Rural Economic Development Loan and Grant Program

DEPARTMENT OF AGRICULTURE

Rural Electrification Administration

7 CFR Part 1703

Rural Economic Development Loan and Grant Program

AGENCY: Rural Electrification Administration, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Electrification Administration (REA) is proposing to

amend its recently published rule for the Rural Economic Development

Loan and Grant Program by adding a new provision to the selection of

projects to be funded under the existing rule. The new provision will

enhance the potential of funding for applications from areas that: Were

recently designated by the President as natural disaster areas; have

experienced severe economic dislocation due to the loss, removal, or

closing of a major source of employment; have experienced long-term and

severe economic deterioration, demonstrated by severe unemployment or a

high percentage of population out-migration; and have been designated

as a Rural Empowerment Zone or Rural Enterprise Community.

DATES: Written comments must be received by REA or carry a postmark or

equivalent no later than August 29, 1994.

ADDRESSES: Submit an original and three copies of all written comments

to Blaine D. Stockton, Jr., Assistant Administrator, Economic

Development and Technical Services, Rural Electrification

Administration, Room 4025, South Building, U.S. Department of

Agriculture, 14th and Independence Avenue SW., Washington, DC 20250-

1500 (7 CFR part 1700). The public may inspect written comments on this

proposed rule in room 4025 of the South Building between 8:30 a.m. and

5 p.m. on official workdays (7 CFR 1.27(b)).

FOR FURTHER INFORMATION CONTACT: Blaine D. Stockton, Jr., Assistant

Administrator, Economic Development and Technical Services, Rural

Electrification Administration, telephone number (202) 720-9552.

SUPPLEMENTARY INFORMATION: This proposed rule has been determined to be

not significant for purposes of Executive Order 12866 and therefore has

not been reviewed by the Office of Management and Budget. This proposed

rule has been reviewed under Executive Order 12778, Civil Justice

Reform. This proposed rule: (1) Will not preempt any State or local

laws, regulations, or policies; (2) Will not have any retroactive

effect; and (3) Will not require administrative proceedings before

parties may file suit challenging the provisions of this rule.

In compliance with the Regulatory Flexibility Act, the

Administrator certifies that this action would not have a significant

economic impact on a substantial number of small entities as defined in

the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Based on current

and historical funding levels for this program and a projected average

size loan and/or grant in the range of $300,000 to $400,000, it is

estimated that 50 to 60 loans and/or grants will be made nationwide

each year under the existing rule. Applicants whose rural development

projects are enhanced by this action are projected to be less numerous,

and therefore, the proposed rule will have a limited impact upon small

businesses. Since credit will be channeled to areas which are generally

underdeveloped and financially depressed, job creation and economic

development resulting from newly emerging businesses and community

facilities funded by REA will not pose undue competition or other

adverse effects upon existing businesses. Therefore, this proposed rule

will have no effect upon businesses or entities other than those to be

funded through this program.

In compliance with the Office of Management and Budget (OMB)

regulations (5 CFR part 1320) implementing the Paperwork Reduction Act

of 1980 (Pub. L. 96-511) and section 3504 of that Act, the information

collection and recordkeeping requirements contained in this proposed

rule have been approved by OMB under control number 0572-0090.

Comments concerning these requirements should be directed to the

Office of Information and Regulatory Affairs of OMB, Attention: Desk

Officer for USDA, room 3201, NEOB, Washington, DC 20503.

The Administrator has determined that this proposed rule will not

significantly affect the quality of the human environment as defined by

the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq).

Therefore, this action does not require an environmental impact

statement or assessment.

The program is subject to the provisions of Executive Order 12372,

which requires intergovernmental consultation with State and local

officials, with the exception of applications for Project Feasibility

Studies.

This program is listed in the Catalog of Federal Domestic

Assistance under No. 10.854, Rural Economic Development Loans and

Grants. This catalog is available on a subscription basis from the

Superintendent of Documents, United States Government Printing Office,

Washington, DC 20402-9325.

