# Revolving Loan Fund Program Changes and General Updates to PWEDA Regulations > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2017-25277 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** December 1, 2017 - **Citation:** 82 FR 57034 ## Text DEPARTMENT OF COMMERCE Economic Development Administration 13 CFR Parts 300, 301, 302, 303, 304, 305, 307, 309, and 314 [Docket No.: 160519444-7133-01] RIN 0610-AA69 Revolving Loan Fund Program Changes and General Updates to PWEDA Regulations AGENCY: Economic Development Administration, U.S. Department of Commerce. ACTION: Final rule. SUMMARY: The Economic Development Administration (“EDA”), U.S. Department of Commerce (“DOC”), is issuing this final rule amending the agency's regulations implementing the Public Works and Economic Development Act of 1965, as amended (“PWEDA”). The changes incorporate current best practices and strengthen EDA's efforts to evaluate, monitor, and improve performance within the agency's Revolving Loan Fund (“RLF”) program by establishing the Risk Analysis System, a risk-based management framework, to evaluate and manage the RLF program. To make RLF awards more efficient for Recipients to administer and EDA to monitor, EDA is also reorganizing the RLF regulations and making changes to improve readability and clarify those requirements that apply to the distinct phases of an RLF award. In addition, EDA is updating other parts of its regulations, including revising definitions, replacing references to superseded regulations to reflect the promulgation of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), streamlining the provisions that outline EDA's application process, and clarifying EDA's property management regulations. DATES: This rule is effective on January 2, 2018. ADDRESSES: EDA posted all public comments received on the Federal Rulemaking Portal, www.regulations.gov, without change. For convenience, after the final rule becomes effective, EDA will update the full text of EDA's regulations, as amended, and post it on EDA's Web site at https://www.eda.gov/about/regulations.htm . FOR FURTHER INFORMATION CONTACT: Ryan Servais, Attorney Advisor, Office of the Chief Counsel, Economic Development Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW., Suite 72023, Washington, DC 20230; telephone: (202) 482-5325. SUPPLEMENTARY INFORMATION: The Department notes that the President's Fiscal Year 2018 Budget calls for the elimination of EDA. The Department considers this final rule important to implement because the Department would need to continue to administer and monitor RLF grants in perpetuity under current statutory authorities. The regulatory changes in this final rule will enable the Department to more efficiently manage the residual RLF portfolio going forward. Likewise, additional changes made by this final rule to EDA's general PWEDA implementing regulations would enable the Department to more effectively oversee the non-RLF residual grant portfolio to ensure that grantees continue to use projects for the purpose originally funded and to eventually execute releases of the federal interest in the property at the expiration of the useful life, often 20 years after the date of the grant award. Background EDA leads the Federal economic development agenda by promoting innovation and competitiveness, preparing American regions for growth and success in the worldwide economy. Through strategic investments that foster job creation and attract private investment, EDA supports development in economically distressed areas of the United States. Authorized under section 209 of the Public Works and Economic Development Act of 1965 (“PWEDA”) (42 U.S.C. 3149) the RLF program serves as an important pillar of EDA's investment programs by helping communities and regions transform their economies and propel them towards economic prosperity through innovation, entrepreneurship, and public-private partnerships. Through the RLF program, EDA provides grants to eligible Recipients, which include State and local governments, political subdivisions, and non-profit organizations, to operate a lending program that makes loans to businesses that cannot obtain traditional bank financing and to governmental entities for public infrastructure. These loans enable small businesses to expand and lead to new employment opportunities that pay competitive wages and benefits. They also help retain jobs that might otherwise be lost, create wealth, and support minority and women-owned businesses. Each RLF Recipient contributes matching funds in accordance with EDA's statutory requirements to capitalize an RLF. As loans made from this original pool of EDA and Recipient funds are repaid, the RLF is replenished and new loans are extended to qualified businesses. Loans can also be provided to governmental entities for eligible public infrastructure. Each RLF Recipient must develop and maintain an RLF Plan to demonstrate how the fund fits specific economic development goals and how it will adequately administer the RLF throughout its lifecycle. The RLF Recipient's obligation to manage the RLF continues in perpetuity because, absent statutory authority providing otherwise, under current law the Federal Interest in the RLF never expires. Since February 1, 2011, EDA has taken a critical and comprehensive look-back at its regulations to reduce burdens by removing outmoded provisions and streamlining and clarifying requirements. On December 19, 2014, EDA published a final rule that became effective on January 20, 2015 (79 FR 76108) (“January 2015 Final Rule”) revising the agency's regulations and reflecting the agency's contemporaneous practices and policies in administering its economic development assistance programs. Through the January 2015 Final Rule, EDA reorganized part 307 to help clarify award requirements and incorporate all RLF program requirements under subpart B to part 307. On October 3, 2016, EDA published a notice of proposed rulemaking (“NPRM”) in the Federal Register (81 FR 68186) requesting public comments on additional proposed changes to its regulations with a particular focus on revisions to those provisions related to RLFs. The public comment period closed on December 2, 2016, and EDA received 103 submissions. This final rule responds to each of those comments, makes seven changes to the proposed regulatory language in response to the comments, and sets forth the finalized set of regulations. Additionally, because this final rule lessens the costs to RLF Recipients to comply with EDA RLF regulations as described in the Classification section, this final rule is a “deregulatory action” pursuant to the April 5, 2017, OMB guidance memorandum implementing Executive Order 13771. Public Comments and Summary of Differences Between the NPRM and the Final Rule In response to the NPRM, EDA received a total of 103 submissions, inclusive of 73 comments received during a November 15, 2016 informational webinar about the NPRM. The 103 submissions addressed a total of 29 discrete issues. After careful consideration of the comments received, EDA has made seven changes to the proposed regulations contained in the NPRM. EDA's responses to the comments and the specific changes made to the final rule are summarized below. Part One: Issues That Resulted in Changes to the NPRM Regulatory Language Issue One: Renewal of Commitments Under a Comprehensive Economic Development Strategy (CEDS) In the NPRM, EDA added language to § 303.6(b)(3)(ii) that a Planning Organization, in connection with the required submission of a revised CEDS at least every five years, “must obtain renewed commitments from participating counties or other areas within the District to support the economic development activities of the District.” One non-profit commenter suggested that the last sentence should instead read, “The Planning Organization shall use its best efforts to obtain renewed commitments from participating counties or other areas within the District. . . .” The commenter also wanted EDA to add another sentence at the end “that states that the inability to secure renewed commitments shall not be a disqualifying event for preparation or approval of the CEDS.” The intent of the new language was to emphasize that for an Economic Development District (EDD) to be successful, participating counties or other areas should be active contributors to the development and implementation of the CEDS. Unfortunately, involvement by these counties and areas in the CEDS process and awareness of its associated implementation efforts may wane over time. EDA views these possible scenarios as both detrimental to regional economic development and to the value and importance of the CEDS itself. However, because the intent of this new language is to make sure all jurisdictions are aware of the CEDS and its value, not to necessarily disqualify a CEDS, EDA is modifying the proposed § 303.6(b)(3)(ii) language to incorporate the requester's suggestions. The final rule now provides that in connection with the submission of a new or revised CEDS, the Planning Organization shall use its best efforts to obtain renewed commitments from participating counties or other areas within the District to support the economic development activities of the District. Provided the Planning Organization can document a good faith effort to obtain renewed commitments, the inability to secure renewed commitments shall not disqualify a CEDS update. Issue Two: Definition of Capital Base Two comments request that we add language to the proposed definition of “RLF Capital Base” to clarify that the RLF Capital Base excludes eligible administrative expenses. While the second sentence of the definition addresses administrative costs associated with RLF operations, it does so in the context of the two forms in which the RLF Capital Base is maintained (RLF Cash Available for Lending and outstanding loan principal). EDA agrees that additional language in the second sentence of this definition would help clarify the fact that RLF Income used for eligible and reasonable administrative expenses is excluded from the definition although it is further explained in § 307.12(a). Accordingly, EDA has revised the definition in § 307.8 to state that RLF Capital Base means the total value of RLF Grant assets administered by the RLF Recipient. It is equal to the amount of Grant funds used to capitalize (and recapitalize, if applicable) the RLF, plus Local Share, plus RLF Income less any eligible and reasonable administrative expenses, plus Voluntarily Contributed Capital, less any loan losses and disallowances. Except as used to pay for eligible and reasonable administrative costs associated with the RLF's operations, the RLF Capital Base is maintained in two forms at all times: As RLF Cash Available for Lending and as outstanding loan principal. Issue Three: Excluding Committed/Approved Loans Not Yet Funded From Allowable Cash Percentage One non-profit commenter requested that EDA add language to the new definition of “RLF Cash Available for Lending” in § 307.8 to ensure that loans that have been committed or approved but not yet funded are not counted as RLF Cash Available for Lending when calculating the Allowable Cash Percentage for each regional portfolio. EDA agrees with this comment and is revising the definition of “RLF Cash Available for Lending” in the final rule to exclude loans that have been committed or approved but not yet funded. Issue Four: Auditor Certification of Accounting System EDA received one comment from a professional organization regarding the ongoing requirement for auditor certification of a Recipient's accounting system. In the NPRM, we proposed to move from § 307.15(b) to § 307.11(a) (“ Pre-disbursement requirements ”) the requirement that a qualified independent accountant certify as to the adequacy of the RLF Recipient's accounting system to identify, safeguard, and account for the entire RLF Capital Base, outstanding RLF loans, and other RLF operations. EDA proposed no substantive changes to this requirement other than to update references to 2 CFR part 200. The comment EDA received regarding this requirement expressed concern that this requirement is unclear regarding the level of effort that would be needed by an accountant to issue a certification that an accounting system is “adequate.” The comment asserted that without clearer guidance as to the meaning of this standard, accountants would be unable to comply with their obligation to “obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.” EDA is persuaded that the language, as proposed, is not sufficiently clear to enable accountants to meet their mandate. However, EDA also believes that it is important to ensure that RLF Recipients are aware of their Federal financial management requirements and responsibilities. As such, EDA is revising § 307.11(a)(i) to require self-certification from the Recipient that the Recipient's accounting system meets the established criteria. This change will serve to increase the awareness of the need to maintain proper accounting systems to account for Federal funds while addressing the concerns raised regarding accountants' ability to meet their mandate under the proposed language. In addition, the adoption of the Risk Analysis System will increase EDA's ability to monitor Recipients' financial controls throughout the life of the RLF grant, providing an additional tool for ensuring compliance with these requirements. Issue Five: Use of RLF Income During the Disbursement Phase EDA received one comment expressing confusion regarding the change in the language related to the use of RLF Income earned during the Disbursement Phase. The commenter stated its understanding that any RLF Income not used for administrative costs becomes part of the RLF Capital Base and must be loaned out to borrowers as RLF loans. EDA believes this comment may be conflating the Disbursement and Revolving Phases. Immediately following the initial award of an RLF Grant, RLF Recipients may request drawdowns from EDA and submit appropriate evidence documenting the basis for those requests. This is known as the Disbursement Phase and is described in the Definitions section of the regulations (§ 307.8) and in § 307.11 (“ Pre-disbursement requirements and disbursement of funds to Revolving Loan Funds ”). The previous regulations specified that RLF Income held to reimburse administrative costs did not need to be disbursed in order to draw additional Grant funds, but they did not address how to handle RLF Income not used for administrative costs. As such, the NPRM proposed revising § 307.11(c) to clarify that RLF Income earned during the Disbursement Phase must be placed in the RLF Capital Base and may be used to reimburse eligible and reasonable administrative costs but need not be disbursed to support new loans, unless otherwise specified in the