Rural Economic Development Loan and Grant Program

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1703

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4280

RIN 0570-AA19

Rural Economic Development Loan and Grant Program

AGENCIES: Rural Business-Cooperative Service and Rural Utilities

Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: The Rural Business-Cooperative Service (RBS or Agency) is

proposing to amend regulations for the Rural Economic Development Loan

and Grant (REDLG) Program. This action is part of a reinvention

laboratory initiative of the Department of Agriculture and RBS. It is

written in a ``Plain Language'' format that is simpler and should

improve ease of use by the public and program beneficiaries.

DATES: Written or e-mail comments must be received on or before

February 14, 2000 to be assured of consideration. The comment period

for information collections under the Paperwork Reduction Act of 1995

continues through February 14, 2000.

ADDRESSES: Submit written comments via the U.S. Postal Service, in

duplicate, to the Regulations and Paperwork Management Branch,

Attention: Cheryl Thompson, Rural Development, U.S. Department of

Agriculture, Stop 0742, 1400 Independence Avenue, SW., Washington, DC

20250-0742. Submit written comments via commercial express carrier, in

duplicate, to the Regulations and Paperwork Management Branch,

Attention: Cheryl Thompson, USDA-Rural Development, 3rd Floor, 300 E.

St., SW., Washington, DC 20546. Also, comments may be submitted via the

Internet by addressing them to [email protected] and must contain

the word ``economic'' in the subject line. All written comments will be

available for public inspection during regular work hours at the 300 E.

St., SW. address listed above.

FOR FURTHER INFORMATION CONTACT: Mark Wyatt, Specialty Lenders

Division, Rural Business-Cooperative Service, U.S. Department of

Agriculture, STOP 3225, 1400 Independence Ave. SW, Washington, DC

20250-3225, Telephone (202) 720-2383.

SUPPLEMENTARY INFORMATION:

[[Page 69938]]

Classification

This proposed rule has been determined to be significant and has

been reviewed by the Office of Management and Budget (OMB) under

Executive Order 12866.

Programs Affected

The Catalog of Federal Domestic Assistance number for the program

impacted by this action is 10.854, Rural Economic Development Loans and

Grants.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, RBS

announces its intention to seek OMB approval of the reporting and

recordkeeping requirements associated with this proposed rule. The

purpose of the REDLG program is to promote rural economic development

and job creation projects. Loans are made to Rural Utilities Service

(RUS) electric and telecommunications borrowers to finance a wide range

of projects, including businesses. Grants are made to establish

revolving loan funds. The information requirements contained within the

regulation require information from loan and grant applicants and

recipients. The information is vital for RBS to make prudent decisions

regarding the eligibility of applicants, establish selection priority

among competing applicants, ensure compliance with applicable laws and

regulations, and evaluate the program. The requirements include

information to allow RBS to determine that an applicant is a legally

organized entity with authority to enter into contracts and carry out

the proposed activities; provide for a description and scope of the

proposed activities; include information to provide for evaluation of

recipient accomplishments; and require information needed to ensure

compliance with Executive Orders.

Public Burden in 7 CFR Part 4280, Subpart A

At this time, RBS is requesting OMB clearance of the following

burdens:

Section 4280.16(b). The Agency allows the loan recipient to request

a deferment period. This involves a letter or telephone call.

Section 4280.16(d). A former RUS electric borrower that prepaid all

their direct or insured electric program loans must provide an

irrevocable letter of credit as security for the zero-interest loan

because they no longer have property mortgaged to the Government.

Section 4280.20. A RUS borrower that receives a grant to operate a

Revolving Loan Fund would need to operate and administer the fund in

accordance with its Revolving Loan Fund Plan. This involves reviewing

loan applications, preparing loan documents, and disbursing funds.

Section 4280.36(a). RBS uses a copy of the reports prepared by the

Rural Utilities Service for its borrowers to ensure compliance with

certain laws and Executive Orders. RUS borrowers are required to

provide information to the RUS field person to complete the narrative

report.

Section 4280.39(a)(2). The RUS borrower must submit an acceptable

resolution indicating their request for a loan or grant, agree to

provisions of the regulation, etc.

Section 4280.39(a)(4). Assurance as required by 49 CFR 24.4(a). A

signed form provides the required assurance statement that any

relocations of persons or acquisitions of real property, as part of

this completing this project, will be handled in accordance with the

law.

Section 4280.39(a)(5). Certification For Contracts, Grants, and

Loans is required by 31 U.S.C. 1352.

Section 4280.39(a)(8). Seismic Certification as required by 42

U.S.C. 7701.

Section 4280.39(b)(1) and (2). The narrative portion of the

application describes the project, discusses how the project satisfies

the selection factors specified in the regulation, and provides

information to assist in conducting the environmental review of the

project. It also includes a business and project plan and feasibility

study.

Section 4280.39(b)(3). A Revolving Loan Fund Plan is required for

grants to establish revolving loan funds. The plan governs the use of

the funds for the life of the Revolving Loan Fund, how the Revolving

Loan Fund will be administered by the RUS borrower, intended uses once

the funds revolve and become non-Federal, and the review and approval

of loans from the Revolving Loan Fund.

Section 4280.48(a) and (b). Agreements, promissory notes, and

opinion of counsel. The recipient of a loan or grant is required to

sign legal documents that contain the terms and conditions of the

financing provided. For loans, the recipient is also required to

execute a promissory note.

Section 4280.49. The RUS borrower is required to submit for

approval copies of third party documents between the RUS borrower and

the ultimate recipient to determine that the loan funds will be used

for approved purposes and in accordance with the regulation. RBS must

approve any changes in the third-party documents. The RUS borrower must

submit for approval any previously approved document that it wishes to

revise. RBS ensures that the revised document is consistent with the

approved use of funds and the regulation.

Section 4280.53. The RUS borrowers must submit payments through an

electronic method set up to improve the efficiency of Government

collections. This involves calling a bank on a touch-tone telephone and

entering information.