Background

REA published a final rule amending the Rural Economic Development

Loan and Grant Program on March 14, 1994, (59 FR 11702) establishing

procedures to approve and administer grants and grants in conjunction

with zero-interest loans. REA is proposing this action to enhance the

funding potential of Rural Economic Development Loan and Grant

applications from economically devastated areas. REA intends to

encourage applications from those rural communities where an acute need

for economic development assistance is shown. The Administrator will

have the discretion to designate special economic status under the

Rural Economic Development Loan and Grant Program selection factors,

adding up to 25 points to an applicant's score if at least one of the

four following conditions exists in one or more county(ies) to be

served by the proposed project.

The first condition involves the designation of an area by the

President of the United States as a natural disaster area. REA

recognizes the crucial role of economic development organizations in

rebuilding communities devastated by natural disasters. This proposed

amendment would increase the possibility of selection of loans and

grants from areas so designated by the President.

The second condition is marked by economic dislocation, where the

loss, removal, or closing of a major source or sources of employment in

the most recent 3-year period has caused an increase of 2 percentage

points or more in the area's unemployment rate compared with the period

immediately before the dislocation. REA wishes to assist rural

communities where the loss of a major employer(s) has caused an

increase of 2 percentage points or more in the area's unemployment rate

in the most recent 3-year period, including areas which have

experienced military base closings due to U.S. Department of Defense

budget cuts. REA also wishes to assist rural communities where there

has been an increase of 2 percentage points or more in the area's

unemployment rate in the most recent 3-year period as a result of

Federal regulatory restrictions, including logging curtailment due to

environmental restrictions of the U.S. Forest Service. REA has proposed

the 2-percent rise in unemployment threshold and the 3-year time span

based on criteria as currently utilized by the U.S. Department of

Commerce Economic Development Administration (EDA) in its designation

of redevelopment areas (13 CFR 302.5).

The third condition is a state of chronic or long-term economic

deterioration, marked by severe unemployment and out-migration. REA

wants to make rural development resources more accessible to

communities which have experienced long-term economic decline; thus, it

has consulted with the USDA Economic Research Service (ERS) to

determine the appropriate criteria for chronic or long-term economic

deterioration. To receive special economic status under the third

condition, applicants must document that local unemployment has been

equal to or over 1.5 times the national average during 4 out of the

most recent 5 years. The applicant, when calculating recent years'

unemployment percentages, should compare county statistics with the

national average unemployment for the corresponding year. For example,

if the applicant provides unemployment statistics for 1989,

calculations must compare the county's 1989 unemployment with the

national average for 1989, and the 1990 county unemployment statistics

with the National average for 1990, etc. REA believes that using

unemployment statistics for 4 out of the 5 most recent years

sufficiently documents a sustained or long-term unemployment problem.

However, REA is aware that unemployment statistics alone do not

provide a complete picture of the severity of economic deterioration.

In areas where unemployed persons tend to migrate from, loss of

population statistics are more accurate in determining long-term

economic deterioration. Therefore, as an alternative to indicate

special economic status, the applicant must show a 15% loss of

population due to out-migration over the most recent 10-year decennial

census. For example, borrowers applying during the year of the

publication of this rule seeking special economic status under this

condition would compare the 1980 Census to the 1990 Census in order to

establish that a 15% loss of population has occurred. A threshold of

15% population loss over 10-year period is indicative of a local

economic situation which is acutely severe. Further, by taking into

consideration both unemployment and out-migration, as proposed in this

rule, a reasonable percentage of rural areas suffering from conditions

of severe economic stagnation will be eligible for special economic

status. County and National unemployment statistics will be based on

those of the Bureau of Labor Statistics. Information showing the loss

of population due to out-migration over the most recent 10-year

decennial census will be based on the U.S. Bureau of the Census data.

The fourth condition involves the designation of an area as a Rural

Empowerment Zone or Rural Enterprise Community under the Empowerment

Zone Program, the provisions of which were published at 59 FR 2686

(January 18, 1994) (to be codified at 7 CFR part 25) implementing

Section 13301 of the Omnibus Reconciliation Act of 1993, Public Law

103-66, 26 U.S.C. 1391-1393. To coordinate rural development efforts

with the Empowerment Zone Program, REA is proposing to give special

economic status under the Rural Economic Development Loan and Grant

Program to those areas designated as Rural Empowerment Zones or Rural

Enterprise Communities. This provision will parallel efforts of other

agencies in the Department of Agriculture in the Empowerment Zone

Program and serve to increase rural development opportunities in those

areas so designated.