terms and conditions of the RLF Grant. EDA felt that this revision was clear that it applied to the Disbursement Phase and not to the Revolving Phase, the phase in which most RLF Recipients are currently operating and during which they are no longer requesting drawdowns for a specific RLF Grant. Nevertheless, EDA feels that it can provide additional clarity to this section by also addressing how repaid loan principal should be handled during the Disbursement Phase and stressing that, like RLF Income earned during this Phase, it need not be used for new loans unless otherwise specified. As a result, EDA added the words, “and principal repaid” to the fourth sentence of § 307.11(c). Issue Six: Applying Allowable Cash Percentage to Recipients Based on Their Fiscal Year Eleven commenters requested that the Allowable Cash Percentage be applied to RLF Recipients on a cycle that matches their Fiscal Year instead of the schedule proposed in the NPRM of notifying Recipients by January 1 of each year of the Allowable Cash Percentage to be applied during the ensuing calendar year. EDA is sympathetic to this concern in light of the differences between Recipients with varying Fiscal Years. In order to ensure that all Recipients have sufficient amount of time to comply with the Allowable Cash Percentage for their individual regions, EDA has changed proposed § 307.17(b) to now state that EDA shall notify each RLF Recipient by January 1 of each year of the Allowable Cash Percentage to be applied to lending during the Recipient's ensuing fiscal year, rather than calendar year, beginning on or after January 1. Issue Seven: Loan Quality Review EDA received one comment regarding a regulatory provision for which no substantive change was recommended in the NPRM. Section 307.17(d), which was re-lettered from § 307.17(c), allows EDA to require an independent third party to conduct a compliance and loan quality review for an RLF Grant every three years. If required, this review is considered an administrative cost in accordance with the requirements set forth in § 307.12. The commenter suggests that this requirement creates redundancy, adds to the demands of what are already limited funds, and should be unnecessary with implementation of the Risk Analysis System. EDA agreed with this comment and believes that this type of review can be accomplished through other mechanisms that are currently available, such as through a desk audit, site visit, or the regular audit process. Further, this provision has rarely been invoked in recent years, and so EDA identified this dormant section of the RLF regulations as appropriate for removal in an effort to further streamline EDA's regulations. As a result, EDA has removed this paragraph in its entirety. Part Two: Issues That Did Not Result in Changes to the Final Rule Aside from the issues described above, EDA received comments on 22 issues that did not result in changes to the proposed regulations. The comments received on these issues are presented below along with our responses. Issue Eight: Definition of Subrecipient One non-profit commenter requested that EDA address in the § 300.3 definition of “Subrecipient” whether the Investment Assistance requirements that apply to a Recipient flow down to a Subrecipient. The commenter also argued that the “Recipient and Subrecipient should have the flexibility to define the obligations of each other in their own contract/agreement documentation.” The Uniform Guidance defines the Recipient-Subrecipient relationship in 2 CFR 200.330-200.332. Generally, a Subrecipient is bound by the same terms and conditions that bind the Recipient plus any additional requirements the Recipient imposes. See 2 CFR 200.331. Because the issue raised by the commenter is already addressed in the Uniform Guidance, EDA will not make any changes to the definition of “Subrecipient,” as proposed. Issue Nine: Clarification of Acceptable Alternatives to CEDS EDA proposed language modifying § 303.7(c)(1) to clarify that EDA would accept a non-EDA funded CEDS that does not meet the four foundational elements of a CEDS in particular circumstances, such as a natural disaster or sudden and severe economic dislocation. A non-profit commenter requests further clarification in the final rule on what specific types of plans would be accepted in these circumstances. While EDA understands the desire for more specificity, EDA has determined that the flexibility provided by the proposed language should be maintained in the final version of the regulations. In times of natural or man-made disasters or other sudden or severe events, EDA needs to be responsive to economic recovery needs. EDA's experience demonstrates that time is of the essence in these circumstances and EDA needs the flexibility to move forward quickly with whatever documentation is available at the time. In such situations EDA would also typically notify an applicant of any areas in their plan that might need to be included to meet the CEDS equivalent requirement and allow the entity to subsequently make changes to their planning document (if applicable). Issue Ten: Definitions of Real Property and Project Property EDA proposed a simplified definition of Real Property and new definition of Project Property in the NPRM. One non-profit commenter felt that both definitions in § 314.1 are over broad and could lead to takings in violation of the Fifth Amendment to the U.S. Constitution. The commenter specifically proposed that the Real Property definition be limited to those Properties directly, as opposed to consequentially, benefitted by EDA Investment Assistance so non-participating Property is not encumbered. The commenter went on to argue that, “[a]lthough the definition may work for certain off-site improvements (wastewater plant), and the recording of the reversionary interest may be prudent for the improvement site and any direct beneficiaries that were tied to the project and included in the grant, it is not appropriate to burden all properties via a blanket assertion of benefit.” The commenter similarly believed that the new definition of Project Property vests too much discretion in EDA to determine whether property that is acquired or improved with Investment Assistance is deemed integral to the Project and thus encumbered. The commenter urged EDA to adopt clear determining criteria and require landowner consent prior to EDA making such a determination. EDA disagrees with the commenter's position. Application of these definitions would not result in takings under the Fifth Amendment because EDA is not physically seizing or devaluing private property without just compensation. In fact, quite the opposite is happening: EDA is benefitting the Property (likely resulting in an increase in value). However, because the funds involved are Federal, EDA must protect the Investment by way of an encumbrance that reflects the value of EDA's Investment. The definition of “Real Property” in § 314.1 supports this proposition because EDA only encumbers Property “. . . where the infrastructure contributes to the value of such land as a specific purpose of the Project”, not Properties that might be “consequentially” benefitted by Investment Assistance. Further, the proposed definition of “Real Property” is not substantially different than EDA's prior definition, just simpler, and EDA has not had taking issues in the past. Land that is integral to the specific purpose of the Project, and thus would benefit from the Investment, is meticulously defined in the application and contemplated by the Recipient at the time of award. In no event would this result in a taking given these circumstances. Additionally, EDA cannot narrow the definition of Real Property in the manner proposed by the commenter for two reasons. First, EDA has to ensure that the definition appropriately captures all types of Property ( e.g., fixtures, appurtenances) that EDA may need to encumber under its numerous PWEDA programs if that Property has benefitted as a result EDA's Investment. Second, EDA at times needs to impose restrictions on benefitted Property to avoid situations where an applicant attempts to pass-through EDA Investment Assistance funds to an ineligible entity. In fact, EDA's definition actually creates more flexibility and more opportunities for Recipients by allowing EDA to invest in Projects that would otherwise be barred by such pass-through considerations. In a similar vein, EDA has determined that the amount of discretion provided by the definition of Project Property is appropriate given the need to appropriately define the scope of EDA's Investment and to then protect that Investment. Identifying those components that are required for the successful completion and operation of a Project and/or serve as the economic justification of a Project, is a necessary step to ensuring the success of a Project over its entire useful life. The applicant is protected from any takings because these elements are, again, identified in the application and contemplated by the Recipient at the time of award. In light of the above considerations, EDA is not making any changes to the definitions of Real Property or Project Property in the final rule. Issue Eleven: Constraints on RLF Lending One commenter states that our current RLF regulations create what is in effect a niche lending program that constrains loan applicant eligibility. The commenter cites leveraging, job creation, and portfolio allocation requirements as examples of these constraints. The comment expresses the opinion that it would be good to revise these criteria to ensure that more money reaches borrowers. EDA disagrees that the RLF regulations unduly constrain loan applicant eligibility. EDA affords RLF Recipients a great deal of flexibility in the design of their RLF Plans. Within the RLF Plan, Recipients dictate the appropriate job creation/retention criteria, portfolio allocation, and other portfolio standards and loan selection criteria. The leveraging requirement of $2 of additional investment for each dollar of EDA RLF funding is dictated by EDA regulation and applies to the Recipient's RLF portfolio as a whole. Nevertheless, through this final rule, EDA is actually broadening the types of funds that may be used to meet this requirement by enabling Recipients to use funds from State and local lending programs, and the non-guaranteed portions and 90 percent of the guaranteed portions of Federal loan programs. See § 307.15(c). In addition, if a Recipient would like to change its RLF Plan in an effort to reach more potential borrowers, it may submit an updated Plan for review and approval by EDA. As such, EDA is making no additional changes to the criteria raised by this commenter. Issue Twelve: Effective Date of Regulatory Changes EDA received eight comments asking when these regulatory changes would become effective, particularly with regard to the RLF program. Some of the commenters queried whether there should or would be a delay as a result of the transition to a new Presidential Administration. Others asked if the changes would be implemented in phases, whether they would become effective in Fiscal Year 2017, and when the first round of risk analysis ratings would be assigned. As indicated above, these regulatory changes are the result of a long-term effort by EDA to update and streamline all of our regulations and to adopt industry best practices in an effort to strengthen and improve the RLF program. It is our view that these efforts are critical to the continued vitality of EDA's programs and, as such, any delay would jeopardize our ability to provide effective oversight over programs that have historically helped to create jobs and spur economic growth, especially in distressed areas. As is the normal time frame for most regulations, these regulations will become effective 30 days after publication. EDA has issued a separate Federal Register notice concurrently with this final rule seeking comment on the performance measures that EDA is proposing to use for the initial round of scoring under the Risk Analysis System. We have published the final regulations at the same time as the notice on the Risk Analysis System to ensure timely stakeholder engagement and feedback as we prepare to implement this new approach. As is described in that notice and in the NPRM, the Risk Analysis System is modeled on the Uniform Financial Institutions Rating System, commonly known as the capital adequacy, assets, management capability, earnings, liquidity, and sensitivity (“CAMELS”) rating system, which has been used since 1979 to assess financial institutions on a uniform basis and to identify those in need of additional attention. EDA's proposed measures reflect the categories underlying the CAMELS approach for assessing the health of financial institutions but are based on data currently submitted by Recipients in their semi-annual reporting. Through the notice, EDA is soliciting feedback from the public on those measures. EDA will consider that feedback as it finalizes the measures to be used for scoring and determines the timeline for implementing the Risk Analysis approach. EDA will then conduct active public outreach to inform all of our stakeholders on the measures, the process for assessing Recipients, and when the first round of scores will be assigned and communicated to Recipients. Issue Thirteen: Releasing the Federal Interest in an RLF Fourteen commenters requested that EDA release the Federal interest in an RLF after a specified period of time. Many of our Recipients express concern with the cost and time required to continue to comply with EDA regulations, especially auditing and reporting requirements, even after they have established a lengthy record of demonstrable competence and success in meeting the goals of the RLF program. The commenters note that continued compliance after such a long period of time can be a particularly heavy burden on small non-profit organizations. EDA understands the challenges presented by the perpetual nature of EDA's interest in RLF assets. EDA also recognizes that many of our Recipients have been effective stewards of their RLF assets and that the RLF program has grown in value and in its ability to impact communities in distress due in large part to the efforts of our Recipients. However, while EDA has statutory authority to release its interest in Real Property and tangible Personal Property acquired with EDA grant funds after a certain period of time has elapsed, there is no such authority for EDA to release its interest in RLF assets. As such, EDA continues to pursue legislative solutions that would address this concern. In the interim, through this final rule, EDA is significantly revising its regulations to make compliance easier for our RLF Recipients, especially those demonstrating effective performance as determined through