Implementation of the Boll Weevil Eradication Loan Program

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 1941

RIN 0560-AE99

Implementation of the Boll Weevil Eradication Loan Program

AGENCY: Farm Service Agency, USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: This action is being taken to implement provisions of the

Agriculture, Rural Development, Food and Drug Administration, and

Related Agencies Appropriations Act, 1997 (Act). The Act directed the

Secretary to implement a new loan program to facilitate efforts to

eradicate, and protect eradication zones, of the boll weevil. The

intended effect is to comply with the Act, assist in boll weevil

eradication, and promote cooperation between the United States

Department of Agriculture (USDA) and State chartered organizations with

regard to boll weevil eradication.

DATES: Effective May 16, 1997. Comments must be submitted by July 15,

1997.

ADDRESSES: Submit written comments to the Director, Farm Loan Programs

Loan Making Division, Farm Service Agency, United States Department of

Agriculture, 1400 Independence Ave. SW, Washington, D.C. 20250-0522.

FOR FURTHER INFORMATION CONTACT: Michael R. Hinton, Branch Chief, Funds

Management/Direct Loans Branch, FSA. Telephone: 202-720-1472;

facsimile: 202-690-1117; or e-mail: [email protected]

SUPPLEMENTARY INFORMATION

Executive Order 12866

This interim 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.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this program. The administration certifies that this

program will not have a significant economic impact on a substantial

number of small entities. By statute this program applies only to State

chartered non-profit organizations whose primary mission is the

eradication of the boll weevil. These loans cannot be made to small

entities or individuals. Small entity farmers may be indirectly

impacted by the program through lower producer assessments for boll

weevil eradication, but the impact will be the same for large entity

and individual producers.

Environmental Evaluation

This document has been reviewed in accordance with 7 CFR part 1940,

subpart G, ``Environmental Program''. An environmental assessment (EA)

has been completed. The EA found no significant environmental impact of

the boll weevil eradication loan program. The record of decision and

FONSI were published in the Federal Register on April 21, 1997.

Executive Order 12988

The interim rule has been reviewed in accordance with Executive

Order 12988. The provisions of this rule are not retroactive and

preempt State laws to the extent such laws are inconsistent with the

provisions of this rule. The provisions of this rule are not

retroactive. In accordance with section 212 (e) of the Department of

Agriculture Reorganization Act of 1994, before any judicial action may

be brought concerning the provisions of this rule, administrative

review under 7 CFR parts 11 and 780 must be exhausted.

Executive Order 12372

This program is not subject to the provisions of Executive Order

12372, which requires intergovernmental consultation with State and

local officials. See the notice related to 7 CFR part 3015, subpart V,

published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.

L. 104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local, and tribal

governments and the private sector. Under section 202 of the UMRA, the

Farm Service Agency (FSA) generally must prepare a written statement,

including a cost-benefit analysis, for proposed and final rules with

``Federal mandates'' that may result in expenditures to State, local,

or tribal governments, in the aggregate, or the private sector, of $100

million or more in any 1 year. When such a statement is needed for a

rule, section 205 of the UMRA generally requires FSA to identify and

consider a reasonable number of regulatory alternatives and adopt the

least costly, more cost-effective or least burdensome alternative that

achieves the objectives of the rule.

This rule contains no Federal mandates, under the regulatory

provisions of title II of the UMRA, for State, local, and tribal

governments or the private sector. Therefore, this rule is not subject

to the requirements of sections 202 and 205 of the UMRA.

Paperwork Reduction Act

The Agency has reviewed this rule to determine the applicability of

the Paperwork Reduction Act of 1995. In accordance with 5 CFR section

1320.3(c)(4), there are fewer than 10 persons or organizations from

whom a collection of information can reasonably be expected within a

12-month period. The information requirements of this program do not

impact a substantial majority of the industry, nor do they meet the

rule of general applicability. The Agency determined that the

regulatory provisions of 5 CFR part 1320 do not apply to this rule;

therefore, it was not reviewed by the Office of Management and Budget.

Background

The Boll Weevil Eradication Program is a cooperative program

between the Federal and State governments and the cotton industry. The

Animal and Plant Health Inspection Service (APHIS) provides eligible

grower organizations: (1) Equipment; (2) technical and administrative

support; and (3) cost-sharing not to exceed 30 percent of the program

costs. The portion of program costs not provided for by APHIS are paid

by the eligible grower organizations through the collection of producer

assessments. The high initial costs of eradication programs result in

levels of assessments which create significant financial hardship on

many producers.