As a result of this proposed rule, REA encourages its borrowers to

bring REA rural economic development resources to bear upon communities

afflicted with the above economic conditions, utilizing zero-interest

loans and grants and revolving loan funds to secure needed community

infrastructure and/or to stimulate local economic development.

Finally, three changes are proposed to clarify the final rule which

was published March 14, 1994, amending the Rural Economic Development

Loan and Grant Program. The final rule established procedures for

administering grants and made several revisions with regard to eligible

purposes for loan and grant funding. This proposed rule modifies the

existing regulation in three areas as follows.

First, this proposed rule reinstates the prohibition on funding

community antenna television systems or facilities which was in effect

prior to March 14, 1994, and eliminated by the March 14, 1994, final

rule. In eliminating the prohibition, it was not REA's intent to fund

projects solely for the purpose of establishing cable television

entities to compete with existing cable television providers. Rather,

the prohibition was lifted to allow REA flexibility to fund projects

that provide a clear economic benefit to distressed rural areas, with

an emphasis toward programming to provide specific educational and/or

medical services. REA has received a number of inquiries regarding

innovative proposals to transmit educational and medical programming in

conjunction with wireless cable television services. For economically

depressed areas with limited resources to maintain a system dedicated

solely to educational and/or medical programming, a joint venture fully

utilizing the transmitting capacity of community antenna television

systems is a novel approach to providing needed distance educational

and/or medical services, while providing economic development in areas

without a cable television carrier.

Accordingly, REA proposes through this proposed rule to revise

Sec. 1703.20, Ineligible uses of zero-interest loans and grants, to

reinstate the prohibition on funding community antenna television

systems or facilities. However, Sec. 1703.17(d) of this proposed rule

will provide the Administrator the discretion to fund community antenna

television systems or facilities for select projects which meet all of

the following criteria: (1) The proposed community antenna television

system or facility is established in cooperation with a local

educational and/or medical entity or entities to provide educational

and/or medical programming which addresses specific needs of rural

residents; (2) services to be provided by the proposed community

antenna television systems or facilities are not available in the area

to be served, or services are not being provided by the existing

television programming carrier at an affordable cost to residents; and,

(3) such community antenna systems or facilities will not present undue

competition for existing television programming carriers in the area.

The proposed rule requires the Borrower to clearly document the

economic benefit to the proposed area to be served in accordance with

the existing regulation, and meet the above three tests as provided in

the proposed rule. Notwithstanding this, however, the Administrator

will reserve the right to deny any application which proposes cable

television and, in the Administrator's judgment, does not meet the

three regulatory tests in the proposed rule.

Second, REA proposes to revise the provisions for disbursement of

grant funds to REA borrowers under the revolving loan provisions. The

final rule published on March 14, 1994, Sec. 1703.22(e), requires funds

to be disbursed on a reimbursement basis. This disbursement provision

requires REA Borrowers to fund projects using their own funds and

request reimbursement from REA. REA believes this provision minimizes

grant processing and disbursement time to comply with departmental

regulations covering administration of grant funds, and it minimizes

the possibility for unintended uses of grant funds. REA believes this

disbursement provision should be the primary method of disbursement:

thus it will be maintained as the general method for grant fund

disbursement under the grant provisions for revolving loan funds. Based

on the lack of comments on the disbursement provisions from REA

Borrowers pertaining to the March 14 final rule, REA believes that most

Borrowers have the financial resources to initially fund projects under

the reimbursement method.

However, in some cases, borrowers with limited financial resources,

or for other extraordinary reasons, may be unable to fund projects

using their own resources under the reimbursement method. Under these

circumstances, borrowers with limited resources in needy areas could be

precluded from participating in the grant program to establish

revolving loan funds. Therefore, REA proposes to revise

Sec. 1703.22(e), to allow the Administrator to authorize disbursement

under a special reimbursement method. Under this method, a Borrower may

provide REA invoices from project owners and, if authorized as an

approved purpose for grant fund disbursement, REA may disburse grant

funds to the Borrower for immediate release to the project owner. Under

this method, grant funds may be requisitioned at any time; however, the

minimum grant requisition will be $50,000 or the total amount of the

revolving fund, whichever is less.