the Risk Analysis System. Issue Fourteen: General Cost of Compliance EDA received 14 comments remarking that the costs of compliance with RLF program requirements are generally high, especially for audits and attorney reviews of loan documentation. Many of these commenters also indicated that some of the regulatory changes proposed would cause these costs to rise. Audits are required by the Uniform Guidance for Federal grant recipients and, as a result, are generally fixed costs. In addition, as explained in more detail in the below discussion of this issue, EDA believes that legal review of Recipients' loan documents is an essential element to ensuring appropriate oversight of Recipients' use of RLF award funds. Nevertheless, as noted previously, the regulatory revisions in this final rule are designed to streamline requirements and minimize costs throughout the transition of the program to a risk-based approach to program oversight. While a few additional requirements are being added to support this new approach, other requirements are being relaxed. Examples include the allowance of alternatives to a bank turn-down letter, more options for loan leveraging, and the end to automatic sequestration. In addition, nothing in these regulatory revisions would affect the Recipients' ability to use RLF Income for administrative expenses. In fact, EDA has sought to make this process easier for Recipients by no longer requiring the Recipient to complete an RLF Income and Expense Statement (former ED-209I) and by extending the period during which RLF Income may be withdrawn from the RLF Capital Base for a purpose other than lending. Issue Fifteen: Risk Analysis System Twenty-five comments were received on various aspects of the Risk Analysis System. One commenter stated that the Risk Analysis System runs counter to the purpose and intent of the RLF program. EDA disagrees. EDA designed the Risk Analysis System to help measure, address, and monitor risk. This system reflects current best practices and will strengthen EDA's efforts to evaluate, monitor, and improve RLF performance. In this way, it will help EDA and its RLF Recipients to fulfill the goals of the RLF program by ensuring that RLF grants continue to bring economic prosperity to communities in need. Another comment on the Risk Analysis System expressed concern about the system possibly creating an administrative burden on Recipients and EDA regional staff through additional monitoring, financial controls, and reporting requirements. EDA anticipates that the changes made by this final rule will help ease the administrative burden on both Recipients and EDA program staff. For example, the final rule would change the reporting frequency to either annual or semi-annual, depending on each Recipient's score in the Risk Analysis System. Further, EDA is changing the reporting period to follow each Recipient's fiscal year end. One comment stated that it is premature to adopt a Risk Analysis System until factors and rating criteria are identified. The commenter also took the position that the provisions establishing the system should be removed from the regulations unless or until the measures are identified. EDA also received a comment that suggested that EDA use Aeris ratings as a substitute for the Risk Analysis System scores for those Recipients that are already Aeris rated. Aeris is an independent organization that provides third party assessments of community development financial institution loan funds by using a proprietary methodology based on CAMELS factors. While Recipients are not prohibited from using Aeris ratings for their own operational purposes, at this time EDA will not accept or use Aeris ratings as a substitute for its own Risk Analysis System assessments because, at this initial stage, EDA is seeking to ease the transition to this new approach for our Recipients by basing our measures on the data that is already provided through RLF reporting. Nevertheless, in a separate notice that EDA has issued concurrently with this final rule, EDA is soliciting feedback from the public on EDA's proposed Risk Analysis System performance measures and will consider that feedback, including any feedback EDA receives regarding parallels between the two approaches, as EDA launches our risk-based scoring. Along those same lines, EDA received a comment that asked EDA to develop the framework for the Risk Analysis System in consultation with RLF Recipients. In response, EDA encourages our Recipients to review the Federal Register notice describing our proposed performance measures for this system and provide detailed input. EDA will consider all feedback very carefully and will notify the public of the final set of performance measures that will be used at the onset of the Risk Analysis System, as well as conduct outreach to share those performance measures and what to expect with the use of this system as EDA launches it. With regards to the specific measures that will be used, EDA received one comment regarding percentage of RLF Income used for administrative expenses. In § 307.12(a)(4), EDA is revising the regulations on the use of RLF Income by clarifying that Recipients may not use funds in excess of RLF Income for administrative expenses unless directed to do so by EDA. EDA is also revising that provision by clarifying that the percentage of RLF Income used for administrative expenses will be one of the measures used in the Risk Analysis System to evaluate Recipients. The Risk Analysis System will thus incentivize Recipients to prudently manage administrative expenses and maximize their RLF Capital Base reserves for lending. However, the commenter stated that using this as a measure would automatically penalize smaller Recipients (which have higher fixed costs) or Recipients that offer lower interest rates to borrowers. While EDA recognizes that some Recipients may face higher costs or generate less income than other Recipients, EDA believes that the amount of RLF Income used for administrative expenses is an important indicator of the condition of an RLF. Indeed, Recipients that spend a high amount of RLF Income on administrative expenses are more likely to face challenges in maintaining and growing their RLF Capital Base. Nevertheless, the amount of RLF Income used for administrative expenses would be one of fifteen measures used to assess Recipient performance, enabling Recipients with a potential disadvantage in this area to balance their overall scores through higher scores in other measures. Another comment asserted that EDA should be able to determine poorly performing RLF Recipients based on the current reporting system. EDA does not believe that maintaining the status quo would represent a best practice in the loan-making community. As stated in the NPRM, since the RLF program's inception, EDA has funded over 800 RLFs nationwide, investing $500 million in RLFs that have a combined capital base of more than $813 million. A move to a risk-based assessment system is critical to properly managing a program of this size with limited resources and thereby ensuring the program's continued success. Moreover, the Risk Analysis System is not designed to determine which Recipients are performing poorly but rather to improve performance for the program as a whole. EDA received a comment regarding § 307.16(b), which as proposed states, “An RLF Recipient generally will be allowed a reasonable period of time to achieve compliance with risk factors as defined by EDA.” The commenter requests EDA define “reasonable period of time” in this context. EDA has chosen not to define this phrase because it will likely vary from Recipient to Recipient, depending on the identified risk factors. EDA's regional staff will work with each Recipient to determine what is “reasonable” based on that entity's individual circumstances. Another comment sought clarification as to whether Recipients that currently have sequestered funds will be relieved of that obligation upon implementation of the final rule. The answer is yes. These Recipients with sequestered funds will be provided guidance asking them to return their sequestered funds to their RLF Capital Base and notifying them that they will be managed from that point forward using the Allowable Cash Percentage and the Risk Analysis System. Issue Sixteen: Providing Additional Funding to “A” Rated Recipients One commenter asks if EDA would consider providing additional grant funding to Recipients that have been rated “A” through the Risk Analysis System and that have loaned out all of their funds. While the regulations do not provide for additional funding to be made automatically available to “A” rated RLFs, EDA takes a wide variety of factors into consideration when considering Investment decisions, including historical performance by specific applicants. Issue Seventeen: Obtaining Input From the Public Regarding the Regulatory Changes EDA received four comments that asked us to form a committee of EDA representatives, economic development practitioners, and RLF Recipients to vet the proposed changes to the regulations before final adoption. Similarly, EDA received ten comments from individuals and organizations requesting that EDA consult with RLF practitioners in developing the Risk Analysis System and prior to finalizing these regulations, requesting outreach regarding the revised reporting form, stating that the final regulations appear different from what had previously been discussed, indicating apparent similarities between the RLF program and the Small Business Administration's Microloan program, and asking whether EDA's RLF staff would remain with EDA after the change of Administration. EDA recognizes the tremendous value of soliciting the opinions of stakeholders when undertaking changes to our regulations and programs. EDA prides ourselves on our close working relationship with communities and organizations across the nation. Two years ago, EDA developed an internal RLF Working Group with representatives from each of our Regional offices, legal counsel, and our national performance programs division. EDA also reached out to other Federal agencies for insight and best practices. While EDA appreciates the interest in forming a committee to provide input, EDA feels that the publication of the NPRM and the November 15, 2016 webinar conducted to discuss the proposed regulatory changes provided us with even broader access to the views of stakeholders than would have been the case with a committee limited to select members of the public. In addition, as EDA has noted previously, EDA intends to continue our outreach to and discussions with our Recipients and other stakeholders as EDA implements these changes, including those regarding our reporting form and the Risk Analysis System measures, and pursue other tools for improving the RLF program. As indicated during our informational webinar, our commitment to our Recipients and the nation will not change. Issue Eighteen: Allowable Cash Percentage EDA received 15 comments on the newly introduced Allowable Cash Percentage definition, including two that were addressed above (Issues Two and Three), and one that was supportive of this new approach as a replacement for the capital utilization standard. Another comment submitted from an entity in American Samoa expressed its view that regional calculations are not the fairest approach to calculating the Allowable Cash Percentage. EDA acknowledges this concern and intends to review the relevant data and refine its measures as appropriate. In the meantime, failure to comply with the Allowable Cash Percentage will be one factor among many that will be used to assess risk and performance within a Recipient's RLF portfolio, so it alone is not determinative of a final risk score. Another commenter suggested that EDA set a threshold or boundary on the floating Allowable Cash Percentage. EDA responds by noting that it expressly created the Allowable Cash Percentage to avoid rigid thresholds and the inflexibility that existed with the Capital Utilization standard. Instead, with the Allowable Cash Percentage, EDA establishes a floating rate based on year-by-year fluctuations in economic conditions across regions in order to introduce flexibility that did not exist before and to address the challenges associated with the Capital Utilization standard and automatic sequestration. Nevertheless, the revised §§ 307.20 and 307.21 establish a threshold by listing as a form of noncompliance the holding of RLF Cash Available for Lending so that it is 50 percent or more of the RLF Capital Base for 24 months without an EDA-approved extension request based on other EDA risk analysis factors or other extenuating circumstances. One comment expressed concern about the “subjectivity and vagueness of the proposed change with the Allowable Cash Percentage,” adding that this “could be to the advantage of the RLF, especially if it is close to the requirement (but not quite there) on its utilization rate, depending on EDA's response.” Another commenter stated that this change could put newer RLF Recipients at an immediate disadvantage, necessitating some mechanism to even the playing field for those Recipients. EDA understands that newer RLF Recipients may not have the same level of experience as Recipients that have been operating RLF programs for longer periods of time. However, the Allowable Cash Percentage is based on an objective calculation: The average percent of the RLF Capital Base maintained as RLF Cash Available for Lending by RLF Recipients in each regional office's portfolio of RLF Grants over the previous year. In addition, as EDA noted in the NPRM, EDA recognizes that different regions face very different economic conditions and variations in access to capital and that a one size fits-all capital utilization standard can be difficult for RLF Recipients to meet and for EDA to implement. To help resolve this, EDA is now reversing the standard on which RLF Recipients will be assessed from the amount of capital that is loaned or committed to the amount of cash Recipients have on hand available for lending—the Allowable Cash Percentage. Moreover, Recipients will be assessed against a range of measures, of which compliance with the Allowable Cash Percentage is just one. In the end, effective management and compliance with all RLF regulations will help prevent any single Recipient from being disadvantaged by the applicable Allowable Cash Percentage. Another comment on this issue suggested that EDA establish exceptions to the Allowable Cash Percentage and allow for situations where cash becomes available for early loan pay-offs or a “Force major event occur[s] in a RLF area.” EDA believes that these types of exceptions can be handled through individual compliance actions and do not necessitate explicit carve-outs. Also, the Allowable Cash