(2)(H) of this title;

except that this subparagraph does not apply to the State if the amount of the unobligated balance was 5 percent or less.

(B) Relation to increases in grant

A reduction under subparagraph (A) for a State for a fiscal year may not be taken into account in applying section 300ff-28(a)(2)(H) of this title with respect to the State for the subsequent fiscal year.

(d) Treatment of drug rebates

For purposes of this section, funds that are drug rebates referred to in section 300ff-26(g) of this title may not be considered part of any grant award referred to in subsection (a). If an expenditure of ADAP rebate funds would trigger a penalty under this section or a higher penalty than would otherwise have applied, the State may request that for purposes of this section, the Secretary deem the State’s unobligated balance to be reduced by the amount of rebate funds in the proposed expenditure. Notwithstanding 300ff-28(a)(2)(F) ¹ of this title, any unobligated amount under section 300ff-28(a)(2)(F)(ii)(V) of this title that is returned to the Secretary for reallocation shall be used by the Secretary for—

(1) the ADAP supplemental program if the Secretary determines appropriate; or

(2) for additional amounts for grants pursuant to section 300ff-29a of this title.

(e) Authority regarding administration of provisions

In administering subsections (b) and (c) with respect to the unobligated balance of a State, the Secretary may elect to reduce the amount of future grants to the State under section 300ff-28, 300ff-29a, or 300ff-30 of this title, as applicable, by the amount of any such unobligated balance in lieu of cancelling such amount as provided for in subsection (b) or (c)(1). In such case, the Secretary may permit the State to use such unobligated balance for purposes of any such future grant. An amount equal to such reduction shall be available for use as additional amounts for grants pursuant to section 300ff-29a of this title, subject to section 300ff-28(a)(2)(H) of this title. Nothing in this paragraph shall be construed to affect the authority of the Secretary under subsections (b) and (c), including the authority to grant waivers under subsection (c)(1). The reduction in future grants authorized under this subsection shall be notwithstanding the penalty required under subsection (c)(4) with respect to unobligated funds.