[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2005 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



          7


          Parts 1940 to 1949

                         Revised as of January 1, 2005


          Agriculture
          
          


________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2005
          With Ancillaries
                    Published by:
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

          U.S. GOVERNMENT OFFICIAL EDITION NOTICE

          Legal Status and Use of Seals and Logos
          
          
          The seal of the National Archives and Records Administration 
              (NARA) authenticates the Code of Federal Regulations (CFR) as 
              the official codification of Federal regulations established 
              under the Federal Register Act. Under the provisions of 44 
              U.S.C. 1507, the contents of the CFR, a special edition of the 
              Federal Register, shall be judicially noticed. The CFR is 
              prima facie evidence of the original documents published in 
              the Federal Register (44 U.S.C. 1510).

          It is prohibited to use NARA's official seal and the stylized Code 
              of Federal Regulations logo on any republication of this 
              material without the express, written permission of the 
              Archivist of the United States or the Archivist's designee. 
              Any person using NARA's official seals and logos in a manner 
              inconsistent with the provisions of 36 CFR part 1200 is 
              subject to the penalties specified in 18 U.S.C. 506, 701, and 
              1017.

          Use of ISBN Prefix

          This is the Official U.S. Government edition of this publication 
              and is herein identified to certify its authenticity. Use of 
              the 0--16 ISBN prefix is for U.S. Government Printing Office 
              Official Editions only. The Superintendent of Documents of the 
              U.S. Government Printing Office requests that any reprinted 
              edition clearly be labeled as a copy of the authentic work 
              with a new ISBN.

              
              
          U . S . G O V E R N M E N T P R I N T I N G O F F I C E

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

          U.S. Superintendent of Documents  Washington, DC 
              20402-0001

          http://bookstore.gpo.gov

          Phone: toll-free (866) 512-1800; DC area (202) 512-1800

[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture                                                5
  Finding Aids:
      Table of CFR Titles and Chapters........................     605
      Alphabetical List of Agencies Appearing in the CFR......     623
      List of CFR Sections Affected...........................     633

[[Page iv]]





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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 1940.301 
                       refers to title 7, part 
                       1940, section 301.

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

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2005), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of textual material 
appearing in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
fedreg.info@nara.gov.

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll-free, 
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or 
fax your order to 202-512-2250, 24 hours a day. For payment by check, 
write to the Superintendent of Documents, Attn: New Orders, P.O. Box 
371954, Pittsburgh, PA 15250-7954. For GPO Customer Service call 202-
512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers, Weekly Compilation of Presidential 
Documents and the Privacy Act Compilation are available in electronic 
format at www.gpoaccess.gov/nara (``GPO Access''). For more information, 
contact Electronic Information Dissemination Services, U.S. Government 
Printing Office. Phone 202-512-1530, or 888-293-6498 (toll-free). E-
mail, gpoaccess@gpo.gov.

[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal--
register. The NARA site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2005.

[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2005.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199. Part 900--General Regulations is carried as a note in the 
volume containing parts 1000-1199, as a convenience to the user.

    For this volume, Cheryl E. Sirofchuck was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1940 to 1949)

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

        SUBTITLE B--Regulations of the Department of Agriculture

                                                                    Part

chapter xviii--Rural Housing Service, Rural Business-
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture.................        1940

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



    CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                               AGRICULTURE




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


  Editorial Note: Nomenclature changes to chapter XVIII appear at 61 FR 
1109, Jan. 16, 1996, and at 61 FR 2899, Jan. 30, 1996.

                    SUBCHAPTER H--PROGRAM REGULATIONS
Part                                                                Page
1940            General.....................................           7
1941            Operating loans.............................         119
1942            Associations................................         143
1943            Farm ownership, soil and water and 
                    recreation..............................         232
1944            Housing.....................................         291
1945            Emergency...................................         558
1946            [Reserved]
1948            Rural development...........................         573
1949            [Reserved]

[[Page 7]]



                    SUBCHAPTER H_PROGRAM REGULATIONS





PART 1940_GENERAL--Table of Contents




Subparts A-F [Reserved]

                     Subpart G_Environmental Program

Sec.
1940.301 Purpose.
1940.302 Definitions.
1940.303 General policy.
1940.304 Special policy.
1940.305 Policy implementation.
1940.306 Environmental responsibilities within the National Office.
1940.307 Environmental responsibilities within the State Office.
1940.308 Environmental responsibilities at the District and County 
          Office levels.
1940.309 Responsibilities of the prospective applicant.
1940.310 Categorical exclusions from National Environmental Policy Act 
          (NEPA) reviews.
1940.311 Environmental assessments for Class I actions.
1940.312 Environmental assessments for Class II actions.
1940.313 Actions that normally require the preparation of an 
          Environmental Impact Statement (EIS).
1940.314 Criteria for determining a significant environmental impact.
1940.315 Timing of the environmental review process.
1940.316 Responsible officials for the environmental review process.
1940.317 Methods for ensuring proper implementation of categorical 
          exclusions.
1940.318 Completing environmental assessments for Class II actions.
1940.319 Completing environmental assessments for Class I actions.
1940.320 Preparing EISs.
1940.321 Use of completed EIS.
1940.322 Record of decision.
1940.323 Preparing supplements to EIS's.
1940.324 Adoption of EIS or environmental assessment prepared by another 
          Federal Agency.
1940.325 FmHA or its successor agency under Public Law 103-354 as a 
          cooperating Agency.
1940.326 FmHA or its successor agency under Public Law 103-354 as a lead 
          Agency.
1940.327 Tiering.
1940.328 State Environmental Policy Acts.
1940.329 Commenting on other Agencies' EIS's.
1940.330 Monitoring.
1940.331 Public involvement.
1940.332 Emergencies.
1940.333 Applicability to planning assistance.
1940.334 Direct participation of State Agencies in the preparation of 
          FmHA or its successor agency under Public Law 103-354 EISs.
1940.335 Environmental review of FmHA or its successor agency under 
          Public Law 103-354 proposals for legislation.
1940.336 Contracting for professional services.
1940.337-1940.349 [Reserved]
1940.350 Office of Management and Budget (OMB) control number.

Exhibit A to Subpart G--Departmental Regulation
Exhibit B to Subpart G--Development and Implementation of Natural 
          Resource Management Guide
Exhibit C to Subpart G--Implementation Procedures for the Farmland 
          Protection Policy Act; Executive Order 11988, Floodplain 
          Management; Executive Order 11990, Protection of Wetlands; and 
          Departmental Regulation 9500-3, Land Use Policy
Exhibit D to Subpart G--Implementation Procedures for the Endangered 
          Species Act
Exhibit E to Subpart G--Implementation Procedures for the Wild and 
          Scenic Rivers Act
Exhibit F to Subpart G--Implementation Procedures for the Coastal 
          Barrier Resources Act
Exhibit G to Subpart G [Reserved]
Exhibit H to Subpart G--Environmental Assessment for Class II Actions
Exhibit I to Subpart G--Finding of No Significant Environmental Impact
Exhibit J to Subpart G--Locations and Telephone Numbers of Federal 
          Emergency Management Administration's Regional Offices
Exhibit K to Subpart G--Locations and Telephone Numbers of U.S. Fish and 
          Wildlife Service's Wetland Coordinators
Exhibit L to Subpart G--Exceptions to Restrictions of Coastal Barrier 
          Resources Act
Exhibit M to Subpart G--Implementation Procedures for the Conservation 
          of Wetlands and Highly Erodible Land Affecting Farmer Program 
          Loans and Loans to Indian Tribes and Tribal Corporations

Subpart H [Reserved]

[[Page 8]]

      Subpart I_Truth in Lending_Real Estate Settlement Procedures

1940.401 Truth in lending.
1940.402-1940.405 [Reserved]
1940.406 Real estate settlement procedures.

Subparts J-K [Reserved]

  Subpart L_Methodology and Formulas for Allocation of Loan and Grant 
                              Program Funds

1940.551 Purpose and general policy.
1940.552 Definitions.
1940.553-1940.554 [Reserved]
1940.555 Insured Farm Operating loan funds.
1940.556 Guaranteed Farm Operating loan funds.
1940.557 Insured Farm Ownership loan funds.
1940.558 Guaranteed Farm Ownership loan funds.
1940.559 Farmer Programs and Indian Land Acquisition appropriations not 
          allocated by State.
1940.560 Guarantee Rural Rental Housing Program.
1940.561-1940.562 [Reserved]
1940.563 Section 502 non-subsidized guaranteed Rural Housing (RH) loans.
1940.564 Section 502 subsidized guaranteed Rural Housing loans.
1940.565 Section 502 subsidized Rural Housing loans.
1940.566 Section 504 Housing Repair loans.
1940.567 Section 504 Housing Repair grants.
1940.568 Single Family Housing programs appropriations not allocated by 
          State.
1940.569-1940.574 [Reserved]
1940.575 Section 515 Rural Rental Housing (RRH) loans.
1940.576 Rental Assistance (RA) for new construction.
1940.577 Rental Assistance (RA) for existing projects.
1940.578 Housing Preservation Grant (HPG) program.
1940.579 Multiple Family Housing appropriations not allocated by State.
1940.580-1940.584 [Reserved]
1940.585 Community Facility loans.
1940.586-1940.587 [Reserved]
1940.588 Business and Industry Guaranteed and Direct Loans.
1940.589 Rural Business Enterprise Grants.
1940.590 [Reserved]
1940.591 Community Program Guaranteed loans.
1940.592 Community facilities grants.
1940.593 Rural Business Opportunity Grants.
1940.594-1940.600 [Reserved]

Exhibit A to Subpart L [Reserved]
Exhibit B to Subpart L--Section 515 Nonprofit Set Aside (NPSA)
Exhibit C to Subpart L--Housing in Underserved Areas

Subparts M-S [Reserved]

   Subpart T_System for Delivery of Certain Rural Development Programs

1940.951 General.
1940.952 [Reserved]
1940.953 Definitions.
1940.954 State participation.
1940.955 Distribution of program funds to designated States.
1940.956 State rural economic development review panel.
1940.957 State coordinator.
1940.958 Designated agency.
1940.959 Area plan.
1940.960 Federal employee panel members.
1940.961 Allocation of appropriated funds.
1940.962 Authority to transfer direct loan amounts.
1940.963 Authority to transfer guaranteed loan amounts.
1940.964 [Reserved]
1940.965 Processing project preapplications/applications.
1940.966-1940.967 [Reserved]
1940.968 Rural Economic Development Review Panel Grant (Panel Grant).
1940.969 Forms, exhibits, and subparts.
1940.970 [Reserved]
1940.971 Delegation of authority.
1940.972-1940.999 [Reserved]
1940.1000 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

Subparts A-F [Reserved]



                     Subpart G_Environmental Program

    Source: 53 FR 36240, Sept. 19, 1988, unless otherwise noted.



Sec. 1940.301  Purpose.

    (a) This subpart contains the major environmental policies of the 
Farmers Home Administration (FmHA) or its successor agency under Public 
Law 103-354. It also provides the procedures and guidelines for 
preparing the environmental impact analyses required for a series of 
Federal laws, regulations, and Executive orders within one environmental 
document. The timing and use of this environmental document within the 
FmHA or its successor agency under Public Law 103-354 decision-making 
process is also outlined.
    (b) This subpart is intended to be consistent with the Council on 
Environmental Ouality's (CEQ) Regulations

[[Page 9]]

for Implementing the Procedural Provisions of the National Environmental 
Policy Act (NEPA), 40 CFR parts 1500-1508. CEQ's regulations will not be 
repeated in this subpart except when essential for clarification of 
important procedural or substantive points. Otherwise, citations to 
applicable sections of the regulations will be provided. The CEQ 
regulations will be available at all FmHA or its successor agency under 
Public Law 103-354 offices.
    (c) This subpart is designed to integrate the requirements of NEPA 
with other planning and environmental review procedures required by law, 
or by Agency practice, so that all such procedures run concurrently 
rather than consecutively. The environmental document, which results 
from the implementation of this subpart, provides on a project basis a 
single reference point for the Agency's compliance and/or implementation 
of the following requirements and policies:
    (1) The National Environmental Policy Act, 42 U.S.C. 4321;
    (2) Safe Drinking Water Act--Section 1424(e), 42 U.S.C. 300h;
    (3) Endangered Species Act, 16 U.S.C. 1531;
    (4) Wild and Scenic Rivers Act, 16 U.S.C. 1271;
    (5) The National Historic Preservation Act, 16 U.S.C. 470 (See 
subpart F of part 1901 of this chapter for more specific implementation 
procedures);
    (6) Archaeological and Historic Preservation Act, 16 U.S.C. 469 (See 
subpart F of part 1901 of this chapter for more specific implementation 
procedures);
    (7) Coastal Zone Management Act--Section 307(c) (1) and (2), 16 
U.S.C. 1456;
    (8) Farmland Protection Policy Act, subtitle I, Pub. L. 97-98;
    (9) Coastal Barrier Resources Act, Pub. L. 97-348;
    (10) Executive Order 11593, Protection and Enhancement of the 
Cultural Environment (See subpart F of part 1901 of this chapter for 
more specific implementation procedures);
    (11) Executive Order 11514, Protection and Enhancement of 
Environmental Quality;
    (12) Executive Order 11988, Floodplain Management;
    (13) Executive Order 11990, Protection of Wetlands;
    (14) Title 7, parts 1b and 1c, Code of Federal Regulations, 
Department of Agriculture's National Environmental Policy Act; Final 
Policies and Procedures;
    (15) Title 7, part 3100, Code of Federal Regulations, Department of 
Agriculture's Enhancement, Protection, and Management of the Cultural 
Environment (See subpart F of part 1901 of this chapter for more 
specific implementation procedures);
    (16) Title 7, part 658, Code of Federal Regulations, Department of 
Agriculture, Soil Conservation Service, Farmland Protection Policy;
    (17) Title 87, part 12, Code of Federal Regulations, Highly Erodible 
Land and Wetland Conservation;
    (18) Departmental Regulation 9500-3, Land Use Policy (See exhibit A 
of this subpart);
    (19) Departmental Regulation 9500-4, Fish and Wildlife Policy.
    (d) The primary objectives of this subpart are for the Agency to 
make better decisions by taking into account potential environmental 
impacts of proposed projects and by working with FmHA or its successor 
agency under Public Law 103-354 applicants, other Federal agencies, 
Indian tribes, State and local governments, and interested citizens and 
organizations in order to formulate actions that advance the program 
goals in a manner that will protect, enhance, and restore environmental 
quality. To accomplish these objectives, the identification of 
potentially significant impacts on the human environment is mandated to 
occur early in the Agency's planning and decisionmaking processes. 
Important decision points are identified. The completion of the 
environmental review process is coordinated with these decision points, 
and this review must be completed prior to the Agency's first major 
decision on whether or not to participate in the proposal. This early 
availability of the results of the environmental review process is 
intended to ensure that Agency decisions are based on an understanding 
of their environmental consequence, as well as the consequences of 
alternative courses of action.
    (e) Reducing delays, duplication of effort, and superfluous analyses 
are

[[Page 10]]

provided for in this subpart. FmHA or its successor agency under Public 
Law 103-354 environmental documents are to be supported by accurate 
analyses and will concentrate on the issues that are timely and relevant 
to the action in question, rather than amassing needless detail. Such 
documents and their preparation and review will be coordinated with 
other Federal or State agencies jointly participating in proposed 
actions or related actions, in order to avoid duplication of effort, and 
to achieve a coordinated and timely response.
    (f) Public involvement is desirable, and to facilitate public 
involvement, environmental documents will be available to interested 
citizens as early in the decisionmaking process as possible and before 
decisions are made. Provisions are included for citizens or interested 
parties to express their views and any concerns.
    (g) The FmHA or its successor agency under Public Law 103-354 
officials responsible for the environmental review process are 
identified.
    (h) The FmHA or its successor agency under Public Law 103-354 
actions covered by this subpart include:
    (1) Financial assistance to include grants, loans, and guarantees,
    (2) Subdivision approvals,
    (3) The management, leasing and sale of inventory property, and
    (4) Other major federal actions such as proposals for legislation 
and the issuance of regulations.



Sec. 1940.302  Definitions.

    Following is a list of definitions that apply to the implementation 
of this subpart. Please note that Sec. 1940.301(b) of this subpart 
refers to the Council on Environmental Quality's Regulations for 
Implementing the Procedural Provisions of the National Environmental 
Policy Act, 40 CFR parts 1500-1508. Consequently, the definitions 
contained in part 1508 of the Council's regulations apply to this 
subpart, as well as those listed below.
    (a) Emergency circumstance. One involving an immediate or imminent 
danger to public health or safety.
    (b) Environmental review documents. The documents required by this 
subpart for the purpose of documenting FmHA or its successor agency 
under Public Law 103-354's compliance with the environmental laws and 
regulations applicable to the FmHA or its successor agency under Public 
Law 103-354 actions covered in this subpart. These documents include:
    (1) Form FmHA or its successor agency under Public Law 103-3541940-
22, ``Environmental Checklist for Categorical Exclusions,''
    (2) Form FmHA or its successor agency under Public Law 103-354 1940-
21, ``Environmental Assessment of Class I Action,''
    (3) Environmental Assessment for Class II Actions (exhibit H of this 
subpart), and
    (4) Environmental Impact Statements (EIS).
    (c) Flood or flooding. A general and temporary condition of partial 
or complete inundation of land areas, from the overflow of inland and/or 
tidal waters, and/or the rapid accumulation or runoff of surface waters 
from any source. Two important classifications of floods are as follows.
    (1) A one-percent chance flood or based flood--A flood of a 
magnitude that occurs once every 100 years on the average. Within any 
one-year period there is one chance in 100 of the occurrence of such a 
flood. Most importantly, however, the cumulative risk of flooding 
increases with time. Statistically, there is about one chance in five 
that a flood of this magnitude will occur within a 20-year period, the 
length of time commonly defined as the useful life of a facility. Over a 
30-year period, the life of a typical mortgage, the probability of such 
a flood occurring increases to greater than one chance in four.
    (2) A 0.2-percent chance flood--A flood of a magnitude that occurs 
once every 500 years on the average. (Within any one-year period there 
is one chance in 500 of the occurrence of such a flood.) As with the 
one-percent chance flood, the cumulative risk of this flood occurring 
also increases with time.
    (d) Floodplains. Lowland and relatively flat areas adjoining inland 
and coastal waters, including flood-prone areas of offshore islands. At 
a minimum, floodplains consist of those

[[Page 11]]

areas subject to a one percent or greater chance of flooding in any 
given year. The term floodplain will be taken to mean the base 
floodplain, unless the action involves a critical action, in which case 
the critical action floodplain is the minimum floodplain of concern.
    (1) Base floodplain (or 100-year floodplain)--The area subject to 
inundation from a flood of a magnitude that occurs once every 100 years 
on the average (the flood having a one-percent chance of being equalled 
or exceeded in any given year).
    (2) Critical action floodplain (or 500-year floodplain)--The area 
subject to inundation from a flood of a magnitude that occurs once every 
500 years on the average (the flood having 0.2-percent chance of being 
equalled or exceeded in any given year).
    (e) Indirect impacts. Those reasonably foreseeable environmental 
impacts that result from the additional public facility, residential, 
commercial, or industrial development or growth that a federally 
financed project may cause, induce or accommodate. Consequently, 
indirect impacts often occur later in time than the construction of the 
Federal project and can be removed in distance from the construction 
site. For example, a water transmission line may be designed to serve 
additional residential development. The environmental impacts of that 
residential development represent an indirect impact of the federally 
funded water line. Those indirect impacts which deserve the greatest 
consideration include changes in the patterns of land use, population 
density or growth rate, and the corresponding changes to air and water 
quality and other natural systems.
    (f) Mitigation measure. A measure(s) included in a project or 
application for the purpose of avoiding, minimizing, reducing or 
rectifying identified, adverse environmental impacts. Examples of such 
measures include:
    (1) The deletion, relocation, redesign or other modifications of the 
project's elements;
    (2) The dedication to open space of environmentally sensitive areas 
of the project site, which would otherwise be adversely affected by the 
action or its indirect impacts;
    (3) Soil erosion and sedimentation plans to control runoff during 
land-disturbing activities;
    (4) The establishment of vegetative buffer zones between project 
sites and adjacent land uses;
    (5) Protective measures recommended by environmental and 
conservation agencies having jurisdiction or special expertise regarding 
the project's impacts;
    (6) Storm water management plans to control potential downstream 
flooding effects that would result from a project;
    (7) Zoning; and
    (8) Reuse of existing facilities as opposed to new construction.
    (g) No-action alternative. The alternative of not approving an 
application for financial assistance, a subdivision feasibility 
analysis, or an Agency proposal.
    (h) Practicable alternative. An alternative that is capable of 
attainment within the confines of relevant constraints. The test of 
practicability, therefore, depends upon the particulars of the situation 
under consideration and those constraints imposed by environmental, 
economic, legal, social and technological parameters. This test, 
however, is not limited by the temporary unavailability of sufficient 
financial resources to implement an alternative. That is, alternatives 
cannot be rejected solely on the basis of moderately increased costs. 
The range of alternatives that must be analyzed to determine if a 
practicable alternative exists includes the following three categories 
of alternatives:
    (1) Alternative project sites or designs,
    (2) Alternative projects with similar benefits as the proposed 
actions, and
    (3) The no-action alternative.
    (i) Preparer of Environmental Review Documents. The FmHA or its 
successor agency under Public Law 103-354 official who is responsible 
for reviewing the potential environmental impacts of the proposed action 
and for completing the appropriate environmental review document. Under 
the circumstances indicated, the following Agency positions and 
divisions will act as the preparer of

[[Page 12]]

the environmental review documents covered by this subpart.
    (1) County Office. When the approval official for the action under 
review is located at the County Office level, that official will 
prepare, as required, Environmental Checklist for Categorical Exclusions 
and Class I and Class II assessments.
    (2) District Office. When the approval official for the action under 
review is located at the District Office level, that official will 
prepare, as required, Environmental Checklist for Categorical Exclusions 
and Class I and Class II assessments or may delegate this responsibility 
to either:
    (i) The District Office staff member having primary responsibility 
for assembling the associated pre-application, application or other case 
materials, analyzing the materials and developing recommendations for 
the approval official, or
    (ii) A County Office staff member having the same responsibilities 
as the District Office member, if the action is initiated at the County 
Office level.
    (3) State Program Chief. For actions approved within the State 
Office, the Chief will prepare, as required, Environmental Checklist for 
Categorical Exclusions and Class I and II assessments or may delegate 
this responsibility to either:
    (i) The appropriate State Office Loan Specialist, if not the State 
Environmental Coordinator (SEC),
    (ii) An architect or engineer on the Chief's staff who is not the 
SEC, or
    (iii) A District or County Office staff member located within the 
office in which the action is initiated and having the responsibilities 
outlined in paragraph (i)(2)(i) of this section.
    (4) State Environmental Coordinator. EIS's for actions within the 
approval authority of County Supervisors, District Directors, and State 
Office officials.
    (5) Assistant Administrators for Programs. Checklists, assessments, 
and EIS's for all actions initiated within their program office.
    (6) Program Support Staff. Checklists, assessments, and EIS's that 
the Deputy Administrator for Program Operations requests be done.
    (j) Water resource project. Includes any type of construction which 
would result in either impacts on water quality and the beneficial uses 
that water quality criteria are designed to protect or any change in the 
free-flowing characteristics of a particular river or stream to include 
physical, chemical, and biological characteristics of the waterway. This 
definition encompasses construction projects within and along the banks 
of rivers or streams, as well as projects involving withdrawals from, 
and discharges into such rivers or streams. Projects which require Corps 
of Engineers dredge and fill permits are also water resource projects.



Sec. 1940.303  General policy.

    (a) FmHA or its successor agency under Public Law 103-354 will 
consider environmental quality as equal with economic, social, and other 
relevant factors in program development and decision-making processes.
    (b) In assessing the potential environmental impacts of its actions, 
FmHA or its successor agency under Public Law 103-354 will consult early 
with appropriate Federal, State, and local agencies and other 
organizations to provide decision-makers with both the technical and 
human aspects of environmental planning.
    (c) When adverse environmental impacts are identified, either direct 
or indirect, an examination will be made of alternative courses of 
action, including their potential environmental impacts. The objective 
of the environmental review will be to develop a feasible alternative 
with the least adverse environmental impact. The alternative of not 
proceeding with the proposal will also be considered particularly with 
respect to the need for the proposal.
    (d) If no feasible alternative exists, including the no-action 
alternative, measures to mitigate the identified adverse environmental 
impacts will be included in the proposal.
    (e) The performance of environmental reviews and the consideration 
of alternatives will be initiated as early as possible in the FmHA or 
its successor agency under Public Law 103-354 application review process 
so that the Agency will be in the most flexible

[[Page 13]]

and objective position to deal with these considerations.



Sec. 1940.304  Special policy.

    (a) Land use. (1) FmHA or its successor agency under Public Law 103-
354 recognizes that its specific mission of assisting rural areas, 
composed of farms and rural towns, goes hand-in-hand with protecting the 
environmental resources upon which these systems are dependent. Basic 
resources necessary to both farm and rural settlements include important 
farmlands and forestlands, prime rangelands, wetlands, and floodplains. 
The definitions of these areas are contained in the appendix to 
Departmental Regulation 9500-3, Land Use Policy, which is included as 
exhibit A of this subpart. For assistance in locating and defining 
floodplains and wetlands, the locations and telephone numbers of the 
Federal Emergency Management Administration's regional offices have been 
included as exhibit J of this subpart, and similar information for the 
U.S. Fish and Wildlife Service's Wetland Coordinators has been included 
as exhibit K of this subpart. Given the importance of these resources, 
as emphasized in the Departmental Regulation, Executive Order 11988, 
``Floodplain Management,'' and Executive Order 11990, ``Protection of 
Wetlands,'' it is FmHA or its successor agency under Public Law 103-
354's policy not to approve or fund any proposals that, as a result of 
their identifiable impacts, direct or indirect, would lead to or 
accommodate either the conversion of these land uses or encroachment 
upon them. The only exception to this policy is if the approving 
official determines that
    (i) There is no practicable alternative to the proposed action,
    (ii) The proposal conforms to the planning criteria identified in 
paragraph (a)(2) of this section, and
    (iii) The proposal includes all practicable measures for reducing 
the adverse impacts and the amount of conversion/encroachment.
    (A) For Farmer Program loans and guarantees, and loans to Indian 
Tribes and Tribal Corporations, exhibit M of this subpart imposes 
additional and more restrictive requirements regarding wetland and 
highly erodible land conservation.
    (B) Unless otherwise exempted by the provisions of exhibit M, the 
proceeds of any Farmer Program loan or loan to an Indian Tribe or Tribal 
Corporation made or guaranteed by FmHA or its successor agency under 
Public Law 103-354 cannot be used.
    (1) For a purpose that will contribute to excessive erosion of 
highly erodible land (as defined in exhibit M), or
    (2) For a purpose that will contribute to conversion of wetlands (as 
defined in exhibit M) to produce an agricultural commodity.
    (2) It is also recognized that unless carefully reviewed, some 
proposals designed to serve the needs of rural communities can adversely 
affect the existing economic base and settlement patterns of the 
community, as well as create development pressures on land and 
environmental resources essential to farm economies. An example of such 
a proposal might be the extension of utilities and other types of 
infrastructure beyond a community's existing settlement pattern and into 
important farmlands for the purpose of commercial or residential 
expansion, even though there is available space within the existing 
settlement pattern for such expansion. Not only may the loss of 
important farmlands unnecessarily result, but the community may be faced 
with the economic costs of providing public services to outlying areas, 
as well as the deterioration of its central business or commercial area; 
the latter may not be able to compete with the newer, outlying 
commercial establishments. These results are undesirable, and to avoid 
their occurrence, projects designed to meet rural community needs (i.e., 
residential, industrial, commercial, and public facilities) will not be 
approved unless the following conditions are met.
    (i) The project is planned and sited in a manner consistent with the 
policies of this section, the Farmland Protection Policy Act, and 
Departmental Regulation 9500-3 (exhibit A of this subpart).
    (ii) The project is not inconsistent with an existing comprehensive 
and enforceable plan that guides growth and

[[Page 14]]

reflects a realistic strategy for protecting natural resources, and the 
project is compatible, to the extent practicable, with State, unit of 
local government, and private programs and policies to protect farmland. 
(If no such plan or policies exist, there is no FmHA or its successor 
agency under Public Law 103-354 requirement that they either be prepared 
and adopted, as further specified in paragraph (a)(3) of this section.)
    (iii) The project will encourage long-term, economically viable 
public investment by fostering or promoting development patterns that 
ensure compact community development, that is, development that is 
limited to serving existing settlement patterns or is located in 
existing settlement patterns, e.g., the rehabilitation and renovation of 
existing structures, systems and neighborhoods; infilling of 
development; the provision of a range of moderate-to-high residential 
densities appropriate to local and regional needs. When these 
development patterns or types are not practicable, the development must 
be contiguous with the existing settlement pattern and provide for a 
range of moderate-to-high residential densities appropriate to local and 
regional needs. It is recognized that some FmHA or its successor agency 
under Public Law 103-354 Community Programs projects are designed to 
serve rural residents, such as rural water and waste disposal systems 
and, therefore, cannot be limited in service area to these areas 
contiguous with existing settlement patterns. These types of projects 
will be designed to primarily serve existing structures and rural 
residents in noncontiguous areas. Any additional capacity within the 
system will be limited to meet reasonable growth needs, and, to the 
extent practicable, be designed to meet such needs within existing 
settlements and areas contiguous to them.
    (3) The conditions specified in paragraph (a)(2) of this section 
should not be construed as advocating excessive densities, congestion, 
or loss of open space amenities within rural communities. Desirable 
living conditions can be obtained under these objectives, along with 
economic and social benefits for the community and the surrounding farm 
operations. Additionally, these conditions should not be construed as 
requiring localities to develop plans which contain the conditions. In 
any instance in which these planning conditions or criteria do not exist 
within the project area, project reviews will not be postponed until the 
criteria are adopted. Rather, projects will be reviewed and funding 
decisions made in light of a project's consistency with the contents of 
this subpart (excluding paragraph (a)(2)(ii) of this section, which 
would not be applicable).
    (b) Endangered species. FmHA or its successor agency under Public 
Law 103-354 will not authorize, fund, or carry out any proposal or 
project that is likely to
    (1) Jeopardize the continued existence of any plant or wildlife 
species listed by the Secretary of the Interior or Commerce as 
endangered or threatened; or
    (2) Destroy or adversely modify the habitats of listed species when 
such habitats have been determined critical to the species' existence by 
the Secretary of the Interior or Commerce, unless FmHA or its successor 
agency under Public Law 103-354 has been granted an exemption for such 
proposal by the Endangered Species Committee pursuant to paragraph (h) 
of section 7 of the Endangered Species Act.
    (c) Wild and scenic rivers. FmHA or its successor agency under 
Public Law 103-354 will not provide financial assistance or plan 
approval for any water resource project that would have a direct and 
adverse effect on the values for which a river has been either included 
in the National Wild and Scenic Rivers System or is designated for 
potential addition. Additionally, FmHA or its successor agency under 
Public Law 103-354 will not approve or assist developments (commercial, 
industrial, residential, farming or community facilities) located below 
or above a wild, scenic or recreational river area, or on any stream 
tributary thereto which will invade the area or unreasonably diminish 
the scenic, recreational, and fish and wildlife values present in the 
area.
    (d) Historic and cultural properties. As part of the environmental 
review process, FmHA or its successor agency under Public Law 103-354 
will identify

[[Page 15]]

any properties that are listed in, or may be eligible for, listing in 
the National Register of Historic Places and are located within the 
project's area of potential environmental impacts. Consultations will be 
undertaken with State Historic Preservation Officers and the Advisory 
Council on Historic Preservation, through the implementation of subpart 
F of part 1901 of this chapter, in order to determine the most 
appropriate course of action for protecting such identified properties 
or mitigating potential adverse impacts to them.
    (e) Coastal barriers. Under the requirements of the Coastal Barrier 
Resources Act, FmHA or its successor agency under Public Law 103-354 
will not provide financial assistance for any activity to be located 
within the Coastal Barrier Resources System unless
    (1) Such activity meets the criteria for an exception, as defined in 
section 6 of the Act, and
    (2) Consultation regarding the activity has been completed with the 
Secretary of the Interior.
    (f) Water and energy conservation. FmHA or its successor agency 
under Public Law 103-354 will encourage the conservation of water and 
energy in the development of its programs and policies and will 
encourage applicants to incorporate all economically feasible water and 
energy-saving features and designs within their proposals.
    (g) Intergovernmental initiatives on important land resources. On a 
broader scale, FmHA or its successor agency under Public Law 103-354 
will advocate, in cooperation with other USDA agencies (through the USDA 
State-level committee system), the retention of important farmlands and 
forestlands, prime rangeland, wetlands and floodplains whenever proposed 
conversions to other uses
    (1) Are caused or encouraged by actions or programs of a Federal 
Agency, or
    (2) Require licensing or approval by a Federal Agency, unless other 
needs clearly override the benefits derived from retention of such 
lands.
    (h) Water quality. FmHA or its successor agency under Public Law 
103-354 will not provide financial assistance to any activity that would 
either impair a State water quality standard, including designated and/
or existing beneficial uses that water quality criteria are designed to 
protect, or that would not meet antidegradation requirements.



Sec. 1940.305  Policy implementation.

    (a) Environmental impact analysis. The implementation of the 
environmental impact analysis requirements described in this subpart 
serves as the primary mechanism for FmHA or its successor agency under 
Public Law 103-354 as follows:
    (1) Incorporating environmental quality considerations into FmHA or 
its successor agency under Public Law 103-354 program and decision-
making processes,
    (2) Obtaining the views of the public and government agencies on 
potential environmental impacts associated with FmHA or its successor 
agency under Public Law 103-354 projects, and
    (3) Using all practicable means to avoid or to minimize any possible 
adverse environmental effects of FmHA or its successor agency under 
Public Law 103-354 actions.
    (b) Natural resource management. The State Director will develop a 
natural resource management guide. This guide will serve as an essential 
mechanism for implementing Sec. 1940.304 of this subpart; and, 
therefore, the guide must be consistent with and reflect the objectives 
and policies contained in Sec. 1940.304 of this subpart. At the same 
time, however, it must be tailored to take into account important State, 
regional, and local natural resource management objectives. The guide 
will be issued as a State Supplement for prior approval. The basic 
content, purposes, and uses of the guide are enumerated in exhibit B of 
this subpart and can be summarized as follows:
    (1) The guide will serve as a mechanism for assembling an inventory 
of the locations within the State of those natural resources, land uses, 
and environmental factors that have been specified by Federal, State and 
local authorities as deserving some degree of protection or special 
consideration;
    (2) The guide will summarize the various standards or types of 
Federal, State, or local protection that apply to

[[Page 16]]

the natural resources, land uses, and environmental factors listed in 
the inventory; and
    (3) Applications for individual projects must be reviewed for 
consistency with the guide.
    (c) Intergovernmental initiatives. When commenting on proposed 
Federal actions subject to environmental impact statements, FmHA or its 
successor agency under Public Law 103-354 commentors will focus on the 
consistency of these actions with the appropriate State natural resource 
management guide. A similar focus or element will be addressed in FmHA 
or its successor agency under Public Law 103-354's review of the 
Environmental Protection Agency's 201 Wastewater Management Plans.
    (d) Farmland Protection Policy Act and Departmental Regulation 9500-
3, Land Use Policy. The natural resource management guide serves as a 
tool for implementing the requirements of the Act and the Departmental 
Regulation at the broad level of implementing the Agency's programs at 
the State level. These requirements must also be followed in the review 
of applications for financial assistance or subdivision approval, as 
well as the disposal of real property. FmHA or its successor agency 
under Public Law 103-354's implementation procedures for the project 
review process are contained in exhibit C of this subpart.
    (e) Endangered Species. FmHA or its successor agency under Public 
Law 103-354 will implement the consultation procedures required under 
section 7 of the Endangered Species Act as specified in 50 CFR part 402. 
It is important to note that these consultation procedures apply to the 
disposal of real property and all FmHA or its successor agency under 
Public Law 103-354 applications for financial assistance and subdivision 
approval, including those applicants which are exempt from environmental 
assessments. FmHA or its successor agency under Public Law 103-354's 
implementation procedures are contained in exhibit D of this subpart.
    (f) Wild and scenic rivers. Each application for financial 
assistance or subdivision approval and the proposed disposal of real 
property will be reviewed to determine if it will affect a river or 
portion of it, which is either included in the National Wild and Scenic 
Rivers System, designated for potential addition to the system, or 
identified in the Nationwide Inventory prepared by the National Park 
Service (NPS) in the Department of the Interior (DOI). FmHA or its 
successor agency under Public Law 103-354's procedures for completing 
this review are contained in exhibit E of this subpart.
    (g) Historic and cultural properties. (1) As part of the 
environmental review process, FmHA or its successor agency under Public 
Law 103-354 will identify any properties that are listed in or may be 
eligible for listing in the National Register of Historic Places, and 
located within the area of potential environmental impact. 
Identification will consist of consulting the published lists of the 
National Register and formally contacting and seeking the comments of 
the appropriate State Historic Preservation Officer (SHPO). Since it is 
not always possible from the consultation with the SHPO to determine 
whether historic and cultural properties are present within the 
project's area of environmental impact, it may be necessary for FmHA or 
its successor agency under Public Law 103-354 to consult public records 
and other individuals and organizations, such as university 
archaeologists, local historical societies, etc. These latter 
discussions should take place before initiating a detailed site survey 
since they may provide reliable information that obviates the need for a 
survey. However, whenever insufficient information exists to document 
the presence or absence of potentially eligible National Register 
properties and where the potential for previously unidentified 
properties is recognized by FmHA or its successor agency under Public 
Law 103-354, the SHPO, or other interested parties, FmHA or its 
successor agency under Public Law 103-354 will conduct the necessary 
investigations to determine if such properties are present within the 
area of potential environmental impact. FmHA or its successor agency 
under Public Law 103-354 will involve the SHPO in the planning and 
formulation of any historic, cultural, architectural or archaeological 
testing,

[[Page 17]]

studies or surveys conducted to investigate the presence of such 
properties and will utilize persons with appropriate knowledge and 
experience.
    (2) If the information obtained, as a result of the consultation and 
investigations conducted by FmHA or its successor agency under Public 
Law 103-354, indicates the presence of an historic or cultural property 
within the area of potential environmental impact that, in the opinion 
of the SHPO and FmHA or its successor agency under Public Law 103-354, 
appear to meet the National Register Criteria (36 CFR 60.4), the 
property will be considered eligible for the National Register of 
Historic Places. If the SHPO and FmHA or its successor agency under 
Public Law 103-354 do not agree on the property's eligibility for the 
National Register or if the Secretary of the Interior or the Advisory 
Council on Historic Preservation so requests, FmHA or its successor 
agency under Public Law 103-354 will request a determination of 
eligibility from the Keeper of the National Register in accordance with 
36 CFR part 63. Consultations will be initiated with the SHPO and the 
Advisory Council on Historic Preservation in accordance with 36 CFR part 
800, through the implementation of subpart F of part 1901 of this 
chapter, to determine the most appropriate course of action to protect 
all National Register and eligible properties within the area of 
potential environmental impact.
    (3) Further instructions detailing the procedures to be followed in 
considering and protecting historic and cultural properties and the 
responsible Agency officials are contained in subpart F of part 1901 of 
this chapter. These procedures will be followed whenever a proposal, 
considered by FmHA or its successor agency under Public Law 103-354, has 
the potential to affect National Register or eligible properties.
    (h) Coastal barriers. In those States having coastal barriers within 
the Coastal Barrier Resources System, each application for financial 
assistance or subdivision approval, as well as the proposed disposal of 
real property, will be reviewed to determine if it would be located 
within the system, and, if so, whether the action must be denied on this 
basis or meets the Act's criteria for an exception. To accomplish the 
review, all affected State, District and County Offices will maintain a 
current set of maps, as issued by DOI, which depict those coastal 
barriers within their jurisdiction that have been included in the 
system. FmHA or its successor agency under Public Law 103-354's 
implementation procedures for accomplishing this review requirement and 
for consulting as necessary with DOI are contained in exhibit F of this 
subpart. The exceptions to the restrictions of the Coastal Barrier 
Resources Act are contained in exhibit L of this subpart.
    (i) Water and energy conservation. Water and energy conservation 
measures will be considered at both the program and project level in a 
manner consistent with program regulations.
    (j) Noise abatement. For purposes of assessing noise impacts and for 
determining the acceptability of housing sites in terms of their 
exposure to noise, FmHA or its successor agency under Public Law 103-354 
has adopted and follows the standards and procedures developed by the 
U.S. Department of Housing and Urban Development (HUD) and contained in 
24 CFR part 51 of subpart B entitled, ``Noise Abatement and Control.''
    (k) Water quality. Each application for financial assistance or 
subdivision approval and the proposed disposal of real property will be 
reviewed to determine if it would impair a State water quality standard 
or meet antidegradation requirements. When necessary, the proposed 
activity will be modified to protect water quality standards, including 
designated and/or existing beneficial uses that water quality criteria 
are designed to protect, and meet antidegradation requirements.



Sec. 1940.306  Environmental responsibilities within the National Office.

    (a) Administrator. The Administrator of FmHA or its successor agency 
under Public Law 103-354 has the direct responsibility for Agency 
compliance with all environmental laws, Executive orders, and 
regulations that apply to FmHA or its successor agency under

[[Page 18]]

Public Law 103-354's program and administrative actions. As such, the 
Administrator ensures that this responsibility is adequately delegated 
to Agency staff and remains informed on the general status of Agency 
compliance, as well as the need for any necessary improvements. The 
Administrator is also responsible for ensuring that the Agency's 
manpower and financial needs for accomplishing adequate compliance with 
this subpart are reflected and documented in budget requests for 
departmental consideration.
    (b) Deputy Administrator Program Operations. (1) The Deputy 
Administrator for Program Operations has the delegated overall Agency 
responsibility for developing and implementing environmental policies 
and compliance procedures, monitoring their effectiveness, and advising 
the Administrator on the status of compliance, to include 
recommendations for any necessary changes in this subpart. The incumbent 
is also responsible for developing and documenting, as part of the 
Agency's budget formulation process, the manpower and financial needs 
necessary to implement this subpart.
    (2) The specific responsibilities of the Deputy Administrator--
Program Operations are as follows:
    (i) Provide for the Agency an interdisciplinary approach to 
environmental impact analysis and problem resolution, as required by the 
CEQ regulations;
    (ii) Provide the leadership and technical expertise for the 
implementation of the Agency's environmental policies with special 
emphasis being placed on those policies relating to natural resource 
management, energy conservation, and orderly community development;
    (iii) Coordinate the implementation of this subpart with affected 
program offices;
    (iv) Provide policy direction and advice on the implementation of 
this subpart to Agency staff, particularly to SECs and technical support 
personnel within State Offices;
    (v) Consult and coordinate, as needed or upon request, with the 
Department's interagency committees dealing with environmental, land 
use, and historic preservation matters;
    (vi) Monitor the Agency's record in complying with this subpart;
    (vii) Provide training programs and materials for the Agency staff 
assigned the functions identified in this subpart;
    (viii) Review, as necessary, applications for funding assistance, 
proposed policies and regulations, and recommend their approval, 
disapproval, or modification after analyzing and considering their 
anticipated adverse environmental impacts, their benefits, and their 
consistency with the requirements of this subpart;
    (ix) Develop and direct Agency procedures for complying with 
environmental legislation, Executive orders, and regulations, including, 
but not limited to, those listed in Sec. 1940.301(c) of this subpart;
    (x) Maintain a position identified as the Senior Environmental 
Specialist (hereafter called the Environmental Specialist), who will 
serve as the responsible Agency official under the National 
Environmental Policy Act and the National Historic Preservation Act, 
maintain liaison on environmental matters with interested public groups 
and Federal agencies, and serve as the focal point for developing and 
coordinating the Agency's procedures for the requirements listed in 
Sec. 1940.301(c) of this subpart; and
    (xi) Review and evaluate legislative and administrative proposals in 
terms of their environmental impact.
    (c) Assistant Administrators for Programs. The Assistant 
Administrators for Programs will:
    (1) Ensure, as necessary, that environmental assessments and EISs 
for proposed program regulations are prepared by their staff;
    (2) Ensure that all proposed actions that fall under the 
requirements of this subpart, and that are submitted to the National 
Office for approval or concurrence, contain adequate analyses and 
documentation of their potential environmental impacts (Transfer of 
program funds from National Office to State Office control to enable the 
State Office to approve an application is not considered to be National 
Office approval of or concurrence in an application);

[[Page 19]]

    (3) Consider and include, in the development of program regulations, 
feasible policies and mechanisms that promote program goals in a manner 
that either enhances environmental quality or reduces unnecessary 
adverse environmental impacts; and
    (4) Designate one or more staff members to serve as a program 
environmental coordinator, having generally the same duties and 
responsibilities within the program office as the SEC has within the 
State Office (See Sec. 1940.307(b) of this subpart).



Sec. 1940.307  Environmental responsibilities within the State Office.

    (a) State Director. The State Director will:
    (1) Serve as the responsible FmHA or its successor agency under 
Public Law 103-354 official at the State Office level for ensuring 
compliance with the requirements of this subpart; and
    (2) Appoint one individual to serve as the SEC. Thereafter, the SEC 
will report directly to the State Director on the environmental matters 
contained in this subpart.
    (b) State Environmental Coordinator (SEC). The SEC will:
    (1) Act as advisor to the State Director on environmental matters 
and coordinate the requirements of this subpart;
    (2) Review those Agency actions which are not categorically excluded 
from this subpart (see Sec. Sec. 1940.311 and 1940.312 of this subpart) 
and which require the approval and/or clearance of the State Office and 
recommend to the approving official either project approval, 
disapproval, or modification after analyzing and considering the--
    (i) Anticipated adverse environmental impacts,
    (ii) The anticipated benefits, and
    (iii) The action's consistency with this subpart's requirements;
    (3) Represent the State Director at conferences and meetings dealing 
with environmental matters of a State Office nature;
    (4) Maintain liaison on State Office environmental matters with 
interested public groups and local, State, and other Federal agencies;
    (5) Serve as the State Director's alternate on State-level USDA 
committees dealing with environmental, land use and historic 
preservation matters;
    (6) Solicit, whenever necessary, the expert advice and assistance of 
other professional staff members within the State Office in order to 
adequately implement this subpart;
    (7) Provide technical assistance as needed on a project-by-project 
basis to State, District, and County Office staffs;
    (8) Develop controls for avoiding or mitigating adverse 
environmental impacts and monitor their implementation;
    (9) Provide assistance in resolving post-approval environmental 
matters at the State Office level;
    (10) Maintain records for those actions required by this subpart;
    (11) Coordinate for the State Director the development of the State 
Office natural resource management guide;
    (12) Provide direction and training to State, District, and County 
Office staffs on the requirements of this subpart; and
    (13) Coordinate for the State Director the monitoring of the State 
Office's compliance with this subpart and keep the State Director 
advised of the results of the monitoring process.
    (c) Program Chiefs. State Office Program Chiefs will:
    (1) Be responsible for the adequacy of the environmental impact 
reviews required by this subpart for all program actions to be approved 
at the State Office level or concurred in at that level;
    (2) Coordinate the above reviews as early as possible with the SEC, 
so that the latter can assist in addressing the resolution of any 
unresolved or difficult environmental issues in a timely manner; and
    (3) Incorporate into projects and actions measures to avoid or 
reduce potential adverse environmental impacts identified in 
environmental reviews.



Sec. 1940.308  Environmental responsibilities at the District and 
County Office levels.

    (a) The District Director will be responsible for carrying out the 
actions required by this subpart to be completed at the District Office 
level.
    (b) The County Supervisor will be responsible for carrying out the 
actions

[[Page 20]]

required by this subpart to be completed at the County Office level.
    (c) In discussing FmHA or its successor agency under Public Law 103-
354 assistance programs with potential applicants, District Directors 
and County Supervisors will inform them of the Agency's environmental 
requirements, as well as the environmental information needs and 
responsibilities that FmHA or its successor agency under Public Law 103-
354 applicants are expected to address. (See Sec. 1940.309 of this 
subpart.)



Sec. 1940.309  Responsibilities of the prospective applicant.

    (a) FmHA or its successor agency under Public Law 103-354 expects 
applicants and transferees (and in the case of the loan guarantee 
programs, borrowers and transferees) to consider the potential 
environmental impacts of their requests at the earliest planning stages 
and to develop proposals that minimize the potential to adversely impact 
the environment. Prospective applicants should contact County 
Supervisors or District Directors, as appropriate, to determine FmHA or 
its successor agency under Public Law 103-354's environmental 
requirements as soon as possible after they decide to pursue FmHA or its 
successor agency under Public Law 103-354 financial assistance.
    (b) As specified in paragraph (c) of this section, applicants for 
FmHA or its successor agency under Public Law 103-354 assistance will be 
required to provide information necessary to FmHA or its successor 
agency under Public Law 103-354 to evaluate their proposal's potential 
environmental impacts and alternatives to them. For example, the 
applicant will be required to provide a complete description of the 
project elements and the proposed site(s) to include location maps, 
topographic maps, and photographs when needed. The applicant will also 
be required to provide data on any expected gaseous, liquid and solid 
wastes to be produced, including hazardous wastes as defined by the 
Resource Conservation and Recovery Act or State law, and all permits 
and/or correspondence issued by the appropriate local, State, and 
Federal agencies which regulate treatment and disposal practices.
    (c) Form FmHA or its successor agency under Public Law 103-354 1940-
20, ``Request for Environmental Information,'' will be used for 
obtaining environmental information from applicants whose proposals 
require an environmental assessment under the requirements of this 
subpart. These same applicants must notify the appropriate State 
Historic Preservation Officer of the filing of the application and 
provide a detailed project description as specified in Item 2 of Form 
FmHA or its successor agency under Public Law 103-354 1940-20 and the 
FMI. If the applicant's proposal meets the definition of a Class II 
action as defined in Sec. 1940.312 of this subpart, all of Form FmHA or 
its successor agency under Public Law 103-354 1940-20 must be completed. 
If the applicant's proposal meets the definition of a Class I action as 
defined in Sec. 1940.311 of this subpart, the entire form need not be 
completed, but just the face of the form and categories (1), (2), (13), 
(15), (16), and (17) of Item 1b of the FMI. As an exception to the 
foregoing statement, an applicant for an action that is normally 
categorically excluded but requires a Class I assessment for any of the 
reasons stated in Sec. 1940.317(e) of this subpart is not required to 
complete Form FmHA or its successor agency under Public Law 103-354 
1940-20. Additionally, for Class I actions within the Farm Programs, a 
site visit by the FmHA or its successor agency under Public Law 103-354 
official completing the environmental assessment obviates the need for 
the applicant to complete any of the form, and the adoption by FmHA or 
its successor agency under Public Law 103-354 of a Soil Conservation 
Service (SCS) environmental assessment or evaluation for the action 
obviates the need to complete the form for either a Class I or Class II 
action.
    (d) Applicants will ensure that all required materials are current, 
sufficiently detailed and complete, and are submitted directly to the 
FmHA or its successor agency under Public Law 103-354 office processing 
the application. Incomplete materials or delayed submittals may 
seriously jeopardize consideration or postponement of a proposed action 
by FmHA or its successor agency under Public Law 103-354.

[[Page 21]]

    (e) During the period of application review and processing, 
applicants will not take any actions with respect to their proposed 
undertakings which are the subject of the application and which would 
have an adverse impact on the environment or limit the range of 
alternatives. This requirement does not preclude development by 
applicants of preliminary plans or designs or performance of other work 
necessary to support an application for Federal, State, or local permits 
or assistance. However, the development of detailed plans and 
specifications is discouraged when the costs involved inhibit the 
realistic consideration of alternative proposals.
    (f) Applicants are required to provide public notification and to 
fully cooperate in holding public information meetings as described in 
Sec. Sec. 1940.318(e), 1940.320 (c) and (g), and 1940.331 (b) and (c) 
of this subpart.
    (g) Any applicant that is directly and adversely affected by an 
administrative decision made by FmHA or its successor agency under 
Public Law 103-354 under this subpart may appeal that decision under the 
provisions of subpart B of part 1900 of this chapter.



Sec. 1940.310  Categorical exclusions from National Environmental Policy 
Act (NEPA) reviews.

    (a) General guidelines. The following actions have been determined 
not to have a significant impact on the quality of the human 
environment, either individually or cumulatively. They will not be 
subject to environmental assessments or impact statements. It must be 
emphasized that even though these actions are excluded from further 
environmental reviews under NEPA, they are not excluded from either the 
policy considerations contained in Sec. Sec. 1940.303 through 1940.305 
of this subpart or from compliance with other applicable local, State, 
or Federal environmental laws. Also, the actions preceded by an asterisk 
(*) are not excluded from further review depending upon whether in some 
cases they would be located within, or in other cases, potentially 
affect:
    (1) A floodplain,
    (2) A wetland,
    (3) Important farmlands, or prime forestlands or rangelands,
    (4) A listed species or critical habitat for an endangered species,
    (5) A property that is listed on or may be eligible for listing on 
the National Register of Historic Places,
    (6) An area within an approved State coastal zone management 
program,
    (7) A coastal barrier or a portion of a barrier within the Coastal 
Barrier Resources System,
    (8) A river or portion of a river included in, or designated for, 
potential addition to the Wild and Scenic Rivers System,
    (9) A sole source aquifer recharge area, or
    (10) A State water quality standard (including designated and/or 
existing beneficial uses and antidegradation requirements).
    (i) Whether location within one of the preceding resource areas is 
sufficient to require a further review or a potential impact to one of 
them must also be identified to require a review is determined by FmHA 
or its successor agency under Public Law 103-354's completion of Form 
FmHA or its successor agency under Public Law 103-354 1940-22 in 
accordance with the FMI and Sec. 1940.317 of this subpart.
    (ii) When the categorical exclusion classification is lost, as 
specified in Sec. 1940.317 of this subpart, the action must be reviewed 
under the requirements of paragraph (g) of that section. This 
requirement serves to implement Sec. 1508.4 of the CEQ regulations 
which requires Federal agencies to detect extraordinary circumstances in 
which a normally excluded action may have a significant environmental 
effect.
    (iii) Further guidance on the use of these exclusions is contained 
in Sec. 1940.317 of this subpart.
    (b) Housing assistance. *(1) The provision of financial assistance 
for the purchase of a single family dwelling or a multi-family project 
serving no more than four families, i.e. units;
    (2) The approval of an individual building lot that is located on a 
scattered site and either not part of a subdivision or within a 
subdivision not requiring FmHA or its successor agency under Public Law 
103-354's approval;
    *(3) Rehabilitation, replacement, or renovation of any existing 
housing

[[Page 22]]

units, with no expansion in the number of units;
    (4) Self-Help Technical Assistance Grants;
    *(5) The approval of a subdivision that consists of four or fewer 
lots and is not part of, or associated with, building lots or 
subdivisions;
    (6) Technical Supervisory Assistance Loans and Grants;
    (7) Weatherization of any existing housing unit(s), unless the 
property is listed in the National Register of Historic Places or may be 
eligible for listing, or is located either within the Coastal Barrier 
Resources System or in a listed or potentially eligible historic 
district, in which case the application will require a Class I 
assessment as specified in Sec. 1940.317(g) of this subpart;
    (8) The financing of housing construction or the approval of lots in 
a previously approved FmHA or its successor agency under Public Law 103-
354 subdivision provided that
    (i) The action is consistent with all previously adopted 
stipulations for the multi-family housing project or subdivision, and
    (ii) The FmHA or its successor agency under Public Law 103-354 
environmental impact review that was previously completed for the 
original application is still current with respect to applicable 
environmental requirements and conditions present at the site, and it 
assessed the lots or expansion for which approval is being requested;
    (9) The purchase of any existing, non-FmHA or its successor agency 
under Public Law 103-354 owned housing unit(s), unless the property is 
listed in the National Register of Historic Places or may be eligible 
for listing, or is located either within a 100-year floodplain, the 
Coastal Barrier Resources System, or in a listed or potentially eligible 
historic district, in which case the application will require a Class I 
assessment as specified in Sec. 1940.317(g) of this subpart; and
    (10) Appraisals of nonfarm tracts and small farms for rural housing 
loans.
    (c) Community and business programs and nonprofit national 
corporations loan and grant program. *(1) Financial assistance directed 
to existing businesses, facilities, and/or structures that does not 
involve new construction or large increases in employment; does not 
involve a facility that presently or previously produced or stored 
hazardous waste or disposed of hazardous waste on the facility's 
property; and does not result in the increased production of gaseous, 
liquid, or solid wastes, or a change in the type or content of such 
wastes as long as waste production, handling, treatment and disposal 
practices presently comply with applicable Federal, State and local 
regulations and there is no history of violations. If any of these waste 
production, handling, treatment, disposal or compliance criteria cannot 
be met, a Class I assessment must be initiated to include a narrative 
discussion of the types and quantities of wastes produced and the 
adequacy of the treatment, storage, and disposal practices, if the 
involved wastes meet the criteria for a Class I assessment contained in 
Sec. 1940.311(b)(3)(iii) of this subpart. If not, a Class II assessment 
must be completed.
    *(2) Projects that solely involve the acquisition, construction, 
reconstruction, renovation, or installation of facilities, structures or 
businesses, for replacement or restoration purposes, with minimal change 
in use, size, capacity, purpose or location from the original facility 
(e.g., replacement in-kind of utilities such as water or sewer lines and 
appurtenances, reconstruction of curbs and sidewalks, street repaving, 
and building modifications, renovations, and improvements);
    (3) Project management actions relating to invitation for bids, 
contract award, and the actual physical commencement of construction 
activities;
    (4) Financial assistance for a technical assistance grant under the 
nonprofit national corporation loan and grant program;
    (5) Projects that solely involve the purchase and installation of 
office equipment, public safety equipment, or motor vehicles; and
    (6) Amendments to approved projects meeting the criteria of 
paragraph (e)(2) of this section.
    (d) Farm programs. (1) Financial assistance for the purchase of an 
existing farm, or an enlargement to one, provided no shifts in land use 
are proposed

[[Page 23]]

beyond the limits stated in paragraphs (d) (10) and (11) of this 
section;
    (2) Financial assistance for the purchase of livestock and essential 
farm equipment, including crop storing and drying equipment, provided 
such equipment is not to be used to accommodate shifts in land use 
beyond the limits stated in paragraphs (d) (10) and (11) of this 
section;
    (3) Financial assistance for:
    (i) The payment of annual operating expenses, which does not cover 
activities specifically addressed in this section or Sec. 1940.311 or 
Sec. 1940.312 of this subpart;
    (ii) Family living expenses, and
    (iii) Refinancing debts;
    *(4) Financial assistance for the construction of essential farm 
dwellings and service buildings of modest design and cost, as well as 
repairs and improvements to them;
    (5) Financial assistance for onsite water supply facilities to serve 
a farm dwelling, farm buildings, and livestock needs;
    (6) Financial assistance for the installation or enlargement of 
irrigation facilities, including storage reservoirs, diversion dams, 
wells, pumping plants, canals, pipelines, and sprinklers designed to 
irrigate less than 80 acres, provided that neither a State water quality 
standard, a property listed or potentially eligible for listing on the 
National Register of Historic Places, a river or portion of a river 
included in, or designated for, potential addition to the Wild and 
Scenic Rivers System, nor a wetland is affected. If a wetland is 
affected, the application will fall under Class II as defined in Sec. 
1940.312 of this subpart. Potential effects to a water quality standard, 
an historic property or the Wild and Scenic Rivers System require that a 
review be initiated under a Class I assessment as specified in Sec. 
1940.317(g) of this subpart.
    (7) Financial assistance that solely involves the replacement or 
restoration of irrigation facilities, to include those facilities 
described in paragraph (d)(6) of this section, with minimal change in 
use, size, capacity, or location from the original facility(s) provided 
that neither a State water quality standard, a property listed or 
potentially eligible for listing on the National Register of Historic 
Places, a river or portion of a river included in or designated for 
potential addition to the Wild and Scenic Rivers System, nor a wetland 
is affected. If a wetland is affected, the application will fall under 
Class II as defined in Sec. 1940.312 of this subpart. Potential effects 
to a water quality standard, an historic property, or the Wild and 
Scenic Rivers System require that a Class I assessment be completed as 
specified in Sec. 1940.317(g) of this subpart. Also, to qualify for 
this exclusion, the facilities to be replaced or restored must have been 
used for similar irrigation purposes at least two out of the last three 
consecutive growing seasons. Otherwise, the action will be viewed as an 
installation of irrigation facilities.
    (8) Financial assistance for the development of farm ponds or lakes 
of no more than 5 acres in size, provided that, neither a State water 
quality standard, a property listed or potentially eligible for listing 
on the National Register of Historic Places, a river or portion of a 
river included in or designated for potential addition to the Wild and 
Scenic Rivers System, nor a wetland is affected. If a wetland is 
affected, the application will fall under Class II as defined in Sec. 
1940.312 of this subpart. Potential effects to a water quality standard, 
an historic property, or the Wild and Scenic Rivers System require that 
a review be initiated under a Class I assessment as specified in Sec. 
1940.317(g) of this subpart;
    *(9) Financial assistance for the conversion of:
    (i) Land in agricultural production to pastures or forests, or
    (ii) Pastures to forests;
    *(10) Financial assistance for land-clearing operations of no more 
than 15 acres, provided no wetlands are affected, and financial 
assistance for any amount of land involved in tree harvesting conducted 
on a sustained yield basis and according to a Federal, State or other 
governmental unit approved forestry management and marketing plan; and
    (11) Financial assistance for the conversion of no more than 160 
acres of pasture to agricultural production, provided that in a 
conversion to agricultural production no State water

[[Page 24]]

quality standard or wetlands are affected. If a wetland is affected, the 
application will fall under Class II as defined in Sec. 1940.312 of 
this subpart. If a water quality standard would be impaired or 
antidegradation requirement not met, a Class I assessment is required as 
specified in Sec. 1940.317(g) of this subpart.
    (e) General exclusions. (1) The award of financial assistance for 
planning purposes, management and feasibility studies, or environmental 
impact analyses;
    (2) For actions other than those covered by exhibit M of this 
subpart, loan-closing and servicing activities, transfers, assumptions, 
subordinations, construction management activities and amendments and 
revisions to approved projects, including the provision of additional 
financial assistance that do not alter the purpose, operation, location, 
or design of the project as originally approved;
    (3) The issuance of regulations and instructions, as well as 
amendments to them, describing administrative and financial procedures 
for processing, approving, and implementing the Agency's financial 
assistance programs;
    (4) Procurement activities for goods and services, routine facility 
operations, personnel actions, and other such management activities 
related to the operation of the Agency;
    (5) Reduction in force or employee transfers resulting from workload 
adjustments, reduced personnel or funding levels, skill imbalances, or 
other similar circumstances; and
    *(6) The lease or disposal of real property by FmHA or its successor 
agency under Public Law 103-354 whenever the transaction is either not 
controversial for environmental reasons or will not result in a change 
in use of the real property within the reasonably foreseeable future.



Sec. 1940.311  Environmental assessments for Class I actions.

    The Agency's proposals and projects that are not identified in Sec. 
1940.310 of this subpart as categorical exclusions require the 
preparation of an environmental assessment in order to determine if the 
proposal will have a significant impact on the environment. For purposes 
of implementing NEPA, the actions listed in this section are presumed to 
be major Federal actions. If an action has a potential to create a 
significant environmental impact, an EIS must be prepared. (In 
situations when there is clearly a potential for a significant impact, 
the EIS may be initiated directly without the preparation of an 
assessment.) It is recognized that many of the applications funded 
annually by FmHA or its successor agency under Public Law 103-354 
involve small-scale projects having limited environmental impacts. 
However, because on occasion they have the potential to create a 
significant impact, each must be assessed to determine the degree of 
impact. The scope and level of detail of an assessment for a small-scale 
action, though, need only be sufficient to determine whether the 
potential impacts are substantial and further analysis is necessary. 
Therefore, for the purpose of implementing NEPA, FmHA or its successor 
agency under Public Law 103-354 has classified its smaller scale 
approval actions as Class I actions. The format which will be used for 
accomplishing the environmental assessment of a Class I action is 
provided in Form FmHA or its successor agency under Public Law 103-354 
1940-21. An important aspect of this classification method is that it 
allows FmHA or its successor agency under Public Law 103-354's 
environmental review staff to concentrate most of its time and efforts 
on those actions having the potential for more serious or complex 
environmental impacts. Additional guidance on the application of NEPA to 
Class I actions is provided in Sec. 1940.319 of this subpart.
    (a) Housing assistance. If either of the following actions is an 
expansion of a previously approved FmHA or its successor agency under 
Public Law 103-354 housing project, see Sec. 1940.310(b)(8) of this 
subpart to determine if it meets the requirements for a categorical 
exclusion. In the case of an expansion for which an environmental 
assessment was not done for the original FmHA or its successor agency 
under Public Law 103-354 project, the size of the proposal for 
assessment purposes is determined by adding the number of units in the

[[Page 25]]

original project(s) to those presently being requested.
    (1) Financial assistance for a multi-family housing project, 
including labor housing which comprises at least 5 units, but no more 
than 25 units; and
    (2) Financial assistance for or the approval of a subdivision, as 
well as the expansion of an existing one which involves at least 5 lots 
but no more than 25 lots; and
    (3) Financial assistance for a housing preservation grant.
    (b) Community and business programs and nonprofit national 
corporations loan and grant program. Class I assessments will be 
prepared for the following categories:
    (1) Financial assistance for water and waste disposal facilities and 
natural gas facilities that meet all of the following criteria:
    (i) There will not be a substantial increase in the volume of 
discharge or the loading of pollutants from any existing or expanded 
sewage treatment facilities, or a substantial increase in an existing 
withdrawal from surface or ground waters. A substantial increase may be 
evidenced by an increase in hydraulic capacity or the need to obtain a 
new or amended discharge or withdrawal permit.
    (ii) There will not be either a new discharge to surface or ground 
waters or a new withdrawal from surface or ground waters such that the 
design capacity of the discharge or withdrawal facility exceeds 50,000 
gallons per day and provided that the potential water quality impacts 
are documented in a manner required for a Class II assessment and 
attached as an exhibit to the Class I assessment.
    (iii) From the boundaries listed below, there is no extension, 
enlargement or construction of interceptors, collection, transmission or 
distribution lines beyond a one-mile limit estimated from the closest 
point of the boundary most applicable to the proposed service area:
    (A) The boundary formed by the corporate limits of the community 
being served.
    (B) If there are developed areas immediately contiguous to the 
corporate limits of a community, the boundary formed by the limits of 
these developed areas.
    (C) If an unincorporated area is to be served, the boundary formed 
by the limits of the developed areas.
    (iv) The proposal is designed for predominantly residential use with 
other new or expanded users being small-scale commercial enterprises 
having limited secondary impacts.
    (v) For a proposed expansion of sewage treatment or water supply 
facilities, such expansions would serve a population that is no more 
than 20 percent greater than the existing population.
    (vi) The proposal is not controversial for environmental reasons, 
nor have relevant questions been raised regarding its environmental 
impact which cannot be addressed in a Class I assessment.
    (2) Financial assistance for group homes, detention facilities, 
nursing homes, or hospitals, providing a net increase in beds of not 
more than 25 percent or 25 beds, whichever is greater; and
    (3) Financial assistance for the construction or expansion of 
facilities, such as fire stations, real stores, libraries outpatient 
medical facilities, service industries, additions to manufacturing 
plants, office buildings, and wholesale industries, that:
    (i) Are confined to single, small sites; and
    (ii) Are not a source of substantial traffic generation; and
    (iii) Do not produce either substantial amounts of liquid or solid 
wastes or any of the following type(s) of wastes:
    (A) Gaseous, liquid, or solid waste that is hazardous toxic, 
radioactive, or odorous;
    (B) Either a liquid waste, whether or not disposed of on-site, that 
cannot be accepted by a publicly owned treatment works without first 
receiving pretreatment, or a liquid waste discharge that is a point 
source subject to a Federal, or State discharge permit; or
    (C) Gaseous waste or air pollutant that will be emitted either from 
a new source at a rate greater than one hundred tons per year or from an 
expanded

[[Page 26]]

source at a rate greater than twenty-five tons per year.
    (4) Financial assistance for a livestock-holding facility or feed-
lot meeting the criteria of Sec. 1940.311(c)(8) of this subpart.
    (c) Farm Programs. In completing environmental assessments for the 
following Class I actions and the Class II actions listed in Sec. 
1940.312(d), special attention will be given to avoiding a duplication 
of effort with other Department agencies, particularly SCS. For 
applications in which the applicant is receiving assistance from other 
agencies, technical assistance from SCS, for example, FmHA or its 
successor agency under Public Law 103-354 will request from that agency 
a copy of any applicable environmental review conducted by it and will 
adopt that review if the requirements of Sec. 1940.324 of this subpart 
are met. FmHA or its successor agency under Public Law 103-354 will work 
closely with the other Federal Agencies to supplement previous or 
ongoing reviews whenever they cannot be readily adopted.
    (1) Financial assistance for the installation or enlargement of 
irrigation facilities including storage reservoirs, diversion dams, 
wells, pumping plants, canals, pipelines, and sprinklers designed to 
irrigate at least 80 acres, but no more than 160 acres and provided that 
no wetlands are affected, in which case the application will fall under 
Class II as defined in Sec. 1940.312 of this subpart:
    (2) Financial assistance for the development of farm ponds or lakes 
of more than 5 acres in size, but no more than 10 acres, provided that 
no wetlands are affected. If wetlands are affected, the application will 
fall under Class II as defined in Sec. 1940.312 of this subpart;
    (3) Financial assistance for land-clearing operations encompassing 
over 15 acres, but no more than 35 acres, provided that no wetlands are 
affected. If wetlands are affected, the application will fall under 
Class II as defined in Sec. 1940.312 of this subpart;
    (4) Financial assistance for the construction of energy producing 
facilities designed for on-farm needs such as methane digestors and fuel 
alcohol production facilities;
    (5) Financial assistance for the conversion of more than 160 acres 
of pasture to agricultural production, but no more than 320 acres, 
provided that in a conversion to agricultural production no wetlands are 
affected, in which case the application will fall under Class II as 
defined in Sec. 1940.312 of this subpart;
    (6) Financial assistance to grazing associations;
    (7) Financial assistance for the use of a farm or portion of a farm 
for recreational purposes or nonfarm enterprises utilizing no more than 
10 acres, provided that no wetlands are affected. If wetlands are 
affected, the application will fall under Class II as defined in Sec. 
1940.312 of this subpart; and
    (8) Financial assistance for a livestock-holding facility or feedlot 
having a capacity of at least one-half of those listed in Sec. 
1940.312(c)(9) of this subpart. (If the facility is located near a 
populated area or could potentially violate a State water quality 
standard, it will be treated as a Class II action as required by Sec. 
1940.312(c)(10) of this subpart.)
    (d) General. (1) Any Federal action which is defined in Sec. 
1940.310 of this subpart as a categorical exclusion, but which is 
controversial for environmental reasons, or which is the subject of an 
environmental complaint raised by a government agency, interested group, 
or citizen;
    (2) Loan-closing and servicing activities, transfers, assumptions, 
subordinations, construction management activities, and amendments and 
revisions to all approved actions listed either in this section or 
equivalent in size or type to such actions and that alter the purpose, 
operation, location or design of the project as originally approved;
    (3) The lease or disposal of real property by FmHA or its successor 
agency under Public Law 103-354 which meets either the following 
criteria:
    (i) The lease or disposal may result in a change in use of the real 
property in the reasonably foreseeable future, and such change is 
equivalent in magnitude or type to either the Class I actions defined in 
this section or the categorical exclusions defined in Sec. 1940.310 of 
this subpart; or
    (ii) The lease or disposal is controversial for environmental 
reasons,

[[Page 27]]

and the real property is equivalent in size or type to either the Class 
I actions defined in this section or the categorical exclusions defined 
in Sec. 1940.310 of this subpart.



Sec. 1940.312  Environmental assessments for Class II actions.

    Class II actions are basically those which exceed the thresholds 
established for Class I actions and, consequently, have the potential 
for resulting in more varied and substantial environmental impacts. A 
more detailed environmental assessment is, therefore, required for Class 
II actions in order to determine if the action requires an EIS. The 
format that will be used for completing this assessment is included as 
exhibit H of this subpart. Further guidance on Class II actions is 
contained in Sec. 1940.318 of this subpart. Class II actions are 
presumed to be major Federal actions and are defined as follows:
    (a) Housing assistance. If either of the following actions is an 
expansion of a previously approved FmHA or its successor agency under 
Public Law 103-354 housing project, see Sec. 1940.310(b)(8) of this 
subpart to determine if it meets the requirements for a categorical 
exclusion, otherwise it is a Class II action.
    (1) Financial assistance for a multi-family housing project, 
including labor housing, which comprises more than 25 units; and
    (2) Financial assistance for, or the approval of, a subdivision as 
well as the expansion of an existing one, which involves more than 25 
lots.
    (b) Community and business programs and nonprofit national 
corporations loan and grant program. (1) Class II actions are those 
which either do not meet the criteria for a categorical exclusion as 
stated in Sec. 1940.311 of this subpart, or involve a livestock-holding 
facility or feedlot meeting the criteria for a Class II action as 
defined in paragraphs (c) (9) and (10) of this section; and
    (2) Non-technical assistance grant or loan guarantee under nonprofit 
national corporation loan and grant program.
    (c) Farm programs. In completing environmental assessments for the 
following actions, FmHA or its successor agency under Public Law 103-354 
will first determine if the applicant has sought technical assistance 
from the Soil Conservation Service (SCS). If not, the applicant will be 
requested to do so. Subsequently, an approved loan will be structured so 
as to be consistent with any conservation plan developed with the 
application by SCS. However, the FmHA or its successor agency under 
Public Law 103-354 approving official need not include an element of the 
conservation plan within the loan agreement if that official determines 
that the element is both nonessential to the accomplishment of the 
plan's objectives and so costly as to prevent the borrower from being 
able to repay the loan. The SCS environmental review will be adopted by 
FmHA or its successor agency under Public Law 103-354 if the 
requirements of Sec. 1940.324 of this subpart are met.
    (1) Financial assistance for the installation or enlargement of 
irrigation facilities including storage reservoirs, diversion dams, 
wells, pumping plants, canals, pipelines, and sprinklers either designed 
to irrigate more than 160 acres or that would serve any amount of 
acreage and affects a wetland;
    (2) Financial assistance for the development of farm ponds or lakes 
either larger than 10 acres in size or for any smaller size that would 
affect a wetland;
    (3) Financial assistance for land-clearing operations either 
encompassing more than 35 acres or affecting a wetland, if less than 35 
acres is involved;
    (4) Financial assistance for the construction or enlargement of 
aquaculture facilities;
    (5) Financial assistance for the conversion of more than 320 acres 
of pasture to agricultural production or for any smaller conversion of 
pasture to agricultural production that affects a wetland;
    (6) Financial assistance to an individual farmer or an association 
of farmers for water control facilities such as dikes, detention 
reservoirs, stream channels, and ditches;
    (7) Financial assistance for the use of a farm or portion of a farm 
for recreational purposes or nonfarm enterprises either utilizing more 
than 10

[[Page 28]]

acres or affecting a wetland, if less than 10 acres is involved.
    (8) Financial assistance for alteration of a wetland;
    (9) Financial assistance for a livestock-holding facility or feedlot 
located in a sparsely populated farming area having a capacity as large 
or larger than one of the following capacities; 1,000 slaughter steers 
and heifers; 700 mature dairy cattle (whether milkers or dry cows); 
2,500 swine; 10,000 sheep; 55,000 turkeys; 100,000 laying hens or 
broilers when facility has unlimited continuous flow watering systems; 
30,00 laying hens or broilers when facility has liquid manure handling 
system; 500 horses; and 1,000 animal units from a combination of 
slaughter steers and heifers, mature dairy cattle, swine, and sheep; 
(The term animal unit means a unit of measurement for any animal feeding 
operation calculated by adding the following numbers: the number of 
slaughter and feeder cattle multiplied by 1.0, plus the number of mature 
dairy cattle multiplied by 1.4, plus the number of swine weighing over 
25 kilograms (approximately 55 pounds) multiplied by 0.4, plus the 
number of sheep multiplied by 0.1, plus the number of horses multiplied 
by 2.0) and
    (10) Financial assistance for a livestock-holding facility or 
feedlot which either could potentially violate a State water quality 
standard or is located near a town or collection of rural homes which 
could be impacted by the facility, particularly with respect to noise, 
odor, visual, or transportation impacts and having a capacity of at 
least one-half of those listed in paragraph (c)(9) of this section.
    (d) General. (1) Any action which meets the numerical criteria or 
other restriction for a Class I action contained in Sec. 1940.311 of 
this subpart, but is controversial for environmental reasons. If the 
action is the subject of isolated environmental complaints or any 
questions or concerns that focus on a single impact, air quality, for 
example, the analysis of such a complaint or questions can be handled 
under the assessment format for a Class I action, Form FmHA or its 
successor agency under Public Law 103-354 1940-21, as explained in Sec. 
1940.319 of this subpart. When several potential impacts are questioned, 
however, the assessment format (exhibit H of this subpart) for a Class 
II action must be used to address these questions;
    (2) Loan-closing and servicing activities, transfers, assumptions, 
subordinations, construction management activities and amendments and 
revisions to all approved actions listed either in this section or 
equivalent in size or type to such actions and that alter the purpose, 
operation, location, or design of the project as originally approved;
    (3) The approval of plans and State Investment Strategies for Energy 
Impacted Areas, designated under section 601 Energy Impacted Area 
Development Assistance Program, as well as the applications for 
financial assistance (excluding the award of planning funds) for Energy 
Impact Areas;
    (4) Proposals for legislation as defined in CEQ's regulations, Sec. 
1508.17;
    (5) The issuance of regulations and instructions, as well as 
amendments to these, that described either the entities, proposals and 
activities eligible for FmHA or its successor agency under Public Law 
103-354 financial assistance, or the manner in which such proposals and 
activities must be located, constructed, or implemented; and
    (6) The lease or disposal of any real property by FmHA or its 
successor agency under Public Law 103-354 which either does not meet the 
criteria for a categorical exclusion as stated in Sec. 1940.310(e)(6) 
of this subpart or a Class I action as stated in Sec. 1940.311(d)(3) of 
this subpart.



Sec. 1940.313  Actions that normally require the preparation of an 
Environmental Impact Statement (EIS).

    The environmental assessment process will be used, as defined in 
this subpart, to identify on a case-by-case basis those actions for 
which the preparation of an EIS is necessary. Given the variability of 
the types and locations of actions taken by FmHA or its successor agency 
under Public Law 103-354, no groups or set of actions can be identified 
which in almost every case would require the preparation of an EIS.

[[Page 29]]



Sec. 1940.314  Criteria for determining a significant environmental 
impact.

    (a) EISs will be done for those Class I and Class II actions that 
are determined to have a significant impact on the quality of the human 
environment. The criteria for determining significant impacts are 
contained in Sec. 1508.27 of the CEQ regulations.
    (b) In utilizing the criteria for a significant impact, the 
cumulative impacts of other FmHA or its successor agency under Public 
Law 103-354 actions planned or recently approved in the proposal's area 
of environmental impact, other related or similarly located Federal 
actions, and non-federal related actions must be given consideration. 
This is particularly relevant for frequently recurring FmHA or its 
successor agency under Public Law 103-354 actions that on an individual 
basis may have relatively few environmental impacts but create a 
potential for significantly impacts on a cumulative basis. Housing 
assistance is one such example. Consequently, in reviewing proposals for 
subdivisions and multi-family housing sites, consideration must be given 
to the cumulative impacts of other federally assisted housing in the 
area, including FmHA or its successor agency under Public Law 103-354's. 
The boundaries of the area to be considered should be based upon such 
factors as common utility or public service districts, common 
watersheds, and common commuting patterns to central employment or 
commercial areas. Additionally, the criteria for significant impacts 
utilized by the other involved housing agency(s), (VA and HUD, for 
example) must be reviewed when there is a potential for cumulative 
impacts. FmHA or its successor agency under Public Law 103-354 will 
consult with HUD for determining a significant impact whenever the total 
of HUD and FmHA or its successor agency under Public Law 103-354 housing 
units being planned within a common area of environmental impact exceeds 
the HUD thresholds listed in its NEPA regulations. (See 24 CFR part 50.)
    (c) Because the environmental values and functions of floodplains 
and wetlands are of critical importance to man, and because these areas 
are often extremely sensitive to man-induced disturbances, actions which 
affect wetlands and floodplains will be considered to have a significant 
environmental impact whenever one or more of the following criteria are 
met:
    (1) The public health and safety are identifiably affected, that is, 
whenever the proposed action may affect any standards promulgated under 
the Safe Drinking Water Act (42 U.S.C. 300f et seq.), the Clean Water 
Act (33 U.S.C. 1251 et seq.) or similar State authorities.
    (2) The preservation of natural systems is identifiably affected, 
that is, whenever the proposed action or related activities may 
potentially create or induce changes in the existing habitat that may 
affect species diversity and stability (both flora and fauna and over 
the short and long term) or affect ecosystem productivity over the long 
term.
    (3) The proposal, if located or carried out within a floodplain, 
poses a greater than normal risk for flood-caused loss of life or 
property. Examples of such actions include facilities which produce, 
use, or store highly volatile, toxic, or water-reactive materials or 
facilities which contain occupants who may not be sufficiently mobile to 
avoid the loss of life or injury during flood and storm events (i.e., 
hospitals, nursing homes, schools).



Sec. 1940.315  Timing of the environmental review process.

    (a) The FmHA or its successor agency under Public Law 103-354 office 
to which a potential applicant would go to seek program information and 
request application materials will notify the applicant of the major 
environmental requirements applicable to the type of assistance being 
sought. Emphasis should be placed on describing FmHA or its successor 
agency under Public Law 103-354's natural resource management policies, 
the nature and purpose of the environmental impact assessment process, 
and the permissible actions of the applicant during this process.
    (b) When a preapplication is either filed by the applicant or 
required by FmHA or its successor agency under Public Law 103-354 for a 
project not categorically excluded, the prospective

[[Page 30]]

applicant will be requested to complete Form FmHA or its successor 
agency under Public Law 103-354 1940-20 at the time of the issuance of 
Form AD-622, ``Notice of Preapplication Review Action,'' or other notice 
inviting an application. Form AD-622 will clearly inform the applicant 
that during the period of application review, the applicant is to take 
no actions or incur any obligations which would either limit the range 
of alternatives to be considered or which would have an adverse effect 
on the environment, and that satisfactory completion of the 
environmental review process must occur prior to the issuance of the 
letter of conditions for Community Programs and prior to loan approval 
for all other programs where a preapplication is used. FmHA or its 
successor agency under Public Law 103-354 must make its environmental 
reviews simultaneously with other loan processing actions so that they 
are an integral part of the loan process. Whenever the potential for a 
major adverse environmental impact is recognized, such as issues 
pertaining to floodplains, wetlands, endangered species, or the need for 
an EIS, priority consideration will be given to resolving this issue by 
appropriate FmHA or its successor agency under Public Law 103-354 staff. 
Loan processing need not cease during this resolution period, but loan 
processing actions will not be taken that might limit alternatives to be 
considered or whose outcome may be affected by the environmental review. 
The environmental impact review (whether a categorical exclusion, 
environmental assessment or EIS) must be completed prior to the issuance 
of the letter of conditions for Community Programs, prior to issuance of 
a conditional commitment for the Business and Industry and Farmer 
Program Guaranteed Loan Programs, and either prior to loan approval or 
obligation of funds, whichever occurs first, for all other programs 
where a preapplication is used. As an exception, however, whenever an 
application must be submitted to the National Office for concurrence or 
approval, the environmental review must be completed prior to and 
included in the submission to the National Office. The environmental 
impact review is not completed by FmHA or its successor agency under 
Public Law 103-354 until all applicable public notices and associated 
review periods have been completed and FmHA or its successor agency 
under Public Law 103-354 has taken any necessary action(s) to address 
comments received. The exception to the provisions of this paragraph is 
contained in Sec. 1940.332 of this subpart.
    (c) When a preapplication is not filed, the prospective applicant 
will be required to complete Form FmHA or its successor agency under 
Public Law 103-354 1940-20 at the earliest possible time after FmHA or 
its successor agency under Public Law 103-354 is contacted for 
assistance but no later than when the application is filed with the 
appropriate FmHA or its successor agency under Public Law 103-354 
office. (For the exception to this statement as regards Farm Programs' 
Class I actions, see Sec. 1940.309(c) of this subpart.) FmHA or its 
successor agency under Public Law 103-354 will not consider the 
application to be complete, until FmHA or its successor agency under 
Public Law 103-354 staff have completed the environmental impact review, 
whether an assessment or EIS.
    (d) For those applications that meet the requirements of a 
categorical exclusion, Form FmHA or its successor agency under Public 
Law 103-354 1940-22 will be completed by FmHA or its successor agency 
under Public Law 103-354 as early as possible after receipt of the 
application. The application will not be considered complete until 
either the checklist is successfully completed or the need for any 
further environmental review is identified and completed.



Sec. 1940.316  Responsible officials for the environmental review process.

    (a) Approving official. With the exception of paragraph (b)(2) of 
this section, the FmHA or its successor agency under Public Law 103-354 
official responsible for executing the environmental impact 
determination and environmental findings for a Class I or Class II 
action will be the official having approval authority for the action as 
specified in subpart A of part 1901 of this chapter (available in any 
the

[[Page 31]]

Agency or its successor agency under Public Law 103-354 office).
    (b) State Office level. (1) When the approval official is at the 
State Office level, the responsible Program Chief will have the 
responsibility for preparing the appropriate environmental review 
document. Whenever the Chief delegates this responsibility in accordance 
with Sec. 1940.302(i) of this subpart, the Chief is responsible for 
reviewing the environmental document to ensure that it is adequate, that 
any deficiencies are corrected, and that it is signed by the preparer. 
When the document is satisfactory to the Chief, the Chief will sign it 
as the concurring official. When no delegation occurs, the Chief will 
sign as the preparer. If the environmental review document is either a 
Class I or Class II assessment, it must be provided to the SEC for 
review prior to being submitted to the approval official for final 
determinations. The SEC will review the assessment and provide 
recommendations to the approval official.
    (2) Whenever the preparer and the SEC do not concur on either the 
adequacy of the assessment or the recommendations reached, the State 
Director, whether or not the approving official, will make the final 
decision on the matter or matters in disagreement. The State Director 
will also make the final decision whenever a State Office approving 
official disagrees with the joint recommendations of the preparer and 
the SEC. In either case, should the State Director desire, the matter 
will be forwarded to the National Office for resolution. The Program 
Support Staff will coordinate its resolution with the appropriate 
Assistant Administrator. Failure of these parties to resolve the matter 
will require a final decision by the Administrator. The State Director 
should also request the assistance of the National Office on actions 
that are too difficult to analyze at the State Office level.
    (c) District or County Office level. The approval official for the 
action under review will be responsible for preparing the appropriate 
environmental review document and completing the environmental findings 
and impact determinations for Class I and Class II assessments, except 
in the circumstances outlined in paragraph (d) of this section. Whenever 
the approval official delegates the preparation of the environmental 
review in accordance with Sec. 1940.302(i) of this subpart, the 
approval official must, after exercising the same responsibilities 
assigned to the Program Chief as indicated in paragraph (b)(1) of this 
section, sign the environmental review document as the concurring 
official. Both District Directors and County Supervisors will contact, 
as needed, the SEC for technical assistance in preparing specific 
environmental review documents.
    (d) Multi-level review. When the approval official is at the County 
Office or District Office level but the action must be forwarded to the 
State Office for concurrence, the responsible Program Chief will perform 
the responsibilities of the concurring official with respect to the 
environmental review document and the SEC will review it, if a Class I 
or Class II assessment, in a similar manner as indicated in paragraph 
(b) of this section. Responsibilities similar to those of the Program 
Chief will exist for the District Director when the County Supervisor 
forwards an action to the District Office for concurrence.
    (e) Reservation of authority. The Administrator reserves the right 
to request a State Director to forward to the National Office for review 
and approval any action which is highly controversial for environmental 
reasons, involves the potential for unique or extremely complex 
environmental impacts or is of national, regional, or great local 
significance. State Directors have a similar right with respect to 
District and County Offices.



Sec. 1940.317  Methods for ensuring proper implementation of categorical 
exclusions.

    (a) The use of categorical exclusions exempts properly defined 
actions or proposals from the review requirements of NEPA. It does not 
exempt proposals from the requirements of other environmental laws, 
regulations or Executive orders. Each proposal must be reviewed to 
determine the applicability of other environmental requirements. 
Extraordinary circumstances may cause an application

[[Page 32]]

to lose its categorical exclusion and require a Class I environmental 
assessment, as further specified in paragraph (e) of this section. 
Section 1508.4 of CEQ's regulations state that ``any procedures under 
this section will provide for extraordinary circumstances in which a 
normally excluded action may have a significant environmental effect.'' 
For example, an application for approval of a subdivision of four lots 
is normally excluded from a NEPA review (see Sec. 1940.310(b)(5) of 
this subpart) but is not exempt from the requirements of Executive Order 
11990, ``Protection of Wetlands.'' In the processing of this 
application, FmHA or its successor agency under Public Law 103-354 must 
determine if a wetland is to be impacted. Assuming that the development 
of the proposed subdivision site necessitates the filling of 2 acres of 
wetland, such a potential wetland impact, under the requirements of 
Sec. 1940.310(a) of this subpart, represents an extraordinary 
circumstance that causes the application to lose its categorical 
exclusion. An environmental assessment for a Class I action must then be 
initiated. This assessment serves the purposes of providing for the 
extraordinary circumstance by analyzing the degree of potential impact 
and the need for further study as well as completing and documenting 
FmHA or its successor agency under Public Law 103-354's compliance with 
the Executive order. In this particular example, unless an alternative 
site could not be readily located and the approving official wanted to 
further pursue consideration of the application, the environmental 
assessment would determine that there was a significant impact and an 
EIS would be required. (See Sec. 1940.314 of this subpart.)
    (b) The approving official for an action will be responsible for 
ensuring that no action which requires an environmental assessment is 
processed as a categorical exclusion. In order to fulfill this 
responsibility, Form FmHA or its successor agency under Public Law 103-
354 1940-22 will be completed for those actions that would normally be 
categorically excluded and as further defined in paragraph (c) of this 
section. When Form FmHA or its successor agency under Public Law 103-354 
1940-22 must be prepared and the approving official delegates its 
preparation in accordance with Sec. 1940.302(i) of this subpart, the 
approving official must sign the form as the concurring official. If 
that approving official must, prior to approval, forward the action to a 
District or State Office for review, a second concurrence must be 
executed by the Program Chief or District Director, as determined by the 
level of review being conducted. The checklist is filed with the 
application and serves as FmHA or its successor agency under Public Law 
103-354's documentation of compliance with the environmental laws, 
regulations and Executive Orders listed on the checklist. Whenever the 
preparer is within the State Office or is in the National Office, the 
FmHA or its successor agency under Public Law 103-354 office where the 
processing of the application was initiated is responsible for providing 
sufficient site and project information in order to complete the 
checklist.
    (c) Form FmHA or its successor agency under Public Law 103-354 1940-
22 need not be completed for all categorical exclusions as defined in 
Sec. 1940.310 of this subpart but only for those listed below. This 
list identifies the exclusions by their subject heading and paragraph 
number within Sec. 1940.310 of this subpart. Additionally, for the 
housing assistance exclusion identified in Sec. 1940.310(b)(8), for 
farm programs exclusions listed in Sec. 1940.310(d)(2) and (3), and for 
community and business programs exclusions processed under Sec. 
1940.310(e)(2) of this subpart, a notation must be made in the docket 
materials or running record for the action by the processing official 
that the specific criteria of the applicable exclusion have been met for 
the action under review.
    (1) Housing assistance--(b), (1), (2), (3), (5), (7), and (9);
    (2) Community and Business Programs--(c) (1) and (2);
    (3) Farm Programs--(d) (1) through (11);
    (4) General exclusions--(e)(2), if action covered by exhibit M of 
the subpart, and (6).
    (d) In applying the definition of a categorical exclusion to a 
project activity, the preparer must consider the following two elements 
in addition to

[[Page 33]]

the specific project elements for which approval is requested.
    (1) If the application represents one of several phases of a larger 
proposal, the application will undergo the environmental review required 
for the elements or the size of the total proposal. For example, if 
approval of a four-lot subdivision is requested and the application 
evidences or the reviewer knows that additional phases are planned and 
will culminate in a 16-lot subdivision, the categorical exclusion does 
not apply and an environmental assessment for a Class I action must be 
initiated and must address the impact of developing 16 lots. Should the 
applicant subsequently apply for approval of any of these additional 
phases, no further environmental assessment will be required as long as 
the original assessment still accurately reflects the environmental 
conditions found at the project site and the surrounding areas.
    (2) If the application represents one segment of a larger project 
being funded by private parties or other government agencies, the size 
and elements of the entire project are used in determining the proper 
level of environmental assessment to be conducted by FmHA or its 
successor agency under Public Law 103-354. If an environmental 
assessment is required, it will address the environmental impacts of the 
entire project.
    (e) Under any one of the following circumstances, an action that is 
normally categorically excluded loses its classification as an exclusion 
and must be reviewed in the manner described in paragraph (g) of this 
section. The following listing corresponds to the list of land uses and 
environmental resources contained in part 2 of Form FmHA or its 
successor agency under Public Law 103-354 1940-22.
    (1) Wetlands--the proposed action:
    (i) Would be located adjacent to a wetland or a wetland is within 
the project site, and
    (ii) The action would affect the values and functions of the wetland 
by such means as converting, filling, draining, or directly discharging 
into it;
    (2) Floodplains--the proposed action:
    (i) Includes or involves an existing structure(s) located within a 
100-year floodplain (500-year floodplain if critical action), or
    (ii) Would be located within a 100-year floodplain (500-year 
floodplain if critical action) and would affect the values and functions 
of the floodplain by such means as converting, dredging, or filling or 
clearing the natural vegetation;
    (3) Wilderness (designated or proposed)--the proposed action:
    (i) Would be located in a wilderness area, or
    (ii) Would affect a wilderness area such as by being visible from 
the wilderness area;
    (4) Wild or Scenic River (proposed or designated or identified in 
the Department of the Interior's nationwide Inventory)--the proposed 
action:
    (i) Would be located within one-quarter mile of the banks of the 
river,
    (ii) Involves withdrawing water from the river or discharging water 
to the river via a point source, or
    (iii) Would be visible from the river;
    (5) Historical and Archeological Sites (listed on the National 
Register of Historic Places or which may be eligible for listing)--the 
proposed action:
    (i) Contains a historical or archeological site within the 
construction site, or
    (ii) Would affect a historical or archeological site;
    (6) Critical Habitat or Endangered/Threatened Species (listed or 
proposed)--the proposed action:
    (i) Contain a critical habitat within the project site,
    (ii) Is adjacent to a critical habitat, or
    (iii) Would affect a critical habitat or endangered/threatened 
species;
    (7) Coastal Barrier Included in Coastal Barrier Resources System--
the proposed action would be located within the Coastal Barrier 
Resources System;
    (8) Natural Landmark (listed on National Registry of Natural 
Landmarks)--the proposed action either:
    (i) Contains a natural landmark within the project site, or
    (ii) Would affect a natural landmark;
    (9) Important Farmlands--the proposed action would convert important 
farmland to a nonagricultural use(s) except when the conversion would 
result from the construction of on-farm

[[Page 34]]

structures necessary for farm operations;
    (10) Prime Forest Lands--the proposed action would convert prime 
forest land to another use(s), except when the conversion would result 
from the construction of on-farm structures necessary for farm 
operations;
    (11) Prime Rangelands--the proposed action would convert prime 
rangeland to another use(s) except when the conversion would result from 
the construction of on-farm structures necessary for farm operations;
    (12) Approved Coastal Zone Management Area--the proposed action 
would be located within such area and no agreement exists with the 
responsible State agency obviating the need for a consistency 
determination for the type of action under consideration;
    (13) Sole Source Aquifer Recharge Area--the proposed action would be 
located within such area and no agreement exists with the Environmental 
Protection Agency (EPA) obviating the need for EPA's review of the type 
of action under consideration; and
    (14) State Water Quality Standard--the proposed action would impair 
a water quality standard, including designated and/or existing 
beneficial uses, or would not meet applicable antidegradation 
requirements for point or nonpoint sources.
    (f) From the above paragraph (e), it should be noted that the 
location within the project site of any of the land uses and 
environmental resources identified in paragraphs (e) (1), (2), (9), 
(10), (11), (12), and (13) of this section is not sufficient for an 
action to lose its categorical exclusion. Rather, the land use or 
resource must be affected in the case of paragraphs (e) (1), (2), (9), 
(10), and (11) of this section. For paragraphs (e) (12), (13) and (14) 
of this section, further review and consultation can be avoided by 
written agreement with the responsible agency detailing the types of 
actions not requiring interagency review.
    (g) Whenever a categorical exclusion loses its status as an 
exclusion for any of the reasons stated in paragraph (e) of this 
section, the environmental impacts of the action must be reviewed 
through the preparation of a Class I assessment, Form FmHA or its 
successor agency under Public Law 103-354 1940-21. Not all of the 
procedural requirements for a Class I assessment apply in this limited 
case, however. The following exemptions exists:
    (1) No public notice provisions of this subpart apply.
    (2) The applicant does not complete Form FmHA or its successor 
agency under Public Law 103-354 1940-20.
    (3) The action does not require a Class II assessment should more 
than one important land resources be affected.



Sec. 1940.318  Completing environmental assessments for Class II actions.

