Acreage Limitation and Water Conservation

Federal RegisterDec 18, 1996

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SUMMARY: This final rule retitles and revises the Rules and Regulations

for Projects Governed by Federal Reclamation Law and moves the water

conservation provisions to a new part. These rules replace prior rules

on the administration of the Reclamation Reform Act of 1982 (RRA). The

final rule, among other things, incorporates existing policies that are

not included in the prior rules and raises certain certification and

reporting thresholds. Reclamation has rewritten and reorganized these

regulations to make them clearer and less administratively burdensome,

while maintaining compliance with and achievement of programmatic

goals.

EFFECTIVE DATES: The effective date of revised part 426, Acreage

Limitation Rules and Regulations, and the new part 427, Water

Conservation Rules and Regulations, is January 1, 1998. The amendment

to current Sec. 426.10 is effective on January 1, 1997. The text for

the amendment is located at the end of this document.

ADDRESSES: A copy of all comments received on the proposed rules are on

display to the public in the Bureau of Reclamation Library, Denver

Federal Center, Building 67, Room 167, 6th and Kipling, Denver,

Colorado 80225-0007.

FOR FURTHER INFORMATION CONTACT: Austin Burke, Director, Program

Analysis Office, Bureau of Reclamation, P.O. Box 25007, Mail Code D-

5000, Denver, Colorado 80225-0007, telephone (303) 236-3292.

SUPPLEMENTARY INFORMATION: Pursuant to 5 U.S.C. Sec. 553(d)(1) and (3)

the amendment to Sec. 426.10, which pertains to submittal of

certification and reporting forms, may take effect less than thirty

days after the date of publication in the Federal Register. Section

553(d)(1) permits a substantive rule, which grants or recognizes an

exemption or relieves a restriction, to take effect less than thirty

days after the date of publication. Section 553(d)(1) applies to the

provisions amending current Sec. 426.10, as the amendment excepts

certain individuals and entities holding only a relatively small amount

of land from having to submit forms to Reclamation.

Moreover, Sec. 553(d)(3) could also permit the amendment to take

effect on January 1, 1997. Section 553(d)(3) of the Administrative

Procedure Act permits final rules to take effect less than thirty days

after publication upon a showing of good cause. For many farmers in the

western United States, including many landholders who receive

Reclamation project water, the water year begins on January 1, 1997. If

the amendment to the forms provisions was to take effect thirty or more

days after the date of publication, these landholders would have to

submit reporting forms which other landholders, whose water year begins

later in the year, would not. Thus, in order to apply the same rules

and regulations to all landholders receiving Reclamation project water

and to ensure fairness, the amendment to the forms provisions will take

effect on January 1, 1997.

Table of Contents

This section provides the following information:

Introduction

Summary of Changes

Background

Litigation Concerning the RRA Rules and Regulations

Additional Proposed Rulemaking

Public Involvement

Public Comments and Responses on General Issues

Part 426--Summary of Changes; Public Comments and Responses

Part 427--Summary of Changes; Public Comments and Responses

Environmental Compliance

Executive Order 12866, Regulatory Planning and Review

Regulatory Flexibility Act

Paperwork Reduction Act

Executive Order 12612, Federalism

Executive Order 12630, Takings

Unfunded Mandates Reform Act of 1995

Authorship

List of Subjects in 43 CFR Part 426 and 43 CFR Part 427

Introduction

These rules and regulations govern the Bureau of Reclamation's

(Reclamation) westwide implementation and administration of the

Reclamation Reform Act of 1982. The rules retitle and revise prior

rules on acreage limitation and place water conservation rules in a

separate CFR part.

Summary of Changes

These final rules implement and interpret the Reclamation Reform

Act of 1982, as amended, consistent with Reclamation's role of managing

and protecting water resources. The final rules, among other things,

incorporate existing policies that are not included in the prior rules

and raise certain certification and reporting thresholds. Reclamation

has rewritten and reorganized these regulations to make them clearer

and easier to administer.

Reclamation published proposed rules in the Federal Register (60 FR

16922, Apr. 3, 1995).

This section summarizes the most significant differences between

the prior rules, proposed rules, and final rules. A section-by-section

analysis, found later in this preamble, provides a more detailed

description of the changes.

Certification and Reporting Thresholds

Landholders whose total westwide landholding is equal to or less

than the certification and reporting thresholds, as presented below,

are exempt from the annual RRA forms submittal requirements.

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Proposed rule Final rule

Acreage limitation status Prior rule ---------------------------------------------------

Category 1 Category 2 Category 1 Category 2

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Prior law...................................... 40 40 40 40 40

Qualified recipient............................ 40 240 80 240 80

Limited recipient:............................. ........... ........... ........... ........... ...........

Received water before 10/1/81.................. 40 80 5 40 40

Did not receive water before 10/1/81........... 40 5 5 40 40

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Both the proposed and final rules provide that all districts will

be Category 2 unless certain criteria are met. Under the proposed rule

criteria, the district had to: (1) Be subject to the discretionary

provisions of the RRA; (2)

[[Page 66755]]

enter into a resources management ``partnership'' with Reclamation; and

(3) not have delinquent financial obligations owed to the United

States. Under the final rule criteria, the district must : (1) be

subject to the discretionary provisions of the RRA; and (2) not have

delinquent financial obligations owed to Reclamation. The

``partnership'' criterion is not included in the final rule.

Application of the Nonfull-Cost Entitlement

Under the prior rule, the following were examined to determine if a

farming arrangement was considered to be a lease for acreage limitation

purposes:

Who assumes the economic risk in the farming operation?

Who retains the right to the use or possession of the land being

farmed?

Who is responsible for payment of the operating expenses?

Who is entitled to receive the profits of the farming operation?

Under the proposed rule, a farming arrangement would have been

considered to be a lease for acreage limitation purposes if possession

of the lessee's land was partially or wholly transferred to the

``lessee.'' Economic risk was relegated to simply be an indicator of

possession.

In the final rule, the criteria found in the prior rule are

restated and clarified. Any farming arrangement under which the

economic risk and the use or possession of the land has partially or

wholly transferred to a party other than the landowner will be

considered to be a lease. Once again, who is responsible for payment of

operating expenses and who is entitled to receive the profits from the

farming operation have been highlighted as indicators of use or

possession and economic risk. Unlike the prior rule, this provision is

included in the definitions section rather than in the leasing and

full-cost pricing section.

Nonresident Alien and Foreign Entity Entitlements

Under the prior, proposed, and final rules, certain applications of

the acreage limitation provisions for nonresident aliens and entities

not established under State or Federal law (foreign entities) are

constant. Specifically:

Nonresident aliens and foreign entities are eligible to

receive Reclamation irrigation water on directly held land in prior law

districts only as prior law recipients.

Land held directly by nonresident aliens and foreign

entities in discretionary provision districts is ineligible to receive

Reclamation irrigation water.

The difference in application between the three versions of the

rule is centered on land held indirectly by nonresident aliens and

foreign entities, primarily in discretionary provision districts. Under

the prior rules, a nonresident alien could hold up to 960 acres

indirectly in a discretionary provision district and receive

Reclamation irrigation water. The prior rules do not address holdings

by foreign entities. Reclamation policy has been that any land held by

a foreign entity in a discretionary district is ineligible to receive

Reclamation irrigation water.

Under the proposed rules, both nonresident aliens and foreign

entities would be limited to qualifying as prior law recipients with

the associated acreage limitations even if they held land indirectly

through a domestic entity.

Under the final rules, the prior law entitlements still serve as

base entitlements for all nonresident aliens and foreign entities.

