Distance Learning and Telemedicine Loan and Grant Program

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1703

RIN 0572-AB31

Distance Learning and Telemedicine Loan and Grant Program

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) is amending its regulation

concerning the Distance Learning and Telemedicine Grant Program. This

final rule promulgates regulations for a new loan program that provides

both loans and grants for distance learning and telemedicine projects

benefiting rural areas. The regulation is necessary to implement a new

loan program mandated by the Federal Agriculture Improvement and Reform

Act of 1996. The regulation establishes, among other things, RUS'

policy, the method of selecting projects to receive loans and grants

and allocating the available funds, and the requirements for submitting

an application for financial assistance.

DATES: This regulation is effective on June 13, 1997.

FOR FURTHER INFORMATION CONTACT: Robert Peters, Assistant

Administrator, Telecommunications Program, Rural Utilities Service,

1400 Independence Ave., SW., STOP 1590, Room 4056, South Building,

Washington, DC 20250-1590. Telephone number (202) 720-9554.

SUPPLEMENTARY INFORMATION:

Classification

This final rule has been determined to be not significant and,

therefore, has not been reviewed by the Office of Management and Budget

(OMB) under Executive Order 12866.

Civil Justice Reform

This final rule has been reviewed under Executive Order 12988,

Civil Justice Reform. RUS has determined that this final rule meets the

applicable standards provided in Sec. 3. of the Executive Order.

Regulatory Flexibility Act Certification

On April 16, 1997, RUS published an initial regulatory flexibility

analysis as part of the proposed rule (62 FR 18678), and did not

receive any comments from the public specifically concerning the

analysis. RUS has reviewed the initial regulatory flexibility analysis

and determined that it should remain unchanged. In accordance with the

requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.),

the following sets forth the alternatives that would minimize the

significant economic impact on small businesses.

Title VII, section 704, of the Federal Agriculture Improvement and

Reform Act of 1996 (FAIR Act) (Public Law 104-127) amended Chapter 1 of

subtitle D of title XXIII of the Food, Agriculture, Conservation, and

Trade Act of 1990 by authorizing the Secretary of Agriculture to make

loans for distance learning and telemedicine services in rural areas.

This final rule amends 7 CFR part 1703 to set forth the rules for this

new loan program to be administered by the RUS. The objectives of the

final rule are to encourage and improve telemedicine and distance

learning services in rural areas through the use of telecommunications,

computer networks, and related advanced technologies by students,

teachers, medical professionals, and rural residents.

The new RUS Distance Learning and Telemedicine loan program will

assist in providing modern telecommunication interconnectivity to

educational and medical facilities in rural America. Based on the past

4 years of Distance Learning and Telemedicine grant program activity,

approximately 704 rural schools, serving hundreds of thousands of rural

students, will gain access to improved educational resources through

the information superhighway by sharing limited teaching resources and

gaining access to libraries, training centers, vocational schools, and

other institutions located in metropolitan centers. For telemedicine,

approximately 500 rural medical facilities will gain access to improved

medical care through linkage with other rural hospitals and major urban

medical centers for clinical interactive video consultation, distance

training of rural health care providers, management and transport of

patient information, and access to medical expertise or library

resources.

This final regulation sets forth the rules for the new loan program

which will provide supplementary financial assistance for distance

learning and telemedicine services in rural areas. The final regulation

is needed in order to optimize the use of a limited source of grant and

loan funding by setting forth certain criteria which will enable RUS to

distribute the amount of financial assistance available among the

greatest number of applicants in an economical, efficient, and orderly

manner. A regulatory alternative that was considered was not to publish

a regulation; however, the desired regulatory purposes, to improve the

access of people residing in rural areas to improved educational,

learning, training, and health care services and to achieve the maximum

use of funds available, would not be achieved. This would not be

achieved since the regulation sets forth the criteria for all to review

that will be the basis for RUS determinations and actions.

Entities eligible for assistance under this final rule will be

those entities that provide, or will provide, educational or health

care services or the facilities needed to provide these services

through the use of advanced telecommunications in rural areas. There is

no good estimate, at this time, of the number of entities that will be

affected by the final rule since the regulatory requirements will apply

to only those entities which choose to apply for the financial

assistance. However, RUS is estimating between 250 and 300 applications

will be submitted annually under this program and of those applicants,

between 30 and 50 grants and 100 and 120 loans or combination thereof

would be awarded. RUS' existing Distance Learning and Telemedicine

Grant Program, since its inception in 1993, has received nearly 900

applications for grants.

The various reporting and compliance requirements contained in this

final rule for applicants are necessary to determine such factors as:

eligibility; project purposes; compliance with other Federal

regulations; project costs and alternative funding sources; project

feasibility; and need for educational or telemedicine services. Those

reporting requirements imposed on recipients of financial assistance

are necessary to ensure proper use of financing for approved purposes.

Some of the required reporting documents include information generally

maintained by certain types of entities (i.e., patients or students

served, financial statements, contracts, audits, etc.). The information

collected is in a format designed to minimize the paperwork burden on

small businesses and other small entities. The information collected is

the minimum needed by RUS to approve financial assistance and monitor

the grantee or borrower performance.

The impact on small entities will be limited to the reporting and

compliance regulations which were designed to minimize the burden in

order to encourage applicants. Even the compliance regulations are

designed to only assure RUS that the financial assistance was utilized

for Act purposes and also are regulations for already imposed

government-wide financial assistance of any kind.

[[Page 32435]]

Information Collection and Recordkeeping Requirements

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.

35) RUS requested comments on the information collection incorporated

in the proposed rule published on April 16, 1997 (62 FR 18678). The

deadline for submitting comments is June 16, 1997. The reporting and

recordkeeping requirements contained in the final rule will not be

effective until approved by the Office of Management and Budget

pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 35). Send

questions or comments regarding this burden or any other aspect of

these collections of information, including suggestions for reducing

the burden, to F. Lamont Heppe, Jr., Director, Program Support and

Regulatory Analysis, Rural Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave., SW., STOP 1522, Room 4034, South

Building, Washington, DC 20250-1522.

National Environmental Policy Act Certification

RUS has determined that this final rule will not significantly

affect the quality of the human environment as defined by the National

Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore,

this action does not require an environmental impact statement or

assessment.

Program Affected

The program described by this final rule is listed in the Catalog

of Federal Domestic Assistance programs under number 10.855, Distance

Learning and Telemedicine Loan and Grant Program. This catalog is

available on a subscription basis from the Superintendent of Documents,

the United States Government Printing Office, Washington, DC 20402.

Intergovernmental Review

This program is subject to the provisions of Executive Order 12372

that requires intergovernmental consultation with State and local

officials.

Unfunded Mandate

This rule contains no Federal mandates (under the regulatory

provisions of Title II of the Unfunded Mandate Reform Act) for State,

local, and tribal governments or the private sector. Thus today's rule

is not subject to the requirements of sections 202 and 205 of the

Unfunded Mandate Reform Act.

Background

Title 7, CFR part 1703, subpart D, was originally published in the

Federal Register February 26, 1993, (58 FR 11507), and became effective

March 29, 1993. The Agriculture Improvement and Reform Act of 1996

(FAIR Act) modified the Distance Learning and Telemedicine (DLT) grant

program by creating a loan component. The regulation was modified and

published as a final rule in the Federal Register on June 27, 1996, (61

FR 33622), to incorporate the changes to the grant program mandated by

the FAIR Act, excluding those provisions for administering a loan

program since funds appropriated in fiscal year 1996 could only be used

for grants. This final rule, while based in part on the existing rule,

will (1) Establish criteria for loan and grant eligibility, (2)

simplify the determination for the comparative rurality calculation,

and (3) place greater emphasis on the need for distance learning or

telemedicine services in the scoring criteria.

RUS received 5 comments regarding the proposed rule, which were

taken into consideration in preparing the final rule. Overall,

respondents generally expressed support for the proposed rule, but made

specific comments. A list of the commenters and comment summaries and

responses follows:

1. American Institute of Certified Public Accountants, Washington,

DC.

2. Associated Communications and Research Services, Oklahoma City,

OK.

3. Gershowitz Grant & Evaluation Services, Des Moines, IA.

4. Sequachee Valley Electric Cooperative, South Pittsburgh, TN.

5. State Education Department, University of the State of New York,

Albany, NY.

Comment Summary. One organization commented that the proposed rule

fails to address the issue of how the DLT program relates to other

similar Federally-supported programs and questioned whether the

regulations should require explicit coordination with other Federal

programs. The commenter believes that such a requirement would

strengthen the DLT program and better leverage Federal dollars to

improve rural education and health care.

Response. As a leader in providing public/private partnerships for

rural telecommunications financing, the RUS is already providing

effective solutions to the national mission to build an Information

Superhighway. The DLT program has been a resounding success and has

begun to make a difference in rural communities. The use of advanced

telecommunications systems and technologies has enabled rural America

to begin to realize the benefits of a nationally integrated public

network. RUS vigorously pursues avenues for providing information on

the benefits of the DLT program to the widest possible number of rural

Americans, private organizations, and other Federal agencies. To that

end, the DLT homepage has been hyper-linked to other similar Federal

programs; thus, making available nationwide access to information on

the program. Further, the RUS consults with and exchanges information

and expertise with other Federal agencies with information technology

grant programs, including the Departments of Commerce, Education, and

Health and Human Services. The DLT program complements, not duplicates,

these other programs.

Comment Summary (section 1703.102 Definitions). Organizations

commented that the term Champion Community requires further

clarification. Since it is not a familiar concept, there needs to be

guidance as to what a Champion Community is and how a community can

obtain this designation.

Response. The Champion Community program stems from the Empowerment

Zone/Enterprise Community (EZ/EC) program, a national competition

created by this Administration. In essence, the EZ/EC program is about

revitalizing low income neighborhoods, supporting grassroots and

community-based planning, and creating new partnerships between

neighborhoods, local government and the Federal government. In order to

qualify, certain economic/demographic requirements have to be met, and

the competing cities/towns have to submit innovative and comprehensive

strategic plans for revitalization of the targeted areas.