    (a) The first step for the preparer (as defined in Sec. Sec. 
1940.302(i) and 1940.316 of this subpart) is to examine Form FmHA or its 
successor agency under Public Law 103-354 1940-20 submitted by the 
applicant to determine if it is complete, consistent, fully responsive 
to the items, signed, and dated. If not, it will be returned to the 
applicant with a request for necessary clarifications or additional 
data.
    (b) Once adequate data has been obtained, the assessment will be 
initiated in the format and manner described in exhibit H of this 
subpart. In completing the assessment, appropriate experts from State 
and Federal agencies, universities, local and private groups will be 
contacted as necessary for their views. In so doing, the preparer should 
communicate with these agencies or parties in the most appropriate and 
expeditious manner possible, depending upon the seriousness of the 
potential impacts and the need for formal documentation. Appropriate 
experts must be contacted whenever required by a specific provision of 
this subpart or whenever the preparer does not have sufficient data or 
expertise available within FmHA or its successor agency under Public Law 
103-354 to adequately assess the degree of a potential impact or the 
need for avoidance or mitigation. Comments from an expert must be 
obtained in writing whenever required by a specific provision of this 
subpart or the potential environmental impact is either controversial, 
complex, major, or apparently major. When correspondence is exchanged, 
it will be appended to the assessment. Oral discussions should be 
documented in the

[[Page 35]]

manner indicated in exhibit H of this subpart. On the other hand, there 
is no need for the preparer to seek expert views outside of the Agency 
when there is no specific requirement to do so and the preparer has 
sufficient expertise available within FmHA or its successor agency under 
Public Law 103-354 to assess the degree of the potential impact and the 
need for avoidance or mitigation.
    (c) At the earliest possible stage in the assessment process, the 
preparer will identify the Federal, State, and local parties which are 
carrying out related activities, either planned or under way. 
Discussions with the applicant and FmHA or its successor agency under 
Public Law 103-354 staff familiar with the project area should assist in 
this identification effort. If there is a potential for cumulative 
impacts, the preparer will consult with the involved agencies to 
determine the nature, timing and results of their environmental 
analysis. These consultations will be documented in the assessment and 
considered or adopted when making the environmental impact 
determination. (See Sec. 1940.324 of this subpart concerning adoption 
of assessments.) If it is determined that the cumulative impacts are 
significant, the preparer will further contact the involved Federal 
agencies and attempt to determine the lead Federal Agency as discussed 
in Sec. Sec. 1940.320(b) and 1940.326 of this subpart.
    (d) Consultations similar to those discussed in paragraph (c) of 
this section will also be undertaken with those Federal and State 
agencies which are directly involved in the FmHA or its successor agency 
under Public Law 103-354 action, either through the provision of 
financial assistance or the review and approval of a necessary plan or 
permit. For example, a construction permit from the U.S. Army Corps of 
Engineers may be required for a project. In such an instance, the 
environmental assessment cannot be completed until the preparer has 
either reviewed the other Agency's completed environmental analysis or 
consulted with the other Agency and is reasonably sure of the scope, 
content, and expected environmental impact determination of the 
forthcoming analysis and has so documented for the FmHA or its successor 
agency under Public Law 103-354 assessment this understanding. If the 
other Agency believes that the project will have a significant impact, a 
joint or lead impact statement will be prepared. If the other Agency 
does not believe a significant impact will occur, the preparer will 
consider this finding and its supporting analysis in completing the FmHA 
or its successor agency under Public Law 103-354 environmental impact 
determination. Guidance in adopting an environmental assessment prepared 
by another Federal Agency is provided in Sec. 1940.324 of this subpart.
    (e) For actions having a variety of complex or interrelated impacts 
that are difficult for the preparer to assess, consideration should be 
given to holding a public meeting in the manner described in Sec. 
1940.331(c) of this subpart. Such meetings should not be assumed as 
being limited to projects for which EISs are being prepared. Such a 
meeting can serve a useful purpose in better defining and identifying 
complex impacts, as well as locating expertise with respect to them. The 
results of a public meeting and the follow-up from it can also serve as 
a valuable tool in reaching an early understanding on the potential need 
for an EIS. When identified impacts are difficult to quantify (such as 
odor and visual and community impacts) or controversial, a public 
information meeting should be held near the project site and the local 
area's concern about it. Whenever held, it should be announced and 
organized in the manner described in Sec. 1940.331(c). However, a 
transcript of the meeting need not be prepared, but the preparer will 
make detailed notes for incorporation in the assessment. (See Sec. 
1940.331(c) of this subpart.)
    (f) Throughout this assessment process, the preparer will keep in 
mind the criteria for determining a significant environmental impact. If 
at any time in this process it is determined that a significant impact 
would result, the preparer will so notify the approving official. Those 
actions specified in Sec. 1940.320 of this subpart will then be 
initiated, unless the approving official disagrees with the preparer's 
recommended determination, in which

[[Page 36]]

case further review of the determination may be required as explained in 
Sec. 1940.316 (b), (d) and (e) of this subpart. As soon as possible 
after the need for an EIS is determined, the applicant will also be 
advised of this in writing, as well as reinformed of the limitations on 
its actions during the period that the EIS is being completed. (See 
Sec. 1940.309(e) of this subpart.) The applicant's failure to comply 
with these limitations will be considered as grounds for postponement of 
further consideration of the application until such problem is 
alleviated.
    (g) Similarly, throughout the assessment process, consideration will 
be given to incorporating mechanisms into the proposed action for 
reducing, mitigating, or avoiding adverse impacts. Examples of such 
mechanisms which are commonly referred to as mitigation measures include 
the deletion, relocation, redesign or other modifications of the project 
elements; the dedication of environmentally sensitive areas which would 
otherwise be adversely affected by the action or its indirect impacts; 
soil erosion and sedimentation plans to control runoff during land-
disturbing activities; the establishment of vegetative buffer zones 
between project sites and adjacent land uses; protective measures 
recommended by environmental and conservation agencies, including but 
not limited to interstate, international, Federal, State, area-wide, and 
local agencies having jurisdiction or special expertise regarding the 
action's impacts; and zoning. Mitigation measures must be tailored to 
fit the specific needs of the action, and they must also be practical 
and enforceable. Mitigation measures which will be taken must be 
documented in the assessment (Item XIX of exhibit H of this subpart), 
and include an analysis of their environmental impacts and potential 
effectiveness and placed in the offer of financial assistance as special 
conditions or in the implementation requirements when the action does 
not involve financial assistance. These measures will be consistent with 
the basic goal of the proposed action and developed in consultation with 
the appropriate program office.
    (h) As part of the assessment process, the preparer will initiate 
the consultation and compliance requirements for the environmental laws, 
regulations, and Executive orders specified in the assessment format. 
The assessment cannot be completed until compliance with these laws and 
regulations is appropriately documented. The project's failure to meet 
the requirements specified in Item 10b of Form FmHA or its successor 
agency under Public Law 103-354 1940-21 for a Class I action and Item 
XXIb of exhibit H of this subpart for a Class II action will result in 
postponement of further consideration of the application until such 
problem is alleviated.
    (i) When the preparer has completed the assessment, the related 
materials and correspondence utilized will be attached. The preparer 
will then either recommend to the approving official that the action has 
the potential for significantly affecting the quality of the human 
environment or will recommend that the action does not have this 
potential and, therefore, the preparation of an EIS is not necessary. 
(Item 10a of Form FmHA or its successor agency under Public Law 103-354 
1940-21 for Class I action and item XXIa of exhibit H of this subpart 
for a Class II action.) The recommended environmental findings will also 
be completed. (Item 10b of Form FmHA or its successor agency under 
Public Law 103-354 1940-21 for a Class I action and Item XXIb of exhibit 
H of this subpart for a Class II action.) In those instances specified 
in Sec. 1940.316, the assessment will then be forwarded to the 
concurring official and, as required, to the SEC for review. The 
concurring official will coordinate, as necessary, with the preparer any 
questions, concerns or clarifications and complete and document the 
review prior to the assessment being submitted to the approving official 
or the SEC. The SEC will coordinate with the concurring official in a 
similar fashion whenever the latter's review is required.
    (j) The approving official will review the environmental file and 
recommendations. The official will then

[[Page 37]]

execute the environmental impact determination and findings. If the 
conclusions reached are that there is no significant impact and there is 
compliance with the listed requirements, the format contained in exhibit 
I of this subpart will be used. If a significant impact is determined, 
the steps specified in Sec. 1940.320 of this subpart will be initiated 
for the preparation of the EIS. If a determination is made that the 
proposed action does not comply with the environmental requirements that 
are explained in this subpart and listed in Item 10b of Form FmHA or its 
successor agency under Public Law 103-354 1940-21 for a Class I action 
or Item XXIb of exhibit H of this subpart for a Class II action and 
there are no feasible alternatives (practicable alternatives when 
required by specific provisions of this subpart), modifications, or 
mitigation measures which could comply, the action will be denied or 
disapproved. If the approving official's determination or findings 
differ from the recommendations of the preparer, concurring official or 
the SEC, this difference will be addressed in the manner specified in 
Sec. 1940.316 of this subpart.
    (k) When there is no need for further review as discussed in 
paragraph (j) of this section and findings of compliance and a 
determination of no significant impact are reached, the assessment 
process is conditionally concluded. To conclude the assessment, the 
applicant will then be requested to provide public notification of these 
results as indicated in Sec. 1940.331(b)(3) of this subpart. The 
approving official will not approve the pending application for at least 
15 days from the date the notification is last published. If comments 
are received as a result of the notification, they will be included in 
the environmental assessment and considered. Any necessary changes 
resulting from this consideration will be made in the assessment, impact 
determinations, and findings. If the changes require further 
implementation steps, such as the preparation of an EIS, they will be 
undertaken. If there are no changes in the findings and determination 
steps, such as the preparation of an EIS, they will be undertaken. If 
there are no changes in the findings and determinations, the approving 
official may continue to process the application. The environmental 
documents, i.e., the assessment, related correspondence, Form FmHA or 
its successor agency under Public Law 103-354 1940-20, and the finding 
of no significant impact will be included with the approval documents 
which are assembled for review and clearance within the approving 
office.
    (l) Whenever changes are made to an action or comments or new or 
changed information relating to the action's potential environmental 
effects is received after the assessment is completed but prior to the 
action's approval, such change, comment, or information will be 
evaluated by the approving official to determine the impact on the 
completed assessment. Whenever the contents or findings of that 
assessment are affected, the assessment process for that action will be 
revised and any other related requirement of this subpart met. Changes 
to an action in terms of its location(s), design, purpose, or operation 
will normally require, at a minimum, modification of the original 
assessment to reflect such change(s) and the associated environmental 
impacts.
    (m) When comments are received after the action has been approved, 
the approving official will consider the environmental importance of the 
comments and the necessity and ability to amend both the action, with 
respect to the issue raised and the action's stage of implementation. 
The National Office may be consulted to assist in determining whether 
there are any remaining environmental requirements which need to be met 
under the specific circumstances. A similar procedure will be followed 
when new or changed information is received after project approval. 
Amendments and revisions to actions will be handled as specified in 
Sec. Sec. 1940.310 through 1940.313 of this subpart.



Sec. 1940.319  Completing environmental assessments for Class I actions.

    (a) As stated in this subpart, a main purpose of Form FmHA or its 
successor agency under Public Law 103-354 1940-21, is to provide a 
mechanism for reviewing actions with normally minimal impacts and for 
documenting a finding of no significant impact, as

[[Page 38]]

well as compliance determinations for other applicable environmental 
laws, regulations and policies. The second major purpose is to serve as 
a screening tool for identifying those Class I actions which have more 
than minimal impacts and which, therefore, require a more detailed 
environmental review.
    (b) The approach to reviewing a Class I action under the assessment 
format of Form FmHA or its successor agency under Public Law 103-354 
1940-21 is exactly the same as for a Class II action. The preparer (as 
defined in Sec. Sec. 1940.302(i) and 1940.316 of this subpart) must 
become familiar with the elements of the action, the nature of the 
environment to be affected, the relationship to any other Federal 
actions or related nonfederal actions, and the applicable environmental 
laws and regulations.
    (c) The data submission requirements placed on the applicant for a 
Class I action are not as extensive as for a Class II action. The 
requirements are limited to completing the face of Form FmHA or its 
successor agency under Public Law 103-354 1940-20, as well as categories 
(1), (2), (13), (15), (16), and (17) of Item 1b of the FMI, whenver a 
previously completed environmental analysis covering these categories is 
not available. Should it later be determined that the magnitude of the 
Class I action's impact warrants a more detailed assessment, the 
applicant will be required to submit the remaining items of the data 
request. Additionally, the circumstances under which FmHA or its 
successor agency under Public Law 103-354 does not require the 
submission of Form FmHA or its successor agency under Public Law 103-354 
1940-20 by an applicant whose proposed action requires a Class I 
assessment are specified in Sec. 1940.317(f) of this subpart.
    (d) The preparer must ensure that the data received from the 
applicant is complete, consistent, signed and dated before initiating 
the assessment. If it is not, the applicant will be required to make the 
necessary changes and clarifications. The reviewer must also ensure that 
the application properly meets the definition of a Class I action. 
Phased or segmented projects, as discussed in Sec. 1940.317(d) of this 
subpart, will be identified and the elements and the size of the entire 
project used to classify the action.
    (e) An important element of this assessment is to determine if the 
action affects an environmental resource which is the subject of a 
special Federal consultation or coordination requirement. Such resources 
are listed in the assessment format, Form FmHA or its successor agency 
under Public Law 103-354 1940-21, and include wetlands, floodplains, and 
historic properties, for example. If one of the listed resources is to 
be affected, the preparer must demonstrate the required compliance by 
accomplishing the review and coordination requirements for that 
resource. Documentation of the steps taken and coordination achieved 
will be attached. However, if more than one listed resource is to be 
affected, this will be viewed as the action having more than minimal 
impacts and the environmental assessment format for a Class II action 
will be initiated except if the action under review is an application 
for a Housing Preservation Grant.
    (f) Similarly in completing item 3, General Impacts of Form FmHA or 
its successor agency under Public Law 103-354 1940-21, the assessment 
format for a Class II action must be initiated if more than one category 
of impacts cannot be checked as minimal. If there is a single category 
which needs analysis, this can be accomplished by attaching an 
appropriate exhibit addressing the questions and issues for that impact, 
as specified in the environmental assessment format for a Class II 
action. See Sec. 1940.311(b)(1) of this subpart for when an attached 
discussion of water quality impacts is mandatory.
    (g) The comments of State, regional, and local agencies obtained 
through applicable permit reviews or the implementation of Executive 
Order 12372, Intergovernmental Review of Federal Programs, will be 
incorported into the assessment, if this review applies to the action. 
The receipt of negative comments of an environmental nature will warrant 
the initiation of a more detailed assessment under the format for a 
Class II action (exhibit H of this subpart). Also, the issue of 
controversy must be addressed, and if the action is

[[Page 39]]

controversial for environmental reasons, the environmental assessment 
format for a Class II action (exhibit H of this subpart) will be 
completed. However, if the action is the subject of isolated 
environmental complaints or any questions or concerns that focus on a 
single impact, air quality, for example, the analysis of such complaints 
or questions can be handled under the assessment format for a Class I 
action. This analysis will then be provided by the approving official to 
the party or parties which raised the matter with FmHA or its successor 
agency under Public Law 103-354. When several potential impacts are 
questioned, however, the more detailed assessment format will be 
accomplished to address these questions.
    (h) The potential cumulative impacts of this action, particularly as 
it relates to other FmHA or its successor agency under Public Law 103-
354 actions recently approved in the area or planned, will be analyzed. 
If the cumulative impact is not minimal and, for example, cumulatively 
exceeds the criteria and threshholds discussed in paragraphs (e), (f) 
and (g) of this section, the environmental assessment format for a Class 
II action will be completed. The actions of other Federal agencies and 
related nonfederal actions must also be assessed on this basis. When 
there is a Federal action involved, the environmental review conducted 
by that Agency will be requested and, if it sufficiently addresses the 
cumulative impact, can be utilized by the preparer as the FmHA or its 
successor agency under Public Law 103-354 assessment, assuming the 
impacts are not significant. (See Sec. 1940.324 of this subpart.) If 
the other Agency is doing or planning an EIS, the preparer will inform 
that Agency of our action and request to be a cooperating agency.
    (i) The preparer will have the responsibility of initiating the 
assessment format for a Class II action (exhibit H of this subpart) 
whenever the need is identified. This should be done as early as 
possible in the review process. The preparer should not complete the 
assessment for a Class I action when it is obvious that the assessment 
format for a Class II action will be needed. The preparer will simply 
start the more detailed assessment and inform the applicant of the 
additional data requirements.
    (j) Exhibit I will be completed by the approval official in the same 
instances for a Class I assessment as for a Class II assessment. 
However, public notification of FmHA or its successor agency under 
Public Law 103-354's finding of no significant environmental impact will 
not be required for a Class I assessment. Also, special provisions for 
completing a Class I assessment for an action that is normally 
categorically excluded but loses its classification as an exclusion are 
contained in Sec. 1940.317(g) of this subpart. With the exception of 
the two preceding sentences, all other procedural requirements of the 
assessment process, such as the timing of the assessment and the 
limitations on the applicant's actions, apply to a Class I assessment.



Sec. 1940.320  Preparing EISs.

    (a) Responsibility. Whenever the District Director or County 
Supervisor determines there is a need to prepare an EIS, the State 
Director will be notified. The EIS will be prepared at the State Office 
and the State Director will assume the responsibility for preparing it. 
The State will in turn notify the Administrator of these EISs, as well 
as those needed EISs identified by a State Office review. EISs will be 
prepared according to this section. The State Director will be 
responsible for actions initiated within the State. However, in so 
doing, the State Director will consult with the National Office to 
determine that the document meets the requirements of NEPA. State 
Directors will be responsible for issuing such EISs. However, unless 
delegated authority by the Administrator, based upon a demonstrated 
capability and experience in preparing EISs, the State Director will not 
issue the EIS until reviewed and approved by the Administrator.
    (b) Organizing the EIS process. Prior to initiating the scoping 
process outlined below, the preparer of the EIS will take several 
organizational steps to ensure that the EIS is properly coordinated and 
completed as efficiently as possible. To accomplish this, the

[[Page 40]]

below-listed parties need to be identified in advance; the list should 
be expanded as familiarity with the project increases. Those parties 
falling within the first four groups should be formally requested to 
serve as cooperating agencies. If any of these agencies appear to be a 
more appropriate lead agency than FmHA or its successor agency under 
Public Law 103-354 (using the criteria contained in Sec. 1501.5(c) of 
the CEQ regulations), consultations should be initiated with that agency 
to determine the lead agency. If difficulties arise in completing this 
determination, the National Office will be consulted for assistance. All 
of the parties identified below will be sent a copy of the notice of 
intent to prepare the EIS and an invitation to the scoping meeting, as 
discussed in paragraph (c) of this section.
    (1) All Federal and State agencies that are being requested to 
provide financial assistance for the project or related projects;
    (2) All Federal agencies that must provide a permit for the project 
should it be approved;
    (3) All Federal agencies that have a specific environmental 
expertise in major environmental issues identified to date;
    (4) The Agency responsible for the implementation of the State's 
environmental impact analysis requirement, if one has been enacted or 
promulgated by the State;
    (5) All Federal, State, and local agencies that will be requested to 
comment on the draft EIS;
    (6) All individuals and organizations that have expressed an 
interest in the project; and
    (7) National, regional, or local environmental organizations whose 
particular area of interest corresponds to the major impacts identified 
to date.
    (c) Scoping process. As soon as possible after a decision has been 
made to prepare an EIS, the following process will be initiated by the 
preparer for identifying the major issues to be addressed in the EIS and 
for developing a coordinated government approach to the preparation and 
review of the EIS.
    (1) The first step in this process will be the publication of a 
notice of intent to prepare the EIS. The notice will indicate that an 
EIS will be prepared and will briefly describe the proposed action and 
possible alternatives; state the name, address, and phone number of the 
preparer, indicating that this person can answer questions about the 
proposed action and the EIS; list any cooperating agencies, and include 
the date and time of the scoping meeting. If the latter information is 
not known at the time the notice of intent is prepared, it will be 
incorporated into a special notice, when available, and published and 
distributed in the same manner as the notice of intent. It will be the 
responsibility of the preparer of the EIS to inform the National Office 
of the need to publish a notice of intent which will coordinate the 
publication of the notice in the Federal Register. For requirements 
relating to the timing the publication of the notice of intent within 
the project area, as well as the applicant's responsibilities for the 
notice, see Sec. 1940.331(b) of this subpart.
    (2) A scoping meeting will be held. To the extent possible, the 
scoping meeting should be integrated with any other early planning 
meetings of the Agency or other involved agencies. The scoping meeting 
will be chaired by the preparer of the EIS and will be organized to 
accomplish the following major purposes (as well as other purposes 
listed in Sec. 1501.7 of the CEQ regulations).
    (i) Invite the participation of affected Federal, State, and local 
agencies, any affected Indian Tribe, the proponent of the action, and 
any interested parties including those who may disagree with the action 
for environmental reasons;
    (ii) Determine the scope and the significant issues to be analyzed 
in depth in the EIS;
    (iii) Identify and eliminate, from detailed study, the issues which 
are not significant or which have been covered by prior environmental 
review, narrowing the discussion of these issues in the statement to a 
brief presentation of why they will not have a significant effect on the 
human environment or providing a reference to their coverage elsewhere;
    (iv) Allocate assignments for preparation of the EIS among the lead 
and cooperating agencies, with the lead Agency retaining responsibility 
for the statement;

[[Page 41]]

    (v) Indicate any public environmental assessments and other EISs 
which are being or will be prepared that are related to, but are not 
part of, the scope of the impact statement under consideration;
    (vi) Identify other environmental review and consultation 
requirements so the lead and cooperating agencies may prepare other 
required analyses and studies concurrently with, and integrated with, 
the environmental impact statement; and
    (vii) Indicate the relationship between the timing of the 
preparation of environmental analyses and the Agency's tentative 
planning and decisionmaking schedule;
    (3) Minutes of the scoping meeting, including the major points 
discussed and decisions made, will be prepared and retained by the 
preparer of the EIS as part of the environmental file. The preparer will 
offer, during the scoping meeting, to send copies of the minutes to any 
interested party upon written request.
    (d) Interdisciplinary approach. The EIS will be prepared using an 
interdisciplinary approach that will ensure the integrated use of the 
natural and social sciences and the environmental design arts. The 
disciplines of the preparers will be appropriate to address the 
potential environmental impact associated with the project. This can be 
accomplished both in the information collection stage and the analysis 
stage by communication and coordination with environmental experts at 
local, State and Federal agencies (particularly cooperating agencies) 
and universities near the project site. When needed information or 
expertise is not readily available, these needs should be met through 
procurement contracts with qualified consulting firms. Consulting firms 
can be utilized to prepare the entire EIS or portions of it as specified 
in Sec. 1940.336 of this subpart.
    (e) Content and format of EIS. The EIS will be prepared in the 
format and manner described in part 1502 of the CEQ regulations. There 
is a great deal of specific guidance in that part which will not be 
repeated here.
    (f) Circulation of the EIS. FmHA or its successor agency under 
Public Law 103-354 will circulate for review and comment the draft and 
final EIS as broadly as possible. Therefore, it will be necessary for 
the preparer to have sufficient copies printed or reproduced for this 
purpose. In identifying the parties to receive a draft EIS, the same 
process should be utilized as is employed for inviting participants to 
the scoping meeting. (See paragraph (b) of this section.) Special 
emphasis should be given to transmitting the draft to those agencies 
with jurisdiction or expertise on the proposed action's major impacts, 
as well as those parties who have expressed an interest in the action. 
The final EIS will be provided to all parties that commented on the 
draft EIS.
    (g) Filing of the EIS. The Deputy Administrator for Program 
Operations or any State Director that has been delegated the authority 
to prepare an EIS must file the EIS with EPA in accordance with Sec. 
1506.9 of the CEQ regulations. The official filing date for an EIS is 
the day that it is received by EPA's Office of Federal Activities. 
Filing of the EIS cannot occur until copies of the EIS have been 
transmitted to commenting agencies and made available to the public. 
Transmittal of the EIS must, therefore, occur either prior to its being 
filed with EPA (received by EPA) or no later than close of business of 
the same day that it is filed.
    (h) Public information meetings. A public information meeting, as 
specified in Sec. 1940.331(c)(1) of this subpart, will be held near the 
project site to discuss and receive comments on the draft EIS.
    (i) Response to comments. The preparer of the EIS will respond to 
comments on the draft EIS as required by Sec. 1503.4 of the CEQ 
regulations. The major and most frequently raised issues during the 
public information meeting will also be identified and addressed.
    (j) Timing of review. The preparer of the EIS will be responsible 
for ensuring that the timing requirements for FmHA or its successor 
agency under Public Law 103-354 actions and the review periods for draft 
and final EISs are fully met (Sec. 1506.10 of CEQ regulations). 
Prescribed review periods are calculated from the date that EPA's Office 
of Federal activities publishes in the Federal Register a notice of 
availability for the EIS. Any request to reduce a prescribed review 
period will

[[Page 42]]

be made to EPA in accordance with Sec. 1506.10(d) of the CEQ 
regulations.



Sec. 1940.321  Use of completed EIS.

    (a) The final EIS will be a major factor in the Agency's final 
decision. Agency staff making recommendations on the action and the 
approving official will be familiar with the contents of the EIS and its 
conclusions and will consider these in formulating their respective 
positions with respect to the action. The final EIS and all comments 
received on the draft will accompany the proposal through the FmHA or 
its successor agency under Public Law 103-354 final clearance process. 
The alternatives considered by the approving official will be those 
addressed in the final EIS.
    (b) As part of this review process, the preparer of the EIS will 
complete the recommendations listed in Item XXIb and c of exhibit H of 
this subpart and provide them to the approving official prior to a final 
decision.



Sec. 1940.322  Record of decision.

    Upon completion of the EIS and its review within FmHA or its 
successor agency under Public Law 103-354 and before any action is taken 
on the decision reached on the proposal, the approving official will 
prepare, in consultation with the preparer of the EIS, a concise record 
of the decision which will be available for public review. The record 
will:
    (a) State the decision reached;
    (b) Certify that the timing requirements for the EIS process have 
been fully met;
    (c) Identify all alternatives considered in reaching the decision 
specifying the alternative or alternatives that were considered to be 
environmentally preferable and discuss the relevant factors 
(environmental, economic, technical, statuatory mission and, if 
applicable, national policy) that were considered in the decision;
    (d) State whether all practicable means to avoid or minimize 
environmental harm from the alternative selected have been adopted, and 
if not, why not; and
    (e) If any mitigation measures have been adopted, specify the 
monitoring and enforcement program that will be utilized.



Sec. 1940.323  Preparing supplements to EIS's.

    (a) Either the State Office or the National Office, as appropriate, 
will prepare supplements to either draft or final EIS's if:
    (1) A substantial change or changes occur in the proposed action and 
such changes are relevant to the environmental impacts previously 
presented; and
    (2) Significant new circumstances or information arise which are 
relevant to environmental concerns and bear on the proposed action or 
its impacts.
    (b) If the preparer of the draft or final EIS determines that the 
changes or new circumstances referenced in paragraph (a) of this section 
do not require the preparation of a supplemental EIS, the preparer will 
complete an environmental assessment for a Class II action which will 
document the reasons for this determination.
    (c) The preparer will be responsible for advising the approving 
official of the need for a supplement. The latter will make the Agency's 
formal determination in a manner consistent with Sec. 1940.316 of this 
subpart.
    (d) All of the requirements of this subpart that apply to the 
completion of an initial EIS apply to the completion of a supplement 
with the exception of the scoping process, which is optional. 
Additionally, if the approving official believes that there is a need 
for expedited or special procedures in the completion of a supplement, 
the approval of CEQ must first be obtained by the Administrator for any 
alternative procedures. The final supplement will be included in the 
project file or docket and used in the Agency's decisionmaking process 
in the same manner as a final EIS. (See Sec. 1940.321 of this subpart 
and in particular subparagraphs (f), (g), and (j) of that section as 
well as Sec. 1502.9(c)(4) of the CEQ regulations for associated 
circulation, filing, and timing requirements.)

[[Page 43]]



Sec. 1940.324  Adoption of EIS or environmental assessment prepared by 
another Federal Agency.

    (a) FmHA or its successor agency under Public Law 103-354 may adopt 
an EIS or portion thereof prepared by another Federal Agency after 
completion if:
    (1) An independent review of the document is conducted by the 
preparer of the FmHA or its successor agency under Public Law 103-354 
environmental review and it is concluded that the document meets the 
requirements of this subpart; and
    (2) If the actions covered in the EIS are substantially the same as 
those proposed by FmHA or its successor agency under Public Law 103-354 
and the environmental conditions in the project area have not 
substantially changed since its publication, FmHA or its successor 
agency under Public Law 103-354 will recirculate the EIS as a ``final'' 
and so notify the public as specified in Sec. 1940.331(b) of this 
subpart. The final EIS will contain an appropriate explanation of the 
FmHA or its successor agency under Public Law 103-354 involvement and 
will be sent to all parties who would typically receive a draft EIS 
published by FmHA or its successor agency under Public Law 103-354. If 
there are differences between the actions or the environmental 
conditions as discussed in the original EIS, that EIS will be updated to 
cover these differences and recirculated as a draft EIS with the public 
so notified. From that point, it will be reviewed and processed in the 
same manner as any other FmHA or its successor agency under Public Law 
103-354 EIS. For circulation, filing, and timing requirements, see 
paragraphs (f), (g), and (j) of Sec. 1940.320 of this subpart as well 
as Sec. Sec. 1506.3(c), 1506.9, and 1506.10 of the CEQ regulations.
    (b) If the adopted EIS is not final within the agency that prepared 
it, or if the action it assesses is the subject of a referral under part 
1504 of the CEQ regulations, or if the statement's adequacy is the 
subject of a judicial action which is not final, FmHA or its successor 
agency under Public Law 103-354 must so specify and provide an 
explanation in the recirculated EIS.
    (c) After recirculation (whether as a draft or final), the EIS will 
be reviewed and processed in the same manner as any other FmHA or its 
successor agency under Public Law 103-354 EIS.
    (d) FmHA or its successor agency under Public Law 103-354 may also 
adopt all or part of environmental assessments or environmental reviews 
prepared by other Federal agencies. In this case, only paragraph (a)(1) 
of this section applies. If the requirements of that paragraph can be 
met except for the fact that the Federal agency whose assessment is to 
be adopted has no preliminary public notice requirements similar to FmHA 
or its successor agency under Public Law 103-354's (see Sec. 
1940.331(b)(4) of this subpart), the assessment can be adopted without 
FmHA or its successor agency under Public Law 103-354 publishing a 
preliminary public notice. Additionally, when all of another Federal 
agency's assessment is adopted, without supplementation, for a Class II 
action and a finding of no significant environmental impact (exhibit I 
of this subpart) is reached by the proper FmHA or its successor agency 
under Public Law 103-354 official, no public notification of FmHA or its 
successor agency under Public Law 103-354's finding of no significant 
environmental impact is required if:
    (1) The other Federal agency or its designee published a similar 
finding in a newspaper of general circulation in the vicinity of the 
proposed action;
    (2) The other Federal agency's or its designee's public notice 
clearly described the action subject to the FmHA or its successor agency 
under Public Law 103-354 environmental review; and
    (3) The other Federal agency's or its designee's public notice was 
published less than eighteen months from the date FmHA or its successor 
agency under Public Law 103-354 adopted the assessment.



Sec. 1940.325  FmHA or its successor agency under Public Law 103-354 
as a cooperating Agency.

    (a) FmHA or its successor agency under Public Law 103-354 will serve 
as a cooperating Agency when requested to do so by the lead Agency for 
an action in which FmHA or its successor

[[Page 44]]

agency under Public Law 103-354 is directly involved or for an action 
which is directly related to a proposed FmHA or its successor agency 
under Public Law 103-354 action. An example of the latter would be a 
request from EPA to participate in an EIS covering its sewage treatment 
plans for a community, as well as the community's water system plans 
pending before FmHA or its successor agency under Public Law 103-354. A 
memorandum of understanding or other written correspondence will be 
developed with the lead agency in order to define FmHA or its successor 
agency under Public Law 103-354's role as the cooperating agency. The 
State Director will coordinate FmHA or its successor agency under Public 
Law 103-354's participation as a cooperating Agency for an action at the 
State Office level. The Administrator will have the same responsibility 
at the National Office level.
    (b) When requested to be a cooperating Agency on a basis other than 
that discussed above, the State Director will consider the expertise 
which FmHA or its successor agency under Public Law 103-354 could add to 
the particular EIS process in question and existing workload 
commitments. If a decision is made on either of these two bases not to 
participate as a cooperating Agency, a copy of the letter signed by the 
State Director or Administrator and so informing the lead Agency will be 
sent to CEQ.
    (c) As a cooperating Agency, FmHA or its successor agency under 
Public Law 103-354 will participate in the development and 
implementation of the scoping process. If requested by the lead Agency, 
provide the lead Agency with staff support and descriptive materials 
with respect to the analyses of the FmHA or its successor agency under 
Public Law 103-354 portion of the action(s) to be covered, review and 
comment on all preliminary draft materials prior to their circulation 
for public review and comment, and attend and participate in public 
meetings called by the lead Agency concerning the EIS.
    (d) The State Director will request the lead Agency to fully 
identify the Agency's involvement in all public documents and 
notifications.
    (e) FmHA or its successor agency under Public Law 103-354 will use 
the EIS as its own as long as FmHA or its successor agency under Public 
Law 103-354's comments and concerns are adequately addressed by the lead 
Agency and the final EIS is considered to meet the requirements of this 
subpart. It will be the responsibility of the preparer of the FmHA or 
its successor agency under Public Law 103-354 environmental review 
document to formally advise the approving official on these two points. 
The failure of the lead Agency's EIS to meet either of these 
stipulations will require FmHA or its successor agency under Public Law 
103-354 to follow the steps outlined in Sec. 1940.324 of this subpart 
prior to the approving official's decision on the FmHA or its successor 
agency under Public Law 103-354 action.



Sec. 1940.326  FmHA or its successor agency under Public Law 103-354 
as a lead Agency.

    (a) When other Federal agencies are involved in an FmHA or its 
successor agency under Public Law 103-354 action or related actions that 
require the preparation of an EIS, the preparer will consult with these 
agencies to determine a lead Agency for preparing the EIS. The criteria 
for making this determination will be those contained in Sec. 1505.5 of 
the CEQ regulations. If there is a failure to reach a determination 
within a reasonably short time after consultation is initiated, the 
National Office will be contacted. The assistance of CEQ will then be 
requested by the Administrator in order to conclude the determination of 
a lead Agency.
    (b) When acting as lead Agency, the FmHA or its successor agency 
under Public Law 103-354 preparer will request other Federal and State 
agencies to serve as cooperating agencies on the basis of the guidance 
provided in Sec. 1940.320(b) of this subpart. A memorandum of 
understanding or other written correspondence should be developed with a 
cooperating agency in order to define that agency's role in the 
preparation of the EIS.



Sec. 1940.327  Tiering.

    To the extent possible, FmHA or its successor agency under Public 
Law 103-

[[Page 45]]

354 may consider the concept of tiering in the preparation of 
environmental assessments and EISs. Tiering refers to the coverage of 
general matters in broader environmental impact statements, such as one 
done for a national program or regulation, with subsequent narrower 
statements or environmental analyses incorporating by reference the 
broader matters and concentrating on the issues specific to the action 
under consideration. Tiering can be used when the sequence of analysis 
is from the program level to site-specific actions taken under that 
program or from an initial EIS to a supplement which discusses the 
issues requiring supplementation.



Sec. 1940.328  State Environmental Policy Acts.

    (a) Numerous States have enacted environmental policy acts or 
regulations similar to NEPA, hereafter referred to as State NEPA's. It 
is important that FmHA or its successor agency under Public Law 103-354 
staff have an understanding of which States have such requirements and 
how they apply to applicant's proposals. It will be the responsibility 
of each State Director to determine the applicable State requirements 
and to establish a working relationship with the State personnel 
responsible for their implementation.
    (b) In processing projects located within States having State 
NEPA's, the preparer of the FmHA or its successor agency under Public 
Law 103-354 assessment will determine as early as possible in the 
assessment process whether the project falls under the requirements of 
the State NEPA. If it does, one of the following cases will exist and 
the appropriate actions specified will be taken.
    (1) The applicant has complied with the State's NEPA, and it was 
determined under the State's requirements that the proposed project 
would not result in sufficient potential impacts to warrant the 
preparation of an impact statement or other detailed environmental 
report required by the State NEPA. This finding or conclusion by the 
State will be considered in the FmHA or its successor agency under 
Public Law 103-354's review, and any supporting information used by the 
State will be requested. However, the State's finding can never be the 
total basis for FmHA or its successor agency under Public Law 103-354's 
environmental impact determination. An independent and thorough review 
in accordance with the requirements of this subpart must be conducted by 
the preparer.
    (2) The applicant has complied with the State NEPA, and it was 
determined under its implementing guidelines that a significant impact 
will result. This fact will be given great weight in the Agency's 
environmental determination. However, the State's definition of 
significant environmental impact may encompass a much lower threshold of 
impacts compared to FmHA or its successor agency under Public Law 103-
354's. In such a case, if the preparer does not believe that a 
significant impact will result under Agency guidelines for determining 
significant impacts, the environmental assessment will be prepared and 
include a detailed discussion with supporting information as to why the 
environmental reviewer's recommendation differs from that of the 
State's. However, the assessment cannot be completed until the State's 
impact statement requirements have been fulfilled by the applicant and 
the resulting impact statement has been reviewed by the preparer. An 
environmental impact determination will then be executed based upon the 
assessment and the statement.
    (c) It should be emphasized that at no time does the completion of 
an impact statement under the requirements of a State NEPA obviate the 
requirement for FmHA or its successor agency under Public Law 103-354 to 
prepare an impact statement. Consequently, as soon as it is clear to the 
preparer that the Agency will have to prepare a statement, every attempt 
should be made to accomplish the statement simultaneously with the 
State's. Coordination with State personnel is necessary so that data and 
expertise can be shared. In this manner, duplication of effort and the 
review periods for the separate statements can be minimized. This 
process clearly requires a close working relationship with the 
appropriate State personnel.

[[Page 46]]



Sec. 1940.329  Commenting on other Agencies' EIS's.

    (a) State Directors are authorized to comment directly on EIS's 
prepared by other Federal agencies. In so doing, comments should be as 
specific as possible. Any recommendations for the development of 
additional information or analyses should indicate why there is a need 
for the material.
    (b) Comments should concentrate on those matters of primary 
importance to FmHA or its successor agency under Public Law 103-354 and 
on areas of Agency expertise, such as rural planning and development. 
Any potential conflicts with FmHA or its successor agency under Public 
Law 103-354 programs, plans, or actions should be clearly identified. 
Special attention should be given to the relationship of the 
alternatives under study to the State Office's natural resource 
management guide and the objectives of the Department's land use 
regulation (exhibit A of this subpart). Copies of comments addressing 
land use questions will be provided to the appropriate chairman of the 
USDA State-level committee dealing with land use matters.
    (c) Whenever a State Director has serious concerns over the 
acceptability of the anticipated environmental impacts, the State 
Director will notify the Administrator.



Sec. 1940.330  Monitoring.

    (a) FmHA or its successor agency under Public Law 103-354 staff who 
normally have responsibility for the postapproval inspection and 
monitoring of approved projects will ensure that those measures which 
were identified in the preapproval stage and required to be undertaken 
in order to reduce adverse environmental impacts are effectively 
implemented.
    (b) This staff, as identified in paragraph (a) of this section, will 
review the action's approval documents and consult with the preparer of 
the action's environmental review document prior to making site visits 
or requesting project status reports in order to determine if there are 
environmental requirements to be monitored.
    (c) The preparer will directly monitor actions containing difficult 
or complex environmental special conditions.
    (d) Before certifying that conditions contained within offers of 
financial assistance have been fully met, the responsible monitoring 
staff will obtain the position of the preparer for those conditions 
developed as a result of the environmental review.
    (e) Whenever noncompliance with an environmental special condition 
is detected by FmHA or its successor agency under Public Law 103-354 
staff, the preparer and the SEC will be immediately informed. The 
approving official will then take appropriate steps, in consultation 
with the responsible program office, the SEC and preparer, to bring the 
action into compliance.



Sec. 1940.331  Public involvement.

    (a) Objective. The basic objective of FmHA or its successor agency 
under Public Law 103-354's public involvement process is threefold. It 
is to ensure that interested citizens can readily obtain knowledge of 
the environmental review status of FmHA or its successor agency under 
Public Law 103-354's funding applications, have the opportunity to input 
into this review process before decisions are made, and have access to 
the environmental documents supporting FmHA or its successor agency 
under Public Law 103-354 decisions.
    (b) Public notice requirements. (1) For projects that undergo the 
preparation of an environmental impact statement, the first element of 
formal public participation in the EIS process involves the publication 
of the notice of intent to prepare an EIS. The content of the notice of 
intent and its publication by FmHA or its successor agency under Public 
Law 103-354 in the Federal Register are explained in Sec. 1940.320 of 
this subpart. With respect to notification within the project area, the 
applicant will be requested to publish a copy of the notice of intent 
and the date of the scoping meeting in the newspaper of general 
circulation in the vicinity of the proposed action and in any local or 
community-oriented newspapers within the proposed action's area of 
environmental impact. The notice will be published in easily readable 
type in the nonlegal section of the newspaper(s). It

[[Page 47]]

will also be bilingual if the affected area is largely non-English 
speaking or bilingual. Individual copies of the notice will be sent by 
the applicant to the appropriate regional EPA office, any State and 
regional review agencies established under Executive Order 12372; the 
State Historic Preservation Officer; local radio stations and other news 
media; any State or Federal agencies planning to provide financial 
assistance to this or related actions or required to review permit 
applications for this action, any potentially affected Indian Tribe; any 
individuals, groups, local, State, and Federal agencies known to be 
interested in the project; affected property owners; and to any other 
parties that FmHA or its successor agency under Public Law 103-354 has 
identified to be so notified. It will also be posted at a readable 
location on the project site. The applicant will provide FmHA or its 
successor agency under Public Law 103-354 with a copy of the notice as 
it appeared in the newspaper(s), the date(s) published, and a list of 
all parties receiving an individual notice. Publication and individual 
transmittal of the notice for the scoping meeting will be accomplished 
at least 14 days prior to the date of the meeting.
    (2) Coincident with the distribution of either a draft or final EIS, 
a notice of the statement's availability will be published within the 
project area in the same manner as a notice of intent to prepare an EIS. 
FmHA or its successor agency under Public Law 103-354 will request EPA 
to publish in the Federal Register a notice of the statement's 
availability in accordance with EPA's requirements and pursuant to Sec. 
1506.10 of the CEQ regulations.
    (3) For Class II actions that are determined not to have a 
significant environmental impact, the Agency will require the applicant 
to publish a notification of this determination. This notice will be 
published in the same manner as a notice of intent to prepare an EIS but 
will appear for at least 3 consecutive days if published in a daily 
newspaper or otherwise in two consecutive publications. Individual 
copies will be sent to the same parties that are required to be sent a 
notice of intent, as specified in paragraph (b)(1) of this section, with 
the exception of local radio stations and other news media. Also, there 
is no requirement to post this notice on the project site. The applicant 
will provide FmHA or its successor agency under Public Law 103-354 with 
a copy of this notice, the dates the notice was published, and a list of 
all parties receiving an individual notice. This notification procedure 
does not apply to actions reviewed solely on the basis of a Class I 
assessment.
    (4) The public notice procedures for actions that will affect 
floodplains, wetlands, important farmlands, prime rangelands or prime 
forest lands are contained in exhibit C of this subpart. These 
procedures apply to actions that require either an EIS, Class II 
assessment or Class I assessment. However, whenever an action normally 
classified as a categorical exclusion requires a Class I assessment 
because of the potential impact to one of these important land 
resources, no public notice procedures apply in the course of completing 
the Class I assessment. When applicable to an action, as specified in 
exhibit C of this subpart, these public notice procedures can apply at 
two distinct stages. The first stage, a preliminary notice, applies to 
any of the five important land resources. The second stage, a final 
notice, is followed by a fifteen-day public review period and applies 
only to actions that will impact floodplains or wetlands. For Class II 
actions, this final notice procedure must be combined with any 
applicable finding of no significant environmental impact, which is 
described in paragraph (b)(3) of this section. Individual copies of the 
preliminary and final notices will be sent to the same parties that are 
required to be sent a notice of finding of no significant impact, as 
specified in paragraph (b)(3) of this section, with the following 
exception. Whenever property owners affected by proposed mitigation 
measures, such as proposed hook-up restrictions on portions of water or 
sewer lines that will traverse floodplains, are advised of these 
proposed measures in a preliminary notice, these property owners need 
not be sent copies of the final notice as long as the mitigation 
measures in the final notice are unchanged from the preliminary notice 
and no property

[[Page 48]]

owners raised objections or concerns over the mitigation measures.
    (5) The public notice requirements associated with holding a public 
information meeting are specified in paragraph (c) of this section.
    (c) Public information meetings. (1) Public information meetings 
will be held for an action undergoing an EIS as specified in Sec. 
1940.320 of this subpart. As part of the EIS process, a public 
information meeting will be held near the project site to discuss and 
receive comments on the draft EIS. It will be scheduled no sooner than 
15 days after the release of the draft EIS. It will be announced in the 
same manner as the scoping meeting, and the list of parties receiving an 
individual notification will also be developed in the same manner. The 
meeting will be chaired by the State Director or a designee and will be 
fully recorded so that a transcript can be produced. The applicant will 
be requested to assist in obtaining a facility for holding the meeting. 
To the extent possible, this meeting will be combined with public 
meetings required by other involved agencies.
    (2) Whenever a public information meeting is held as part of the 
completion of an environmental assessment, it will be scheduled, 
announced, and held in generally the same manner as a public information 
meeting for an EIS. However, a minimum of 7 days advance notice of the 
meeting is sufficient, and a transcript of the meeting will not be 
required. Rather a summary of the meeting to include the major issues 
raised will be prepared by the FmHA or its successor agency under Public 
Law 103-354 official who chaired the meeting.
    (d) Distribution of environmental documents. FmHA or its successor 
agency under Public Law 103-354 officials will promptly provide to 
interested parties, upon request, copies of environmental documents, 
including environmental assessments, draft and final environmental 
impact statements, and records of decision. Interested parties can 
request these materials from the appropriate State Director or approval 
official for project activities and from the Administrator on other 
activities subject to environmental review.



Sec. 1940.332  Emergencies.

    (a) Action Requiring EIS. When an emergency circumstance makes it 
necessary to take an action with significant environmental impact 
without observing the provisions of this subpart or the CEQ regulations, 
the Administrator will consult with CEQ about alternative arrangements 
before the proposed action is taken. It must be recognized that CEQ's 
regulations limit such arrangements to actions necessary to control the 
immediate impacts of the emergency. Other actions remain subject to NEPA 
review. For purposes of this subpart, an emergency circumstance is 
defined as one involving an immediate or imminent danger to public 
health or safety.
    (b) Action Not Requiring EIS. When an emergency circumstance makes 
it necessary to take an action with apparent non-significant 
environmental impact without observing the provisions of this subpart or 
the CEQ regulations, the Administrator will be so notified. The 
Administrator reserves the authority to waive or amend all procedural 
aspects of this subpart relating to the preparation of environmental 
assessments including but not limited to the applicant's submission of 
Form FmHA or its successor agency under Public Law 103-354 1940-20, 
public notice requirements and/or their associated comment periods, the 
timing of the assessment process, and the content of environmental 
review documents. Alternative arrangements will be established on a case 
by case basis taking into account the nature of the emergency and the 
time reasonably available to respond to it. These alternative 
arrangements will, to the extent possible, attempt to achieve the 
substantive requirements of this subpart such as avoiding impacts to 
important land resources, when practicable, and minimizing potential 
adverse environmental impacts. In all cases, the environmental findings 
and determinations required for Class I and Class II assessments must be 
executed by the appropriate FmHA or its successor agency under Public 
Law 103-354 officials prior to approval of the action and be based upon 
the best information available under the circumstances and the 
prescribed alternative arrangements.

[[Page 49]]

(Refer to paragraph (a) of this section should the approval official for 
the action determine that an EIS is necessary.) Additionally, all 
applicable consultation and coordination procedures required by law or 
regulation will be initiated with the appropriate Federal or State 
agency(s). Such procedures will be accomplished in the most expeditious 
manner possible and modified to the extent necessary and mutually 
agreeable between FmHA or its successor agency under Public Law 103-354 
and the affected agency(s). The provisions of this paragraph are limited 
to the same emergency circumstances and scope of action as specified in 
paragraph (a) of this section.



Sec. 1940.333  Applicability to planning assistance.

    The award of FmHA or its successor agency under Public Law 103-354 
funds for the purpose of providing technical assistance or planning 
assistance will not be subject to any environmental review. However, 
applicants will be expected to consider in the development of their 
plans and to generally document within their plans:
    (a) The existing environmental quality and the important 
environmental factors within the planning area, and
    (b) The potential environmental impacts on the planning area of the 
plan as well as the alternative planning strategies that were reviewed.



Sec. 1940.334  Direct participation of State Agencies in the preparation 
of FmHA or its successor agency under Public Law 103-354 EISs.

    FmHA or its successor agency under Public Law 103-354 may be 
assisted by a State Agency in the preparation of an EIS subject to the 
conditions indicated below. At no time, however, is FmHA or its 
successor agency under Public Law 103-354 relieved of its 
responsibilities for the scope, objectivity, and content of the entire 
statement of any other responsibility under NEPA.
    (a) The FmHA or its successor agency under Public Law 103-354 
applicant for financial assistance is a State Agency having statewide 
jurisdiction and responsibility for the proposed action;
    (b) FmHA or its successor agency under Public Law 103-354 furnishes 
guidance to the State Agency as to the scope and content of the impact 
statement and participates in the preparation;
    (c) FmHA or its successor agency under Public Law 103-354 
independently evaluates the statement and rectifies any major 
deficiencies prior to its circulation by the Agency as an EIS;
    (d) FmHA or its successor agency under Public Law 103-354 provides, 
early in the planning stages of the project, notification to and 
solicits the views of any land management entity (State or Federal 
Agency responsible for the management or control of public lands) 
concerning any portion of the project and its alternatives which may 
have significant impacts upon such land management entities; and
    (e) If there is any disagreement on the impacts addressed by the 
review process outlined in paragraph (d) of this section, FmHA or its 
successor agency under Public Law 103-354 prepares a written assessment 
of these impacts and the views of the land management entities for 
incorporation into the draft impact statement.



Sec. 1940.335  Environmental review of FmHA or its successor agency 
under Public Law 103-354 proposals for legislation.

    (a) As stated in Sec. 1940.312(d)(4) of this subpart, all FmHA or 
its successor agency under Public Law 103-354 proposals for legislation 
will receive an environmental assessment. The definition of such a 
proposal is contained in Sec. 1508.17 of the CEQ regulations.
    (b) The environmental assessment and, when necessary, the EIS will 
be prepared by the responsible Agency staff that is developing the 
legislation.
    (c) If an EIS is required, it will be prepared according to the 
requirements of Sec. 1506.8 of the CEQ Regulations.



Sec. 1940.336  Contracting for professional services.

    (a) Assistance from outside experts and professionals can be secured 
for the purpose of completing EIS, assessments, or portions of them. 
Such assistance will be secured according to

[[Page 50]]

the Federal and Agriculture Procurement Regulations contained in 
chapters 1 and 4 of title 48 of the Code of Federal Regulations.
    (b) The contractor will be selected by FmHA or its successor agency 
under Public Law 103-354 in consultation with any cooperating agencies. 
In order to avoid any conflict of interest, contractors competing for 
the work will be required to execute a disclosure statement specifying 
that they have no financial or other interest in the outcome of the 
project.
    (c) The Administrator will provide the State Director with a 
proposed scope of work for use in securing such professional services.
    (d) Applicants will not be required to pay the costs of these 
professional services.



Sec. Sec. 1940.337-1940.349  [Reserved]



Sec. 1940.350  Office of Management and Budget (OMB) control number.

    The collection of information requirements in this regulation has 
been approved by the Office of Management and Budget and has been 
assigned OMB control number 0575-0094.

      Exhibit A to Subpart G of Part 1940--Departmental Regulation

    Number: 9500-3.
    Subject: Land Use Policy.
    Date: March 22, 1983.
    OPI: Land Use Staff, Soil Conservation Service.

                                 Section

1. Purpose
2. Cancellation
3. Policy
4. Abbreviations
5. Definitions
6. Responsibilities
7. Appendix A

                               1. Purpose

    The Nation's farmlands, forest lands, rangelands, flood plains, and 
wetlands are unique natural resources providing food, fiber, wood, and 
water necessary for the continued welfare of the people of the United 
States and protection from floods. Each year, large amounts of these 
lands are converted to other uses. Continued conversion of the Nation's 
farmlands, forest lands, and rangelands may impair the ability of the 
United States to produce sufficient food, fiber, and wood to meet 
domestic needs and the demands of export markets. Continued conversion 
of the Nation's wetlands may reduce the availability of adequate 
supplies of suitable-quality water, indigenous wildlife species, and the 
productive capacity of the Nation's fisheries. Continued encroachments 
on flood plains decrease the natural flood-control capacity of these 
land areas, create needs for expensive manmade flood-control measures 
and disaster-relief activities, and endanger both lives and property.
    Land use allocation decisions are matters of concern to USDA. 
Decisions concerning land use arise from needs to accommodate needed 
growth and development; prevent unwarranted and costly sprawl; avoid 
unwarranted conversion of farm, range, and forest lands and wetlands 
from existing uses and unwarranted encroachment on flood plains; 
maintain and enhance agricultural and forest production capabilities; 
maintain wildlife, fish, and seafood habitat; provide or improve 
community services and facilities; assure appropriate environmental 
quality; and assure adequate supplies of suitable-quality water. These 
needs are highly interdependent and often compete with each other for 
the limited supply of available land and water.
    It is Departmental policy to promote land use objectives responsive 
to current and long-term economic, social, and environmental needs. This 
policy recognizes the rights and responsibilities of State and local 
governments for regulating the uses of land under their jurisdiction. It 
also reflects the Department's responsibility to (a) assure that the 
United States retains a farm, range, and forest land base sufficient to 
produce adequate supplies, at reasonable production costs of high-
quality food, fiber, wood, and other agricultural products that may be 
needed; (b) assist individual landholders and State and local 
governments in defining and meeting needs for growth and development in 
such ways that the most productive farm, range, and forest lands are 
protected from unwarranted conversion to other uses; and (c) assure 
appropriate levels of environmental quality.
    In accordance with the authority contained in 7 U.S.C. 1010 and 7 
U.S.C. 2204 and consistent with 7 CFR 2.19(f) and provisions of the 
Farmland Protection Policy Act, Subtitle I, Title XV, Pub. L. 97-98, the 
Department sets forth this statement of policy on land use.

                            2. Cancellations

    This regulation supersedes Secretary's Memorandum 9500-2 dated March 
10, 1982.

                                3. Policy

    Federal agencies, in implementing programs, make decisions that 
affect current

[[Page 51]]

and potential uses of land. The Department will:
    a. Promote and support planning procedures that allow landholders, 
interest groups, and State and local governments to have input at all 
appropriate stages of the decisionmaking process for public projects, 
programs, or activities; that recognize the rights and responsibilities 
of landholders in making private land use decisions; and that recognize 
the responsibility of governments in influencing how land may be used to 
meet public needs.
    b. Assure that programs of the agencies within the Department 
discourage the unwarranted conversion to other uses of prime and unique 
farmlands, farmlands of statewide or local importance, and prime 
rangelands, as defined in appendix A; the unwarranted alteration of 
wetlands or flood plains; or the unwarranted expansion of the peripheral 
boundaries of existing settlements.
    c. Manage both its land use-related programs and USDA-administered 
land in such manner as to (1) demonstrate leadership in meeting short- 
and long-term needs for growth and development, while assuring adequate 
supplies of needed food, fiber, and forest products; (2) assure 
appropriate levels of environmental quality and adequate supplies of 
water; and (3) discourage unwarranted expansion of peripheral boundaries 
of existing settlements. Whenever practicable, management of USDA-
administered lands shall be coordinated with the management of adjacent 
private and other public lands.
    d. Conduct multidisciplinary land use research and education 
programs responsive to identified State, local, and national needs and, 
when requested, assist State and local governments, citizens groups, and 
individual landholders in determining a alternative land use values, 
thereby enabling local officials to make judicious choices to meet 
growth and development needs and to protect the community's farm- and 
forest-related economic base.
    e. Assist landowners and State and Federal agencies in the 
reclamation of abandoned surface-mined lands. This reclamation will help 
eliminate safety, health, and environmental problems.
    f. Assist in planning for the extraction of coal and other 
nonrenewable resources in such manner as to facilitate restoration. This 
restoration would reestablish or enhance food, fiber, or forest 
productivity or contribute to other beneficial uses of the land as 
mining is completed in defined areas as sites.
    g. Advocate among Federal agencies:
    (1) The retention of important farmlands, rangelands, forest lands, 
and wetlands, whenever proposed conversions to other uses (a) are caused 
or encouraged by actions or programs of a Federal agency or (b) require 
licensing or approval by a Federal agency, unless other needs clearly 
override the benefits derived from retention of such lands; and
    (2) Actions that reduce the risk of flood loss and soil erosion; 
that minimize impacts of floods on human safety, health, and welfare; 
that preserve natural flood-control and other beneficial functions and 
values of wetlands and flood plains; and that reduce future need for 
expensive manmade flood-control systems, disaster-relief assistance, or 
Federal rehabilitation assistance in the event of flooding.

                            4. Abbreviations

    USDA--U.S. Department of Agriculture.
    NRE--Natural Resources and Environment Committee.

                             5. Definitions

    Complete definitions for the terms farmlands, forest lands, 
rangelands, wetlands, and flood plains are found in appendix A.

                           6. Responsibilities

    a. The Office of the Secretary is responsible for (1) encouraging, 
assisting, and coordinating efforts of other Federal departments and 
agencies to implement policies and procedures supportive of the 
objectives of this regulation; (2) resolving issues and acting on 
recommendations raised to the Secretary's Policy and Coordination 
Council by the Departmental committees; and (3) raising unresolved 
issues and recommending actions to the appropriate Cabinet Council.
    b. The NRE Committee, created under the Secretary's memorandum dated 
July 22, 1981, will provide departmentwide leadership for the 
implementation of this policy statement. In implementing this policy, 
the NRE Committee will:
    (1) Recommend Departmental guidelines to the Secretary and schedule 
reviews of each agency's procedures for implementation;
    (2) Monitor implementation of this policy;
    (3) Encourage, support, and provide guidance to State- and local-
level USDA committees in implementing this policy;
    (4) Coordinate the work of USDA agencies in carrying out the 
provisions of this regulation; and
    (5) Advise the Secretary annually as to progress and problems 
encountered.
    c. Each USDA agency will review and make the necessary 
administrative changes in existing and proposed rules, regulations, 
guides, practices, or policies and propose needed legislative changes to 
bring agency programs into compliance with the provisions of this 
regulation.
    d. Each USDA agency having programs that will be affected by this 
regulation shall develop implementing procedures, consistent with the 
guidelines provided by the NRE Committee, and shall provide to all 
offices of the agency copies of this policy statement,

[[Page 52]]

Departmental guidelines, and agency procedures to implement this policy.
    e. USDA agencies will encourage State and local governments and 
individual landholders to retain important farmlands, rangelands, forest 
lands, and wetlands and to avoid encroachments on flood plains when 
practicable alternatives exist to meet developmental needs. Appropriate 
agencies will assist State and local governments, citizens groups, and 
individual landholders in identifying options and determining 
alternative land use values as the basis for making judicious choices in 
meeting growth and development needs.
    f. USDA agencies will encourage other Federal, State, and local 
government agencies to exchange information on plans or projects that 
may impact on important farmlands, rangelands, forest lands, wetlalds, 
or flood plains and to involve appropriate USDA agencies early in the 
planning process. USDA agencies will participate in a timely manner at 
appropriate stages in the planning process on Federal or federally 
assisted projects or activities when requested. Where opportunity for 
such participation is not forthcoming, the Department may intercede, 
consistent with policy contained in this regulation, at appropriate 
stages in the decisionmaking process through review and comments on 
plans, as provided for in authorized administrative review procedures 
for such projects, activities, or actions.
    g. When land held either in public or private ownership will be 
directly affected by USDA actions, the implementing agency will notify 
the affected landholders at the earliest time practicable of the 
proposed action and provide such landholders an opportunity to review 
the elements of the action and to comment on the action's feasibility 
and alternatives to it.
    h. Agencies of USDA will assure that their actions, investments, and 
programs on non-Federal lands will conform, to the extent practicable, 
with the uses permitted under land use regulations adopted by State or 
local governments.
    i. When land use regulations or decisions are inconsistent with USDA 
policies and procedures for the protection of important farmlands, 
rangelands, forest lands, wetlands, or flood plains, USDA agencies shall 
not assist in actions that would convert these lands to other uses or 
encroach upon flood plains, unless (1) there is a demonstrated, 
significant need for the project, program, or facility, and (2) there 
are no practicable alternative actions or sites that would avoid the 
conversion of these lands or, if conversion is unavoidable, reduce the 
number of acres to be converted or encroached upon directly and 
indirectly.

                       7. Appendix A--Definitions

    The following definitions apply to this Departmental Regulation.

                       1. important farmlands \1\
---------------------------------------------------------------------------

    \1\ 7 CFR 657.5.
---------------------------------------------------------------------------

                         a. Prime Farmlands \1\

    (1) General Criteria. Prime farmland is land that has the best 
combination of physical and chemical characteristics for producing food, 
feed, forage, fiber, and oilseed crops and is also available for these 
uses (the land could be cropland, pastureland, rangeland, forest land, 
or other land, but not urban built-up land or water). It has the soil 
quality, growing season, and moisture supply needed to produce, 
economically, sustained high yields of crops when treated and managed, 
including water management, according to acceptable farming methods. In 
general, prime farmlands have an adequate and dependable water supply 
from precipitation or irrigation, a favorable temperature and growing 
season, acceptable acidity or alkalinity, acceptable salt and sodium 
content, and few or no rocks. They are permeable to water and air. Prime 
farmlands are not excessively erodible or saturated with water for a 
long period of time, and they either do not flood frequently or are 
protected from flooding. Examples of soils that qualify as prime 
farmland are Palouse silt loam, 0- to 7-percent slopes; Brookston silty 
clay loam, drained; and Tama silty clay loam, 0- to 5-percent slopes.
    (2) Specific Criteria. Prime farmlands must meet all the following 
criteria. Terms used in this section are defined in these USDA 
publications: ``Soil Taxonomy, Agriculture Handbook 436,'' ``Soil Survey 
Manual, Agriculture Handbook 18,'' ``Rainfall-Erosion Losses from 
Cropland, Agriculture Handbook 282,'' ``Wind Erosion Forces in the 
United States and Their Use in Predicting Soil Loss, Agriculture 
Handbook 346,'' and ``Saline and Alkali Soils, Agriculture Handbook 
60.''
    (a) The soils have:
    1. Aquic, udic, ustic, or xeric moisture regimes and sufficient 
available water capacity within a depth of 40 inches, or in the root 
zone (root zone is the part of the soil that is penetrated by plant 
roots) if the root zone is less than 40 inches deep, to produce the 
commonly grown cultivated crops (cultivated crops include but are not 
limited to grain, forage, fiber, oilseed, sugar beets, sugarcane, 
vegetables, tobacco, orchard, vineyard, and bush fruit crops) adapted to 
the region in 7 or more years out of 10; or
    2. Xeric or ustic moisture regimes in which the available water 
capacity is limited, but the area has a developed irrigation water 
supply that is dependable (a dependable water supply is one in which 
enough water is

[[Page 53]]

available for irrigation in 8 out of 10 years for the crops commonly 
grown) and of adequate quality; or
    3. Acidic or torric moisture regimes, and the area has a developed 
irrigation water supply that is dependable and of adequate quality; and
    (b) The soils have a temperature regime that is frigid, mesic, 
thermic, or hyperthermic (pergelic and cryic regimes are excluded). 
These are soils that, at a depth of 20 inches, have a mean annual 
temperature higher than 32 degrees Fahrenheit. In addition, the mean 
summer temperature at this depth in soils with an 0 horizon is higher 
than 47 degrees Fahrenheit; in soils that have no 0 horizon, the mean 
summer temperature is higher than 59 degrees Fahrenheit; and
    (c) The soils have a pH between 4.5 and 8.4 in all horizons within a 
depth of 40 inches or in the root zone if the root zone is less than 40 
inches deep; and
    (d) The soils either have no water table or have a water table that 
is maintained at a sufficient depth during the cropping season to allow 
cultivated crops common to the area to be grown; and
    (e) The soils can be managed so that in all horizons within a depth 
of 40 inches or in the root zone if the root zone is less than 40 inches 
deep, during part of each year the conductivity of the saturation 
extract is less than 4 mmhoc/cm and the exchangeable sodium percentage 
is less than 15; and
    (f) The soils are not flooded frequently during the growing season 
(less often than once in 2 years); and
    (g) The product of K (erodibility factor) times the percent slope is 
less than 2.0, and the product of I (soils erodibility) times C 
(climatic factor) does not exceed 60; and
    (h) The soils have a permeability rate of at least 0.06 inch per 
hour in the upper 20 inches, and the mean annual soil temperature at a 
depth of 20 inches is less than 59 degrees Fahrenheit or higher; and
    (i) Less that 10 percent of the surface layer (upper 6 inches) in 
these soils consists of rock fragments coarser than 3 inches.

                         b. Unique Farmland \1\
---------------------------------------------------------------------------

    \1\ See footnote 1 on previous page.
---------------------------------------------------------------------------

    (1) General Criteria. Unique farmland is land other than prime 
farmland that is used for the production of specific high-value food and 
fiber crops. It has the special combination of soil quality, location, 
growing season, and moisture supply needed to produce, economically, 
sustained high-quality and/or high yields of a specific crop when 
treated and managed according to acceptable farming methods. Examples of 
such crops are citrus, tree nuts, olives, cranberries, fruit, and 
vegetables.
    (2) Specific Characteristics. Unique farmland is used for a specific 
high-value food or fiber crop. It has a moisture supply that is adequate 
for the specific crop; the supply is from stored moisture, 
precipitation, or a developed irrigation system. It combines favorable 
factors of soil quality, growing season, temperature, humidity, air 
drainage, elevation, aspect, or other conditions, such as nearness to 
market, that favor the growth of a specific food or fiber crop.

       c. Additional Farmland of Statewide Importance 1

    This is land, in addition to prime and unique farmlands, that is of 
statewide importance for the production of food, feed, fiber, forage, 
and oilseed crops. Criteria for defining and delineating this land are 
to be determined by the appropriate State agency or agencies. Generally, 
additional farmlands of statewide importance include those that are 
nearly prime farmland and that economically produce high yields of crops 
when treated and managed according to acceptable farming methods. Some 
may produce as high a yield as prime farmlands if conditions are 
favorable. In some States, additional farmlands of statewide importance 
may include tracts of land that have been designated for agriculture by 
State law.

         d. Additional Farmland of Local Importance 1

    In some local areas, there is concern for certain additional 
farmlands for the production of food, feed, fiber, forage, and oilseed 
crops, even though these lands are not identified as having national or 
statewide importance. Where appropriate, these lands are to be 
identified by the local agency or agencies concerned.

                        2. prime forest lands \2\
---------------------------------------------------------------------------

    \2\ Prime Forest Land Definition and Criteria, U.S. Forest Service, 
May 26, 1977.
---------------------------------------------------------------------------

    Because of the multiple use of forested lands, several categories, 
e.g., timber, wildlife, and recreation, may be developed. For purposes 
of this regulation only, the following timberland definitions will 
apply.

                         a. Prime Timberland \2\

    Prime timberland is land that has soil capable of growing wood at 
the rate of 85 cubic feet or more/acre/year (at culmination of mean 
annual increment) in natural stands and is not in urban or built-up land 
uses or water. Generally speaking, this is land currently in forest, but 
does not exclude qualifying lands that could realistically be returned 
to forest. Delineation of these lands will be in accordance with 
national criteria.

[[Page 54]]

                        b. Unique Timberland \2\

    Unique timberlands are lands that do not qualify as prime timberland 
on the basis of producing less than 85 cubic feet/acre/year, but are 
growing sustained yields of specific high-value species or species 
capable of producing specialized wood products under a silvicultural 
system that maintains soil productivity and protects water quality. 
Delineation of these lands will be in accordance with national criteria.

                c. Timberland of Statewide Importance \2\

    This is land, in addition to prime and unique timberlands, that is 
of statewide importance for the growing of wood. Criteria for defining 
and delineating these lands are to be determined by State forestry 
planning committees or appropriate State organizations.

                 d. Timberlands of Local Importance \2\

    In some local areas, there is concern for certain additional forest 
lands for the growing of wood, even though these lands are not 
identified as having national or statewide importance. Where 
appropriate, these lands are to be identified by a local agency or 
agencies concerned.

                             3. wetlands \3\
---------------------------------------------------------------------------

    \3\ Definitions contained in Executive Orders 11988 and 11990.
---------------------------------------------------------------------------

    Wetlands are those areas that are inundated by surface or ground 
water with a frequency sufficient to support and, under normal 
circumstances, do or would support a prevalence of vegetative or aquatic 
life that requires saturated or seasonally saturated soil conditions for 
growth and reproduction. Wetlands generally include swamps, marshes, 
bogs, and similar areas, such as sloughs, potholes, wet meadows, river 
overflows, mudflats, and natural ponds.

                           4. flood plains \3\

    The term flood plain means the lowland and relatively flat areas 
adjoining inland and coastal waters, including floodprone areas of 
offshore islands, including, at a minimum, those that are subject to a 
1-percent or greater chance of flooding in any given year.

                         5. prime rangeland \4\
---------------------------------------------------------------------------

    \4\ USDA proposed definition for intradepartmental use only.
---------------------------------------------------------------------------

    Prime rangeland is rangeland which, because of its soil, climate, 
topography, vegetation, and location, has the highest quality or value 
for grazing animals. The (potential) natural vegetation is palatable, 
nutritious, and available to the kinds of herbivores common to the area.

 Exhibit B to Subpart G of Part 1940--Development and Implementation of 
                    Natural Resource Management Guide

    1. The State Director shall complete the natural resource management 
guide within 12 months from the effective date of this subpart and issue 
the guide as a State supplement after prior approval by the 
Administrator. A summary of the basic content, purposes, and uses of the 
guide is contained in Sec. 1940.305 of this subpart. The guide shall be 
prepared in draft form and be provided for review and comment to USDA 
agencies, appropriate Federal and State agencies, State and regional 
review agencies assigned the consulation requirements of Executive Order 
12372, as well as interested localities, groups, and citizens. Also at 
least one public information meeting shall be held on the draft which 
shall be followed by a 30-day period for the submission of public 
comments. Public notification of this meeting shall be made in the same 
manner as the notification process for a scoping meeting. (See Sec. 
1940.320(c) of this subpart). Additionally, the public shall be informed 
that copies of the draft guide will be made available from the State 
Office upon request. After completion of this public review, the draft 
will be revised as necessary in light of the comments received and 
provided as a final draft State Supplement to the Administrator for 
review and approval. Any concerns and comments of the Administrator will 
be addressed by the State Director and the guide completed. Upon the 
Administrator's approval and the fulfillment of the requirements of 
paragraph 4. of this exhibit, the natural resource management guide 
shall then become part of any program investment strategies developed by 
the State Director for the purpose of addressing the rural needs of the 
State. Although a 12-month period has been established for the 
completion of a natural resource management guide, this deadline is not 
to be construed as curtailing or postponing the implementation of 
existing environmental laws, regulations, Executive orders or the 
Departmental Regulation 9500-3, Land Use Policy, with respect to 
individual project reviews, nor giving anyone any rights or claims with 
respect to the completion or content of the guide.
    2. The natural resource management guide needs to be developed in 
full recognition of its role as an internal Agency planning tool and 
with sensitivity to the Agency's mission.
    3. After the Administrator approves the natural resource management 
guide, it will become effective 4 months from that date. This interim 
period shall be used to inform local, State, and Federal agencies, 
localities, organizations, and interested citizens of the content of the 
guide. In this manner, those

[[Page 55]]

parties intending to seek FmHA or its successor agency under Public Law 
103-354 assistance or to coordinate FmHA or its successor agency under 
Public Law 103-354 assistance programs with their own programs will be 
able to gain for their planning needs an understanding of our guide.
    4. Completed natural resource management guides shall be reviewed 
every 2 years and updated by the State Director to reflect newly 
identified geographical areas of concern or policy revisions at the 
lational, State, regional or local level. They will also be revised, as 
necessary, through appropriate guidance from the Administrator. 
Revisions shall be transmitted to the Administrator for postapproval and 
shall be considered approved if either no comments are raised by the 
Administrator within 30 days of receipt of the State Director's 
transmittal letter or the administrator specifically approves them 
before the 30 days expire. Public review of a revision will not be 
required. However, if in the opinion of the State Director the proposed 
revision will substantially change the previously adopted natural 
resource management guide, a public review shall be conducted of the 
revision in the same manner as that described in paragraph 1 of this 
exhibit for the development of the original guide. Such review shall 
occur prior to the transmittal of the revision to the Administrator. If 
the State Director believes that at the expiration of any 2-year review 
period there is need to update the guide, a statement to this effect 
shall be filed with the Administrator.
    5. The foundation for the natural resource management guide is the 
identification of the types of land uses or environmental factors 
deserving attention and their geographical location within the State. An 
inventory or listing shall be developed, therefore, of the important 
land uses within the State. This inventory will be accomplished by 
assembling existing data and information compiled by those Federal, 
State, and local agencies that have jurisdiction or expertise regarding 
the land uses or environmental factors. At a minimum, the inventory 
shall consist of available documents, listings, maps, or graphic 
materials describing the location of the following:
    a. National Register of Historic Places to include monthly 
supplements as designated by the Department of the Interior (DOI), and 
the State Historic Preservation Plans. This list is issued as a State 
supplement to subpart F or part 1901 of this chapter;
    b. Rivers designated as part of the Wild and Scenic Rivers System 
and rivers under study for inclusion in the system, as published by DOI;
    c. Important farmlands;
    d. Prime rangelands.
    e. Prime forestlands;
    f. Wetland inventory;
    g. Floodplain inventory as issued by the Federal Emergency 
Management Administration;
    h. Endangered Species and Critical Habitats as listed or proposed 
for listing by the Department of Commerce (DOC) and DOI;
    i. Sole source aquifer recharge areas as designated by the 
Environmental Protection Agency (EPA);
    j. Air Quality Control Regions as designated by EPA;
    k. National Registry of Natural Landmarks at published by DOI;
    l. Coastal Barrier Resources System;
    m. State inventories or planning documents identifying important 
land uses, particularly those not covered by the above items, such as 
wildlife refuges, important habitats, and areas of high water quality, 
or scenic or recreational value;
    n. Agricultural districts or other similar zoning classifications 
for agricultural land protection; and
    o. Coastal Zone Management Areas.
    6. The Administrator shall be responsible for assisting State 
Directors in obtaining listings and inventories of resources protected 
by Federal statutes and regulations. The State Director has the 
responsibility for assembling documents on important environmental 
resources or areas identified in State and substate laws, regulations, 
plans, and policies.
    7. Development of the inventory by the State Director will require 
consultation and assistance from a variety of agencies and experts. This 
consultation should begin with Department agencies and be accomplished 
through appropriate, State-level USDA committees. The objective should 
be to determine the land classification data that has been compiled and 
that which is in the process of being compiled either by USDA agencies 
or their counterparts at the state level. The Memorandum of 
Understanding executed in May 1979 between the Soil Conservation Service 
(SCS) and FmHA or its successor agency under Public Law 103-354 should 
be utilized as the basis for seeking SCS's assistance in this data 
collection effort. (See FmHA Instruction 2000-D, exhibit A, which is 
available in any FmHA or its successor agency under Public Law 103-354 
Office.) Direct contacts should then be made with State agencies, in 
particular with the appropriate office of State planning, to determine 
the availability of State inventories and State land use policies and 
priorities. Similar discussions should be held with substate regional 
planning agencies and clearinghouses with assistance being provided in 
this effort by District Directors. County Supervisors shall contact 
local officials and shall be responsible for being familiar with and for 
assembling similar inventories, land use policies, or protective 
requirements developed by the local government agencies

[[Page 56]]

within the supervisor's territorial jurisdiction.
    8. Another important element of the natural resource management 
guide shall be the examination of any major environmental impacts on the 
State or a substate area resulting from the cumulative effects of FmHA 
or its successor agency under Public Law 103-354-assisted project over 
the last several years. In this examination, particular emphasis should 
be given to the cumulative impacts of water resource projects such as 
irrigation systems. This should be done in consultation with experts 
within the appropriate State agencies and the U.S. Geological Survey. 
The housing programs should also be given a particular emphasis with 
respect to their cumulative impacts. More detailed guidance on the 
accomplishment of this cumulative impact section of the natural resource 
management guide, as well as the overall content of the guide, shall be 
provided by the Administrator. In preparing the State's natural resource 
management guide and in assembling inventories of critical resources, 
Agency staff should not lose sight of the basic purposes of this effort. 
The development of lengthy and complex guides and the amassing of huge 
inventories is not our goal. In the end, the material must be useable 
and serve as a tool for better decisionmaking. The basic purposes of 
this guide and inventory, then, are to provide a basis for developing 
comprehensive, statewide, rural development investment strategies that 
(i) do not conflict with Federal, State, and local mandates to preserve 
and protect important land and environmental resources, (ii) that do not 
create short- or long-term development pressures which would lead to the 
unnecessary conversion of these resources, and (iii) which effectively 
support and enhance Federal, State, and local plans to preserve these 
resources.

 Exhibit C to Subpart G of Part 1940--Implementation Procedures for the 
   Farmland Protection Policy Act; Executive Order 11988, Floodplain 
     Management; Executive Order 11990, Protection of Wetlands; and 
             Departmental Regulation 9500-3, Land Use Policy

    1. Background. The Subtitle I of the Agriculture and Food Act of 
1981, Pub. L. 97-98, created the Farmland Protection Policy Act. The Act 
requires the consideration of alternatives when an applicant's proposal 
would result in the conversion of important farmland to nonagricultural 
uses. The Act also requires that Federal programs, to the extent 
practicable, be compatible with State, local government, and private 
programs and policies to protect farmland. The Soil Conservation Service 
(SCS), as required by the Act, has promulgated implementation procedures 
for the Act at 7 CFR part 658 which are hereafter referred to as the SCS 
rule. This rule applies to all federal agencies. The Departmental 
Regulation 9500-3, Land Use Policy (the Departmental Regulation), also 
requires the consideration of alternatives but is much broader than the 
Act in that it addresses the conversion of land resources other than 
farmland. The Departmental Regulation is included as exhibit A to this 
subpart and affects only USDA agencies. For additional requirements that 
apply to some Farmer Program loans and guarantees and loans to an Indian 
Tribe or Tribal Corporation and that cover the conservation of wetlands 
and highly erodible land, see exhibit M of this subpart.
    2. Implementation. Each proposed lease or disposal of real property 
by FmHA or its successor agency under Public Law 103-354 and application 
for financial assistance or subdivision approval will be reviewed to 
determine if it would result in the conversion of a land resource 
addressed in the Act, Executive Orders, or Departmental Regulation and 
as further specified below. Those actions that are determined to result 
in the lease, disposal or financing of an existing farm, residential, 
commercial or industrial property with no reasonably foreseeable change 
in land use and those actions that solely involve the renovation of 
existing structures or facilities would require no further review.\1\ 
Since these actions have no potential to convert land uses, this finding 
would simply be made by the preparer in completing the environmental 
assessment for the action. Also, actions that convert important farmland 
through the construction of on-farm structures necessary for farm 
operations are exempt from the farmland protection provisions of this 
exhibit. For other actions, the following implementation steps must be 
taken:
---------------------------------------------------------------------------

    \1\ See special procedures in item 3 of this exhibit if the existing 
structure or real property is located in a floodplain or wetland.
---------------------------------------------------------------------------

    a. Determine whether important land resources are involved. The Act 
comes into play whenever there is a potential to affect important 
farmland. The Departmental Regulation covers important farmland as well 
as the following land resources: prime forest land, prime rangeland, 
wetlands and floodplains. Hereafter, these land resources are referred 
to collectively as important land resources. Definitions for these land 
resources are contained in the appendix to the Departmental Regulation. 
The SCS rule also defines important farmland for purposes of the Act. 
Since the SCS's definition of prime farmland differs from the 
Departmental Regulation's definition, both definitions must be

[[Page 57]]

used and if either or both apply, the provisions of this exhibit must be 
implemented. It is important to note the definition of important 
farmland in both the SCS rule and the Departmental Regulation because it 
includes not only prime and unique farmland but additional farmland that 
has been designated by a unit of State or local government to be of 
statewide or local importance and such designation has been concurred in 
by the Secretary acting through SCS. In completing the environmental 
assessment or Form FmHA or its successor agency under Public Law 103-354 
1940-22, ``Environmental Checklist For Categorical Exclusions,'' the 
preparer must determine if the project is either located in or will 
affect one or more of the land resources covered by the SCS rule or the 
Departmental Regulation. Methods for determining the location of 
important land resources on a project-by-project basis are discussed 
immediately below. As reflected several times in this discussion, SCS 
personnel can be of great assistance in making agricultural land and 
natural resource evaluation, particularly when there is no readily 
available documentation of important land resources within the project's 
area of environmental impact. It should be remembered that FmHA or its 
successor agency under Public Law 103-354 and SCS have executed a 
Memorandum of Understanding in order to facilitate site review 
assistance. (See FmHA Instruction 2000-D, exhibit A, available in any 
FmHA or its successor agency under Public Law 103-354 office.)
    (1) Important Farmland, Prime Forest Land, Prime Rangeland--The 
preparer of the environmental review document will review available SCS 
important farmland maps to determine if the general area within which 
the project is located contains important farmland. Because of the large 
scale of the important farmland maps, the maps should be used for 
general review purposes only and not to determine if sites of 40 acres 
or less contain important farmland. If the general area contains 
important farmland or if no important farmland map exists for the 
project area, the preparer of the environmental review will request 
SCS's opinion on the presence of important farmland by completing Form 
AD-1006, ``Farmland Conversion Impact Rating,'' according to its 
instructions, and transmitting it to the SCS local field office having 
jurisdiction over the project area. This request will also indicate that 
SCS's opinion is needed regarding the application to the project site of 
both definitions of prime farmland, the one contained within its rule 
and the one contained within the Departmental Regulation. SCS's opinion 
is controlling with respect to the former definition and advisory with 
respect to the latter. No request need be sent to SCS for an action 
meeting one of the exemptions contained in item number 2 of this 
exhibit.
    (2) Floodplain--Review the most current Flood Insurance Rate Map or 
Flood Insurance Study issued for the project area by the Federal 
Emergency Management Administration (FEMA). Information on the most 
current map available or how to obtain a map free of charge is available 
by calling FEMA's toll free number 800-638-6620. When more specific 
information is needed on the location of a floodplain, for example, the 
project site may be near the boundary of a floodplain; or for assistance 
in analyzing floodplain impacts, it is often helpful to contact FEMA's 
regional office staff. Exhibit J of this subpart contains a listing of 
these regional offices and the appropriate telephone numbers.
    If a FEMA floodplain map has not been prepared for a project area, 
detailed assistance is normally available from the following agencies: 
The U.S. Fish and Wildlife Service (FWS), SCS, Corps of Engineers, U.S. 
Geological Survey (USGS), or appropriate regional or State agencies 
established for flood prevention purposes.
    (3) Wetlands--FWS is presently preparing wetland maps for the 
nation. Each FWS regional office has a staff member called a Wetland 
Coordinator. These individuals can provide updated information 
concerning the status of wetland mapping by FWS and information on State 
and local wetland surveys. Exhibit K of this subpart contains a listing 
of Wetland Coordinators arranged by FWS regional office and geographical 
area of jurisdiction. If the proposed project area has not been 
inventoried, information can be obtained by using topographic and soils 
maps or aerial photographs. State-specific lists of wetland soils and 
wetland vegetation are also available from the FWS Regional Wetland 
coordinators. A site visit can disclose evidence of vegetation typically 
associated with wetland areas. Also, the assistance of FWS field staff 
in reviewing the site can often be the most effective means. Because of 
the unique wetland definition used in exhibit M of this subpart, SCS 
wetland determinations are required for implementing the wetland 
conservation requirements of that exhibit.
    b. Findings (1) Scope--Although information on the location and the 
classification of important land resources should be gathered from 
appropriate expert sources, as well as their views on possible ways to 
avoid or reduce the adverse effects of a proposed conversion, it must be 
remembered that it is FmHA or its successor agency under Public Law 103-
354's responsibility to weigh and judge the feasibility of alternatives 
and to determine whether any proposed land use change is in accordance 
with the implementation requirements of the Act and the Departmental 
Regulation. Consequently, after

[[Page 58]]

reviewing as necessary, the project site, applicable land classification 
data, or the results of consultations with appropriate expert agenices, 
the FmHA or its successor agency under Public Law 103-354 preparer must 
determine, as the second implementation step, whether the applicant's 
proposal:
    (a) Is compatible with State, unit or local government, and private 
programs and policies to protect farmland; and
    (b) Either will have no effect on important land resources; or
    (c) If there will be a direct or indirect conversion of such a 
resource, (i) whether practicable alternatives exist to avoid the 
conversion; and
    (d) If there are no alternatives, whether there are practicable 
measures to reduce the amount of the conversion.
    (2) Determination of No Effect-- If the preparer determines that 
there is no potential for conversion and that the proposal is 
compatible, this determination must be so documented in the 
environmental assessment for a Class II action or the appropriate 
compliance blocks checked in the Class I assessment or Checklist for 
Categorical Exclusions based on whichever document is applicable to the 
action being reviewed.
    (3) Determination of Effect or Incompatibility-- Whenever the 
preparer determines that an applicant's proposal may result in the 
direct or indirect conversion of an important land resource or may be 
incompatible with State, unit of local government, or private programs 
and policies to protect farmland, the following further steps must be 
taken.
    (a) Search for Practicable Alternatives \2\--In consultation with 
the applicant and the interested public, the preparer will carefully 
analyze the availability of practicable alternatives that avoid the 
conversion or incompatibility Possible alternatives include:
---------------------------------------------------------------------------

    \2\ When the action involves the disposal of real property 
determined not suitable for disposition to persons eligible for FmHA or 
its successor agency under Public Law 103-354's financial assistance 
programs, the consideration of alternatives is limited to those that 
would result in the best price.
---------------------------------------------------------------------------

    (i) The selection of an alternative site;
    (ii) The selection of an alternative means to meet the applicant's 
objectives; or
    (iii) The denial of the application, i.e., the no-action 
alternative.
    When the resource that may be converted is important farmland, the 
preparer will follow the Land Evaluation and Site Assessment (LESA) 
point system contained within the SCS rule in order to evaluate the 
feasibility of alternatives. When the proposed site receives a total 
score of less than 160 points, no additional sites need to be evaluated. 
Rather than use the SCS LESA point system, the State Director has the 
authority to use State or local LESA systems that have been approved by 
the governing body of such jurisdiction and the SCS state 
conservationist. After this authority is exercised, it must be used for 
all applicable FmHA or its successor agency under Public Law 103-354 
actions within the jurisdiction of that approved LESA system.
    (b) Inform the Public--The Department Regulation requires us in 
section 6, Responsibilities, to notify the affected landholders at the 
earliest time practicable of the proposed action and to provide them an 
opportunity to review the elements of the action and to comment on the 
action's feasibility and alternatives to it. This notification 
requirement only applies to Class I and Class II actions and not to 
categorical exclusions that lose their status as an exclusion for any of 
the reasons stated in Sec. 1940.317(e) of this subpart. The 
notification will be published and documented in the manner specified in 
Sec. 1940.331 of this subpart and will contain the following 
information:
    (i) A brief description of the application or proposal and its 
location;
    (ii) The type(s) and amount of important land resources to be 
affected;
    (iii) A statement that the application or proposal is available for 
review at an FmHA or its successor agency under Public Law 103-354 field 
office (specify the one having jurisdiction over the project area); and
    (iv) A statement that any person interested in commenting on the 
application or proposal's feasibility and alternatives to it may do so 
by providing such comments to FmHA or its successor agency under Public 
Law 103-354 within 30 days following the date of publication. (Specify 
the FmHA or its successor agency under Public Law 103-354 office 
processing the application or proposal for receipt of comments.)
    Further consideration of the application or proposal must be delayed 
until expiration of the public comment period. Consequently, publication 
of the notice as early as possible in the review process is both in the 
public's and the applicant's interest. Any comments received must be 
considered and addressed in the subsequent Agency analysis of 
alternatives and mitigation measures. It should be understood that 
scheduling a public information meeting is not required but may be 
helpful based on the number of comments received and types of issues 
raised.
    (c) Determine Whether Practicable Alternative Exists--(i) 
Alternative exists--If the preparer concludes that a practicable 
alternative exists, the preparer will complete step 2b(3)(e)(ii) of this 
exhibit and transmit the assessment for the approving official's review 
in the manner specified in Sec. 1940.316 of this subpart. If the 
findings of this review are similar to the preparer's recommendation, 
FmHA or its successor agency under

[[Page 59]]

Public Law 103-354 will inform the applicant of such findings and 
processing of the application will be discontinued. Should the applicant 
still desire to pursue the proposal, the applicant is certainly free to 
do so but not with the further assistance of FmHA or its successor 
agency under Public Law 103-354. Should the applicant be interested in 
amending the application to reflect the results of the alternative 
analysis, the preparer will work closely with the applicant to this end. 
Upon receipt of the amended application, the preparer must reinstitute 
this implementation process at that point which avoids the duplication 
of analysis and data collection undertaken in the original review 
process.
    If the results of the approving official(s) review differs from the 
preparer's recommendations, the former will ensure that the findings are 
appropriately documented in step 2b(3)(e)(ii) of this exhibit and any 
remaining consideration given to mitigation measures, step 2b(3)(d) of 
this exhibit.
    (ii) No Practicable Alternative Exists--On the other hand, if the 
preparer concludes that there is no practicable alternative to the 
conversion, the preparer must then continue with step 2b(3)(d) of this 
exhibit, immediately below.
    (d) Search for Mitigation Measures-- Once the preparer determines 
that there is no practicable alternative to avoiding the conversion or 
incompatibility, including the no-action alternative, all practicable 
measures for reducing the direct and indirect amount of the conversion 
must be included in the application. Some examples of mitigation 
measures would include reducing the size of the project which thereby 
reduces the amount of the important land resource to be converted. This 
is a particularly effective mitigation measure when the resource is 
present in a small area, as is often the case with wetlands or 
floodplains. A corresponding method of mitigation would be to maintain 
the project size or number of units but decrease the amount of land 
affected by increasing the density of use. Finally, mitigation can go as 
far as the selection of an alternative site. For example, in a housing 
market area composed almost entirely of important farmland, any new 
proposed subdivision site would result in conversion. However, a 
proposed site within or contiguous to an existing community has much 
less conversion potential, especially indirect potential, than a site a 
mile or two from the community. The LESA system can also be used to 
identify mitigation measures when the conversion of important farmland 
cannot be avoided.
    (e) Document Findings-- Upon completion of the above steps, a 
written summary of the steps taken and the reasons for the 
recommendations reached shall be included in the environmental 
assessment along with either one of the following recommendations as 
applicable. The following example assumes that important farmland is the 
affected resource and that the inappropriate phrase within the brackets 
would be deleted.
    (i) The application would result in the direct or indirect 
conversion of important farmland and (is/is not) compatible with State, 
unit of local government, or private programs and policies to protect 
farmland. It is recommended that FmHA or its successor agency under 
Public Law 103-354 determine, based upon the attached analysis, that 
there is no practicable alternative to this and that the application 
contains all practicable measures for reducing the amount of conversion 
(or limiting the extent of any identified incompatibility.)
    (ii) The application would result in direct or indirect conversion 
of important farmland and (is/is not) incompatible with State, unit of 
local government, or private programs and policies to protect farmland. 
It is recommended that FmHA or its successor agency under Public Law 
103-354 determine, based upon the attached analysis, that there is a 
practicable alternative to this action, and the processing of this 
application be discontinued.
    (f) Implement findings--The completed environmental assessment and 
the Agency's determination of compliance with the Act, the Departmental 
Regulation and Executive orders will be processed and made according to 
Sec. 1940.316 of this subpart. Whenever this determination is as stated 
in step 2b(3)(e)(i) above, the action will be so structured as to ensure 
that any recommended mitigation measures are accomplished. See Sec. 
1940.318(g) of this subpart. Whenever the determination is as stated in 
step 2b(3)(e)(ii) above, the applicant shall be so informed and 
processing of the application discontinued. Any further FmHA or its 
successor agency under Public Law 103-354 involvement will be as 
specified in Item 2b(3)(c)(i) of this exhibit.
    3. Special Procedures and Considerations When a Floodplain or 
Wetland Is the Affected Resource Under Executive Order 11988 and 11990. 
a. Scope. (1) Geographical Area--The geographical area that must be 
considered when a floodplain is affected varies with the type of action 
under consideration. Normally the implementation procedures beginning in 
Item 2a of this exhibit are required when the action will impact, 
directly or indirectly, the 100-year floodplain. However, when the 
action is determined by the preparer to be a critical action, the 
minimum floodplain of concern is the 500-year floodplain. A critical 
action is an action which, if located or carried out within a 
floodplain, poses a greater than normal risk for flood-caused loss of 
life or property. Critical actions include but are not limited to 
actions which create or extend the useful life of the following 
facilities:

[[Page 60]]

    (a) Those facilities which produce, use, or store highly volatile, 
flammable, explosive, toxic or water-reactive materials;
    (b) Schools, hospitals, and nursing homes which are likely to 
contain occupants who may not be sufficiently mobile to avoid the loss 
of life or injury during flood and storm events;
    (c) Emergency operation centers or data storage centers which 
contain records or services that any become lost or inoperative during 
flood and storm events; and
    (d) Multi-family housing facilities designed primarily (over 50 
percent) for handicapped individuals.
    (2) Threshold of Impact--The Executive orders differ from the Act 
and the Departmental Regulation in that the Executive orders' 
requirements apply not only to the conversion of floodplains or wetlands 
but to any impacts upon them. Impacts are defined as changes in the 
natural values and functions of a wetland or floodplain. Therefore, 
there would be an impact to a floodplain whenever either (a) the action 
or its related activities would be located within a floodplain, or (b) 
the action through its indirect impacts has the potential to result in 
development within a floodplain. The only exception to this statement is 
when the preparer determines that the locational impact is minor to the 
extent that the floodplain's or wetland's natural values and functions 
are not affected.
    b. Treatment of Existing Structures. (1) Non-FmHA or its Successor 
Agency under Public Law 103-354-Owned Properties--The Executive orders 
can apply to actions that are already located in floodplains or 
wetlands; that is, where the conversion has already occurred. The 
implementation procedures beginning in item 2a of this exhibit must be 
accomplished for any action located in a floodplain or wetland and 
involving either (a) the purchase of an existing structure or facility 
or (b) the rehabilitation, renovation, or adaptive reuse of an existing 
structure or facility when the work to be done amounts to a substantial 
improvement. A substantial improvement means any repair, reconstruction, 
or improvement of a structure the cost of which equals or exceeds 50 
percent of the market value of the structure either (a) before the 
improvement or repair is started, or (b) if the structure has been 
damaged, and is being restored, before the damage occurred. The term 
does not include (a) any project for improvement of a structure to 
comply with existing State or local health sanitary or safety code 
specifications which are solely necessary to assure safe living 
conditions or (b) any alteration of a structure listed on the National 
Register of Historic Places or a State Inventory of Historic Places.
    (2) FmHA or its Successor Agency under Public Law 103-354-Owned Real 
Property--The requirement in paragraph 3 b (1) immediately above also 
applies to any substantial improvements made to FmHA or its successor 
agency under Public Law 103-354-owned real property with the exception 
of the public notice requirements of this exhibit. Irrespective of any 
improvements, whenever FmHA or its successor agency under Public Law 
103-354 real property located in a floodplain or wetland is proposed for 
lease or sale, the official responsible for the conveyance must 
determine if the property can be safely used. If not, the property 
should not be sold or leased. Otherwise, the conveyance must specify 
those uses that are restricted under identified Federal, State, and 
local floodplains or wetlands regulations as well as other appropriate 
restrictions, as determined by the FmHA or its successor agency under 
Public Law 103-354 official responsible for the conveyance, to the uses 
of the property by the leasee or purchaser and any successors, except 
where prohibited by law. Appropriate restrictions will be developed in 
consultation with the U.S. Fish and Wildlife Service (FWS) as specified 
in the Memorandum of Understanding with FWS contained in subpart LL of 
part 2000 of this chapter. Applicable restrictions will be incorporated 
into quitclaim deeds with the consent and approval of the Regional 
Attorney, Office of the General Counsel. Upon application by the owner 
of any property so affected and upon determination by the appropriate 
FmHA or its successor agency under Public Law 103-354 official that the 
condition for which a deed restriction was imposed no longer exists, the 
restriction clause may be released. A listing of any restrictions shall 
be included in any notices announcing the proposed sale or lease of the 
property. At the time of first inquiry, prospective purchasers must be 
informed of the property's location in a floodplain or wetland and the 
use restrictions that will apply. A written notification to this effect 
must be provided to the prospective purchaser who must acknowledge the 
receipt of the notice. See Item 3 d of this exhibit and subpart C of 
part 1955 of this chapter for guidance on the proper formats to be used 
with respect to notices and deed restrictions. The steps and analysis 
conducted to comply with the requirements of this paragraph must be 
documented in the environmental review document for the proposed lease 
or sale.
    c. Mitigation measures. (1) Alternative Sites--As with the Act and 
the Departmental Regulation, the main focus of the review process must 
be to locate an alternative that avoids the impact to a floodplain or 
wetland. When this is not practicable, mitigation measures must be 
developed to reduce the impact which in the case of a floodplain or 
wetland can include finding another site, i.e., a safer site. The latter 
would be a site at a higher elevation within the floodplain and/or 
exposed to lower velocity floodflows.

[[Page 61]]

    (2) Nonstructural Mitigation Measures--Mitigation measures under the 
Executive orders are intended to serve the following three purposes: 
reduce the risks to human safety, reduce the possible damage to 
structures, and reduce the disruption to the natural values and 
functions of floodplains and wetlands. More traditional structural 
measures, such as filling in the floodplain, cannot accomplish these 
three purposes and, in fact, conflict with the third purpose. 
Nonstructural flood protection methods, consequently, must be given 
priority consideration. These methods are intended to preserve, restore, 
or imitate natural hydrologic conditions and, thereby, eliminate or 
reduce the need for structural alteration of water bodies or their 
associated floodplains and wetlands. Such methods may be either physical 
or managerial in character. Nonstructural flood protection methods are 
measures which:
    (a) Control the uses and occupancy of floodplains and wetlands, 
e.g., floodplain zoning and subdivision regulations;
    (b) Preserve floodplain and wetland values and functions through 
public ownership; e.g., fee title, easements and development rights;
    (c) Delay or reduce the amount of runoff from paved surfaces and 
roofed structures discharged into a floodway, e.g., construction of 
detention basins and use of flow restricting barriers on roofs;
    (d) Maintain natural rates of infiltration in developed or 
developing areas, e.g., construction of seepage or recharge basins and 
minimization of paved areas;
    (e) Protect streambanks and shorelines with vegetative and other 
natural cover, e.g., use of aquatic and water-loving woody plants;
    (f) Restore and preserve floodplain and wetland values and functions 
and protect life and property through regulation, e.g., flood-proofing 
building codes which require all structures and installations to be 
elevated on stilts above the level of the base flood; and
    (g) Control soil erosion and sedimentation, e.g., construction of 
sediment basins, stabilization of exposed soils with sod and 
minimization of exposed soil.
    (3) Avoid Filling in Floodplains--As indicated above, the Executive 
orders place a major emphasis on not filling in floodplains in order to 
protect their natural values and functions. Executive Order 11988 states 
``agencies shall, wherever practicable, elevate structures above the 
base flood level rather than filling in the land.''
    (d) Additional Notification Requirement. (1) Final Notice--Where it 
is not possible to avoid an impact to a floodplain or wetland and after 
all practicable mitigation measures have been identified and agreed to 
by the prospective applicant, a final notice of the proposed action must 
be published. This notice will either be part of the notice required for 
the completion of a Class II assessment or a separate notice if a Class 
I assessment or an EIS has been completed for the action. The notice 
will be published and distributed in the manner specified in Sec. 
1940.331 of this subpart and contain the following information.
    (a) A description of the proposd action, its location, and the 
surrounding area;
    (b) A description of the floodplain or wetland impacts and the 
mechanisms to be used to mitigate them;
    (c) A statement of why the proposed action must be located in a 
floodplain or a wetland;
    (d) A description of all significant facts considered in making this 
determination;
    (e) A statement indicating whether the actions conform to applicable 
State or local floodplain protection standards; and
    (f) A statement listing other involved agencies and individuals.
    (2) Private Party Notification--For all actions to be located in 
floodplains or wetlands in which a private party is participating as an 
applicant, purchaser, or financier, it shall be the responsibility of 
the approving official to inform in writing all such parties of the 
hazards associated with such locations.
    4. The Relationship of the Executive Orders to the National Flood 
Insurance Program. The National Flood Insurance Program establishes the 
floodplain management criteria for participating communities as well as 
the performance standards for building in floodplains so that the 
structure is protected against flood risks. As such, flood insurance 
should be viewed only as a financial mitigation measure that must be 
utilized only after FmHA or its successor agency under Public Law 103-
354 determines that there is no practicable alternative for avoiding 
construction in the floodplain and that all practicable mitigation 
measures have been included in the proposal. That is, for a proposal to 
be located in the floodplain, it is not sufficient simply to require 
insurance. The Agency's flood insurance requirements are explained in 
subpart B of part 1806 of this chapter (FmHA Instruction 426.2). It 
should be understood that an applicant proposing to build in the 
floodplain is not even eligible for FmHA or its successor agency under 
Public Law 103-354 financial assistance unless the project area is 
participating in the National Flood Insurance Program.