However, if a nonresident alien is a citizen of, or a foreign entity is

established in, a country that has certain treaty or other

international agreements with the United States, they will be treated

as a United States citizen or as an entity established under State or

Federal law for acreage limitation purposes. Accordingly, they may

elect to conform to the discretionary provisions and receive the

entitlements applicable to qualified and limited recipients for land

that they hold indirectly.

Type of Contracts Considered To Be Additional and Supplemental Benefits

Under the prior rules, the general criteria for determining whether

a contract action will be considered an additional or supplemental

benefit are provided. The provision also lists specific types of

contract actions which Reclamation does not consider to provide such

benefits. If a district's contract action provides an additional or

supplemental benefit, then the district must conform to the

discretionary provisions.

Under the proposed rules, the general criteria would have been

modified to include specific types of contract actions which

Reclamation would consider as providing supplemental or additional

benefits. Under the prior rule, some of these contract actions did not

require conformance to the discretionary provisions, while for others

application of that requirement was not clear.

The final rules retain the more general criteria provided in the

prior rules with modifications to remove provisions that are no longer

applicable. No policy change is intended.

Application of the RRA to Religious or Charitable Organizations

Under the prior rule, a subdivision of a religious or charitable

organization that is subject to the discretionary provisions is treated

as an individual qualified recipient if certain RRA criteria are met.

If any of the criteria are not met by either the central organization

or any of its subdivisions, the entire organization, including all

subdivisions, is treated as one limited recipient.

Under the proposed and final rules, a subdivision of a religious or

charitable organization that is subject to the discretionary provisions

is treated as an individual qualified recipient if the same criteria as

found in the prior rules are met. If any of the criteria are not met,

only that subdivision, and any subdivision of it, will be affected.

Reclamation will determine the acreage limitation status (qualified or

limited recipient) of such a subdivision based on the total number of

members of that subdivision.

Application of Class 1 Equivalency

Under the prior, proposed, and final rules, Class 1 equivalency

factors are based on the productive potential of Class 2 or 3 land as

compared to Class 1 land within the same district. The proposed rule

added a study of potential toxic or hazardous return flows to any

reclassification or Class 1 equivalency factor determination activity.

Under the proposed rule if Reclamation determined that soils could

contribute to toxic or hazardous return flows, then the land so

identified would not be eligible for application of the Class 1

equivalency factors. The final rule continues the policy of the prior

rule. The final rule does not include the proposed rule provision to

conduct a study of potential toxic or hazardous return flows and use

the results of that study as a factor in determining Class 1

equivalency. However, Reclamation will undertake a review of its land

classification and soils review procedures, and will implement

appropriate changes in those procedures.

Future Operation of Formerly Excess Land by Excess Land Sellers

Under the prior rule, if a landholder sells his/her excess land,

the landholder can immediately become the lessee of that land and

continue to farm it with Reclamation irrigation water. This provision

allows a landholder to avoid

[[Page 66756]]

the intent of the anti-speculation provision of the RRA.

Under the proposed rule, landholders would be prohibited from

receiving Reclamation irrigation water on land which they previously

held as excess. The only exceptions would be if the landholder became,

or contracted to become, a direct or indirect landholder of the land

prior to July 1, 1995, or such land becomes exempt from the acreage

limitation provisions.

Under the final rule, landholders will be prohibited from receiving

Reclamation irrigation water on land which they previously held as

excess only for the term of the deed covenant associated with the sale

of the excess land (10 years). In addition, other changes were made to

the list of exceptions to this prohibition. The date for having

contracted to become the landholder was changed from July 1, 1995, to

December 18, 1996. While this date is prior to the effective date of

this section, Reclamation has determined it is appropriate to set such

a date, since the public was already notified that the date was going

to be in advance of the effective date of the final rulemaking, July 1,

1995, in the proposed rule. Also a broad exception was provided for

landholders who pay the full-cost rate for Reclamation irrigation water

delivered to land that they formerly held as excess.

Involuntary Acquisition of Formerly Excess Land by Excess Land Sellers

Under the prior rules, no distinction was made between landowners

who involuntarily acquired land that had previously been excess in his

or her landholding or under recordable contract and those for which the

land had not previously been excess or under recordable contract in

their landholding. Any involuntarily acquired land that had been

nonexcess before the acquisition and was designated as excess by the

involuntarily acquiring party was eligible to receive Reclamation

irrigation water for 5 years. In addition, such land could be

redesignated as nonexcess by the involuntarily acquiring party or sold

at full market value at any time.

Under the proposed rule, the landholder could not take advantage of

the involuntary acquisition provision and receive water for 5 years, if

the land involuntarily acquired had been excess or under recordable

contract in his or her landholding. In order for such land to become

eligible to receive Reclamation irrigation water, it had to be sold to

an eligible buyer at a price approved by Reclamation. In addition, once

designated as excess by the landholder who involuntarily acquired the

land, the land could not be redesignated as nonexcess.

Under the final rule, two exceptions have been added to modify the

prohibition on delivering Reclamation irrigation water to landholders

who involuntarily acquire land that had been excess or under recordable

contract in his or her landholding. Specifically, financial

institutions have been defined and are excluded from this application

and landholders that meet certain criteria listed in Sec. 426.12 (deed

covenant has expired, they pay the full-cost rate for the water

delivered, etc.) may take advantage of the involuntary acquisition

provision and receive water for 5 years. Financial institutions have

also been fully exempted from the prohibition of selling the land at

full market value.

In addition, the final rule provides that involuntarily acquired

excess land may be redesignated as nonexcess, as long as the landowner

follows the normal procedure for redesignating excess land and pays

Reclamation any difference between the rate paid for the delivery of

Reclamation irrigation water and what would have been paid if the land

had initially been declared nonexcess when the land was involuntarily

acquired.

Application of Compensation Rate and Administrative Fees in Cases of

Irrigation of Ineligible Excess Land

Under the prior rule, actions that will be taken if Reclamation

irrigation water is delivered to excess land are not addressed, other

than such deliveries will be terminated. Current Reclamation policy is

to also charge the compensation rate (full-cost rate) for such

deliveries.

Under the proposed and final rules, Reclamation's existing policy

on charging the compensation rate for any deliveries of water to

ineligible excess land is incorporated. In addition, the proposed and

final rules apply an administrative fee ($260) for such deliveries.

New Procedures for Administrative Appeals of RRA-Related Determinations

Under the prior rule, a two-step process is provided to appeal

final RRA determinations made by Reclamation regional directors. The

first level of appeal is to the Commissioner of Reclamation. The second

level of appeal is to the Office of Hearings and Appeals (OHA).

Under the proposed rule, the Commissioner's review of the regional

director's decision would have been eliminated. In its place was the

right of the district or the landholder to request that the regional

director reconsider his or her final determination. After the regional

director reconsidered a determination, a direct appeal to OHA was

provided. The proposed rule also required Reclamation to wait 10 days

before implementing a regional director's decision to terminate

delivery of water and allowed the Commissioner to stay decisions

pending appeal to OHA.

Under the final rule, the two-step appeals process of the prior

rule is retained, while the proposed rule step of requesting regional

directors to reconsider their final determination is removed. The final

rule allows the Commissioner to stay decisions pending and during

appeal to OHA. The final rule also establishes time periods for

affected parties to request stays and to submit supporting briefs to

the Commissioner.

Language Changes

Throughout part 426 regulations, language has been redrafted for

readability and clarity. The preamble of these regulations explains all

intended substantive changes. Where no change is explained, the new

language is intended only for clarity and no substantive change is

intended.