RUS concurs with the recommendation and has reworded this

definition for clarity. The definition of Champion Community has been

revised to read as follows: ``A Champion Community is any community

that submitted a valid application to become an Empowerment Zone/

Enterprise Community (EZ/EC) area, met the requirements to be

designated an EZ/EC area, but was not chosen because their score was

not high enough to be selected.''

A complete list of Champion Communities can be found on the

Internet at the following address: www.exec.gov/communit/champion.html;

or by contacting the appropriate RUS Area office in Washington, DC.

[[Page 32436]]

Comment Summary (section 1703.108 Maximum grant and loan amounts,

and section 1703.133(b) Minimum number of points required for a loan).

Concern was expressed that with the effective date of the final rule

being so close to the end of the fiscal year and the selection dates,

that RUS not wait to publish the maximum grant and loan amounts, and

minimum number of points required for a loan. This information may make

a difference in determining whether an organization submits an

application this fiscal year.

Response. RUS has committed to its customers that it will award the

FY 1997 grants and loans in 1997. RUS preferred to provide the public

with an opportunity to comment on the proposed rule prior to making

such determinations. The maximum grant and loan amounts and minimum

number of points required for a loan are published in a notice

elsewhere in this separate part of the Federal Register.

Comment Summary (section 1703.109 (m) and (n) Coordination with

USDA State Directors, Rural Development). One commenter suggested that

it would be an advantage to have the paperwork for a grant or loan flow

through the State offices for Rural Development. The commenter believes

that this structure would put the fact analysis of the application

process closer to the project.

Response. RUS requires all applicants to consult with the USDA

State Director, Rural Development, to assure conformity with the USDA

strategic plan in that State. Applicants are also required to consult

with USDA State Directors on the availability of other sources of

funding at the state or local level. Further, USDA state and local

offices provide information and outreach regarding the program. The

program, however, is a nationwide competition which awards the best

projects from throughout the country using a consistent and developed

expert evaluation process. The RUS ensures that reviewers of

applications have technical or managerial expertise in the fields of

telecommunications, telemedicine, distance learning and project

management and are able to evaluate sufficiently each application fully

on its merits. From this process the best of the best are awarded

nationwide recognition and support. State and local offices are

encouraged to ensure all eligible recipients have the opportunity to

compete.

Comment Summary (section 1703.112 Determination of types of

financial assistance). One commenter suggested that RUS grant funds be

reserved for K-12 school districts only and that loans to educational

facilities be restricted to colleges and universities. Since K-12

school districts are generally prohibited from incurring long-term

debt, this recommendation should be strongly considered.

Response. The DLT program is intended primarily to benefit people,

not institutions. Colleges and universities are existing sources of

advanced education that can be made available to K-12 schools through

distance learning without incurring the additional cost of duplicating

existing educational sources. To integrate advanced technologies into

K-12 classrooms, libraries and other educational settings, RUS

encourages the establishment of consortia to help address the effective

use of technology in distance learning and telemedicine services. The

legislative history of the DLT program evidences a clear intention to

use the benefits of technology to bring the advantages of sophisticated

educational and medical resources to residents of rural areas. Thus,

educational institutions at all levels are encouraged to participate in

the program for the express purpose of providing service to rural

residents.

Comment Summary (section 1703.112(b) Determination of types of

financial assistance). An organization commented that the National

School Lunch Program (NSLP)-based system for determining eligibility

for financial assistance is flawed since the percentage of lunch-

eligible children is only a partial relationship to an applicant's

ability to pay for telecommunications technology. The commenter

suggested that the additional factor of ``proximity to interstate

highways'' be considered. For instance, in rural areas, a community's

location adjacent to an interstate highway results in commercial

development, producing significant tax ratables. A community that is

distant from an interstate may have a higher per-capita income (hence,

fewer lunch-eligible children), but a significantly lower tax base, and

therefore be less able to purchase technology without external support.

Another commenter also questioned whether this type of measure is

as effective as the measures used in other rural economic development

programs, e.g., poverty and unemployment levels. The NSLP-system posed

an anomaly for one particular school district the commenter studied.

They found that the middle school had a rate of 64 percent where the

high school had a rate of only 36 percent participation. They

questioned if this was a nation-wide trend.

Concern was also expressed over the three categories used to

determine eligibility for type of financial assistance and suggested

the thresholds be lowered; thereby allowing for a greater number of

applicants eligible for grants only.

An organization also commented that some in school districts

believe that persons who could qualify do not apply for a Federally-

funded school lunch because they fear the stigma more than the possible

benefit. Thus, there could well be built in differences between

communities based on mores. The commenter believes that, in gathering

NSLP percentages and ratios across the country and permitting local

presentation in a particular application, the results may prove far

from objective.

In addition, it was suggested that the two gaps, 32-33 percent and

60-61 percent, in the eligibility formula be addressed. The eligibility

status of applicants who fall into these gaps is ambiguous.

Response. The RUS' choice of using the school lunch program is

consistent with the Federal Communications Commission's (FCC)

implementation of the discounts for telecommunications services for all

schools (K-12), libraries, and rural health care providers, as required

by the Telecommunications Act of 1996. The FCC, like the RUS, uses the

school lunch program, in part, because it is an adjusted measure of

average financial make-up of a community. The DLT program fits hand-in-

glove with the FCC discounts, with the FCC discounts focusing on

monthly operating expense and inside wire, and the DLT focusing on end-

user equipment. It is an added benefit that the RUS and the FCC both

chose the school lunch program.

With regard to employing a measure different from the NSLP such as

poverty and unemployment levels, which are usually determined based on

county demographics, rural areas that contain high levels of

unemployment and extreme levels of people on public assistance are

sometimes located in urban counties. The NSLP-based system emphasizes

the location of the residences of the users of the project itself, and

is a good determinant for measuring the relative well-being of the

area. This approach, based on a school districts level of eligibility

not level of student participation, highlights an important

characteristic of the most needy parts of rural areas that make them

different from more affluent areas; financial hardship. This method

also offers a particular advantage to RUS in administering this

program. The NSLP-based system is objective and easy for applicants to

understand and RUS to administer.

[[Page 32437]]

The intent of the three categories of applicants is to maximize the

benefits of a limited source of grant funding by awarding grants to

those applicants serving areas of financial need. Except as cited in

Sec. 1703.118, grants will only be awarded to applicants that do not

have the resources to repay loans. The 1995 statistics for the NSLP

indicate that the percentages to be used to establish eligibility for

loans and grants will result in financial assistance in the form of

loans for about 75 percent of qualifying applications.

With regard to the two gaps in the percentage ratios used in the

eligibility formula, the regulation has been revised to clarify that

RUS will round up to the next highest or round down to the next lowest

whole number for fraction of percentages at or greater than .5 or less

than .5, respectively.

RUS recognizes that the preamble, under ``Need for Services''

inadvertently indicated that the points available for this scoring

criterion have been increased to represent 26 percent of the total

possible points available for any project. The percent should have read

24.32 not 26 percent.

Comment Summary (section 1703.112(f) Determination of types of

financial assistance). One organization commented that the method for

determining the loan-grant ratio is arbitrary. Applicants invest

significant time and financial resources in the preparation of

proposals that risk receiving only $5,000 in grant funds. It was

recommended that the minimum grant size be raised to a more significant

level (e.g., $50,000), or that objective criteria on ability to pay be

published and used to make the determination.

Response. RUS has determined that based upon the great need for

these types of projects and the limited amount of available grant

funds, the ratios established would allow RUS to fund more projects.

Therefore, RUS was not persuaded by the comment and has determined that

in this regard the regulation should remain unchanged. RUS intends to

get maximum benefit for the dollars invested. Thus, considering the

funding limitations for this program, RUS believes the method for

determining the loan-grant ratio fairly represents and meets the intent

of the program. The purpose of this program is to provide financial

assistance, and, such is accomplished through grants, loans, and loan-

grant combinations. The proposed method maximizes the delivery of

needed funds to rural areas.

Comment Summary (section 1703.117(b)(1) Scoring criteria-Need for

services). A comment was made regarding the desire to have quantifiable

measures developed for this analysis area. The commenter believes that

from the suggested topics listed in this section, some level of points

can be assigned to each of the four (ii, iii, iv, and v) benefit areas.

Response. The intent of RUS is to allow applicants the flexibility

to submit any substantiated information that will strengthen the

documentation of their application relative to need. Categorizing

``needs'' may penalize many worthwhile projects since the scope of the

``need issue'' is so broad. RUS has provided some examples of how

applicants'' proposed projects will meet the needs of their community,

but feels it is necessary that the applicants have the flexibility to

document their unique ``needs.''

RUS solicited from the public suggestions on any objective method

that could be used or indications that the subjective method is

acceptable. No alternatives, however, were suggested and other methods

examined by RUS proved too restrictive. The regulation remains as

proposed.

Comment Summary (section 1703.128 Audit requirements). This section

of the proposed rule stated that grant and loan recipients must provide

an audit in accordance with 7 CFR part 3015, subpart I. One commenter

stated that the referenced regulatory section subpart I, which

discusses the requirements of the Single Audit Act of 1984, became

outdated with the passage of the Single Audit Act Amendments of 1996

(Public Law 104-156). Since the requirements of the Amendments of 1996

are effective for fiscal years beginning after June 30, 1996, it was

recommended that RUS update the regulation accordingly.

Response. The final rule has been changed to refer to the audit

requirements contained in 7 CFR part 3051, Audits of Institutions of

Higher Education and Other Nonprofit Institutions, or its successor,

and 7 CFR part 1773, Policy on Audits of RUS Borrowers. Part 3051

applies to not-for-profit organizations (including hospitals, colleges

and universities) and state, local and Indian tribal governments. Part

1773 applies to for-profit organizations.

To further clarify that only applicants who have the least ability

to repay the full amount of financial assistance provided receive

grants or loan/grant combinations, RUS is adding the following sentence

to Sec. 1703.112(a)(2): ``The applicant's ability to pay for the

project. Financial assistance in the form of grants or a combination of

loans and grants will be made available only to those otherwise

eligible applicants determined by the Administrator, after review of

the financial information furnished by the applicant, to have the least

ability to repay the full amount of assistance provided.''

RUS also substituted the words financial assistance for funding in

the heading of Sec. 1703.109 and Sec. 1703.112, and throughout the

final rule where appropriate. Since the term financial assistance is

defined in the final rule, this change was made in the interest of

uniformity.