[53 FR 36262, Sept. 19, 1988]

 Exhibit D to Subpart G of Part 1940--Implementation Procedures for the 
                         Endangered Species Act

    1. FmHA or its successor agency under Public Law 103-354 shall 
implement the consultation procedures required under Section 7 of the 
Endangered Species Act as specified

[[Page 62]]

in 50 CFR 402. It is important to note that these consultation 
procedures apply to the disposal of real property by FmHA or its 
successor agency under Public Law 103-354 and to all FmHA or its 
successor agency under Public Law 103-354 applications for financial 
assistance and subdivision approval, including those applications which 
are exempt from environmental assessments. (See Sec. 1940.310.) Unless 
repeated in this paragraph, the definitions for the terms utilized are 
found in 50 CFR 402.02.
    2. State Directors shall ensure that State, District, and County 
Offices maintain current publications of listed and proposed species as 
well as critical habitats found in their respective jurisdictions.
    3. When an application to FmHA or its successor agency under Public 
Law 103-354 involves financial assistance or permit approval from 
another Federal agency(s), the FmHA or its successor agency under Public 
Law 103-354 reviewer shall work with the other Agency to determine a 
lead Agency for the consultation process. When FmHA or its successor 
agency under Public Law 103-354 is not the lead Agency, the reviewer 
shall ensure that the lead Agency informs the approporiate Area Manager, 
U.S. Fish and Wildlife Service (FWS), or Regional Director, National 
Marine Fisheries Service (NMFS), of FmHA or its successor agency under 
Public Law 103-354's involvement.
    4. Each disposal action, application for financial assistance or 
subdivision approval shall be reviewed by the FmHA or its successor 
agency under Public Law 103-354 official responsible for completing 
environmental assessments in order to determine if the proposal either 
may affect a listed species or critical habitat or is likely to 
jeopardize the continued existence of a proposed species or result in 
the destruction or adverse modification of a proposed critical habitat.
    a. For applications subject to environmental assessments, this 
review shall be accomplished as part of the assessment.
    b. For those applications that are excluded from an environmental 
assessment, this review shall be documented as part of Form FmHA or its 
successor agency under Public Law 103-354 1940-22, ``Environmental 
Checklist For Categorical Exclusions,'' and shall be accomplished as 
early as possible after receipt of the application and prior to approval 
of the application.
    c. For applications subject to an environmental impact statement, 
FmHA or its successor agency under Public Law 103-354 shall request from 
the Area Manager, FWS, and the Regional Director, NMFS, a list of the 
proposed and listed species that may be in the area of the proposal. 
Within 30 days, the FWS and NMFS will respond to FmHA or its successor 
agency under Public Law 103-354 with this list. FmHA or its successor 
agency under Public Law 103-354 shall then conduct, as part of the 
process of preparing the draft environmental impact statement, a 
biological assessment of these species to determine which species are in 
the area of the proposal and how they may be affected. This biological 
assessment should be completed within 180 days or a time mutually agreed 
upon between FmHA or its successor agency under Public Law 103-354 and 
FWS or NMFS. Upon completion of the biological assessment, if FmHA or 
its successor agency under Public Law 103-354 determines either that the 
proposal may affect a listed species or critical habitat or is likely to 
jeopardize the continued existence of proposed species or result in the 
destruction or adverse modification of proposed critical habitat, the 
formal consultation procedures shall be initiated as specified in 
paragraph 7b below. To the extent practical, these procedures shall be 
concluded and their results reflected in the draft EIS. For all draft 
EISs in which FmHA or its successor agency under Public Law 103-354 
determines there will be no effect upon a listed or proposed species or 
critical habitat and FWS or NMFS indicated the presence of such species 
upon the initial inquiry, a copy of the draft shall be provided to that 
agency for review and comment.
    5. As indicated in paragraph 4 above, the focus of this review 
process is to determine if the proposal will affect a listed species or 
critical habitat or is likely to jeopardize the continued existence of a 
proposed species or result in the destruction or adverse modification of 
a proposed critical habitat. Because this impact terminology is specific 
to the Act, it is important to understand its meaning.
    a. To jeopardize the continued existence of a species means to 
engage in a project which reasonably would be expected to reduce the 
reproduction, numbers, or distribution of a listed species to such an 
extent as to appreciably reduce the likelihood of the survival and 
recovery of that species in the wild. The level of reduction necessary 
to constitute jeopardy would be expected to vary among listed species.
    b. The destruction or adverse modification of a critical habitat 
means a direct or indirect alteration of critical habitat which 
appreciably diminishes the value of that habitat for survival and 
recovery of a listed species. Such alterations include but are not 
limited to those diminishing the following requirements for:
    (i) Space for individual and population growth and for normal 
behavior;
    (ii) Food, water, air, light, minerals, or other nutritional or 
physiological requirements;
    (iii) Cover or shelter;
    (iv) Sites for breeding, reproduction, or rearing of offspring; and

[[Page 63]]

    (v) Habitats that are protected from disturbances or are 
representative of the geographical distribution of listed species.
    6. It is also important to note that the consultation procedures 
differ when the subject of the consultation is a listed species or 
critical habitat as opposed to a proposed species or critical habitat. 
The latter are defined as those that the Secretary of Interior or 
Commerce are considering for listing and have so proposed through 
notification in the Federal Register. When listed species or critical 
habitats are invloved, FmHA or its successor agency under Public Law 
103-354 shall initiate formal consultation procedures whenever it 
determines that a proposed project may affect them, either beneficially 
or adversely. For proposed species or critical habitats, FmHA or its 
successor agency under Public Law 103-354 shall first determine if the 
proposed project is likely to jeopardize the continued existence of 
proposed species or result in the destruction or adverse modification of 
proposed critical habitat. Whenever this determination is made, FmHA or 
its successor agency under Public Law 103-354 shall confer with the 
appropriate agency identified in paragraph 7 of this exhibit and, in so 
doing, shall focus on (i) determining the status of the listing process, 
and (ii) attempting to cooperatively develop alternatives or measures 
for inclusion in the project that avoid or mitigate the identified 
adverse impacts. The results of this process shall be documented in the 
environmental review being done for the proposed project and, if this 
review is an environmental assessment, shall be an important factor in 
determining the need for an environmental impact statement. No action 
shall be taken by the approving official on the application unitl the 
requirement to confer on proposed species or critical habitat has been 
completed. Paragraphs 7 through 9 of this exhibit outline the formal 
consultation procedure for listed species or critical habitats.
    7. In initiating the review process for a project, the list of 
species and critical habitats, including proposed, shall be examined to 
determine the potential for impacts. Projects planned within established 
communities are less likely to affect listed or proposed species or 
their critical habitat. Projects to be located in remote areas, heavily 
forested areas and/or previously undisturbed areas are more likely to 
affect these species. For projects located in such areas, the reviewer 
shall, at a minimum, discuss the project's potential impact on listed or 
proposed species with officials of the appropriate State wildlife 
protection agency or the Area Manager, FWS, or the Regional Director, 
NMFS, as appropriate. The latter organization generally has 
responsibility for marine species. The specific list of species under 
NMFS's jurisdiction can be found at 50 CFR 222.23(a) and 227.4. Such 
discussions shall be considered as informal consultations and are not a 
substitute for the required consultation process outlined below.
    a. Whenever the reviewer, after reviewing the list and contacting 
appropriate experts, formally determines that the proposal will have no 
effect on a listed or proposed species or its critical habitat, these 
review procedures are completed, unless new information comes to light 
as discussed in paragraph 9 of this exhibit, or consultation is 
requested by the appropriate Area Manager, FWS, or Regional Director, 
NMFS.
    b. If the reviewer determines there may be an effect on a listed 
species or a critical habitat or is unable to make a clear 
determination, the reviewer shall so inform the SEC (assuming the 
reviewer is not the SEC). The latter shall either (i) convey a written 
request for consultation, along with available information to the 
appropriate Area Manager, FWS or Regional Director, NMFS, for the 
Federal region where the proposal will be carried out, or (ii) request 
Program Support Staff (PSS) to perform such consultation. FmHA or its 
successor agency under Public Law 103-354 shall initiate this formal 
consultation process and not the applicant. See paragraph 4.c. of this 
exhibit for initiating consultation where an environmental impact 
statement is being done for the application. Until the consultation 
process is completed, as outlined in 50 CFR 402.04, FmHA or its 
successor agency under Public Law 103-354 shall not approve the 
application. Should the need for consultation be identified after 
application approval, FmHA or its successor agency under Public Law 103-
354 shall refrain from making any irreversible or irretrievable 
commitment of resources which would foreclose the consideration of 
modifications or alternatives to the identified activity or program.
    8. Several possible responses may result from initiation of the 
formal consultation process with each requiring further specific 
actions.
    a. Whenever the Area Manager, FWS, or Regional Director, NMFS, 
informs FmHA or its successor agency under Public Law 103-354 that 
insufficient information exists to conclude the consultation process, 
the SEC with assistance as feasible from the FWS or NMFS and State 
sources of expertise shall then obtain additional information and 
conduct, as needed, biological surveys or studies to determine how the 
proposal may affect listed species or their critical habitat. The cost 
and performance of such studies shall be handled in the same manner as 
in the preparation of an Environmental Impact Statement. (See Sec. 
1940.336 of this subpart.)
    b. Whenever the Area Manager, FWS, or Regional Director, NMFS, 
responds that the proposal will either promote the conservation of a 
listed species or is not likely to jeopardize the continued existence of 
a listed

[[Page 64]]

or proposed species or result in the destruction or adverse modification 
of its critical habitat, the FmHA or its successor agency under Public 
Law 103-354 reviewer shall formally make a similar determination, 
attaching the response as documentation. This concludes the formal 
consultation process unless new information comes to light as discussed 
in paragraph 9 of this exhibit.
    c. Whenever the results of the consultation process include 
recommendations by the Area Manager, FWS, or Regional Director, NMFS, 
for modifications to the project which would enhance the conservation 
and protection of a listed species or its critical habitat, the State 
Director shall review these recommendations and require that they be 
incorporated into the project as either design changes or special 
conditions to the offer of assistance. If the State Director does not 
believe the recommendations can be so adopted, the Administrator shall 
be requested to review the recommendations and to assist in the further 
resolution of the matter.
    d. Whenever the appropriate Area Manager, FWS, or Regional Director, 
NMFS, determines that the proposal is likely to jeopardize the continued 
existence of a listed species or result in the destruction or adverse 
modification of its critical habitat, the FmHA or its successor agency 
under Public Law 103-354 applicant shall be so informed and the project 
denied on this basis. However, if the State Director believes that 
funding or approval of the application is (i) of national, regional, or 
great local significance, and (ii) that there are no reasonable and 
prudent alternatives to avoiding the listed species impact, the State 
Director can request the Administrator, through PSS, to review the 
proposal and the results of the consultation process. Based upon this 
review, the Administrator shall either inform the State Director that a 
request for an exemption from section 7 of the Endangered Species Act is 
not warranted and the application shall be denied or, if the 
Administrator believes it is warranted, shall request an exemption from 
the Endangered Species Committee established by section 7(e) of the Act. 
No action shall be taken by the State Director on the application until 
the Administrator informs the State Director of the results of the 
exemption request.
    9. Once completed, the consultation process shall be reinitiated by 
FmHA or its successor agency under Public Law 103-354 or upon request of 
the appropriate Area Manager, FWS, or Regional Director, NMFS, if:
    a. New information or modification of the proposal reveals impacts 
that may affect listed or proposed species or their habitats; or
    b. A new species is listed that may be affected by the proposal.
    10. In completing the above compliance procedures, particularly when 
consulting with the referenced agencies, formally or informally, the 
preparer of the environmental review document will request information 
on whether any Category I or Category II species may be present within 
the project area. These are candidate species; they are presently under 
consideration for listing under section 4 of the Endangered Species Act. 
Category I species are those for which FWS currently has substantial 
date on hand to support the biological appropriateness of proposing to 
list the species as endangered or threatened. Currently data are being 
gathered concerning essential habitat needs and, for some species, data 
concerning the precise boundaries of critical habitat designations. 
Development and publication of proposed rules on such species is 
anticipated. Category II comprises species for which information now in 
the possession of the FWS indicates that proposing to list the species 
as endangered or threatened is possibly appropriate but for which 
conclusive data on biological vulnerability and threat(s) are not 
currently available to presently support proposed rules. Whenever a 
Category I or II species may be affected, the preparer of the 
environmental review document will determine if the proposed project is 
likely to jeopardize the continued existence of the species. Whenever 
this determination is made, the same compliance procedures specified in 
paragraph 6 of this exhibit for a proposed species will be followed. The 
purpose of the requirements of this paragraph is to comply with the 
National Environmental Policy Act as well as Departmental Regulation 
9500-4, Fish and Wildlife Policy, which specifies that USDA agencies 
will avoid actions which may cause a species to become threatened or 
endangered.

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 36266, Sept. 19, 1988]

 Exhibit E to Subpart G of Part 1940--Implementation Procedures for the 
                       Wild and Scenic Rivers Act

    1. Each application for financial assistance or subdivision approval 
as well as the proposed disposal of real property by FmHA or its 
successor agency under Public Law 103-354 shall be reviewed to determine 
if it will affect a river or portion of it which is either included in 
the National Wild and Scenic Rivers System, designated for potential 
addition to the system, or identified in the Nationwide Inventory 
prepared by the National Park Service (NPS) in the Department of the 
Interior. The Nationwide Inventory identifies those river segments that, 
after preliminary review, appear to qualify for inclusion in the system. 
(For purposes of this subpart, river segments in the Nationwide 
Inventory

[[Page 65]]

shall be treated the same as segments within the system with the 
exception of paragraph 8.) For applications subject to environmental 
assessments, the review shall be accomplished as part of the assessment. 
For applications that are excluded from an environmental assessment, 
this review shall be documented as part of Form FmHA or its successor 
agency under Public Law 103-354 1940-22, ``Environmental Checklist For 
Categorical Exclusions,'' within the reviewing office and shall be 
accomplished as early as possible after receipt of the application and 
prior to approval of the application. The FmHA or its successor agency 
under Public Law 103-354 official responsible for completing the 
environmental assessment shall accomplish this review. (See Sec. 
1940.316 of this subpart.)
    2. In order to effectively implement this review, State Directors 
shall ensure that State, District and County Offices maintain current 
listings of rivers within their respective States that are included in 
or designated for potential addition to the system as well as those 
identified in the Nationwide Inventory prepared by NPS.
    3. For applications for water resources projects, as defined in 
Sec. 1940.302(i) of this subpart, the purpose of this review shall be 
to determine whether the proposal would have a direct and adverse effect 
on the values which served as the basis for the river's inclusion in the 
system or designation for potential addition. For other applications, 
the purpose of the review shall be to determine if the proposal would 
invade the river area or unreasonably diminish the scenic, recreational, 
and fish and wildlife values present in the area. To make these 
determinations, the reviewer shall consult with the appropriate regional 
office of NPS if the proposal (i) would be located within one-quarter 
mile of the banks of the river, (ii) involves withdrawing water from the 
river or discharging water to the river via a point source, or (iii) 
would be visible from the river. The appropriate regional office of the 
Forest Service (FS) shall be contacted under similar circumstances when 
the effected river is on FS lands. Consultation shall be initiated by a 
written request for comments on the potential impacts accompanied by a 
description of the project and its location. The reviewer shall consult 
in other instances when the likelihood of an impact on a river in the 
system is identified as part of the environmental review. When the 
reviewer determines there is no potential impact on such a river, the 
documentation of this determination concludes the review process, unless 
reinitiation is required under paragraph 10 of this exhibit. In all 
other cases, the review is completed as specified below in paragraphs 4 
through 9 of this exhibit.
    4. If the review is at the County or District Office level, the 
reviewer can request the State Director (see Sec. 1940.307 of this 
subpart) to perform the above consultation. The State Director can in 
turn make a similar request of the National Office. If not requested to 
perform the consultation for applications approvable at the County and 
District Office levels, the SEC shall be informed whenever NPS or FS 
advises that there is a potential for an adverse impact on a river 
within the system or that protective measures need to be included or 
designed into the proposal. In all cases, consultation shall be 
initiated by FmHA or its successor agency under Public Law 103-354 and 
not the applicant. Until consultation is complete, FmHA or its successor 
agency under Public Law 103-354 shall not approve the application. 
Should the need for consultation be identified after application 
approval, FmHA or its successor agency under Public Law 103-354 shall, 
if still within its power at the time of identification, refrain from 
making any irreversible or irretrievable commitments of resources which 
would foreclose the consideration of modifications or alternatives to 
the project.
    5. If NPS or FS advises there is no potential for an adverse effect 
as described in paragraph 3 of this exhibit, this review process is 
concluded, unless the need to reinitiate arises. (See paragraph 10 of 
this exhibit.)
    6. Whenever the results of the consultation process include 
recommendations by NPS or FS to modify the proposal in order to avoid an 
adverse effect, as described in paragraph 3 above, the State Director 
shall review these recommendations and require that they be incorporated 
into the project as either design changes or special conditions to the 
offer of assistance. If the State Director does not believe that the 
Regional Director's recommendations can be so adopted, the Administrator 
shall be requested to review the recommendations and to assist in the 
further resolution of the matter.
    7. If NPS or FS advises that the proposal will have an unavoidable 
adverse effect, as described in paragraph 3 of this exhibit, on a river 
segment which is either included in the National Wild and Scenic Rivers 
System or designated for potential addition to the system, the FmHA or 
its successor agency under Public Law 103-354 applicant will be informed 
by the reviewing office and the application denied on this basis. 
However, if the State Director disagrees with this determination, the 
State Director can request the Administrator to review the proposal and 
attempt to further resolve the matter. The specific reasons for 
disagreement along with supporting documentation must be included in 
such a request. Based upon a review of this request, the Administrator 
shall either inform the State Director that no further consultation is 
warranted and the application shall be denied or shall request the 
headquarters staff of NPS or FS to further review the matter. No action 
shall be taken

[[Page 66]]

by the State Director on the application until the Administrator informs 
the State Director of the results of this further review and 
consultation.
    8. If NPS or FS advises that the proposal will have an adverse 
effect, as described in paragraph 3 of this exhibit, on a river segment 
identified in the Nationwide Inventory, the reviewer shall further 
consult with NPS or FS in order to formulate adequate measures or 
modification to avoid or mitigate the potential adverse effect. The 
purposes of such measures or modifications is to ensure that the 
proposal does not effectively foreclose the designation of a wild, 
scenic, or recreational river segment. Once concurrence is reached and 
documented with NPS or FS regarding modifications, the State Director 
shall require that they be incorporated into the proposal as either 
design changes or special conditions to the offer of assistance. If the 
State Director is not able to reach an agreement with NPS or FS on 
appropriate modifications, the Administrator shall be requested to 
assist in the further resolution of the matter.
    9. If an application involves financial assistance or permit 
approval from another Federal Agency, the FmHA or its successor agency 
under Public Law 103-354 reviewer shall work with the other agency(s) to 
determine a lead Agency for the consultation process. When FmHA or its 
successor agency under Public Law 103-354 is not the lead Agency, the 
reviewer shall ensure that the lead Agency informs NPS or FS of FmHA or 
its successor agency under Public Law 103-354's involvement.
    10. Once completed, the consultation process shall be reinitiated by 
FmHA or its successor agency under Public Law 103-354 if new information 
or modification of the proposal reveals impacts to a river within the 
System or Nationwide Inventory.

 Exhibit F to Subpart G of Part 1940--Implementation Procedures for the 
                      Coastal Barrier Resources Act

    1. The Act applies to barrier islands that Congress has designated 
for inclusion in the Coastal Barrier Resources System. Since coastal 
barriers are only found in East and Gulf Coast States, no other State 
Offices fall under the requirements of the Act and, therefore, need be 
concerned with these implementation procedures.
    2. On coastal barriers that are included in the system, the Act 
prohibits any new expenditures or new financial assistance by the 
Federal Government. There are some limited exceptions that are contained 
in Section 6 of the Act and listed in exhibit L of this subpart. 
Consequently, all of the following actions must be reviewed by the 
environmental reviewer to determine if they would be located within the 
System: any application for financial assistance, any proposed direct 
expenditure of FmHA or its successor agency under Public Law 103-354 
funds for construction or maintenance purposes, any request for 
subdivision approval, and any proposed disposal of real property that 
includes any form of financial assistance or subsidy to the purchaser. 
The boundaries of the system can be determined by reviewing a series of 
maps passed with the legislation and distributed by the Department of 
the Interior. Each State Director is responsible for ensuring that those 
field offices having components of the system within their jurisdictions 
are aware of the system's boundaries therein.
    3. Exhibit L lists the six categories of exceptions, that is, those 
actions that may be taken within the system. No exception may be 
implemented, however, without first consulting with the Secretary of the 
Interior. It should also be noted that the sixth category is more 
limited than the first five. Besides meeting the consultation 
requirement for this sixth category, the sponsoring Agency must also 
determine whether the proposed exception is consistent with the purposes 
of the Act.
    4. For those actions that are reviewed and determined not to be 
within the System, the environmental reviewer must document this result 
by checking the appropriate compliance blocks on either Form FmHA or its 
successor agency under Public Law 103-354 1940-22, ``Environmental 
Checklist for Categorical Exclusions,'' or Form FmHA or its successor 
agency under Public Law 103-354 1940-21, ``Environmental Assessment for 
Class I actions,'' or by so stating this result in the environmental 
assessment for Class II Actions (exhibit H), depending upon whichever 
format is applicable to the action under review.
    5. For those actions that would be located within the system, one of 
the following two steps must be taken:
    a. If the environmental reviewer concludes that the action does not 
meet the criteria for an exception, as listed in exhibit L, the reviewer 
shall so inform the approving official and a final determination made in 
the manner indicated in Sec. 1940.316 of this subpart. If this 
determination is consistent with the environmental reviewer's 
conclusion, the action must be denied by the approving official and the 
affected applicant or party informed of the reason for denial. If it is 
determined that the action may qualify for an exception, the steps 
identified in Item b immediately below must be implemented prior to a 
decision on this question.
    b. If the environmental reviewer concludes that the proposed action 
may meet the exception criteria, the approving official must be so 
informed. Whenever the approving official agrees or makes a similar 
determination as a result of the review conducted in Item a immediately 
above, consultation shall be

[[Page 67]]

initiated with the Secretary of the Interior by either the State 
Director or the Administrator for a National Office activity. FmHA or 
its successor agency under Public Law 103-354 shall request the 
Secretary's views as to whether the exception criteria are met and shall 
provide the Secretary with the following information:
    (1) A detailed description of the action and its location;
    (2) A description of the affected environment within the System and 
the impacts of the proposed action;
    (3) The applicable exception criteria and FmHA or its successor 
agency under Public Law 103-354's reasons for believing they apply to 
this action; and
    (4) If a Section 6(a)(6) exception is claimed, FmHA or its successor 
agency under Public Law 103-354's reasons for believing the action to be 
consistent with the purposes of the Act.
    Should the Secretary concur in the exception criteria being met, 
that portion of the environmental assessment relating to compliance with 
the Act shall be completed and the corresponding documentation attached. 
Should the Secretary not concur, a final decision on the approval or 
denial of the action must be made by the Administrator.

             Exhibit G to Subpart G of Part 1940 [Reserved]

Exhibit H to Subpart G of Part 1940--Environmental Assessment for Class 
                               II Actions

    In completing this assessment, it is important to understand the 
comprehensive nature of the impacts which must be analyzed. 
Consideration must be given to all potential impacts associated with the 
construction of the project, its operation and maintenance, the 
operation of all identified primary beneficiaries, and the attainment of 
the project's major objectives, whether they be an increased housing 
stock, community improvement, economic development, or greater 
agricultural productivity. This last category, the attainment of the 
project's major objectives, often induces or supports changes in 
population densities, land uses, community services, transportation 
systems and resource consumption. The scope of the assessment is 
broadened even further when there are related activities involved. The 
impacts of these activities must also be assessed.
    The preparer will consult as indicated in Sec. 1940.318(b) of this 
subpart with appropriate experts from Federal, State, and local 
agencies, universities, and other organizations or groups whose views 
could be helpful in the assessment of potential impacts. In so doing, 
each discussion which is utilized in reaching a conclusion with respect 
to the degree of an impact will be summarized in the assessment as 
accurately as possible and include the name, title, phone number, and 
organization of the individual contacted, plus the date of contact. 
Related correspondence should be attached to the assessment.
    The FmHA or its successor agency under Public Law 103-354 
environmental assessment shall be prepared in the following format. It 
shall address the listed items and questions and contain as attachments 
the indicated descriptive materials, as well as the environmental 
information submitted by the applicant, Form FmHA or its successor 
agency under Public Law 103-354 1940-20, ``Request for Environmental 
Information.''
    The assessment has been designed to cover the wide variety of 
projects and environments with which the Agency deals. Consequently, not 
every issue or potential impact raised in the assessment may be relevant 
to each project. The purpose of the format is to give the preparer an 
understanding of a standard range of impacts, environmental factors, and 
issues which may be encountered. In preparing an assessment, each topic 
heading identified by a Roman numeral and each environmental factor 
listed under topic heading IV, such as air quality, for example, must be 
addressed.
    The amount of analysis and material that must be provided will 
depend upon the type and size of the project, the environment in which 
it is located, and the range and complexity of the potential impacts. 
The amount of analysis and detail provided, therefore, must be 
commensurate with the magnitude of the expected impact. The analysis of 
each environmental factor (i.e., water quality) must be taken to the 
point that a conclusion can be reached and supported concerning the 
degree of the expected impact with respect to that factor.
    For example, a small community center may not require detailed 
information on air emissions or solid waste management, but an 
industrial facility would. Similarly, an irrigation project for a 
farming operation would concentrate on such factors as water quality and 
fish and wildlife, rather than land use changes. The extension of a 
water or sewer system or the approval of a subdivision, on the other 
hand, would have to give close attention to all factors, with potential 
land use changes being a particularly important one.

                     I. Project Description and Need

    Identify the name, project number, location, and specific elements 
of the project along with their sizes, and, when applicable, their 
design capacities. Indicate the purpose of the project, FmHA or its 
successor agency under Public Law 103-354's position regarding the need 
for it, and the extent or area of land to be considered as the project 
site.

[[Page 68]]

            II. Primary Beneficiaries and Related Activities

    Identify any existing businesses or major developments that will 
benefit from the project and those which will expand or locate in the 
area because of the project. Specify by name, product, service, and 
operations involved.
    Identify any related activities which are defined as interdependent 
parts of a FmHA or its successor agency under Public Law 103-354 action. 
Such undertakings are considered interdependent parts whenever they 
either make possible or support the FmHA or its successor agency under 
Public Law 103-354 action or are themselves induced or supported by the 
FmHA or its successor agency under Public Law 103-354 action or another 
related activity. These activities may have been completed in the very 
recent past and are now operational, or they may reasonably be expected 
to be accomplished in the near future. Related activities may or may not 
be federally permitted or assisted. When they are, identify the involved 
Federal Agency(s).
    In completing the remainder of the assessment, it must be remembered 
that the impacts to be addressed are those which stem from the project, 
the primary beneficiaries, and the related activities.

                    III. Description of Project Area

    Describe the project site and its present use. Describe the 
surrounding land uses; indicate the directions and distances involved. 
The extent of the surrounding land to be considered depends on the 
extent of the impacts of the project, its related activities, and the 
primary beneficiaries. Unique or sensitive areas must be pointed out. 
These include residential, schools, hospitals, recreational, historical 
sites, beaches, lakes, rivers, parks, floodplains, wetlands, dunes, 
estuaries, barrier islands, natural landmarks, unstable soils, steep 
slopes, aquifer recharge areas, important farmlands and forestlands, 
prime rangelands, endangered species habitats or other delicate or rare 
ecosystems.
    Attach adequate location maps of the project area, as well as (1) a 
U.S. Geological Survey ``15 minute'' (``7\1/2\ minute,'' if available,) 
topographic map which clearly delineates the area and the location of 
the project elements, (2) the Department of Housing and Urban 
Development's floodplain map(s) for the project area, (3) site photos, 
(4), if completed, a standard soil survey for the project, and (5), if 
available, an aerial photograph of the site. When necessary for 
descriptive purposes or environmental analysis, include land use maps or 
other graphic information. All graphic materials shall be of high 
quality resolution.

                        IV. Environmental Impact

    1. Air Quality. Discuss, in terms of the amounts and types of 
emissions to be produced, all aspects of the project including 
beneficiaries' operations and known indirect effects (such as increased 
motor vehicle traffic) which will affect air quality. Indicate the 
existing air quality in the area. Indicate if topographical or 
meteorological conditions hinder or affect the dispersal of air 
emissions. Evaluate the impact on air quality given the types and 
amounts of projected emissions, the existing air quality, and 
topographical and meterological conditions. Discuss the project's 
consistency with the State's air quality implementation plan for the 
area, the classification of the air quality control region within which 
the project is located, and the status of compliance with air quality 
standards within that region. Cite any contacts with appropriate experts 
and agencies which must issue necessary permits.
    2. Water Quality. Discuss, in terms of amounts and types of 
effluents, all aspects of the project including primary beneficiaries' 
operations and known indirect effects which will affect water quality. 
Indicate the existing water quality of surface and/or underground water 
to be affected. Evalute the impacts of the project on this existing 
water quality. Indicate if an aquifer recharge area is to be adversely 
affected. If the project lies within or will affect a sole source 
aquifer recharge area as designated by EPA, contact the appropriate EPA 
regional office to determine if its review is necessary. If it is, 
attach the results of its review.
    Indicate the source and available supply of raw water and the extent 
to which the additional demand will affect the raw water supply. 
Describe the wastewater treatment system(s) to be used and indicate 
their capacity and their adequacy in terms of the degree of treatment 
provided. Discuss the characteristics and uses of the receiving waters 
for any sources of discharge. If the treatment systems are or will be 
inadequate or overloaded, describe the steps being taken for necessary 
improvements and their completion dates. Compare such dates to the 
completion date of the FmHA or its successor agency under Public Law 
103-354 project. Analyze the impacts on the receiving water during any 
estimated period of inadequate treatment.
    Discuss the project's consistency with the water quality planning 
for the area, such as EPA's Section 208 area-wide waste treatment 
management plan. Discuss the project's consistency with applicable State 
water quality standards to include a discussion of whether or not the 
project would either impair any such standard or fail to meet 
antidegradation requirements for point or

[[Page 69]]

nonpoint sources. Describe how surface runoff is to be handled and the 
effect of erosion on streams.
    Evaluate the extent to which the project may create shortages for or 
otherwise adversely affect the withdrawal capabilities of other present 
users of the raw water supply, particularly in terms of possible human 
health, safety, or welfare problems.
    For projects utilizing a groundwater supply, evaluate the potential 
for the project to exceed the safe pumping rate for the aquifer to the 
extent that it would (1) adversely affect the pumping capability of 
present users, (2) increase the likelihood of brackish or saltwater 
intrusion, thereby decreasing water quality, or (3) substantially 
increase surface subsidence risks.
    For projects utilizing a surface water supply, evaluate the 
potential for the project to (1) reduce flows below the minimum required 
for the protection of fish and wildlife or (2) reduce water quality 
standards below those established for the stream classification at the 
point of withdrawal or the adjacent downstream section.
    Cite contacts with appropriate experts and agencies that must issue 
necessary permits.
    3. Solid Waste Management. Indicate all aspects of the project 
including primary beneficiaries' operations, and known indirect effects 
which will necessitate the disposal of solid wastes. Indicate the kinds 
and expected quantities of solid wastes involved and the disposal 
techniques to be used. Evaluate the adequacy of these techniques 
especially in relationship to air and water quality. Indicate if 
recycling or resource recovery programs are or will be used. Cite any 
contacts with appropriate experts and agencies that must issue necessary 
permits.
    4. Land Use. Given the description of land uses as previously 
indicated, evaluate (a) the effect of changing the land use of the 
project site and (b) how this change in land use will affect the 
surrounding land uses and those within the project's area of 
environmental impact. Particularly address the potential impacts to 
those unique or sensitive areas discussed under Section III, Description 
of Project Area, which are not covered by the specific analyses required 
in Sections V-XI. Describe the existing land use plan and zoning 
restrictions for the project area. Evaluate the consistency of the 
project and its impacts on these plans. For all actions subject to the 
requirements of exhibit M of this subpart indicate (a) whether or not 
highly erodible land, wetland or converted wetland is present, (b) if 
any exemption(s) applies to the requirements of exhibit M, (c) the 
status of the applicant's eligibility for an FmHA or its successor 
agency under Public Law 103-354 loan under exhibit M and (d) any steps 
the applicant must take prior to loan approval to retain or retain its 
eligibility. Attach a completed copy of Form SCS-CPA-26, ``Highly 
Erodible Land and Wetland Conservation Determination,'' for the action.
    5. Transportation. Describe available facilities such as highways 
and rail. Discuss whether the project will result in an increase in 
motor vehicle traffic and the existing roads' ability to safely 
accommodate this increase. Indicate if additional traffic control 
devices are to be installed. Describe new traffic patterns which will 
arise because of the project. Discuss how these new traffic patterns 
will affect the land uses described above, especially residential, 
hospitals, schools, and recreational. Describe the consistency of the 
project's transportation impacts with the transportation plans for the 
area and any air quality control plans. Cite any contact with 
appropriate experts.
    6. Natural Environment. Indicate all aspects of the project 
including construction, beneficiaries' operations, and known indirect 
effects which will affect the natural environment including wildlife, 
their habitats, and unique natural features. Cite contacts with 
appropriate experts. If an area listed on the National Registry of 
Natural Landmarks may be affected, consult with the Department of 
Interior and document these consultations and any agreements reached 
regarding avoidance or mitigation of potential adverse impacts.
    7. Human Population. Indicate the number of people to be relocated 
and arrangements being made for this relocation. Discuss how impacts 
resulting from the project such as changes in land use, transportation 
changes, air emissions, noise, odor, etc. will affect nearby residents 
and users of the project area and surrounding areas. Discuss whether the 
proposal will accommodate any population increases and, if so, describe 
the potential impacts of these increases on the area's public and 
community services such as schools, health care, social services, and 
fire protection. Cite contacts with appropriate experts.
    8. Construction. Indicate the potential effects of construction of 
the project on air quality, water quality, noise levels, solid waste 
disposal, soil erosion and siltation. Describe the measures that will be 
employed to limit adverse effects. Give particular consideration to 
erosion, stream siltation, and clearing operations.
    9. Energy Impacts. Indicate the project's and its primary 
beneficiaries' effects on the area's existing energy supplies. This 
discussion should address not only the direct energy utilization, but 
any major indirect utilization resulting from the siting of the project. 
Describe the availability of these supplies to the project site. Discuss 
whether the project will utilize a large share of the remaining capacity 
of an energy supply or will create a shortage of such supply. Discuss 
any steps to be taken to conserve energy.

[[Page 70]]

    10. Discuss any of the following areas which may be relevant: noise, 
vibrations, safety, seismic conditions, fire-prone locations, radiation, 
and aesthetic considerations. Cite any disucssion with appropriate 
experts.

                     V. Coastal Zone Management Act*
---------------------------------------------------------------------------

    * Complete only if coastal or Great Lakes State.
---------------------------------------------------------------------------

    Indicate if the project is within or will impact a coastal area 
defined as such by the State's approved Coastal Zone Management Program. 
If so, consult with the State agency responsible for the Program to 
determine the project's consistency with it. The results of this 
coordination shall be included in the assessment and considered in 
completing the environmental impact determination and environmental 
findings (Item XXI below).

    VI. Compliance With Advisory Council on Historic Preservation's 
                               Regulations

    In this Section, the environmental reviewer shall detail the steps 
taken to comply with the above regulations as specified in subpart F of 
part 1901 of this chapter. First, indicate that the National Register of 
Historic Places, including its monthly supplements, has been reviewed 
and whether there are any listed properties located within the area to 
be affected by the project. Second, indicate the steps taken such as 
historical/archeological surveys to determine if there are any 
properties eligible for listing located within the affected area. 
Summarize the results of the consultation with the State Historic 
Preservation Officer (SHPO) and attach appropriate documentation of the 
SHPO's views. Discuss the views of any other experts contacted. Based 
upon the above review process and the views of the SHPO, state whether 
or not an eligible or listed property will be affected.
    If there will be an effect, discuss all of the steps and protective 
measures taken to complete the advisory Council's regulations. Describe 
the affected property and the nature of the effect. Attach to the 
assessment the results of the coordination process with the Advisory 
Council on Historic Preservation.

           VII. Compliance With the Wild and Scenic Rivers Act

    Indicate whether the project will affect a river or portion of it 
which is either included in the National Wild and Scenic Rivers System 
or designated for potential addition to the system. This analysis shall 
be conducted through discussions with the appropriate regional office of 
the National Park Service or the Forest Service when its lands are 
involved, as well as the appropriate State agencies having 
implementation authorities. See exhibit E for specific implementation 
instructions for this Act. A summary of discussions held or any required 
formal coordination shall be included in the assessment and considered 
in completing the environmental impact determination and environmental 
findings (Item XXI below).

            VIII. Compliance With the Endangered Species Act

    Indicate whether the project will either (1) affect a listed 
endangered or threatened species or critical habitat or (2) adversely 
affect a proposed critical habitat for an endangered or threatened 
species or jeopardize the continued existence of a proposed endangered 
or threatened species. This analysis will be conducted in consultation 
with the Fish and Wildlife Service and the National Marine Fisheries 
Service, when appropriate. Any formal or informal consultations 
conducted with these agencies as well as any State wildlife protection 
agency will also address impacts to Category I and Category II species. 
See exhibit D of this subpart for specific implementation instructions.
    The results of any required coordination shall be included in the 
assessment along with any completed biological opinion and mitigation 
measures to be required for the project. These factors shall be 
considered in completing the environmental impact determination.

  IX. Compliance With Farmland Protection Policy Act and Departmental 
                   Regulation 9500-3, Land Use Policy

    Indicate whether the project will either directly or indirectly 
convert an important land resource(s) identified in the Act or 
Departmental Regulation, other than floodplains or wetlands which should 
be addressed below in Item X of this exhibit. If a conversion may 
result, determine if there is a practicable alternative to avoiding it. 
If there is no such alternative, determine whether all practicable 
mitigation measures are included in the project. Document as an 
attachment these determinations and the steps taken to inform the 
public, locate alternatives, and mitigate potential adverse impacts. See 
exhibit C of this subpart for specific implementation guidance.

  X. Compliance With Executive Order 11988, Floodplain Management, and 
              Executive Order 11990, Protection of Wetlands

    Indicate whether the project is either located within a 100-year 
floodplain (500-year floodplain for a critical action) or a wetland or 
will impact a floodplain or wetland. If so, determine if there is a 
practicable alternative project or location. If there is no such 
alternative, determine whether all practicable mitigation measures are 
included in the project and document as an attachment these 
determinations and the steps taken to

[[Page 71]]

inform the public, locate alternatives, and mitigate potential adverse 
impacts. See the U.S. Water Resources Council's Floodplain Management 
Guidelines for more specific guidance as well as exhibit C of this 
subpart.

            XI. Compliance With Coastal Barrier Resources Act

    Indicate whether the project is located within the Coastal Barrier 
Resources System. If so, indicate whether or not the project meets an 
exception criteria under the Act and the results of any consultation 
with the Secretary of the Interior regarding its qualification as an 
exception. See exhibit F of this subpart for specific implementation 
instructions as well as exhibit L for a listing of the exception 
criteria. (Those States not having any components of the system within 
their jurisdiction need not reference this item in their assessments.)

                   XII. State Environmental Policy Act

    Indicate if the proposed project is subject to a State environmental 
policy act or similar regulation. Summarize the results of compliance 
with these requirements and attach available documentation. (See Sec. 
1940.328 of this subpart for further guidance.)

       XIII. Consultation Requirements of Executive Order 12372, 
              Intergovernmental Review of Federal Programs

    Attach the comments of State, regional, or local agencies (if this 
review process is required for the project) and respond to all comments 
that deal with the subject matters discussed in this assessment format 
or are otherwise of an environmental nature.

       XIV. Environmental Analysis of Participating Federal Agency

    Indicate if another Federal Agency is participating in the project 
either through the provision of additional funds, a companion project, 
or a permit review authority. Summarize the results of the involved 
Agency's environmental impact analysis and attach available 
documentation. (See Sec. 1940.318(d) of this subpart for further 
guidance.)

                         XV. Reaction to Project

    Discuss any negative comments or public views raised about the 
project and the consideration given to these comments. Indicate whether 
a public hearing or public information meeting has been held either by 
the applicant or FmHA or its successor agency under Public Law 103-354 
to include a summary of the results and any objections raised. Indicate 
any other examples of the community's awareness of the project, such as 
newspaper articles or public notifications.

                         XVI. Cumulative Impacts

    Summarize the cumulative impacts of this project and the related 
activities. Give particular attention to land use changes and air and 
water quality impacts. Summarize the results of the environmental impact 
analysis done for any of these related activities and/or your discussion 
with the sponsoring agencies. Attach available documentation of the 
analysis.

                          XVII. Adverse Impact

    Summarize the potential adverse impacts of the proposal as pointed 
out in the above analysis.

                           XVIII. Alternatives

    Discuss the feasibility of alternatives to the project and their 
environmental impacts. These alternatives should include (a) alternative 
locations, (b) alternative designs, (c) alternative projects having 
similar benefits, and (d) no project. If alternatives have been fully 
discussed above in any of Items VI through X, simply reference that 
discussion.

                        XIX. Mitigation Measures

    Describe any measures which will be taken or required by FmHA or its 
successor agency under Public Law 103-354 to avoid or mitigate the 
identified adverse impacts. Analyze the environmental impacts and 
potential effectiveness of the mitigation measures. Such measures shall 
be included as special requirements or provisions to the offer of 
financial assistance or other appropriate approval document, if this 
action does not involve financial assistance.

 XX. Consistency With FmHA or Its Successor Agency Under Public Law 103-
                       354 Environmental Policies

    Discuss the project's consistencies and inconsistencies with the 
Agency's environmental policies and the State Office's Natural Resource 
Management Guide. See Sec. Sec. 1940.304 and 1940.305 for a discussion 
of these policies and exhibit B for a discussion of the guide.

                    XXI. Environmental Determinations

    The following recommendations shall be completed:
    a. Based on an examination and review of the foregoing information 
and such supplemental information attached hereto, I recommend that the 
approving official determine that this project will have () a 
significant effect on the quality of the human environment and an 
Environmental Impact Statement must be prepared; will not have 
() a significant effect on the quality of the human 
environment.

[[Page 72]]

    b. I recommend that the approving official make the following 
compliance determinations for the below-listed environmental 
requirements.

 
 Not in compliance         In compliance
 
                     .  ...................  .  Clean Air Act.
                     .  ...................  .  Federal Water Pollution
                                                 Control Act.
                     .  ...................  .  Safe Drinking Water Act--
                                                 Section 1424(e).
                     .  ...................  .  Endangered Species Act.
                     .  ...................  .  Coastal Barrier
                                                 Resources Act.
                     .  ...................  .  Coastal Zone Management
                                                 Act--Section 307(c) (1)
                                                 and (2).
                     .  ...................  .  Wild and Scenic Rivers
                                                 Act.
                     .  ...................  .  National Historic
                                                 Preservation Act.
                     .  ...................  .  Archeological and
                                                 Historic Preservation
                                                 Act.
                     .  ...................  .  Subpart B, Highly
                                                 Erodible Land
                                                 Conservation
                     .  ...................  .  Subpart C, Wetland
                                                 Conservation, of the
                                                 Food Security Act.
                     .  ...................  .  Executive Order 11988,
                                                 Floodplain Management.
                     .  ...................  .  Executive Order 11990,
                                                 Protection of Wetlands.
                     .  ...................  .  Farmland Protection
                                                 Policy Act.
                     .  ...................  .  Departmental Regulation
                                                 9500-3, Land Use
                                                 Policy.
                     .  ...................  .  State Office Natural
                                                 Resource Management
                                                 Guide.
 

    c. I have reviewed and considered the types and degrees of adverse 
environmental impacts identified by this assessment. I have also 
analyzed the proposal for its consistency with FmHA or its successor 
agency under Public Law 103-354 environmental policies, particularly 
those related to important farmland protection, and have considered the 
potential benefits of the proposal. Based upon a consideration and 
balancing of these factors, I recommend from an environmental standpoint 
that the project

------ be approved.
------ not be approved because of the attached reasons.
Signature of preparer*__________________________________________________
---------------------------------------------------------------------------

    *See Sec. 1940.316 of this subpart for listing of officials 
responsible for preparing assessment.
---------------------------------------------------------------------------

Date____________________________________________________________________
Title___________________________________________________________________
State Environmental Coordinator's Review (When required by Sec. 
1940.316 of this subpart)
    I have reviewed this environmental assessment and supporting 
documentation. Following are my positions regarding its adequacy and the 
recommendations reached by the preparer. For any matter in which I do 
not concur, my reasons are attached as exhibit ----.

 
   Do not concur               Concur
 
                     .  ...................  .  Adequate Assessment.
                     .  ...................  .  Environmental Impact
                                                 Determination.
                     .  ...................  .  Compliance
                                                 Determinations.
                     .  ...................  .  Project Recommendation.
 

Signature of State Environmental Coordinator____________________________
Date____________________________________________________________________

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 36266, Sept. 19, 1988]

     Exhibit I to Subpart G of Part 1940--Finding of No Significant 
                          Environmental Impact

SUBJECT: Finding of No Significant Environmental Impact and Necessary 
          Environmental Findings for (insert name, location, and any 
          identification number of project).
TO: Project File.

    The attached environmental assessment has been completed for the 
subject proposal by the FmHA or its successor agency under Public Law 
103-354 environmental reviewer. After reviewing the assessment and the 
supporting materials attached to it, I find that the subject proposal 
will not significantly affect the quality of the human environment. 
Therefore, the preparation of an environmental impact statement is not 
necessary.
    I also find that the assessment properly documents the proposal's 
status of compliance with the environmental laws and requirements listed 
therein.

    Insert signature and title of approving official as specified in 
Sec. 1940.316 of this subpart. --------(Date).

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 36266, Sept. 19, 1988]

Exhibit J to Subpart G of Part 1940--Locations and Telephone Numbers of 
     Federal Emergency Management Administration's Regional Offices

------------------------------------------------------------------------
  Federal region           Location           FTS No.*   Commercial No.
------------------------------------------------------------------------
I................  Boston, MA..............   223-4741    (617) 223-4741
II...............  New York, NY............   264-8980    (212) 264-8980
III..............  Philadelphia, PA........   597-9416    (215) 597-9416

[[Page 73]]

 
IV...............  Atlanta, GA.............   257-2400    (404) 881-2400
V................  Chicago, IL.............   353-1500    (312) 353-1500
VI...............  Dallas, TX..............   749-9201    (817) 387-5811
VII..............  Kansas City, MO.........   758-5912    (816) 374-5912
VIII.............  Denver, CO..............   234-2553    (303) 234-2553
IX...............  San Francisco, CA.......   556-8794    (415) 556-8794
X................  Seattle, WA.............   396-0284    (206) 481-8800
------------------------------------------------------------------------
*This is the main number for the regional office. For floodplain
  information, ask for the Natural and Technological Hazards Division.

Exhibit K to Subpart G of Part 1940--Locations and Telephone Numbers of 
          U.S. Fish and Wildlife Service's Wetland Coordinators

    The U.S. Fish and Wildlife Service (FWS) is presently preparing the 
National Wetlands Inventory. Each regional office of the FWS has named a 
staff member as a Wetland Coordinator. These individuals can provide 
updated information concerning existing State and local wetland surveys 
and Federal inventories. Listed below are the FWS regional offices and 
their areas of responsibility.

                                Region I

Portland, OR--FTS 429-6154; Commercial (503) 231-6154.
Areas Covered: California, Hawaii, Idaho, Nevada, Oregon, Washington, 
U.S. Pacific Trust, Territories and Possessions.

                                Region II

Albuquerque, NM--FTS 474-3152; Commercial (505) 766-2914.
Areas Covered: Arizona, New Mexico, Oklahoma, Texas.

                               Region III

Twin Cities, MN--FTS 725-3593; Commercial (612) 725-3593.
Areas Covered: Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin.

                                Region IV

Atlanta, GA--FTS 242-6343; Commercial (404) 221-6343.
Areas Covered: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, 
Mississippi, North Carolina, Panama Canal Zone, Puerto Rico, South 
Carolina, Tennessee, Virgin Islands.

                                Region V

Newton Corner, MA--FTS 829-9379; Commercial (617) 965-5100, Ext. 379.
Areas Covered: Connecticut, Delaware, District of Columbia, Maine, 
Maryland, Massachusetts, New Hampshire, New Jersey, New York, 
Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia.

                                Region VI

Denver, CO--FTS 234-5586; Commercial (303) 234-5586.
Areas Covered: Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, 
North Dakota, South Dakota, Utah, Wyoming.

                           Alaska Area Office

Anchorage, AK--Commercial (907) 263-3403.

                             National Office

St. Petersburg, FL--FTS 826-3624; Commercial (813) 893-3624.

   Exhibit L to Subpart G of Part 1940--Exceptions to Restrictions of 
                      Coastal Barrier Resources Act

                          Section 6 Exceptions*
---------------------------------------------------------------------------

    *Quoted from section 6 of the Act, Pub. L. 97-348.
---------------------------------------------------------------------------

    (a) Notwithstanding section 5, the appropriate Federal officer, 
after consultation with the Secretary, may make Federal expenditures or 
financial assistance available within the Coastal Barrier Resources 
System for--
    (1) Any use or facility necessary for the exploration, extraction, 
or transportation of energy resources which can be carried out only on, 
in, or adjacent to coastal water areas because the use or facility 
requires access to the coastal water body;
    (2) The maintenance of existing channel improvements and related 
structures, such as jetties, and including the disposal of dredge 
materials related to such improvements;
    (3) The maintenance, replacement, reconstruction, or repair, but not 
the expansion, of publicly owned or publicly operated roads, structures, 
or facilities that are essential links in a larger network or system;
    (4) Military activities essential to national security;
    (5) The construction, operation, maintenance, and rehabilitation of 
Coast Guard facilities and access thereto; and
    (6) Any of the following actions or projects, but only if the making 
available of expenditures or assistance therefor is consistent with the 
purposes of this Act:
    (A) Projects for the study, management, protection and enhancement 
of fish and wildlife resources and habitats, including, but not limited 
to, acquisition of fish and wildlife habitats and related lands, 
stabilization projects for fish and wildlife habitats, and recreational 
projects.
    (B) The establishment, operation, and maintenance of air and water 
navigation aids and devices, and for access thereto.
    (C) Projects under the Land and Water Conservation Fund Act of 1965 
(16 U.S.C.

[[Page 74]]

4601-4 through 11) and the Coastal Zone Management Act of 1972 (16 
U.S.C. 1452 et seq.).
    (D) Scientific research, including but not limited to aeronautical, 
atmospheric, space, geologic, marine, fish and wildlife and other 
research, development and applications.
    (E) Assistance for emergency actions essential to the saving of 
lives and the protection of property and the public health and safety, 
if such actions are performed pursuant to sections 305 and 306 of the 
Disaster Relief Act of 1974 (42 U.S.C. 5145 and 5146) and section 1362 
of the National Flood Insurance Act of 1968 (42 U.S.C. 4103) and are 
limited to actions that are necessary to alleviate the emergency.
    (F) The maintenance, replacement, reconstruction, or repair, but not 
the expansion, of publicly owned or publicly operated roads, structures, 
or facilities.
    (G) Nonstructural projects for shoreline stabilization that are 
designed to mimic, enhance, or restore natural stabilization systems.
    (b) For purposes of subsection (a)(2), a channel improvement or a 
related structure shall be treated as an existing improvement or an 
existing related structure only if all, or a portion, of the moneys for 
such improvement or structure was appropriated before the date of the 
enactment of this Act.

 Exhibit M to Subpart G of Part 1940--Implementation Procedures for the 
   Conservation of Wetlands and Highly Erodible Land Affecting Farmer 
    Program Loans and Loans to Indian Tribes and Tribal Corporations

    1. Background. This exhibit implements the requirements of Subtitle 
B, Highly Erodible Land Conservation, and Subtitle C, Wetland 
Conservation, of Title XII of the Food Security Act of 1985, Pub. L. 99-
198. The purposes of these Subtitles are to: Reduce soil loss due to 
wind and water erosion; protect the Nation's long term capability to 
produce food and fiber; reduce sedimentation; improve water quality; 
assist in preserving the Nation's wetlands; create better habitat for 
fish and wildlife through improved food and cover; and curb production 
of surplus commodities by removing certain incentives for persons to 
produce agricultural commodities on highly erodible land or converted 
wetland.
    2. Applicability. The provisions of this exhibit apply to insured 
and guaranteed Farmer Program loans and loans to Indian Tribes and 
Tribal Corporations, subordinations, transfers and assumptions of such 
loans and leases and credit sales of inventory property. For the purpose 
of this exhibit, ``Farmer Program loans'' means Farm Operating Loans, 
Farm Ownership Loans, Emergency Loans, and Soil and Water Loans. As used 
in this exhibit, the word loan is meant to include guarantee as well. 
Applicant means an applicant for either an insured or guaranteed loan 
and borrower means a recipient of either an insured or guaranteed loan.
    3. FmHA or its successor agency under Public Law 103-354 prohibited 
activities. Unless otherwise exempted by the provisions of this exhibit, 
the proceeds of any Farmer Program loan or loan to an Indian Tribe or 
Tribal Corporation made or guaranteed by FmHA or its successor agency 
under Public Law 103-354 will not be used either (a) for a purpose that 
will contribute to excessive erosion of highly erodible land, or (b) for 
a purpose that will contribute to conversion of wetlands to produce an 
agricultural commodity. (See Sec. 12.2(a)(1) of subpart A of part 12 of 
subtitle A of title 7, which is attachment 1 of this exhibit and is 
available in any FmHA or its successor agency under Public Law 103-354 
office, for the definition of an agricultural commodity.) Consequently, 
any applicant proposing to use loan proceeds for an activity 
contributing to either such purpose, will not be eligible for the 
requested loan. Any borrower that uses loan proceeds in a manner that 
contributes to either such purpose will be in default on the loan.
    a. U.S. Department of Agriculture (USDA) definitions. In 
implementing this exhibit, FmHA or its successor agency under Public Law 
103-354 will use the USDA's definitions of the terms found at Sec. 12.2 
of subpart A of part 12 of subtitle A of title 7 (attachment 1 of this 
exhibit which is available in any FmHA or its successor agency under 
Public Law 103-354 office).
    b. Highly erodible land conservation. FmHA or its successor agency 
under Public Law 103-354 will conclude that excessive erosion of highly 
erodible land results or would result whenever (1) a field on which 
highly erodible land is predominant, as determined by the Soil 
Conservation Service (SCS), is or would be used to produce an 
agricultural commodity without conformance to a conservation system 
approved either by SCS or the appropriate conservation district, as 
evidenced by a statement from SCS, and (2) such field is not exempt from 
the provisions of this exhibit.
    c. Wetland conservation. FmHA or its successor agency under Public 
Law 103-354 will conclude that a conversion of wetlands to produce an 
agricultural commodity has occurred or will occur whenever, as 
determined by SCS, (1) a wetland has or will be drained, dredged, 
filled, leveled, or otherwise manipulated (including any activity that 
results in impairing or reducing the flow, circulation, or reach of 
water) that makes possible the production of an agricultural commodity 
without further application of the manipulations described herein if (a) 
such production

[[Page 75]]

would not have been possible but for such action and (b) before such 
action such land was wetland and was neither highly erodible land nor 
highly erodible cropland; and (2) neither the affected wetland nor the 
activity affecting the wetland is exempt from the provisions of this 
exhibit.
    d. Use of loan proceeds. To use loan proceeds for a purpose that 
contributes to either the excessive erosion of highly erodible land or 
the conversion of wetlands to produce an agricultural commodity means 
that loan proceeds will or have been used in a way that contributes to 
either excessive erosion of highly erodible land or the conversion of 
wetlands to produce an agricultural commodity by paying the costs of any 
of the following:
    (1) The purchase of the affected land;
    (2) Necessary planning, feasibility, or design studies;
    (3) Obtaining any necessary permits;
    (4) The purchase, contract, lease or renting of any equipment or 
materials necessary to carry out the land modification or conversion to 
include all associated operational costs such as fuel and equipment 
maintenance costs;
    (5) Any labor costs;
    (6) The planting, cultivating, harvesting, or marketing of any 
agricultural commodity produced on nonexempt highly erodible land to 
include any associated operational or material costs such as fuel, seed, 
fertilizer, and pesticide costs;
    (7) Within the crop year in which the wetland conversion was 
completed plus the next ten crop years thereafter, the planting, 
cultivating, harvesting, or marketing of any agricultural commodity 
produced on the affected land to include any associated operational or 
materials costs such as fuel, seed, fertilizer and pesticide costs; or
    (8) For the same time period as in subparagraph 3d(7) above, any 
costs associated with using for on-farm purposes an agricultural 
commodity grown on the affected land.
    (9) Additionally, if loan proceeds will be or have been substituted 
to pay other costs at anytime during the life of the loan so that non-
loan funds can be used to pay any of the above costs, it is deemed that 
loan proceeds will be or have been used for a purpose that contributes 
to the prohibited activities described in this paragraph.
    4. Prohibited activities under other USDA financial assistance 
programs. Unless otherwise exempted, a person becomes ineligible for a 
variety of USDA financial assistance programs if that person produces in 
any crop year an agricultural commodity on either a field on which 
highly erodible land is predominant or a converted wetland. This 
ineligibility extends to any commodity produced during the crop year 
that the prohibited action occurs. The programs for which the person 
would be ineligible include price support payments, farm storage 
facility loans, disaster payments, crop insurance, payments made for the 
storage of an agricultural commodity, and payments received under a 
Conservation Reserve Program Contract. Farmer Program applicants and 
borrowers and applicants for, and borrowers of, loans to Indian Tribes 
and Tribal Corporations, therefore, can be affected not only by the FmHA 
or its successor agency under Public Law 103-354 prohibited activities 
but also by the broad USDA sweep of the Subtitles B and C restrictions. 
Should such an applicant rely or plan to rely on any of these other USDA 
financial assistance programs as a source of funds to repay its FmHA or 
its successor agency under Public Law 103-354 loan(s) and then fail to 
meet the other program(s)' eligibility criteria related to wetland or 
highly erodible land conservation, repayment ability to FmHA or its 
successor agency under Public Law 103-354 or the lender of and FmHA or 
its successor agency under Public Law 103-354 guaranteed loan may be 
jeopardized. Consequently, those applicants who are applying for a loan 
and those borrowers who receive a loan after the effective date of 
Subtitles B and C, as designated in part 12 of subtitle A of title 7, 
and who include in their projected sources of repayment, potential funds 
from any USDA program subject to some form of Subtitle B or C 
restrictions will have to demonstrate as part of their applications, and 
for borrowers, as part of their farm plan of operation, their ability to 
meet the other program(s)' eligibility criteria. Failure to meet the 
criteria will require the applicant or borrower either to document an 
alternative, equivalent source of revenues or, if possible, agree to 
undertake any steps necessary to gain eligibility for the other 
program(s). See paragraph 6 of this exhibit for a discussion of such 
steps.
    5. Applicant's responsibilities.
    a. Required information. Every applicant for a Farmer Program loan 
or a loan to an Indian Tribe or Tribal Corporation will be required to 
provide the following information and, as applicable, certification as 
part of the application for financial assistance. An application will 
not be considered to be complete until this information and 
certification are provided to FmHA or its successor agency under Public 
Law 103-354. Once an applicant has provided FmHA or its successor agency 
under Public Law 103-354 with information from SCS on the presence of 
any highly erodible land, wetland, or converted wetland this information 
need not be provided again for a subsequent loan unless there is either 
a change in the property upon which FmHA or its successor agency under 
Public Law 103-354 loan proceeds will be applied or a change in the 
previous information, such as a change in the status of an exemption. 
There is a continuing responsibility

[[Page 76]]

on FmHA or its successor agency under Public Law 103-354 borrowers using 
other USDA financial assistance programs for repayment purposes to 
provide the County Supervisor with an executed copy of any similar 
certification required by the other USDA agency at the time of each 
required certification.
    (1) A statement from the SCS indicating whether or not the 
applicant's farm property or properties contain either highly erodible 
land, wetland, or converted wetland and, if so, whether or not the 
applicant qualifies for a particular exemption to the provisions of this 
exhibit and as further detailed in paragraph 11 below. The property or 
properties will be listed and described in accordance with the 
Agriculture Stabilization and Conservation Service's (ASCS) farm records 
system. SCS's execution of Form SCS-CPA-26, ``Highly Erodible Land and 
Wetland Conservation Determination,'' is necessary to meet this 
information requirement.
    (2) If either highly erodible land, wetland, or converted wetland is 
present, the applicant's properly executed original or carbon copy of 
Form AD-1026, ``Highly Erodible Land and Wetland Conservation 
Certification.''
    b. Required actions. If at any time during the application review 
process any of the information or basis for an applicant's certification 
changes, the applicant (or the lender in the case of a guaranteed loan) 
must immediately notify FmHA or its successor agency under Public Law 
103-354. If an applicant intends to produce an agricultural commodity on 
a nonexempt field on which highly erodible land is predominant, the 
applicant must develop a conservation system approved by SCS or the 
appropriate conservation district, demonstrate that it is or will be in 
compliance with the system at the time the field is to be used, and 
provide SCS's concurrence with this position.
    6. FmHA or its successor agency under Public Law 103-354's 
application review. The FmHA or its successor agency under Public Law 
103-354 County Supervisor will review the information provided by the 
applicant from SCS regarding the presence of any highly erodible land, 
wetland, or converted wetland and any possible exemptions and take the 
actions warranted by the presence of one or more of the circumstances 
described below. In carrying out these actions, FmHA or its successor 
agency under Public Law 103-354 will consider the technical decisions 
rendered by the SCS and the ASCS, as assigned to these agencies by 
subparts A, B, and C of part 12 of subtitle A of title 7 and further 
explained in this exhibit, to be final and controlling in the remaining 
FmHA or its successor agency under Public Law 103-354 decisionmaking 
process for this exhibit. It must also be understood that the definition 
of a wetland used by SCS in implementing this exhibit applies only to 
this exhibit and not to other wetland protection provisions of subpart G 
of part 1940.
    a. No highly erodible land, wetland, or converted wetland present. 
The requested loan can be approved under the provisions of this exhibit 
and, except for documenting this result in accordance with paragraph 8 
of this exhibit, no further action is required.
    b. Converted wetland present. The County Supervisor will consult 
with the applicant (and lender, in the case of a guaranteed loan) and 
the appropriate local office of the ASCS in order to determine if the 
converted wetland qualifies for the exemption specified in subparagraph 
c (1) of paragraph 11 of this exhibit. If so, no further action is 
necessary with respect to the converted wetland except for documenting 
the result. If the converted wetland does not qualify for an exemption, 
the County Supervisor will complete one or both of the following steps 
as the identified circumstances dictate.
    (1) Step one. Review both the date that the wetland was converted 
and the proposed use of loan proceeds in order to determine if loan 
proceeds will be used for a prohibited activity as defined in 
subparagraph d of paragraph 3 of this exhibit. If not, the County 
Supervisor will so document this as specified in paragraph 8 of this 
exhibit; complete step two immediately below; and, if an insured loan 
will be approved, notify the applicant in writing, coincident with the 
transmittal of Form FmHA or its successor agency under Public Law 103-
354 1940-1, ``Request For Obligation of Funds,'' and by using Form 
Letter 1940-G-1, ``Notification of The Requirements of exhibit M of FmHA 
Instruction 1940-G,'' that the loan approval instruments will contain 
compliance requirements affecting the applicant's converted wetland. If 
loan proceeds will be used for a prohibited activity, the applicant (and 
lender, in the case of a guaranteed loan) will be advised of the 
applicant's ineligibility for the FmHA or its successor agency under 
Public Law 103-354 loan being requested. The applicant (and lender, in 
the case of a guaranteed loan) will be advised of any modifications to 
the application that could cure the ineligibility. Not growing an 
agricultural commodity on the converted wetland would cure the 
ineligibility, but the substitution of non-FmHA or its successor agency 
under Public Law 103-354 funds to grow an agricultural commodity on the 
converted wetland would not.
    (2) Step two. The County Supervisor will review the applicant's 
sources of loan repayment to determine if they include funds from a USDA 
financial assistance program(s) subject to wetland conservation 
restrictions. If so, the County Supervisor will implement the actions in 
subparagraph e of this paragraph.
    c. Highly erodible land or wetland present. The County Supervisor 
will discuss with the

[[Page 77]]

applicant (and lender, in the case of a guaranteed loan) and review the 
intended uses of the FmHA or its successor agency under Public Law 103-
354 loan proceeds as evidenced in any relevant application materials.
    (1) Proceeds to be used for prohibited activity. If proceeds would 
be used for a prohibited activity, the applicant (and lender, in the 
case of a guaranteed loan) will be advised of its ineligibility for the 
FmHA or its successor agency under Public Law 103-354 loan. The 
applicant (and lender, in the case of a guaranteed loan) will be 
informed of any modifications to its application that could cure the 
ineligibility, including financially feasible eligible loan purposes 
that could be helpful in implementing a conservation plan or installing 
a conservation system, should either be an appropriate cure. 
Substitution of non-FmHA or its successor agency under Public Law 103-
354 monies to accomplish the prohibited activity would not cure the 
ineligibility, but actual elimination of the activity from the 
applicant's farm plan of operation would.
    (2) Proceeds not to be used for a prohibited activity. If loan 
proceeds are not planned to be used for a prohibited activity, the 
County Supervisor will perform the following tasks:
    (a) Document the above determination in the applicant's file as 
specified in paragraph 8 of this exhibit.
    (b) If an insured loan will be approved and the requirements of 
subparagraph c (2)(c) of this paragraph do not apply, notify the 
applicant in writing, coincident with the transmittal of Form FmHA or 
its successor agency under Public Law 103-354 1940-1, ``Request For 
Obligation of Funds,'' and by using Form Letter 1940-G-1, ``Notification 
of The Requirements of Exhibit M of FmHA Instruction 1940-G,'' that the 
loan approval instruments will contain compliance requirements affecting 
the applicant's highly erodible land and/or wetland.
    (c) Review the term of the proposed loan and take the following 
actions, as applicable.
    (i) Loan term exceeds January 1, 1990, but not January 1, 1995. If 
the term of the proposed loan expires within this period and the 
applicant intends to produce an agricultural commodity on highly 
erodible land that is exempt from the restrictions of this exhibit until 
either 1990 or two years after the SCS has completed a soil survey for 
the borrower's land, whichever is later, the County Supervisor will 
determine if it is financially feasible for the applicant, prior to loss 
of the exemption, to actively apply a conservation plan approved by SCS 
or the appropriate conservation district. See Sec. 12.23 of subpart A 
of part 12 of subtitle A of title 7, which is attachment 1 of this 
exhibit and is available in any FmHA or its successor agency under 
Public Law 103-354 office, for a definition of actively applying a 
conservation plan. Prior to loan approval, the applicant, the lender, 
(if a guaranteed loan is involved), FmHA or its successor agency under 
Public Law 103-354 and SCS will resolve any doubts as to what extent 
production would be able to continue under application of a conservation 
plan and as to the financial implications on loan repayment ability from 
both the potential costs of actively applying the conservation plan and 
the potential loss of revenues from any reduced acreage production base. 
The loan approval official will determine the financial implications of 
actively applying a conservation plan to the applicant's highly erodible 
land by developing a projected farm plan of operation or other farm 
financial projections that reflect adequate repayment on the full 
scheduled installments for all debt obligations at the time the 
conservation plan is being actively applied. If in making this 
determination, loan repayment ability cannot be demonstrated, FmHA or 
its successor agency under Public Law 103-354 will deny the loan 
application. If loan repayament ability can be demonstrated and an 
insured loan will be approved, the applicant will be advised in writing, 
coincident with the transmittal of Form FmHA or its successor agency 
under Public Law 103-354 1940-1, ``Request For Obligation of Funds,'' 
and using Form Letter 1940-G-1, ``Notification of The Requirements of 
Exhibit M of FmHA Instruction 1940-G,'' that the loan approval 
instruments will contain compliance requirements affecting the 
applicant's highly erodible land. The applicant will also be advised 
that a statement from the SCS issued prior to either January 1, 1990, or 
two years after the SCS has completed a soil survey of the applicant's 
land (whichever is later) and stating that the applicant is actively 
applying an approved conservation plan will be considered adequate 
demonstration of compliance on the highly erodible land affected by the 
1990 deadline.
    (ii) Loan term exceeds January 1, 1995. If the term of the proposed 
loan would exceed this date and the borrower intends to produce an 
agricultural commodity on highly erodible land that is exempt from the 
restrictions of the exhibit up until that date (see subparagraph b (4) 
of paragraph 11 of this exhibit) the County Supervisor will determine if 
it is financially feasible for the applicant, after January 1, 1985, to 
produce an agricultural commodity on the highly erodible land in 
compliance with a conservation system approved by SCS or the appropriate 
conservation district. Prior to loan approval, the applicant, the lender 
(if a guaranteed loan is involved), FmHA or its successor agency under 
Public Law 103-354 and SCS will resolve any doubts as to what extent 
production would be able to continue under a conservation system and as 
to the financial implications on loan repayment ability from both the 
potential costs of the conservation

[[Page 78]]

system and the potential loss of revenues from any reduced acreage 
production base. The loan approval official will determine the financial 
implications of compliance with a conservation system using the 
financial projection method(s) indicated in subparagraph c (2)(c)(i) of 
this paragraph. If loan repayment ability cannot be demonstrated, the 
application will be denied. If loan repayment ability can be 
demonstrated and an insured loan will be approved, the applicant will be 
advised in writing, coincident with the transmittal of Form 1940-1, 
``Request for Obligation of Funds,'' and using Form Letter 1940-G-1, 
``Notification of The Requirements of Exhibit M of FmHA Instruction 
1940-G,'' that the loan approval instruments will contain compliance 
requirements affecting the applicant's highly erodible land. The 
applicant will also be advised that a statement from SCS issued prior to 
January 1, 1995, and stating that the applicant is in compliance with an 
approved conservation system will be considered adequate demonstration 
of compliance.
    (d) Implement the actions in subparagraph e of this paragraph if the 
applicant plans to repay a portion of the loan with funds from a USDA 
financial assistance program subject to wetland or highly erodible land 
conservation restrictions.
    d. Highly erodible land present that was or is planted in alfalfa. 
If the applicant plans to cultivate highly erodible land for the purpose 
of producing an agricultural commodity and that highly erodible land 
during each of the 1981 to 1985 crop years was planted in alfalfa in a 
crop rotation determined by SCS to be adequate for the protection of 
highly erodible land, the applicant is exempt until June 1, 1988, from 
the requirement to fully implement an approved conservation system on 
the highly erodible land. The County Supervisor, following procedures 
similar to those indicated in subparagraph c (2)(c)(i) of this 
paragraph, will determine if it is financially feasible for the 
applicant to apply a conservation system to the highly erodible land 
prior to the loss of the exemption on June 1, 1988. If loan repayment 
ability cannot be demonstrated, the application will be denied. If loan 
repayment ability can be demonstrated and an insured loan will be 
approved, the applicant will be advised in writing that the loan 
approval instruments will contain compliance requirements affecting the 
applicant's highly erodible land. The applicant will also be advised 
that a statement from SCS issued prior to June 1, 1988 and stating that 
the applicant is in compliance with an approved conservation system will 
be considered adequate demonstration of compliance with this 
requirement.
    e. Highly erodible land, wetland, or converted wetland present and 
applicant intends to use the USDA financial assistance program(s), 
including crop insurance, to repay FmHA or its successor agency under 
Public Law 103-354 loan. The County Supervisor will consult with the 
applicant (and lender, in the case of a guaranteed loan) and the other 
USDA agency(s) to determine if the applicant is eligible for the 
latter's financial assistance. If not eligible, the applicant will have 
to demonstrate that an alternative source(s) of repayment will be 
available in order for further processing of the application to proceed.
    7. Required provisions in loan approval documents.
    a. Insured loans.
    (1) Promissory Notes. For all loans to which this exhibit applies, 
all promissory notes must contain the provision indicated below: (Form 
FmHA or its successor agency under Public Law 103-354 1940-17, 
``Promissory Note,'' has been revised so that the language will no 
longer be inserted as an addendum, but the following provision must be 
inserted as an addendum to Form FmHA or its successor agency under 
Public Law 103-354 440-22, ``Promissory Note (Association or 
Organization),'' if the loan is being made to an Indian Tribe or a 
Tribal Corporation.)

     ``Addendum for Highly Erodible Land and Wetland Conservation''

    Addendum to promissory note dated ---------------- in the amount of 
$------------ at an annual interest rate of ---- percent. This agreement 
supplements and attaches to the above note.
    Borrower recognizes that the loan described in this note will be in 
default should any loan proceeds be used for a purpose that will 
contribute to excessive erosion of highly erodible land or to the 
conversion of wetlands to produce an agricultural commodity, as further 
explained in 7 CFR part 1940, subpart G, exhibit M. If (1) the term of 
the loan exceeds January 1, 1990, but not January 1, 1995, and (2) 
Borrower intends to produce an agricultural commodity on highly erodible 
land that is exempt from the restrictions of exhibit M until either 
January 1, 1990 or two years after the U.S. Soil Conservation Service 
(SCS) has completed a soil survey for the Borrower's land, whichever is 
later, the Borrower further agrees that, prior to the loss of the 
exemption from the highly erodible land conservation restrictions found 
in 7 CFR part 12, Borrower must demonstrate that Borrower is actively 
applying on that land which has been determined to be highly erodible a 
conservation plan approved by the SCS or the appropriate conservation 
district in accordance with SCS's requirements. Furthermore, if the term 
of the loan exceeds January 1, 1995, Borrower further agrees that 
Borrower must demonstrate prior to January 1, 1995, that any production 
after that date of an agricultural commodity on highly erodible land 
will be done in compliance with a conservation system approved by SCS or

[[Page 79]]

the appropriate conservation district in accordance with SCS's 
requirements.
________________________________________________________________________
(Name of Borrower)
________________________________________________________________________
(Signature of Executive Official)
________________________________________________________________________
(Signature of Attesting Official)

    (2) Mortgages, deeds of trust and security agreements. State 
Directors will consult with the Office of General Counsel and ensure 
that for all loans to which this exhibit applies a covenant is included 
in all mortgages, deeds of trust, and security agreements which reads as 
indicated below. Form FmHA or its successor agency under Public Law 103-
354 440-15, ``Security Agreement (Insured Loans to Individuals),'' and 
Form FmHA or its successor agency under Public Law 103-354 440-4, 
``Security Agreement (Chattels and Crops),'' have been revised 
accordingly. Equivalent forms required in State supplements must be 
similarly revised.

                   [For mortgages or deeds of trust:]

    ``Borrower further agrees that the loan(s) secured by this 
instrument will be in default should any loan proceeds be used for a 
purpose that will contribute to excessive erosion of highly erodible 
land or to the conversion of wetlands to produce an agricultural 
commodity, as further explained in 7 CFR part 1940, subpart G, exhibit 
M.''

                       [For security agreements:]

    ``Default shall also exist if any loan proceeds are used for a 
purpose that will contribute to excessive erosion of highly erodible 
land or to the conversion of wetlands to produce an agricultural 
commodity, as further explained in 7 CFR part 1940, subpart G, exhibit 
M.''
    b. Guaranteed loans.
    (1) Form FmHA or its successor agency under Public Law 103-354 449-
14, ``Conditional Commitment for Guarantee,'' and Form FmHA or its 
successor agency under Public Law 103-354 1980-15, ``Conditional 
Commitment for Contract of Guarantee (Line of Credit).'' These forms 
must contain a condition that includes the following provisions:
    (a) Informs the lender that FmHA or its successor agency under 
Public Law 103-354's commitment is conditioned upon loan proceeds not 
being used for a purpose that will contribute to excessive erosion of 
highly erodible land or to the conversion of wetlands to produce an 
agricultural commodity, as explained in this exhibit;
    (b) Informs the lender of the lender's monitoring responsibilities 
under paragraph 10 of this exhibit; and;
    (c) Requires the lender, for all borrowers having highly erodible 
land, wetland, or converted on their farm properties, to include 
provisions in its loan instruments similar to those contained in 
subparagraphs a (1) and (2) of this paragraph.
    (2) Lender's loan and security instruments. These instruments must 
be modified as specified in subparagraph b(1)(c) of this paragraph.
    8. Required FmHA or its successor agency under Public Law 103-354 
documentation. The actions taken and determinations made by FmHA or its 
successor agency under Public Law 103-354 to comply with the provisions 
of this exhibit will be documented as part of the environmental review 
of the application. All actions subject to this exhibit will undergo at 
a minimum the completion of Form FmHA or its successor agency under 
Public Law 103-354 1940-22, ``Environmental Checklist for Categorical 
Exclusions.'' On the reverse of this form, the preparer will document as 
applicable (a) whether or not highly erodible land, wetland, or 
converted wetland is present, (b) if any exemption(s) applies, (c) the 
status of the applicant's eligibility for an FmHA or its successor 
agency under Public Law 103-354 loan under this exhibit, and (d) any 
steps the applicant must take prior to loan approval to retain or regain 
its eligibility. If the application under review meets the definition of 
a Class I action as defined in Sec. 1940.311 of this subpart, the above 
documentation will be included as an exhibit to Form FmHA or its 
successor agency under Public Law 103-354 1940-21, ``Environmental 
Assessment for Class I Action.'' If the application meets the definition 
of a Class II action as defined in Sec. 1940.312 of this subpart, the 
required documentation will be included within the Class II assessment 
under the discussion of land use impacts. See paragraph IV.4. of exhibit 
H of this subpart. Once an applicant's farm property has undergone an 
environmental review covering the provisions of this exhibit, the County 
Supervisor reviewing a subsequent loan request need not require the 
applicant to obtain further site information from SCS as long as there 
is no change in the farm property to be affected or any applicable 
exemptions.
    9. Borrowers' responsibilities. In addition to complying with any 
loan requirements resulting from FmHA or its successor agency under 
Public Law 103-354's implementation of this exhibit, a borrower must 
within ten days of receipt inform, in writing, the lender of a 
guaranteed loan and the County Supervisor for an insured loan of any 
ineligibility determinations received from other USDA agencies for 
violations of wetland or highly erodible land conservation restrictions. 
A borrower also has the responsibility to consult with the lender or 
County Supervisor, as applicable, if at any time the borrower is 
uncertain as to the borrower's duties and responsibility under the loan 
provisions.

[[Page 80]]

    10. FmHA or its successor agency under Public Law 103-354 and lender 
monitoring. As an element of insured loan servicing, to include 
development of a farm plan of operation for an upcoming crop year, 
scheduled farm visits, or other contracts with borrowers, FmHA or its 
successor agency under Public Law 103-354 staff will review and analyze 
the borrower's compliance with the provisions of this exhibit and any 
related loan requirements. If at anytime FmHA or its successor agency 
under Public Law 103-354 becomes aware of the borrower's violation of 
these provisions or related loan requirements, the borrower will be 
informed that the affected loan(s) is in default. In addition to 
directly monitoring borrowers, the County Supervisor will receive and 
review the monitoring results of other USDA agencies having restrictions 
on wetland and highly erodible land conservation. Whenever these results 
indicate that a borrower may have violated the loan conditions, the 
County Supervisor will further analyze the matter and respond, as 
indicated in this paragraph, should a violation be determined. Lenders 
of FmHA or its successor agency under Public Law 103-354 guaranteed 
loans must also monitor compliance as part of their servicing 
responsibilities.
    11. Exemptions and determining their applicability. Following is a 
list of exemptions from the provisions of this exhibit as well a 
description of how FmHA or its successor agency under Public Law 103-354 
will apply the exemptions to a proposed loan or activity under a loan. 
This list is intended to provide guidance on implementing the exemptions 
contained in subparts A, B, and C of part 12 of subtitle A of title 7 
(attachment 1 of this exhibit which is available in any FmHA or its 
successor agency under Public Law 103-354 office) and does not modify or 
limit any of those exemptions.
    a. Exemption from wetland and highly erodible land conservation. Any 
loan which was closed prior to December 23, 1985, or any loan for which 
either Form FmHA or its successor agency under Public Law 103-354 1940-
1, ``Request for Obligation of Funds,'' Form FmHA or its successor 
agency under Public Law 103-354 449-14, ``Conditional Commitment for 
Guarantee,'' or Form FmHA or its successor agency under Public Law 103-
354 1980-15, ``Conditional Commitment for Contract of Guarantee (Line of 
Credit),'' was executed prior to December 23, 1985, is exempt from the 
provisions of this exhibit.
    b. Exemptions from highly erodible land conservation. The following 
exemptions exist from the restrictions on highly erodible land 
conservation. Whenever the County Supervisor is required to consult with 
another USDA agency in applying these exemptions, the County 
Supervisor's review of a properly completed Form SCS-CPA-26 will be 
considered adequate consultation if the needed information is presented 
on the form and no questions are raised by the FmHA or its successor 
agency under Public Law 103-354 review.
    (1) Any land upon which an agricultural commodity was planted before 
December 23, 1985, is exempt for that particular planting. The County 
Supervisor will consult with the appropriate local ASCS office in 
applying this exemption and the ASCS determination is controlling for 
purposes of this exhibit.
    (2) Any land planted with an agricultural commodity during a crop 
year beginning before December 23, 1985, is exempt for that particular 
planting. FmHA or its successor agency under Public Law 103-354 will 
consult with the ASCS State Executive Director and the latter's position 
will be controlling in determining the date that the crop year began.
    (3) Any land that during any one of the crop years of 1981 through 
1985 was either (a) cultivated to produce an agricultural commodity, or 
(b) set aside, diverted or otherwise not cropped under a program 
administered by USDA to reduce production of an agricultural commodity, 
is exempt until the later of January 1, 1990, or the date that is two 
years after the date that the SCS has completed a soil survey of the 
land. To apply this exemption, the County Supervisor will consult with 
ASCS to determine from the latter's records whether or not the land was 
cultivated or set aside during the required period. The ASCS 
determination will be controlling. However, the date of completion for 
any SCS soil survey will be determined by SCS and used by the County 
Supervisor.
    (4) Beginning on January 1, 1990, or two years after SCS has 
completed a soil survey for the land, whichever is later, and extending 
to January 1, 1995, any land that qualified for the exemption in 
subparagraph b (3) of this paragraph is further exempt if a person is 
actively applying to it a conservation plan that is based on the local 
SCS technical guide and properly approved by the appropriate SCS 
conservation district or the SCS. To apply this exemption as well as the 
exemptions specified in subparagraphs b (5), (6), (7), and (8) of this 
paragraph, the County Supervisor will consult with the appropriate local 
SCS office and the SCS position will be controlling.
    (5) Highly erodible land within a conservation district and under a 
conservation system that has been approved by a conservation district 
after the district has determined that the conservation system is in 
conformity with technical standards set forth in the SCS technical guide 
for such district is exempt.
    (6) Highly erodible land not within a conservation district but 
under a conservation system determined by SCS to be adequate for the 
production of a specific agricultural commodity or commodities on any 
highly

[[Page 81]]

erodible land is exempt for the production of that commodity or 
commodities.
    (7) Highly erodible land that is planted in reliance on a SCS 
determination that such land was not highly erodible is exempt. The 
exemption is lost, however, for any agricultural commodity planted after 
SCS determines that such land is highly erodible land.
    (8) Highly erodible land planted or to be planted in an agricultural 
commodity that was planted in alfalfa during each of the 1981 and 1985 
crop years in a crop rotation determined by SCS to be adequate for the 
protection of highly erodible land is exempt until June 1, 1988, from 
the requirement that the highly erodible land be planted in compliance 
with an approved conservation system.
    c. Exemptions from wetland conservation. The following exemptions 
exist from the restrictions on wetland conservation. Whenever the County 
Supervisor is required to consult with another USDA agency in applying 
these exemptions, the County Supervisor's review of a properly completed 
Form SCS-CPA-26 will be considered adequate consultation if the needed 
information is presented on the form and no questions are raised by the 
FmHA or its successor agency under Public Law 103-354 review.
    (1) A converted wetland is exempt if the conversion of such wetland 
was completed or commenced before December 23, 1985. The County 
Supervisor will consult with ASCS whose determination as to when 
conversion of a wetland commenced will be final for FmHA or its 
successor agency under Public Law 103-354 purposes. Additionally, the 
County Supervisor will request evidence of ASCS's consultation with the 
U.S. Fish and Wildlife Service on each commenced determination reached 
for an FmHA or its successor agency under Public Law 103-354 applicant 
or borrower. SCS will determine if a wetland is a converted wetland 
using the criteria contained in Sec. 12.32 of subpart C of part 12 of 
subtitle A of title 7 (attachment 1 of this exhibit which is available 
in any FmHA or its successor agency under Public Law 103-354 office). 
Under these criteria, however, a converted wetland determined to be 
exempt may not always remain exempt. The criteria include the provision 
that if crop production is abandoned on a converted wetland and the land 
again meets the wetland criteria, that land has reverted to a wetland 
and is no longer exempt. For purposes of FmHA or its successor agency 
under Public Law 103-354 inventory farm properties, crop production will 
be considered to have been abandoned on a converted wetland either at 
the earlier of the time the former owner so abandoned crop production or 
at the time FmHA or its successor agency under Public Law 103-354 caused 
crop production to be abandoned after the property came into FmHA or its 
successor agency under Public Law 103-354's inventory. While in its 
inventory FmHA or its successor agency under Public Law 103-354 will not 
lease the converted wetland for the purpose of producing an agricultural 
commodity. Whether or not the wetland criteria are met on the abandoned 
land will be determined by SCS immediately before FmHA or its successor 
agency under Public Law 103-354's lease or sale of the property.
    (2) The following are not considered to be a wetland under the 
provisions of this exhibit: (a) An artificial lake, pond, or wetland 
created by excavating or diking non-wetland to collect and retain water 
for purposes such as water for livestock, fish production, irrigation 
(including subsurface irrigation), a settling basin, colling, rice 
production, or flood control; (b) a wet area created by a water delivery 
system, irrigation, irrigation system, or application of water for 
irrigation and (c) lands in Alaska identified by SCS as having a 
predominance of permafrost soils. The County Supervisor will consult 
with SCS regarding the application of this exemption as well as the 
remaining exemptions in this paragraph and the SCS position will be 
controlling.
    (3) A wetland is exempt if the production of an agricultural 
commodity is possible (a) as a result of a natural condition, such as 
drought, and (b) without action by the producer that destroys a natural 
wetland characteristic. This exemption is lost whenever condition (a) or 
(b) no longer exists.
    (4) Production of an agricultural commodity on a converted wetland 
is exempt is SCS determines that the effect of such action, individually 
and in connection with all other similar actions authorized in the area 
by USDA agencies, on the hydrological and biological aspect of wetland 
is minimal.
    12. Appeals. Any applicant or borrower that is directly and 
adversely affected by an administrative decision made by FmHA or its 
successor agency under Public Law 103-354 under this exhibit may appeal 
that decision under the provisions of subpart B of part 1900 of this 
chapter (see especially Sec. 1900.55).
    13. Working with other USDA agencies.
    a. Coordination. FmHA or its successor agency under Public Law 103-
354 State Directors will consult with SCS State Conservationists and 
ASCS State Executive Directors to assess and coordinate loan processing 
workloads in order to minimize delays in responding to FmHA or its 
successor agency under Public Law 103-354 requests for site information 
or for the application of the exemptions contained in paragraph 11 of 
this exhibit. State Directors will ensure that FmHA or its successor 
agency under Public Law 103-354 field staff understand and can use the 
ASCS farm records system and will request ASCS training as needed. Also, 
management systems for sharing the information discussed in subparagraph 
b of this paragraph will be established.

[[Page 82]]

    b. Information exchange. FmHA or its successor agency under Public 
Law 103-354 State Directors will develop with ASCS State Executive 
Directors a system for FmHA or its successor agency under Public Law 
103-354 to routinely receive notification whenever a violation has 
occurred under ASCS's wetland and highly erodible land conservation 
restrictions. FmHA or its successor agency under Public Law 103-354 
State Directors will in turn provide to any interested USDA agency the 
following information:
    (1) Upon request, copies of site information or exemption decision 
made by SCS for FmHA or its successor agency under Public Law 103-354 
application reviews;
    (2) Upon request, copies of exemption decisions made by FmHA or its 
successor agency under Public Law 103-354; and
    (3) Notice of any violations of the provisions of this exhibit 
identified by FmHA or its successor agency under Public Law 103-354 as a 
result of the monitoring activities identified in paragraph 10 of this 
exhibit.
    14. Relationship of the requirements of this exhibit to the wetland 
protection requirements of exhibit C of this subpart. The provisions of 
this exhibit determine (a) whether or not an applicant for a Farmer 
Program insured or guaranteed loan or a loan to an Indian Tribe or 
Tribal Corporation is eligible to be considered for such a loan, and (b) 
whether or not a recipient of such a loan is properly using the loan 
proceeds with respect to the requirements of this exhibit. On the other 
hand, the requirements in exhibit C of this subpart regarding wetland 
protection cover all FmHA or its successor agency under Public Law 103-
354 loan and grant programs and address not questions of eligibility but 
the potential environmental impacts of a proposed action on a wetland 
and alternatives to the action. Consequently, those applications covered 
by this exhibit and which may be approved under this exhibit must also 
meet the requirements of exhibit C of this subpart. For example, an 
application covered by this exhibit (M) that proposed to convert a 
wetland into a tree farm would be exempt from this exhibit (M) because 
trees are not an agricultural commodity, i.e., there is no conversion in 
order to produce an agricultural commodity. However, before FmHA or its 
successor agency under Public Law 103-354 could make the loan, the 
requirements of exhibit C of this subpart would have to be met to 
include an FmHA or its successor agency under Public Law 103-354 finding 
that no practicable alternative exists to the conversion of the wetland. 
In summary, any proposed wetland conversion that is not prohibited by 
this exhibit (M) must next meet the requirements of exhibit C of this 
subpart before FmHA or its successor agency under Public Law 103-354 
approval of the requested financial assistance could be provided.

[53 FR 7333, Mar. 8, 1988, as amended at 53 FR 14778, April 26, 1988]

Subpart H [Reserved]



      Subpart I_Truth in Lending_Real Estate Settlement Procedures

    Source: 48 FR 4, Jan. 3, 1983, unless otherwise noted.



Sec. 1940.401  Truth in lending.

    (a) General. This section provides instructions for compliance with 
the Truth in Lending Act, as implemented by Regulation Z of the Federal 
Reserve System, to assure that individual Rural Housing (RH) applicants 
are informed of:
    (1) The cost and terms of credit, and
    (2) Their right to cancel certain credit transactions resulting in a 
lien or mortgage on their home.
    (b) Scope. This section applies to all individuals who apply for 
loans, assumptions, or credit sales (hereafter described as 
transactions) for household purposes.
    (1) Special rules for the right to cancel transactions not for 
purchase, acquisition or initial construction of a home broaden the 
scope of this section to include individuals who have an ownership 
interest in, and reside in as a principal dwelling, property which will 
be security for a mortgage, even though they may not execute the 
promissory note or assumption agreement. Such persons have the right to 
receive credit disclosures and the notice of the right to cancel and may 
cancel the transaction.
    (2) This section does not apply to:
    (i) Applicants who are corporations, associations, cooperatives, 
public bodies, partnerships, or other organizations;
    (ii) Individual applicants for multiple family housing transactions 
(rural rental or labor housing), unless for a two-family dwelling in 
which the applicants will reside, and other business and commercial type 
loans; or
    (iii) Applicants involved in credit transactions primarily for 
agricultural purposes.

[[Page 83]]

    (c) Disclosure of the cost and terms of credit--(1) Form and 
content. Form FmHA or its successor agency under Public Law 103-354 
1940-41, ``Truth in Lending Disclosure Statement,'' will be used to 
provide the following required disclosures:
    (i) Annual percentage rate;
    (ii) Finance charge;
    (iii) Amount financed;
    (iv) Total of payments;
    (v) Total sale price (required for credit sales only);
    (vi) Payment schedule;
    (vii) A separate itemization of the amount financed, if the 
applicant requests it. Normally this required disclosure will have been 
met in transactions subject to the Real Estate Settlement Procedures Act 
(RESPA) by providing the applicant with Form FmHA or its successor 
agency under Public Law 103-354 440-58, ``Estimate of Settlement 
Costs'';
    (viii) The lender's identity;
    (ix) Prepayment or late payment penalties;
    (x) Security interest;
    (xi) Insurance requirements;
    (xii) Assumption policy; and
    (xiii) Referral to other loan documents.
    (2) Timing, use of estimates and required redisclosure. (i) In 
transactions for the purchase or construction of a home subject to 
RESPA, Form FmHA or its successor agency under Public Law 103-354 1940-
41, completed using ``good faith'' estimates based on the best 
information available, will be delivered or placed in the mail to the 
applicant no later than three (3) business days after receipt of a 
written application in the County Office.
    (ii) In transactions not subject to RESPA, such as RH Section 502 
transactions for repairs or refinancing or RH Section 504 transactions, 
Form FmHA or its successor agency under Public Law 103-354 1940-41, 
completed using the actual terms of the transaction, will be delivered 
to each applicant (and in transactions which are subject to 
cancellation, each non-applicant with the right to cancel) at the time 
of loan approval.
    (iii) In the event of a change in rates and terms between the time 
of initial disclosure and closing, whereby the annual percentage rate 
varies by more than one-eighth of one percent, redisclosure must be 
made. This may be done by entering the changes on all copies of the 
initial Form FmHA or its successor agency under Public Law 103-354 1940-
41, or by preparing a new Form FmHA or its successor agency under Public 
Law 103-354 1940-41. When required, redisclosure may be made at the time 
the transaction is approved or at the time of the change, but the form 
must be delivered to the applicant before the signing of the promissory 
note or assumption agreement.
    (3) Special instructions for assumption, reamortization, refinancing 
and multiple transactions. (i) Assumptions, within the scope of 
paragraph (b) of this section, at new rates and terms or of existing 
obligations which were for purchase, acquisition or initial construction 
of a residence, require new credit disclosure before the assumption 
occurs. Since assumptions are not subject to RESPA, early disclosure is 
not required.
    (ii) Reamortization, as described in 7 CFR part 3550, when the 
borrower is in default or delinquent, does not require new credit 
disclosure. In all other cases reamortization requires new credit 
disclosure.
    (iii) Refinancing of debts in accordance with 7 CFR part 3550, 
though not subject to RESPA or early disclosure, does require credit 
disclosure at the time the transaction is approved.
    (iv) Multiple transactions.
    (A) When a subsequent loan is financed along with another 
transaction and both transactions require credit disclosure, a separate 
Form FmHA or its successor agency under Public Law 103-354 1940-41 will 
be prepared for each transaction.
    (B) Transactions with multiple advances will be treated as one 
transaction for the purpose of credit disclosure, in accordance with the 
Forms Manual Insert (FMI) for Form FmHA or its successor agency under 
Public Law 103-354 1940-41.
    (d) Notice of the right to cancel. The right to cancel applies only 
to transactions within the scope of paragraph (b) of this section, which 
are not for purchase, acquisition or initial construction of and which 
result in a

[[Page 84]]

mortgage on an individual's principal residence, such as RH Section 502 
transactions for refinancing, repairs or rehabilitation or RH Section 
504 transactions.
    (1) Form and Content. Form FmHA or its successor agency under Public 
Law 103-354 1940-43, ``Notice of Right to Cancel'', will be used to 
notify individuals of their right to cancel those transactions, within 
the scope of paragraphs (b) and (d) of this section, which result in a 
mortgage on their principal residence except when the transaction is for 
its purchase or initial construction. This notice will identify the 
transaction and disclose the following:
    (i) The acquisition of a security interest in the individual's 
principal residence.
    (ii) The individual's right to cancel the transaction.
    (iii) How to exercise the right to cancel the transaction, with a 
form for that purpose.
    (iv) The effects of cancellation.
    (v) The date the cancellation period expires.
    (2) Timing. (i) Two copies of Form FmHA or its successor agency 
under Public Law 103-354 1940-43, and one copy of Form FmHA or its 
successor agency under Public Law 103-354 1940-41, in accordance with 
the FMI's, will be given to each individual entitled to cancel, not 
later than loan closing.
    (ii) Any entitled individual may cancel the transaction until 
midnight of the third business day following whichever of the following 
events occurs last:
    (A) The date the transaction is closed.
    (B) The date Truth in Lending credit disclosures were made.
    (C) The date notice of the right to cancel was received.
    (3) Disbursement of funds. In a transaction subject to cancellation 
funds will not be disbursed, other than to a designated attorney or 
title insurance company preparatory to closing, until:
    (i) Forms FmHA 1940-43 have been given to the appropriate 
individuals,
    (ii) The three-day cancellation period has expired, and
    (iii) The loan approval official is reasonably assured that the 
transaction has not been cancelled. This assurance may be obtained by:
    (A) Waiting a reasonable period of time after the expiration of the 
cancellation period to allow for the delivery of a mailed notice, or
    (B) Obtaining a written statement from each individual entitled to 
cancel that the right has not been exercised.
    (iv) This delay in disbursing funds may be waived in cases of a 
bonafide personal financial emergency, which must be met within the 
cancellation period, when the individual submits a signed and dated 
statement describing the nature of the emergency and waiving the right 
to cancel. Such a statement must be signed by all individuals entitled 
to cancel.
    (4) Effects of cancellation. (i) When an individual cancels a 
transaction, the mortgage securing the transaction becomes void and the 
borrower will not be liable for any amount, including any finance 
charge.
    (ii) Within twenty (20) calendar days after receipt of a notice of 
cancellation the loan approval official will:
    (A) Notify all interested parties of the cancellation;
    (B) Return, and/or request the return of any money or property given 
to anyone in connection with the transaction; and
    (C) Take the necessary action to terminate the mortgage.
    (iii) Once evidence has been presented to the borrower that the 
mortgage has been terminated, the borrower must return any funds 
advanced by FmHA or its successor agency under Public Law 103-354 to the 
FmHA or its successor agency under Public Law 103-354 County Office or 
surrender any property at his/her residence within twenty (20) calendar 
days.
    (e) Advertisements. An advertisement is defined as a commercial 
message in any medium that promotes, directly or indirectly, a credit 
transaction. Advertisements for credit sales of Government inventory 
property, within the scope of paragraph (b) of this section, are subject 
to the following requirements.
    (1) If an advertisement states specific credit terms, it shall state 
only those terms that actually are or will be arranged or offered.

[[Page 85]]

    (2) If an advertisement states a rate of finance charge, it shall 
state the rate as an annual percentage rate, using that term.
    (3) Terms requiring additional disclosures.
    (i) If any of the following terms is set forth in an advertisement:
    (A) The amount or percentage of any down payment,
    (B) The number of payments or period of repayment,
    (C) The amount of any payment, or
    (D) The amount of any finance charge,
    (ii) The advertisement must also state:
    (A) The amount or percentage of down payment,
    (B) The terms of repayment, and
    (C) The annual percentage rate, using that term.

[48 FR 4, Jan. 3, 1983, as amended at 60 FR 55123, Oct. 27, 1995; 67 FR 
78328, Dec. 24, 2002]



Sec. Sec. 1940.402-1940.405  [Reserved]



Sec. 1940.406  Real estate settlement procedures.

    (a) General. This section provides the instructions for compliance 
with the Real Estate Settlement Procedures Act (RESPA), as amended, and 
Regulation X of the Department of Housing and Urban Development.
    (b) Scope. (1) This section applies to loans and credit sales, 
including Section 502 Rural Housing, 1-4 family Rural Rental Housing, 1-
4 family Labor Housing, and Farm Ownership involving tracts of less than 
25 acres, whether made to an individual, corporation, partnership, 
association or other entity, which meet the following requirements:
    (i) The proceeds of the loan or the credit extended are used in 
whole or in part to finance the purchase and transfer of title of the 
property to be mortgaged by the borrower, and
    (ii) The loan or credit sale is secured by a first lien covering 
real estate on which is located a structure designed principally for the 
occupancy of from 1-4 families, or on which a structure designed 
principally for the occupancy of from 1-4 families is to be constructed 
using proceeds of the loan.
    (2) Exempt transactions include:
    (i) Loans for repairs, improvements, or refinancing if the proceeds 
are not used to finance the purchase of the property.
    (ii) Loans to finance the construction of a 1-4 family structure if 
the tract of land is already owned by the applicant/borrower.
    (iii) Assumptions or transfers.
    (c) Action required. (1) The information booklet entitled 
``Settlement Costs'' will either be given to the applicant at the time 
the completed application is received, or mailed to the applicant no 
later than three (3) business days after receipt of the application in 
the County Office.
    (i) Form FmHA or its successor agency under Public Law 103-354 440-
58, ``Estimate of Settlement Costs,'' is to be used to provide a ``good 
faith'' statement of estimated closing costs. Form FmHA or its successor 
agency under Public Law 103-354 440-58 will be completed by the County 
Supervisor and mailed or delivered to the applicant with the Settlement 
Costs booklet. Costs will vary between geographic areas; therefore, 
information supplied on this form must be based upon (A) the County 
Supervisor's best estimate of charges the borrower will pay for each 
service in connection with the transaction, or (B) a range of charges at 
which such service is available to the borrower from all providers in 
the area.
    (ii) Form FmHA or its successor agency under Public Law 103-354 440-
58 does not replace Truth in Lending forms. Appropriate forms listed in 
Sec. 1940.401 will be used for Truth in Lending purposes.
    (2) Form FmHA or its successor agency under Public Law 103-354 1940-
59, ``Settlement Statement,'' will be completed as indicated in the form 
and FMI by the designated attorney or title company for all transactions 
described in paragraph (b) of this section. The purpose of this form is 
to provide a uniform settlement statement prescribed by RESPA.
    (i) During the business day immediately preceding the date of 
settlement, the closing agent, if requested by

[[Page 86]]

the applicant, must permit the applicant to inspect the settlement 
statement, completed for those items which are then known to the closing 
agent.
    (ii) A copy will be given to both the borrower and seller at the 
time of closing or settlement or will be mailed as soon as practicable 
if the borrower or seller are not present at closing.

Subparts J-K [Reserved]



  Subpart L_Methodology and Formulas for Allocation of Loan and Grant 
                              Program Funds

    Source: 50 FR 24180, June 10, 1985, unless otherwise noted.



Sec. 1940.551  Purpose and general policy.

    (a) The purpose of this subpart is to set forth the methodology and 
formulas by which the Administrator of the Farmers Home Administration 
(FmHA) or its successor agency under Public Law 103-354 allocates 
program funds to the States. (The term State means any of the States of 
the United States, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or the Western Pacific Areas.)
    (b) The formulas in this subpart are used to allocate program loan 
and grant funds to State Offices so that the overall mission of the 
Agency can be carried out. Considerations used when developing the 
formulas include enabling legislation, congressional direction, and 
administration policies. Allocation formulas ensure that program 
resources are available on an equal basis to all eligible individuals 
and organizations.
    (c) The actual amounts of funds, as computed by the methodology and 
formulas contained herein, allocated to a State for a funding period are 
distributed to each State Office by an exhibit to this subpart. The 
exhibit is available for review in any FmHA or its successor agency 
under Public Law 103-354 State Office. The exhibit also contains 
clarifications of allocation policies and provides further guidance to 
the State Directors on any suballocation within the State. FmHA or its 
successor agency under Public Law 103-354 will publish a Notice of 
Availability of Rural Housing funds in the Federal Register each year.

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 26229, July 12, 1988; 55 
FR 29560, July 20, 1990; 56 FR 66960, Dec. 27, 1991]



Sec. 1940.552  Definitions.

    (a) Amount available for allocation. Funds appropriated or otherwise 
made availiable to the Agency for use in authorized programs. On 
occasion, the allocation of funds to States may not be practical for a 
particular program due to funding or administrative constraints. In 
these cases, funds will be controlled by the National Office.
    (b) Basic formula criteria, data source and weight. Basic formulas 
are used to calculate a basic state factor as a part of the methodology 
for allocating funds to the States. The formulas take a number of 
criteria that reflect the funding needs for a particular program and 
through a normalization and weighting process for each of the criteria 
calculate the basic State Factor (SF). The data sources used for each 
criteria is believed to be the most current and reliable information 
that adequately quantifies the criterion. The weight, expressed as a 
percentage, gives a relative value to the importance of each of the 
criteria.
    (c) Basic formula allocation. The result of multiplying the amount 
available for allocation less the total of any amounts held in reserve 
or distributed by base or administrative allocation times the basic 
State factor for each State. The basic formula allocation (BFA) for an 
individual State is equal to:

BFA=(Amount available for allocation-NO reserve-Total base and 
          administrative allocations)xSF.

