Debt Forgiveness for Loans to Indian Tribes and Tribal Corporations

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1823 and 1956

RIN 0560-AF43

Debt Forgiveness for Loans to Indian Tribes and Tribal

Corporations

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,

Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: The Farm Service Agency (FSA) is reviewing regulations and is

considering revising its debt relief regulations for Indian Tribal Land

Acquisition Program (ITLAP) loans. Current Agency regulations only

provide limited debt relief authority for ITLAP loans. This review will

assure the participation of interested parties to better balance

program participants' needs and public concerns. The review will also

serve to gather information and solicit comments on potential revisions

to the regulations.

DATES: Comments on this advance notice of proposed rulemaking,

including comments on alternatives to this proposal must be received on

or before April 2, 1999 to be assured of consideration.

ADDRESSES: Interested persons are invited to submit written comments on

this advance notice of proposed rulemaking to: Veldon Hall, Director,

Farm Loan Programs, Loan Servicing Division, USDA/FSA/LSPMD/STOP 0523,

1400 Independence Avenue, SW, Washington, DC 20250-0523, telephone

(202) 720-4572, fax (202) 690-0949 or (202) 720-7686; e-mail comments

may be sent to: VH[email protected]

All written comments received in response to this advance notice

will be available for public inspection in Room 5449 South Building,

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

Washington, DC between 8:15 a.m. and 4:45 p.m., Monday through Friday,

except holidays.

FOR FURTHER INFORMATION CONTACT: Gary M. West, telephone (202) 690-

4008.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

It has been determined that this advance notice is Significant

under Executive Order 12866 and has been reviewed by OMB. Because of

the preliminary nature of this notice, information is not yet available

with which to prepare a Cost Benefit Assessment or a Civil Rights

Analysis. The analyses will be completed and available when the

proposed rule, if any, is prepared.

Executive Order 13084

On May 14, 1998, President Clinton issued Executive Order 13084

entitled ``Consultation and Coordination with Indian Tribal

Governments.'' This Executive Order, which became effective on August

12, 1998, recognizes the unique legal relationship that exists between

the Government of the United States and the Indian tribal governments

and states that the ``United States continues to work with Indian

tribes on a Government-to-Government basis to address issues concerning

Indian tribal self-government, trust resources, and Indian tribal

treaty and other rights.'' This Executive Order provides that Federal

agencies must be flexible in reviewing requests for waivers of

regulatory requirements in connection with programs administered by the

agencies ``with a general view toward increasing opportunities for

utilizing flexible policy approaches at the Indian tribal level in

cases in which the proposed waiver is consistent with the applicable

Federal policy objectives and is otherwise appropriate.'' It is the

purpose of this Advance Notice of Proposed Rulemaking to consider

different policies in connection with the ITLAP, particularly focusing

on the possibility of relief from ITLAP debt obligations so that tribes

with diminished resources can direct their revenue to other activities.

Background

Pub. L. 91-229 (25 U.S.C. 488-494) authorized the Secretary of

Agriculture to establish the Indian Tribal Land Acquisition Program

(ITLAP). This program was administered by the former Farmers Home

Administration to make loans to Indian tribes to acquire land and

fractional interests in land within the tribes' reservations. The

program is now administered by the Farm Service Agency (FSA).

Regulations implementing this program for loan making are in 7 CFR

part 1823, subpart N; for loan servicing, 7 CFR part 1951, subpart E;

and for debt settlement, 7 CFR part 1956, subpart C.

At the present time 28 tribes have ITLAP loans with a total

outstanding balance of approximately $71 million for all ITLAP loans.

The regulations of the former Farmers Home Administration at

Sec. 1823.409, which are still in effect, authorize security for ITLAP

loans to be either traditional mortgages or assignments of tribal

income. In accordance with Sec. 1823.406, loans under ITLAP may be made

for a term not to exceed 40 years. Since the lands being purchased

using ITLAP were often small, discontinuous tracts or were fractional

undivided interests as a result of Indian heirship proceedings, the

security for these loans has generally been an assignment of the

tribe's income and a mortgage has not been taken. Normally the tribes

rented the land purchased with ITLAP funds, often combined with other

tribally owned land, for farming and ranching purposes. Rent from

tribal operations is paid to the Bureau of Indian Affairs (BIA) and is

held in a tribal account along with other tribal funds. The annual

payments on the ITLAP loans were automatically made by the BIA from

income held by the BIA in tribal accounts. In many cases, the annual

ITLAP loan payments exceed the rental income from the lands purchased

with ITLAP funds. The automatic nature of the payments prevents the

tribes from defaulting on the ITLAP loans and using these funds for

other tribal purposes.

Because of the assignment of income payment mechanism, ITLAP loans

have generally remained current, even through the agricultural

financial crisis of the 1980's, assistance to the tribes has decreased,

making it more difficult for the tribes to meet all of their tribal

commitments and simultaneously have

[[Page 10236]]

full loan payments automatically made to FSA by BIA from the

assignments of reduced tribal income. One increased tribal expense

involves the responsibility which the tribes have been given for waste

management on reservations. Additionally, welfare reform under the

Personal Responsibility and Work Opportunity Reconciliation Act of

1996, Pub. L. 104-193, will decrease welfare assistance to tribal

members, causing tribal governments to provide additional resources to

individual tribal members to make up for the decrease. In many cases,

unemployment on reservations with ITLAP loans is 85 to 90 percent and

there are no viable employment opportunities within the reservation or

nearby communities; therefore, the tribal government will have to

assume more responsibility for subsistence payments for its members. In

addition, past reduction in funds appropriated to the BIA for Tribal

Priority Allocations, i.e., public safety, fire protection, road

maintenance, education, health care, and other infrastructure

requirements, are causing further financial difficulties for tribes in

meeting their responsibilities to their members.

