OPINION OF THE COURT
ALITO, Circuit Judge:
The Commonwealth of Pennsylvania Office of the Budget (“the Commonwealth”) began this action to establish that it is not accountable for interest earned on federal grant funds that were placed in self-insurance accounts used to pay workers’ compensation and health benefit claims by state employees who administer federally funded programs. The district court entered summary judgment for the Commonwealth, holding that the Commonwealth is entitled to keep such interest under Section 203(a) of the Intergovernmental Cooperation Act- of 1968, 31 U.S.C. § 6503(a) (1988) (amended 1990) [hereinafter “Section 203(a)”]. We conclude that the district court’s interpretation of Section 203(a) was incorrect, and we therefore reverse.
I.
The federal government provides funding for a variety of welfare benefit programs that are administered by the states. Under these programs, the federal government furnishes money that the states then distribute to program recipients. In addition, the federal government reimburses the states for a portion of their administrative expenses. Among these administrative expenses are the costs of benefits, such as workers’ compensation and medical benefits, for state employees who work on the programs.
Rather than purchasing insurance to cover workers’ compensation and health benefit claims, the Commonwealth has chosen to be “self-insuring,” that is,- it has chosen to pay these costs out of special accounts created within its General Fund. The Commonwealth periodically transfers money into these accounts in order to maintain reserves that are sufficient, based on actuarial .calculations, to cover expected future obligations. The Commonwealth assesses the federal government for .a proportionate share of the money transferred into these accounts.
When the Director of the Division of Costs Allocation of the federal Department of Health and Human Services audited the Commonwealth’s records for fiscal years 1986 through 1989, he discovered that the Commonwealth had failed to credit the federal government with its share of the interest that the Commonwealth had earned on the money in these accounts. He therefore concluded that- this interest had to be refunded to the federal government.1
After an unsuccessful request for reconsideration by HHS’s Regional Director for Region III, the Commonwealth appealed the determinations regarding fiscal years 1988 and 1989 to the HHS Departmental Appeals Board (“DAB”), contending that no interest had been earned on the federal portion of the self-insurance accounts and that, in any event, the Commonwealth was entitled to keep any such interest by virtue of Section 203(a) of the ICA. This provision stated:
Consistent. with program purposes and regulations of the Secretary of the Treasury, the head of an executive agency carrying out a grant program shall schedule the transfer of grant, money to minimize the time elapsing between transfer of the [1508]*1508money from the Treasury and the disbursement by a State, whether disbursement occurs before or after the transfer. A State is not accountable for interest earned on grant money pending its disbursement for program purposes.
The DAB found that interest had in fact been earned, and it rejected the Commonwealth’s Section 203(a) argument, concluding that “the self-insurance accounts were not grant funds held ‘pending disbursement’ within the meaning of Section 203.” DAB Op. at 10, App. at 17. In enacting Section 203, the DAB wrote, “Congress was convinced that any interest earned on most grant funds between their transfer and their disbursement would be so minimal that it would not be worth the effort to account for the interest.” Id. at 9, App. at 16. By contrast, the DAB observed, “[t]he self-insurance funds are, in essence, contingency funds to be tapped, or disbursed, only when claims are filed against them and paid by the State.” Id. Noting that large amounts of interest had been earned on the federal contributions alone, the DAB found it “doubtful that Congress intended the ICA to be the vehicle for such a large amount of federally generated interest to be transferred to the State.” Id. The DAB therefore upheld the determination that the Commonwealth was required to refund the interest earned on the federally contributed funds.
The Commonwealth then began this action in the United States District Court for the Middle District of Pennsylvania, seeking a declaratory judgment that it was not required to refund the interest, as well as an injunction prohibiting the Department of Health and Human Services and its Regional Director (hereinafter “HHS”) from recapturing such interest. The district court subsequently granted summary judgment for the Commonwealth, holding that the Commonwealth was entitled under Section 203(a) to keep the interest. The district court refused to defer to HHS’s interpretation of Section 203(a) on the ground that HHS is not responsible for enforcing that provision. Exercising plenary review, the court then opined that the language of Section 203(a) is unambiguous and is thus dispositive. The court concluded that funds held in the Commonwealth’s self-insurance accounts were plainly held “pending disbursement for program purposes” — i.e., pending their use to pay employee claims' — and that accordingly the Commonwealth was not accountable for interest earned on those funds.