    (d) Transition formula. A formula based on a proportional amount of 
previous year allocation used to maintain program continuity by 
preventing large fluctuations in individual State allocations. The 
transition formula limits allocation shifts to any particular State in 
the event of changes from year to year of the basic formula, the basic 
criteria, or the weights given the criteria. The transition formula 
first checks whether the current year's

[[Page 87]]

basic formula allocation is within the transition range (+ or -
percentage points of the proportional amount of the previous year's 
BFA).
[GRAPHIC] [TIFF OMITTED] TC14NO91.000


If the current year's State BFA is not within this transition range, the 
State formula allocation is changed to the amount of the transition 
range limit closest to the BFA amount. After having performed this 
transition adjustment for each State, the sum of the funds allocated to 
all States will differ from the amount of funds available for BFA. This 
difference, whether a positive or negative amount, is distributed to all 
States receiving a formula allocation by multiplying the difference by 
the SF. The end result is the transition formula allocation. The 
transition range will not exceed 40% (20%), but 
when a smaller range is used it will be stated in the individual program 
section.
    (e) Base allocation. An amount that may be allocated to each State 
dependent upon the particular program to provide the opportunity for 
funding at least one typical loan or grant in each FmHA or its successor 
agency under Public Law 103-354 State, District, or County Office. The 
amount of the base allocation may be determined by criteria other than 
that used in the basic formula allocation such as agency historic data.
    (f) Administrative allocations. Allocations made by the 
Administrator in cases where basic formula criteria information is not 
available. This form of allocation may be used when the Administrator 
determines the program objectives cannot be adequately met with a 
formula allocation.
    (g) Reserve. An amount retained under the National Office control 
for each loan and grant program to provide flexibility in meeting 
situations of unexpected or justifiable need occurring during the fiscal 
year. The Administrator may make distributions from this reserve to any 
State when it determined necessary to meet a program need or agency 
objective. The Administrator may retain additional amounts to fund 
authorized demonstration programs. When such demonstration programs 
exist, the information is outlined in exhibit A of this subpart 
(available in any FmFA State Office).
    (h) Pooling of funds. A technique used to ensure that available 
funds are used in an effective, timely and efficient manner. At the time 
of pooling those funds within a State's allocation for the fiscal year 
or portion of the fiscal year, depending on the type of pooling, that 
have not been obligatedf by the State are placed in the National Office 
reserve. The Administrator will establish the pooling dates for each 
affected program.
    (1) Mid-year: This pooling addresses the need to partially 
redistribute funds based on use/demand. Mid-year pooling occurs near the 
midpoint of the fiscal year.
    (2) Year-end: This pooling is used to ensure maximum use of program 
funds on a national basis. Year-end pooling usually occurs near the 
first of August.
    (3) Emergency: The Administrator may pool funds at any time that it 
is determined the conditions upon which the initial allocation was based 
have changed to such a degree that it is necessary to pool funds in 
order to efficiently carry out the Agency mission.
    (i) Availability of the allocation. Program funds are made available 
to the Agency on a quarterly basis. In the high demand programs, it is 
necessary that specific instructions by given to the State Offices 
regarding the amount which is available for obligation during each 
quarter.

[[Page 88]]

    (j) Suballocation by the State Director. Dependent upon the 
individual program for which funds are being allocated, the State 
Director may be directed or given the option of suballocating the State 
allocation to District or County Offices. When suballocating the State 
Director may retain a portion of the funds in a State Office reserve to 
provide flexibility in situations of unexpected or justified need. When 
performing a suballocation the State Director will use the same formula, 
criteria and weights as used by the National Office.
    (k) Other documentation. Additional instructions given to field 
offices regarding allocations.

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 26229, July 12, 1988]



Sec. Sec. 1940.553-1940.554  [Reserved]



Sec. 1940.555  Insured Farm Operating loan funds.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria, data source and weight are:
    (1) A = Farm operators with sales of $2,500 to $39,999 and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 15%
    (2) B = Farm operators with sales of $40,000 or more and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 35%
    (3) C = Tenant farm operators. Source: U.S. Census of Agriculture. 
20%
    (4) D = Three year average net farm income. Source: USDA Economic 
Research Service. 15% This criterion is the inverse of the division of 
the State mean net farm income by the National mean net farm income. 
This inverse is used because the need for assistance is inversely 
proportional to the level of net income. Limits of .5 and 1.5 are placed 
in this result to limit the influence on the allocation.
    (5) E=Value of farm nonreal estate assets. Source: USDA Economic 
Research Service. 15%


The basic allocation formula is a two-step process. In step one, each 
criterion is converted to that State's percentage of a National total, 
multiplied by the weighting factor and summed to arrive at a State 
Factor: Aa + Bb + Cc + Dd +Ee = STATE FACTOR where A, B, C, D, and E 
represent selected Criteria expressed as a State Percentage of the U.S. 
total and a, b, c, d, and e represent the Weight expressed as a 
percentage, given to the selected criterion. The weight assigned each 
criterion is constant for all States. The State Factor represents the 
percentage of the total allocation by basic formulas that a State is to 
receive and is the sum of the weighted criteria percentage for each 
State. The basic formula allocation is the final step.
    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. Not 
used.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions participating in the formula allocation process 
do not receive administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Subobligation by the State Director. See Sec. 1940.552(j) of 
this subpart. Suballocations by the State Director are optional.
    (k) Other documentation. See Sec. 1940.552(k) of this subpart.



Sec. 1940.556  Guaranteed Farm Operating loan funds.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria, data source and weight are:
    (1) A = Farm operators with sales of $2,500 to $39,999 and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 15%
    (2) B = Farm operators with sales of $40,000 or more and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 35%

[[Page 89]]

    (3) C = Tenant farm operators. Source: U.S. Census of Agriculture. 
20%
    (4) D = Three year average net farm income. Source: USDA Economic 
Research Service. 15%. This criterion is the inverse of the division of 
the State mean net farm income by the National mean net farm income. 
This inverse is used because the need for assistance is inversely 
proportional to the level of net income. Limits of .5 and 1.5 are placed 
in this result to limit the influence on the allocation.
    (5) E = Value of farm nonreal estate assets. Source: USDA Economic 
Research Service. 15%

The basic allocation formula is a two-step process. In step one, each 
criterion is converted to the State's percentage of a National total, 
multiplied by the weighting factor and summed to arrive at a State 
Factor: Aa + Bb + Cc + Dd + Ee = State Factor Where A, B, C, D, and E 
represent selected Criteria expressed as a State Percentage of the U.S. 
total and a, b, c, d, and e represent Weight expressed as a percentage, 
given to the selected criterion. The weight assigned each criterion is 
constant for all States. The State Factor represents the percentage of 
the total allocation by basic formulas that a State is to receive and is 
the sum of the weighted criteria percentage for each State. The basic 
formula allocation is the final step.
    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. Not 
used.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions participating in the formula allocation process 
do not receive administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. Suballocations by the State Director are optional.
    (k) Other Documentation. See Sec. 1940.552(k) of this subpart.



Sec. 1940.557  Insured Farm Ownership loan funds.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria, data source and weight are:
    (1) A = Farm operators with sales of $2,500 to $39,999 and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 15%
    (2) B = Farm operators with sales of $40,000 or more and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 35%
    (3) C = Tenant farm operations. Source: U.S. Census of Agriculture. 
25%
    (4) D = Three-year average net farm income. Source: USDA Economic 
Research Service. 15%. This criterion is the inverse of the division of 
the State mean net farm income by the National mean net farm income. 
This inverse is used because the need for assistance is inversely 
proportional to the level of net income. Limits of .5 and 1.5 are placed 
in this result to limit the influence of the allocation.
    (5) E = Value of farm real estate assets. Source: USDA Economic 
Research Service. 10%.


The basic allocation formula is a two-step process. In step one, each 
criterion is converted to that State's percentage of a National total, 
multiplied by the weighting factor and summed to arrive at a State 
Factor: Aa + Bb + Cc + Dd +Ee = State Factor where A, B, C, D, and E 
represent selected Criteria expressed as a State Percentage of the U.S. 
total and a, b, c, d, and e represent Weight expressed as a percentage, 
given to the selected criterion. The weight assigned each criterion is 
constant for all States. The State Factor represents the percentage of 
the total allocation by basic formulas that a State is to receive and is 
the sum of the weighted criteria percentage for each State. The basic 
formula allocation is the final step.

[[Page 90]]

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
transition range is plus or minus 15%.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions participating in the formula allocation process 
do not receive administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.522(h) of this subpart.
    (i) Availability of the allocation. A portion of the allocation will 
be targeted to the State's rural socially disadvantaged population. The 
amount of the targeted funds for each state is equal to the State's 
rural socially disadvantaged population divided by the State's total 
rural population multiplied by the State's total fiscal year Insured 
Farm Ownership allocation. Source of data is U.S. Census 1980.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. Suballocations by the State Director are optional.
    (k) Other documentation. See Sec. 1940.552(k) of this subpart.

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 26229, July 12, 1988]



Sec. 1940.558  Guaranteed Farm Ownership loan funds.

    (a) Amount available for allocation. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria, data source and weight are:
    (1) A = Farm operators with sales of $2,500 to $39,999 and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 15%
    (2) B = Farm operators with sales of $40,000 or more and less than 
200 days work off farm. Source: U.S. Census of Agriculture. 35%
    (3) C = Tenant farm operations. Source: U.S. Census of Agriculture. 
25%
    (4) D = Three year average net farm income. Source: USDA Economic 
Research Service. 15%. This criterion is the inverse of the division of 
the State mean net farm income by the National mean net farm income. 
This inverse is used because the need for assistance is inversely 
proportional to the level of net income. Limits of .5 and 1.5 are placed 
in this result to limit the influence on the allocation.
    (5) E = Value of farm real estate assets. Source: USDA Economic 
Research Service. 10%


The basic allocation formula is a two-step process. In step one, each 
criterion is converted to that State's percentage of a National total, 
multiplied by the weighting factor and summed to arrive at a State 
Factor: Aa + Bb + Cc +Dd + Ee = State Factor where A, B, C, D, and E 
represent selected Criteria expressed as a State Percentage of the U.S. 
total and a, b, c, d, and e represent the Weight expressed as a 
percentage, given to the selected criterion. The weight assigned each 
criterion is constant for all States. The State Factor represents the 
percentage of the total allocation by basic formulas that a State is to 
receive and is the sum of the weighted criteria percentage for each 
State. The basic formula allocation is the final step.
    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. Not 
used.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations: See Sec. 1940.552(f) of this 
subpart. Jurisdictions participating in the formula allocation process 
do not have administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. Suballocations by the State Director are optional.
    (k) Other documentation. See Sec. 1940.552(k) of this subpart.

[[Page 91]]



Sec. 1940.559  Farmer Programs and Indian Land Acquisition appropriations 
not allocated by State.

    (a) Emergency Disaster. State allocations are not made since it is 
impossible to predict occurrences. Obligating documents may be submitted 
to the Finance Office as loans are approved in designated areas. This 
type loan is available only in areas designated as disaster areas. 
Designations may be by a single county, multiple of counties or areas, 
depending upon scope and severity.
    (b) Soil and Water. Funds are not allocated to States. Program size 
does not permit equitable distribution. Obligation of funds are on a 
first-come, first-served basis, subject to availability.

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 26229, July 12, 1988]



Sec. 1940.560  Guarantee Rural Rental Housing Program.

    When funding levels are under $100,000,000, all funds will be held 
in a National Office reserve and made available administratively in 
accordance with the Notice of Funding Availability (NOFA) and program 
regulations. When program levels are sufficient for a nationwide 
program, funds are allocated based upon the following criteria and 
weights.
    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart .
    Each factor will receive a weight respectively of 40%, 40% and 20%. 
The criteria used in the basic formula are:
    (1) State's percentage of National rural population,
    (2) State's percentage of the National number of rural households 
between 50 and 115 percent of the area median income, and
    (3) State's percentage of National average cost per unit. Data 
source for the first two of these criterion are based on the latest 
census data available. The third criterion is based on the cost per unit 
data using the applicable maximum per unit dollar amount limitations 
under section 207(c) of the National Housing Act, which can be obtained 
from the Department of Housing and Urban Development. The percentage 
representing each criterion is multiplied by the weight assigned and 
totaled to arrive at a State factor.

State Factor = (criterion No. 1 x weight of 40%)+ (criterion No. 1 x 
    weight of 40%)+ (criterion No. 1 x weight of 20%)

    (c) Basic formula allocation. See Sec. 1940.552(c).
    (d) Transition formula. See Sec. 1940.552(d).
    (e) Base allocation. See Sec. 1940.552(e). Jurisdictions receiving 
administrative allocations do not receive base allocations.
    (f) Administrative allocations. See Sec. 1940.552(f). Jurisdictions 
receiving formula allocations do not receive administrative allocations.
    (g) Reserve. See Sec. 1940.552(g).
    (h) Pooling of funds. See Sec. 1940.552(h).
    (i) Availability of the allocation. See Sec. 1940.552(i).
    (j) Suballocation by the State Director. See Sec. 1940.552(j).
    (k) Other documentation. Not applicable.

[63 FR 39458, July 22, 1998]



Sec. Sec. 1940.561-1940.562  [Reserved]



Sec. 1940.563  Section 502 non-subsidized guaranteed Rural Housing 
(RH) loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552 (b) of this subpart. The criteria used in the basic formula 
are:
    (1) State's percentage of the National number of rural occupied 
substandard units,
    (2) State's percentage of the National rural population in places of 
less than 2,500 population,
    (3) State's percentage of the national number of rural households 
between 80 and 100 percent of the area median income, and
    (4) State's percentage of the national number of rural renter 
households paying more than 35 percent of income for rent.

Data source for each of these criteria is based on the latest census 
data available. Each criterion is assigned a specific weight according 
to its relevance in determining need. The percentage

[[Page 92]]

representing each criterion is multiplied by the weight factor and 
summed to arrive at a basic State factor (SF) as follows:

SF = (criterion 1 x weight of 30%) + (criterion 2 x weight of 10%) + 
    (criterion 3 x weight of 30%) + (criterion 4 x weight of 30%)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range used for Section 502 guaranteed RH loans is plus or 
minus 15.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (1) Mid-year: If used in a particular fiscal year, available funds 
unobligated as of the pooling date are pooled and redistributed based on 
the formula used to allocate funds initially.
    (2) Year-end: Pooled funds are placed in a National Office reserve 
and are available as determined administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. Annually, the Administrator will advise State Director's 
whether or not suballocation within the State Office jurisdiction will 
be required for the guaranteed Housing program.
    (k) Other documentation. Not applicable.

[56 FR 10509, Mar. 13, 1991]



Sec. 1940.564  Section 502 subsidized guaranteed Rural Housing loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria used in the basic formula are:
    (1) State's percentage of the National number of rural occupied 
substandard units,
    (2) State's percentage of the National rural population in places of 
less than 2,500 population,
    (3) State's percentage of the national number of rural households 
below 80 percent of the area median income, and
    (4) State's percentage of the national number of rural renter 
households paying more than 35 percent of income for rent.

Data source for each of these criteria is based on the latest census 
data available. Each criterion is assigned a specific weight according 
to its relevance in determining need. The percentage representing each 
criterion is multiplied by the weight factor and summed to arrive at a 
basic State factor (SF) as follows:

SF = (criterion 1 x weight of 30%) + (criterion 2 x weight of 10%) + 
    (criterion 3 x weight of 30%) + (criterion 4 x weight of 30%)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range used for section 502 guaranteed RH loans is plus or 
minus 15.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administration allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (1) Mid-year: If used in a particular fiscal year, available funds 
unobligated as of the pooling date are pooled and redistributed based on 
the formula used to allocate funds initially.
    (2) Year-end: Pooled funds are placed in a National Office reserve 
and are available as determined administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. Annually, the Administrator will advise

[[Page 93]]

State Director's whether or not suballocation within the State Office 
jurisdiction will be required for the guaranteed Housing program.
    (k) Other documentation. Not applicable.

[56 FR 10509, Mar. 13, 1991]



Sec. 1940.565  Section 502 subsidized Rural Housing loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria used in the basic formula are:
    (1) State's percentage of the National number of rural occupied 
substandard units,
    (2) State's percentage of the National rural population,
    (3) State's percentage of the National rural population in places of 
less than 2,500 population,
    (4) State's percentage of the National number of rural households 
between 50 and 80 percent of the area median income, and
    (5) State's percentage of the National number of rural households 
below 50 percent of the area median income.

Data source for each of these criteria is based on the latest census 
data available. Each criterion is assigned a specific weight according 
to its relevance in determining need. The percentage representing each 
criterion is multiplied by the weight factor and summed to arrive at a 
basic State factor (SF)

SF = (criterion 1 x weight of 25%) + (criterion 2 x weight of 10%) + 
    (criterion 3 x weight of 15%) + (criterion 4 x weight of 30%) + 
    (criterion 5 x weight of 20%)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range used for Section 502 subsidized RH loans is plus or 
minus 15.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (1) Mid-year: If used in a particular fiscal year, available funds 
unobligated as of the pooling date are pooled and redistributed based on 
the formula used to allocate funds initially.
    (2) Year-end: Pooled funds are placed in a National Office reserve 
and are available as determined administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. The State Director will suballocate funds to the District 
Offices and may, at his/her option, suballocate to the County Offices. 
The State Director will use the same basic formula criteria, data source 
and weight for suballocating funds within the State as used by the 
National Office in allocating to the States as described in Sec. 
1940.565 (b) and (c) of this section. The suballocations to District or 
County Offices will not be reduced or restricted unless written approval 
is received from the National Office in response to a written request 
from the State Director. The State Director's request must include the 
reasons for the requested action (e.g., high housing inventory and/or 
high housing delinquency).
    (k) Other documentation. The percentage distribution of funds to the 
States by income levels is based on prevailing legislation.



Sec. 1940.566  Section 504 Housing Repair loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b). The criteria used in the basic formula are:
    (1) State's percentage of the National number of rural occupied 
substandard units, and
    (2) State's percentage of the National number of rural households 
below 50 percent of area median income.


Data source for each of these criteria is based on the latest census 
data available. Each criterion is assigned a specific weight according 
to its relevance in determining need. The percentage

[[Page 94]]

representing each criterion is multiplied by the weight factor and 
summed to arrive at a basic State factor (SF).

SF = (criterion No. 1 x weight of 50%) + (criterion No. 2 x weight of 
    50%)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range used for section 504 Housing Repair Loans is plus or 
minus 15.
    (e) Base allocation. Not used.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (1) Mid-year: If used in a particular fiscal year, available funds 
unobligated as of the pooling date are pooled and redistributed based on 
the formula used to allocate funds initially.
    (2) Year-end: Pooled funds are placed in a National Office reserve 
and are available as determined administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. At the option of the State Director, section 504 loan 
funds may be suballocated to the District Offices. When performing a 
suballocation, the State Director will use the same basic formula 
criteria, data source and weight for suballocating funds within the 
State as used by the National Office in allocating to the States as 
described in Sec. 1940.566 (b) and (c) of this section.
    (k) Other documentation. Not applicable.



Sec. 1940.567  Section 504 Housing Repair grants.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart. The criteria used in the basic formula are:
    (1) State's percentage of the National number of rural occupied 
substandard units,
    (2) State's percentage of the National rural population 62 years and 
older, and
    (3) State's percentage of the National number of rural households 
below 50 percent of area median income.


Data source for each of these criteria is based on the latest census 
data available. Each criterion is assigned a specific weight according 
to its relevance in determining need. The percentage representing each 
criterion is multiplied by the weight factor and summed to arrive at a 
basic State factor (SF).

SF = (criterion No. 1 x weight of 33\1/3\%) + (criterion No. 2 x weight 
    of 33\1/3\%) + (criterion No. 3 x weight of 33\1/3\%)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range used for section 504 Housing Repair grants is plus or 
minus 15.
    (e) Base allocation. Not used.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (1) Mid-year: If used in a particular fiscal year, available funds 
unobligated as of the pooling date are pooled and redistributed based on 
the formula used to allocate funds initially.
    (2) Year-end: Pooled funds are placed in a National Office reserve 
and are available as determined administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. At the option of the State Director, section 504 grant 
funds may be suballocated to the District Offices. When performing a 
suballocation, the State Director will use the same basic formula 
criteria, data source and weight for suballocating funds within the 
State as used by the National Office in allocating to the States as 
described in Sec. 1940.567 (b) and (c) of this section.
    (k) Other documentation. Not applicable.

[[Page 95]]



Sec. 1940.568  Single Family Housing programs appropriations not 
allocated by State.

    The following program funds are kept in a National Office reserve 
and are available as determined administratively:
    (a) Section 523 Self-Help Technical Assistance Grants.
    (b) Section 523 Land Development Fund.
    (c) Section 524 Rural Housing Site Loans.
    (d) Section 509 Compensation for Construction Defects.
    (e) Section 502 Nonsubsidized Funds.



Sec. 1940.569-1940.574  [Reserved]



Sec. 1940.575  Section 515 Rural Rental Housing (RRH) loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart.
    The criteria used in the basic formula area:
    (1) State's percentage of National rural population,
    (2) State's percentage of National number of rural occupied 
substandard units, and
    (3) State's percentage of National rural families with incomes below 
the poverty level.


Data source for each of these criterion is based on the latest census 
data available. Each criterion is assigned a specific weight according 
to its relevance in determining need. The percentage representing each 
criterion is multiplied by the weight assigned and summed to arrive at a 
State factor (SF).

SF = (criterion No. 1 x weight of 33\1/3\%) + (criterion No. 2 x weight 
    of 33\1/3\%) + (criterion No. 3 x weight of 33\1/3\%)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.522(d) of this subpart.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart.
    (k) Other documentation. Not applicable.

[53 FR 26229, July 12, 1988]



Sec. 1940.576  Rental Assistance (RA) for new construction.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.575(b) of this subpart.
    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart.
    (k) Other documentation. Not applicable.

[53 FR 26229, July 12, 1988]



Sec. 1940.577  Rental Assistance (RA) for existing projects.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart. RA appropriated for existing projects will first be used to 
replace contracts expiring each fiscal year and for the first few months 
of the following fiscal year. This is done to assure continued RA 
funding. RA units not needed for replacement purposes will be used for 
existing multiple family housing projects experiencing servicing 
problems.

[[Page 96]]

    (b) Basic formula criteria, data source and weight. No formula or 
weighted criteria is used to allocate replacement RA. The basic 
allocation for replacement RA will be made based on the following:
    (1) Criteria. This allocation is based on the estimated need to 
replace RA contracts expiring from the depletion of funds.
    (2) Date source. The most accurate and current information available 
from FmHA or its successor agency under Public Law 103-354 computerized 
data sources.
    (c) Basic formula allocation. While no formula will be used, the 
basic allocation will be made to each State according to the need 
determined using the basic criteria.
    (d) Transition formula. Not applicable.
    (e) Base allocation. Not applicable.
    (f) Administrative allocation. Not applicable.
    (g) Reserve. See Sec. 1940.552(g) of this subpart. The National 
Office maintains a reserve adequate to compensate for the differences 
between actual and projected replacement activity. Units will be 
administratively distributed for existing housing to either satisfy 
previously unidentified replacement needs or address servicing 
situations. Units will be distributed to any State when the 
Administrator determines that additional allocations are necessary and 
appropriate.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart. Units 
will be pooled at the Administrator's discretion.
    (i) Obligation of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart.
    (k) Other documentation. Not applicable.

[49 FR 3727, Jan. 30, 1984, as amended at 53 FR 26229, July 12, 1988]



Sec. 1940.578  Housing Preservation Grant (HPG) program.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.575(b) of this subpart.
    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart.
    (g) Reserve. See Sec. 1940.552(g) of this subpart.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart. Funds 
may be pooled after all HPG applications have been received and HPG fund 
demand by State has been determined. Pooled funds will be combined with 
the National Office reserve to fund eligible projects. Remaining HPG 
funds will be available for distribution for use under the Section 504 
program.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart.
    (j) Suballocation by the State Director. Not applicable.
    (k) Other documentation. Funds for the HPG program will be available 
for a limited period each fiscal year. Due to the requirements by law to 
allocate funds on a formula basis to all States and to have a 
competitive selection process for HPG project selection, FmHA or its 
successor agency under Public Law 103-354 will announce opening and 
closing dates for receipt of HPG applications. After the closing date, 
FmHA or its successor agency under Public Law 103-354 will review and 
evaluate the proposals, adjust State allocations as necessary to comply 
with the law and program demand, and redistribute remaining unused HPG 
resources for use under Section 504 (as required by statute).

[53 FR 26229, July 12, 1988]



Sec. 1940.579  Multiple Family Housing appropriations not allocated 
by State.

    Funds are not allocated to States. The following program funds are 
kept in a National Office reserve and are available as determined 
administratively:
    (a) Section 514 Farm Labor Housing Loans.
    (b) Section 516 Farm Labor Housing Grants.

[64 FR 24480, May 6, 1999]

[[Page 97]]



Sec. Sec. 1940.580-1940.584  [Reserved]



Sec. 1940.585  Community Facility loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart.
    (1) The criteria used in the basic formula are:
    (i) State's percentage of national rural population--50 percent.
    (ii) State's percentage of national rural population with incomes 
below the poverty level--25 percent.
    (iii) State's percentage of national nonmetropolitan unemployment--
25 percent.
    (2) Data source for each of these criterion is based on the latest 
census data available. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion is multiplied by the weight factor and 
summed to arrive at a State factor (SF). The SF cannot exceed .05.

SF = (criterion (b)(1)(i) x 50 percent) + (criterion (b)(1)(ii) x 25 
    percent) + (criterion (b)(1)(iii) x 25 percent)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart. 
States receiving administrative allocations do not receive formula 
allocations.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range for the transition formula equals 30 percent (15%).
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. States 
receiving administrative allocations do not receive base allocations.
    (f) Administrative allocation. See Sec. 1940.552(f) of this 
subpart. States participating in the formula base allocation procedures 
do not receive administrative allocations.
    (g) Reserve. See Sec. 1940.552(g) of this subpart. States may 
request funds by forwarding a completed copy of guide 26 of subpart A of 
part 1942 of this chapter (available in any FmHA or its successor agency 
under Public Law 103-354 office), to the National Office. Generally, a 
request for additional funds will not be honored unless the State has 
insufficient funds to obligate the loan requested.
    (h) Pooling of funds. See Sec. 1940.552(h) of this subpart. Funds 
are generally pooled at mid-year and year-end. Pooled funds will be 
placed in the National Office reserve and will be made available 
administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart. The allocation of funds is made available for States to 
obligate on an annual basis although the Office of Management and Budget 
apportions it to the Agency on a quarterly basis.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. State Director has the option to suballocate to District 
Offices.
    (k) Other documentation. Not applicable.

[50 FR 24180, June 10, 1985, as amended at 58 FR 54485, Oct. 22, 1993]



Sec. Sec. 1940.586-1940.587  [Reserved]



Sec. 1940.588  Business and Industry Guaranteed and Direct Loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart.
    (1) The criteria used in the basic formula are:
    (i) State's percentage of national rural population--50 percent.
    (ii) State's percentage of national rural population with incomes 
below the poverty level--25 percent.
    (iii) State's percentage of national nonmetropolitan unemployment--
25 percent.
    (2) Data source for each of these criterion is based on the latest 
census data available. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion is multiplied by the weight factor and 
summed to arrive at a State factor (SF). The SF cannot exceed .05.

SF = (criterion (b)(1)(i) x 50 percent) + (criterion (b)(1)(ii) x 25 
    percent) + (criterion (b)(1)(iii) x 25 percent)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. The transition formula is not used for B&I 
Guaranteed and Direct Loans.

[[Page 98]]

    (e) Base allocations. See Sec. 1940.552(e) of this subpart. 
Jurisdictions receiving administrative allocations do not receive base 
allocations.
    (f) Administrative allocations. See Sec. 1940.552(f) of this 
subpart. Jurisdictions receiving formula allocations do not receive 
initial administrative allocations.
    (g) Reserve. See Sec. 1940.552(g). States may request reserve funds 
from the B&I reserve when all of the state allocation has been obligated 
or will be obligated to the project for which the request is made.
    (h) Pooling of funds. See Sec. 1940.552(h). Funds are pooled near 
fiscal year-end. Pooled funds will be placed in a reserve and made 
available on a priority basis to all States.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart. There is a 6-day waiting period from the time project funds are 
reserved to the time they are obligated.
    (j) Suballocation by the State Director. Suballocation by the State 
Director is authorized for this program.

[50 FR 24180, June 10, 1985, as amended at 58 FR 54486, Oct. 22, 1993; 
68 FR 14528, Mar. 26, 2003]



Sec. 1940.589  Rural Business Enterprise Grants.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart.
    (1) The criteria used in the basic formula are:
    (i) State's percentage of national rural population--50 percent.
    (ii) State's percentage of national rural population with incomes 
below the poverty level--25 percent.
    (iii) State's percentage of national nonmetropolitan unemployment--
25 percent.
    (2) Data source for each of these criterion is based on the latest 
census data available. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion is multiplied by the weight factor and 
summed to arrive at a State factor (SF). The SF cannot exceed .05.

SF = (criterion (b)(1)(i) x 50 percent) + (criterion (b)(1)(ii) x 25 
    percent) + (criterion (b)(1)(iii) x 25 percent)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart.
    (d) Transition formula. See Sec. 1940.552(d) of this subpart. The 
percentage range for the transition equals 30 percent (15%).
    (e) Base allocation. See Sec. 1940.552(e) of this subpart.
    (f) Administrative allocation. Not used.
    (g) Reserve. See Sec. 1940.552(g).
    (h) Pooling of funds. See Sec. 1940.552(h). Funds are pooled near 
fiscal year-end. Pooled funds will be placed in the National Office 
reserve and will be made available administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart. The allocation of funds is made available for States to 
obligate on an annual basis although the Office of Management and Budget 
apportions funds to the Agency on a quarterly basis.
    (j) Suballocation by the State Director. See Sec. 1940.552(j) of 
this subpart. State Director has the option to suballocate to District 
Offices.

[53 FR 26230, July 12, 1988, as amended at 57 FR 33099, July 27, 1992; 
58 FR 54486, Oct. 22, 1993; 68 FR 14528, Mar. 26, 2003; 69 FR 5264, Feb. 
4, 2004]



Sec. 1940.590  [Reserved]



Sec. 1940.591  Community Program Guaranteed loans.

    (a) Amount available for allocations. See Sec. 1940.552(a) of this 
subpart.
    (b) Basic formula criteria, data source and weight. See Sec. 
1940.552(b) of this subpart.
    (1) The criteria used in the basic formula are:
    (i) State's percentage of national rural population--50 percent.
    (ii) State's percentage of national rural population with incomes 
below the poverty level--25 percent.
    (iii) State's percentage of national nonmetropolitan unemployment--
25 percent.
    (2) Data source for each of these criterion is based on the latest 
census data available. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion

[[Page 99]]

is multiplied by the weight factor and summed to arrive at a State 
factor (SF). The SF cannot exceed .05.

SF = (criterion (b)(1)(i) x 50 percent) + (criterion (b)(1)(ii) x 25 
    percent) + (criterion (b)(1)(iii) x 25 percent)

    (c) Basic formula allocation. See Sec. 1940.552(c) of this subpart. 
States receiving administrative allocations do not receive formula 
allocations.
    (d) Transition formula. The transition formula for Community Program 
Guaranteed loans is not used.
    (e) Base allocation. See Sec. 1940.552(e) of this subpart. States 
receiving administrative allocations do not receive base allocations.
    (f) Administrative allocation. See 1940.552(f) of this subpart. 
States participating in the formula base allocation procedures do not 
receive administrative allocations.
    (g) Reserve. See Sec. 1940.522(g) of this subpart. States may 
request funds by forwarding a request following the format found in 
guide 26 of subpart A of part 1942 of this chapter (available in any 
FmHA or its successor agency under Public Law 103-354 office), to the 
National Office. Generally, a request for additional funds will not be 
honored unless the State has insufficient funds from the State's 
allocation to obligate the loan requested.
    (h) Pooling of funds. See Sec. 1940.522(h) of this subpart. Funds 
are generally pooled at mid-year and year-end. Pooled funds will be 
placed in the National Office reserve and will be made available 
administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i) of this 
subpart. The allocation of funds is made available for States to 
obligate on an annual basis although the Office of Management and Budget 
apportions it to the Agency on a quarterly basis.
    (j) Suballocation by State Director. See Sec. 1940.552(j) of this 
subpart. State Director has the option to suballocate to District 
Offices.
    (k) Other documentation. Not applicable.

[55 FR 11134, Mar. 27, 1990, as amended at 58 FR 54486, Oct. 22, 1993]



Sec. 1940.592  Community facilities grants.

    (a) Amount available for allocations. See Sec. 1940.552(a).
    (b) Basic formula criteria, data source, and weight. See Sec. 
1940.552(b).
    (1) The criteria used in the basic formula are:
    (i) State's percentage of National rural population--50 percent.
    (ii) State's percentage of National rural population with income 
below the poverty level--50 percent.
    (2) Data source for each of these criterion is based on the latest 
census data available. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion is multiplied by the weight factor and 
summed to arrive at a State factor (SF).

SF (criterion (b)(1)(i) x 50 percent) + (criterion (b)(1)(ii) x 50 
    percent)

    (c) Basic formula allocation. See Sec. 1940.552(c). States 
receiving administrative allocations do not receive formula allocations.
    (d) Transition formula. The transition formula for Community 
Facilities Grants is not used.
    (e) Base allocation. See Sec. 1940.552(e). States receiving 
administrative allocations do not receive base allocations.
    (f) Administrative allocation. See Sec. 1940.552(f). States 
participating in the formula base allocation procedures do not receive 
administrative allocations.
    (g) Reserve. See Sec. 1940.552(g).
    (h) Pooling of funds. See Sec. 1940.522(h). Funds will be pooled at 
midyear and yearend. Pooled funds will be placed in the National Office 
reserve and will be made available administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i).
    (j) Suballocation by State Director. See Sec. 1940.552(j).
    (k) Other documentation. Not applicable.

[62 FR 16468, Apr. 7, 1997]



Sec. 1940.593  Rural Business Opportunity Grants.

    (a) Amount available for allocations. See Sec. 1940.552(a).
    (b) Basic formula criteria, data source, and weight. See Sec. 
1940.552(b).

[[Page 100]]

    (1) The criteria used in the basic formula are:
    (i) State's percentage of national rural population--50 percent.
    (ii) State's percentage of national rural population with incomes 
below the poverty level--25 percent.
    (iii) State's percentage of national nonmetropolitan unemployment--
25 percent.
    (2) The data source for each criterion is based on the latest census 
data available. The percentage representing each criterion is multiplied 
by the weight factor and added to arrive at a State Factor (SF). The SF 
cannot exceed .05.

SF = (criterion (b)(1)(i) x 50 percent) +
(criterion (b)(1)(ii) x 25 percent) +
(criterion (b)(1)(iii) x 25 percent)

    (c) Basic formula allocation. See Sec. 1940.552(c).
    (d) Transition formula. The transition formula is not used for Rural 
Business Opportunity Grants (RBOG).
    (e) Base allocation. See Sec. 1940.552(e).
    (f) Administrative allocation. The administrative allocation is not 
used for RBOG.
    (g) Reserve. See Sec. 1940.552(g).
    (h) Pooling of funds. See Sec. 1940.552(h). Funds are pooled near 
fiscal year-end. Pooled funds will be placed in the National Office 
reserve and will be made available administratively.
    (i) Availability of the allocation. See Sec. 1940.552(i). The 
allocation of funds is made available to States on an annual basis.
    (j) Suballocation by the State Director. Suballocation by the State 
Director is authorized for this program.

[68 FR 14528, Mar. 26, 2003; 68 FR 17153, Apr. 8, 2003]



Sec. Sec. 1940.594-1940.600  [Reserved]

             Exhibit A to Subpart L of Part 1940 [Reserved]

  Exhibit B to Subpart L of Part 1940--Section 515 Nonprofit Set Aside 
                                 (NPSA)

    I. Objective: To provide eligible nonprofit entities with a 
reasonable opportunity to utilize section 515 funds.
    II. Background: The Cranston-Gonzalez National Affordable Housing 
Act of 1990 established the statutory authority for the section 515 NPSA 
funds.
    III. Eligible entities. Amounts set aside shall be available only 
for nonprofit entities in the State, which may not be wholly or 
partially owned or controlled by a for-profit entity. An eligible entity 
may include a partnership, including a limited partnership, that has as 
its general partner a nonprofit entity or the nonprofit entity's for-
profit subsidiary which will be receiving low-income housing tax credits 
authorized under section 42 of the Internal Revenue Code of 1986. For 
the purposes of this exhibit, a nonprofit entity is an organization 
that:
    A. Will own an interest in a project to be financed under this 
section and will materially participate in the development and the 
operations of the project; and
    B. Is a private organization that has nonprofit, tax exempt status 
under section 501(c)(3) or section 501(c)(4) of the Internal Revenue 
Code of 1986; and
    C. Has among its purposes the planning, development, or management 
of low-income housing or community development projects; and
    D. Is not affiliated with or controlled by a for-profit 
organization; and
    E. May be a consumer cooperative, Indian tribe or tribal housing 
authority.
    IV. Nondiscrimination. FmHA or its successor agency under Public Law 
103-354 reemphasizes the nondiscrimination in use and occupancy, and 
location requirements of Sec. 1944.215 of subpart E of part 1944 of 
this chapter.
    V. Amount of Set Aside. See Attachment 1 of this exhibit (available 
in any FmHA or its successor agency under Public Law 103-354 State 
Office):
    A. Small State Allocation Set Aside (SSASA). The allocation for 
small States has been reserved and combined to form the SSASA, as shown 
in Attachment 1 of this exhibit (available in any FmHA or its successor 
agency under Public Law 103-354 State Office). The definition of small 
State is included in Attachment 1 of this exhibit (available in any FmHA 
or its successor agency under Public Law 103-354 State Office).
    B. Large State Allocation Set Aside (LSASA). The allocation for 
large States has been reserved in the amounts shown in Attachment 1 of 
this exhibit (available in any FmHA or its successor agency under Public 
Law 103-354 State Office). The definition of large State is included in 
Attachment 1 of this exhibit (available in any FmHA or its successor 
agency under Public Law 103-354 State Office).
    C. NPSA Rental Assistance (RA). NPSA RA has been reserved in the 
National Office as shown in Attachment 1 of this exhibit (available in 
any FmHA or its successor agency under Public Law 103-354 State Office).

[[Page 101]]

    VI. Access to NPSA funds and RA. RA is available and may be 
requested, as needed, with eligible loan requests. NPSA funds and RA 
should be requested by the State Director using a format similar to 
Attachment 2 of this exhibit (available in any FmHA or its successor 
agency under Public Law 103-354 State Office). Funds are available as 
follows:
    A. SSASA: The SSASA is available to any SSASA State on a first-come-
first-served basis until pooling. See Attachment 3 of this exhibit 
(available in any FmHA or its successor agency under Public Law 103-354 
State Office) for information regarding pooling.
    B. LSASA: LSASA states may request LSASA funds up to the amount the 
state contributed to LSASA until pooling. See Attachment 3 of this 
exhibit (available in any FmHA or its successor agency under Public Law 
103-354 State Office) for information regarding pooling.
    VII. General Information on priority/processing of Preapplications.
    A. Preapplications/applications for assistance from eligible 
nonprofit entities under this subpart must continue to meet all loan 
making requirements of subpart E of part 1944 of this chapter.
    B. A separate processing list will be maintained for NPSA loan 
requests.
    C. The State Director may issue Form AD-622, ``Notice of 
Preapplication Review Action'', requesting a formal application to the 
highest ranking preapplication(s) from eligible nonprofit entities 
defined in paragraph III of this exhibit as follows:
    1. LSASA. In LSASA States, AD-622s may not exceed 150 percent of the 
amount the State contributed to the LSASA. No single Form AD-622 may 
exceed the amount of funds the State contributed to LSASA.
    2. SSASA. In SSASA States, AD-622s should not exceed the greater of 
$750,000 or 150 percent of the amount the State contributed to the 
SSASA; except that the State Director in a SSASA State may request 
authorization to issue a Form AD-622, in an amount in excess of $750,000 
if additional funds are necessary to finance an average-size proposal 
based upon average construction costs in the state. For example, if the 
average size proposal currently being funded in the state is 24 units, 
and the average construction cost in the state is $35,000 per unit, the 
state may request authorization to issue an AD-622 for $840,000. The 
State Director will submit such requests to the National Office 
including data reflecting average size/cost projects in the State. No 
single Form AD-622 may exceed the amount of funds the State may receive 
from SSASA.
    D. All AD-622s issued for proposals to be funded from NPSA will be 
subject to the availability of NPSA funds. Form AD-622 should contain 
the following or similar language: ``This Form AD-622 is issued subject 
to the availability of Nonprofit Set-Aside (NPSA) funds.''
    E. If a preapplication requesting NPSA funds has sufficient priority 
points to compete with non-NPSA loan requests based upon the District or 
State allocation (as applicable), the preapplication will be maintained 
on both the NPSA and non-NPSA rating/ranking lists.
    F. Provisions for providing preference to loan requests from 
nonprofits is contained in Sec. 1944.231 of subpart E of part 1944 of 
this chapter. Limited partnerships, with a nonprofit general partner, do 
not qualify for nonprofit preference.
    VIII. Exception authority. The Administrator, or his/her designee, 
may, in individual cases, make an exception to any requirements of this 
exhibit which are not inconsistent with the authorizing statute, if he/
she finds that application of such requirement would adversely affect 
the interest of the Government or adversely affect the intent of the 
authorizing statute and/or Rural Rental Housing program or result in an 
undue hardship by applying the requirement. The Administrator, or his/
her designee, may exercise this authority upon the request of the State 
Director, Assistant Administrator for Housing, or Director of the Multi-
Family Housing Processing Division. The request must be supported by 
information that demonstrates the adverse impact or effect on the 
program. The Administrator, or his/her designee, also reserves the right 
to change pooling dates, establish/change minimum and maximum fund usage 
from NPSA, or restrict participation in the set aside.

[58 FR 38950, July 21, 1993]

    Effective Date Note: At 69 FR 69104, Nov. 26, 2004, Exhibit B to 
subpart L of part 1940 was amended by revising paragraphs IV., VII.A., 
and VII.F., effective Feb. 24, 2005. For the convenience of the user the 
revised text is set forth as follows:

  Exhibit B to Subpart L of Part 1940--Section 515 Nonprofit Set Aside 
                                 (NPSA)

                                * * * * *

    IV. Nondiscrimination. Rural Development reemphasizes the 
nondiscrimination in use and occupancy and location requirements of 7 
CFR 3560.104.

                                * * * * *

    VII. * * *
    A. Preapplications/applications for assistance from eligible 
nonprofit entities under this subpart must continue to meet all loan

[[Page 102]]

making requirements of 7 CFR part 3560, subpart B.

                                * * * * *

    F. Provisions for providing preference to loan requests from 
nonprofit organizations is contained in 7 CFR 3560.56. Limited 
partnerships, with a nonprofit general partner, do not qualify for 
nonprofit preference.

    Exhibit C to Subpart L of Part 1940--Housing in Underserved Areas

                              I. Objective

    A. To improve the quality of affordable housing by targeting funds 
under Rural Housing Targeting Set Aside (RHTSA) to designated areas that 
have extremely high concentrations of poverty and substandard housing 
and have severe, unmet rural housing needs.
    B. To provide for the eligibility of certain colonias for rural 
housing funds.

                             II. Background

    The Cranston-Gonzalez National Affordable Housing Act of 1990 
(herein referred to as the ``Act'') requires that Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
set aside section 502, 504, 514, 515, and 524 funds for assistance in 
targeted, underserved areas. An appropriate amount of section 521 new 
construction rental assistance (RA) is set aside for use with seciton 
514 and 515 loan programs. Under the Act, certain colonias are now 
eligible for FmHA or its successor agency under Public Law 103-354 
housing assistance.

                              III. Colonias

    A. Colonia is defined as any identifiable community that:
    1. Is in the State of Arizona, California, New Mexico or Texas;
    2. Is in the area of the United States within 150 miles of the 
border between the United States and Mexico, except that the term does 
not include any standard metropolitan statistical area that has a 
population exceeding 1 million;
    3. Is designated by the State or county in which it is located as a 
colonia;
    4. Is determined to be a colonia on the basis of objective criteria, 
including lack of potable water supply, lack of adequate sewage systems, 
and lack of decent, safe, and sanitary housing; and
    5. Was in existence and generally recognized as a colonia before 
November 28, 1990.
    B. Requests for housing assistance in colonias have priority as 
follows:
    1. When the State did not obligate its allocation in one or more of 
its housing programs during the previous 2 fiscal years (FYs), priority 
will be given to requests for assistance, in the affected program(s), 
from regularly allocated funds, until an amount equal to 5 percent of 
the current FY program(s) allocation is obligated in colonias. This 
priority takes precedence over other processing priority methods.
    2. When the State did obligate its allocation in one or more of its 
housing programs during the previous 2 FYs, priority will be given to 
requests for assistance, in the affected program(s), from RHTSA funds, 
until an amount equal to 5 percent of the current FY program(s) 
allocation is obligated in colonias. This priority takes precedence over 
other processing priority methods.
    C. Colonias may access pooled RHTSA funds as provided in paragraph 
IV G of this exhibit.

                                IV. RHTSA

    A. Amount of Set Aside. Set asides for RHTSA, from the current FY 
allocations, are established in attachment 1 of this exhibit (available 
in any FmHA or its successor agency under Public Law 103-354 State 
Office).
    B. Selection of Targeted Counties--1. Eligibility. Eligible counties 
met the following criteria: (1) 20 percent or more of the county 
population is at, or below, poverty level; (2) 10 percent or more of the 
occupied housing units are substandard; and (3) the average funds 
received on a per capita basis in the county, during the previous 5 FYs, 
were more than 40 percent below the State per capita average during the 
same period. Data from the most recent available Census was used for all 
three criteria, with criteria (2) and (3) based on the FmHA or its 
successor agency under Public Law 103-354 rural area definition.
    2. Selection. The Act requires that 100 of the most underserved 
counties be initially targeted for RHTSA funds. In establishing the 100 
counties, those with 28 percent or more of their population at, or 
below, poverty level and 13 percent or more of their occupied housing 
units substandard, have preference. If less than 100 counties meet this 
criteria, the remaining counties meeting the criteria in paragraph IV B 
1 of this exhibit will be ranked, based upon a total of their 
substandard housing and poverty level percentages. The highest-ranking 
counties are then selected until the list reaches 100. The remaining 
counties are eligible for pool funds only.
    C. State RHTSA Levels. In the section 502, 504, and 515 programs, 
each State's RHTSA level will be based on its number of eligible 
counties, with each county receiving a pro rata share of the total funds 
available. In order to ensure that a meaningful amount of assistance is 
available to each State, minimum funding levels may be established. When 
minimum levels are established, they

[[Page 103]]

are set forth on Attachment 1 of this exhibit (available in any FmHA or 
its successor agency under Public Law 103-354 State Office).
    D. Use of Funds. To maximize the assistance to targeted counties, 
allocated program funds should be used in addition to RHTSA funds, where 
possible. The State Director has the discretion to determine the most 
effective delivery of RHTSA funds among the targeted counties within 
his/her jurisdiction. The 100 counties listed in attachment 2 of this 
exhibit (available in any FmHA or its successor agency under Public Law 
103-354 State Office) are eligible for RHTSA funding consideration 
immediately. Colonias are also eligible for RHTSA funds as described in 
paragraph III of this exhibit.
    E. National Office RHTSA Reserve. A limited National Office reserve 
is available on an individual case basis when the State is unable to 
fund a request from its regular or RHTSA allocation. The amount of the 
reserve, and the date it can be accessed and any conditions thereof, if 
applicable, are contained in attachment 1 of this exhibit (available in 
any FmHA or its successor agency under Public Law 103-354 State Office).
    F. Requests for Funds and RA. All RHTSA funds are reserved in the 
National Office and requests for these funds and/or RA units must be 
submitted by the State Director, using the applicable format shown on 
attachment 4 or 5 of this exhibit (available in any FmHA or its 
successor agency under Public Law 103-354 State Office). The State 
Director is responsible for notifying the Director of Single Family 
Housing Processing Division (SFHPD) or Multi-Family Housing Processing 
Division (MFHPD) of any RHTSA funds and RA units authorized, but not 
obligated, by RHTSA pooling date.
    G. Pooling. Unused RHTSA funds and RA will be pooled. Pooling dates 
and any pertinent information thereof are available on attachment 1 of 
this exhibit (available in any FmHA or its successor agency under Public 
Law 103-354 State Office). Pooled funds will be available on a first-
come, first-served basis to all eligible colonias and all counties 
listed on attachments 2 and 3 of this exhibit (available in any FmHA or 
its successor agency under Public Law 103-354 State Office). Pooled 
RHTSA funds will remain available until the year-end pooling date.
    H.-I. [Reserved]
    J. Requests for Assistance. Requests for assistance in targeted 
counties must meet all loan making requirements of the applicable 
program Instructions, except as modified for colonias in paragraph III 
of this exhibit. For section 515, States may:
    1. Issue Form AD-622, ``Notice of Preapplication Review Action,'' up 
to 150 percent of the amount shown in attachment 1 of this exhibit 
(available in any FmHA or its successor agency under Public Law 103-354 
State Office).
    2. All AD-622s issued for applicants in targeted counties will be 
annotated, in Item 7, under ``Other Remarks,'' with the following: 
``Issuance of this AD-622 is contingent upon receiving funds from the 
Rural Housing Targeting Set Aside (RHTSA). Should RHTSA funds be 
unavailable, or the county in which this project will be located is no 
longer considered a targeted county, this AD-622 will no longer be 
valid. In these cases, the request for assistance will need to compete 
with other preapplications in non-targeted counties, based upon its 
priority point score.''

                              V. [Reserved]

[57 FR 3924, Feb. 3, 1992]

Subparts M-S [Reserved]



   Subpart T_System for Delivery of Certain Rural Development Programs

    Source: 57 FR 11559, Apr. 6, 1992, unless otherwise noted.



Sec. 1940.951  General.

    This subpart sets forth Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 policies and procedures for 
the delivery of certain rural development programs under a rural 
economic development review panel established in eligible States 
authorized under sections 365, 366, 367, and 368 of the Consolidated 
Farm and Rural Development Act (7 U.S.C. 1921 et seq.), as amended.
    (a) If a State desires to participate in this pilot program, the 
Governor of the State may submit an application to the Under Secretary 
for Small Community and Rural Development, U.S. Department of 
Agriculture, room 219-A, Administration Building, Washington, DC 20250 
in accordance with Sec. 1940.954 of this subpart.
    (b) The Under Secretary shall designate not more than five States in 
which to make rural economic development review panels applicable during 
any established time period for the purpose of reviewing and ranking 
applications submitted for funding under certain rural development 
programs. The following time periods have been

[[Page 104]]

established for participation in this pilot program:

First period--Balance of fiscal year (FY) 1992 to September 30, 1993;
Second period--October 1, 1993 to September 30, 1994;
Third period--October 1, 1994 to September 30, 1995; and
Fourth period--October 1, 1995 to September 30, 1996.

    The State will be bound by the provisions of this pilot program only 
during the established time period(s) for which the State is designated. 
If a designated State does not remain an eligible State during the 
established time period(s) for which the State was designated, the State 
will not be eligible to participate in this program and cannot revert to 
the old ranking and applicant selection process.
    (c) Assistance under each designated rural development program shall 
be provided to eligible designated States for qualified projects in 
accordance with this subpart.
    (d) Federal statutes provide for extending FmHA or its successor 
agency under Public Law 103-354 financially supported programs without 
regard to race, color, religion, sex, national origin, marital status, 
age, familial status, or physical/mental handicap (provided the 
participant possesses the capacity to enter into legal contracts.)



Sec. 1940.952  [Reserved]



Sec. 1940.953  Definitions.

    For the purpose of this subpart:
    Administrator. The Administrator of FmHA or its successor agency 
under Public Law 103-354.
    Area plan. The long-range development plan developed for a local or 
regional area in a State.
    Designated agency. An agency selected by the Governor of the State 
to provide the panel and the State Coordinator with support for the 
daily operation of the panel.
    Designated rural development program. A program carried out under 
sections 304(b), 306(a), or subsections (a) through (f) and (h) of 
section 310B of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1926(a)), as amended, or under section 1323 of the Food Security 
Act of 1985, for which funds are available at any time during the FY 
under such section, including, but not limited to, the following:
    (1) Water and Waste Disposal Insured or Guaranteed Loans;
    (2) Development Grants for Community Domestic Water and Waste 
Disposal Systems;
    (3) Technical Assistance and Training Grants;
    (4) Emergency Community Water Assistance Grants;
    (5) Community Facilities Insured and Guaranteed Loans;
    (6) Business and Industry Guaranteed Loans;
    (7) Industrial Development Grants;
    (8) Intermediary Relending Program;
    (9) Drought and Disaster Relief Guaranteed Loans;
    (10) Disaster Assistance for Rural Business Enterprises;
    (11) Nonprofit National Rural Development and Finance Corporations.
    Designated State. A State selected by the Under Secretary, in 
accordance with Sec. 1940.954 of this subpart, to participate in this 
program.
    Eligible State. With respect to a FY, a State that has been 
determined eligible in accordance with Sec. 1940.954 (e) of this 
subpart.
    Nondesignated State. A State that has not been selected to 
participate in this pilot program.
    Qualified project. Any project: (1) For which the designated agency 
has identified alternative Federal, State, local or private sources of 
assistance and has identified related activities in the State; and
    (2) To which the Administrator is required to provide assistance.
    State. Any of the fifty States.
    State coordinator. The officer or employee of the State appointed by 
the Governor to carry out the activities described in Sec. 1940.957 of 
this subpart.
    State Director. The head of FmHA or its successor agency under 
Public Law 103-354 at the local level charged with administering 
designated rural development programs.
    State rural economic development review panel or ``panel''. An 
advisory panel that meets the requirements of Sec. 1940.956 of this 
subpart.

[[Page 105]]

    Under Secretary. In the U.S. Department of Agriculture, the Under 
Secretary for Small Community and Rural Development.



Sec. 1940.954  State participation.

    (a) Application. If a State desires to participate in this pilot 
program, the Governor may submit an original and one copy of Standard 
Form (SF) 424.1, ``Application for Federal Assistance (For Non-
construction),'' to the Under Secretary. The five States designated by 
the Under Secretary to participate in the first established time period 
will be selected from among applications received not later than 60 
calendar days from the effective date of this subpart. If a designated 
State desires to participate in additional time periods, applications 
are not required to be resubmitted; however, the Governor must notify 
the Under Secretary, in writing, no later than July 31 of each FY, and 
the State must submit evidence of eligibility requirements each FY in 
accordance with Sec. 1940.954 (e)(2) of this subpart. Beginning in FY 
1993, applications must be submitted to the Under Secretary no later 
than July 31 if a State desires to be selected to fill vacancies that 
occur when designated States do not roll over into another established 
time period. States should include the following information with SF 
424.1:
    (1) A narrative signed by the Governor including reasons for State 
participation in this program and reasons why a project review and 
ranking process by a State panel will improve the economic and social 
conditions of rural areas in the State. The narrative will also include 
the time period(s) for which the State wishes to participate.
    (2) A proposal outlining the method for meeting all the following 
eligibility requirements and the timeframes established for meeting each 
requirement:
    (i) Establishing a rural economic development review panel in 
accordance with Sec. 1940.956 of this subpart. When established, the 
name, title, and address of each proposed member should be included and 
the chairperson and vice chairperson should be identified.
    (ii) Governor's proposed designation of a State agency to support 
the State coordinator and the panel. The name, address, and telephone 
number of the proposed agency's contact person should be included.
    (iii) Governor's proposed selection of a State coordinator in 
accordance with Sec. 1940.957 of this subpart, including the title, 
address, and telephone number.
    (iv) Development of area development plans for all areas of the 
State that are eligible to receive assistance from designated rural 
development programs.
    (v) The review and evaluation of area development plans by the panel 
in accordance with Sec. 1940.956 of this subpart.
    (vi) Development of written policy and criteria used by the panel to 
review and evaluate area plans in accordance with Sec. 1940.956 of this 
subpart.
    (vii) Development of written policy and criteria the panel will use 
to evaluate and rank applications in accordance with Sec. 1940.956 of 
this subpart.
    (3) Preparation of a proposed budget that includes 3 years 
projections of income and expenses associated with panel operations. If 
funds from other sources are anticipated, sources and amounts should be 
identified.
    (4) Development of a financial management system that will provide 
for effective control and accountability of all funds and assets 
associated with the panel.
    (5) A schedule to coordinate the submission, review, and ranking 
process of preapplications/applications in accordance with Sec. 
1940.956(a) of this subpart.
    (6) Other information provided by the State in support of its 
application.
    (b) Selecting States. The Under Secretary will review the 
application and other information submitted by the State and designate 
not more than five States to participate during any established time 
period.
    (c) Notification of selection. (1) The Under Secretary will notify 
the Governor of each State whether or not the State has been selected 
for further consideration in this program. If a State has been selected, 
the notification will include the additional information that the 
Governor must submit to the Under Secretary in order for the State to 
meet eligibility requirements in accordance with paragraph (d) of this 
section.

[[Page 106]]

    (2) A copy of the notification to the Governor will be submitted to 
the Administrator along with a copy of the State's application and other 
material submitted in support of the application.
    (d) Determining State eligibility. (1) The Governor will provide the 
Under Secretary with evidence that the State has complied with the 
eligibility requirements of paragraph (a)(2) of this section not later 
than September 1, 1992, for the first established time period and not 
later than September 1 for each of the remaining established time 
periods.
    (2) The Under Secretary will review the material submitted by the 
Governor in sufficient detail to determine if a State has complied with 
all eligibility requirements of this subpart. The panel will not begin 
reviewing and ranking applications until the Governor has been notified 
in writing by the Under Secretary that the State has been determined 
eligible and is designated to participate in this program. A copy of the 
notification will be sent to the Administrator. The Under Secretary's 
decision is not appealable.
    (e) Eligibility requirements. (1) With respect to this subpart, the 
Under Secretary may determine a State to be an eligible State provided 
all of the following apply not later than October 1 of each FY:
    (i) The State has established a rural economic development review 
panel that meets the requirements of Sec. 1940.956 of this subpart;
    (ii) The Governor has appointed an officer or employee of the State 
government to serve as State coordinator to carry out the 
responsibilities set forth in Sec. 1940.957 of this subpart; and
    (iii) The Governor has designated an agency of the State government 
to provide the panel and State coordinator with support for the daily 
operation of the panel.
    (2) If a State is determined eligible initially and desires to 
participate in additional time periods established for this program, the 
Governor will submit documents and information not later than September 
1 of each subsequent FY in sufficient detail for the Under Secretary to 
determine, prior to the beginning of the additional time period, that 
the State is still in compliance with all eligibility requirements of 
this subpart.



Sec. 1940.955  Distribution of program funds to designated States.

    (a) States selected to participate in the first established time 
period will receive funds from designated rural development programs 
according to applicable program regulations until the end of FY 1992, if 
necessary for States to have sufficient time to meet the eligibility 
requirements of this subpart, and to be designated to participate in 
this program. No funds will be administered under this subpart to an 
ineligible State.
    (b) If a State becomes an eligible State any time prior to the end 
of FY 1992, any funds remaining unobligated from a State's FY 1992 
allocation, may be administered under this subpart.
    (c) Beginning in FY 1993 and for each established time period 
thereafter, all designated rural development program funds received by a 
designated State will be administered in accordance with Sec. Sec. 
1940.961 through 1940.965 of this subpart, provided the State is 
determined eligible prior to the beginning of each FY in accordance with 
Sec. 1940.954 of this subpart. No assistance will be provided under any 
designated rural development program in any designated State that is not 
an eligible State.



Sec. 1940.956  State rural economic development review panel.

    (a) General. In order for a State to become or remain an eligible 
State, the State must have a rural economic development panel that meets 
all requirements of this subpart. Each designated State will establish a 
schedule whereby the panel and FmHA or its successor agency under Public 
Law 103-354 will coordinate the submission, review, and ranking process 
of preapplications/applications. The schedule will be submitted to the 
Under Secretary for concurrence and should consider the following:
    (1) Timeframes should assure that applications selected for funding 
from the current FY's allocation of funds can be processed by FmHA or 
its successor agency under Public Law 103-354 and funds obligated prior 
to the July 15

[[Page 107]]

pooling established in Sec. 1940.961(c) of this subpart;
    (2) Initial submission of preapplications/applications from FmHA or 
its successor agency under Public Law 103-354 to the panel and any 
subsequent submissions during the first year;
    (3) How often during each FY thereafter should FmHA or its successor 
agency under Public Law 103-354 submit preapplications/applications to 
the panel for review and ranking;
    (4) Number of working days needed by the panel to review and rank 
preapplications/applications;
    (5) Number of times during the FY the panel will submit a list of 
ranked preapplications/applications to FmHA or its successor agency 
under Public Law 103-354 for funding consideration;
    (6) Consider the matching of available loan and grant funds to 
assure that all allocated funds will be used;
    (7) How to consider ranked preapplications/applications at the end 
of the FY that have not been funded; and
    (8) How to consider requests for additional funds needed by an 
applicant to complete a project that already has funds approved; i.e., 
construction bid cost overrun.
    (b) Duties and responsibilities. The panel is required to advise the 
State Director on the desirability of funding applications from funds 
available to the State from designated rural development programs. In 
relation to this advice, the panel will have the following duties and 
responsibilities:
    (1) Establish policy and criteria to review and evaluate area plans 
and to review and rank preapplications/applications. (i) Area plan. The 
panel will develop a written policy and criteria to use when evaluating 
area plans. The criteria to be used when evaluating area plans will 
assure that the plan includes, as a minimum, the technical information 
included in Sec. 1940.959 of this subpart. The criteria will be in 
sufficient detail for the panel to determine that the plan is 
technically and economically adequate, feasible, and likely to succeed 
in meeting the stated goals of the plan. The panel will give weight to 
area-wide or regional plans and comments submitted by intergovernmental 
development councils or similar organizations made up of local elected 
officials charged with the responsibility for rural area or regional 
development. A copy of the policy and evaluating criteria will be 
provided to FmHA or its successor agency under Public Law 103-354.
    (ii) Applications. The panel will annually review the policy and 
criteria used by the panel to evaluate and rank preapplications/
applications in accordance with this subpart. The panel will assure that 
the policy and criteria are consistent with current rural development 
needs, and that the public has an opportunity to provide input during 
the development of the initial policy and criteria. The Governor will 
provide a copy of the initial policy and criteria established by the 
panel when submitting evidence of eligibility in accordance with Sec. 
1940.954 of this subpart. Annually, thereafter, and not later than 
September 1 of each FY, the State coordinator will send the Under 
Secretary evidence that the panel has reviewed the established policy 
and criteria. The State coordinator will also send the Under Secretary a 
copy of all revisions.
    (A) The policy and criteria used to rank applications for business 
related projects will include the following, which are not necessarily 
in rank order:
    (1) The extent to which a project stimulate rural development by 
creating new jobs of a permanent nature or retaining existing jobs by 
enabling new small businesses to be started, or existing businesses to 
be expanded by local or regional area residents who own and operate the 
businesses.
    (2) The extent to which a project will contribute to the enhancement 
and the diversification of the local or regional area economy.
    (3) The extent to which a project will generate or retain jobs for 
local or regional area residents.
    (4) The extent to which a project will be carried out by persons 
with sufficient management capabilities.
    (5) The extent to which a project is likely to become successful.
    (6) The extent to which a project will assist a local or regional 
area overcome severe economic distress.

[[Page 108]]

    (7) The distribution of assistance to projects in as many areas as 
possible in the State with sensitivity to geographic distribution.
    (8) The technical aspects of the project.
    (9) The market potential and marketing arrangement for the projects.
    (10) The potential of such project to promote the growth of a rural 
community by improving the ability of the community to increase the 
number of persons residing in the community and by improving the quality 
of life for these persons.
    (B) The policy and criteria used to rank preapplications/
applications for infrastructure and all other community facility-type 
projects will include the following which are not necessarily in rank 
order:
    (1) The extent to which the project will have the potential to 
promote the growth of a rural community by improving the quality of life 
for local or regional residents.
    (2) The extent to which the project will affect the health and 
safety of local or regional area residents.
    (3) The extent to which the project will improve or enhance cultural 
activities, public service, education, or transportation.
    (4) The extent to which the project will affect business 
productivity and efficiency.
    (5) The extent to which the project will enhance commercial business 
activity.
    (6) The extent to which the project will address a severe loss or 
lack of water quality or quantity.
    (7) The extent to which the project will correct a waste collection 
or disposal problem.
    (8) The extent to which the project will bring a community into 
compliance with Federal or State water or waste water standards.
    (9) The extent to which the project will consolidate water and waste 
systems and utilize management efficiencies in the new system.
    (2) Review and evaluate area plans. Each area plan submitted for a 
local or regional area will be reviewed and evaluated by the panel. 
After an area plan has been reviewed and evaluated in accordance with 
established policy and criteria:
    (i) The panel will accept any area plan that meets established 
criteria unless the plan is incompatible with any other area plan for 
that area that has been accepted by the panel; or
    (ii) The panel will return any area plan that is technically or 
economically inadequate, not feasible, is unlikely to be successful, or 
is not compatible with other panel-accepted area plans for that area. 
When an area plan is returned, the panel will include an explanation of 
the reasons for the return and suggest alternative proposals.
    (iii) The State coordinator will notify the State Director, in 
writing, of the panel's decision on each area plan reviewed.
    (3) Review and rank preapplications/applications. The panel will 
review, rank, and transmit a ranked list of preapplications/applications 
according to the schedule prepared in accordance with paragraph (a) of 
this section, and the following:
    (i) Review preapplications/applications. The panel will review each 
preapplication/application for assistance to determine if the project to 
be carried out is compatible with the area plan in which the project 
described in the preapplication/application is proposed, and either:
    (A) Accept any preapplication/application determined to be 
compatible with such area plan; or
    (B) Return to the State Director any preapplication/application 
determined not to be compatible with such area plan. The panel will 
notify the applicant when preapplication/applications are returned to 
the State Director.
    (ii) Rank preapplications/applications. The panel will rank only 
those preapplications/applications that have been accepted in accordance 
with paragraph (b)(3)(i)(A) of this section. The panel will consider the 
sources of assistance and related activities in the State identified by 
the designated agency. Applications will be ranked in accordance with 
the written policy and criteria established in accordance with paragraph 
(b)(1)(ii) of this section and the following:

[[Page 109]]

    (A) Priority ranking for projects addressing health emergencies. In 
addition to the criteria established in paragraph (b)(1)(ii) of this 
section, preapplications/applications for projects designed to address a 
health emergency declared so by the appropriate Federal or State agency, 
will be given priority by the panel.
    (B) Priority based on need. If two or more preapplications/
applications ranked in accordance with this subpart are determined to 
have comparable strengths in their feasibility and potential for growth, 
the panel will give priority to the applications for projects with the 
greatest need.
    (C) If additional ranking criteria for use by a panel are required 
in any designated rural development program regulation, the panel will 
give consideration to the criteria when ranking preapplications/
applications submitted under that program.
    (iii) Transmit list of ranked preapplications/applications. After 
the preapplications/applications have been ranked, the panel will submit 
a list of all preapplications/applications received to the State 
coordinator. The list will clearly indicate each preapplication/
application accepted for funding and will list preapplications/
applications in the order established for funding according to priority 
ranking by the panel. The list will not include a preapplication/
application that is to be returned to the applicant in accordance with 
paragraph (b)(3)(i)(B) of this section. The State coordinator will send 
a copy of the list to the State Director for further processing of the 
preapplication/application in accordance with Sec. 1940.965 of this 
subpart. Once the panel has ranked and submitted the list to FmHA or its 
successor agency under Public Law 103-354 and the State Director has 
selected a preapplication/application for funding, the preapplication/
application selected will not be replaced with a preapplication/
application received at a later date that may have a higher ranking.
    (4) Public availability of list. If requested, the State coordinator 
will make the list of ranked preapplications/applications available to 
the public and will include a brief explanation and justification of why 
the project preapplications/applications received their priority 
ranking.
    (c) Membership. (1) Voting members. The panel will be composed of 
not more than 16 voting members who are representatives of rural areas. 
The 16 voting members will include the following:
    (i) One of whom is the Governor of the State or the person 
designated by the Governor to serve on the panel, on behalf of the 
Governor, for that year;
    (ii) One of whom is the director of the State agency responsible for 
economic and community development or the person designated by the 
director to serve on the panel, on behalf of the director, for that 
year:
    (iii) One of whom is appointed by a statewide association of banking 
organizations;
    (iv) One of whom is appointed by a statewide association of 
investor-owned utilities;
    (v) One of whom is appointed by a statewide association of rural 
telephone cooperatives;
    (vi) One of whom is appointed by a statewide association of 
noncooperative telephone companies;
    (vii) One of whom is appointed by a statewide association of rural 
electric cooperatives;
    (viii) One of whom is appointed by a statewide association of health 
care organizations;
    (ix) One of whom is appointed by a statewide association of existing 
local government-based planning and development organizations;
    (x) One of whom is appointed by the Governor of the State from 
either a statewide rural development organization or a statewide 
association of publicly-owned electric utilities, neither of which is 
described in any of paragraphs (c)(1)(iii) through (ix);
    (xi) One of whom is appointed by a statewide association of 
counties;
    (xii) One of whom is appointed by a statewide association of towns 
and townships, or by a statewide association of municipal leagues, as 
determined by the Governor;
    (xiii) One of whom is appointed by a statewide association of rural 
water districts;
    (xiv) The State director of the Federal small business development 
center

[[Page 110]]

or, if there is no small business development center in place with 
respect to the State, the director of the State office of the Small 
Business Administration;
    (xv) The State representative of the Economic Development 
Administration of the Department of Commerce; and
    (xvi) One of whom is appointed by the State Director from among the 
officers and employees of FmHA or its successor agency under Public Law 
103-354.
    (2) Nonvoting members. The panel will have not more than four 
nonvoting members who will serve in an advisory capacity and who are 
representatives of rural areas. The four nonvoting members will be 
appointed by the Governor and include:
    (i) One from names submitted by the dean or the equivalent official 
of each school or college of business, from colleges and universities in 
the State;
    (ii) One from names submitted by the dean or the equivalent official 
of each school or college of engineering, from colleges and universities 
in the State;
    (iii) One from names submitted by the dean or the equivalent 
official, of each school or college of agriculture, from colleges and 
universities in the State; and
    (iv) The director of the State agency responsible for extension 
services in the State.
    (3) Qualifications of panel members appointed by the Governor. Each 
individual appointed to the panel by the Governor will be specially 
qualified to serve on the panel by virtue of the individual's technical 
expertise in business and community development.
    (4) Notification of selection. Each statewide organization that 
selects an individual to represent the organization on the panel must 
notify the Governor of the selection.
    (5) Appointment of members representative of statewide organization 
in certain cases. (i) If there is no statewide association or 
organization of the entities described in paragraph (c)(1) of this 
section, the Governor of the State will appoint an individual to fill 
the position or positions, as the case may be, from among nominations 
submitted by local groups of such entities.
    (ii) If a State has more than one of any of the statewide 
associations or organizations of the entities described in paragraph 
(c)(1) of this section, the Governor will select one of the like 
organizations to name a member to serve during no more than one 
established time period. Thereafter, the Governor will rotate selection 
from among the remaining like organizations to name a member.
    (d) Failure to appoint panel members. The failure of the Governor, a 
Federal agency, or an association or organization described in paragraph 
(c) of this section, to appoint a member to the panel as required under 
this subpart, shall not prevent a State from being determined an 
eligible State.
    (e) Panel vacancies. A vacancy on the panel will be filled in the 
manner in which the original appointment was made. Vacancies should be 
filled prior to the third panel meeting held after the vacany occurred. 
The State coordinator will notify the State Director, in writing, when 
the vacancy is filled or if the vacancy will not be filled.
    (f) Chairperson and vice chairperson. The panel will select two 
members of the panel who are not officers or employees of the United 
States to serve as the chairperson and vice chairperson of the panel. 
The term shall be for 1 year.
    (g) Compensation to panel members. (1) Federal members. Except as 
provided in Sec. 1940.960 of this subpart, each member of the panel who 
is an officer or employee of the Federal Government may not receive any 
compensation or benefits by reason of service on the panel, in addition 
to that which is received for performance of such officer or employee's 
regular employment.
    (2) NonFederal members. Each nonfederal member may be compensated by 
the State and/or from grant funds established in Sec. 1940.968 of this 
subpart.
    (h) Rules governing panel meetings. (1) Quorum. A majority of voting 
members of the panel will constitute a quorum for the purpose of 
conducting business of the panel.
    (2) Frequency of meetings. The panel will meet not less frequently 
than quarterly. Frequency of meetings should be often enough to assure 
that applications are reviewed and ranked for funding in a timely 
manner.

[[Page 111]]

    (3) First meeting. The State coordinator will schedule the first 
panel meeting and will notify all panel members of the location, date, 
and time at least seven days prior to the meeting. Subsequent meetings 
will be scheduled by vote of the panel.
    (4) Records of meetings. The panel will keep records of the minutes 
of the meetings, deliberations, and evaluations of the panel in 
sufficient detail to enable the panel to provide interested agencies or 
persons the reasons for its actions.
    (i) Federal Advisory Committee Act. The Federal Advisory Committee 
Act shall not apply to any State rural economic development review 
panel.
    (j) Liability of members. The members of a State rural economic 
development review panel shall not be liable to any person with respect 
to any determination made by the panel.



Sec. 1940.957  State coordinator.

    The Governor will appoint an officer or employee of State government 
as State coordinator in order for a State to become and remain an 
eligible State under this subpart. The State coordinator will have the 
following duties and responsibilities:
    (a) Manage, operate, and carry out the instructions of the panel;
    (b) Serve as liaison between the panel and the Federal and State 
agencies involved in rural development;
    (c) Coordinate the efforts of interested rural residents with the 
panel and ensure that all rural residents in the State are informed 
about the manner in which assistance under designated rural development 
programs is provided to the State pursuant to this subpart, and if 
requested, provide information to State residents; and
    (d) Coordinate panel activities with FmHA or its successor agency 
under Public Law 103-354.



Sec. 1940.958  Designated agency.

    The Governor will appoint a State agency to provide the panel and 
the State coordinator with support for the daily operation of the panel. 
In addition to providing support, the designated agency is responsible 
for identifying:
    (a) Alternative sources of financial assistance for project 
preapplications/applications reviewed and ranked by the panel, and
    (b) Related activities within the State.



Sec. 1940.959  Area plan.

    Each area plan submitted to the panel for review in accordance with 
Sec. 1940.956 of this subpart shall identify the geographic boundaries 
of the area and shall include the following information:
    (a) An overall development plan for the area with goals, including 
business development and infrastructure development goals, and time 
lines based on a realistic assessment of the area, including, but not 
limited to, the following:
    (1) The number and types of businesses in the area that are growing 
or declining;
    (2) A list of the types of businesses that the area could 
potentially support;
    (3) The outstanding need for water and waste disposal and other 
public services or facilities in the area;
    (4) The realistic possibilities for industrial recruitment in the 
area;
    (5) The potential for development of tourism in the area;
    (6) The potential to generate employment in the area through 
creation of small businesses and the expansion of existing businesses; 
and
    (7) The potential to produce value-added agricultural products in 
the area.
    (b) An inventory and assessment of the human resources of the area, 
including, but not limited to, the following:
    (1) A current list of organizations in the area and their special 
interests;
    (2) The current level of participation of area residents in rural 
development activities and the level of participation required for 
successful implementation of the plan;
    (3) The availability of general and specialized job training in the 
area and the extent to which the training needs of the area are not 
being met;

[[Page 112]]

    (4) A list of area residents with special skills which could be 
useful in developing and implementing the plan; and
    (5) An analysis of the human needs of the area, the resources in the 
area available to meet those needs, and the manner in which the plan, if 
implemented, would increase the resources available to meet those needs.
    (c) The current degree of intergovernmental cooperation in the area 
and the degree of such cooperation needed for the successful 
implementation of the plan.
    (d) The ability and willingness of governments and citizens in the 
area to become involved in developing and implementing the plan.
    (e) A description of how the governments in the area apply budget 
and fiscal control processes to the plan. This process is directed 
toward costs associated with carrying out the planned development. When 
plans are developed, the financial condition of all areas covered under 
the plan should be fully recognized and planned development should 
realistically reflect the area's immediate and long-range financial 
capabilities.
    (f) The extent to which public services and facilities need to be 
improved to achieve the economic development and quality of life goals 
of the plan. At a minimum, the following items will be considered:
    (1) Law enforcement;
    (2) Fire protection;
    (3) Water, sewer, and solid waste management;
    (4) Education;
    (5) Health care;
    (6) Transportation;
    (7) Housing;
    (8) Communications; and
    (9) The availability of and capability to generate electric power.
    (g) Existing area or regional plans are acceptable provided the plan 
includes statements that indicate the degree to which the plan has met 
or is meeting all the requirements in paragraphs (a) through (f) of this 
section.



Sec. 1940.960  Federal employee panel members.

    (a) The State Director will appoint one FmHA or its successor agency 
under Public Law 103-354 employee to serve as a voting member of the 
panel established in Sec. 1940.956(c)(1) of this subpart.
    (b) The Administrator may appoint, temporarily and for specific 
purposes, personnel from any department or agency of the Federal 
Government as nonvoting panel members, with the consent of the head of 
such department or agency, to provide official information to the panel. 
The member(s) appointed shall have expertise to perform a duty described 
in Sec. 1940.956(b) of this subpart that is not available among panel 
members.
    (c) Federal panel members will be paid per diem or otherwise 
reimbursed by the Federal Government for expenses incurred each day the 
employee is engaged in the actual performance of a duty of the panel. 
Reimbursement will be in accordance with Federal travel regulations.



Sec. 1940.961  Allocation of appropriated funds.

    (a) Initial allocations. (1) Each FY, from sums appropriated for 
direct loans, loan guarantees, or grants for any designated rural 
development program, funds will be allocated to designated States in 
accordance with FmHA Instruction subpart L of part 1940, exhibit A, 
attachment 4, of this chapter (available in any FmHA or its successor 
agency under Public Law 103-354 State or District Office).
    (2) Each FY, and normally within 30 days after the date FmHA or its 
successor agency under Public Law 103-354 receives an appropriation of 
designated rural development program funds, the Governor of each 
designated State will be notified of the amounts allocated to the State 
under each designated program for such FY. The Governor will also be 
notified of the total amounts appropriated for the FY for each 
designated rural development program.
    (3) The State Director will fund projects from a designated State's 
allocation of funds, according to appropriate program regulations giving 
great weight to the order in which the preapplications/applications for 
projects are ranked and listed by the panel in accordance with Sec. 
1940.956(b)(3) of this subpart.

[[Page 113]]

    (b) Reserve. A percentage of the National Office reserve established 
in subpart L of part 1940 of this chapter will be used to establish a 
reserve for designated States that is separate and apart from that of 
nondesignated States. The percent reserved will be based upon the same 
criteria used in subpart L of part 1940 of this chapter to allocate 
program funds.
    (c) Pooling. (1) On July 15 of each FY, and from time to time 
thereafter during the FY, as determined appropriate, unobligated funds 
will be pooled from among the designated States. Pooled funds will be 
made a part of the reserve established for designated States and will 
revert to National Office control.
    (2) Funds pooled from designated States can be requested by 
designated States, pursuant to subsection (d) of this section. The 
designated States' pool; however, will not be available to nondesignated 
States until September 1 of each year.
    (d) Request for funds. (1) Designated States may request designated 
States' reserve funds, and funds for other designated rural development 
programs controlled by the National Office, as shown in FmHA Instruction 
subpart L of part 1940, exhibit A, attachment 4, of this chapter, in 
accordance with applicable program regulations.
    (2) Designated States may request funds from the nondesignated 
reserve account when:
    (i) All allocated and reserve funds to designated states have been 
used, or
    (ii) Sufficient funds do not remain in any designated State 
allocation and in the designated States' reserve account to fund a 
project.



Sec. 1940.962  Authority to transfer direct loan amounts.

    (a) Transfer of funds. If the amounts allocated to a designated 
State for direct Water and Waste Disposal or Community Facility loans 
for a FY are not sufficient to provide the full amount requested for a 
project in accordance with this subpart, the State Director may transfer 
part or all of the funds allocated to the State, from one program to 
another, subject to paragraphs (b) and (c) of this section.
    (b) Limitation on amounts transferred. (1) Amounts transferred 
within a designated State. The amount of direct loan funds transferred 
from a program under this section shall not exceed the amount left 
unobligated after obligating the full amount of assistance requested for 
each project that ranked higher in priority on the panel's list.
    (2) Amounts transferred on a National basis. The amount of direct 
loan funds transferred in a FY, among the designated States, from a 
program under this subpart (after accounting for any offsetting 
transfers into such program) shall not exceed $9 million, or an amount 
otherwise authorized by law.
    (c) National Office concurrence. The State Director may transfer 
direct loan funds authorized in this section, after requesting and 
receiving concurrence from the National Office. If permitted by law, the 
National Office will concur in requests on a first-come-first-served 
basis.



Sec. 1940.963  Authority to transfer guaranteed loan amounts.

    (a) Transfer of funds. If the amounts allocated to a designated 
State for guaranteed Water and Waste Disposal, Community Facility, or 
Business and Industry loans for a FY are not sufficient to provide the 
full amount requested for a project in accordance with this subpart, the 
State Director may transfer part or all of the funds allocated to the 
State, from one program to another, subject to paragraphs (b) and (c) of 
this section.
    (b) Limitation on amounts transferred. The amount of guaranteed loan 
funds transferred from a program under this section shall not exceed the 
amount left unobligated after obligating the full amount of assistance 
requested for each project that ranked higher in priority on the panel's 
list.
    (c) National Office concurrence. The State Director may transfer 
guaranteed loan funds authorized in this section, after requesting and 
receiving concurrence from the National Office. If permitted by law, the 
National Office will concur in requests on a first-come-first-served 
basis.

[[Page 114]]



Sec. 1940.964  [Reserved]



Sec. 1940.965  Processing project preapplications/applications.

    Except for the project review and ranking process established in 
this subpart, all requests for funds from designated rural development 
programs will be processed, closed, and serviced according to applicable 
FmHA or its successor agency under Public Law 103-354 regulations, 
available in any FmHA or its successor agency under Public Law 103-354 
office.
    (a) Preapplications/applications. All preapplications/applications 
on hand that have not been selected for further processing will be 
submitted initially to the panel for review and ranking. 
Preapplications/applications on hand that had been selected for further 
processing prior to the time a State was selected to participate in this 
program may be funded by FmHA or its successor agency under Public Law 
103-354 without review by the panel. Pre ap pli ca tions/applications 
selected for further processing by FmHA or its successor agency under 
Public Law 103-354 will not exceed the State's previous year's funding 
level. The State Director will provide the State coordinator a list of 
preapplications/applications that are in process and will be considered 
for funding without review by the panel. This list will be provided at 
the same time preapplications/applications are initially submitted to 
the State coordinator in accordance with paragraph (d) of this section.
    (b) FmHA or its successor agency under Public Law 103-354 review. 
Pre ap pli ca tions/applications will be reviewed in sufficient detail 
to determine eligibility and, if applicable, determine if the applicant 
is able to obtain credit from other sources at reasonable rates and 
terms. Normally, within 45 days after receiving a complete pre ap pli ca 
tion/application, FmHA or its successor agency under Public Law 103-354 
will notify the applicant of the eligibility determination. A copy of 
all notifications will be sent to the State coordinator.
    (c) Applicant notification. The notification to eligible applicants 
will contain the following statements:

    Your application has been submitted to the State coordinator for 
review and ranking by the State rural economic development review panel. 
If you have questions regarding this review process, you should contact 
the State coordinator. The address and telephone number are: (insert).
    You will be notified at a later date of the decision reached by the 
panel and whether or not you can proceed with the proposed project.
    You are advised against incurring obligations which cannot be 
fulfilled without FmHA or its successor agency under Public Law 103-354 
funds.


These statements should be included in notifications to applicants with 
pre ap pli ca tions/applications on hand that had not been selected for 
further processing prior to the time a State was selected to participate 
in this program.
    (d) Information to State coordinator. FmHA or its successor agency 
under Public Law 103-354 will forward a copy of the preapplication/
application and other information received from the applicant to the 
State coordinator according to a schedule prepared in accordance with 
Sec. 1940.956(a) of this subpart. The State coordinator will be advised 
that no further action will be taken on preapplications/applications 
until they have been received and ranked by the panel, and a priority 
funding list has been received from the State. Applications forwarded to 
the State coordinator will be reviewed and ranked for funding in 
accordance with Sec. 1940.956 of this subpart.
    (e) The FmHA or its successor agency under Public Law 103-354 review 
of priority funding list. FmHA or its successor agency under Public Law 
103-354 will review the list of ranked applications received from the 
State coordinator and determine if projects meet the requirements of the 
designated rural development program under which the applicant seeks 
assistance. Any project that does not meet program regulations will be 
removed from the list. Applicants will be notified of the decision 
reached by the panel and whether or not the applicant should proceed 
with the project. FmHA or its successor agency under Public Law 103-354 
will provide a copy of all notifications to the State coordinator. The 
decisions of the panel are not appealable.

[[Page 115]]

    (f) Obligation of funds. FmHA or its successor agency under Public 
Law 103-354 will provide funds for projects whose application remains on 
the list, subject to available funds. Consideration will be given to the 
order in which the applications were ranked and prioritized by the 
panel. If FmHA or its successor agency under Public Law 103-354 proposes 
to provide assistance to any project without providing assistance to all 
projects ranked higher in priority by the panel than the project to be 
funded, 10 days prior to requesting an obligation of funds, the State 
Director will submit a report stating reasons for funding such lower 
ranked project to the following:
    (1) Panel.
    (2) National Office. The National Office will submit a copy of the 
notification to:
    (i) Committee on Agriculture of the House of Representatives, 
Washington, DC.
    (ii) Committee on Agriculture, Nutrition, and Forestry of the 
Senate, Washington, DC.



Sec. Sec. 1940.966-1940.967  [Reserved]



Sec. 1940.968  Rural Economic Development Review Panel Grant (Panel 
Grant).

    (a) General. Panel Grants awarded will be made from amounts 
appropriated for grants under any provision of section 306(a) of the 
CONACT (7 U.S.C 1926(a)), not to exceed $100,000 annually to each 
eligible State. This section outlines FmHA or its successor agency under 
Public Law 103-354's policies and authorizations and sets forth 
procedures for making grants to designated States for administrative 
costs associated with a State rural economic development review panel.
    (b) Objective. The objective of the Panel Grant program is to make 
grant funds available annually to each designated State to use for 
administrative costs associated with the State rural economic 
development review panels meeting requirements of Sec. 1940.956 of this 
subpart.
    (c) Authorities, delegations, and redelegations. The State Director 
is responsible for implementing the authorities in this section and to 
issue State supplements redelegating these authorities to appropriate 
FmHA or its successor agency under Public Law 103-354 employees. Grant 
approval authorities are contained in subpart A of part 1901 of this 
chapter.
    (d) Joint funds. FmHA or its successor agency under Public Law 103-
354 grant funds may be used jointly with funds furnished by the grantee 
or grants from other sources.
    (e) Eligibility. A State designated by the Under Secretary to 
participate in this program is eligible to receive not more than 
$100,000 annually under this section. A State must become and remain an 
eligible State in order to receive funds under this section.
    (f) Purpose. Panel Grant funds may be used to pay for reasonable 
administrative costs associated with the panel, including, but not 
limited to, the following:
    (1) Travel and lodging expenses;
    (2) Salaries for State coordinator and support staff;
    (3) Reasonable fees and charges for professional services necessary 
for establishing or organizing the panel. Services must be provided by 
individuals licensed in accordance with appropriate State accreditation 
associations;
    (4) Office supplies, and
    (5) Other costs that may be necessary for panel operations.
    (g) Limitations. Grant funds will not be used to:
    (1) Pay costs incurred prior to the effective date of the grant 
authorized under this subpart;
    (2) Recruit preapplications/applications for any designated rural 
development loan or grant program or any loan or grant program;
    (3) Duplicate activities associated with normal execution of any 
panel member's occupation;
    (4) Fund political activities;
    (5) Pay costs associated with preparing area development plans;
    (6) Pay for capital assets; purchase real estate, equipment or 
vehicles; rent, improve, or renovate office space; or repair and 
maintain State or privately owned property;
    (7) Pay salaries to panel members; or
    (8) Pay per diem or otherwise reimburse panel members unless 
distance traveled exceed 50 miles.

[[Page 116]]

    (h) Other considerations. (1) Equal opportunity requirements. Grants 
made under this subpart are subject to title VI of the Civil Rights Act 
of 1964 as outlined in subpart E of part 1901 of this chapter.
    (2) Environmental requirements. The policies and regulations 
contained in subpart G of part 1940 of this chapter apply to grants made 
under this subpart.
    (3) Management assistance. Grantees will be provided management 
assistance as necessary to assure that grant funds are used for eligible 
purposes for the successful operation of the panel. Grants made under 
this subpart will be administered under and are subject to the U.S. 
Department of Agriculture regulations, 7 CFR, parts 3016 and 3017, as 
appropriate.
    (4) Drug-free work place. The State must provide for a drug-free 
workplace in accordance with the requirements of FmHA Instruction 1940-M 
(available in any FmHA or its successor agency under Public Law 103-354 
office). Just prior to grant approval, the State must prepare and sign 
Form AD-1049, ``Certification Regarding Drug-Free Workplace Requirements 
(Grants) Alternative I--For Grantees Other Than Individuals.''
    (i) Application processing. (1) The State Director shall assist the 
State in application assembly and processing. Processing requirements 
should be discussed during an application conference.
    (2) After the Governor has been notified that the State has been 
designated to participate in this program and the State has met all 
eligibility requirements of this subpart, the State may file an original 
and one copy of SF 424.1 with the State Director. The following 
information will be included with the application:
    (i) State's financial or in-kind resources, if applicable, that will 
maximize the use of Panel Grant funds;
    (ii) Proposed budget. The financial budget that is part of SF 424.1 
may be used, if sufficient, for all panel income and expense categories;
    (iii) Estimated breakdown of costs, including costs to be funded by 
the grantee or from other sources;
    (iv) Financial management system in place or proposed. The system 
will account for grant funds in accordance with State laws and 
procedures for expending and accounting for its own funds. Fiscal 
control and accounting procedures of the State must be sufficient to 
permit preparation of reports required by Federal regulations and permit 
the tracing of funds to a level of expenditures adequate to establish 
that grant funds are used solely for authorized purposes;
    (v) Method to evaluate panel activities and determine if objectives 
are met;
    (vi) Proposed Scope-of-Work detailing activities associated with the 
panel and time frames for completion of each task, and
    (vii) Other information that may be needed by FmHA or its successor 
agency under Public Law 103-354 to make a grant award determination.
    (3) The applicable provisions of Sec. 1942.5 of subpart A of part 
1942 of this chapter relating to preparation of loan dockets will be 
followed in preparing grant dockets. The docket will include at least 
the following:
    (i) Form FmHA or its successor agency under Public Law 103-354 400-
4, ``Assurance Agreement;''
    (ii) Scope-of-work prepared by the applicant and approved by FmHA or 
its successor agency under Public Law 103-354;
    (iii) Form FmHA or its successor agency under Public Law 103-354 
1940-1, ``Request for Obligation of Funds,'' with exhibit A, and
    (iv) Certification regarding a drug-free workplace in accordance 
with FmHA Instruction 1940-M (available in any FmHA or its successor 
agency under Public Law 103-354 office).
    (j) Grant approval, obligation of funds, and grant closing. (1) The 
State Director will review the application and other documents to 
determine whether the proposal complies with this subpart.
    (2) Exhibit A (available from any FmHA or its successor agency under 
Public Law 103-354 State Office), shall be attached to and become a 
permanent part of Form FmHA or its successor agency under Public Law 
103-354 1940-A and the following paragraphs

[[Page 117]]

will appear in the comment section of that form:

    The Grantee understands the requirements for receipt of funds under 
the Panel Grant program. The Grantee assures and certifies that it is in 
compliance with all applicable laws, regulations, Executive Orders, and 
other generally applicable requirements, including those set out in FmHA 
or its successor agency under Public Law 103-354 7 CFR, part 1940, 
subpart T, and 7 CFR, parts 3016 and 3017, including revisions through 
------ (date of grant approval). The Grantee further agrees to use grant 
funds for the purposes outlined in the Scope-of-Work approved by FmHA or 
its successor agency under Public Law 103-354. Exhibit A is incorporated 
as a part hereof.

    (3) Grants will be approved and obligated in accordance with the 
applicable parts of Sec. 1942.5(d) of subpart A of part 1942 of this 
chapter.
    (4) An executed copy of the Scope-of-Work will be sent to the State 
coordinator on the obligation date, along with a copy of Form FmHA or 
its successor agency under Public Law 103-354 1940-1 and the required 
exhibit. FmHA or its successor agency under Public Law 103-354 will 
retain the original of Form FmHA or its successor agency under Public 
Law 103-354 1940-1 and the exhibit.
    (5) Grants will be closed in accordance with the applicable parts of 
subpart A of part 1942 of this chapter, including Sec. 1942.7. The 
grant is considered closed on the obligation date.
    (6) A copy of Form FmHA or its successor agency under Public Law 
103-354 1940-1, with the required exhibit, and the Scope-of-Work will be 
submitted to the National Office when funds are obligated.
    (7) If the grant is not approved, the State coordinator will be 
notified in writing of the reason(s) for rejection. The notification 
will state that a review of the decision by FmHA or its successor agency 
under Public Law 103-354 may be requested by the State under subpart B 
of part 1900 of this chapter.
    (k) Fund disbursement. Grant funds will be disbursed on a 
reimbursement basis. Requests for funds should not exceed one advance 
every 30 days. The financial management system of the State shall 
provide for effective control and accountability of all funds, property, 
and assets.
    (1) SF 270, ``Request for Advance or Reimbursement,'' will be 
completed by the State coordinator and submitted to the State Director 
not more frequently than monthly.
    (2) Upon receipt of a properly completed SF 270, the State Director 
will request funds through the Automated Discrepancy Processing System. 
Ordinarily, payment will be made within 30 days after receipt of a 
properly prepared request for reimbursement.
    (3) States are encouraged to use minority banks (a bank which is 
owned by at least 50 percent minority group members) for the deposit and 
disbursement of funds. A list of minority owned banks can be obtained 
from the Office of Minority Business Enterprises, Department of 
Commerce, Washington, DC 20230.
    (l) Title. Title to supplies acquired under this grant will vest, 
upon acquisition, in the State. If there is a residual inventory of 
unused supplies exceeding $5,000 in total aggregate fair market value 
upon termination or completion of the grant awarded, and if the supplies 
are not needed for any other federally sponsored programs, the State 
shall compensate FmHA or its successor agency under Public Law 103-354 
for its share.
    (m) Costs. Costs incurred under this grant program are subject to 
cost principles established in Office of Management and Budget Circular 
A-87.
    (n) Budget changes. Rebudgeting within the approval direct cost 
categories to meet unanticipated requirements which do not exceed 10 
percent of the current total approved budget shall be permitted. The 
State shall obtain prior approval from the State Director for any 
revisions which result in the need for additional funding.
    (o) Programmatic changes. The State shall obtain prior written 
approval from the State Director for any change to the scope or 
objectives for which the grant was approved or for contracting out or 
otherwise obtaining services of a third party to perform activities 
which are central to the purposes of the grant. Failure to obtain prior 
approval of changes to the scope can result in

[[Page 118]]

suspension or termination of grant funds.
    (p) Financial reporting. SF 269, ``Financial Status Report,'' and a 
Project Performance Report are required on a quarterly basis. The 
reports will be submitted to the State Director not later than 30 days 
after the end of each quarter. A final SF 269 and Project Performance 
Report shall be due 90 days after the expiration or termination of grant 
support. The final report may serve as the last quarterly report. The 
State coordinator will constantly monitor performance to ensure that 
time schedules are met, projected work by time periods is accomplished, 
and other performance objectives are achieved. Program outlays and 
income will be reported on an accrual basis. 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) Reasons why established objectives were not met;
    (3) Problems, delays, or adverse conditions which will affect the 
ability to meet the objectives of the grant during established time 
periods. This disclosure must include a statement of the action taken or 
planned to resolve the situation; and
    (4) Objectives and timetable established for the next reporting 
period.
    (q) Audit requirements. Audit reports will be prepared and submitted 
in accordance with Sec. 1942.17(q)(4) of subpart A of part 1942 of this 
chapter. The audit requirements only apply to the year(s) in which grant 
funds are received. Audits must be prepared in accordance with generally 
accepted government auditing standards using publication, ``Standards 
for Audits of Governmental Organizations, Programs, Activities and 
Functions.''
    (r) Grant cancellation. Grants which have been approved and funds 
obligated may be cancelled by the grant approval official in accordance 
with Sec. 1942.12 of subpart A of part 1942 of this chapter. The State 
Director will notify the State coordinator that the grant has been 
cancelled.
    (s) Grant servicing. Grants will be serviced in accordance with 
subparts E and O of part 1951 of this chapter.
    (t) Subsequent grants. Subsequent grants will be processed in 
accordance with the requirements of this subpart for each additional 
time period a State is designated to participate in this program.



Sec. 1940.969  Forms, exhibits, and subparts.

    Forms, exhibits, and subparts of this chapter (all available in any 
FmHA or its successor agency under Public Law 103-354 office) referenced 
in this subpart, are for use in establishing a State economic 
development review panel and for administering the Panel Grant program 
associated with the panel.



Sec. 1940.970  [Reserved]



Sec. 1940.971  Delegation of authority.

    The authority authorized to the State Director in this subpart may 
be redelegated.



Sec. Sec. 1940.972-1940.999  [Reserved]



Sec. 1940.1000  OMB control number.

    The collection of information requirements contained in this 
regulation has been approved by the Office of Management and Budget and 
assigned OMB control number 0575-0145. Public reporting burden for this 
collection of information is estimated to vary from 30 minutes to 48 
hours per response with an average of 4 hours per response, including 
the time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Send comments regarding this burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; 
and to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Washington, DC 20503.

[[Page 119]]



PART 1941_OPERATING LOANS--Table of Contents




    Subpart A_Operating Loan Policies, Procedures, and Authorizations

Sec.
1941.1 Introduction.
1941.2 Objectives.
1941.3 Management assistance.
1941.4 Definitions.
1941.5 [Reserved]
1941.6 Credit elsewhere.
1941.7-1941.10 [Reserved]
1941.11 Applications.
1941.12 Eligibility requirements.
1941.13 Rural youth.
1941.14-1941.15 [Reserved]
1941.16 Loan purposes.
1941.17 Loan limitations.
1941.18 Rates and terms.
1941.19 Security.
1941.20-1941.22 [Reserved]
1941.23 General provisions.
1941.24 [Reserved]
1941.25 Appraisals.
1941.26-1941.28 [Reserved]
1941.29 Relationship between FSA loans, direct and guaranteed.
1941.30-1941.31 [Reserved]
1941.32 Catastrophic Risk Protection (CAT) insurance requirement.
1941.33 Loan approval or disapproval.
1941.34 [Reserved]
1941.35 Actions after loan approval.
1941.36-1941.37 [Reserved]
1941.38 Loan closing.
1941.39-1941.41 [Reserved]
1941.42 Loan servicing.
1941.43-1941.49 [Reserved]
1941.50 State supplements.

Exhibit A to Subpart A--Processing Guide--Insured Operating Loans
Exhibit B to Subpart A [Reserved]
Exhibit C to Subpart A--Controlled Substance

               Subpart B_Closing Loans Secured by Chattels

1941.51 Purpose.
1941.52-1941.53 [Reserved]
1941.54 Promissory note.
1941.55-1941.56 [Reserved]
1941.57 Security instruments.
1941.58-1941.59 [Reserved]
1941.60 Purchase money security interest.
1941.61-1941.62 [Reserved]
1941.63 Lien search.
1941.64-1941.66 [Reserved]
1941.67 Additional requirements for perfecting security interests.
1941.68-1941.70 [Reserved]
1941.71 Fees.
1941.72-1941.74 [Reserved]
1941.75 Retention and use of security agreements.
1941.76-1941.78 [Reserved]
1941.79 Future advance and after-acquired property clauses.
1941.80-1941.83 [Reserved]
1941.84 Title clearance and closing requirements.
1941.85-1941.87 [Reserved]
1941.88 Insurance.
1941.89-1941.91 [Reserved]
1941.92 Check delivery.
1941.93 [Reserved]
1941.94 Supervised bank accounts.
1941.95 [Reserved]
1941.96 Changes in use of loan funds.

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

    Source: 43 FR 55883, Nov. 29, 1978, unless otherwise noted.



    Subpart A_Operating Loan Policies, Procedures, and Authorizations

    Source: 53 FR 35684, Sept. 14, 1988, unless otherwise notes.

    Editorial Note: Nomenclature changes to subpart A appear at 68 FR 
7696, Feb. 18, 2003.



Sec. 1941.1  Introduction.

    This subpart contains regulations for making initial and subsequent 
direct Operating (OL) and Youth (OL-Y) loans. OL loans may be made to 
eligible farmers and ranchers and entities that will manage and operate 
not larger than family farms. Youth loans may be made to rural youth to 
conduct modest projects in connection with their participation in 4-H, 
Future Farmers of America, and similar organizations. It is the policy 
of Farm Service Agency (FSA) or its successor agency under Public Law 
103-354 to make loans to any qualified applicant without regard to race, 
color, religion, sex, national origin, marital status, age or physical/
mental handicap provided the applicant can execute a legal contract. Any 
processing or servicing activity conducted pursuant to this subpart 
involving authorized assistance to Agency or its successor agency under 
Public Law 103-354 employees, members of their families, known close 
relatives, or business or close personal associates, is subject to the 
provisions of subpart D of part 1900 of this chapter. Applicants for 
this assistance are required to identify any known relationship or 
association with an Agency

[[Page 120]]

or its successor agency under Public Law 103-354 employee. See exhibit A 
of subpart A of part 1943 of this chapter for making OL loans to 
entrymen on unpatented public lands. Agency or its successor agency 
under Public Law 103-354 forms are available in any Agency or its 
successor agency under Public Law 103-354 office.

[53 FR 35684, Sept. 14, 1988, as amended at 58 FR 226, Jan. 5, 1993; 58 
FR 48282, Sept. 15, 1993; 61 FR 35925, July 9, 1996; 68 FR 7696, Feb. 
18, 2003]



Sec. 1941.2  Objectives.

    The basic objective of the OL loans program is to provide credit and 
management assistance to farmers and ranchers to become operators of 
family-sized farms or continue such operations when credit is not 
available elsewhere. FmHA or its successor agency under Public Law 103-
354 assistance enables family-farm operators to use their land, labor 
and other resources and to improve their living and financial conditions 
so that they can obtain credit elsewhere. The objective of the OL loan 
program for rural youth is to provide credit for rural youths to 
establish and operate income-producing projects of modest size in 
connection with their participation in 4-H clubs, Future Farmers of 
America, and similar organizations.