Legal Background for ITLAP Debt Relief

ITLAP loans are authorized in 25 U.S.C. 488-494. Section 494 of

title 25 provides partial authority for servicing these loans by

incorporating portions of subtitle D of the Consolidated Farm and Rural

Development Act (7 U.S.C. 1981-2008j). Section 331(b)(4) of the

Consolidated Farm and Rural Development Act (7 U.S.C. 1981(b)(4)),

which is part of subtitle D, gives the Secretary of Agriculture the

authority to ``compromise, adjust, reduce, or charge-off debts or

claims * * * and adjust, modify, subordinate, or release the terms of

security instruments, leases, contracts, and agreements entered into or

administered by [FSA]. * * *'' The Secretary has implemented this debt

settlement authority for several loan programs formerly administered by

the Farmers Home Administration, including ITLAP, in 7 CFR part 1956,

subpart C. This regulation has not been rewritten since the former

Farmers Home Administration was abolished in October 1994, when its

programs were divided between the FSA and the Rural Development mission

area.

The ITLAP debt settlement regulation provides that loans can be

canceled or modified depending on the circumstances, but requires as a

prerequisite to any debt settlement relief that the ITLAP debt must be

all due and payable, either under its own terms or because it has been

accelerated (Sec. 1956.109(a)). As noted above, because of the

assignment of income provisions, none of the ITLAP loans have been

accelerated and very few are even delinquent. Thus, under the debt

settlement regulation, the loans do not qualify for debt settlement.

(There is ``exception'' authority at Sec. 1956.148 which could allow

the ``all due and payable'' requirement to be waived, but only if the

failure to waive this requirement would adversely affect the

Government's interest.)

In addition to the debt settlement provisions of 331(b)(4) of the

Consolidated Farm and Rural Development Act (7 U.S.C. 1981(b)(4)) which

are applicable to ITLAP, Pub. L. 91-229 (August 14, 1989) was enacted

to provide additional relief for ITLAP borrowers. The 1989 law

authorizes the Secretary to ``reduce the unpaid principal balance of

[an ITLAP loan] to the current fair market value of the land purchased

with the proceeds of the loan or loans if (1) the fair market value of

the land has declined by at least 25 percent since such land was

purchased by the borrower; (2) the land has been held by the borrower

for a period of at least 5 years; and (3) the Secretary of the Interior

finds that the borrower has insufficient income to repay the loans or

loans and provide normal tribal governmental services.'' There is no

``all due and payable'' requirement for the relief available under this

law. Pursuant to this authority, the principal of several ITLAP loans

was reduced.

The relief in Pub. L. 91-229 may not address the concerns of

current tribal borrowers because in most cases the land has not

declined in value by the required 25 percent. In addition, because

ITLAP funds were used to purchase undivided interests and small

parcels, it is in many cases extremely difficult and time consuming to

determine the fair market value of the land purchased with ITLAP funds.

Budgetary Impact

One concern with providing debt relief for ITLAP loans involves the

funding mechanism for all Government direct loan programs. Under the

Federal Credit Reform Act of 1990 (Title V of the Congressional Budget

Act of 1974, as amended by Sec. 13201 of the Omnibus Budget

Reconciliation Act of 1990, Pub. L. 101-508 (November 5, 1990)) (Credit

Reform Act) and OMB Circular A-129, ``Policies for Federal Credit

Programs and Non-Tax Receivables (January 11, 1993), the amount of

Federal funding for a credit program is a function of the cost of the

program. As the cost of the program increases, the amount of

appropriations available for the loan program decreases. Debt relief to

individual ITLAP borrowers would cause the costs to increase and, in

the absence of increased levels of funding for the ITLAP, the amount of

loan funds in future years will be lowered due to these increased

costs.

Possible Debt Relief Alternatives

Under current FSA regulations, the tribes are not eligible for debt

relief for their ITLAP loans. It is the purpose of this Advance Notice

of Proposed Rulemaking to determine if debt relief is appropriate for

ITLAP loans and, if so, what form the relief should take and the

criteria for determining eligibility for this relief. We are also

interested in the practical implications of the suggested alternatives.

While the following is not an exhaustive list and the Agency is

interested in all possibilities, the following are ideas for debt

relief that may be considered. The Agency is interested in comments on

these ideas, as well as any other alternatives that commenters may

suggest.

1. Cancel the ITLAP debts in full. What criteria would be used to

determine if a debt should be canceled?

2. Reduce the principal amount of the outstanding ITLAP debt to the

present value of expected future annual rental value of the land

purchased with ITLAP loan funds and set the annual ITLAP loan payment

at the annual rent received or that could be received from this land.

3. Restructure the loan by lowering the interest rate and

reamortizing the balance of the loan over the remaining loan term.

4. Release the assignments of income and substitute real estate

mortgages on the land purchased with ITLAP funds. The regulation could

provide that payment terms of the loans would be restructured at such

time.

5. Consider the changes in tribal revenues from all sources or

other Government sources and grant a corresponding reduction in the

loan principal.

6. Grant deferrals of annual payments if the income loss is

temporary.

Dated: February 24, 1999.

August Schumacher, Jr.,

Under Secretary for Farm and Foreign Agricultural Services.

Dated: February 25, 1999.

Jill Long Thompson,

Under Secretary for Rural Development.

[FR Doc. 99-5225 Filed 3-2-99; 8:45 am]

BILLING CODE 3410-05-P