The Act directed the Secretary to implement a new loan program to

facilitate efforts to eradicate, and protect eradication zones, of the

boll weevil. By implementing the Boll Weevil Eradication Loan Program,

FSA will provide loans to eligible grower organizations for the purpose

of spreading initial startup costs over a period of several years,

which will reduce the initial annual assessment

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producers are required to pay. The end result will be a financially

feasible program.

The determination of whether or not an organization is an eligible

organization to receive APHIS cost share money is a determination made

solely by APHIS. FSA will rely on that determination, in part, in

determining whether or not a producer organization is an eligible

organization to receive a boll weevil eradication loan from FSA.

Because this determination is solely an APHIS determination it will be

subject to any APHIS review rights but will not be subject to any FSA

appeal rights in accordance with 7 CFR parts 11 or 780. Denial of a

boll weevil eradication loan on other bases will be subject to FSA

review rights.

The Act requires the Secretary to establish terms and conditions

including repayment schedules, interest rates, and collateral

requirements that best meet the needs of the borrowers. FSA has

established the rates, terms, and collateral requirements of this

regulation to allow for maximum flexibility. These requirements are

negotiable to a large extent, but the loan will be adequately secured.

Cotton grower organizations which are involved in eradication

programs have an urgent need for the new FSA loans. This need affects

two critical areas: existing programs, and new expansion programs for

1997.

Existing programs in Texas and the Southeast are experiencing

challenges regarding cashflow. Payroll expenses and the expense of

ordering equipment and supplies for the coming season require

significant resources immediately. These ongoing programs are not

scheduled to collect grower assessments for the 1997 season until late

spring or even mid-summer. Without the loan program to supplement APHIS

grant money, they will not be able to meet their current operating

expenses and the programs will be forced to be suspended due to a lack

of financial resources. Their cashflow needs are critical.

In addition, several new areas have conducted referenda to

determine areas of program expansion in 1997. Western Louisiana and

most of Mississippi have held affirmative referenda and are moving

toward starting their programs in the coming season. Large quantities

of capital equipment and supplies will need to be ordered immediately

to ensure delivery prior to the start of these two programs.

Any delay in obtaining FSA loans could seriously restrict current

operations and spring activities in the existing program areas. Such

delay could also cripple program expansion into new areas, and possibly

even delay program implementation for at least one year. Publication of

this rule for immediate effect without prior notice and comment as an

interim final rule, therefore, is warranted. Despite the need for the

program to be effective upon publication of this interim rule, FSA will

accept comments for a 60 day comment period after publication to

determine if the program should be subsequently modified.

List of Subjects in 7 CFR Part 1941

Loan programs/agriculture, Pesticides and pests, Cotton.

For reasons set out in the preamble, 7 CFR chapter XVIII is amended

as set forth below.

PART 1941--OPERATING LOANS

1. The authority citation for part 1941 is revised to read as

follows:

Authority: 5 U.S.C 301, 7 U.S.C. 1989, Pub. L. 104-180.

2. Subpart C is added to read as follows:

Subpart C--Boll Weevil Eradication Loan Program

Sec.

1941.970 Introduction.

1941.971 Definitions.

1941.972 [Reserved]

1941.973 [Reserved]

1941.974 [Reserved]

1941.975 Loan eligibility requirements.

1941.976 Eligible loan purposes.

1941.977 Environmental requirements.

1941.978 Equal opportunity and non-discrimination requirements.

1941.979 Other Federal, State, and local requirements

1941.980 Interest rates, terms, security requirements, and

repayment.

1941.981 Economic feasibility requirements.

1941.982 [Reserved]

1941.983 [Reserved]

1941.984 [Reserved]

1941.985 [Reserved]

1941.986 Application processing.

1941.987 Loan approval and obligation of funds.

1941.988 Funding applications.

1941.989 Loan closing.

1941.990 Loan monitoring.

1941.991 Loan servicing.

Subpart C--Boll Weevil Eradication Loan Program

Sec. 1941.970 Introduction.

The regulations of this subpart set forth the terms and conditions

under which loans are made under the Boll Weevil Eradication Loan

Program. These regulations are applicable to applicants, borrowers, and

other parties involved in making, servicing, and liquidating these

loans. The program objective is to assist producers and state

government agencies in the eradication of boll weevils from cotton

producing areas.

Sec. 1941.971 Definitions.

As used in this subpart, the following definitions apply:

APHIS means the Animal and Plant Health Inspection Service, or any

successor Agency.

Extra payment means a payment which was derived from sale of

property serving as security for a loan, such as real estate or

vehicles. Proceeds from program assessments and other normal operating

income, when remitted for payment on a loan will not be considered as

an extra payment.