Borrowers desiring to use this method should be cautioned however,

that invoices from contractors or other entities performing contract

services for project owners generally request payment within 30 days.

Although REA will diligently strive to process payment within 30 days

of requisition, REA encourages Borrowers to notify project owners of

possible delays in processing disbursement requests. Because of the

additional administrative requirements this special disbursement method

may impose upon REA and the possible inconvenience to project owners

and entities performing services, REA desires to use this special

disbursement method only under extraordinary circumstances.

Third, REA proposes to revise the definition of ``Rural economic

development'' which was added in the final rule published March 14,

1994. This definition, currently worded as ``job creation or

preservation or community facilities improvement projects in rural

areas (underline, emphasis added)'', serves the intended purpose of

defining a broad category of projects which may be funded by REA

Borrowers using non-Federal revolving loan funds. However, REA's

definition of a rural area is based on the statutory definition set

forth in section 13 of the Rural Electrification (RE) Act. A rural area

is defined as not including an urban area as defined by the Bureau of

the Census. An urban area is defined as ``1. Places of 2,500 or more

persons incorporated as cities, villages, boroughs (except in Alaska

and New York), and towns (except in the six New England States, New

York, and Wisconsin), but excluding the rural portions of `extended

cities.' 2. Census designated places of 2,500 or more persons. 3. Other

territory, incorporated or unincorporated, included in urbanized

areas.'' The definition may unduly restrict funding of rural

development projects to those physically located in rural areas rather

than those projects which benefit rural areas in accordance with the

purpose and policy of the rural economic development loan and grant

program set forth in Secs. 1703.10 and 1703.11.

Therefore, to clarify REA's intent in defining rural economic

development and restore flexibility in funding projects in accordance

with the established history and procedures of the rural economic

development loan and grant program, the definition of ``Rural economic

development'' in Sec. 1703.12 has been changed to read: ``job creation

or preservation or community facilities improvement projects that

clearly demonstrate significant benefits to rural areas.

List of Subjects in 7 CFR Part 1703

Community development, Grant programs--housing and community

development, Loan programs--housing and community development,

Reporting and recordkeeping requirements, Rural areas.

For the reasons set out in the preamble, chapter XVII of title 7 of

the Code of Federal Regulations is proposed to be amended as follows:

PART 1703--RURAL DEVELOPMENT

1. The authority citation for 7 CFR part 1703 continues to read as

follows:

Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.

Subpart B--Rural Economic Development Loan and Grant Program

2. In Sec. 1703.12 of this subpart B, the following definition is

revised to read as follows:

Sec. 1703.12 Definitions.

* * * * *

Rural economic development--job creation or preservation or

community facilities improvement projects that clearly demonstrate

significant benefits to rural areas.

* * * * *

3. In Sec. 1703.17, paragraph (d) is added to read as follows:

Sec. 1703.17 Uses of zero-interest loans and grants.

* * * * *

(d) Zero-interest loans and grants may be used for community

antenna television systems or facilities. The borrower will document

that such facilities provide a tangible economic benefit to the

proposed service area in accordance with Sec. 1703.46 of this subpart.

Notwithstanding this, the Administrator reserves the right to deny any

proposal for community antenna television systems or facilities.

Community antenna television systems or facilities will be considered

for funding in accordance with Sec. 1703.46 and this section only when

all of the following conditions exist:

(1) The proposed community antenna television system or facility is

established in cooperation with a local educational and/or medical

entity(ies) to provide educational and/or medical programming which

addresses specific needs of rural residents;

(2) Services to be provided by the proposed community antenna

television systems or facilities are not available in the area to be

served, or services are not being provided by the existing television

programming carrier at an affordable cost to residents; and

(3) Such community antenna systems or facilities will not present

undue competition for existing television programming carriers in the

area.

4. In Sec. 1703.20, paragraphs (a)(10) and (a)(11) are redesignated

as paragraphs (a)(11) and (a)(12) and a new paragraph (a)(10) is added

to read as follows:

Sec. 1703.20 Ineligible uses of zero-interest loans and grants.

(a) * * *

(10) For community antenna television systems or facilities except

as provided in Sec. 1703.17(d) of this subpart;

* * * * *

5. In Sec. 1703.22, paragraphs (e) introductory text, (e)(1),

(e)(3) and (e)(4) are revised to read as follows:

Sec. 1703.22 Revolving loan program.