Water Conservation

The prior rule required all districts to prepare and submit to

Reclamation water conservation plans that contain definite objectives

that are economically feasible, and a time schedule for meeting those

objectives.

The proposed rule required districts to prepare and submit water

conservation plans to Reclamation for approval, but provided some

exceptions and opportunities for alternative compliance. The proposed

rule required that plans set forth definite goals, identify actions for

achieving the goals, and establish a reasonable time schedule for

meeting the goals. The proposed rule also required that a plan contain

the following four critical measures: (1) A water measurement and

accounting system, (2) a water pricing structure designed to encourage

increased efficiency of water use, (3) an information/education

program, and (4) the designation of a district water conservation

coordinator. The proposed rule also linked a district's progress in

development and implementation of water conservation plans with the

allocation of future discretionary Reclamation program benefits.

The final rule is the same as the prior rule regarding preparing

and submitting a plan to Reclamation. There is no requirement for plan

approval by

[[Page 66757]]

Reclamation in the final rules. Reclamation intends to encourage and

assist districts in the development of quality water conservation

plans, the demonstration of innovative conservation technologies, and

the implementation of effective energy efficiency measures. Reclamation

also recognizes the need for coordination with State and other Federal

conservation programs.

Reclamation has the responsibility under Section 210(a) of the RRA

to encourage water conservation. Districts have the responsibility

under Section 210(b) to develop water conservation plans. Reclamation

is presently implementing a Water Conservation Field Services Program

(WCFSP) to actively encourage water conservation, assist districts with

their responsibility to develop plans, and complement and support State

and other conservation programs. The WCFSP will emphasize effective

water conservation planning, the demonstration of innovative

conservation technologies, and the implementation of effective

efficiency measures.

Through the WCFSP, Reclamation Area Offices will work directly with

districts to provide technical assistance in the preparation of

effective water conservation plans, including how to incorporate

appropriate environmental considerations into the planning process.

Reclamation will review each water conservation plan submitted by a

district, and provide advisory comments and recommendations on their

identified goals and measures. Within available resources, Reclamation

will also provide technical guidance in water conservation planning and

implementation in the form of handbooks, workshops and training

opportunities to ensure all districts an opportunity to develop and

implement effective water conservation plans. Reclamation recognizes

that a transition period will be required to receive updated plans from

all affected districts and re-establish the 5-year cycle for all plans.

Each fiscal year, Area Offices will develop a schedule for water

conservation planning activities with districts, and annually report on

the status of plan updates.

The main objective in water conservation planning is to accomplish

water conservation on the ground. Reclamation will monitor the

implementation of water conservation plans to determine whether water

conservation planning has facilitated water conservation.

Background

The RRA (43 U.S.C. 390aa, et seq.) was signed into law on October

12, 1982. It was the culmination of an effort to modernize Federal

reclamation law that began with the 95th Congress. The RRA made a

number of changes to prior Federal reclamation law while retaining the

basic principle of limiting the amount of land in ownership which may

receive water deliveries from Reclamation projects. The RRA also made a

major change to prior law by introducing the concept of full-cost

pricing for some water deliveries.

Rules and regulations for implementing the RRA were published in

the Federal Register (43 FR 54768, Dec. 6, 1983) and became effective

on January 5, 1984. In 1987, the rules and regulations were amended,

primarily to implement Section 203(b) of the RRA. The provision was

intended to encourage Districts to amend contracts to conform to the

discretionary provisions which were not addressed in the 1983

rulemaking. Revisions also were made to those provisions of the rules

and regulations pertaining to submission of certification and reporting

forms, trusts, nonresident aliens, water transfers, covenant

restrictions, and religious and charitable organizations.

The 1987 rules and regulations and three alternatives were

evaluated in an Environmental Assessment (EA) published by Reclamation

in April 1987. The EA concluded that the impacts of the proposed

rulemaking were primarily economic in nature and that no significant

impacts to the environment would result from the rulemaking. A Finding

of No Significant Impact concerning the 1987 rulemaking was therefore

issued by Reclamation on April 8, 1987. Final rules and regulations

were published in the Federal Register (52 FR 11954, Apr. 13, 1987) and

became effective on May 13, 1987.

The Omnibus Budget Reconciliation Act of 1987, enacted on December

22, 1987, included amendments to the RRA. The amendments addressed

revocable trust agreements, provisions for audits by Reclamation of

compliance with reclamation law, application of full-cost water rates

for lands under extendable recordable contracts, and interest on

underpayments or nonpayments. Consequently, further proposed amendments

to the rules and regulations were evaluated in a supplemental EA

published by Reclamation in September 1988. The supplemental EA

concluded that the impacts of the proposed rulemaking were primarily

economic in nature and that no significant impacts to the environment

would result from the rulemaking. A Finding of No Significant Impact

concerning the 1988 rulemaking was therefore issued by Reclamation on

September 23, 1988. Final rules and regulations were published in the

Federal Register (53 FR 50535, Dec. 16, 1988) and became effective on

January 17, 1989.

Final rules and regulations were published in the Federal Register

(60 FR 10030, Feb. 23, 1995) and became effective on March 27, 1995,

revising part 426 to impose administrative fees to recover costs

incurred by Reclamation when irrigation water has been delivered to

landholders who have not complied with the information collection

requirements of the RRA, as amended.

Litigation Concerning the RRA Rules and Regulations

In 1988, the Natural Resources Defense Council (NRDC) and others

filed a lawsuit challenging the validity of the 1987 and 1988 rules and

regulations (NRDC v. Underwood, No. Civ. S-88-375-LKK). On July 26,

1991, the United States District Court for the Eastern District of

California (Court) granted NRDC's partial motion for summary judgment.

The Court ruled that Reclamation had not complied with the requirements

of the National Environmental Policy Act (NEPA) in preparing the EA and

the Findings of No Significant Impact in the promulgation of the 1987

rules and regulations.

Reclamation appealed the Court's decision to the Ninth Circuit

Court of Appeals. In September 1993, while the appeal was still

pending, the Department of the Interior (Interior), the Department of

Justice, and NRDC entered into a Settlement Contract which required

Reclamation ``to propose new rules and regulations implementing, on a

westwide basis, the * * * [RRA] as part of a new rulemaking proceeding

that comprehensively reexamines the implementation of the RRA.''

Reclamation published a proposed rulemaking on April 3, 1995.

The Settlement Contract also required Interior to prepare an

environmental impact statement (EIS) considering the westwide impact of

the proposed rules and regulations and alternatives. The Settlement

Contract does not require the Department to change its existing rules.

The required EIS has been published separately and notice of its

availability was published in the ``notice'' section of the Federal

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signed by the Assistant Secretary--Water and Science on December 10,

1996.

Advance Notice of Proposed Rulemaking

During the rulemaking process, the Department received a number of

comments regarding the compliance of certain large trusts with the

acreage limitation provisions of the RRA. Comments expressed a variety

of viewpoints, including the assertion that some trusts with

landholdings (owned and leased land) in excess of 960 acres total may

circumvent the requirements of Reclamation law.

In response to these comments, the Department intends to publish an

advance notice of proposed rulemaking in the Federal Register

accompanying the final rules and regulations described here. This

advance notice of proposed rulemaking addresses and builds upon the

widely divergent views and comments received from the public regarding

trusts holding more than 960 acres. Some comments alleged that water

users employ certain devices, such as the creation of trusts, as a

means to avoid the acreage limitation provisions of the RRA.