FSA means the Farm Service Agency, its employees, and any successor

agency.

Non-profit corporation means a private domestic corporation created

and organized under the laws of the States in which the entity will

operate whose net earnings are not distributable to any private

shareholder or individual and which qualify under Internal Revenue

Service code.

Program subsidy account means a budget account established under

the Credit Reform provisions of the Omnibus Budget Reconciliation Act

of 1990 to cover all credit-related budgetary outlays for a specific

loan or guarantee program.

Restructure means to modify the terms of a loan. This includes

modification of the interest rate or repayment term of the loan.

Security means assets pledged as collateral to assure repayment of

a loan in the event there is a default on the loan.

Secs. 1941.972-1941.974 [Reserved]

Sec. 1941.975 Loan eligibility requirements.

(a) An eligible organization must:

(1) Meet all requirements prescribed by APHIS to qualify for cost-

share grant funds as determined by APHIS, (FSA will accept APHIS'

determination as to an organization's qualification);

(2) Have appropriate charter and legal authority as a non-profit

corporation to operate a boll weevil eradication program in any State

and biological or geographic region of any State in which it operates;

(3) Possess the legal authority to enter into contracts, including

debt instruments;

(4) Operate in an area in which producers have approved a

referendum authorizing producer assessments and in which an active

eradication or post-

[[Page 26920]]

eradication program is underway or scheduled to begin no later than

the fiscal year following the fiscal year in which the application is

submitted;

(5) Be unable to obtain, and certify in writing, that credit from

private, commercial, or cooperative sources at reasonable rates and

terms for loans for similar purposes and periods of time is not

available; and

(6) Have the legal authority to pledge producer assessments as

collateral for loans from FSA.

(b) Individual producers are not eligible for loans.

Sec. 1941.976 Eligible loan purposes.

(a) Loan funds may be used for any purpose directly related to boll

weevil eradication activities, including, but not limited to:

(1) Purchase or lease of supplies and equipment;

(2) Operating expenses, including but not limited to, travel and

office operations;

(3) Salaries and benefits;

(b) Loan funds may not be used to pay expenses incurred for

lobbying, public relations, or related activities, or to pay interest

on loans from the Agency.

Sec. 1941.977 Environmental requirements.

No loan will be made until all Federal and state statutory and

regulatory environmental requirements have been complied with.

Sec. 1941.978 Non-discrimination requirements.

No recipient of a boll weevil eradication loan will directly, or

through contractual or other arrangement, subject any person or cause

any person to be subjected to discrimination on the basis of race,

religion, color, national origin, gender, or other prohibited basis.

Borrowers must comply with all applicable Federal laws and regulations

regarding equal opportunity in hiring, procurement, and related

matters.

Sec. 1941.979 Other Federal, State, and local requirements.

(a) In addition to the specific requirements in this subpart, loan

applications will be coordinated with all appropriate Federal, State,

and local agencies.

(b) Borrowers are required to comply with all applicable:

(1) Federal, State, or local laws;

(2) Regulatory commission rules; and

(3) Regulations which are presently in existence, or which may be

later adopted including, but not limited to, those governing the

following:

(i) Borrowing money, pledging security, and raising revenues for

repayment of debt;

(ii) Accounting and financial reporting; and

(iii) Protection of the environment.

Sec. 1941.980 Interest rates, terms, security requirements, and

repayment.

(a) Interest rate. The interest rate will be fixed for the term of

the loan. The rate will be established by FSA, based upon the cost of

Government borrowing for instruments on terms similar to that of the

loan requested, and the impact of interest rate spreads on the amount

to be charged to the program subsidy account at the time the loan is

obligated.

(b) Term. The loan term will be based upon the needs of the

applicant to accomplish the objectives of the loan program and the

impact of the loan term on total program costs charged to the program

subsidy account at the time of loan obligation, as determined by FSA,

but may not exceed 10 years.

(c) Security requirements. (1) Loans must be adequately secured as

determined by FSA. FSA may require certain security including, but not

limited to the following:

(i) Assignments of assessments, taxes, levies, or other sources of

revenue as authorized by State law;

(ii) Investments and deposits of the applicant; and

(iii) Capital assets or other property of the applicant or its

members.

(2) In those cases in which FSA and another lender will hold

assignments of the same revenue as collateral, the other lender must

agree to a prorated distribution of the assigned revenue based upon the

proportionate share of the applicant's debt the lender holds for the

eradication zone from which the revenue is derived at the time of loan

closing.

(d) Repayment. The applicant must demonstrate that income sources

will be sufficient to meet the repayment requirements of the loan and

pay operating expenses.