Observing that “only the ‘most extraordinary showing of contrary [legislative] intentions’ ” could justify disregarding the plain meaning of a statute, Dist.Ct.Op. at 15, App. at 77 (quoting Malloy v. Eichler, 860 F.2d 1179, 1183 (3d Cir.1988)), the court found the legislative history of Section 203(a) insufficient to meet that burden. The court wrote:
We recognize, and the legislative history reveals, that Congress designed the ICA to minimize the time between transfer and disbursement in order to eliminate the states’ ability to profit from investing federal funds. However, while Congress may have had an expectation that a shorter time between transfer and disbursement would result in less interest being accumulated by the states, the idea that states should disburse funds promptly was not intended as a prerequisite to their right to retain interest. We agree that the House, Senate or committees voiced a concern to prevent states from obtaining windfalls, and section 203(a) was enacted to help alleviate this concern. However, the fact that Congress has not required “immediate disbursement” or placed a cap on the interest which may be earned, indicates that the statute may be applied to all situations involving the receipt of funds pending disbursements, although there may be occasions when states receive more than a de minimis amount of interest.
Id. at 16-17, App. at 78-79 (emphasis in original) (footnote omitted).
The court also found support for its decision in an HHS regulation (45 C.F.R. § 74.-47(b)) and in recent legislative and administrative developments. The court noted that after the fiscal years in question in this case, Congress enacted an amendment of Section 203(a), 31 U.S.C. § 6503, that generally requires states, effective October 24, 1992, to pay interest to the United States on federal funds held in state accounts. The court fur[1509]*1509ther noted that in 1988 the Office of Management and Budget had proposed a revision of a prior notice (OMB A-87, 46 Fed.Reg. 9548 (1981)) that would have expressly prevented states from retaining interest on federal funds kept in self-insurance accounts. Apparently viewing these events as evidence that the states had previously been permitted to retain such interest, the court wrote that “[t]hese developments serve to, bolster our decision that existing law does not preclude plaintiff from retaining the interest in question.” Dist.Ct.Op. at 18, App. at 80. Finally, the court held that HHS had “abused [its] discretion by applying a new policy which rendered] the plaintiff accountable for actions taken in good-faith reliance upon the ICA, OMB A-87, and the Department’s own regulations.”. Id. at 19-20, App. at 81-82. The court therefore granted summary judgment in favor of the Commonwealth and remanded the cáse to HHS “for entry of a decision that pursuant to 31 U.S.C. § 6503(a) plaintiff is entitled to retain the interest at issue in this proceeding.” Dist.Ct. Order, App. at 84.
HHS then took this appeal.
II.
A. At the outset, the parties dispute whether the district court erred in refusing to defer under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), to HHS’s interpretation of Section 203(a). HHS argues that deference is appropriate because the President delegated to OMB the responsibility for prescribing rules and regulations implementing the ICA (Exec. Order 12,372, 47 Fed.Reg. 80,959 (1982)) and because OMB, in turn, designated HHS as the agency responsible for developing instructions for grantees. 'OMB A-87, Attachment A, J.3. The Commonwealth responds that this “chain of attenuated delegations” (Appel-lee Br. at 37) is insufficient to justify deference.
We do not find it necessary to resolve this dispute, particularly since the version of Section 203(a) at issue has now been amended. Even without deferring to HHS’s interpretation, we are convinced that the district ■ court’s interpretation of Section 203(a) was incorrect.
B. The district court’s decision rests primarily on the conclusion that the plain language of Section 203(a) unambiguously supports the Commonwealth’s position. When statutory language is unambiguous, we must of course heed it except in those “rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.” Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982). See also, e.g., Public Citizen v. United States Department of Justice, 491 U.S. 440, 454, 109 S.Ct. 2558, 2566, 105 L.Ed.2d 377 (1989); Green v. Bock Laundry Machine Co., 490 U.S. 504, 509-10, 109 S.Ct. 1981, 1985, 104 L.Ed.2d 557 (1989). But, unlike the district court, we think that Section 203(a) is “not a provision in which Congress’ limpid prose' puts an end to all dispute.” Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Foundation, Inc., 484 U.S. 49, 57, 108 S.Ct. 376, 380, 98 L.Ed.2d 306 (1987). Indeed, the district court and the Commonwealth — both of whom fervently maintain that Section 203(a) is unambiguous and both of whom conclude that the Commonwealth is entitled to keep the interest — have provided a striking demonstration of the ambiguity of Section 203(a) by proffering two entirely different but nevertheless plausible interpretations of the pertinent statutory language.
The district court had no doubt that the key statutory phrase — “pending ... disbursement [of federal grant money] for program purposes” — referred to the time period during which federal monies were kept in the self-insurance funds prior to disbursement to claimants. This interpretation of the statutory language, however, is not without problems, for if it were correct, it would seem questionable whether Section 203(a) would permit federal agencies to make contributions to self-insurance funds at all. As noted, the first sentence of Section 203(a) says that federal departments and agencies must schedule the transfer of funds “so as to minimize the time elapsing between the transfer of the money from the Treasury and the disbursement by a State.” However, the [1510]*1510very nature of self-insurance funds — in which monies remain on deposit for lengthy periods — seems inconsistent with such minimization.