RUS has determined that unless this rule is effective upon

publication in the Federal Register, it is unlikely that much if any of

the Fiscal Year 1997 authorization for the Distance Learning and

Telemedicine Loan and Grant Program will be available for use by loan

and grant recipients before the authorization lapses.

List of Subjects in 7 CFR Part 1703

Community development, Grant programs--education, Grant programs--

health care, Grant programs--housing and community development, Loan

programs--education, Loan programs--health care, Loan programs--housing

and community development, Reporting and recordkeeping requirements,

Rural areas.

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

of the Code of Federal Regulations is amended as follows:

PART 1703--RURAL DEVELOPMENT

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

follows:

Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.; Pub. L. 103-

354, 108 Stat 3178 (7 U.S.C. 6941 et seq.).

2. Subpart D of part 1703 is revised to read as follows:

Subpart D--Distance Learning and Telemedicine Loan and Grant Program

Sec.

1703.100 Purpose.

1703.101 Policy.

1703.102 Definitions.

1703.103 Applicant eligibility and allocation of funds.

1703.104 Allowable grant and loan funding percentage.

1703.105 Grant and loan purposes.

1703.106 In-kind matching provisions.

1703.107 Ineligible loan and grant purposes.

1703.108 Maximum and minimum sizes of a grant and a loan.

1703.109 The application for financial assistance.

1703.110 Conflict of interest.

1708.111 [Reserved]

1703.112 Determination of types of financial assistance.

1703.113 Application filing dates, location, processing, and public

notification.

[[Page 32438]]

1703.114--1703.116 [Reserved]

1703.117 Criteria for scoring applications.

1703.118 Other application selection provisions.

1703.119 Appeal provisions.

1703.120--1703.121 [Reserved]

1703.122 Further processing of selected applications.

1703.123--1703.125 [Reserved]

1703.126 Disbursement of loan and grant funds.

1703.127 Reporting and oversight requirements.

1703.128 Audit requirements.

1703.129 Repayment of loans.

1703.130--1703.134 [Reserved]

1703.135 Grant and loan administration.

1703.136 Changes in project objectives or scope.

1703.137 Grant and loan termination provisions.

1703.138--1703.139 [Reserved]

1703.140 Expedited telecommunications loans.

Appendix A to Subpart D of Part 1703--Environmental Questionnaire.

Subpart D--Distance Learning and Telemedicine Loan and Grant

Program

Sec. 1703.100 Purpose.

The purpose of this subpart is to encourage and improve

telemedicine services and distance learning services in rural areas

through the use of telecommunications, computer networks, and related

advanced technologies by students, teachers, medical professionals, and

rural residents.

Sec. 1703.101 Policy.

(a) RUS recognizes that the transmission of information is vital to

the economic development, education, and health of rural Americans. To

further this objective, RUS will award loans and grants under this

subpart to distance learning and telemedicine projects that will

improve the access of people residing in rural areas to improved

educational, learning, training, and health care services. Unless a

distinction is made in the various sections of this subpart, all

aspects of this subpart will apply to all requests for financial

assistance.

(b) In providing assistance under this subpart, RUS will give

priority to rural areas that it believes have the greatest need of

distance learning and telemedicine services. RUS believes that

generally the need is greatest in economically challenged areas and

those requiring high costs to serve. This program is consistent with

provisions of the 1996 Telecommunications Act (Public Law 104-104, 110

Stat. 56) that designates telecommunications service discounts for

schools, libraries, and rural health care providers providing benefits

to rural end-users. RUS will take into consideration the community's

involvement in the project and the applicant's ability to leverage

grant funds based on its access to capital.

(c) RUS believes that the residents of rural areas and their local

institutions which serve them can best determine what are the most

appropriate communications or information systems for use in their

respective communities. Therefore, in administering this subpart, RUS

will not favor or mandate the use of one particular technology over

another.

(d) All rural institutions are encouraged to cooperate with each

other and with applicants and end users in promoting the program being

implemented under this subpart.

(e) RUS staff will make diligent efforts to inform potential

applicants in rural areas of the program being implemented under this

subpart.

(f) Financial assistance under this subpart will consist of grants

or cost of money loans, or both. The Administrator shall determine the

portion of the financial assistance provided to a recipient that

consists of grants and the portion that consists of cost of money loans

so as to result in the maximum feasible repayment to the government of

the financial assistance, based on the ability of the recipient to

repay and with the full utilization of funds made available to carry

out this subpart.

(g) The Administrator may provide a cost of money loan to entities

using telemedicine and distance learning services, and, to entities

providing or proposing to provide telemedicine service or distance

learning service to other persons at rates calculated to ensure that

the benefit of the financial assistance is passed through to the other

persons.

(h) The Administrator may provide a cost of money loan under this

subpart to a borrower of a telecommunications or electric loan under

the Rural Electrification Act of 1936, as amended. A borrower receiving

a cost of money loan under this subpart shall:

(1) Make the funds provided available, under any terms it so

chooses as long as the terms are no more stringent than the terms under

which it received the financial assistance, to entities that qualify as

distance learning or telemedicine projects satisfying the requirements

of this subpart.

(2) Use the funds provided to acquire, install, improve, or extend

a system referred to in this subpart.

Sec. 1703.102 Definitions.

Act means the Rural Electrification Act of 1936, as amended (7

U.S.C. 901 et seq.).

Administrator means the Administrator of the Rural Utilities

Service, or designee or successor.

Applicant means an eligible organization which applies for

financial assistance under this subpart.

Champion Community means any community that submitted a valid

application to become an Empowerment Zone/Enterprise Community (EZ/EC)

area, met the requirements to be designated an EZ/EC area, but was not

chosen because their score was not high enough to be selected.

Completed application means an application that includes all those

items specified in Sec. 1703.109 in form and substance satisfactory to

the Administrator.

Comprehensive rural telecommunications plan means the plan

submitted by an applicant in accordance with Sec. 1703.109(a).

Computer networks means computer hardware and software, terminals,

signal conversion equipment including both modulators and demodulators,

or related devices, used to communicate with other computers to process

and exchange data through a telecommunication network in which signals

are generated, modified, or prepared for transmission, or received, via

telecommunications terminal equipment and telecommunications

transmission facilities.

Consortium means a combination or group of eligible entities formed

to undertake the purposes for which the distance learning and

telemedicine financial assistance is provided. Each consortium shall be

composed of a minimum of two eligible organizations that meet the

requirements of Sec. 1703.103.

Construct means to acquire, construct, extend, improve, or install

a facility or system.

Cost of money loan means a loan made under the DLT program bearing

interest at a rate equal to the then current cost of money to the

government, at the time the feasibility study is completed, for loans

of similar maturity not to exceed 10 years.

Data terminal equipment means equipment that converts user

information into data signals for transmission, or reconverts the

received data signals into user information, and is normally found on

the terminal of a circuit and on the premises of the end user.

[[Page 32439]]

Distance learning means a telecommunications link to an end user

through the use of eligible equipment to:

(1) Provide educational programs, instruction, or information

originating in one area, whether rural or not, to students and teachers

who are located in rural areas; or

(2) Connect teachers and students, located in one rural area with

teachers and students that are located in a different rural area.

DLT borrower means an entity that has outstanding loans under the

provisions of the DLT program.

DLT program means the Distance Learning and Telemedicine Loan and

Grant Program administered by RUS pursuant to subtitle D, chapter 1, of

the Rural Economic Development Act of 1990, as amended (7 U.S.C. 950aaa

through 950aaa-4).

Economic useful life as applied to facilities financed under the

DLT program means the number of years resulting from dividing 100

percent by the depreciation rate (expressed as a percent) based on

Internal Revenue Service depreciation rules or recognized

telecommunications industry guidelines.

Eligible equipment means computer hardware and software, audio and

visual equipment, computer network components, telecommunications

terminal equipment, telecommunications transmission facilities, data

terminal equipment, inside wiring, interactive video equipment, or

other facilities that would further telemedicine services or distance

learning services. Land, buildings, or building construction are not

considered eligible equipment (see Sec. 1703.107(a)(10)).

Eligible organization means an incorporated entity that meets the

requirements of Sec. 1703.103.

Empowerment Zone and Enterprise Community (EZ/EC) means any

community whose designation as such pursuant to 26 U.S.C. 1391 et seq.

is in effect at the time RUS agrees to provide financial assistance.

End user means either or both of the following:

(1) Rural elementary or secondary schools or other educational

institutions, such as institutions of higher education, vocational and

adult training and education centers, libraries, and teacher training

centers, and students, teachers and instructors using such rural

educational facilities, that participate in a rural distance learning

telecommunications program through a project funded under this subpart;

(2) Rural hospitals, primary care centers or facilities, such as

medical centers and clinics, and physicians and staff using such rural

medical facilities, that participate in a rural telemedicine program

through a project funded under this subpart.

End user site means a facility that is part of a network or

telecommunications system that is utilized by end users.

Financial assistance shall consist of grants, cost of money loans,

or both, made under the DLT program.

Grant documents means the letter of agreement, including any

amendments and supplements thereto, between RUS and the grant

recipient.

Grantee means a recipient of a grant from RUS to carry out the

purposes of the DLT program.

Hub means control center of a network or telecommunications system.

Instructional programming means educational material, including

computer software, which would be used for educational purposes in

connection with eligible equipment but does not include salaries,

benefits, and overhead of medical or educational personnel.

Interactive video equipment means equipment used to produce and

prepare for transmission audio and visual signals from at least two

distant locations such that individuals at such locations can orally

and visually communicate with each other. Such equipment includes

monitors, other display devices, cameras or other recording devices,

audio pickup devices, and other related equipment.

Letter of agreement means a legal document executed by RUS and the

grantee that contains specific terms, conditions, requirements, and

understandings applicable to a particular grant.

Loan documents mean the loan agreement, note, and security

agreement, including any amendments and supplements thereto, between

RUS and the DLT or Telecommunications/Electric borrower.

Local exchange carrier means a commercial, cooperative or mutual-

type association, or public body that is engaged in the provision of

telephone exchange service or exchange access.

Matching funds means the applicant's funding contribution for

allowable purposes.