Section 4280.55(a) and (b). These subsections provide for a list of

expenditures for zero-interest loans to determine the proper use of the

Government's loan funds. It also requires an itemized list and

documentation from the ultimate recipient and record of itemized

receipts. This provides a very workable method for the ultimate

recipient to provide the RUS borrower with a list of the uses of the

loan funds.

Section 4280.56(a). Form RD 4280-1, ``Survey of Recipients of Rural

Economic Development Loan and Grant Program.'' This form will record

the success of the project that was financed with either a loan or

grant. It provides RBS with information on the jobs actually created

from the projects financed under this program, and other information

that would indicate the success of the project and its impact on the

rural economy.

Section 4280.56(b) and (c). For RUS borrowers with existing loans,

RBS obtains from RUS a copy of the RUS borrower's audit. RUS borrowers

without existing loans need to submit a copy of their audit to RBS. All

audits must be conducted in accordance with Generally Accepted

Government Auditing Standards. In addition, ultimate recipients may be

required to send to RBS a copy of an audit conducted in accordance with

7 CFR part 3052, if the recipient is organized as a non-profit

corporation, state government, or local government. Audits pursuant to

7 CFR part 3052 must be submitted only if the amount of federal funds

an ultimate recipient spends in 1 year is $300,000 or more. RBS gets a

copy of the audit to verify that funds are used for approved purposes.

Section 4280.62. An applicant that receives an adverse decision may

appeal the decision. This involves writing a letter requesting an

appeal to the National Appeals Division of the United States Department

of Agriculture.

Estimate of Burden: Public reporting burden for this collection of

information

[[Page 69939]]

is estimated to average 3.4 hours per response.

Respondents: RUS borrowers.

Estimated Number of Respondents: 180.

Estimated Number of Responses per Respondent: 9.1.

Estimated Number of Responses: 1,632.

Estimated Total Annual Burden on Respondents: 5,509 hours.

Copies of this information collection may be obtained from Cheryl

Thompson, Regulations and Paperwork Management Branch, Support Services

Division, telephone 202-692-0043.

Comments: Comments are invited on: (a) Whether the proposed

collection of information is necessary for the proper performance of

the functions of RBS, including whether the information will have

practical utility; (b) the accuracy of RBS's estimate of the burden of

the proposed collection of information including the validity of the

methodology and assumptions used; (c) ways to enhance the quality,

utility and clarity of the information to be collected; and (d) ways to

minimize the burden of the collection of information on those who are

to respond, including through the use of appropriate automated,

electronic, mechanical, or other technological collection techniques or

other forms of information technology. Comments should be submitted to

the Desk Officer for Agriculture, Office of Information and Regulatory

Affairs, Office of Management and Budget, Washington, DC 20503, and to

Cheryl Thompson, Regulations and Paperwork Management Branch, Support

Services Division, U.S. Department of Agriculture, Rural Development,

STOP 0742, 1400 Independence Ave. SW, Washington, DC 20250-0742. All

responses to this notice will be summarized, included in the request

for OMB approval, and will become a matter of public record. A comment

to OMB is best assured of having full effect if OMB receives it within

30 days of publication of this rule.

Intergovernmental Review

Rural Economic Development Loans and Grants are subject to the

provisions of Executive Order 12372, which requires intergovernmental

consultation with State and local officials. RBS will conduct

intergovernmental consultation in the manner delineated in RD

Instruction 1940-J, ``Intergovernmental Review of Farmers Home

Administration Programs and Activities,'' and in 7 CFR part 3015,

subpart V.

Civil Justice Reform

This proposed rule has been reviewed under Executive Order 12988,

Civil Justice Reform. In accordance with this rule: (1) All State and

local laws and regulations that are in conflict with this rule will be

preempted; (2) no retroactive effect will be given this rule; and (3)

administrative proceedings in accordance with the regulations of the

Department of Agriculture National Appeals Division (7 CFR part 11)

must be exhausted before bringing suit in court challenging action

taken under this rule unless those regulations specifically allow

bringing suit at an earlier time.

Environmental Impact Statement

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

subpart G, ``Environmental Program.'' RBS has determined that this

proposed action does not constitute a major Federal action

significantly affecting the quality of the human environment, and in

accordance with the National Environmental Policy Act of 1969, 42

U.S.C. 4321-4374, an Environmental Impact Statement is not required.

Unfunded Mandates

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

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

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

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

must prepare a written statement, including a cost-benefit analysis,

for proposed and final rules with ``Federal mandates'' that may result

in expenditures to State, local or tribal governments, in the

aggregate, or to the private sector, of $100 million or more in any one

year. When such a statement is needed for a rule, section 205 of UMRA

generally requires RBS to identify and consider a reasonable number of

regulatory alternatives and adopt the least costly, more cost effective

or least burdensome alternative that achieves the objectives of the

rule.

This rule contains no Federal mandates (under the regulatory

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

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

the requirements of sections 202 and 205 of UMRA.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act, RBS has

determined that this action would not have a significant economic

impact on a substantial number of small entities. This regulation only

impacts those who choose to participate in the loan and grant program.

Small entity applicants will not be impacted to a greater extent than

large entity applicants.

Background

The existing regulations for the Rural Economic Development Loan

and Grant (REDLG) program are found at 7 CFR part 1703, subpart B, and

will be removed upon publication of a final rule.

This action is part of a reinvention laboratory initiative of the

Department of Agriculture and Rural Business-Cooperative Service. It is

written in a ``Plain Language'' style. The proposed regulation is

simpler and should improve ease of use by the public and program

beneficiaries. The regulation is in a question and answer format from

the perspective of questions from an applicant or recipient under this

program.

The REDLG program was originally implemented in 1989 as part of the

rural economic development program of Rural Electrification

Administration, predecessor to the Rural Utilities Service (RUS). As a

result of the United States Department of Agriculture reorganization,

responsibility for this program was transferred to the Business

Programs under RBS, which provides financing for rural areas. This

program is administered at the State level through the Department of

Agriculture's Rural Development State Offices.