The treatment of various trust arrangements under the RRA can

significantly affect how much acreage in a given farm arrangement is

entitled to the delivery of subsidized water. Many family farms, trust

departments of financial institutions, and others use trusts for estate

planning and other purposes. The Congress included Section 214 in the

RRA, which provides that lands held in trust are eligible under certain

circumstances to receive subsidized water from Reclamation projects.

Following the enactment of RRA and relying on Section 214, some large

farms reorganized as trusts, and continue to receive nonfull-cost

water.

The proposed rulemaking sought to address these concerns by

changing the definition of what constitutes a lease for the purposes of

the acreage limitation provisions. To prevent circumvention of the RRA,

Reclamation has treated farm operators as lessees subject to the

acreage limitation provisions if the operator assumes the economic risk

of the farming enterprise and has use or possession of the land. The

proposed rulemaking focused on possession of the land. Under that

proposed change, if someone other than the landowner has possession of

the land, then Reclamation would determine that a lease subject to the

acreage limitation provisions existed regardless of whether that person

or entity also assumed the economic risk. One of the effects of that

proposal may have been to treat certain operators of land held in trust

as lessees.

Based upon comments on the proposed rulemaking, Reclamation has

determined that the proposed provision altering the definition of a

lease is an inadequate means of addressing the concerns about

compliance with the acreage limitation provisions of the RRA and could

have produced unintended consequences. Many comments from the public

raised concerns about the effects of such a change on custom service

providers, specialty services, and lenders among others. Many comments

noted that modern farm operators often provide the necessary equipment

and services to farming operations that cannot be economically provided

to only 960 acres if the farmer is to cover expenses and make a

reasonable return on investment. Other comments noted that the proposed

change would not work and could be easily avoided. As a result of its

review of the proposed rulemaking and the widely divergent comments

received from the public, the Department has determined that seeking

further public comment to an advance notice of proposed rulemaking is

appropriate.

Reclamation's comprehensive February 1991 review of RRA

implementation contains the most recently published data on

administration and enforcement of RRA through 1990. According to this

review, out of a total of 550 trust arrangements, only 35 trusts

(primarily in California, Arizona, and Washington) held more than 960

acres. Thus, the vast majority of the 550 trusts were found to be well

within the RRA's acreage limitations.

Through the advance notice of proposed rulemaking, the Department

will invite comments and suggestions on: (1) Whether to limit nonfull-

cost water deliveries to large trust arrangements that exceed 960

acres; (2) the criteria used to determine whether landholdings (owned

and leased land) in excess of 960 acres total, operated under a trust

agreement, should be eligible to receive non-full cost water

deliveries; (3) whether Reclamation project non-full cost water

deliveries to such large scale trusts are consistent with the

principles of Federal reclamation law; (4) the appropriate criteria and

standards to be applied to such trusts, implementation of the criteria

and standards; and (5) the extent of the Department's statutory

authority to address this issue. For example, what is the extent of the

Department's legal authority to regulate: (a) Future trusts, (b) trusts

established from 1982 to the present, and (c) trusts established prior

to 1982. Suggested approaches should ensure fairness for those farming

operations which are subject to acreage limitation provisions, while

eliminating the use of arrangements which are inconsistent with the

acreage limitation provisions of Federal reclamation law.

Public Involvement

A notice of intent regarding preparation of the EIS and a notice of

intent regarding the proposed rulemaking were published in the Federal

was issued on December 29, 1993, and approximately 3,500 information

packets were distributed to environmental groups, entities that have

contracts with Reclamation for project water supplies, the media, and

other interested parties. Public scoping meetings were held in January

1994 to receive public input regarding the issues and alternatives to

be considered in the EIS and rulemaking. Scoping sessions were held in

Billings, MT; Fresno, CA; Salt Lake City, UT; Phoenix, AZ; Boise, ID;

Spokane, WA; Portland, OR; and Denver, CO. In addition to the oral

comments received at the scoping sessions, approximately 150 letters

were received.

A notice of availability regarding the draft EIS was published in

the Federal Register (60 FR 16662, Mar. 27, 1995). Proposed rules and

regulations were published in the Federal Register (60 FR 16940, Apr.

3, 1995). A press release was issued on April 3, 1995, and copies of

the draft EIS and proposed rules were distributed to environmental

groups, entities that have contracts with Reclamation for project water

supplies, State and Federal offices, libraries, and other interested

parties.

Notices of public hearings on the draft EIS and proposed rules were

published in the Federal Register (60 FR 20114 and 60 FR 20068, Apr.

24, 1995). Public hearings on the draft EIS and proposed rules were

held in May 1995. Hearings were held in Billings, MT; Yakima, WA;

Denver, CO; Boise, ID; Phoenix, AZ; Sacramento, CA; Salt Lake City, UT;

and Fresno, CA. One week prior to the public hearings, informational

public forums were held in Billings, MT; Yakima, WA; Bend, OR; Denver,

CO; Boise, ID; Phoenix, AZ; Sacramento, CA; Salt Lake City, UT; Fresno,

CA; Albuquerque, NM; and Palm Desert, CA.

The public comment period ran from April 3 through June 26, 1995.

In addition to oral comments received at the hearings, 382 letters and

80 recorded phone calls were received during the comment period.

Responses to public comments on the proposed rules are provided

below.

[[Page 66759]]

Comments on the draft EIS are responded to in the final EIS.

Public Comments and Responses on General Issues

The following section presents public comments on the proposed

rules that are general in nature. This section includes comments on

authority, process, relationship with other documents, relationship

with other laws and mandates, water rights and contracts, westwide

action, and other general beliefs and comments that were not

specifically directed toward parts 426 or 427.

Authority/Settlement Contract

Comment: Do you have the authority to change these laws without

going through Congress?

Response: Only Congress has the authority to change the RRA.

However, Reclamation has the authority to promulgate and amend rules

and regulations that implement and interpret the RRA. This rulemaking

amends the prior rules and regulations, not the RRA.

Comment: We do not feel Reclamation had legal authority to sign the

settlement agreement as drafted; therefore, the proposed rules and

draft EIS which are the product of that contract are invalid. We

request that Reclamation, in the final EIS, provide a detailed

description of the sections of the RRA that provide the authority to

carry out the various provisions found within the settlement contract.

Response: The Department of the Interior and the Department of

Justice certainly have legal authority to sign the Settlement Contract.

Moreover, Reclamation's authority to promulgate new regulations and

prepare an EIS comes from the Secretary's general authority, NEPA, the

RRA, and Federal reclamation law in general. In preparing an EIS, an

agency is required to consider a range of alternatives and is allowed

to include alternatives that fall outside current authorities. However,

all provisions included in the final rules and regulations must fall

within the agency's legal authorities. All provisions in these final

rules fall within Reclamation's authorities, which are stated at the

beginning of the regulations.

Comment: The Settlement Contract between NRDC, Interior, and the

Department of Justice calls for Reclamation to consider ``alternatives

designed to achieve the greatest degree of water conservation and

environmental restoration possible under the RRA and other applicable

laws and return a maximum amount of revenues to the United States * *

*.'' While the proposed rules represent significant progress, we feel

that Reclamation has not yet adequately addressed all of the provisions

of the Settlement Contract.

Response: The Settlement Contract requires Reclamation to consider

specific alternatives in the EIS. Reclamation fulfilled its

responsibilities under the Settlement Contract by issuing a final EIS

that considers all alternatives identified in the Settlement Contract.

Reclamation also reexamined the alternatives discussed in the draft EIS

and expanded its consideration of environmental impacts of the

alternatives.