Percentage is designed to accommodate fluctuations in economic conditions across regions as well as in cash flows within Recipients. Other comments addressed the removal of those provisions requiring automatic sequestration as part of the transition from the capital utilization standard to the Allowable Cash Percentage. One commenter generally expressed its support of this change. Another asserted that this change is unnecessary because the language regarding sequestration was permissive rather than mandatory because it provides that if a Recipient failed to satisfy the capital utilization standard for two consecutive Reporting Periods, EDA “may” require the Recipient to deposit excess funds in an interest-bearing account. While this provision used the word “may” rather than “must” or “shall,” in practice and under these circumstances, EDA regularly required Recipients to sequester excess cash. EDA removed this requirement in order to stress that, in accordance with the shift to the use of a Risk Analysis System, sequestration will be considered as one of a range of possible tools for ensuring compliance with the terms of the RLF Grant. Issue Nineteen: Defining “Prudent Lending Practices” EDA received two different comments regarding the use of “Prudent Lending Practices.” One asked if EDA would define “Prudent Lending Practices.” The other stated that “Prudent Lending Practices” cause Recipients to not make certain loans, may cause a Recipient's Capital Base to occasionally exceed 25 percent, and to be penalized for being prudent. “Prudent Lending Practices” are currently defined in § 307.8 as generally accepted underwriting and lending practices for public loan programs, based on sound judgment to protect Federal and lender interests. Prudent Lending Practices include loan processing, documentation, loan approval, collections, servicing, administrative procedures, collateral protection and recovery actions. Prudent Lending Practices provide for compliance with local laws and filing requirements to perfect and maintain a security interest in RLF collateral. The NPRM proposed no changes to this definition, and EDA makes none with this final rule. With regards to the second comment on this issue, EDA does not penalize Recipients for making higher risk loans. As noted in the NPRM and in this final rule, EDA established the RLF program expressly to assist borrowers who are considered higher risk and cannot obtain credit from traditional financial institutions. Nevertheless, in order to ensure effective oversight and compliance with the fiduciary obligations of a Recipient that lends out Federal Grant funds, EDA felt it necessary to continue to apply a prudent lending standard. EDA also points out that EDA has removed the capital utilization standard, which required Recipients to ensure that at least 75 percent of their RLF Capital was loaned or committed at all times. This should resolve this commenter's concerns about its Capital Base exceeding the 25 percent threshold imposed by the old standard. Issue Twenty: Reporting EDA received 15 comments regarding reporting requirements. At least one commenter expressed support for the change to a reporting cycle based on the Recipient's fiscal year cycle. One commenter asked whether Recipients could continue to report semi-annually if they want to do so. If a Recipient qualifies for annual reporting based on their assessment through the Risk Analysis System, EDA would direct the Recipient to not submit semi-annual reports. While EDA has introduced this new, longer reporting cycle for Recipients who score as the highest performers according the Risk Analysis System, in part, to ease the reporting burden on those Recipients, EDA was also motivated to make this change in an effort to ease the administrative burden on EDA's Regional staff, given the large number of RLFs which they must monitor. As a result, EDA would not accept semi-annual reports from Recipients that are placed on an annual reporting cycle. Issue Twenty-One: Legal Certification of Loan Documents EDA received 31 comments regarding the proposed revision to the requirement for legal certification of loan documents. In the NPRM, EDA proposed moving the requirement for legal counsel review of standard RLF loan documents from § 307.15 to § 307.11(a) and, in the process, revised it to require the certification that standard loan documents are adequate and comply with the terms and conditions of the RLF Grant, RLF Plan, and applicable State and local law come directly from the RLF Recipient's legal counsel rather than have the Recipient certify as to counsel review. Commenters complained that this revision could be costly and require additional time for Recipients to comply. A number of the commenters also appeared to believe this to be an on-going requirement through the life of the RLF. EDA notes that this requirement is for the standard set of loan documents used by the RLF and referenced in the RLF Plan, not for the particular loan documents used for each loan made by the RLF. In moving this regulation to § 307.11(a), which lists pre-disbursement requirements, EDA intended to make clear that the legal certification was a one-time requirement to be completed before EDA disburses RLF funds to the Recipient. EDA agrees that certification on an ongoing basis could be financially prohibitive. Recipients are free, however, to obtain legal review of their loan documents on a more frequent basis if desired. In light of the above, EDA believes that the revised language and its new location make this requirement sufficiently clear. As a result, EDA made no additional changes to this provision in the final rule. Issue Twenty-Two: EDA-Provided Loan Documents Six comments asked whether EDA would supply or possibly mandate template loan documents for use by all Recipients with their borrowers. EDA does not plan on providing or mandating templates for this purpose because each Recipient must comply with its own local and State lending laws, which can vary from Recipient to Recipient. Issue Twenty-Three: Evidence Demonstrating Lack of Available Credit Six commenters asked for examples of other evidence that could be provided as an alternative to a bank turn-down letter, as required by § 307.11(a)(1)(ii)(H). In the NPRM, EDA proposed replacing the requirement that RLF Recipients obtain and borrowers provide a signed bank turn-down letter to demonstrate that credit was not otherwise available with a more general requirement for evidence demonstrating that credit is not otherwise available on terms and conditions permitting the completion or successful operation of the activity to be financed. EDA broadened this requirement to help those borrowers who were unable to obtain a turn-down letter. EDA feels that providing specific examples of alternative documentation would undermine this goal. However, Recipients will outline in their RLF Plans what types of documentation would be approved for this purpose and can work with their Regional RLF Administrator to incorporate into the specific RLF's Plan further examples of what documentation may be sufficient for that particular RLF. Issue Twenty-Four: Fidelity Bond Coverage EDA received one comment regarding the requirement for Recipients to maintain fidelity bond coverage. The comment requested an exemption for public bodies, including State entities, from the mandates on the amount of coverage appropriate for Recipients. EDA does not agree that such an exemption should be established. In the NPRM, EDA proposed a change to this requirement to provide that the minimum amount of coverage must equal the maximum loan amount allowed for in the EDA-approved RLF Plan. Our intent was to make this requirement easier for Recipients to follow. EDA also believed that this amount was reasonable. For these reasons, EDA made no additional changes to this requirement, which applies to all Recipients without exception. Issue Twenty-Five: RLF Income/Administrative Expenses Fifteen comments expressed support for the revisions expanding the requisite period to charge administrative expenses against RLF Income from the same six-month Reporting Period to the same fiscal year. EDA sought this change as one of many designed to ease the burden on its RLF Recipients. This support helps to confirm that this change will meet that goal. Issue Twenty-Six: Voluntarily Contributed Capital EDA received two comments expressing confusion regarding Voluntarily Contributed Capital. These asserted that when a non-Federal Recipient contributes capital that exceeds the Local Share, this excess capital should not be treated as part of the Capital Base. In the commenters' view, the Recipient should have the opportunity to deposit, maintain, and withdraw these funds at its discretion from a separate bank account that is not governed by EDA guidelines and regulations. EDA respectfully disagrees with this position. As indicated in the newly added definition of “Voluntarily Contributed Capital” in § 307.8 and the language added to § 307.12(d), EDA considers funds that are voluntarily injected into the RLF an irrevocable component of the Capital Base and therefore subject to EDA regulations and policies. EDA added this language in response to past confusion about such infusions of additional funds. The scenario described exemplifies this confusion, as it appears to describe a form of leveraged funds, rather than Voluntarily Contributed Capital. In an additional effort to clarify the handling of Voluntarily Contributed Capital, the NPRM described our proposal to add a requirement that any Recipient wishing to inject additional capital into the RLF Capital Base to augment the amount of resources available to lend must submit a written request that specifies the source of the funds to be added. EDA believes that this added language is sufficient to prevent any further confusion on this matter. Issue Twenty-Seven: Inclusion of RLFs in the Schedule of Expenditures for Federal Awards EDA received three comments that asked whether RLFs would continue to be included in the Schedule of Expenditures of Federal Awards (“SEFA”). In the NPRM, EDA proposed clarifying the provision permitting the inclusion of a loan loss reserve in an RLF Recipient's financial statements, in accordance with generally accepted accounting principles to show the fair market value of an RLF loan portfolio. This provision had created confusion in the past with some RLF Recipients, who understood it to mean that the inclusion of a loan loss reserve also applied to the SEFA, which is the list of expenditures for each Federal award covered by the Recipient's financial statements and which must be reviewed as part of the audit process. This may result in inaccurate RLF valuations in the SEFA. EDA attempted to resolve this confusion by adding a sentence to § 307.15(a)(2) clearly stating that loan loss reserves were not to be used to reduce the nominal value of the RLF in the SEFA. EDA feels that this language is sufficiently clear to demonstrate the RLFs shall continue to be included in the SEFA. Issue Twenty-Eight: Loan Leveraging Requirement Seven commenters submitted their views on the loan leveraging requirements laid out in § 307.15(c). This paragraph requires Recipients to ensure funding from additional sources at a ratio of $2 of additional funding to every $1 of RLF loans. The requirement applies to Recipients' entire RLF portfolio, rather than to individual loans, and is effective for the duration of the RLF. Some of the comments on this issue asserted that this requirement is difficult to meet. The NPRM proposed some changes to this paragraph in an effort to clarify and broaden the possible sources of funds used for leveraging the RLF portfolio. With these changes, Recipients may use funds from State and local lending programs, in addition to the non-guaranteed portions and 90 percent of the guaranteed portions of Federal loan programs. Our hope is that these revisions, now finalized, will make it easier for Recipients to achieve the required amount of leveraging. The remaining comments on this issue expressed confusion over the difference between leverage, Voluntarily Contributed Capital, and Local Share (or Matching Share). Each of these concepts has a distinct meaning, and EDA believes the differences are sufficiently spelled out in the regulations. As stated in the first sentence of § 307.15(c), “RLF loans must leverage additional investment of at least two dollars for every one dollar of such RLF loans.” Local Share (or Matching Share) is defined in § 300.3 as “the non‐EDA funds and any In‐Kind Contributions that are approved by EDA and provided by a Recipient or third party as a condition of an Investment.” Thus, while leveraging refers to a condition of an RLF loan, Local Share refers to a condition of the RLF Grant from EDA. Voluntarily Contributed Capital is defined in § 307.8 as an RLF Recipient's voluntary infusion of additional non-EDA funds into the RLF Capital Base that is separate from and exceeds any Local Share that is required as a condition of the RLF Grant. Voluntarily Contributed Capital is an irrevocable addition to the RLF Capital Base and must be administered in accordance with EDA regulations and policies. Issue Twenty-Nine: Release of Federal Interest A non-profit commenter suggested modifications to a sentence in EDA's existing regulations that was unchanged in the NPRM and represents longstanding EDA practice. Specifically, the commenter contended that § 314.10(b) should provide that the Assistant Secretary “shall release the Federal Interest in Project Property if EDA determines that the Recipient has made a good faith effort to fulfill all terms and conditions of the Investment Assistance.” The current language makes this release permissive (“may”) instead of mandatory (“shall”). The commenter believed that the release should be ministerial instead of discretionary. The commenter also desired a defined protocol for obtaining a release and documentation of such protocols in the Award itself so Recipients can monitor their own compliance and avoid delays in obtaining the release at the end of the Project's useful life. The use of “may” in the current regulation parallels section 601(d)(2) of PWEDA, which provides that EDA “may release” any real property interest in connection with a grant after the expiration of the 20-year useful life. See 42 U.S.C. 3211(d)(2). Further, the discretion provided to EDA to release the interest, or not as the case may be, is important to ensure that the Recipient is in compliance with all terms and conditions of the grant between the award of the Investment Assistance and the expiration of the useful life, as well as to make certain that the covenants that extend beyond EDA's release are properly recorded. See new 13 CFR 314.10(b), (c), (d)(3) and (e)(3). EDA declines to