Since its inception in 1989, this program has had a substantial

impact on economic development in rural areas. As of September 30,

1998, it had provided $106 million in loans and $53 million in grants,

leveraged $914 million in private capital, and directly created

approximately 23,000 new jobs for rural areas.

Under this program, loans and grants are provided to electric and

telecommunications utilities that have borrowed funds from RUS. The

purpose of the program is to encourage these electric and

telecommunications utilities to promote rural economic development and

job creation projects. The RUS utility can receive loans to help

finance projects such as business start-up costs, business expansion,

community development, and business incubator projects. The RUS utility

uses the program loan funds to make a pass-through loan to an ultimate

recipient such as a business. The RUS utility is responsible for fully

repaying its loan to the government even if the ultimate recipient does

not repay its loan. The RUS utility uses program grant funds, along

with its required contribution, to create a revolving loan fund that it

will

[[Page 69940]]

operate and administer. Loans are made from the revolving loan fund for

a variety of community development projects.

The regulation proposes to simplify the application format, review

and selection process, and recipient recordkeeping requirements. A

section is proposed to be added covering the appeal of certain adverse

decisions under this program.

This program will be available through the Rural Development

Mission Area's Service Center Initiative.

List of Subjects

7 CFR Part 1703

Community development, Grant programs--housing and community

development, Loan programs--housing and community development,

Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 4280

Business and industry, Community development, Economic development,

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

housing and community programs, Reporting and recordkeeping

requirements, Rural areas.

Therefore, chapters XVII and XLII, title 7, Code of Federal

Regulations, are proposed to be amended as follows:

CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE

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.

2. Subpart B of part 1703 is removed and reserved.

CHAPTER XLII--RURAL BUSINESS--COOPERATIVE SERVICE AND RURAL UTILITIES

SERVICE, DEPARTMENT OF AGRICULTURE

3. A new part 4280, consisting only of subpart A (Sec. Sec. 4280.1

through 4280.100), is added to chapter XLII to read as follows:

PART 4280--RURAL ECONOMIC DEVELOPMENT LOANS AND GRANTS

Subpart A--Rural Economic Development Loan and Grant Program

Sec.

Am I Eligible Under This Program?

4280.1 Point of reference.

4280.2 What is the Rural Economic Development Loan and Grant

Program?

4280.3 Definitions.

4280.4-4280.12 [Reserved]

4280.13 Am I eligible to apply?

4280.14 [Reserved]

What Purposes Are Eligible for Loans?

4280.15 What type of projects may I finance with a zero-interest

loan?

4280.16 What would be the terms of my zero-interest loan?

4280.17 If I receive a zero-interest loan, what happens if the

ultimate recipient fails to repay me?

4280.18 What security do I need on the loan to the ultimate

recipient?

What Purposes Are Eligible for Grants?

4280.19 What can I use a grant to fund?

4280.20 Do I operate and administer the fund?

4280.21 What types of projects may I finance with the initial loans

I make from the grant funds I receive?

4280.22 [Reserved]

4280.23 What level of contribution must I make into the fund?

4280.24 How long must my contribution remain in the fund and what

happens if the fund is terminated?

4280.25 What must I do in operating the fund?

4280.26 May I use grant funds to cover operating costs of the fund?

What Is Not Eligible for Either a Loan or Grant?

4280.27 What may I not do with program funds?

4280.28 [Reserved]

What Are the Other Terms and Conditions for Loans and Grants?

4280.29 Do I need supplemental financing?

4280.30 What other restrictions are there on the use of loan or

grant funds?

4280.31-4280.35 [Reserved]

4280.36 What are some other laws that contain compliance

requirements for this program?

How Do I Apply and How Much May I Request?

4280.37 How do I obtain and submit an application?

4280.38 What are the maximum and minimum amounts I may request for

loans and grants?

4280.39 What must be included in my application for a loan or

grant?

4280.40 [Reserved]

4280.41 What environmental review will be required after I submit

my application?

How Are Applications Selected?

4280.42 How is my application evaluated and how are applications

selected?

4280.43 Is there a possibility for discretionary points and how are

they awarded?

4280.44 Are there limits on the number of loans or grants I may

receive?

4280.45-4280.46 [Reserved]

4280.47 What if I am not selected?

What Must I do After Selection?

4280.48 If I am selected, what documents must I execute?

4280.49 What documents must I submit for approval before I can

receive my funds?

4280.50 How do I obtain the approved loan or grant funds?

4280.51-4280.52 [Reserved]

4280.53 How do I make loan payments?

4280.54 Do I have to follow certain construction procurement

requirements?

4280.55 What are my responsibilities to monitor and review the

project?

4280.56 What reports or audits must I and ultimate recipients

submit?

4280.57-4280.61 [Reserved]

4280.62 How may I appeal an adverse decision?

4280.63 Exception authority.

4280.64-4280.99 [Reserved]

4280.100 OMB control number. [Reserved]

Authority: 5 U.S.C. 301; 7 U.S.C. 940c; 7 CFR 2.17(a)(21).

Subpart A--Rural Economic Development Loan and Grant Program

Am I Eligible Under This Program?

Sec. 4280.1 Point of reference.

This subpart is written from the perspective of questions from an

RUS borrower, the applicant under this program. Therefore, ``I'',

``My'', and ``Me'' in the question and ``You'' and ``Your'' in the

answer in refer to the RUS borrower. ``Our'', ``Us'' and ``We'' in the

answer refer to the Agency.

Sec. 4280.2 What is the Rural Economic Development Loan and Grant

Program?

This program provides financing to Rural Utilities Service (RUS)

electric or telecommunications borrowers to promote rural economic

development and job creation projects.

(a) Loans. Zero-interest loans are made to you, the RUS borrower,

which you, in turn, relend at a zero interest rate to ultimate

recipients. You transmit ultimate recipient repayments of the loan to

the U.S. Treasury.