Comment: It's my understanding it is not necessary that Reclamation

impose new rules and regulations, but this matter be merely considered.

I feel that in view of the fact that the prior rules and regulations

have worked in a generally satisfactory manner, they should not be

modified.

Response: The Settlement Contract does not require Interior to

adopt final rules that are different from the rules in effect on the

date of the agreement (the prior rules). However, Interior has chosen

to modify the prior regulations in some areas to clarify some prior

provisions, include changes which increase Reclamation's effectiveness

in administering the RRA, or incorporate existing Reclamation policies.

Process

Comment: As we go through this entire process of public input, what

priority will be placed on comments from those who are truly impacted

by these proposed regulations? What will happen if the alternatives

specified in the Settlement Contract are not met?

Response: Reclamation gives equal priority to all comments when

considering proposed rules and writing final rules. The Settlement

Contract requires Reclamation to prepare an EIS considering the impacts

of the proposed regulations and specific alternatives included in the

Settlement Contract. Reclamation fulfilled its responsibilities under

the Settlement Contract by issuing a final EIS that considers all

alternatives identified in the Settlement Contract.

Comment: We ask that Reclamation withdraw and reconsider the

proposed rules.

Response: If appropriate, Reclamation proposes new rules or changes

to rules, reviews public comments on the proposed rules and changes,

and issues final rules based on the comments received. Reclamation has

reviewed and considered public comments as part of the rulemaking

process and has determined that the final rules will improve the

administration of the RRA.

Comment: It is necessary for Reclamation to confirm that no

substantive changes are intended except as specifically noted;

otherwise farmers will be left guessing whether new words mean

something different than old words.

Response: Substantive changes between the prior and final rules are

summarized in this preamble. In part 426 the regulations have been

reworded for clarity. In those instances, Reclamation has indicated in

the preamble where substantive policy change is intended.

Comment: The timing of these proposed rules is the worst it could

be for farmers. It requires them to take time from their job of

planting to address these issues before they become fact.

Response: The proposed rules were originally scheduled for

publication in December 1994, which would have avoided this problem.

Unfortunately, publication was delayed until April 3, 1995. As

described later in this preamble, most of the final Acreage Limitation

Rules and Regulations will not be effective until January 1, 1998 (the

RRA forms submittal threshold is effective January 1, 1997). This

action is taken to provide time for landholders and districts to

review, understand, and implement any revisions.

Comment: The process of reviewing, attending meetings, and

commenting on these proposed rules has been tremendously time-consuming

and expensive. The review of just one of these documents can be

intimidating to an irrigation district manager who has many other tasks

to perform on a daily basis to keep the district running smoothly.

Response: During many activities, Reclamation receives comments

stating that Reclamation is conducting too many public reviews and

meetings, and receives comments stating that Reclamation is not

conducting enough public reviews and meetings. Reclamation realizes

there are many resource management issues facing the public today and

that many of these issues require substantive input. However,

Reclamation would rather provide sufficient opportunity for public

input on each issue, than take steps to minimize the opportunity for

providing input.

Comment: We would appreciate a written response to our comments.

Response: All comments received during the public comment period

are included in the administrative record. Each comment was considered

when

[[Page 66760]]

the final rules and regulations were developed. In the preamble to the

final rules, Reclamation provides a written response to comments

received. Reclamation does not generally provide individual response

letters to comments received as part of the rulemaking process.

Comment: I just called on your toll-free line for commenting on the

proposed rules--that's the shortest 10 minutes I ever saw in my life--

about 30 seconds.

Response: There was a short time when the computer software

connected to our toll-free number malfunctioned and didn't allow a full

10 minutes for making comments. After fixing the problem, Reclamation

attempted to contact everyone that had left their names and phone

numbers before being cut off. The toll-free comment line received 88

calls, some of which were requests for information. Only one person

commented on the idea of a toll-free comment line to take public

comments, stating that it was a very good idea and should be used

throughout Interior more often.

Relationship With Other Documents

Comment: What is the necessity of having three separate documents

[proposed regulations, water conservation guidelines and criteria

(Guidelines and Criteria), and EIS] and what is the connection?

Response: The proposed regulations contained all the proposed

Federal regulations for implementing and interpreting the Reclamation

Reform Act of 1982. The draft and final EIS analyzed the potential

environmental (including economic) impacts of implementing the proposed

regulations, and alternatives. The draft Guidelines and Criteria

contained Reclamation's draft recommendations for a sound water

management and conservation planning process. Under the proposed rule

alternative of the draft EIS, the Guidelines and Criteria were

characterized as a stand-alone document which would be used as the

standard upon which to approve plans required by the proposed rules.

Under alternatives B and C, the contents of the Guidelines and Criteria

were incorporated into the actual rules.

The final rules contain the same regulatory requirements for

preparing water conservation plans as the prior rules. The requirement

for plan approval is not included in the final rules. Reclamation will

issue advisory guidance relating to its water conservation program.

Also, a handbook entitled ``Achieving Efficient Water Management: A

Guidebook for Preparing Agricultural Water Conservation Plans'' will be

available to aid water conservation efforts. Neither of these documents

has been incorporated into the final rules, and they do not constitute

regulatory requirements.

Comment: The timing of the publication of the proposed rules made

it impossible for Reclamation staff to benefit prior to the rulemaking

from the most recent comments on the Guidelines and Criteria.

Response: Although the proposed rules and draft Guidelines and

Criteria had some common elements, the two documents served different

purposes. The draft Guidelines and Criteria were being developed before

the rulemaking began. The draft Guidelines and Criteria contained

Reclamation's recommendations for a sound water management and

conservation planning process and could have been used in conjunction

with either the prior rules or the proposed rules. Therefore, it was

appropriate to seek comments separately on the Guidelines and Criteria,

and prior to publication of the proposed rules.

Comment: These proposed rules, by incorporating the Guidelines and

Criteria, are in violation of the Administrative Procedure Act.

Response: There was a link between the proposed rules and

Guidelines and Criteria, because the rules proposed to use the draft

Guidelines and Criteria as the standard upon which Reclamation would

base its approval of water conservation plans. The final rules contain

no requirement for plan approval, thus, the final rules do not

incorporate Reclamation's advisory guidance on water conservation in a

regulatory fashion.

Comment: The draft EIS states that ``ultimately, the rules and

regulations, when published as final rules, will replace the Guidelines

and Criteria.''

Response: This statement was true for alternatives B and C, but not

the proposed rule alternative. Alternatives B and C incorporated

elements of the draft Guidelines and Criteria as integral parts of the

proposed rules. Under these alternatives, the final rules would

eventually replace the Guidelines and Criteria. The proposed rule

alternative characterized the proposed rules and draft Guidelines and

Criteria as separate, related documents. Under the proposed rule

alternative, the Guidelines and Criteria would have provided guidance

in addition to the rules. The final rules published today do not

replace the advisory guidance.

Relationship With Other Laws and Mandates

Comment: The proposed rules document declares:

* * *any future actions taken pursuant to final rules and

regulations by the Federal Government or by contracting entities

(e.g., irrigation districts, drainage districts, municipal and

industrial water districts, etc.) shall be subject to the

requirements of all applicable Federal environmental laws including,

but not limited to, the NEPA, the Endangered Species Act, the Fish

and Wildlife Coordination Act, the Clean Water Act, and the National

Historic Preservation Act, and laws relating to Indian treaty and

trust responsibilities.

Just this list of compliance requirements alone will paralyze

districts, defeating Reclamation's purpose.