National School Lunch Program (NSLP) means the federally assisted

meal program established under the National School Lunch Act of 1946

(42 U.S.C. 1751).

Project means an undertaking to provide or improve distance

learning or telemedicine by using financial assistance provided under

the DLT program.

Project service area means the area in which at least 90 percent of

the persons to be served by the project are likely to reside.

Rural community facilities means facilities such as schools,

libraries, learning centers, training facilities, hospitals, medical

centers, or similar facilities, primarily used by residents of rural

areas, that will use a telecommunications, computer network, or related

advanced technology system to provide educational or health care

benefits primarily to residents of rural areas.

RUS means the Rural Utilities Service, an agency of the United

States Department of Agriculture formerly known as REA, see 7 CFR

1700.1.

Scope of work means a detailed plan of work that has been approved

by the Administrator to be performed by the applicant using financial

assistance provided under this subpart.

Secretary means the Secretary of Agriculture.

Technical assistance means:

(1) Assistance in learning to operate equipment or systems; and

(2) Studies, analyses, designs, reports, manuals, guides,

literature, or other forms of creating, acquiring, or disseminating

information.

Telecommunications carrier means any provider of telecommunications

services.

Telecommunications/Electric borrower means an entity that has

outstanding electric or telecommunications RUS or Rural Telephone Bank

loans or loan guarantees under the provisions of the Act.

Telecommunications terminal equipment means the assembly of

telecommunications equipment at the end of a circuit or path of a

signal, including but not limited to over the air broadcast, satellite,

and microwave, normally located on the premises of the end user, that

interfaces with telecommunications transmission facilities, and that is

used to modify, convert, encode, or otherwise prepare signals to be

transmitted via such telecommunications facilities, or that is used to

modify, reconvert, or carry signals received from such facilities, the

purpose of which is to accomplish the goal for which the circuit or

signal was established.

Telecommunications transmission facilities means facilities that

transmit, receive, or carry data between the telecommunications

terminal equipment at each end of the telecommunications circuit or

path. Such facilities include microwave antennae, relay stations and

towers,

[[Page 32440]]

other telecommunications antennae, fiber-optic cables and repeaters,

coaxial cables, communication satellite ground station complexes,

copper cable electronic equipment associated with telecommunications

transmissions, and similar items.

Telemedicine means a telecommunications link to an end user through

the use of eligible equipment which electronically links medical

professionals at separate sites in order to exchange health care

information in audio, video, graphic, or other format for the purpose

of providing improved health care services primarily to residents of

rural areas.

Sec. 1703.103 Applicant eligibility and allocation of funds.

(a) To be eligible to receive financial assistance under this

subpart, the applicant must be organized in one of the following

corporate structures:

(1) An incorporated organization, partnership, Indian tribe and

tribal organization as defined in 25 U.S.C. 450b (b) and (c), or other

legal entity, including a municipal corporation or a private

corporation organized on a for-profit or not-for-profit basis, which

operates, or will operate, a school, college, university, learning

center, training facility, or other educational institution, including

a regional educational laboratory, library, hospital, medical center,

medical clinic or any rural community facility. A state government,

other than a state government entity that operates a rural community

facility, is not considered an eligible applicant; or

(2) A consortium, as defined in Sec. 1703.102. A consortium which

includes a state government entity is only eligible if the state

government entity operates a rural community facility; or

(3) An incorporated organization, partnership, Indian tribe and

tribal organization as defined in 25 U.S.C. 450b (b) and (c), or other

legal entity which is providing or proposes to provide telemedicine

service or distance learning service to other legal entities or

consortia at rates calculated to ensure that the economic value and

other benefits of the distance learning or telemedicine grant is passed

through to such other legal entities or consortia.

(b) At least one of the entities in a partnership or consortium

must be eligible individually, and the partnership or consortium must

provide written evidence of its legal capacity to contract with RUS. If

a partnership or consortium lacks the capacity to contract, each

individual entity must contract with RUS on its own behalf.

(c) A borrower of an electric or telecommunications loan under the

Act is eligible for a cost of money loan only.

(d) All applications for financial assistance, with the exception

of applications requesting a loan and having the minimum required

score, will be ranked by the type of application (health care or

educational) and total points scored. Grant funds available for medical

and educational applicants will be allocated based on the total number

of medical and educational applications scoring in the top 50 percent

of all applications received for that fiscal year. Applications will be

ranked only in one category based on the predominant use of the

project.

Sec. 1703.104 Allowable grant and loan funding percentage.

(a) Financial assistance, except as noted in paragraph (b) of this

section, may be used by eligible organizations for distance learning

and telemedicine projects to finance up to 70 percent of the cost of

allowable purposes outlined in Sec. 1703.105 provided that no financial

assistance may exceed the maximum grant or loan amount for the year in

which the grant or loan is made.

(b) Cost of money loans requested by an applicant may be used by

eligible organizations for distance learning and telemedicine projects

to finance up to 90 percent of the cost of allowable loan purposes

outlined in Sec. 1703.105, provided that no loan may exceed the maximum

loan amount for the year in which the loan is made. Financial

assistance applications that do not request a loan and qualify for a

loan or combination loan and grant will be funded up to 70 percent of

the cost of allowable purposes.

Sec. 1703.105 Grant and loan purposes.

Grants and loans shall be limited to costs associated with the

initial capital assets associated with the project. Grant and loan

funds as set out in the last sentence of this section shall not exceed

twenty percent (20 percent) of the requested financial assistance. The

following are allowable grant and loan purposes:

(a) Acquiring, by lease or purchase, eligible equipment as defined

in Sec. 1703.102;

(b) Acquiring instructional programming; and

(c) Providing technical assistance and instruction for using

eligible equipment, including any related software; developing

instructional programming; providing engineering or environmental

studies relating to the establishment or expansion of the phase of the

project that is being financed with the financial assistance.

Sec. 1703.106 In-kind matching provisions.

(a) In-kind matching, the applicant's minimum funding contribution

(specified in Sec. 1703.104) for allowable purposes, is generally

required in the form of cash. However, in-kind contributions for the

purposes listed in Sec. 1703.105 may be substituted for cash.

(b) In-kind items listed in Sec. 1703.105 must be non-depreciated

or new assets with established monetary value. Manufacturers or service

providers discounts are not considered in-kind matching.

(c) Financial assistance may be provided for end user sites.

Financial assistance may also be provided for hubs located in rural or

non-rural areas, if they are necessary to provide distance learning or

telemedicine services to rural residents at end user sites.

Sec. 1703.107 Ineligible loan and grant purposes.

(a) Without limitation, financial assistance under this subpart

will not be provided:

(1) To cover the costs of installing or constructing

telecommunications transmission facilities, except as provided in

paragraph (c) of this section;

(2) To pay for medical equipment except medical equipment primarily

used for encoding and decoding data, such as images, for transmission

over a telecommunications or computer network;

(3) To pay salaries, wages, or employee benefits to medical or

educational personnel;

(4) To pay for the salaries or administrative expenses of the

applicant or the project;

(5) To purchase equipment that will be owned by the local exchange

carrier or another telecommunications service provider;

(6) To duplicate facilities providing distance learning or

telemedicine services in place or to reimburse the applicant or others

for costs incurred prior to RUS' receipt of the completed application;

(7) To pay costs of preparing the application package for financial

assistance under this program;

(8) For projects whose sole objective is to provide links between

teachers and students or medical professionals who are located at the

same facility;

(9) For site development and the destruction or alteration of

buildings;

(10) For the purchase of land, buildings, or building construction;

[[Page 32441]]

(11) For projects located in areas covered by the Coastal Barrier

Resources Act (16 U.S.C. 3501 et seq.);

(12) For any purpose that the Administrator has not specifically

approved; or

(13) Except for leases provided in Sec. 1703.105, to pay the cost

of recurring or operating expenses for the project.

(b) Except as otherwise provided in Sec. 1703.140, funds shall not

be used to finance a project in part when success of the project is

dependent upon the receipt of additional financial assistance under

this subpart D or is dependent upon the receipt of other funding that

is not assured.

(c) Loans can be used to cover the costs of telecommunications

transmission facilities if no telecommunications carrier will install

such facilities under the Act or through other financing procedures

within a reasonable time period and at a cost to the applicant that

does not jeopardize the feasibility of the project, as determined by

the Administrator.

Sec. 1703.108 Maximum and minimum sizes of a grant and a loan.

Applications for grants and loans to be considered under this

subpart will be subject to limitations on the proposed amount of

financial assistance. The Administrator may establish the maximum

amount of financial assistance to be made available to an individual

recipient for each fiscal year under this subpart, by publishing notice

of the maximum amount in the Federal Register not more than 45 days

after funds are made available for the fiscal year to carry out this

subpart. The minimum size of a grant or loan is $50,000.

Sec. 1703.109 The application for financial assistance.

The following items comprise the required material that must be

submitted to RUS in support of the application for financial

assistance:

(a) Proposed scope of work of the project. The proposed scope of

work of the project which includes, at a minimum:

(1) The specific activities to be performed under the project;

(2) Who will carry out the activities;

(3) The time-frames for accomplishing the project objectives and

activities; and

(4) A budget for capital expenditures reflecting the line item

costs for both the grant and loan funds and other sources of funds for

the project.

(b) Executive summary for the project. The applicant must provide

RUS a general project overview, verification of compliance with the

general requirements of this subpart, and documentation of eligibility.

The executive summary shall contain the following 9 categories:

(1) A description of why the project is needed.

(2) An explanation of how the applicant will address the need cited

in paragraph (b)(1) of this section, why the applicant requires

financial assistance and types of educational or medical services to be

offered by the project, and the benefits to the rural residents.

(3) A description of the applicant, documenting eligibility with

Sec. 1703.103.

(4) An explanation of the total cost of the project including a

breakdown of the RUS financial assistance required and the source of

funding for the remainder of the project.

(5) A statement that the project is either a distance learning or

telemedicine facility as defined in Sec. 1703.102. If the project

provides both distance learning and telemedicine services, the

applicant must identify the predominant use of the system.

(6) A general overview of the telecommunications system to be

developed, including the types of equipment, technologies, and

facilities used.

(7) A description of the participating hubs and end user sites and

the number of rural residents which will be served by the proposed

project at each end user site.