(b) Grants. Grants are made to you, the RUS borrower, to establish

revolving loan funds and to finance specific projects. You use the

grant funds to make zero-interest loans to ultimate recipients to

finance the approved projects. The repaid principal on these loans is

retained in your revolving loan fund to finance other rural economic

development projects.

Sec. 4280.3 Definitions.

The following definitions are applicable to this subpart:

Advanced telecommunications. Using communications equipment for

purposes, such as the simultaneous transmission of images and voice or

the electronic transmission of data between multiple sites, that do not

consist primarily of providing local exchange voice communications. It

does not include providing only local exchange

[[Page 69941]]

voice telephone service. Providing the local exchange voice telephone

service for an area is not an eligible purpose for funding under this

program.

Agency. The Rural Business-Cooperative Service (RBS), an agency of

the United States Department of Agriculture, or a successor agency.

Agency is referred to in this subpart as ``we'', ``our'', and ``us''.

Agricultural production. The cultivation, production, growing,

raising, feeding, housing, breeding, hatching, or managing of crops,

plants, animals, or birds, either for fiber, food for human

consumption, or livestock feed.

Business incubator. A facility in which small businesses can share

premises, support staff, computers, software or hardware,

telecommunications terminal equipment, machinery, janitorial services,

utilities, or other overhead expenses, and where such businesses can

receive technical assistance, financial advice, business planning

services or other support.

Conflict of interest. A situation in which your officers, manager,

board of directors, their spouses, or children, have a financial

interest in the project, including its construction or development.

Cushion of credit payment. A voluntary unscheduled payment made by

you pursuant to 7 U.S.C. 940c.

Fund. A revolving loan fund that is created in part with grant

funds under this program that makes loans and uses the loan repayments

to make subsequent loans until the fund is terminated.

Grant. A transfer of monies from the Agency to the borrower under

the program other than a loan.

Independent provider. An entity other than the RUS borrower that is

not owned by a subsidiary or an affiliate of the RUS borrower.

Loan. A zero-interest loan made to the RUS borrower under the

program.

Program. The Rural Economic Development Loan and Grant Program.

Project. The facility, equipment, or other assistance funded under

this program, which is authorized by 7 U.S.C. 940c(b)(2).

Revolving Loan Fund Plan. A plan developed by the RUS borrower that

governs the use of the fund established with grants, including how the

fund will be administered by the RUS borrower, intended uses once the

funds are repaid by the ultimate recipient, and the review and approval

of loans from the fund.

Rural area. Any area of the United States not included within the

boundaries of any urban area, as defined by the United States Bureau of

the Census.

Rural Utilities Service (RUS). The Rural Utilities Service, an

agency of the United States Department of Agriculture, or a successor

agency.

RUS Borrower. An entity that has borrowed funds under the Rural

Electrification Act of 1936. RUS borrower is referred to as ``you'' or

``your'' in the answers and ``I'', ``me'' and ``my'' in the questions.

State. Any of the 50 States, the District of Columbia, the

Commonwealth of Puerto Rico, the Virgin Islands of the United States,

Guam, American Samoa, the Commonwealth of the Northern Mariana Islands,

the Republic of Palau, the Federated States of Micronesia, and the

Republic of the Marshall Islands.

Technical assistance. Managerial, financial and operational

analysis and consultation by independent providers to assist project

owners in identifying and evaluating problems or potential problems and

to provide training that enable project owners to successfully

implement, manage, operate and maintain viable projects.

Ultimate recipient. An entity that receives a loan from you and

which may be a sole proprietorship, corporation, cooperative, political

subdivision of a state or locality, and a Federally recognized Indian

tribe.

Uniform Act. The Uniform Relocation Assistance and Real Property

Acquisition Act of 1970 (42 U.S.C. 4601-4655).

USDA. The United States Department of Agriculture.

Sec. Sec. 4280.4-4280.12 [Reserved]

Sec. 4280.13 Am I eligible to apply?

You are eligible to apply if you are:

(a) A RUS borrower that currently has an outstanding electric or

telephone program debt; or

(b) A former RUS electric borrower that prepaid its direct or

insured electric program loans.

Sec. 4280.14 [Reserved]

What Purposes Are Eligible for Loans?

Sec. 4280.15 What type of projects may I finance with a zero-interest

loan?

You may use zero-interest loans to finance the following types of

economic development or job creation projects for residents of rural

areas:

(a) Start-up costs, including business start-up costs;

(b) Business expansion;

(c) Business incubator projects;

(d) Technical assistance;

(e) Project feasibility studies;

(f) Advanced telecommunications services and computer networks for

medical, educational, and job training services; or

(g) Other rural economic development projects that we approve.

Sec. 4280.16 What would be the terms of my zero-interest loan?

(a) The maximum term of your zero-interest loan is 10 years,

including any principal deferment period.

(b) Deferments will automatically be granted on your request as

follows:

(1) A deferment of principal of up to 1 year for projects involving

a business expansion or established operation; or

(2) A deferment of principal of up to 2 years for projects

involving a start-up venture.

(c) You must provide the ultimate recipient the same repayment

terms you receive from us.

(d) If you are a former RUS electric borrower that prepaid all your

direct or insured electric program loans, you must provide an

irrevocable letter of credit or other security, satisfactory to us, for

the term of the loan as security for our zero-interest loan.

Sec. 4280.17 If I receive a zero-interest loan, what happens if the

ultimate recipient fails to repay me?

You are responsible for fully repaying the zero-interest loan to us

even if the ultimate recipient does not repay you.

Sec. 4280.18 What security do I need on the loan to the ultimate

recipient?

You determine an adequate level of security on your loan to the

ultimate recipient to ensure recovery of funds in the event of

nonpayment of the loan.

What Purposes Are Eligible for Grants?

Sec. 4280.19 What can I use a grant to fund?

You use a program grant to partially finance the fund that you will

operate and administer. Grants are subject to 7 CFR parts 3015 and

3016, as applicable, and any conflicts between 7 CFR parts 3015 and

3016 and this part will be resolved in favor of the applicable

provision of 7 CFR parts 3015 and 3016.