Sec. 1941.3  Management assistance.

    As provided in subpart B of part 1924 of this chapter, management 
assistance will be provided to all borrowers to the extent necessary to 
achieve the objectives of the loan.



Sec. 1941.4  Definitions.

    As used in this subpart, the following definitions apply:
    Additional security. Any security beyond that which is required to 
adequately secure the loan.
    Agency. The Farm Service Agency, its county and State committees and 
their personnel, and any successor agency.
    Approval official. A field official who has been delegated loan and 
grant approval authorities within applicable loan programs, subject to 
the dollar limitation contained in tables available in any FmHA or its 
successor agency under Public Law 103-354 office.
    Beginning farmer or rancher. A beginning farmer or rancher is an 
individual or entity who:
    (a) Meets the loan eligibility requirements for OL loan assistance 
in accordance with Sec. 1941.12 of this subpart.
    (b) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 years. This requirement applies to all 
members of an entity.
    (c) Will materially and substantially participate in the operation 
of the farm or ranch.
    (1) In the case of a loan made to an individual, individually or 
with the immediate family, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm or ranch, consistent with the practices in the 
county or State where the farm is located.
    (2) In the case of a loan made to an entity, all members must 
materially and substantially participate in the operation of the farm or 
ranch. Material and substantial participation requires that the members 
provide some amount of the management, or labor and management necessary 
for day-to-day activities, such that if the members did not provide 
these inputs, operation of the farm or ranch would be seriously 
impaired.
    (d) Agrees to participate in any loan assessment, borrower training, 
and financial management programs required by FmHA or its successor 
agency under Public Law 103-354 regulations.
    (e) Except for OL loan purposes, does not real farm or ranch 
property or who, directly or through interests in family farm entities, 
owns real farm or ranch property, the aggregate acreage of which does 
not exceed 30 percent of the average farm or ranch acreage of the farms 
or ranches in the county where the property is located. If the farm is 
located in more than one county, the average farm acreage of the county 
where the applicant's residence is located will be used in the 
calculation. If the applicant's residence is not located on the farm or 
if the applicant is an entity, the average farm acreage of the

[[Page 121]]

county where the major portion of the farm is located will be used. The 
average county farm or ranch acreage will be determined from the most 
recent Census of Agriculture developed by the U.S. Department of 
Commerce, Bureau of the Census. State Directors will publish State 
supplements containing the average farm or ranch acreage by county.
    (f) Demonstrates that the available resources of the applicant and 
spouse (if any) are not sufficient to enable the applicant to enter or 
continue farming or ranching on a viable scale.
    (g) In the case of an entity:
    (1) All the members are related by blood or marriage.
    (2) All the stockholders in a corporation are eligible beginning 
farmers or ranchers.
    Borrower. An individual or entity which has outstanding obligations 
to the FmHA or its successor agency under Public Law 103-354 under any 
Farmer Programs loan(s), without regard to whether the loan has been 
accelerated. A borrower includes all parties liable for the FmHA or its 
successor agency under Public Law 103-354 debt, including collection-
only borrowers, except for debtors whose total loans and accounts have 
been voluntarily or involuntarily foreclosed or liquidated, or who have 
been discharged of all FmHA or its successor agency under Public Law 
103-354 debt.
    Cooperative. An entity which has farming as its purpose and whose 
members have agreed to share the profits of the farming enterprise. The 
entity must be recognized as a farm cooperative by the laws of the 
State(s) in which the entity will operate a farm.
    Corporation. For the purpose of this regulation, a private domestic 
corporation created and organized under the laws of the State(s) in 
which the entity will operate a farm.
    Cosigner. A party who joins in the execution of a promissory note to 
assure its repayment. The cosigner becomes jointly and severally liable 
to comply with the terms of the note. In the case of an entity 
applicant, the cosigner cannot be a member, partner, joint operator, or 
stockholder of the entity.
    Entity. Cooperative, corporation, partnership, joint operation, 
trust, or limited liability company.
    Family farm. A farm which:
    (a) Produces agricultural commodities for sale in sufficient 
quantities so that it is recognized in the community as a farm rather 
than a rural residence.
    (b) Provides enough agricultural income by itself, including rented 
land, or together with any other dependable income, to enable the 
borrower to:
    (1) Pay necessary family and operating expenses;
    (2) Maintain essential chattel and real property; and
    (3) Pay debts.
    (c) Is managed by:
    (1) The borrower when a loan is made to an individual.
    (2) The members responsible for operating the farm when a loan is 
made to an entity.
    (d) Has a substantial amount of the labor requirements for the farm 
enterprise provided by:
    (1) The borrower and family members for a loan made to an 
individual.
    (2) The members responsible for operating the farm, along with the 
families of these individuals, for a loan made to an entity.
    (e) May use a reasonable amount of full-time hired labor and 
seasonal labor during peakload periods.
    Farm. A tract or tracts of land, improvements, and other 
appurtenances considered to be farm property which is used or will be 
used in the production of crops or livestock, including the production 
of fish under controlled conditions, for sale in sufficient quantities 
so that the property is recognized as a farm rather than a rural 
residence. It may also include a residence which, although physically 
separate from the farm acreage, is ordinarily treated as part of the 
farm in the local community.
    Feasible plan. A feasible plan is a plan based upon the applicant/
borrower's records that show the farming operation's actual production 
and expenses. These records will be used along with realistic 
anticipated prices, including farm program payments when available, to 
determine that the income from the farm operation, along with any other 
reliable off farm income, will

[[Page 122]]

provide the income necessary for an applicant/borrower to at least be 
able to:
    (a) Pay all operating expenses and all taxes which are due during 
the projected farm budget period;
    (b) Meet necessary payments on all debts; and
    (c) Provide living expenses for the family members of an individual 
borrower or a wage for the farm operator in the case of an entity 
borrower which is in accordance with the essential family needs. Family 
members include the individual borrower of farm operator in the case of 
an entity, and the immediate members of the family who reside in the 
same household.
    Financially viable operation. A financially viable operation is one 
which, with FmHA or its successor agency under Public Law 103-354 
assistance, is projected to improve its financial condition over a 
period of time to the point that the operator can obtain commercial 
credit without further FmHA or its successor agency under Public Law 
103-354 direct or guaranteed assistance. Such an operation must generate 
sufficient income to: Meet annual operating expenses and debt payments 
as they become due, meet basic family living expenses to the extent they 
are not met by dependable nonfarm income, provide for replacement of 
capital items, and provide for long-term financial growth. This 
definition only applies when considering a term limit waiver under Sec. 
1941.12.
    Fish. Any aquatic gilled animal commonly known as ``fish,'' as well 
as mollusks or crustaceans (or other invertebrates) produced under 
controlled conditions (that is, feeding, tending, harvesting, and such 
other activities as are necessary to properly raise and market the 
products) in ponds, lakes, streams, or similar holding areas.
    Joint operation. Individuals who have agreed to operate a farm or 
farms together as a business unit. The real and personal property is 
owned separately or jointly by the individuals. A husband and wife who 
want to apply for a loan together will be considered a joint operation.
    Limited resources applicant. An applicant who is a farmer or rancher 
and is an operator of a small or family farm (a small farm is a marginal 
family farm), including a new operator, with a low income who 
demonstrates a need to maximize farm or ranch income. A limited resource 
applicant must meet the eligibility requirements for a farm ownership or 
operating loan but, due to low income, cannot pay the regular interest 
rate on such loans. Due to the complex nature of the problems facing 
this applicant, special help will be needed and more supervisory 
assistance will be required to assure reasonable prospects for success. 
The applicant may face such problems as underdeveloped managerial 
ability, limited eduction, low-producing farm due to lack of development 
or improved production practices and other related factors. The 
applicant will not have nor expect to obtain, without the special help 
and a low-interest loan, the income needed to have a reasonable standard 
of living when compared to other residents of the community.
    Majority interest. Any individual or combination of individuals 
owning more than a 50 percent interest in a cooperative, corporation, 
joint operation, or partnership.
    Nonfarm enterprise. Any nonfarm business enterprise, including 
recreation, which is closely associated with the farm operation and 
located on or adjacent to the farm and provides income to supplement 
farm income. This may include, but is not limited to, such enterprises 
as raising earthworms, exotic birds, tropical fish, dogs, and horses for 
nonfarm purposes, welding shops, road stands, boarding horses and riding 
stables.
    Partnership. An entity consisting of individuals who have agreed to 
operate a farm. This entity must be recognized as a partnership by the 
laws of the State(s) in which the partnership will operate a farm and 
must be authorized to own both real and personal property and to incur 
debt in its own name.
    Presidentially-designated emergency. A major disaster or emergency 
designated by the President under the Robert T. Stafford Disaster Relief 
and Emergency Assistance Act (42 U.S.C. 5121 et seq.).
    Primary security. Any real estate and/or chattel security which is 
required to adequately secure the loan. This is not to be confused with 
``basic security,''

[[Page 123]]

as defined in Sec. 1962.4 of subpart A of part 1962 of this chapter.
    Related by blood or marriage. As used in this subpart, individuals 
who are connected to one another as husband, wife, parent, child, 
brother, or sister.
    Rural youth. A person who has reached the age of 10 but has not 
reached the age of 21 and does not reside in any city or town with a 
population of more than 10,000 inhabitants.
    Rural youth projects. Modest projects initiated, developed, and 
carried out by rural youths participating in 4-H or Future Farmers of 
America, or similar organizations. Projects must produce enough income 
to meet expenses and debt repayment.
    Security. Property of any kind subject to a real or personal 
property lien. Any references to collateral or security property shall 
be considered a reference to the term ``security.''
    State or United States. The United States itself, any of the fifty 
States, the Commonwealth of Puerto Rico, the Virgin Islands of the 
United States, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands.

[53 FR 35684, Sept. 14, 1988, as amended at 58 FR 26680, May 5, 1993; 58 
FR 48283, Sept. 15, 1993; 61 FR 35925, July 9, 1996; 62 FR 9353, Mar. 3, 
1997; 68 FR 7696, Feb. 18, 2003; 69 FR 5262, Feb. 4, 2004]



Sec. 1941.5  [Reserved]



Sec. 1941.6  Credit elsewhere.

    The applicant shall certify in writing on the appropriate forms, and 
the County Supervisor shall verify and document, that adequate credit is 
not available, with or without a guarantee or subordination, to finance 
the applicant's actual needs at reasonable rates and terms, taking into 
consideration prevailing private and cooperative rates and terms in the 
community in or near where the applicant resides for loans for similar 
purposes and periods of time.
    (a) If the County Supervisor receives letters or other written 
evidence from a lender(s) indicating that the applicant is unable to 
obtain satisfactory credit, this will be included in the loan docket.
    (b) If the applicant cannot qualify for the needed credit from the 
lender(s) contacted, but one or more of them has indicated they would 
provide credit with an FmHA or its successor agency under Public Law 
103-354 guarantee, or the County Supervisor determines that the 
applicant can obtain a guaranteed loan, the applicant will be advised to 
file an application with that lender(s) so that a guaranteed OL request 
can be processed by the lender(s) for consideration by FmHA or its 
successor agency under Public Law 103-354.
    (c) Property and interest in property owned and income received by 
an individual applicant, or an entity applicant and all of its members 
as individuals will be considered and used by an applicant in obtaining 
credit from other sources.
    (d) Applicants and borrowers will be encouraged to supplement 
operating loans with credit from other credit sources to the extent 
economically feasible and in accordance with sound financial management 
practices.

[43 FR 55883, Nov. 29, 1978, as amended at 68 FR 7697, Feb. 18, 2003]



Sec. Sec. 1941.7-1941.10  [Reserved]



Sec. 1941.11  Applications.

    Applications will be received and processed as provided in subpart A 
of part 1910 of this chapter, with consideration given to the 
requirements in exhibit M of subpart G of part 1940 of this chapter.



Sec. 1941.12  Eligibility requirements.

    In accordance with the Food Security Act of 1985 (Pub. L. 99-198), 
after December 23, 1985, if an individual or any member of an entity is 
convicted under Federal or State law of planting, cultivating, growing, 
producing, harvesting, or storing a controlled substance (see 21 CFR 
part 1308, which is exhibit C of this subpart and is available in any 
FmHA or its successor agency under Public Law 103-354 office, for the 
definition of ``controlled substance'') prior to loan approval in any 
crop year, the individual or entity shall be ineligible for a loan for 
the crop year in which the individual or member of the entity was 
convicted and the four succeeding crop years. Applicants will attest on

[[Page 124]]

Form FmHA or its successor agency under Public Law 103-354 410-1, 
``Application for FmHA Services,'' that as individuals or that its 
members, if an entity, have not been convicted of such crime after 
December 23, 1985. A decision to reject an application for this reason 
is not appealable. In addition, the following requirements must be met:
    (a) An individual must:
    (1) Be a citizen of the United States, a United States non-citizen 
national, or a qualified alien under applicable Federal immigration 
laws. United States non-citizen nationals and qualified aliens must 
provide the appropriate documentation as to their immigration status as 
required by the United States Department of Homeland Security, Bureau of 
Citizenship and Immigration Services.
    (2) Possess the legal capacity to incur the obligations of the loan.
    (3) Except for youth loans, have sufficient applicable educational 
and/or on the job training or farming experience in managing and 
operating a farm or ranch (1 year's complete production and marketing 
cycle within the last 5 years) which indicates the managerial ability 
necessary to assure reasonable prospects of success in the proposed plan 
of operation.
    (4) Be unable to obtain sufficient credit elsewhere to finance 
actual needs at reasonable rates and terms, taking into consideration 
prevailing private and cooperative rates and terms in the community in 
or near which the applicant resides for loans for similar purposes and 
periods of time.
    (5) Except for youth loans, be the owner-operator or tenant-operator 
of not larger than a family farm after the loan is closed. In the case 
of a limited resource applicant see Sec. 1941.4 of this subpart.
    (6)(i) Have not executed a promissory note for a direct OL loan in 
more than 6 different calendar years prior to the calendar year that the 
requested direct OL loan will close. This eligibility restriction 
applies to anyone who signs the promissory note. Youth loans are not 
counted as direct OL loans for the purpose of this paragraph. This 
limitation does not apply to farmers or ranchers when their land is 
subject to the jurisdiction of an Indian tribe, the loan is secured by 
one or more security instruments subject to the jurisdiction of Indian 
tribe, and the test for credit requirement in Sec. 1941.6 is met. On a 
case-by-case basis, a one-time waiver to this eligibility restriction 
may also be granted for a period of two years if the following 
conditions are met:
    (A) The applicant has a financially viable operation;
    (B) The applicant applied for commercial credit from at least two 
commercial sources;
    (C) The applicant was unable to obtain a commercial loan (including 
an Agency-guaranteed loan); and
    (D) The applicant has successfully completed, or will complete 
within one year, borrower training.
    (ii) This determination is not subject to administrative appeal.
    (7) Transition rule. An applicant is eligible for new direct OL 
loans for 3 additional years if as of April 4, 1996, the applicant, or 
anyone who will execute the promissory note, had direct OL loans closed 
in 4 or more separate years prior to the year in which the new direct OL 
loan is closed. The 4 previous years' direct OL loans, as well as the 3 
additional years of new direct OL loans, may be in non-consecutive 
years.
    (8) Agency loss. (i) Except as provided in paragraph (a)(8)(ii) of 
this section, the applicant, and anyone who will execute the promissory 
note, has not caused the Agency a loss by receiving debt forgiveness on 
all or a portion of any direct or guaranteed loan made under the 
authority of the CONACT by debt write-down or write-off; compromise, 
adjustment, reduction, or charge-off under the provisions of section 331 
of the CONACT; discharge in bankruptcy; or through payment of a 
guaranteed loss claim.
    (ii) The applicant may receive a direct OL loan to pay annual farm 
and ranch operating and family living expenses, provided the applicant 
meets all other requirements for the loan, if the applicant and anyone 
who will execute the promissory note:
    (A) Received a write-down under section 353 of the CONACT;

[[Page 125]]

    (B) Is current on payments under a confirmed reorganization plan 
under chapter 11, 12, or 13 of title 11 of the United States Code; or
    (C) Received debt forgiveness on not more than one occasion after 
April 4, 1996, resulting directly and primarily from a Presidentially-
designated emergency for a county or contiguous county in which the 
applicant operates. Only applicants who were current on all existing 
direct and guaranteed FSA loans prior to the beginning date of the 
incidence period of a Presidentially-designated emergency and received 
debt forgiveness on that debt within three years after the designation 
of such emergency meet this exception.
    (9) Not be delinquent on any non-tax Federal debt or FSA guaranteed 
debt. This restriction will not apply if the Federal delinquency is 
cured on or before the loan closing date.
    (b) An entity must:
    (1) Be unable to obtain sufficient credit elsewhere to finance 
actual needs at reasonable rates and terms, taking into account 
prevailing private and cooperative rates and terms in or near the 
community for loans for similar purposes and periods of time. This 
applies to the entity and all of its members, as individuals.
    (2) Be controlled by farmers or ranchers engaged primarily and 
directly in farming or ranching in the United States, after the loan is 
made.
    (3) Be the owner-operator or tenant-operator of not larger than a 
family farm after the loan is closed.
    (4) Consist of members who are individuals and not entities.
    (5) If the members holding a majority interest are related by blood 
or marriage, they must meet the following requirements:
    (i) The majority interest of the entity must be held by members who 
are citizens of the United States, United States non-citizen nationals, 
or qualified aliens under applicable Federal immigration laws. United 
States non-citizen nationals and qualified aliens must provide the 
appropriate documentation as to their immigration status as required by 
the United States Department of Homeland Security, Bureau of Citizenship 
and Immigration Services.
    (ii) They must have sufficient applicable educational and/or on the 
job training or farming experience in managing and operating a farm or 
ranch (1 year's complete production and marketing cycle within the last 
5 years) which indicates the managerial ability necessary to assure 
reasonable prospects of success in the proposed plan of operation.
    (iii) At least one member must operate the family farm.
    (iv) The entity must operate the farm and be authorized to do so in 
the State(s) in which the farm is located.
    (6) If the members holding a majority interest are not related by 
blood or marriage:
    (i) The requirements of paragraphs (b)(5)(i), (ii) and (iv) of this 
section must be met.
    (ii) They and the entity itself must operate the family farm.
    (7) If applying as a limited resource applicant, as defined in Sec. 
1941.4 of this subpart:
    (i) The requirements of paragraphs (b)(5)(i), (ii) and (iv) of this 
section must be met by the entity and all its members.
    (ii) The entity and all the members must own or operate a small or 
family farm and at least one member must operate the farm.
    (8) If each member's ownership interest does not exceed the family 
farm definition limits, their collective interests can exceed the family 
farm definition limits only if:
    (i) all of the members of the entity are related by blood or 
marriage,
    (ii) all of the members are or will be operators of the entity, and
    (iii) The majority interest holders of the entity meet the 
requirements of paragraphs (b)(5)(i), (ii) and (iv) of this section.
    (9)(i) Have no member of the entity who has executed a promissory 
note for direct OL loans closed in more than 6 different calendar years 
prior to the calendar year that the requested direct OL loan will close. 
This eligibility restriction applies to anyone who signs the promissory 
note. Youth loans are not counted as direct OL loans for the purpose of 
this paragraph. This limitation does not apply to farmers or ranchers 
when their land is subject to

[[Page 126]]

the jurisdiction of an Indian tribe, the loan is secured by one or more 
security instruments subject to the jurisdiction of an Indian tribe, and 
the test for credit requirement in Sec. 1941.6 is met. On a case-by-
case basis, a one-time waiver to this eligibility restriction may also 
be granted for a period of two years if the following conditions are 
met:
    (A) The applicant has a financially viable operation;
    (B) The applicant applied for commercial credit from at least two 
commercial sources;
    (C) The applicant was unable to obtain a commercial loan (including 
an Agency-guaranteed loan); and
    (D) The applicant has successfully completed, or will complete 
within one year, borrower training.
    (ii) This determination is not subject to administrative appeal.
    (10) Transition rule. An applicant is eligible for new direct OL 
loans for 3 additional years if as of April 4, 1996, the applicant, or 
anyone who will execute the promissory note, had direct OL loans closed 
in 4 or more separate years prior to the year in which the new direct OL 
is closed. The 4 previous years' OL loans, as well as the 3 additional 
years of new direct OL loans, may be in non-consecutive years.
    (11) Agency loss. (i) Except as provided in paragraph (b)(11)(ii) of 
this section, the applicant, and anyone who will execute the promissory 
note, has not caused the Agency a loss by receiving debt forgiveness on 
all or a portion of any direct or guaranteed loan made under the 
authority of the CONACT by debt write-down or write-off; compromise, 
adjustment, reduction, or charge-off under the provisions of section 331 
of the CONACT; discharge in bankruptcy; or through payment of a 
guaranteed loss claim.
    (ii) The applicant may receive a direct OL loan to pay annual farm 
and ranch operating and family living expenses, provided the applicant 
meets all other requirements for the loan, if the applicant and anyone 
who will execute the promissory note:
    (A) Received a write-down under section 353 of the CONACT;
    (B) Is current on payments under a confirmed reorganization plan 
under chapter 11, 12, or 13 of title 11 of the United States Code; or
    (C) Received debt forgiveness on not more than one occasion after 
April 4, 1996, resulting directly and primarily from a Presidentially-
designated emergency for a county or contiguous county in which the 
applicant operates. Only applicants who were current on all existing 
direct and guaranteed FSA loans prior to the beginning date of the 
incidence period of a Presidentially-designated emergency and received 
debt forgiveness on that debt within three years after the designation 
of such emergency meet this exception.
    (12) Not be delinquent on any non-tax Federal debt or FSA guaranteed 
debt. This restriction will not apply if the Federal delinquency is 
cured on or before the loan closing date. This eligibility restriction 
applies to the entity and all of its members.
    (c) Borrower training. Except for applicants for youth loans, all 
applicants must agree to meet the training requirements of Sec. 1924.74 
of subpart B of part 1924 of this chapter unless a waiver is granted in 
accordance with that section. In the case of an entity, any individual 
member holding a majority interest in the operation or who is operating 
the farm must agree to complete the training or qualify for the waiver 
on behalf of the entity. However, if one entity member is solely 
responsible for financial or production management, then only that 
entity member will be required to complete the training in that area for 
the entity or qualify for a partial waiver. If the financial and 
production functions of the farming operation are shared, the knowledge 
and skills of the individual(s) with the responsibility of production 
and/or financial management of the operation will be considered in the 
aggregate for granting a waiver or requiring that training be completed. 
If a waiver is not granted, these individuals will be required to 
complete the training in accordance with their responsibilities. If the 
applicant has previously been required to obtain training, the applicant 
must be enrolled in

[[Page 127]]

and attending, or have satisfactorily completed, the training required.

[53 FR 35684, Sept. 14, 1988, as amended at 55 FR 21527, May 25, 1990; 
56 FR 3971, Feb. 1, 1991; 58 FR 69199, Dec. 30, 1993; 62 FR 9354, Mar. 
3, 1997; 62 FR 28618, May 27, 1997; 68 FR 7697, Feb. 18, 2003; 68 FR 
62223, Nov. 3, 2003; 69 FR 5262, Feb. 4, 2004]



Sec. 1941.13  Rural youth.

    If otherwise eligible, a rural youth who applies for an OL loan must 
be recommended by a project advisor such as a 4-H club advisor, 
vocational teacher, home economics teacher, county extension agent, or 
other organizational sponsor or advisor. In addition, a youth who has 
not reached the age of majority under State law must obtain a written 
recommendation from a parent or guardian. All recommendations will be 
filed with the application in the borrower's case file.



Sec. Sec. 1941.14-1941.15  [Reserved]



Sec. 1941.16  Loan purposes.

    An applicant who obtained a write-down under direct or guaranteed 
loan authorities is restricted to the purposes listed under paragraphs 
(c), (g), and (h) of this section. An applicant who qualifies for a Low-
Documentation operating loan under Sec. 1910.4(c)(1)(iii)(A) of subpart 
A of part 1910 may use loan funds for all authorized loan purposes 
except paragraph (i) of this section. An applicant who qualifies for a 
Lo-Doc loan under Sec. 1910.4(c)(1)(iii)(B) 7 CFR may only use the loan 
funds for purposes listed under paragraphs (c) and (h) of this section. 
All other eligible applicants may request OL funds for any of the 
following purposes:
    (a) Payment of costs associated with reorganizing a farm or ranch to 
improve its profitability.
    (b) Purchase of livestock, including poultry, and farm or ranch 
equipment, including quotas and bases, and cooperative stock for credit, 
production, processing or marketing purposes.
    (c) Payment of annual operating expenses, examples of which include, 
but are not exclusively limited to feed, seed, fertilizer, pesticides, 
farm or ranch supplies, cooperative stock, and cash rent.
    (d) Payment of costs associated with land and water development for 
conservation or use purposes.
    (e) Payment of loan closing costs.
    (f) Payment of costs associated with complying with Federal or 
State-approved standards under the Occupational Safety and Health Act of 
1970 (29 U.S.C. 655 and 667). This purpose is limited to applicants who 
demonstrate that compliance with the standards will cause them 
substantial economic injury.
    (g) Payment of training costs required or recommended by the Agency.
    (h) Payment of farm, ranch, or home needs, including family 
subsistence. A portion of the loan is available to the borrower for use 
outside of a supervised bank account. This portion is the lesser of:
    (1) 10 percent of the OL loan;
    (2) $5,000; or
    (3) The amount needed to meet the subsistence needs of the family 
for a 3-month period.
    (i) Refinancing debts if the applicant has had direct or guaranteed 
OL loans refinanced (refinanced does not mean restructured) 4 times or 
less and one of the following conditions is met:
    (1) The need for refinancing was caused by a qualifying disaster 
declared by the President or designated by the Secretary; or
    (2) The debts to be refinanced are owed to a non-USDA creditor.

[62 FR 9354, Mar. 3, 1997; 62 FR 28618, May 27, 1997, as amended 66 FR 
1573, Jan. 9, 2001]



Sec. 1941.17  Loan limitations.

    An OL loan will not be approved:
    (a) If the total outstanding insured OL principal balance, including 
the new loan, owed by the applicant will exceed $200,000 at loan 
closing.
    (b) If the total outstanding youth loan principal balance will 
exceed $5,000 at loan closing.
    (c) For the purchase of real estate, making principal payments on 
real estate, or refinancing of any debts incurred for the purchase of 
real estate.
    (d) For any purpose that will contribute to excessive erosion of 
highly erodible land or to convert wetlands to produce an agricultural 
commodity as further explained in exhibit M of subpart G of part 1940 of 
this chapter.

[[Page 128]]

Refer to subpart LL of part 2000 of this chapter, ``Memorandum of 
Understanding Between FmHA or its successor agency under Public Law 103-
354 and the U.S. Fish and Wildlife Service,'' for assistance in 
implementation.
    (e) If the purpose of the loan is to finance a nonfarm enterprise.

[53 FR 35684, Sept. 14, 1988, as amended at 58 FR 48286, Sept. 15, 1993; 
62 FR 9354, Mar. 3, 1997; 68 FR 62224, Nov. 3, 2003]



Sec. 1941.18  Rates and terms.

    (a) Rates. Upon request of the applicant, the interest rate charged 
by the Agency or its successor agency under Public Law 103-354 will be 
the lower of the interest rates in effect at the time of loan approval 
or loan closing. If an applicant does not indicate a choice, the loan 
will be closed at the interest rate in effect at the time of loan 
approval. Interest rates are specified in exhibit B of the Agency 
Instruction 440.1 (available in the Agency or its successor agency under 
Public Law 103-354 office) for the type of assistance involved. A lower 
rate may be established for a limited resource applicant subject to the 
following:
    (1) An applicant will receive the lower rate provided:
    (i) The applicant meets the conditions of the definition for a 
limited resource applicant set forth in Sec. 1941.4 of this subpart.
    (ii) The Farm and Home Plan and/or Nonagricultural Enterprise 
Analysis, when appropriate, indicates that installments at the higher 
rate, along with other debts, cannot be paid during the period of the 
plan.
    (2) A borrower with Limited Resource interest rates will be reviewed 
each year at the time the analysis is conducted (see Sec. 1924.55 of 
subpart B of part 1924 of this chapter) and at any time a servicing 
action such as consolidation, rescheduling or deferral is taken to 
determine what interest rate should be charged. The rate may be 
increased in increments of whole numbers until it reaches the current 
regular interest rate for the loan at the time of the rate increase. 
(See Sec. 1951.25 of subpart A of part 1951 of this chapter.)
    (b) Terms. (1) The final maturity date for each loan cannot exceed 7 
years from the date of the promissory note. The first installment must 
be scheduled for payment within 18 months of loan closing.
    (2) Loan funds used to pay annual operating expenses or bills 
incurred for such purposes for the crop year being financed will 
normally be scheduled for payment within 12 months, but no later than 18 
months, from the date the loan is closed when marketing plans extend 
beyond 12 months. When an OL loan for annual production purposes is 
scheduled for repayment in one installment, the installment must fall 
due no later than 18 months from the date of loan closing. Individual 
marketing circumstance may warrant repayment schedules which are longer 
than 18 months. Such factors as establishing a new enterprise, 
developing a farm, purchasing feed while feed crops are being 
established, marketing plans, or during recovery from a disaster or 
economic reverses, can be considered as reasons for a longer repayment 
period on loans for annual operating purposes. When longer than normal 
repayment terms are used for annual operating purposes, crops and/or 
livestock produced for sale will not be considered sufficient security. 
The County Supervisor may use Form FmHA or its successor agency under 
Public Law 103-354 440-9, ``Supplementary Payment Agreement,'' for 
borrowers who receive substantial income from which payment is to be 
made before their installment due date.
    (3) Advances for purposes other than annual operating expenses will 
be scheduled for payment over the minimum period necessary considering 
the applicant's ability to pay and the useful life of the security, but 
not in excess of 7 years.
    (4) When conditions warrant, installment scheduled in accordance 
with paragraph (b)(3) of this section may include equal, unequal, or 
balloon installments. In each case warranting balloon installments, 
there must be adequate collateral for the loan at the time the balloon 
payment is due. Circumstances which warrant balloon installments are 
factors such as establishing a new enterprise, developing a farm, 
purchasing feed while crops are being established or during recovery 
from a disaster, or economic reverses.

[[Page 129]]

In no case will annual crops be used as the sole collateral securing a 
balloon installment. A loan with a balloon installment must be 
adequately secured by hard security, which may include foundation stock, 
farm equipment and/or real estate. The amount of the balloon installment 
should not exceed that which the borrower could reasonably expect to pay 
during a maximum additional 7-year period.

[53 FR 35684, Sept. 14, 1988, as amended at 55 FR 21527, May 25, 1990; 
57 FR 18676, Apr. 30, 1992; 57 FR 37400, Aug. 19, 1992; 61 FR 35925, 
July 9, 1996; 68 FR 62224, Nov. 3, 2003]



Sec. 1941.19  Security.

    Primary security must be available for the loan. Any additional 
security available up to and including 150 percent of the loan amount 
also will be taken. Security in excess of 150 percent of the loan amount 
will only be taken when it is not practical to separate the property, 
i.e., same type of livestock (dairy cows, brood sows). In cases when a 
loan is being made in conjunction with a servicing action, the security 
requirements as stated in subpart S of part 1951 of this chapter will 
prevail. In unusual cases, the loan approval official may require a 
cosigner in accordance with Sec. 1910.3 (d) of subpart A of part 1910 
of this chapter or a pledge of security from a third party. A pledge of 
security is preferable to a cosigner.
    (a) Chattels. (1) The loan must be secured by a first lien on all 
property or products acquired, produced, or refinanced with loan funds.
    (2) If the security for the loan under paragraph (a)(1) of this 
section is not at least equal to 150 percent of the loan amount, the 
best lien obtainable will be taken on other chattel security owned by 
the applicant, if available, up to the point that security for the loan 
at least equals 150 percent of the loan amount.
    (i) When there are several alternatives available (cattle, 
machinery), any one of which will meet the security requirements of this 
section, the approval official generally has the discretion to select 
the best alternative for obtaining security.
    (ii) When alternatives exist and the applicant has a preference as 
to the property to be taken for security, however, the approval official 
will honor the preference so long as the requirements of paragraphs 
(a)(1) and (2) of this section are met.
    (3) To comply with the 150 percent requirement, security values will 
be established as follows:
    (i) For the purposes of loan making only, the security value of the 
crop and/or livestock production is presumed to be 100 percent of the 
amount loaned for annual operating and family living expenses listed on 
Form FmHA or its successor agency under Public Law 103-354 431-2, ``Farm 
and Home Plan,'' or other acceptable plan of operation.
    (ii) The specific livestock and/or equipment to be taken as 
security, along with the value of the security, will be documented in 
the case file. This information will be obtained from values established 
in accordance with Sec. 1941.25 of this subpart.
    (b) Real estate. The loan approval official will require a lien on 
all or part of the applicant's real estate as security when chattel 
security alone is not at least equal to 150 percent of the amount of the 
loan. Different lien positions on real estate are considered separate 
and identifiable collateral. Real estate taken as security, along with 
its value established in accordance with Sec. 1941.25 of this subpart, 
will be documented in the case file. If the applicant disagrees with the 
values established, FmHA or its successor agency under Public Law 103-
354 will accept an appraisal from the applicant, obtained at the 
applicant's expense, if the appraisal meets all FmHA or its successor 
agency under Public Law 103-354 requirements.
    (1) Security may also include assignments of leases or leasehold 
interests having mortgageable value, revenues, royalties from mineral 
rights, patents and copyrights, and pledges of security by third 
parties.
    (2) Advice on obtaining security will be received from OGC when 
necessary.
    (c) Exceptions. The County Supervisor will clearly document in the 
file when security is not taken for any of the following reasons:
    (1) A lien will not be taken on property when it will prevent the 
applicant, or members of an entity applicant,

[[Page 130]]

from obtaining operating credit from other sources.
    (2) A lien will not be taken on property that could have significant 
environmental problems/costs (e.g., known or suspected underground 
storage tanks or hazardous wastes, contingent liabilities, wetlands, 
endangered species, historic properties). Guidance is provided in part 
II, item H of exhibit A of FmHA Instruction 1922-E (available in any 
FmHA or its successor agency under Public Law 103-354 office) as to the 
action to be taken when the appraiser indicates that the property is 
subject to any hazards, detriments or limiting conditions.
    (3) A lien will not be taken on property that cannot be made subject 
to a valid lien.
    (4) A lien will not be taken on the applicant's personal residence 
and appurtenances, when the residence is located on a separate parcel 
and the farm tract(s) being used for collateral, in addition to any 
crops or chattels, meet the security requirement of at least equal to 
150 percent of the loan.
    (5) A lien will not be taken on subsistence livestock; cash or 
special cash collateral accounts to be used for the farming operation or 
for necessary living expenses; all types of retirement accounts; 
personal vehicles necessary for family living or farm operating 
purposes; household goods; and small tools and small equipment, such as 
hand tools, power lawn mowers, and other similar items not needed for 
security purposes.
    (6) When title to a livestock or crop enterprise is held by a 
contractor under a written contract or the enterprise is to be managed 
by the applicant under a share lease or share agreement, an assignment 
of all or part of the applicant's share of the income will be taken. A 
form approved by OGC will be used to obtain the assignment.
    (7) A lien will not be taken on timber or the marginal land for a 
loan for planting softwood timber trees on marginal land in conjunction 
with a softwood timber (ST) loan.
    (d) Assignment on income in Uniform Commercial Code (UCC) States. 
The County Supervisor will determine whether or not such an assignment 
will be taken. In UCC States, an assignment of livestock or crop income 
constitutes a security agreement on income. The share lease, share 
agreement, or contract will be described specifically as ``Contract 
Rights'' or ``Contract Rights in Livestock or Crops,'' (or as 
``Accounts'' or ``Accounts in Livestock or Crops,'' if required by a 
State supplement), and so forth, in paragraph 1(b) of the financing 
statement.
    (e) Insurance. See Sec. 1941.88 of subpart B of this part for 
insurance requirements.
    (f) Special security requirements. When OL loans are made to 
eligible entities that consist of members who are presently indebted for 
an OL loan(s) as individual(s), or when OL loans are made to eligible 
individuals who are members of an entity which is presently indebted for 
an OL loan(s), security must consist of:
    (1) Chattel and/or real estate security that is separate and 
identifiable from the security pledged to the Agency for any other farm 
credit programs direct or guaranteed loan(s).
    (2) Different lien positions on real estate are considered separate 
and identifiable collateral.
    (3) The outstanding amount of loans made may not exceed the value of 
the collateral used.

[53 FR 35684, Sept. 14, 1988, as amended at 54 FR 47959, Nov. 20, 1989; 
56 FR 67480, Dec. 31, 1991; 57 FR 18676, Apr. 30, 1992; 59 FR 22961, May 
4, 1994; 59 FR 25799, May 18, 1994; 61 FR 35925, July 9, 1996]



Sec. Sec. 1941.20-1941.22  [Reserved]



Sec. 1941.23  General provisions.

    (a) Compliance requirements. The following will apply as 
appropriate:
    (1) Environmental assessments and statements. Subpart G of part 1940 
of this chapter should be referred to for these requirements. The State 
Environmental Coordinator should be consulted for assistance in 
preparing any required statements.
    (2) Equal opportunity and nondiscrimination requirements. In 
accordance with title V of Pub. Law 93-495, the Equal Credit Opportunity 
Act, FmHA or its successor agency under Public Law 103-354 will not 
discriminate against any applicant on the basis

[[Page 131]]

of race, color, religion, sex, national origin, marital status, age or 
physical/mental handicap provided the applicant can execute a legal 
contract, with respect to any aspect of a credit transaction.
    (3) National Historic Preservation Act of 1966. If a loan will 
affect any district, site, building, structure, or object that has been 
included in the National Register of Historic Places as maintained by 
the Department of Interior in accordance with the National Historic 
Preservation Act of 1966, or if the undertaking may affect properties 
having scientific, prehistorical, historical, or archaeological 
significance, the provisions of subpart F of part 1901 of this chapter 
will apply.
    (b) Other considerations. (1) FmHA or its successor agency under 
Public Law 103-354 employees will not guarantee repayment of advances 
from other credit sources, either personally or on behalf of applicants, 
borrowers, or FmHA or its successor agency under Public Law 103-354.
    (2) An applicant will be advised that compliance with all applicable 
special laws and regulations is required.
    (3) An applicant must have acceptable tenure arrangements. Unless 
the loan approval official determines otherwise, each applicant will 
obtain a satisfactory written lease. A copy of the lease will be filed 
in the County Office case file.

[53 FR 35684, Sept. 14, 1988, as amended at 68 FR 62224, Nov. 3, 2003]



Sec. 1941.24  [Reserved]



Sec. 1941.25  Appraisals.

    (a) Except as provided in paragraph (a)(5) of this section, real 
estate appraisals will be completed by an FmHA or its successor agency 
under Public Law 103-354 employee, or a contractor authorized to make 
farm appraisals. Chattel and real estate appraisals will be made on 
forms in accordance with Sec. 761.7 of this title and, in the case of 
an appraisal of mineral rights' the appropriate Agency form (available 
in each Agency State Office) or other format that contains the same 
information, to determine market value and borrower equity in the 
following instances:
    (1) When an initial loan is made, a chattel appraisal is required on 
all chattel property owned by the applicant, and on chattel property to 
be acquired when the item can be specifically identified.
    (2) When a subsequent loan is made, a chattel appraisal is required 
when:
    (i) Refinancing chattel debt.
    (ii) The existing chattel appraisal is more than 2 years old.
    (3) A real estate appraisal is not required when real estate is 
taken as additional security, as defined in Sec. 1941.4 of this 
subpart. However, the County Supervisor will document in the running 
record the estimated market value of the additional security and the 
basis for the estimate.
    (4) A real estate appraisal is required when real estate is taken as 
primary security, as defined in Sec. 1941.4, and the amount of the loan 
to be secured by the real estate exceeds $50,000.
    (5) Other real estate appraisals completed by other State-certified 
general appraisers may be used providing such appraisals meet the 
ethics, competency, departure provisions, etc., and Sections I and II of 
the Uniform Standards of Professional Appraisal Practices, and contain a 
mineral rights appraisal as set out in paragraph (a) of this section. 
Prior to acceptance, the appraisal must have an acceptable desk review 
(technical) completed by an FmHA or its successor agency under Public 
Law 103-354 designated review appraiser.
    (6) A new real estate appraisal is not required if the latest 
appraisal report available is not over 1 year old, unless the approval 
official requests a new appraisal, or unless significant changes in the 
market value of real estate have occurred in the area within the 1-year 
period.
    (b) Real estate appraiser qualifications. The contractor, when he/
she is not the appraiser, is responsible for substantiating the 
appraiser's qualifications. The contractor will obtain FmHA or its 
successor agency under Public Law 103-354's concurrence that the 
appraiser has the necessary qualifications and experience before the 
contractor will utilize the appraiser in any appraisal work. The 
contractor/appraiser

[[Page 132]]

completing the report must be State-certified general.

[53 FR 35684, Sept. 14, 1988, as amended at 57 FR 18676, Apr. 30, 1992; 
58 FR 26680, May 5, 1993; 58 FR 48286, Sept. 15, 1993; 59 FR 16772, Apr. 
8, 1994; 59 FR 25800, May 18, 1994; 64 FR 62568, Nov. 17, 1999; 69 FR 
30999, June 2, 2004]



Sec. Sec. 1941.26-1941.28  [Reserved]



Sec. 1941.29  Relationship between FSA loans, direct and guaranteed.

    (a) An eligible emergency loan (EM) applicant's total credit needs 
will be satisfied under the EM loan authorities, to the extent possible, 
before OL loan assistance is considered.
    (b) A direct OL may be made to a guaranteed loan borrower provided 
the requirements of 7 CFR 761.8 and all other loan requirements are met.
    (c) An direct OL loan may be made to refinance a guaranteed OL loan 
when the following conditions are met:
    (1) The circumstances resulting in the need to refinance were beyond 
the borrower's control.
    (2) Refinancing is in the best interest of the Government and the 
borrower.
    (3) The guaranteed OL loan must be completely paid off at the time 
the direct OL loan is closed.

[53 FR 36240, Sept. 19, 1988, as amended at 55 FR 21527, May 25, 1990; 
58 FR 44747, Aug. 25, 1993; 66 FR 7568, Jan. 24, 2001]



Sec. Sec. 1941.30-1941.31  [Reserved]



Sec. 1941.32  Catastrophic Risk Protection (CAT) insurance requirement.

    Applicants must comply with the CAT insurance requirement no later 
than loan closing by either:
    (1) Obtaining at least the CAT level of coverage, if available, for 
each crop of economic significance as defined by the Federal Crop 
Insurance Corporation, or,
    (2) By waiving eligibility of emergency crop loss assistance in 
connection with the uninsured crop. FSA emergency (EM) loss loan 
assistance is not considered emergency crop loss assistance for the 
purpose of the crop insurance waiver on the uninsured crop.

[62 FR 9355, Mar. 3, 1997]



Sec. 1941.33  Loan approval or disapproval.

    (a) Loan approval authority. Initial and subsequent loans may be 
approved as authorized by subpart A of part 1901 of this chapter, 
provided the total direct operating loan principal balance at loan 
closing does not exceed $200,000.
    (b) Loan approval action. (1) The loan approval official must 
approve or disapprove applications within the deadlines set out in Sec. 
1910.4 of subpart A of part 1910 of this chapter. The loan approval 
official is responsible for reviewing the docket to determine whether 
the proposed loan complies with established policies and all pertinent 
regulations. When reviewing the docket and before approving the loan, 
the loan approval official will determine that:
    (i) The Agency has certified the applicant eligible,
    (ii) Funds are requested for authorized purposes,
    (iii) The proposed loan is based on a feasible farm operating plan.
    (iv) The security is adequate,
    (v) Necessary supervision is planned, and
    (vi) All other pertinent requirements have been met or will be met.
    (2) When approving the loan, the approval official will:
    (i) Indicate on all copies of Form FmHA or its successor agency 
under Public Law 103-354 1940-1, ``Request for Obligation of Funds,'' 
any conditions required by Agency or its successor agency under Public 
Law 103-354 regulations that must be met for loan closing;
    (ii) Specify all security requirements;
    (iii) Indicate special conditions or agreements needed with prior 
lienholders when appropriate;
    (iv) Indicate that approval is subject to satisfactory title 
evidence when required, if such evidence has not been obtained; and
    (v) Send a signed copy of Form FmHA or its successor agency under 
Public Law 103-354 1940-1 to the borrower on the date of loan approval.
    (c) Loan disapproval. The loan approval official must approve or 
disapprove applications within 60 days after receiving a complete 
application, as set out in Sec. 1910.4 of subpart A of part 1910 of 
this chapter. The following

[[Page 133]]

actions will be taken when a loan is disapproved:
    (1) The reasons for disapproval will be indicated on Form FmHA or 
its successor agency under Public Law 103-354 1940-1 by the loan 
approval official. The reasons may be in a letter or the running record 
if this form has not been completed. Suggestions of how to remedy the 
disapprovals should be included.
    (2) The County Supervisor will notify the applicant in writing of 
the action taken, and include any suggestions that could result in 
favorable action. The applicant will be notified, in writing, of the 
opportunity to appeal.
    (3) Items furnished by the applicant during docket processing will 
be returned.
    (4) The County Supervisor will notify any other interested parties 
of the disapproval.

[53 FR 35664, Sept. 14, 1988, as amended at 54 FR 11366, Mar. 20, 1989; 
57 FR 18676, Apr. 30, 1992; 58 FR 48282, Sept. 15, 1993; 61 FR 35925, 
July 9, 1996; 68 FR 62224, Nov. 3, 2003]



Sec. 1941.34  [Reserved]



Sec. 1941.35  Actions after loan approval.

    (a) Requesting check. If the County Supervisor is reasonably certain 
that the loan can be closed within 20 working days from the date of the 
check, loan funds may be requested at the time of loan approval through 
the State Office terminal system. If funds are not requested when the 
loan is approved, advances in the amount needed will be requested 
through the County Office computer terminal system. Each advance will be 
limited to an amount which can be used promptly, usually within 60 days 
from the date of the check. Loan funds must be provided to the 
applicant(s) within 15 days after loan approval, unless the applicant(s) 
agrees to a longer period. If no funds are available within 15 days of 
loan approval, funds will be provided to the applicant as soon as 
possible and within 15 days after funds become available, unless the 
applicant(s) agrees to a longer period. If a longer period is agreed 
upon by the applicant(s), the same will be documented in the case file 
by the County Supervisor.
    (b) Cancellation of loan check and/or obligation. If, for any 
reason, a loan check or obligation will be canceled, the County 
Supervisor will notify the State Office and the Finance Office of loan 
cancellation by using Form 1940-10, ``Cancellation of U.S. Treasury 
Check and/or Obligation.'' If a check received in the County Office is 
to be canceled, the check will be returned as prescribed in FmHA 
Instruction 2018-D (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (c) Cancellation of advances. When an advance is to be cancelled the 
County Supervisor must take the following actions:
    (1) Complete and distribute Form FmHA or its successor agency under 
Public Law 103-354 1940-10.
    (2) When necessary, prepare and excute a subsitute promissory note 
reflecting the revised total of the loan and the revised repayment 
schedule. When it is not necessary to obtain a substitute promissory 
note, the County Supervisor will show on Form FmHA or its successor 
agency under Public Law 103-354 440-57 the revised amount of the loan 
and the revised repayment schedule.
    (d) Increase or decrease in loan amount. If it becomes necessary to 
increase or decrease the amount of the loan prior to closing, the County 
Supervisor will request that all distributed docket forms be returned to 
the County Office for reprocessing unless the change is minor and 
replacement forms can be promptly completed and submitted.

[53 FR 35684, Sept. 14, 1988, as amended at 54 FR 39727, Sept. 28, 1989; 
59 FR 54788, Nov. 2, 1994]



Sec. Sec. 1941.36-1941.37  [Reserved]



Sec. 1941.38  Loan closing.

    Operating loans will be closed in accordance with subpart B of part 
1941 of this chapter.



Sec. Sec. 1941.39-1941.41  [Reserved]



Sec. 1941.42  Loan servicing.

    Loans will be serviced in accordance with subpart A of part 1962 of 
this chapter and/or subpart S of part 1951 of this chapter.

[[Page 134]]



Sec. Sec. 1941.43-1941.49  [Reserved]



Sec. 1941.50  State supplements.

    State supplements will be issued as necessary to implement this 
subpart.

Exhibit A to Subpart A of Part 1941--Processing Guide--Insured Operating 
                                  Loans

    This exhibit outlines the basic steps involved in processing a loan 
application and identifies the FmHA or its successor agency under Public 
Law 103-354 forms which should be considered for use at each step.
    Consult the appropriate Forms Manual Insert (FMI) for instructions 
for completion, distribution, and procedural references for each form.

                         Application Processing

                         a. applicant interview

    Review applicant's proposed plan of operation in view of authorized 
loan purposes and limitations on loans.
    Begin running case record.
    Provide applicant with FmHA or its successor agency under Public Law 
103-354 forms to be completed and returned which are needed to determine 
eligibility. Be sure applicant understands the purposes of the forms and 
knows who must complete them.
    Advise applicant of other information that must be given to FmHA or 
its successor agency under Public Law 103-354.
    When appropriate, have applicant contact other creditors as possible 
credit sources for financing, or participating in the financing, of the 
proposed operation.
    The following FmHA or its successor agency under Public Law 103-354 
forms will be made available to the applicant or will be used by the 
County Supervisor. Forms designated with an ``x'' are always required 
and those designated with an ``*'' are to be used when appropriate.

------------------------------------------------------------------------
            Form No                            Name
------------------------------------------------------------------------
410-1.........................  Application for FHA Services.....    (x)
1910-5........................  Request for Verification of          (*)
                                 Employment.
410-9.........................  Statement Required by the Privacy    (*)
                                 Act.
410-10........................  Privacy Act Statement to             (*)
                                 References.
1910-11.......................  Applicant Certification, Federal     (x)
                                 Collection Policies for Consumer
                                 or Commercial Debts.
431-1.........................  Long-Time Farm and Home Plan.....    (*)
431-2.........................  Farm and Home Plan...............    (x)
431-4.........................  Business Analysis--                  (*)
                                 Nonagricultural Enterprise.
440-32........................  Request for Statement of Debts       (*)
                                 and Collateral.
1940-51.......................  Crop-Share-Cash Farm Lease.......    (*)
1940-53.......................  Cash Farm Lease..................    (*)
1940-55.......................  Livestock-Share-Farm Lease.......    (*)
1940-56.......................  Annual Supplement to Farm Lease..    (*)
------------------------------------------------------------------------

                             b. field visit

    Notify applicant of planned visit and its purpose.
    Evaluate the resources available to the applicant and determine 
whether or not they adequately fulfill the requirements of the proposed 
plan of operation.
    Obtain information needed to complete required appraisals (chattel 
and real estate).
    Hold landlord-tenant meeting, if necessary, to reach an agreement on 
the terms of the lease, resolve any problems, etc.; record in running 
case record.
    Determine security requirements and record in running case record.
    The following FmHA or its successor agency under Public Law 103-354 
forms will be used as appropriate:

------------------------------------------------------------------------
            Form No.                             Name
------------------------------------------------------------------------
440-13                           Report of lien search..............   *
440-21                           Appraisal of chattel property......   *
1922-1                           Appraisal report-farm tract........   *
1922-2                           Supplemental report-irrigation,       *
                                  drainage, levee, and minerals.
1922-3                           Map of property....................   *
1922-10                          Appraiser's worksheet-farm tract...   *
2006-9                           Notice of visit or meeting.........   *
------------------------------------------------------------------------

                      c. eligibility determination

    Obtain all needed application forms, and other information from the 
applicant; assist the applicant in completing these forms and in 
obtaining needed information, as necessary.
    Request copy of deed or other evidence of title, when needed.
    Schedule meeting with county committee, review application and 
determine eligibility.
    Inform applicant of the results of committee action.
    The following FmHA or its successor agency under Public Law 103-354 
forms will be used as appropriate in accomplishing the above actions:

------------------------------------------------------------------------
           Form No.                           Name
------------------------------------------------------------------------
403-1........................  Debt Adjustment Agreement.........    (*)
440-2........................  County Committee Certification or     (x)
                                Recommendation.
------------------------------------------------------------------------

                           Docket Preparation

    Obtain all information from the applicant, prior lienholder(s), 
landlord(s), etc., needed for the loan docket to be prepared.
    Check to make sure all security requirements have been met or will 
be met by loan closing.
    Prepare a loan narrative, for running record.

[[Page 135]]

    The following FmHA or its successor agency under Public Law 103-354 
forms will be completed and utilized as necessary in preparing the loan 
docket for approval:

------------------------------------------------------------------------
           Form No.                           Name
------------------------------------------------------------------------
400-4.........................  Assurance Agreement.............     (*)
1927-8........................  Agreement with Prior Lienholder.     (*)
1940-1........................  Request for Obligation of Funds.     (*)
440-4.........................  Security Agreement (Chattels and     (*)
                                 Crops).
440-9.........................  Supplementary Payment Agreement.     (*)
1940-20.......................  Request For Environmental            (*)
                                 Information.
440-25/440A25.................  Financing Statement.............     (*)
440-26........................  Consent and Subordination            (*)
                                 Agreement.
1940-21, 1940-22, or Exhibit    Environmental Review............     (*)
 H, Subpart G of Part 1940.
441-5.........................  Subordination Agreement.........     (*)
441-8.........................  Assignment of Proceeds from the      (*)
                                 Sale of Products.
441-10........................  Nondisturbance Agreement........     (*)
441-12........................  Agreement for Disposition of         (*)
                                 Jointly Owned Property.
441-13........................  Division of Income and               (*)
                                 Nondisturbance Agreement.
441-17........................  Certification of Obligation to       (*)
                                 Landlord.
441-18........................  Consent to Payment of Proceeds       (*)
                                 from Sale of Farm Products.
441-25........................  Assignment of Proceeds from the      (*)
                                 Sale of Dairy Products and
                                 Release of Security Interest.
------------------------------------------------------------------------

                        Loan Approval and Closing

                            a. loan approval

    File financing statement or chattel mortgage, and obtain a lien 
search.
    Request preliminary title opinion when appropriate.
    Record loan closing conditions in the running record.
    Execute and distribute all forms necessary for loan approval.

                             b. loan closing

    Request needed legal services.
    Arrange for loan closing by county office, escrow agent, designated 
attorney, or other authorized loan closing agent; furnish loan closing 
agent with appropriate instructions, forms, and other needed information 
for loan closing.
    The following FmHA or its successor agency under Public Law 103-354 
forms will be used by the County Office in addition to those forms 
listed under docket preparation which must be executed by the borrower 
or other party:

------------------------------------------------------------------------
            Form No.                           Name
------------------------------------------------------------------------
400-6..........................  Compliance Statement............    (*)
402-1..........................  Deposit Agreement...............    (*)
402-2..........................  Statement of Deposits and           (*)
                                  Withdrawals.
427-1 (State)..................  Real Estate Mortgage or Deed of     (*)
                                  Trust for ----------.
1927-9.........................  Preliminary Title Opinion.......    (*)
1940-17........................  Promissory Note.................    (x)
------------------------------------------------------------------------


(7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; sec. 10, Pub. L. 93-357, 
88 Stat. 392; 7 CFR 2.23; 7 CFR 2.70)

[43 FR 55883, Nov. 29, 1978]

    Editorial Note: For Federal Register citations affecting exhibit A 
to subpart A of part 1941, see the List of CFR Sections Affected, which 
appears in the Finding Aids section of the printed volume and on GPO 
Access.

             Exhibit B to Subpart A of Part 1941 [Reserved]

        Exhibit C to Subpart A of Part 1941--Controlled Substance

    (Note: Exhibit C referenced in this subpart is available in any FmHA 
or its successor agency under Public Law 103-354 office.)

[53 FR 35684, Sept. 14, 1988]



               Subpart B_Closing Loans Secured by Chattels



Sec. 1941.51  Purpose.

    This subpart prescribes Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 policies, procedures, and 
authorizations for closing direct loans secured by chattels. These loans 
are considered closed on the date the promissory note is executed.

[43 FR 55883, Nov. 29, 1978, as amended at 58 FR 48282, Sept. 15, 1993]



Sec. Sec. 1941.52-1941.53  [Reserved]



Sec. 1941.54  Promissory note.

    (a) Executing the note. Form FmHA or its successor agency under 
Public Law 103-354 1940-17, ``Promissory Note,'' will be executed and 
dated following receipt of the loan check in the county office and prior 
to the first withdrawal of loan funds from the supervised bank account 
or delivery of the loan check to the borrower.
    (b) Signatures--(1) Individuals. Only the applicant is required to 
sign the promissory note. Any other signatures

[[Page 136]]

needed to assure the required security will be obtained as provided in 
State supplements. A cosigner will be required only when it has been 
determined that the applicant cannot possibly meet the repayment 
requirements for the loan request. Persons who are minors (except a 
youth obtaining a youth loan), mental incompetents, or noncitizens will 
not execute a promissory note. Except when a person has pledged only 
property as security for a loan, the purpose and effect of signing a 
promissory note or other evidence of indebtedness for a loan made or 
insured by FmHA or its successor agency under Public Law 103-354 is to 
incur individual personal liability regardless of any State law to the 
contrary. A youth executing a promissory note shall incur full personal 
liability for the indebtedness evidenced by such note.
    (2) Entities. The promissory note(s) will be executed so as to 
evidence liability of the entity as well as individual liability of all 
members of the entity.

[43 FR 55883, Nov. 29, 1978, as amended at 51 FR 13448, Apr. 21, 1986; 
53 FR 35691, Sept. 14, 1988; 58 FR 48286, Sept. 15, 1993; 68 FR 7697, 
Feb. 18, 2003]



Sec. Sec. 1941.55-1941.56  [Reserved]



Sec. 1941.57  Security instruments.

    Security instruments referred to in this subpart are financing 
statements, security agreements, chattel mortgages, and similar lien 
instruments. To obtain a security interest in chattels and crops in 
States which have adopted the Uniform Commercial Code (UCC), both a 
financing statement and a security agreement are required, although only 
the financing statement must be filed or recorded in public records. See 
paragraph (g) of this section for filing or recording instructions. In 
Louisiana a Chattel Mortgage and Crop Pledge or Crop Pledge, as 
appropriate, is required to obtain a security interest in chattels and 
crops.
    (a) Executing security instruments by borrowers. State supplements 
will be issued, as necessary, to carry out the provisions of this 
paragraph. In order to close the loan and obtain the desired lien, 
security instruments will be executed by appropriate entity officials, 
on behalf of an entity borrower. Any other signatures needed to assure 
the required security will be obtained as provided in State supplements. 
A cosigner will be required only when it has been determined that the 
applicant cannot possibly meet the security requirements for the loan 
request.
    (b) Undivided interests. An applicant obtaining a loan to finance an 
undivided interest in security or to refinance debts on an undivided 
interest in such property will secure the loan with a lien on the 
undivided interest in the property. All individuals having an undivided 
interest in the security will execute Form FmHA or its successor agency 
under Public Law 103-354 441-12, ``Agreement for Disposition of Jointly-
Owned Property'', unless a written agreement to the same affect as this 
form has already been signed.
    (c) Security instrument forms. (1) Form FmHA or its successor agency 
under Public Law 103-354 440-25, ``Financing Statement,'' or Form FmHA 
or its successor agency under Public Law 103-354 440A-25, ``Financing 
Statement (Carbon-Interleaved)''; and Form FmHA or its successor agency 
under Public Law 103-354 440-4, ``Security Agreement (Chattels and 
Crops),'' will be used to obtain security interests in chattel property 
in States which have adopted the Uniform Commercial Code (UCC), unless a 
State supplement requires the use of other forms.
    (2) Form FmHA or its successor agency under Public Law 103-354 440-4 
LA, ``Chattel Mortgage and Crop Pledge (Louisiana),'' or Form FmHA or 
its successor agency under Public Law 103-354 440-4A LA, ``Crop Pledge 
(Louisiana),'' will be used in the State of Louisiana.
    (3) Other forms will be used as provided in State supplements in 
Puerto Rico, Guam, American Samoa and the Northern Mariana Islands.
    (d) Taking security instruments--(1) Financing statement. A 
financing statement is effective for 5 years from the date of filing and 
as long thereafter as it is continued by filing a continuation 
statement.
    (i) Initial loan. A financing statement will be required for every 
initial loan except when a filed financing statement covering the 
applicants property

[[Page 137]]

is still effective, covers all types of chattel property that will serve 
as security for the initial loan, and describes the land on which crops 
and fixtures are or will be located.
    (ii) Subsequent loan. A financing statement will not be required 
unless the filed financing statement is not effective, does not cover 
all types of chattel property that will serve as security for the 
subsequent loan, or does not describe the land on which crops or 
fixtures are or will be located. If the loan debt is being secured for 
the first time, however, the procedure for securing initial loans stated 
in paragraph (d)(1)(i) of this section will be followed.
    (2) Security Agreements--(i) Initial loan. When an initial loan is 
made to an applicant, including to a paid-in-full borrower, a new 
security agreement will be required in all cases. The security agreement 
will be executed not later than the first withdrawal of loan funds from 
the supervised bank account or delivery of the loan check to the 
borrower.
    (ii) Subsequent loan. An additional security agreement will be 
required if property which is to serve as security for the debt is not 
described either specifically or in the printed form of the previous 
security agreement, or if an additional agreement it is needed to obtain 
or maintain a security interest in crops.
    (A) An additional security agreement may also be executed to reflect 
significant changes in security.
    (B) An additional security agreement is not necessary if the 
existing security agreement covers all types of chattels that will serve 
as security for the subsequent loan, describes the land on which the 
crops or fixtures are or will be located, and was executed within 1 year 
before the crops which are offered as security became growing crops.

When determined necessary by OGC, a State supplement will be issued to 
further explain when a security agreement covering crops will be 
required.
    (e) Describing collateral in security instruments. (1) Financing 
statements describe certain types of collateral. If items of collateral 
not covered in the printed form of the financing statement are to serve 
as security, they should be described by type or specifically 
identified.
    (2) Generally, animals, birds, fish, etc., should be described by 
groups in the security agreement. The serial or other identification 
numbers of major items of equipment should be listed in the security 
agreement. If a security interest is to be taken in property such as 
inventory, supplies, recreation or other nonfarm equipment, or fixtures 
which cannot be readily described under the column headings of items 2 
or 3 of Form FmHA or its successor agency under Public Law 103-354 440-
4, an appropriate description of such property will be inserted in item 
2 or 3 below the other property, without regard to the column headings.
    (3) The advice of the Office of the General Counsel (OGC) will be 
obtained as to how to describe in financing statements and security 
agreements items such as grazing permits, milk bases, and membership or 
stock in cooperative associations. The property to be described in 
security instruments should be reconciled with any existing security 
instruments and with Form FmHA or its successor agency under Public Law 
103-354 462-1, ``Record of the Disposition of Security Property.''
    (4) After the initial security agreement is executed, and after the 
borrower obtains all the property which FmHA or its successor agency 
under Public Law 103-354 wants specifically described, by item, in the 
security agreement, a new security agreement will be executed.
    (f) Executing security instruments by County Office employees. The 
County Supervisor and any County Office employee authorized by the 
County Supervisor may execute on behalf of the Government any legal 
instruments necessary to obtain or preserve security for loans. This 
includes financing statements, security agreements, chattel mortgages 
and similar lien instruments, as well as severance agreements, consent 
and subordination agreements, affidavits and acknowledgments.
    (g) Filing or recording security instruments. (1) Ordinarily, in 
States which have adopted the UCC, financing statements may be delivered 
by hand or mailed to the filing officers for filing

[[Page 138]]

or recording when the loan is approved. However, when this is not 
practical, the financing statement may be filed at a later date, but not 
later than the first withdrawal of loan funds from the supervised bank 
account or delivery of the loan check to the borrower. If crops or other 
property of the borrower are located or will be located in a State other 
than that of the borrower's residence, the County Office servicing the 
loan will contact the County Office in the other State for information 
as to the security instruments to be used and the place(s) of filing or 
recording in the other State. The financing statement will be filed or 
recorded as required by State supplements.
    (2) Security agreements will not be filed or recorded unless 
required by State supplements. Form FmHA or its successor agency under 
Public Law 103-354 440-4 LA or Form FmHA or its successor agency under 
Public Law 103-354 440-4A LA will be filed or recorded in Louisiana as 
provided by State supplements.

[43 FR 55883, Nov. 29, 1978, as amended at 50 FR 27415, July 3, 1985; 51 
FR 13448, Apr. 21, 1986; 53 FR 35691, Sept. 14, 1988; 68 FR 7697, Feb. 
18, 2003]



Sec. Sec. 1941.58-1941.59  [Reserved]



Sec. 1941.60  Purchase money security interest.

    A purchase money security interest will take priority over an 
earlier perfected security interest if a security agreement is taken and 
a financing statement is filed before the purchaser receives possession 
of the property or within 10 days thereafter, subject to the following 
limitations:
    (a) Motor vehicles. For motor vehicles required to be licensed, any 
action necessary to obtain perfection in the particular State, such as 
having the security interest noted on the certificate of title, must be 
taken before the purchaser receives possession or within 10 days. In 
some States, it is not necessary to file a financing statement to 
perfect a security interest in such motor vehicles; however, FmHA or its 
successor agency under Public Law 103-354 will always require both a 
security agreement and a financing statement. A State supplement will be 
issued, if necessary to set out the procedure for obtaining a lien on a 
motor vehicle, motorboat, or any special type of security.
    (b) Farm equipment. A purchase money security interest in farm 
equipment costing $2,500 or less (other than fixtures or motor vehicles 
required to be licensed), will take priority over an earlier perfected 
security interest if a security agreement is obtained, even though a 
financing statement is not executed or filed. FmHA or its successor 
agency under Public Law 103-354, however, will always file a financing 
statement. State supplements will be issued, as necessary, to further 
explain the requirements for complying with this section.
    (c) Inventory. A purchase money security interest in inventory will 
take priority over an earlier perfected security interest, provided:
    (1) A security agreement is taken and a financing statement is filed 
not later than the time the purchaser receives possession of the 
property, and
    (2) Before the purchaser takes possession of the property, written 
notice is given to the party holding the earlier perfected interest that 
the purchase money creditor has acquired or expects to acquire a 
purchase money security interest in the inventory, which must by 
described by item or type. When determined necessary by OGC, a State 
supplement will be issued to further explain the requirements for 
perfecting a purchase money security interest in inventory.
    (d) Fixtures. A security interest taken in goods before they become 
fixtures has priority over a security interest in the real estate to 
which they are attached. A security interest taken in goods after they 
become fixtures is valid against all persons later acquiring an interest 
in the real estate. It is not valid against persons who had an interest 
in the real estate when the goods become fixtures, unless they execute a 
consent disclaimer or Form FmHA or its successor agency under Public Law 
103-354 440-26, ``Consent and Subordination Agreement''.
    (e) Crops. A security interest taken in crops not more than 3 months 
before the crops are planted or otherwise become growing crops, has 
priority over

[[Page 139]]

an earlier perfected security interest, if the obligation underlying the 
earlier interest was due more than 6 months before the crops became 
growing crops.

[43 FR 55883, Nov. 29, 1978, as amended at 54 FR 47959, Nov. 20, 1989]



Sec. Sec. 1941.61-1941.62  [Reserved]



Sec. 1941.63  Lien search.

    (a) Required lien searches. (1) A lien search will be obtained at a 
time that assures that the security instruments give the Government the 
required security, usually at the time the financing statement (mortgage 
or crop pledge in Louisiana) is filed or recorded. Lien searches may be 
obtained after the financing statement is filed, but never after the 
delivery of the loan check or the first withdrawal of loan funds from 
the supervised bank account. Form FmHA or its successor agency under 
Public Law 103-354 440-13, ``Report of Lien Search,'' or other lien 
search forms will be used.
    (2) Under the UCC, lien searches are necessary in making subsequent 
loans if an additional financing statement is required; i.e., when crops 
or fixtures to be taken as security are or will be located on land not 
described in the existing financing statement, or when property not 
covered by the financing statement is to be taken as security for the 
loan.
    (3) Lien searches also may be obtained in connection with processing 
applications when the County Supervisor determines such searches are 
necessary on an individual case basis.
    (4) Although a lien search is not always required for youths who are 
minors (as defined in State supplements), the County Supervisor may 
determine that a search is necessary to assure the Government obtains 
the required security interest.
    (b) Responsibility for obtaining lien searches. (1) Applicants 
should obtain and pay for lien searches. FmHA or its successor agency 
under Public Law 103-354 County Office employees may make lien searches 
(at no cost to the applicant) in exceptional cases, such as when no 
other person is available to provide such a service, or when experience 
has shown that using the service available would lead to an undue delay 
in closing the loan and the delay would cause undue hardship to the 
borrower.
    (2) The State Director will issue a State supplement setting forth 
the requirements for lien searches, including the records to be searched 
and the periods to be covered.
    (3) The applicant should be informed of County Clerks, local 
attorneys or other persons who will conduct lien searches at a 
reasonable cost. The applicant will select the lien searcher. The cost 
of a lien search can be paid from the proceeds of loan checks.



Sec. Sec. 1941.64-1941.66  [Reserved]



Sec. 1941.67  Additional requirements for perfecting security interests.

    If necessary because of provisions in State statutes, leases, land 
purchase contracts, or real estate mortgages commonly in use, State 
Directors will issue State supplements which tell how to obtain a 
subordination agreement, certification of obligation to landlord, 
disclaimer, and consent and subordination agreement to perfect security 
interest.
    (a) Form FmHA or its successor agency under Public Law 103-354 441-
5, ``Subordination Agreement.'' This form will be used if a 
subordination agreement is required by FmHA or its successor agency 
under Public Law 103-354 on crops, livestock, farm equipment, or other 
chattels. If Form FmHA or its successor agency under Public Law 103-354 
441-5 is not legally sufficient, a form recommended by OGC will be used. 
The time to be covered by the subordination agreement generally will be 
equal to the repayment period of the loan or for the unexpired period of 
the lease if the borrower is a tenant, but as a minimum will be for the 
year for which the loan is made.
    (b) Form FmHA or its successor agency under Public Law 103-354 441-
17, ``Certification of Obligation To Landlord.'' This form may be used 
instead of obtaining a subordination agreement if:
    (1) It appears that the applicant is not financially obligated to 
the landlord except for rent for the lease year and will not incur other 
obligations to the landlord during that year, and
    (2) A State supplement authorizing the use of Form FmHA or its 
successor

[[Page 140]]

agency under Public Law 103-354 441-17 in such cases has been issued.
    (c) Form FmHA or its successor agency under Public Law 103-354 440-
26, ``Consent and Subordination Agreement.'' Unless otherwise provided 
by a State supplement, this form rather than a severance agreement will 
be used in UCC States when a security interest is taken in property 
after it has become a fixture.
    (1) If a debt on an item which has already become a fixture is being 
refinanced, consent and subordination agreements will be signed before 
releasing loan funds to the creditor. In all other cases in which a 
security interest is being taken on an item that already has become a 
fixture, consent and subordination agreements will be signed no later 
than the time of loan closing.
    (2) Consent and subordination agreements will be taken only in those 
cases in which the fixture is placed on the real estate before the 
financing statement and security agreement covering the fixture have 
been executed, or before the financing statement is filed, or before the 
request for obligation of funds is signed by the loan approving 
official.

[43 FR 55883, Nov. 29, 1978, as amended at 54 FR 47959, Nov. 20, 1989]



Sec. Sec. 1941.68-1941.70  [Reserved]



Sec. 1941.71  Fees.

    The borrower will pay all fees for filing or recording financing 
statements, mortgages, or other legal instruments and will pay all 
notary and lien search fees incident to loan transactions. Payment will 
be made from personal funds or from the proceeds of the loan. Whenever 
FmHA or its successor agency under Public Law 103-354 employees accept 
cash to pay for filing or recording fees or for the cost of making a 
lien search, Form FmHA or its successor agency under Public Law 103-354 
440-12, ``Acknowledgment of Payment for Recording, Lien Search, and 
Releasing Fees,'' will be executed. FmHA or its successor agency under 
Public Law 103-354 employees will make it clear to the borrower that any 
fee so accepted is not received by the Government as a payment on the 
borrower's debt, but is accepted only for paying the recording, filing, 
or lien search fees on behalf of the borrower.



Sec. Sec. 1941.72-1941.74  [Reserved]



Sec. 1941.75  Retention and use of security agreements.

    Original executed security agreements will not be altered or 
destroyed, and will remain in the case file when new security agreements 
are taken. Changes in security property will be noted only on the work 
copy. When an additional security agreement covering all collateral for 
the debt is taken, the work copy of the previous security agreement may 
be destroyed.



Sec. Sec. 1941.76-1941.78  [Reserved]



Sec. 1941.79  Future advance and after-acquired property clauses.

    The future advance and after-acquired property clauses of security 
agreements will be considered valid in all respects in UCC States unless 
otherwise provided in a State supplement.
    (a) Future advance clause. A properly prepared, executed, and filed 
or recorded FmHA or its successor agency under Public Law 103-354 
financing statement and a properly prepared and executed FmHA or its 
successor agency under Public Law 103-354 security agreement give FmHA 
or its successor agency under Public Law 103-354 a security interest in 
the property described. This security interest covers future loans, 
advances, and expenditures, as well as any other FmHA or its successor 
agency under Public Law 103-354 debts evidenced by notes and any 
advances or expenditures for debts evidenced by such notes. However, 
when a borrower's indebtedness is paid in full, a new security agreement 
must be taken in all cases to secure an initial loan made following the 
payment in full.
    (b) After-acquired property clause. After a security interest is 
acquired in certain property, any property (except fixtures) acquired 
which is of the same type as that described in the financing statement 
and security agreement will also serve as security for the debt. The 
after-acquired property clause in the security agreement will encumber 
crops grown on the land described in

[[Page 141]]

the security agreement and financing statement, provided the crops are 
planted or otherwise become growing crops within 1 year of the execution 
date of the security agreement, or within such other period as provided 
in a State supplement. FmHA or its successor agency under Public Law 
103-354 after-acquired security interests take priority over other 
security interests perfected after the FmHA or its successor agency 
under Public Law 103-354 financing statement is filed, except as stated 
in Sec. 1941.60.
    (c) State supplements. A State supplement concerning future advance 
and after-acquired property clauses will set forth requirements for 
filing or recording security instruments in that State. This will assist 
County Supervisors in other States who request such information in 
accordance with Sec. 1941.57(g). A State supplement will also be issued 
when OGC determines that it is needed to reflect any amendments made to 
a State's UCC.



Sec. Sec. 1941.80-1941.83  [Reserved]



Sec. 1941.84  Title clearance and closing requirements.

    (a) For loans over $10,000, title clearance is required when real 
estate is taken as primary security.
    (b) For loans of $10,000 or less, and loans for which real estate is 
taken as primary security, a certification of ownership and verification 
of equity in real estate is required. Certification of ownership may be 
in the form of a notarized affidavit which is signed by the applicant, 
names the record owner of the real estate in question and lists the 
balances due on all known debts against the real estate. Whenever the 
County Supervisor is uncertain of the record owner or debts against the 
estate security, a title search will be required.
    (c) Title clearance is not required when real estate is taken as 
additional security, as defined in Sec. 1941.4 of this subpart.
    (d) When real estate is taken as primary security, as defined in 
Sec. 1941.4 of this subpart, title clearance and loan closing 
requirements will be carried out in accordance with subpart B of part 
1927 of this chapter.
    (e) If any prior liens against the real estate offered as security 
contain provisions (such as future advance clauses not limited to a 
specific amount) that could jeopardize either the security position of 
the Government or the applicant's ability to meet the obligations of the 
prior liens and FmHA or its successor agency under Public Law 103-354 
loan, the prior lienholders involved must agree in writing, before the 
loan is closed, to modify, waive, or subordinate such objectionable 
provisions.
    (f) If a lien is to be taken on real estate which is already subject 
to a lien, and if State law allows a prior lienholder to foreclose on a 
loan (under power of sale or otherwise) without notifying a junior 
lienholder of the foreclosure proceedings, the prior lienholders must 
agree, in writing, to give FmHA or its successor agency under Public Law 
103-354 advance notice of all foreclosure proceedings and of any 
assignment of the mortgage.
    (g) Each real estate lien will be taken on Form FmHA or its 
successor agency under Public Law 103-354 1927-1 (State), ``Real Estate 
Mortgage or Deed of Trust for ------------,'' unless a state supplement 
requires the use of another form.
    (h) If the real estate offered as security is held under a purchase 
contract, the following conditions must exist:
    (1) The applicant must be able to provide a mortgageable interest in 
the real estate.
    (2) The applicant and the purchase contract holder must agree, in 
writing, that any insurance proceeds received to compensate for real 
estate losses will be used only to replace or repair the damaged real 
estate. If necessary, the applicant will negotiate with the purchase 
contract holder to arrive at a new contract without any provisions 
objectionable to either FmHA or its successor agency under Public Law 
103-354 or the lender.
    (3) If a satisfactory contract of sale cannot be negotiated or if 
the purchase contract holder refuses to agree to apply the insurance 
proceeds toward the repair or replacement of the real estate and wants 
to retain some of the proceeds as an extra payment on the balance owned, 
the applicant will make

[[Page 142]]

every effort to refinance the existing purchase contract.
    (4) The purchase contract must not be subject to summary 
cancellation on default and must not contain any other provisions which 
might jeopardize either the Government's security position or the 
borrower's ability to repay the loan.
    (5) The contract holder must agree, in writing, to give the 
Government notice of any breach by the purchaser, and must also agree to 
give the Government the option to rectify the conditions which amount to 
a breach within 30 days. The 30 days begin to run on the day the 
Government receives the written notice of the breach.

[51 FR 13448, Apr. 21, 1986, as amended at 56 FR 67480, Dec. 31, 1991; 
58 FR 26680, May 5, 1993]



Sec. Sec. 1941.85-1941.87  [Reserved]



Sec. 1941.88  Insurance.

    (a) Catastrophic Risk Protection (CAT) insurance requirement. 
Applicants must obtain at least the CAT level of crop insurance of 
coverage for each crop of economic significance, as defined by the 
Federal Crop Insurance Corporation, if such coverage is offered. The 
applicant can meet this requirement by either:
    (1) Obtaining at least the CAT level of coverage or,
    (2) Waiving eligibility for emergency crop loss assistance in 
connection with the uninsured crop. EM loss loan assistance is not 
considered emergency crop loss assistance for purposes of this waiver.
    (b) Crops. Crop insurance is a good management tool. Loan approval 
officials will, therefore, during the loan making process, encourage all 
borrowers who grow crops to obtain and maintain Federal Crop Insurance 
Corporation (FCIC) crop insurance or multi-peril crop insurance, if it 
is available.
    (1) When OL loan funds are to be used as the primary source of 
financing for the ensuing year's crop production expenses, and such 
crop(s) will serve as security for the loan, and crop insurance is 
purchased by the borrower, FmHA or its successor agency under Public Law 
103-354 requires and ``Assignment of Indemnity'' on the borrower's crop 
insurance policy(ies).
    (2) When FmHA or its successor agency under Public Law 103-354 is 
not the primary lender for annual crop production expenses, but has or 
will have a security interest in the crop(s), and the applicant has 
purchased or will purchase crop insurance, an ``Assignment of 
Indemnity'' is taken by FmHA or its successor agency under Public Law 
103-354, if the primary lender chooses not to do so.
    (3) When the payment of crop insurance premiums is not required 
until after harvest, the premiums may be paid by releasing insured 
crop(s) sale proceeds, but not withstanding the limits in Sec. Sec. 
1962.17 and 1962.29(b) of subpart A of part 1962 of this chapter. If the 
borrower's crop losses are sufficient to warrant an indemnity payment, 
the premium due will be deducted by the insurance carrier from such 
payment.
    (c) Chattels and real estate. Chattel property that secures OL loans 
must be covered by hazard insurance unless the Agency determines that 
coverage is not readily available or the benefit of the coverage is less 
than its cost. When insured, chattel property must at least be covered 
at its tax or cost depreciated value, whichever is less. Real property 
must be covered by general hazard and flood insurance in accordance with 
subparts A and B of part 1806 of this chapter.
    (d) Public liability and property damage. Borrowers should be 
advised of the possibilities of incurring liability and encouraged to 
obtain public liability and property damage insurance, including 
insurance on a customer's property in the custody of the borrower.
    (e) Mortgage clause. When insurance is required on property serving 
as security, Form FmHA or its successor agency under Public Law 103-354 
426-2, ``Property Insurance Mortgage Clause (Without Contribution),'' or 
a standard mortgage clause in general use in the area will be attached 
to or printed in the policy and will show the United States of America 
(Farmers Home Administration or its successor agency

[[Page 143]]

under Public Law 103-354) as mortgagee or secured party.

[43 FR 55883, Nov. 29, 1978, as amended at 47 FR 33486, Aug. 3, 1982; 53 
FR 35691, Sept. 14, 1988; 58 FR 26680, May 5, 1993; 62 FR 9355, Mar. 3, 
1997; 62 FR 28618, May 27, 1997]



Sec. Sec. 1941.89-1941.91  [Reserved]



Sec. 1941.92  Check delivery.

    The County Supervisor will receive and deliver loan checks. On 
receipt of a loan check, and after arrangements have been completed for 
loan closing, the applicant will be promptly notified on Form FmHA or 
its successor agency under Public Law 103-354 440-8, ``Notice of Check 
Delivery.'' Loan funds will be disbursed in accordance with subpart A of 
part 1902 of this chapter.

[43 FR 55883, Nov. 29, 1978, as amended at 58 FR 26681, May 5, 1993]



Sec. 1941.93  [Reserved]



Sec. 1941.94  Supervised bank accounts.

    If a supervised bank account is required, loan funds will be 
deposited following loan closing. Supervised bank accounts will be 
established in accordance with subpart A of part 1902 of this chapter.

[53 FR 35692, Sept. 14, 1988]



Sec. 1941.95  [Reserved]



Sec. 1941.96  Changes in use of loan funds.

    (a) Approval of changes. County Supervisors, or their delegates, are 
authorized to approve changes in the purposes for which loan funds are 
to be used provided:
    (1) The change is consistent with authorities, policies and 
limitations for making loans, and
    (2) The change will not adversely affect either the workings of an 
on-going operation or the Government's interest.
    (b) Recording changes. When changes are made in the use of loan 
funds, the installments on Form FmHA or its successor agency under 
Public Law 103-354 1940-17, ``Promissory Note,'' will not be revised. 
When funds loaned for the purchase of capital goods are to be used for 
annual recurring production expenses, the funds will be repaid in 
accordance with the terms for such uses in subpart A of this part. 
Appropriate changes with respect to the repayments will be made in table 
K of Form FmHA or its successor agency under Public Law 103-354 431-2, 
``Farm and Home Plan,'' also on Form FmHA or its successor agency under 
Public Law 103-354 1962-1, ``Agreement for the Use of Proceeds/Release 
of Chattel Security,'' and initialed by the borrower. Appropriate 
notations will be made in the ``Supervisory and Servicing Actions'' 
section of the Management System Card.

[43 FR 55883, Nov. 29, 1978, as amended at 45 FR 16166, Mar. 13, 1980; 
53 FR 35692, Sept. 14, 1988; 54 FR 47959, Nov. 20, 1989]



PART 1942_ASSOCIATIONS--Table of Contents




                   Subpart A_Community Facility Loans

Sec.
1942.1 General.
1942.2 Processing applications.
1942.3 Preparation of appraisal reports.
1942.4 Borrower contracts.
1942.5 Application review and approval.
1942.6 Preparation for loan closing.
1942.7 Loan closing.
1942.8 Actions subsequent to loan closing.
1942.9 Planning, bidding, contracting, and constructing.
1942.10-1942.11 [Reserved]
1942.12 Loan cancellation.
1942.13 Loan servicing.
1942.14 Subsequent loans.
1942.15 Delegation and redelegation of authority.
1942.16 State supplements and guides.
1942.17 Community facilities.
1942.18 Community facilities--Planning, bidding, contracting, 
          constructing.
1942.19 Information pertaining to preparation of notes or bonds and bond 
          transcript documents for public body applicants.
1942.20 Community Facility Guides.
1942.21 Statewide nonmetropolitan median household income.
1942.22-1942.49 [Reserved]
1942.50 OMB control number.

Subpart B [Reserved]

Subpart C_Subpart C_Fire and Rescue and Other Small Community Facilities 
                                Projects

1942.101 General.
1942.102 Nondiscrimination.
1942.103 Definitions.
1942.104 Application processing.
1942.105 Environmental review.

[[Page 144]]

1942.106 Intergovernmental review.
1942.107 Priorities.
1942.108 Application docket preparation and review.
1942.109-1942.110 [Reserved]
1942.111 Applicant eligibility.
1942.112 Eligible loan purposes.
1942.113 Rates and terms.
1942.114 Security.
1942.115 Reasonable project costs.
1942.116 Economic feasibility requirements.
1942.117 General requirements.
1942.118 Other Federal, State, and local requirements.
1942.119 Professional services and borrower contracts.
1942.120-1942.121 [Reserved]
1942.122 Actions prior to loan closing and start of construction.
1942.123 Loan closing.
1942.124-1942.125 [Reserved]
1942.126 Planning, bidding, contracting, constructing, procuring.
1942.127 Project monitoring and fund delivery.
1942.128 Borrower accounting methods, management reports and audits.
1942.129 Borrower supervision and servicing.
1942.130-1942.131 [Reserved]
1942.132 Subsequent loans.
1942.133 Delegation and redelegation of authority.
1942.134 State supplements and guides.
1942.135-1942.149 [Reserved]
1942.150 OMB control number.

Subparts D-F [Reserved]

Subpart G_Rural Business Enterprise Grants and Television Demonstration 
                                 Grants

1942.301 Purpose.
1942.302 Policy.
1942.303 Authorities, delegation, and redel-egation.
1942.304 Definitions.
1942.305 Eligibility and priority.
1942.306 Purposes of grants.
1942.307 Limitations on use of grant funds.
1942.308 Regional Commission grants.
1942.309 [Reserved]
1942.310 Other considerations.
1942.311 Application processing.
1942.312 [Reserved]
1942.313 Plan to provide financial assistance to third parties.
1942.314 Grants to provide financial assistance to third parties, 
          television demonstration projects, and technical assistance 
          programs.
1942.315 Docket preparation and Letter of Conditions.
1942.316 Grant approval, fund obligation and third party financial 
          assistance.
1942.317-1942.320 [Reserved]
1942.321 Subsequent grants.
1942.322-1942.347 [Reserved]
1942.348 Exception authority.
1942.349 Forms, guides, and attachments.
1942.350 OMB control number.

Guide 1 to Subpart G--Project Management Agreement Between the --------
          -- Regional Commission and the Farmers Home Administration or 
          Its Successor Agency Under Public Law 103-354, Department of 
          Agriculture
Guide 2 to Subpart G--Resolution

Subpart H [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.



                   Subpart A_Community Facility Loans

    Source: 50 FR 7296, Feb. 22, 1985, unless otherwise noted.



Sec. 1942.1  General.

    (a) This subpart outlines the policies and procedures for making and 
processing insured loans for Community Facilities except fire and rescue 
and other small essential community facility loans and water and waste 
disposal facilities. This subpart applies to Community Facilities loans 
for fire and rescue and other small essential community facility loans 
only as specifically provided for in subpart C of this part. Water and 
waste loans are provided for in part 1780 of this title. The Agency 
shall cooperate fully with State and local agencies in making loans to 
assure maximum support to the State strategy for rural development. 
State Directors and their staffs shall maintain coordination and liaison 
with State agency and substate planning districts. Funds allocated for 
use under this subpart are also for the use of Indian tribes within the 
State, regardless of whether State development strategies include Indian 
reservations within the State's boundaries. Indians residing on such 
reservations must have equal opportunity to participate in the benefits 
of these programs as compared with other residents of the State. Federal 
statues provide for extending Agency financial programs without regard 
to race, color, religion, sex, national origin, marital status, age, or 
physical/mental handicap. The participants must possess the capacity to 
enter into legal contracts under State

[[Page 145]]

and local statutes. Any processing or servicing activity conducted 
pursuant to this subpart involving authorized assistance to Agency 
employees, members of their families, known close relatives, or business 
or close personal associates, is subject to the provisions of subpart D 
of part 1900 of this chapter. Applicants for this assistance are 
required to identify any known relationship or association with an 
Agency employee.
    (b) Indian tribes on Federal and State reservations and other 
Federally recognized Indian tribes are eligible to apply for and are 
encouraged to participate in this program. Such tribes might not be 
subject to State and local laws or jurisdiction. However, any 
requirements of this subpart that affect applicant eligibility, the 
adequacy of FmHA or its successor agency under Public Law 103-354's 
security or the adequacy of service to users of the facility and all 
other requirements of this subpart must be met.
    (c) Loans sold without insurance by FmHA or its successor agency 
under Public Law 103-354 to the private sector will be serviced in the 
private sector and will not be serviced under this subpart. The 
provisions of this subpart are not applicable to such loans. Future 
changes to this subpart will not be made applicable to such loans.
    (d) The District Office will normally be the entry point for 
preapplications and serve as a local point. Applications will be filed 
with the District Office and loans will be processed to the maxium 
extent possible by the District Office staff. The applicant's governing 
body should designate one person to coordinate the activities of its 
engineer, architect, attorney, and any other professional employees and 
to act as contact person during loan processing. FmHA or its successor 
agency under Public Law 103-354 personnel should make every effort to 
involve the applicant's contact person when meeting with the applicant's 
professional consultants and/or agents. The State Office staff will 
monitor community programs loanmaklng and servicing, and will provide 
assistance to District Office personnel to the extent necessary to 
assure that the activities are being accomplished in an orderly manner 
consistent with FmHA or its successor agency under Public Law 103-354 
regulations.

[50 FR 7296, Feb. 22, 1985, as amended at 52 FR 38908, Oct. 20, 1987; 52 
FR 43725, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987; 57 FR 21193, May 
19, 1992; 58 FR 226, Jan. 5, 1993; 62 FR 33510, June 19, 1997; 68 FR 
65830, Nov. 24, 2003]



Sec. 1942.2  Processing applications.

    (a) Preapplications. (1) The District Office may handle initial 
inquiries and provide basic information about the program. They are to 
provide the preappllcation, SF 424.2, ``Application for Federal 
Assistance (For Construction).'' The District Director will assist 
applicants as needed in completing SF 424.2, and in filing written 
notice of intent and priority recommendation with the appropriate 
clearinghouse. The District Director will inform the applicant that it 
may be necessary to apply for credit from commercial sources. It will be 
explained that if credit for the project is available from commercial 
sources at reasonable rates and terms the applicant is not eligible for 
FmHA or its successor agency under Public Law 103-354 financing. The 
District Director will meet with the applicant, whenever appropriate to 
discuss FmHA or its successor agency under Public Law 103-354 
preapplication processing. Guidance and assistance will be provided by 
the State Director, as needed, for orderly application processing. The 
District Director will determine that the preapplication is property 
completed and fully reviewed. The District Director will then forward to 
the State Director:
    (i) Eligibility determination and recommendations.
    (ii) One copy of SF 424.2.
    (iii) State intergovernmental review comments and recommendations 
(clearinghouse comments).
    (iv) Priority recommendations.
    (v) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, or copies of 
organizational documents or existing debt instruments. The District 
Director will advise applicants on what documents are necessary. 
Applicants should not be required to expend significant amounts

[[Page 146]]

of money or time developing supporting documentation at the 
preapplication stage.
    (2) The State Director will review each SF 424.2 along with other 
information that is deemed necessary to determine whether financing from 
commercial sources at reasonable rates and terms is available. If credit 
elsewhere is indicated, the State Director will instruct the District 
Director to so inform the applicant and recommend the applicant apply to 
commercial sources for financing. Projects may be funded jointly with 
other lenders provided the requirements of Sec. 1942.17 (g) of this 
subpart are met. Joint financing occurs when two or more lenders make 
separate loans to supply the funds required by one applicant for a 
project.
    (i) In order to provide a basis for referral of preapplications of 
only those applicants who may be able to finance projects through 
commercial sources, State Directors should maintain liaison with 
representatives of banks, investment bankers, financial advisors, and 
other lender representatives in the State. State Directors with their 
assistance, should maintain criteria for determining preapplications 
which should be referred to commercial lenders. A list of lender 
representatives interested in receiving such referrals should be 
maintained.
    (ii) The State Director shall maintain a working relationship with 
the State Office or official that has been designated as the single 
point of contact for the intergovernmental review process and give full 
consideration to their comments when selecting preapplications to be 
processed.
    (iii) The State Director will review the District Director's 
eligibility determination and recommendations in sufficient time for the 
District Director's use in preparing and issuing Form AD-622.
    (iv) Form AD-622 will be prepared by the District Director within 
forty-five (45) calendar days from receipt of the preapplication by FmHA 
or its successor agency under Public Law 103-354, stating the results of 
the review action. The original will be signed and delivered to the 
applicant with a copy to the State Director.
    (3) For preapplications eligible for FmHA or its successor agency 
under Public Law 103-354 funding which have the necessary priority to 
compete with similar preapplications, FmHA or its successor agency under 
Public Law 103-354 will issue Form AD-622 inviting an application 
containing the following statement:

    You are advised against taking any actions or incurring any 
obligations which would either limit the range of alternatives to be 
considered, or which would have an adverse effect on the environment. 
Satisfactory completion of the environmental review process must occur 
prior to the issuance of the letter of conditions.

    (4) The following statement must be added to Form AD-622 when 
notifying preapplicants who are eligible, but do not have the priority 
necessary for further consideration at this time:

    You are advised against incurring obligations which would limit the 
range of alternatives to be considered, or which cannot be fulfilled 
without FmHA or its successor agency under Public Law 103-354 funds 
until the funds are actually made available. Therefore, you should 
refrain from such actions as initiating engineering and legal work, 
taking actions which would have an adverse effect on the environment, 
taking options on land rights, developing detailed plans and 
specifications, or inviting construction bids until notified by Farmers 
Home Administration (FmHA) or its successor agency under Public Law 103-
354 to proceed.

    (b) Environmental review. Environmental requirements will be 
documented in accordance with subpart G of part 1940 of this chapter and 
submitted to the State Director. Starting with the earliest discussions 
with prospective applicants or review of preapplications and continuing 
throughout application processing, environmental issues must be 
considered. This should provide flexibility to consider alternatives to 
the project and develop methods to mitigate identified adverse 
environmental impacts. Documentation of the appropriate environmental 
review should be completed as soon as possible; however, the State 
Director will ensure that the appropriate environmental review is 
completed prior to issuing the letter of conditions.

[[Page 147]]

    (c) Applications. The District Director should assist the applicant 
in application assembly and processing.
    (1) State Directors should have applications in process representing 
approximately 150 percent of the current State allocation.
    (2) The application docket will include SF 424.2, and related forms, 
materials, and information. The application will be assembled in 
accordance with guide 15 of this subpart or State guides developed under 
Sec. 1942.16 of this subpart.
    (3) When an applicant is notified to proceed with an application, 
the District Director should arrange for a conference with the applicant 
to provide copies of appropriate appendices and forms; furnish guidance 
necessary for orderly application processing; and to initiate a 
processing checklist for establishing a time schedule for completing 
items using Form FmHA or its successor agency under Public Law 103-354 
1942-39, ``Processing Check List (Other Than Public Bodies),'' or Form 
FmHA or its successor agency under Public Law 103-354 1942-40, 
``Processing Check List (Public Bodies),'' or other checklist adopted 
for use in the State. The District Director will confirm decisions made 
at this conference by letter to the applicant and by a copy of the 
processing checklist. The original and a copy of the processing 
checklist will be retained in the District Office and a copy will be 
forwarded to the State Office. The original and copy of the checklist 
retained in the District Office will be kept current as application 
processing actions are taken. The copy will be sent to the State Office 
to use in updating its copy of this form. The State Office will then 
return the District Office's copy. As the application is being 
processed, and the need develops for additional conferences, the 
District Director will arrange with the applicant for such conference to 
extend and update the processing checklist.
    (d) Review of decision. If at any time prior to loan approval it is 
decided that favorable action will not be taken on a preapplication or 
application, the District Director will notify the applicant in writing 
of the reasons why the request was not favorably considered. The 
notification to the applicant will state that a review of this decision 
by FmHA or its successor agency under Public Law 103-354 may be 
requested by the applicant under subpart B of part 1900 of this chapter. 
The following statement will also be made on all notifications of 
adverse action.

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, age (provided that the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income is derived from any public 
assistance program; or because the applicant has in good faith exercised 
any right under the Consumer Credit Protection Act. The Federal agency 
that administers compliance with this law is the Federal Trade 
Commission, Equal Credit Opportunity, Washington, DC 20580.

    (e) Joint funding. FmHA or its successor agency under Public Law 
103-354 may finance projects jointly with funds from other sources, such 
as, commercial/private lenders, Federal agencies, State and local 
Governments, etc. Other departments, agencies, and executive 
establishments of the Federal Government may participate and provide 
financial and technical assistance jointly with FmHA or its successor 
agency under Public Law 103-354 to any applicant to whom FmHA or its 
successor agency under Public Law 103-354 is providing assistance. The 
amount of participation by the other department, agency, or executive 
establishment shall only be limited by its authorities except that any 
limitation on joint participation itself is superseded by section 125 of 
Pub. L. 95-334 (Section 347, Consolidated Farm and Rural Development 
Act, as amended).

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6786, Mar. 3, 1988; 54 
FR 47197, Nov. 13, 1989; 55 FR 13503 and 15304, Apr. 11, 1990; 57 FR 
21194, May 19, 1992; 61 FR 6309, Feb. 20, 1996]



Sec. 1942.3  Preparation of appraisal reports.

    When the loan approval official requires an appraisal, Form FmHA or 
its successor agency under Public Law 103-354 422-10, ``Appraisal 
Report--Water and Waste Disposal Systems,'' may be used with appropriate 
supplements. Form FmHA or its successor agency

[[Page 148]]

under Public Law 103-354 442-10 may be modified as appropriate or other 
appropriate format may be used for facilities other than water and waste 
disposal. Appraisal reports prepared for use in connection with the 
purchase of existing essential community facilities or when required by 
Sec. 1942.17 (g)(2)(iii)(B)(2), (g)(3)(iii)(B)(2), and (j)(4) of this 
subpart, may be prepared by the FmHA or its successor agency under 
Public Law 103-354 engineer/architect or, if desired by the State 
Director, some other qualified appraiser. The loan approval official may 
require an applicant to provide an appraisal prepared by an independent 
qualified appraiser; however, the loan approval official must determine 
that the appraised value shown in such reports reflects the present 
market value.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6786, Mar. 3, 1988]



Sec. 1942.4  Borrower contracts.

    The State Director will, with assistance as necessary by the Office 
of the General Counsel (OGC), concur in agreements between borrowers and 
third parties such as contracts for professional and technical services 
and contracts for the purchase of water or treatment of waste. State 
Directors are expected to work closely with representatives of 
engineering and architectural societies, bar associations, commercial 
lenders, accountant associations, and others in developing standard 
forms of agreements, where needed, and other such matters in order to 
expedite application processing, minimize referrals to OGC, and resolve 
problems which may arise.



Sec. 1942.5  Application review and approval.

    (a) Procedures for review. Ordinarily FmHA or its successor agency 
under Public Law 103-354 staff review will proceed as applications are 
being developed. An overall review of the applicant's financial status, 
including a review of all assets and liabilities, will be a part of the 
docket review process by the staff and approval officials. The 
engineering/architect reports and associated data are to be reviewed by 
the FmHA or its successor agency under Public Law 103-354 staff engineer 
or architect, as appropriate, as soon as available but prior to the 
District Director's completion of the project summary. During the review 
the District Director in all cases will make certain that no low income 
or minority community within the service area has been omitted or 
discouraged from participating in the proposed project. The District 
Director will also determine how the service area was defined to assure 
that gerrymandering of specific communities or areas has not occurred. 
The findings should be documented in the running record. Prior to 
presenting the assembled application to the approval official, the 
assembled application ordinarily will be processed in the following 
sequence:
    (1) The Rural Development manager will complete the project summary, 
including written analysis and recommendations, and will prepare a draft 
letter of conditions listing all the requirements that the applicant 
must agree to meet within a specific time.
    (i) Requirements listed in letters of conditions will include the 
following unless inappropriate due to the particular type of funding or 
entity involved: Maximum amount of loan and/or grant which may be 
considered, scheduling of payments, term of loan and any deferment of 
principal which may be allowed, reserve requirements, compliance with 
section 504 of the Rehabilitation Act of 1973, number of users (members) 
and verification required, contributions rates and charges, interim 
financing, disbursement of funds, security requirements, graduation 
requirements, debt collection policies execution of Form FmHA or its 
successor agency under Public Law 103-354 1910-11, ``Application 
Certification, Federal Collection Policies for Consumer or Commercial 
Debts,'' organization, business operations, insurance and bonding 
(including applicant/borrower and contractor), construction contract 
documents and bidding, accounts, records, and audit reports required 
(including requirements of OMB Circulars A-128 and A-110), adoption of 
Form FmHA or its successor agency under Public Law 103-354 1942-47, 
``Loan Resolution (Public Resolution),'' for public bodies or Form FmHA 
or its successor agency under

[[Page 149]]

Public Law 103-354 1942-9, ``Loan Resolution (Security Agreement),'' for 
other than public bodies, closing instructions, and other requirements.
    (ii) Each letter of conditions will contain the following 
paragraphs:

    This letter establishes conditions which must be understood and 
agreed to by you before further consideration may be given to the 
application. Any changes in the project cost, source of funds, scope of 
services, or any other significant changes in the project or applicant 
must be reported to and approved by FmHA or its successor agency under 
Public Law 103-354 by written amendment to this letter. Any changes not 
approved by FmHA or its successor agency under Public Law 103-354 shall 
be cause for discontinuing processing of the application.
    This letter is not to be considered as loan approval or as 
representation to the availability of funds. The docket may be completed 
on the basis of a loan not to exceed $------.
    If FmHA or its successor agency under Public Law 103-354 makes the 
loan, you may make a written request that the interest rate be the lower 
of the rate in effect at the time of loan approval or the time of loan 
closing. If you do not request the lower of the two interest rates, the 
interest rate charged will be the rate in effect at the time of loan 
approval. The loan will be considered approved on the date a signed copy 
of Form FmHA or its successor agency under Public Law 103-354 1940-1, 
``Request for Obligation of Funds,'' is mailed to you. If you want the 
lower of the two rates, your written request should be submitted to FmHA 
or its successor agency under Public Law 103-354 as soon as practical. 
In order to avoid possible delays in loan closing such a request should 
ordinarily be submitted at least 30 calendar days before loan closing.
    Please complete and return the attached Form FmHA or its successor 
agency under Public Law 103-354 1942-46, ``Letter of Intent to Meet 
Conditions,'' if you desire that further consideration be given your 
application.