Response: The above statement was included in the preamble to the

proposed rules, but does not add to a district's existing obligations.

The statement was intended to convey the message that nothing in the

proposed rules would nullify any applicable requirements of these laws.

Comment: Both the publication of the rules and the EIS constitute

major Federal regulatory actions which together will impose massive

additional unfunded Federal mandates upon local governments and private

businesses and individuals. Such action violates the spirit and intent

of Public Law 104-4, which was signed into law on March 22, 1995.

Response: Reclamation has reviewed these final rules and determined

that the rulemaking meets all of the requirements set forth in the

Unfunded Mandates Reform Act of 1995. The final rules do not impose

additional unfunded Federal mandates and, in fact, reduce some RRA

forms requirements contained in the prior rules and regulations.

Water Rights and Contracts

Comment: While farmers have contracts for delivery of water from

Reclamation irrigation projects, the water users themselves hold the

rights to the use of the water. It is these private property rights to

the use of water that could be impaired or essentially taken if the

water users in the district do not accept or satisfy new contract

requirements and regulation changes that would be mandated by the

proposed rules and regulations.

Response: The final rules contain no provisions that would directly

affect any privately held property rights to the use of water or that

would affect contract language with regard to privately held property

rights to the use of water.

Comment: We believe that the proposed rules and regulations would

[[Page 66761]]

attempt to exert undue Federal influence through monetary incentives or

penalties and through contractual requirements for water contract

renewals in order to reallocate water from traditional uses such as

irrigation to nontraditional purposes such as instream flow.

Response: Neither the proposed nor final rules contain any monetary

incentives, penalties, or requirements for water contract renewals that

would result in the reallocation of water from traditional uses such as

irrigation to purposes such as instream flow. The final regulations do

not adopt any provisions regarding the use or reallocation of conserved

water.

Comment: The new rules allow for unlimited charges to be imposed on

farmers with no studies being done to determine ability to pay.

Response: The final rules do not allow unlimited charges. The final

rules do not affect application of the statutory ``ability to pay''

concept to project repayment costs.

Comment: The proposed rules mandate compliance with the water

conservation plan requirements imposed by the proposed rules and

Guidelines and Criteria. Failure to comply, according to the proposed

rules, will result in the cancellation or refusal to renew storage

contracts, thereby depriving the irrigation water users of established

rights. Such action will constitute a ``taking'' of a constitutionally

protected property right in violation of the United States

Constitution.

Response: The proposed rules would have provided that Reclamation

consider a district's progress in development and implementation of

water conservation plans when prioritizing the allocation of ``future

discretionary Reclamation program benefits.'' In the proposed rules,

the description of this type of benefit included future, temporary, or

short- term contracts and Warren Act contracts that Reclamation has the

discretion to provide. In the final rules, this provision has been

deleted. The final rules do not adopt any provisions calling for

refusal to renew storage contracts.

Westwide Nature

Comment: The rules should not be implemented in a ``one-size-fits-

all'' manner. The regulations and their enforcement must be flexible

and adaptable to meet various situations in a practical way. We

strongly urge that rules and regulations be developed and applied

locally, rather than on a westwide basis.

Response: The rules and regulations implement the requirements of

the RRA. The law contains specific requirements that are to be applied

in a consistent fashion on a westwide basis. Where the law does allow

for flexibility, this flexibility has been integrated into the rules

and regulations.

Comment: I am concerned that the settlement agreement reached with

NRDC over litigation on water management practices in California is now

dictating Reclamation policy westwide, into areas which have very

different water issues and concerns. All of your water contractors

outside of California are now having to comply with settlement

provisions on which they had no opportunity to comment or to

participate in the development of the conditions.

Response: The settlement agreement did not require Reclamation to

consider issues of concern only in California. Neither the proposed nor

the final rules were written to address specific concerns in California

or any other geographic area, but were written to implement the

requirements of the RRA imposed by the Congress on all areas westwide.

Water contractors and the public were provided ample opportunity during

the scoping process to provide written and oral comments on what should

be considered in the proposed rules and EIS.

General

Comment: Reclamation has the responsibility to protect and restore

the environment and the authority to allocate water for fish and

wildlife purposes under a variety of statutes and treaties, including

the Endangered Species Act, the Northwest Electric Power Planning

Conservation Act, the Grand Canyon Protection Act, and treaties with

Native American tribes. Reclamation needs to develop new strategies and

mechanisms to ensure that efficiency improvements do benefit the

environment rather than simply increasing consumptive uses.

Response: Reclamation takes seriously its responsibility to protect

and restore the environment and has some responsibility to allocate

water for fish and wildlife purposes under certain statutes and

treaties. Reclamation will also encourage districts to consider

environmental uses of conserved water.

Comment: The rule should have an increased emphasis on important

nonconsumptive uses of water. While it is necessary to maintain

flexibility in the rule it is also critical to provide mechanisms that

strongly encourage water users to provide adequate water flows to

support fish and wildlife.

Response: A rule can provide mechanisms to encourage a desired

response by the affected public, but these mechanisms must fall within

the intent of the authorities upon which the rules are based. The RRA

and other referenced authorities provide limited opportunity to develop

regulatory mechanisms that encourage water users to provide water flows

to support fish and wildlife. As resources permit, Reclamation will

provide technical and financial assistance to districts in the

development and implementation of water conservation plans. As part of

this assistance, Reclamation will encourage districts to look at all

water needs including non-consumptive uses and flows to support fish

and wildlife.

Comment: The rule should not treat the issues of water spreading

and incentive pricing as ``beyond the scope.''

Response: These rules and regulations implement the acreage

limitation and water conservation provisions contained in the RRA and

other related laws. ``Water spreading,'' which is generally defined as

the unauthorized use of project water, may involve acreage limitation

or reporting issues. Those issues are addressed through the acreage

limitation provisions of these rules. However, the majority of what is

considered to be ``water spreading'' is not an acreage limitation or

water conservation issue and is, therefore, not addressed by this

rulemaking. Incentive pricing is a water pricing issue, a contracting

issue, and a water conservation issue. Incentive pricing was included

as an alternative in the EIS and was considered in this rulemaking.

Comment: We believe the old rules probably are as workable as is

possible in trying to put this together on an overall basis. The

public's best interest would be served if there would be no changes in

the prior rules and regulations.

Response: Reclamation received many comments stating that the prior

rules were acceptable, widely understood, and should be retained. In

the proposed rule, Reclamation attempted to improve the clarity of many

regulatory provisions, include current Reclamation policies that were

not part of the prior rule, and respond to public criticism over past

interpretation of some provisions of the law. In some cases, public

comments indicated that the proposed changes could create additional

problems or could cause problems for entities that should not be

affected by the changes. Reclamation has reviewed each proposed change

in light of public comments and has

[[Page 66762]]

addressed those comments in the content of each section. In many cases,

Reclamation has made changes for clarity while making no substantive

change in the provision, or merely codifying existing policy.

Part 426 (Acreage Limitation)--Summary of Changes; Public Comments

and Responses

This section of the preamble describes changes from the prior

acreage limitation rules to the final acreage limitation rules,

provides examples of how the new provisions would be applied, and

provides responses to public comments received on the proposed rules.

Redesignation Table

A number of changes have been made to the location and titles of

the various sections of the Acreage Limitation Rules and Regulations.

The following provides an overview of these changes. More detailed

information is provided in the section-by-section analysis.

----------------------------------------------------------------------------------------------------------------

Revision(s) made to old

Section No. Old title title New title

----------------------------------------------------------------------------------------------------------------

426.1...................... Objectives................. Renamed................... Purpose.