* * * * *

(e) Disbursement of grant funds. Borrowers are not authorized to

commence projects to be funded under this section until those projects

have been submitted for authorization in accordance with paragraph

(c)(1) of this section, or the projects have been submitted for

authorization subsequent to grant approval in accordance with paragraph

(e)(2) of this section. REA grant funds will be disbursed on a

reimbursement basis. However, upon written justification by borrowers

and approval by the Administrator, borrowers unable to fund projects

under reimbursement provisions, for financial or other extraordinary

reasons, may receive grant funds under the special disbursement method

by submitting unpaid invoices from project owners, and grant funds will

be disbursed to borrowers and passed directly to project owners. In

either case, REA grant funds will be disbursed in accordance with the

provisions of 7 CFR Part 3015, Uniform Federal Assistance Regulations,

the applicable requirements of this subpart, the administrative

provisions outlined in paragraph (g) of this section, and the following

requirements:

(1) Only projects authorized by REA in accordance with paragraphs

(c)(1) and (e)(2) of this section, for which adequate documentation is

submitted, including receipts for expenditures under the reimbursement

method or unpaid invoices under the special disbursement method, as

applicable, and certification of approved purposes, will be considered

for disbursement;

* * * * *

(3) Under the reimbursement method, grant funds requisitioned for

individual projects in increments of less than $100,000, or less than

25 percent of the amount approved for the revolving loan fund,

whichever is less, may be disbursed semi-annually. Submission periods

for requisitioning grant funds on a semi-annual disbursement basis will

be 14 days commencing from the 6-month anniversary date of grant

approval. Grant funds under the special disbursement method will be

requisitioned in accordance with the applicable provision in paragraph

(e)(4) of this section;

(4) For the reimbursement method, grant funds requisitioned for

individual projects in increments of $100,000 or greater, or at least

25 percent of the amount approved for the revolving loan fund,

whichever is less, may be submitted for disbursement at any time. Under

the special disbursement method, grant funds of less than $100,000 may

be requisitioned for disbursement at any time. However, the minimum

requisition will be $50,000, or the total grant award, whichever is

less.

* * * * *

6. In Sec. 1703.46, the period at the end of paragraph (h)(10)(iii)

is removed and a semicolon is added in its place and paragraphs (g)(7)

and (h)(11) are added to read as follows:

Sec. 1703.46 Documenting the evaluation and selection of applications

for zero-interest loans and grants.

* * * * *

(g) Other selection factors. * * *

* * * * *

(7) Special Economic Status. The Administrator has the discretion

to designate special economic status (up to 25 points) to applications

submitted by borrowers that have documented one or more of the

following four conditions in one or more county(ies) to be served by

the proposed project:

(i) A designation of disaster area by the President of the United

States which has been so designated within three years prior to

applying to REA;

(ii) The loss, removal, or closing of a major source or sources of

employment in the last 3 years which causes an increase of 2 percentage

points or more in the area's most recent unemployment rate compared

with the period immediately before the dislocation;

(iii) Chronic or long-term economic deterioration, documented by

one or both of the following conditions:

(A) An unemployment level equal to or over 1.5 times the National

average unemployment percentage from 4 out of the last 5 years,

starting with the most current statistics available. The applicant,

when calculating recent years' unemployment percentages, should compare

county statistics with the National Average unemployment for the

corresponding year. Statistics on unemployment will be based on figures

provided by the Bureau of Labor Statistics;

(B) A 15% loss of population due to out-migration over the most

recent 10-year decennial census, based on the U.S. Bureau of the Census

decennial data;

(iv) A designation as a Rural Empowerment Zone or Rural Enterprise

Community by the Empowerment Zone Program authorized by Section 13301

of the Omnibus Reconciliation Act of 1993, Public Law 103-66 (107 Stat.

312), 26 U.S.C. 1391-1393.

(h) * * *

(11) Special economic status--25 points.

* * * * *

Dated: July 20, 1994.

Bob J. Nash,

Under Secretary, Small Community and Rural Development.

[FR Doc. 94-18410 Filed 7-27-94; 8:45 am]

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