    (iii) Rural Development Managers may add the following:

    If the conditions set forth in this letter are not met within ------ 
days from the date hereof, FmHA or its successor agency under Public Law 
103-354 reserves the right to discontinue the processing of the 
application.

    (2) The State staff engineer or architect, as appropriate, will 
include a written analysis and recommendations on the project summary.
    (3) The Chief, Community Programs or Community and Business 
Programs, will review the assembled application and include in the 
project summary a written analysis and recommendations, including the 
availability of other credit and other eligibility determinations. The 
draft letter of conditions will be reviewed and any necessary 
modifications made.
    (b) Project requiring National Office review. Prior National Office 
review is required for certain proposals (See subpart A of part 1901 of 
this chapter).
    (1) The Rural Development Manager should assemble applications for 
the National Office review in the following order from top to bottom and 
forward them to the State Director for review and recommedation prior to 
submission to the National Office:
    (i) Transmittal memorandum including:
    (A) Recommendation.
    (B) Date of expected obligation.
    (C) Any unusual circumstances.
    (ii) Copies of the following:
    (A) Proposed letter of conditions.
    (B) Applicable State Intergovernmental review comments (FmHA 
Instruction 1940-J, available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (C) Community Facilities Project Summary.
    (D) Preliminary architectural or engineering report.
    (E) Form FmHA or its successor agency under Public Law 103-354 442-
3, ``Balance Sheet,'' or a financial statement or audit that includes a 
balance sheet.
    (F) For other essential community facility loan applicants whose 
proposals do not meet the assured income or tax based security 
requirements of Sec. 1942.17 (g)(2)(iii) and (g)(3)(iii) of this 
subpart, financial information for the last five years of operation will 
be submitted if available. The type of financial information to be 
submitted should be determined based on what is available and the 
following order of preference:
    (1) Complete audits;
    (2) Unaudited financial statements including balance sheets and 
statements of income and expenses;
    (3) Lists of income and expenses.
    (G) For other essential community facility loans secured under 
paragraph

[[Page 150]]

(b)(1)(ii)(F) of this section, submit a detailed explanation of the 
proposed security; evidence that the application cannot be processed and 
the loan secured under paragraph (b)(1)(ii)(F) of this section; evidence 
supporting the efforts by the applicant in persuading appropriate public 
bodies to provide the proposed facility and services and the results, 
and comments of the Regional Attorney concurring in the applicants' 
legal authority to give the proposed security.
    (H) Financial Feasibility Report when required by Sec. 1942.17 
(h)(1).
    (I) Proposed lease agreements, management agreements, or other 
agreements when facility management will be provided by other than the 
applicant.
    (J) Other forms and documents on which there are specific questions.
    (K) Environmental impact analysis and documentation.
    (2) For applications to be reviewed in the State or field, at least 
those items in paragraph (b)(1)(ii) of this section, should be 
available.
    (c) For all applications. All letters of conditions will be 
addressed to the applicant, signed by the Rural Development Manager or 
other Agency representative designated by the State Director, and 
delivered to the applicant. Upon signing the letter of conditions, the 
Rural Development Manager will send two copies of the letter of 
conditions and two copies of the project summary to the State Director. 
The State Director will immediately send one copy of the project summary 
and a copy of the letter of conditions to the National Office, 
Attention: Community Programs. The Rural Development Manager, with 
assistance as needed from the State Office, will discuss the 
requirements of the letter of conditions with the applicant's 
representatives and afford them an opportunity to execute Form RD 1942-
46.
    (1) The letter of conditions should not ordinarily be issued unless 
the State Director expects to have adequate funds in the State 
allocation to fund the project within the next 12 months based on 
historic allocations or other reliable projections.
    (2) If the applicant declines to execute Form FmHA or its successor 
agency under Public Law 103-354 1942-46, the Rural Development Manager 
will immediately notify the State Director and provide complete 
information as to the reasons for such declination.
    (3) If the applicant accepts the letter of conditions, the Rural 
Development Manager will forward the executed Form RD 1942-46 and a 
signed and an unsigned copy of Form RD 1940-1 to the State Director.
    (d) Loan approval and obligating funds. Loans will be approved under 
this subpart and subpart A of part 1901 of this chapter (available in 
any FmHA or its successor agency under Public Law 103-354 office). The 
loan will be considered approved on the date the signed copy of Form 
FmHA or its successor agency under Public Law 103-354 1940-1 is mailed 
to the applicant. The State Director or designee may request an 
obligation of funds when available within their State allocation and 
according to the following:
    (1) Form FmHA or its successor agency under Public Law 103-354 1940-
1, authorizing funds to be reserved, may be executed by the loan 
approval official providing the applicant has the legal authority to 
contract for a loan and to enter into required agreements and has signed 
Form FmHA or its successor agency under Public Law 103-354 1940-1.
    (2) If approval was concurred in by the National Office, a copy of 
the concurring memorandum will be attached to the original of Form FmHA 
or its successor agency under Public Law 103-354 1940-1.
    (3) The State Director or designee will request an obligation of 
loan and/or grant funds via the FmHA or its successor agency under 
Public Law 103-354 Field Office terminal system after signing Form FmHA 
or its successor agency under Public Law 103-354 1940-1. The requesting 
official will furnish security identification as necessary. The 
requesting official will record the date, time of request, and their 
initials on the original Form FmHA or its successor agency under Public 
Law 103-354 1940-1.
    (4) The obligation date and date the applicant is notified of loan 
and/or grant approval is six working days from the date funds are 
reserved unless

[[Page 151]]

an exception is granted by the National Office.
    (5) Immediately after verifying that funds have been reserved, 
utilizing the FmHA or its successor agency under Public Law 103-354 
Field Office terminal system status inquiry function, the State Director 
or designee will notify by telephone, the Legislative Affairs and Public 
Information Staff in the National Office as required by FmHA Instruction 
2015-C, ``Announcement of Approval of Loans, Grants, or Guaranteed Loans 
for Rural Project,'' (available in any FmHA or its successor agency 
under Public Law 103-354 State Office).
    (6) Loan approval and applicant notification will be accomplished by 
the State Director or designee by mailing to the applicant on the 
obligation date a copy of Form FmHA or its successor agency under Public 
Law 103-354 1940-1 which has been previously signed by the applicant and 
loan approval official. The date the applicant is notified is also the 
date the interest rate at loan approval is established. The State 
Director or designee will record the date of applicant notification and 
the interest rate in effect at that time on the original of Form FmHA or 
its successor agency under Public Law 103-354 1940-1 and include it as a 
permanent part of the District Director project file with a copy placed 
in the State Office file.
    (7) If a transfer of obligation of funds is necessary, complete Form 
FmHA or its successor agency under Public Law 103-354 450-10, ``Advice 
of Borrower's Change of Address, Name, Case Number, or Loan Number,'' 
and process via the FmHA or its successor agency under Public Law 103-
354 Field Office terminal system. An obligation of funds established for 
an applicant may be transferred to a different (substituted) applicant 
provided:
    (i) The substituted applicant is eligible to receive the assistance 
approved for the original applicant; and
    (ii) The substituted applicant bears a close and genuine 
relationship to the original applicant (such as two organizations that 
are controlled by the same individuals); and
    (iii) The need for and scope of the project and the purpose(s) for 
which FmHA or its successor agency under Public Law 103-354 funds will 
be used remain substantially unchanged.

[50 FR 7296, Feb. 22, 1985, as amended at 50 FR 33332, Aug. 19, 1985; 50 
FR 43378, Oct. 25, 1985; 53 FR 6787, Mar. 3, 1988; 54 FR 47196-47197, 
Nov. 13, 1989; 63 FR 16089, Apr. 2, 1998; 67 FR 60584, Sept. 27, 2002; 
67 FR 63019, Oct. 9, 2002]



Sec. 1942.6  Preparation for loan closing.

    (a) Obtaining closing instructions. Completed dockets will be 
reviewed by the State Director. The information required by OGC will be 
transmitted to OGC with a request for closing instructions. Upon receipt 
of the closing instructions from OGC, the State Director will forward 
them along with any appropriate instructions to the District Director. 
Upon receipt of closing instructions, the District Director will discuss 
with the applicant and its architect or engineer, attorney, and other 
appropriate representatives, the requirements contained therein and any 
actions necessary to proceed with closing.
    (b) Verification of users and other funds. (1) In connection with a 
loan for a utility type project to be secured by a pledge of user fees 
or revenues, the District Director will authenticate the number of users 
prior to loan closing or the commencement of construction, whichever 
occurs first. Such individual will review each signed user agreement and 
check evidence of cash contributions. If during the review any 
indication is received that all signed users may not connect to the 
system, there will be such additional investigation made as deemed 
necessary to determine the number of users who will connect to the 
system. The District Director will record the determination in a 
memorandum to the State Director.
    (2) In all cases the availability and amounts of other funds to be 
used in the project will be verified by FmHA or its successor agency 
under Public Law 103-354.
    (c) Initial compliance review. An initial compliance review should 
be completed under subpart E of part 1901 of this chapter.
    (d) Ordering loan checks. Checks will not be ordered until:

[[Page 152]]

    (1) The applicant has complied with approval conditions and closing 
instructions, except for those actions which are to be completed on the 
date of loan closing or subsequent thereto; and
    (2) The applicant is ready to start construction or funds are needed 
to pay interim financing obligations.
    (e) Multiple advances of FmHA or its successor agency under Public 
Law 103-354 funds. When FmHA or its successor agency under Public Law 
103-354 provides loan funds during the construction period using interim 
(temporary) instruments described in Sec. 1942.19(g) of this subpart, 
the following action will be taken prior to the issuance of the 
permanent instruments:
    (1) The Finance Office will be notified of the anticipated date for 
retirement of the interim instruments and issuance of permanent 
instruments of debt.
    (2) The Finance Office will prepare a statement of account including 
accrued interest through the proposed date of retirement and also show 
the daily interest accrual. The statement of account and the interim 
financing instruments will be forwarded to the District Director.
    (3) The District Director will collect interest through the actual 
date of the retirement and obtain the permanent instrument(s) of debt in 
exchange for the interim financing instruments. The permanent 
instruments and the cash collection will be forwarded to the Finance 
Office immediately, except that for promissory notes and single 
instrument bonds fully registered as to principal and interest, the 
original will be retained in the District Office and a copy will be 
forwarded to the Finance Office. In developing the permanent 
instruments, the sequence of preference set out in Sec. 1942.19(e) of 
this subpart will be followed.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988; 53 
FR 26589, July 14, 1988]



Sec. 1942.7  Loan closing.

    Loans will be closed in accordance with the closing instructions 
issued by the OGC and Sec. 1942.17(o) of this subpart and as soon as 
possible after receiving the check.
    (a) Authority to execute, file, and record legal instruments. 
District Office employees are authorized to execute and file or record 
any legal instruments necessary to obtain or preserve security for 
loans. This includes, as appropriate, mortgages and other lien 
instruments, as well as affidavits, acknowledgments, and other 
certificates.
    (b) Preparation of mortgages. Unless otherwise required by State law 
or unless an exception is approved by the State Director with advice of 
the OGC, only one mortgage will be taken even though the indebtedness is 
to be evidenced by more than one instrument.
    (c) Source of funds for insured loans. All loans will be made from 
the Rural Development Insurance Fund (RDIF).
    (d) Unused funds. Obligated funds planned for project development 
which remain after all authorized costs have been provided for will be 
disposed of in accordance with Sec. 1942.17(p)(6) of this subpart.
    (e) Loan checks. Whenever a loan check is received, lost, or 
destroyed, the District Director will take appropriate actions outlined 
in FmHA Instruction 2018-D (available in any FmHA or its successor 
agency under Public Law 103-354 office). Checks which cannot be 
delivered within a reasonable amount of time (no more than 20 calendar 
days) will be handled in accordance with FmHA Instruction 2018-D.
    (f) Supervised bank accounts. Supervised bank accounts will be 
handled under subpart A of part 1902 of this chapter.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988; 59 
FR 54788, Nov. 2, 1994; 68 FR 61331, Oct. 28, 2003]



Sec. 1942.8  Actions subsequent to loan closing.

    (a) Mortgages. Real estate or chattel mortages or security 
instruments will be delivered to the recording office for recordation or 
filing, as appropriate. A copy of such instruments will be delivered to 
the borrower. The original instrument, if returnable after recording or 
filing, will be retained in the borrower's case folder.
    (b) Notes and bonds. When the debt instrument is a promissory note 
or single instrument bond fully registered as to

[[Page 153]]

principal and interest, a conformed copy will be sent to the Finance 
Office immediately after loan closing and the original instrument will 
be stored in the District Office. When other types of bonds are used, 
the original bond(s) will be forwarded to the Finance Office immediately 
after loan closing.
    (c) Multiple advances--bond(s). When temporary paper, such as bond 
anticipation notes or interim receipts, is used to conform with the 
multiple advance requirement, the original temporary paper will be 
forwarded to the Finance Office after each advance is made to the 
borrower. The borrower's case number will be entered in the upper 
righthand corner of such paper by the District Office. The permanent 
debt instrument(s) should be forwarded to the Finance Office as soon as 
possible after the last advance is made except that for promissory notes 
and single instrument bonds fully registered as to principal and 
interest, the original will be retained in the District Office and a 
copy will be forwarded to the Finance Office.
    (d) Bond registration record. Form FmHA or its successor agency 
under Public Law 103-354 442-28, ``Bond Registration Book,'' may be used 
as a guide to assist borrowers in the preparation of a bond registration 
book in those cases where a registration book is required and a book is 
not provided in connection with the printing of the bonds.
    (e) Disposition of title evidence. All title evidence other than the 
opinion of title, mortgage title insurance policy, and water stock 
certificates will be returned to the borrower when the loan has been 
closed.
    (f) Material for State Office. When the loan has been closed, the 
District Director will submit to the State Director:
    (1) The complete docket; and
    (2) A statement covering information other than the completion of 
legal documents showing what was done in carrying out loan closing 
instructions.
    (g) State Office review of loan closing. The State Director will 
review the District Director's statement concerning loan closing, the 
security instruments, and other documents used in closing to determine 
whether the transaction was closed properly. All material submitted by 
the District Director, including the executed contract documents (if 
required by OGC) with the certification of the borrower's attorney, 
along with a statement by the State Director that all administrative 
requirements have been met, will be referred to OGC for post-closing 
review. OGC will review the submitted material to determine whether all 
legal requirements have been met. OGC's review of FmHA or its successor 
agency under Public Law 103-354's standard forms will be only for proper 
execution thereof, unless the State Director brings specific questions 
or deviations to the attention of OGC. It is not expected that facility 
development including construction will be held up pending receipt of 
the opinion from OGC. When the opinion from OGC is received, the State 
Director will advise the District Director of any deficiencies that must 
be corrected and return all material that was submitted for review.
    (h) Safeguarding bond shipments. FmHA or its successor agency under 
Public Law 103-354 personnel will follow the procedures for safeguarding 
mailings and deliveries of bonds and coupons outlined in FmHA 
Instruction 2018-E (available in any FmHA or its successor agency under 
Public Law 103-354 office), whenever they mail or deliver these items.
    (i) Water stock certificates. Water stock certificates will be filed 
in the loan docket in the District Office.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988]



Sec. 1942.9  Planning, bidding, contracting, and constructing. [See 
Sec. Sec. 1942.17(p) and 1942.18]

    (a) Review of construction plans and specifications. All plans and 
specifications will be submitted as soon as available to the State 
Office for review and comments.
    (b) Contract approval. The State Director or designee is responsible 
for approving all construction contracts using legal advice and guidance 
of OGC as necessary. The use of a contracting method under Sec. 
1942.18(l) of this subpart exceeding $100,000 must be concurred in by 
the National Office. Procurement under Sec. 1942.18(l) of this subpart 
will

[[Page 154]]

not be considered when an FmHA or its successor agency under Public Law 
103-354 grant is involved. When an applicant requests such concurrence, 
the State Director will submit the following to the National Office:
    (1) State Director's and FmHA or its successor agency under Public 
Law 103-354 engineer/architect's comments and recommendations, and when 
noncompetitive negotiation is proposed, submit an evaluation of previous 
work of the proposed construction firm.
    (2) Regional attorney's opinion and comments regarding the legal 
adequacy of the proposed procurement method and proposed contract 
documents.
    (3) Copy of owner's written request and description of the 
procurement method proposed.
    (4) Copy of the proposed contract.
    (c) Bid irregularities. Any irregularities in the bids received or 
other matters pertaining to the contract award having legal implications 
will be cleared with OGC before the State Director consents to the 
contract award.
    (d) Noncompliance. State Directors, upon receipt of information 
indicating borrowers or their officers, employees, or agents are not 
performing in compliance with Sec. 1942.18(j)(1) of this subpart, may 
request the Regional Office of the Inspector General (OIG) to 
investigate the matter and provide a report. The State Director is 
responsible for resolving the issue.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988]



Sec. Sec. 1942.10-1942.11  [Reserved]



Sec. 1942.12  Loan cancellation.

    Loans which have been approved and obligations which have been 
established may be canceled before closing as follows:
    (a) Form FmHA or its successor agency under Public Law 103-354 1940-
10, ``Cancellation of U.S. Treasury Check and/or Obligation.'' The 
District Director or State Director may prepare and execute Form FmHA or 
its successor agency under Public Law 103-354 1940-10 in accordance with 
the Forms Manual Insert (FMI). If the check has been received or is 
subsequently received in the District Office, the District Director will 
return it as prescribed in FmHA Instruction 2018-D (available in any 
FmHA or its successor agency under Public Law 103-354 office).
    (b) Notice of cancellation. If the docket has been forwarded to OGC, 
that office will be notified of the cancellation by a copy of Form FmHA 
or its successor agency under Public Law 103-354 1940-10. Any 
application for title insurance, if ordered, will be canceled. The 
borrower's attorney and engineer/architect, if any, should be notified 
of the cancellation. The District Director may provide the borrower's 
attorney and engineer/architect with a copy of the notification to the 
applicant. The State Director will notify the Director of Legislative 
Affairs and Public Information by telephone or electronic mail and give 
the reasons for such cancellation.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 26589, July 14, 1988; 54 
FR 39727, Sept. 28, 1989; 59 FR 54788, Nov. 2, 1994]



Sec. 1942.13  Loan servicing.

    Loans will be serviced under subpart E of part 1951 of this chapter.



Sec. 1942.14  Subsequent loans.

    Subsequent loans will be processed under this subpart.



Sec. 1942.15  Delegation and redelegation of authority.

    The State Director is responsible for implementing the authorities 
in this subpart and for issuing State supplements redelegating 
authorities. Loan and grant approval authority is in subpart A of part 
1901 of this chapter. Except for loan and grant approval authority, 
District Directors may redelegate their duties to qualified staff 
members.



Sec. 1942.16  State supplements and guides.

    State Directors will obtain National Office clearance for all State 
supplements and guides under FmHA Instruction 2006-B (available in any 
FmHA or its successor agency under Public Law 103-354 office).
    (a) State supplements. State Directors may supplement this subpart 
to meet State and local laws and regulations

[[Page 155]]

and to provide for orderly application processing and efficient service 
to applicants. State supplements shall not contain any requirements 
pertaining to bids, contract awards, and materials more restrictive than 
those in Sec. 1942.18 of this subpart.
    (b) State guides. State Directors may develop guides for use by 
applicants if the guides to this subpart are not adequate. State 
Directors may prepare guides for items needed for the application; items 
necessary for the docket; and items required prior to loan closing or 
start of construction.



Sec. 1942.17  Community facilities.

    (a) General. This section includes information and procedures 
specifically designed for use by applicants, including their 
professional consultants and/or agents who provide such assistance and 
services as architectural, engineering, financial, legal, or other 
services related to application processing and facility planning and 
development. This section is made available as needed for such use. It 
includes FmHA or its successor agency under Public Law 103-354 policies 
and requirements pertaining to loans for community facilities. It 
provides applicants with guidance for use in proceeding with their 
application. FmHA or its successor agency under Public Law 103-354 shall 
cooperate fully with appropriate State agencies to give maximum support 
of the State's strategies for development of rural areas.
    (b) Eligibility. Financial assistance to areas or communities 
adjacent to, or closely associated with, nonrural areas is limited by 
Sec. 1942.17(c) of this subpart.
    (1) Applicant. (i) A public body, such as a municipality, county, 
district, authority, or other political subdivision of a state.
    (A) Loans for water or waste disposal facilities will not be made to 
a city or town with a population in excess of 10,000 inhabitants, 
according to the latest decennial Census of the United States.
    (B) Loans for essential community facilities will not be made to a 
city or town with a population in excess of 20,000 inhabitants according 
to the latest decennial Census of the United States.
    (ii) An organization operated on a not-for-profit basis, such as an 
association, cooperative, and private corporation. Applicants organized 
under the general profit corporation laws may be eligible if they 
actually will be operated on a not-for-profit basis under their charter, 
bylaws, mortgage, or supplemental agreement provisions as may be 
required as a condition of loan approval. Essential community facility 
applicants other than utility-type must have significant ties with the 
local rural community. Such ties are necessary to ensure to the greatest 
extent possible that a facility under private control will carry out a 
public purpose and continue to primarily serve rural areas. Ties may be 
evidenced by items such as:
    (A) Association with or controlled by a local public body or bodies, 
or broadly based ownership and controlled by members of the community.
    (B) Substantial public funding through taxes, revenue bonds, or 
other local Government sources, and/or substantial voluntary community 
funding, such as would be obtained through a community-wide funding 
campaign.
    (iii) Indian tribes on Federal and State reservations and other 
Federally recognized Indian tribes.
    (2) Facility. (i) Facilities must be located in rural areas, except 
for utility-type services such as water, sewer, natural gas, or 
hydroelectric, serving both rural and non-rural areas. In such cases, 
FmHA or its successor agency under Public Law 103-354 funds may be used 
to finance only that portion serving rural areas, regardless of facility 
location.
    (ii) Essential community facilities must primarily serve rural 
areas.
    (iii) For water or waste disposal facilities, the terms rural and 
rural area will not include any area in any city or town with a 
population in excess of 10,000 inhabitants, according to the latest 
decennial Census of the United States.
    (iv) For essential community facilities, the terms rural and rural 
area will not include any area in any city or town with a population in 
excess of 20,000 inhabitants, according to the latest decennial Census 
of the United States.

[[Page 156]]

    (3) Credit elsewhere. Applicants must certify in writing and FmHA or 
its successor agency under Public Law 103-354 shall determine and 
document that the applicant is unable to finance the proposed project 
from their own resources or through commercial credit at reasonable 
rates and terms.
    (4) Legal authority and responsibility. Each applicant must have or 
will obtain the legal authority necessary for constructing, operating, 
and maintaining the proposed facility or service and for obtaining, 
giving security for, and repaying the proposed loan. The applicant shall 
be responsible for operating, maintaining, and managing the facility, 
and providing for its continued availability and use at reasonable rates 
and terms. This responsibility shall be exercised by the applicant even 
though the facility may be operated, maintained, or managed by a third 
party under contract, management agreement, or written lease. Leases may 
be used when this is the only feasible way to provide the service and is 
the customary practice. Management agreements should provide for at 
least those items listed in guide 24 of this subpart (available in any 
FmHA or its successor agency under Public Law 103-354 office). Such 
contracts, management agreements, or leases must not contain options or 
other provisions for transfer of ownership.
    (5) Refinancing FmHA or its successor agency under Public Law 103-
354 debt. FmHA or its successor agency under Public Law 103-354 shall 
require an agreement that if at any time it shall appear to the 
Government that the borrower is able to refinance the amount of the 
indebtedness then outstanding, in whole or in part, by obtaining a loan 
for such purposes from responsible cooperative or private credit 
sources, at reasonable rates and terms for loans for similar purposes 
and periods of time, the borrower will, upon request of the Government, 
apply for and accept such loan in sufficient amount to repay the 
Government and will take all such actions as may be required in 
connection with such loan.
    (6) Expanded eligibility for timber-dependent communities in Pacific 
Northwest. In the Pacific Northwest, defined as an area containing 
national forest covered by the Federal document entitled, ``Forest Plan 
for a Sustainable Economy and a Sustainable Environment,'' dated July 1, 
1993; the population limits contained Sec. 1942.17(b) are expanded to 
include communities with not more than 25,000 inhabitants until 
September 30, 1998, if:
    (i) Part or all of the community lies within 100 miles of the 
boundary of a national forest covered by the Federal document entitled, 
``Forest Plan for a Sustainable Economy and a Sustainable Environment,'' 
dated July 1, 1993; and
    (ii) The community is located in a county in which at least 15 
percent of the total primary and secondary labor and proprietor income 
is derived from forestry, wood products, or forest-related industries 
such as recreation and tourism.
    (c) Priorities--(1) Truly rural areas. FmHA or its successor agency 
under Public Law 103-354 program assistance will be directed toward 
truly rural areas and rural communities. Normally, priority will not be 
given to preapplications for projects that will serve other than truly 
rural areas. Truly rural areas are areas other than densely settled 
areas or communities adjacent to, or closely associated with, a city or 
town with a population exceeding 10,000 residents for water or waste 
disposal assistance, or 20,000 residents for essential community 
facility assistance. When determining whether a rural area or rural 
community is adjacent to, or closely associated with, a city or town 
with a population exceeding 10,000 residents for water and waste 
disposal, or 20,000 residents for essential community facility 
assistance, minor open spaces such as those created by physical or legal 
barriers, commercial or industrial development, parks, areas reserved 
for convenience or appearance, or narrow strips of cultivated land, will 
be disregarded. An area or community shall be considered adjacent to or 
closely related with a nonrural area when it constitutes for general, 
social, and economic purposes a single community having a contiguous 
boundary.
    (2) Project selection process. The following paragraphs indicate 
items and conditions which must be considered in

[[Page 157]]

selecting preapplications for further development. When ranking eligible 
preapplications for consideration for limited funds, FmHA or its 
successor agency under Public Law 103-354 officials must consider the 
priority items met by each preapplication and the degree to which those 
priorities are met, and apply good judgement.
    (i) Preapplications. The preapplication and supporting information 
submitted with it will be used to determine the proposed project's 
priority for available funds.
    (ii) State Office review. All preapplications will be reviewed and 
scored and Form AD-622, ``Notice of Preapplication Review Action,'' 
issued within the time limits in Sec. 1942.2(a)(2)(iv) of this subpart. 
When considering authorizing the development of an application for 
funding, the State Director should consider the remaining funds in the 
State allocation, and the anticipated allocation of funds for the next 
fiscal year as well as the amount of time necessary to complete that 
application. Applicants whose preapplications are found to be ineligible 
will be so advised. These applicants will be given adverse notice 
through Form AD-622 and advised of their appeal rights under subpart B 
of part 1900 of this chapter. Those applicants with eligible lower 
scoring preapplications which obviously cannot be funded within an 
eighteen month period of time, and are not within 150 percent of the 
State's allocation, should be notified that funds are not available; and 
requested to advise whether they wish to have their preapplication 
maintained in an active file for future consideration. The State 
Director may request an additional allocation of funds from the National 
Office for such preapplications. Such requests will be considered along 
with all others on hand.
    (iii) Selection priorities. The priorities described below will be 
used by the State Director to rate preapplications. The priorities 
should be applied to water and waste disposal or community facilities 
preapplications as directed. The format found in part I of guide 26 of 
this subpart should be followed in scoring each preapplication. A copy 
of the score sheet should be placed in the case file for future 
reference.
    (A) Population priorities. The following priorities apply to both 
Water and Waste Disposal and Community Facilities preapplications. 
Points will be distributed as indicated.
    (1) The proposed project is located in a rural community having a 
population not in excess of 2,500--25 points.
    (2) The proposed project is located in a rural community having a 
population not in excess of 5,500--20 points. (Points under this 
priority should not be assigned to a preapplication if points were 
assigned under paragraph (c)(2)(iii) (A)(1) of this section.)
    (B) Health priorities. Points will be distributed as indicated.
    (1) Water and Waste Disposal preapplications only. The proposed 
project is:
    (i) Needed to alleviate the sudden unexpected diminution or 
deterioration of a water supply, or to meet health or sanitary standards 
which pertain to a community's water supply--25 points.
    (ii) Required to correct an inadequate waste disposal system due to 
unexpected occurrences, or to meet health or sanitary standards which 
pertain to a community's waste disposal system--25 points.
    (2) Community Facility preapplication only. The proposed project is 
required either to correct a health or sanitary problem, or to meet a 
health or sanitary standard--25 points.
    (C) Income priorities. The following priorities apply to both Water 
and Waste Disposal and Community Facilities preapplications. Points will 
be distributed as indicated. The median income of the population to be 
served by the proposed facility is:
    (1) Less than the poverty line for a family of four, as defined in 
Section 673(2) of the Community Services Block Grant Act (42 U.S.C. 
9902(2)), or less than 80 percent of the statewide nonmetropolitan 
median household income--25 points.
    (2) Equal to or more than the poverty line and between 80% and 100%, 
inclusive, of the State's nonmetropolitan median household income--20 
points.
    (D) Other factors. Points will be distributed as indicated.

[[Page 158]]

    (1) Water and Waste Disposal preapplications only. The proposed 
project will: merge ownership, management, and operation of smaller 
facilities providing for more efficient management and economical 
service; and/or enlarge, extend, or otherwise modify existing facilities 
to provide service to additional rural residents--10 points.
    (2) Community Facilities preapplications only. The purpose of the 
proposed project is to construct, enlarge, extend or otherwise improve 
the following types of facilities. (Select only the factor most 
applicable to the proposed project.)
    (i) Public safety--10 points. (Examples include police services and 
fire, rescue and ambulance services as authorized by subpart C of this 
part 1942.)
    (ii) Health care--5 points. (Examples include clinics, nursing 
homes, convalescent facilities, and hospital projects designed to make 
the facility conform with life/safety codes, medicare and medicaid 
requirements, and minor expansions needed to meet the immediate 
requirements of the community. Points under this authority should not be 
awarded to a preapplication if points were awarded under Sec. 
1942.17(c)(2)(iii)(B)(2) of this subpart.)
    (3) Water and Waste Disposal and Community Facilities 
preapplications.
    (i) Applicant is a public body or Indian tribe--5 points.
    (ii) Project is located in a ``truly rural area'' as described in 
Sec. 1942.17(c)(1) of this subpart--10 points.
    (iii) Amount of joint financing committed to the project is:
    (a) 20% or more private, local or state funds except federal funds 
channeled through a state agency--10 points.
    (b) 5%-19% private, local or state funds except federal funds 
channeled through a state agency--5 points.
    (E) In certain cases the State Director may assign up to 15 points 
to a preapplication, in addition to those that may be scored under 
paragraphs (c)(2)(iii) (A) through (D), of this section. These points 
are primarily intended to address an unforeseen exigency or emergency, 
such as the loss of a community facility due to accident or natural 
disaster or the loss of joint financing if FmHA or its successor agency 
under Public Law 103-354 funds are not committed in a timely fashion. 
However, the points may also be awarded to projects in order to improve 
compatibility/coordination between FmHA or its successor agency under 
Public Law 103-354's and other agencies' selection systems and to assist 
those projects that are the most cost effective. A written justification 
must be prepared and placed in the project file each time the State 
Director assigns these points.
    (iv) Results of State Office review. After completing the review, 
the State Director will normally select the eligible preapplications 
with the highest scores for further processing. In cases where 
preliminary cost estimates indicate that an eligible, high scoring 
preapplication is unfeasible or would require an amount of funding from 
FmHA or its successor agency under Public Law 103-354 that exceeds 
either 25 percent of a State's current annual allocation or an amount 
greater than that remaining in the State's allocation, the State 
Director may instead select the next lower scoring preapplication(s) for 
futher processing provided the high scoring applicant is notified of 
this action and given an opportunity to revise the proposal and resubmit 
it. If it is found that there is no effective way to reduce costs, the 
State Director, after consultation with applicant, may submit a request 
for an additional allocation of funds for the proposed project to the 
National Office. The request should be submitted during the fiscal year 
in which obligation is anticipated. Such request will be considered 
along with all others on hand. A written justification must be prepared 
and placed in the project file when an eligible preapplication with a 
higher rating is not selected for further processing. The State Director 
will notify the District Director of the results of the review action. 
The State Director will return the preapplication information with an 
authorization for the District Director to prepare and issue Form AD-622 
in accordance with Sec. 1942.2(a)(2)(iv) of this subpart. Priority will 
be given to those preapplications and applications for funding which 
meet criteria in

[[Page 159]]

Sec. 1942.17(c)(2)(iii)(A) (1) or (2); and the criteria in Sec. 
1942.17(c) (2)(iii)(B)(1) (i) or (ii) or (B)(2) of this subpart.
    (v) Application development. Applications should be developed 
expeditiously following good management practices. Applications that are 
not developed in a reasonable period of time taking into account the 
size and complexity of the proposed project may be removed from the 
State's active file. Applicants will be consulted prior to taking such 
action.
    (vi) Project obligations. To ensure efficient use of resources, 
obligations should occur in a timely fashion throughout the fiscal year. 
Projects may be obligated as their applications are completed and 
approved.
    (vii) Requests for additional funding. All requests for additional 
allocations of funds submitted to the National Office must follow the 
formats found in parts I and II of guide 26. In selecting projects for 
funding at the National Office level, additional points may be scored 
based on the priority assigned to the project by the State Office. These 
points will be scored in the manner shown below. Only the three highest 
priority projects can score points. In addition, the Administrator may 
assign up to 15 additional points to account for items such as 
geographic distribution of funds and emergency conditions caused by 
economic problems or natural disasters.

------------------------------------------------------------------------
                        Priority                              Points
------------------------------------------------------------------------
1.......................................................               5
2.......................................................               3
3.......................................................               1
------------------------------------------------------------------------

    (viii) Cost overruns. A preapplication may receive consideration for 
funding before others at the State Office level or at the National 
Office level, if funds are not available in the State Office, when it is 
a subsequent request for a previously approved project which has 
encountered cost overruns due to high bids or unexpected construction 
problems that cannot be reduced by negotiations, redesign, use of bid 
alternatives, rebidding or other means.
    (d) Eligible loan purposes. (1) Funds may be used:
    (i) To construct, enlarge, extend, or otherwise improve water or 
waste disposal and other essential community facilities providing 
essential service primarily to rural residents and rural businesses. 
Rural businesses would include facilities such as educational and other 
publicly owned facilities.
    (A) Water or waste disposal facilities include water, sanitary 
sewerage, solid waste disposal, and storm waste-water facilities.
    (B) Essential community facilities are those public improvements 
requisite to the beneficial and orderly development of a community 
operated on a nonprofit basis including but not limited to:
    (1) Health services;
    (2) Community, social, or cultural services;
    (3) Transportation facilities, such as streets, roads, and bridges;
    (4) Hydroelectric generating facilities and related connecting 
systems and appurtenances, when not eligible for Rural Electrification 
Administration (REA) financing;
    (5) Supplemental and supporting structures for other rural 
electrification or telephone systems (including facilities such as 
headquarters and office buildings, storage facilities, and maintenance 
shops) when not eligible for Rural Electrification Administration 
financing;
    (6) Natural gas distribution systems; and
    (7) Industrial park sites, but only to the extent of land 
acquisition and necessary site preparation, including access ways and 
utility extensions to and throughout the site. Funds may not be used in 
connection with industrial parks to finance on-site utility systems, or 
business and industrial buildings.
    (C) Otherwise improve includes but is not limited to the following:
    (1) The purchase of major equipment, such as solid waste collection 
trucks and X-ray machines, which will in themselves provide an essential 
service to rural residents;
    (2) The purchase of existing facilities when it is necessary either 
to improve or to prevent loss of service;
    (3) Payment of tap fees and other utility connection charges as 
provided in utility purchase contracts prepared under Sec. 1942.18(f) 
of this subpart.

[[Page 160]]

    (ii) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary to 
the successful operation or protection of facilities authorized in 
paragraph (d)(1)(i) of this section.
    (iii) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary to the successful 
operation or protection of facilities authorized in paragraph (d)(1)(i) 
of this section.
    (iv) To pay the following expenses, but only when such expenses are 
a necessary part of a loan to finance facilities authorized in 
paragraphs (d)(1)(i), (d)(1)(ii) and (d)(1)(iii) of this section.
    (A) Reasonable fees and costs such as legal, engineering, 
architectural, fiscal advisory, recording, environmental impact 
analyses, archeological surveys and possible salvage or other mitigation 
measures, planning, establishing or acquiring rights.
    (B) Interest on loans until the facility is self-supporting, but not 
for more than three years unless a longer period is approved by the 
National Office; interest on loans secured by general obligation bonds 
until tax revenues are available for payment, but not for more than two 
years unless a longer period is approved by the National Office; and 
interest on interim financing, including interest charges on interim 
financing from sources other than FmHA or its successor agency under 
Public Law 103-354.
    (C) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, rights-of-way; and other evidence of land or 
water control necessary for development of the facility.
    (D) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (E) Initial operating expenses for a period ordinarily not exceeding 
one year when the borrower is unable to pay such expenses.
    (F) Refinancing debts incurred by, or on behalf of, a community when 
all of the following conditions exist:
    (1) The debts being refinanced are a secondary part of the total 
loan;
    (2) The debts are incurred for the facility or service being 
financed or any part thereof;
    (3) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan.
    (G) Prepay costs for which FmHA or its successor agency under Public 
Law 103-354 grant funds were obligated provided there is:
    (1) No conflict with the loan resolution, State statutes, or any 
other loan requirements; and
    (2) Full documentation showing that:
    (i) Loan funds will only be utilized on a temporary basis; and
    (ii) All FmHA or its successor agency under Public Law 103-354 loan 
funds are restored at a later date for purpose(s) for which they were 
obligated.
    (v) To pay obligations for construction incurred before loan 
approval. Construction work should not be started and obligations for 
such work or materials should not be incurred before the loan is 
approved. However, if there are compelling reasons for proceeding with 
construction before loan approval, applicants may request FmHA or its 
successor agency under Public Law 103-354 approval to pay such 
obligations. Such requests may be approved if FmHA or its successor 
agency under Public Law 103-354 determines that:
    (A) Compelling reasons exist for incurring obligations before loan 
approval; and
    (B) The obligations will be incurred for authorized loan purposes; 
and
    (C) Contract documents have been approved by FmHA or its successor 
agency under Public Law 103-354; and
    (D) All environmental requirements applicable to FmHA or its 
successor agency under Public Law 103-354 and the applicant have been 
met; and
    (E) The applicant has the legal authority to incur the obligations 
at the time proposed, and payment of the debts will remove any basis for 
any mechanic, material, or other liens that may attach to the security 
property. FmHA or its successor agency under Public Law 103-354 may 
authorize payment of such obligations at the time of loan closing. FmHA 
or its successor agency under Public Law 103-354's authorization to pay 
such obligations,

[[Page 161]]

however, is on the condition that it is not committed to make the loan; 
it assumes no responsibility for any obligations incurred by the 
applicant; and the applicant must subsequently meet all loan approval 
requirements. The applicant's request and FmHA or its successor agency 
under Public Law 103-354 authorization for paying such obligations shall 
be in writing. If construction is started without FmHA or its successor 
agency under Public Law 103-354 approval, post approval in accordance 
with this section may be considered.
    (2) Funds may not be used to finance:
    (i) On-site utility systems or business and industrial buildings in 
connection with industrial parks.
    (ii) Facilities to be used primarily for recreation purposes.
    (iii) Community antenna television services or facilities.
    (iv) Electric generation or transmission facilities or telephone 
systems, except as provided in paragraph (d)(1)(i)(B)(4), or 
(d)(1)(i)(B)(5) of this section; or extensions to serve a particular 
essential community facility as provided in paragraph (d)(1)(ii) or 
(d)(1)(iii) of this section.
    (v) Facilities which are not modest in size, design, and cost.
    (vi) Loan or grant finder's fees.
    (vii) Projects located within the Coastal Barriers Resource System 
that do not qualify for an exception as defined in section 6 of the 
Coastal Barriers Resource Act, Pub. L. 97-348.
    (viii) New combined sanitary and storm water sewer facilities.
    (ix) That portion of a water and/or waste disposal facility normally 
provided by a business or industrial user.
    (e) Facilities for public use. All facilities financed under the 
provisions of this subpart shall be for public use.
    (1) Utility-type service facilities will be installed so as to serve 
any user within the service area who desires service and can be feasibly 
and legally served. Applicants and borrowers must obtain written 
concurrence of the FmHA or its successor agency under Public Law 103-354 
prior to refusing service to such user. Upon failure to provide service 
which is reasonable and legal, such user shall have direct right of 
action against the applicant/borrower. A notice of the availability of 
this service should be given by the applicant/borrower to all persons 
living within the area who can feasibly and legally be served by the 
phase of the project being financed.
    (i) If a mandatory hookup ordinance will be adopted, the required 
bond ordinance or resolution advertisement will be considered adequate 
notification.
    (ii) When any portion of the income will be derived from user fees 
and a mandatory hookup ordinance will not be adopted, each potent user 
will be afforded an opportunity to request service by signing a Users 
Agreement.


Those declining service will be afforded an opportunity to sign a 
statement to such effect. FmHA or its successor agency under Public Law 
103-354 has guides available for these purposes in all FmHA or its 
successor agency under Public Law 103-354 offices.
    (2) In no case will boundaries for the proposed service area be 
chosen in such a way that any user or area will be excluded because of 
race, color, religion, sex, marital status, age, handicap, or national 
origin.
    (3) This does not preclude:
    (i) Financing or constructing projects in phases when it is not 
practical to finance or construct the entire project at one time; and
    (ii) Financing or constructing facilities where it is not 
economically feasible to serve the entire area, provided economic 
feasibility is determined on the basis of the entire system and not by 
considering the cost of separate extensions to or parts thereof; the 
applicant publicly announces a plan for extending service to areas not 
initially receiving service from the system; and potential users located 
in the areas not to be initially served receive written notice from the 
applicant that service will not be provided until such time as it is 
economically feasible to do so, and
    (iii) Extending services to industrial areas when service is made 
available to users located along the extensions.
    (4) The State Director will determine that, when feasibly and 
legally possible, inequities within the proposed project's service area 
for the same type service proposed (i.e., water or waste disposal) will 
be remedied by the owner on or before completion of the project

[[Page 162]]

that includes FmHA or its successor agency under Public Law 103-354 
funding. Inequities are defined as flagrant variations in availability, 
adequacy or quality of service. User rate schedules for portions of 
existing systems that were developed under different financing, rates, 
terms or conditions, as determined by the State Director, do not 
necessarily constitute inequities.
    (5) Before a loan is made to an applicant other than a public body, 
for other than utility type projects, the articles of incorporation or 
loan agreement will include a condition similar to the following:

    In the event of dissolution of this corporation, or in the event it 
shall cease to carry out the objectives and purposes herein set forth, 
all business, property, and assets of the corporation shall go and be 
distributed to one or more nonprofit corporations or public bodies as 
may be selected by the board of directors of this corporation and 
approved by at least 75 percent of the users or members to be used for, 
and devoted to, the purpose of a community facility project or other 
purpose to serve the public welfare of the community. In no event shall 
any of the assets or property, in the event of dissolution thereof, go 
or be distributed to members, directors, stockholders, or others having 
financial or managerial interest in the corporation either for the 
reimbursement of any sum subscribed, donated or contributed by such 
members or for any other purposes, provided that nothing herein shall 
prohibit the corporation from paying its just debts.

    (f) Rates and terms--(1) General. Each loan will bear interest at 
the rate prescribed in RD Instruction 440.1, exhibit B (available in any 
Rural Development office). The interest rates will be set by Rural 
Development at least for each quarter of the fiscal year. All rates will 
be adjusted to the nearest one-eighth of 1 percent. The applicant may 
submit a written request prior to loan closing that the interest rate 
charged on the loan be the lower of the rate in effect at the time of 
loan approval or the rate in effect at the time of loan closing. If the 
interest rate is to be that in effect at loan closing, the interest rate 
charged on a loan involving multiple advances of Rural Development 
funds, using temporary debt instruments, shall be that in effect on the 
date when the first temporary debt instrument is issued. If no written 
request is received from the applicant prior to loan closing, the 
interest rate charged on the loan will be the rate in effect at the time 
of loan approval.
    (2) Poverty line rate. The poverty line interest rate will not 
exceed 5 per centum per annum. The provisions of paragraph (f)(2)(i) of 
this section do not apply to health care and related facilities that 
provide direct health care to the public. Otherwise, all loans must 
comply with the following conditions:
    (i) The primary purpose of the loan is to upgrade existing 
facilities or construct new facilities required to meet applicable 
health or sanitary standards. Documentation will be obtained from the 
appropriate regulatory agency with jurisdiction to establish the 
standard, to verify that a bonafide standard exists, what that standard 
is, and that the proposed improvements are needed and required to meet 
the standard; and
    (ii) The median household income of the service area is below the 
poverty line for a family of four, as defined in section 673(2) of the 
Community Services Block Grant Act (42 U.S.C. 9902(2)), or below 80 
percent of the Statewide nonmetropolitan median household income.
    (3) Intermediate rate. The intermediate interest rate will be set at 
the poverty line rate plus one-half of the difference between the 
poverty line rate and the market rate, not to exceed 7 percent per 
annum. It will apply to loans that do not meet the requirements for the 
poverty line rate and for which the median household income of the 
service area is below the poverty line or not more than 100 percent of 
the nonmetropolitan median household income of the State.
    (4) Market rate. The market interest rate will be set using as 
guidance the average of the Bond Buyer Index for the four weeks prior to 
the first Friday of the last month before the beginning of the quarter. 
The market rate will apply to all loans that do not qualify for a 
different rate under paragraph (f)(2) or (f)(3) of this section. It may 
be adjusted as provided in paragraph (f)(5) of this section.
    (5) Prime farmland. For essential community facilities loans, the 
rate indicated by paragraphs (f)(2), (f)(3) or (f)(4) of this section 
will be increased by two

[[Page 163]]

per centum per annum if the project being financed will involve the use 
of, or construction on, prime or unique farmland in accordance with FmHA 
Instruction 440.1, exhibits B and J (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    (6) Income determination. The income data used to determine median 
household income should be that which most accurately reflects the 
income of the service area. The service area is that area reasonably 
expected to be served by the facility being financed by FmHA or its 
successor agency under Public Law 103-354. The median household income 
of the service area and the nonmetropolitan median household income of 
the State will be determined from income data from the most recent 
decennial census of the U.S. If there is reason to believe that the 
census data is not an accurate representation of the median household 
income within the area to be served, the reasons will be documented and 
the applicant may furnish, or FmHA or its successor agency under Public 
Law 103-354 may obtain, additional information regarding such median 
household income. Information will consist of reliable data from local, 
regional, State or Federal sources or from a survey conducted by a 
reliable impartial source. The nonmetropolitan median household income 
of the State may only be updated on a national basis by the FmHA or its 
successor agency under Public Law 103-354 National Office. This will be 
done only when median household income data for the same year for all 
Bureau of the Census areas is available from the Bureau of the Census or 
other reliable sources. Bureau of the Census areas would include areas 
such as: Counties, County Subdivisions, Cities, Towns, Townships, 
Boroughs, and other places.
    (7) Repayment terms. The loan repayment period shall not exceed the 
useful life of the facility, State statute or 40 years from the date of 
the note(s) or bond(s), whichever is less. Where FmHA or its successor 
agency under Public Law 103-354 grant funds are used in connection with 
an FmHA or its successor agency under Public Law 103-354 loan, the loan 
will be for the maximum term permitted by this subpart, State statute, 
or the useful life of the facility, whichever is less, unless there is 
an exceptional case where circumstances justify making an FmHA or its 
successor agency under Public Law 103-354 loan for less than the maximum 
term permitted. In such cases, the reasons must be fully documented. In 
all cases, including those in which the FmHA or its successor agency 
under Public Law 103-354 is jointly financing with another lender, the 
FmHA or its successor agency under Public Law 103-354 payments of 
principal and interest should approximate amortized installments.
    (i) Principal payments may be deferred in whole or in part for a 
period not to exceed 36 months following the date the first interest 
installment is due. If for any reason it appears necessary to permit a 
longer period of deferment, the State Director may authorize such 
deferment with the prior approval of the National Office. Deferments of 
principal will not be used to:
    (A) Postpone the levying of taxes or assessments.
    (B) Delay collection of the full rates which the borrower has agreed 
to charge users for its services as soon as major benefits or the 
improvements are available to those users.
    (C) Create reserves for normal operation and maintenance.
    (D) Make any capital improvements except those approved by FmHA or 
its successor agency under Public Law 103-354 determined to be essential 
to the repayment of the loan or to the obtaining of adequate security 
thereof.
    (E) Accelerate the payment of other debts.
    (ii) Payment date. Loan payments will be scheduled to coincide with 
income availability and be in accordance with State law. If consistent 
with the foregoing, monthly payments will be required and will be 
enumerated in the bond, other evidence of indebtedness, or other 
supplemental agreement. However, if State law only permits principal 
plus interest (P&I) type bonds, annual or semiannual payments will be 
used. Insofar as practical monthly payments will be scheduled one full 
month following the date of loan closing; or semiannual or annual 
payments will be

[[Page 164]]

scheduled six or twelve full months, respectively, following the date of 
loan closing or any deferment period. Due dates falling on the 29th, 
30th or 31st day of the month will be avoided.
    (g) Security. Loans will be secured by the best security position 
practicable in a manner which will adequately protect the interest of 
FmHA or its successor agency under Public Law 103-354 during the 
repayment period of the loan. Specific requirements for security for 
each loan will be included in a letter of conditions.
    (1) Joint financing security. For projects utilizing joint 
financing, when adequate security of more than one type is available, 
the other lender may take one type of security with FmHA or its 
successor agency under Public Law 103-354 taking another type. For 
projects utilizing joint financing with the same security to be shared 
by FmHA or its successor agency under Public Law 103-354 and another 
lender, FmHA or its successor agency under Public Law 103-354 will 
obtain at least a parity position with the other lender. A parity 
position is to ensure that with joint security, in the event of default, 
each lender will be affected on a proportionate basis. A parity position 
will conform with the following unless an exception is granted by the 
National Office:
    (i) Terms. It is not necessary for loans to have the same repayment 
terms to meet the parity requirements. Loans made by other lenders 
involved in joint financing with FmHA or its successor agency under 
Public Law 103-354 for facilities should be scheduled for repayment on 
terms similar to those customarily used in the State for financing such 
facilities.
    (ii) Use of trustee or other similar paying agent. The use of a 
trustee or other similar paying agent by the other lender in a joint 
financing arrangement is acceptable to FmHA or its successor agency 
under Public Law 103-354. A trustee or other similar paying agent will 
not normally be used for the FmHA or its successor agency under Public 
Law 103-354 portion of the funding unless required to comply with State 
law. The responsibilities and authorities of any trustee or other 
similar paying agent on projects that include FmHA or its successor 
agency under Public Law 103-354 funds must be clearly specified by 
written agreement and approved by the FmHA or its successor agency under 
Public Law 103-354 State Director and Regional Attorney. FmHA or its 
successor agency under Public Law 103-354 must be able to deal directly 
with the borrower to enforce the provisions of loan and grant agreements 
and perform necessary servicing actions.
    (iii) Regular payments. In the event adequate funds are not 
available to meet regular installments on parity loans, the funds 
available will be apportioned to the lenders based on the respective 
current installments of principal and interest due.
    (iv) Disposition of Property. Funds obtained from the sale or 
liquidation of secured property or fixed assets will be apportioned to 
the lenders on the basis of the pro rata amount loaned, but not to 
exceed their respective outstanding balances; provided, however, funds 
obtained from such sale or liquidation for a project that included FmHA 
or its successor agency under Public Law 103-354 grant funds will be 
apportioned as may be required by the grant agreement.
    (v) Protective advances. Protective advances are payments made by a 
lender for items such as insurance or taxes, to protect the financial 
interest of the lender, and charged to the borrower's loan account. To 
the extent consistent with State law and customary lending practices in 
the area, repayment of protective advances made by either lender, for 
the mutual protection of both lenders, should receive first priority in 
apportionment of funds between the lenders. To ensure agreement between 
lenders, efforts should be made to obtain the concurrence of both 
lenders before one lender makes a protective advance.
    (2) Public bodies. Loans to such borrowers will be evidenced by 
notes, bonds, warrants, or other contractual obligations as may be 
authorized by relevant State statutes and by borrower's documents, 
resolutions, and ordinances.
    (i) Utility-type facilities such as water and sewer systems, natural 
gas

[[Page 165]]

distribution systems, electric systems, etc., will be secured by:
    (A) The full faith and credit of the borrower when the debt is 
evidenced by general obligation bonds; and/or
    (B) Pledges of taxes or assessments; and/or
    (C) Pledges of facility revenue and, when it is the customary 
financial practice in the State, liens will be taken on the interest of 
the applicant in all land, easements, rights-of-way, water rights, water 
purchase contracts, water sales contracts, sewage treatment contracts, 
and similar property rights, including leasehold interest, used or to be 
used in connection with the facility whether owned at the time the loan 
is approved or acquired with loan funds; and/or
    (D) In those cases involving water and waste disposal projects where 
there is a substantial number of other than full-time users and facility 
costs result in a higher than reasonable rate for such full-time users, 
the loan will be secured by the full faith and credit of the borrower or 
by an assignment or pledge of taxes or assessments from public bodies or 
other organizations having the authority to issue bonds or pledge such 
taxes or assessments.
    (ii) Solid waste systems. The type of security required will be 
based on State law and what is determined adequate to protect the 
interest of the United States during the repayment period of the loan.
    (iii) Other essential community facilities other than utility type, 
such as those for public health and safety, social, and cultural needs 
and the like will meet the following security requirements:
    (A) Such loans will be secured by one or a combination of the 
following and in the following order of preference:
    (1) General obligation bonds.
    (2) Assessments.
    (3) Bonds which pledge other taxes.
    (4) Bonds pledging revenues of the facility being financed when such 
bonds provide for the mandatory levy and collection of taxes in the 
event revenues later become insufficient to properly operate and 
maintain the facility and to retire the loan.
    (5) Assignment of assured income which will be available for the 
life of the loan, from such sources as insurance premium rebates, income 
from endowments, irrevocable trusts, or commitments from industries, 
public bodies, or other reliable sources.
    (6) Liens on real and chattel property when legally permissible and 
an assignment of the borrowers income from applicants who have been in 
existence and are able to present evidence of a financially successful 
operation of a similar facility for a period of time sufficient to 
indicate project success. National Office concurrence is required when 
the applicant has been in existence for less than five years or has not 
operated on a financially successful basis for five years immediately 
prior to loan application.
    (7) Liens on real and chattel property when legally permissible and 
an assignment of income from an organization receiving Health and Human 
Services (HHS) operating grants under the ``Memorandum of Understanding 
Between Health Resources and Services Administration, U.S. Department of 
Health and Human Services and Farmers Home Administration or its 
successor agency under Public Law 103-354, U.S. Department of 
Agriculture'' (see FmHA Instruction 2000-T, available in any FmHA or its 
successor agency under Public Law 103-354 office.)
    (8) Liens on real and chattel property when legally permissible and 
an assignment of income from an organization proposing a facility whose 
users receive reliable income from programs such as social security, 
supplemental security income (SSI), retirement plans, long-term 
insurance annuities, medicare or medicaid. Examples are homes for the 
handicapped or institutions whose clientele receive State or local 
government assistance.
    (9) When the applicant cannot meet the criteria in paragraph 
(g)(2)(iii)(A) (1) through (8) of this section, such proposals may be 
considered when all the following are met:
    (i) The applicant is a new organization or one that has not operated 
the type of facility being proposed.
    (ii) There is a demonstration of exceptional community support such 
as substantial financial contributions, and aggressive leadership in the 
formation of the organization and proposed

[[Page 166]]

project which indicates a commitment of the entire community.
    (iii) The State Director has determined that adequate and dependable 
revenues will be available to meet all operation expenses, debt 
repayment, and the required reserve.
    (iv) Prior National Office review and concurrence is obtained.
    (B) Real estate and chattel property taken as security in accordance 
with paragraphs (g)(2)(iii)(A) (6) through (9) of this section:
    (1) Ordinarily will include the property that is used in connection 
with the facility being financed; and
    (2) Will have an as-developed present market value determined by a 
qualified appraiser equal to or exceeding the amount of the loan to be 
obtained plus any other indebtedness against the proposed security; and
    (3) May have one of the lien requirements deleted when the loan 
approval official determines that the loan will be adequately secured 
with a lien on either the real estate or chattel property.
    (C) When security is not available in accordance with paragraphs 
(g)(2)(iii)(A) (1) through (5) of this section and State law precludes 
securing the loan with liens on real or chattel property, the loan will 
be secured in the best manner consistent with State law and customary 
security taken by private lenders in the State, such as revenue bonds, 
and any other security the loan approval official determines necessary 
for a sound loan. Such loans will otherwise meet the requirements of 
(g)(2)(iii)(A) (6) through (9) of this section as appropriate.
    (3) Other-than-public bodies. Loans to other-than-public body 
applicants will be secured as follows:
    (i) Utility-type facilities eligible for FmHA or its successor 
agency under Public Law 103-354 assistance under paragraph (d) of this 
section such as water and sewer systems, natural gas distribution 
systems, electric systems, etc., will be secured as follows:
    (A) Assignments of borrower income will be taken and perfected by 
filing, if legally permissable; and
    (B) A lien will be taken on the interest of the applicant in all 
land, easements, rights-of-way, water rights, water purchase contracts, 
water sales contracts, sewage treatment contracts and similar property 
rights, including leasehold interest, used, or to be used in connection 
with the facility whether owned at the time the loan is approved or 
acquired with loan funds. In unusual circumstances where it is not 
feasible to obtain a lien on such land (such as land rights obtained 
from Federal or local government agencies, and from railroads) and the 
loan approval official determines that the interest of FmHA or its 
successor agency under Public Law 103-354 otherwise is secured 
adequately, the lien requirement may be omitted as to such land rights.
    (C) When the loan is approved or the acquisition of real property is 
subject to an outstanding lien indebtedness, the next highest priority 
lien obtainable will be taken if the loan approval official determines 
that the loan is adequately secured.
    (D) Other security. Promissory notes from individuals, stock or 
membership subscription agreements, individuals member's liability 
agreements, or other evidences of debt, as well as mortgages or other 
security instruments encumbering the private property of members of the 
association may be pledged or assigned to FmHA or its successor agency 
under Public Law 103-354 as additional security in any case in which the 
interest of FmHA or its successor agency under Public Law 103-354 will 
not be otherwise adequately protected.
    (E) In those cases where there is a substantial number of other than 
full-time users and facility costs result in a higher than reasonable 
rate for such full-time users, the loan will be secured by an assignment 
or pledge of general obligation bonds, taxes, or assessments from public 
bodies or other organizations having the authority to issue bonds or 
pledge such taxes, or assessments.
    (ii) Solid waste systems. The type of security required will be 
based on State law and what is determined adequate to protect the 
interest of the United States during the repayment period of the loan.
    (iii) Essential community facilities other than utility type such as 
those for public health and safety, social, and

[[Page 167]]

cultural needs and the like will meet the following security 
requirements:
    (A) Such loans will be secured by one or a combination of the 
following and in the following order of preference:
    (1) An assignment of assured income that will be available for the 
life of the loan, from sources such as insurance premium rebates, income 
from endowments, irrevocable trusts, or commitments from industries, 
public bodies, or other reliable sources.
    (2) Liens on real and chattel property with an assignment of income 
from applicants who have been in existence and are able to present 
evidence of a financially successful operation of a similar facility for 
a period of time sufficient to indicate project success. National Office 
concurrence is required when the applicant has been in existence for 
less than five years or has not operated on a financially successful 
basis for at least the five years immediately prior to loan application.
    (3) Liens on real and chattel property and an assignment of income 
from an organization receiving HHS operating grants under the 
``Memorandum of Understanding Between Health Resources and Services 
Administration, U.S. Department of Health and Human Services and Farmers 
Home Administration or its successor agency under Public Law 103-354, 
U.S. Department of Agriculture'' (see FmHA Instruction 2000-T, available 
in any FmHA or its successor agency under Public Law 103-354 office).
    (4) Liens on real and chattel property when legally permissible and 
an assignment of income from an organization proposing a facility whose 
users receive reliable income from programs such as social security, 
supplemental security income (SSI), retirement plans, long-term 
insurance annuities, medicare or medicaid. Examples are homes for the 
handicapped or institutions whose clientele receive State or local 
government assistance.
    (5) When the applicant cannot meet the criteria in paragraphs 
(g)(3)(iii)(A) (1) through (4) of this section, such proposals may be 
considered when all the following are met:
    (i) The applicant is a new organization or one that has not operated 
the type of facility being proposed.
    (ii) There is a demonstration of exceptional community support such 
as substantial financial contributions, and aggressive leadership in the 
formation of the organization and proposed project which indicates a 
commitment of the entire community.
    (iii) The State Director has determined that adequate and dependable 
revenues will be available to meet all operation expenses, debt 
repayment, and the required reserve.
    (iv) Prior National Office review and concurrence is obtained.
    (6) Additional security may be taken as determined necessary by the 
loan approval official.
    (B) Real estate and chattel property taken as security:
    (1) Ordinarily will include the property that is used in connection 
with the facility being financed; and
    (2) Will have an as-developed present market value determined by a 
qualified appraiser equal to or exceeding the amount of the loan to be 
obtained plus any other indebtedness against the proposed security; and
    (3) May have one of the lien requirements deleted when the loan 
approval official determines that the loan will be adequately secured 
with a lien on either the real estate or the chattel property.
    (h) Economic feasibility requirements. All projects financed under 
the provisions of this section must be based on taxes, assessments, 
revenues, fees, or other satisfactory sources of revenues in an amount 
sufficient to provide for facility operation and maintenance, a 
reasonable reserve, and debt payment. An overall review of the 
applicant's financial status, including a review of all assets and 
liabilities, will be a part of the docket review process by the FmHA or 
its successor agency under Public Law 103-354 staff and approval 
official. If the primary use of the facility is by business and the 
success or failure of the facility is dependent on the business, then 
the economic viability of that business must be assessed. The number of 
users for a rural business will be based on equivalent dwelling units, 
which is the level of service provided to a typical rural residential 
dwelling.

[[Page 168]]

    (1) Financial feasibility reports. All applicants will be expected 
to provide a financial feasibility report prepared by a qualified firm 
or individual. These financial feasibility reports will normally be:
    (i) Included as part of the preliminary engineer/architectural 
report using guides 6 through 10 as applicable; or
    (ii) Prepared by a qualified firm or individual not having a direct 
interest in the management or construction of the facility using guide 5 
when:
    (A) The project will significantly affect the applicant's financial 
operations and is not a utility-type facility but is dependent on 
revenues from the facility to repay the loan; or
    (B) It is specifically requested by FmHA or its successor agency 
under Public Law 103-354.
    (2) Applicants for loans for utility-type facilities dependent on 
users fees for debt payment shall base their income and expense forecast 
on realistic user estimates in accordance with the following:
    (i) In estimating the number of users and establishing rates or fees 
on which the loan will be based for new systems and for extensions or 
improvements to existing systems, consideration should be given to the 
following:
    (A) An estimated number of maximum initial users should not be used 
when setting user fees and rates since it may be several years before 
all residents in the community will need the services provided by the 
system. In establishing rates a realistic number of initial users should 
be employed.
    (B) User agreements from individual vacant property owners will not 
be considered when determining project feasibility unless:
    (1) The owner has plans to develop the property in a reasonable 
period of time and become a user of the facility; and
    (2) The owner agrees in writing to make a monthly payment at least 
equal to the proportionate share of debt service attributable to the 
vacant property until the property is developed and the facility is 
utilized on a regular basis. A bond or escrowed security deposit must be 
provided to guarantee this monthly payment and to guarantee an amount at 
least equal to the owner's proportionate share of construction costs. If 
a bond is provided, it must be executed by a surety company that appears 
on the Treasury Department's most current list (Circular 570, as 
amended) and be authorized to transact business in the State where the 
project is located. The guarantee shall be payable jointly to the 
borrower and the Farmers Home Administration or its successor agency 
under Public Law 103-354; and
    (3) Such guarantee will mature not later than 4 years from the date 
of execution and will be finally due and payable upon default of a 
monthly payment or at maturity, unless the property covered by the 
guarantee has been developed and the facility is being utilized on a 
regular basis.
    (C) Income from other vacant property owners will be considered only 
as extra income.
    (ii) Realistic user estimates will be established as follows:
    (A) Meaningful potential user cash contributions. Potential user 
cash contributions are required except:
    (1) For users presently receiving service, or
    (2) Where FmHA or its successor agency under Public Law 103-354 
determines that the potential users as a whole in the applicant's 
service area cannot make cash contributions, or
    (3) Where State statutes or local ordinances require mandatory use 
of the system and the applicant or legal entity having such authority 
agrees in writing to enforce such statutes, or ordinances.
    (B) The amount of cash contributions required in paragraph 
(h)(2)(ii)(A) of this section will be set by the applicant and concurred 
in by FmHA or its successor agency under Public Law 103-354. 
Contribtions should be an amount high enough to indicate sincere 
interest on the part of the potential user, but not so high as to 
preclude service to low income families. Contributions ordinarily should 
be an amount approximating one year's minimum user fee, and shall be 
paid in full before loan closing or commencement of construction, 
whichever occurs first. Once economic feasibility is ascertained based

[[Page 169]]

on a demonstration of meaningful potential user cash contributions, the 
contribution, membership fee or other fees that may be imposed are not a 
requirement of FmHA or its successor agency under Public Law 103-354 
under this section. However, borrowers do have an additional 
responsibility relating to generating sufficient revenues as set forth 
in paragraph (n)(2)(iii) of this section.
    (C) Enforceable user agreement. Except for users presently receiving 
service, an enforceable user agreement with a penalty clause is required 
unless State statutes or local ordinances require mandatory use of the 
system and the applicant or legal entity having such authority agrees in 
writing to enforce such statutes or ordinances.
    (iii) In those cases where all or part of the borrower's debt 
payment revenues will come from user fees, applicants must provide a 
positive program to encourage connection by all users as soon as service 
is available. The program will be available for review and approval by 
FmHA or its successor agency under Public Law 103-354 before loan 
closing or commencement of construction, whichever occurs first. Such a 
program shall include:
    (A) An aggressive information program to be carried out during the 
construction period. The borrower should send written notification to 
all signed users at least three weeks in advance of the date service 
will be available, stating the date users will be expected to have their 
connections completed, and the date user charges will begin.
    (B) Positive steps to assure that installation services will be 
available. These may be provided by the contractor installing the 
system, local plumbing companies, or local contractors.
    (C) Aggressive action to see that all signed users can finance their 
connections. This might require collection of sufficient user 
contributions to finance connections. Extreme cases might necessitate 
additional loan funds for this purpose; however, loan funds should be 
used only when absolutely necessary and when approved by FmHA or its 
successor agency under Public Law 103-354 prior to loan closing.
    (3) Utility-type facilities for new developing communities or areas. 
Developers are normally expected to provide utility-type facilities in 
new or developing areas and such facilities shall be installed in 
compliance with appropriate State statutes and regulations. FmHA or its 
successor agency under Public Law 103-354 financing will be considered 
to an eligible applicant in such cases when failure to complete 
development would result in an adverse economic condition for the rural 
area (not the community being developed); the proposal is necessary to 
the success of an area development plan; and loan repayment can be 
assured by:
    (i) The applicant already having sufficient assured revenues to 
repay the loan; or
    (ii) Developers providing a bond or escrowed security deposit as a 
guarantee sufficient to meet expenses attributable to the area in 
question until a sufficient number of the building sites are occupied 
and connected to the facility to provide enough revenues to meet 
operating, maintenance, debt service, and reserve requirements. Such 
guarantees from developers will meet the requirements in paragraph 
(h)(2)(i)(B) of this section; or
    (iii) Developers paying cash for the increased capital cost and any 
increased operating expenses until the developing area will support the 
increased costs; or
    (iv) The full faith and credit of a public body where the debt is 
evidenced by general obligation bonds; or
    (v) The loan is to a public body evidenced by a pledge of tax 
assessments; or
    (vi) The user charges can become a tax lien upon the property being 
served and income from such lien can be collected in sufficient time to 
be used for its intended purposes.
    (i) Reserve requirements. Provision for the accumulation of 
necessary reserves over a reasonable period of time will be included in 
the loan documents and in assessments, tax levies, or rates charged for 
services. In those cases where statutes providing for extinguishing 
assessment liens of public bodies when properties subject to such liens 
are sold for delinquent State or

[[Page 170]]

local taxes, special reserves will be established and maintained for the 
protection of the borrower's assessment lien.
    (1) General obligation or special assessment bonds. Ordinarily, the 
requirements for reserves will be considered to have been met if general 
obligation or other bonds which pledge the full faith and credit of the 
political subdivision are used, or special assessment bonds are used, 
and if such bonds provide for the annual collection of sufficient taxes 
or assessments to cover debt service, operation and maintenance, and a 
reasonable amount for emergencies and to offset the possible nonpayment 
of taxes or assessments by a percentage of the property owners, or a 
statutory method is provided to prevent the incurrence of a deficiency.
    (2) Other than general obligation or special assessment bonds. Each 
borrower will be required to establish and maintain reserves sufficient 
to assure that loan installments will be paid on time, for emergency 
maintenance, for extensions to facilities, and for replacement of short-
lived assets which have a useful life significantly less than the 
repayment period of the loan. It is expected that borrowers issuing 
bonds or other evidences of debt pledging facility revenues as security 
will ordinarily plan their reserve to provide for a total reserve in an 
amount at least equal to one average loan installment. It is also 
expected the ordinarily such reserve will be accumulated at the rate of 
at least one-tenth of the total each year until the desired level is 
reached.
    (j) General requirements--(1) Membership authorization. For 
organizations other than public bodies, the membership will authorize 
the project and its financing except that the State Director may, with 
the concurrence of OGC, accept the loan resolution without such 
membership authorization when State statutes and the organization's 
charter and bylaws do not require such authorization; and
    (i) The organization is well established and is operating with a 
sound financial base; or
    (ii) For utility-type projects the members of the organization have 
all signed an enforceable user agreement with a penalty clause and have 
made the required meaningful user cash contribution, except for members 
presently receiving service or when State statutes or local ordinances 
require mandatory use of the facility.
    (2) Planning, bidding, contracting, constructing. (See Sec. 
1942.18).
    (3) Insurance and fidelity bonds. The purpose of FmHA or its 
successor agency under Public Law 103-354's insurance and fidelity bond 
requirements is to protect the government's financial interest based on 
the facility financed. The requirements below apply to all types of 
coverage determined necessary. The National Office may grant exceptions 
to normal requirements when appropriate justification is provided 
establishing that it is in the best interest of the applicant/borrower 
and will not adversely affect the government's interest.
    (i) General. (A) Applicants must provide evidence of adequate 
insurance and fidelity bond coverage by loan closing or start of 
construction, whichever occurs first. Adequate coverage in accordance 
with this section must then be maintained for the life of the loan. It 
is the responsibility of the applicant/borrower and not that of FmHA or 
its successor agency under Public Law 103-354 to assure that adequate 
insurance and fidelity bond coverage is maintained.
    (B) Insurance and fidelity bond requirements by FmHA or its 
successor agency under Public Law 103-354 shall normally not exceed 
those proposed by the applicant/borrower if the FmHA or its successor 
agency under Public Law 103-354 loan approval or servicing official 
determines that proposed coverage is adequate to protect the 
government's financial interest. Applicants/borrowers are encouraged to 
have their attorney, consulting engineer/architect, and/or insurance 
provider(s) review proposed types and amounts of coverage, including any 
deductible provisions. If the FmHA or its successor agency under Public 
Law 103-354 official and the applicant/borrower cannot agree on the 
acceptability of coverage proposed, a decision will be made by the State 
Director.
    (C) The use of deductibles, i.e., an initial amount of each claim to 
be paid by the applicant/borrower, may be allowed

[[Page 171]]

by FmHA or its successor agency under Public Law 103-354 providing the 
applicant/borrower has financial resources which would likely be 
adequate to cover potential claims requiring payment of the deductible.
    (D) Borrowers must provide evidence to FmHA or its successor agency 
under Public Law 103-354 that adequate insurance and fidelity bond 
coverage is being maintained. This may consist of a listing of policies 
and coverage amounts in yearend reports submitted with management 
reports required under Sec. 1942.17(q)(2) or other documentation. The 
borrower is responsible for updating and/or renewing policies or 
coverage which expire between submissions to FmHA or its successor 
agency under Public Law 103-354. Any monitoring of insurance and 
fidelity bond coverage by FmHA or its successor agency under Public Law 
103-354 is solely for the benefit of FmHA or its successor agency under 
Public Law 103-354, and does not relieve the applicant/borrower of its 
obligation under the loan resolution to maintain such coverage.
    (ii) Fidelity bond. Applicants/borrowers will provide fidelity bond 
coverage for all persons who have access to funds. Coverage may be 
provided either for all individual positions or persons, or through 
``blanket'' coverage providing protection for all appropriate employees 
and/or officials. An exception may be granted by the State Director when 
funds relating to the facility financed are handled by another entity 
and it is determined that the entity has adequate coverage or the 
government's interest would otherwise be adequately protected.
    (A) The amount of coverage required by FmHA or its successor agency 
under Public Law 103-354 will normally approximate the total annual debt 
service requirements for the FmHA or its successor agency under Public 
Law 103-354 loans.
    (B) Form FmHA or its successor agency under Public Law 103-354 440-
24, ``Position Fidelity Schedule Bond'' may be used. Similar forms may 
be used if determined acceptable to FmHA or its successor agency under 
Public Law 103-354. Other types of coverage may be considered acceptable 
if it is determined by FmHA or its successor agency under Public Law 
103-354 that they fulfill essentially the same purpose as a fidelity 
bond.
    (iii) Insurance. The following types of coverage must be maintained 
in connection with the project if appropriate for the type of project 
and entity involved:
    (A) Property insurance. Fire and extended coverage will normally be 
maintained on all structures except as noted in paragraphs 
(j)(3)(iii)(A) (1) and (2) below. Ordinarily, FmHA or its successor 
agency under Public Law 103-354 should be listed as mortgagee on the 
policy when FmHA or its successor agency under Public Law 103-354 has a 
lien on the property. Normally, major items of equipment or machinery 
located in the insured structures must also be covered. Exceptions:
    (1) Reservoirs, standpipes, elevated tanks, and other structures 
built entirely of noncombustible materials if such structures are not 
normally insured.
    (2) Subsurface lift stations except for the value of electrical and 
pumping equipment therein.
    (B) Liability and property damage insurance, including vehicular 
coverage.
    (C) Malpractice insurance. The need and requirements for malpractice 
insurance will be carefully and thoroughly considered in connection with 
each health care facility financed.
    (D) Flood insurance. Facilities located in special flood- and 
mudslide-prone areas must comply with the eligibility and insurance 
requirements of subpart B of part 1806 of this chapter (FmHA Instruction 
426.2).
    (E) Worker's compensation. The borrower will carry worker's 
compensation insurance for employees in accordance with State laws.
    (4) Acquisition of land, easements, water rights, and existing 
facilities. Applicants are responsible for acquisition of all property 
rights necessary for the project and will determine that prices paid are 
reasonable and fair. FmHA or its successor agency under Public Law 103-
354 may require an appraisal by an independent appraiser or FmHA or its 
successor agency under Public Law 103-354 employee.

[[Page 172]]

    (i) Title for land, rights-of-way, easements, or existing 
facilities. The applicant must certify and provide a legal opinion 
relative to the title to rights-of-way and easements. Form FmHA or its 
successor agency under Public Law 103-354 442-21, ``Rights-of-Way 
Certificate,'' and Form FmHA or its successor agency under Public Law 
103-354 442-22, ``Opinion of Counsel Relative to Rights-of-Way,'' may be 
used.
    (A) Rights-of-way and easements. Applicants are responsible for and 
will obtain valid, continuous and adequate rights-of-way and easements 
needed for the construction, operation, and maintenance of the facility. 
Form FmHA or its successor agency under Public Law 103-354 442-20, 
``Right-of-Way Easement,'' may be used. When a site is for major 
structures for utility-type facilities such as a reservoir or pumping 
station and the applicant is able to obtain only a right-of-way or 
easement on such a site rather than a fee simple title, the applicant 
will furnish a title report thereon by the applicant's attorney showing 
ownership of the land and all mortgages or other lien defects, 
restrictions, or encumbrances, if any. It is the responsibility of the 
applicant to obtain and record such releases, consents or subordinations 
to such property rights from holders of outstanding liens or other 
instruments as may be necessary for the construction, operation, and 
maintenance of the facility and give FmHA or its successor agency under 
Public Law 103-354 the required security.
    (B) Title for land or existing facilities. Title to land essential 
to the successful operation of facilities or title to facilities being 
purchased, must not contain any restrictions that will adversely affect 
the suitability, successful operation, security value, or 
transferability of the facility. Title opinions must be provided by the 
applicant's attorney. The opinions must be in sufficient detail to 
assess marketability of the property. Form FmHA or its successor agency 
under Public Law 103-354 1927-9, ``Preliminary Title Opinion,'' and Form 
FmHA or its successor agency under Public Law 103-354 1927-10, ``Final 
Title Opinion,'' may be used to provide the required title opinions. If 
other forms are used they must be reviewed and approved by FmHA or its 
successor agency under Public Law 103-354 and OGC.
    (1) In lieu of receiving title opinions from the applicant's 
attorney, the applicant may use a title insurance company. If a title 
insurance company is used, the company must provide FmHA or its 
successor agency under Public Law 103-354 a title insurance binder, 
disclosing all title defects or restrictions, and include a commitment 
to issue a title insurance policy. The policy should be in an amount at 
least equal to the market value of the property as improved. The title 
insurance binder and commitment should be provided to FmHA or its 
successor agency under Public Law 103-354 prior to requesting closing 
instructions. FmHA or its successor agency under Public Law 103-354 will 
be provided a title insurance policy which will insure FmHA or its 
successor agency under Public Law 103-354's interest in the property 
without any title defects or restrictions which have not been waived by 
FmHA or its successor agency under Public Law 103-354.
    (2) The loan approval official may waive title defects or 
restrictions, such as utility easements, that do not adversely affect 
the suitability, successful operation, security value, or 
transferability of the facility. If the District Director is the loan 
approval official and is unable to waive the defect or restriction, the 
title opinion or title insurance binder will be forwarded to the State 
Director. If the State Director, with the advice of the OGC, determines 
that the defect or restriction cannot be waived, the defect or 
restriction must be removed.
    (ii) Water rights. When legally permissible, an assignment will be 
taken on water rights owned or to be acquired by the applicant. The 
following will be furnished as applicable:
    (A) A statement by the applicant's attorney regarding the nature of 
the water rights owned or to be acquired by the applicant (such as 
conveyance of title, appropriation and decree, application and permit, 
public notice and appropriation and use).
    (B) A copy of a contract with another company or municipality to 
supply water; or stock certificates in another

[[Page 173]]

company which represents the right to receive water.
    (iii) Land purchase contract: (A) A land purchase contract (known in 
some areas as a contract for deed) is an agreement between two or more 
parties which obligates the purchaser to pay the purchase price, gives 
the purchaser the rights of immediate possession, control, and 
beneficial use of the property, and entitles the purchaser to a deed 
upon paying all or a specified part of the purchase price.
    (B) Applicants may obtain land through land purchase contracts when 
all of the following conditions are met:
    (1) The applicant has exhausted all reasonable means of obtaining 
outright fee simple title to the necessary land.
    (2) The applicant cannot obtain the land through condemnation.
    (3) There are not other suitable sites available.
    (4) National Office concurrence is obtained in accordance with 
paragraph (j)(4)(iii)(D)(2) of this section.
    (C) The land purchase contract must provide for the transfer of 
ownership by the seller without any restrictions, liens or other title 
defects. The contract must not contain provisions for future advances 
(except for taxes, insurance, or other costs needed to protect the 
security), summary cancellations, summary forfeiture, or other clauses 
that may jeopardize the Government's interest or the purchaser's ability 
to pay the FmHA or its successor agency under Public Law 103-354 loan. 
The contract must provide that if the purchaser fails to make payment 
that FmHA or its successor agency under Public Law 103-354 will be given 
at least 90 days written notice with an option to cure the default 
before the contract can be cancelled, terminated or foreclosed. Then 
FmHA or its successor agency under Public Law 103-354 must have the 
option of making the payment and charging it to the purchaser's account, 
making the payment and taking over the ownership of the purchase 
contract, or taking any other action necessary to protect the 
Government's interest.
    (D) Prior to loan closing or the beginning of construction, 
whichever occurs first, the following actions must be taken in the order 
listed below:
    (1) The land purchase contract and any appropriate title opinions 
must be reviewed by the Regional Attorney to determine if they are 
legally sufficient to protect the interest of the Government.
    (2) The land purchase contract, the Regional Attorney's comments, 
and the State Director's recommendations must be submitted to the 
National Office for concurrence.
    (3) The land purchase contract must be recorded.
    (5) Lease agreements. Where the right of use or control of real 
property not owned by the applicant/borrower is essential to the 
successful operation of the facility during the life of the loan, such 
right will be evidenced by written agreements or contracts between the 
owner(s) of the property and the applicant/borrower. Lease agreements 
shall not contain provisions for restricted use of the site of facility, 
forfeiture or summary cancellation clauses and shall provide for the 
right to transfer and lease without restriction. Lease agreements will 
ordinarily be written for a term at least equal to the term of the loan. 
Such lease contracts or agreements will be approved by the FmHA or its 
successor agency under Public Law 103-354 loan approval official with 
the advice and counsel of the Regional Attorney, OGC, as to the legal 
sufficiency of such documents. A copy of the lease contract or agreement 
will be included in the loan docket.
    (6) Notes and bonds. Notes and bonds will be completed on the date 
of loan closing except for the entry of subsequent multiple advances 
where applicable. The amount of each note will be in multiples of not 
less than $100. The amount of each bond will ordinarily be in multiples 
of not less than $1,000.
    (i) Form FmHA or its successor agency under Public Law 103-354 440-
22, ``Promissory Note (Association or Organization),'' will ordinarily 
be used for loans to nonpublic bodies.
    (ii) Section 1942.19 contains instructions for preparation of notes 
and bonds evidencing indebtedness of public bodies.

[[Page 174]]

    (7) Environmental requirements. Environmental requirements will be 
documented by FmHA or its successor agency under Public Law 103-354 in 
accordance with subpart G part 1940 of this chapter. The applicant will 
provide any information required.
    (8) Health care facilities. The applicant will be responsible for 
obtaining the following documents:
    (i) A statement from the responsible State agency certifying that 
the proposed health care facility is not inconsistent with the State 
Medical Facilities Plan.
    (ii) A statement from the responsible State agency or regional 
office of the Department of Health and Services certifying that the 
proposed facility meets the standards in Sec. 1942.18(d)(4).
    (9) Public information. Applicants should inform the general public 
regarding the development of any proposed project. Any applicant not 
required to obtain authorization by vote of its membership or by public 
referendum, to incur the obligations of the proposed loan or grant, will 
hold at least one public information meeting. The public meeting must be 
held after the preapplication is filed and not later than loan approval. 
The meeting must give the citizenry an opportunity to become acquainted 
with the proposed project and to comment on such items as economic and 
environmental impacts, service area, alternatives to the project, or any 
other issue identified by FmHA or its successor agency under Public Law 
103-354. The applicant will be required, at least 10 days prior to the 
meeting, to publish a notice of the meeting in a newspaper of general 
circulation in the service area, to post a public notice at the 
applicant's principal office, and to notify FmHA or its successor agency 
under Public Law 103-354. The applicant will provide FmHA or its 
successor agency under Public Law 103-354 a copy of the published notice 
and minutes of the public meeting. A public meeting is not normally 
required for subsequent loans which are needed to complete the financing 
of the project.
    (10) Service through individual installation. Community owned water 
or waste disposal systems may provide service through individual 
installations or small clusters of users within the applicant's service 
area. When individual installations or small clusters are proposed, the 
loan approval official should consider items such as: quantity and 
quality of the individual installations that may be developed; cost 
effectiveness of the individual facility compared with the initial and 
long term user cost on a central system; health and pollution problems 
attributable to individual facilities; operational or management 
problems peculiar to individual installations; and permit and regulatory 
agency requirements.
    (i) Applicants providing service through individual facilities must 
meet the eligibility requirements in Sec. 1942.17(b).
    (ii) FmHA or its successor agency under Public Law 103-354 must 
approve the form of agreement between the owner and individual users for 
the installation, operation and payment for individual facilities.
    (iii) If taxes or assessments are not pledged as security, owners 
providing service through individual facilities must obtain security as 
necessary to assure collection of any sum the individual user is 
obligated to pay the owner.
    (iv) Notes representing indebtedness owed the owner by a user for an 
individual facility will be scheduled for payment over a period not to 
exceed the useful life of the individual facility or the loan, whichever 
is shorter. The interest rate will not exceed the interest rate charged 
the owner on the FmHA or its successor agency under Public Law 103-354 
indebtedness.
    (v) Owners providing service through individual or cluster 
facilities must obtain:
    (A) Easements for the installation and ingress to and egress from 
the facility; and
    (B) An adequate method for denying service in the event of 
nonpayment of user fees.
    (11) Funds from other sources. FmHA or its successor agency under 
Public Law 103-354 loan funds may be used along with or in connection 
with funds provided by the applicant or from other sources. Since 
``matching funds'' is not a requirement for FmHA or its successor agency 
under Public Law 103-354

[[Page 175]]

loans, shared revenues may be used with FmHA or its successor agency 
under Public Law 103-354 funds for project construction.
    (k) Other Federal, State, and local requirements. Each application 
shall contain the comments, necessary certifications and recommendations 
of appropriate regulatory or other agency or institution having 
expertise in the planning, operation, and management of similar 
facilities. Proposals for facilities financed in whole or in part with 
FmHA or its successor agency under Public Law 103-354 funds will be 
coordinated with appropriate Federal, State, and local agencies in 
accordance with the following:
    (1) Compliance with special laws and regulations. Except as provided 
in paragraph (k)(2) of this section applicants will be required to 
comply with Federal, State, and local laws and any regulatory commission 
rules and regulations pertaining to:
    (i) Organization of the applicant and its authority to construct, 
operate, and maintain the proposed facilities;
    (ii) Borrowing money, giving security therefore, and raising 
revenues for the repayment thereof;
    (iii) Land use zoning; and
    (iv) Health and sanitation standards and design and installation 
standards unless an exception is granted by FmHA or its successor agency 
under Public Law 103-354.
    (2) Compliance exceptions. If there are conflicts between this 
subpart and state or local laws or regulatory commission regulations, 
the provisions of this subpart will control.
    (3) State Pollution Control or Environmental Protection Agency 
Standards. Water and waste disposal facilities will be designed, 
installed, and operated in such a manner that they will not result in 
the pollution of water in the State in excess of established standards 
and that any effluent will conform with appropriate State and Federal 
Water Pollution Control Standards. A certification from the appropriate 
State and Federal agencies for water pollution control standards will be 
obtained showing that established standards are met.
    (4) Consistency with other development plans. FmHA or its successor 
agency under Public Law 103-354 financed facilities will not be 
inconsistent with any development plans of State, multijurisdictional 
areas, counties, or municipalities in which the proposed project is 
located.
    (5) State agency regulating water rights. Each FmHA or its successor 
agency under Public Law 103-354 financed facility will be in compliance 
with appropriate State agency regulations which have control of the 
appropriation, diversion, storage and use of water and disposal of 
excess water. All of the rights of any landowners, appropriators, or 
users of water from any source will be fully honored in all respects as 
they may be affected by facilities to be installed.
    (6) Civil Rights Act of 1964. All borrowers are subject to, and 
facilities must be operated in accordance with, title VI of the Civil 
Rights Act of 1964 and subpart E of part 1901 of this chapter, 
particularly as it relates to conducting and reporting of compliance 
reviews. Instruments of conveyance for loans and/or grants subject to 
the Act must contain the covenant required by Sec. 1901.202(e) of 
subpart E of part 1901 of this chapter.
    (7) Title IX of the Education Amendments of 1972. No person in the 
United States shall, on the basis of sex, be excluded from participation 
in, be denied the benefits of, or be subjected to discrimination under 
any education program or education activity receiving FmHA or its 
successor agency under Public Law 103-354 financial assistance except as 
otherwise provided for in the Education Amendments of title IX. The FmHA 
or its successor agency under Public Law 103-354 State Director will 
provide guidance and technical assistance to carry out the intent of 
this paragraph.
    (8) Section 504 of the Rehabilitation Act of 1973. Under section 504 
of the Rehabilitation Act of 1973, as amended (29 U.S.C. 794), no 
handicapped individual in the United States shall, solely by reason of 
their handicap, be excluded from participation in, be denied the 
benefits of, or be subjected to discrimination under any program or 
activity receiving FmHA or its successor agency under Public Law 103-354 
financial assistance.

[[Page 176]]

    (9) Age Discrimination Act of 1975. This Act provides that no person 
in the United States shall on the basis of age, be excluded from 
participation in, be denied the benefits of, or be subjected to 
discrimination under any program or activity receiving Federal financial 
assistance. This Act also applies to programs or activities funded under 
the State and Local Fiscal Assistance Act of 1972 (31 U.S.C. 1221 et. 
seq.). This Act does not apply to: (i) age distinctions contained in 
Federal, State or local statutes or ordinances adopted by an elected, 
general purpose legislative body which provide benefits or assistance 
based on age; (ii) establish criteria for participation in age-related 
terms; (iii) describe intended beneficiaries or target groups in age-
related terms; and, (iv) any employment practice of any employer, 
employment agency, labor organization, or any labor-management joint 
apprenticeship training program except for any program or activity 
receiving Federal financial assistance for public service employment 
under the Comprehensive Employment and Training Act of 1974 (CETA) (29 
U.S.C. 801 et. seq.).
    (l) Professional services and contracts related to the facility--(1) 
Professional services. Applicants will be responsible for providing the 
services necessary to plan projects including design of facilities, 
preparation of cost and income estimates, development of proposals for 
organization and financing, and overall operation and maintenance of the 
facility. Professional services of the following may be necessary: 
Engineer, architect, attorney, bond counsel, accountant, auditor, 
appraiser, and financial advisory or fiscal agent (if desired by 
applicant). Contracts or other forms of agreement between the applicant 
and its professional and technical representatives are required and are 
subject to FmHA or its successor agency under Public Law 103-354 
concurrence. Form FmHA or its successor agency under Public Law 103-354 
1942-19, ``Agreement for Engineering Services,'' may be used when 
appropriate. Guide 20, ``Agreement for Engineering Services (FmHA or its 
successor agency under Public Law 103-354/EPA--Jointly Funded 
Projects)'' may be used on projects jointly funded by FmHA or its 
successor agency under Public Law 103-354 and EPA. Guide 14 may be used 
in the preparation of the legal services agreement.
    (2) Bond counsel. Unless otherwise provided by Sec. 1942.19(b), 
public bodies are required to obtain the service of recognized bond 
counsel in the preparation of evidence of indebtedness.
    (3) Contracts for other services. Contracts or other forms of 
agreements for other services including management, operation, and 
maintenance will be developed by the applicant and presented to FmHA or 
its successor agency under Public Law 103-354 for review and approval. 
Management agreements should provide at least those items in guide 24.
    (4) Fees. Fees provided for in contracts or agreements shall be 
reasonable. They shall be considered to be reasonable if not in excess 
of those ordinarily charged by the profession for similar work when FmHA 
or its successor agency under Public Law 103-354 financing is not 
involved.
    (m) Applying for FmHA or its successor agency under Public Law 103-
354 loans--(1) Preapplication. Applicants desiring loans will file SF 
424.2 and comments from the appropriate A-95 clearinghouse agency 
normally with the appropriate FmHA or its successor agency under Public 
Law 103-354 County Office. The County Supervisor will immediately 
forward all documents to the District Office. The District Director has 
prime responsibility for all community program loan making and servicing 
activities within the District.
    (2) Preapplication review. Upon receipt of the preapplication, FmHA 
or its successor agency under Public Law 103-354 will tentatively 
determine eligibility including the likelihood of credit elsewhere at 
reasonable rates and terms and availability of FmHA or its successor 
agency under Public Law 103-354 loan funds. The determination as to 
availability of other credit will be made after considering present 
rates and terms available for similar proposals (not necessarily based 
upon rates and terms available from FmHA or its successor agency under 
Public Law 103-354); the repayment potential of the applicant; long-term 
cost to the applicant; and average user or other

[[Page 177]]

charges. In those cases where FmHA or its successor agency under Public 
Law 103-354 determines that loans at reasonable rates and terms should 
be available from commercial sources, FmHA or its successor agency under 
Public Law 103-354 will notify the applicant so that it may apply for 
such financial assistance. Such applicants may be reconsidered for FmHA 
or its successor agency under Public Law 103-354 loans upon their 
presenting satisfactory evidence of inability to obtain commercial 
financing at reasonable rates and terms.
    (3) Incurring obligations. Applicants should not proceed with 
planning nor obligate themselves for expenditures until authorized by 
FmHA or its successor agency under Public Law 103-354.
    (4) Results of preapplication review. After FmHA or its successor 
agency under Public Law 103-354 has reviewed the preapplication material 
and any additional material that may be requested, Form AD-622 will be 
sent to the applicant. Ordinarily the review will not exceed 45 days.
    (5) Application conference. Before starting to assemble the 
application and after the applicant selects its professional and 
technical representatives, it should arrange with FmHA or its successor 
agency under Public Law 103-354 for an application conference to provide 
a basis for orderly application assembly. FmHA or its successor agency 
under Public Law 103-354 will provide applicants with a list of 
documents necessary to complete the application. Guide 15 may be used 
for this purpose. Applications will be filed with the District Office.
    (6) Application completion and assembling. This is the 
responsibility of the applicant with guidance from FmHA or its successor 
agency under Public Law 103-354. The applicant may utilize their 
professional and technical representatives or other competent sources.
    (7) Review of decision. If an application is rejected, the applicant 
may request a review of this decision under subpart B of part 1900 of 
this chapter.
    (n) Actions prior to loan closing and start of construction--(1) 
Excess FmHA or its successor agency under Public Law 103-354 loan and 
grant funds. If there is a significant reduction in project cost, the 
applicant's funding needs will be reassessed before loan closing or the 
start of construction, whichever occurs first. In such cases applicable 
FmHA or its successor agency under Public Law 103-354 forms, the letter 
of conditions, and other items will be revised. Decreases in FmHA or its 
successor agency under Public Law 103-354 funds will be based on revised 
project costs and current number of users, however, other factors 
including FmHA or its successor agency under Public Law 103-354 
regulations used at the time of loan/grant approval will remain the 
same. Obligated loan or grant funds not needed to complete the proposed 
project will be deobligated.
    (2) Loan resolutions. Loan resolutions will be adopted by both 
public and other-than-public bodies using Form FmHA or its successor 
agency under Public Law 103-354 1942-47, ``Loan Resolution (Public 
Bodies),'' or Form FmHA or its successor agency under Public Law 103-354 
1942-9, ``Loan Resolution (Security Agreement).'' These resolutions 
supplement other provisions in this subpart. The applicant will agree:
    (i) To indemnify the Government for any payments made or losses 
suffered by the Government on behalf of the association. Such 
indemnification shall be payable from the same source of funds pledged 
to pay the bonds or any other legally permissible source.
    (ii) To comply with applicable local, State and Federal laws, 
regulations, and ordinances.
    (iii) To provide for the receipt of adequate revenues to meet the 
requirements of debt service, operation and maintenance, establishment 
of adequate reserves, and to continually operate and maintain the 
facility in good condition. Except for utility-type facilities, free 
service use may be permitted. If free services are extended no 
distinctions will be made in the extension of those services because of 
race, color, religion, sex, national origin, marital status, or physical 
or mental handicap.
    (iv) To acquire and maintain such insurance coverage including 
fidelity bonds, as may be required by the Government.

[[Page 178]]

    (v) To establish and maintain such books and records relating to the 
operation of the facility and its financial affairs and to provide for 
required audit thereof in such a manner as may be required by the 
Government and to provide the Government without its request, a copy of 
each such audit and to make and forward to the Government such 
additional information and reports as it may, from time to time, 
require.
    (vi) To provide the Government at all reasonable times, access to 
all books and records relating to the facility and access to the 
property of the system so that the Government may ascertain that the 
association is complying with the provisions hereof and of the 
instruments incident to the making or insuring of the loan.
    (vii) To provide adequate service to all persons within the service 
area who can feasibly and legally be served and to obtain FmHA or its 
successor agency under Public Law 103-354's concurrence prior to 
refusing new or adequate services to such persons. Upon failure of the 
applicant to provide services which are feasible and legal, such person 
shall have a direct right of action against the applicant organization.
    (viii) To have prepared on its behalf and to adopt an ordinance or 
resolution for the issuance of its bonds or notes or other debt 
instruments or other such items and in such forms as are required by 
State statutes and as are agreeable and acceptable to the Government.
    (ix) To refinance the unpaid balance, in whole or in part, of its 
debt upon the request of the Government if at any time it should appear 
to the Government that the association is able to refinance its bonds by 
obtaining a loan for such purposes from responsible cooperative or 
private sources at reasonable rates and terms.
    (x) To provide for, execute, and comply with Form FmHA or its 
successor agency under Public Law 103-354 400-4, ``Assurance 
Agreement,'' and Form FmHA or its successor agency under Public Law 103-
354 400-1, ``Equal Opportunity Agreement,'' including an ``Equal 
Opportunity Clause,'' which is to be incorporated in or attached as a 
rider to each construction contract and subcontract in excess of 
$10,000.
    (xi) To place the proceeds of the loan on deposit in a manner 
approved by the Government. Funds may be deposited in institutions 
insured by the State or Federal Government as invested in readily 
marketable securities backed by the full faith and credit of the United 
States. Any income from these accounts will be considered as revenues of 
the system.
    (xii) Not to sell, transfer, lease, or otherwise encumber the 
facility or any portion thereof or interest therein, and not to permit 
others to do so, without the prior written consent of the Government.
    (xiii) Not to borrow any money from any source, enter into any 
contract or agreement, or incur any other liabilities in connection with 
making enlargements, improvements or extensions to, or for any other 
purpose in connection with the facility (exclusive of normal 
maintenance) without the prior written consent of the Government if such 
undertaking would involve the source of funds pledged to repay the debt 
to FmHA or its successor agency under Public Law 103-354.
    (xiv) That upon default in the payments of any principal and accrued 
interest on the bonds or in the performance of any covenant or agreement 
contained herein or in the instruments incident to making or insuring 
the loan, the Government, at its option, may:
    (A) Declare the entire principal amount then outstanding and accrued 
interest, due and payable;
    (B) For the account of the association (payable from the source of 
funds pledged to pay the bonds or notes or any other legally 
permissiable source), incur and pay reasonable expenses for repair, 
maintenance and operation of the facility and such other reasonable 
expenses as may be necessary to cure the cause of default; and/or
    (C) Take possession of the facility, repair, maintain and operate, 
or otherwise dispose of the facility. Default under the provisions of 
the resolution

[[Page 179]]

or any instrument incident to the making or insuring of the loan may be 
construed by the Government to constitute default under any other 
instrument held by the Government and executed or assumed by the 
association and default under any such instrument may be construed by 
the Government to constitute default hereunder.
    (3) Interim financing. In all loans exceeding $50,000, where funds 
can be borrowed at reasonable interest rates on an interim basis from 
commercial sources for the construction period, such interim financing 
will be obtained so as to preclude the necessity for multiple advances 
of FmHA or its successor agency under Public Law 103-354 funds. Guide 1 
or guide 1a, as appropriate, may be used to inform the private lender of 
FmHA or its successor agency under Public Law 103-354's commitment. When 
interim commercial financing is used, the application will be processed, 
including obtaining construction bids, to the stage where the FmHA or 
its successor agency under Public Law 103-354 loan would normally be 
closed, that is immediately prior to the start of construction. The FmHA 
or its successor agency under Public Law 103-354 loan should be closed 
as soon as possible after the disbursal of all interim funds. Interim 
financing may be for a fixed term provided the fixed term does not 
extend beyond the time projected for completion of construction. For 
this purpose, a fixed term is when the interim lender cannot be repaid 
prior to the end of the stipulated term of the interim instruments. When 
an FmHA or its successor agency under Public Law 103-354 Water and Waste 
Disposal grant is included, any interim financing involving a fixed term 
must be for the total FmHA or its successor agency under Public Law 103-
354 loan amount. Multiple advances may be used in conjunction with 
interim commercial financing when the applicant is unable to obtain 
sufficient funds through interim commercial financing in an amount equal 
to the loan. The FmHA or its successor agency under Public Law 103-354 
loan proceeds (including advances) will be used to retire the interim 
commercial indebtedness. Before the FmHA or its successor agency under 
Public Law 103-354 loan is closed, the applicant will be required to 
provide FmHA or its successor agency under Public Law 103-354 with 
statements from the contractor, engineer, architect, and attorney that 
they have been paid to date in accordance with their contracts or other 
agreements and, in the case of the contractor, that any suppliers and 
subcontractors have been paid. If such statements cannot be obtained, 
the loan may be closed provided:
    (i) Statements to the extent possible are obtained;
    (ii) The interest of FmHA or its successor agency under Public Law 
103-354 can be adequately protected and its security position is not 
impaired; and
    (iii) Adequate provisions are made for handling the unpaid accounts 
by withholding or escrowing sufficient funds to pay such claims.
    (4) Obtaining closing instructions. After loan approval, the 
completed docket will be reviewed by the State Director. The information 
required by OGC will be transmitted to OGC with request for closing 
instructions. Upon receipt of the closing instructions from OGC, the 
State Director will forward them along with any appropriate instructions 
to the District Director. Upon receipt of closing instructions, the 
District Director will discuss with the applicant and its architect or 
engineer, attorney, and other appropriate representatives, the 
requirements contained therein and any actions necessary to proceed with 
closing.
    (5) Applicant contribution. An applicant contributing funds toward 
the project cost shall deposit these funds in its construction account 
on or before loan closing or start of construction, whichever occurs 
first. Project costs paid prior to the required deposit time with 
applicant funds shall be appropriately accounted for.
    (6) Evidence of and disbursement of other funds. Applicants 
expecting funds from other sources for use in completing projects being 
partially financed with FmHA or its successor agency under Public Law 
103-354 funds will present evidence of the commitment of these funds 
from such other sources. This evidence will be available

[[Page 180]]

before loan closing, or the start of construction, whichever occurs 
first. Ordinarily, the funds provided by the applicant or from other 
sources will be disbursed prior to the use of FmHA or its successor 
agency under Public Law 103-354 loan funds. If this is not possible, 
funds will be disbursed on a pro rata basis. FmHA or its successor 
agency under Public Law 103-354 funds will not be used to pre-finance 
funds committed to the project from other sources.
    (o) Loan closing--(1) Closing instructions. Loans will be closed in 
accordance with the closing instructions issued by OGC.
    (2) Obtaining insurance and fidelity bonds. Required property 
insurance policies, liability insurance policies, and fidelity bonds 
will be obtained by the time of loan closing or start of construction, 
whichever occurs first.
    (3) Distribution of recorded documents. The originals of the 
recorded deeds, easements, permits, certificates of water rights, 
leases, or other contracts and similar documents which are not to be 
held by FmHA or its successor agency under Public Law 103-354 will be 
returned to the borrower. The original mortgage(s) and water stock 
certificates, if any, if not required by the recorder's office will be 
retained by FmHA or its successor agency under Public Law 103-354.
    (4) Review of loan closing. In order to determine that the loan has 
been properly closed the loan docket will be reviewed by the State 
Director and OGC.
    (p) Project monitoring and fund delivery during construction--(1) 
Coordination of funding sources. When a project is jointly financed, the 
State Director will reach any needed agreement or understanding with the 
representatives of the other source of funds on distribution of 
responsibilities for handling various aspects of the project. These 
responsibilities will include supervision of construction, inspections 
and determinations of compliance with appropriate regulations concerning 
equal employment opportunities, wage rates, nondiscrimination in making 
services or benefits available, and environmental compliance. If any 
problems develop which cannot be resolved locally, complete information 
should be sent to the National Office for advice.
    (2) Multiple advances. In the event interim commercial financing is 
not legally permissible or not available, multiple advances of FmHA or 
its successor agency under Public Law 103-354 loan funds are required. 
An exception to this requirement may be granted by the National Office 
when a single advance is necessitated by State law or public exigency. 
Multiple advances will be used only for loans in excess of $50,000. 
Advances will be made only as needed to cover disbursements required by 
the borrower over a 30-day period. Advances should not exceed 24 in 
number nor extend longer than two years beyond loan closing. Normally, 
the retained percentage withheld from the contractor to assure 
construction completion will be included in the last advance.
    (i) Section 1942.19 contains instructions for making multiple 
advances to public bodies.
    (ii) Advances will be requested by the borrower in writing. The 
request should be in sufficient amounts to pay cost of construction, 
rights-of-way and land, legal, engineering, interest, and other expenses 
as needed. The applicant may use Form FmHA or its successor agency under 
Public Law 103-354 440-11, ``Estimate of Funds Needed for 30 Day Period 
Commencing ------,'' to show the amount of funds needed during the 30-
day period.
    (iii) FmHA or its successor agency under Public Law 103-354 loan 
funds obligated for a specific purpose, such as the paying of interest, 
but not needed at the time of loan closing will remain in the Finance 
Office until needed unless State statutes require all funds to be 
delivered to the borrower at the time of closing. Loan funds may be 
advanced to prepay costs under paragraph (d)(1)(iv)(G) of this section. 
If all funds must be delivered to the borrower at the time of closing to 
comply with State statutes, funds not needed at loan closing will be 
handled as follows:
    (A) Deposited in an appropriate borrower account, such as the debt 
service account, or
    (B) Deposited in a supervised bank account under paragraph (p)(3)(i) 
of this section.