426.2...................... Applicability.............. Removed................... Definitions.

426.3...................... Authority.................. Removed................... Conformance to the

discretionary provisions.

426.4...................... Definitions................ Moved to Sec. 426.2...... Attribution of land.

426.5...................... Contracts.................. Moved to Sec. 426.3 and Ownership entitlement.

renamed.

426.6...................... Ownership entitlement...... Moved to Sec. 426.5...... Leasing and full-cost

pricing.

426.7...................... Leasing and full-cost Moved to Sec. 426.6...... Trusts.

pricing.

426.8...................... Operation and maintenance Moved to Sec. 426.23 and Nonresident aliens and

(O&M) charges. renamed. foreign entities.

426.9...................... Class 1 equivalency........ Moved to Sec. 426.11..... Religious or charitable

organizations.

426.10..................... Information requirements... Moved to Sec. 426.18 and Public entities.

renamed.

426.11..................... Excess land................ Moved to Sec. 426.12..... Class 1 equivalency.

426.12..................... Excess land appraisals..... Moved to Sec. 426.13..... Excess land.

426.13..................... Exemptions................. Moved to Sec. 426.16 and Excess land appraisals.

renamed.

426.14..................... Residency.................. Removed................... Involuntary acquisition of

land.

426.15..................... Religious and charitable Moved to Sec. 426.9 and Commingling.

organizations. renamed.

426.16..................... Involuntary acquisition of Moved to Sec. 426.14..... Exemptions and exclusions.

land.

426.17..................... Land held by governmental Moved to Sec. 426.10 and Small reclamation

agencies. renamed. projects.

426.18..................... Commingling................ Moved to Sec. 426.15..... Landholder information

requirements.

426.19..................... Water conservation......... Moved to 43 CFR Part 427.. District responsibilities.

426.20..................... Public participation....... Moved to Sec. 426.22..... Assessment of

administrative costs.

426.21..................... Small reclamation projects. Moved to Sec. 426.17..... Interest on underpayments.

426.22..................... Decisions and appeals...... Moved to Sec. 426.24 and Public participation.

renamed.

426.23..................... Interest on underpayments.. Moved to Sec. 426.21..... Recovery of operation and

maintenance (O&M) costs.

426.24..................... Assessment of Moved to Sec. 426.20..... Reclamation decisions and

administrative costs. appeals.

426.25..................... Severability............... Moved to Sec. 426.26..... Reclamation audits.

426.26..................... Not applicable............. Not applicable............ Severability.

----------------------------------------------------------------------------------------------------------------

Part 426 General Comments

Comment: Several commenters noted that the revisions to the acreage

limitation provisions are not necessary. If revisions are made, they

should be kept to a minimum; in certain areas such as leases, trusts,

involuntary acquisitions, etc., no changes should be made.

Response: Reclamation believes that changes can be made to the

prior rules that will ease certain burdens placed on districts and

landholders and will answer questions that have arisen with regard to

application of the acreage limitation provisions. The prior rule has

been rewritten to state requirements more clearly and in plain English.

In addition, certain possible abuses to the system have been addressed.

Reclamation believes the comments received have allowed these

regulations to be revised to improve the regulatory effectiveness of

the program without creating unnecessary burdens.

Comment: Several commenters asked that Reclamation provide greater

flexibility in the administration of the RRA. For example, one

commenter suggested that area offices be allowed to modify the rules to

meet local needs. Other commenters suggested that Reclamation should

exercise greater flexibility to reward consistent payment of bills or a

good environmental record.

Response: The RRA requires Reclamation to establish westwide

standards for such things as ownership and nonfull-cost entitlements,

and RRA forms threshold, (e.g., 43 U.S.C. 390cc through 390ff).

Therefore, Reclamation must administer the acreage limitation

provisions consistently westwide. Even if Reclamation could establish

regulations on a project-by-project basis, the westwide nature of the

statute and the resultant costs on both Reclamation and districts to

administer such a program do not allow for such an action.

Comment: Several commenters wanted assurance that any changes to

the regulations would not be applied retroactively. In addition, a

number of commenters wanted any changes to the rules either phased-in

or accompanied with a grace period.

Response: Reclamation has taken these comments into account by

providing for an effective date of January 1, 1998, except for the RRA

forms submittal threshold, which will be effective January 1, 1997. The

January 1, 1998, effective date was established to provide all

interested parties with an opportunity to review the final regulations

and initiate any actions that would be advantageous for them.

Comment: The proposed regulations include numerous examples in the

preamble rather than in the body of the rules. If it is determined

that, as a matter of style, the examples should be kept physically

separated from the text of the

[[Page 66763]]

rules, there should be a statement to the effect that the examples are

incorporated by reference into the text of the final regulations.

Response: The examples have been included in the preamble of this

final rulemaking. However, the examples were purposely removed from the

text of the rule because Reclamation reconsidered its previous position

and decided that regulations should not be promulgated through

examples. The examples are included in the preamble strictly for

illustrative purposes.

Comment: A forced sale results in a taking of property without

appropriate compensation.

Response: Nothing in these regulations results in forcing

landowners to sell their land or water rights. These rules address who

may receive irrigation water and what water rate must be paid. In the

case of recordable contracts, landowners voluntarily agree to sell

excess land in order to receive a benefit from Reclamation, namely, the

delivery of irrigation water to land that is otherwise ineligible to

receive such water.

Comment: Several commenters noted that training will be needed on

the new regulations.

Response: Reclamation plans to hold westwide training for district

and Reclamation staff.

Section 426.1. Purpose

The final rule changes the title of this section from Objectives to

Purpose. The regulatory text has been rewritten to include a

straightforward statement as to the purpose of these regulations.

No comments were received concerning this section.

Section 426.2. Definitions

The prior section on applicability is removed. Because the rule's

scope of effect is not the same for the various provisions of the

regulations, Reclamation has determined that the best approach is to

have each section speak for itself as to its applicability. Section

426.2 defines terms used in the regulation and replaces Sec. 426.4 of

the prior regulations.

Numerous changes are made to the definition section, most with the

intent of clarifying existing policy. The more significant of the

changes, that were also included in the proposed rules, are discussed

as follows in alphabetical order:

Acreage limitation entitlement, acreage limitation provisions, and

acreage limitation status are added to the regulations to add precision

and to replace the compound term ownership limitation and pricing

restrictions.

Arable land is deleted because the term's only use is within the

definition of irrigable land. The term arable land was included in the

prior rules because the definition of irrigable land is based on one

more useful for formal land classification purposes. Reclamation has

determined that a simpler definition of the term irrigable land is

appropriate for this regulation, and, therefore, a definition of the

term arable land is unnecessary.

Commissioner is added to define a term that is used in these

regulations.

For conciseness only, the two sentences in the definition of the

term contract have been merged. In addition, the term agreement was

added to broaden the definition to ensure all arrangements between

Reclamation and water users that may be subject to application of the

acreage limitation provisions are captured.

Contract rate is changed to reflect awareness of the fact that many

contracts do not include per acre or per acre-foot rates. For purposes

of this part, however, contract rate means such a rate on a per acre or

per-acre-foot basis.

Direct and indirect are defined in this final regulation because

they are used in the RRA and are frequently used in the text of the

regulation. The terms apply in situations wherein land is held directly

by a landowner or lessee, or indirectly by a party that has a

beneficial interest in an entity that is a landowner or lessee (such as

a stockholder, partner, or trust beneficiary).