Sec. 4280.20 Do I operate and administer the fund?

Yes, you operate and administer the fund. You may contract for the

daily administration of the fund. However, you must permanently retain

all project review and approval authority.

Sec. 4280.21 What types of projects may I finance with the initial

loans I make from the grant funds I receive?

You may make initial loans from the fund only to:

(a) Non-profit entities or public bodies for community development

projects

[[Page 69942]]

that will create or save employment (but not for projects that are for-

profit businesses). Community facilities must serve a wide area of

beneficiaries in rural areas and must be owned by the non-profit entity

or public body receiving the loan;

(b) Non-profit or for-profit entities, or public bodies for

facilities and equipment to provide education and training to residents

of rural areas that will facilitate economic development;

(c) Non-profit or for-profit entities, or public bodies for

facilities and equipment to provide medical care to residents of rural

areas. Equipment and facilities may be funded to enable eligible

entities to provide medical training and related professional health

care skills to rural health care providers;

(d) Non-profit or for-profit entities, or public bodies for

projects which utilize advanced telecommunications or computer networks

to facilitate medical or educational services or job training;

(e) Non-profit entities or public bodies for business incubators;

or

(f) Non-profit or for-profit entities, or public bodies for project

feasibility studies and technical assistance. An independent provider

must perform feasibility studies. Qualified entities independent of you

and the project owner must provide technical assistance.

Sec. 4280.22 [Reserved]

Sec. 4280.23 What level of contribution must I make into the fund?

You must contribute from your funds an amount equal to 20 percent

of the amount of our funds. The contribution may not be provided from

other federal loans or grants. For example, if you receive a program

grant of $200,000, you must deposit $40,000 of your funds into the

fund.

Sec. 4280.24 How long must my contribution remain in the fund and what

happens if the fund is terminated?

Your contribution must remain until the fund is terminated. Until

the total amount in the fund has been loaned, all loans must be for the

purposes contained in Sec. 4280.21. After the total amount in the fund

has been loaned for the purposes of Sec. 4280.21, you may make loans

from the repayments and any additional amounts you contribute to the

fund for any rural economic development purpose eligible under this

program in accordance with the Revolving Loan Fund Plan. We may

terminate the fund and require repayment of our grant funds if funds

being re-lent are not being used according to the Revolving Loan Fund

Plan. Termination will be in accordance with 7 CFR part 3015 or 3016,

as applicable.

Sec. 4280.25 What must I do in operating the fund?

Your Revolving Loan Fund Plan must specify that:

(a) The initial loans made from the fund using our funds must carry

an interest rate of zero percent and have a maximum term of 10 years;

(b) Loans made from your contribution to the fund and from loan

repayments may carry an interest rate greater than zero percent but

less than, or equal to, the prime rate. You determine the other

repayment terms on these loans;

(c) Until all our funds have been loaned, each loan from the fund

will consist of your contribution and our contribution in the ratio of

the respective contributions to the fund. The interest rate for our

contribution will be at zero percent and the interest rate on your

contribution will be based on paragraph (b) of this section. Whether or

not multiple projects are involved, the percent of your funds in a loan

cannot be less than the percent you have contributed in accordance with

Sec. 4280.23. Loan security and recovery of loan losses must provide

for the pro rata recovery and distribution between you and us based on

the respective amounts of each contribution to the total loan amount

for the project;

(d) Loans made from repayments of the initial and subsequent loans

may be used for any rural economic development purpose eligible under

this program in accordance with the Revolving Loan Fund Plan. These

loans may carry an interest rate greater than zero percent. The maximum

interest rate is the prime rate; and

(e) Once you have provided assistance with project loans in an

amount equal to the grant monies provided by us, future loans from the

fund shall not be considered as being derived from federal funds.

Sec. 4280.26 May I use grant funds to cover operating costs of the

fund?

Yes, up to 10 percent of our grant funds may be applied toward

operating expenses of the fund. Operating expenses include the costs of

administering the fund and technical assistance provided to project

owners by independent entities.

What Is Not Eligible for Either a Loan or Grant?

Sec. 4280.27 What may I not do with program funds?

You may not use zero-interest loans and grants:

(a) For any costs incurred on the project prior to our receipt of

your completed application;

(b) For activities that would adversely affect the environment, or

activities that limit the choice of reasonable alternatives prior to

satisfying our environmental requirements;

(c) To pay off or refinance your existing indebtedness incurred

prior to our receipt of your completed application unless approved by

us;

(d) For any electric or telephone purpose; or for your electric or

telephone operations or other affiliated operations except those

purposes contained in Sec. 4280.15(f);

(e) To pay the salaries of your employees or those of your owner,

its subsidiaries, or affiliates except for salaries incurred in

administering a fund established under this program;

(f) For community antenna television systems or facilities;

(g) For residential purposes such as residential dwellings and land

sites; facilities to provide entertainment television; or personal,

non-business related vehicles;

(h) Where you have a conflict of interest in the project;

(i) For any purpose when receipt of loan funds is conditioned upon

the requirement that the ultimate recipient acquire electric or

telephone service from you;

(j) For an otherwise eligible project when any of the revenues of

the project are derived from a gambling activity;

(k) For a project that would result in the transfer of existing

employment or business activity more than 25 miles from its existing

location;

(l) For proposed projects located in areas covered by the Coastal

Barrier Resources Act (16 U.S.C. 3501-3510);

(m) For any illegal activity or any activity involving

prostitution; or

(n) For agricultural production.

Sec. 4280.28 [Reserved]

What Are the Other Terms and Conditions for Loans and Grants?

Sec. 4280.29 Do I need supplemental financing?

(a) Is supplemental financing for the project required? Yes, the

ultimate recipient must have supplemental financing at least equal to

20 percent of the zero interest loan and grant.

(b) What are possible sources? The owner of the project, banks,

other governmental sources, the RUS borrower, or other appropriate

sources may provide the supplemental funds.