[[Page 181]]

    (3) Use and accountability of funds--(i) Supervised bank account. 
FmHA or its successor agency under Public Law 103-354 loan funds and any 
funds furnished by the applicant/borrower to supplement the loan 
including contributions to purchase major items of equipment, machinery, 
and furnishings may be deposited in a supervised bank account if 
determined necessary as provided in subpart A of part 1902 of this 
chapter. When FmHA or its successor agency under Public Law 103-354 has 
a Memorandum of Understanding with another agency that provides for the 
use of supervised bank accounts, or when FmHA or its successor agency 
under Public Law 103-354 is the primary source of funds for a project 
and has determined that the use of a supervised bank account is 
necessary, project funds from other sources may also be deposited in the 
supervised bank account. FmHA or its successor agency under Public Law 
103-354 shall not be accountable to the source of the other funds nor 
shall FmHA or its successor agency under Public Law 103-354 undertake 
responsibility to administer the funding program of the other entity. 
Supervised bank accounts should not be used for funds advanced by an 
interim lender.
    (ii) Other than supervised bank account. If a supervised bank 
account is not used, arrangements will be agreed upon for the prior 
concurrence by FmHA or its successor agency under Public Law 103-354 of 
the bills or vouchers upon which warrants will be drawn, so that the 
payments from loan funds can be controlled and FmHA or its successor 
agency under Public Law 103-354 records kept current. If a supervised 
bank account is not used, use Form FmHA or its successor agency under 
Public Law 103-354 402-2, ``Statement of Deposits and Withdrawals,'' or 
similar form to monitor funds. Periodic reviews of nonsupervised 
accounts shall be made by FmHA or its successor agency under Public Law 
103-354 at the times and in the manner as FmHA or its successor agency 
under Public Law 103-354 prescribes in the conditions of loan approval. 
State laws regulating the depositories to be used shall be complied 
with.
    (iii) Use of minority owned banks. Applicants are encouraged to use 
minority banks (a bank which is owned at least 50 percent by minority 
group members) for the deposit and disbursement of funds. A list of 
minority owned banks can be obtained from the Office of Minority 
Business Enterprise, Department of Commerce, Washington, DC 20230 and is 
also available in all FmHA or its successor agency under Public Law 103-
354 offices.
    (4) Development inspections. The District Director will be 
responsible for monitoring the construction of all projects being 
financed, wholly or in part, with FmHA or its successor agency under 
Public Law 103-354 funds. Technical assistance will be provided by the 
State Director's staff. Project monitoring will include construction 
inspections and a review of each project inspection report, each change 
order and each partial payment estimate and other invoices such as 
payment for engineering/architectural and legal fees and other materials 
determined necessary to effectively monitor each project. These 
activities will not be performed on behalf of the applicant/borrower, 
but are solely for the benefit of FmHA or its successor agency under 
Public Law 103-354 and in no way are intended to relieve the applicant/
borrower of corresponding obligations to conduct similar monitoring and 
inspection activities. Project monitoring will include periodic 
inspections to review partial payment estimates prior to their approval 
and to review project development in accordance with plans and 
specifications. Each inspection will be recorded using Form FmHA or its 
successor agency under Public Law 103-354 1924-12, ``Inspection 
Report.'' The original Form FmHA or its successor agency under Public 
Law 103-354 1924-12 will be filed in the project case folder and a copy 
furnished to the State Director. The State Director will review 
inspection reports and will determine that the project is being 
effectively monitored. The District Director is authorized to review and 
accept partial payment estimates prepared by the contractor and approved 
by the borrower, provided the consulting engineer or architect, if one 
is being utilized for the project, has approved the estimate and 
certified that

[[Page 182]]

all material purchased or work performed is in accordance with the plans 
and specifications, or if a consulting engineer or architect is not 
being utilized, the District Director has determined that the funds 
requested are for authorized purposes. If there is any indication that 
construction is not being completed in accordance with the plans and 
specifications or that any other problems exist, the District Director 
should notify the State Director immediately and withhold all payments 
on the contract.
    (5) Payment for construction. Each payment for project costs must be 
approved by the borrower's governing body. Payment for construction must 
be for amounts shown on payment estimate forms. Form FmHA or its 
successor agency under Public Law 103-354 1924-18, ``Partial Payment 
Estimate,'' may be used for this purpose or other similar forms may be 
used with the prior approval of the State Director or designee. However, 
the State Director or designee cannot require a greater reporting burden 
than is required by Form FmHA or its successor agency under Public Law 
103-354 1924-18. Advances for contract retainage will not be made until 
such retainage is due and payable under the terms of the contract. The 
review and acceptance of project costs, including construction partial 
payment estimates by FmHA or its successor agency under Public Law 103-
354, does not attest to the correctness of the amounts, the quantities 
shown, or that the work has been performed under the terms of agreements 
or contracts.
    (6) Use of remaining funds. Funds remaining after all costs incident 
to the basic project have been paid or provided for will not include 
applicant contributions. Applicant contributions will be considered as 
funds initially expended for the project. Funds remaining, with 
exception of applicant contributions, may be considered in direct 
proportion to the amount obtained from each source. Remaining funds will 
be handled as follows:
    (i) Agency loan and/or grant funds. Remaining funds may be used for 
purposes authorized by paragraph (d) of this section, provided the use 
will not result in major changes to the facility design or project and 
that the purposes of the loan and/or grant remains the same.
    (A) On projects that only involve an FmHA or its successor agency 
under Public Law 103-354 loan and no FmHA or its successor agency under 
Public Law 103-354 grant, funds that are not needed will be applied as 
an extra payment on the FmHA or its successor agency under Public Law 
103-354 indebtedness unless other disposition is required by the bond 
ordinance, resolution, or State statute.
    (B) On projects that involve an FmHA or its successor agency under 
Public Law 103-354 grant, all remaining FmHA or its successor agency 
under Public Law 103-354 funds will be considered to be grant funds up 
to the full amount of the grant. Grant funds not expended under 
paragraph (p)(6)(i) of this section will be deobligated.
    (ii) Funds from other sources. Funds remaining from other sources 
will be handled according to rules, regulations and/or the agreement 
governing their participation in the project.
    (q) Borrower accounting methods, management reporting and audits--
(1) Accounting methods and records--(i) Method of accounting and 
financial statements. Financial statements must be prepared on the 
accrual basis of accounting unless State statutes or regulatory agencies 
provide otherwise, or an exception is made by FmHA or its successor 
agency under Public Law 103-354. This requirement is for accrual basis 
financial statements and not for accrual basis accounting systems. 
Organizations may keep their books on an accounting basis other than 
accrual and then make adjustments so that the financial statements are 
presented on the accrual basis.
    (ii) Approval requirement. Before loan closing or start of 
construction, whichever is first, each borrower shall provide to, and 
obtain approval from the FmHA or its successor agency under Public Law 
103-354 loan approval official for its accounting and financial 
reporting system, including the agreement with its auditor, if an 
auditor is required.
    (iii) Records. Form FmHA or its successor agency under Public Law 
103-354 1930-5, ``Bookkeeping System--Small

[[Page 183]]

Borrower,'' may be used by small organizations as a method of recording 
and maintaining accounting transactions.
    (iv) Record retention. Each borrower shall retain all records, 
books, and supporting material for 3 years after the issuance of the 
audit reports and financial statements. Upon request, this material will 
be made available to FmHA or its successor agency under Public Law 103-
354, the Comptroller General, or to their representatives.
    (2) Management reports. These reports will furnish the management 
with a means of evaluating prior decisions and serve as a basis for 
planning future operations and financial conditions. In those cases 
where revenues from multiple sources are pledged as security for an FmHA 
or its successor agency under Public Law 103-354 loan, two reports will 
be required; one for the project being financed by FmHA or its successor 
agency under Public Law 103-354 and one combining the entire operation 
of the borrower. In those cases where FmHA or its successor agency under 
Public Law 103-354 loans are secured by general obligation bonds or 
assessments and the borrower combines revenues from all sources, one 
management report combining all such revenues will suffice. The 
following management data will be submitted by the borrower to the FmHA 
or its successor agency under Public Law 103-354 District Director.
    (i) Financial information. (A) Form FmHA or its successor agency 
under Public Law 103-354 442-2, ``Statement of Budget, Income and 
Equity,'' which includes Schedule 1, ``Statement of Budget, Income and 
Equity'' and Schedule 2, ``Projected Cash Flow.''
    (B) Prior to the beginning of each fiscal year, two copies, with 
data entered in column three only of Schedule 1, page one, ``Annual 
Budget'' and all of Schedule 2, will be submitted to the District 
Director. Twenty (20) days after the end of each of the first three 
quarters of each year, two copies with all information furnished on 
Schedule 1 will be submitted. For the fourth quarter of each year, 
submit together with the year-end financial requirements of paragraphs 
(q) (4) and (5) of this section. More frequent submissions may be 
required by FmHA or its successor agency under Public Law 103-354 when 
necessary. The submission dates to the District Director will be 90 days 
following year-end for audited statements and 60 days following year-end 
for unaudited statements. The fourth quarter submission may serve the 
dual purpose of management report and year-end financial requirement for 
Statement of Income.
    (ii) Additional information. (A) A list of the names and addresses 
of all members of the governing body as appropriate, also indicating the 
officers and their terms of office, will be included with the other 
information required at the end of the year.
    (B) Borrowers delinquent on payment to FmHA or its successor agency 
under Public Law 103-354 or experiencing financial problems, will 
develop a positive action plan to resolve financial problems. The plan 
will be reviewed with FmHA or its successor agency under Public Law 103-
354 and updated at least quarterly. Guide 22 may be used for developing 
a positive action plan.
    (3) Substitute for management reports. When FmHA or its successor 
agency under Public Law 103-354 loans are secured by the general 
obligation of the public body or tax assessments which total 100 percent 
of the debt service requirements, the State Director may authorize an 
annual audit to substitute for other management reports if the audit is 
received within 90 days following the period covered by the audit.
    (4) Audits. All audits are to be performed in accordance with 
generally accepted government auditing standards (GAGAS), using the 
publication, ``Standards for Audit of Governmental Organizations, 
Programs, Activities and Functions,'' developed by the Comptroller 
General of the United States in 1981, and any subsequent revisions. In 
addition, the audits are also to be performed in accordance with various 
Office of Management and Budget (OMB) Circulars and FmHA or its 
successor agency under Public Law 103-354 requirements as specified in 
the separate sections of this subpart.
    (i) Audits based upon Federal financial assistance received. The 
following requirements shall apply to audits of the

[[Page 184]]

years in which funds are received by the borrower.
    (A) Local governments and Indian tribes. These organizations are to 
be audited in accordance with this subpart and OMB Circular A-128, with 
copies of the audits being forwarded by the borrower to the FmHA or its 
successor agency under Public Law 103-354 District Director and the 
appropriate Federal cognizant agency. The Circular is available in any 
FmHA or its successor agency under Public Law 103-354 office. For years 
in which an audit is not required by OMB Circular A-128, see paragraph 
(q)(4)(ii) of this section.
    (1) Cognizant agency. (i) ``Cognizant agency'' means the Federal 
agency assigned by OMB to carry out the responsibilities described in 
OMB Circular A-128. Within the Department of Agriculture (USDA), OIG is 
designated as the cognizant agency.
    (ii) Cognizant agency assignments. Smaller borrowers not assigned a 
cognizant agency by OMB should contact the Federal agency that provided 
the most funds. When USDA is designated as the cognizant agency or when 
it has been determined by the borrower that FmHA or its successor agency 
under Public Law 103-354 provided the major portion of Federal financial 
assistance, the appropriate USDA OIG Regional Inspector General shall be 
contacted. FmHA or its successor agency under Public Law 103-354 and the 
borrower shall coordinate all proposed audit plans with appropriate USDA 
OIG. A list of OIG contact persons is attached to FmHA Instruction 1942-
A as exhibit B (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (2) Audit requirements. It is not intended that audits required by 
this subpart be separate and apart from audits performed in accordance 
with State and local laws. To the extent feasible, the audit work should 
be done in conjunction with those audits.
    (i) Local governments and Indian tribes that receive $100,000 or 
more a year in Federal financial assistance shall have an audit for that 
year in accordance with OMB Circular A-128.
    (ii) Local governments and Indian tribes that receive between 
$25,000 and $100,000 a year in Federal financial assistance shall have 
an audit made in accordance with OMB Circular A-128 or in accordance 
with FmHA or its successor agency under Public Law 103-354 audit 
requirements. This is an option of the local government or Indian tribe. 
If the election is made to have an audit performed in accordance with 
FmHA or its successor agency under Public Law 103-354 requirements, the 
audit shall be in accordance with paragraph (q)(4)(i)(B) of this 
section.
    (iii) Local governments and Indian tribes that receive less then 
$25,000 a year in Federal financial assistance shall be exempt from both 
OMB Circular A-128 audits and FmHA or its successor agency under Public 
Law 103-354 audit requirements, except for those based upon annual gross 
income which may apply in paragraph (q)(4)(ii) of this section. However, 
any audits performed shall be governed by the requirements prescribed by 
State or local law or regulation.
    (iv) Public hospitals and public colleges and universities may be 
excluded from OMB Circular A-128 audit requirements. However, in this 
case audits shall be made in accordance with paragraph (q)(4)(i)(B) of 
this section.
    (3) Fraud, abuse, and illegal acts. If the auditor becomes aware of 
any indication of fraud, abuse, or illegal acts in FmHA or its successor 
agency under Public Law 103-354 financed projects, prompt written notice 
shall be given to the appropriate USDA OIG Regional Inspector General 
and the District Director.
    (B) Nonprofit organizations and others. These organizations are to 
be audited in accordance with FmHA or its successor agency under Public 
Law 103-354 requirements and OMB Circular A-110, ``Uniform Requirements 
for Grants to Universities, Hospitals, and Other Nonprofit 
Organizations.'' These requirements also apply to public hospitals and 
public colleges and universities if they are excluded from the audits of 
paragraph (q)(4)(i)(A) of this section.
    (1) Audits shall be annual unless otherwise prohibited and supplied 
to the FmHA or its successor agency under Public Law 103-354 District 
Director as soon as possible but in no case later than 150 days 
following the period covered by the audit.

[[Page 185]]

    (2) Audit requirements. (i) Borrowers which receive $25,000 or more 
a year in Federal financial assistance shall have an audit. Also, refer 
to paragraph (q)(4)(ii) of this section for additional audit 
requirements.
    (ii) Borrowers which receive less than $25,000 a year in Federal 
financial assistance shall be exempt from audits except for the audits 
based upon annual gross income which may apply in paragraph (q)(4)(ii) 
of this section.
    (iii) Indications of fraud, abuse and illegal acts shall be 
processed in accordance with paragraph (q)(4)(i)(A)(3) of this section.
    (ii) Audits based upon annual gross income. The following annual 
gross income audit reguirements shall apply to all borrowers (local 
government, Indian tribes, and nonprofit organizations) for all years 
except the ones in which there is an audit requirement based upon the 
amount of Federal assistance received as required by paragraphs 
(q)(4)(i)(A) and (q)(4)(i)(B) of this section. Audits shall be on an 
annual basis unless otherwise prohibited and shall be supplied to FmHA 
or its successor agency under Public Law 103-354 as soon as possible but 
in no case later than 150 days following the period covered by the 
audit.
    (A) Gross annual income of $500,000 or more and an unpaid loan 
balance exceeding $100,000. (1) Local governments and Indian tribes 
shall have audits made in accordance with State or local law or 
regulation or regulatory agency requirements. If no such requirements 
exist, audits shall be made in accordance with OMB Circular A-110 and 
paragraphs (q)(4)(i)(B)(1) and (2)(iii) of this section.
    (2) All other organizations shall have audits in accordance with OMB 
Circular A-110 and paragraph (q)(4)(i)(B)(1) and (2)(iii) of this 
section.
    (B) Gross annual income of less than $500,000. For borrowers that 
have a gross annual income of less than $500,000, the requirements for 
audits shall be at the discretion of the State Director. However, when 
audits are required, they shall be in accordance with paragraph 
(q)(4)(ii)(A) of this section.
    (5) Borrowers exempt from audits. All borrowers who are exempt from 
audits, will, within 60 days following the end of each fiscal year, 
furnish the FmHA or its successor agency under Public Law 103-354 with 
annual financial statements, consisting of a verification of the 
organization's balance sheet and statement of income and expense by an 
appropriate official of the organization. Forms FmHA 442-2 and 442-3 may 
be used. For borrowers using Form FmHA or its successor agency under 
Public Law 103-354 442-2, the dual purpose of fourth quarter management 
reports, when required, and annual statements of income will be met with 
this one submission.
    (r) FmHA or its successor agency under Public Law 103-354 actions 
for borrower supervision and servicing--(1) Management assistance and 
management reports. Management assistance will be based on such factors 
as observation of borrower operations and review of the periodic 
financial reports. The amount and type of assistance provided will be 
that needed to assure borrower success and compliance with its 
agreements with FmHA or its successor agency under Public Law 103-354.
    (i) The District Director is responsible for obtaining all 
management report data from the borrower, promptly reviewing it and 
making any necessary recommendations to the borrower within 40 calendar 
days. However, after receiving management reports for borrowers whose 
FmHA or its successor agency under Public Law 103-354 indebtedness 
exceeds $1,000,000 and for delinquent and problem case borrowers, the 
District Director will forward them with comments to the State Director 
for review.
    (ii) District Director reviews of borrower operations. (A) A review 
of the borrower's total operational and management practices, including 
records and accounts to be maintained, will be made between the 
beginning of the ninth and the end of the eleventh full month of the 
first year of operation. A report will be made to the State Director by 
sending a copy of Form FmHA or its successor agency under Public Law 
103-354 442-4, ``District Director Report.'' Earlier reviews will be 
made when needed to resolve operational and management problems that may 
arise.

[[Page 186]]

    (B) Subsequent reviews will be made for all delinquent and other 
borrowers having financial problems and reported to the State Director 
by a copy of Form FmHA or its successor agency under Public Law 103-354 
442-4. These borrowers will adopt a positive action plan (see guide 22). 
The plan will be reviewed quarterly by the District Director until the 
delinquency is eliminated or other servicing actions are recommended.
    (C) The District Director may, after the end of the borrower's third 
fiscal year of operation, exempt it from submitting management reports 
provided it:
    (1) Is current on its loan payments.
    (2) Is meeting the conditions of its agreements with FmHA or its 
successor agency under Public Law 103-354.
    (3) Has demonstrated its ability to successfully operate and manage 
the organization and has not obtained subsequent loans in the last 3 
years which have significantly altered the scope of the project.
    (4) Has the State Director's written concurrence for all borrowers 
whose FmHA or its successor agency under Public Law 103-354 indebtedness 
exceeds $1,000,000.
    (D) Borrowers qualifying for this exemption will still be required 
to submit a copy of their audits or annual financial statements.
    (E) Ordinarily and exception will not be made to the requirement for 
the borrower to submit a copy of its annual budget.
    (F) The District Director or State Director may reinstate the 
requirements for submission of periodic management reports for those 
borrowers who became delinquent or otherwise are not carrying out their 
agreements with FmHA or its successor agency under Public Law 103-354 or 
require more frequent submission of management reports. This requirement 
will be reinstated for borrowers receiving a subsequent loan which will 
significantly alter the scope of the project.
    (G) The District Director may accept management reports which are 
not prepared on page 1 of Form FmHA or its successor agency under Public 
Law 103-354 442-2 Schedule 1 but contain like information. However, page 
2 of this form must be used by all borrowers required to furnish 
management reports.
    (iii) The State Director is responsible for:
    (A) The review of the District Director's submission for all 
borrowers whose indebtedness exceeds $1,000,000. The State Director will 
forward comments to the District Director in order that a response, if 
necessary, can be sent to the borrower within 40 calendar days after the 
borrower's submission of its management reports.
    (B) The review of all delinquent and problem case borrower 
management reports. Ordinarily, review findings and instructions 
regarding further management assistance will be determined, and provided 
to the District Office within 20 calendar days of submission for 
delinquent and problem borrowers.
    (C) Forwarding to the National Office copies of review findings, 
instructions for further assistance, and positive action plans on 
delinquent borrowers and borrowers experiencing financial problems, at 
same time the findings and instructions are provided to the District 
Office.
    (2) Audits and financial statements--(i) The District Director is 
responsible for obtaining all audit reports and financial statements 
from the borrower. Those received from borrowers whose FmHA or its 
successor agency under Public Law 103-354 indebtedness exceeds 
$1,000,000 and from delinquent and problem case borrowers will be 
promptly reviewed and forwarded to the State Director with appropriate 
comments.
    (ii) The District Director is responsible for the review of audits 
and financial statements and for recommendations and instructions for 
borrower assistance. For borrowers required to have audits, in 
accordance with paragraph (q)(4)(i)(A) of this section, the District 
Director is also responsible for any necessary follow up required 
because of audit resolution items received from the cognizant agencies.
    (iii) The State Director is responsible for the review of audits of 
borrowers whose indebtedness exceeds $1,000,000

[[Page 187]]

and delinquent and problem case borrowers. The State Director may 
recommend to the District Director any necessary actions to be taken.
    (3) Security inspections. A representative of the borrower will 
ordinarily accompany the District Director during each inspection.
    (i) Post construction inspection. The District Director will inspect 
each facility between the beginning of the ninth and the end of the 
eleventh full month of the first year of operation. This will normally 
coincide with the District Director's review of the borrower's total 
operational and management practices described in paragraph 
(r)(1)(ii)(A) of this section. The results of this inspection will be 
reported to the State Director on Form FmHA or its successor agency 
under Public Law 103-354 1924-12. Earlier inspections will be made when 
operational or other problems indicate a need. The State Director will 
provide guidance to the District Director to assure that action will be 
taken to correct project deficiencies.
    (ii) Subsequent inspections. The District Director will make 
subsequent inspections of borrower security property and facilities 
during each third year after the post construction inspection. The 
results of this inspection will be reported to the State Director on 
Form FmHA or its successor agency under Public Law 103-354 1924-12.
    (iii) Special inspections. The District Director may request, or the 
State Director may determine, the need for a member of the State staff 
to make certain security inspections. In such cases, the State Director 
will detail a staff member to make such inspections.
    (iv) Follow-up inspections. If any inspection discloses deficiencies 
or exceptions, or otherwise indicates a need for subsequent inspections 
prior to the third year, the State Director will prescribe the type and 
frequency of follow-up inspections. These inspections will be made until 
all deficiencies and exceptions have been corrected.
    (4) Civil rights compliance reviews will be performed under subpart 
E of part 1901 of this chapter for the life of the loan.
    (5) Other loan servicing actions will be in accordance with subparts 
E and O of part 1951 of this chapter.

[50 FR 7296, Feb. 22, 1985]

    Editorial Note: For Federal Register citations affecting Sec. 
1942.17, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.

    Effective Date Note: At 69 FR 69104, Nov. 26, 2004, Sec. 1942.17 
was amended by removing paragraph (q)(1)(iii), and redesignating 
paragraph (q)(1)(iv) as (q)(1)(iii), effective Feb. 24, 2005.



Sec. 1942.18  Community facilities--Planning, bidding, contracting, 
constructing.

    (a) General. This section is specifically designed for use by owners 
including the professional or technical consultants and/or agents who 
provide assistance and services such as architectural, engineering, 
inspection, financial, legal or other services related to planning, 
bidding, contracting, and constructing community facilities. These 
procedures do not relieve the owner of the contractual obligations that 
arise from the procurement of these services. For this section, an owner 
is defined as an applicant, borrower, or grantee.
    (b) Technical services. Owners are responsible for providing the 
engineering or architectural services necessary for planning, designing, 
bidding, contracting, inspecting, and constructing their facilities. 
Services may be provided by the owner's ``in house'' engineer or 
architect or through contract, subject to FmHA or its successor agency 
under Public Law 103-354 concurrence. Architects and engineers must be 
licensed in the State where the facility is to be constructed.
    (c) Preliminary reports. Preliminary architectural and engineering 
reports must conform with customary professional standards. Preliminary 
report guidelines for water, sanitary sewer, solid waste, storm sewer, 
and other essential community facilities are available from FmHA or its 
successor agency under Public Law 103-354.
    (d) Design policies. Facilities financed by FmHA or its successor 
agency under Public Law 103-354 will be designed and constructed in 
accordance with sound

[[Page 188]]

engineering and architectural practices, and must meet the requirements 
of Federal, State and local agencies.
    (1) Natural resources. Facility planning should be responsive to the 
owner's needs and should consider the long-term economic, social and 
environmental needs as set forth in this section. FmHA or its successor 
agency under Public Law 103-354's environmental considerations are under 
subpart G of part 1940 of this chapter.
    (i) Floodplains and wetlands. Facilities must avoid, to the extent 
possible, the long- and short-term adverse impacts associated with the 
occupancy and modification of floodplains and wetlands, and avoid direct 
or indirect support of floodplain and wetland development whenever there 
is a practicable alternative. This subject is more fully discussed in 
Executive Order 11988, Executive Order 11990, and Water Resources 
Council's Floodplain Management Guidelines (43 FR 6030) which is 
available in all FmHA or its successor agency under Public Law 103-354 
offices. Facilities located in special flood and mudslide prone areas 
must comply with FmHA or its successor agency under Public Law 103-354's 
eligibility and insurance requirements in subpart B of part 1806 of this 
chapter (FmHA Instruction 426.2).
    (ii) Coastal Zone Management. Facilities shall be designed and 
constructed in a manner consistent with approved State management 
programs, under the Coastal Zone Management Act of 1972 (Pub. L. 92-583 
section 307 (c)(1) and (2)) as supplemented by the Department of 
Commerce regulations 15 CFR part 930.
    (iii) Wild and Scenic Rivers. Facilities shall be designed and 
constructed in order that designated wild and scenic rivers be preserved 
in free-flowing condition and that they and their immediate environments 
be protected for the benefit and enjoyment of present and future 
generations under the Wild and Scenic Rivers Act of 1978 (Pub. L. 95-
625).
    (iv) Endangered species. Facilities shall be designed and 
constructed in a manner to conserve, to the extent practicable, the 
various endangered and threatened species of fish or wildlife and 
plants, and will not jeopardize their continued existence and will not 
result in destruction or modification of the habitat of species in the 
Endangered Species Act of 1973 (Pub. L. 93-205).
    (2) Historic preservation. Facilities should be designed and 
constructed in a manner which will contribute to the preservation and 
enhancement of sites, structures, and objects of historical, 
architectural, and archaeological significance. All facilities must 
comply with the National Historic Preservation Act of 1966 (16 U.S.C 
470) as supplemented by 36 CFR part 800 and Executive Order 11593, 
``Protection and Enhancement of the Cultural Environment.'' subpart F of 
part 1901 of this chapter sets forth procedures for the protection of 
Historic and Archaeological Properties.
    (3) Architectural barriers. All facilities intended for or 
accessible to the public or in which physically handicapped persons may 
be employed or reside must be developed in compliance with the 
Architectural Barriers Act of 1968 (Pub. L. 90-480) as implemented by 
the General Services Administration regulations 41 CFR 101-19.6 and 
section 504 of the Rehabilitation Act of 1973 (Pub. L. 93-112) as 
implemented by 7 CFR parts 15 and 15b.
    (4) Health Care Facilities. The proposed facility must meet the 
minimum standards for design and construction contained in the American 
Institute of Architects Press Publication No. ISBN 0-913962-96-1, 
``Guidelines for Construction and Equipment of Hospital and Medical 
Facilities,'' 1987 Edition. The facility must also meet the life/safety 
aspects of the 1985 edition of the National Fire Protection Association 
(NFPA) 101 Life Safety Code, or any subsequent code that may be 
designated by the Secretary of HHS. All publications referenced in this 
section are available in all FmHA or its successor agency under Public 
Law 103-354 State Offices. Under Sec. 1942.17(j)(8)(ii) of this 
subpart, a statement by the responsible regulatory agency that the 
facility meets the above standards will be required. Any exceptions must 
have prior National Office concurrence.
    (5) Energy conservation. Facility design should consider cost 
effective energy saving measures or devices.

[[Page 189]]

    (6) Lead base paints. Lead base paints shall not be used in 
facilities designed for human habitation. Owners must comply with the 
Lead Base Paints Poisoning and Prevention Act of 1971 (42 U.S.C. 4801) 
and the National Consumer Health Information and Health Promotion Act of 
1976 (Pub. L. 94-317) with reference to paint specifications used 
according to exhibit H of subpart A of part 1924 of this chapter.
    (7) Fire protection. Water facilities must have sufficient capacity 
to provide reasonable fire protection to the extent practicable.
    (8) Growth capacity. Facilities must have sufficient capacity to 
provide for reasonable growth to the extent practicable.
    (9) Water conservation. Owners are encouraged, when economically 
feasible, to incorporate water conservation practices into a facility's 
design. For existing water systems, evidence must be provided showing 
that the distribution system water losses do not exceed reasonable 
levels.
    (10) Water quality. All water facilities must meet the requirements 
of the Safe Drinking Water Act (Pub. L. 93-523) and provide water of a 
quality that meets the current Interim Primary Drinking Water 
Regulations (40 CFR part 141).
    (11) Combined sewers. New combined sanitary and storm water sewer 
facilities will not be financed by FmHA or its successor agency under 
Public Law 103-354. Extensions to existing combined systems can only be 
financed when separate systems are impractical.
    (12) Compliance. All facilities must meet the requirements of 
Federal, State, and local agencies having the appropriate jurisdiction.
    (13) Dam safety. Projects involving any artificial barrier which 
impounds or diverts water, or the rehabilitation or improvement of such 
a barrier, should comply with the provisions for dam safety as discussed 
in the Federal Guidelines for Dam Safety (Government Printing Office 
stock No. 041-001-00187-5) as prepared by the Federal Coordinating 
Council for Science, Engineering and Technology.
    (14) Pipe. All pipe used shall meet current American Society for 
Testing Materials (ASTM) or American Water Works Association (AWWA) 
standards.
    (15) Water system testing. For new water systems or extensions to 
existing water systems, leakage shall not exceed 10 gallons per inch of 
pipe diameter per mile of pipe per 24 hours when tested at 1\1/2\ times 
the working pressure or rated pressure of the pipe, whichever is 
greater.
    (16) Metering devices. Water facilities financed by FmHA or its 
successor agency under Public Law 103-354 will have metering devices for 
each connection. An exception to this requirement may be granted by the 
FmHA or its successor agency under Public Law 103-354 State Director 
when the owner demonstrates that installation of metering devices would 
be a significant economic detriment and that environmental consideration 
would not be adversely affected by not installing such devices.
    (17) Seismic safety. (i) All new building construction shall be 
designed and constructed in accordance with the seismic provisions of 
one of the following model building codes or the latest edition of that 
code providing an equivalent level of safety to that contained in latest 
edition of the National Earthquake Hazard Reduction Program's (NEHRP) 
Recommended Provisions for the Development of Seismic Regulations for 
New Building (NEHRP Provisions):
    (A) 1991 International Conference of Building Officials (ICBO) 
Uniform Building Code;
    (B) 1993 Building Officials and Code Administrators International, 
Inc. (BOCA) National Building Code; or
    (C) 1992 Amendments to the Southern Building Code Congress 
International (SBCCI) Standard Building Code.
    (ii) The date, signature, and seal of a registered architect or 
engineer and the identification and date of the model building code on 
the plans and specifications will be evidence of compliance with the 
seismic requirements of the appropriate building code.
    (e) Construction contracts. Contract documents must be sufficiently 
descriptive and legally binding in order to accomplish the work as 
economically and expeditiously as possible.

[[Page 190]]

    (1) Standard construction contract documents are available from FmHA 
or its successor agency under Public Law 103-354. When FmHA or its 
successor agency under Public Law 103-354's standard construction 
contract documents are used, it will normally not be necessary for the 
Office of the General Counsel (OGC) to perform a detailed legal review. 
If the construction contract documents utilized are not in the format of 
guide forms previously approved by FmHA or its successor agency under 
Public Law 103-354, OGC's review of the construction contract documents 
will be obtained prior to their use.
    (2) Contract review and approval. The owner's attorney will review 
the executed contract documents, including performance and payment 
bonds, and will certify that they are adequate, and that the persons 
executing these documents have been properly authorized to do so. The 
contract documents, bids bonds, and bid tabulation sheets will be 
forwarded to FmHA or its successor agency under Public Law 103-354 for 
approval prior to awarding. All contracts will contain a provision that 
they are not in full force and effect until they have been approved by 
FmHA or its successor agency under Public Law 103-354. The FmHA or its 
successor agency under Public Law 103-354 State Director or designee is 
responsible for approving construction contracts with the legal advice 
and guidance of the OGC when necessary.
    (3) Separate contracts. Arrangements which split responsibility of 
contractors (separate contracts for labor and material, extensive 
subcontracting and multiplicity of small contracts on the same job), 
should be avoided whenever it is practical to do so. Contracts may be 
awarded to suppliers or manufacturers for furnishing and installing 
certain items which have been designed by the manufacturer and delivered 
to the job site in a finished or semifinished state such as 
perfabricated buildings and lift stations. Contracts may also be awarded 
for material delivered to the job site and installed by a patented 
process or method.
    (f) Utility purchase contracts. Applicants proposing to purchase 
water or other utility service from private or public sources shall have 
written contracts for supply or service which are reviewed and approved 
by the FmHA or its successor agency under Public Law 103-354 State 
Director or designee. To the extent practical, FmHA or its successor 
agency under Public Law 103-354 review and approval of such contracts 
should take place prior to their execution by the owner. Form FmHA or 
its successor agency under Public Law 103-354 442-30, ``Water Purchase 
Contract,'' may be used when appropriate. If the FmHA or its successor 
agency under Public Law 103-354 loan will be repaid from system 
revenues, the contract will be pledged to FmHA or its successor agency 
under Public Law 103-354 as part of the security for the loan. Such 
contracts will:
    (1) Include a commitment by the supplier to furnish, at a specified 
point, an adequate quantity of water or other service and provide that, 
in case of shortages, all of the supplier's users will proportionately 
share shortages. If it is impossible to obtain a firm commitment for 
either an adequate quantity or sharing shortages proportionately, a 
contract may be executed and approved provided adequate evidence is 
furnished to enable FmHA or its successor agency under Public Law 103-
354 to make a determination that the supplier has adequate supply and/or 
treatment facilities to furnish its other users and the applicant for 
the foreseeable future; and
    (i) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (ii) A suitable alternative supply could be arranged within the 
repayment ability of the borrower if it should become necessary; or
    (iii) Prior approval is obtained from the National Office. The 
following information should be submitted to the National Office:
    (A) Transmittal memorandum including:
    (1) Alternative supplies considered; and
    (2) Recommendations and comments; and
    (3) Any other necessary supporting information.

[[Page 191]]

    (B) Copies of the following:
    (1) Proposed letter of conditions; and
    (2) Form FmHA or its successor agency under Public Law 103-354 442-
7, ``Operating Budget''; and
    (3) Form FmHA or its successor agency under Public Law 103-354 442-
3, ``Balance Sheet''; and
    (4) Preliminary Engineering Report; and
    (5) Proposed Contract.
    (C) Owner and FmHA or its successor agency under Public Law 103-354 
engineer's comments and recommendations.
    (D) Documentation and statement from the supplier that it has an 
adequate supply and treatment facilities available to meet the needs of 
its users and the owner for the foreseeable future.
    (2) Set out the ownership and maintenance responsibilities of the 
respective parties including the master meter if a meter is installed at 
the point of delivery.
    (3) Specify the initial rates and provide some kind of escalator 
clause which will permit rates for the association to be raised or 
lowered proportionately as certain specified rates for the supplier's 
regular customers are raised or lowered. Provisions may be made for 
altering rates in accordance with the decisions of the appropriate State 
agency which may have regulatory authority.
    (4) Run for a period of time which is at least equal to the 
repayment period of the loan. State Directors may approve contracts for 
shorter periods of time if the supplier cannot legally contract for such 
period, or if the owner and supplier find it impossible or impractical 
to negotiate a contract for the maximum period permissible under State 
law, provided:
    (i) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (ii) The contract contains adequate provisions for renewal; or
    (iii) A determination is made that in the event the contract is 
terminated, there are or will be other adequate sources available to the 
owner that can feasibly be developed or purchased.
    (5) Set out in detail the amount of connection or demand charges, if 
any, to be made by the supplier as a condition to making the service 
available to the owner. However, the payment of such charges from loan 
funds shall not be approved unless FmHA or its successor agency under 
Public Law 103-354 determines that it is more feasible and economical 
for the owner to pay such a connection charge than it is for the owner 
to provide the necessary supply by other means.
    (6) Provide for a pledge of the contract to FmHA or its successor 
agency under Public Law 103-354 as part of the security for the loan.
    (7) Not contain provisions for:
    (i) Construction of facilities which will be owned by the supplier. 
This does not preclude the use of money paid as a connection charge for 
construction to be done by the supplier.
    (ii) Options for the future sale or transfer. This does not preclude 
an agreement recognizing that the supplier and owner may at some future 
date agree to a sale of all or a portion of the facility.
    (g) Sewage treatment and bulk water sales contracts. Owners entering 
into agreements with private or public parties to treat sewage or supply 
bulk water shall have written contracts for such service and all such 
contracts shall be subject to FmHA or its successor agency under Public 
Law 103-354 concurrence. Paragraph (f) of this section should be used as 
a guide to prepare such contracts.
    (h) Performing construction. Owners are encouraged to accomplish 
construction through contracts with recognized contractors. Owners may 
accomplish construction by using their own personnel and equipment 
provided the owners possess the necessary skills, abilities and 
resources to perform the work and provided a licensed engineer or 
architect prepares design drawings and specifications and inspects 
construction and furnishes inspection reports as required by paragraph 
(o) of this section. For other than utility-type facilities, inspection 
services may be provided by individuals as approved by the FmHA or its 
successor agency

[[Page 192]]

under Public Law 103-354 State Director. In either case, the 
requirements of paragraph (j) of this section apply. Payments for 
construction will be handled under Sec. 1942.17(p)(5) of this part.
    (i) Owner's contractual responsibility. This subpart does not 
relieve the owner of any contractual responsibilities under its 
contract. The owner is responsible for the settlement of all 
contractural and administrative issues arising out of procurements 
entered into in support of a loan or grant. These include, but are not 
limited to: source evaluation, protests, disputes, and claims. Matters 
concerning violation of laws are to be referred to the local, State, or 
Federal authority as may have jurisdiction.
    (j) Owner's procurement regulations. Owner's procurement regulations 
must comply with the following standards:
    (1) Code of conduct. Owners shall maintain a written code or 
standards of conduct which shall govern the performance of their 
officers, employees or agents engaged in the award and administration of 
contracts supported by FmHA or its successor agency under Public Law 
103-354 funds. No employee, officer or agent of the owner shall 
participate in the selection, award, or administration of a contract 
supported by FmHA or its successor agency under Public Law 103-354 funds 
if a conflict of interest, real or apparent, would be involved. Examples 
of such conflicts would arise when: the employee, officer or agent; any 
member of their immediate family; their partner; or an organization 
which employs, or is about to employ, any of the above; has a financial 
or other interest in the firm selected for the award.
    (i) The owner's officers, employees or agents shall neither solicit 
nor accept gratuities, favors or anything of monetary value from 
contractors, potential contractors, or parties of subagreements.
    (ii) To the extent permitted by State or local law or regulations, 
the owner's standards of conduct shall provide for penalties, sanctions, 
or other disciplinary actions for violations of such standards by the 
owner's officers, employees, agents, or by contractors or their agents.
    (2) Maximum open and free competition. All procurement transactions, 
regardless of whether by sealed bids or by negotiation and without 
regard to dollar value, shall be conducted in a manner that provides 
maximum open and free competition. Procurement procedures shall not 
restrict or eliminate competition. Examples of what are considered to be 
restrictive of competition include, but are not limited to: Placing 
unreasonable requirements on firms in order for them to qualify to do 
business; noncompetitive practices between firms; organizational 
conflicts of interest; and unnecessary experience and bonding 
requirements. In specifying material(s), the owner and its consultant 
will consider all materials normally suitable for the project 
commensurate with sound engineering practices and project requirements. 
For a water or waste disposal facility, FmHA or its successor agency 
under Public Law 103-354 shall consider fully any recommendation made by 
the loan applicant or borrower concerning the technical design and 
choice of materials to be used for such a facility. If FmHA or its 
successor agency under Public Law 103-354 determines that a design or 
material, other than those that were recommended should be considered by 
including them in the procurement process as an acceptable design or 
material in the water or waste disposal facility, FmHA or its successor 
agency under Public Law 103-354 shall provide such applicant or borrower 
with a comprehensive justification for such a determination. The 
justification will be documented in writing.
    (3) Owner's review. Proposed procurement actions shall be reviewed 
by the owner's officials to avoid the purchase of unnecessary or 
duplicate items. Consideration should be given to consolidation or 
separation of procurement items to obtain a more economical purchase. 
Where appropriate, an analysis shall be made of lease versus purchase 
alternatives, and any other appropriate analysis to determine which 
approach would be the most economical. To foster greater economy and 
efficiency, owners are encouraged to enter into State and local 
intergovernmental

[[Page 193]]

agreements for procurement or use of common goods and services.
    (4) Solicitation of offers, whether by competitive sealed bids or 
competitive negotiation, shall:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. The 
description shall not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary shall set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
``brand name or equal'' description may be used to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brands which must be met by offerors shall be 
clearly stated.
    (ii) Clearly specify all requirements which offerors must fulfill 
and all other factors to be used in evaluating bids or proposals.
    (5) Small, minority, and women's businesses and labor surplus area 
firms. (i) affirmative steps should be taken to assure that small and 
minority businesses are utilized when possible as sources of supplies, 
equipment, construction and services. Affirmative steps shall include 
the following:
    (A) Include qualified small and minority businesses on solicitation 
lists.
    (B) Assure that small and minority businesses are solicited whenever 
they are potential sources.
    (C) When economically feasible, divide total requirements into 
smaller tasks or quantities so as to permit maximum small and minority 
business participation.
    (D) Where the requirement permits, establish delivery schedules 
which will encourage participation by small and minority businesses.
    (E) Use the services and assistance of the Small Business 
Administration and the Office of Minority Business Enterprise of the 
Department of Commerce.
    (F) If any subcontracts are to be let, require the prime contractor 
to take the affirmative steps in paragraphs (j)(5)(i) (A) through (E) of 
this section.
    (ii) Owners shall take similar appropriate affirmative action in 
support of women's businesses.
    (iii) Owners are encouraged to procure goods and services from labor 
surplus areas.
    (iv) Owners shall submit a written statement or other evidence to 
FmHA or its successor agency under Public Law 103-354 of the steps taken 
to comply with paragraphs (j)(5)(i) (A) through (F), (j)(5)(ii), and 
(j)(5)(iii) of this section.
    (6) Contract pricing. Cost plus a percentage of cost method of 
contracting shall not be used.
    (7) Unacceptable bidders. The following will not be allowed to bid 
on, or negotiate for, a contract or subcontract related to the 
construction of the project:
    (i) An engineer or architect as an individual or firm who has 
prepared plans and specifications or who will be responsible for 
monitoring the construction;
    (ii) Any firm or corporation in which the owner's architect or 
engineer is an officer, employee, or holds or controls a substantial 
interest;
    (iii) The governing body's officers, employees, or agents;
    (iv) Any member of the immediate family or partners in paragraphs 
(j)(7)(i), (j)(7)(ii), or (j)(7)(iii) of this section; or
    (v) An organization which employs, or is about to employ, any person 
in paragraph (j)(7)(i), (j)(7)(ii), (j)(7)(iii) or (j)(7)(iv) of this 
section.
    (8) Contract award. Contracts shall be made only with responsible 
parties possessing the potential ability to perform successfully under 
the terms and conditions of a proposed procurement. Consideration shall 
include but not be limited to matters such as integrity, record of past 
performance, financial and technical resources, and accessibility to 
other necessary resources. Contracts shall not be made with parties who 
are suspended or debarred.

[[Page 194]]

    (k) Procurement methods. Procurement shall be made by one of the 
following methods: small purchase procedures; competitive sealed bids 
(formal advertising); competitive negotiation; or noncompetitive 
negotiation. Competitive sealed bids (formal advertising) is the 
preferred procurement method for construction contracts.
    (1) Small purchase procedures. Small purchase procedures are those 
relatively simple and informal procurement methods that are sound and 
appropriate for a procurement of services, supplies or other property, 
costing in the aggregate not more than $10,000. If small purchase 
procedures are used for a procurement, written price or rate quotations 
shall be obtained from an adequate number of qualified sources.
    (2) Competitive sealed bids. In competitive sealed bids (formal 
advertising), sealed bids are publicly solicited and a firm-fixed-price 
contract (lump sum or unit price) is awarded to the responsible bidder 
whose bid, conforming with all the material terms and conditions of the 
invitation for bids, is lowest, price and other factors considered. When 
using this method the following shall apply:
    (i) At a sufficient time prior to the date set for opening of bids, 
bids shall be solicited from an adequate number of qualified sources. In 
addition, the invitation shall be publicly advertised.
    (ii) The invitation for bids, including specifications and perinent 
attachments, shall clearly define the items or services needed in order 
for the bidders to properly respond to the invitation under paragraph 
(j)(4) of this section.
    (iii) All bids shall be opened publicly at the time and place stated 
in the invitation for bids.
    (iv) A firm-fixed-price contract award shall be made by written 
notice to that responsible bidder whose bid, conforming to the 
invitation for bids, is lowest. When specified in the bidding documents, 
factors such as discounts and transportation costs shall be considered 
in determining which bid is lowest.
    (v) Any or all bids may be rejected by the owner when it is in their 
best interest.
    (3) Competitive negotiation. In competitive negotiations, proposals 
are requested from a number of sources and the Request for Proposal is 
publicized. Negotiations are normally conducted with more than one of 
the sources submitting offers. Competitive negotiation may be used if 
conditions are not appropriate for the use of formal advertising and 
where discussions and bargaining with a view to reaching agreement on 
the technical quality, price, other terms of the proposed contract and 
specifications may be necessary. If competitive negotiation is used for 
a procurement, the following requirements shall apply:
    (i) Proposals shall be solicited from an adequate number of 
qualified sources to permit reasonable competition consistent with the 
nature and requirements of the procurement. The Request for Proposal 
shall be publicized and reasonable requests by other sources to compete 
shall be honored to the maximum extent practicable.
    (ii) The Request for Proposal shall identify all significant 
evaluation factors, including price or cost where required, and their 
relative importance.
    (iii) The owner shall provide mechanisms for technical evaluation of 
the proposals received, determination of responsible offerors for the 
purpose of written or oral discussions, and selection for contract 
award.
    (iv) Award may be made to the responsible offeror whose proposal 
will be most advantageous to the owner, price and other factors 
considered. Unsuccessful offerors should be promptly notified.
    (v) Owners may utilize competitive negotiation procedures for 
procurement of architectural/engineering and other professional 
services, whereby competitors' qualifications are evaluated and the most 
qualified competitor is selected, subject to negotiations of fair and 
reasonable compensation.
    (4) Noncompetitive negotiation. Noncompetitive negotiation is 
procurement through solicitation of a proposal from only one source, or 
after solicitation of a number of sources competition is determined 
inadequate. Noncompetitive negotiation may be used when the award of a 
contract is not feasible under small purchase, competitive sealed bids 
(formal advertising) or

[[Page 195]]

competitive negotiation procedures. Circumstances under which a contract 
may be awarded by noncompetitive negotiations are limited to the 
following:
    (i) The item is available only from a single source; or
    (ii) There exists a public exigency or emergency and the urgency for 
the requirement will not permit a delay incident to competitive 
solicitation; or
    (iii) After solicitation of a number of sources, competition is 
determined inadequate; or
    (iv) No acceptable bids have been received after formal advertising; 
or
    (v) The procurement of architectural/engineering and other 
professional services.
    (vi) The aggregate amount does not exceed $50,000.
    (5) Additional procurement methods. Additional innovative 
procurement methods may be used by the owner with prior written approval 
of the FmHA or its successor agency under Public Law 103-354 National 
Office.
    (l) Contracting methods. The services of the consulting engineer or 
architect and the general construction contractor shall normally be 
procured from unrelated sources in accordance with paragraph (j)(7) of 
this section. Procurement methods which combine or rearrange design, 
inspection or construction services (such as design/build or 
construction management) may be used with FmHA or its successor agency 
under Public Law 103-354 written approval. If the contract amount 
exceeds $100,000, National Office prior concurrence must be obtained 
under Sec. 1942.9(b) of this subpart. This method cannot be used when 
an FmHA or its successor agency under Public Law 103-354 grant is 
involved. The owner should request FmHA or its successor agency under 
Public Law 103-354 approval by providing at least the following 
information to FmHA or its successor agency under Public Law 103-354:
    (1) The owner's written request to use an unconventional contracting 
method with a description of the proposed method.
    (2) A proposed scope of work describing in clear, concise terms the 
technical requirements for the contract. It should include items such 
as:
    (i) A nontechnical statement summarizing the work to be performed by 
the contractor and the results expected.
    (ii) The sequence in which the work is to be performed and a 
proposed construction schedule.
    (3) A proposed firm-fixed-price contract for the entire project 
which provides that the contractor shall be responsible for:
    (i) Any extra cost which may result from errors or omissions in the 
services provided under the contract.
    (ii) Compliance with all Federal, State, and local requirements 
effective on the contract execution date.
    (4) Where noncompetitive negotiation is proposed, an evaluation of 
the contractor's performance on previous similar projects in which the 
contractor acted in a similar capacity.
    (5) A detailed listing and cost estimate of equipment and supplies 
not included in the construction contract but which are necessary to 
properly operate the facility.
    (6) Evidence that a qualified construction inspector who is 
independent of the contractor has or will be hired.
    (7) Preliminary plans and outline specifications. However, final 
plans and specifications must be completed and reviewed by FmHA or its 
successor agency under Public Law 103-354 prior to the start of 
construction.
    (8) The owner's attorney's opinion and comments regarding the legal 
adequacy of the proposed contract documents and evidence that the owner 
has the legal authority to enter into and fulfill the contract.
    (m) Contracts awarded prior to preapplications. Owners awarding 
construction or other procurement contracts prior to filing a pre-
application with FmHA or its successor agency under Public Law 103-354 
must comply with the following:
    (1) Evidence. Provide conclusive evidence that the contract was 
entered into without intent to circumvent the requirements of FmHA or 
its successor agency under Public Law 103-354 regulations. The evidence 
will consist of at least the following:
    (i) The lapse of a reasonable period of time between the date of 
contract award and the date of filing the preapplication which clearly 
indicates

[[Page 196]]

an irreconcilable failure of previous financial arrangements; or
    (ii) A written statement explaining initial plans for financing the 
project and reasons for failure to obtain the planned credit.
    (2) Modifications. Modify the outstanding contract to conform with 
the provisions of this subpart. Where this is not possible, 
modifications will be made to the extent practicable and, as a minimum, 
the contract must comply with all State and local laws and regulations 
as well as statutory requirements and executive orders related to the 
FmHA or its successor agency under Public Law 103-354 financing. When 
all construction is complete and it is impracticable to modify the 
contracts, the owner must provide the certification required by 
paragraph (m)(4) of this section.
    (3) Consultant's certification. Provide a certification by an 
engineer or architect that any construction performed complies fully 
with the plans and specifications.
    (4) Owner's certification. Provide a certification by the owner that 
the contractor has complied with all statutory and executive 
requirements related to FmHA or its successor agency under Public Law 
103-354 financing for construction already performed even though the 
requirements may not have been included in the contract documents.
    (n) Contract provisions. In addition to provisions defining a sound 
and complete contract, any recipient of FmHA or its successor agency 
under Public Law 103-354 funds shall include the following contract 
provisions or conditions in all contracts:
    (1) Remedies. Contracts other than small purchases shall contain 
provisions or conditions which will allow for administrative, 
contractual, or legal remedies in instances where contractors violate or 
breach contract terms, and provide for such sanctions and penalties as 
may be appropriate. A realistic liquidated damage provision should also 
be included.
    (2) Termination. All contracts exceeding $10,000, shall contain 
provisions for termination by the owner including the manner by which it 
will be affected and the basis for settlement. In addition, such 
contracts shall describe conditions under which the contract may be 
terminated for default as well as conditions when the contract may be 
terminated because of circumstances beyond the control of the 
contractor.
    (3) Surety. In all contracts for construction or facility 
improvements awarded exceeding $100,000, the owner shall require bonds, 
a bank letter of credit or cash deposit in escrow assuring performance 
and payment, each in the amount of 100 percent of the contract cost. The 
surety will normally be in the form of performance bonds and payment 
bonds; however, when other methods of surety may be necessary, bid 
documents must contain provisions for such alternative types of surety. 
The use of surety other than performance bonds and payment bonds 
requires concurrence by the National Office after submission of a 
justification by the State Director together with the proposed form of 
escrow agreement or letter of credit. For contracts of lesser amounts, 
the owner may require surety. When a surety is not provided, contractors 
will furnish evidence of payment in full for all materials, labor, and 
any other items procured under the contract. Form FmHA or its successor 
agency under Public Law 103-354 1924-10, ``Release by Claimants,'' and 
Form FmHA or its successor agency under Public Law 103-354 1924-9, 
``Certificate of Contractor's Release,'' may be obtained at the local 
FmHA or its successor agency under Public Law 103-354 office and used 
for this purpose. The United States, acting through the Farmers Home 
Administration or its successor agency under Public Law 103-354, will be 
named as co-obligee on all surety unless prohibited by State law. 
Companies providing performance bonds and payment bonds must hold a 
certificate of authority as an acceptable surety on Federal bonds as 
listed in Treasury Circular 570 as amended and be legally doing business 
in the State where the facility is located.
    (4) Equal Employment Opportunity. All contracts awarded in excess of 
$10,000 by owners shall contain a provision requiring compliance with 
Executive

[[Page 197]]

Order 11246, entitled, ``Equal Employment Opportunity,'' as amended by 
Executive Order 11375, and as supplemented by Department of Labor 
regulations 41 CFR part 60.
    (5) Anti-kickback. All contracts for construction shall include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act (18 
U.S.C. 874). This Act provides that each contractor shall be prohibited 
from inducing, by any means, any person employed in the construction, 
completion, or repair of public work, to give up any part of the 
compensation to which they are otherwise entitled. The owner shall 
report all suspected or reported violations to FmHA or its successor 
agency under Public Law 103-354.
    (6) Records. All negotiated contracts (except those of $2,500 or 
less) awarded by owners shall include a provision to the effect that the 
owner, FmHA or its successor agency under Public Law 103-354, the 
Comptroller General of the United States, or any of their duly 
authorized representatives, shall have access to any books, documents, 
papers, and records of the contractor which are directly pertinent to a 
specific Federal loan program for the purpose of making audits, 
examinations, excerpts, and transcriptions. Owners shall require 
contractors to maintain all required records for three years after 
owners make final payments and all other pending matters are closed.
    (7) State Energy Conservation Plan. Contracts shall recognize 
mandatory standards and policies relating to energy efficiency which are 
contained in the State energy conservation plan issued in compliance 
with the Energy Policy and Conservation Act (Pub. L. 94-163).
    (8) Change orders. The construction contract shall require that all 
contract change orders be approved in writing by FmHA or its successor 
agency under Public Law 103-354.
    (9) FmHA or its successor agency under Public Law 103-354 
concurrence. All contracts must contain a provision that they shall not 
be effective unless and until the FmHA or its successor agency under 
Public Law 103-354 State Director or designee concurs in writing.
    (10) Retainage. All construction contracts shall contain adequate 
provisions for retainage. No payments will be made that would deplete 
the retainage nor place in escrow any funds that are required for 
retainage nor invest the retainage for the benefit of the contractor. 
The retainage shall not be less than an amount equal to 10 percent of an 
approved partial payment estimate until 50 percent of the work has been 
completed. If the job is proceeding satisfactory at 50 percent 
completion, further partial payments may be made in full, however, 
previously retained amounts shall not be paid until construction is 
substantially complete. Additional amounts may be retained if the job is 
not proceeding satisfactorily, but in no event shall the total retainage 
be more than 10 percent of the value of the work completed.
    (11) Other compliance requirements. Contracts in excess of $100,000 
shall contain a provision which requires compliance with all applicable 
standards, orders, or requirements issued under section 306 of the Clean 
Air Act (42 U.S.C. 1857(h)), section 508 of the Clean Water Act (33 
U.S.C. 1368), Executive Order 11738, and Environmental Protection Agency 
(EPA) regulations 40 CFR part 15, which prohibit the use under non-
exempt Federal contracts, grants or loans of facilities included on the 
EPA List of Violating Facilities. The provision shall require reporting 
of violations to FmHA or its successor agency under Public Law 103-354 
and to the U.S. Environmental Protection Agency, Assistant Administrator 
for Enforcement. Solicitations and contract provisions shall include the 
requirements of 40 CFR part 15.4(c) as set forth in guide 18 of this 
subpart which is available in all FmHA or its successor agency under 
Public Law 103-354 offices.
    (o) Contract administration. Owners shall be responsible for 
maintaining a contract administration system to monitor the contractors' 
performance and compliance with the terms, conditions, and 
specifications of the contracts.
    (1) Preconstruction conference. Prior to beginning construction, the 
owner will schedule a preconstruction conference where FmHA or its 
successor agency under Public Law 103-354 will review the planned 
development with the

[[Page 198]]

owner, its architect or engineer, resident inspector, attorney, 
contractor(s), and other interested parties. The conference will 
thoroughly cover applicable items included in Form FmHA or its successor 
agency under Public Law 103-354 1924-16, ``Record of Preconstruction 
Conference,'' and the discussion and agreements will be documented. Form 
FmHA or its successor agency under Public Law 103-354 1924-16 may be 
used for this purpose.
    (2) Monitoring reports. Each owner will be required to monitor and 
provide reports to FmHA or its successor agency under Public Law 103-354 
on actual performance during construction for each project financed, or 
to be financed, in whole or in part with FmHA or its successor agency 
under Public Law 103-354 funds to include:
    (i) A comparison of actual accomplishments with the construction 
schedule established for the period. The partial payment estimate may be 
used for this purpose.
    (ii) A narrative statement giving full explanation of the following:
    (A) Reasons why established goals were not met.
    (B) Analysis and explanation of cost overruns or high unit costs and 
how payment is to be made for the same.
    (iii) If events occur between reports which have a significant 
impact upon the project, the owner will notify FmHA or its successor 
agency under Public Law 103-354 as soon as any of the following 
conditions are met:
    (A) Problems, delays, or adverse conditions which will materially 
affect the ability to attain program objectives or prevent the meeting 
of project work units by established time periods. This disclosure shall 
be accompanied by a statement of the action taken, or contemplated, and 
any Federal assistance needed to resolve the situation.
    (B) Favorable developments or events which enable meeting time 
schedules and goals sooner than anticipated or producing more work units 
than originally projected or which will result in cost underruns or 
lower unit costs than originally planned and which may result in less 
FmHA or its successor agency under Public Law 103-354 assistance.
    (3) Inspection. Full-time resident inspection is required for all 
construction unless a written exception is made by FmHA or its successor 
agency under Public Law 103-354 upon written request of the owner. 
Unless otherwise agreed, the resident inspector will be provided by the 
consulting architect/engineer. Prior to the preconstruction conference, 
the architect/engineer will submit a resume of qualifications of the 
resident inspector to the owner and to FmHA or its successor agency 
under Public Law 103-354 for acceptance in writing. If the owner 
provides the resident inspector, it must submit a resume of the 
inspector's qualifications to the project architect/engineer and FmHA or 
its successor agency under Public Law 103-354 for acceptance in writing 
prior to the preconstruction conference. The resident inspector will 
work under the general supervision of the project architect/engineer. A 
guide format for preparing daily inspection reports (Guide 11 of this 
subpart) and Form FmHA or its successor agency under Public Law 103-354 
1924-18, ``Partial Payment Estimate,'' are available on request from 
FmHA or its successor agency under Public Law 103-354.
    (4) Inspector's daily diary. The resident inspector will maintain a 
record of the daily construction progress in the form of a daily diary 
and daily inspection reports as follows:
    (i) A complete set of all daily construction records will be 
maintained and the original set furnished to the owner upon completion 
of construction.
    (ii) All entries shall be legible and shall be made in ink.
    (iii) Daily entries shall include but not be limited to the date, 
weather conditions, number and classification of personnel working on 
the site, equipment being used to perform the work, persons visiting the 
site, accounts of substantive discussions, instructions given to the 
contractors, directions received, all significant or unusual happenings 
involving the work, any delays, and daily work accomplished.
    (iv) The daily entries shall be made available to FmHA or its 
successor agency under Public Law 103-354 personnel and will be reviewed 
during project inspections.

[[Page 199]]

    (5) Prefinal inspections. A prefinal inspection will be made by the 
owner, resident inspector, project architect or engineer, 
representatives of other agencies involved, the District Director and a 
FmHA or its successor agency under Public Law 103-354 State Office staff 
representative, preferably the State Staff architect or engineer. 
Prefinal inspections may be made without FmHA or its successor agency 
under Public Law 103-354 State Office staff participation if the State 
Director or a designee determines that the facility does not utilize 
complicated construction techniques, materials or equipment for 
facilities such as small fire stations, storage buildings or minor 
utility extensions, and that an experienced District Office staff 
representative will be present. The inspection results will be recorded 
on Form FmHA or its successor agency under Public Law 103-354 1924-12, 
``Inspection Report,'' and a copy provided to all appropriate parties.
    (6) Final inspection. A final inspection will be made by FmHA or its 
successor agency under Public Law 103-354 before final payment is made.
    (7) Change is development plans. (i) Changes in development plans 
may be approved by FmHA or its successor agency under Public Law 103-354 
when requested by owners, provided:
    (A) Funds are available to cover any additional costs; and
    (B) The change is for an authorized loan purpose; and
    (C) It will not adversely affect the soundness of the facility 
operation or FmHA or its successor agency under Public Law 103-354's 
security; and
    (D) The change is within the scope of the contract.
    (ii) Changes will be recorded on Form FmHA or its successor agency 
under Public Law 103-354 1924-7, ``Contract Change Order,'' or, other 
similar forms may be used with the prior approval of the State Director 
or designee. Regardless of the form, change orders must be approved by 
the FmHA or its successor agency under Public Law 103-354 State Director 
or a designated representative.
    (iii) Changes should be accomplished only after FmHA or its 
successor agency under Public Law 103-354 approval on all changes which 
affect the work and shall be authorized only by means of contract change 
order. The change order will include items such as:
    (A) Any changes in labor and material and their respective cost.
    (B) Changes in facility design.
    (C) Any decrease or increase in quantities based on final 
measurements that are different from those shown in the bidding 
schedule.
    (D) Any increase or decrease in the time to complete the project.
    (iv) All changes shall be recorded on chronologically numbered 
contract change orders as they occur. Change orders will not be included 
in payment estimates until approved by all parties.

[50 FR 7296, Feb. 22, 1985, as amended at 52 FR 8035, Mar. 13, 1987; 53 
FR 6791, Mar. 3, 1988; 54 FR 14334, Apr. 11, 1989; 54 FR 18883, May 3, 
1989; 61 FR 65156, Dec. 11, 1996]



Sec. 1942.19  Information pertaining to preparation of notes or bonds 
and bond transcript documents for public body applicants.

    (a) General. This section includes information for use by public 
body applicants in the preparation and issuance of evidence of debt 
(bonds, notes, or debt instruments, herein referred to as bonds). This 
section is made available to applicants as appropriate for application 
processing and loan docket preparation.
    (b) Policies related to use of bond counsel. Preparation of the 
bonds and the bond transcript documents will be the responsibility of 
the applicant. Public body applicants will obtain the services and 
opinion of recognized bond counsel with respect to the validity of a 
bond issue, except as provided in (b) (1) through (3) below. The 
applicant normally will be represented by a local attorney who will 
obtain the assistance of a recognized bond counsel firm which has 
experience in municipal financing with such investors as investment 
dealers, banks, and insurance companies.
    (1) Issues of $250,000 or less. At the option of the applicant for 
issues of $250,000 or less, bond counsel may be used for the issuance of 
a final opinion only and not for the preparation of the bond transcript 
and other documents

[[Page 200]]

when the applicant, FmHA or its successor agency under Public Law 103-
354, and bond counsel have agreed in advance as to the method of 
preparation of the bond transcript documents. Under such circumstances 
the applicant will be responsible for the preparation of the bond 
transcript documents.
    (2) Issues of $50,000 or less. At the option of the applicant and 
with the prior approval of the FmHA or its successor agency under Public 
Law 103-354 State Director, the applicant need not use bond counsel if:
    (i) The amount of the issue does not exceed $50,000 and the 
applicant recognizes and accepts the fact that processing the 
application may require additional legal and administrative time.
    (ii) There is a significant cost saving to the applicant 
particularly with reference to total legal fees after determining what 
bond counsel would charge as compared with what the local attorney will 
charge without bond counsel.
    (iii) The local attorney is able and experienced in handling this 
type of legal work.
    (iv) The applicant understands that, if it is required by FmHA or 
its successor agency under Public Law 103-354 to refinance its loan 
pursuant to the statutory refinancing requirements, it will probably 
have to obtain at its expense a bond counsel's opinion at that time.
    (v) All bonds will be prepared in accordance with this regulation 
and will conform as nearly as possible to the preferred methods of 
preparation stated in paragraph (e) of this section but still be 
consistent with State law.
    (vi) Many matters necessary to comply with FmHA or its successor 
agency under Public Law 103-354 requirements such as land rights, 
easements, and organizational documents will be handled by the 
applicant's local attorney. Specific closing instructions will be issued 
by the Office of the General Counsel of the U.S. Department of 
Agriculture for the guidance of FmHA or its successor agency under 
Public Law 103-354.
    (3) For loans of less than $500,000. The applicant shall not be 
required to use bond counsel in a straight mortgage-note situation where 
competitive bidding is not required for the sale of the debt instrument, 
unless a complicated financial situation exists with the applicant. In 
addition, if there is a known backlog in a particular OGC regional 
office the applicant will be advised of such backlog and it will be 
suggested to the applicant that the appointment of bond counsel may be 
more expeditious. However, it will be the decision of the applicant 
whether or not to appoint bond counsel. The applicant must comply with 
(b)(2) (iii) through (vi) of this section.
    (c) Bond transcript documents. Any questions with respect to FmHA or 
its successor agency under Public Law 103-354 requirements should be 
discusesd with the FmHA or its successor agency under Public Law 103-354 
representatives. The bond counsel (or local counsel where no bond 
counsel is involved) is required to furnish at least two complete sets 
of the following to the applicant, who will furnish one complete set to 
FmHA or its successor agency under Public Law 103-354:
    (1) Copies of all organizational documents.
    (2) Copies of general incumbency certificate.
    (3) Certified copies of minutes or excerpts therefrom of all 
meetings of the applicant's governing body at which action was taken in 
connection with the authorization and issuance of the bonds.
    (4) Certified copies of documents evidencing that the applicant has 
complied fully with all statutory requirements incident to calling and 
holding of a favorable bond election, if such an election is necessary 
in connection with bond issuance.
    (5) Certified copies of the resolution or ordinances or other 
documents, such as the bond authorizing resolutions or ordinance and any 
resolution establishing rates and regulating the use of the improvement, 
if such documents are not included in the minutes furnished.
    (6) Copies of official Notice of Sale and affidavit of publication 
of Notice of Sale where a public sale is required by State statute.
    (7) Specimen bond, with any attached coupons.

[[Page 201]]

    (8) Attorney's no-litigation certificate.
    (9) Certified copies of resolutions or other documents pertaining to 
the bond award.
    (10) Any additional or supporting documents required by bond 
counsel.
    (11) For loans involving multiple advances of FmHA or its successor 
agency under Public Law 103-354 loan funds a preliminary approving 
opinion of bond counsel (or local counsel if no bond counsel is 
involved) if a final unqualified opinion cannot be obtained until all 
funds are advanced. The preliminary opinion for the entire issue shall 
be delivered on or before the first advance of loan funds and state that 
the applicant has the legal authority to issue the bonds, construct, 
operate and maintain the facility, and repay the loan subject only to 
changes during the advance of funds such as litigation resulting from 
the failure to advance loan funds, and receipt of closing certrificates.
    (12) Preliminary approving opinion, if any, and final unqualified 
approving opinion of recognized bond counsel (or local counsel if no 
bond counsel is involved) including opinion regarding interest on bonds 
being exempt from Federal and any State income taxes. On approval of the 
Administrator, a final opinion may be qualified to the extent that 
litigation is pending relating to Indian claims that may affect title to 
land or validity of the obligation. It is permissible for such opinions 
to contain language referring to the last sentence of section 306(a)(1) 
or to section 309A(h) of the Consolidated Farm and Rural Development Act 
[7 U.S.C. 1926(a)(1) or 1929a(h)], and providing that if the bonds 
evidencing the indebtedness in question are required by the Federal 
Government and sold on an insured basis from the Agriculture Credit 
Insurance Fund, or the Rural Development Insurance Fund, the interest on 
such bonds will be included in gross income for the purpose of the 
Federal income tax statutes.
    (d) Interim financing from commercial sources during construction 
period for loans of $50,000 or more. In all cases where it is possible 
for funds to be borrowed at current market interest rates on an interim 
basis from commercial sources, such interim financing will be obtained 
so as to preclude the necessity for multiple advances of FmHA or its 
successor agency under Public Law 103-354 funds.
    (e) Permanent instruments for FmHA or its successor agency under 
Public Law 103-354 loans to repay interim commercial financing. FmHA or 
its successor agency under Public Law 103-354 loans will be evidenced by 
the following types of instruments chosen in accordance with the 
following order of preference:
    (1) First preference--Form FmHA or its successor agency under Public 
Law 103-354 440-22, ``Promissory Note (Association or Organization)''. 
If legally permissible use Form FmHA or its successor agency under 
Public Law 103-354 440-22 for insured loans.
    (2) Second preference--single instruments with amortized 
installments. If Form FmHA or its successor agency under Public Law 103-
354 440.22 is not legally permissible, use a single instrument providing 
for amortized installments. Show the full amount of the loan on the face 
of the document and provide for entering the date and amount of each 
FmHA or its successor agency under Public Law 103-354 advance on the 
reverse thereof or on an attachment to the instrument. Form FmHA or its 
successor agency under Public Law 103-354 440-22 should be followed to 
the extent possible. When principal payment is deferred, no attempt 
should be made to compute in dollar terms the amount of interest due on 
these installment dates. Rather the instrument should provide that 
``interest only'' is due on these dates. The appropriate amortized 
installment computed as follows will be shown due on the installment 
date thereafter.
    (i) Annual payments--Subtract the due date of the last annual 
interest only installment from the due date of the final installment to 
determine the number of annual payments applicable. When there are no 
interest only installments, the number of annual payments will equal the 
number of years over which the loan is amortized. Then multiply the 
amount of the note by the applicable amortization factor shown in FmHA 
or its successor agency under

[[Page 202]]

Public Law 103-354 Amortization Tables and round to the next higher 
dollar. Example of Computation of Annual Payment:

Date of Loan Closing: 7-5-1976
Amount of Loan: $100,000.00
Interest Rate: 5%
Amortization Period: 40 years
Interest Only Installments: 7-5-1977 and 7-5-1978
First Regular Installment: 7-5-1979
Final Installment: 7-5-2016
Computation:
2016 - 1978 = 38 annual payments
$100,000.00 x .05929 = $5,929.00 annual payment due

    (ii) Semiannual payments--Multiply by two the number of years 
between the due date of the last annual interest only installment and 
the due date of the final installment to determine the correct number of 
semiannual periods applicable. When there are no interest only 
installments, multiply by two the number of years over which the loan is 
amortized. Then multiply the amount of the note by the applicable 
amortization factor shown in FmHA or its successor agency under Public 
Law 103-354 Amortization Tables and round to the next higher dollar. 
Example of Computation of Semiannual Payment:

Date of Loan Closing: 7-5-1976
Amount of Loan: $100,000.00
Interest Rate: 5%
Amortization Period: 40 years
Interest Only Installments: 7-5-1977 and 7-5-1978
First Regular Installment: 7-5-1979
Final Installment: 7-5-2016
Computation:
2016 - 1978 = 38 x 2 = 76 semiannual periods
$100,000.00 x .02952 = $2,952.00 semiannual payment due

    (iii) Monthly payments--Multiply by twelve the number of years 
between the due date of the last annual interest only installment and 
the final installment to determine the number of monthly payments 
applicable. When there are no interest only installments, multiply by 
twelve the number of years over which the loan is amortized. Then 
multiply the amount of the note by the applicable amortization factor 
shown in FmHA or its successor agency under Public Law 103-354 
Amortization Tables and round to the next higher dollar. Example of 
Computation of Monthly Payment:

Date of Loan Closing: 7-5-1976
Amount of Loan: $100,000.00
Interest Rate: 5%
Amortization Period: 40 years
Interest Only Installments: 7-5-1977 and 7-5-1978
First Regular Installment: 7-5-1979
Final Installment: 7-5-2016
Computation:
2016 - 1978 = 38 x 12 = 456 monthly payments
$100,000.00 x .00491 = $491.00 monthly payment due

    (3) Third preference--single instrument with installments of 
principal plus interest. If a single instrument with amortized 
installments is not legally permissible, use a single instrument 
providing for installments of principal plus interest accrued on the 
unmatured principal balance. The principal should be in an amount best 
adapted to making principal retirement and interest payments which 
closely approximate equal installments of combined interest and 
principal as required by the first two preferences.
    (i) The repayment terms concerning interest only installments 
described in paragraph (e)(2) of this section, ``Second perference'' 
applies.
    (ii) The instrument shall contain in substance the following 
provisions:
    (A) A statement of principal maturities and due dates.
    (B) Payments made on indebtedness evidenced by this instrument shall 
be applied to the interest due through the next installment due date and 
the balance to principal in accordance with the terms of the bond. 
Payments on delinquent accounts will be applied in the following 
sequence:
    (1) Billed delinquent interest,
    (2) Past due interest installments,
    (3) Past due principal installments,
    (4) Interest installment due, and
    (5) Principal installment due.

Extra payments and payments made from security depleting sources shall 
be applied to the principal last to come due or as specified in the bond 
instrument.
    (4) Fourth preference--serial bonds with installments of principal 
plus interest. If instruments described under the first, second, and 
third preferences are not legally permissible, use serial bonds

[[Page 203]]

with a bond or bonds delivered in the amount of each advance. Bonds will 
be delivered in the order of their numbers. Such bonds will conform with 
the minimum requirements of paragraph (h) of this section. Rules for 
application of payments on serial bonds will be the same as those for 
principal installment single bonds as set out in the preceding paragraph 
(e)(3) of this section.
    (f) Multiple advances of FmHA or its successor agency under Public 
Law 103-354 funds using permanent instruments. Where interim financing 
from commercial sources is not available, FmHA or its successor agency 
under Public Law 103-354 loan proceeds will be disbursed on an ``as 
needed by borrower'' basis in amounts not to exceed the amount needed 
during 30-day periods.
    (g) Multiple advances of FmHA or its successor agency under Public 
Law 103-354 funds using temporary debt instrument. When none of the 
instruments described in paragraph (e) of this section are legally 
permissible or practical, a bond anticipation note or similar temporary 
debt instrument may be used. The debt instrument will provide for 
multiple advance of FmHA or its successor agency under Public Law 103-
354 loan funds and will be for the full amount of the FmHA or its 
successor agency under Public Law 103-354 loan. The instrument will be 
prepared by bond counsel (or local counsel if bond counsel is not 
involved) and approved by the State Director and OGC. At the same time 
FmHA or its successor agency under Public Law 103-354 delivers the last 
advance, the borrower will deliver the permanent bond instrument and the 
canceled temporary instrument will be returned to the borrower. The 
approved debt instrument will show at least the following:
    (1) The date from which each advance will bear interest.
    (2) The interest rate.
    (3) A payment schedule providing for interest on outstanding 
principal at least annually.
    (4) A maturity date which shall be no earlier than the anticipated 
issuance date of the permanent instrument(s).
    (h) Minimum bond specifications. The provisions of this paragraph 
are minimum specifications only, and must be followed to the extent 
legally permissible.
    (1) Type and denominations. Bond resolutions or ordinances will 
provide that the instrument(s) be either a bond representing the total 
amount of the indebtedness or serial bonds in denominations customarily 
accepted in municipal financing (ordinarily in multiples of not less 
than $1000). Single bonds may provide for repayment of principal plus 
interest or amortized installments; amortized installments are 
preferable from the standpoint of FmHA or its successor agency under 
Public Law 103-354. Coupon bonds will not be used unless required by 
State statute.
    (i) To compute the value of each coupon when the bond denomination 
is consistent:
    (A) Multiply the amount of the loan or advance by the interest rate 
and divide the product by 365 days.
    (B) Multiply the daily accrual factor determined in (A) by the 
number of days from the date of advance or last installment date to the 
next installment date.
    (C) Divide the interest computed in (B) by the number of bonds 
securing the advance; this is the individual coupon amount.
    (ii) to compute the value of each coupon when the bond denomination 
varies:
    (A) Multiply the denomination of the bond by the interest rate and 
divide the product by 365 days.
    (B) Multiply the daily accrual factor determined in (A) by the 
number of days from the date of advance or last installment date to the 
next installment due date; this is the individual coupon amount.
    (2) Bond registration. Bonds will contain provisions permitting 
registration as to both principal and interest. Bonds purchased by FmHA 
or its successor agency under Public Law 103-354 will be registered in 
the name of ``United States of America, Farmers Home Administration or 
its successor agency under Public Law 103-354,'' and will remain so 
registered at all times while the bonds are held or insured by the 
United States. The address of FmHA or its successor agency under Public 
Law 103-354 for registration purposes will be

[[Page 204]]

that of the appropriate FmHA or its successor agency under Public Law 
103-354 State Office.
    (3) Size and quality. Size of bonds and coupons should conform to 
standard practice. Paper must be of sufficient quality to prevent 
deterioration through ordinary handling over the life of the loan.
    (4) Date of bond. Bonds will preferably be dated as of the day of 
delivery, however, may be dated another date at the option of the 
borrower and subject to approval by FmHA or its successor agency under 
Public Law 103-354. If the date of delivery is other than the date of 
the bond, the date of delivery will be stated in the bond. In all cases, 
interest will accrue from the date of delivery of the funds.
    (5) Payment date. Loan payments will be scheduled to coincide with 
income availability and be in accordance with State law. If consistent 
with the foregoing, monthly payments will be required and will be 
enumerated in the bond, other evidence of indebtedness, or other 
supplemental agreement. However, if State law only permits principal 
plus interest (P&I) type bonds, annual or semiannual P&I bonds will be 
used. Insofar as practical monthly payments will be scheduled one full 
month following the date of loan closing; or semiannual or annual 
payments will be scheduled six or twelve full months, respectively, 
following the date of loan closing or any deferment period. Due dates 
falling on the 29th, 30th or 31st day of the month will be avoided.
    (6) [Reserved]
    (7) Redemptions. Bonds should contain customary redemption 
provisions, subject, however, to unlimited right of redemption without 
premium of any bonds held by FmHA or its successor agency under Public 
Law 103-354 except to the extent limited by the provisions under the 
``Third Preference'' and ``Fourth Preference'' in paragraph (e) of this 
section.
    (8) Additional revenue bonds. Parity bonds may be issued to complete 
the project. Otherwise, parity bonds may not be issued unless the net 
revenues (that is, unless otherwise defined by the State statute, gross 
revenues less essential operation and maintenance expense) for the 
fiscal year preceding the year in which such parity bonds are to be 
issued, were 120 percent of the average annual debt service requirements 
on all bonds then outstanding and those to be issued; provided, that 
this limitation may be waived or modified by the written consent of 
bondholders representing 75 percent of the then outstanding principal 
indebtedness. Junior and subordinate bonds may be issued in accordance 
with the loan agreement.
    (9) Scheduling of FmHA or its successor agency under Public Law 103-
354 payments when joint financing is involved. In all cases in which 
FmHA or its successor agency under Public Law 103-354 is participating 
with another lender in the joint financing of the project to supply 
funds required by one applicant, the FmHA or its successor agency under 
Public Law 103-354 payments of principal and interest should approximate 
amortized installments.
    (10) Precautions. The following types of provisions in debt 
instruments should be avoided.
    (i) Provisions for the holder to manually post each payment to the 
instrument.
    (ii) Provisions for returning the permanent or temporary debt 
instrument to the borrower in order that it, rather than FmHA or its 
successor agency under Public Law 103-354, may post the date and amount 
of each advance or repayment on the instrument.
    (iii) Defeasance provisions in loan or bond resolutions. When a bond 
issue is defeased, a new issue is sold which supersedes the contractual 
provisions of the prior issue, including the refinancing requirement and 
any lien on revenues. Since defeasance in effect precludes FmHA or its 
successor agency under Public Law 103-354 from requiring graduation 
before the final maturity date, it represents a violation of the 
statutory refinancing requirement, therefore it is disallowed.
    (iv) Provisions that amend convenants contained in Forms FmHA 1942-
47, ``Loan Resolution (Public Bodies),'' or FmHA 1942-9, ``Loan 
Resolution Security Agreement.''
    (11) Multiple Loan Instruments. The following will be adhered to 
when preparing debt instruments:

[[Page 205]]

    (i) When more than one loan type is used in financing a project, 
each type of loan will be evidenced by a separate debt instrument or 
series of debt instruments.
    (ii) Loan funds obligated in different fiscal years and those 
obligated with different interest rates or terms in the same fiscal year 
will be evidenced by separate debt instruments.
    (iii) Loan funds obligated for the same loan type in the same fiscal 
year at the same interest rate and term may be combined in the same debt 
instrument; provided the borrower has been notified on Form FmHA or its 
successor agency under Public Law 103-354 1940-1, ``Request for 
Obligation of Funds'', of the action.
    (i) Bidding by FmHA or its successor agency under Public Law 103-
354. Bonds offered for public sale shall be offered in accordance with 
State law, in such a manner to encourage public bidding. FmHA or its 
successor agency under Public Law 103-354 will not submit a bid at the 
advertised sale unless required by State law, nor will reference to FmHA 
or its successor agency under Public Law 103-354's rates and terms be 
included. If no acceptable bid is received, FmHA or its successor agency 
under Public Law 103-354 will negotiate the purchase of the bonds.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6791, Mar. 3, 1988; 54 
FR 18883, May 3, 1989; 56 FR 29168, June 26, 1991; 68 FR 61331, Oct. 28, 
2003]



Sec. 1942.20  Community Facility Guides.

    (a) The following documents are attached and made part of this 
subpart and may be used by FmHA or its successor agency under Public Law 
103-354 officials in administering this program.
    (1) Guide 1 and 1a--Guide Letter for Use in Informing Private Lender 
of FmHA or its successor agency under Public Law 103-354's Commitment.
    (2) Guide 2--Water Users Agreement.
    (3) Guide 3--Service Declination Statement.
    (4) Guide 4--Bylaws.
    (5) Guide 5--Financial Feasibility Report.
    (6) Guide 6--Preliminary Architectural Feasibility Report.
    (7) Guide 7--Preliminary Engineering Report Water Facility.
    (8) Guide 8--Preliminary Engineering Report Sewerage Systems.
    (9) Guide 9--Preliminary Engineering Report Solid Waste Disposal 
Systems.
    (10) Guide 10--Preliminary Engineering Report Storm Waste-Water 
Disposal.
    (11) Guide 11--Daily Inspection Report.
    (12) Guide 12--Memorandum of Understanding Between the Economic 
Development Administration--Department of Commerce and the Farmers Home 
Administration or its successor agency under Public Law 103-354--
Department of Agriculture Pertaining to EDA Public Works Projects 
Assisted by an FmHA or its successor agency under Public Law 103-354 
Loan.
    (13) Guide 13--Memorandum of Understanding Between the Economic 
Development Administration--Department of Commerce and the Farmers Home 
Administration or its successor agency under Public Law 103-354--
Department of Agriculture Regarding Supplementary Grant Assistance for 
the Construction of Public Works and Development Facilities.
    (14) Guide 14--Legal Services Agreement.
    (15) Guide 15--Community Facility Borrower's Application.
    (16) Guide 16--Community Facility Loan Docket.
    (17) Guide 17--Construction Contract Documents--Short Form.
    (18) Guide 18--FmHA or its successor agency under Public Law 103-354 
Supplemental General Conditions.
    (19) Guide 19--Construction Contract Documents.
    (20) Guide 20--Agreement for Engineering Services (FmHA or its 
successor agency under Public Law 103-354/EPA Jointly Funded Projects).
    (21) Guide 21--Review of Audit Reports.
    (22) Guide 22--Delinquent Accounts Positive Action Plan.
    (23) Guide 23--Agreement for Joint Use of Electric System Poles.
    (24) Guide 24--Minimum Suggested Contents of Management Agreements.
    (25) Guide 25--Joint Policy Statement Between EPA and FmHA or its 
successor agency under Public Law 103-354.

[[Page 206]]

    (26) Guide 26--Community Programs Project Selection Criteria.
    (27) Exhibit A--Circular No. A-128.
    (28) Exhibit B--Department of Agriculture Regional Inspector General 
(OIG).
    (b) These guides and exhibits are for use by FmHA or its successor 
agency under Public Law 103-354 officials, applicants and applicant's 
officials and/or agents on certain matters related to the planning, 
development, and operation of essential community facilities which 
involve the use of loans and/or grants from FmHA or its successor agency 
under Public Law 103-354. This includes activities related to applying 
for and obtaining such financial assistance. These guides and exhibits 
are not published in the Federal Register, however, they are available 
in any FmHA or its successor agency under Public Law 103-354 office.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988]



Sec. 1942.21  Statewide nonmetropolitan median household income.

    Statewide nonmetropolitan median household income means the median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places, of 50,000 or 
more population.

[69 FR 65519, Nov. 15, 2004]



Sec. Sec. 1942.22-1942.49  [Reserved]



Sec. 1942.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0015. Public 
reporting burden for this collection of information is estimated to vary 
from five minutes to 15 hours per response, with an average of 2.7 hours 
per response, including time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden to the 
Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 0575-0015), Washington, DC 
20503.

[60 FR 11019, Mar. 1, 1995]

Subpart B [Reserved]



 Subpart C_Fire and Rescue and Other Small Community Facilities Projects

    Source: 52 FR 43726, Nov. 16, 1987, unless otherwise noted.



Sec. 1942.101  General.

    This subpart provides the policies and procedures for making and 
processing insured Community Facilities (CF) loans for facilities that 
will primarily provide fire or rescue services and other small essential 
community facility projects and applies to fire and rescue and other 
Community Facilities loans for projects costing $300,000 and under. Any 
processing or servicing activity conducted pursuant to this subpart 
involving authorized assistance to Rural Development employees, members 
of their families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this chapter. Applicants for this assistance are required to identify 
any known relationship or association with a Rural Development employee. 
Community Facilities loans for other types of facilities, and those 
costing in excess of $300,000, are defined in subpart A of this part.

[68 FR 65830, Nov. 24, 2003]



Sec. 1942.102  Nondiscrimination.

    (a) Federal statutes provide for extending Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
financial programs without regard to race, color, religion, sex, 
national origin, marital status, age, or physical/mental handicap. The 
participants must possess the capacity to enter into legal contracts 
under State and local statutes.
    (b) Indian tribes on Federal and State reservations and other 
Federally recognized Indian tribes are eligible to apply

[[Page 207]]

for and are encouraged to participate in this program. Such tribes might 
not be subject to State and local laws or jurisdiction. However, any 
requirements of this subpart that affect applicant eligibility, the 
adequacy of FmHA or its successor agency under Public Law 103-354's 
security or the adequacy of service to users of the facility and all 
other requirements of this subpart must be met.



Sec. 1942.103  Definitions.

    Agency. The Rural Housing Service (RHS), an agency of the U.S. 
Department of Agriculture.
    Approval official. An official who has been delegated loan or grant 
approval authorities within applicable programs, subject to certain 
dollar limitations.
    Construction. The act of building or putting together a facility 
that is a part of, or physically attached to, real estate. This does not 
include procurement of major equipment even though the equipment may be 
custom built to meet the owner's requirements.
    Owner. An applicant or borrower.
    Processing office. The office designated by the State program 
official to accept and process applications for Community Facilities 
projects.
    Regional Attorney or OGC. The head of a Regional Office of the 
General Counsel (OGC).
    Small Community Facilities projects. Community Facilities loans 
costing $300,000 and under.

[68 FR 65830, Nov. 24, 2003]



Sec. 1942.104  Application processing.

    (a) General. Prospective applicants should request assistance by 
filing SF 424.2, ``Application for Federal Assistance (For 
Construction),'' with the Local or Area Rural Development Office. When 
practical, approval officials should meet with prospective applicants 
before an application is filed to discuss eligibility and Rural 
Development requirements and processing procedures. Throughout loan 
processing, Rural Development should confer with applicant officials as 
needed to ensure that applicant officials understand the current status 
of the processing of their application, what steps and determinations 
are necessary, and what is required from them. Rural Development should 
assist the applicant as needed and generally try to develop and maintain 
a cooperative working relationship with the applicant.
    (b) Unfavorable decision. If, at any time prior to loan approval, it 
is decided that favorable action will not be taken on an application, 
the approval official will notify the applicant, in writing, of the 
reasons why the request was not favorably considered. The notification 
to the applicant will state that a review of this decision by Rural 
Development may be requested by the applicant in accordance with subpart 
B of part 1900 of this chapter. The following statement will also be 
made on all notifications of adverse action:

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, age (provided that the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income is derived from any public 
assistance program; or because the applicant has in good faith exercised 
any right under the Consumer Credit Protection Act. The Federal agency 
that administers compliance with this law is the Federal Trade 
Commission, Equal Credit Opportunity, Washington, DC 20580.

[52 FR 43726, Nov. 16, 1987, as amended at 54 FR 47197, Nov. 13, 1989; 
55 FR 13504, Apr. 11, 1990; 68 FR 65830, Nov. 24, 2003; 68 FR 69001, 
Dec. 11, 2003]



Sec. 1942.105  Environmental review.

    FmHA or its successor agency under Public Law 103-354 must conduct 
and document an environmental review for each proposed project in 
accordance with subpart G of part 1940 of this chapter. The review 
should be completed as soon as possible after receipt of an application. 
The loan approving official must determine an adequate environmental 
review has been completed before requesting an obligation of funds.



Sec. 1942.106  Intergovernmental review.

    (a) Loans under this subpart are subject to intergovernmental review 
in accordance with subpart J of part 1940 of this chapter.
    (b) State intergovernmental review agencies that have selected 
community

[[Page 208]]

facility loans as a program they want to review may not be interested in 
reviewing proposed loans for fire and rescue facilities. In such cases, 
the State Director should obtain a letter from the State single point of 
contact exempting fire and rescue loans from intergovernmental 
consultation review. A copy of the letter should be placed in the case 
file for each fire and rescue facility application in lieu of completing 
the intergovernmental review process.
    (c) When an application is filed and adverse comments are not 
expected, the District Director should proceed with application 
processing pending intergovernmental review. The loan should not be 
obligated until any required review process has been completed.
    (d) Funds allocated for use under this subpart are also for the use 
of eligible Indian tribes within the State, regardless of whether State 
development strategies include Indian reservations. Eligible Indian 
tribes must have equal opportunity to participate in the program as 
compared with other residents of the State.

[52 FR 43726, Nov. 16, 1987, as amended at 61 FR 6309, Feb. 20, 1996]



Sec. 1942.107  Priorities.

    (a) Eligible applications must be selected for processing in 
accordance with Sec. 1942.17(c) of subpart A of this part 1942.
    (b) The District Director must score each eligible application in 
accordance with Sec. 1942.17(c)(2)(iii) of subpart A of this part 1942. 
The District Director must then notify the State Director of the score, 
proposed loan amount, and other pertinent data. The State Director 
should determine as soon as possible if the project has sufficient 
priority for further processing and notify the District Director. 
Normally, this consultation should be handled by telephone and 
documented in the running record.
    (c) Applicants who appear eligible but do not have the priority 
necessary for further consideration at this time should be notified that 
funds are not available, requested to advise whether they wish to have 
their application maintained for future consideration and given the 
following notice:

    You are advised against incurring obligations which would limit the 
range of alternatives to be considered, or which cannot be fulfilled 
without FmHA or its successor agency under Public Law 103-354 funds 
until the funds are actually made available. Therefore, you should 
refrain from such actions as initiating engineering and legal work, 
taking actions which would have an adverse effect on the environment, 
taking options on land rights, developing detailed plans and 
specifications, or inviting construction bids until notified by Farmers 
Home Administration (FmHA) or its successor agency under Public Law 103-
354 to proceed.



Sec. 1942.108  Application docket preparation and review.

    (a) Guides. Application dockets should be developed in accordance 
with Sec. 1942.2(c) of subpart A of this part 1942.
    (b) [Reserved]
    (c) Budgets. All applicants must complete Form FmHA or its successor 
agency under Public Law 103-354 442-7, ``Operating Budget,'' except as 
provided in this paragraph. Applicants with annual incomes not exceeding 
$100,000 may, with concurrence of the District Director, use Form FmHA 
or its successor agency under Public Law 103-354 1942-52, ``Cash Flow 
Projection,'' instead of Form FmHA or its successor agency under Public 
Law 103-354 442-7. Projections should be provided for the current year 
and each year thereafter until the facility is expected to have been in 
operation for a full year and a full annual installment paid on the 
loan.
    (d) Letter of conditions. The District Director should prepare and 
issue a letter of conditions in accordance with Sec. 1942.5 (a)(1) and 
(c) of subpart A of this part 1942.
    (e) Organizational review. As early in the application process as 
practical, the approval official should obtain copies of organization 
documents from each applicant and forward them through the State Office 
to the Regional Attorney for review and comments. The Regional 
Attorney's comments should be received and considered before obligation 
of funds.
    (f) National Office review. Applications that require National 
Office review will

[[Page 209]]

be submitted in accordance with Sec. 1942.5(b) of subpart A of this 
part 1942.
    (g) State Office review. The State Office must monitor fire and 
rescue and other small community facility project loanmaking and 
servicing and provide guidance, assistance, and training as necessary to 
ensure the activities are accomplished in an orderly manner consistent 
with the Agency's regulations. The processing office should request 
advice and assistance from the State Office as needed. The State 
Director may require all or part of a specific application docket to be 
submitted to the State Office for review at any time. The State Director 
may determine that one or more of the processing office staffs do not 
have adequate training and expertise to routinely complete application 
dockets without State Office review. In such cases, the State Director 
should establish guidelines by memorandum or by State supplement to the 
subpart for the necessary State Office reviews.
    (h) Loan approval and fund obligation. Loans must be approved and 
obligated in accordance with Sec. 1942.5(d) of subpart A of this part 
1942 and subpart A of part 1901 of this chapter.

[52 FR 43726, Nov. 16, 1987, as amended at 54 FR 47197, Nov. 13, 1989; 
67 FR 60854, Sept. 27, 2002; 68 FR 65830, Nov. 24, 2003]



Sec. Sec. 1942.109-1942.110  [Reserved]



Sec. 1942.111  Applicant eligibility.

    (a) General. Loans under this subpart are subject to the provisions 
of Sec. 1942.17(b) of subpart A of this part 1942.
    (b) Credit elsewhere determinations. The approval official must 
determine whether financing from commercial sources at reasonable rates 
and terms is available. If credit elsewhere is indicated, the approval 
official should inform the applicant and recommend the applicant apply 
to commercial sources for financing. To provide a basis for referral of 
only those applicants who may be able to finance projects through 
commercial sources, approval officials should maintain liaison with 
representatives of lenders in the area. The State Director should keep 
approval officials informed regarding lenders outside the area who might 
make loans in the area. Approval officials should maintain criteria for 
determining applications that should be referred to commercial lenders 
and maintain a list of lender representatives interested in receiving 
such referrals.
    (c) Public use. Loans under this subpart are subject to the 
provisions of Sec. 1942.17(e) of subpart A of this part 1942.

[52 FR 43726, Nov. 16, 1987, as amended at 68 FR 65830, Nov. 24, 2003]



Sec. 1942.112  Eligible loan purposes.