Discretionary provisions of Title II is replaced with discretionary

provisions. Also, Section 203(b) is excepted from this definition,

since it applies even to prior law districts and landholders. Finally,

United States Code (U.S.C.) citations are substituted, as they are more

useful in locating the relevant statutes.

District is changed to replace the phrase eligible to contract with

can potentially enter into a contract, in order to avoid the use of the

term eligible, which has its own specific meaning under part 426.

Eligible is included to reflect its common meaning among those

familiar with acreage limitation provisions: the right to receive

irrigation water without consideration of the price paid for that

water. This definition can be compared with that of ineligible.

Exempt land is replaced with the term exempt primarily because that

term can be applied to districts and certain types of landholders

(e.g., trusts and public entities), as well as to specific land

parcels.

Extended recordable contract is added to define a term that is used

in these regulations.

In the definition of the term full cost, Secretary is changed to

Reclamation.

Full-cost rate and full-cost charge are defined to differentiate

between the two terms.

The reference to the Internal Revenue Code is deleted from the

definition of individual because that concept is covered in the

definition of dependent.

Ineligible is added to reflect that term's common meaning among

those familiar with acreage limitation provisions: the lack of

eligibility to receive irrigation water at any price. This definition

can be compared with that of eligible.

Intermediate entity is added to define a term used in these

regulations.

Involuntary acquisition is added to define a term used in these

regulations.

Irrevocable elector is added to define a term that is used in these

regulations.

Irrigable land is changed to be more concise and understandable.

The phrases from the prior regulation excluding permanent buildings,

etc., are transferred to the definition of nonexempt land.

Landholder is modified to delete the references to the terms

qualified recipient, limited recipient, and prior law recipient,

because not all landholders fall into these categories (i.e., trusts

and public entities). The terms directly and indirectly have been added

to the definition to clarify which landowners and lessees are

considered to be landholders.

Landholding has been greatly simplified. The final definition is

clearer, and takes advantage of the new term nonexempt land. It should

be noted that involuntarily acquired land is included within this

definition of landholding.

Nondiscretionary provisions is modified to eliminate the reference

to Title II, to include Section 203(b), and to include the United

States Code citation. The second sentence of the prior definition has

been eliminated because that concept is covered elsewhere in the

regulations.

Nonexempt land is newly defined in these final regulations to

replace the compound term irrigable and irrigation land. Nonexempt land

is defined more precisely than irrigable and irrigation land, and is

used as a concise term to describe, generally, all land subject to the

acreage limitation provisions of Federal reclamation law.

Nonfull-cost entitlement is modified to enhance clarity by

including the defined term nonfull-cost rate.

[[Page 66764]]

Nonresident alien entitlement is eliminated because, under the

final rules, nonresident aliens will be treated as prior law

recipients, unless certain criteria have been met. See Sec. 426.8.

Operation and maintenance costs or O&M costs is newly defined in

order to clarify the types of activities that are included in the

calculation of operation and maintenance costs.

Ownership entitlement is added to define a term that is used in

these regulations.

Prior law is modified primarily to include United States Code

citations.

Public entity is added to define a term that is used in these

regulations.

Qualified recipient is modified to include married couples in which

only one spouse is a U.S. citizen or resident alien.

Reclamation is added to define a term that is used in these

regulations.

Reclamation fund is modified to eliminate unnecessary language.

RRA is added. This term is used throughout the regulations as it is

concise and well understood by most readers.

Standard certification or reporting forms is added to define a term

that is used in these regulations.

Title II is eliminated in favor of a definition of the term RRA

which is used throughout these regulations.

The following changes to definitions included in the final rules

were not reflected in the proposed rules.

Compensation rate was defined in proposed regulations to describe

the full-cost charges applied to certain types of illegal irrigation

water deliveries that are not discovered until after they have taken

place. This was retained. In addition, it has been further revised for

these final regulations to ensure it is understood that application of

the full-cost rate is for the legal delivery of irrigation water to

land that exceeds the nonfull-cost entitlement.

As in the proposed rules, indirect is added. See the above

discussion of the term direct. In the final rules it has been specified

that lenders holding only a security interest in the land are

specifically excluded from the definition of indirect.

Again, as in the proposed rules, irrevocable election is changed to

delete both the reference to Title II and the second sentence which

presently contains additional explanation that is redundant with that

contained in the text of the prior rule. The final version has been

revised to make it clear that this term is referring to a process, not

to any specific document.

Irrigation land was modified in the proposed rule primarily to

exclude land exempt from acreage limitation laws. Also, the phrase in a

given water year is added to clarify that land which has received

irrigation water retains irrigation land status for the entire water

year, even if irrigation is not taking place at any particular time.

The final rule includes an additional modification to ensure that any

land receiving water for irrigation purposes from a Reclamation project

facility will be counted against the landholder's acreage limitation

entitlements. While this reflects current policy, Reclamation would

like to ensure there is no confusion on this issue based on the

regulatory definitions.

Irrigation water was modified from the proposed version so that it

would more closely reflect the statutory definition.

Lease has been changed from the definition in the proposed rule and

in the prior rule. The final definition revises the prior rule for

clarity and to conform it with long standing Reclamation policy. It

includes the same key elements Reclamation examined under the prior

rule when determining if a farming arrangement is a lease, rather than

focussing solely on possession of the land as had been proposed. After

considering comments, Reclamation determined that this would not be

workable.

Specifically, when Reclamation examines a farming arrangement to

determine if it is a lease Reclamation will consider who assumes the

economic risk in the farming operation; who has the use or possession

of the land; who is responsible for paying operating expenses; and who

is entitled to receive the profits from the farming operation. Since

most individuals or entities involved in a farming operation have use

or possession of the land, the key element will often be if the

operator in question also has assumed a portion of the economic risk.

By contrast, if an individual has a typical forward contract, the

economic risk is often shared by the landholder and the contracting

company, but the contracting company has no use or possession of the

land. This definition differs from the prior rule in that the prior

rule contained the term ``use and possession''. Reclamation has become

aware that this might lead to confusion if anyone felt that two

separate elements must both be present. Reclamation has always

construed the language such that either use or possession, together

with economic risk, constituted a lease. Therefore, it has adopted the

language to clarify this intent. This definition is not intended to

have a different substantive effect than the prior rules and how the

prior rules have been administered by Reclamation.

In administering the nonfull-cost entitlement provision,

Reclamation must determine if the farming arrangement constitutes a

lease for acreage limitation purposes. In general, Reclamation must

make this determination on a case-by-case basis. However, Reclamation

has determined that most custom service arrangements in which only one

narrow farm service is provided, or arrangements in which lenders hold

only a security interest in the farming operation, usually do not

constitute leases. On the other hand, Reclamation has determined that,

consistent with current Reclamation interpretation, sharecropping

arrangements are always leases for acreage limitation purposes.

Some comments alleged that water users employ certain devices, such

as the creation of trusts, as a means to avoid the acreage limitation

provisions of the RRA. The proposed rulemaking sought to address these

concerns by changing the definition of what constitutes a lease for the

purposes of the acreage limitation provisions. To prevent circumvention

of the RRA, Reclamation has treated farm operators as lessees subject

to the acreage limitation provisions if the operator assumes the

economic risk of the farming enterprise and has use or possession of

the land. The proposed rulemaking focused on possession of the land.

Under that proposed change, if someone other than the landowner has

possession of the land, then Reclamation would determine that a lease

subject to the acreage limitation provisions existed regardless of

whether that person or entity also assumed the economic risk. One of

the effects of that proposal may have been to treat certain operators

of land held in trust as lessees.