(8) The applicant must certify that facilities using financial

assistance do not duplicate adequate established telemedicine services

or distance learning services. RUS will make the final determination

whether or not financial assistance requested by an applicant will

duplicate such adequate established services.

(9) A listing of the location of each end user site (city, town,

village, borough or rural area plus the state) discussing how the

appropriate National School Lunch Program eligibility percentage was

determined in accordance with Sec. 1703.112. These percentages may be

obtained from the State or local organization that administers the

program and must be certified by that organization as being correct.

(c) Financial information. The applicant must provide financial

information to support the need for the financial assistance requested

for the project. It must show its financial capacity to carry out the

proposed work, and show project feasibility. For educational

institutions participating in a project application (including all

members of a consortium), the financial data must reflect revenue and

expense reports and balance sheet reports, reflecting net worth, for

the most recent annual reporting period preceding the date of the

application. For medical institutions participating in a project

application (including all members of a consortium), the financial data

must include income statement and balance sheet reports, reflecting net

worth, for the most recent completed fiscal year preceding the date of

the application. When the applicant is a partnership, company,

corporation or other entity, current balance sheets, reflecting net

worth, are needed from each of the entities that has at least a 20

percent interest in such partnership, company, corporation or other

entity. When the applicant is a consortium, a current balance sheet,

reflecting net worth, is needed from each member of the consortium and

from each of the entities that has at least a 20 percent interest in

such member of the consortium.

(1) Applicants must include sufficient pro-forma financial data

which adequately reflects the financial capability of project

participants and the project as a whole to continue a sustainable

project for a minimum of 10 years after completion of the project. This

documentation should include sources of sufficient income or revenues

to pay operating expenses including telecommunications access and toll

charges, system maintenance, salaries, training, and any other general

operating expenses, and provide for replacement of depreciable items.

(2) For applicants requesting a loan and applicants who qualify for

a loan or a combination loan/grant in accordance with Sec. 1703.112,

the documentation must demonstrate the ability to repay the loan. RUS

will consider a secured loan guarantee by a third party as evidence of

the ability of the applicant to repay a loan.

(3) For each hub and end user site, the applicant must identify and

provide reasonable evidence of each source of revenue. If the

projection relies on cost sharing arrangements among hub and end user

sites, the applicant must provide evidence of agreements made among

project participants.

(4) For applicants eligible under Sec. 1703.103(a)(3), an

explanation of the economic analysis justifying the rate structure to

ensure that the benefit, including cost saving, of the financial

assistance is passed through to the other persons receiving

telemedicine or distance learning services.

(5) For RUS telecommunications and electric borrowers applying for

a cost of money loan, the only financial information required in

support of that application is the respective most recent

[[Page 32442]]

Annual Report to RUS (i.e. RUS Form 479, Form 7, or Form 12).

(d) A statement of experience. The applicant must provide a written

narrative (not exceeding three single spaced pages) describing its

demonstrated capability and experience, if any, in operating an

educational or health care endeavor and any project similar to the

proposed project. Experience in a similar project is desirable but not

required.

(e) Funding commitment from other sources. The applicant must

provide evidence, in form and substance satisfactory to the

Administrator, that all funds in addition to funds provided under this

subpart are committed and will be used for the proposed project.

(f) Telecommunications System Plan. A Telecommunications System

Plan, consisting of the following, is required. The items in paragraphs

(f) (4) and (5) of this section are needed only when the applicant is

requesting loan funds for telecommunications transmission facilities:

(1) The capabilities of the telecommunications terminal equipment,

including a description of the specific equipment which will be used to

deliver the proposed service. The applicant must document discussions

with various technical sources which could include consultants,

engineers, product vendors, or internal technical experts, provide

detailed cost estimates for operating and maintaining the end user

equipment and provide evidence that alternative equipment and

technologies were evaluated.

(2) A listing of the proposed purchases or leases of

telecommunications terminal equipment, telecommunications transmission

facilities, data terminal equipment, interactive video equipment,

computer hardware and software systems, and components that process

data for transmission via telecommunications, computer network

components, communication satellite ground station equipment, or any

other elements of the telecommunications system designed to further the

purposes of this subpart, that the applicant intends to build or fund

using RUS financial assistance.

(3) A description of the consultations with the appropriate

telecommunications carriers (including other interexchange carriers,

cable television operators, enhanced service providers, providers of

satellite services and telecommunications equipment manufacturers and

distributors) and the anticipated role of such providers in the

proposed telecommunications system.

(4) Results of discussion with local exchange carriers serving the

project area addressing concerns in Sec. 1703.107 (c).

(5) The capabilities of the telecommunications transmission

facilities, including bandwidth, networking topology, switching,

multiplexing, standards and protocols for intra-networking and open

systems architecture (the ability to effectively communicate with other

networks). In addition, the applicant must explain the manner in which

the transmission facilities will deliver the proposed services. For

example, for medical diagnostics, the applicant might indicate whether

or not a guest or other diagnosticians can join the network from

locations off the network. For educational services, indicate whether

or not all hub and end-user sites are able to simultaneously hear in

real-time and see each other or the instructional material in real-

time. The applicant must include detailed cost estimates for operating

and maintaining the network, and include evidence that alternative

delivery methods and systems were evaluated.

(g) Proposed evaluation methodology. The applicant must provide a

proposed method of evaluating the success of the project in meeting the

objectives of the program as set forth in Sec. 1703.100 and

Sec. 1703.101 and the proposed scope of work.

(h) Compliance with other Federal statues and regulations. The

applicant is required to submit evidence that it is in compliance with

other applicable Federal requirements including, but not limited to the

following:

(1) Equal opportunity and nondiscrimination requirements;

(2) Architectural barriers;

(3) Flood hazard area precautions;

(4) Uniform Relocation Assistance and Real Property Acquisition for

Federal and Federally Assisted Programs;

(5) Drug-free workplace;

(6) ``Certification Regarding Debarment, Suspension and Other

Responsibility Matters--Primary Covered Transaction'' (See 7 CFR

3017.510);

(7) Intergovernmental review of Federal programs if clearing

house(s) exists for the state(s) in which project is located; and

(8) Restrictions on lobbying. For an application for financial

assistance in excess of $100,000, a certification statement,

``Certification Regarding Lobbying'' is required. If the applicant is

engaged in lobbying activities, the applicant must submit a completed

disclosure form, ``Disclosure of Lobbying Activities'' (see 7 CFR part

3018).

(i) (1) Environmental impact and historic preservation. The

applicant must provide details of the project's impact on the

environment and historic preservation. Grants and loans made under this

part are subject to 7 CFR part 1794 which contains the policies and

procedures of RUS for implementing a variety of Federal statues,

regulations and executive orders generally pertaining to protection of

the quality of the human environment that are listed in 7 CFR 1794.1.

The application shall contain a separate section entitled

``Environmental Impact of the Project.''

(2) Environmental information. An ``Environmental Questionnaire,''

appendix A to this subpart, may be used by applicants to assist in

complying with the requirements of this section. Copies of the

Environmental Questionnaire are available from RUS.

(j) A completed Standard Form 424, ``Application for Federal

Assistance,'' along with a board of directors resolution authorizing

the request for financial assistance.

(k) Evidence of the applicant's legal existence and authority to

enter into a grant or loan agreement with RUS and perform activities

proposed under the grant or loan application.

(l) Evidence that the applicant is not delinquent on any obligation

owed to the government (7 CFR parts 3016 and 3019).

(m) Evidence that the applicant has consulted with the USDA State

Director, Rural Development, concerning the availability of other

sources of funding available at the state or local level.

(n) Evidence from the USDA State Director, Rural Development, that

the application conforms with the State strategic plan as prepared

under section 381D of the Consolidated Farm and Rural Development Act

(7 U.S.C. 1921 et seq.). The applicant should indicate if such a plan

does not exist.

(o) A depreciation schedule covering all assets of the project.

Those assets for which financial assistance is being requested should

be clearly indicated.

(p) Supplemental information. The applicant should provide any

additional information it considers relevant to the project and likely

to be helpful in determining the extent to which the proposed project

would further the purposes of this subpart.

(q) Additional information requested by RUS. The applicant must

provide any additional information the Administrator may consider

relevant to the application and necessary to adequately evaluate the

application. RUS may also request modifications or

[[Page 32443]]

changes, including changes in the amount of funds requested, in any

proposal described in an application submitted under this subpart.

Sec. 1703.110 Conflict of interest.

At any time prior to the disbursement of a grant or loan awarded

under this subpart, the Administrator may disqualify an otherwise

eligible project whenever, in the judgment of the Administrator, the

project would create a conflict of interest or the appearance of a

conflict of interest. RUS will notify the applicant in writing of the

Administrator's intention to disqualify the project under this section

and set forth the basis for the Administrator's determination that a

conflict of interest or appearance exists. Thereafter, the applicant

will have 30 days from the date of such notice to file a written

response with the Administrator. If the Administrator receives the

applicant's response within the 30-day period, the Administrator will

consider the information contained therein before making a final

determination whether to disqualify the project. RUS will promptly

notify the applicant of the final determination whether a conflict of

interest or appearance of a conflict exists. If the determination is

affirmative, the notice will also advise the applicant whether the

project is disqualified or conditionally disqualified. If the project

is conditionally disqualified, the notice will state under what

circumstances the project may continue to be eligible for assistance

under this subpart. The Administrator's decision under this section

will be final.

Sec. 1703.111 [Reserved]

Sec. 1703.112 Determination of types of financial assistance.

(a) To maximize the use of available funding and to obtain the

maximum repayment to the government, RUS will determine if an applicant

will be awarded a grant, loan or a combination of both loans and grants

based upon the following:

(1) The percentage of students eligible to participate in the

National School Lunch Program in the areas where the end user sites

comprising the project are located; and

(2) The applicant's ability to pay for the project. Financial

assistance in the form of grants or a combination of loans and grants

will be made available only to those otherwise eligible applicants

determined by the Administrator, after review of the financial

information furnished by the applicant, to have the least ability to

repay the full amount of assistance provided.

