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(h) Adjustments. FNS will make adjustments as follows:

(1) Caseload adjustments. FNS will adjust the number of exemptions estimated for a State agency under paragraph (g)(3) of this section during a fiscal year if the number of SNAP participants in the State varies from the State's caseload by more than 10 percent, as estimated by FNS.

(2) Exemption adjustments. During each fiscal year, FNS will adjust the number of exemptions available to a State agency based on the number of exemptions in effect in the State for the preceding fiscal year. In doing so, FNS will determine the State's exemption balance for the fiscal year (the total number of exemptions available to the State for the fiscal year).

(i) If the State agency did not use all of its exemption balance for the preceding fiscal year, FNS will add to the State agency's exemption balance a portion of the unused exemptions not to exceed 12 percent of the covered individuals in the State estimated by FNS for the preceding fiscal year.

(ii) If the State agency used more than its exemption balance for the preceding fiscal year, FNS will decrease the State agency's exemption balance by the corresponding number. If this decrease results in a negative exemption balance, the State agency must offset the negative balance using the new exemptions estimated by FNS for the subsequent fiscal year. If the negative exemption balance is not fully offset, FNS will hold the State liable for the remaining negative balance.

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