(c) What are the timeframes for supplying these funds? Only

supplemental funds that are provided to

[[Page 69943]]

the project after we receive your completed application may be used to

meet this requirement.

(d) When must I obtain commitments for the supplemental funds? The

funds must be committed in writing to the project before we will

advance any funds to you.

Sec. 4280.30 What other restrictions are there on the use of loan or

grant funds?

(a) You must not own or manage any ultimate recipient project,

unless the project is acquired as a result of servicing a loan made

from the fund.

(b) You may charge reasonable loan servicing fees, which are

limited to one percent of the principal amount outstanding on the loan,

reasonable professional service fees that are customary for the service

being provided and in accordance with any standard fee schedules that

have been established for the service, and expenses you have incurred

from independent providers.

(c) Any interest earned on advances of our loan or grant funds must

be returned to the Agency.

Sec. Sec. 4280.31--4280.35 [Reserved]

Sec. 4280.36 What are some other laws that contain compliance

requirements for this program?

(a) Equal opportunity and nondiscrimination requirements. All loans

and grants made under this subpart are subject to the nondiscrimination

provisions of title VI of the Civil Rights Act of 1964, (42 U.S.C.

2000(d)); section 504 of the Rehabilitation Act of 1973, (29 U.S.C.

794); and the Age Discrimination Act of 1975, (42 U.S.C. 6101-6107).

(b) Architectural barriers. All facilities financed with zero-

interest loans or grants that are open to the public or in which

persons may be employed or reside must be designed, constructed, or

altered to be readily accessible to, and usable by disabled persons.

Standards for these facilities must comply with the Architectural

Barriers Act of 1968, (42 U.S.C. 4151-4157) and the ``Uniform Federal

Accessibility Standards'', (41 CFR part 101.19, subpart 101--19.6,

Appendix A).

(c) Uniform relocation assistance. Relocations in connection with

this program are subject to 49 CFR part 24 as referenced by 7 CFR part

21, ``Uniform Relocation Assistance and Real Property Acquisition for

Federal and Federally Assisted Programs,'' except that the provisions

in title III, ``Uniform Real Property Acquisition Policy,'' of the

Uniform Act do not apply to this program.

(d) Drug-free workplace. Grants made under this program are subject

to the requirements contained in 7 CFR part 3017, subpart F, ``Drug-

Free Workplace Requirements (Grants)'', which implements the Drug-Free

Workplace Act of 1988 (41 U.S.C. 701-706). A borrower requesting a

grant will be required to certify that it will establish and make a

good faith effort to maintain a drug-free workplace program.

(e) Debarment and suspension. The requirements of 7 CFR part 3017,

subparts A through E, regarding Governmentwide debarment and suspension

(nonprocurement) are applicable to this program.

(f) Intergovernmental review of Federal programs. This program is

subject to the requirements of Executive Order 12372,

``Intergovernmental Review of Federal Programs'' (3 CFR 1982 Comp., p.

197) and 7 CFR part 3015, subpart V, ``Intergovernmental Review of

Department of Agriculture Programs and Activities,'' which implements

Executive Order 12372. Proposed projects are subject to the state and

local government review process contained in 7 CFR part 3015.

(g) Restrictions on lobbying. The restrictions and requirements

imposed by 31 U.S.C. 1352, entitled ``Limitation on Use of Appropriated

Funds to Influence Certain Federal Contracting and Financial

Transactions'' and the implementing regulation, 7 CFR part 3018, ``New

Restrictions on Lobbying,'' are applicable to this program.

(h) Earthquake hazards. This program is subject to the seismic

requirements of the Earthquake Hazards Reduction Act of 1977 (42 U.S.C.

7701-7706).

(i) Environmental requirements. The requirements of 7 CFR part

1940, subpart G, are applicable to the program and the loans made from

the revolving loan fund using our funds.

(j) Affirmative fair housing. If applicable, the RUS borrower will

be required to comply with the Affirmative Fair Housing Act (42 U.S.C.

3601-3631)

How Do I Apply and How Much May I Request?

Sec. 4280.37 How do I obtain and submit an application?

(a) You may obtain forms that supplement the written narrative

sections of your application from the USDA Rural Development State

Office for the state where the project is located.

(b) You need to file an original only of your application with the

USDA Rural Development State Office on any official working day.

Sec. 4280.38 What are the maximum and minimum amounts I may request

for loans and grants?

During a fiscal year:

(a) The maximum amount of a single loan application is 3 percent of

the available fiscal year loan funds, or $200,000, whichever is

greater. This is a limit on the maximum amount of an application, not

the number of applications.

(b) The maximum amount of a single grant application is 3 percent

of the available fiscal year grant funds. This is a limit on the

maximum amount of an application, not the number of applications.

(c) We will publish a notice of available fiscal year loan and

grant funds and the maximum loan and grant amounts per application in

the Federal Register on an annual basis.

(d) The minimum loan or grant amount to you is $20,000.

Sec. 4280.39 What must be included in my application for a loan or

grant?

Your application for a loan and a grant must contain the following:

(a) Required forms and certifications:

(1) ``Application for Federal Assistance,'' signed by you;

(2) A board resolution certified by your board secretary. The board

resolution must indicate whether you are requesting a loan or grant,

agree to the provisions of this subpart and loan or grant agreement,

and that you have the legal authority to enter in a loan or grant

agreement under this program;

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

Responsibility Matters--Primary Covered Transactions,'' and

``Ineligibility and Voluntary Exclusion--Lower Tier Covered

Transactions'';

(4) Assurance statement for the Uniform Act signed by the ultimate

recipient. This statement provides us with the required assurance

statement that any relocations of persons or acquisitions of real

property, as part of completing this project, will be handled in

accordance with this statute;

(5) ``Certification for Contracts, Grants and Loans'' (If your loan

is greater than $150,000 or your grant is greater than $100,000);

(6) ``Disclosure of Lobbying Activities,'' (If you engage in

lobbying activities);

(7) ``Certification Regarding Drug-Free Workplace Requirements

(Grants),'' for grants only;

(8) Seismic certification if construction of a building is

proposed. The project owner certifies that any building constructed

will comply with standards that reduce the damage caused by

earthquakes; and

[[Page 69944]]

(9) ``Request for Environmental Information''.