(b) The methodology contained in this section will be used to

evaluate the relative financial need of the applicant, community, and

project. All applicants are required to provide the applicable

percentage of students eligible to participate in the National School

Lunch Program for each end user site which must be certified as being

correct by the appropriate State or local organization administering

the program. The type of financial assistance will be determined as

follows:

(1) If the end user site(s) for the project have, or are located in

school districts which have, from 0-32 percent student eligibility in

the National School Lunch Program, the project qualifies for a loan.

(2) If the end user site(s) for the project have, or are located in

school districts which have, from 33-60 percent student eligibility in

the National School Lunch Program, the project qualifies for a loan and

may be eligible for some grant funds.

(3) If the end user site(s) for the project have, or are located in

school districts which have, from 61-100 percent student eligibility in

the National School Lunch Program, the project qualifies for a grant.

The applicant may indicate its desire to be considered for a loan or a

combination loan and grant if denied a grant provided the financial

data required in Sec. 1703.109(c) indicates the ability to repay a

loan. Grant applicants should indicate if they desire to be considered

for a loan.

(4) Percentage ratios will be rounded up to the next highest or

rounded down to the next lowest whole number for fraction of

percentages at or greater than .5 or less than .5, respectively.

(c) The following guidelines will be used to determine the

applicable National School Lunch Program eligibility percent for a

particular end user site:

(1) Public schools or nonprofit private schools of high school

grade or under will use the actual eligibility percentage for that

particular school.

(2) Schools and institutions of higher learning ineligible to

participate in the National School Lunch Program and non-school end

user sites (medical facilities, libraries, etc.) will use the

eligibility percentage of all students in the school district where the

end user will be located.

(d) If all the end user sites in a proposed network or system fall

within the same percentile category, the project will be eligible for

the type of financial assistance set forth in paragraph (b) of this

section.

(e) If end user sites fall within different percentile categories

the eligibility percentages associated with each end user site will be

averaged to determine the percentile category and type of financial

assistance the applicant is eligible for. For purposes of averaging, if

a hub is also utilized as an end user site, the hub will be considered

as an end user site.

(f) For those applicants which qualify for a combination loan/

grant, the Administrator will determine the amount of the grant the

applicant will receive, if any, based upon analysis of the financial

condition of the applicant as reflected by the information submitted

under Sec. 1703.109(c). The minimum amount of a grant will be $5,000.

(g) RUS will submit a letter to those applicants being offered

financial assistance in the form of a loan, or a combination of a loan

and grant, outlining terms and conditions of such assistance. The

applicant will have 15 days from the date of the letter to accept the

terms and conditions in the letter. If the applicant fails to respond

within this time the Administrator may withdraw the offer of financial

assistance and the applicant will have no right to appeal the

withdrawal.

Sec. 1703.113 Application filing dates, location, processing, and

public notification.

(a) Applications for financial assistance under this subpart shall

be submitted to the Rural Utilities Service, U.S. Department of

Agriculture, 1400 Independence Avenue, SW., STOP 1590, Washington, DC

20250-1590. Applications should be marked ``Attention: Assistant

Administrator, Telecommunications Program''.

(b) Applications for loans can be submitted at any time. RUS will

review each application for completeness in accordance with

Sec. 1703.109, and notify the applicant, within 15 working days of the

receipt of the application, of the results of this review, citing any

information which is incomplete. To be considered for loan funds during

the fiscal year (FY) that the application is submitted, the applicant

must submit any information needed to complete the application by June

30. If this review concludes that a loan is feasible and the

application receives the required minimum number of points as

determined using the scoring criteria in Sec. 1703.117, the

Administrator will immediately process the application. The minimum

number of points required for a loan application to be immediately

processed will be

[[Page 32444]]

published in the Federal Register each fiscal year.

(c) Applications requesting grant funds must be submitted to RUS to

arrive not later than August 12, 1997 if the applications are to be

considered during FY 1997. Beyond FY 1997, all applications requesting

grant funds must be submitted to RUS to arrive not later than April 30

if the applications are to be considered during the fiscal year the

application is submitted. It is suggested that applications be

submitted prior to the above deadline to ensure they can be reviewed

and considered complete by the deadline. RUS will review each

application for completeness in accordance with Sec. 1703.109, and

notify the applicant, within 15 working days of the receipt of the

application, of the results of this review, citing any information

which is incomplete. To be considered for grant funds, the applicant

must submit the information to complete the application by August 12,

1997 in FY 97 and April 30 beyond FY 97. If the applicant fails to

submit such information by the appropriate deadline, the application

will be considered during the next fiscal year.

(d) The Administrator will publish, at the end of each fiscal year,

a notice in the Federal Register of all completed applications

receiving financial assistance under this subpart. The Administrator

will also make those applications available for public inspection at

the U.S. Department of Agriculture, 1400 Independence Avenue, SW.,

Washington, DC. For purposes of this paragraph, applications include

any information not protected by the Privacy Act of 1974, 5 U.S.C.

552a, and any other information that has not been designated as

proprietary information by the applicant.

(e) All applicants must submit an original and two copies of a

completed application. A grant applicant must also submit a copy of the

application to the State government point of contact, if one has been

designated for the state, at the same time it submits an application to

RUS. All applications must include the information described in

Sec. 1703.109.

Secs. 1703.114--1703.116 [Reserved]

Sec. 1703.117 Criteria for scoring applications.

(a) Criteria. The criteria in this section will be used by RUS to

score applications that have been determined to be in compliance with

the requirements of this subpart. Applicants shall address the

following criteria:

(1) The need for services and benefits derived from services;

(2) The comparative rurality of the proposed project service area;

(3) The ability to leverage resources;

(4) Innovativeness of design;

(5) Connectivity with outside networks;

(6) The cost effectiveness of the design;

(7) Project participation in EZ/EC (Empowerment Zone and Enterprise

Communities); and

(8) Project participation in Champion communities.

(b) Scoring criteria--(1) The need for services and benefits

derived from services. (i) This criterion will be used by RUS to score

applications based on the documentation submitted in support of the

application for financial assistance that reflects the need for

services and benefits derived from the services proposed by the

project. Up to 45 points can be assigned to this criterion.

(ii) RUS will consider the extent of the applicant's documentation

explaining the economic, education or health care challenges facing the

community; the applicants proposed plan to address these challenges;

how the financial assistance can help; and why the applicant cannot

complete the project without a loan or grant. The Administrator will

also consider any support by recognized experts in the related

educational or health care field, any documentation substantiating the

educational or health care underserved nature of the applicant's

proposed service area, and any justification for specific educational

or medical services which are needed and will provide direct benefits

to rural residents. Some examples of benefits to be provided by the

project include, but are not limited to:

(A) Improved education opportunities for a specified number of

students;

(B) Travel time and money saved by telemedicine diagnosis;

(C) Number of doctors retained in rural areas;

(D) Number of additional students electing to attend higher

education institutions;

(E) Lives saved due to prompt medical diagnosis and treatment;

(F) New education courses offered, including college level courses;

(G) Expanded use of educational facilities such as night training;

(H) Number of patients receiving telemedicine diagnosis;

(I) Provision of training, information resources, library assets,

adult education, lifetime learning, community use of technology, jobs,

connection to region, nation, and world.

(iii) That rural residents, and other beneficiaries, desire the

educational or medical services to be provided by the project (a strong

indication of need is the willingness of local end users or

institutions to pay, to the extent possible, for proposed services).

(iv) The project's development and support based on input from the

local residents and institutions.

(v) The extent to which the application is consistent with the

State strategic plan prepared by the Rural Development State Director

of the United States Department of Agriculture.

(2) The comparative rurality of the proposed project service area.

(i) The methodology contained in this section is used to evaluate the

relative rurality (i.e. population) of service areas for various

projects. Under this system, the end user sites and hubs (as defined in

Sec. 1703.102) contained within the proposed project service area are

identified. Then, those locations are given a score according to the

population of the area where the end user sites are located. Up to 35

points can be assigned to this criterion.

(ii) The following definitions are used in the evaluation of

rurality:

(A) Exceptionally Rural Area means any area of the United States

not included within the boundaries of any incorporated or

unincorporated city, village, or borough having a population in excess

of 5,000 inhabitants.

(B) Rural Area means any area of the United States included within

the boundaries of any incorporated or unincorporated city, village, or

borough having a population over 5,000 and not in excess of 10,000

inhabitants.

(C) Urban Area means any area of the United States included within

the boundaries of any incorporated or unincorporated city, village, or

borough having a population in excess of 10,000 inhabitants.

(iii) The applicant will receive points as follows:

(A) There are a total of 35 possible points for this criterion. The

maximum number of points each end user site can receive is determined

by dividing the total possible points for this criterion, 35, by the

total number of end user sites. If a hub is utilized as an end user

site, the hub will be considered as an end user site.

(B) If the end user site is located in an Exceptionally Rural Area,

it will receive the maximum number of points each end user site can

receive. If the end user site is located in a Mid-Rural Area, it will

receive 50 percent of the maximum number of points each end user site

can receive. If the end user site is located in an Urban Area, it will

receive 0 percent of the maximum

[[Page 32445]]

number of points each end user site can receive.

(C) The total points for each end user site will be added to reach

a final point total for the project.

(D) An application must receive a minimum of 18 points under this

criterion to be eligible for any financial assistance.

(3) The ability to leverage resources. (i) This section is used to

evaluate the ability of the applicant to contribute financially to the

project and to secure other non-Federal sources of funding.

Documentation submitted in support of the application for financial

assistance should reflect any additional financial support for the

project from non-Federal sources above the applicant's required percent

matching of the RUS financial assistance as set forth in Sec. 1703.104.

The applicant must include evidence from authorized representatives of

the sources that the funds are available and will be used for the

proposed project--up to 35 points.

(ii) The applicant will receive points as follows:

(A) Matching for allowable financial assistance purposes greater

than 30 percent, but less than or equal to 50 percent of the RUS

financial assistance--10 points.

(B) Matching for allowable financial assistance purposes greater

than 50 percent, but less than or equal to 100 percent of the RUS

financial assistance--20 points.

(C) Matching for allowable financial assistance purposes greater

than 100 percent, but less than or equal to 150 percent of the RUS

financial assistance--25 points.

(D) Matching for allowable financial assistance purposes greater

than 150 percent, but less than or equal to 200 percent of the RUS

financial assistance--30 points.

(E) Matching for allowable financial assistance purposes greater

than 200 percent of the RUS financial assistance--35 points.