    (a) Funds may be used:
    (1) To construct, enlarge, extend, or otherwise improve essential 
community facilities primarily providing fire or rescue services 
primarily to rural residents and rural business. Rural businesses would 
include facilities such as educational and other publicly owned 
facilities. ``Otherwise improve'' includes but is not limited to the 
following:
    (i) The purchase of major equipment, such as fire trucks and 
ambulances, which will, in themselves, provide an essential service to 
rural residents.
    (ii) The purchase of existing facilities when it is necessary either 
to improve or to prevent a loss of service.
    (iii) The construction or development of an essential community 
facility requisite to the beneficial and orderly development of a 
community operated on a nonprofit basis in accordance with Sec. 
1942.17(d) of this subpart. This subpart includes those projects meeting 
the definition of a small community facility project.
    (2) To pay the following expenses, but only when such expenses are a 
necessary part of a loan to finance facilities authorized in paragraph 
(a)(1) of this section:
    (i) Reasonable fees and costs such as legal, engineering, 
architectural, fiscal advisory, recording, environmental impact 
analyses, archaeological surveys and possible salvage or other 
mitigation measures, planning, establishing or acquiring rights.
    (ii) Interest on loans until the facility is self-supporting but not 
for more than 3 years unless a longer period is

[[Page 210]]

approved by the National Office; interest on loans secured by general 
obligation bonds until tax revenues are available for payment, but not 
for more than 2 years unless a longer period is approved by the National 
Office; and interest on interim financing, including interest charges on 
interim financing from sources other than FmHA or its successor agency 
under Public Law 103-354.
    (iii) Costs of acquiring interest in land, rights such as water 
rights, leases, permits, rights-of-way, and other evidence of land or 
water control necessary for development of the facility.
    (iv) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (v) Initial operating expenses for a period ordinarily not exceeding 
1 year when the borrower is unable to pay such expenses.
    (vi) Refinancing debts incurred by, or on behalf of, a community 
when all of the following conditions exist:
    (A) The debts being refinanced are a secondary part of the total 
loan;
    (B) The debts are incurred for the facility or service being 
financed or any part thereof; and
    (C) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan.
    (3) To pay obligations for construction or procurement incurred 
before loan approval. Construction work or procurement actions should 
not be started and obligations for such work or materials should not be 
incurred before the loan is approved. However, if there are compelling 
reasons for proceeding with construction or procurement before loan 
approval, applicants may request FmHA or its successor agency under 
Public Law 103-354 approval to pay such obligations. Such requests may 
be approved if FmHA or its successor agency under Public Law 103-354 
determines that:
    (i) Compelling reasons exist for incurring obligations before loan 
approval; and
    (ii) The obligations will be incurred for authorized loan purposes; 
and
    (iii) Contract documents have been approved by FmHA or its successor 
agency under Public Law 103-354; and
    (iv) All environmental requirements applicable to FmHA or its 
successor agency under Public Law 103-354 and the applicant have been 
met; and
    (v) The applicant has the legal authority to incur the obligations 
at the time proposed, and payment of the debts will remove any basis for 
any mechanic, material or other liens that may attach to the security 
property. FmHA or its successor agency under Public Law 103-354 may 
authorize payment of such obligations at the time of loan closing. FmHA 
or its successor agency under Public Law 103-354's authorization to pay 
such obligations, however, is on the condition that it is not committed 
to make the loan; it assumes no responsibility for any obligations 
incurred by the applicant; and the applicant must subsequently meet all 
loan approval requirements. The applicant's request and FmHA or its 
successor agency under Public Law 103-354 authorization for paying such 
obligations shall be in writing. If construction or procurement is 
started without FmHA or its successor agency under Public Law 103-354 
approval, post approval in accordance with this section may be 
considered.
    (b) Funds may not be used to finance:
    (1) Facilities which are not modest in size, design, and cost.
    (2) Loan finder's fees.
    (3) Projects located within the Coastal Barriers Resource system 
that do not qualify for an exception as defined in section 6 of the 
Coastal Barriers Resource Act, Pub. L. 97-348.

[52 FR 43726, Nov. 16, 1987, as amended at 57 FR 21195, May 19, 1992; 68 
FR 65831, Nov. 24, 2003]



Sec. 1942.113  Rates and terms.

    Rates and terms for loans under this subpart are as set out in Sec. 
1942.17(f) of subpart A of this part 1942.



Sec. 1942.114  Security.

    Specific requirements for security for each loan will be included in 
the letter of conditions. Loans must be secured by the best security 
position practicable, in a manner which will adequately protect the 
interest of FmHA

[[Page 211]]

or its successor agency under Public Law 103-354 during the repayment 
period of the loan, and in accordance with the following;
    (a) Security must include one of the following:
    (1) A pledge of revenue and a lien on all real estate and major 
equipment purchased or developed with the FmHA or its successor agency 
under Public Law 103-354 loan; or
    (2) General obligation bonds or bonds pledging other taxes.
    (b) Additional security may be required as determined necessary by 
the loan approval official. In determining the need for additional 
security the loan approval official should carefully consider:
    (1) The estimated market value of real estate and equipment 
security.
    (2) The adequacy and dependability of the applicant's revenues, 
based on the applicant's financial records, the project financial 
feasibility report, and the project budgets.
    (3) The degree of community commitment to the project, as evidenced 
by items such as active broad based membership, aggressive leadership, 
broad based fund drives, or contributions by local public bodies.
    (c) Additional security may include, but is not limited to, the 
following:
    (1) Liens on additional real estate or equipment.
    (2) A pledge of revenues from additional sources.
    (3) An assignment of assured income in accordance with Sec. 
1942.17(g)(3)(iii)(A)(1) of subpart A of this part 1942.
    (d) Review and approval or concurrence in the State Office is 
required if the security will not include a pledge of taxes and the 
applicant cannot provide evidence of the financially successful 
operation of a similar facility for the 5 years immediately prior to 
loan application.
    (e) Review and concurrence in the National Office is required if the 
security will not include a pledge of taxes, the applicant cannot 
provide evidence of the financially successful operation of a similar 
facility for the 5 years immediately prior to loan application, and the 
amount of the loan will exceed $250,000.
    (f) Loans under this subpart are subject to the provisions of Sec. 
1942.17(g)(1) of subpart A of this part 1942, regarding security for 
projects utilizing joint financing.

[52 FR 43726, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987]



Sec. 1942.115  Reasonable project costs.

    Applicants are responsible for determining that prices paid for 
property rights, construction, equipment, and other project development 
are reasonable and fair. FmHA or its successor agency under Public Law 
103-354 may require an appraisal by an independent appraiser or FmHA or 
its successor agency under Public Law 103-354 employee.



Sec. 1942.116  Economic feasibility requirements.

    All projects financed under this section must be based on taxes, 
assessments, revenues, fees, or other satisfactory sources of revenues 
in an amount sufficient to provide for facility operation and 
maintenance, a reasonable reserve, and debt payment. An overall review 
of the applicant's financial status, including a review of all assets 
and liabilities, will be a part of the docket review process by the FmHA 
or its successor agency under Public Law 103-354 staff and approval 
official. All applicants will be expected to provide a financial 
feasibility report. These financial feasibility reports will normally 
be:
    (a) Included as part of the preliminary engineer/architectural 
report using guide 6 to subpart A of this part 1942 (available in any 
FmHA or its successor agency under Public Law 103-354 Office), or
    (b) Prepared by the applicant using Form FmHA or its successor 
agency under Public Law 103-354 1942-54, ``Applicant's Feasibility 
Report.''



Sec. 1942.117  General requirements.

    (a) Reserve requirements. Loans under this subpart are subject to 
the provisions of Sec. 1942.17 (i) of subpart A of this part 1942.
    (b) Membership authorization. The membership of organizations other 
than public bodies must authorize the project and its financing except 
the

[[Page 212]]

District Director may, with the concurrence of the State Director (with 
advice of OGC as needed), accept the loan resolution without such 
membership authorization when State statutes and the organization 
charter and bylaws do not require such authorization.
    (c) Insurance and bonding. Loans under this subpart are subject to 
the provisions of Sec. 1942.17(j)(3) of subpart A of this part 1942.
    (d) Acquisition of land and rights. Loans under this subpart are 
subject to the provisions of Sec. 1942.17(j)(4) of subpart A of this 
part 1942.
    (e) Lease agreements. Loans under this subpart are subject to the 
provisions of Sec. 1942.17(j)(5) of subpart A of this part 1942.
    (f) Notes and bonds. Loans under this subpart are subject to the 
provisions of Sec. Sec. 1942.17(j)(6) and 1942.19 of subpart A of this 
part 1942.
    (g) Public Information. Loans under this subpart are subject to the 
provisions of Sec. 1942.17 (j)(9) of subpart A of this part 1942.
    (h) Joint funding. Loans under this subpart are subject to the 
provisions of Sec. Sec. 1942.2 (e) and 1942.17 (j)(11) of subpart A of 
this part 1942.



Sec. 1942.118  Other Federal, State, and local requirements.

    (a) Loans under this subpart are subject to the provisions of Sec. 
1942.17 (k) of subpart A of this part 1942.
    (b) An initial compliance review should be completed under subpart E 
of part 1901 of this chapter.



Sec. 1942.119  Professional services and borrower contracts.

    (a) Loans under this subpart are subject to the provisions of Sec. 
1942.17 (l) of subpart A of this part 1942.
    (b) The District Director will, with assistance as necessary by the 
State Director and OGC, concur in agreements between borrowers and third 
parties such as contracts for professional and technical services. The 
State Director may require State Office review of such documents in 
accordance with Sec. 1942.108 (g) of this subpart. State Directors are 
expected to work closely with representatives of engineering and 
architectural societies, bar associations, commercial lenders, 
accountant associations, and others in developing standard forms of 
agreements, where needed, and other matters to expedite application 
processing, minimize referrals to OGC, and resolve problems which may 
arise. Standard forms should be reviewed by and approved by OGC.



Sec. Sec. 1942.120-1942.121  [Reserved]



Sec. 1942.122  Actions prior to loan closing and start of construction.

    (a) Excess FmHA or its successor agency under Public Law 103-354 
loan funds. Loans under this subpart are subject to the provisions of 
Sec. 1942.17 (n)(1) of subpart A of this part 1942.
    (b) Loan resolutions. Loans under this subpart are subject to the 
provisions of Sec. 1942.17 (n)(2) of subpart A of this part 1942.
    (c) Interim financing. Loans under this subpart are subject to the 
provisions of Sec. 1942.17 (n)(3) of subpart A of this part 1942.
    (d) Applicant contribution. Loans under this subpart are subject to 
the provisions of Sec. 1942.17 (n)(5) of subpart A of this part 1942 
this chapter.
    (e) Evidence of and disbursement of other funds. Loans under this 
subpart are subject to the provisions of Sec. 1942.17 (n)(6) of subpart 
A of this part 1942.
    (f) Assurance agreement. All applicants must execute Form FmHA or 
its successor agency under Public Law 103-354 400-4, ``Assurance 
Agreement,'' at or before loan closing.



Sec. 1942.123  Loan closing.

    (a) Ordering loan checks. Checks will not be ordered until:
    (1) Form FmHA or its successor agency under Public Law 103-354 440-
57, ``Acknowledgement of Obligated Funds/Check Request,'' has been 
received from the Finance Office.
    (2) The applicant has complied with approval conditions and any 
closing instructions, except for those actions which are to be completed 
on the date of loan closing or subsequent thereto.
    (3) The applicant is ready to start construction or funds are needed 
to pay interim financing obligations.
    (b) Public bodies and Indian tribes. (1) After loan approval the 
completed docket will be reviewed by the State

[[Page 213]]

Director. The information required by OGC will be transmitted to OGC 
with a request for closing instructions. Upon receipt of the closing 
instructions from OGC, the State Director will forward them along with 
any appropriate instructions to the District Director. Upon receipt of 
closing instructions, the District Director will discuss with the 
applicant and its architect or engineer, attorney, and other appropriate 
representatives, the requirements contained therein and any actions 
necessary to proceed with closing.
    (2) Loans will be closed in accordance with the closing instructions 
issued by OGC and Sec. 1942.19 of subpart A of this part 1942.
    (c) Organizations other than public bodies and Indian tribes. 
District Directors are authorized to close loans to organizations other 
than public bodies and Indian tribes without closing instructions from 
OGC. State Directors, in consultation with OGC, should develop standard 
closing procedures and forms as needed. Assistance with loan closing and 
a certification regarding the validity of the note and mortgage or other 
debt instruments should be provided by the applicant's attorney. 
Appropriate title opinion or title insurance is required as provided in 
Sec. 1942.17 (j)(4)(i)(B) of subpart A of this part 1942.
    (d) Authority to execute, file, and record legal instruments. 
District Office employees are authorized to execute and file or record 
any legal instruments necessary to obtain or preserve security for 
loans. This includes, as appropriate, mortgages and other lien 
instruments, as well as affidavits, acknowledgements, and other 
certificates.
    (e) Mortgages. Unless otherwise required by State law or unless an 
exception is approved by the State Director with advice of the OGC, only 
one mortgage will be taken even though the indebtedness is to be 
evidenced by more than one instrument. The real estate or chattel 
mortgages or security instruments will be delivered to the recording 
office for recordation or filing, as appropriate. A copy of such 
instruments will be delivered to the borrower. The original instrument, 
if returnable after recording or filing, will be retained in the 
borrower's case folder.
    (f) Notes and bonds. When the debt instrument is a note or single 
instrument bond fully registered as to principal and interest a 
conformed copy will be sent to the Finance Office immediately after loan 
closing and the original instrument will be stored in the District 
Office. When other types of bonds are used, the original bond(s) will be 
forwarded to the Finance Office immediately after loan closing.
    (g) Disposition of title evidence. All title evidence other than the 
opinion of title and mortgage title insurance policy, will be returned 
to the borrower when the loan has been closed.
    (h) Multiple advances. When temporary paper, such as bond 
anticipation notes or interim receipts, is used to conform with the 
multiple advance requirement, the original temporary paper will be 
forwarded to the Finance Office after each advance is made to the 
borrower. The borrower's case number will be entered in the upper right-
hand corner of such paper by the Distict Office. The permanent debt 
instrument(s) should be forwarded to the Finance Office as soon as 
possible after the last advance is made, except that for notes and 
single instrument bonds fully registered as to principal and interest 
the original will be retained in the District Office and a copy will be 
forwarded to the Finance Office. The following actions will be taken 
prior to issuance of the permanent instruments:
    (1) The Finance Office will be notified of the anticipated date for 
the retirement of the interim instruments and the issuance of permanent 
instruments of debt.
    (2) The Finance Office will prepare a statement of account including 
accrued interest through the proposed date of retirement and also show 
the daily interest accrual. The statement of account and the interim 
financing instruments will be forwarded to the District Director.
    (3) The District Director will collect interest through the actual 
date of the retirement and obtain the permanent instrument(s) of debt in 
exchange for the interim financing instruments. The permanent 
instruments and the cash

[[Page 214]]

collection will be forwarded to the Finance Office immediately, except 
that for notes and single instrument bonds fully registered as to 
principal and interest the original will be retained in the District 
Office and a copy will be forwarded to the Finance Office. In developing 
the permanent instruments, the sequence of preference set out Sec. 
1942.19(e) of subpart A of this part 1942 will be followed.
    (i) Bond registration record. Form FmHA or its successor agency 
under Public Law 103-354 442-28, ``Bond Registration Book,'' may be used 
as a guide to assist borrowers in the preparation of a bond registration 
book in those cases where a registration book is required and a book is 
not provided in connection with the printing of the bonds.
    (j) Loan checks. Whenever a loan check is received, lost, or 
destroyed, the District Director will take the appropriate actions 
outlined in FmHA Instruction 2018-D (available in any FmHA or its 
successor agency under Public Law 103-354 office). Checks which cannot 
be delivered within a reasonable amount of time (no more than 20 
calendar days) will be handled in accordance with FmHA Instruction 2018-
D (available in any FmHA or its successor agency under Public Law 103-
354 office.)
    (k) Safeguarding bond shipments. FmHA or its successor agency under 
Public Law 103-354 personnel will follow the procedures for safeguarding 
mailings and deliveries of bonds and coupons outlined in FmHA 
Instruction 2018-E (available in any FmHA or its successor agency under 
Public Law 103-354 office), whenever they mail or deliver these items.
    (l) Review of loan closing. When the loan has been closed, the 
District Director will submit the completed loan closing documents and a 
statement showing what was done in closing the loan to the State 
Director. The State Director will review the documents and the District 
Director's statement to determine whether the transaction was closed 
properly. For loans to public bodies or Indian tribes the State Director 
will forward all documents, along with a statement that all 
administrative requirements have been met, to the Regional Attorney. The 
Regional Attorney will review the submitted material to determine 
whether all legal requirements have been met. The Regional Attorney 
should review FmHA or its successor agency under Public Law 103-354 
standard forms only for proper execution, unless the State Director 
brings attention to specific questions. Facility development should not 
be held up pending receipt of the Regional Attorney opinion. When the 
review of the State Director has been completed, and for public bodies 
and Indian tribes the Regional Attorney's opinion has been received, the 
State Director must advise the District Director of any deficiencies 
that must be corrected and return all material that was submitted for 
review.
    (m) Loan cancellation. Loans under this subpart are subject to the 
provisions of Sec. 1942.12 of subpart A of this part 1942.

[52 FR 43726, Nov. 16, 1987, as amended at 59 FR 54788, Nov. 2, 1994]



Sec. Sec. 1942.124-1942.125  [Reserved]



Sec. 1942.126  Planning, bidding, contracting, constructing, procuring.

    (a) General. This section provides procedures and requirements for 
planning, bidding, contracting, constructing and procuring facilities 
financed under this subpart. These procedures do not relieve the owner 
of contractual obligations that arise from procurement of services.
    (b) Technical services. Owners are responsible for providing the 
engineering or architectural services necessary for planning, designing, 
bidding, contracting, inspecting and constructing their facilities. 
Services may be provided by the owner's ``in-house'' engineer or 
architect or through contract, subject to FmHA or its successor agency 
under Public Law 103-354 concurrence. Architects and engineers must be 
licensed in the State where the facility is to be located.
    (1) Preliminary reports. A preliminary architectural or engineering 
report conforming with customary professional standards is required for 
all construction, except that FmHA or its successor agency under Public 
Law 103-354 may waive the requirement for a

[[Page 215]]

preliminary architectural/engineering report or accept a brief report if 
the cost of the construction does not exceed $100,000. Guide 6 to 
subpart A of this part 1942 (available in any FmHA or its successor 
agency under Public Law 103-354 office) may be used.
    (2) Final reports. Detailed final plans and specifications are 
required for all construction and must receive FmHA or its successor 
agency under Public Law 103-354 concurrence. When negotiated procurement 
is used for construction costing not more than $100,000 the final plans 
and specifications may be provided by the contractor who submits the 
successful proposal. The plans and specifications must be prepared by or 
under the supervision of an architect or engineer who is licensed in the 
State where the facility is to be located and should include all 
materials and work to be provided under the contract. Some work and 
material may be omitted from the contract provided the owner furnishes 
detailed cost estimates for whatever is needed to fully complete the 
facility and will complete the facility in accordance with paragraph (e) 
of this section and the small purchase procedures set out in Sec. 
1942.18(k)(1) of subpart A of this part 1942. In such cases, FmHA or its 
successor agency under Public Law 103-354 may determine that it is not 
necessary to require the applicant to hire a consulting architect/
engineer; however, if a second contract that does not qualify for small 
purchase procedures is needed to complete the facility, the owner must 
provide for an architect/engineer to design the entire facility. When 
the contractor provides the plans and specifications, the contract will 
be considered a design/build procurement method under Sec. 1942.18(1) 
of subpart A of this part 1942.
    (3) Major equipment. An architect/engineer is not required for major 
equipment if FmHA or its successor agency under Public Law 103-354 
determines the owner has the ability to develop an adequate request for 
proposal and evaluate the proposals received or can obtain adequate 
assistance from other sources, such as State or Federal agencies or 
trade associations.
    (c) Design policies. Facilities financed by FmHA or its successor 
agency under Public Law 103-354 must be designed and constructed in 
accordance with sound engineering and architectural practices, and must 
meet the requirements of Federal, State and local agencies. All 
facilities intended for or accessible to the public or in which 
physically handicapped persons may be employed or reside must be 
developed in compliance with the Architectural Barriers Act of 1968 
(Pub. L. 90-480) as implemented by the General Services Administration 
regulations 41 CFR 101-19.6 and section 504 of the Rehabilitation Act of 
1973 (Pub. L. 93-112) as implemented by 7 CFR parts 15 and 15b.
    (d) Construction contracts. Contract documents must be sufficiently 
descriptive and legally binding to accomplish the work as economically 
and expeditiously as possible.
    (1) Standard construction contract documents. When standard 
construction contract documents available from FmHA or its successor 
agency under Public Law 103-354 are used, or when the amount of the 
contract does not exceed $100,000, it will normally not be necessary for 
the Regional Attorney to perform a detailed legal review. If 
construction contract documents used are not in the format of guide 
forms approved by FmHA or its successor agency under Public Law 103-354, 
and the contract amount exceeds $100,000, the Regonal Attorney must 
review the documents before their use.
    (2) Contract review and approval. The owner's attorney will review 
executed contract documents, including performance and payment bonds, 
and certify that they are adequate, legal and binding, and that the 
persons executing the documents have been authorized to do so. The 
contract documents, bid bonds, and bid tabulation sheets will be 
forwarded to FmHA or its successor agency under Public Law 103-354 for 
approval prior to awarding. All contracts will contain a provision that 
they are not in full force and effect until they have been approved by 
FmHA or its successor agency under Public Law 103-354. The FmHA or its 
successor agency under Public Law 103-354 District Director is 
responsible for approving construction contracts with advice and 
guidance of the State Director and Regional Attorney when necessary.

[[Page 216]]

    (3) Separate contracts. Arrangements which split responsibility of 
contractors (separate contracts for labor and material, extensive 
subcontracting and multiplicity of small contracts on the same job) 
should be avoided whenever it is practical to do so. Contracts may be 
awarded to suppliers or manufacturers for furnishing and installing 
certain items which have been designed by the manufacturer and delivered 
to the job site in a finished or semifinished state such as 
prefabricated buildings. Contracts may also be awarded for material 
delivered to the job site and installed by a patented process or method.
    (e) Performing construction. Owners are encouraged to accomplish 
construction through contracts with recognized contractors. Owners may 
accomplish construction by using their own personnel and equipment 
provided the owners possess the necessary skills, abilities and 
resources to perform the work and provided a licensed engineer or 
architect prepares design drawings and specifications and inspection is 
provided in accordance with paragraph (l)(3) of this section.
    (f) Owner's contractual responsibility. Loans under this subpart are 
subject to the provisions of Sec. 1942.18(i) of subpart A of this part 
1942.
    (g) Owner's procurement regulations. Loans under this subpart are 
subject to the provisions of Sec. 1942.18(j) of subpart A of this part 
1942.
    (h) Procurement methods. Unless the FmHA or its successor agency 
under Public Law 103-354 National Office gives prior written approval of 
another method, procurement must be made by one of the following 
methods:
    (1) Small purchase procedures as provided in Sec. 1942.18(k)(1) of 
subpart A of this part 1942.
    (2) Competitive sealed bids as provided in Sec. 1942.18(k)(2) of 
subpart A of this part 1942. Competitive sealed bids is the preferred 
procurement method of construction projects, except for buildings 
costing $100,000 or less when the owner desires to use a 
``preengineered'' or ``packaged'' building.
    (3) Competitive negotiation as provided in Sec. 1942.18(k)(3) of 
subpart A of this part 1942. Competitive negotiation is the preferred 
procurement method of buildings not exceeding $100,000 in cost when the 
owner desires to use a ``pre- engineered'' or ``packaged'' building and 
for major equipment.
    (4) Noncompetitive negotiation as provided in Sec. 1942.18(k)(4) of 
subpart A of this part 1942.
    (i) Contracting methods. Loans under this subpart are subject to the 
provisions of Sec. 1942.18(1) of subpart A of this part 1942.
    (j) Contracts awarded prior to preapplications. Loans under this 
subpart are subject to the provisions of Sec. 1942.18(m) of subpart A 
of this part 1942.
    (k) Construction Contract provisions. Construction contracts for 
loans under this subpart are subject to the provisions of Sec. 
1942.18(n) of subpart A of this part 1942. Construction contracts for 
loans under this subpart are also subject to the provisions of Sec. 
1901.205 of subpart E of part 1901 of this chapter, regarding 
nondiscrimination in construction, except that guides 18 and 17 or 19 to 
subpart A of this part 1942 of this chapter will normally be used 
instead of Form FmHA or its successor agency under Public Law 103-354 
1924-5, ``Invitation for Bid (Construction Contract),'' and Form FmHA or 
its successor agency under Public Law 103-354 1924-6, ``Construction 
Contract.'' When guide 18 is used with a design/build type contract, 
section 4, ``Conflict of Interest,'' may need revision.
    (l) Construction contract administration. Owners shall be 
responsible for maintaining a contract administration system to monitor 
the contractors' performance and compliance with the terms, conditions, 
and specifications of the contracts.
    (1) Preconstruction conference. Prior to beginning construction the 
owner will schedule a preconstruction conference where FmHA or its 
successor agency under Public Law 103-354 will review the planned 
development with the owner, its architect or engineer, project 
inspector, attorney, contractor(s), and other interested parties. The 
conference will thoroughly cover applicable items included in Form FmHA 
or its successor agency under Public Law 103-354 1924-16, ``Record of 
Preconstruction Conference,'' and the

[[Page 217]]

discussions and agreements will be documented. Form FmHA or its 
successor agency under Public Law 103-354 1924-16 may be used for this 
purpose.
    (2) Monitoring reports. Each owner will be required to monitor and 
provide reports to FmHA or its successor agency under Public Law 103-354 
on actual performance during construction for each project financed, or 
to be financed, in whole or in part with FmHA or its successor agency 
under Public Law 103-354 funds. The reports are to include:
    (i) A comparison of actual accomplishments with the construction 
schedule established for the period. The partial payment estimate may be 
used for this purpose.
    (ii) A narrative statement giving full explanation of the following:
    (A) Reasons why established goals were not met.
    (B) Analysis and explanation of cost overruns or high unit costs and 
how payment is to be made for the same.
    (iii) If events occur between reports which have a significant 
impact upon the project, the owner will notify FmHA or its successor 
agency under Public Law 103-354 as soon as any of the following 
conditions are known:
    (A) Problems, delays, or adverse conditions which will materially 
affect the ability to attain program objectives or prevent the meeting 
of project work units by established time periods. This disclosure shall 
be accompanied by a statement of the action taken, or contemplated, and 
any Federal assistance needed to resolve the situation.
    (B) Favorable developments or events which enable meeting time 
schedules and goals sooner than anticipated or producing more work units 
than originally projected or which will result in cost underruns or 
lower unit costs than originally planned and which may result in less 
FmHA or its successor agency under Public Law 103-354 assistance.
    (3) Inspection. The borrower must provide for inspection of all 
construction. When the borrower enters into an agreement for technical 
services with an engineer/architect, the agreement should provide for 
general engineering/architectural inspection of the construction work. 
When no such agreement exists, or FmHA or its successor agency under 
Public Law 103-354 or the borrower determines the inspection services of 
the engineer/architect may not be sufficient, the owner must provide a 
project inspector. Prior to the preconstruction conference, the borrower 
must submit a r[eacute]sum[eacute] of qualifications of the project 
inspector to FmHA or its successor agency under Public Law 103-354 for 
acceptance in writing. The project inspector will be responsible for 
making inspections necessary to protect the borrower's interest and for 
providing written inspection reports to the borrower with copies to the 
FmHA or its successor agency under Public Law 103-354 District Director. 
guide 11 of subpart A of this part 1942 (available in any FmHA or its 
successor agency under Public Law 103-354 office) may be used as a guide 
format for inspection reports. For new buildings, additions to existing 
buildings, and rehabilitation of existing buildings, the project 
inspector should make inspections at the following stages of 
construction and at other stages of construction as determined by the 
District Director and the borrower. Inspections by FmHA or its successor 
agency under Public Law 103-354 are solely for its benefit as lender.
    (i) An initial inspection should be made just prior to or during the 
placement of concrete footings or monolithic footings and floor slabs. 
At this point, foundation excavations are complete, forms or trenches 
and steel are ready for concrete placement and the subsurface 
installation is roughed in. If the building design does not include 
concrete footings the initial inspection should be made just after or 
during the placement of poles or other foundation materials.
    (ii) An inspection should be made when the building is enclosed, 
structural members are still exposed, roughing in for heating, plumbing 
and electrical work is in place and visible, and wall insulation and 
vapor barriers are installed.
    (iii) A final inspection should be made when all development of the 
structure has been completed and the structrure is ready for its 
intended use.
    (4) Prefinal inspections. A prefinal inspection will be made by the 
owner,

[[Page 218]]

project inspector, owner's architect or engineer, representatives of 
other agencies involved, and the District Director. The inspection 
results will be recorded on Form FmHA or its successor agency under 
Public Law 103-354 1924-12, ``Inspection Report,'' and a copy provided 
to all interested parties, including the FmHA or its successor agency 
under Public Law 103-354 State Director.
    (5) Final inspection. A final inspection will be made by FmHA or its 
successor agency under Public Law 103-354 before final payment is made.
    (6) Changes in development plans. (i) Changes in development plans 
may be approved by FmHA or its successor agency under Public Law 103-354 
when requested by owners, provided:
    (A) Funds are available to cover any additional costs; and
    (B) The change is for an authorized loan purpose; and
    (C) It will not adversely affect the soundness of the facility 
operation or FmHA or its successor agency under Public Law 103-354's 
security; and
    (D) The change is within the scope of the contract; and
    (E) Any applicable requirements of subpart G of part 1940 of this 
chapter have been met.
    (ii) Changes will be recorded on Form FmHA or its successor agency 
under Public Law 103-354 1924-7, ``Contract Change Order,'' or other 
similar forms may be used with the prior approval of the District 
Director. Regardless of the form, change orders must be approved by the 
FmHA or its successor agency under Public Law 103-354 District Director.
    (iii) Changes should be accomplished only after FmHA or its 
successor agency under Public Law 103-354 approval on all changes which 
affect the work and shall be authorized only by means of contract change 
order. The change order will include items such as:
    (A) Any changes in labor and material and their respective cost.
    (B) Changes in facility design.
    (C) Any decrease or increase in quantities based on final 
measurements that are different from those shown in the bidding 
schedule.
    (D) Any increase or decrease in the time to complete the project.
    (iv) All changes shall be recorded on chronologically numbered 
contract change orders as they occur. Change orders will not be included 
in payment estimates until approved by all parties.

[52 FR 43726, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987]



Sec. 1942.127  Project monitoring and fund delivery.

    (a) Coordination of funding sources. When a project is jointly 
financed, the District Director will reach any needed agreement or 
understanding with the representatives of the other source of funds on 
distribution of responsibilities for handling various aspects of the 
project. These responsibilities will include supervision of 
construction, inspections and determination of compliance with 
appropriate regulations concerning equal employment opportunities, wage 
rates, nondiscrimination in making services or benefits available, and 
environmental compliance. If any problems develop which cannot be 
resolved locally, complete information should be sent to the State 
Office for advice.
    (b) Multiple advances. Loans under this subpart are subject to the 
provisions of Sec. 1942.17 (p)(2) of subpart A of this part 1942.
    (c) Use and accountability of funds. Loans under this subpart are 
subject to the provisions of Sec. 1942.17 (p)(3) of subpart A of this 
part 1942.
    (d) Development inspections. Loans under this subpart are subject to 
the provisions of Sec. 1942.17(p)(4) of subpart A of this part 1942.
    (e) Payment for project costs. Each payment for project costs must 
be approved by the borrower's governing body.
    (1) Construction. Payment for construction must be for amounts shown 
on payment estimate forms. Form FmHA or its successor agency under 
Public Law 103-354 1924-18, ``Partial Payment Estimate,'' may be used 
for this purpose or other similar forms may be used with the prior 
approval of the District Director. However, the District Director cannot 
require more reporting burden than is required by Form FmHA or its 
successor agency under Public Law 103-354 1924-18. Advances for contract 
retainage will not

[[Page 219]]

be made until such retainage is due and payable under the terms of the 
contract. The review and acceptance of project cost, including 
construction partial payment estimates, by FmHA or its successor agency 
under Public Law 103-354 does not attest to the correctness of the 
amounts, the quantities shown, or that the work has been performed under 
the terms of agreements or contracts.
    (2) Major equipment. Payment for major equipment should generally 
coincide with delivery of the usable equipment, along with any necessary 
title or certifications, to the borrower. Borrowers may not use FmHA or 
its successor agency under Public Law 103-354 loan funds to make 
deposits on equipment not ready for delivery. If a borrower purchases a 
truck chassis from one supplier and another supplier will complete the 
development of a fire or rescue vehicle, FmHA or its successor agency 
under Public Law 103-354 may release funds to pay for the chassis when 
title to the chassis is transferred to the borrower.
    (f) Use of remaining funds. Loans under this subpart are subject to 
the provisions of Sec. 1942.17 (p)(6) of subpart A of this part 1942.

[52 FR 43726, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987]



Sec. 1942.128  Borrower accounting methods, management reports and audits.

    (a) Loans under this subpart are subject to the provisions of Sec. 
1942.17(q) of subpart A of this part 1942 except as provided in this 
section.
    (b) Borrowers with annual incomes not exceeding $100,000 may, with 
concurrence of the District Director, use Form FmHA or its successor 
agency under Public Law 103-354 1942-53, ``Cash Flow Report,'' instead 
of page one of schedule one and schedule two of Form FmHA or its 
successor agency under Public Law 103-354 442-2, ``Statement of Budget, 
Income, and Equity.'' When used for budgeting, the cash statement should 
be projected for the upcoming fiscal year. When used for quarterly or 
annual reports, the cash flow report should include current year 
projections and actual data for the prior year, the quarter just ended, 
and the current year to date.



Sec. 1942.129  Borrower supervision and servicing.

    Loans under this subpart are subject to the provisions of Sec. 
1942.17(r) of subpart A of this part 1942 and subpart E of part 1951 of 
this chapter.



Sec. Sec. 1942.130-1942.131  [Reserved]



Sec. 1942.132  Subsequent loans.

    Subsequent loans will be processed under this subpart.



Sec. 1942.133  Delegation and redelegation of authority.

    Loan approval authority is in subpart A of part 1901 of this 
chapter. State Directors may delegate approval authority to District 
Directors to approve fire and rescue loans regardless of whether 
authority to approve other community facility loans is delegated. Except 
for loan approval authority, District Directors may redelegate their 
duties to qualified staff members.



Sec. 1942.134  State supplements and guides.

    State Directors will obtain National Office clearance for all State 
supplements and guides under FmHA Instruction 2006-B (available in any 
FmHA or its successor agency under Public Law 103-354 Office).
    (a) State supplements. State Directors may supplement this subpart 
to meet State and local laws and regulations and to provide for orderly 
application processing and efficient service to applicants. State 
supplements shall not contain any requirements pertaining to bids, 
contract awards, and materials more restrictive than those in this 
subpart.
    (b) State guides. State Directors may develop guides for use by 
applicants if the guides to this subpart and subpart A of part 1942 are 
not adequate. State Directors may prepare guides for items needed for 
the application; items necessary for the docket; and items required 
prior to loan closing or construction starts.

[[Page 220]]



Sec. Sec. 1942.135-1942.149  [Reserved]



Sec. 1942.150  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and have been 
assigned OMB control number 0575-0120.

Subparts D-F [Reserved]



Subpart G_Rural Business Enterprise Grants and Television Demonstration 
                                 Grants

    Authority: 7 U.S.C. 1989; delegation of authority by the Secretary 
of Agriculture, 7 CFR 2.23; delegation of authority by the Assistant 
Secretary for Rural Development, 7 CFR 2.70; 5 U.S.C. 301.

    Source: 45 FR 73637, Nov. 6, 1980, unless otherwise noted.



Sec. 1942.301  Purpose.

    This subpart outlines Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 policies and authorizations 
and sets forth procedures for making grants to finance and facilitate 
development of private business enterprises. Any processing or servicing 
activity conducted pursuant to this subpart involving authorized 
assistance to FmHA or its successor agency under Public Law 103-354 
employees, members of their families, known close relatives, or business 
or close personal associates, is subject to the provisions of subpart D 
of part 1900 of this chapter. Applicants for this assistance are 
required to identify any known relationship or association with an FmHA 
or its successor agency under Public Law 103-354 employee.

[53 FR 30247, Aug. 11, 1988, as amended at 58 FR 226, Jan. 5, 1993]



Sec. 1942.302  Policy.

    (a) The grant program will be used to support the development of 
small and emerging private business enterprises in rural areas.
    (b) FmHA or its successor agency under Public Law 103-354 officials 
will maintain liaison with officials of other federal, state, regional 
and local development agencies to coordinate related programs to achieve 
rural development objectives.
    (c) FmHA or its successor agency under Public Law 103-354 officials 
shall cooperate with appropriate State agencies in making grants that 
support State strategies for rural area development.
    (d) Funds allocated for use in accordance with this subpart are also 
to be considered for use of Indian tribes within the State regardless of 
whether State development strategies include Indian reservations within 
the State's boundaries. Indians residing on such reservations must have 
equal opportunity along with other rural residents to participate in the 
benefits of these programs. This includes equal application of outreach 
activities of FmHA or its successor agency under Public Law 103-354 
County and District Offices.

[53 FR 30247, Aug. 11, 1988]



Sec. 1942.303  Authorities, delegation, and redelegation.

    The State Director is responsible for implementing the authorities 
contained in this subpart and to issue State supplements redelegating 
these authorities to appropriate FmHA or its successor agency under 
Public Law 103-354 employees. Grant approval authorities are contained 
in subpart A of part 1901 of this chapter.



Sec. 1942.304  Definitions.

    Project. For rural business enterprise grants, the result of the use 
of program funds, i.e., a facility whether constructed by the applicant 
or a third party from a loan made with grant funds, technical 
assistance, startup operating costs, or working capital. A revolving 
fund established in whole or in part with grant funds will also be 
considered a project for the purpose of Intergovernmental and 
Environmental Review under Sec. 1942.310 (b) and (c), of this subpart 
as well as the specific uses of the revolving funds. For television 
demonstration grants, television programming developed on issues of 
importance to farmers and rural residents.
    Regional Commission grants. Grants made from funds made available to 
FmHA or its successor agency under Public Law 103-354 by the Appalachian

[[Page 221]]

Regional Commission (ARC) or other Federal Regional Commissions 
designated under title V of the Public Works and Economic Development 
Act of 1965.
    Rural and Rural Area. Any area other than a city or town that has a 
population of greater than 50,000 inhabitants and the urbanized area 
contiguous and adjacent to such a city or town according to the latest 
decennial census of the United States.
    Rural Business Enterprise (RBE) grants. Grants made to finance and 
facilitate development of small and emerging private business 
enterprises in rural areas. Grants are made from FmHA or its successor 
agency under Public Law 103-354 funds under authority of the 
Consolidated Farm and Rural Development Act, as amended, sec. 310B(c) (7 
U.S.C. 1932).
    Small and emerging private business enterprise. Any private business 
which will employ 50 or fewer new employees and has less than $1 million 
in projected gross revenues.
    Technical Assistance. A function performed for the benefit of a 
private business enterprise and which is a problem solving activity, 
such as market research, product and/or service improvement, feasibility 
study, etc.
    Television demonstration program. Grants made for television 
programming developed to demonstrate the effectiveness of providing 
information on agriculture and other issues of importance to farmers and 
other rural residents. Grants are made from FmHA or its successor agency 
under Public Law 103-354 funds under authority of the Consolidated Farm 
and Rural Development Act, as amended, sec. 310B(j) (7 U.S.C. 1932).

[57 FR 33099, July 27, 1992, as amended at 66 FR 27014, May 16, 2001; 67 
FR 77908, Dec. 20, 2002]



Sec. 1942.305  Eligibility and priority.

    (a) Eligibility. (1) RBE grants may be made to public bodies and 
private nonprofit corporations serving rural areas. Public bodies 
include States, counties, cities, townships, and incorporated town and 
villages, boroughs, authorities, districts, and Indian tribes on Federal 
and State reservations and other Federally recognized Indian Tribal 
groups in rural areas.
    (2) The end result of the project must finance or develop a small 
and emerging private business enterprise. The small business receiving 
assistance must meet the definition contained in Sec. 1942.304. 
However, if the small and emerging private business enterprise is an 
eligible nonprofit entity or other tax-exempt organization located in a 
city, town or unincorporated area with a population of 5,000 or less and 
has a principal office on land of an existing or former Native American 
reservation, the small and emerging private business enterprise is 
exempt from meeting the definition contained in Sec. 1942.304.
    (3) Regional Commission Grant applicants must meet eligibility 
requirements of the Regional Commission and also of the Agency, in 
accordance with paragraph (a)(1) of this section, for the Agency to 
administer the Regional Commission Grant under this subpart.
    (4) Television demonstration grants may be made to statewide, 
private, nonprofit, public television systems whose coverage is 
predominantly rural. An eligible applicant must be organized as a 
private, nonprofit, public television system, licensed by the Federal 
Communications Commission, and operated statewide and within a coverage 
area that is predominantly rural.
    (b) Project selection process. The following paragraphs indicate 
items and conditions which must be considered in selecting RBE 
applications for further development. When ranking eligible RBE 
applications for consideration for limited funds, FmHA or its successor 
agency under Public Law 103-354 officials must consider the priority 
items met by each RBE application and the degree to which those 
priorities are met, and apply good judgment. Due to the small number of 
applicants eligible for television demonstration grants, such applicants 
will not compete for priority points against RBE applicants.
    (1) Applications. The application and supporting information 
submitted with it will be considered in determining the proposed 
project's priority for available funds.
    (2) State Office review. All applications will be reviewed and 
scored for

[[Page 222]]

funding priority. Eligible applicants that cannot be funded should be 
advised by the State Director that funds are not available, and 
requested to advise whether they wish to have their application 
maintained in an active file for future consideration.
    (3) Selection priorities. The priorities described below will be 
used by the State Director to rate applications. Points will be 
distributed as indicated in paragraphs (b)(3) (i) through (iv) of this 
section. A copy of the score sheet should be placed in the case file for 
future reference.
    (i) Population. Proposed project(s) will primarily be located in a 
community of (1) between 15,000 and 25,000 population--5 points, (2) 
between 5,000 and 15,000 population--10 points, (3) under 5,000 
population--15 points.
    (ii) Economic conditions. (A) Proposed project(s) will primarily be 
located in areas where the unemployment rate (1) exceeds the State rate 
by 25% or more--20 points, (2) exceeds the State rate by less than 25%--
10 points, (3) is equal to or less than the State rate--0 points.
    (B) Proposed project(s) will primarily be located in areas where 
Median Household Income (MHI) as prescribed by section 673(2) of the 
Community Services Block Grant Act (42 U.S.C. 9902(2)) for a family of 4 
for the State is: (1) Less than poverty line--25 points, (2) more than 
poverty line but less than 85% of State MHI--15 points, (3) between 85% 
and 100% of State MHI--10 points, (4) equal or greater than State MHI--0 
points.
    (iii) Experience. Applicant has evidence of at least 5 years of 
successful experience in the type of activity proposed in the 
application for funds under this subpart. Evidence of successful 
experience may be (1) a description of experience supplied and certified 
by the applicant, or (2) a letter of support from appropriate local 
elected officials explaining the applicant's experience. Experience--10 
points
    (iv) Other. (A) Applicant has evidence that small business 
development will occur by startup or expansion as a result of the 
activities to be carried out under the grant. Written evidence of 
commitment by small business must be provided to FmHA or its successor 
agency under Public Law 103-354--25 points.
    (B) Applicant has evidence of substantial commitment of funds from 
nonfederal sources for proposed project. An authorized representative of 
the source organization of the nonfederal funds must provide evidence 
that the funds are available and will be used for the proposed project. 
More than 50 percent of the project costs from nonfederal sources--15 
points; more than 25 percent, but less than 50 percent of project costs 
from nonfederal sources--10 points; between 5 percent and 25 percent of 
project costs from nonfederal sources--5 points.
    (C) For a grant to establish a revolving fund, the applicant 
provides evidence to FmHA or its successor agency under Public Law 103-
354 through loan applications or letters from businesses that the loans 
are needed by small emerging businesses in the proposed project area--25 
points.
    (D) The anticipated development, expansion, or furtherance of 
business enterprises as a result of the proposed project will create 
and/or save jobs associated with the affected businesses. The number of 
jobs must be evidenced by a written commitment from the business to be 
assisted. One job per each $10,000 or less in grant funds expended--10 
points. One job per each $25,000 to $10,000 in grant funds expended--5 
points.
    (E) The proposed grant project is consistent with, and does not 
duplicate, economic development activities for the project area under an 
existing community or economic development plan covering the project 
area. If no local plan is in existence for the project area, an areawide 
plan may be used. The plan used must be adopted by the appropriate 
governmental officials/entities as the area's community or economic 
development plan. Appropriate plan references and copies of appropriate 
sections of the plan, as well as evidence of plan adoption by 
appropriate governmental officials, should be provided to FmHA or its 
successor agency under Public Law 103-354. Project is reflected in a 
plan--5 points.
    (F) Grant projects utilizing funds available under this subpart of 
less than $100,000--25 points, $100,000 to

[[Page 223]]

$200,000--15 points, more than $200,000 but not more than $500,000--10 
points.
    (G) The project will assist a small and emerging private business 
enterprise as described in Sec. 1942.305 (a)(2) of this subpart--10 
points.
    (v) Discretionary. In certain cases, when a grant is an initial 
grant for funding under this subpart and is not more than $500,000, FmHA 
or its successor agency under Public Law 103-354 may assign up to 50 
points in addition to those that may be assigned in paragraphs (b)(3)(i) 
through (iv) of this section. Use of these points must include a written 
justification, such as geographic distribution of funds, criteria which 
will result in substantial employment improvement, mitigation of 
economic distress of a community through the creation or saving of jobs, 
or emergency situations. For grants of less than $100,000--50 points; 
$100,000 to $200,000--30 points; more than $200,000, but not more than 
$500,000--20 points.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 30247, Aug. 11, 1988; 55 
FR 134, Jan. 3, 1990; 57 FR 33099, July 27, 1992; 57 FR 35627, Aug. 10, 
1992; 67 FR 77908, Dec. 20, 2002]



Sec. 1942.306  Purposes of grants.

    (a) Grant funds may be used to finance and/or develop small and 
emerging private business enterprises in rural areas including, but not 
limited to, the following:
    (1) Acquisition and development of land, easements and rights-of-
way.
    (2) Construction, conversion, enlargement, repairs or modernization 
of buildings, plants, machinery, equipment, access streets and roads, 
parking areas, utilities, and pollution control and abatement 
facilities.
    (3) Loans for startup operating cost and working capital.
    (4) Technical assistance for private business enterprises.
    (5) Reasonable fees and charges for professional services necessary 
for the planning and development of the project including packaging. 
Services must be provided by individuals licensed in accordance with 
appropriate State accreditation associations.
    (6) Refinancing of debts exclusive of interest incurred by or on 
behalf of an association before an application for a grant when all of 
the following exist:
    (i) The debts were incurred for the facility or part thereof or 
service to be installed or improved with the grant, and
    (ii) Arrangements cannot be made with the creditors to extend or 
modify the terms of the existing debt.
    (7) Providing financial assistance to third parties through a loan.
    (8) Training, when necessary, in connection with technical 
assistance.
    (9) Production of television programs to provide information on 
issues of importance to farmers and rural residents.
    (10) Create, expand, and operate rural distance learning networks or 
rural learning programs, that provide educational instruction or job 
training instruction related to potential employment or job advancement 
for adult students.
    (b) Grants, except grants for television demonstration programs, may 
be made only when there is a reasonable prospect that they will result 
in development of small and emerging private business enterprises.
    (c) FmHA or its successor agency under Public Law 103-354 grant 
funds may be used jointly with funds furnished by the grantee or from 
other sources including FmHA or its successor agency under Public Law 
103-354 loan funds. Pursuant to Pub. L. 95-334, other departments, 
agencies, and executive establishments of the Federal Government may 
participate and provide financial and technical assistance jointly with 
FmHA or its successor agency under Public Law 103-354. The amount of 
participation by the other department, agency, or executive 
establishment shall only be limited by its authorities other than 
authorities which impose restrictions on joint financing.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 30248, Aug. 11, 1988; 57 
FR 33100, July 27, 1992; 59 FR 26587, May 23, 1994]



Sec. 1942.307  Limitations on use of grant funds.

    (a) Funds will not be used:
    (1) To produce agriculture products through growing, cultivation and 
harvesting either directly or through horizontally integrated livestock 
operations except for commercial nurseries,

[[Page 224]]

timber operations or limited agricultural production related to 
technical assistance projects.
    (2) To finance comprehensive areawide type planning. This does not 
preclude the use of grant funds for planning for a given project.
    (3) For loans by grantees when the rates, terms and charges for 
those loans are not reasonable or would be for purposes not eligible 
under Sec. 1942.306 of this subpart.
    (4) For programs operated by cable television systems.
    (5) To fund a part of a project which is dependent on other funding 
unless there is a firm commitment of the other funding to ensure 
completion of the project.
    (6) To pay for technical assistance as defined in this subpart which 
duplicates assistance provided to implement an action plan funded by the 
Forest Service (FS) under the National Forest-Dependent Rural 
Communities Economic Diversification Act for 5 continuous years from the 
date of grant approval by the FS. To avoid duplicate assistance, the 
grantee shall coordinate with FS and Rural Business-Cooperative Service 
(RBS) to ascertain if a grant has been made in a substantially similar 
geographical or defined local area in a State for technical assistance 
under the above program. The grantee will provide documentation to FS 
and RBS regarding the contact with each agency. Under its program, the 
FS assists rural communities dependent upon national forest resources by 
establishing rural forestry and economic diversification action teams 
which prepare action plans. Action plans are intended to provide 
opportunities to promote economic diversification and enhance local 
economies dependent upon national forest resources.
    (b) At least 51 percent of the outstanding interest in the project 
has membership or is owned by those who are either citizens of the 
United States or reside in the United States after being legally 
admitted for permanent residence.

[53 FR 30248, Aug. 11, 1988, as amended at 55 FR 135, Jan. 3, 1990; 57 
FR 33100, July 27, 1992; 60 FR 52839, Oct. 11, 1995]



Sec. 1942.308  Regional Commission grants.

    (a) Grants are sometimes made by Federal Regional Commissions for 
projects eligible for FmHA or its successor agency under Public Law 103-
354 assistance. FmHA or its successor agency under Public Law 103-354 
has agreed to administer such funds in accordance with FmHA or its 
successor agency under Public Law 103-354 regulations and the 
requirements of the commission.
    (b) The transfer of funds from a Regional Commission to FmHA or its 
successor agency under Public Law 103-354 will be based on specific 
applications determined to be eligible for an authorized purpose in 
accordance with the requirements of FmHA or its successor agency under 
Public Law 103-354 and the Regional Commission.
    (c) ARC is authorized under the Appalachian Regional Development Act 
of 1965 (40 U.S.C. 1-405), as amended, to serve the Appalachian region. 
ARC grants are handled in accordance with the ARC Agreement which 
applies to all ARC grants administered by the Agency. Therefore, a 
separate Project Management Agreement between the Agency and ARC is not 
needed for each ARC grant.
    (d) Other Federal Regional Commissions are those authorized under 
title V of the Public Works and Economic Development Act of 1965. Grants 
by these commissions are handled in accordance with a separate Project 
Management Agreement between the respective Regional Commission and FmHA 
or its successor agency under Public Law 103-354 for each Commission 
grant administered by FmHA or its successor agency under Public Law 103-
354 (Guide 1 of this subpart). The agreement should be prepared by the 
FmHA or its successor agency under Public Law 103-354 State Director and 
the appropriate Commission official when the State Director receives a 
notice from the Commission of the amount of the grant to be made.

[45 FR 73637, Nov. 6, 1980, as amended at 62 FR 33510, June 19, 1997]

[[Page 225]]



Sec. 1942.309  [Reserved]



Sec. 1942.310  Other considerations.

    (a) Civil rights compliance requirements. All grants made under this 
subpart are subject to the requirements of title VI of the Civil Rights 
Act of 1964, which prohibits discrimination on the bases of race, color, 
and national origin as outlined in subpart E of part 1901 of this 
chapter. In addition, the grants made under this subpart are subject to 
the requirements of section 504 of the Rehabilitation Act of 1973, which 
prohibits discrimination on the basis of handicap, the requirements of 
the Age Discrimination Act of 1975, which prohibits discrimination on 
the basis of age and title III of the Americans with Disabilities Act, 
Public Law 101-336, which prohibits discrimination on the basis of 
disability by private entities in places of public accommodations. When 
FmHA or its successor agency under Public Law 103-354 is administering a 
Federal Regional Commission grant and no FmHA or its successor agency 
under Public Law 103-354 RBE/television demonstration grant funds are 
involved, the Federal Regional Commission may make its own determination 
of compliance with the above Acts, unless FmHA or its successor agency 
under Public Law 103-354 is designated compliance review 
responsibilities. FmHA or its successor agency under Public Law 103-354 
shall in all cases be made aware of any findings of discrimination or 
noncompliance with the requirements of the above Acts.
    (b) Environmental requirements--(1) General applicability. Unless 
specifically modified by this section, the requirements of subpart G of 
part 1940 of this chapter apply to this subpart. FmHA or its successor 
agency under Public Law 103-354 will give particular emphasis to 
ensuring compliance with the environmental policies contained in 
Sec. Sec. 1940.303 and 1940.304 in subpart G of part 1940 of this 
chapter. Although the purpose of the grant program established by this 
subpart is to improve business, industry and employment in rural areas, 
this purpose is to be achieved, to the extent practicable, without 
adversely affecting important environmental resources of rural areas 
such as important farmlands and forest lands, prime rangelands, wetlands 
and floodplains. Prospective recipients of grants, therefore, must 
consider the potential environmental impacts of their applications at 
the earliest planning stages and develop plans, grants and projects that 
minimize the potential to adversely impact the environment.
    (2) Technical assistance. The application for a technical assistance 
project is generally excluded from FmHA or its successor agency under 
Public Law 103-354's environmental review process by Sec. 
1940.310(e)(1) of subpart G of part 1940 of this chapter. However, as 
further specified in Sec. 1940.330 of subpart G of part 1940 of this 
chapter, the grantee for a technical assistance grant, in the process of 
providing technical assistance, must consider the potential 
environmental impacts of the recommendations provided to the recipient 
of the technical assistance.
    (3) Applications for Direct Construction Project. The application by 
a potential grantee who intends to directly use grant funds for a 
nontechnical assistance project, such as a construction project, shall 
be reviewed and processed under the applicable requirements of subpart G 
of part 1940 of this chapter.
    (4) Applications for Grants to Provide Financial Assistance to Third 
Party Recipients. As part of the preapplication, the applicant must 
provide a complete Form FmHA or its successor agency under Public Law 
103-354 1940-20, ``Request for Environmental Information,'' for each 
project specifically identified in its plan to provide financial 
assistance to third parties who will undertake eligible projects with 
such assistance. FmHA or its successor agency under Public Law 103-354 
will review the preapplication, supporting materials and any required 
Forms FmHA 1940-20 and initiate a Class II assessment for the 
preapplication. This assessment will focus on the potential cumulative 
impacts of the projects as well as any environmental concerns or 
problems that are associated with individual projects and that can be 
identified at this time from the information submitted. Because FmHA or 
its successor agency under Public Law 103-

[[Page 226]]

 354's approval of this type of grant application does not constitute 
FmHA or its successor agency under Public Law 103-354's commitment to 
the use of grant funds for any identified third party projects (see 
Sec. 1942.316 of this subpart), no public notification requirements for 
a Class II assessment will apply to the preapplication. After the grant 
is approved, each third party project to be assisted under the grant 
will undergo the applicable environmental review and public notification 
requirements in subpart G of part 1940 of this chapter, prior to FmHA or 
its successor agency under Public Law 103-354 providing its consent to 
the grantee to assist the third party project. If the preapplication 
reflects only one specific project which is specifically identified as 
the third party recipient for financial assistance, FmHA or its 
successor agency under Public Law 103-354 may perform the appropriate 
environmental assessment in accordance with the requirements of subpart 
G of part 1940 of this chapter, and forego initiating a Class II 
assessment with no public notification. However, the applicant must be 
advised that if the recipient or project changes after the grant is 
approved, the project to be assisted under the grant will undergo the 
applicable environmental review and public notification requirements in 
subpart G of part 1940 of this chapter.
    (5) Combined Applications. Whenever an applicant files a 
preapplication that includes a direct construction project and a plan to 
provide financial assistance to third parties who will undertake 
eligible projects, the following environmental requirements will apply.
    (i) The proposed direct construction project(s) will be reviewed 
under the requirements of paragraph (b)(3) of this section prior to 
authorization of the application.
    (ii) The plan to provide financial assistance to thrid parties will 
be reviewed and processed under the requirements of paragraph (b)(4) of 
this section. Additionally, the Class II assessment required for the 
plan shall address and analyze the cumulative impacts of all proposed 
projects, direct or third party, identified within the preapplication.
    (c) Excess capacity or transfer of employment. (1) If a proposed 
grant is for more than $1 million and will increase direct employment by 
more than 50 employees, the applicant will be requested to provide a 
written indication to FmHA or its successor agency under Public Law 103-
354 which will enable FmHA or its successor agency under Public Law 103-
354 to determine that the proposal will not result in a project which is 
calculated to, or likely to, result in:
    (i) The transfer of any employment or business activity from one 
area to another (this limitation shall not prohibit assistance for the 
expansion of an existing business entity through the establishment of a 
new branch, affiliate, or subsidiary of such entity if the expansion 
will not result in an increase in the unemployment in the area of 
original location or in any other area where such entity conducts 
business operations unless there is reason to believe that such 
expansion is being established with the intention of closing down the 
operations of the existing business entity in the area of its original 
location or in any other area where it conducts such operations), or
    (ii) An increase in the production of goods, materials, or 
commodities or the availability of services or facilities in the area, 
when there is not sufficient demand for such goods, materials, 
commodities, services, or facilities, to employ the efficient capacity 
of existing competitive commercial or industrial enterprises, unless 
such financial or other assistance will not have an adverse effect upon 
existing competitive enterprises in the area. The applicant's written 
indication will consist of a resolution from the applicant and Form FmHA 
or its successor agency under Public Law 103-354 449-22, ``Certificate 
of Non-Relocation and Market and Capacity Information Report,'' from 
each existing and future occupant of the site. The applicant may use 
guide 2 of this subpart as an example in preparing the resolution. 
Future occupants of the site must be certified by Department of Labor 
(DOL) as outlined in paragraph (c)(3) of this section for a period of 3 
years after the initial certification by DOL.

[[Page 227]]

    (2) The State Director will check each document for completeness and 
accuracy and, submit nine copies of each to the National Office for 
forwarding to DOL. The submittal to the National Office should be 
accompanied by a cover memorandum giving the amount and purpose of the 
grant. Information should not be submitted directly to DOL from the 
applicant or the State Office.
    (3) Grants shall not be made if the Secretary of Labor certifies 
within 30 days after the matter has been submitted by the Secretary of 
Agriculture that the provisions of Sec. 1942.310(c)(1) of this subpart 
have not been complied with. Information for obtaining this 
certification will be submitted in writing by the applicant to FmHA or 
its successor agency under Public Law 103-354. The information will be 
submitted to DOL by the FmHA or its successor agency under Public Law 
103-354 National Office. Grant approval may be given and funds may be 
obligated subject to the DOL certification being received provided FmHA 
or its successor agency under Public Law 103-354 has made its own 
separate determinations of (c)(1)(i) and (ii) of this section when the 
project is in excess of $1 million and affects over 50 employees.
    (4) When a grant is being administered for a Federal Regional 
Commission and no FmHA or its successor agency under Public Law 103-354 
grant funds are being used, the requirements for DOL determinations may 
be waived upon written request from the Commission. If the Commission so 
desires, the request will be included in the letter from the Commission 
to FmHA or its successor agency under Public Law 103-354 that gives 
notice of transfer of funds and conditions under which the funds are to 
be made available to the grantee. In such cases the letter of conditions 
from FmHA or its successor agency under Public Law 103-354 to the 
grantee will not include the requirement for DOL determinations.
    (d) Management assistance. Grant recipients will be supervised as 
necessary to assure that projects are completed in accordance with 
approved plans and specifications and that funds are expended for 
approved purposes. Grants made under this subpart will be administered 
under and are subject to 7 CFR part 3015, 7 CFR part 3016, and 7 CFR 
part 3017, as appropriate, and established FmHA or its successor agency 
under Public Law 103-354 guidelines.
    (e) National Historic Preservation Act of 1966. All projects will be 
in compliance with the National Historic Preservation Act of 1966 in 
accordance with subpart F of part 1901 of this chapter.
    (f) Uniform Relocation and Real Property Acquisition Policies Act. 
All projects must comply with the requirements set forth in title 7, 
subtitle A, part 21 of the Code of Federal Regulation.
    (g) Floodplains and wetlands. All projects must comply with 
Executive Order 11988 ``Floodplain Management'' and Executive Order 
119900 ``Protection of Wetlands.''
    (h) Flood or mudslide hazard area precautions. If the grantee 
financed project is in a flood or mudslide area, then flood or mudslide 
insurance must be provided.
    (i) Termination of Federal requirements. Once the grantee has 
provided assistance to projects from a revolving fund, in an amount 
equal to the grant provided by FmHA or its successor agency under Public 
Law 103-354, the requirements imposed on the grantee shall not be 
applicable to any new projects thereafter financed from the revolving 
fund. Such new projects shall not be considered as being derived from 
Federal funds.

(7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; sec. 10, Pub. L. 93-357, 
88 Stat. 392; 7 CFR 2.23; 7 CFR 2.70)

[45 FR 73637, Nov. 6, 1980, as amended at 47 FR 54423, Dec. 3, 1982; 49 
FR 3760, Jan. 30, 1984; 53 FR 30248, Aug. 11, 1988; 55 FR 135, Jan. 3, 
1990; 57 FR 33100, 33101, July 27, 1992]



Sec. 1942.311  Application processing.

    (a) Preapplications and applications. (1) The application review and 
approval procedures outlined in Sec. 1942.2 of subpart A of part 1942 
of this chapter will be followed as appropriate. The State Director 
should assist the applicant in application assembly and processing. The 
applicant shall use SF 424.1, ``Application for Federal Assistance (For 
Non-Construction),'' or SF 424.2, ``Application for Federal Assistance 
(For

[[Page 228]]

Construction),'' as applicable, when requesting financial assistance 
under this program.
    (2) Each application for assistance will be carefully reviewed in 
accordance with the priorities established in Sec. 1942.305(b)(3) of 
this subpart. A priority rating will be assigned to each application. 
Applications selected for funding will be based on the priority rating 
assigned each application and the total funds available. All 
applications submitted for funding should contain sufficient information 
to permit FmHA or its successor agency under Public Law 103-354 to 
complete a thorough priority rating.
    (b) Review of decision. When the District Director is informed that 
favorable action will not be taken on a preapplication or application, 
the applicant will be notified in writing of the reasons why the request 
was not favorably considered. The notification to the applicant will 
state that a review of this decision by FmHA or its successor agency 
under Public Law 103-354 may be requested by the applicant in accordance 
with subpart B of part 1900 of this chapter.

[45 FR 73637, Nov. 6, 1980, as amended at 50 FR 33332, Aug. 19, 1985; 53 
FR 30249, Aug. 11, 1988; 55 FR 135, Jan. 3, 1990; 57 FR 33101, July 27, 
1992]



Sec. 1942.312  [Reserved]



Sec. 1942.313  Plan to provide financial assistance to third parties.

    (a) For applications involving establishment of a revolving fund to 
provide financial assistance to third parties the applicant shall 
develop a plan which outlines the purpose and administration of the 
fund. The plan will include:
    (1) Planned projects to be financed.
    (2) Sources of all non RBE funds.
    (3) Amount of technical assistance (if any).
    (4) Purpose of the loans.
    (5) Number of jobs to be created/saved with each project.
    (6) Project priority and length of time involved in completion of 
each project.
    (7) Other information required by the State Office.
    (b) Each third party project receiving funds will be reviewed for 
eligibility. When the applicant does not have a list of projects to be 
completed, the applicant should advise the FmHA or its successor agency 
under Public Law 103-354 at the time a preapplication is submitted.

[55 FR 135, Jan. 3, 1990, as amended at 57 FR 33101, July 27, 1992]



Sec. 1942.314  Grants to provide financial assistance to third parties, 
television demonstration projects, and technical assistance programs.

    For applications involving a purpose other than a construction 
project to be owned by the applicant, the applicant shall develop a 
Scope of Work. The Scope of Work will be used to measure the performance 
of the grantee. As a minimum, the Scope of Work should contain the 
following:
    (a) The specific purposes for which grant funds will be utilized, 
i.e., Technical Assistance, Revolving Fund, etc.
    (b) Timeframes or dates by which action surrounding the use of funds 
will be accomplished.
    (c) Who will be carrying out the purpose for which the grant is made 
(key personnel should be identified).
    (d) How the grant purposes will be accomplished.
    (e) Documentation regarding the availability and amount of other 
funds to be used in conjunction with the funds from the RBE/television 
demonstration program.
    (f) For grants involving a revolving fund the scope of work should 
include those items listed in paragraphs (a) through (e) of this section 
as well as the following:
    (1) Information which will establish/identify the need for the 
revolving loan fund.
    (2) Financial statements which will demonstrate the financial 
ability of the applicant to administer the revolving loan fund. As a 
minimum the financial statements will include:
    (i) Balance sheet
    (ii) Income statement
    (3) Detail on the applicants experience in operating a revolving 
loan fund.
    (g) For technical assistance and television demonstration program 
projects, the scope of work should include a budget based on the budget 
contained

[[Page 229]]

in the application, modified or revised as appropriate, which includes 
salaries, fringe benefits, consultant costs, indirect costs, and other 
appropriate direct costs for the project.

[55 FR 135, Jan. 3, 1990, as amended at 57 FR 33101, July 27, 1992]



Sec. 1942.315  Docket preparation and Letter of Conditions.

    (a) The applicable provisions of Sec. 1942.5 of subpart A of part 
1942 of this chapter relating to preparation of loan dockets will be 
followed in preparing grant dockets.
    (b) The State Director or the State Director's designated 
representative will prepare a Letter of Conditions outlining the 
conditions under which the grant will be made. It will include those 
matters necessary to assure that the proposed development is completed 
in accordance with approved plans and specifications, that grant funds 
are expended for authorized purposes, and that the terms of the Scope of 
Work and requirements as prescribed in parts 3015 and 3016 of 7 CFR are 
complied with. The Letter of Conditions will be addressed to the 
applicant, signed by the State Director or other designated FmHA or its 
successor agency under Public Law 103-354 representative, and mailed or 
handed to appropriate applicant officials. Each Letter of Conditions 
will contain the following paragraphs.

    ``This letter established conditions which must be understood and 
agreed to by you before further consideration may be given to the 
application.''
    ``This letter is not to be considered as grant approval nor as a 
representation as to the availability of funds. The docket may be 
completed on the basis of a grant not to exceed $------.''
    ``Please complete and return the attached Form FmHA or its successor 
agency under Public Law 103-354 1942-46, `Letter of Intent to Meet 
Conditions,' if you desire further consideration be given your 
application.''

    Other items in the Letter of Conditions should include those 
relative to: Maximum amount of grant, contributions, final plans and 
specifications, construction contract documents and bidding, required 
project audit, evidence of compliance with all applicable Federal, 
State, and local requirements, closing instructions, DOL certifications, 
compliance with any required environmental mitigation measures, and 
other requirements including those of Regional Commissions when a grant 
is being made by a Regional Commission.

[50 FR 7296, Feb. 22, 1985, as amended at 53 FR 30249, Aug. 11, 1988; 57 
FR 33101, July 27, 1992]



Sec. 1942.316  Grant approval, fund obligation and third party financial 
assistance.

    (a) Grant approval. FmHA or its successor agency under Public Law 
103-354 State Directors are authorized to approve grants made in 
accordance with this subpart and subpart A of part 1901 of this chapter.
    (b) Fund obligation and approval announcement. Funds will be 
obligated and approval announcement made in accordance with the 
provisions of Sec. 1942.5(d) of subpart A of part 1942 of this chapter.
    (c) Third party financial assistance. Approval of a grant to an 
applicant who will use grant funds to provide financial assistance to a 
third party does not constitute approval of the projects financed by the 
grantee. The review, approval and disbursement of funds for specific 
projects financed by grantees will be completed in accordance with 
applicable sections of this subpart.

[45 FR 73637, Nov. 6, 1980, as amended at 47 FR 36413, Aug. 20, 1982; 53 
FR 30250, Aug. 11, 1988]



Sec. Sec. 1942.317-1942.320  [Reserved]



Sec. 1942.321  Subsequent grants.

    Subsequent grants will be processed in accordance with this subpart.



Sec. Sec. 1942.322-1942.347  [Reserved]



Sec. 1942.348  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart which is not inconsistent with 
the authorizing statute, an applicable law or decision of the 
Comptroller General, if the Administrator determines that application of 
the requirement or provision would adversely affect the Government's 
interest and show how the

[[Page 230]]

adverse impact will be eliminated or minimized if the exception is made.

[55 FR 135, Jan. 3, 1990]



Sec. 1942.349  Forms, guides, and attachments.

    Guides 1 and 2 of this subpart, Attachment 1 and Forms referenced 
(all available in any Rural Development office) are for use in 
administering RBE/television demonstration grants.

[62 FR 33510, June 19, 1997]



Sec. 1942.350  OMB control number.

    The collection of information requirements in this regulation have 
been approved by the Office of Management and Budget and have been 
assigned OMB control number 0575-0132. Public reporting burden for this 
collection of information is estimated to vary from one-half to 40 hours 
per response, with an average of 1.8 hours per response including time 
for reviewing instruction, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of the collection of information, including 
suggestions for reducing this burden, to Department of Agriculture, 
Clearance Officer, OIRM, room 404-W, Washington, DC 20250; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503.

[57 FR 33101, July 27, 1992]

Guide 1 to Subpart G of Part 1942--Project Management Agreement Between 
the -------- Regional Commission and the Farmers Home Administration or 
Its Successor Agency Under Public Law 103-354, Department of Agriculture

(Grantee)_______________________________________________________________
County,_________________________________________________________________
Page No.________________________________________________________________
I. Introduction
    A. The ---------- Regional Commission is providing a (basic or 
supplemental) grant for (purpose) ---------- to (grantee) ----------, 
and the U.S. Department of Agriculture, Farmers Home Administration 
(FmHA) or its successor agency under Public Law 103-354 has approved and 
will administer that grant. The FmHA or its successor agency under 
Public Law 103-354 has determined that funds (can or cannot) be made 
available under its funding program for this fiscal year for the 
project. The project does meet all the requisites for assistance under 
section 310(B) of the Consolidated Farm and Rural Development Act, as 
amended (7 USC 1926). In order to accomplish these purposes, the ------
---- Regional Commission's Federal Cochairman and the FmHA or its 
successor agency under Public Law 103-354 State Director hereby enter 
into this Memorandum of Understanding which is in accordance with the 31 
USC 686.
    B. This agreement is intended to cover the application phase, 
construction phase, and final audit.
II. General
    A. Project Cost
    The project costs for the purposes of this agreement shall include 
the costs of construction, technical services, legal services, land 
acquisition, permits and rights-of-way, interest during construction and 
contingencies.
    B. Grant
    The ---------- Regional Commission shall make a (basic or 
supplemental) grant of $------ up to but not exceeding ----% of the 
total cost of the project. These funds will be transferred to the 
Treasury Account of the Farmers Home Administration or its successor 
agency under Public Law 103-354 by Standard Form 1151, ``Nonexpenditure 
Transfer Authorization.''
    C. The undersigned FmHA or its successor agency under Public Law 
103-354 State Director on behalf of FmHA or its successor agency under 
Public Law 103-354, in concurring to this Project Management Agreement, 
hereby assures the Federal Cochairman that:
    1. The estimated cost of the project is reasonable and the (basic or 
supplemental) grant, with the funds to be supplied by the applicant, 
are, in its judgment, sufficient to complete the project.
    2. The funds to be supplied by the applicant are available or FmHA 
or its successor agency under Public Law 103-354 is reasonably satisfied 
that the applicant has the capability of supplying such funds.
    3. FmHA or its successor agency under Public Law 103-354 is 
reasonably satisfied that the facility will be properly and efficiently 
administered, operated, and maintained and that the applicant will 
provide sufficient funds to assure the successful and continuing 
operation of the facility.
    D. The (grantee) ---------- is subject to Executive Order 11246 and 
will be required

[[Page 231]]

to evidence compliance by execution of the following:
    1. Equal Opportunity Agreement--Form FmHA or its successor agency 
under Public Law 103-354 400-1
    2. Nondiscrimination Agreement--Form FmHA or its successor agency 
under Public Law 103-354 400-4
    E. The (grantee) ---------- shall execute assurances of 
nonrelocation. (If applicable.)
III. Construction Management
    A. The forms and format for the documents shall conform to the 
requirements in subpart A of part 1942 of this chapter. Generally, the 
following items shall be included:
    1. Contract Documents
    2. Specifications
    3. Plans
    B. FmHA or its successor agency under Public Law 103-354 will 
approve the plans and specifications.
    C. FmHA or its successor agency under Public Law 103-354 will obtain 
a certification of adequacy from the Federal Environmental Protection 
Agency (include only when applicable).
    D. FmHA or its successor agency under Public Law 103-354 will obtain 
a non-pollution certificate from the (state) ---------- (agency) ------
---- (include only when applicable).
    E. FmHA or its successor agency under Public Law 103-354 will make 
monthly inspections.
    F. Contract change orders will not become effective until approved 
by FmHA or its successor agency under Public Law 103-354.
    G. Final inspection will be conducted by FmHA or its successor 
agency under Public Law 103-354.
IV. Financial Management
    A. Financial management of the project shall be according to subpart 
A of part 1942 of this chapter.
    B. FmHA or its successor agency under Public Law 103-354 will 
provide the ---------- Regional Commission with a copy of the audit 
report.
    C. If actual costs fall below the costs on which the grant was 
calculated, the Federal and non-Federal shares will be reduced 
proportionately.
    D. FmHA or its successor agency under Public Law 103-354 will 
conform to the financial reporting requirements for transferred funds as 
required by the attached copy of ``Reporting of Funds Transfer by 
Participating Agencies.''
V. Compensation
    Services rendered by FmHA or its successor agency under Public Law 
103-354 for the processing and administration of Commission grants in 
cases where neither FmHA or its successor agency under Public Law 103-
354 loan nor grant funds are involved shall be on a reimbursable basis. 
Reimbursement will be based on five percent of the amount of the grant 
up to $50,000 and an additional one percent of any amount over the first 
$50,000 of the Commission grant. The full amount of the reimbursement 
will be transferred to FmHA or its successor agency under Public Law 
103-354 at the time the grant funds are transferred to FmHA or its 
successor agency under Public Law 103-354.
VI. No provision in this agreement shall abrogate the legal requirements 
          of administrative responsibilities as set forth in the 
          Consolidated Farm and Rural Development Act or section 509 of 
          the Public Works and Economic Development Act of 1965, as 
          amended.
For the ---------- Regional Commission
(name)__________________________________________________________________
Federal Cochairman______________________________________________________
------------, 197--
For the Farmers Home Administration or its successor agency under Public 
Law 103-354, USDA
(name)__________________________________________________________________
State Director__________________________________________________________
------------, 197--

              Guide 2 to Subpart G of Part 1942--Resolution

    Whereas the ------------ (hereinafter called public body) desires to 
obtain financial assistance from the Farmers Home Administration or its 
successor agency under Public Law 103-354, United States Department of 
Agriculture, pursuant to section 310 B of the Consolidated Farm and 
Rural Development Act, for the purpose of providing ------------ 
(describe briefly the nature of the project) ------------ (herein 
referred to as the facility) and as a condition to and in consideration 
of receiving financial assistance from the Farmers Home Administration 
or its successor agency under Public Law 103-354 this resolution is 
being adopted.
    Therefore, in consideration of the premises the public body agrees 
as follows:
    1. No private business enterprises shall be allowed to use or occupy 
the facility if such use or occupancy would be calculated to, or is 
likely to, result in the transfer from one area to another of any 
employment or business activity provided by operations of the private 
business enterprises. This limitation shall not be construed to prohibit 
use and enjoyment of the facility by such private business entity 
through the establishment of a new branch, affiliate, or subsidiary if 
the establishment of such branch, affiliate, or subsidiary will not 
result in the increase in unemployment in the area of original location 
(or in any other area where such entity conducts business operations), 
unless there

[[Page 232]]

is reason to believe that such branch, affiliate, or subsidiary is being 
established with the intention of closing down the operations of the 
existing business entity in the area of its original location (or in any 
other area where it conducts such operation).
    2. No private business enterprises shall be allowed to use or occupy 
the facilities if such use or occupancy would be calculated to, or is 
likely to, result in an increase in the production of goods, materials, 
or commodities, or the availability of services or facilities in the 
area, where there is not sufficient demand for such goods, materials, 
commodities, services or facilities to employ the sufficient capacity of 
existing competitive commercial or industrial enterprises, unless such 
financial or other assistance will not have an adverse affect upon 
existing competitive enterprises in the area.
    3. Prior to allowing the use or occupancy of the facilities by any 
private business enterprise, the public body shall clear such use or 
occupancy with the Manpower Administration, Department of Labor, 
Washington, DC, by submitting information required by the Department of 
Labor for certification under the Act. This information shall be 
submitted to Farmers Home Administration or its successor agency under 
Public Law 103-354 for transmittal to the Department of Labor. The 
public body agrees to make no final commitment with any private business 
enterprise regarding such use or occupancy if the Department of Labor 
issues a negative certification under the Act. The public body shall 
obtain prior clearance in this matter for a period of three years after 
the date of an affirmative certification by the Department of Labor on 
the application for financial assistance now pending before the Farmers 
Home Administration or its successor agency under Public Law 103-354.
    This resolution shall be in force and effect immediately.
    The voting was yeas ----, nays ----, absent ----.
(Name of public body)___________________________________________________
by (Name and Title)_____________________________________________________

                              Certification

    I the undersigned as (Secretary) (Town Clerk) of the ---------- do 
hereby certify that the foregoing resolution was duly adopted at a 
meeting of ---------- duly called and held on the ---- day of ------ 
19--, and that such resolution has not been rescinded or amended in any 
way. Dated this ---- day of ------, 19--.

(Seal)

                       (Town Clerk) (Secretary) of

Subpart H [Reserved]



PART 1943_FARM OWNERSHIP, SOIL AND WATER AND RECREATION--Table of Contents




     Subpart A_Direct Farm Ownership Loan Policies, Procedures, and 
                             Authorizations

Sec.
1943.1 Introduction.
1943.2 Objectives.
1943.3 Management assistance.
1943.4 Definitions.
1943.5 [Reserved]
1943.6 Credit elsewhere.
1943.7 For the State of Hawaii--FO loans on leasehold interest on real 
          property.
1943.8-1943.9 [Reserved]
1943.10 Preference.
1943.11 Receiving and processing applications.
1943.12 Farm ownership loan eligibility requirements.
1943.13 Outreach program for applicants/borrowers who are members of 
          socially disadvantaged groups.
1943.14 Downpayment FO loan program for beginning farmers or ranchers.
1943.15 [Reserved]
1943.16 Loan purposes.
1943.17 Loan limitations.
1943.18 Rates and terms.
1943.19 Security.
1943.20-1943.22 [Reserved]
1943.23 General provisions.
1943.24 Special requirements.
1943.25 Options, planning, and appraisals.
1943.26 Planning and performing farm development.
1943.27 Relationship with other lenders.
1943.28 FmHA or its successor agency under Public Law 103-354 loans 
          simultaneous with other lenders.
1943.29 Relationship between FSA loans, direct and guaranteed.
1943.30-1943.32 [Reserved]
1943.33 Loan approval or disapproval.
1943.34 Requesting title service.
1943.35 Action after loan approval.
1943.36-1943.37 [Reserved]
1943.38 Loan closing actions.
1943.39-1943.41 [Reserved]
1943.42 Servicing.
1943.43 Subsequent FO loans.
1943.44 Subordinations.
1943.45-1943.49 [Reserved]
1943.50 State supplements.

Exhibit A to Subpart A--Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354 Loans to Entrymen on 
          Unpatented Public Lands
Exhibit B to Subpart A--Target Participation Rates for Farmers Home 
          Adminstration (FmHA) or Its Successor Agency Under Public Law 
          103-354 Direct Farm Ownership (FO) Loans

[[Page 233]]

          to Members of Socially Disadvantaged Groups

     Subpart B_Direct Soil and Water Loan Policies, Procedures, and 
                             Authorizations

1943.51 Introduction.
1943.52 Objectives.
1943.53 Management assistance.
1943.54 Definitions.
1943.55 [Reserved]
1943.56 Credit elsewhere.
1943.57 Preference.
1943.58-1943.60 [Reserved]
1943.61 Receiving and processing applications.
1943.62 Soil and water loan eligibility requirements.
1943.63-1943.65 [Reserved]
1943.66 Loan purposes.
1943.67 Loan limitations.
1943.68 Rates and terms.
1943.69 Security.
1943.70-1943.72 [Reserved]
1943.73 General provisions.
1943.74 Special requirements.
1943.75 Options, planning, and appraisals.
1943.76 Planning and performing development.
1943.77 Relationship with other lenders.
1943.78-1943.82 [Reserved]
1943.83 Loan approval or disapproval.
1943.84 Requesting title service.
1943.85 Action after loan approval.
1943.86-1943.87 [Reserved]
1943.88 Loan closing actions.
1943.89-1943.91 [Reserved]
1943.92 Servicing.
1943.93 Subsequent SW loans.
1943.94 Subordinations.
1943.95-1943.99 [Reserved]
1943.100 State supplements.

Exhibit A to Subpart B--Memorandum of Understanding Between the Bureau 
          of Reclamation, Department of the Interior and the Farmers 
          Home Administration or Its Successor Agency Under Public Law 
          103-354, Department of Agriculture

   Subpart C_Small Farmer Outreach Training and Technical Assistance 
                                 Program

1943.101 General.
1943.102 Objectives.
1943.103 Project period.
1943.104 Definitions.
1943.105 Eligible entities.
1943.106-1943.110 [Reserved]
1943.111 Process for consideration.
1943.112-1943.114 [Reserved]
1943.115 Authorized use of funds.
1943.116-1943.125 [Reserved]
1943.126 Other applicable Federal statutes and regulations that apply.
1943.127 Fund disbursement.
1943.128 Financial management systems and reporting requirements.
1943.129-1943.135 [Reserved]
1943.136 Standards of conduct for employees of recipient.
1943.137 Monitoring compliance and penalty for noncompliance.
1943.138-1943.140 [Reserved]
1943.141 Nondiscrimination.
1943.142 Environmental requirements.
1943.143-1943.150 [Reserved]

    Authority: 5 U.S.C. 301; and 7 U.S.C. 1989.

    Source: 43 FR 55895, Nov. 29, 1978, unless otherwise noted.



     Subpart A_Direct Farm Ownership Loan Policies, Procedures, and 
                             Authorizations

    Source: 53 FR 35692, Sept. 15, 1988, unless otherwise noted.

    Editorial Note: Nomenclature changes to subpart A appear at 68 FR 
7697, Feb. 18, 2003.



Sec. 1943.1  Introduction.

    This subpart contains regulations for making initial and subsequent 
direct Farm Ownership (FO) loans. FO loans may be made to eligible 
farmers and ranchers, and entities that will manage and operate not 
larger than family farms. It is the policy of Farm Service Agency (FSA) 
or its successor agency under Public Law 103-354 to make loans to any 
qualified applicant without regard to race, color, religion, sex, 
national origin, marital status, age or physical/mental handicap 
provided the applicant can execute a legal contract. Any processing or 
servicing activity conducted pursuant to this subpart involving 
authorized assistance to FmHA or its successor agency under Public Law 
103-354 employees, members of their families, known close relatives, or 
business or close personal associates, is subject to the provisions of 
subpart D of part 1900 of this chapter. Applicants for this assistance 
are required to identify any known relationship or association with an 
FmHA or its successor agency under Public Law 103-354 employee. See 
exhibit A of this subpart for making FP loans to entrymen on unpatented 
public lands.

[53 FR 35692, Sept. 15, 1988, as amended at 58 FR 227, Jan. 5, 1993; 58 
FR 48282, Sept. 15, 1993; 61 FR 35925, July 9, 1996; 68 FR 7697, Feb. 
18, 2003]

[[Page 234]]



Sec. 1943.2  Objectives.

    The basic objective of the FO loan program is to provide credit and 
management assistance to eligible farmers and ranchers to become owners-
operators of family-sized farms or to continue such operations when 
credit is not available elsewhere. Agency or its successor agency under 
Public Law 103-354 assistance enables family-farm operators to use their 
land, labor and other resources, and to improve their living and 
financial conditions so that they can obtain credit elsewhere.

[53 FR 35692, Sept. 15, 1988, as amended at 61 FR 35925, July 9, 1996]



Sec. 1943.3  Management assistance.

    Supervision will be provided borrowers to the extent necessary to 
achieve the objectives of the loan and to protect the interests of the 
Government in accordance with subpart B of part 1924 of this chapter. 
Such assistance consists of farm, home and nonfarm planning, 
recordkeeping; analyzing the farm and any nonfarm business; and giving 
management advice.



Sec. 1943.4  Definitions.

    As used in this subpart, the following definitions apply:
    Additional security. Any security beyond that which is required to 
adequately secure the loan.
    Agency. The Farm Service Agency, its country and State committees 
and their personnel, and any successor agency.
    Approval official. A field official who has been delegated loan and 
grant approval authorities within applicable loan programs, subject to 
the dollar limitations contained in tables available in any FmHA or its 
successor agency under Public Law 103-354 office.
    Beginning farmer or rancher. A beginning farmer or rancher is an 
individual or entity who:
    (a) Meets the loan eligibility requirements for FO loan assistance 
in accordance with Sec. 1943.12 of this subpart.
    (b) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 years. This requirement applies to all 
members of an entity.
    (c) Will materially and substantially participate in the operation 
of the farm or ranch.
    (1) In the case of a loan made to an individual, individually or 
with the immediate family, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm or ranch, consistent with the practices in the 
county or State where the farm is located.
    (2) In the case of a loan made to an entity, all members must 
materially and substantially participate in the operation of the farm or 
ranch. Material and substantial participation requires that the 
individual provides some amount of the management, or labor and 
management necessary for day-to-day activities, such that if the 
individual did not provide these inputs, operation of the farm or ranch 
would be seriously impaired.
    (d) Agrees to participate in any loan assessment, borrower training, 
and financial management programs required by FmHA or its successor 
agency under Public Law 103-354 regulations.
    (e) Except for OL loan purposes, does not own real farm or ranch 
property or who, directly or through interests in family farm entities, 
owns real farm or ranch property, the aggregate acreage of which does 
not exceed 30 percent of the average farm or ranch acreage of the farms 
or ranches in the county where the property is located. If the farm is 
located in more than one county, the average farm acreage of the county 
where the applicant's residence is located will be used in the 
calculation. If the applicant's residence is not located on the farm or 
if the applicant is an entity, the average farm acreage of the county 
where the major portion of the farm is located will be used. The average 
county farm or ranch acreage will be determined from the most recent 
Census of Agriculture developed by the U.S. Department of Commerce, 
Bureau of the Census. State Directors will publish State supplements 
containing the average farm or ranch acreage by county.
    (f) Demonstrates that the available resources of the applicant and 
spouse (if any) are not sufficient to enable the

[[Page 235]]

applicant to enter or continue farming or ranching on a viable scale.
    (g) In the case of an entity:
    (1) All the members are related by blood or marriage.
    (2) All the stockholders in a corporation are qualified beginning 
farmers or ranchers.
    Borrower. An individual or entity which has outstanding obligations 
to the FmHA or its successor agency under Public Law 103-354 under any 
Farmer Programs loan(s), without regard to whether the loan has been 
accelerated. A borrower includes all parties liable for the FmHA or its 
successor agency under Public Law 103-354 debt, including collection-
only borrowers, except for debtors whose total loans and accounts have 
been voluntarily or involuntarily foreclosed or liquidated, or who have 
been discharged of all FmHA or its successor agency under Public Law 
103-354 debt.
    Cooperative. An entity which has farming as its purpose and whose 
members have agreed to share the profits of the farming enterprise. The 
entity must be recognized as a farm cooperative by the laws of State(s) 
in which the entity will operate a farm.
    Corporation. For the purposes of this regulation, a private domestic 
corporation created and organized under the laws of the State(s) in 
which the entity will operate a farm.
    Cosigner. A party who joins in the execution of a promissory note to 
assure its repayment. The cosigner becomes jointly and severally liable 
to comply with the terms of the note. In the case of an entity 
applicant, the cosigner cannot be a member, partner, joint operator, or 
stockholder of the entity.
    Entity. Cooperative, corporation, partnership, joint operation, 
trust, or limited liability company.
    Family farm. A farm which:
    (a) Will produce agricultural commodities for sale in sufficient 
quantities so that it is recognized in the community as a farm rather 
than a rural residence.
    (b) Will provide enough agricultural income by itself, including 
rented land, or together with any other dependable income, to enable the 
borrower to:
    (1) Pay necessary family and operating expenses;
    (2) Maintain essential chattel and real property; and
    (3) Pay debts.
    (c) Is managed by:
    (1) The borrower, when a loan is made to an individual.
    (2) The members responsible for operating the farm when a loan is 
made to a cooperative, corporation, partnership, or joint operation.
    (d) Has a substantial amount of the labor requirements for the farm 
enterprise provided by:
    (1) The borrower and any family member for a loan made to an 
individual.
    (2) The members responsible for operating the farm, along with the 
families of these individuals, for a loan made to an entity.
    (e) May require a reasonable amount of full-time hired labor and 
seasonal labor during peakload periods.
    Farm. A tract or tracts of land, improvements and other 
appurtenances considered to be farm property which is used or will be 
used in the production of crops or livestock, including the production 
of fish under controlled conditions, for sale in sufficient quantities 
so that the property is recognized as a farm rather than a rural 
residence. It may also include a residence which, although physically 
separate from the farm acreage, is ordinarily treated as a part of the 
farm in the local community.
    Feasible plan. A feasible plan is a plan based upon the applicant/
borrower's records that show the farming operation's actual production 
and expoenses. These records will be used along with realistic 
anticipated prices, including farm program payments when available, to 
determine that the income from the farming operation, along with any 
other reliable off farm income, will provide the income necessary for an 
applicant/borrower to at least be able to:
    (a) Pay all operating expenses and all taxes which are due during 
the projected farm budget period.
    (b) Meet necessary payments of all debts.

[[Page 236]]

    (c) Provide living expenses for the family members of an individual 
borrower or a wage for the farm operator in the case of a cooperative, 
corporation, partnership or joint operation borrower which is in 
accordance with the essential family needs. Family members include the 
individual borrower or farm operator in the case of an entity, and the 
immediate members of the family which resides in the same household.
    Fish farming. The production of fish, mollusks or crustaceans (or 
other invertebrates) under controlled conditions in ponds, lakes, 
streams, or similar holding areas. This involves feeding, tending, 
harvesting and other activities as are necessary to properly raise and 
market the products.
    Joint operation. Individuals that have agreed to operate a farm or 
farms together as a business unit. The real and personal property is 
owned separately or jointly by the individuals. A husband and wife who 
want to apply for a loan together will be considered a joint operation.
    Limited resource applicant. An applicant who is a farmer or rancher 
and is an owner or operator of a small or family farm (a small farm is a 
marginal family farm), including a new owner or operator, with a low 
income who demonstrates a need to maximize farm or ranch income. A 
limited resource applicant must meet the eligibility requirements for a 
farm ownership or operating loan, but due to low income, cannot pay the 
regular interest rate on such loans. Due to the complex nature of the 
problems facing this applicant, special help will be needed and more 
supervisory assistance will be required to assure reasonable prospects 
for success. The applicant may face such problems as underdeveloped 
managerial ability, limited education, low-producing farm due to lack of 
development or improved production practices and other related factors. 
The applicant will not have nor expect to obtain, without the special 
help and low-interest loan, the income needed to have a reasonable 
standard of living when compared to other residents of the community.
    Majority interest. Any individual or a combination of individuals 
owning more than a 50 percent interest in a cooperative, corporation, 
joint operation or partnership.
    Market value. The amount which a willing buyer would pay a willing 
but not forced seller in a completely voluntary sale.
    Mortgage. Any form of security interest or lien upon any rights or 
interest in real property of any kind. In Louisiana and Puerto Rico the 
term mortgage also refers to any security interest in chattel property.
    Nonfarm enterprise. Any nonfarm business enterprise, including 
recreation, which is closely associated with the farm operations and 
located on or adjacent to the farm and provides income to supplement 
farm income. This may include, but is not limited to, such enterprises 
as raising earthworms, exotic birds, tropical fish, dogs and horses for 
nonfarm purposes, welding shops, roadside stands, boarding horses and 
riding stables.
    Participated in the business operations of a farm or ranch. An 
applicant has participated in the business operations of a farm or ranch 
if the applicant has:
    (1) Been the owner, manager or operator of a farm business for the 
year's complete production and marketing cycle as evidenced by tax 
returns, FSA farm records or similar documentation;
    (2) Been employed as a farm manager or farm management consultant 
for the year's complete production and marketing cycle; or
    (3) Participated in the operation of a farm by virtue of being 
raised on a farm or having worked on a farm with significant 
responsibility for the day-to-day decisions for the year's complete 
production and marketing cycle, which may include selection of seed 
varieties, weed control programs, input suppliers, or livestock feeding 
programs or decisions to replace or repair equipment.
    Partnership. An entity consisting of individuals who have agreed to 
operate a farm. The entity must be recognized as a partnership by the 
laws of the State(s) in which the entity will operate a farm and the 
entity must be authorized to own both real and personal property and to 
incur debts in its own name.

[[Page 237]]

    Primary security. Any real estate and chattel security which is 
required to adequately secure the loan. This is not to be confused with 
basic security, as defined in Sec. 1962.4 of subpart A of part 1962 of 
this chapter.
    Related by blood or marriage. As used in this subpart, individuals 
who are connected to one another as husband, wife, parent, child, 
brother or sister.
    Security. Property of any kind subject to a real or personal 
property lien. Any reference to collateral or security property shall be 
considered a reference to the term security.
    Socially disadvantaged applicant (SDA). An applicant who is a member 
of a socially disadvantaged group whose members have been subjected to 
racial, ethnic, or gender prejudice because of their identity as a 
member of a group, without regard to their individual qualities. For 
entity SDA applicants, the majority interest in the entity must be held 
by socially disadvantaged individuals. The Agency has identified 
socially disadvantaged groups as Women, Blacks, American Indians, 
Alaskan Natives, Hispanics, Asians, and Pacific Islanders.
    State Beginning Farmer program. Any program that is carried out by 
or under contract with a State and designed to assist persons in 
obtaining the financial assistance necessary to establish and/or 
maintain viable farming or ranching operations.
    State or United States. The United States itself, each of the 
several States, the Commonwealth of Puerto Rico, the Virgin Islands of 
the United States, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands.
    Undivided right. An undivided right of title, or a title to an 
undivided portion of an estate, that is owned by one of two or more 
tenants in common or joint tenants before division.

[53 FR 35692, Sept. 15, 1988, as amended at 57 FR 19524, May 7, 1992; 58 
FR 26681, May 5, 1993; 58 FR 48287, Sept. 15, 1993; 58 FR 58648, Nov. 3, 
1993; 61 FR 35925, July 9, 1996; 62 FR 9355, Mar. 3, 1997; 62 FR 28619, 
May 27, 1997; 68 FR 7698, Feb. 18, 2003; 68 FR 62224, Nov. 3, 2003; 69 
FR 5263, Feb. 4, 2004]



Sec. 1943.5  [Reserved]



Sec. 1943.6  Credit elsewhere.

    The applicant shall certify in writing on the appropriate forms, and 
the County Supervisor shall verify and document, that adequate credit 
elsewhere is not available, with or without a guarantee or a 
subordination, to finance the applicant's actual needs at reasonable 
rates and terms, taking into consideration prevailing private and 
cooperative rates and terms in the community in or near where the 
applicant resides for loans for similar purposes and periods of time.
    (a) If the County Supervisor receives letters or other written 
evidence from a lender(s) indicating that the applicant is unable to 
obtain satisfactory credit, these will be included in the loan docket.
    (b) If the applicant cannot qualify for the needed credit from the 
lenders contacted, but one or more of them has indicated they would 
provide credit with an FmHA or its successor agency under Public Law 
103-354 guarantee or the County Supervisor determines that the applicant 
can obtain a guaranteed loan, the applicant will be advised to file an 
application with that lender(s) so that a guaranteed FO loan request can 
be processed by the lender for consideration by FmHA or its successor 
agency under Public Law 103-354.
    (c) Property and interests in property owned and income received by 
an individual applicant, or an entity applicant and all of its members 
as individuals, will be considered and used by an applicant in obtaining 
credit from other sources.
    (d) Applicants and borrowers will be encouraged to supplement farm 
ownership loans with credit from other credit sources to the extent 
economically feasible and in accordance with sound financial management 
practices.

[53 FR 35692, Sept. 15, 1988, as amended at 68 FR 7698, Feb. 18, 2003]



Sec. 1943.7  For the State of Hawaii--FO loans on leasehold interest on 
real property.

    The term owner-operator as used in this subpart shall include in the 
State of Hawaii the lessee-operator of real property in any case in 
which the

[[Page 238]]

County Supervisor determines that such real property cannot be acquired 
in fee simple by the lessee-operator. The leasehold must provide 
adequate security for the loan. A leasehold is the right to use property 
for a specific period of time under conditions provided in a lease 
agreement. The determination of value will be made by an appraisal of 
the present market value of the leasehold by an FmHA or its successor 
agency under Public Law 103-354 employee designated to appraise farm 
real estate. The terms and conditions of the lease must be such as to 
allow the lessee-operator to have a reasonable probability of 
accomplishing the objectives and repayment of the loan. The FmHA or its 
successor agency under Public Law 103-354 Hawaii State Office will issue 
an amendment to its State supplement for this subpart providing the 
necessary requirements (including forms) for obtaining the required 
security. The amendment to the State supplement and forms, and any 
revisions to them, but have prior National Office approval before being 
issued.



Sec. Sec. 1943.8-1943.9  [Reserved]



Sec. 1943.10  Preference.

    (a) In addition to the preference established in subpart A of part 
1910 of this chapter, an application for a loan for land purchase from 
an applicant who (1) has a dependent family, or (2) is an owner of 
livestock and farm implements necessary to successfully carry on farming 
operations, or (3) is able to make down payments will be given 
preference over one from an applicant who does not meet any of these 
criteria.
    (b) The portion of a State's farm ownership (FO) loan fund 
allocation designated for applicants who are members of socially 
disadvantaged groups will be used exclusively to assist them in 
purchasing farmland. However, this requirement does not preclude the use 
of the State's regular allocation of FO funds for loans for other 
authorized FO loan purposes to applicants who are members of socially 
disadvantaged groups. (See exhibit B of this subpart, ``Target 
Participation Rates for Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 Direct Farm Ownership (FO) 
Loans and Acquired Property Outreach Program for Members of Socially 
Disadvantaged Groups''.)

[53 FR 35692, Sept. 15, 1988, as amended at 55 FR 21527, May 25, 1990]



Sec. 1943.11  Receiving and processing applications.

    Applications for FO loans will be received and processed as provided 
in subpart A of part 1910 of this chapter, with consideration given to 
the requirements in exhibit M of subpart G of part 1940 of this chapter. 
Socially disadvantaged individuals will be provided the technical 
assistance necessary when applying for FO loans or other assistance to 
acquire inventory farmland. Such assistance shall include, but not be 
limited to, completion of application and farm and home planning.

[55 FR 21528, May 25, 1990]



Sec. 1943.12  Farm ownership loan eligibility requirements.

    In accordance with the Food Security Act of 1985 (Pub. L. 99-198), 
after December 23, 1985, if an individual or any member of an entity is 
convicted under Federal or State law of planting, cultivating, growing, 
producing, harvesting or storing a controlled substance (see 21 CFR part 
1308, which is exhibit C to subpart A of part 1941 of this chapter and 
is available in any FmHA or its successor agency under Public Law 103-
354 office, for the definition of controlled substance) prior to loan 
approval in any crop year, the individual or entity shall be ineligible 
for a loan for the crop year in which the individual or member, 
stockholder, partner or joint operator of the entity was convicted and 
the four succeeding crop years. Applicants will attest on Form FmHA or 
its successor agency under Public Law 103-354 410-1, ``Applications for 
FmHA or its successor agency under Public Law 103-354 Services,'' that 
as individuals or that its members, if an entity, have not been 
convicted of such crime after December 23, 1985. In addition, the 
following requirements must be met:
    (a) An individual must:

[[Page 239]]

    (1) Be a citizen of the United States, a United States non-citizen 
national, or a qualified alien under applicable Federal immigration 
laws. United States non-citizen nationals and qualified aliens must 
provide the appropriate documentation as to their immigration status as 
required by the United States Department of Homeland Security, Bureau of 
Citizenship and Immigration Services.
    (2) Possess the legal capacity to incur the obligations of the loan.
    (3) Have sufficient applicable educational and/or on the job 
training or farming experience in managing a farm or ranch which 
indicates the managerial ability necessary to assure reasonable 
prospects of success in the proposed plan of operation.
    (4) Be unable to obtain sufficient credit elsewhere to finance 
actual needs at reasonable rate and terms, taking into consideration 
prevailing private and cooperative rates and terms in the community in 
or near which the applicant resides for loans for similar purposes and 
periods of time.
    (5) Be the owner-operator of not larger than a family farm after the 
loan is closed (in the case of a limited resource applicant see Sec. 
1943.4 of this subpart).
    (6) Have participated in the business operations of a farm or ranch 
for at least 3 years out of the 10 years prior to the date the 
application is submitted and satisfy at least one of the following 
conditions:
    (i) Meet the definition of a beginning farmer or rancher.
    (ii) The applicant, or anyone who will execute the promissory note, 
has not had direct FO loans outstanding for more than a total of 10 
years prior to the date that the new FO loan is closed.
    (iii) Have never received a direct FO loan.
    (7) Transition rule. This applies to applicants with direct FO loans 
outstanding on April 4, 1996.
    (i) If the applicant, or anyone who executed the promissory note, 
had direct FO loans outstanding for less than 5 years, the applicant is 
eligible for new direct FO loans through April 4, 2006.
    (ii) If the applicant, or anyone who executed the promissory note, 
had direct FO loans outstanding for 5 years or more, those parties are 
eligible for new direct FO loans through April 4, 2001.
    (8) Have not caused the Agency a loss by receiving debt forgiveness 
on all or a portion of any direct or guaranteed loan made under the 
authority of the Consolidated Farm and Rural Development Act (CONACT) by 
debt-write down, write-off, compromise provisions of section 331 of the 
CONACT, adjustment, reduction, charge-off or di