(b) Your written narrative section of the application must consist

of the following:

(1) Project description, including the work to be performed with

our funds;

(2) A discussion of how the project meets each selection factor in

Sec. 4280.42(b);

(3) A Revolving Loan Fund Plan. A plan is required if you apply for

a grant to establish a fund.

Sec. 4280.40 [Reserved]

Sec. 4280.41 What environmental review will be required after I submit

my application?

(a) We will conduct a review of the environmental impact of the

project in your application and inform you of any additional

information we need and any environmental requirements for the project.

(b) We will conduct all necessary environmental reviews as

prescribed in 7 CFR part 1940, subpart G. These reviews must be

completed before your application can be considered for approval.

How Are Applications Selected?

Sec. 4280.42 How is my application evaluated and how are applications

selected?

(a) We will evaluate your application and score it based on the

selection factors in this section. All applications will be ranked on a

nationwide basis based on the total points scored.

(b) Your application will be evaluated and scored using the

information provided in accordance with Sec. 4280.39(b)(2). Points will

be awarded based on the following:

(1) Nature of your project. We will award points based on whether

your project:

(i) Is a for-profit business start-up or expansion, business

incubator, industrial building or park, or infrastructure necessary to

connect only for-profit businesses to existing infrastructure--20

points;

(ii) Provides technical assistance to rural businesses or rural

residents, or educates or provides medical care to rural residents--20

points;

(iii) Will enhance rural economic development by providing advanced

telecommunications services and computer networks for medical,

educational, and job training services. This review will be based on

your application's telecommunications design--20 points.

(2) Number of full-time jobs.

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

If the number of direct full-time rural

jobs either created or saved per $100,000 Then we will award

of total project costs is

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

(i) Greater than five.................... 25 points;

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

(ii) From one to five.................... 15 points.

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

(3) Supplemental funds for your project. Points will be based on a

calculation of the amount of supplemental funds to be provided to the

project. Supplemental funds must be provided on a pro rata basis to the

project within a 12 month period that begins on the day our funds are

provided to the project. All supplemental funds used in the following

calculation must be disbursed to the project between the date of our

receipt of your application and 1 year after our first advance of

funds:

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

If supplemental funds as a percentage of

the Agency loan or grant to be provided Then we will award

to the project are

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

(i) Greater than 200%.................... 20 points;

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

(ii) From 100% to 200%................... 10 points;

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

(iii) From 50% to less than 100%......... 5 points.

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

(4) Unemployment rate for the county(ies) where your project is

located. We will compare the unemployment rate(s) in the county(ies) to

the state and national unemployment rates, as follows:

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

If the unemployment rate(s) in the

county(ies) where your project will be Then we will award

located

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

(i) Exceeds the national unemployment 15 points;

rate by 30% or more.

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

(ii) Is greater than the national 5 points;

unemployment rate, but is less than 130%

of the national unemployment rate.

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

(iii) Exceeds the state unemployment rate 10 points;

by 30% or more.

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

(iv) Is greater than the state 5 points.

unemployment rate but is less than 130%

of the state unemployment rate.

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

(5) Median household income for the county(ies) where your project

is located. We will compare the median household income in the

county(ies) where your project will be located to the national and

state median household income levels, as follows:

[[Page 69945]]

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

If the median household income level in

the county(ies) is: Then we will award

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

(i) Less than or equal to 90% national 15 points;

level.

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

(ii) Between 90 and 100% of the national 5 points;

level.

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

(iii) Less than or equal to 90% state 10 points;

level.

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

(iv) Between 90 and 100% of the state 5 points.

level.

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

(6) Decline in population for the county(ies) where your project is

located. If there has been a long-term decline in population in the

county(ies) where your project will be located over the time period

covered by the three most recent decennial censuses of the United

States to the present--10 points.

(7) Cushion of credit payments. We will determine the level of your

cushion of credit payments, as follows:

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

If your cushion of credit account level

is Then we will award

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

(i) In excess of $300,000, or a dollar 15 points;

amount in excess of three percent of

your total assets, whichever is less.

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

(ii) Within the range of $100,000 to less 10 points;

than $300,000, or a dollar amount that

is within the range of one percent to

less than three percent of your total

assets, whichever is less.

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

(iii) Within the range of $10,000 to less 5 points.

than $100,000, or a dollar amount that

is within the range of 0.5 percent to

less than one percent of your total

assets, whichever is less.

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

(8) Initial loan and grant. If your loan application would be the

first loan awarded to you under this program or the grant application

is the first grant awarded to you under this program--10 points.

(9) County participation. If your project would be the first

project this program financed in the county where your project is to be

located--10 points.

(10) Ultimate recipient's plan. We will evaluate the ultimate

recipient's business plan or telecommunications design that would

include the following:

(i) A description of the business or project plans and, if

applicable, its products and operating plans. (For applications for

advanced telecommunications, the business plan we evaluate would be the

application's telecommunications and engineering design)--15 points;

and

(ii) An appropriate financial plan, including a feasibility study

with projected balance sheets, income statements and cash flow

statements for the term of the loan--20 points.

Sec. 4280.43 Is there a possibility for discretionary points and how

are they awarded?

Yes, the Administrator, based on the State Director's

recommendation, has the discretion to designate up to 25 points based

on whether your project:

(a) Is located in a Rural Empowerment Zone, Rural Enterprise

Community, or Champion Community;

(b) Is located in a county that has experienced the loss, removal,

or closing of a major source or sources of employment in the last 3

years which causes an increase of 2 percentage points or more in the

county's most recent unemployment rate compared with the period

immediately before the dislocation;

(c) Is located in a county that has experienced chronic or long-

term economic deterioration;

(d) Utilizes advanced telecommunications or computer networks to

facilitate medical or educational services or job training;

(e) Is located in a county that was designated a disaster area by

the President of the United States or Secretary of Agriculture that

significantly affected rural economic development and job creation. The

county must have been designated within 3 years prior to your applying

to us; or

(f) Is consistent with the Rural Development State Office's

approved strategic plan and mission area objectives.