(4) Innovativeness of project. This criterion will be used by RUS

to score applications based on the documentation submitted in support

of the application for financial assistance that reflects the

innovative nature of the project. The applicant should explain the

extent to which, if any, the project is an innovative approach to

either delivering or using telecommunications to address the needs of

the community, and how the project differs in approach from the typical

educational or health care application of technology. Up to 20 points

can be assigned to this criterion.

(5) Connectivity with outside networks. (i) This criterion will be

used by RUS to score applications based on the documentation submitted

in support of the application for financial assistance that reflects

the extent to which the proposed project can be connected to other

educational or health care networks. Up to 20 points can be assigned to

this criterion.

(ii) Consideration will be given to the extent that the proposed

project will interconnect with other existing networks at the regional,

statewide, national or international levels. RUS believes that to the

extent possible, educational and health care networks should be

designed to connect to the widest practicable number of other networks

that expand the capabilities of the proposed project, thereby affording

rural residents opportunities that may not be available at the local

level. The ability to connect to the internet alone can not be used as

the sole basis to fulfill this criteria.

(iii) Consideration will also be given to the extent that

facilities constructed with federal financial assistance, particularly

financial assistance under this chapter provided to entities other than

the applicant, will be utilized to extend or enhance the benefits of

the proposed project.

(6) Cost effective design. (i) This criterion will be used by RUS

to score applications based on the documentation submitted in support

of the application for financial assistance that reflects the cost

efficiency of the project design. Up to 15 points can be assigned to

this criterion.

(ii) Consideration will be given to the extent that the proposed

technology or technologies for delivering the proposed educational or

health care services for the project service area are the most cost

effective for the project proposed. The application must contain

information necessary for RUS to use accepted analytical and financial

methodologies to determine whether the applicant is proposing the most

cost-effective option. RUS will consider the applicant's documentation

comparing various systems and technologies, whether the applicant's

system is the most cost-effective system, and whether buying or leasing

specific equipment is more cost effective. Points will be deducted from

the scores of the applications that fail to utilize existing

telecommunications facilities that could provide the transmission path

for the needed services.

(7) Project participation in EZ/ECs. This criterion will be used by

RUS to score applications based on the documentation submitted in

support of the application for financial assistance that reflects the

designation of Empowerment Zones and Enterprise Communities (EZ/EC)

included as beneficiaries of the proposed project. Ten (10) points will

be assigned if at least one end user site is located in an EZ/EC.

(8) Project participation in Champion Communities. This criterion

will be used by RUS to score applications based on the documentation

submitted in support of the application for financial assistance that

reflects the designation of Champion Communities included as

beneficiaries of the proposed project. Five (5) points will be assigned

if at least one end user site is located in a Champion Community.

Sec. 1703.118 Other application selection provisions.

(a) Selection. Applications will be selected for financial

assistance based on scores, availability of funds, and the provisions

of this section. RUS will make determinations regarding the

reasonableness of all numbers; dollar levels; rates; the nature and

design of the project; cost; location; and other characteristics of the

application and the proposed project to determine the number of points

assigned to a grant application for all selection criteria. Joint

applications submitted by multiple applicants as set forth in

Sec. 1703.113 will be rated as a single application.

(b) Regardless of the number of points an application receives in

accordance with Sec. 1703.117 or the feasibility of the proposed

project, the Administrator may, based on a review of the applications

in accordance with the requirements of this subpart:

(1) Limit the number of applications selected for projects located

in any one state during a fiscal year;

(2) Limit the number of selected applications for a particular

project;

(3) Select an application receiving fewer points than another

higher scoring application if there are insufficient funds during a

particular funding period to select the higher scoring application;

provided, however, the Administrator may ask the applicant of the

higher scoring application if it desires to reduce the amount of its

application to the amount of funds available if, notwithstanding the

lower grant amount, the Administrator determines the project is

financially feasible in accordance with Sec. 1703.109(d)(1) at the

lower amount;

(4) Award a grant to an applicant whose application carries out the

priorities listed in the scoring criteria in such a way to make the

application unique; or

(5) Award a grant to an applicant which would normally qualify for

other

[[Page 32446]]

financial assistance, if the project achieves one or more of the

following:

(i) Utilitizes cutting edge technology to provide a solution to a

unique problem;

(ii) Provides services otherwise not possible in an extremely

isolated geographic area; or

(iii) Provides inordinate quantifiable benefit to rural communities

relative to the amount of financial assistance requested.

(c) RUS will not approve an application if RUS determines that:

(1) The applicant's proposal does not indicate financial

feasibility or is not sustainable in accordance with the requirements

of Sec. 1703.109(d)(1);

(2) The applicant's proposal indicates technical flaws, which, in

the opinion of RUS, would prevent successful implementation, operation,

or sustainability of the proposed project; or

(3) Any other aspect of the applicant's proposal fails to

adequately address any requirements of this subpart or contains

inadequacies which would, in the opinion of RUS, undermine the ability

of the project to meet the general purpose of this subpart or comply

with policies of the DLT program set forth in Sec. 1703.101.

(d) RUS may reduce the amount of the applicant's grant award based

on insufficient program funding for the fiscal year in which the

project is reviewed, and offer the applicant loan funds in addition to

the grant funds, if RUS determines that, notwithstanding a lower grant

award, the project will show financial feasibility in accordance with

Sec. 1703.109(d)(1), and continues to meet all other provisions of this

subpart. RUS will discuss its findings informally with the applicant

and make every effort to reach a mutually acceptable agreement with the

applicant. Any discussions with the applicant and agreements made with

regard to a reduced grant amount will be confirmed in writing, and

these actions shall be deemed to have met the notification requirements

set forth in paragraph (e) of this section.

(e) RUS will provide the applicant an explanation of any

determinations made with regard to paragraphs (c)(1) through (c)(3) of

this section prior to making final project selections for the year. The

applicant will be provided 15 days from the date of RUS' letter to

respond, provide clarification, or make any adjustments or corrections

to the project. If, in the opinion of the Administrator, the applicant

fails to adequately respond to any determinations or other findings

made by the Administrator, the project will not be funded, and the

applicant will be notified of this determination. If the applicant does

not agree with this finding an appeal may be filed in accordance with

Sec. 1703.119.

Sec. 1703.119 Appeal provisions.

All qualifying applications under this subpart will be scored based

on criteria in section Sec. 1703.117. A determination will be made by

RUS based on the highest ranking applications and the amount of funds

available for grants and loans. All applicants will be notified in

writing of the score each application receives, and included in this

notification will be a tentative minimum required score to receive

financial assistance. If the score received by the applicant could

result in the denial of its application, or if its score, while

apparently sufficient to qualify for financial assistance, may be

surpassed by the score awarded to a competing application after appeal,

the applicant may appeal its numerical scoring. Any appeal must be

based on inaccurate scoring of the application by RUS and no new

information or data that was not included in the original application

will be considered. The appeal must be made in writing within 10 days

after the applicant is notified of the scoring results. Appeals shall

be submitted to the Administrator, Rural Utilities Service, U.S.

Department of Agriculture, 1400 Independence Ave., SW., STOP 1590,

Washington, DC 20250-1590. Thereafter, the Administrator will review

the original scoring to determine whether to sustain, reverse or modify

the original scoring determination. Final determinations will be made

after consideration of all appeals. The Administrator's determination

will be final. A copy of the Administrator's decision will be furnished

promptly to the applicant. An appeal based solely upon the type of

financial assistance the applicant qualifies for will not be

considered.

Secs. 1703.120--1703.121 [Reserved]

Sec. 1703.122 Further processing of selected applications.

(a) During the period between the submission of the application and

the execution of implementing documents, the applicant must inform RUS

if the project is no longer viable or the applicant no longer desires

financial assistance for the project. If the applicant so informs RUS,

the selection will be rescinded and written notice to that effect shall

be sent promptly to the applicant.

(b) If an application has been selected and the nature of the

project changes, the applicant may be required to submit a new

application to RUS for consideration depending on the degree of change.

A new application will be subject to review in accordance with this

subpart. The selection may not be transferred to another project.

(c) If state or local governments raise objections to a proposed

project under the intergovernmental review process that are not

resolved within 3 months of the Administrator's selection of the

application, the Administrator may rescind the selection and written

notice to that effect will be sent promptly to the applicant.

(d) Recipients of financial assistance will be required to submit

RUS Form 479-A, ``Distance Learning and Telemedicine Technical

Questionnaire.''

(e) After an applicant selected for financial assistance has

submitted such additional information, if any, RUS determines is

necessary for completing the financial assistance documents, RUS will

send the documents to the applicant to execute and return to RUS.

(1) The financial assistance documents will include, among other

things, a letter of agreement for grants; loan documents, including

third party guarantees, for loans; or any other legal documents the

Administrator deems appropriate, including suggested forms of

certifications and legal opinions.

(2) The letter of agreement and the loan documents will include,

among other things, conditions on the release or advance of funds and

include at a minimum, a project description, approved purposes, the

maximum amount of the financial assistance, supplemental funds,

required of the project and certain agreements or commitments the

applicant may have proposed in its application. In addition, the loan

documents may contain covenants and conditions the Administrator deems

necessary or desirable to provide assurance that the loan will be

repaid and the purposes of the loan will be accomplished.

(3) The recipient of a loan will be required to execute a security

instrument in form and substance satisfactory to RUS.

(4) DLT borrowers must, before receiving any advances of loan

funds, provide security that is adequate, in the opinion of RUS, to

assure repayment, within the time agreed, of all loans to the borrower

under the DLT program. This assurance will generally be provided by a

first lien upon all of the borrower's assets or such portion thereof as

shall be satisfactory to RUS. RUS may consider the projected revenues

from the facilities subject to the lien.

(5) Security may also be provided by third-party guarantees,

letters of credit,

[[Page 32447]]

pledges of revenue or other forms of security satisfactory to RUS.

(6) The security instrument and other loan documents required by

RUS in connection with loans under the DLT program shall contain such

pledges, covenants, and other provisions as may, in the opinion of RUS,

be necessary or desirable to secure repayment of the loan.