establish particular protocols because it is incumbent on the Recipient to request EDA remove the interest and procedures vary by jurisdiction. EDA does make Recipients aware of these general release requirements in the mortgage documents that are filed to record EDA's interest. Overview of Final Rule Below EDA describes the regulatory revisions made by the final rule, including those changes discussed above that were in response to public comments and other minor consistency edits that were made throughout. Part 300—General Information EDA is making several clarifying revisions to the “Definitions” section of EDA's regulations at § 300.3. These revisions are: • In the definition of In-kind contribution(s), EDA replaces references to 15 CFR parts 14 and 24, which set out the Uniform Administrative Requirements applicable to grants and agreements with Institutions of Higher Education, Hospitals, Other Non-Profit, and Commercial Organizations and State and Local Governments, respectively, with a reference to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. • EDA revises the definition of Project by adding a reference to “or Stevenson-Wydler” between the reference to “PWEDA” and the word “and” to clarify that EDA may provide Investment Assistance to support a Project under Stevenson-Wydler. • EDA revises the definition of Recipient by defining separately the concepts of Co-recipients and Subrecipients in EDA's programs to clarify that when EDA awards Investment Assistance to more than one recipient, they are known as co-recipients and are generally jointly and severally responsible for fulfilling the terms of the Investment Assistance and to introduce the term Subrecipient as the eligible recipient that receives a subgrant under 13 CFR part 309. • EDA adds a definition of Stevenson-Wydler, which is the Stevenson-Wydler Technology Innovation Act of 1980, as amended (15 U.S.C. 3701 et seq. ) to incorporate the EDA programs created by the America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Reauthorization Act of 2010 (“COMPETES Act”) (Pub. L. 111-358 (January 4, 2011)), which amended Stevenson-Wydler to add the Office of Innovation and Entrepreneurship (15 U.S.C. 3720), the loan guarantees for innovative technologies in manufacturing (“ITM”) program (15 U.S.C. 3721), and the Regional Innovation Program (15 U.S.C. 3722), the centerpiece of which is the Regional Innovation Strategies (“RIS”) Program. Part 301—Eligibility, Investment Rate, and Application Requirements EDA has added the phrase “at its sole discretion” to the second sentence of § 301.2(b) ( “Applicant eligibility” ). Section 301.2(b) requires non-profit organizations that are applicants for investment assistance to include in their applications a resolution or letter from an authorized representative of a political subdivision of a State, acknowledging that the applicants are acting in cooperation with the officials of that subdivision. The second sentence of this paragraph allows EDA to waive this requirement for Projects of a significant Regional or national scope. By adding the phrase, “at its sole discretion,” to this second sentence, EDA is clarifying that such a waiver is solely at EDA's discretion. In the second sentence of § 301.5 ( “Matching share requirements” ), EDA is replacing the word “show” with the phrase “provide documentation to EDA demonstrating” to better explain what applicants are required to provide to fulfill EDA's Matching Share requirements. In addition, EDA has added a sentence to § 301.5 to clarify that EDA retains the discretion to determine whether Matching Share documentation adequately addresses the requirements of the regulation. EDA is simplifying § 301.7(a) ( “Investment assistance application” ) to state that for all of EDA's Investment Assistance programs, application submission requirements and evaluation procedures and criteria will be set out in published Federal Funding Opportunity (“FFO”) announcements. Currently, the application and selection process under the Public Works and Economic Adjustment Assistance programs is a two-phase process that requires the submission of a proposal followed by a complete application. There are no submission deadlines and proposals and applications are accepted on an ongoing basis. Likewise, EDA is revising § 301.8 ( “Application evaluation criteria” ) to remove specific evaluation criteria currently set out in paragraphs (a) through (f) from the regulation and to specify that program-specific evaluation criteria will be set out in applicable FFOs. This will allow EDA additional flexibility to respond to changing economic conditions. In § 301.11 ( “Infrastructure” ), EDA has added the parenthetical “( e.g., roads, sewers, and water lines)” in the second sentence of § 301.11(a) to provide several core examples of “basic economic development assets” referenced in the sentence. Part 302—General Terms and Conditions for Investment Assistance EDA has revised § 302.5 ( “Relocation assistance and land acquisition policies” ) to add a reference to Stevenson-Wydler by adding the phrase “or any other types of assistance” between “Investment Assistance” and “under PWEDA” and a reference to “, and Stevenson-Wydler” between “Trade Act” and “(States and political subdivisions of States. . . .)”. EDA also corrects a typo by replacing the phrase “nonprofits organizations” with “non-profit organizations”. EDA revises § 302.6 ( “Additional requirements; Federal policies and procedures” ), to replace references to 15 CFR parts 14 and 24 with a reference to “2 CFR part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards”. In § 302.20 ( “Civil rights” ), EDA adds a reference to “or Stevenson-Wydler” between the reference to “PWEDA” and the phrase “or by an entity”, as well as the phrase “or any other type of assistance under Stevenson-Wydler” between the reference to “Trade Act” and the phrase “in accordance with the following authorities” to clarify that nondiscrimination requirements apply to any type of assistance provided under Stevenson-Wydler. In § 302.20(d) regarding written assurances of compliance with nondiscrimination requirements, EDA adds a reference to “and Stevenson-Wydler” between “PWEDA” and “all Other Parties”, as well as a reference to “or any other type of assistance under Stevenson-Wydler” between “Trade Act” and the phrase that begins with “must submit to EDA”. In § 302.20(a)(2), EDA adds a reference to Title IX of the Education Amendments of 1972, as amended (20 U.S.C. 1681 et seq. ), which proscribe discrimination on the basis of sex in any education program or activity receiving Federal financial assistance, whether or not such program or activity is offered or sponsored by an educational institution. Part 303—Planning Investments and Comprehensive Economic Development Strategies EDA has made clarifications and modifications to its Planning program: • Modifies § 303.6(b)(1) to replace “including” with “which may include” to clarify that the CEDS Strategy Committee has the discretion to determine which parties represent the main economic interests of the Region. • Removes the last sentence of § 303.6(b)(1) as superfluous and revising that section to clarify that Indian Tribes and State officials may be represented on the CEDS Strategy Committee, along with all other groups listed, when representative of the economic interests of the region. • Adds sentences to § 303.6(b)(3)(ii) to encourage participating counties or other areas within the EDD to remain engaged in the planning process. • Revises § 303.7(c)(1) by, in the first sentence, replacing the phrase “without fulfilling all the requirements of paragraph (b) of this section” with the phrase “so long as it includes all of the elements listed in paragraph (b) of this section” and adding the new sentence, “In certain circumstances, EDA may accept a non-EDA funded CEDS that does not contain all the elements listed in paragraph (b) of this section” between the existing first and second sentences of this provision. This change is designed to emphasize that a non-EDA funded CEDS should include all elements of an EDA-funded CEDS and, at the same time, to reflect that in particular circumstances, such as a natural disaster or sudden and severe economic dislocation, EDA will accept a non-EDA funded CEDS that does not include the foundational CEDS elements. Part 304—Economic Development Districts In § 304.2(c)(2), EDA is replacing the word “including” with the phrase “which may include” to indicate that the private sector, public officials, community leaders, representatives of workforce development boards, institutions of higher education, minority and labor groups, and private individuals should be included insofar as they represent principal economic interests of the Region and to reinforce the message that each District Organization must continue to demonstrate that its governing body is broadly representative of the principal economic interest of the Region and that it has the capacity to implement the EDA-approved CEDS. Part 305—Public Works and Economic Development Investments EDA has made two minor changes to part 305 to reflect the promulgation of the Uniform Guidance. Specifically, in paragraph (b) of § 305.6 ( “Allowable methods of procurement for construction services” ) and paragraph (c) of § 305.8 ( “Recipient-furnished equipment and materials” ), EDA replaces the references to “15 CFR parts 14 or 24, as applicable” with a reference to “2 CFR part 200”. Part 306—Training, Research and Technical Assistance EDA has made no changes to part 306 with this rule. Part 307—Economic Adjustment Assistance Investments EDA has made multiple changes to subpart B in its efforts to strengthen and clarify EDA's RLF regulations to improve the agency's ability to monitor RLF performance and provide targeted technical assistance through a risk-based management framework and changes designed to clarify and streamline RLF requirements. These changes are as follows: • In § 307.6 ( “Revolving Loan Funds established for business lending” ), EDA is removing the reference to “business” lending in the title to that section, as well as the phrase in the second sentence of the provision regarding subpart B's application to “business lending activities” and the phrase “to accommodate non-business RLF awards” regarding the application of special award conditions in the third sentence of the provision. These changes should remove confusion about the applicability of the RLF regulations to other types of lending. In addition, in the second sentence of § 307.6, EDA has added the phrase “EDA-funded” between the phrase “apply to” and the acronym “RLFs” to clarify that the RLF regulations in subpart B to part 307 apply to EDA-funded RLFs. • In § 307.7 ( “Revolving Loan Fund award requirements” ), EDA has added language to clarify the compliance obligations for RLF Grants and update the reference to the location of the Compliance Supplement. In § 307.7(b), EDA adds the phrase “, as well as relevant provisions of parts 300 through 303, 305, and 314 of this chapter,” between the phrases “set forth in this part” and “and in the following publications”. In addition, in § 307.7(b)(2), EDA replaces the reference to “OMB Circular A-133” as the location of the Compliance Supplement with “, which is Appendix XI to 2 CFR part 200” and with respect to the electronic availability of the Compliance Supplement, EDA replaced the general reference to the OMB Web site with the more specific site where all OMB Circulars, including the Compliance Supplement, are located. • In § 307.8 ( “Definitions” ), EDA has added several new definitions and revised existing definitions to implement the proposed risk-based framework to manage RLF Grants. Specifically, EDA has added new definitions for the terms: Allowable Cash Percentage, Disbursement Phase, Risk Analysis System, RLF Capital Base, RLF Cash Available for Lending, RLF Recipient, and Voluntarily Contributed Capital. The definitions are set out in the regulatory text below. In addition, EDA is revising the definitions of the following existing terms: —In the existing definition of Recapitalization Grants, EDA replaces the phrase “capital base of an RLF” with the term “RLF Capital Base” for clarity. —In the existing definition of Reporting Period, EDA is changing the Reporting Period to align with each RLF Recipient's fiscal year end in order to ensure consistency between RLF reports using Form ED-209 and annual audit reports by replacing the phrase “means the period from April 1st to September 30th or the period from October 1st to March 31st” with the phrase “is based on the RLF Recipient's fiscal year end and is on an annual or semi-annual basis as determined by EDA.” —In the definition of RLF Income, EDA is deleting as repetitive the parenthetical “(excluding interest earned on excess funds pursuant to § 307.16(c)(2))” in the first sentence of the definition and corrected a citation in the final sentence of the definition by replacing the reference to “§ 307.16(c)(2)(i)” with a reference to “§ 307.20(h)”. • EDA is reorganizing the regulations by placing all pre-disbursement and Disbursement Phase requirements into § 307.11. To accomplish this, EDA is revising the title of the section to read “Pre-disbursement requirements and disbursement of funds to Revolving Loan Funds” from “Disbursement of funds to Revolving Loan Funds”. In addition, the timing language in § 307.11(a) that formerly read “Prior to any disbursement of EDA funds, RLF Recipients are required to provide in a form acceptable to EDA” is being revised to read “Within 60 calendar days before the initial disbursement of EDA funds, the RLF Recipient must provide the following in a form acceptable to EDA”, and then EDA is revising the regulations to list the certifications and evidence required before EDA will make an initial disbursement of Grant funds. This change reconciles what were different and sometimes conflicting timing requirements on these certifications. • In addition, EDA has moved the following two provisions from § 307.15(b), which formerly set out pre-disbursement requirements regarding loan and accounting system documents, to § 307.11(a) titled “Pre-disbursement requirements”: (1) The requirement that a qualified independent accountant certify as to the adequacy of the RLF Recipient's accounting system to identify, safeguard, and account for the entire RLF Capital Base, outstanding RLF loans, and other RLF operations (now § 307.11(a)(1)(i)); and (2) the requirement that the Recipient certify that the standard loan documents are in place and have been reviewed by legal counsel (now § 307.11(a)(1)(ii)). • With respect to the requirement regarding accountant certification of the RLF Recipient's accounting system, in re-locating this requirement, EDA is also revising it so it no longer requires certification