Perhaps in recognition of this problem, the Commonwealth asserts that the statutory language unambiguously supports a completely different interpretation. According to the Commonwealth, disbursement occurs when the federal money is initially placed in the reserve accounts, not when claims are paid from those accounts.
In the face of these conflicting' interpretations, we could hold that the statutory language is unambiguous only by concluding that either the district court’s or the Commonwealth’s interpretation is unreasonable. Cf. New Castle County v. Hartford Accident & Indemnity Co., 933 F.2d 1162, 1198 (3d Cir.1991) (contract term is ambiguous when' capable, of two reasonable interpretations); Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir.1980) (same). This we cannot do. Looking only at the statutory language, we believe that both interpretations are reasonable, and thus it is apparent that the statutory language is ambiguous. Consequently, it is appropriate to look beyond the statutory language and consider the background, purpose, and legislative history of Section 203(a). Green, 490 U.S. at 511, 109 S.Ct. at 1985; Dixson v. United States, 465 U.S. 482, 491, 104 S.Ct. 1172, 1177, 79 L.Ed.2d 458 (1984).
C. Before Section 203 was enacted in 1968, it had long been established in decisions of the Comptroller General that interest earned by a grantee on funds advanced by the United States belonged to the United States rather than the grantee and had to be refunded unless special authorization was provided. See, e.g., 42 Comp.Gen. 1289 (1962); 1 Comp.Gen. 652 (1922); see also 64 Comp.Gen. 96 (1984); 59 Comp.Gen. 218 (1980). By 1968, however, an “ ‘extraordinary expansion in the dollar amounts and number of grants-in-aid’ ” had produced “ ‘serious management difficulties.’ ” H.R.Rep. No. 1845, 90th Cong., 2d Sess. 9 (1968), reprinted in 1968 U.S.C.C.A.N. 4220, 4229 (quoting Advisory Commission) [hereinafter “House Report”]. The ICA was intended .to correct some of these problems and alleviate the administrative burdens on the states.
One of these burdens was the need to account for interest earned on federal funds, and Section 203(a) was meant to eliminate this burden while át the same time preventing the states from obtáining a windfall by holding federal funds for lengthy periods and earning substantial amounts of interest prior to disbursement. The Senate Report stated that Section 203 would “minimize the time between the Treasury transfer and the disbursement by the State.” S.Rep. No. 1456, 90th Cong., 2d Sess. 15 (1968). “It is further intended,” the Senate Report continued, “that States will not draw grant funds in advance of program needs.” Id. The Report explained that “new techniques, such as the letter of credit and sight draft procedures now used by Treasury, should minimize the amount of grants advanced, and thus it should not be necessary to continue to hold States accountable for interest or other income earned prior to disbursement.” Id.
In a similar vein, the House Report stated that “Federal funds will be retained by the U.S. Treasury until actually needed by the State for the payment of obligations incurred under the particular grant program.” House Report at 5, 1968 U.S.C.C.A.N. at 4225. On the floor of the House, Representative Fas-cell explained (114 Cong.Rec. 26,986 (1968)):
Section 203 establishes a procedure designed to discourage the advancement of Federal grant-in-aid funds for longer time periods than are necessary.... Effective Government-wide implementation of this mechanism should save the Federal Government considerable amounts of interest costs.
See also 114 Cong.Rec. 26,979 (1968) (statement of Rep. Erlenborn) (“To prevent States from gaining an unfair advantage through earning interest on federal funds so deposited, such funds shall be transferred to States so as to minimize the timelapse between transfer and disbursement.”).
The Comptroller General (House Report at 29, 1968 U.S.C.C.A.N. at 4247) and the Department of Health, Education, and Welfare [1511]*1511(House Report at 18, 1968 U.S.C.C.A.N. at 4238) objected to the provision relieving the states from accountability for interest. The Secretary of HEW stated that this provision “might be an incentive to States to draw the funds sooner than actually needed, contrary to the objective of Section 203.” House Report at 29, 1968 U.S.C.C.A.N. at 4247. The House initially deleted this provision from the bill, but the Senate retained it, and the provision yras accepted by the Conference Committee (H.R.Conf.Rep. No. 1934, 90th Cong., 2d Sess. 12, reprinted in 1968 U.S.C.C.A.N. 4248, 4249) and enacted, presumably based on the House’s belief that the scheduling of transfers would mean that “the amount of such interest in the future should be rather small.” House Report at 9, 1968 U.S.C.C.A.N. at 4229.