Sec. 4280.44 Are there limits on the number of loans or grants I may

receive?

Yes, depending on the amount of funds available, we may limit you

to one selected grant application and two selected loan applications in

a fiscal year.

Secs. 4280.45-4280.46 [Reserved]

Sec. 4280.47 What if I am not selected?

(a) If you are not selected, you may elect to have your application

reconsidered.

(b) Your application will be considered for a total of four of our

selection competitions. You may reapply if the application is revised

and be considered for another four selection competitions.

What Must I do After Selection?

Sec. 4280.48 If I am selected, what documents must I execute?

We will notify you in writing if your application is selected. The

documents to be executed will include:

(a) Loan. (1) A Letter of Agreement with specific terms and

conditions;

(2) A loan agreement with general terms and conditions;

(3) A note covering the repayment terms of the loan; and

(4) A legal opinion concerning your authority to engage in the

project.

(b) Grant. (1) A Letter of Agreement with project specific terms

and conditions;

(2) A grant agreement with general terms and conditions; and

(3) A legal opinion concerning your authority to participate in the

project.

Sec. 4280.49 What documents must I submit for approval before I can

receive my funds?

We must approve any agreements or changes in agreements between you

and the ultimate recipient. We must also approve agreements involved in

any multi-step financial transaction that involves lending our funds to

any intermediate entities, which will subsequently lend the funds to

the ultimate recipient.

Sec. 4280.50 How do I obtain the approved loan or grant funds?

(a) We will disburse zero-interest loan funds to you in accordance

with the terms of the executed loan agreement. All loan funds will be

disbursed in

[[Page 69946]]

advance to you at one time once you have complied with our

requirements.

(b) We will disburse grant funds to you in accordance with 7 CFR

parts 3015 and 3016, as applicable. Specifically, we will disburse the

grant funds in advance if the following requirements are met:

(1) You have demonstrated to us the willingness and ability to

establish written procedures that will minimize the time elapsing

between the transfer of funds from us and their disbursement to the

ultimate recipient;

(2) Your financial management system meets the requirements of 7

CFR parts 3015 and 3016, as applicable;

(3) All necessary supplemental funds for the project have been

obligated or committed to the project; and

(4) Your request for cash advances from us are limited to the

minimum amounts needed and timed to be in accordance with the actual,

immediate cash needs of carrying out the project.

(c) You must provide to the ultimate recipient all loan funds that

we have disbursed to you within 6 months of your receiving them.

Secs. 4280.51-4280.52 [Reserved]

Sec. 4280.53 How do I make loan payments?

You must make all loan payments to us by electronic funds transfer

or other means as specified in the loan documents.

Sec. 4280.54 Do I have to follow certain construction procurement

requirements?

Yes, construction, including bidding and awarding of contracts,

must be conducted in a manner that provides maximum open and free

competition.

Sec. 4280.55 What are my responsibilities to monitor and review the

project?

(a) If you receive a loan or grant, you must monitor the project to

the extent necessary to ensure that:

(1) Funds are used only for approved purposes;

(2) Disbursements and expenditures of funds are properly supported

with certifications, invoices, contracts, bills of sale, or other forms

of evidence, which are maintained on your premises;

(3) Project time schedules are being met, projected work by time

periods is being accomplished, and other performance objectives are

being achieved; and

(4) The project is in compliance with all applicable regulations.

(b) We may inspect and copy your records and documents that pertain

to the project which you must retain for the term of the project loan

plus 2 years. In addition, we may also perform project site visits and

reviews of the use of loan or grant proceeds.

(c) We will review and monitor grants in accordance with

appropriate United States Department of Agriculture regulations at 7

CFR parts 3015, 3016, 3017, 3018, and 3052.

Sec. 4280.56 What reports or audits must I and ultimate recipients

submit?

(a) If you receive a loan or grant, you must submit the following

report:

(1) Loan. You must submit the ``Survey of Recipients of Rural

Economic Development Loan and Grant Program,'' to us on an annual basis

until the project is completed.

(2) Revolving Loan Fund (Grant). You must submit the ``Survey of

Recipients of Rural Economic Development Loan and Grant Program,'' to

us on an annual basis until the projects financed with our proceeds are

completed and, thereafter, on a triennial basis until the fund is

terminated.

(b) If you have an outstanding loan with RUS, we will obtain a copy

of your audit from RUS. If you do not have an existing loan with RUS,

you will need to submit a copy of your annual audit to us. All audits

must be conducted in accordance with Generally Accepted Government

Auditing Standards and/or Generally Accepted Accounting Principles.

(c) We may require ultimate recipients of grant funds provided

under this program to submit annual audits to comply with federal audit

regulations. In accordance with 7 CFR part 3052, if an ultimate

recipient spends $300,000 or more of Federal funds in one year and they

are a nonprofit entity, or a State or local government, then they may

be required to submit an audit.

Secs. 4280.57-4280.61 [Reserved]

Sec. 4280.62 How may I appeal an adverse decision?

You may appeal any appealable adverse decision we make that affects

you in accordance with 7 CFR part 11.

Sec. 4280.63 Exception authority.

The Administrator of the Agency may, in individual cases, grant an

exception to any non-statutory requirement or provision of this

subpart, provided the Administrator determines in writing that the

application of the requirement or provision would adversely affect

USDA's interest.

Secs. 4280.64-4280.99 [Reserved]

Sec. 4280.100 OMB control number. [Reserved]

Dated: December 3, 1999.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 99-32009 Filed 12-14-99; 8:45 am]

BILLING CODE 3410-XY-U