(7) If the facilities financed do not constitute a complete

operating system, the DLT borrower shall provide evidence

demonstrating, to RUS' satisfaction, that the borrower has sufficient

contractual or other arrangements to assure that the facilities

financed will provide adequate and efficient service.

(f) Until the letter of agreement or loan documents have been

executed and delivered by RUS and by the applicant, RUS reserves the

right to require any changes in the project or legal documents covering

the project to protect the integrity of the program and the interests

of the government.

(g) If the applicant fails to submit, within 120 calendar days from

the date of RUS' selection of an application, all of the information

that RUS determines to be necessary to prepare legal documents and

satisfy other requirements of this subpart, RUS may rescind the

selection of the application and written notice of such rescission will

be sent promptly to the applicant.

Secs. 1703.123--1703.125 [Reserved]

Sec. 1703.126 Disbursement of loan and grant funds.

(a) For financial assistance of $100,000 or greater, prior to the

disbursement of funds, the recipient, if it is not a unit of

government, will provide evidence of fidelity bond coverage as required

by 7 CFR part 3019.

(b) Financial assistance will be disbursed to recipients on a

reimbursement basis, or with unpaid invoices for the eligible purposes

set forth in this subpart, by the following process:

(1) An SF 270, ``Request for Advance or Reimbursement,'' will be

completed by the recipient and submitted to RUS not more frequently

than once a month;

(2) After receipt of a properly completed SF 270, RUS will review

for accuracy and if the form is satisfactory will schedule payment.

Payment will ordinarily be made within 30 days; and

(3) For financial assistance approved during and subsequent to FY

1997, funds will be advanced in accordance to 7 CFR 1744.69.

(c) The recipient's share in the cost of the project will be

disbursed in advance of financial assistance, or if the recipient

agrees, on a pro rata distribution basis with financial assistance

during the disbursement period. Recipient will not be permitted to

provide its contribution at the end of the project.

(d) Concurrent grant and loan funds will be disbursed on a pro rata

distribution basis.

Sec. 1703.127 Reporting and oversight requirements.

(a) A project performance activity report will be required of all

recipients on an annual basis until the project is complete and the

funds are disbursed by the applicant.

(b) A final project performance report will be required. It must

provide an evaluation of the success of the project in meeting the

objectives of the program. The final report may serve as the last

annual report.

(c) RUS will monitor recipients as it determines necessary to

assure that projects are completed in accordance with the approved

scope of work and that funds are expended for approved purposes.

(d) Recipients shall diligently monitor performance to ensure that

time schedules are being met, projected work by time periods is being

accomplished, and other performance objectives are being achieved.

Recipients are to submit an original and one copy of all reports

submitted to RUS. The project performance reports shall include, but

not be limited to, the following:

(1) A comparison of actual accomplishments to the objectives

established for that period;

(2) A description of any problems, delays, or adverse conditions

which have occurred, or are anticipated, and which may affect the

attainment of overall project objectives, prevent the meeting of time

schedules or objectives, or preclude the attainment of particular

project work elements during established time periods. This disclosure

shall be accompanied by a statement of the action taken or planned to

resolve the situation; and

(3) Objectives and timetable established for the next reporting

period.

Sec. 1703.128 Audit requirements.

(a) The grant recipients and DLT borrowers will provide an audit

report in accordance with either:

(1) 7 CFR part 3051, Audits of Institutions of Higher Education and

Other Nonprofit Institutions, or its successor; or

(2) 7 CFR part 1773, Policy on Audits of RUS Borrowers.

(b) 7 CFR part 3051 applies to not-for-profit organizations

(including hospitals, colleges and universities) and state, local, and

Indian tribal governments. 7 CFR part 1773 applies to for-profit

organizations receiving grants or loans, and all RUS telecommunications

and electric borrowers receiving cost of money loans.

(c) For grant recipients the audit requirements only apply to the

year(s) in which grant funds are expended. For DLT borrowers the audit

requirements apply until the loan is repaid.

Sec. 1703.129 Repayment of loans.

The term of cost of money loans will be based on the economic

useful life of the facilities to be financed, not to exceed 10 years.

If the recipient requests, a one year deferment of principal will be

included. In special hardship cases, which the recipient must justify,

RUS may approve a two year deferment of principal. Interest on the loan

will be due and payable during the principal deferral period. RUS will

establish uniform debt service payments based on the total amortization

period.

Secs. 1703.130-1703.134 [Reserved]

Sec. 1703.135 Grant and loan administration.

(a) RUS will review recipients as necessary to determine whether

funds were expended for approved purposes. The recipient is responsible

for ensuring that the project complies with all applicable regulations,

and that the financial assistance is expended only for approved

purposes. The recipient is responsible for ensuring that disbursements

and expenditures of funds are properly supported by invoices,

contracts, bills of sale, canceled checks, or other appropriate forms

of evidence, and that such supporting material is provided to RUS, upon

request, and is otherwise made available, at the recipient's premises,

for review by the RUS representatives, the recipient's certified public

accountant, the office of Inspector General, U.S. Department of

Agriculture, the General Accounting Office and any other officials

conducting an audit of the recipient's financial statements or records,

and program performance for the financial assistance awarded under this

subpart. The recipient will be required to permit RUS to inspect and

copy any records and documents that pertain to the project.

(b) Grants provided under this program will be administered under,

and are subject to 7 CFR parts 3016 through 3019 or their successor, as

appropriate. 7 CFR parts 3016 and 3019 subject grantees to a number of

requirements which cover, among other

[[Page 32448]]

things, financial reporting, accounting records, budget controls,

record retention and audits, bonding and insurance, cash depositories

for grant funds, grant related income, use and disposition of real

property and equipment purchased with grant funds, procurement

standards, allowable costs for grant related activities, and grant

close-out procedures.

Sec. 1703.136 Changes in project objectives or scope.

The recipient will obtain prior approval for any material change to

the scope or objectives of the approved project, including changes to

the scope of work or budget. Failure to obtain prior approval of

changes may result in suspension or termination of funds.

Sec. 1703.137 Grant and loan termination provisions.

(a) Termination for cause. RUS may terminate any financial

assistance in whole, or in part, at any time before the date of

completion of funding disbursement, whenever it is determined that the

recipient has failed to comply with the conditions of the financial

assistance. RUS will promptly notify the recipient in writing of the

determination and the reasons for the termination, together with the

effective date.

(b) Termination for convenience. RUS or the recipient may terminate

financial assistance in whole, or in part, when both parties agree that

the continuation of the project would not produce beneficial results

commensurate with further expenditure of funds. The two parties will

agree upon termination conditions, including the effective date, and in

the case of partial termination's, the portion to be terminated. The

recipient will not incur new obligations for the terminated portion

after the effective date, and will cancel as many outstanding

obligations as possible. RUS will allow full credit to the applicant

for the Federal share of the noncancelable obligations, properly

incurred by the recipient prior to termination.

Secs. 1703.138-1703.139 [Reserved]

Sec. 1703.140 Expedited telecommunications loans.

General. RUS will expedite consideration and determination of an

application for a loan or a request for advance of funds submitted by

an RUS telecommunications borrower that supports the project seeking

financial assistance under this subpart. See 7 CFR part 1737 for loans

and 7 CFR part 1744 for advances under this section.

Appendix A to Subpart D of Part 1703--Environmental Questionnaire

Note: It is extremely important to respond to all questions

completely to ensure expeditious processing of the Distance Learning

and Telemedicine application. The information herein is required by

Federal law.

Important: Any activity related to the project that may

adversely affect the environment or limit the choice of reasonable

development alternatives shall not be undertaken prior to the

completion of Rural Utilities Service's environmental review

process.

Legal Name of Applicant------------------------------------------------

Signature

(Type/Sign/Date)-------------------------------------------------------

The applicant's representative certifies, to the best of his/her

knowledge and belief, that the information contained herein is

accurate. Any false information may result in disqualification for

consideration of the loan or grant or rescission of the loan or

grant.

I. Project Description--Detailing construction, including, but

not limited to, internal modifications of existing structures, and

installation of telecommunications transmission facilities (defined

in 7 CFR 1703.102), including satellite uplinks or downlinks,

microwave transmission towers, and cabling.

1. Describe the portion of the project, and site locations

(including legal ownership of real property), involving internal

modifications, or equipment additions to buildings or other

structures (e.g., relocating interior walls or adding computer

facilities) for each site.

2. Describe the portion of the project, and site locations

(including legal ownership or real property), involving construction

of transmission facilities, including cabling, microwave towers,

satellite dishes; or, disturbance of property of .99 acres or

greater for each project site.

3. Describe the nature of the proposed use of the facilities,

and whether any hazardous materials, air emissions, wastewater

discharge or solid waste will result.

4. State whether or not any project site(s) contain or are near

properties listed or eligible for listing in the National Register

of Historic Places, and identify any historic properties (The

applicant must supply evidence that the State Historic Preservation

Officer (SHPO) has cleared development regarding any historical

properties).

5. Provide information whether or not any facility(ies) or

site(s) are located in a 100-year floodplain. A National Flood

Insurance Map should be included reflecting the location of the

project site(s).

II. For projects which involve construction of transmission

facilities, including cabling, microwave towers, satellite dishes,

or physical disturbance of real property of .99 acres or greater,

the following information must be submitted (7 CFR 1703.109(i)(3)).

1. A map (preferably a U.S. Geological Survey map) of the area

for each site affected by construction (include as an attachment).

2. A description of the amount of property to be cleared,

excavated, fenced or otherwise disturbed by the project and a

description of the current land use and zoning and any vegetation

for each project site affected by construction.

3. A description of buildings or other structures (i.e.,

transmission facilities), including dimensions, to be constructed or

modified.

4. A description of the presence of wetlands or existing

agricultural operations and threatened or endangered species or

critical habitats on or near the project site(s) affected by

construction.

5. Describe any actions taken to mitigate any environmental

impacts resulting from the proposed project (use attachment if

necessary).

Note: The applicant may submit a copy of any environmental

review, study, assessment, report or other document that has been

prepared in connection with obtaining permits, approvals or other

financing for the proposed project from State, local or other

Federal bodies. Such material, to the extent relevant, may be used

to meet the requirements herein.

Dated: June 9, 1997.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 97-15536 Filed 6-12-97; 8:45 am]

BILLING CODE 3410-15-P