D. In light of this background, we are convinced that the statutory phrase “pending its disbursement for program purposes” was intended to have a specific and limited meaning. This phrase was intended to refer to the period during which a state temporarily holds federal grant-in-aid money that is destined for prompt transfer to the ultimate recipients of program benefits. The phrase was clearly not intended to refer to the long-term holding of federal funds in reserve accounts. On the contrary, it seems clear that the congressional committees and the supporters of Section 203(a) would have been shocked by the thought that a state could keep millions of dollars of interest on federal funds placed in such accounts. Congress thought that Section 203(a) would prevent states from holding federal funds for any appreciable period of time. It intended to “save the Federal Government considerable amounts of interest costs” (114 Cong.Rec. 26,986), not to give the states a huge interest windfall.
As we have noted, before Section 203(a) was enacted, it was a well-established rule that recipients of federal' grants were required to return any interest earned on such grants prior to their use unless they were specifically authorized to keep' it. When Congress enacted Section 203(a), it wanted to modify this rule regarding interest on federal grants, but it most assuredly did not intend to sanction what the Commonwealth tried to do in this ease. Statutes that modify settled rules should ‘“be read with a presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident.’ ” United States v. Texas, U.S. -, -, 113 S.Ct. 1631, 1634, 123 L.Ed.2d 245 (1993) (holding that statute did not abrogate the long-established rule that states must pay prejudgment interest on debts to the federal government) (quoting Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783, 72 S.Ct. 1011, 1014, 96 L.Ed. 1294 (1952)). Thus, we are reluctant in this case to interpret Section 203(a) as abrogating, the prior, established rule to a far greater extent than Congress intended.
In sum, we are convinced that the statutory phrase “pending ... disbursement for program purposes” was not intended to refer to the long period of time during which federal funds are kept in self-insurance accounts such as those maintained by the Commonwealth. Entitlement to interest earned on those accounts, therefore, is governed by the rule, which predates the enactment of Section 203(a), that holders of federal grant money are required, absent specific authorization, to refund any interest earned on that money to the federal government.
III.
The remaining arguments advanced by the Commonwealth and the district court do not require lengthy discussion. Both the Commonwealth and the district court suggest that a regulation promulgated by HHS to implement Section 203(a) (45 C.F.R. 74.47(b)) supports the Commonwealth’s entitlement to the interest in dispute. We disagree. Whether or not HHS’s interpretation of Section 203(a) itself is entitled to deference, we must certainly defer to HHS’s interpretation of its own regulations. See Immigration and Naturalization Service v. National Center for Immigrants’ Rights, Inc., — U.S. -, -, 112 S.Ct. 551, 555-56, 116 L.Ed.2d 546 (1991); Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). Moreover, it is quite clear that this regulation was simply intended to incor[1512]*1512porate the rule contained in Section 203(a) and was not intended to give the states an even greater exemption from accountability for interest earned on federal grant funds.2
We likewise see no merit in the Commonwealth’s argument that “the legislative history of the [1990 amendment of Section 203] provides indisputable evidence that under current law, states are not accountable for interest earned on federal funds pending disbursement for program purposes until commencing October 24, 1992.” Appellee Br. at 24. In the first place, “subsequent legislative history is a ‘hazardous basis for inferring the intent of an earlier’ Congress.” Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 650, 110 S.Ct. 2668, 2678, 110 L.Ed.2d 579 (1990) (quoting United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326, 332, 4 L.Ed.2d 334 (1960)). Moreover, the only provision of the legislative history of the 1990 enactment cited by the Commonwealth merely restates the general rule regarding accountability for interest contained in Section 203(a). This portion of the legislative history says nothing whatsoever concerning accountability for interest earned on self-insurance accounts or any other accounts similar to those at issue here.3
For similar reasons, we see no significance for present purposes in OMB’s 1988 proposal to modify OMB A-87 to prevent states from retaining interest earned on self-insurance accounts. We see no indication that this proposal was anything more than an effort to obviate future difficulties. We certainly see no indication that it represented a concession by the federal government that states were entitled to retain such interest under the existing law.4
We also reject the Commonwealth’s argument that HHS, by seeking to recover interest earned on self-insurance accounts, in effect amended OMB A-87 in violation of the Administrative Procedure Act’s rulemaking procedures. HHS simply sought to enforce by adjudication the Commonwealth’s obligation to return interest owed the federal government in accordance with a long-established rule. The rulemaking provisions of the APA are therefore totally inapplicable.
Finally, we do not reach the Commonwealth’s argument that in fact no interest was earned on the self-insurance accounts in question. As previously noted, the DAB explored and rejected this argument. The district court, however, did not explicitly address this point. Consequently, we do not address this question in the present appeal. If the Commonwealth chooses to press this [1513]*1513contention on remand, the district court will be free to address it.
The district court’s order will be reversed, and the case will be remanded for further proceedings consistent with this opinion.