directly from an accountant. This requirement now reads: “Certification from the RLF Recipient that the Recipient's accounting system is adequate to identify, safeguard, and account for the entire RLF Capital Base, outstanding RLF loans, and other RLF operations.” This change serves to increase the awareness of the need to maintain proper accounting systems to account for Federal funds while addressing the concerns raised regarding accountants' ability to meet their mandate under the proposed language. EDA believes that this language, coupled with the increased scrutiny provided through the Risk Analysis System, will serve as an effective tool for ensuring compliance with Federal financial management requirements. • With respect to the certification regarding legal counsel review of standard RLF loan documents formerly set out at § 307.15(b)(2), in relocating the requirement to § 307.11(a)(1)(ii), EDA also replaces the phrase “the Recipient shall certify that standard RLF loan documents reasonably necessary or advisable for lending are in place and that these documents have been reviewed by legal counsel” with “The RLF Recipient's certification that standard RLF loan documents reasonably necessary or advisable for lending are in place and a certification from the RLF Recipient's legal counsel”. This change not only streamlines this process but also ensures that the Recipient's legal counsel reviewed the standard loan documents and verified that those documents are adequate and in compliance with the applicable requirements. • In § 307.11(a)(1)(ii)(H), EDA replaced the requirement that RLF Recipients obtain and borrowers provide a signed bank turn-down letter to demonstrate that credit is not otherwise available with the more general requirement for evidence demonstrating that credit is not otherwise available on terms and conditions that permit the completion or successful operation of the activity to be financed. This revision allows EDA to remove as redundant the requirement for RLF Plans that alternative evidence to a signed bank turn-down letter be allowed. • The provision regarding evidence of fidelity bond coverage remains in place in § 307.11(a), but is redesignated as § 307.11(a)(1)(iii). In addition, EDA is removing the phrases “the greater of” and “, or 25 percent of the RLF Capital base” from redesignated § 307.11(a)(1)(iii), thereby revising the provision to establish the minimum amount of coverage required as the maximum loan amount allowed for the EDA-approved RLF Plan, and removing the alternative approach permitting coverage of at least 25 percent of the RLF Capital Base. This alternative was difficult to meet as it had required Recipients to regularly change the amount of fidelity bond coverage to remain in compliance, while also yielding approximately the same amount of coverage. • EDA has also added language following § 307.11(a)(1)(iii), in new § 307.11(a)(2), to clarify that the RLF Recipient must maintain the adequacy of the RLF's accounting system and standard RLF loan documents, as well as records and documentation to demonstrate that these requirements are met, throughout the RLF's operation. This maintenance language includes a cross-reference to new § 307.13(b)(3) where EDA underscores that the RLF Recipient must maintain records to document compliance with these requirements. EDA also makes conforming changes to incorporate these requirements into a list format. Because EDA is moving the language regarding the accountant certification from § 307.15 to § 307.11, EDA is removing the language in § 307.11(a)(2) that cited to the certification required under § 307.15. • In order to simplify the language regarding the amount of Grant fund disbursements in the first sentence of § 307.11(c), EDA is replacing the phrase “not to exceed the difference, if any, between the RLF Capital and the amount of a new RLF loan, less the amount, if any, of the Local Share required to be disbursed concurrent with Grant funds” with the phrase “be the amount required to meet the Federal share requirement of a new RLF loan”. • EDA is adding new language to § 307.11(c) to clarify that RLF Income earned during the Disbursement Phase must be placed in the RLF Capital Base and may be used to reimburse eligible and reasonable administrative costs and increase the RLF Capital Base. However, RLF Income earned during the Disbursement Phase need not be disbursed to support new RLF loans, unless otherwise specified in the terms and conditions of the RLF Grant. EDA is also adding language clarifying that repaid loan principal, like RLF Income, must be placed in the RLF Capital Base during the Disbursement Phase and can be used to reimburse administrative costs during this Phase. Section 307.11(c) now reads as set out in the regulatory text below. • EDA is making a non-substantive revision to § 307.11(d) to capitalize the word “Grant”. • EDA has placed all provisions that set out Local Share requirements in § 307.11(f), which requires re-locating the substance of the provision at § 307.17(d) regarding use of In-Kind Contributions to satisfy Local Share requirements. Accordingly, EDA removed former § 307.17(d) and re-numbered the regulation accordingly. In revised § 307.11(f), EDA adds the phrase “, which must be specifically authorized in the terms and conditions of the RLF Grant and may be used to provide technical assistance to borrowers or for eligible RLF administrative costs,” between the term “In-Kind Contributions” and the phrase “and cash Local Share” in the first sentence of § 307.11(f)(2) to reflect that In-Kind Contributions are rarely necessary or reasonable for accomplishment of the RLF program and that most RLF Local Share is cash. • In addition, to consolidate all pre-disbursement and disbursement requirements into § 307.11, EDA is relocating the provisions regarding loan closing and disbursement schedules, as well as time schedule extensions, from § 307.16(a) and (b), respectively, to § 307.11 and redesignating them as § 307.11(g) and (h), respectively. EDA also makes non-substantive conforming changes to reflect defined terms and correct cross-references because of this reorganization. Specifically, EDA is replacing the phrase “initial RLF Capital Base” with “RLF Grant” in the final sentence of redesignated § 307.11(g)(1) to clarify the corpus of funds to which the lending schedule applies; replacing the cross-reference to “§ 307.16(b)” in redesignated § 307.11(g)(2)(iii) with a reference to “paragraph (h) of this section” to reflect the reorganization of these provisions; correcting a typo by replacing the plural “requests” with a singular “request” in the last sentence of redesignated § 307.11(h)(1); and dividing redesignated § 307.11(h)(2) into two sentences for clarity and emphasis. • EDA is renaming the title of § 307.12 to “Revolving Loan Fund Income requirements during the Revolving Phase; payments on defaulted and written off Revolving Loan Fund loans; Voluntarily Contributed Capital” to clarify that the provision describes certain requirements that apply during the Revolving Phase of the RLF and addresses other topics, rather than solely setting out RLF Income requirements. EDA has also added the introductory phrase “During the Revolving Phase,” to the first sentence of § 307.12(a). • EDA is revising § 307.12(a) to clarify that RLF Income earned in one fiscal year of the RLF Recipient must be used to cover administrative costs accrued during the same fiscal year, instead of the same six-month Reporting Period. Accordingly, in § 307.12(a)(1), EDA is replacing the word, “incurred” with “accrued,” and, in § 307.12(a)(1) and (2), EDA replaced the phrase “six-month Reporting Period” with the phrase “fiscal year of the RLF Recipient.” In § 307.12(a)(3), EDA replaces the phrase “Reporting Period” with “fiscal year”. In addition, EDA is making a non-substantive change in § 307.12(a)(1) to add the phrase “is earned” after “Such RLF Income” to clarify that RLF Income is earned by the RLF Recipient as opposed to administrative costs, which are incurred by the RLF Recipient. In addition, in § 307.12(a)(3), EDA replaces the phrase “RLF Capital base” with the proposed defined term “RLF Capital Base”. • EDA is replacing former § 307.12(a)(4), which required the submission of an RLF Income and Expense Statement ( i.e., Form ED-209I), with language that prohibits RLF Recipients from using funds in excess of RLF Income for administrative costs in a Recipient's fiscal year unless directed to do so by EDA, sets the expectation that administrative costs should be kept to a minimum, and states that the percentage of RLF Income used for administrative costs will be a measure under the Risk Analysis System. • In § 307.12(b), which outlines compliance guidance for charging costs against RLF Income, EDA makes revisions to reflect the promulgation of the Uniform Guidance. Specifically, in revised § 307.12(b)(1), EDA specifies that for RLF Grants made or recapitalized on or after December 26, 2014, the RLF Recipient must comply with the administrative and cost principles set out in 2 CFR part 200. Accordingly and in compliance with the Uniform Guidance, in revised § 307.12(b)(2), EDA specifies that for RLF Grants awarded before December 26, 2014, unless otherwise indicated in the terms of the Grant, the RLF Recipient must comply with the cost principles set out in 2 CFR parts 225 (for State, local, and Indian tribal governments); 230 (for non-profit organizations other than institutions of higher education, hospitals, and other organizations); or 220 (for educational institutions), as applicable. EDA is adding a new § 307.12(b)(3) to specify that regardless of when an RLF Grant was awarded or recapitalized, the audit requirements set out as subpart F to 2 CFR part 200 apply to audits of the RLF Recipient for fiscal years beginning on or after December 26, 2014, as does the Compliance Supplement, as appropriate. • In § 307.12(c), EDA makes minor adjustments to clarify that the prioritization of payments on RLF loans includes payments on both defaulted RLF loans and those that have been written off, adding the phrase “and written off” to the heading of § 307.12(c) and the first sentence of the provision between the word “defaulted” and the phrase “RLF loan”. In addition, EDA is updating the cross reference to “§ 307.21” to reflect the reorganization of the noncompliance provisions. • EDA is also adding new § 307.12(d) to introduce additional clarifying language regarding the treatment of the new defined term Voluntarily Contributed Capital. In addition to adding a definition to clarify the process for contributing such additional capital to an RLF and to explain how the additional capital is treated once added to the RLF Capital Base, EDA has also added a provision within the section on pre-disbursement and disbursement requirements to specify that when an RLF Recipient wishes to add additional capital to the RLF Capital Base, the Recipient must submit a written request that specifies the source of the funds to be added. Upon approval by EDA, the Voluntarily Contributed Capital becomes an irrevocable part of the RLF Capital Base and may not be subsequently withdrawn or separated from the RLF. • EDA is revising the RLF reporting requirements to specify that records for administrative expenses must be kept for three years from the submission date of the last report that covers the fiscal year in which the costs were recorded, rather than the last semi-annual report that covers the Reporting Period in which the costs were incurred. Therefore, in § 307.13(b)(2), EDA is deleting the phrase “last semi-annual” between the phrase “date of the” and the word “report” and replaced “Reporting Period” with “fiscal year”. In addition, EDA is revising § 307.13(a)(3) to specify that, consistent with the requirements of § 307.11(a), for the duration of RLF operations, Recipients must retain records to demonstrate the adequacy of the RLF's accounting system, that standard RLF loan documents are in place, and that sufficient fidelity bond coverage is maintained. In addition, the existing requirement to make records available for inspection is redesignated as new § 307.13(b)(2). • EDA is removing the stipulation that all RLF reports be submitted to EDA on a semi-annual basis, thereby permitting EDA to establish a reporting frequency (annual or semi-annual) based on the objective risk presented by a given RLF, and allowing EDA to more closely monitor RLF program performance and engage with RLF Recipients to identify and address existing and potential challenges. Accordingly, EDA is revising the title of § 307.14 to read “Revolving Loan Fund report” and in § 307.14(a), replacing the phrase “must complete and submit a semi-annual report in electronic format, unless EDA approves a paper submission” with “must complete and submit an RLF report, using Form ED-209 or any successor form, in a format and frequency as required by EDA.” • To improve the accuracy and quality of the information provided during the regular reporting process, EDA now requires that RLF Recipients certify as part of their regular reporting to EDA that the RLF is operating in accordance with their RLF Plan and that the information being provided is complete and accurate. As such, in § 307.14(b), EDA is removing the adjective “semi-annual” and added the phrase “and that the information provided is complete and accurate.” • EDA is deleting the second sentence of § 307.14(b) to clarify that proposals to modify RLF Plans cannot be made through the reporting process. Such modifications can only be done by separate notification to EDA as described in § 307.9(c). • As noted previously, because EDA no longer requires the submission of an RLF Income and Expense Statement, EDA is removing § 307.14(c) in its entirety. • EDA is clarifying the provision permitting the inclusion of a loan loss reserve in an RLF Recipient's financial statements, in accordance with generally accepted accounting principles (“GAAP”) to show the fair market value of an RLF loan portfolio, by adding a sentence to the end of § 307.15(a)(2) that clearly provides that loan loss reserves are non-cash entries only and shall not be used to reduce the nominal value of the RLF in the Schedule of Expenditures of Federal Awards. In addition, in the first sentence of § 307.15(a)(2), EDA replaces the phrase “fair market” with “adjusted current” to allow a loan loss reserve to be recorded as a non-cash entry to show the adjusted current value, which will more accurately reflect how RLF portfolios are valued. In addition, EDA is revising § 307.15(a)(1) to reflect the promulgation of the Uniform Guidance, replacing the reference to “in OMB Circular A-133” with “the audit requirements set out as subpart F to 2 CFR part 200” and, after the reference to the Compliance Supplement, adding the phrase “which