Sec. 1941.981-1980.985 [Reserved]

Sec. 1941.986 Application.

A complete application will consist of the following:

(a) An application for Federal assistance (available in any FSA

office);

(b) Applicant's financial projections including a cashflow

statement showing the plan for loan repayment;

(c) Copies of the applicant's authorizing State legislation and

organizational documents;

(d) List of all directors and officers of the applicant;

(e) Copy of the most recent audited financial statements along with

updates through the most recent quarter;

(f) Copy of the referendum used to establish the assessments and a

certification from the Board of Directors that the referendum passed;

(g) Evidence that the officers and employees authorized to disburse

funds are covered by an acceptable fidelity bond;

(h) Evidence of acceptable liability insurance policies;

(i) Statement from the applicant addressing any current or pending

litigation against the applicant as well as any existing judgements;

(j) A copy of a resolution passed by the Board of Directors

authorizing the officers to incur debt on behalf of the borrower;

(k) Any other information deemed to be necessary by FSA to render a

decision.

Sec. 1941.987 [Reserved]

Sec. 1941.988 Funding applications.

Loan requests will be processed based on the date FSA receives the

application. Loan approval is subject to the availability of funds.

However, when multiple applications are received on the same date and

available funds will not cover all applications received, applications

from active eradication areas, which FSA determines to be most critical

for the accomplishment of program objectives, will be funded first.

Sec. 1941.989 Loan closing.

(a) Conditions. The applicant must meet all conditions specified by

the loan approval official in the notification of loan approval prior

to closing.

(b) Loan instruments and legal documents. The borrower, through

authorized representatives will execute all loan instruments and legal

documents required by FSA to evidence the debt, perfect the required

security interest in property and assets securing the loan, and protect

the Government's interest, in accordance with applicable State and

Federal laws.

(c) Loan agreement. A loan agreement between the borrower and FSA

will be required. The agreement will set forth performance criteria and

other loan requirements necessary to protect the Government's financial

and programmatic interest and accomplish the objectives of the loan.

Specific provisions of the agreement will be developed on a case-by-

case basis to address the particular situation associated with the loan

being made. However, all loan agreements will include at least the

following provisions:

(1) The borrower must submit audited financial statements to FSA at

least annually;

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(2) The borrower will immediately notify FSA of any adverse actions

such as:

(i) Anticipated default on FSA debt;

(ii) Potential recall vote of an assessment referendum; or

(iii) Being named as a defendant in litigation;

(3) Submission of other specific financial reports for the

borrower;

(4) The right of deferral under 7 U.S.C. 1981a; and

(5) Applicable liquidation procedures upon default.

(d) Fees. The borrower will pay all fees for recording any legal

instruments determined to be necessary and all notary, lien search, and

similar fees incident to loan transactions. No fees will be assessed

for work performed by FSA employees.

Sec. 1941.990 Loan monitoring.

(a) Annual and periodic reviews. At least annually, the borrower

will meet with FSA representatives to review the financial status of

the borrower, assess the progress of the eradication program utilizing

loan funds, and identify any potential problems or concerns.

(b) Performance monitoring. At any time FSA determines it

necessary, the borrower must allow FSA or its representative to review

the operations and financial condition of the borrower. This may

include, but is not limited to, field visits, and attendance at

Foundation Board meetings. Upon FSA request, a borrower must submit any

financial or other information within 14 days unless the data requested

is not available within that timeframe.

Sec. 1941.991 Loan servicing.

(a) Advances. FSA may make advances to protect its financial

interests and charge the borrower's account for the amount of any such

advances.

(b) Payments. Payments will be made to FSA as set forth in loan

agreements and debt instruments. The funds from extra payments will be

applied entirely to loan principal. Extra payments will not extend the

time for the next scheduled payment. Funds from other payments will be

applied first to any advances, then to accrued interest, and when all

accrued interest is paid, the remainder of the payment will be applied

to loan principal.

(c) Restructuring. FSA may restructure loan debts; provided:

(1) the Government's interest will be protected,

(2) the restructuring will be performed within FSA budgetary

restrictions, and

(3) the loan objectives cannot be met unless the loan is

restructured. The provisions of part 1951, subpart S are not applicable

to loans made under this section.

(d) Default. In the event of default, FSA will take all appropriate

actions to protect its interest.

Signed at Washington, D.C., on May 12, 1997.

Dallas R. Smith,

Acting Under Secretary for Farm and Foreign Agricultural Services.

[FR Doc. 97-12837 Filed 5-15-97; 8:45 am]

BILLING CODE 3410-05-P