is Appendix XI to 2 CFR part 200,” to help the reader locate the Supplement. • EDA is renaming § 307.15(c), which was re-lettered from § 307.15(d) to reflect the relocation of loan and accounting systems certification requirements to § 307.11(a). This paragraph is now named “RLF leveraging”. In addition, EDA is replacing the phrase “private investment” with “additional investment” in § 307.15(c)(1) and added new § 307.15(c)(1)(iv) to read “Loans from other State and local lending programs.” This addition will broaden RLF leveraging requirements to enable Recipients to use funds from State and local lending programs, in addition to the non-guaranteed portions and 90 percent of the guaranteed portions of Federal loan programs. • EDA has adopted a Risk Analysis System to evaluate and manage the performance of RLF Recipients to make the RLF program more effective and efficient. Such an approach will provide Recipients with a set of portfolio management and operations standards to evaluate their RLF program and improve performance. It will also provide EDA with an internal tool for assessing the risk of each Recipient's loan operations and identifying RLF Recipients that require additional monitoring, technical assistance, or other action. This approach to risk-based analysis and management is modeled on the Uniform Financial Institutions Rating System (the “CAMELS” rating system), used by regulators to assess financial institutions and to identify those in need of extra assistance or attention. The CAMELS system produces a composite rating by examining six components: Capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk. EDA intends to use factors that will likely include capital, assets, management, earnings, liquidity, strategic results, and financial controls, and to use the information and data currently required to be submitted by RLF Recipients in regular reporting to assign risk analysis ratings to each RLF. Scores will be assigned for each factor on a numerical scale of one to three, with three being the highest score. The scores will be totaled to determine each RLF Recipient's classification as A, B, or C, with an A classification reserved for the highest performers, B identifying those who are generally managing their program well but who may need some assistance on one or more areas, and C characterizing those Recipients that face serious challenges with their programs and require significant improvement. Recipients categorized as B or C will generally be given a reasonable amount of time to become compliant with the relevant requirements and improve their score. However, persistent noncompliance may result in EDA undertaking appropriate compliance actions, including requiring a corrective action plan, disallowing Grant funds, or suspending or terminating the RLF Grant. EDA has issued a separate Federal Register Notice concurrently with this final rule seeking comment on the set of performance measures that EDA is proposing to use for the initial round of scoring under the Risk Analysis System. • To implement this transition, EDA is replacing EDA's current management scheme, which consists primarily of the capital utilization standard (see additional details on changes to this standard below) and monitoring loan default rates, with the Risk Analysis System. Accordingly, EDA is completely revising § 307.16 to name it “Risk Analysis System” and incorporates a description of the Risk Analysis System in paragraph (a) and its compliance framework in paragraph (b). As noted above, the final rule is relocating former paragraphs (a) and (b) of § 307.16, which sets out requirements for loan closing and disbursement schedules and time schedule extensions, respectively, as paragraphs (g) and (h) to § 307.11. EDA also removes paragraphs (c) and (d) of the former § 307.16, which outlines the capital utilization standard and EDA's system for monitoring loan default rates, respectively, in order to incorporate the new concept of Allowable Cash Percentage (explained more fully below in the discussion of changes made to § 307.17). • EDA is revising the title of § 307.17 to read “Requirements for Revolving Loan Fund Cash Available for Lending” and is replacing the term RLF Capital with the newly defined term RLF Cash Available for Lending in the first sentence of § 307.17(a) and the heading and first sentence of paragraph (c) and paragraph (c)(6)(ii) of § 307.17. In addition, EDA adds the phrase “shall be deposited and held in an interest-bearing account by the Recipient and” following “RLF Cash Available for Lending shall be” in the first sentence of § 307.17(a) to clarify how RLF Recipients must maintain RLF Cash Available for Lending. • In addition, EDA is inserting the requirements for Allowable Cash Percentage in new § 307.17(b) and is re-lettering former § 307.17(b), which has been revised to lay out restrictions on RLF Cash Available for Lending, as § 307.17(c). Through this change, EDA is adopting the concept of an Allowable Cash Percentage, which will be a component of the Risk Analysis System, to replace the capital utilization standard, which previously required Recipients to manage their lending and repayment schedules so that at all times at least 75 percent of their RLF Capital is loaned or committed. The Allowable Cash Percentage reflects EDA's approach to address the fact that different regions face very different economic and access to capital conditions and that a one-size-fits-all capital utilization standard can be difficult for RLF Recipients to meet and for EDA to implement. Each year, each EDA Regional Office will calculate the average percentage of RLF Cash Available for Lending across their RLF portfolio and will notify RLF Recipients by January 1 of each year of the Allowable Cash Percentage to be used during the Recipient's ensuing fiscal year. RLF Recipients will be required to manage their repayment and lending schedules to provide that at all times, their amount of RLF Cash Available for Lending does not exceed the Allowable Cash Percentage. Whereas noncompliance with the capital utilization standard frequently triggered automatic sequestration, with the more flexible Allowable Cash Percentage approach and the adoption of a Risk Analysis System, EDA will no longer require automatic sequestration of what is currently referred to as “excess funds,” the difference between the actual percentage of RLF Capital loaned and the capital utilization standard. Instead, sequestration will be considered as one of a range of possible tools used to ensure compliance with the terms of the RLF Grant. • In § 307.17(c), EDA has added language clearly stating that RLF Cash Available for Lending may not be used to: (1) Serve as collateral to obtain credit or any other type of financing without EDA's prior written approval; (2) support operations or administration of the RLF Recipient; or (3) undertake any activity that would violate the requirements found in 13 CFR part 314, including § 314.3 ( “Authorized Use of Property” ) and § 314.4 ( “Unauthorized Use of Property” ). These requirements are being added as new paragraphs (c)(7), (8), and (9) to § 307.17. • EDA is making minor clarifying changes to the list of transactions for which RLF Cash Available for Lending may not be used. Specifically, in redesignated § 307.17(c)(3), EDA replaces the sentence “Provide for borrowers' required equity contributions under other Federal Agencies' loan programs” with “Provide a loan to a borrower for the purpose of meeting the requirements of equity contributions under another Federal Agency's loan program”. In addition, in the second sentence of redesignated § 307.17(c)(6)(ii), EDA replaces the phrase “RLF Capital” with “RLF funds” and the phrase “reasonable period of time, as determined by EDA” with “reasonable time frame approved by EDA”. As noted above, former § 307.17(d) is now removed so all provisions regarding In-Kind Contributions are located in § 307.11(f). • EDA has removed former paragraph (e) in § 307.17, which provided for compliance and loan quality reviews by independent third parties. This provision was deemed unnecessary as this type of review could be accomplished through other mechanisms already available. • EDA is clarifying that it can approve changes to a Lending Area at the request of an RLF Recipient by adding language to specify that an approved Lending Area remains in place until EDA approves a subsequent request for a New Lending Area. In § 307.18(a)(2), EDA added the introductory phrase “Following EDA approval,” and replaced the concluding phrase “shall remain in place indefinitely following EDA approval” with “shall remain in place until EDA approves a subsequent request for a New Lending Area”. • EDA has also made revisions to distinguish between the addition of lending areas and mergers of RLFs. EDA is removing the word, “merged,” from the discussion of additional lending areas in the second sentence of § 307.18(a)(1) to clarify that merging RLFs and adding lending areas are two different transactions. EDA is also clarifying the terminology in § 307.18(b)(1) used to describe a consolidated RLF by replacing the word “surviving” with the word “combined”. This change is designed to make clearer the distinction between consolidations, which involve a single RLF Recipient, and mergers, which involve multiple RLF Recipients. • For clarity, EDA has reorganized the compliance regulations by separating them into one section describing what actions are considered noncompliance (new § 307.20 with the title “Noncompliance” ) and another section listing remedies for noncompliance (new § 307.21 with the title “Remedies for noncompliance” ). This reorganization is designed to help all RLF stakeholders understand problematic practices and appropriate remedies. • EDA also revised the list of problematic practices that could result in disallowances of a portion of an RLF. EDA has removed the following from this list to reflect their incorporation into the Risk Analysis System: (1) Having RLF loans that are more than 120 days delinquent; and (2) having excess cash sequestered for 12 months or longer without an EDA-approved extension request. Despite being removed from the list of practices that could result in a disallowance, EDA will continue to monitor loan delinquency through the Risk Analysis System and by reviewing the procedures for dealing with delinquent loans as set out in each RLF Recipient's RLF Plan. With regards to excess sequestered cash, as discussed above, the automatic sequestration of funds is now being addressed by the Risk Analysis System and the use of an Allowable Cash Percentage. However, EDA does reserve the right to take appropriate compliance action (including requiring sequestration) if an RLF Recipient holds RLF Cash Available for Lending so that it is 50 percent or more of the RLF Capital Base without an EDA-approved extension request. • EDA has also clarified the provision regarding a Recipient's duty to compensate the Federal Government for the Federal Share of the RLF Grant in the event that the Recipient requests termination of the Grant (§ 307.21(d)). EDA revised this regulation to make it clearer that the Recipient must compensate for the Federal share of the RLF Capital Base, including the monetary value of all outstanding loan principal. • EDA has also removed the provision that required Recipients, after termination of an RLF Grant, to seek EDA approval to retain and use for other economic development activities the RLF Recipients' share of RLF Income generated by the RLF. By removing this provision, EDA is clarifying that Recipients do not need to seek EDA approval to use their share of funds returned to them following termination of an RLF. Part 308—Performance Incentives EDA is making no changes to part 308. Part 309—Redistributions of Investment Assistance EDA has made several revisions to part 309, which sets forth EDA's policies regarding redistributing grant funds in the form of subgrants, loans, or other appropriate assistance. In both §§ 309.1 and 309.2, EDA clarifies EDA's practice of requiring the Eligible Recipient under the original award to comply with special award conditions and any Subrecipient (in accordance with the newly defined term at § 300.3) to provide appropriate certifications of compliance with relevant legal requirements. Accordingly, EDA has added the sentence “EDA may require the Eligible Recipient under the original Investment award to agree to special award conditions and the Subrecipient to provide appropriate certifications to ensure the Subrecipient's compliance with legal requirements” to §§ 309.1(a) and 309.2(b). In addition, EDA has added language to refer to the newly defined term Subrecipient in § 300.3 by adding the phrase “, generally referred to as a Subrecipient,” to the first sentence of § 309.1(a) and § 309.2(a)(1). Part 310—Special Impact Areas EDA is making no changes to part 310. Parts 311 and 312—[Reserved] Part 313—Community Trade Adjustment Assistance EDA is making no revisions to part 313. Part 314—Property EDA is making revisions to multiple provisions in part 314 to clarify terminology and its authority to release the Federal Interest 20 years after the date of the award of Investment Assistance. The changes are, as set out in the NPRM, as follows: • For clarity and to conform to the changes made to the RLF program, EDA is adding a phrase to clarify that Personal Property includes the RLF Capital Base, adding the phrase “, including the RLF Capital Base as defined at § 307.8” to the definition of Personal Property set out at § 314.1. • In addition, for clarity and to avoid repetitive language throughout part 314, EDA has added a definition of Project Property to read as set out in the regulatory text below. • In addition, EDA has simplified the definition of Real Property to clarify that, in the context of part 314 and for the purposes of EDA Investment Assistance, Real Property may include Property that is served by the construction of Project infrastructure, where such infrastructure is not located on or under the Property. Accordingly, EDA is replacing the word “improved” in the second sentence of the definition with the word “served” and removing the phrase “that are not situated on or under the land”. EDA has also put the exemplar list of infrastructure projects “such as roads, sewer, and water lines” in parentheses and removed the phrase “, but not limited to” from the exemplar list because it is unnecessary. Removing “but not limited to” is not substantive and does not make the list exclusive. • In § 314.2 ( “Federal Interest” ), EDA is adding a sentence to the beginning of paragraph (a) to set out the general expectation that title to Project Property vests upon acquisition with the Recipient. In addition, in the now second sentence of § 314.2(a), EDA is replacing the phrase “Property that is acquired or improved, in whole or in part, with Investment Assistance” with the newly defined term Project Property. For clarity, EDA has split the sentence regarding the purpose of the Federal Interest and how it is secured into two sentences and replace the word “secures” in the now third sentence with the word “ensures” and also add the phrase “EDA Project requirements, including those related to” between “ensures compliance with” and “the purpose, scope, and use of a Project”. With respect to the method by which Recipients must secure the Federal Interest, EDA has replaced the phrase “and is often reflected by” with the phrase “The Recipient typically must secure the Federal Interest through”. • In § 314.2(b), EDA replaces the phrase “Property acquired or improved, in whole or in part, with Investment Assistance” with the newly defined term Project Property. In addition, to highlight that nondiscrimination requirements continue to apply even if the Federal Government is compensated for the Federal Share, EDA has added the phrase “except as provided in § 314.10(e)(3) regarding nondiscrimination requirements” to the end of § 314.2(b). • In § 314.3 ( “Authorized Use of Property” ), EDA has revised the title of the regulation to read “Authorized Use of Project Property” to reflect the newly defined term Project Property. EDA has also divided former paragraph (e), which addresses requirements for replacement Personal Property and Real Property, into two separate paragraphs that address the requirements of the different types of Property. Accordingly, EDA has moved the sentence that addresses replacement Real Property that was formerly the final sentence of § 314.3(e) into new § 314.3(f) and redesignated the regulation accordingly, redesignating current § 314.3(f) as new § 314.3(g). In addition, EDA has added paragraph headings to help the reader better navigate the section and find information more quickly. Accordingly, EDA added the heading “General” to § 314.3(a), “Project Property that is no longer needed for Project purposes” to § 314.3(b), “Real Property for sale or lease” to § 314.3(c), “Property transfers and Successor Recipients” to § 314.3(d), “Replacement Personal Property” to § 314.3(e), “Replacement Real Property” to § 314.3(f), and “Incidental use of Project Property” to § 314.3(g). • In both § 314.3(a) and (b), EDA has replaced the phrase “Property acquired or improved, in whole or in part, with Investment Assistance” with the newly defined term “Project Property” and in the first sentence of both § 314.3(d) and (g), EDA added the word “Project” before “Property” to incorporate the newly defined term “Project Property.” Finally, in § 314.3(g), which addresses under what circumstances EDA can approve an incidental use of Project Property, EDA has added the phrase “undermine the economic purpose for which the Investment was made” between “otherwise” and “or adversely” to clarify that in addition to not adversely affecting the economic useful life of the Property, an approved incidental use of Project Property must not undermine the purpose of the Investment. • In § 314.4 ( “Unauthorized Use of Property” ), EDA has revised the title of the regulation to read “Unauthorized Use of Project Property” to reflect the newly defined term “Project Property”. In addition, EDA has added paragraph headings to help the reader navigate the regulation, adding the heading “Compensation of Federal Share upon an Unauthorized Use of Project Property” to § 314.4(a), “Additional Unauthorized Uses of Project Property” to § 314.4(b), and “Recovery of the Federal Share” to § 314.4(c). In § 314.4(a), EDA has made minor clarifying changes, specifically replacing “EDA's interest” with “the Federal Interest”, capitalizing the word “Government” as used in the term “Federal Government”, replacing “Property acquired or improved in whole or in part with Investment Assistance” with the newly defined term “Project Property”, and replacing a reference to 15 CFR part 14 or 24 with “2 CFR part 200”. EDA has made similar clarifying changes to § 314.4(b), replacing “EDA's interest” with “the Federal Interest” and “Real Property or tangible personal property acquired or improved with EDA Investment Assistance” with the phrase “Project Real Property or tangible Project Personal Property”. Finally, in § 314.4(c), in the first sentence EDA is adding the word “Project” before two instances of the word “Property”, replacing “its interest” with “the Federal Interest”, and capitalizing the word “Government” in “Federal Government”. In the final sentence of the paragraph, EDA has capitalized “Government” in “Federal Government” and added a reference to the ongoing requirement that Project Property not be used in violation of nondiscrimination requirements even after the compensation of the Federal Share by adding the phrase “, except for the nondiscrimination requirements set forth in § 314.10(d)(3)” to the end of the paragraph. • Section 314.5 ( “Federal Share” ) addresses the portion of Project Property attributable to EDA's Investment Assistance. In § 314.5(a), EDA has added two new sentences to explain EDA's usual practice of relying on a certified appraisal prepared by a licensed appraiser to determine the fair market value of Project Property and has also provided that in certain extraordinary circumstances, and at the agency's sole discretion, EDA may rely on an alternative method to determine the fair market value, such as the amount of the award of Investment Assistance, the amount paid by a transferee, or tax assessments. EDA recognizes that in certain, very unusual circumstances, such as when Property is located in an extremely remote location or, for whatever reasons, there are no buyers for similar Property, it may be impossible or cost prohibitive to obtain a certified appraisal and wanted to provide for this situation. Therefore, EDA has added the following sentences to the paragraph: “EDA may rely on a current certified appraisal of the Project Property prepared by an appraiser licensed in the State where the Project Property is located to determine the fair market value. In extraordinary circumstances and at EDA's sole discretion, where EDA is unable to determine the current fair market value, EDA may use other methods of determining the value of Project Property, including the amount of the award of Investment Assistance or the amount paid by a transferee.” In addition, EDA has added the word “Project” before “Property” in the first sentence of the paragraph and the phrase “or other valuation as determined by EDA” between “fair market value” and “of the Property” in the final sentence of the paragraph. • In § 314.6 ( “Encumbrances” ), EDA has revised paragraph (a) to replace the phrase “Recipient-owned Property acquired or improved in whole or improved in whole or in part with Investment Assistance” with the newly defined term “Project Property”. In addition, in the exception that permits encumbrances only to secure a grant or loan made by a governmental body, EDA has added the phrase “so long as the Recipient discloses such an encumbrance in writing as part of its application for Investment Assistance or as soon as practicable after learning of the encumbrance” to reflect the requirement that the Recipient expeditiously disclose any such encumbrance to EDA. In § 314.6(b)(3) on pre-existing encumbrances, EDA has added the phrase “and disclosed to EDA” between “in place” and “at the time” to underscore that the Recipient must disclose pre-existing encumbrances to EDA and added “, in its sole discretion,” to underscore that the approval of pre-existing encumbrances is at EDA's discretion. In addition, because pre-existing encumbrances pose the same risks to Project Property as other types of encumbrances, EDA has revised § 314.6(b)(3) to incorporate certain requirements from the subparagraphs setting out requirements for encumbrances proposed both proximate to and after Project approval: Namely, that for EDA to approve a pre-existing encumbrance, in addition to the requirement that EDA determine that the requirements of § 314.7(b) are met, EDA must also determine that the terms and conditions of the encumbrance are satisfactory and that there is a reasonable expectation that the Recipient will not default on its obligations. EDA renumbered these three requirements as § 314.6(b)(3)(i), (ii), and (iii), respectively. • EDA is making minor stylistic changes to § 314.6(b)(4)(v)(B) and (b)(5)(v)(B) to add the phrase “A Recipient that is a” to the beginning of the subparagraph to maintain the parallel nature of the list. In addition, in § 314.5(c), EDA has replaced the phrase “Recipient-owned Property” with “Project Property”. As specified in the government-wide grant regulations set out at 2 CFR part 200 and noted in the proposed revisions to § 314.2(a), Project Property generally vests upon acquisition in the Recipient, and so the adjective “Recipient-owned” is unnecessary. • In § 314.7 (“ Title ”), EDA has added language to paragraph (a) to highlight that certain limited exceptions apply to the title requirement, make the provision more readable, and refer directly to the definition of Real Property set out in § 314.1. As such, EDA is adding the introductory phrase “Except in those limited circumstances identified in paragraph (c) of this section” to the first sentence. In addition, EDA has relocated the temporal requirement of when title must be obtained to the beginning of the sentence by adding “, at the time Investment Assistance is awarded” between “in paragraph (c) of this section” and “the Recipient”. For clarity with respect to EDA's requirements, EDA is including a reference to the definition of Real Property in § 314.1 to the first sentence of the paragraph. EDA has also broken into a separate sentence the requirement that the Recipient maintain title at all times during the Estimated Useful Life of the Project, which EDA is placing as the second sentence of the paragraph. EDA has replaced the phrase “Real Property required for a project” with the defined term “Project Real Property” in both the first and third sentences of § 314.7(a). • Throughout paragraph (c) of § 314.7, which outlines the exceptions to EDA's title requirement, EDA has replaced the phrase “the Real Property required for a Project” with “Project Real Property”. EDA has added the clause “at the time Investment Assistance is awarded and at all times during the Estimated Useful Life of the Project” to the introductory sentence at § 314.7(c), added “Project” before “Real Property” twice in § 314.7(c)(1), and capitalized “Government” in “Federal Government” in § 314.7(c)(1)(ii). In § 314.7(c)(4), which clarifies the exception for the title requirement when a Project includes construction on government-owned roads, EDA has made additional non-substantive changes to replace the phrase “public highway” with the more descriptive “State or local government owned roadway or highway” in the heading, first sentence of § 314.7(c)(4), and first clause of § 314.7(c)(4)(ii)(B). To avoid excessive wordiness, EDA has maintained the phrase “public highway” where it exists in the remainder of the provision, but revise it to read “public roadway or highway” and note that the exception in this provision is intended to apply to State or local government owned roadways or highways. • In § 314.7(c)(5)(i), which sets out EDA's requirements when the purpose of a Project is to construct facilities to serve Recipient or privately owned Real Property, EDA is making clarifying syntax changes to revise the phrase “Real Property, including industrial or commercial parks, for sale or lease” to read “Project Real Property, including industrial or commercial parks, so that the Recipient or Owner may sell or lease”. In paragraph (c)(5)(i)(A), EDA is replacing the phrase “required for such Project” with the clarifying phrase “intended for sale or lease” and has added a cross-reference to the appropriate title requirements by adding the phrase “in accordance with paragraphs (c)(5)(i)(C) through (E) of this section” to the end of the paragraph. In paragraph (c)(5)(i)(B), EDA has replaced “required for such Project” with “intended for lease”, and in paragraph (c)(5)(iii) EDA has capitalized “Owner”. • Section 314.8 (“ Recorded Statement for Project Real Property ”) sets out requirements for recording the Federal Interest in Project Real Property. Throughout the provision, EDA has replaced three instances of “EDA's interest” with “the Federal Interest” and use the defined term “Project Real Property” as appropriate, including using the term in the heading of the section and replacing “the Property acquired or improved in whole or in part with the EDA Invest Assistance” in paragraph (a), “Real Property” in paragraph (b), and “Project Property” in paragraph (d). • In § 314.9 (“ Recorded statement for Personal Property ”), EDA is revising the provision to clarify that the recorded statement, which is generally a Uniform Commercial Code Financing Statement (“Form UCC-1”), provides notice of the Federal Interest in Project Personal Property, but does not create a lien on the Property by inserting the phrase “provide notice of the Federal Interest in all Project Personal Property by executing” between “the Recipient shall” and “a Uniform Commercial Code Financing Statement” in the first sentence of the provision. In addition, EDA uses the term “Project Personal Property” appropriately throughout the provision, including in the title to the section, inserting “Project” before the phrase “Personal Property, acceptable in form and substance to EDA” in the first sentence of the section, and replacing “Personal Property acquired or improved as part of the Project” with “all Project Personal Property” in the second sentence of the section, and replacing “EDA's interest” with “the Federal Interest” in the first sentence to the regulation. • Section 314.10 (“ Release of EDA's Property Interest ”) describes EDA's procedures for releasing the agency's interest in Project Property. EDA is replacing the term “EDA's Property Interest” with “the Federal Interest” in the titles of both subpart D and § 314.10 and throughout § 314.10 for clarity and consistency. This change does not implicate any substantive change to the Federal Government's undivided equitable reversionary interest in award property, but is intended to ensure consistency within EDA's own regulations as well as with 2 CFR part 200. In addition, in § 314.10(a), EDA is replacing the phrase “Property acquired or improved with Investment Assistance” with “Project Property” for consistency with the proposed defined term at § 314.1 and its usage throughout part 314. In addition, EDA has removed the portions of paragr [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2017-25277. Public record. Not legal advice.